The Industry

Availability of Existing Fiber

I work with rural communities all over the country and one of the first thing I am usually asked is to help them figure out how much fiber is already in their community. There seems to be a natural assumption that all fiber is the same and that existing fiber can somehow be used to get better broadband in their area. I always hate to have to tell them that existing fiber is rarely of any benefit to them.

I also have to tell them is that it’s usually exceedingly difficult to find the location of existing fibers. Incumbent telcos, cable companies and electric companies rarely will provide that kind of detail to anybody. This is partly due to security issues, and anything told to a government entity ends up in the public domain.

But even if these companies were willing to provide details of all of their existing fiber, the chances are pretty high that the existing fiber cannot benefit communities in the ways the communities hope. There are a number of reasons for this:

  1. The primary reason for existing fiber lacking benefit for communities is that most existing fiber is part of a private network. This private network could be connecting two telco central offices. It could be connecting a cable TV headend with a neighborhood node. It could be a school network connecting schools. It might be used by the electric company to connect to neighborhood substations. It could be used by a railroad along its tracks. Or it might be used by the highway department to control hazard signs or sensors. And today we are finally seeing a lot of private fiber routes being built to reach cellular towers.
  2. Most fiber in private networks was built for a very specific function, like those listed above. The builders of the fiber designed and built the fiber for that purpose and are generally not very willing to use the fiber for any other purpose. Sharing fiber adds significant risk for a fiber owner. Sharing a fiber brings responsibilities that few of the private network owners are willing to tackle. They are generally content to use the fiber for their own purposes without having to worry about how their use of the fiber might affect somebody else.
  3. Private network owners are also extremely protective about who can have physical access to their fiber. I can’t think of a private network owner that will allow outside technicians to have direct access to their fibers. And this means that if they allow somebody to share their fiber they also have to take on all of the work to connect and maintain those connections. Companies that own rural fiber networks often have labor forces that are already stretched thin and they don’t want to take on this extra burden.
  4. There is another access issue that might be the most important reason to not share a fiber route. It’s likely that the party that wants to share an existing fiber wants to get onto and off of the fiber at different locations than the fiber owner. It’s not cheap or easy to gain access to existing fibers if it wasn’t designed with the needed access points. It is not unusual for a private fiber to be designed with no access points between the two ends of the fiber. It’s fairly easy and economical to add access points during the initial construction process. Handholes or other access points can be added to the fiber to provide future easy connectivity to the fiber. But adding access points to an existing fiber, particularly a buried fiber, can be costly and even risky since you have to dig to gain access to the already-buried fiber. Adding new connections also might mean adding pedestals or even something larger if power is needed at the new fiber junction.
  5. Often the fibers that pass through rural areas are long-haul fibers. These fibers are part of some larger network that connect large geographic areas or creates fiber rings. Long-haul fiber owners rarely will allow local connections to a fiber, because once a fiber is used for a local connection, that fiber can no longer be used to create a path around the larger fiber ring.
  6. The reason that communities find the most frustrating is when they find they are not allowed to use government-built fibers. I’ve often come across school or state government networks that were built with funding that prohibits sharing. I know of a number of state and county government networks that are not allowed to be shared for any commercial purpose – usually a requirement that was imposed by the funding that built the network. These kind of prohibitions often stem from laws in states that don’t want government networks competing with commercial networks. These networks often have large numbers of usable pairs that sit idle and that can’t be used by anybody but the government entity that built the fiber.

My message about the lack of benefits for existing local fiber is often met with incredulity. I have been hired a number of times just to prove that the fibers are not available. It generally only takes a few calls to the typical fiber owners to find that they have no desire to share fiber. But there are exceptions. For example, the large telcos will offer to share fiber if they have the capacity – but this is generally expensive and is part of a pricing scheme the telcos refer to as special access. And once communities understand the cost of special access they are rarely interested in that fiber.

I certainly understand the frustration that comes from finding out that a community might be fairly fiber rich, but that none of that fiber can be used to bring broadband to homes. It seems to fly against logic, but it is usually the market reality.

Regulation - What is it Good For?

The FCC’s Special Access Order

The 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.

Regulation - What is it Good For? The Industry

The Ongoing Special Access Battle

There is a big battle going on at the FCC over special access rates and the FCC has promised to finally weigh in later this month. Special access in the industry refers to the sale of dedicated TDM circuits like T1s and DS3s. To some extent this is a fight between the big RBOCs and all of the CLECs and other carriers that need special access circuits to reach customers. But this battle actually affects all of us because the businesses you deal with such as banks or other entities (like your local government) are big users of these products.

There are several different issues being contested in the special access investigation currently underway at the FCC. But most of the battle is about the price of special access as well as the unfair practices of the big special access providers like Verizon and AT&T. This whole fight comes down to money and special access is still a major source of revenue for the big telcos. To show you how big, USTelecom, the lobbying arm for the big telcos sponsored a study that said that regulating special access rates could cost 43,560 jobs and $3.4 billion in economic growth over five years.

Special access rates are very high. They were set in the days when TDM circuits were the state of the art technology. We all remember when it could easily cost you $700 per month or more to get a T1 to a business – a lot of money to pay for a symmetrical 1.5 Mbps connection. Last year I looked at the data bill for an urban county and they were still buying millions of dollars of these special access circuits – at nearly full cost. I estimated they could cut their bills by 50% to 60% by shifting to an alternate provider.

But therein lies the big rub with special access. Once you get outside of the main business district in most cities the RBOCs are still the only ones that have wires connected to most buildings. And so as absurd as it sounds, for a huge percentage of geography in the US special access is still the only way to provide dedicated transport to a business (meaning their data doesn’t get commingled with some other business). And this means that special access is what CLECs and other carriers must buy from the telcos if they need access to a given business.

