On April 20, 2017, the FCC adopted an order to eliminate ex ante regulation of packet-based business data services (BDS), and time division multiplex (TDM) services in counties that have been found “competitive,” following a transition period. These services are essential broadband services offered to small businesses across the country in more rural areas where competition tends to be lower, and the ex ante regulations were meant to keep pricing for these services affordable. Under the new order, incumbent local exchange carriers (ILECs) will have more flexibility in how they price their services. The FCC has argued that the regulations on ILEC pricing for BDS services is no longer needed because of competition from ethernet-based providers.
What are Business Data Services (BDS)?
The FCC defines Business Data Services as follows: “Business data services, known also as BDS, are dedicated connectivity used by businesses, non-profits, and government institutions to meet their needs for secure and reliable communications. Lower bandwidth services, such as DS1s and DS3s, are a segment of the BDS market referred to as special access. BDS is essential to the production and delivery of goods and services across the economy, from connecting bank ATM networks and retail credit-card readers to providing enterprise business networks with access to branch offices, the Internet or the cloud.
What does the new order change in regards to Business Data Services?
In their monthly regulatory review, the law firm Miller-Isar summarized the rule change as follows: “Under the order, a county will be considered competitive if, ’50 percent of the buildings in a county are within a half-mile of a location served by the competitive provider or 75 percent of the census blocks in a county have a cable provider present.’ Incumbent local exchange carriers (ILECs) will be subject to permissive business data services detariffing for 36 months, and then subject to mandatory detariffing. Service prices are to be frozen for six months following the effective date of the order. In counties that do not meet the competitive test, ILECs may offer volume and terms discounts, as well as contract tariffs under the Commission’s previous rules.”
To translate what all this means into layman’s terms, the order effectively removes existing price regulations on business data services offered by traditional, fiber-in-the-ground internet providers. The justification for this is that there is now increased competition from ethernet-based providers for business data services (revealed in an FCC study), and so the existing price caps on traditional providers is no longer necessary.
Comments from the FCC.
Chairman Ajit Pai, who strongly supported the new order, summarized the benefits in his statement as, “The record shows many providers are willing to build out at least by a half-mile, with some going further. What’s more, there’s strong competition well within the half-mile threshold; about half of buildings with demand are within 88 feet of competitive fiber facilities, and 75% are within 456 feet. In counties where the test finds sufficient facilities-based competition to discipline prices, we allow for pricing flexibility and begin the process of de-tariffing special access service. In areas where there is not sufficient competition, we recognize a continued role for price cap regulation to prevent unreasonable and unjust rates (specifically, we allow downward but not upward pricing flexibility to prevent the exercise of potential market power).”
Commissioner Michael O’Rielly lent his support to the new order by stating, “Overall, this order represents another positive and welcome step to eliminate unnecessary regulation. Prior Commission staff viewed technology transitions as something to be feared and micromanaged. I appreciate that this Commission is taking a different approach, embracing technological and marketplace changes as an opportunity for deregulation that will fuel further investment and innovation. I approve this Order.”
Not all voices at the FCC supported the new order. The dissenting comment put forth by Commissioner Mignon Clyburn warned, “what this Order does is open the door to immediate price hikes for small business broadband service in rural areas and hundreds of communities across the country. Cash strapped hospitals, schools, libraries, and police departments will pay even more for vital connectivity, and soon we will see pressure on our Rural Healthcare and E-Rate fund budgets, resulting in less bandwidth for our schools, libraries, and rural healthcare institutions. The promise of realizing more bang for our Universal Service buck in the Connect America Fund II and the Mobility Fund II reverse auctions, will not be realized, which will mean less broadband to consumers, for a higher price tag. This order puts a hefty nail in the coffin of wireline competition, undermining the market-opening goals of the 1996 Telecommunications Act, and paving the way for less competition and more industry consolidation. I should not be surprised by any of this. After all, this is Industry Consolidation Month at the FCC.”