The FCC’s Special Access Order

FCC_New_LogoThe FCC started the process last week of changing the way that the large telcos sell transport products on their networks. Transport products are products like T1s and larger circuits that are used to send data from one point to another and the telco market for these products is called special access.

I’ve often heard people ask how the big telcos can still make so much money since they have lost most of the voice lines that were their bread and butter products for a hundred years. And a big part of the answer is in special access. There is still a gigantic market today for transport for things like connecting schools to each other, for connecting bank ATM networks, for connecting cellular towers or for connecting all of the locations in a market together for a government or large business.

While there is a lot of special access sold to businesses the majority of special access is sold to other carriers. Special access is what gives most CLECs and other competitive carriers the ability to compete – it’s how they actually make a connection to buildings in a market. Very few companies own wireline networks that connect to all of the businesses in a community. In most larger cities there is some fiber owned by non-telcos, but except for the rare city that has built fiber everywhere, such fiber is generally limited to fiber strung along major roads or to business parks.

There is still a surprisingly large amount of the country where the telco is the only one that has ever constructed wires to reach all of the nooks and crannies of a city. It’s not hard to understand why this is so since it’s expensive to build fiber. You read in this blog all of the time about companies that are building fiber to serve residential customers. But it’s even harder to justify building fiber to serve only businesses – unless the businesses are really large or unless there are a lot of them in a single place – like in a business high-rise or in a central business district.

The telcos have been adept at taking advantage of their monopoly position in the special access market. They have priced transport products high and also imposed scads of rules on these products over the years that are all in their favor. The recent order took the first swipe at abolishing some of the more unfair rules.

For one the FCC got rid of termination charges. The telcos have been selling special access only under term contracts. If a competitive carrier was buying a special access for a two or three years period and their end user customers stopped paying them – because they moved or shut down – the carrier was still on the hook to pay for the circuit for the rest of the contract period. The FCC also abolished a number of rules that twisted the arms of carriers to buy special access – rules called tie-ins. If a carrier wanted to buy a large quantity of circuits in one market they were pressured into buying special access in other markets where they might have instead found a competitive alternative.

The FCC has also started the process of trying to regulate special access by market. They are contemplating doing this by determining first if various markets are competitive, and then imposing stricter rules for markets that are considered as non-competitive. And my guess is that will be most markets since there are not a huge number of markets where somebody else owns a lot of alternative wires. Interestingly, this is happening at the time when Verizon is trying to buy XO Communications – one of the largest alternative fiber providers. The fear among other carriers is that merger will take a big pile of competitive fiber transport off the market and turn it into special access.

The FCC also said that that they are considering making the cable companies subject to the new transport rules. The cable companies are late comers to the transport world since they largely shunned building to businesses when they first built cable networks – not enough businesses bought TV to justify the construction. But cable companies have extended fiber markets in many places to cover business parks and business districts and have become a major player in the transport business. But like with other duopoly competition, they often ‘compete’ with prices and terms that are not that different from special access so that they and the telcos can split the lucrative revenue stream. So there will probably be non-competitive markets where the FCC’s new pricing rules apply to them as well.

Don’t Be the Big Guys

Hurricane_Katrina_August_28_2005_NASALarge telco and cable companies took a pretty good beating in the press in 2013. There were tons of articles that don’t present them in a very good light. For all of my clients and friends in the industry who are not these large companies, I think it might more important right now to show your customers why you are not like the big guys.

Here are just a few things that made headlines this year:

  • Verizon said they would not replace the copper on Fire Island and parts of New York City that were destroyed by Hurricane Sandy and wanted customers to instead use cell phones.
  • AT&T told the FCC in a filing that they were planning on ditching ‘millions of access lines’ and wanted to transfer rural areas to cellphone-only.
  • The large ISPs, both telcos and cable companies came in at the bottom again on the national customer service satisfaction polls that measure the companies that the public most dislikes.
  • Almost every large carrier has been accused of handing over all of their telephone and email traffic to the NSA.
  • Cable rates had continued dramatic increases everywhere.
  • It was reported in California that telephone rates have nearly tripled since they were deregulated in 2008.
  • Verizon customers have accused the company of pressuring them to convert to FiOS and then not having access to older copper products.
  • All of these large companies announced record profits.

There is such a widespread dislike of these companies that we need to be careful that the dislike of them doesn’t wipe off onto the rest of us. In large cities many customer talk about holding their nose and picking the incumbent they dislike the least.

Unfortunately, some of my smaller telco clients have policies in place that also don’t win them any love in the marketplace. As an example, I ran across one company this year who would only accept customers who would pay with direct bank debit. I found another client who would only let somebody reconnect after being disconnected by coming in live with cash or a money order. I suspect many companies have policies that are not customer friendly. In the long run any such policy is going to cost you revenues and profits.

It’s easy to understand how such policies get started. Perhaps a company was having a high level of bad debt. But you can’t punish all of your customers for the behavior of a few (and in fact, you really shouldn’t punish anybody). I know personally that if I had to bring cash into my telco in person that they would never see me again, and I can’t be unique in this.

I think the constant bad headlines about telecom companies probably paint us all in a bad light. So I would advise that you take a fresh look at your company and figure out how you are going to let your customers know that you are not the same as the big guys. You may assume they know this, but these is a very good chance that they think of you just as the phone or cable company and that over the years you have done something to annoy many of your customers.

So take this new year as an opportunity to think about how you tell your customers who you are. Certainly you can always tell them with your actions, but it never hears to remind them in other ways. So what do you want your customers to most know about you? Figure out a way to get out that message.