CenturyLink forbearance ruling could set off competitive dogfight

CenturyLink (NYSE: CTL) has received forbearance on dominant-carrier regulation from the FCC related to its packet-switched and optical switching services, but competitive groups say the decision could set a dangerous precedent of jacking up wholesale rates for CLECs.

By allowing the petition to proceed, the FCC has indicated its willingness to revisit its 2012 reversal of "pricing flexibility" for incumbent carriers that have a dominant position in the market.

In December 2013, CenturyLink filed a petition via section 10 of the Communications Act of 1934, as amended (Act), requesting that the FCC refrain from implementing "dominant carrier regulation and the Computer Inquiry tariffing requirement with respect to its packet-switched and optical transmission services (together, 'enterprise broadband services') that are still subject to those regulations."

Perhaps not surprisingly, CenturyLink applauded the FCC's move, calling it a victory for its enterprise customers, which they say will gain better pricing for business broadband services such as Ethernet, IP/VPNs and optical services like wavelengths.

"CenturyLink has been granted relief from a patchwork quilt of outdated and burdensome regulations that prevented us from offering competitive rates, terms and conditions to enterprise broadband customers," CenturyLink said in a statement provided to FierceTelecom. "The real beneficiaries are CenturyLink's enterprise business customers, who will now enjoy better broadband pricing, terms and conditions across our markets. Competition had a good day today."

The service provider maintains in an FCC filing that it has used the "partial" forbearance it has to develop more than 300 agreements with wholesale and retail broadband customers at competitive rates.

"CenturyLink has used its partial forbearance to negotiate over 300 customized agreements with wholesale and retail enterprise broadband customers, generally at rates significantly lower than its previously tariffed rates," CenturyLink wrote in its FCC filing. "Greater competition is continuing to cause downward pricing pressure for all enterprise broadband providers."

CenturyLink added that CLECs have a number of alternative wholesale sources to extend services into off-net business locations they don't reach today with their own facilities.

"CLECs continue to use multiple alternatives to ILEC broadband services to provide their own competing enterprise broadband services," CenturyLink wrote. "They can deploy their own facilities, use a cable provider's or other third party's wholesale services, use TDM-based DS 1 and DS3 services or use copper loops purchased at TELRIC rates, as many CLECs have successfully done."

However, Comptel, an industry advocacy group that represents a number of competitive service providers, argues that the FCC's granting of CenturyLink's request could impede competition.

At issue is that CLECs, despite the ongoing buildout of their own fiber facilities, can't reach every location, so they need to rely on buying last-mile facilities from traditional ILECs, such as CenturyLink.

"It is economically impossible for alternative providers to deploy connections to many customer locations," said Karen Reidy, vice president of regulatory affairs at Comptel, in a prepared statement. "For that reason, the grant of CenturyLink's petition (in this case by operation of law) that allows it to price critical wholesale inputs at exorbitant levels – as with similar grants to the other largest incumbents – impedes the Commission's goals of promoting retail competition."

Take Level 3 Communications, one of the pioneering fiber overbuilders that grew up during the Internet boom of the late 1990s. The service provider has to buy off-net circuits from local telcos as it expands service reach to more multisite businesses it serves.

Jeff Storey, CEO of Level 3, said in a transcript attached to the CenturyLink petition that Level 3 will initially buy an off-net circuit from an incumbent because "[sometimes] the building doesn't justify it on a single customer."

"We will win a couple of customers," Storey said. "We'll buy off-net service in there and then we will build our fiber and capture those net [expenses]. … But it is important for us to use off-net providers in the meantime. We can't go everywhere and so it is a big component of our business."

In a filing challenging CenturyLink's petition for dominant-carrier forbearance, Comptel suggests that the FCC consider developing a common last-mile access policy that all carriers could follow.

"The problem is that there is no coherent last-mile access policy that all carriers (including, we would add, a CenturyLink CLEC affiliate that could create national offerings on the same terms as other competitive providers) can depend upon to compete," Comptel wrote in an FCC filing.

CenturyLink is not the only telco that's come under fire for its special-access actions.

In October, AT&T proposed that it would no longer support term plans longer than 36 months for tariffed TDM services, including DS1, DS3, analog private line and DS0 services.

After protest from various competitive providers, including Sprint, TW Telecom and Windstream, AT&T in January 2014 sought permission from the FCC to withdraw its proposed tariff changes on TDM-based special-access services it sells to competitive service providers.

However, it filed another proposal to increase special-access rates.

The FCC has collected the data on special access, but has not released its findings yet.

For more:
- see CenturyLink's filing (.pdf)
- here's the FCC's announcement

Related articles:
AT&T withdraws its special access tariff proposal
FCC delays AT&T's special access request
Sprint, other competitive carriers rail against AT&T's special access rate increase
IP transition shouldn't be a license to price gouge CLECs, business customers, says Windstream

Suggested Articles

Ahead of some key retirements next year, Charter Communications announced on Wednesday that it has made some changes to its leadership team.

365 Data Centers can now offer direct connectivity to the major public cloud service providers thanks to a partnership with Megaport.

AT&T is driving battery and energy storage company Exide's digital transformation with its virtualized FlexWare platform.