Wheeler Circulates Rules to Overhaul Business Broadband Market

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By Lydia Beyoud

April 8 — The Federal Communications Commission may be signaling an interest in special access delivered by cable companies as part of a proposal to put in place a new regulatory regime for the business broadband market.

A draft rule would do away with the current binary categorization of special access market competition based on incumbent carriers—primarily AT&T Inc., CenturyLink Inc. and Verizon Communications Inc.—versus everyone else: competitive local exchange carriers (CLECs) and cable companies. The cable industry is a relatively recent entrant to the special access market, and has benefitted from both avoiding classification as an incumbent LEC and the FCC’s decision not to regulate Ethernet-based services.

The proposal could bring cable companies under price regulation in markets the FCC deems uncompetitive.

FCC Chairman Tom Wheeler circulated a draft further notice of proposed rulemaking late April 7 in advance of a planned vote April 28. That action will kick off a rulemaking procedure that Wheeler intends to conclude in 2016, he wrote in an April 8 blog post.

Special access services are dedicated broadband lines purchased by banks, schools, stores, and hospitals to transmit high volumes of data.

Instead, the FCC is proposing only to regulate special access services in markets deemed uncompetitive, without regard to the type of technology used. The draft rule looks at the types of products offered, the geography of those services and different classes of customers, and would apply the same overarching framework to anyone who supplies business data services, an FCC official told Bloomberg BNA on background.

Rules “can’t be based on artificial distinctions between companies or technologies,” Wheeler wrote in his blog post.

Incumbent and competitive telecom providers have been at loggerheads over whether or not the FCC needs to reintroduce rate controls. Cable companies, which weren’t subject to the same rules, hoped to avoid any new regulations.

All special access providers stand to benefit by being under a single regulatory framework, the agency official said. Verizon and INCOMPAS, a trade group representing CLECs and their suppliers, announced a landmark compromise over the need for new special access rate regulations April 7 that closely follows Wheeler's proposal.

But cable companies are likely to oppose the measure vigorously.

“Cable operators are new entrants in the business services market, and are investing heavily in building their own facilities to serve business customers,” the National Cable and Telecommunications Association said April 7 in response to the INCOMPAS-Verizon proposal.

“The FCC should reject any call to impose new, onerous regulations on an industry that is stepping up to offer meaningful choices to business customers. The FCC will not achieve competition if it burdens new facilities-based entrants with regulation,” NCTA said.

The FCC's proposal for a technologically-neutral approach doesn't suit the analysis of who has market power in a particular area, Tom Cohen, a partner with Kelley Drye & Warren LLP in Washington, told Bloomberg BNA.

While the FCC asks a number of questions in its proposal about how to define a given market, the relevant geographic market is the building, said Cohen, who also serves as outside counsel to the American Cable Association, which represents small and mid-size cable companies.

“But for administrative reasons it may be easier to determine the degree of competition and then regulate based on a reasonable aggregation of buildings in a relatively compact geographic area,” he said via e-mail.

The FCC could look to the approach taken by U.K. telecom regulator Ofcom to regulating the special access services, Cohen said. That model tests a provider's ability to deploy special access to facilities within dense areas such as central business districts, he said.

IP Transition

The draft rules and an accompanying order are also intended to help encourage technological transitions away from copper lines and other legacy technology toward Internet protocol (IP)-based technology, such as Ethernet, an FCC official said.

Although the special access market is shifting to faster technologies, about 60 percent of the approximately $45 billion market is still using legacy technology, the FCC official said.

In addition to the special access proposal, the commission will also vote on a targeted tariff order that deems improper certain practices being used in some contracts between ILECs and CLECs. Those contractual provisions include “all or nothing” provisions that require purchasers to buy a bundle of services, as well as certain penalty provisions.

Dominant special access providers would still be able to assess reasonable penalties for early termination of services or shortfalls, but excessive fees greater than the amount the provider would have earned under the agreement would be prohibited, the FCC official said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

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