Study: FCC’s BDS proposal could stymie fiber network investment

(Credit: Mike Seyfang/Flickr)

A new report from a former FCC senior economist suggested the FCC’s proposal to introduce new price cap regulation to the business data services (BDS) market could cost ILECs as much a $1.4 billion in revenue and do “significant harm” to broadband network investment.

In April, the FCC proposed new rules for the special access market that would help promote driving competition, technology neutrality, technology transitions and rules that address today's and tomorrow's marketplace needs.

But according to James E. Prieger, professor of economics and public policy at Pepperdine University and a former FCC economist, the proposed rules will have the adverse effect of stymying broadband network investment, particularly in rural markets.

"Given the huge potential impacts of the proposed price regulation of business data services – billions in lost revenue for providers, curtailed investment by incumbents and competitors, forgone economic benefits for business, workers, and rural economies – it is important to craft regulation carefully in a fully informed manner," wrote Prieger.

Prieger added that, without enough revenue to continue supporting rural network infrastructures across the country, ILECs could lose the ability to fully support and continue investing in the services that smaller communities across the U.S. need to remain nationally competitive.

The report, sponsored by the Invest in Broadband for America coalition, insisted the FCC acknowledge and account for the fact that four of the largest cable providers admitted they “significantly undercounted the number of locations that are capable of providing business data services.”

"In a rush to regulate, the FCC has missed the negative consequences of this proposal, particularly the potential for widening the digital divide between urban and rural economies" said John Jones, SVP of public policy and government relations for CenturyLink and a member of the coalition, in a statement.

Other members of the coalition include Cincinnati Bell, Consolidated Communications, FairPoint Communications and Frontier Communications.

While those smaller telecom companies voice their concerns, it’s larger telecoms like AT&T that could stand to lose the most if the new proposals go through. Wells Fargo analyst Jennifer Fritzsche said AT&T’s footprint and reach mean it has the highest exposure if the FCC decides to cut special access rates.

"T's argument is that where faster speed connections exist – more competition also exists (and circuit pricing is more competitive). T made the point that in a 5G world, fiber footprint needs to be very deep. If the FCC pushes hard on regulating rates in the business data services market it will make it harder to incentivize large carriers to continue pushing hard on fiber build because the economics become more gray," said Fritzsche.

For more:
- see this press release

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