TDS says its rate-of-change expenses are higher due to lack of wholesale competition

TDS Telecom may be a sizeable wireline telco, but in areas where it operates as a competitive provider serving businesses it faces a number of challenges in getting access to wholesale services from other larger ILECs like AT&T(NYSE: T) and Verizon (NYSE: VZ).

In an FCC filing, TDS said that in its CLEC (competitive local exchange carrier) territory its rate-of-change expenses are higher than in its ILEC (incumbent local exchange carrier) territory due to a dearth of competitively priced IP wholesale services.

TDS has a sizeable fiber and copper network it uses to deliver services to customers in its own ILEC territory, but in its CLEC areas it needs to rent special access circuits from local incumbents in buildings where it currently does not have its own facilities.

"It has become increasingly difficult for TDS CLEC to provide the levels of bandwidth that prospective customers demand," TDS said in an FCC filing. "This difficulty is due in large part to the lack of availability of IP-based wholesale services at competitive prices. In addition, the cost of purchasing and bonding several UNE T-1s is often prohibitive."

Gaining access to competitively priced special access is only one of TDS Telecom's CLEC division challenges. It has also seen a rise in its CLEC back office expenses, a factor it says is related to three reasons: higher sales spending, unbundled network elements, and RBOC disputes.

TDS has to spend more on sales commissions and marketing because it is reaching areas where it is not an established provider. TDS said this "is because, as the incumbent provider in its markets, TDS ILEC already had a large installed base of legacy customers, while TDS CLEC had to start from scratch."

It also has to create services in its CLEC areas that facilitate the purchase of unbundled network elements and complete customer conversions.

Furthermore, TDS "has incurred significant expenses managing disputes with the RBOCs."

Interestingly, TDS' filing comes as the FCC has launched an investigation into how AT&T, Verizon, CenturyLink and other large telcos price their special access services.

The FCC said last Friday that it has begun looking at claims cited by a number of competitive providers, including Birch, BT, Level 3, Windstream and XO that allege tariff pricing plans of AT&T, CenturyLink, Frontier, and Verizon "are unreasonable, anticompetitive, and lock up the vast majority of the demand for TDM-based business data services -- assertions that the incumbent ILECs have disputed."

For more:
- see this FCC filing (PDF)

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