Windstream continues to assert that AT&T's (NYSE: T) plea to the FCC to block an interim plan to provide equivalently-priced IP-based last mile wholesale services, if heeded, will result in a lack of service provider choices for small to medium businesses.
AT&T and fellow incumbent local exchange carriers (ILECs) CenturyLink (NYSE: CTL) and Verizon (NYSE: VZ) are petitioning to be allowed to raise prices on wholesale IP-based services like Ethernet, which competitive local exchange carriers (CLECs) like Windstream rent to deliver services to their business customers.
"Small and medium sized businesses, state and local governments, educational institutions, and health care providers would lose competitive alternatives to service from AT&T, or at a minimum would see significant price increases, if AT&T were to be able to raise its prices for last-mile connections to the vast majority of business locations that CLECs cannot serve without buying AT&T's wholesale last-mile services," wrote Windstream in its FCC filing.
Earlier this month, Windstream wrote an FCC filing asking the FCC to enact reform and grant its Petition for Declaratory Ruling regarding the continued availability of unbundled DS1 and DS3 capacity loops after an incumbent local exchange carrier makes an IP or fiber transition.
AT&T fired back quickly, charging that Windstream's request comes in the face of a market that is highly competitive and the commission would have reverse a number of existing rules. The telco said that in order to alter the Ethernet rates, the regulator would have to "reverse" the forbearance it gave to telcos deploying Ethernet in 2005 while satisfying the standard of Section 205 for these services.
Similar to other large CLECs like XO and Level 3 Communications, Windstream, which has built out a nearly 118,000-mile fiber network, continues to invest in its own fiber facilities. As part of its ongoing network plan, the service provider told investors earlier this year that it would expand its on-net fiber building footprint in five markets by the end of the year.
"Windstream operates the nation's sixth-largest fiber network (spanning approximately 118,000 miles)," wrote Windstream. "But while competitive LECs have made significant investments in their own network infrastructure, this has occurred largely in the network backbone rather than in last-mile connections to the customer, because competitors cannot make an economic case for overbuilding the latter ILEC facilities in most instances. Converting networks from TDM to IP simply requires changing transmission electronics, without necessarily converting loops from copper to fiber."
ILECs like AT&T have a unique advantage in building out fiber to business locations because they already have existing copper and associated conduit into all of the buildings in their territories.
"ILECs have insurmountable advantages in serving the vast majority of business locations because, as a legacy of their historical monopolies, they already possess facilities into every building, and they have the overwhelming majority of customers over which to amortize the costs of deploying fiber," wrote Windstream. "A recent analysis performed by CostQuest confirmed yet again that the costs of building new last-mile network facilities as compared with the revenue that can be generated from those facilities show that a CLEC can build out its own facilities only if it can attain substantial end user density and penetration."
Cost Quest estimated in a study that in a 30-mile fiber ring that had 20 commercial buildings, a CLEC's deployment of last-mile facility to serve one customer in each building would not be economically feasible unless each customer bought "more than 1 Gbps of capacity."
Windstream also refuted the argument that SMBs can get access to business services from a number of cable operators like Charter Communications (NASDAQ: CHTR), Comcast (NASDAQ: CMCSA), Cox, and Time Warner Cable (NYSE: TWC). While each of these cable MSOs have been making progress in expanding their network reach to serve more business customers, they still lack the ubiquity of the ILEC networks to address multi-site business customers.
"GeoResults data shows that cable's competitive significance falls off substantially as business locations grow in size, and cable is particularly weak with respect to business customers with more than one location," wrote Windstream. "And even with respect to the product markets and geographies within which cable can provide a retail competitive alternative to the ILEC, if CLECs are unable to use ILEC wholesale services to reach business customer locations, the vast majority of smaller to medium-sized non-residential consumers would confined to a service duopoly."
These filings come at critical time when the FCC is closely reviewing the special access pricing regime, an issue the regulator will discuss at its Aug. 6 meeting.
The FCC recently issued a proposal that there should be protections to ensure that ILECs can't jack up prices on next-generation IP services. A number of CLECs and their SMB customers that depend on lower-speed TDM-based T-1 and related services face uncertainty as incumbent carriers prepare to stop offering some of these services.
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