Billed as an effort to "promote fairness, competition, and investment in this $45 billion marketplace, FCC Chairman Tom wheeler has circulated the order on broadcast data services (BDs) to the other commissioners for a vote.

The chairman's office calls it "a new framework for this market that strikes a balance between targeted regulation for legacy services, where evidence of market power is strongest, and lighter-touch regulation of packet-based services [cable ISPs, for example], where there has been new entry and competition may be emerging."

The order also reaffirms that both traditional and Ethernet BDS are subject to Title II. 

That means that, like the incumbent big telcos, cable ISPs are telecoms potentially subject to rate regs if found not to be providing their service on "reasonable and nondiscriminatory terms," though not price caps or other ex ante (before the fact) rate regs, say FCC officials. The item does not mandate network unbundling or wholesale rate discounts, they added in outlining the order to reporters.

But a senior official pointed out that the process is complaint driven process.

Initially the FCC was contemplating regulating all BDS service based on geographic determinations--this census block is competitive, this one isn't--but is coming up with a different approach to legacy services--still price capped--from new entrants, which will be scrutinized on a case-by-case basis.

The FCC will have a "robust" complaint process to deal with pricing and competition issues, with wholesale rates considered "presumptively unreasonable if they exceed retail rates for like services."  The FCC will also look at rates from the same provider that are materially higher than charged by the same provider for the same circuit in a nearby building with competition.

The item also seeks comment in a Further Notice on "how best to collect accurate data on market developments and what administrable means can be developed, if necessary, to deal with any concerns that may emerge with respect to pricing for packet-based BDS."

In a politically divided vote April 28, the FCC approved a Notice of Proposed Rulemaking on BDS.

The item was not on the agenda for the Oct. 27 meeting, as many had been anticipating, but can now be approved any time it gets three votes and without being voted in a public meeting.

Broadcast data services include carrying voice and data from cell towers (backhaul) to businesses and from ATMs and credit card readers.

FCC Chairman Tom Wheeler has said that competition in the BDS space is essential to the rollout of 5G, which is an Obama Administration priority.

To that end, he proposed an approach to revamping BDS (formerly "special access") regulations that can apply to either the historically rate-regulated incumbents like AT&T and Verizon, or to competitive carriers and new entrants like cable broadband providers,

Wheeler has billed it as a tech-neutral remake of the old dominant vs. nondominant regime to spur competition wherever the FCC finds it insufficient.

The goal is to promote more competition, competition, competition (the chairman's mantra) for business services, which could include price regulation on cable service where the FCC concludes it does not face competition.

Not surprisingly, cable ISPs weren't hot on the idea that having encouraged them to enter markets to compete with incumbents, they might now be rewarded with new rate regs.

The FCC proposal is rooted in a compromise offering from ILEC Verizon and CLEC group INCOMPAS. Wheeler has argued that a BDS revamp is needed for the competitive backhaul pricing for 5G and thus is a key to the universal wireless coverage that is an Obama Administration priority.

Sprint was fine with the proposal. "For well over a decade, the high-capacity broadband marketplace has suffered from a lack of competition, costing the American economy billions and slowing investments in next generation broadband technologies," it said in a statement. "Today Chairman Wheeler took an important step to reform this broken market.  We look forward to learning more about the item and continuing our work with the FCC to promote competition and ensure just and reasonable prices for all parts of the BDS marketplace."

Verizon appeared happy as well.

"Verizon is pleased the FCC is moving forward with an order that includes aspects of Verizon and INCOMPAS’s joint proposal, including creating a consistent framework that applies to all competing providers and services," said Will Johnson, Verizon SVP of federal regulatory and legal affairs. "We believe the Verizon/INCOMPAS compromise proposal was a significant step in that direction. We will continue to work with the FCC and the industry on ways to reach a balanced solution."

AT&T was definitely not happy with the decision to continue ex ante regulation of incumbents while taking a case-by-case approach to new entrants.

“This proposal is little more than a wealth transfer to companies that have chosen not to invest in last mile fiber infrastructure. It will result in less fiber investment and contribute to mounting job losses at a time when our country needs just the opposite.

“Like its privacy and set-top box counterparts (which may or may not also be voted upon in three weeks), the special access proceeding seems designed to pick winners and losers rather than being an even-handed analysis based on facts and sound economics.

“While the Commission has correctly determined (for the time being) not to re-regulate the Ethernet market, there is no evidence in the record to support the Commission’s proposal to re-regulate all legacy TDM-based service without regard to the number of competitors operating in a markets. To reach such a preposterous conclusion, the Commission had to ignore facts and virtually all of the economic analysis submitted by its own ‘independent’ economist as well as all of the other economists who provided analysis in this proceeding.”

