Level 3: Verizon/Incompas proposal will help the FCC establish a sound business data services regulatory regime

Level 3 has put its support behind the joint proposal made by Verizon (NYSE: VZ) and Incompas to reform the business data services (BDS) regulatory regime.

Joined by Birch and EarthLink, Level 3 said in a FCC filing that the proposal's goals will help ensure a more level playing field in the BDS market.

These three competitive providers said BDS reforms need be addressed as these providers look to expand their business services footprint in areas where they can't justify building their own fiber facilities.

"The need for reform has become so apparent that Verizon and INCOMPAS, two parties that have taken opposing positions in this proceeding in the past, have now submitted a joint proposal for reform," Level 3, Birch and EarthLink said in a joint letter to the FCC. "Under that proposal, the Commission would adopt a technology-neutral, competitor-neutral regime under which ex ante rate regulation would apply in non-competitive Business Data Services markets."

In its second proposal, Verizon and Incompas called for the FCC to create what they call a technology-neutral regulatory regime under which ex ante rate regulation would apply in non-competitive Business Data Services (BDS) markets.

As part of its proposal, BDS that have the capacity at or below a threshold not lower than 50 Mbps would be classified as non-competitive.

For Level 3, a key issue with BDS reform lies in the challenge to extend its fiber network to deliver services that are under 100 Mbps. While the service provider has a fiber-rich network, the service provider is challenged in building a business case to provide sub-100 Mbps services to business customers.

In order to build out fiber-based service connection to a business customer, Level 3 said it has to have access to its already installed fiber transport network. The access to the transport network is only available at its splice points, which are usually located at nearby manholes and other physical access portals.

"Based on my experience, it is infrequently the case that Level 3 can deploy a new fiber connection to serve a customer demanding only 100 Mbps of bandwidth or below," said John Merriman, VP of finance for North America at Level 3, in the declaration section of the filing. "This is because the distance between a customer location and a splice point on Level 3's network usually exceeds the construction feasibility limits for bandwidths of 100 Mbps and below."

Merriman added that Level 3 can "usually deploy a new fiber connection to serve a customer demanding more than one Gbps of bandwidth." The service provider suggested that the FCC create a framework for to identify markets that aren't competitive by looking at actual market conditions but is also simple to administer.

"Since it is infrequently the case that a competitive carrier can deploy a connection to provide a customer Business Data Services of 100 Mbps of capacity or below, the Commission should classify Business Data Services of 100 Mbps capacity and below as non-competitive in all geographic areas," Level 3 said. "Similarly, because competitive carriers can generally deploy a connection to serve a customer that demands Business Data Services of greater than one Gbps, the Commission should classify Business Data Services of a capacity above one Gbps as competitive in all geographic areas."

Level 3, Birch and EarthLink's position on the joint Verizon/Incompas proposal contrasts a filing made by AT&T and a separate joint filing from CenturyLink, Consolidated, FairPoint and Frontier Communications.

AT&T (NYSE: T) and CenturyLink (NYSE: CTL) said the joint Verizon/Incompas proposal has emerged as an effort to advance their own interests at a time when Verizon and Sprint have sold off their key wireline assets. As a result, the two service providers contend that Verizon and other Incompas members like Sprint will start purchasing more special access services to deliver business services and for backhauling wireless traffic.

In its filing with the FCC, AT&T said that the Verizon/Incompas proposal is "simply joint advocacy to advance their common interests."

CenturyLink agreed and added that the "proposal should be dismissed for what it is—a self-serving attempt to ignore the cost of building tomorrow's infrastructure while seeking below cost rates from the providers who build the nation's networks."

For more:
- see the joint Level 3, EarthLink, and Birch filing (PDF)

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