Level 3, Birch and BT Americas say FCC has power to regulate ILEC special access rates

Level 3, Birch and BT Americas (NYSE: BT), three dominant U.S. competitive telcos, say that the FCC has broad power to adopt regulations governing rates for incumbent local exchange carrier (LEC) special access services.

In a joint FCC filing, the three companies said that the FCC should use a "market power analysis to identify the relevant special access markets in which incumbent LECs have the ability to set and maintain supra competitive prices."

The three CLECs pointed out how the FCC has used this type of analysis to "to identify where competition is sufficient to constrain carriers from charging unjust and unreasonable prices and has already explained that it intends to conduct a similar analysis here."

Among the three options that the FCC could adopt to change the existing pricing regime for special access services are: bring incumbent LECs' Phase II price flex DSn special access services and packet-based special services under price caps, citing evidence that incumbent LECs have market power to provision such services; reduce the price cap index (PCI) for the special access basket, based on evidence that incumbent LEC product gains outpaced larger economy in recent years; and adopt a prospective "X-factor" that lowers the PCI for the special access basket each year by a specified percentage, based on evidence of likely future incumbent LEC productivity gains.

Further, the group of service providers said that despite AT&T's arguments, the FCC can reverse forbearance grants from dominant carrier regulation of LECs' packet-based special access services like Ethernet while imposing rate regulation on those services.

AT&T said in a filing that the market is highly competitive and the commission would have to reverse a number of existing rules if the FCC were to impose "interim" equivalently-priced IP special access service rates for Ethernet as legacy TDM services are phased out.

"The Commission has the authority to reverse the grants of forbearance from dominant carrier regulation of incumbent LECs' packet-based special access services and impose rate regulation, including tariffing and price cap regulation, on those services," the carriers said. "Both the Commission and the D.C. Circuit have expressly confirmed the agency's authority to reverse these grants of forbearance."

BT said in a separate recent filing that AT&T (NYSE: T) and Verizon (NYSE: VZ) are price gouging competitors that purchase special access services, driving them and others to raise the price of service they charge to their large multi-site business customers.

Special access reform and copper network transition have become two key issues that the FCC has taken up as more of the traditional ILECs like AT&T, CenturyLink and Verizon move to migrate off their legacy TDM and copper networks to IP and fiber.

Traditional LECs have argued against being required to provide longer notices of copper retirement and offering IP-based wholesale access services at equivalent rates they charge today for TDM-based services, because it will delay the IP transition.

Earlier this month, the FCC voted to approve a Further Notice of Proposed Rulemaking that will ensure consumers and businesses are not harmed as ILECs transition from legacy copper and TDM-based networks to IP-based networks.

For more:
- see this FCC filing (PDF)

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