FCC Republicans Approve Deregulatory BDS Order; 6-Month Transition Added

Chairman Ajit Pai said a "reasonable transition" would help the market adjust to new rules, but dissenting Commissioner Mignon Clyburn suggested BDS customers would be hit with "rate shock" in six months. Critics had sought a three-year transition to new rules.

Outside reaction was sharply split. Incumbent telcos lauded the FCC action as removing outdated regulation and encouraging broadband investment and deployment. "Today’s vote to update the Commission’s regulations to reflect ten years of increasing competition and technological innovation will restore incentives to invest and invigorate competition to serve American businesses across the country," said USTelecom CEO Jonathan Spalter in a statement. Verizon, other ILECs, their allies, NCTA, Comcast and the American Cable Association also were supportive.

ILEC critics said the order would gut competition and spark BDS price hikes across the country. “The pro-monopoly FCC just voted to kick American small businesses where it really hurts, in the wallet," said Incompas CEO Chip Pickering in a statement. "By saying one provider is sufficient, the FCC is favoring old incumbents over new innovators. It is punishing small business customers, and holds back entrepreneurs. Our networks drive our economy, and blocking competition from one of our economy’s most important sectors is dangerous.” Sen. Ed Markey, D-Mass., Rep. Mike Doyle, D-Pa., Public Knowledge and others also blasted the decision.

"There’s an allure, I’ll concede, to micromanaging prices, terms, and conditions," Pai said. "But hopes and good intentions can’t override economic analysis and hard data. Micromanagement can thwart competition. It can stifle investment. It can prevent us from ever achieving long-term results that benefit consumers. So today, we choose a different path." Under the market test using extensive industry data, he said, a county will be considered competitive if 50 percent of its locations with BDS demand are within half a mile of a location served by a competitive provider, or if 75 percent of its census blocks have a cable provider. "The record shows many providers are willing to build out at least by a half-mile, with some going further. What’s more, there’s strong competition well within the half-mile threshold; about half of buildings with demand are within 88 feet of competitive fiber facilities, and 75 percent are within 456 feet," he said.

"This order is one of the worst I have seen in my years at the Commission," Clyburn said. "It is abhorrent that the policy goal is deregulation at all costs, and the entire order -- facts, policies, and law -- are all calibrated to achieve said goal. The order as a whole is a dizzying departure from the underlying Further Notice that purports to provide the APA [Administrative Procedure Act] basis for this policy direction, and the majority’s failure to grapple with contrary facts renders this order arbitrary and capricious. Given the substantial likelihood of harm, I believe that the order is at a substantial risk of judicial stay." She said the FCC was ignoring its own data that showed the BDS market was highly concentrated -- and consolidating further as ILECs take over CLECs -- and ignoring its own previous analysis that showed competitive effects generally weren't felt beyond a quarter mile from a location. "What percentage of buildings with BDS does this order retrain price controls for? Less than 10 percent," she said.

Commissioner Michael O'Rielly backed the order. "As someone who has participated in the never-ending special access debate on and off for over a decade and watched as competition developed during that period, it is appropriate for the Commission to recognize that the time has come to step back and let the market further develop absent heavy-handed regulation," he said. "While some business customers continue to rely on low-bandwidth services and a few markets are not immediately competitive, it would be counterproductive to maintain intrusive pricing regulation that can deter the deployment of new services." He said a reasonable period to adjust was the better alternative and backed a six-month transition for newly deregulated areas.

The FCC will allow for pricing flexibility and begin de-tariffing special access services in counties where the test finds there's sufficient facilities-based competition to discipline prices, Pai said. Carriers in those areas would be subject to permissive detariffing for 36 months and then be subject to mandatory detariffing, said Wireline Bureau attorney Joseph Price, who outlined the item.

"Where there is not sufficient competition, we recognize a continued role for price cap regulation to prevent unreasonable and unjust rates," Pai said. The price caps would govern lower-speed TDM connections to end users, but ILECs would be allowed to offer volume and term discounts, plus contract tariffs under Phase I pricing flexibility rules, the release said. The price caps would be subject to 2 percent annual "X-factor" cuts going forward to account for productivity gains, but carriers wouldn't be subject to "catch-up" adjustments going back to 2005 "since inflation offset productivity gains for TDM services," the release said.

The order establishes uniform forbearance relief for all price-cap ILECs that has been uneven. Verizon's higher level of telecom regulatory forbearance that was "deemed granted" a decade ago due to a 2-2 FCC split will be brought in line with the forbearance given to other price-cap carriers, another Wireline Bureau staffer said. O'Reilly said he wasn't convinced the FCC could undo that forbearance, which "could set a dangerous precedent and lead to inappropriate re-regulation under a future commission."

Packet-based and TDM telecom services will continue to be subject to Communications Act requirements governing their rates, terms and conditions. "Sections 201 and 202, along with the section 208 complaint process, will continue to serve as safeguards against any attempts by incumbents to charge unjust or unreasonable rates for common-carriage DS1 and DS3 services," Pai said. The order also finds certain BDS offerings constitute private carriage not common carriage, the release said.

Clyburn said new entrants and small BDS customers "drew the short straw" at the agency. "This is a 186-page all-out assault on America’s small business, schools and local economies that at a minimum, deserved the benefit of better data collection, and a more thoughtful approach," she said. "But in the rush to deregulate, the leadership, providing as much notice as a run-away train, opts to adopt a framework that uses faulty data and lackadaisical market analysis to come up with an ineffectual competitive market test, calibrated to deregulate as broadly as possible. The order upends decades of competition analysis, by defining a particular market as competitive when there is only one provider in a market and the mere possibility of a second entrant. ... The mere presence of a second nearby potential business data service provider that is located a half a mile away is deemed a competitor whether they plan to serve an area or not."