In its Further Notice of Proposed Rulemaking (FNPRM) to establish rules for the business data services market (BDS), the FCC noted that in recent years cable companies have upgraded their Hybrid Fiber-Coaxial (HFC) networks to provide significant competition for ILECs and CLECs, especially for Ethernet services.  

Undoubtedly, those companies were able to raise capital for their network upgrades by informing investors of the advantage they would have in competing with heavily-regulated ILECs and CLECs with less than ubiquitous networks. They, on the other hand, were free to provide broadband data services without facing cumbersome regulations. Cable companies parlayed those investments and their regulatory advantage to today become full-fledged BDS competitors.

When the news was revealed earlier this year that the FCC was going to propose rules for a new regulatory framework for business data services, the cable companies surely believed that meant loosening regulations on ILEC services so all BDS competitors competed on a level playing field. Thus they were clearly shocked when the proposals in the FNPRM revealed just the opposite. For the first time, their Ethernet service offerings would be regulated and the reasonableness of their rates would be determined by benchmarking them against the ILEC special access price for the most comparable level of service available.  In other words, the rewards cable companies will reap by bringing more competition to enterprise customers is to face more regulation. Only in the bizarre world of the FCC can this be viewed as a step forward.    

Naturally, cable companies are hopping mad at the FCC.  In a speech this week at the Internet and Television Expo (INTX) in Boston this week, ex-FCC Chairman and current president of the National Cable and Telecommunications Association (NCTA) Michael Powell stated in his keynote speech:

This period is remarkable for one other reason that is not so laudable. We find ourselves the target of a relentless regulatory assault. The FCC’s governing mantra has been “competition, competition, competition.”  From where we sit, that incantation has come to mean one thing, “regulation, regulation, regulation.”  The policy blows we are weathering are not modest regulatory corrections. They have been thundering, tectonic shifts that have crumbled decades of settled law and policy.  What has been so distressing is that much of this regulatory ordinance has been launched without provocation. We increasingly are saddled with heavy rules without any compelling evidence of harm to consumers or competitors…And, as we learned recently with the latest proposal to completely throw out decades of policies on business services, even when we are the new competitive entrants, we are marked for rate regulation.  What I believe is most troublesome is an emerging government view that the communications market is bifurcated and should be regulated differently.  Internet companies are nurtured and allowed to roam free, but network providers are disparagingly labeled “gatekeepers” that should be shackled (Michael Powell, May 16, 2016 Speech at INTX).

The speech followed a letter NCTA filed with the FCC that actually questioned the motives of the agency. This is usually a clear no-no in telecommunications. A party can argue to the Commission that it is wrong on an issue and explain why, however almost no one will accuse it of having less than honorable intentions.  Cleverly, the cable association questioned the Commission’s motives in a manner that may help it escape the agency’s wrath.  

In the FNPRM the Commission claimed that its proposal was made with no pre-conceived notions and it is open to all suggestions regarding the best way to regulate BDS services.  Responding to that assertion, NCTA stated that it needed a 45-day extension in the deadline for filing comments because the proposal raised so many complex and unexpected issues for the BDS market.  According to NCTA, if the Commission refuses to grant more time, it would strongly suggest that it had already made up its mind and its proposal is set in concrete:

Faced with an opportunity to resolve a complex proceeding regarding rates charged by incumbent local exchange carriers (LECs) that is finally ripe for resolution after more than a decade of regulatory activity, the Commission instead issued a complicated, voluminous Further Notice that significantly expands the scope of the proceeding to cover new services, new providers, and new issues.  The pleading cycle adopted by the Commission fails to reflect the radically expanded scope of the proceeding, severely constrains the ability of NCTA’s member companies to meaningfully participate in this proceeding, and lends credence to concerns raised by one commissioner that “the outcome is predetermined." (National Cable & Telecommunications Association, Motion for Extension of Time, WC Docket No. 16-143, filed May 13, 2016, p1)

Some industry observers believe that FCC Chairman Tom Wheeler hopes to conclude this proceeding and have new rules for the BDS market in place before the end of this year as a crowning achievement of his FCC career.  While it is entirely possible that the Commission can release an Order this year, it is clear that cable companies would file court appeals if rate regulations are imposed on their enterprise services.  They will be joined by ILECs if the Commission continues with its plans to re-impose price cap regulations on their special access services.  There must be a better way to regulate an increasingly competitive BDS market other than creating more and more regulations!

By Andy Regitsky, CCMI