Sprint disses ILECs' inflated special access costs as FCC completes comment period

Speaking to the media on the heels of the deadline to submit comments for the FCC's special access proceeding, Charles McKee, VP of government affairs for federal and state regulatory at Sprint (NYSE: S), said wireless backhaul costs the carrier pays to ILECs (incumbent local exchange carriers) have continued to rise.

As Sprint moves forward with its wireless densification projects to extend 4G coverage to more consumers and lay a foundation for 5G, the operator sees the wireless backhaul circuit costs from the wireline ILECs being an impediment to future builds.

In November, a FierceWireless report said that Sprint's network densification project, which is known as its "Next Generation Network" initiative, is focused on increasing coverage and capacity across its entire network. At that time, Sprint's CEO Marcelo Claure said that "nearly all" of Sprint's existing macro cell sites will be upgraded to support 800 MHz, 1900 MHz and 2.5 GHz for LTE. Additionally, Sprint said it would deploy thousands of new macro cell sites and tens of thousands of small cells.  

Similar to other wireless operators like T-Mobile (NYSE:TMUS), the service provider purchases wholesale backhaul services from its two main competitors AT&T (NYSE: T) and Verizon (NYSE: VZ).

Despite the amount of circuits it purchases from wireline ILECs, Sprint said the high prices of ILEC special access circuits could actually have the unintended effect of driving up prices of its wireless services for consumers and business customers.

"The investment in our network is dependent on access to these basic inputs that all wireless networks are constructed on and it's critical to us that we be able to purchase these existing network connections at rates that are reasonable," McKee said. "The inflated costs of these circuits and the unreasonable tie up provisions associated with these circuits result in higher prices for consumers, less innovation and slower speeds."

McKee said that Sprint and others are hopeful that the FCC's special access data collection effort will give the regulator a better understanding of the actual state of the market and how it affects competitors.

"We are at long last at a position in which the commission will be able to act," McKee said. "The commission has conducted one of the most extensive data collections it has ever done and has gathered more market information than it ever has collected before and as a result it is now in a position to conduct a thorough economic analysis of this market and reach a data-based conclusion rather than relying on rhetoric and predictions of future competition that we have heard repeatedly for over a decade."

Sprint estimates that the costs it pays for wireline operators to support wireless backhaul for its network historically cost about one-third of its overall operating costs of the base station.

As Sprint and other wireless operators eventually migrate to 5G technology, they will need more last-mile wireline connections for backhaul.

"One of the things that makes this important going forward looking to the development of technology as customers demand greater and greater speeds that requires a tremendous amount of bandwidth, and the only way that you can handle that in the wireless world is to have a lot more cell sites within a city," McKee said. "The number of cell sites that wireless carriers are going to need as we move into what's called the 5G world will increase dramatically and that densification of the network also means that our need for connectivity will increase dramatically."

That's not to say Sprint isn't looking at alternative backhaul methods.

Sprint recently revealed that it could save up to $1 billion in wireless backhaul costs by transitioning from wholesale fiber to microwave-based backhaul.

Ericsson (NASDAQ: ERIC), one of Sprint's key network suppliers, forecasts that microwave will become the dominant backhaul mechanism by 2020, handling backhaul for 65 percent of cell sites. In addition to delivering improved capacity, it can be more economically viable financially in areas where an operator can't afford to purchase fiber facilities from a wireline provider.

AT&T and Verizon, two of the largest suppliers of special access circuits, maintain that competitors like Sprint, Level 3 and others misunderstand rates and terms of their service.

These providers have cited how CLECs and wireless operators have various options for wholesale connectivity.

In a recent FCC filing, AT&T refuted claims that CLECs have to pay volume commitments to obtain special access discount plans, saying that no "volume commitments are required to obtain these discounts."

The telco added that the term plans offered by AT&T in each of its wireline regions have various time durations, ranging from one year to a maximum of five to seven years.

Related articles:
Sprint says it will cut $1B in backhaul costs by transitioning to microwave
AT&T says CLECs misunderstand special access terms, rates
AT&T joins ILEC chorus on copper retirement, says competitors have enough notice

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