Nearly four dozen comments -- overwhelmingly condemning the FCC's plans to regulate rates for Business Data Services (BDS) -- poured into the commission this week, as organizations and individuals replied to suggestions on how to remake the business broadband marketplace. 

In April, the FCC proposed new rules on BDS "in an Internet Protocol environment" in which services or providers would potentially face regulation regardless of whether or not a carrier is considered an incumbent or a competitor. That raises the prospect for the first time of price-cap regulation for cable operators' business services, in the category now called BDS that used to be called special access. Cable providers, still stung by the commission's imposition of Title II regulations to broadband service, are defending the past approach of encouraging competition by light-tough regulatory oversight.

This week's reply comments and "ex parte" disclosures of recent briefings to FCC staff members included warnings about investment disincentives and threats to "technology neutrality" along with observations about the impact on emerging wireless broadband services. Many of the organizations trotted out new research reports from economists and financial analysts as well as familiar complaints about the FCC's over-reach.

The National Cable and Telecommunications Association's brief ran to more than 150 pages, including addenda documenting "the significant flaws in the various proposals for rate regulation" and "the particularly harmful effects such regulation would have in rural areas." NCTA insisted that "there is absolutely no basis for regulating the rates charged by cable operators and other competitive providers" of BDS.

"Competitive providers have been investing billions of dollars to extend facilities to business customers all over the country, and the record is clear that these investments and the additional competitive options they offer are ... reducing the prices that customers pay for these services," NCTA said. "The commission should focus on taking steps to promote more of this beneficial competition, not regulating rates in a manner that discourages entry and investment."

The NCTA urged the FCC  to "take a far narrower approach to regulation" than advocated by competitive local exchange carriers and wireless carriers.

"If the commission is to go down the highly inadvisable road of expanding rate regulation of BDS, it must at least limit that regulation to providers that exercise market power, which under the traditional and economically cognizable definition, means providers that can control price," NCTA said. "Moreover, in light of the cost and uncertainties of regulation, it should make every effort to identify appropriately limited product and geographic markets that demonstrably exhibit  market failure."

In an analysis embedded within the NCTA filing, Michael Katz,a former FCC chief economist, and Bryan G.M. Keating contended that the FCC's proposed "price regulation schemes would suppress investment and entry incentives and can be expected to distort the prices of services." They concluded that the FCC's plan "can be expected to discourage competition and prolong regulation; violate technological neutrality; create barriers to the adoption of more efficient technologies; and discourage new facilities-based entry."

The American Cable Association also stressed the need to "promote competitive investment in lieu of regulation."

"The record shows there is no economic rationale to regulate these providers and the cost of regulating non-incumbents would far outweigh any benefits, undermining the FCC's goal of spurring competition," ACA said in its comments that urged the FCC to keep a "light touch" on BDS rules.  It said that new FCC rules "would put at risk about $300 million annually that non-dominant providers invest in BDS facilities."  It claimed that BDS providers have decreased their prices by 50% on average across all geographic areas and all customer segments, with some prices decreasing more than 70%.

In a separate analysis, Scott Anderson. Chief Legal Officer at Midcontinent Communications -- a provider of voice, video and data services to 199 rural markets in North Dakota and South Dakota -- explained that "BDS is one of the fastest growing segments of Midco’s business."  He said that "rate regulation may make a number of future BDS projects simply beyond the reach of Midco and potential customers."

Anderson emphasized that Midco's rural communities already have two competitors, which he said "has created a competitive environment for the pricing and provision of BDS services."

"The market is working," he concluded. "Requiring more than two competitors in a given market to meet the definition of competitive is not necessary for BDS customers to continue to enjoy a competitive pricing environment."

Sizeable segments of the NCTA's supplemental reports were heavily redacted because they contained "highly confidential information" from companies, although the NCTA explained that the full reports were delivered to specific FCC officials who required such details.

MSOs Condemn Rate Regulation Proposals

In its filing, Charter Communications  explained that it continues "to face significant obstacles in competing with incumbent LECs and entering new markets."

"Price regulation would only further tip the scale against additional expansion and entry by cable providers, undercutting the very competition the Commission seeks to encourage," Charter claimed. "Cable providers lack any market power that could conceivably justify the imposition of price regulation on their services ... [and] if the Commission does decide to price regulate cable providers, it cannot lawfully regulate the large universe of BDS provided on a private-carriage basis."

