The Federal Communications Commission issued a proposed reform in May 2016 to regulate prices for high-capacity telecom “pipes” that are used by telephone and cable companies to provide business data transport services (or BDS, formerly known as “special access”) to wireless companies and other large businesses. According to the FCC, its goal in the reform is “to ensure that competitive benefits flow to customers and onward to consumers” and “to ensure that non-competitive market conditions do not disadvantage business customers and their ability to compete and innovate in downstream markets” (Order at 1, 5).
In a series of five articles, entitled “Assessing the FCC’s Proposed Reform of Business Data Services,” respected financial professionals Michael J. Balhoff and Bradley P. Williams analyze key elements of the proposed reform. Their conclusion is that, if the FCC chooses to implement its proposed regulatory framework for BDS, rapid technological innovation and competitive behaviors could be distorted and critical ongoing network investment might be chilled.
Issue 1: A Solution in Search of a Problem – The BDS marketplace already has extensive competition and is driven by rapidly changing technologies.
Issue 2: FCC Proposes Wealth Transfer from Customers to Large-Company-Users of BDS – Lower BDS prices will reduce costs for large users but retail customers are likely to be hurt by almost-certain reductions in network investment.
Issue 3: BDS Reform Drives Difficult Capital Funding Choices – Reduced cash flows at network providers will require choices to cut capital expenditures or impair access to capital markets over the longer-term.
Issue 4: BDS’ Regulatory Impact on the Capital Markets – The net effect of the reform is expected to be an increase in the cost of capital for cable and telephone companies, further impairing long-term investment.
Issue 5: Follow the Money – A so-called “compromise” proposal by Verizon Communications and the competitive-carrier association, INCOMPAS, is not a compromise but is simple advocacy to reduce prices in a way that benefits the economic interests of both organizations.
To view the series, visit http://www.investinbroadband.org/2016/09/assessing-fccs-proposed-reform-business-data-services/.
Balhoff & Williams were publishing financial analysts in the Legg Mason Equity Research Department, where they won multiple annual awards for their coverage of rural telephony. Today they provide investment banking and financial advisory services to rural telecommunications companies across the United States.