Cincinnati Bell says mid-sized telcos should be exempt from FCC’s BDS rate reduction proposal

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Cincinnati Bell says the FCC’s business data services (BDS) proposal is a “one size fits all” approach that does not apply to mid-sized telcos and the competitive dynamics of the Cincinnati market.

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

RELATED: Cincinnati Bell’s Torbeck: Our fiber build could exceed 95K new addresses

To date, the service provider has close to 78,000 new homes and businesses – 64 percent coverage of greater Cincinnati – with its Fiber optics service, but the telco told investors during its third quarter call that it could reach an additional 95,000 addresses.  

“The burden of unjustified price cuts on smaller carriers such as Cincinnati Bell could directly harm competition in the market, as well as stifle investment in high-speed services and advanced facilities such as the Fioptics broadband Internet access service being deployed by Cincinnati Bell,” Cincinnati Bell said in the FCC filing. “Indeed, the record is replete with evidence, not only from ILECs but also from cable operators and others, describing the dangers of heavy-handed rate cuts such as those proposed by the Chairman where there is no evidence of market failure.”

A key issue for Cincinnati Bell is market power – a problem that other larger providers don't have, such as AT&T and Verizon. Cincinnati Bell may be the incumbent telco of Cincinnati, but the telco only serves one market and it does not have a wireless business or CLEC business to offset the FCC’s proposed rate reductions. The service provider claims that the large wireless operators that purchase wireless backhaul circuits have greater leverage over small carriers in terms of dictating pricing.

Besides being a smaller carrier, Cincinnati Bell says the Cincinnati market is very competitive. Within Cincinnati there are currently four service providers that provide TDM-based services, including Cincinnati Bell, Charter and two CLECs. Given the level of interest in dark fiber from wireless operators, Cincinnati has been a key target of expansion for three fiber-based providers – Crown Castle, Lightower and Zayo.   

“Customers take advantage of this highly competitive environment by negotiating and obtaining significant rate reductions at contract renewal times, even from the ILEC, and migrating their services to the most efficient technology,” Cincinnati Bell said. “In the past three to five years, for example, all four of the largest wireless carriers have transferred most of their backhaul in the Cincinnati area from TDM-based to Ethernet services, and now are discussing moving from Ethernet to dark fiber (one such carrier does not even purchase backhaul from Cincinnati Bell, using entirely competitive facilities instead).”

Cincinnati Bell suggested that if the FCC should not apply the BDS rules to mid-sized ILECs whose annual revenues from regulated telecom services equal or exceed the “indexed revenue threshold” established by the Commission under Part 32 of its rules, and whose annual revenues are less than $7 billion.

“Cincinnati Bell believes that this $7 billion cut-off would exclude from unjustified and harmful rate cuts those price cap LECs who have been outside the scope of both the original AT&T petition seeking FCC investigation into large ILEC special access rates, and subsequent allegations of market power made in this proceeding,” Cincinnati Bell said.

The service provider added that if the FCC concludes there’s not sufficient competition for lower speed TDM-based services, the commission could “target its proposed TDM regulations to the largest ILECs, who have been the focus of this proceeding from the very beginning, but forbear from further regulation of the mid-sized ILEC services.”

Cincinnati Bell is not alone in its concerns. A group of mid-market competitive fiber players  (CFPs) – Lumos, Lightower and UPN – said in an earlier filing (PDF) that 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.

“The Business Data Services FNPRM recognizes and articulates that at least since 2002, when AT&T filed its petition that led to these proceedings, the rationale for regulating special access rates has been that, due to the exercise of the ILEC’s market power, the rates have been unjust and unreasonable in violation of Section 201(b),” the providers said in an FCC filing. “In contrast, the record shows that Competitive Fiber Providers have no market power; rather, they are forced to match or beat the ILEC’s price, unless they offer a compensating enhancement in quality.”