Mediacom Communications, which also met with members of the FCC's Wireline Competition Bureau, explained "the unique challenges facing cable providers operating in rural and less densely populated areas."  Mediacom said its representatives argued that the "imposition of any form of price cap regulation on such providers is likely to create disincentives for further investment in such areas which will, in turn, undermine competition in the BDS market."

Incumbent Telcos Denounce the FCC Plan

The USTelecom Association offered findings from a new study of customer preferences that showed "more and more business customers using and expressing a willingness to use cable broadband services" for Business Internet Access (BI) and Data Networking (DN) services."

"Most business customers surveyed expressed a willingness to switch to cable-provided BI and DN services, contrary to suggestions in the record that cable services in general, and cable 'best efforts' services specifically, are not regarded as adequate substitutes for BDS," USTelecom said. "These findings contradict claims in the record suggesting that business customers feel 'locked in' by a lack of competitive choices." 

AT&T contended that compared to 2013 data "competition is now even more pervasive, particularly given that cable companies are now prioritizing the BDS marketplace to grow their revenues in the face of more intense competition for their core video offerings."

"CLECs predictably attempt to downplay this competition, mostly by twisting the data to focus on areas where there is no BDS demand and by dismissing years of commission and Department of Justice precedent under which it was recognized that the presence of sunk facilities constrain BDS prices," AT&T said. "Over-regulating the BDS market will have a predictable and very concerning result – disincentivizing investment in broadband infrastructure."

AT&T also fretted that rate regulation would "curb incentives to build the infrastructure necessary for future broadband-intensive 5G wireless services in these areas" which it said "flies directly in the face of this Administration’s efforts to expand broadband access to everyone and its bold steps to speed us toward a 5G future."

Verizon and the telecom trade group INCOMPAS offered more details on the BDS "framework" that Verizon had proposed in June, which supports both Time Division Multiplexing and packet-based services. They said that  addition information in their filing "continue to reflect a middle ground and would result in an administratively simple framework that can help guide the commission towards pro-competitive reform."    

Among other things, the Verizon/INCOMPAS plan suggests that after lowest-speed benchmarks are established, the benchmarks for higher Ethernet speeds would be derived by applying the price-cap carrier’s respective relationship of rates"

The companies concluded that their "framework should result in actual price reductions from current levels (i.e., not merely "paper gains") for TDM and Ethernet services" and they suggested that "the commission should make clear that Ethernet services provided to wireless providers are subject to this framework, including the benchmarks."

In a research paper submitted on behalf of the Invest in Broadband for America Coalition -- which consists of CenturyLink, Cincinnati Bell, Consolidated Communications, FairPoint and Frontier Communications -- James E. Prieger, an economics and public policy professor at Pepperdine University and former FCC senior economist, calculated that that the impact of the FCC’s proposed price regulation for business broadband in rural markets will reach $1.4 billion or more.

Prieger's analysis, “Investment in Business Broadband in Rural Areas: The Impact of Price Regulation and the FCC’s Blind Spot,” concluded that, "The lost opportunities for revenue will lead to less broadband investment for the communities that need it most – slowing deployment and hurting economies that need help competing," Prieger said. "Each dollar of investment discouraged by regulation costs the economy up to three dollars in lost output. Each job lost from the lack of investment costs the economy 1.4 to 3.6 jobs, half of which would have come from small business."

"The FCC is rushing to push through new regulation without giving adequate time to study the likely effects," he said. "The FCC should pause long enough to consider the consequences of the proposed regulation, allow industry and other interested parties sufficient time to investigate newly updated data and associated repercussions."

NTCA: The Rural Broadband Association argued that "a permanent regulatory framework can and should distinguish between levels of competition in markets in right-sizing regulation." It recommended that "regulatory frameworks should specifically be designed ... to achieve other important public policy objectives."

"Moreover, any regulatory framework adopted in this proceeding should address and mitigate regulatory burdens on small businesses," NTCA said. "Smaller competing firms should not be burdened with significant new ... regulations."  It claimed that the FCC's experience "reaffirms the broader need to adopt a different way of approaching regulation in a world where networks and services are no longer inextricably intertwined, and to cease in particular in giving 'free (or reduced) passes' ” without careful forethought and disciplined analysis of the public policy consequences ... solely because the transmission involved may be a 'channel termination' or 'last mile' or 'middle mile' or 'backbone,' or the technology involved may be 'IP-enabled' or 'legacy.'”

Crown Castle, the country’s largest independent tower owner and operator (more than 40,000 towers for shared wireless infrastructure),  argued that commenters who supported rate regulation "completely ignore or merely pay lip service to this critical investment dynamic."

