New rules by the Federal Communications Commission to regulate the rates large Internet service providers charge smaller providers to borrow their infrastructure could result in a slow rollout of next-gen networks, billions of dollars in economic output and thousands of jobs according to an industry study released Wednesday.
The study commissioned by USTelecom, a trade group whose members include AT&T and Verizon, comes as the FCC considers an update to rules for the broadband special access services — when small providers like Sprint, known as competitive local exchange carriers (CLECs), rent network infrastructure from large providers like AT&T, known as incumbent local exchange carriers (ILECs), to provide service to schools, libraries, hospitals, government offices and small businesses.
Special access was mandated by the FCC to increase competition outside the realm of ILECs like AT&T and Verizon, which inherited their legacy copper-based networks from the Bell Telephone behemoth. Sprint and other CLECs have complained in recent years ILECs force them into strict terms of service, charge anticompetitive rates and make it harder for CLECs to transition onto newer Internet protocol-based fiber networks.
Last summer the FCC voted to allow ILECs to retire their copper networks in place of IP-based networks, and to consider new rules for special access, including mandating ILECs offer CLECs service on new networks at rates regulated by the agency.
According to economist Hal Singer, a professor at Georgetown’s McDonough School of Business and principal of Economists, Inc., a move by the agency could have negative impacts on broadband deployment and the economy overall.
“If an ILEC seeks to replace its copper-based connections to a business, it now faces a fresh disincentive to invest in fiber, in that the wholesale-access requirements will extend to its ethernet services provided over a fiber-based network,” the study reads.
Prices for some business broadband sectors fell between 7 and 17 percent from 2013 to 2015, an indicator the market doesn’t need FCC intervention, Singer’s study states. It goes on to list Level 3, Lightower, Zayo and TW Telecom as examples of breakout competitors deploying 60,000 miles of metro area fiber to 40,000 buildings — investments of about $6 billion between 2010 and 2015.
Those are only four among 30 CLECs that have deployed fiber into 267,000 buildings with more than 650,000 miles of fiber — an average of over two miles per building — in the current unregulated environment.
“Price fixing” by the FCC threatens to do the opposite, according to the economist. Singer illustrated the effect with an economic model in Charlotte, N.C., considered representative of the average population and number of office buildings in a U.S. city.
Singer’s model found, absent regulation, service providers could deploy fiber for high-speed optical and ethernet service to nearly 122,000 buildings nationwide over five years, totaling $9.9 billion in new capital expenses and 4,900 miles of fiber.
New regulations would have the opposite effect, reducing fiber rollout to only 55,100 buildings, 2,200 miles of fiber and $4.4 billion in investment, while scaling back job growth by 43,560 jobs annually over the same five years.
“It is unfortunate that some are calling on the FCC to adopt policies that meddle with the competitive dynamics that have been increasing choice and lowering costs for business broadband customers,” USTelecom President Walter McCormick said in a statement Thursday.
“As this paper illustrates, a competitive business broadband marketplace has emerged in the United States just as Congress envisioned when it passed the 1996 Telecommunications Act,” he continued. “We hope the FCC will choose a path that will build upon these successes, so we can build new broadband infrastructure to better serve American businesses and consumers.”
Sprint, a leader in the CLEC campaign, took the fight to the agency directly last month, where the company filed comments with the Wireline Competition Bureau arguing ILECs’ market dominance is squeezing smaller carrier’s ability to get fair prices and contracts.
“Based on these findings, we urged the commission to issue an order finding incumbent [local exchange carrier] market power and adopting interim measures on rates, terms and conditions in order to address the competitive harms that have arisen as a result of LEC dominance,” Sprint wrote in a public filing, adding both parties “discussed the need to put in place a permanent regime to govern incumbent LEC prices and practices.”
A separate study from the Consumer Federation of America released this week said abusive pricing by ILECs including AT&T and Verizon resulted in $75 billion in overcharges over the last five years, and in total have cost consumers $150 billion since 2010.
“The large incumbent local phone companies have been able to abuse their market power because the Federal Communications Commission deregulated this market long before there was effective competition,” the study reads. “The FCC claimed that competition would quickly erode the immense market power enjoyed by the incumbent local telephone companies in the special access market. The FCC was wrong; competition has not been able to discipline the abuses.”
