AT&T, Verizon, CenturyLink gain BDS victory after court decision, but competitors remain confident about challenge

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AT&T, CenturyLink and Verizon got a victory this week as the Eighth Circuit Court of Appeals denied a motion to stay the effect of the FCC’s reform of its rules governing business data services (BDS), but competitive providers say they still have a strong argument. 

A group of competitive providers and associations, including BT, Windstream and Incompas, asked for a stay that would delay the ending of price caps on special access services pending the outcome of the case.

However, the U.S. Court of Appeals for the Eighth Circuit denied the motion for stay. The court’s order did not say why it denied the request.  

The court’s decision was hailed by FCC Chairman Ajit Pai, who says the court’s decision will help encourage service providers to invest in enhancing their network. Since he took over as chairman in January, Pai, a Republican, has been working to undo reforms his predecessor Tom Wheeler tried to push through like BDS.  

FCC Chairman Ajit Pai
Ajit Pai

“The court’s decision to let our modernization of our business data services rules take effect is an important—though unsurprising—affirmation that the Commission thoroughly analyzed our massive data collection to establish a robust, forward-looking competitive framework,” Pai said in a statement (PDF). “These reforms will encourage vigorous investment in next-generation networks, which is critical if we are going to bridge the digital divide in our country.”

In April, the FCC voted along party lines to pass a report and order that it says recognizes competition in the BDS market is robust, but critics maintain the action will drive up prices for small to medium businesses (SMBs).

Mixed reactions

Reaction to the court’s decision has been mixed, with the petitioners claiming that the FCC did not make a strong enough case that the presence of two BDS providers in a market will result in better rates.

In the request for the stay, the petitioners wrote that the FCC "failed to cite any record evidence to support its conclusion that two [providers] are enough" to lower prices. Competitive providers like BT and Windstream say they have to dedicate a lot of capital to build out to new customers and won't necessarily charge less for service.

BT told FierceTelecom in an e-mail that the FCC’s BDS order ignores the facts and that the argument it and other petitioners made is strong.

"With other companies and groups providing services in the U.S. market, we are keen to see pro-competitive regulation in line with global best practices,” BT said. “The Business Data Services Order does not meet that test and flies in the face of market evidence. While a stay was denied by the court on FCC action, the substance of the case remains."

Meanwhile, Windstream and Incompas would not comment on the initial outcome. However, one unnamed source did tell FierceTelecom that they are confident about their legal challenge to the legal challenge mounted on the FCC’s order.

Alternatively, the Internet Innovation Alliance (IIA), a conservative think tank supportive of the top telcos, praised the court’s decision.

“We applaud the Eighth Circuit Court of Appeal decision to deny a motion to stay the effect of the FCC’s new BDS rules. This action ensures that the agency’s rules that encourage greater investment and facilities-based competition among the networks serving American businesses will continue to move forward,” IIA said in a statement. “Given that network infrastructure typically serves both businesses and consumers, all Americans stand to benefit from the advancement of policies that promote investment and deployment in high-speed 21st century broadband services and applications.”

New competition definition

One of the sticking points for competitive providers is the way the FCC decided to measure market competition. Under the FCC order issued in April, a market will be classified as competitive even if it only has one BDS provider present.

As a result, incumbent telcos such as AT&T, Verizon and CenturyLink will be able to raise rates on TDM-based BDS services, a factor that could inhibit competitive providers that need to complement their network builds with rented facilities to satisfy multisite business customers.

The order addresses two main issues: 50% of the buildings in a county are within a half-mile of a location served by a competitive provider, and 75% of the census blocks in a county have a cable provider present.

Following a transition period, ILECs in counties meeting the competitive market test will no longer be required to file tariffs with the FCC. However, the FCC added that rates “must continue to be just and reasonable.”

At that time, the FCC’s order came under criticism by Commissioner Mignon Clyburn and industry group Incompas.

FCC Commissioner Clyburn Image: FCC
Mignon Clyburn

Clyburn, who dissented, said that the order favors large service providers at the expense of small businesses, particularly in rural areas.

“Instead of looking out for the little guy, the commission chose to side with the interests of multibillion-dollar providers, and today’s order opens the door to immediate price hikes for small business data services,” Clyburn said. “Especially hard hit will be those in rural areas, meaning cash-strapped hospitals, schools, libraries will pay more for vital connectivity.”

Chip Pickering, CEO of Incompas, said at the time that the FCC’s action could have a negative effect on small businesses who typically lack a large amount of capital to pay for services.

“By saying one provider is sufficient, the FCC is favoring old incumbents over new innovators,” Pickering said. “It is punishing small business customers, and holds back entrepreneurs.