New efforts by the Federal Communications Commission (FCC) to take 1990’s special access price regulations out of mothballs spotlights a philosophical battle raging at the FCC over whether to embrace competitive market forces or to decide via regulation which companies win or lose in the marketplace. It’s a prime example of “communications obsolete-ism” at work, which is regulatory hostility to competitive outcomes driven by technology innovation and market economics, versus “communications modernism,” which is the pro-growth embrace of disruptive market competition, investment and innovation.
What is special access? Technically, special access is the business-to-business leasing market of the copper wire connections of the legacy Public Switched Telephone Network (PSTN) that link many buildings and cell towers to the Internet backbone. About 95% of these legacy copper loops provide substandard, increasingly obsolete 1.5 Megabits per second Internet speed. Regulatorily, special access is about whether market forces set prices like they do now, or whether the FCC intervenes and mandates large price reductions for special access in the future. Politically, special access is special pleading by special interests for special treatment from regulators.
There’s no problem to fix here. Real competitors like Level 3, Cogent, Comcast, Time Warner Cable, ClearWire, and others have been building faster modern “middle mile” backhaul facilities — with fiber, cable and microwave wireless — for several years now. What is really going on here is that some providers, who don’t want to invest their own capital to build modern broadband facilities, want the FCC to effectively subsidize them with corporate welfare, via price regulation that redistributes profits from AT&T, Verizon and CenturyLink to Sprint, T-Mobile, and rural cellular providers — under the guise of “regulated competition.” However, if these “competitors” genuinely believe their competitors’ prices are too high, they should be licking their chops, and competing and beating them in the marketplace with cheaper, faster and more modern facilities, and with better products and services. Apparently, they don’t, because they prefer competing in Washington for special favors over competing in the marketplace for customers.
This nostalgic push to bring back old-world price regulation is similar to other FCC efforts to favor regulation-dependent competitors over competition. In 2011, the FCC price-regulated rural broadband data roaming rates, and in 2010 the FCC imposed “net neutrality” price regulation, despite not having the authority to do so under the Comcast vs. the FCC appeals court decision. Special access is also a sister effort to the FCC open docket to reclassify unregulated broadband services as a price-regulated telephone services.
Why is this obsolete policy thinking? This is all about price regulating obsolete 1881 copper wire technology designed for voice communications, using obsolete 1913 economic assumptions designed for a natural monopoly for crank-powered telephones, and obsolete 1934 monopoly law designed for universal service of rotary-dialed telephones. This special access regulation was made even more obsolete by the FCC’s disastrous implementation of the 1996 Telecom Act, which micromanaged most all prices, terms and conditions; led to dozens of FCC-dependent companies (CLECs) going bankrupt; and delayed investment in broadband infrastructure for several years.
In sum, the FCC’s flirtation with reversing ~12 year-old pro-competition policy, presents a clear choice: force obsolete technological and economic assumptions on market competitors with FCC-centric regulation, or continue to embrace technological innovation and market competition with consumer-driven competition policy. At core, the FCC must decide whether it wants to encourage or discourage competitive investment in 21st century broadband Internet facilities.
Scott Cleland is Chairman of NetCompetition® a pro-competition e-forum supported by broadband interests and President of Precursor LLC, a research consultancy for Fortune 500 companies.