Windstream (Nasdaq: WIN) is the latest service provider to ask the FCC to take a closer look at AT&T's (NYSE: T) proposal to eliminate discounts for five-year and longer term plans for its TDM-based special access services.
Echoing comments made by other CLECs such as cBeyond (Nasdaq: CBEY) and tw telecom (Nasdaq: TWTC) to the regulator, Eric Einhorn, senior VP of government affairs for Windstream wrote in a letter to the FCC that if AT&T's plans move forward it "would be forced either to pay the higher three-year-term rates or purchase the closest bandwidth Ethernet equivalents, which, as discussed below, are frequently not substitutable."
Operating both a traditional ILEC and CLEC via its purchase of NuVox and Paetec, Windstream must purchase AT&T's TDM facilities to serve its growing base of business customers.
"Despite investing billions of dollars in recent years to expand and upgrade its network throughout its incumbent (ILEC) and competitive (CLEC) local exchange areas, Windstream's substantial CLEC operations still rely on AT&T's ILEC facilities for last-mile access to serve consumers in AT&T operating territories," Einhorn wrote in a letter to the FCC. "In many cases, it is not economically feasible for Windstream, or any other competitive provider, to extend its non-incumbent facilities over the "last-mile," especially when addressing single-tenant buildings."
A big driver in AT&T's reasoning is that they are transitioning its network to IP by the year 2020. As part of that migration, AT&T will offer IP and fiber-based services such as Ethernet.
However compelling fiber-based Ethernet services are, the reality is that they are not widely available.
"Circuits provided through AT&T's special access tariff remain critical to CLECs' ability to provide competitively-relevant alternatives to AT&T because Ethernet is not fully substitutable," Einhorn wrote. "As an initial matter, Ethernet is not ubiquitous--in particular, many single-tenant buildings are not served by fiber. While AT&T "offers" to construct fiber to such locations, its special construction charges are exorbitant, and are sometimes further inflated by unexplained charges that can increase such already high quotes by more than 50 percent."
In addition to not being widely available, fiber-based 10 Mbps Ethernet services aren't appropriate for every business customer.
"Low-bandwidth customers in single-tenant buildings--which often are small businesses--instead typically purchase service in the capacity range of 2 to 5 Mbps, because DS1 pricing at five-year and longer terms is far more favorable than Ethernet pricing," Einhorn wrote. "AT&T's recent action suggests that the company effectively is seeking to increase the prices charged to these customers in single-tenant buildings, by raising prices for their special access services and ultimately driving them to a more expensive Ethernet offering."
If AT&T is permitted to eliminate longer-term plans, service providers like Windstream would have to pay "the higher three-year-term rates or purchase the closest bandwidth Ethernet equivalents."
Thus far, the FCC has not publicly responded to AT&T's request. Following protests from other providers, AT&T decided to delay making a decision as it talked to its special access customers to address their concerns.
In September, the regulator released its revised data request on the Report and Order and Further Notice of Proposed Rulemaking providing instructions covering special access. It will use it to see if it has to make any changes to its pricing flexibility rules.
- see the FCC letter
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