September 24, 2015 11:10 AM

ILEC Special Access: Is It a "Relevant Market?"

I was troubled to see the FCC, in its Technology Transitions Order, tell ILECs that they would not get the full benefit of their new fiber deployments until the Commission concludes its "review" of competition in the "special access market."  Order, paras. 101-143. Then, last Thursday, the FCC announced that it had taken a "major step" in its review of competition in the special access "market" by making its collected data available to the parties.  And, that made me feel a lot better.  (just kidding!)

The FCC should be moving forward with its review, if only because it's been 14 years since AT&T first petitioned the FCC to revisit its 1999 Pricing Flexibility Rules.  However, the fact that the FCC has not, more recently, focused on the threshold question of whether ILEC special access service is even a distinct "relevant market" should give the public doubts about how quickly this matter will conclude.

You see, the FCC can never justify economic regulation for the benefit of "consumers" if the regulation does not apply throughout the entirety of a rationally-defined market.  For example, last September, Chairman Wheeler explained in a speech that he believed cable to be dominant over the most important part of the consumer broadband market (25Mbps and above), yet the FCC's Open Internet rules applied much more broadly.  Likewise, the last time the FCC made rules affecting ILEC special access, point-to-point data transmission was only widely available from the ILEC.

As a rational matter, unless the Commission's rules cover (at least the majority of) an entire relevant market, its rules cannot possibly provide benefits to consumers in that market.  Here's why it's doubtful that "ILEC special access" services constitute a relevant product market in most parts of the country.   
 
It's Not a Market If Similarly-Situated Customers Don't Use It

Several years ago, the FCC had a "forum" on special access, and you know what?  Everyone was old!  And, so are the companies and carriers that buy a lot of ILEC special access.  The next time you see a story about special access, look at the age of the companies complaining.  I guarantee you that they all started before 2000.

Why aren't there any "young" companies complaining about special access?  Well, probably for the same reason there's no young Bingo players:  it's not that fun, and younger gamblers had better alternatives when they picked up the habit.

bingo lady1.jpg
switchboard operator1.jpgBandwidth Intensive Customers Don't Need ILEC Special Access.  If this isn't obvious, just look at the blog where I explained why Google (and other content delivery companies) took Netflix's "interconnection service" candy at the 11th hour of the net neutrality proceeding.  Netflix was trying to obtain--through regulatory pan-handling--the same benefits that these companies had invested so much capital to create through their own networks. 

The appendix at the end of the blog shows network investment by companies that were new enough to not need special access, but yet old enough to have purchased high-bandwidth transmission capacity at "rock bottom" prices in the wake of the 2002 telecom meltdown.  These companies would never have invested that kind of money to build their own networks if they were destined to be dependent on ILEC special access.

Small/Medium Retail Customers Have Non-Special-Access Competitive Alternatives.
One might argue that it's unfair to just look at the most bandwidth-intensive customers, because CLECs often rely on special access to serve fairly small (in terms of number of locations) business customers.  I couldn't agree more.  That's why it was interesting that just last week, Comcast Business Services announced that they are able to serve multi-location business customers throughout the country through wholesale agreements they have struck with other large regional incumbent cable companies.   

While Comcast's announcement focused on the fact that it could now (with out-of-region wholesale agreements) serve large national multi-location customers, the more interesting point was that it's in-region business unit (small/medium customers) has been the fastest growing part of its business for the last several years.  Similarly, the success of "bring your own access," web-based business providers, like RingCentral and ShoreTel is further testament to the fact that small and medium business customers generally do have choices for competitive phone service--regardless of whether the customer's existing CLEC provider can use these substitutes as wholesale inputs for their retail service.

The bottom line is that it's not a "market" if not everyone needs it--then it's just a brand.  But, even old customers of old brands can find it in themselves to switch brands . . .  

It's Not a Market If There Are Substitutes

You know what's interesting if you compare who filed comments in this proceeding 10 years ago with the companies that are still active now?  It's who's missing.  Any guesses?  Hint: what's different between these two?

John_Legere1.jpgchristopher_walken1.jpgNo matter what your lyin' eyes are telling you, these are not a "before and after" picture of the same guy.  One is T-Mobile Chairman John Legere (before he became a hippie), and the other is John Legere look-alike Christopher Walken.  

When the FCC kicked off its special access review, in 2005, T-Mobile filed essentially the same special access comments as Sprint.  But, after the introduction of the iPhone in 2007, it became clear (to everyone not named Sprint) that mobile data was the future of wireless, and bandwidth constrained cell-sites would not satisfy, or attract, customers for long.