"As the record makes clear, rate regulation would be antithetical to the commission’s goal of promoting network investment by competing providers and thereby increasing competitive alternatives for BDS," the Crown Castle filing contended.  It gave a shout-out to Comcast's earlier comments, that "that rate regulation would deter investment....[a] "well established ... matter of economic theory and market reality."

The Free State Foundation contended that rate controls "will curb financial returns on investment for business data facilities."

"This necessarily will discourage infrastructure deployment by both incumbents and by new facilities-based entrants like the cable operators," FSF continued. "Rate regulation also discourages facilities-deployment and market entry by competitors who, given a choice, prefer regulatory arbitrage to facilities-based competition."

Sprint, which generally backed the Verizon/INCOMPAS filing, characterized their agreement as one which can "fix the long broken business data services market."

"As the need for more backhaul increases with the advancement of next generation 5G networks, access to high-capacity BDS at reasonable prices will be critical to mobile networks," Sprint said. It lamented that the current  "broken market for BDS ... has left 97% of this market controlled by one -- and sometimes two -- providers."

Taking a Contrarian Stance: "FCC as Wizard of Oz"

Among those supporting the FCC plan were the Consumer Federation of America and the New Networks Institute, whose filing including an elaborate denunciation of the Verizon/INCOMPAS proposal as a being "like the story of The Wizard of Oz." In this version, "Verizon would like to set the FCC up as the Wizard – lots of smoke and mirrors, but ultimately a weak little man manipulating dials that are powerless to do anything meaningful," their filing explained.

CFA and NNI urged the FCC to take aggressive steps "to establish the legal basis for concluding that rates, terms and conditions in the BDS market are just and reasonable." It sought to link the BDS proceeding to the FCC's recent final order on the IP Transition.

"It is simply impossible not to take note of the connection between the two,"  their comments insist. "Since the IP transition is about the transition to a fully digital network, the commission should not be surprised to find that the link between Business Data Services and the recently released IP transition order actually raises the importance of the BDS docket to an even higher level."

CFA and NNI also urged that the commission "must open a cost docket to determine the appropriate level of rates and the productivity factor. The cost analysis must be updated on a triennial basis."

Competify, a coalition of competitive telecommunications, information processing and public advocacy groups and companies, acknowledged the need to "heal this long-broken marketplace." It claimed that "incumbent providers continue to obscure the facts" and encouraged the FCC to  "complete a comprehensive review of the robust data in the record and reach a pro-competitive, pro-consumer result."

"Those hardest hit are rural communities and those that rely on mobile broadband, where incumbent market power could threaten U.S. leadership in 5G and further the digital divide," said Competify, which was established last year.  Its members include the Ad Hoc Telecommunications Users Committee, Broadband Coalition, BT, Competitive Carriers Association (CCA), Computer & Communications Industry Association (CCIA), Engine, INCOMPAS, Institute for Local Self-Reliance (ILSR), Level 3, Open Technology Institute at New America, Public Knowledge, Schools, Health and Libraries Broadband Coalition (SHLB), and Sprint.

Add CenturyLink, AT&T Inc., Frontier Communications, FairPoint, Consolidated Communications, and Cincinnati Bell to the list of those who want the FCC to revisit its business data services (BDS) decision.

Actually CenturyLink et al. were already on the list. They have just redoubled their efforts as the July 26 deadline approaches for final comments on the BDS decision, which was billed as a tech-neutral approach to regulating business broadband (formerly "special access") (http://www.multichannel.com/news/fcc/wheeler-proposes-tech-neutral-speci...).

That came in a second request from the incumbent telcos for the FCC to strike a report on the business data services market (the so-called Rysman Report) and conduct new peer reviews of the revised version of the report.

The FCC collected data from stakeholders on the BDS marketplace for several years before releasing the first report which it used to buttress its case for BDS reforms. It only recently put out the peer reviews. But cable operators had to submit some new data and the report was tweaked and re-released along with the new data. That came on the same day initial comments were due on the BDS proposal based in part on the report.

CenturyLink and the others say that should warrant new peer reviews of the report, which should then be put out for comment.

"These steps are not discretionary," they told the FCC, "but rather mandated by the Administrative Procedure Act (APA), the DQA, and basic notions of procedural due process. Failure to take them would preclude reliance on either the original Rysman paper or the revised analysis in any final Commission order...As it now stands, the current version of that report has not been subject to such review, and parties have been unable to comment on any such reviews. If the commission does not take such steps, it cannot rely on the Rysman Report or the Revised Rysman Report in any final decision."

CenturyLink and Frontier have teamed up with a handful of other telcos in a new coalition to push back on the FCC's proposed reforms of special access market.

That is the business services market the FCC has rebranded BDS or business data services).

