FCC Seeks BDS Overhaul; Wheeler Cites 'Level Playing Field'; Republicans Dissent

Commissioner Mignon Clyburn thanked Wheeler for accommodating her “many, many edits” to “make the item more neutral,” including by “moving away from a tentative conclusion that 50 Mbps is the appropriate metric for presuming a market is competitive or not, asking about the implications and feasibility of administering the reforms, and seeking comment about alternative frameworks so that we can develop a complete record which enables all parties to have the opportunity to make their best case." Commissioner Jessica Rosenworcel said FCC policies must encourage network deployment, enhance competition, and be administratively workable.

GOP commissioners dissented. Ajit Pai compared FCC moves to Alice in Wonderland traveling through the looking-glass, particularly in considering regulation of new entrants, including cable. Mike O’Reilly said the FCC actions are “another massive power grab” put forward “with the mindset it’s so crazy it might work. It won’t.” He said the outcome was “precooked” despite agency moves to replace “tentative conclusions” with “proposals” and ask many questions. “This is plain, old-fashioned rate regulation, repackaged with a new narrative,” he said. “We cannot regulate our way to deployment.”

Cable parties knocked the actions. “Regulation, regulation, regulation,” Comcast said in a blog post, playing off of Wheeler’s “competition, competition, competition” mantra. USTelecom and some ILECs voiced concerns. But ILEC competitors and others lauded the FCC steps as advancing competition and consumer choice. Sprint said the FCC “took a significant step in reforming the long broken market” of BDS.

BDS is now a $45 billion market, Wireline Bureau Chief Matt DelNero said at the meeting. He said BDS connections provide a "critical input" for the economy, offering dedicated services to offices, banks, hospitals and schools, and also backhaul for wireless cell towers, a need that will grow with the move to next-generation 5G systems.

The FNPRM seeks to replace “fragmented and outdated” special access rules with a technology-neutral framework classifying markets as either noncompetitive or competitive, an FCC release said. Using data collected from industry, the FCC would identify competitive markets and subject them to "minimal oversight," while seeking to tailor rules to safeguard BDS customers in noncompetitive markets, "including the use of price regulation and the prohibition of certain tying arrangements that harm competition," the release said.

The FCC seeks comment on a series of ideas and proposals: (1) requiring companies to be free from nondisclosure agreements so they can provide the agency with information; (2) a proposal to eliminate all BDS tariffs; (3) a proposal for periodic future data collection (possibly every three years) to update rules; and (4) a proposal to treat certain Verizon BDS services in line with those of other ILECs. The latter would address Verizon forbearance relief "deemed granted" in 2006, DelNero said at a news conference. "To safeguard consumers in noncompetitive markets, the further notice seeks comment on pricing rules to replicate the incentives of competition, maintaining price caps for legacy circuit-based services and adopting anchor pricing or benchmarking for IP-based services," bureau staffer Chris Koves said at the meeting.

The order curbing certain ILEC practices grew out of a tariff investigation of AT&T, CenturyLink, Frontier Communications and Verizon pricing plans. The FCC prospectively prohibited incumbent telco “all or nothing” discount plans that force BDS customers to purchase all of their service under one tariff, but sought comment on how to implement the change for existing plans. It also restricted ILEC penalties for buyers not meeting volume or term commitments, with the fees deemed "unreasonable to the extent they impose costs on a customer that exceeds the provider's opportunity costs and limit a customer’s ability to make efficient choices,” bureau staffer Marvin Sacks said. The treatment of these and other ILEC practices would also be subject to further comment in the FNPRM.

Wheeler stressed the importance of competition, but "where competition does not exist, then government has a job to do -- protecting consumers and competition." Access to competitive backhaul is particularly important with 5G looming, he said. "Our current approach is badly, badly out of date. In fact, our ways of measuring BDS competition are so old-fashioned that the commission actually stopped using its own test -- four years ago ... and the marketplace is changing. For example, new entry by cable companies is bringing more competition -- and that’s an outcome that needs to be encouraged. So it’s time to act. Today’s FNPRM asks the right questions."

Rosenworcel said the old competition test led to some strange results. "Under our old policies, more competitive flexibility was available in Flint, Michigan, than New York City. Somehow our framework was both overinclusive and underinclusive at the same time," she said. Clyburn said she had concerns about the complexity of some aspects of the FNPRM.

Pai said the FCC's goal should be "ubiquitous competition, not universal rate regulation," which he suggested the agency was considering despite evidence deregulation had promoted much industry investment and consumer benefit. "Our guide should be the data -- wherever it leads us -- not an ideological drive to regulate," he said. "Our focus should be furthering the public interest in next-generation broadband deployment for all, not advancing the private interests of particular competitors. And our framework should be one that promotes competitive entry, not one that punishes it. Just as in 2012, I cannot support the notice’s sentence-first, verdict-afterward approach."

O'Rielly blasted the order for interfering with private contracts between ILECs and customers, which made business commitments to receive discounts. He also voiced little hope for the further rulemaking. "The Commission proposes a brand new scheme to rate regulate anyone who provides enterprise-level broadband service. I cannot stress enough how radical a departure this is from history and precedent," he said. "In particular, the commission would expand the universe of regulated providers to include cable companies -- new competitors that already risked capital to deploy service without any warning that they might be 'rewarded' for their success with restrictions on how they price and market their products," O'Rielly said. He said the FCC lacks authority to regulate cable and said such regulation would be counter-productive. "What possible incentive would a cable provider have to pursue an aggressive business broadband deployment strategy only to get regulated coming and going by the commission? Just awful," he said.

Wheeler played down the cable concerns afterward. He said that when he ran NCTA decades ago, the mantra was a level playing field. "So here's the level playing field," he said. "The first question that anybody ought to ask is the competition question. Regulation will flow out of the degree of competition. ... In competitive environments, the regulation is going to be light or nonexistent."