Hence, T-Mobile took its first major step in quitting special access in the Fall of 2008, when it named 6 new vendors of advanced fiber backhaul solutions.  By February of 2010, it was reported that T-Mobile had replaced copper backhaul with fiber in 7% of its towers, with plans to raise that number to 25% of its towers by the end of 2010.  Finally, in August of 2012, T-Mobile announced that it had upgraded all of its cell sites to advanced backhaul services, 95% of which were served by fiber.

The T-Mobile example is indeed dramatic.  But, just as T-Mobile switched tens of thousands of locations to fiber, there are other successful wireless competitors that entered the market after T-Mobile, like Cricket and Metro PCS (acquired by AT&T and T-Mobile, respectively), that never used ILEC special access (or at least never complained about it to the FCC).

*    *    *

Some CLECs have pointed out that there are always going to be some significant number of buildings that will only be accessible via ILEC facilities. But, this fact does not make those locations a "market,"  because, there is no evidence that the ILECs price services to these locations any differently than they do for the bulk of their customers that do have access to competitive alternatives. 

Thus, the FCC cannot rationally conclude that there is a separate "market" for a subset of an ILEC's customers (that the ILEC does not treat differently) for a service that not all of the ILEC's competitors, or retail customers, need to use.  And this is why this proceeding will not conclude anytime soon.
 







Wrong, wrong, wrong. No matter how much ILEC lobbyists attempt to claim otherwise, "special access" is not limited to old fashioned T1 and T3 lines; it includes dedicated fiber and high speed Ethernet connections as well. And there IS a big market for such connections among cellular providers, competitive ISPs and WISPs. Cable companies refuse to sell bandwidth to competitors such as WISPs (ours even denied the service existed!), and the ILEC in our area intentionally price gouges on special access, pricing it above the retail cost of the same amount of Internet bandwidth. It is time for the FCC to step in and end these anticompetitive practices, including ILEC price gouging and refusal to deal by cable operators.

Brett Glass | November 2, 2015 2:26 PM | Reply

Thanks for your comment, Brett. I'm not an "ILEC lobbyist," and I do understand that there are lots of services that end-users, wireline, and wireless competitors use instead of DS1/3 lines. The articles that describe how T-Mobile upgraded all of its backhaul indicate that all of T-Mobile's backhaul (even the portions provided via pt-to-pt wireless) are a significant improvement over previous T1/T3 capacities. And, I'll grant you your point that not every wholesale purchaser in every location has the same alternatives as T-Mobile.

Your comparison of the ILEC special access rates to their rates for their unregulated, "best efforts" retail Internet access service doesn't establish your point; these are two different services. But, your complaint that the cable companies won't provide you with the same telecommunications service they offer to other customers, including carriers (i.e., IXC/wireless), is interesting. Is this a typical practice for cable companies?

Jonathan Lee replied to comment from Brett Glass | November 2, 2015 4:16 PM | Reply

Again, special access has nothing to do with T1 or T3. All point-to-point leased lines are special access.

Also, you are incorrect in stating that I am comparing ILEC special access rates to "unregulated, 'best efforts' retail Internet access service." I am comparing them to the ILECs' own rates for high quality business access.

Finally, you appear to be unaware of the cable companies' refusal to deal with competitors, which is widespread. Bresnan Communications refused to admit that they offered a "digital leased line" service when we called to attempt to buy it, even though it was offered to (and being used by) other businesses in our area which are not ISPs.

Brett Glass | November 4, 2015 12:58 AM | Reply

Brett, as part of the MFJ that settled the AT&T antitrust case, the DoJ determined that long distance competitors needed 2 types of access to the local exchange network in order to compete with AT&T: switched access, and dedicated access. Dedicated access became known as special access. However, when competitive carriers--like Level 3 and Zayo--sell this service they tend to call it simply transmission service. While everyone understands what you are talking about when you say "special access," I am referring specifically to the FCC-regulated, price-regulated, ILEC service initially tariffed in 1980. This service, or specifically--the discount provisions in the ILEC tariffs, is what the FCC is currently investigating, and it is predominately DS1/T1 service.

If Bresnan Communications is offering a telecommunications service to the public, it can determine its own terms and conditions, but it cannot prohibit the resale of its services or impose unreasonable terms on its services that prevent other telecommunications carriers from using them (47 USC Sect 251(b)(1)). Moreover, it has a duty to interconnect with other telecommunications carriers (47 USC Sect 251(a).

You are now (as of June) a telecommunications carrier offering a telecommunications service. If you would like my help with this matter, I would be happy to discuss it with you. (202) 257-8435. --Jonathan

Jonathan Lee replied to comment from Brett Glass | November 4, 2015 9:28 AM | Reply

47 USC 230 clearly states that Internet service -- which is what we offer -- is not a telecommunications service; it is a data service. We are not a telecommunications carrier. The fact that the FCC has attempted to violate the plain letter of the law does not change this.

Brett Glass replied to comment from Jonathan Lee | November 4, 2015 9:01 PM | Reply

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