Also in the coalition are Cincinnati Bell, Consolidated Communications, and FairPoint.

Special-access lines are dedicated connections used by businesses and institutions to deliver voice and data traffic, including for ATMs and credit card transactions. They also include wireless backhaul services, so the move also ties to the FCC's promotion of wireless broadband.

The coalition, dubbed "Invest in Broadband for America," called the FCC proposal sweeping and questionable--it is also being questioned by cable operators providing BDS competition.

They are the same companies that joined with AT&T to challenge the FCC proposal, saying it was based on flawed data provided by cable operators (part of an FCC data request on the state of the marketplace, which it used to buttress its case for expanding regulation of the marketplace where "necessary" to promote competition).

“First and foremost, it is crucial that the FCC get the data right on competition in the marketplace before flying blindly into a major policy decision,” said John Jones, CenturyLink SVP, in announcing the new effort. “Important decisions are best made with accurate data.  What is at stake here is the definition of ‘competition.’  That definition will have a substantial impact on the telecom and national economy for years to come.  Think investment, suppliers, employees, infrastructure and contractors.” 

Some top ILECs including AT&T, Frontier and CenturyLink, are telling the FCC that it should scrap the business data services analysis on which it based its refrom proposals, saying that cable operators lowballed the number of locations that should be deemed competitive.

The ILECS (incumbent local exchange carriers) have filed a petition asking the FCC discount as "irretrievably flawed" the data underlying its politically divided vote April 28 to propose remaking the business broadband marketplace and potentially regulating rates for cable operators' special access service.

The FCC is phasing out the presumption of regulating the rates of historically "dominant carriers" -- the ILECs (incumbent local exchange carriers) -- as a way to boost competition from "nondominant" CLECs (competitive local exchange carriers) and from cable competitors, and instead regulate the rates of any of them as it deems necessary.

They pointed to "recent acknowledgements by four of the largest cable providers that they significantly undercounted the number of locations that are capable of providing business data services and thus deemed competitive. In fact, the cable companies’ most recent FCC filings reflect 22 times more Ethernet-capable locations than the data on which the FCC based its May 2 further notice of proposed rulemaking (FNPRM)."

They cited ex parte filings by Cox, Comcast, Charter and Time Warner Cable saying they "had not reported locations connected to nodes that had been physically upgraded to enable the provision of Ethernet-over-HFC service as of 2013," according to CenturyLink et al.

Cable operators say the FCC asked the question about locations in two different ways--where service was provided, then where it could be provided without too much diffulty--and answered both questions fully. Cable operators also asked the FCC to extend the comment period for the proposal, which was denied.

But the ILECs say initially excluding that second, more complete, answer "massively distorted the competitive landscape," particularly the finding of market power by ILECs, which they say is fatally flawed.

“We are extremely concerned that the FCC’s latest business broadband proposal is now based on fatally flawed data that, unless corrected and updated, could have serious economic consequences for the business broadband market,” said CenturyLink SVP John Jones in a statement about the petition. “We’re asking the FCC to rescind the affected portions of its proposal and update its data before pronouncing judgment on what is or isn’t competitive.”

The National Cable & Telecommunications Association, whose members include those four cable operators, had no comment on the petition.

On the heels of its acquisition of Verizon’s wireline operations in California, Texas and Florida on April 1, Frontier Communications said it lost 10,300 video subs (including a reduction of 6,700 satellite video subs through its bundling deal with Dish Network), but added 24,600 net broadband customers in the first quarter of 2016.

As of March 31, Frontier had 2.48 million broadband subs, and 543,400 video subs. The Verizon deal adds about 3.3 million voice subs, 2.1 million broadband connections and 1.2 million Fios video customers.

Frontier’s cutover that started April 1 “was the largest and most complex flash cut that has ever been executed in our industry and I'm proud to say that it has been very successful," Frontier president and CEO Daniel McCarthy said on Tuesday’s earnings call.

He acknowledged that there were bumps during the cutover, but said they were limited to less than 1% of the company’s overall base in any given point in time.

McCarthy said Frontier expects Q2 to be affected by the ongoing integration, with customer metrics in the period “most likely be negative, as we begin to build our marketing campaigns over the coming weeks.”

Frontier, which recently introduced a new brand, “Vantage,” that will be used across its video, broadband and IP voice services, is also pushing ahead with a plan to  launch IP-based, 4K-capable video service to more than 40 markets, representing about 3 million homes, over the next three to four years.

“We can service slightly over 30% of our 14.5 million household footprint with video today, and we anticipate that will grow to well in excess of half over the coming year,” McCarthy said.

