A bitterly partisan FCC has made history at its April 28, 2016 meeting, when it voted 3-2 to adopt a proposed regulatory paradigm for both special access and Ethernet as equivalent services constituting the newly coined Business Data Services (BDS) market. The new paradigm is based on the following principles:

Competition is best, but where competition does not exist, market conditions must not be allowed to stifle the ability of business customers to innovate and compete;

Technological neutrality should be at the core of any new regulatory framework;

Policies should remove barriers to the transition to new technologies;

Rules should be crafted to meet the needs of both today’s and tomorrow’s marketplace. 

In adopting a Further Notice of Proposed Rulemaking (FPRM), the Commission proposed new regulations which are revolutionary because special access would join Ethernet as services available to enterprise customers and carriers through negotiated contracts. Some markets would be identified as competitive and presumably, competition would control prices. In non-competitive markets, however, special access prices, terms and conditions would still be regulated and regulation would be extended to include Ethernet service. Regardless of whether provided by ILECs or newer entrants such as cable companies providers of packet-based services would be required to price their services based on a new “regulatory backstop,” which would mimic prices that would be expected in a competitive markets. 

The Commission will use the FNPRM to determine the factors that will be used to differentiate competitive markets from non-competitive ones. 

The Commission also announced that it has concluded its investigation into certain ILEC special access Optional Payment Plans (OPPs) and has found three specific types of plans unlawful:

All-Or-Nothing Plans – ILEC plans that require customers to purchase all (or almost all) of their special access plans from that specific ILEC are unlawful because they restrict customer movement to other carriers and hinder Ethernet development.  All future such plans are prohibited.  The fate of current plans will be decided in the NPRM.

Excessive Shortfall Plans– Plans that require ILEC customers to pay excessive penalties if their commitment for purchasing services on a percentage basis falls short of the promised level are unlawful and must be re-filed within 60 days after the Order effective date.

Early Termination Liabilities - Plans that impose termination liabilities for leaving before the end of the plan term that require customers to excessive prices for the remaining term of the contract are unlawful and must be re-filed within 60 days after the Order effective date.

Here the specific issues for which the Commission requests industry comments:

Its proposed set of de-regulatory measures in competitive markets, which would include the Commission maintaining minimal oversight to ensure that the provision of telecommunications services is just and reasonable;

The requirement that companies be free from non-disclosure agreements that would prevent them from providing information to the Commission;

A tailored set of rules to safeguard customers in noncompetitive markets, including the use of price regulation and the prohibition of certain tying arrangements that harm competition;

The appropriate treatment under this framework of the three types of contractual terms in the OPPs identified in the Tariff Investigation Order, as well as other contractual terms and conditions that have been subject to public comment;

A proposal that tariffs should not be used in the future as part of the regulation of broadband data service in either competitive or non-competitive markets;

A proposed future periodic data collection of a kind that will allow the Commission to update periodically its identification of competitive and noncompetitive markets;   

The 193-page FNPRM and the OPP tariff Order have not yet been released so we will have more details in the weeks to come.  However, for now we can draw the following conclusions:

The FCC is bitterly divided on both the FNPRM and the OPP Order. The three Democrats are in support of both Commission actions and believe this is the beginning of a new era in which all business data providers and customers will be treated equally with the free market determining prices in certain locations. The two Republicans believe that this is yet another FCC power trip in which it will impose price regulation on Ethernet services while continuing price regulation of the shrinking ILEC pricing market.  Moreover, the Republican commissioners believe the OPPs are lawful since the sophisticated customers that agreed to them knew the terms and conditions before signing on to them.

The Commission’s claim that it will finish this proceeding by the end of 2016 is simply laughable. It hopes the industry will agree on the factors that would make a market competitive versus one that is non-competitive. But expecting the industry to agree on an issue that potentially could cost each entrant millions of dollars is a long-shot at best.  In addition, new entrants to the Ethernet market such as cable companies are not going to be pleased to see their services regulated for the first time, especially since any regulatory backstop adopted would impose price controls on them. Thus, it is likely that any decision in this proceeding will be appealed to the federal courts.

Finally, there is one issue that all five commissioners appear to agree with. That is the principle that the new plan for the business data services market be easy to administer. However, with a new regulatory regime that could impose specific rules on a market-by-market-basis, based on a variety of factors, how will the Commission govern the numerous complaints and waivers sought? It looks like the new plan could be an administrative nightmare? However, it could make the Commission more indispensable than ever and not coincidently, more powerful!

By Andy Regitsky, CCMI