Why the FCC Approach to Special Access Regulation Is All Wrong

Published October 23, 2015

The FCC’s approach to special access is all wrong because they should be doing the exact opposite of what they are doing. The FCC should be price de-regulating special access, not signaling increased micro-regulation of special access rate terms and conditions.

Like an ostrich, the FCC has its head hidden in the sand on its approach to special access regulation, hoping that no one notices that the rest of its body is fully exposed.

If the FCC can convince everyone to join them and put their heads in the sand too, and to look at special access regulation in the dark of self-defined isolation, and ignore the broader context of the competitive U.S. communications sector visible all around them, the FCC has a reasonable chance of sounding reasonable.

However, if anyone has their head out of the FCC’s regulatory sandpit and looks around for a moment at special access regulation in the broader context of the real world, more special access regulation looks ridiculous, just like the exposed back-end of an ostrich does when it hides its head in the sand.

What can anyone see and learn about the FCC’s backward and counter-productive special access approach if they only look?

Business to business special access is the only market the where the FCC still regulates the rates of retail services.

How can the FCC justify that only business-to-business special access warrants the special treatment and protection of FCC micro-regulation of rate terms and conditions when all other customers and consumers of retail services do not?

More specifically, why is the FCC still regulating business-to-business special access with “old-style telephone” utility rate regulation when the FCC represented that its 2015 Open Internet Order did not need utility rate regulation to protect customers/consumers?

The Order bars the kinds of tariffing, rate regulation, unbundling requirements and administrative burdens that are the hallmarks of traditional utility regulation. No broadband provider will need to get the FCC’s approval before offering any price, product or plan. (paragraphs 37-38, 417, 451-452, 497-505)… Old-style telephone regulation required companies to file tariffs with the FCC and await regulatory review before they could bring new products to markets – such an approval process does not exist and is not permitted under this Order. Broadband providers will be able to adjust retail rates without Commission approval and without having to wait even a minute. (paragraphs 37, 451-452, 497-505)”

The FCC can’t justify such an obviously incongruous double standard where select special access companies warrant special regulatory treatment that is more favorable than any other group enjoys.

The FCC also wants the public to ignore that TDM special access is a relatively small market overall, about 4% or ~$24b of the overall U.S. telecommunications services market of ~$600b — according to U.S. census statistics.

The FCC also is interested in diverting attention away from the reality that special access rate regulation is increasingly an anachronistic segment of the market that depends on reselling obsolescing equipment of the 20th century legacy copper network that naturally is going away over time. In other words, rate regulated, non-Ethernet special access is a shrinking market of the past, not a growing market of the future.

In addition, the FCC doesn’t want the public to connect the dots that the 96% of the communications services retail market that is not price regulated has enjoyed over a trillion dollars in private risk capital, Internet infrastructure investment, while the rate-regulated, special access market is not attracting new investment, because one can’t earn a market-based return on new investment there.

In sum, if we don’t put our head in the sand, what really is going on here is clear.

Sadly, what most characterizes today’s special access market and makes it truly “special” is the naked rent-seeking of crony capitalism and regulatory capture.

To fulfill its need to remain relevant as a legacy price regulator in the 21st century, the FCC encourages too many reseller companies to remain too dependent on FCC regulation for artificial business advantages, rather than encouraging market-based, facilities competition — via investing in faster, modern access infrastructure.

If the FCC truly wants more competition and investment in faster broadband access for businesses, it should do what has worked in the other 96% of the market – de-regulate FCC special access pricing.

[Originally published at Precursor Blog]

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.