McCarthy also weighed in on the FCC’s vote to remake the rules governing the business broadband market that could potentially extend regulated rates to cable operators that provide special access service.

“We think that the Ethernet marketplace is very competitive today,” he said. “I think the reality is that the FCC will find many of the markets very competitive, that it won't have much of an impact at all. I think it's pretty premature at this point to predict what any final decision will look like, because they are really in a fact-finding mode.”

Frontier had about 284,000 business customers at the end of Q1.

On the financial front, Frontier posted Q1 revenue of $1.35 billion, down 4% year-over-year,  and a net loss of $186 million, or 16 cents per share, widened from a net loss of $103 million, or 9 cents per share.

For the full year of 2016, including the impact of the Verizon deal, Frontier's expects adjusted free cash flow in the range of $800 million to $925 million, and capital expenditures for Frontier's combined operations is in the range of $1,250 million to $1,400 million.

The FCC's special access (business broadband) reform proposal introduced Friday (April 8) drew an early crowd Friday after FCC Chairman Tom Wheeler outlined the proposal--circulated to the other commissioners April 7) in a blog post.

"Sprint commends Chairman Wheeler for moving forward today on what we have long believed to be one of the most fundamental reforms necessary for broadband competition and 21st century innovations like advanced mobile broadband services and the Internet of Things," the company said in a statement. "High-speed, dedicated 'special access' connections are critical inputs to nearly every application and service that powers our economy and the overwhelming monopoly or duopoly control over those connections has cost our economy $150 billion in the last five years alone.

"The Chairman's recommendation today moves to end that enormous drag on our economy, ushering in a new framework supported by rules that look forward not backward, towards competition and away from market failure and artificial technology or legal distinctions."

"In a blog post today, Chairman Wheeler signaled that relief is finally on its way to the long-suffering market for high-speed, dedicated broadband connections," said COMPETIFY, whose members, in include Public Knowledge, Level 3, and INCOMPAS, which represents competitive telecom carriers. "Based on the largest and most comprehensive data collection

ever conducted on this dysfunctional market, the differential diagnosis revealed a disease of monopoly-duopoly control affecting a staggering 97% of markets across the country," the group said. "In his move towards the cure today, Chairman Wheeler proposed a comprehensive treatment that will deliver a 21st-century framework to end the scourge of this disease on all sectors of the broadband economy and drive innovations like the Internet of Things and 5G to consumers and businesses across the country."

“Chairman Wheeler today announced policy reform efforts intended to end a decade of delay and unleash a century of choice and innovation," said Broadband Coalition spokesman Jeff Sharp--the group represents competitive broadband providers. "The FCC is also taking additional steps to address anti-competitive terms and conditions that lock up customers and lock out competition. The Broadband Coalition welcomes pro-consumer action and looks forward to working with the entire FCC to promote more competition and choice for our customers."

Verizon and INCOMPAS this week offered up their own compromise on special access that tracked with the FCC proposal, and both weighed in with separate statements.

“In the more than 10 years that the FCC has been examining these business data services, the marketplace has changed dramatically," said Kathy Grillo, SVP and deputy general counsel, at Verizon. "Customers have moved past legacy services and are choosing better, faster services like Ethernet. We welcome Chairman Wheeler’s proposal and support his commitment to resolve these issues promptly and fairly." Wheeler planned to vote on the proposal at the FCC's April meeting and wanted to vote out an order this year.

"We are encouraged that he has proposed a path towards a balanced framework that would put all providers on equal footing under the same set of rules," said Grillo. "It would also rely on competition, rather than regulation, whenever possible. The framework recognizes that many different companies compete today to serve business customers and that the Commission should approach the marketplace in a technology-neutral manner.  We will work with the Commission and other stakeholders as it further develops its new approach over the coming months.”

“We have a business data revolution, and competition is the key. That is the message from Chairman Wheeler today who continues to remain steadfast in his support for competition policy," said INCOMPAS CEO Chip Pickering. “By ending anti-competitive lock-up provisions, the FCC is speeding the deployment of new, advanced networks and is providing relief to mobile and business customers hungry for more competition."

“No American business large or small, in services or manufacturing, should be held hostage to unfairly high rates for critical data transport simply because there is no competitive alternative and only crippled regulation," said Ed Black, president of the Computer & Communications Industry Association. “After a decade of delays, the FCC has the data to analyze the special access marketplace and institute reforms that will promote competition, speed deployment of faster networks, and ultimately promote innovation and economic growth," he said. "CCIA applauds Chairman Wheeler’s proposal and urges the FCC to ensure that businesses and competitors are no longer gouged by a few incumbents for accessing this crucial broadband input.  We are glad to see that the FCC will vote later this month to begin the process of bringing real change to this market.  By reforming this market, the FCC can lower costs for consumers, incentivize the deployment of next generation networks, and facilitate economic growth.”

