Banning Discounts Hurts Public Interest

Monday, November 2nd, 2015
Discounts are a bread-and-butter strategy for attracting and retaining business – whether it’s consumer loyalty reward programs or volume discounts for terms of service. USTelecom would like its member companies to be able to offer discounts in the “special access” business data market, and made this request in a forbearance petition filed Oct. 5, 2014.

Right now, rules at the Federal Communications Commission (FCC) bar one segment of companies – incumbent local exchange carriers (ILEC) – the ability to grant discounts in the business data market in about one-third of the country. This broad-brush ban is anti-consumer and unnecessary, USTelecom said in an ex parte filing related to the forbearance petition. Even if they could give discounts, companies would still need to comply with detailed filing requirements, layers of FCC oversight and competitive pressure more than sufficient to protect the public interest in the unlikely event of some public harm, the filing said.

Discounting provides immediate consumer benefits in the form of lower prices and is an essential part of competition.  Nearly 20 years ago, in a “pricing flexibility” order, the FCC expressed some hypothetical concerns about discounting, but found that where competitors “have made irreversible investments in the facilities needed to provide the services at issue,” attempts to use discounts in a harmful way would be “unlikely to succeed.”

In 2012, the commission suspended pricing flexibility due to worry that it couldn’t judge whether discounts were harmful. Meanwhile, since 1999, cable companies and competitive local exchange carriers (CLECs) have made significant investments in facilities. New CLECs such as Zayo, which began business in 2007, continue to emerge and grow, highlighting the openness of the market.

The broad presence of cable facilities alone shows “irreversible investment in facilities” that should alleviate any concern that additional discounting from ILECs could possibly be harmful. Cable facilities blanket the country, and unlike in 1999, cable companies are using those facilities to compete very successfully for customers that used to buy incumbent ILEC special access products.  Cable companies have been growing their revenues from providing these competitive services over their own facilities at double digit rates.

Against this backdrop, the USTelecom petition asks the commission for the ability to offer individual customers lower prices in the remaining parts of the country where this is forbidden. There is no need for a blanket ban denying customers the immediate benefits of discounts given these tools. FCC rules that explicitly ban offering lower prices to customers that want them seem unlikely to serve the public interest.

For more information, read the ex parte filing.