By Josh Long

In 1999, the Federal Communications Commission moved to deregulate the so-called special access market, granting pricing flexibility to incumbent phone carriers in areas where competitive triggers were met.

But a full 20 years after President Clinton signed the Telecommunications Act of 1996, competitive telecommunications providers that were born out of the law are still fighting with the likes of AT&T and Verizon over “last mile” wholesale access to their incumbent networks.

The outcome of the fight over future regulations – or deregulation – in the $40 million special access market could impact the prices charged by channel partners that sell telecom and IT services to American businesses on behalf of competitive carriers, such as Level 3 Communications and XO Communications.

The FCC, which has collected an unprecedented amount of data in a years-long special access proceeding, has described special access as “a wholesale data service widely purchased by businesses and institutions that provides dedicated, guaranteed transmission of high volumes of critical data.”

It has also provided hints as to its aims: “After a comprehensive evaluation of the relevant data, the FCC will look at revising its rules to provide relief from regulations in those geographic areas where a robust and competitive special access market exists,” the agency explains on a website.{ad}

Over the last 15 years, the CLECs (competitive local exchange carriers) that serve businesses large and small have invested billions of dollars in high-speed networks that traverse cities and connect to gas stations, banks, financial centers and other buildings. Under 1999 “pricing flexibility” rules, the FCC used its authority to forbear from regulating IP-based Ethernet services, granting AT&T, CenturyLink and Verizon relief from many requirements in the 1996 Telecom Act, explained Mike Mooney, Level 3’s senior vice president and general counsel for regulatory policy, in an interview last year.

But 17 years later, the CLECs still aren’t everywhere and are reliant to varying degrees on the incumbents’ special access services, including DS1 and DS3 circuits. According to Windstream Communications, Level 3 and XO serve 30,000 and 4,000 commercial buildings, respectively, but that is just a fraction of the estimated 3.5 million business locations nationwide that house more than one corporate entity, the FCC noted in an order last year.

“CLECs have invested billions and billions of dollars in network but in many cases for these small customers it’s not economic to build the last mile,” Eric Einhorn, Windstream’s senior vice president of government affairs, told Channel Partners. “The CLEC isn’t going to be able to support business access to that gas station without leasing the last mile to the incumbent.”

But AT&T said the data collected by the FCC not only counters CLECs’ conclusions that the FCC prematurely deregulated the special access market in 1999, it demonstrates the commission “did not go far enough.”

“Specifically, the data shows two things,” wrote Bob Quinn, AT&T’s senior vice president, federal regulatory, in a blog. “First, that facilities-based competitors are serving 95 percent of all MSA census blocks (on average, about 1/7 of a square mile in an MSA) nationally where there is demand…

{vpipagebreak}

…for special access services, and second, that 99 percent of all business establishments are in those census blocks.”

According to FCC figures referenced by the United States Telecom Association (USTelecom) in a regulatory filing, competitive carriers served 45 percent of retail business access lines by the end of 2013.

Reforms Long in the Works

Regulators have been examining possible reforms to the special access market for at least a decade. In fact, the FCC’s special access proceeding has been pending so long that AT&T has radically changed its original position on the issue, says Angie Kronenberg, chief advocate and general counsel with INCOMPAS, the trade association for competitive carriers formerly known as COMPTEL.

AT&T used to be a long-distance provider that competed with the Baby Bell phone companies; that ended when it was acquired by SBC Communications in 2005. AT&T later acquired BellSouth, gaining full ownership over Cellular Wireless.

The FCC’s special access proceeding is important to the wireless industry as well because broadband deployments depend on the dedicated, or so-called backhaul, services that bring cellphone and broadband traffic from handsets to cellular towers via wireline networks, said Charles McKee, Sprint’s vice president of federal and state regulatory affairs. Backhaul costs represent approximately one-third of the operating costs of base stations, he explained during a conference call with the media.

Chip Pickering, the CEO of INCOMPAS and a former Republican congressman from Mississippi, argued that special access services, if priced at monopoly rates, will chill investment in new infrastructure and slow innovation in new technologies and applications.

AT&T has a starkly different perspective.

Quinn said the FCC’s years-old proceeding is focused on old and slow technologies in areas where the FCC underestimated the amount of competition.

Interests in favor of regulation “will no doubt keep arguing, but it’s time for the FCC to move on to more important tasks like advancing investment in broadband,” Quinn declared in his blog. “And, one doesn’t do that by re-regulating an old technology that’s already been replaced by far faster and competitive alternatives.”

But in a blow to AT&T, the FCC announced in October 2015 that it would investigate tariff pricing plans for special access services to determine whether they are anticompetitive and …

{vpipagebreak}

… unreasonable. The FCC’s probe into the pricing plans offered by AT&T, CenturyLink, Frontier and Verizon is separate from, but related to, its broader special access proceeding.

As explained by the FCC, CLECs have contended the plans feature “a complicated web” of provisions that include “all-or-nothing bundling” and “loyalty and term commitments” that have the effect of harming competition. Level 3 found in an analysis of DS1 purchases from one incumbent that it pays around $103 million annually for the circuits but it would pay competitive carriers only roughly $87 million for the same circuits.

While CLECs want regulators to hold such provisions unenforceable, AT&T said in a statement that the FCC’s investigation is stalling investments in new infrastructure and called for a speedy resolution.

“Each day the Commission wastes investigating and interfering in commercial agreements between companies that build infrastructure and those that do not is a day it is not encouraging fiber investment or looking boldly towards the benefits those investments will provide to consumers,” said Frank Simone, AT&T vice president of federal regulatory.

However, while FCC chairman Tom Wheeler, who is one of three Democrats on the five-member commission, has said completing the special access proceeding is a priority, FCC spokesman Mark Wigfield didn’t specify a timeframe for a vote. And now, with the presidential election looming, Wheeler may be running out of time to act. If the GOP moves into the White House, a Republican would take over Wheeler’s job and likely have a far different perspective on competition in the business market. Stay tuned.

Josh Long is the chief legal correspondent for Channel Partners.

LinkedIn: linkedin.com/in/joshuaalong
Twitter:  @joshlong1