“I thank Chairman Wheeler and the FCC for including special access on the Agenda for the Commission’s April Open Meeting," said Competitive Carriers Association President Steven Berry. "After 11 long years, it is more than time for the broken special access regime to be reformed.  Wheeler appropriately noted today the growing dependence of wireless carriers on business data services for backhaul as networks move to 5G, and CCA looks forward to working with the FCC to establish policies that support competition and expanded services for consumers.”  

Cable operators, who face potential new regulations on their business-class service, were not equally celebratory about the prospect.

while neither the National Cable & Telecommunications Association nor the American Cable Association had immediate reaction to the FCC's proposal, both had weighed in on the Verizon/INCOMPAS proposal that also suggested extending regulations to cable operators.

ACA president Matt Polka said extending regs to cable ops will "impose costs on...new entrants - many of whom are small providers that have no experience with common carrier rate regulation -- slowing their entry and their efforts to bring competition and innovative services to market.  That is clearly not in the public interest."

“The ‘principles’ suggested by Verizon — INCOMPAS seem at odds with sound economics and a policy of promoting market-driven, facilities-based competition," NCTA said. "Cable operators are new entrants in the business services market, and are investing heavily in building their own facilities to serve business customers.  They are providing precisely the type of facilities-based competition that the Chairman has praised. The FCC should reject any call [it has not] to impose new, onerous regulations on an industry that is stepping up to offer meaningful choices to business customers.  The FCC will not achieve competition if it burdens new facilities-based entrants with regulation.”

The FCC had barely fired the starting gun for both sides in the special access data race, but there was already talk of a negotiated finish.

Incumbent telco Verizon and INCOMPAS, which represents competitive carriers, signaled they had struck a compromise on how the FCC should proceed in an IP world, which would include technology-neutral rate regulations on everyone, including cable and competitive carriers, where there is insufficient competition.

Verizon was even joining in a call for the imposition of Title II, in this case for all providers offering dedicated service.

Special access is the business broadband service that incumbent telcos (ILECS) dominated because they had built out the networks. The FCC requires ILECS to lease those lines (unbundle) to those competitive telcos (CLECs) and cable companies at reasonable rates.

"In an effort to move beyond a more than decade-long debate [over whether and how to extend those legacy regs to an IP world], INCOMPAS and Verizon sent a letter to the FCC today that recommends adopting a permanent policy framework for all dedicated services, including Ethernet services," said INCOMPAS CEO Chip Pickering and Kathleen Grillo, SVP and deputy general counsel, public policy and government affairs, for Verizon, in a blog post.

They said the framework was legally sustainable and recognized changes in the marketplace in the decade the debate has been raging.

AT&T had no comment, but a source said the company was still digesting the proposal at press time, which appeared to be more targeted to cable than CLECs.

From the National Cable & Telecommunications Association's response, cable ops were feeling targeted as well.

“The ‘principles’ suggested by Verizon — INCOMPAS seem at odds with sound economics and a policy of promoting market-driven, facilities-based competition," NCTA said. "Cable operators are new entrants in the business services market, and are investing heavily in building their own facilities to serve business customers.  They are providing precisely the type of facilities-based competition that the Chairman has praised.  The FCC should reject any call to impose new, onerous regulations on an industry that is stepping up to offer meaningful choices to business customers.  The FCC will not achieve competition if it burdens new facilities-based entrants with regulation.”

"Sprint is pleased that Verizon and INCOMPAS are calling for a new regulatory framework to address the decades old issue of special access reform," the company said in response to the announced compromise. "Sprint has argued for many years that the current market for dedicated broadband circuits, a.k.a. special access, is broken.  Indeed, data that the FCC just allowed to become public demonstrates that 73% of these locations are served by a monopoly and a staggering 97% have a duopoly at best. Establishing a forward-looking, sustainable framework to address these non-competitive markets is critical to the future of broadband services in the United States.

Verizon and INCOMPAS outlined the framework thusly:

"The FCC should promptly adopt a permanent framework for regulating all dedicated services in a technology neutral manner. All providers offering the same or similar services should be subject to the same overall regulatory framework. That includes not only incumbent providers, but also cable companies and other wireline competitive providers that now compete in this marketplace.

"In the near term, the FCC should make clear that all providers offering dedicated services are subject to Title II of the Communications Act, including Sections 201 and 202 of the Communications Act. Subject to such a clarification, Verizon would not oppose an order placing Verizon on the same footing today with regard to Ethernet services as cable companies, competitive providers and other incumbent LECs that have received forbearance relief from dominant carrier regulation and is adopted at the same time as an order adopting a permanent framework.

