The telecommunications industry is finally looking to the future when it comes to their private network needs. Despite the fact that there are two huge special access investigations in progress that are worth millions of dollars to the participants, ILECs and CLECs are increasingly turning their attention to the next generation of dedicated services – Ethernet. This has been made clear in the recent onslaught of CLEC letters and meetings with the FCC arguing that the agency’s decision several years ago to forbear from enforcing dominant carrier status on ILEC Ethernet services only applied to services existing at that time and does not apply to Ethernet services that have been introduced since. As we discuss below, the argument is fatally flawed and has little chance of succeeding, but it is important nevertheless, because it is the first skirmish of the many battles to come regarding Ethernet prices, terms and conditions.   

In a series of decisions beginning in 2006 with Verizon, the FCC granted forbearance for ILEC Ethernet services from the application of dominant carrier tariff filing, and cost support.  It did however retain control over those services under section 201, 202 and 208 of the 1996 Telecommunications Act. That means that ILEC Ethernet service rates must be just and reasonable (section 201), the rates, terms and conditions may not be unreasonably discriminatory (section 202) and unhappy competitors or customers can file complaints to the FCC (section 208). Thus, if a CLEC complained that a specific Ethernet service unreasonably discriminated against a particular sized customer, it would have a legitimate argument that the Commission would be obligated to fully consider. However, the current CLEC argument lacks that type of specificity.

For example, in a December 1, 2015 letter to the FCC, INCOMPAS (the new CompTel) claims that the FCC’s 2007 grant of forbearance for AT&T’s packet-switched broadband telecommunications services was limited to the specific set of services AT&T offered at the time AT&T’s forbearance petition was granted. INCOMPAS argues in particular that AT&T’s current Switched Ethernet service (“ASE”) is not subject to forbearance because AT&T did not offer ASE until after the date of the grant of forbearance and that ASE is not related to any of the services specifically listed in AT&T’s original petition.  INCOMPAS states:

[T]he Commission expressly limited the grant to “(1) [AT&T’s] existing non-TDM-based, packet switched services capable of transmitting 200 kbps or greater in each direction;…The Commission reiterated this approach, explaining, “that dominant carrier tariffing and pricing regulation of…Ethernet-Based Services…as offered by AT&T today, is not necessary to ensure that AT&T’s rates and practices for those services are just, reasonable, and not unjustly or unreasonably discriminatory.” [However] [t]he Commission determined that it could not find, based on the record before it, “that AT&T will lack market power with regard to any as yet unoffered broadband telecommunications services.” The other orders granting forbearance also limited the grant to the services offered at the time of the grant (INCOMPAS letter, pp. 1-2).

INCOMPAS and other CLECs argue that new ILEC Ethernet services provide different (more advanced) functionality than the Ethernet services offered in the 2006-8 time period when ILEC forbearance was approved. Therefore all ILEC Ethernet product offerings introduced since forbearance must be tariffed with cost support supplied.

In an April 1, 2016 letter to the Commission, AT&T points out the fatal flaw in this argument.

The CLECs’ strained reading of the Forbearance Order would lead to patently absurd and indefensible results. Under the CLECs’ view, a carrier providing a service that is so competitive as to have warranted deregulation through forbearance would be unable to respond to competition and the evolving dictates of the marketplace by upgrading its service without losing the service’s deregulated status. Reading such a limitation into the Commission’s forbearance decision would establish a powerful disincentive for innovation – which would be a nonsensical interpretation of the order contrary to all prior precedent.

In order to keep pace in this highly competitive market, AT&T included additional functionality (which was not technologically available at the time…when it released the next generation of [Ethernet] service, ASE… These upgrades do not make ASE “a functionally different service to customers… but, instead, provide customers with the next generation of switched Ethernet service...Accepting the CLECs’ arguments and finding that ASE is not subject to the AT&T Forbearance Order would result in an absurd regulatory regime in which companies would be discouraged from innovating in order to maintain some semblance of regulatory certainty. Such an outcome could potentially yoke AT&T’s broadband services with regulations over and above those faced by its competitors, and would be paradoxical to the Commission’s position that old-fashioned monopoly regulation is “unnecessary in a marketplace where the provider faces significant competitive pressure.” Therefore, any attempt to “unforbear” and impose monopoly-era regulation on ASE is subject to the substantial procedural hurdles AT&T has explained in that past (AT&T letter, pp. 2-3).

CLECs are not stupid. They know that making the global argument that new ILEC Ethernet services should not subject to forbearance is a sure loser. Then why are they taking the time and resources to argue for something they cannot win? The feeling here is that CLECs are simply positioning themselves for the Ethernet service battles to come. The Ethernet world is different than special access.  CLECs and cable companies are on a more equal footing than they were in a special access market in which ILECs have close to ubiquitous networks. In the Ethernet market, CLECs are customers of ILEC services but also strong competitors.  If they can obtain market advantages for their own services while hamstringing ILEC competitive services with a host of regulations, so much the better. 

Moreover, as CLECs transition from being customers of heavily ILEC special access services to customers of more loosely regulated ILEC Ethernet services, they want to ensure that their prices do not increase and they do not face onerous terms and conditions. The best way to do so is to try to burden ILEC Ethernet services with special access-like regulations.

Unfortunately in this industry, historically, the best way you can advantage yourself is by bombarding the FCC with a series of demands no matter how absurd some of them may be. That is because if you ask for 100 percent, you are likely to gain 50 percent. In the Ethernet world, a 50 percent win would put CLECs in a much stronger position than today.

By Andy Regitsky, CCMI