CLECs wasted little time in attacking the FCC’s draft Report and Order (Order) that the FCC will vote on and approve on April 20, 2017. The Order will deregulate and eliminate pricing rules for most ILEC special access services. In a series of ex parte filings and visits to the Commission this week, CLECs made it clear that they don’t accept the market test that would be used to classify markets into competitive or non-competitive buckets, believing that too many DS1 and DS3 customers will be left at the mercy of ILEC monopoly pricing.

CLECs also argue that 18 months is too short a transition period to implement mandatory detariffing. Instead, they claim special access customers need at least three years to move to contracts for existing tariffed special access services or replace their circuits with packet-based Ethernet services.

Here are more details of the CLEC complaints, which should be seen as the first of their many steps to derail an Order they believe is legally arbitrary and capricious.

As mentioned above, CLECs first attack the Commission’s criteria for determining a market is competitive and no longer subject to price cap regulation.  A market (US county) would be deemed competitive by the FCC if:

50 percent of the locations with BDS demand in that county are within a half mile of a location served by a competitive provider based on the 2015 [Data]Collection or 75 percent of the census blocks in that county have a cable provider present based on the Commission’s Form 477 data. Any price cap incumbent LEC serving special access customers within that county will be relieved of ex ante pricing regulation. (Order at para. 84).

Windstream complains that the Commission has not published the list of counties and how each performed in the competitive market test.

This means that Windstream and other commenters cannot fully evaluate and adequately comment on the impact of the draft Order on consumers who use low-bandwidth (i.e., DS1 and DS3) BDS [Business Data Services], including small businesses, non-profits, and anchor institutions, such as schools, libraries, and rural healthcare clinics. (Windstream April, 11, 2017 letter to FCC, Docket 16-143, at p. 1).

Windstream also believes that classifying a county as competitive if 50 percent of the locations with BDS demand in that county are within a half mile of a location served by a CLEC is clearly wrong:

[T]he proposed half-mile test is too long and unsupported by the record for a DS1 or DS3 service. The statements made by carriers that they would deploy at distances “up to” a half mile were statements about an upper limit as demand at a location increased, not for DS1s and DS3s. Indeed, the data shows that for locations with aggregate demand no larger than a DS3, 86 percent are served only by the ILEC. (Id.).

The second part of the competitive test, which would classify a county as competitive if 75 percent of the census blocks in that county have a cable provider present, is also erroneous. Windstream argues:

[T]he second prong of the test for abandoning price protections is founded entirely on the presence of “best efforts” Broadband Internet Access Service (“BIAS”) as reported by cable companies on Form 477, even though the Order expressly reaffirms that “best efforts” services are not in the BDS product market. The draft fails to analyze the suitability of these networks to provide BDS, the relative lower quality of Ethernet-over-HFC [Hybrid fiber cable], and the constraints on expanding these networks to provide BDS due to the competing demands of residential video and best efforts BIAS. The draft simply omits all discussion of these issues, which is unreasoned and arbitrary. (Id. at p. 2).

Finally Windstream believes the 18 month transition to mandatory detariffing needs to be doubled:

[We suggest] a three-year transition. A transition is needed here for several reasons. First, the draft Order is premised on the potential for competitive facilities deployment, but such deployment cannot happen overnight. If sufficient lead time is not given for potential competition to become actual competition, a key premise of the draft Order will by stymied. Second, both sellers and buyers of DS1 and DS3 special access services will need time to adjust to the oncoming regime. Contracts will need to be negotiated; wholesale purchasers will need to renegotiate contracts with the end users; providers that purchase DS1s and DS3s will need time to transition to other arrangements to ameliorate price shock – or to shift customers to other providers if they cannot continue to be served economically. Migrating end users from TDM to Ethernet is time consuming, and requires substantial expense for both the provider and the end user (who frequently must purchase new customer premises equipment). (Id.).

A group of CLECs making up the organization called the Wholesale Line Coalition assert that a transition is also needed if the Commission eliminates the requirement in the Technology Transitions Order that ILECs must make a “reasonably comparable” packet service available when discontinuing a DS1 or DS3 time division multiplexed circuit. That requirement is scheduled to end when a “final” special access order is effective.

[T]the Commission should adopt a reasonable transition period before sunsetting this regulatory backstop in order to prevent market disruption and harm to consumers. The Coalition proposed a 2-year transition as consistent with the Commission’s longstanding goals of protecting competition and promoting innovation. (Wholesale Line Coalition, April 10, 2017 letter to FCC, Docket 16-143, at. page 2)

If the Commission approves the draft Order, CLECs will file petitions for reconsideration with the FCC. They will also seek to have the Order stayed at the DC Circuit Court of Appeals. While obtaining a stay of any federal agency order is difficult, because of the vast amounts of money at state here, along with the potential this order has to upend the industry, a heavily politicized DC Circuit packed with Democrats by President Obama is more likely than most to agree with petitioners. That is why; April 20^th is likely to be the beginning of the BDS battle rather than the end.

By Andy Regitsky, CCMI