"The FCC should seek comment on a permanent framework that moves away from the current dominant/non-dominant regulatory structure for these services and adopts a new regulatory model.

"That new model would rely on ex ante rate regulation in relevant markets with insufficient competition. Under the new model, in relevant markets that are insufficiently competitive, price regulation is warranted on a technology-neutral basis. The FCC would apply rate regulation to constrain prices and ensure that providers could not abuse their market positions by imposing rates, terms or conditions that are unjust or unreasonable, or unjustly or unreasonably discriminatory.

"In relevant markets where there is sufficient competition, the FCC would not need to apply ex ante rate regulation but would instead rely primarily on market forces to discipline prices and ensure a dynamic marketplace. Providers offering dedicated services in these sufficiently competitive relevant markets would still be subject to Title II, including Sections 201 and 202 of the Communications Act.

"This new model would encompass all dedicated services (e.g., TDM special access services and packet-based services such as Ethernet) provided by all competing providers.

"There should be a relationship between wholesale and retail pricing for these services, which the new model should reflect."

But not everyone was in a kumbaya mode.

That compromise announcement came just a day after the FCC signaled how stakeholders like Verizon and INCOMPAS could share a bunch of data the FCC has been collecting in its special access review.

The FCC reminded participants back in January that it considered any massaging they had done of the highly confidential data as part of its data collection to be confidential and not to be made public unless the FCC has said so.

Both the incumbent carriers (the ones with most of the busienss lines) and competitive carriers (the ones who get special access to them at reasonable rates) asked the FCC to allow public disclosure of some of the data derived the confidential info.

The FCC Wireline Bureau Wednesday (April 7) released a public notice outlining what info could be shared, which was aggregated info and figures by provider or type of service, ILEC (incumbent telcos--AT&T, Verizon, etc) CLECs (competitive phone companies) or cable companies.

For example, a stakeholder could release its analysis that 33% of a certain area is served by ILECs, 33% by CLECS, and 33% by phone companies, which was the FCC's own no-favorites example.

But the data must be aggregate and anonymized.

Hardly had the notice been issues than critics of the ILECs released data suggesting ILECS were still dominant as monopolies and duopolies, while USTelecom, whose members include AT&T and Verizon, released data it opined showed CLECs were not investing in broadband nets, instead calling for more regulation, which USTelecom called a business decision, not a market failure. 

AT&T's VP of federal regulatory, Caroline Van Wie, said the FCC appears to be "selectively suppressing the free flow of information to impede public debate on the merits of increased special-access regulation," information the telco says shows the marketplace is competitive and "heavy-handed, monopoly-era regulation" is unnecessary.

That charge was leveled in a blog post Feb. 23 about the FCC's review of the special-access market, the business-class broadband nets that incumbent telcos -- such as AT&T, Verizon and CenturyLink -- are required to lease to competitors, like cable operators, at wholesale prices.

In a 3-2 party line vote in August 2012, the FCC suspended its benchmarks for deregulating the rates of special-access services while it better determined where there is competition for that service. In December 2012, the commission launched the new data collection effort

The FCC is separately investigating multi-year special-access contracts.

But when last month stakeholders submitted analyses based on that voluminous and extended data collection, Van Wie said, the FCC would not allow those stakeholders to make public any of the aggregate data without getting the FCC's permission first.

"It has never told parties they may not publicly reveal aggregate data on competition in the marketplace, data that does not reveal any sensitive information about any carrier, and that the FCC itself routinely publicizes," she said.

Whether it intended to or not, said Van Wie, the FCC at least appears to be impeding information flows, particularly given that AT&T and CenturyLink filed requests to make that aggregate data public almost a month a go and have gotten no response.

Van Wie said the FCC might argue it was acting out of an abundance of caution--AT&T agrees un-aggregated information should be kept confidential.

An FCC spokesperson declined to comment on the blog post. 

Under FCC rules, telcos are required to lease special access lines to competitors at wholesale rates. But the FCC deregulated AT&T and others' special-access lines in 2009 in cases where competitive triggers are met.

Those lines are the "last mile" dedicated broadband lines to businesses, which incumbent local exchange carriers like AT&T dominate.

The commission over a dozen years ago removed "dominant pricing" regulations, while continuing to regulate interconnection and reasonable pricing per its Title II common-carrier regulation of Incumbent Local Exchange Carriers (ILECs). Ever since, the commission has been under pressure from public interest groups to re-regulate special-access.