On October 10, 2013, AT&T stunned the industry by sending letters to special access customers stating that beginning November 9, 2013 it would no longer offer term discounts of more than three years on DS1, DS3 analog private line and DS0 services.  AT&T stated that it would eliminate these long-term discounts as part of its announced phase-out of its Time Division Multiplexing (TDM) to one based on Internet Protocol.  It is important to note that the FCC has not granted AT&T permission to eliminate its TDM network, nor is there any indication they will do so in the near future.  So this was a unilateral AT&T decision.

AT&T’s special access CLEC customers immediately protested to the FCC.  In an October 18, 2013 letter,  CBeyond, EarthLink, Level 3, MegaPath, Sprint and tw telecom told the Commission that the elimination of five and seven year term plans will significantly increase prices for special access customers.  For example, Sprint estimated that its special access prices would increase by 24 percent.  Moreover, the carriers asserted:

AT&T’s rate hike will cost carriers, and the customers they serve, tens of millions of dollars and will have a sweeping effect on a wide range of services and activities. For example, carriers depend on DS1 and DS3 special access services to connect to the public safety answering points (“PSAPs”) they need to reach to provide 9-1-1 services. In addition, in most instances, competitive carriers have been forced to use TDM-based circuits to interconnect with AT&T for the exchange of voice traffic, since AT&T refuses to interconnect via IP-based circuits. Thus, AT&T is using its market power both to require TDM-based interconnection and to raise the costs of the circuits required to accomplish the interconnection.

The CLECs also claimed that AT&T is attempting to influence the transition to an IP network by raising TDM rates now it will be more acceptable to the FCC for it to charge higher rates for comparable IP bandwidth later.

In response to the concerns of its special access customers, AT&T announced on October 29, 2013 that it was postponing the elimination of these term discounts for one month.  It would now file to eliminate them on November 25, 2013 with an effective date of December 10, 2013.  It claimed that it would use this month to answer questions and respond to the concerns of its customers.

It is difficult to see how the Commission can stop AT&T’s pricing decision.  While the CLECs suggest that AT&T may violate the price cap rules if its Actual Price Index (API) becomes higher than its authorized Price Cap Index (PCI).  In other words, its higher special access prices could potentially bring in higher special access revenues than is permitted under the rules.  However, AT&T is far too experienced to allow this to occur.  Furthermore, under price caps AT&T (as long as it stays at or below the revenue cap) is free to move its prices up or down.  There are no other Commission rules that this action appears to violate.  Thus, it is the opinion here that AT&T will succeed in eliminating its 5 and 7-year term discounts. 

By Andrew Regitsky, President, Regitsky & Associates