FCC Draft BDS Order 'Minimizes' Regulation, Eyes Market Test for Some Legacy Services

The FCC would loosen business data service regulation under a draft order released Thursday and placed on the tentative agenda for the April 20 commissioners' meeting, as expected (see 1703280050 and 1703290049). The 172-page BDS draft would establish "a new framework that minimizes unnecessary government intervention and allows market forces to continue working to spur entry, innovation and competition." The order "recognizes the presence of strong competition" in the BDS market and eases regulatory burdens on the providers, said an attached fact sheet.

Chairman Ajit Pai proposed "a balanced approach to reforming" the rules and said it was time to act after 12 years of study. The "extensive record" shows "substantial and growing competition in many areas of the country, thanks to new market entrants like cable companies," he said in a meeting agenda blog post. "Where this competition exists, we will relax unnecessary regulation, thereby creating greater incentives for the private sector to invest in next-generation networks. But where competition is still lacking, we’ll preserve regulations necessary to prevent anti-competitive price increases." The offices of Commissioners Mike O’Rielly and Mignon Clyburn declined comment.

Initial reaction split between ILECs and allies on one side, and rivals and a consumer group on the other. AT&T, Frontier Communications, the Internet Innovation Alliance and Net Competition issued statements generally applauding draft. Incompas and the Consumer Federation of America hammered it.

AT&T, CenturyLink, Verizon and other ILECs are the traditional providers of BDS (special access) to business customers on a retail basis and to competitors on a wholesale basis. Their legacy, circuit-based DS1 and DS3 with 1.5 Mbps, 45 Mbps "technology is becoming obsolete," said the draft. "Significant increases in bandwidth demand are being driven by bandwidth-hungry applications, mainly video services (teleconferencing, training, etc.) as well as by web and cloud-based services. These ... demands will place an ever increasing demand for services such as Ethernet, especially over fiber." Non-cable CLECs earned $23 billion of the $45 billion in business data services revenue in 2013, said the draft. "Cable providers have also emerged as formidable competitors in this market. Cable business data services are reported to have grown at approximately 20 percent annually for the past several years.”

“We now move away from the traditional model of intrusive pricing regulation for incumbent LECs, recognizing that ex ante pricing regulation is of limited use -- and often harmful -- in a dynamic and increasingly competitive marketplace," the draft said. "There is a significant likelihood ex ante pricing regulation will inhibit growth and investment in many cases. In such circumstances, we should not continue unnecessary regulations, much less extend them to new services or providers.”

The draft would "find that competition is robust and vigorous" for packet-based BDS, certain other high-capacity BDS, and transport services "so that continued legacy regulation is more likely to impede the introduction of new services and raise prices than to benefit consumers," said the fact sheet, saying "certain competitive offerings" would be confirmed to "constitute private carriage" not common carriage. Included are some business broadband offerings of Comcast and Charter, said the draft.

The order would "find that competition for lower-speed services (DS1s and DS3s) is robust in some, but not all, counties, and apply a competitive market test to determine where actual and potential competition is likely to constrain prices and lead [to] additional investment," said the fact sheet. In areas with sufficient competition, it said, the order would "modernize rules to facilitate additional infrastructure investment and next-generation services by ending tariffing and other legacy pricing regulations.”

Where there isn't enough competition, the order would "maintain price caps with a prospective productivity-based X factor of 2% to ensure small businesses and other customers are not subject to price increases and share in productivity gains," said the fact sheet. In such areas, carriers would gain flexibility to offer discounts to "schools, libraries, rural healthcare clinics, and other special access customers," it said. The commission would maintain oversight "by prohibiting the use of agreements that would bar disclosure of contract terms to the FCC.”