Sprint to triumph in FCC's 'fundamentally wrong' special access BDS proceeding, think tank says

A free-market think tank argues that Sprint (NYSE: S) and other smaller players will gain an unfair advantage if the FCC enacts its proposed rules on the special access market.

In a new paper entitled "The FCC's Special Access Proposal Is Infected With Special Pleading," the Free State Foundation argues that the FCC's years-long probe into the special access market -- an area the FCC now calls the business data services (BDS) market -- is fundamentally flawed, and the group is urging the agency to close its proceeding outright. The Free State Foundation describes itself as "an independent, free market oriented think tank" that is located in Rockville, Maryland.

"It is true that special interest pleading is nothing new at the Commission, and we freely acknowledge that no company or market segment has a monopoly on it. But the long, tortured history of the 'special access' proceeding, in the face of ever increasing facilities-based competition in most places, is stupefying," Randolph May and Seth Cooper wrote in their paper. "This tortuous history is attributable, in significant part, to the Commission's responsiveness to rent-seeking pleas from those who see more to gain from using the regulatory process to achieve their objectives than from expending resources to build out network facilities. Awash in special interest pleading, problematic analyses, and questionable agency processes, the best course would be for the Commission to close the BDS proceeding."

Specifically, the authors argue that the entry of cable operators into the special access market has "reshaped the competitive landscape, providing business enterprise customers additional price and service options. Cable investments in business data facilities were made, to a significant degree, in reliance on the Commission's deregulatory policy. And 4G LTE network capabilities now offer even more additional alternatives to business enterprise customers."

But if the FCC steps in with new regulations that would control the rates companies pay to access such lines, the result would stifle free-market competition, the Free State Foundation said.

"If adopted by the Commission, the new BDS regulation would be especially favorable to Sprint, which previously owned considerably more special access facilities," the authors wrote. "In 2006, it spun off many of its facilities to a separate entity -- Embarq -- now owned by CenturyLink. By imposing new rate regulations on ILECs and cable operator entrants, the Commission's proposal effectively subsidizes Sprint's business decision to sell its own facilities and lease its rivals' facilities at government-dictated prices."

The Free State Foundation isn't the only entity arguing against the FCC's efforts in the BDS sector. CenturyLink (NYSE: CTL), Frontier Communications and other service providers recently formed the "Invest in Broadband for America" coalition to encourage the FCC to reconsider its business data services (BDS) proposal, arguing the agency is using an "irretrievably flawed" data framework. They also argue cable operators have understated their capabilities to serve the Ethernet services market.

The FCC's ongoing BDS proceeding is overtly designed to prevent larger companies like Verizon (NYSE: VZ) and Comcast (NASDAQ: CMCSA) from using their market dominance to overcharge smaller companies like Sprint for access to so-called "special access" lines, or the wired infrastructure that forms the backbone of the nation's telecommunications network. Such access is critical to companies like T-Mobile that must route traffic from their cell towers into the nation's wired internet network.

For more:
- see this Free State Foundation paper PDF

Related articles:
AT&T has 'highest exposure of any player' in FCC's special access debate, Wells Fargo says
AT&T, CenturyLink sound off on legacy voice transition, BDS rules
Verizon, Incompas propose new 8-point special access plan, encourage facilities-based competition

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