FCC helps AT&T and Verizon charge more by ending broadband price caps

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voted to eliminate price caps in much of the business broadband market by imposing a new standard that deems certain local markets competitive even when there’s only one broadband provider.

“What this order does is open the door to immediate price hikes for small business broadband service in rural areas and hundreds of communities across the country,” FCC Commissioner Mignon Clyburn, a Democrat, said in a detailed dissent. “Cash-strapped hospitals, schools, libraries, and police departments will pay even more for vital connectivity.”

While there are no price caps on home Internet service, the FCC does limit the prices of so-called Business Data Services (BDS) provided by incumbent phone companies like AT&T, Verizon, and CenturyLink. The services are delivered over copper-based TDM networks and are commonly used for “connecting bank ATM networks and retail credit-card readers [and] providing enterprise business networks with access to branch offices, the Internet, or the cloud,” the FCC said.

One ISP choice counts as competition

Because of today’s decision, the price caps will be eliminated in a county if 50 percent of potential customers “are within a half mile of a location served by a competitive provider.” A county would also be considered competitive if 75 percent of Census blocks have a cable provider.

Fewer than 10 percent of potential customers will benefit from price controls under the new procedure, according to Clyburn.

“Even if a business that needs broadband has only one choice today, the FCC would consider the local market competitive if there’s a second broadband provider within a half mile,” we wrote in a story last week. The FCC majority argues that nearby ISPs would be more willing to extend their networks to additional customers if there are no price caps.

BDS (also known as “special access”) provides dedicated links with speeds of up to 45Mbps upstream and downstream. The order to limit price caps was approved 2-1 with the commission’s two Republicans voting in the majority.

“Price regulation—that is, the government setting the rates, terms, and conditions for special access services—is seductive,” FCC Chairman Ajit Pai, a former Verizon lawyer, said. “Who can possibly resist the promise of forcing prices lower right now? But in reality, price regulation threatens competition and investment.”

If price caps are too low, network owners won’t have an incentive to upgrade facilities, Pai argued. “Competitive providers also won’t have an incentive to build their own facilities. Why would they when they can cheaply and profitably use someone else’s network?” he said.

BDS is still subject to network sharing requirements, so competitors can buy access from the incumbent ISPs and resell it. Wireless carriers also buy bandwidth through BDS offerings, so it has an indirect effect on mobile broadband prices.

AT&T raising rates 15 percent

AT&T scheduled a 15-percent price increase for BDS lines in certain states to take effect “on or after” the day of the FCC’s vote, according to an FCC filing made by Windstream and Sprint. The companies complained about having to pay “monopolist rates.”

Last year, then-FCC Chairman Tom Wheeler proposed lowering price caps on BDS by 11 percent over three years in order to “account for over a decade of efficiency gains.” This proposal was thrown out by Pai and replaced by the one approved today.

The FCC’s decision drew condemnation from INCOMPAS, a trade group that represents service providers that purchase BDS services.

“The FCC’s ‘one is enough’ monopoly policy threatens to end decades of innovation and hinders the streaming revolution,” INCOMPAS CEO Chip Pickering, a former Republican member of Congress, said today. “Outside of the FCC, and a handful of AT&T lobbyists, there is not a single person on the planet who believes we currently have enough broadband competition. Prices are going up, and customer service is going down. That doesn’t happen in free markets with competitive choice.”

The European Union opposed the FCC’s action as well. Besides harming consumers and competitors, the decision “will further aggravate the imbalance in BDS regulatory practice that already exists between the US and the EU and other nations,” an EU representative told the FCC. “This imbalance skews important markets, such as global B2B data services where both EU and US players hold significant interests, in favor of US players globally.”

A trade group that has AT&T and Verizon on its board of directors praised the FCC decision. The change “will restore incentives to invest and invigorate competition to serve American businesses across the country,” said the USTelecom trade group.

Cable companies are pleased that the FCC did not impose new price caps on cable lines. The FCC initially proposed price controls for cable-based business data services last year but later concluded that this segment of the market is competitive enough that rate regulation wasn’t needed.

“We applaud the FCC’s decision to help the business data market continue to flourish by minimizing burdensome and investment-killing regulations, specifically on new entrants,” Comcast Senior Executive VP David Cohen said.

More broadband deregulation

The FCC took several other deregulatory actions today. The commission voted to seek public comment on plans to shorten the waiting period before new ISPs can install wires on utility poles that already hold the wires of incumbent providers,and reduce the charges ISPs pay utilities.

This Notice of Proposed Rulemaking also seeks comment on whether to eliminate and change some rules that apply to the retirement of copper networks. For example, the proposal would eliminate portions of the commission’s network change notification rules, speed up the process of discontinuing copper network service, and “eliminat[e] rules requiring carriers to spend money to maintain outdated
equipment.”

Consumer advocacy group Public Knowledge criticized this decision.

“The technology transitions rules the Commission proposes to eliminate do not inhibit competition or broadband deployment, but merely require that providers respect competitors and consumers as they transition their networks,” the group said. “Fax machines, credit card readers, fire alarms, and security systems, among countless other devices critical to consumers and businesses, will be impacted by these transitions. Consumers and small businesses have relied on the phone network for decades—the rules that the Commission weakens today simply provide them with adequate notice and time to plan before entire communities’ communications networks are transitioned.”

Pai argued that “every dollar that the FCC forces companies to spend maintaining obsolete, low-capacity copper lines is a dollar that cannot be spent deploying high-capacity fiber and other next-generation technologies.”

The FCC also voted to seek comment on a plan to identify and eliminate or change “unnecessary regulatory barriers” that impede wireless network deployment.

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