A lobby group that represents AT&T, Verizon, and other telcos is asking the government to stop enforcing 22-year-old rules that let smaller network operators purchase access to the incumbents’ networks at reasonable rates.
Although the Federal Communications Commission eliminated a range of line-sharing requirements in 2005, incumbent telcos are still required to make certain copper-based network elements available via wholesale at regulated prices. Smaller ISPs that buy wholesale access warn that eliminating the requirements would ultimately raise rates on home Internet users who subscribe to smaller ISPs.
These wholesale copper services are still offered by telcos such as AT&T, Verizon, and CenturyLink. The USTelecom lobby group, which represents all three of those carriers, petitioned the FCC on Friday to eliminate the wholesale requirements, which were implemented as part of the Telecommunications Act of 1996.
The requirements still apply to unbundled network elements (UNEs) such as DS0, DS1, and DS3 lines. Telcos could stop offering the services or raise rates if the petition is granted.
USTelecom’s petition says regulated wholesale rates are an average of 59 percent lower than “commercial wholesale rates for equivalent legacy services,” suggesting that incumbents would raise prices significantly if the wholesale requirement is eliminated. If the petition is granted exactly as requested, ISPs would be able to impose an immediate price hike of up to 15 percent.
Today, the market is too competitive for the wholesale requirements, the lobby group said.
“When these rules were created, wireline phones still dominated the communications landscape, and wireless, VoIP, and cable telephony were in their infancy,” USTelecom CEO Jonathan Spalter wrote in a blog post. “And texting, social media, and other non-voice forms of communication were still off on the horizon.”
Although the requirements were imposed by Congress, the 1996 law “mandates forbearance” when a regulation is no longer necessary to ensure that prices are “just and reasonable,” USTelecom said.
Cable companies don’t face such line-sharing requirements, the group noted. “Cable companies and other providers have built networks, and consumers have benefitted from the competitive marketplace that today is thriving,” Spalter wrote. “It no longer makes sense to single out a few companies and make them share their networks with their competitors. In fact, it’s unfair.”
USTelecom is “seek[ing] relief from all unbundling obligations,” the group’s petition said.
In 2017, customers spent $1.9 billion on telecom products based on this form of wholesale access, USTelecom said. Use of the unbundled network elements has been declining 6.9 percent a year, and it’s “a negligible part of the market,” the group said.
Incumbent telcos have been able to avoid price regulations on their newer fiber networks. The FCC last year also lifted price caps on many business data services offered by AT&T and Verizon. The decision to eliminate price caps relied on an FCC analysis that a local broadband market is “competitive” even when there’s only one ISP, as long as there is a second provider within a half mile.
Wholesale is “critical bridge to fiber”
Smaller ISPs want the wholesale rules to remain in place, saying they are still needed to bring some competition to a market that is mostly un-competitive.
“Wholesale access is a critical bridge to fiber construction and infrastructure investment,” wrote CEO Chip Pickering of Incompas, a trade group that represents some service providers that purchase wholesale access.One broadband choice counts as “competition” in new FCC proposal
Wholesale access can indirectly spur deployment of fiber, Incompas argues. Small providers use wholesale access to build up a business and then deploy their own fiber lines if they are able to “reach a sufficient customer base and demand,” an Incompas spokesperson told Ars.
When those small operators succeed, the incumbents are forced to upgrade, Pickering also wrote. “The facts are clear, where smaller competitors have access and are deploying new networks, big telecom incumbents are forced to upgrade their service and lower prices. [USTelecom’s] petition delays the future and will incentivize large incumbent telecom providers to raise rates on older, slower lines for much longer,” he wrote.
In sum, Pickering argued that “Big telecom’s ‘competition cut off’ will freeze broadband deployment and burn consumers and small businesses with higher bills.”
“Real threat to competition”
One Incompas member that purchases wholesale access from AT&T is Sonic, an ISP in California’s Bay Area.
The USTelecom petition “is a huge issue for us, and a real threat to competition,” Sonic CEO Dane Jasper told Ars.
Jasper said he’s worried about retaining access to copper lines as well as the “backhaul fiber between remote central offices.” Buying this network access has helped Sonic offer Internet service to residential customers, and Sonic has built its own fiber in the areas where it’s been most successful.
“We build fiber to the premises in locations where we have the most Fusion [DSL and fiber-to-the-node] customers, and migrate those customers to these newly deployed fiber facilities,” Jasper said. “This is the entire premise of the 1996 Telecom Act, and it’s by no means fully realized.”
Jasper said the USTelecom petition is “an audacious attempt at limiting new fiber deployment by competitive carriers including Sonic, and it would directly harm hundreds of thousands of California consumers and businesses who we currently serve using UNE copper facilities and backhaul.”
USTelecom argued that wholesale customers will still have “many options available.” Jasper said that may be true for large enterprises, but that “there is no viable wholesale alternative” for small businesses.
USTelecom predicts customer savings
USTelecom commissioned an economists’ study to argue that eliminating the rules will bring consumer savings of $1 billion over ten years and spur new investment of $1.8 billion. (See Appendix B in the petition for the report.)
But Windstream, a telco that is a member of both USTelecom and Incompas, said the proposal should be rejected because it will raise prices and reduce competition.
“This is an attempt by large incumbent providers to improperly use their market position in an anti-competitive way, especially in light of their proposal for a mere 18-month period for competitive carriers to transition away from these crucial facilities,” Windstream General Counsel Kristi Moody said in a statement to Ars. “To be clear, if this petition is granted, less competition will result, and schools, hospitals, libraries, nonprofit organizations and small and medium-sized businesses will see their rates go up.”
The current rules are a “regulatory backstop against the historical monopoly power” wielded by incumbent telecoms, Windstream CEO Tony Thomas told Ars. Purchasers of business data services were hit with price increases nationwide after the FCC deregulated that market last year, he said. If USTelecom’s petition is granted, Thomas said he would expect the same to happen in the UNE market.
Windstream has tens of thousands of business customers that buy services based on Windstream’s purchase of wholesale access, Thomas said. Windstream also sells wholesale services under the same rules that USTelecom is trying to eliminate. But overall, Windstream is a much larger buyer than a seller of these services, Thomas said.
Big telcos want to stop maintaining old copper networks, Thomas noted. But these copper networks remain important in areas that lack fiber deployments, he said.
USTelecom’s proposal could get a friendly reception from FCC Chairman Ajit Pai, whose agenda consists largely of eliminating regulations on the theory that rules prevent broadband deployment.
“This is the third USTelecom forbearance petition filed in a quest to better tailor a 1996-era regulatory scheme to the realities of today’s consumers and markets,” USTelecom wrote in its petition. “In response to the two prior US Telecom petitions to forbear from 1996-era regulations, the Commission eliminated dozens of outdated regulations and helped level the regulatory playing field as the marketplace became more and more competitive.”
Granting the latest petition is “the next logical step in the process,” USTelecom wrote.