On January 8, 2016, four major ILECs filed direct cases supporting their special access optional payment plans (OPPs) as part of the FCC’s investigation into the terms and conditions of these plans in Docket 15-247 AT&T. Not surprisingly, AT&T, CenturyLink, Verizon and Frontier were unanimous in defending the lawfulness and benefits of their plans. What was shocking, however, was the barely suppressed anger ILECs feel toward an FCC they believe is stacked against them. 

The ILEC’s displeasure against the Commission’s reclassification of broadband Internet access and its attempt to control all ISP Internet behavior is widely known. Less public, however, is how the major ILECs believe they are continually singled out when it comes to their special access services.

ILECs see a telecommunications market in which they continue to lose switched access revenues that can no longer be made up through robust special access sales. Increasingly, their special access customers can purchase similar services from cable companies and CLECs. 

Most concerning, is that as the industry transitions to Ethernet, ILECs face a dedicated services market in which they are not the dominant providers and revenues are not assured. Thus, they are outraged that the Commission continues to attack and potentially re-regulate their declining special access services in this proceeding and in the decade-long global special access investigation.  Witness the comments made by Verizon:

Traditional TDM special access offerings are declining rapidly. Cable companies and CLECs now aggressively and successfully compete to meet customers’ demand for ever greater volumes of newer Ethernet services. In light of the dramatic marketplace changes this technological shift and increasing demand are driving — including the game-changing entry of cable companies with their ubiquitous, and increasingly dominant, broadband networks — this investigation into ILECs’ discount plans for TDM services makes little sense.  Ruling that those voluntary plans — which offer lower prices for slower services that are a declining segment of the marketplace — are unjust and unreasonable would harm consumers and hand cable companies a significant competitive advantage by imposing even more regulations on one set of competitors. The Commission should not proceed with this investigation (Verizon Direct Case, filed January 8, 2016, at p. 1).

CenturyLink echoes Verizon’s concerns:

These [optional plans] must be evaluated against the extremely competitive high-capacity transmission market, which becomes more dynamic every month, and in which neither CenturyLink nor any other provider possesses market power. The data the Commission has collected regarding 2013 reflects a marketplace in which non-ILEC providers play a central role.  Unsurprisingly, that marketplace has become even more highly contested since 2013.  Competitive fiber providers…advertise ever-expanding long-haul and metro networks and highlight their leading positions serving the nation's enterprises. Cable providers are accelerating their propulsive advance into the high-capacity marketplace… In all, one analyst estimated the cable industry's 2014 annual growth rate in commercial services revenue to have been 25 percent, compared to a reduction of 2.7 percent for the Regional Bell Operating Companies…In  fact, as of November, Century Link purchased access from 29 cable companies. In this marketplace, no provider is in a position to behave anti-competitively (CenturyLink Direct Case Whitepaper, filed January 8, 2016, at p. 1).

When it comes from defending the plans themselves, ILECs use their direct cases to conclude that they are just and reasonable, in full compliance with sections 201 and 202 of the Telecommunications Act.  As AT&T explains,

According to the Commission, the “heart of the CLECs’ concerns” – and thus the primary focus of the Designation Order – are provisions requiring CLECs to make certain volume-related commitments (which the Commission refers to as “percentage commitments”) in order to receive rate discounts. But the percentage commitments to which the Commission refers are not rate discounts.  In fact, none of the AT&T tariffs at issue include volume-based discounts.  Rather, at least for AT&T’s tariffs, the “percentage commitments” are simply backstops that limit AT&T’s exposure when customers want the flexibility to break their term plan commitments without the normal early termination liability (“ETL”). The Commission has not designated AT&T’s pure term-discount tariffs for investigation, and indeed, the CLECs themselves offer term-discount plans with terms and ETLs that are similar to or less generous than AT&T’s. It is thus difficult to see how these services, which give customers the option of avoiding ETLs normally associated with term discounts, could be unlawful (AT&T Direct Case, filed January 8, 2016, at p. 4).

The ILEC strategy in this proceeding is of course to fully defend their OPPs and ensure the Commission does not find them unlawful. Failing a quick win, however, their more reasonable goal would have the Commission subsume its investigation of these plans in the general special access investigation. In that investigation, unlike the OPP one, the market inroads of their competitors are part of the Commission’s evaluation. 

If the entire market is considered, including cable, CLEC and Ethernet, ILECs are very confident they will prevail and will not have their special access services (including OPPs) re-regulated. However, if they do not win at the FCC, all the major ILECs are prepared to fight this battle in the courts. ILECs will battle to the bitter end to protect the markets in which they once were predators but now see themselves as prey.

By Andy Regitsky, CCMI