FCC Can and Should Block Special Access Lock-Up Contracts, Level 3 Says
The FCC can save competitive telecom providers hundreds of millions of dollars annually by restricting price-cap LECs’ use of lock-up contracts for special access services, Level 3 told the commission Wednesday. Level 3 was responding to a June request from Wireline Bureau officials on whether it would be an “adequate remedy” if the commission were to reduce the amount of business the price-cap LECs could lock up to 50 percent. In its filing Wednesday (http://xrl.us/bnxfmw), Level 3 supported that proposal, and said the commission needn’t wait to act until after a data collection on the state of the market, which could take years to complete. The commission has authority to block the lock-up contracts altogether, but it needn’t go that far, Level 3 said: “Speedy action by the Commission to limit the price-cap LECs ability to lock-up more than one-half of the market would have an immediate effect.” With its savings, Level 3 could then “freely purchase up to half of its demand from competitive suppliers as opposed to being beholden to the incumbents."
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Level 3 pointed to the FCC’s 2007 Video Nonexclusivity Order, which banned exclusivity clauses between cable operators and multiple dwelling unit owners (CD Nov 1/07 p2). At the time, AT&T and Verizon -- then fledgling participants in the video services market -- argued that the arrangements were anticompetitive and against the law. Now AT&T and Verizon are among the incumbents making use of “similar anticompetitive terms” to dominate the special access market, Level 3 said. “The shoe is now squarely on the other foot."
Like in the video exclusivity context, the commission can use its authority under Section 201(b) of the Telecom Act to restrict incumbents’ use of anticompetitive demand lock-up prices, Level 3 said. “It would be entirely consistent,” the company wrote, to find such practices in the special access market are “unjust and unreasonable” and therefore unlawful. AT&T argued in August that the Video Nonexclusivity Order doesn’t apply since it relied on Section 628 of the law, which does not apply to carriers. But the FCC already extended “virtually identical principles” of the video order to telecom services in 2001 and 2008, prohibiting enforcement of contracts restricting the access of other carriers to provide telephone service in commercial and residential multi-tenant buildings, Level 3 said.
But in the video nonexclusivity order, the FCC prohibited arrangements between video providers and premise owners that “had the effect of restricting customer choice,” an AT&T spokesman said. Prohibiting arrangements between customers themselves and special access providers is “not the same thing,” AT&T said. “Level 3 is basically arguing that customers need the FCC to protect them from entering into certain agreements, which they can already do themselves.” The spokesman referenced a March filing (http://xrl.us/bnxgay) in which AT&T argued that no customer is required to agree to volume and term discounts, although the commission has “long recognized” the legitimacy of such plans. “Many customers that choose plans with both volume and term commitments can also choose to commit only a fraction of their volumes to those plans and thus have a significant amount of business that can readily be moved to competitive providers,” its filing said.
"Level 3’s example of video exclusivity intentionally confuses the facts,” said Ed McFadden, Verizon’s spokesman, calling the cable contracts in question “true lock ups.” Once signed by a building owner for a residential building, no resident of that building could purchase video services from any other competitive cable service, he said. Verizon’s voluntary special access discount plans do not limit what customers can buy from its competitors, he said: “These voluntary agreements provide minimum volume levels to qualify for additional discounts. Those customers remain free to buy additional special access circuits from any supplier they choose."
Meanwhile, the Wireline Bureau has been asking telecom providers whether they can provide detailed historical data on facilities and building information, filings show. XO is concerned about its ability to gather such data, especially in regard to linking invoices with specific buildings, since that information “may not exist,” the telco told the bureau Friday (http://xrl.us/bnxfia). XO was also concerned about the time it would take to gather other data, such as the use of dark fiber leases to reach specific locations, it said. The data may exist in an XO database but it could take “weeks, if not longer, to locate, pull, and collate such data in the format chosen by the commission,” it said. Also Friday, Windstream told the bureau it would have “challenges” providing historical data, given that the company has acquired eight entities in the past five years, and those entities’ billing and records systems have not all been “fully integrated” yet (http://xrl.us/bnxffy).
Integra Telecom said it was “likely feasible” to give the FCC information about the location and characteristics of its fiber local transmission facilities as of 2010 and 2012, and bills the telco issued for dedicated transmission services each month in 2010 (http://xrl.us/bnw9sy). Incumbent LECs and non-incumbent LECs charge significantly different rates for wholesale transmission services, with ILEC rates “generally much higher” and “generally complex,” with different prices for different locations, Integra said. In contrast, non-incumbent LECs’ rates are “simple and uniform” and do not impose volume commitments on purchasers, the telco said.
Verizon wants the commission to develop an “analytical framework that goes beyond a simple market share test,” it told bureau officials Friday (http://xrl.us/bnxff8). A market share analysis is “problematic” because it would fail to capture “potential competition,” or the “dynamic nature” of the special access marketplace, the telco said. XO also questioned the relevance of supplying information about the company’s future capital or construction plans. Telecom firms often develop and then scuttle plans to construct facilities as markets evolve or corporate priorities change, said Lisa Youngers, vice president-federal affairs, according to its ex parte filing. Therefore plans alone don’t indicate potential competitive deployments, she said. The commission should focus on construction that’s already under way, or that’s been formally committed to and will begin within six months, she said.
The Free State Foundation criticized the data collection endeavor, which illustrates “the misguided nature of the agency’s re-regulation bent,” said research fellow Seth Cooper in a blog entry Wednesday (http://xrl.us/bnw9y2). The FCC has “hinted” it will analyze the data under a “decidedly pro-regulatory framework like the one it adopted in its 2010 Qwest Phoenix MSA Order,” Cooper said, implying a “significantly re-regulated market for special access services” with “a near insurmountable barrier to obtaining regulatory forbearance relief,” Cooper said. “The brouhahas surrounding the agency’s attempt to delineate the parameters of its information collection effort are simply foreshadowing the big mess the FCC’s new pro-regulatory policy almost certainly will create.”