CLECs Thriving – Regulatory Help Not Needed

Wednesday, March 16th, 2016

A segment of the business broadband market seeking regulatory help is actually in good financial health, according to a research paper by Anna-Maria Kovacs, a visiting senior policy scholar at the Georgetown Center for Business and Public Policy. Kovacs’ cash flow analysis shows that the competitive local exchange provider (CLEC) industry is better positioned than incumbent providers, who once dominated the marketplace.

As AT&T points out, the incumbents’ copper-based TDM services are in a free fall as customers increasingly choose alternative, higher-speed services. Kovacs finds that the shift away from these legacy services has attracted cable industry competition and allows CLECs to compete effectively against the incumbents. Kovacs also points out that CLECs and cable enjoy higher stock valuations than the wireline segments of the largest incumbent providers, illustrating that investors expect them to grow revenues and cash flow more rapidly.

The low cash flow for incumbent providers is a reflection of the continuously increasing cost of sustaining a nationwide network that now services about a third of the lines for which it was engineered.  Meanwhile, the traditional CLECs have only built  in high density areas to maximize revenue and preserve cash flow, the report said.

To help it compete in what has become a vibrant marketplace, CLECs are leaning on the Federal Communications Commission (FCC) for regulatory assistance, calling for monopoly-era regulation on last-mile fiber Ethernet connections. There is no basis for such relief. Data show the marketplace is highly competitive with incumbents, CLECs, cable companies and others investing billions to build out infrastructure for business broadband services.

A better policy is establishing a framework in which broadband providers “compete vigorously and consumers enjoy the fruits of that competition,” said John Mayo, executive director of the Georgetown Center, in recommending the Kovacs report as a contribution to the policy discussion.