Sprint, Windstream sue the FCC for 'capricious' business data services proposal

FCC headquarters
After Donald Trump took office in January, former FCC chairman Tom Wheeler backed off from his initial proposal to pose caps on BDS lines.

Sprint and Windstream are suing the FCC over the regulator’s proposed controversial business data services (BDS) deregulation plan that the two service providers said could potentially enable incumbent telcos to unfairly raise rates.

The lawsuit comes after the FCC voted on April 20 during its monthly meeting to deregulate lower speed BDS services, including wireless backhaul.

In a filing to the U.S. Court of Appeals for the D.C. Circuit, the two companies said the FCC’s "Report and Order is arbitrary, capricious, and an abuse of discretion.”

RELATED: FCC says BDS order will incite investment, but critics charge it will inflate service pricing for SMBs

Reforming the $45 billion BDS market has been a controversial subject, pitting competitive carriers who want fair prices for off-net circuits and ILECs that say regulations will stifle investment.

After Donald Trump took office in January, former FCC chairman Tom Wheeler backed off from his initial proposal to pose caps on BDS lines.

Divergent paths

Being purchasers of BDS services to augment their last-mile connectivity, Sprint and Windstream supported Wheeler’s proposal.

Sprint uses BDS services for two purposes: A mechanism for wireless backhaul and as a last-mile vehicle to deliver services to business customers via its new wireline division.

Although Sprint did not report its BDS costs in its annual filing, the service provider noted that they are "a significant cost for our wireless and wireline segments."

Windstream, which also serves as an ILEC mainly in Tier 2 and Tier 3 markets, uses BDS to augment business services reach in areas where it currently has not built fiber. By purchasing allows Windstream to quickly fulfill business customer needs while it continues to expand its own fiber network facilities. The service provider has continued to expand its own fiber network in areas like Detroit, for example.

Tony Thomas, CEO of Windstream, told investors during its first quarter earnings call that deregulation of the BDS market could have a grave effect on small businesses.

“We have consistently maintained that small and medium sized businesses will be unduly harmed by an unregulated marketplace in which very little or no competition exists in more than 90% of business locations across the country,” Thomas said during the earnings call, according to a Seeking Alpha transcript.

However, incumbent telcos AT&T, CenturyLink and Frontier have long argued that the former FCC chairman’s BDS proposal would stifle network investments.

Caroline Van Wie, assistant VP of federal regulatory for AT&T, said in a blog post that the FCC’sorder imposes a light-touch regulatory regime on all legacy transport services (where competition for these services is pervasive), while implementing a fact-based Competitive Market Test for legacy BDS last mile connections.”

“Applying this sensible market test proposed by the FCC will ensure that the BDS marketplace will continue to flourish in areas where competition has taken hold and that existing controls remain in place where the Commission determines that competition is still needed,” Van Wie said. “These commonsense reforms are grounded in the FCC’s massive data collection and the voluminous record.”

Calling out AT&T

AT&T has been called out by Sprint and Windstream for a new BDS rate increase.

The day after the FCC circulated its BDS proposal, AT&T announced a 15% price increase for intrastate private line DS3 services to take effect “on or after”  the date of the Commission’s scheduled vote on a broadly deregulatory BDS order.

Sprint and Windstream said in an April 14 ex parte letter (PDF) that AT&T's private line service price proposal is "canary in the coal mine for BDS services after deregulation."

“It shows that even in the retail private line market, actual and potential competition from the cable industry is not nearly as vigorous as AT&T claims in its ex parte letter, and that the near-nationwide deregulation being contemplated by the Commission at AT&T’s behest rests on incorrect or overstated assumptions about BDS competition,” Sprint and Windstream said in the letter. “It also demonstrates that in just four days’ time, the Commission’s search for a 'balanced approach' on BDS could conclude with final rules that transfer an enormous amount of wealth from the thousands of American businesses that buy dedicated broadband to a small group of large telecommunications incumbents, chief among them AT&T, while failing to promote competition.”