Verizon-Incompas BDS proposal may be Wheeler's likely gambit as vote nears: analyst

FCC
Image: Susan Walsh/Associated Press

Verizon and industry group Incompas’ joint suggestions to the FCC on its revision of rules around business data services (BDS) may be “the leading proposal” if the issue goes to a vote in October, a research firm said.

With comments flying in from several telecom industry quarters on the FCC’s proposed revision of rules around BDS, formerly known as special access, Commission Chairman Tom Wheeler may ask for a vote this month, Cowen & Company analysts said – and that could mean a proposal will be circulated as early as this Thursday, Oct. 6.

“The VZ/Incompas joint recommendation still appears to be the leading proposal. We say this because it has been widely attacked in recent weeks by cable, CenturyLink, Frontier and AT&T in their FCC lobbying disclosures,” said equity research analysts Colby Synesael, Gregory Williams and Paul Gallant in a note to investment clients on Tuesday.

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The joint proposal includes a recommendation for a one-time, 15 percent price cut for BDS in areas that don’t have sufficient competition, along with an ongoing price reduction of 3 percent annually. Cable would be exempt from price regulations for at least three years.

However, other incumbent telcos like CenturyLink have argued against the Verizon-Incompas proposal, and their comments will likely put a damper on the size of the FCC’s proposed price cut, the analysts said. Rather than 15 percent, the one-time cut will more likely be around 10 percent.

Furthermore, price cuts for TDM-based BDS will likely be hard-capped, with no opportunity for telcos to challenge the reductions. That may not be the case for Ethernet-based BDS, the analysts added, as the “forward-looking technology” will probably get a lighter touch from the commission. “…Ethernet is the future of small cell backhaul for 5G -- Mr. Wheeler's overarching reason for regulating BDS prices.”

The result of any vote wouldn’t have a significant impact on Verizon financially, the analysts said, particularly if the commission’s proposal is in line with the original joint proposal that the carrier and Incompas filed. Verizon joined forces with the industry group because “the carrier chooses to fight other battles with the FCC (such as privacy, net neutrality) and most importantly may have proposed this compromise in order to get cable into the fray, as Verizon’s stance is that if regulation is necessary it should involve the entire ecosystem.”

An October vote on BDS is also likely to ensure that action is taken ahead of the presidential election. If Wheeler waits until November for a commission vote, “the Democratic FCC may feel obliged not to make any significant policy changes,” the analysts said.

Related articles:
Kovacs: BDS reform - what happens to competitors after a mandated price cut?
CenturyLink’s special access claims are 'misleading,' says Incompas as BDS war of words continues
Charter, Comcast, Cox have a lot at stake in FCC’s BDS review

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