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Under the Radar: The Deregulation of Business Data Services

Pricing

By Mike BisahaJul 5, 2018

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The FCC’s overturn of net neutrality rules once again made headlines, as a recent bill to save neutrality standards fell 46 votes short in the House.

But this isn't the only standard that the FCC has successfully shifted as of late.

Last year incumbent local carriers and cable providers scored a different major win that flew well under the radar.

In 2017, the Federal Communications Commission (FCC) released a Report & Order that set forth deregulatory framework for business data services.

(If this is the first you’re hearing about it, you’re not alone.)

This means that over the last year, the FCC has been transitioning many access lines from regulated to unregulated status.

According to one CommonLaw Monitor piece piece about the order, the April 2017 decision “eliminates ex ante pricing regulation with the exception of end user channel termination services at DS1 and DS3 levels in counties that fail a competitive market test adopted in the Order.”

This means that over the last year, the FCC has been transitioning many access lines from regulated to unregulated status.

The decision on which lines to transfer is based on the following language:

“Continued price regulation for legacy TDM-based BDS in areas deemed competitive may stifle investment and inhibit the transition to modern IP services.

The Order adopts a competitive market test which determines that pricing regulation is no longer required when either of the following conditions are met:

  • 50 percent of the buildings in a county are within a half-mile of a location served by a competitive provider, or
  • 75 percent of the census blocks in a county have a cable provider present"

Let’s break that down.

The first metric—testing whether or not a competitor exists within a half mile of an existing customer building—is a large distance band for this market.

Extending network services is expensive when simply building down the block, let alone half a mile away. Build-outs to offer data services often come with big price tags, creating a barrier to true competition at the building level. This causes competition to become hyperlocal, while this rule treats the market more coarsely.

“From the supply side perspective, competition indeed has material effects within some relatively narrow distance from the building. But the incumbents’ use of building-by-building price lists, belies the notion that the market is much broader than that, much less that competition has material effects at half a mile.”

Also consider that this competitive test only need be passed by 50 percent of buildings in the county.

A small operator providing a handful of lines in a dense region can effectively deregulate an entire county, even when the incumbent has an effective monopoly on the vast majority of lines.

The dissenting opinion of minority FCC commissioners highlights this flaw: “From the supply side perspective, competition indeed has material effects within some relatively narrow distance from the building. But the incumbents’ use of building-by-building price lists, belies the notion that the market is much broader than that, much less that competition has material effects at half a mile.”

Now for the second piece of criteria: that 75 percent of census blocks in a county have a cable provider present.

This portion of the rule is even more broadly drawn.

The FCC uses the presence of any cable provider in the census block to determine competitiveness. This is regardless of whether or not that provider actually offers business-grade service—and without condition on how many customers/serviceable locations that cable provider has.

Again, from the dissenting opinion: “Channel terminations are also deregulated if 75% of census blocks in a county are “served” by a cable provider per our From 477 data. This means that a handful of low-speed consumer-grade cable connections in a county are sufficient to deregulate every business-grade connection in the county. No effort is even made to determine whether the cable company even offers or can offer business solutions in the county. Again, a single dirt road is treated as a comprehensive transportation system for the purposes of analyzing competition.”

Although the order was passed in 2017, the renewal cycle on these circuits means that the effects of the new rule are likely only being felt by companies now. For anyone who hasn’t reviewed their WAN invoices lately, it might be time to take a closer look.

 

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Mike Bisaha

Mike Bisaha

Mike Bisaha is a senior analyst at TeleGeography. Mike's research include both wholesale and enterprise telecommunications services with a focus on North American and European markets.

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