FCC’s BDS reform draft draws praise and derision from incumbent, competitive carriers

FCC headquarters

FCC Chairman Ajit Pai’s new business data services (BDS) draft reform is being met with a divergent set of responses from competitive carriers, which say reforms will drive competition, and incumbent telcos, which say new rules will hinder network investments.

BDS generated a number of back-and-forth debates during Tom Wheeler’s tenure as FCC chairman. Wheeler was not able to pass new reforms on BDS as he stepped down from his chairman position after Donald Trump became president in January.

Pai said that there is growing competition in the BDS space driven by cable companies, and “where this competition exists, we will relax unnecessary regulation, thereby creating greater incentives for the private sector to invest in next-generation networks.

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He added that “where competition is still lacking, we’ll preserve regulations necessary to prevent anti-competitive price increases.”

Since this is just the first stab at a new BDS proposal, the battle between competitive service providers like Sprint and Windstream and ILECs that have large control over the market, have just begun.

Sprint, Windstream reject BDS arguments

Sprint and Windstream—two service providers that have been expanding their business service presence in their respective markets—have been the most vocal voices to reject arguments that the BDS market is competitive.  

In late March, Sprint filed a letter (PDF) telling the FCC to reject proposals from AT&T, CenturyLink and Frontier and declare that the BDS marketplace is almost uniformly competitive across all BDS services across all geographic markets.

Sprint, which has been recently reengaging its wireline status with a new division dedicated to this segment, said the FCC has recognized that thousands of large and small businesses across the country are paying far too much for broadband because of a lack of competition in the BDS marketplace.

“[A] small handful of companies are overcharging the very investors and employers that are critical to our economic growth—and are using anticompetitive tactics to ensure that these businesses never have access to competitive alternatives,” Sprint said in its filing. “In response, investors and job creators from all corners of the industry, including a coalition of the country's largest companies, leading incumbent local exchange carriers, competitive local exchange carriers, and wireless providers like Sprint, have recognized the need to address inflated prices and the lack of competition." 

Windstream, which is aggressively expanding its metro fiber network via acquisitions like EarthLink and its own organic efforts, agreed with Sprint’s assessment.

Eric Einhorn, SVP of government affairs for Windstream, said in a statement that Pai’s proposal is a step backwards and will harm small to medium-sized businesses (SMBs) and nonprofit organizations.

“The Commission's own data show that for business locations with lower bandwidth demands, 86 percent lack any facilities-based alternative to the incumbent phone company, and all but a tiny fraction of the rest are served only by the phone and cable incumbents,” Einhorn said. “If the Commission adopts this order, most small and medium-sized businesses will be vulnerable to higher prices and inferior service, which invariably result from unregulated monopolies.”

CenturyLink, Frontier claim robust competition

CenturyLink and Frontier, two of the largest independent telcos, have made arguments to the FCC in a recent filing (PDF) that ILECs should be deemed as non-dominant BDS providers.

The telcos’ main argument is that businesses and carriers have a large amount of choices for service.

“Competitors operate in 95.2% of all census blocks where an ILEC offered special access-type service, CLECs are the only BDS suppliers in 13% of census blocks, and, among those buildings served only by an ILEC, 98.7% are close enough to competitive facilities to experience the price-constraining effects of competition,” CenturyLink and Frontier said in a joint FCC filing. “There are now multiple alternatives to DSn, including cable broadband and Ethernet provided over existing cable plant and hybrid fiber coaxial (HFC) plant, which customers view as functional substitutes for DSn services.”

Joining CenturyLink and Frontier in their support for BDS proposals are the American Consumer Institute and the Taxpayers Protection Alliance, two organizations that have been vocal proponents of less stringent regulations.

“The previous rate controls were based on the false assumption that competition and investment could never flourish in the BDS marketplace, particularly in rural areas,” said Steve Pociask of the American Consumer Institute, in a statement. “The FCC’s new order recognizes that this is not the case. Today, these markets exhibit heightened market rivalry. Consequently, easing the regulatory burden on BDS companies and modernizing the rules involved will bring market forces to bear and allow competition to drive investment and innovation in the BDS sector to the benefit of consumers.”

David Williams, president of the Taxpayers Protection Alliance, echoed a similar tone, adding that revising the BDS rules will foster greater network investment.

“Setting rates for these types of services is not how you incentivize providers of these services to invest in better technologies,” Williams said. “It also isn’t the best way to ensure businesses have a large selection of options to choose from when looking at which of these services best fits their needs. Abandoning these regulations on business data services provides an environment for increased competition and choice.”