Critics Continue to Press FCC for BDS Delay, Changes, Transition; ILECs, Allies Push Back

Critics of an FCC business data service plan mounted a full-court press to postpone a vote scheduled for Thursday on a deregulatory draft order they say would harm competition and consumers unless changed. At the very least, they said the FCC should create a three-year transition to new BDS rules to give competitors more time to deploy new broadband connections to business customers and wireless cellsites. Three congressional Republicans from Arkansas backed a "reasonable transition." Incompas, Sprint and Windstream said AT&T raised business broadband rates in several states as the commission prepares to undermine BDS competition. "Those are unrelated rates not impacted by the FCC’s BDS proposal," said an AT&T spokesman.

Incumbent telcos and allies rallied to defend FCC Chairman Ajit Pai's proposed move, which they say is justified in an increasingly competitive market. They said deregulation is needed to spur next-generation business broadband deployment, because existing constraints often encourage competitors to continue to rely on traditional ILEC special access lines that provide lower data speeds and performance. Even in 2013, the record shows CLECs had 51 percent of BDS connection revenue, said USTelecom Senior Vice President Jon Banks.

“It seems the chairman’s office is serious about acting on this and I imagine they’re going to stick to the deadline," Banks told us Tuesday. "Everyone knows what the issues are. I don’t see them changing the schedule." Two industry attorneys basically agreed. "My sense is that the Pai team is pretty resolute and intends to move forward as planned -- both with respect to substance and timing," said one attorney. “I would think they would want to rip that Band-Aid off and get it over with," said the other. An FCC spokesman declined to comment.

The FCC is "likely" to scale back BDS pricing regulation Thursday, said Paul Gallant, a Cowen analyst, in a note to investors. "The FCC is likely to eliminate existing price caps for lower bandwidth BDS services (DS1, DS3) by declaring most areas sufficiently competitive. We think the percentage of regulated incumbent telco BDS lines is likely to drop significantly," he wrote. "This action should clearly benefit CenturyLink, AT&T, Verizon and Frontier, and it could be a headwind for BDS buyers like Sprint and Windstream." He said the transition is a key issue: "We suspect there will be some transition period given pressure from CLECs and a few members of Congress -- but not a full three-year transition sought by opponents."

The three Arkansas Republicans said a reasonable transition is needed to "minimize potential disruptions and unintended consequences to small businesses in America." They didn't specify a time frame. A transition "would create a window where all market participants could plan for price increases or the purchase of internet protocol (IP)-enabled equipment, shop for alternative service arrangements, and even solicit build-out proposal from potential market entrants," said Sens. John Boozman and Tom Cotton and Rep. French Hill in a letter to Pai. "A reasonable transition would also enable service providers to adapt and remain viable in more markets than will occur in the event of a flash cut to new policies." A transition also "may serve to hold prices in check despite the highly concentrated ownership of BDS facilities," they added.

Two key Democrats urged the FCC to delay its Thursday's planned vote. The lack of BDS competition "could result in artificially inflated prices" that "may ultimately be passed on to consumers," said Sen. Ed Markey, D-Mass., and Rep. Mike Doyle, D-Pa., ranking member of the House Communications Subcommittee, in a letter to Pai. They said the draft order's conclusion that competition is "robust" in the BDS market "appears at odds" with industry data collected by the agency. "We need more protections for competitors and small businesses, not greater market control by incumbents," they wrote.

U.S. Small Business Administration officials talked with a Pai aide Friday about the concerns they expressed to Wireline Bureau officials and in a filing last week, said an SBA filing Monday in docket 05-25. Jamie Belcore, an SBA counsel, told us her agency contacted Pai's staff about their concerns. As a federal agency, the SBA isn't subject to Sunshine Act lobbying prohibitions but is required to disclose its discussion. "We don’t have any comments on the proceeding beyond the comments raised in our letter," she emailed.

The FCC draft "doubles down" on industry consolidation and "debunked theories of competition," said Public Knowledge Senior Policy Counsel Phillip Berenbroick on a press call with others. The draft goes against Republican moves to encourage competition in health insurance, pharmaceutical and other markets, said Incompas CEO Chip Pickering, who called the BDS market more highly concentrated than the health insurance market. The FCC's belief that one competitor "is enough" -- if there's potential for a second competitor -- is "dangerous," he said. "Monopoly isn't a choice." Consumer Federation of America Research Director Mark Cooper said consumers bear the burden of BDS prices and are being "ripped off" by tens of billions of dollars a year.

USTelecom backed BDS changes to stimulate further business broadband deployment. "Accomplishing this will require a different mindset from some business broadband providers that have depended on government-mandated price controls and network access that amount to corporate welfare, enabling them to purchase and repackage others’ services rather than build their own networks," said a blog post by USTelecom's Diane Holland. "Their short-sighted (and misguided) view is that this business model brings more competition. The truth is these mandates discourage investment in building business broadband networks. Less broadband investment and infrastructure building means there will be less real, sustainable competition." Representatives of Net Competition, the Internet Innovation Alliance and others urged the FCC to move forward with deregulation.