Just When You Thought that 1934 Holiday Sweater Was Out of Date

Out with the new and in with the old.  Earlier this year, in a mad dash to obey the White House’s command to regulate Internet networks, the Federal Communications Commission (FCC) imposed Telecommunications Act Title II rules on Internet network services.  Title II was infamous for price regulations that enforce the subsidies which consumers learned to hate – long distance subsidized local services, digital subsidized analog services, businesses subsidized residential, and newer services subsidize archaic services.  Regulators love Title II because it allows them to hand-pick the winners and losers.

Although the FCC’s chairman claimed he did not have price regulation in mind (“there will be no rate regulation, no tariffs, no last-mile unbundling”), shortly after imposing Title II, the FCC invigorated a regulation proceeding for special access circuits, dedicated telecommunications lines purchased and used by businesses to carry Internet data.  The proceeding will likely to focus on contracts, terms and (yes) pricing.

The special access proceeding had been inert for almost a decade because the FCC had concluded that, in many markets, it was already a competitive service and had earned price flexibility.  That determination was based on market evidence such as competitor networks, the collocation of competitors’ network equipment in incumbent local carriers’ central offices and carriers’ aggressive bidding for customer business.  Competitors objected to the FCC allowing incumbent carriers to have price flexibility.  The FCC decided to scrutinize the actual pricing data for special access circuits provided by all competitors so that it could rescind pricing flexibility where it felt insufficient competition had persisted.

Special access circuits are often used to connect telephone and broadband traffic to other networks or to Internet network access points, i.e. the router clusters that send traffic across Internet backbones.  Special access circuits are used by non-telecom businesses as piece-parts of their private voice and data networks.  Traditionally, special access was used by competing local exchange carriers and by long distance carriers to allow telecom traffic to reach high capacity long distance networks.

If the FCC decides to impose price regulation on special access again, Internet service providers and businesses will be early victims of higher prices and ultimately Internet consumers will feel the heavy hand of regulated designs and prices.

Special access circuit prices are not listed on a simple catalog page or two because the prices are driven by many factors.  The price for any circuit depends on the amount of investment needed to create it, the term of customer commitment for the lease of the circuit, speed, physical length of the connection, and other factors.  To better understand the pricing and reassure themselves that incumbents were not exerting undue market power, the FCC ordered all providers to submit “locations with connections, prices charged to customers at the circuit-level, maps showing fiber routes and points of interconnection, revenues and expenditures.”

Those elements of data are highly confidential.  Release of the data could give competitors an unearned advantage and if competitors were to act on that confidential data, it could undermine some provider’s financial viability.

As a result, the FCC felt compelled to craft a secure way for each provider’s data to be submitted and subjected to scrutiny by the FCC, by independent analysts, by outside counsel to competitors, and by consultants.  The inclusion of access for consultants and for outside counsel to competitors risks turning the FCC’s “security” scheme into a regulatory oxymoron.  Because of the massive piles of money available, there have been questionable practices in the telecom world, e.g. Enron, WorldCom, and designated-entity shenanigans during spectrum auctions.

Those who receive the confidential special access service information can analyze it but they must promise not to store it nor to disseminate it to any other parties, including those who hire them.  The FCC collected more than 100 names and affiliations of those who say they need access to this private information in order to participate in the proceeding.  The FCC can refuse FOIA requests for this information, but under Title II, the FCC can look at any data it thinks the its decisions on special access pricing flexibility would require.

The security arrangements appear to be rickety, but the bigger issue is that the FCC seems headed back to command and control pricing allowed under the Telecommunications Act of 1934.  The FCC is refreshing its skills of regulatory knitting.  We can expect to see some unrequested, truly ugly sweaters for mandatory use by Internet service providers.

FacebooktwitterredditlinkedinFacebooktwitterredditlinkedin