The data for the FCC’s special access investigation has been collected and the FCC is finally beginning its market analysis to determine if it needs to change how it regulates ILEC special access services. The industry will have the opportunity to express its opinions in comments due on April 6, 2015 in Docket 05-25. 

ILECs fear that the proceeding, almost by definition, is designed to ensure that their special access services face additional regulation. In the short term they are concerned that the Commission will respond to the pleas of CLECs and immediately restrict the terms and conditions of their optional payment plans (OPPs), including volume and term discounts, and termination liabilities even before the analysis is completed. The ILECs believe that this Commission with it penchant for increasing government involvement will respond to the constant CLEC lobbying by seeking ways to loosen  special access terms and conditions, and free CLECs to pursue competitive alternatives.

In the longer term, ILECs are worried that the Commission will severely restrict their special access pricing flexibility and possibly even reintroduce rate-of-return regulation of special access, although the latter possibility is clearly a long-shot at best. Restrictions on pricing flexibility could severely impact the many contract tariffs ILECs have negotiated with special access customers, which have enabled them to sign customers to long-term deals.   

ILECs are not standing pat in the face of these threats. They have implemented what appears to be a three- pronged strategy to protect their important special access revenues.

In the short term, ILECs continue to lobby the FCC with ex parte letter and visits defending their OPPs.  For example, on March 2^nd, Verizon sent a letter to the Commission stating that its volume and term discounts are pro-customer and should not even be examined until the Commission’s market analysis is complete. The ILEC states:

Verizon offers pro-customer voluntary discount plans that benefit both customers and Verizon.  Verizon’s discount plans offer customers significant discounts in exchange for term or term-and-volume commitments. As in many other competitive marketplaces, voluntary discounts in exchange for commitments of term and volume are commonplace because they enhance efficiencies and reduce transaction costs and risk for both the buyer and the seller. Verizon’s discount plans do not link discounts to commitments to purchase from Verizon a percentage of the customer’s total purchases from all sources. And Verizon offers customers a range of options when their voluntary discounts expire, including migrating some or all of their circuits away from Verizon. Furthermore, no firm in the high-capacity services marketplace has market power. Until the Commission collects and properly analyzes all the data, the Commission should not take action or draw conclusions regarding terms and conditions in this competitive marketplace (Verizon March 2, 2015 Letter to FCC in Docket 05-25, pp. 1-2.).

In the longer term, ILECs have argued that the Commission’s forced decision to obtain only one year of special access data for its market analysis will not enable it to make a conclusive determination of the special access market or its pricing flexibility contract tariffs. For example in an October, 24, 2014 Petition for Review filed by the United States Telecom Association (USTelecom), the ILEC association stated:

[L]imiting the collection of high capacity services data to just a single year will not provide the Commission with the requisite data to conduct the comprehensive analysis of competition in the special access marketplace that the Commission has said it will undertake (FCC Docket 05-25, USTelecom Petition for Review at p. 3).**

ILECs strongly believe that time is their biggest ally in this proceeding. Thus, the third prong of their strategy is simply to delay a final FCC decision, either through seeking additional special access data or appealing an unfavorable initial FCC decision in court. They know that as the telecommunications market moves away from special access and toward Ethernet as part of the fast developing IP transition, delay can keep this proceeding from having any meaningful impact on their special access services and revenues until special access service becomes obsolete. It is a smart strategy that is well on its way to success.

**To read more about this ILEC argument please see our October 31, 2014 blog at: http://www.ccmi.com/blog/us-telecom-association-tells-fcc-it-needs-additional-special-access-data-to-conduct-a-lawful-market-analysis.

By Andrew Regitsky, CCMI