FCC Loosens Regulation of Special Access

The FCC voted last week to eliminate any price controls on special access in about 90% of the markets in the US. The vote to implement this was 2-1 with Mignon Clyburn, a Democrat, issuing a detailed dissent that is worth the read. I can’t lay out the arguments against this deregulation in a short blog as well as she has done.

The order largely refers to what has been historically been called special access as BDS – Business Data Service. This refers to broadband connections sold by incumbent telephone companies using TDM (time division multiplexing) technology. This is technology that is based upon T1s (1.54 Mbps) or multiples of T1s. Techies I know that live in urban areas are surprised to find out how much of this TDM technology is still left in the world.

But a lot of businesses in the country still rely on this technology. There are still a surprising number of businesses that are not connected to fiber. And away from urban areas there are still a lot of business districts that have never been connected to a cable company network. And this means there are a lot of businesses that have special access as their only real broadband option. Further, the Telecommunications Act of 1996 forces special access interconnection onto competitors of the big telcos unless they own fiber directly into the large tandem hubs of the telcos.

The deregulation rules largely look at competition by county and are as follows:

  • Price caps will be eliminated in a county if 50% of the potential customers are within a half mile of a location served by a competitive provider.
  • A county would be considered as competitive if 75% of Census blocks have a cable provider.

That’s one of the more bizarre definitions of competition I can recall. Consider the typical county seat in most rural counties in the US. That is typically the town where most of the businesses for the county are located. If a handful of the businesses in the town get broadband from the cable company then the whole county is likely to be considered as competitive, removing any price caps on BDS services.

But I know from working in rural America that many of these county seat towns are anything but competitive. Often the cable companies in these towns are older and outdated systems that don’t offer fast cable modem service. And it’s not untypical for the cable networks to have been built years ago to only residential neighborhoods before cable systems were capable of delivering data – and since then the cable companies likely have not invested in expanding the network to business parks.

The prices charged by the telcos in these situations is already gigantic. I was working with a rural county in Minnesota last year where a company that makes upscale kitchen cabinets was paying well over $150,000 per year to get a less-than-adequate broadband connection. Had that town had real competition it’s likely that they could buy the speeds they need for a tiny fraction of that price. This business is considering relocating just to avoid the draconian broadband costs – and that would pull good-paying jobs out of a rural county.

The half-mile rule is also an odd measure of competitiveness. I have heard from hundreds of businesses over the years that have been quoted astronomical prices from the incumbent telco if they wanted to get a fiber connection. I’ve seen price quotes as high as almost $100,000 for a mile of fiber construction. A business that is a half-mile, or even a quarter mile from fiber might as well be 100 miles away.

The opponents of this FCC order all believe that AT&T, Verizon and CenturyLink will use this as an excuse to raise rates on special access. And that is the heart of this order. There is no way that this can be justified. The old incumbent telco networks are old and their costs have been recovered many times over. But as these big telcos have lost residential DSL customers to competition they have leaned more heavily on businesses buying special access. This is still a gigantic money-maker for the telcos.

I think Commissioner Clyburn summarized this order well. She said that she was not surprised by the order because this is industry consolidation month at the FCC. By that she means that recent FCC actions have all been aimed at helping the biggest companies in the industry rather than consumers. In this case it’s the schools, libraries, small businesses and governments in rural America that will pay the price so that the large incumbent telcos can maintain their high profits.

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