Results tagged “IP transition”

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.
 







October 11, 2013 12:58 PM

Surprise! FCC Regulations Promote Investment

Earlier this week, the Internet Innovation Alliance released a study on old networks, new networks, wireless networks, red networks, blue networks; who's using them, and how much they cost.  Coming in at 45 pages, including numerous pictures (each worth ~1000 words), the IIA had more to say than Sen. Ted Cruz on bath salts.  Luckily, you've got me to unpack this baby for you.  

In short, the IIA report dramatically shows what every FCC commenter has ever said in support of their comments: and that is that if FCC adopts the regulatory (vs. de-regulatory) policies advocated, then these policies will promote investment above and beyond the level necessary to deliver the regulated service.  To be clear--FCC regulations (they have to be affirmative burdens on regulated firms) promote investment.

Let's take a closer look.  According to IIA, only 5% of households depend on "POTS" (plain old telephone service), and the switched telephone network handles only about 1% of the voice traffic handled by IP networks (wireline + wireless + cable + CLEC).  Yet, and here's the kicker, from 2006 through 2011 more than half of incumbent LEC investment was used to support the POTS network in order to comply with . . . wait for it . . . FCC regulations!  

This investment--which was clearly not necessary to deliver voice service to consumers--amounted to over $13.5 billion dollars/year.  This is investment that can only be attributed to successful regulation.  I'd say former Chairman Julius Genachowski has something else to crow about . . . as if he needed another feather in his cap.
                                                                       
The impact of this report cannot be understated.  The Commission has scarcely seen such vindication of its efforts.  While the IIA tries to shy away from its pro-regulatory conclusions by saying that but for the FCC's legacy rules, more resources would have been diverted to providing advanced IP services that consumers want to use, this is idle speculation from self-interested parties.  The IIA knows full well that maintenance of this "museum network" is critical to our country's economic recovery.

Interestingly, the IIA study confirms what the left has been saying for years: cable needs to be regulated.  Why?  Well regulation certainly won't make them better companies--apathy is in their DNA--but regulation will make them pay their fair share.  Take, for example, Comcast's customer service rating: a resounding "disappointing", but only a step away from "terrible."  Verizon comes in almost even (the result you would expect in a competitive market).

The only difference between the two companies?  Verizon is contributing to the economy, and Comcast is getting a free ride--regulation-wise.  If Comcast were regulated, would they all of a sudden improve by providing "mediocre" or "somewhat acceptable" customer service?  No!  Of course, not--they would in all likelihood remain competitive with Verizon, but they would be contributing to US economic development.

Perhaps the party that comes off looking the worst out of this study is US Telecom.   US Telecom, in case you don't know, is the trade association of the incumbent LECs, and US Telecom has repeatedly fought the Commission's efforts to preserve these pro-recovery, pro-investment regulations. 

US Telecom filed an extensive petition last year explaining why a ton of legacy regulations no longer serve any useful purpose.  In fact, US Telecom has another petition pending with the Commission right now, seeking to remove some of these regulations by having its members declared "non-dominant" in the provision of wireline telecommunications services. 

In its arguments, US Telecom conveniently fails to list "investment" [for the sake of regulation] as a useful purpose of regulation.  This omission, of course, makes the US Telecom requests look deceptively reasonable.

Hopefully, the Commission will see through this shameless ploy and do what's right for the economy.  Frankly, it matters little whether 5% or .0005% of consumers use incumbent LEC wireline services: dominant is dominant, and dominant = regulations, dammit.  You know who "gets it?"  The competitors of the US Telecom members, that's who. 

Because of the government shutdown (costing countless jobs from regulations that are simply not being adopted), I couldn't check the FCC website to see who else had the foresight to oppose the US Telecom petition, but I did manage to find these opposition comments from CompTel here and here.  Thank goodness someone cares about preserving the investment burdens incentives of their competitors.
 
February 20, 2013 5:13 PM

Is Improving the Resilience of Electric Distribution Networks Crucial to the IP Transition?

