The industry response to the FCC’s trimmed down special access request is due on December 15th and ILECs are not happy. With special access responders now required to file data for 2013 only, ILECs are concerned that a single data point will provide a misleading picture of the special access market to the Commission. Moreover, they believe that the Commission would unlawfully use the misleading data to restrict their special access pricing flexibility and possibly even their earnings. 

ILECs see special access as a dynamic market in which customers have a plethora of choices among providers and services. They believe they face increased competition from cable companies, and as they frequently point out to the FCC, in the Internet Protocol (IP) world special access customers will buy fewer circuits as they move to Ethernet and other data alternatives. ILECs are concerned, reasonably, that a one-year look at the special access market, no matter how detailed, will fail to capture the market’s dynamism.  Instead, it would show a market which they dominate, facing only scattered competition in major cities, and a market in which they have utilized their pricing freedom to sign up customers to long-term contracts with almost unbreakable covenants. So what can ILECs do to “improve” the Commission’s market analysis?

ILECs know that the Commission’s original special access data request was shackled by the Office of Management and Budget (OMB) in August. The OMB eliminated much of the original data required in order to ease the burden on responders. Thus the two years of data originally required have become just one. To remedy this, ILECs have come up with a creative solution. 

In an October, 24, 2014  Petition for Review filed by the United States Telecom Association (USTelecom), the association that represents the interest of ILECs, USTelecom  requests the Commission to require special access providers and customers to file certain 2014 data chosen at random. US Telecom states:

Under the circumstances, the Commission should issue a notice seeking comment on alternative approaches that would enable the Commission to view recent trends in the special access marketplace, such as collecting sample data from 2014 that the Commission could compare with 2013 data by means of statistical testing. But heedlessly charging ahead with a limited information collection without pausing to consider the effect of OMB’s actions on the Commission’s desired regulatory approach…is not a lawful option. 

First, limiting 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… 

Second, the [FCC’s Wireline] Bureau exceeded its delegated authority when it limited the scope of the data collection to a single year. Although the Commission delegated limited authority to the Bureau to conduct the information collection, the scope of that delegation did not extend to changing the time period for which high capacity services data was to be collected.

Third, the Commission risks engaging in arbitrary and capricious decision making if it were to adopt new special access rules based on a one-year snapshot of data. Indeed, proceeding with a constrained information collection – and without considering at the outset the changes in the legal and factual landscape resulting from OMB’s actions – would reflect a patent failure to engage in reasoned decision making (See, FCC Docket 05-25, US Telecom Petition for Review at pp. 3-4).

And in that last paragraph, the ILECs get down to the nitty gritty. By stating up front that any regulatory restrictions that result from a single year of data, would be “arbitrary and capricious,” the ILECs are throwing down the gauntlet that such a result would be challenged in court. Furthermore, since the Commission stated in its original Special Access Data Collection Order that it was ordering two years of data because “a two year period between observations is more likely to include changes in the relevant variables than a one year period,” the Commission has put itself into a box. If it orders significant regulatory changes as a result of data from a single year, it will face a court battle it is likely to lose, since it would be relatively easy for ILECs to demonstrate how the results from a single data point can be explained by factors other than ILEC market dominance. On the other hand, if it now requires data to be filed for additional years, it could face legal challenges from special access providers (such as cable companies) who have fought for less data to be filed. These parties could easily argue that the Commission is violating the OMB Order. It is hard to see how the Commission finds the key to get out of its latest predicament.

By Andrew Regitsky, President, Regitsky & Associates

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