The RBOCs make deals with the largest carriers – Level3, XO Communications and Sprint. These carriers can get a substantial discount on buying special access due to the volumes they purchase. That doesn’t sound unfair until you look into all of the strings that come attached with the volume discounts. For example, Level3 has complained in the FCC docket that there are markets where Verizon requires them to buy 90% of their connections from Verizon – or else not get the discounts. All of the carriers complain about termination charges. Should a customer of one of these carriers move or go out of business the RBOCs still demand that the carriers pay the cost of the circuit for the length of the involved contracts – lengths upon which the RBOCs largely dictate.

And of course, if you are not a huge carrier you don’t get the bulk discount. A business who wants to buy special access on their own (such a bank that wants to connect to multiple ATMs must pay the full tariff rates.

Another part of the battle at the FCC is that the carriers want more access to the fiber and Ethernet services owned by the RBOCs. But the telcos are very judicious about deciding which of their facilities are open to competitors and which aren’t.

Of real concern in the carrier world is the announcement that Verizon wants to buy the fiber assets of XO Communications. Today most businesses and smaller carriers will buy from the big carriers like XO, Level3 or Zayo because it’s cheaper, there’s less paperwork and these companies are far easier to work with than the telcos.

By buying XO, Verizon will be eliminating one of their largest and more vocal opponents. They also will be folding a lot more fiber into the Verizon networks. The fear is that Verizon will either convert the XO network to special access, meaning the price will go up, or they will consider it as fiber needed for Verizon’s own needs only and withdraw the networks from the open market.

In any market where there is a limited amount of fiber built to businesses, removing one of the biggest fiber owners like XO is going to be a big blow to many of those who use it. Many of them are either going to see rate increases or else have to find alternate transport elsewhere.

There is no telling what the FCC will order in this docket. But the position taken by the telcos is typical and a bit scary. They claim that there is vibrant competition available in the marketplace and they accuse the CLECs and carriers of whining to get cheaper prices. They love their monopoly power in most markets and aren’t going to give it up easily.

Regulation - What is it Good For?

Special Access Rate Investigation

There is an investigation going on at the FCC that is probably long overdue involving looking at special access rates. Special access rates are rates used by telephone companies to charge for TDM data circuits such as T1s.

You might think that T1s and TDM technology would be fading away, but the large telcos are still making a fortune by requiring other carriers and large businesses to interface with them using TDM circuits and then charging a lot of money for the connections. As an example, the connections between a large telco like AT&T and CLECs or long distance carriers are still likely to be comprised of DS-3s (28 T1s).

There are also still a lot of businesses that use T1s. There are still a lot of older phone systems sitting at small businesses that need a T1 interface to connect back to the phone company. And in very rural markets where there is no last mile fiber the telcos are still selling T1 data connections to businesses and delivering the paltry 1.544 Mbps of data that it can deliver.

The main thrust of the investigation are the prices being charged. In places with no competition the telcos might still charge between $400 and $700 per month for a T1 connection. And it’s not unusual for carriers to have to pay thousands of dollars per month to interface with the large carriers at a regional tandem switch.

There was a time when the prices charged for TDM circuits were somewhat cost-based, even though as somebody who did some of the cost studies behind the rates, I can tell you that every trick in the books was used to justify the rates at the highest possible cost. But in a 100% copper network there was some logic behind the charges. For example, if a business bought a T1 the phone company had to dedicate two copper pairs throughout the network for that service plus provide fairly costly electronics to supply the T1. I remember when T1s first hit the market and they were a big step forward in telco technology.

But technology has obviously moved forward and we now live in an Ethernet world. The FCC has been working on a transition of the public switched telephone network from TDM to all-IP and this investigation is part of that process.

The prices for TDM special access are all included in tariffs, and for the most part the rates have not changed in years, or even in decades. Where it used to be a big deal, for example, for a telco to send a DS3 between its offices, the bandwidth on a DS3, at 45 Mbps, is barely a blip today inside of the huge Ethernet data pipes the phone companies use to connect their locations. Even if the cost for a DS3 was justified at some point in time, when those same circuits are carried today inside much large data pipes the cost of transporting the data has dropped immensely.

It’s good that the FCC is investigating this, but to a large degree it’s their fault that the rates are so high. It’s been decades now since either the FCC or the state regulatory commissions required cost studies for TDM circuits. And without the prodding by the regulatory agencies the telcos have all let the old rates stand in place and have been happily billing them year after year. This investigation should have been done sometime soon after the Telecommunications Act of 1996, because the rise of competitive telecom companies created a boom in special access sales, all at inflated prices.

Special access rates matter a lot to small carriers. For example,special access is one of the largest expenses for any company that wants to provide voice services. It’s not unusual for a company to spend $100,000 or more per year buying special access services even if they deliver only a tiny volume of voice traffic to the world. As would be expected, the high costs adversely affect small carriers to a much greater extent than large carriers who can better fill up the pipe between them and the large telco.

For years the telcos have hidden behind the fact that these rates are in a tariff, meaning that they are not negotiable for other carriers. But at the same time, the telcos routinely drop rates significantly when selling special access circuits in a competitive market. The high special access rates apply only to those small carriers and businesses who are too small to negotiate or who do not operate in a competitive part of the network. It’s definitely time for these rates to be brought in line with today’s costs, which are a small fraction of what the telcos are charging. It would not be shocking for the FCC to determine that special access rates are 70% to 90% too high, particularly when you consider that most of the network and electronics that support them have been fully depreciated for years.

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