AT&T says FCC’s BDS proposal unfairly picks winners and losers

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AT&T is speaking out against the FCC’s proposed business data services (BDS) proposal again, charging that the regulator is favoring a few competitive providers while penalizing the broader ILEC and fiber business services industry segment.

RELATED: FCC to propose scaled down special access plan, says report

“The FCC’s proposal, as outlined in the Business Data Services (BDS) Fact Sheet released some weeks ago, picks regulatory winners and losers without regard to the significant factual and economic evidence presented in the docket,” said Joan Marsh, SVP of federal regulatory for AT&T, in a blog post.

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The service provider’s swipe against the FCC comes as the regulator gets ready to vote on new regulations during its monthly meeting next Thursday.

FCC’s proposal sees wide protest

FCC Chairman Tom Wheeler released a modified BDS proposal in October. In the FCC Fact Sheet, the FCC clarified ILEC, TDM and BDS rate reductions and that Ethernet products and services will not be regulated.

Under Wheeler’s proposal, the FCC proposed implementing a one-time 11 percent pricing decrease that would be phased in over 3 years, beginning in July 2017. Specifically, this includes 3 percent in the first year, 4 percent in year two and 4 percent in the third year.  

Wheeler’s plan is lower than the 15 percent cut proposed by what has become known as the controversial Verizon/INCOMPAS proposal.

Marsh said that the proposal set by Verizon/INCOMPAS will benefit Sprint and Windstream – two providers AT&T claims want broader BDS regulations in lieu of building out fiber to serve their customers themselves.

“Although the facts belied their claims of pervasive market power, they will be the beneficiaries of a substantial, unwarranted wealth transfer from the ILECs,” Marsh said. “And while some of them have complained they didn’t get everything they put on their list of demands, they are clearly getting regulatory relief in specific markets and on specific services that the record amply demonstrates are competitive under any standard.”

It appears that the proposed BDS rate cuts won’t just affect the largest telcos like AT&T, which has a separate wireless business, but also midsize telcos like Frontier and Cincinnati Bell.

After the FCC BDS fact sheet appeared, Frontier said it expects that if the FCC implements its special access proposal that placed price caps on TDM-based services next July it could have an initial $10 million impact on the telco’s 2017 revenue.

Following the initial year, Frontier expects the revenue impact to be even bigger, reaching $20 million in 2018 and 2019, followed by subsequent annual declines following that three-year period.

CenturyLink proposed a four-part counter proposal that among other things would deem services over 50 Mbps services as competitive while conducting market tests on lower speed services.

Meanwhile, Cincinnati Bell said in an FCC filing (PDF) that if the FCC were to implement the rules the way they wrote them today, it could cause the company to possibly halt further investments in FTTH-based Fioptics service.

As a provider that serves a small operating area, Cincinnati Bell does not have a wireless business or CLEC business to offset the FCC’s proposed rate reductions.

Striking investment, job cut fears

A key concern raised by ILECs and even competitive providers is how BDS regulations will affect future network investment.

AT&T claims that new regulations have driven an 11.6 percent decrease in the telco’s domestic infrastructure investment over the previous year

Marsh said, "Lowering Ethernet rates even indirectly will make it less economically attractive to make fiber investments due to the lower returns.”

Stewart Ewing, EVP and CFO of CenturyLink, told investors during the Wells Fargo Securities Technology, Media and Telecom event that new regulations will hamper investments.

“Our concern with BDS is it’s not going to spur investment,” Ewing said. “If the wireless companies and others can buy services at prices lower than what our cost is, that plant over time will go away because we won’t invest and consumers will suffer.”

Joining AT&T and CenturyLink in protesting the rate cuts are three competitive providers: Lightower, Lumos and UPN. In an earlier filing, the trio said the FCC should not apply the proposed benchmark regulation to CFPs because these service providers lack the market power of large ILECs to engage in abusive pricing tactics and have increased Ethernet BDS competition in areas where they offer services.

Besides lowering network investments, the other overriding concern is cutting jobs. Already, CenturyLink and Frontier have announced rounds of layoffs at their companies.

In September, CenturyLink announced it would lay off nearly 8 percent of its workforce, or 3,500 people, by the end of the year as a way to stem legacy TDM service losses.

Following a challenging integration process of the wireline properties it purchased from Verizon, Frontier also followed suit, announcing just last week that it would lay off 1,000 employees.

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