Just a scant eleven years after the FCC began an investigation into ILEC special access rates in Docket 05-95, the industry got its chance to file comments regarding the actual data provided last year by special access suppliers and customers. The Commission requested the comments to help it determine the scope of the market analysis needed to decide how ILEC special access services should be regulated in the future. 

The comments indicate there is zero agreement between ILECs and CLECs on almost all special access issues. The parties completely disagree on the scope of the Commission’s investigation. ILECs argue that the investigation should be narrowly focused on whether the Commission initially chose the correct triggers for special access pricing flexibility. They claim that the competitive triggers originally selected to grant pricing flexibility were too strict and must be loosened to allow ILECs to better compete with the burgeoning competition they now face. Implicit in their argument is that special access is so competitive that even the consideration of re-imposing future regulation such as price caps or re-initializing (reducing) ILEC special access rates to enable an 11.25 percent rate-of-return on net investment is ludicrous.  For example, CenturyLink states:

Expert analysis conducted by leading economists and econometricians shows beyond any doubt that the high-capacity transmission marketplace is robustly competitive, especially (but not exclusively) in those areas in which the Commission has granted ILECs "Phase I" and/or "Phase II" pricing flexibility under the triggers adopted in 1999 and suspended in 2012.  Examined from every plausible perspective, the data show extensive competitor-deployed facilities providing well utilized alternatives to the ILEC DSl- and DS3-capacity services at issue here, even if best-effort cable service is excluded from consideration. That analysis eviscerates any claim that the high-capacity transmission marketplace is in need of more regulation. In fact, it demonstrates that ILEC DSn services are in many areas unnecessarily subject to price cap regulation… Given the intense and growing competition in this space - particularly in the MSAs subject to pricing flexibility- there is no basis for the Commission to impose new mandates on ILECs where they enjoy relief today. Competitive deployment has proven more than adequate to discipline these markets, as underscored by the fact that no entity has filed a formal complaint alleging unlawful rates or terms in price-flex MSAs. Any claw back of prior relief, such as re-imposition of across-the-board price cap regulation, would result in disruption and costs not just for ILECs but for their customers - including CLECs and wireless providers - which have relied on the presence of pricing flexibility to structure their current agreements (Docket 05-25, Comments of CenturyLink, filed January 28, 2016, at pp. i-ii).

Examining the comments of CLECs is like viewing an alternative universe.  In this universe, ILECs continue to be the dominant providers for all dedicated services, including special access and Ethernet. According to CLECs, special access customers remain at the mercy of their overlord ILEC masters who force them to sign multi-year contracts just so they can stay in business. Moreover, with the existence of ILEC legacy ubiquitous networks, CLECs will never have the opportunity to compete on an equal footing. Therefore, the Commission must impose onerous pricing regulation on all ILEC special access and Ethernet services. 

The Ad Hoc Telecommunications Users Committee, which represents enterprise customers, does a great job in summarizing CLEC arguments:

The data collected by the Commission in this proceeding confirm what nearly all parties other than the ILECs have been reporting (and what the overwhelming weight of evidence in this docket has already demonstrated) for many years:  there is not enough competition in the special access market to justify the Commission’s “pricing flexibility” rules for the ILECs’ TFM services or to justify regulatory forbearance for their non-TDM [Ethernet] services…[T]he Commission must reject suggestions that the scope of this proceeding is limited to a revision of the “competitive triggers” in the pricing flexibility rules…At a minimum, the Commission must undo the damage done by the ILECs’ exploitation of the pricing flexibility rules, which the Commission repudiated nearly four years ago. The Commission must order immediate interim relief for customers by re-setting the ILECs’ inflated prices in geographic areas still subject to price flexibility at the levels charged by ILECs in price cap areas, pending a comprehensive review of the price cap rules. Finally, the data require the Commission to re-visit the decisions made by prior Commissions to forbear from regulating certain non-TDM services, particularly certain Ethernet services, on the basis of speculation and predictions regarding the emergence of competition. The data demonstrate that those decisions were misguided and unjustifiable in light of actual marketplace conditions (Docket 05-25, Comments of Ad Hoc, filed January 28, 2016, at pp. i-iii).

The question now is just what will the Commission do with this data.  If it chooses to re-impose price cap regulation, it will face a multi-year court battle. Since it only has one year of special access data (2013) to reach its conclusions, it would face an uphill battle in court, since ILECs could easily argue that one year of data is an aberration and proves nothing. 

Of course, the FCC could buy the ILECs arguments and determine the special access market in 2016 is competitive and no further regulation is needed.  However, the record of this Commission suggests it is itching to do something to “put it to the big bad ILECs.” Thus expect the agency to concentrate on finding many of the ILEC optional payment plans unlawful rather than trying to re-regulate overall special access services. 

 Our opinion here is that special access is a declining service and too much time and effort have already been devoted to it. The Commission would best be served by concentrating on the emerging Ethernet market and determining whether dominant market regulation should be re-imposed. Moreover, any examination of ILEC optional payment plans should concentrate on ensuring that those plans do not hinder CLEC attempts to transition to packet services. That would be a far better use of the Commission’s resources.

By Andy Regitsky, CCMI