Last Thursday, I was an online participant in the US Telecom policy briefing entitled "[w]hat's the point of voice regulation?"  The format was a panel discussion where the U.S. Telecom General Counsel, Jonathan Banks, provided topics for the panelists to discuss.  The panelists were Jonathan Nuechterlein, Professor John Mayo from Georgetown, and Harold Feld from Public Knowledge.  All of the panel participants did an excellent job of presenting the point of view from each of their areas of expertise.

One area on which the panelists had differing, but not mutually exclusive, views was regarding the reliability value of the TDM copper voice network.  One the one hand, as Professor Mayo noted, the consumer "market" seems to have spoken with the result being that consumers are willing to trade the higher functionality of the IP/broadband network for the reliability of the TDM network.  After all, everyone can name some of products that we would still like to purchase but that the "market" does not want to produce any more.

Yet, Harold Feld also made a very good point--explaining that the "reliability vs. functionality" is a false dichotomy because consumers do not willingly make this trade.  For example, since consumers lose electric power on relatively few days, the value of reliable connectivity in emergency situations is not accurately taken into account by "the market."  

Without saying so, the panelists seemed to agree that regulation intended to achieve social goals--such as the public safety and security interest in more reliable, more resilient networks--is something that should be addressed separately from the issue of whether economic regulations should apply to some or all providers of voice service.  This is an intriguing starting point for a discussion about next generation network reliability, and a starting point that has taken too long to arrive.  

Two Sides of the False Dichotomy

As Harold noted, at Thursday's panel discussion, it is a "false dichotomy" to think that a useful regulatory goal (i.e., network resilience in times of extreme weather, or other natural disasters) must be abandoned simply because the first generation of IP network technology may not be able to support this goal.  It is no less of a "false dichotomy", though, for some to use "public safety" as an excuse to keep some service providers from continuing to transition their networks for the uses demanded by the majority of consumers both today, and in the future.  

So, if public safety and network reliability are the goals, then they must be discussed and considered not in the context of keeping an older, more limited technology, but rather in the context of how network reliability can evolve to support the communications networks of tomorrow.  Given that no one is going to pay for a separate network to support a limited functionality (just voice) in times of emergency, how do we get public safety and security for the networks of tomorrow?

Look Outside the Regulatory Silos of Today

Perhaps, more than any other explanation, the major concern identified by those opposed to immediately undertaking an effort to begin to identify and work through the regulatory issues resulting from the IP transition is that of public safety during weather (and other natural disaster) emergencies.  This is an incredibly important and valuable part of any transition to a broadband world.  But, here's the problem: the FCC can't get there on its own, because the best solution might be a "meta" solution where we look at the reliability of communications networks in the context of other inter-dependent networks, such as electric power.

But, given that new platforms demand much more energy than could ever be provided by a central office battery back-up, we can't look back.  Just because this effort would need to be championed across separate regulatory fiefdoms does not mean it can't happen, it just means that diverse regulators need to call on the Executive Branch to coordinate this planning.

In other words, if we (as a country) agree that the service rich broadband platform is the communications network that we want, then ensuring reliability of that network may only be possible if we look to ensure greater reliability in the increasingly inter-dependent electric and communications networks.  Said differently, looking at a policy question in the context of an "outdated" regulatory/technological framework (i.e., with tools only available to the legacy communications regulator) will necessarily cheat the public out of the best answer.

Advantages of Cross-Network Optimization 

If it turns out that investing in bolstering the reliability of our electric distribution plant will improve communications networks (which are also banking, health, and educational networks), one obvious advantage to such an approach is that electricity distribution is (for all but the heaviest users) still a monopoly.  Perhaps the only significant advantage of a monopoly--for consumers and regulators--is that local energy companies still have rate-payers and a more or less captive rate base.  Thus, the costs of increasing electric network reliability (by either burying power lines, or developing batteries that are small enough for homes yet can store a significant amount of back-up power) can be equitably spread over all customers--a solution that is no longer available to state or federal communications regulators.  

The "all IP", "Internet of everything", future that promises so much benefit to our productivity and welfare as a society cannot deliver on this promise if delivery/reliability are subject to something as capricious as the weather.  Shouldn't questions of public safety and security through increasing network reliability also begin to be asked by someone (perhaps chartered by the Administration) that is capable of addressing these problems on a national, inter-network basis?