No Special Favors for Special Access

Tuesday, May 3rd, 2016

By Hal Singer

When FCC Chairman Tom Wheeler said back in February 2015 that his agency was not interested in regulating the rates charged by Internet service providers, he neglected to offer any caveats. And for good reason: The more caveats, the less powerful his message of “forbearance.”

What he meant to say was, “No rate regulation for residential broadband offerings. Business broadband is fair game.” But that doesn’t have as nice a ring to it.

The FCC Chairman revealed his intention when he publicly voiced his opposition to a bill that would neuter the agency’s ratemaking authority. Clearly, the FCC wants to preserve its right to engage in ex post rate regulation of residential broadband offerings.

The FCC is even more clear about its intentions for business broadband. The agency already embraced rate regulation for wholesale rates charged to resellers of business broadband. In August 2015, the FCC imposed an“Interim Rule” that compelled telcos (but not cable operators) to make IP-based broadband connections (running over fiber connections) available at “reasonably comparable rates, terms, and conditions” to resellers if the telco decommissions its TDM-based services (running over copper connections) to a building.

The FCC is now doubling down by considering a proposal from the resellers’ trade association that would bring rate regulation to retail rates in its “special access” proceeding; a telco’s Ethernet services offered over new fiber networks would be subject for the first time to pre-approved price caps. So much for forbearance. [Update: Yesterday, the FCC issued a news release announcing a forthcoming NPRM that would solicit comments on how to structure price regulation of business broadband.]

Basic economics suggest that, by truncating returns on investment, price controls undermine a network operator’s incentive to invest. But by how much? A new paper I released last week on behalf of USTelecom models how fiber deployment to business districts likely will unfold with and without rate regulation.

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