CLECs Ask FCC to Block AT&T’s Special Access Discount Elimination

"AT&T’s unilateral actions are nothing more than an attempt to use its market power in the provision of special access services to engage in an unreasonable practice that will increase customers’ costs substantially, thereby harming competition, businesses, and, ultimately, the consumers they serve,” said Sprint. It said the FCC has a “statutory duty” to prevent harm to special access consumers by rejecting AT&T’s tariff revisions, especially given that the overall special access proceeding has not yet been resolved. The carrier also asked the agency to investigate AT&T’s revisions to its pricing flexibility tariffs.

"The Commission should not allow AT&T to use the evolution of telecommunications networks to IP as cover for imposing price increases on its customers and the businesses that use AT&T’s services,” said Consolidated Communications, a CLEC in Illinois, Pennsylvania and Texas. “It is no accident that AT&T proposes to eliminate five-year and seven-year term pricing. These pricing plans appear to be the preferred pricing option for bulk purchasers of AT&T’s special access services, including its competitors such as Consolidated that use AT&T’s special access services to reach customers that Consolidated would otherwise be unable to reach economically through deployment of its own last-mile facilities or use of third-party facilities.”

Not long ago, CLECs were complaining about the use of lock-up contracts (CD Nov 2/11 p3). Now they're complaining that lock-up contracts are going away. Both actions limit CLEC choice, said telecom lawyer Colleen Boothby of Levine Blaszak in an interview. “Having the low price points go away is probably worse for them than the lock-in effects,” said Blaszak, who represents large-scale purchasers of special access services. “But how come the only choices are low prices with lock-in provisions or no low prices at all? If the FCC would move faster on the special access investigation, we could have lower prices across the board, even for short term service.”

Boothby’s client, the Ad Hoc Telecommunications Users Committee, ran the numbers and found AT&T’s restructuring would lead to “substantial” price increases. Eliminating the long-term discount would increase some rates by up to 24 percent, it said. Not only channel termination prices, but also the rates charged for interoffice circuits will be affected, it said, with end-users ultimately getting hurt. “AT&T’s tariff transmittals are a powerful demonstration of how deeply flawed the Commission’s price caps rules have become and how urgently they need reform,” Ad Hoc said. It asked the FCC to intervene on this specific tariff request until it can reform the price cap rules more generally.

In his first major policy address as chairman, Wheeler said he was willing to use the agency’s regulatory power where the data shows a market isn’t competitive. The special access market fits the bill, Boothby said. “If ever a market failure needed a little regulation!” she said by e-mail. After more than a decade of deregulation and FCC predictions about the inevitability of competition, “all that economic theory about economies of scope and scale turns out to be true,” Boothby told us. “Entry costs can be so high that neither actual nor potential competition can emerge or discipline pricing.”

"Wheeler stressed the need to promote and protect competition, and we encourage him to start by rejecting AT&T’s rate hike on business broadband lines,” said ex-Rep. Chip Pickering, R-Miss., spokesman for the Broadband Coalition, in a written statement. “Proposed last week, under the cover of the Thanksgiving holiday, the FCC now has just seven days to reject the phone giants request or rates on high capacity lines will rise 15 to 25 percent.”

Lock-up contracts are definitely a problem, said Thomas Jones, an attorney at Willkie Farr who represents CLECs. They “stunt the development of wholesale competition,” and the FCC needs to enact reforms to give special access purchasers the option of getting low rates without being locked in to a multiyear contract, he said in an interview. “But until the FCC adopts such reforms, the only way for competitors to compete for many customers is to rely on the terms plans that AT&T seeks to eliminate.”

The discounts in many cases “offer the only means of obtaining DS1 and DS3 special access services at prices low enough to support competition in downstream retail markets for business broadband services” in AT&T’s ILEC territory, said a petition filed by Jones’s clients, CBeyond, Integra, Level 3 and tw telecom. Removing the long-term discounts, which are widely relied upon, is an unjust practice prohibited by Section 201 of the Communications Act, they said. AT&T also failed to provide enough information to determine whether the restructuring would cause it to exceed the applicable price cap indices and pricing bands, they said. AT&T’s claim that the changes are necessary to advance the IP transition are “simply not true,” they said. “If AT&T were solely seeking to further that transition, it could have eliminated its term commitments longer than three years without eliminating the associated discounts.”

XO relies on AT&T’s DS1 and DS3 services to complement its own facilities and provide wholesale and retail services in AT&T’s territory, the CLEC said. XO calculated a price increase of 14-23 percent. “That AT&T can unilaterally impose such price increases is a sign of its continuing market power over a broad range of special access services,” XO said. AT&T’s proposed tariff revisions are “demonstrably unlawful” and would “exacerbate the anticompetitive effects of its already unjust and unreasonable term commitment plans,” XO said. “Suspension of the proposed revisions will not adversely affect any interested party except AT&T, who seeks to exploit its market power to extract unwarranted additional revenues, comfortable in its expectation that there will be no meaningful competitive response if the Tariff Filings take effect. Failure to suspend these revisions will inflict irreparable harm upon telecommunications competition.”

Windstream will have to pay $70 million extra through 2020 in AT&T’s various territories, as rates sometimes increase by more than 20 percent, the CLEC said. The increases also harm competition, it said. By eliminating the long-term discounts, it said that “AT&T inhibits competition in downstream business service retail markets in which CLECs otherwise could provide business consumers with attractive alternatives.” That AT&T can eliminate its long-term discounts on short notice “demonstrates the continued, substantial market power wielded by AT&T,” Windstream said, calling it a “windfall” for the ILEC.