On Enterprise Broadband, The FCC Can’t Leave Well Enough Alone

Monday, October 19th, 2015

For the FCC, like Salvador Dali, the passage of time is relative. (Photo Sean Gallup/Getty Images)

Back in 2012, I flagged what I saw as a cynical decision by the FCC to take a closer look at the fast-changing market for enterprise broadband services.

Such services constitute the middle mile of the Internet, and include dedicated business-to-business access as well as backhaul for mobile networks carrying data from cell towers to the rest of the network.  The FCC refers to these services as “special access.” According to analysts, special access now constitutes a market ofover $40 billion annually, and growing fast.

Even at the time, there was undisputed evidence of growing middle mile competition from cable and fiber providers offering faster IP-based connections.  Still, the FCC bizarrely chose to reimpose price regulations it had long suspended on the rapidly fading part of the market offered by incumbent phone companies and their increasingly obsolete analog networks.

In 2013, the agency followed-up by ordering the former Bell companies, whose special access rates are the only ones the agency has authority to regulate, to submit more data about their enterprise services.

The agency claimed it wanted the data to help decide whether its oversight of the analog business market needed to be updated.  But many in Washington saw a more insidious motive at work. Forbidden by Congress from regulating emerging IP-based replacements, the special access interventions were stakes in the ground for a Commission looking for ways to insert itself into the largely unregulated new market that was quickly taking over.

The FCC’s review has proceeded at typical Washington pace. Two years after its request for what is now useless 2013 information, the Commission recently announced it had completed its data collection.

Still, only specially “authorized parties” will be able to review the data, and under a protective order aimed at keeping secret the proprietary information of both buyers and sellers. The most recent extension for initial comments on the data has been pushed to November 20th of this year. But so far not a single authorized party has been given access. The FCC itself has yet to begin any serious analysis.

The special access proceeding offers more evidence, if any were needed, that the FCC’s processes are simply too slow to respond to fast-changing markets.

But instead of acknowledging their limits, the FCC is doubling down. Late last week,the agency opened an investigation into special access offerings from Verizon, AT&T, CenturyLink and Frontier—the former Bell companies still under its jurisdiction.

This time the agency isn’t interested in pricing so much as it is other contract terms and conditions—including the length of agreements, volume discounts, and usage commitments by enterprise buyers.

The Commission’s stated goal in opening this wide-ranging new front in the middle mile proceeding is to determine whether these contract terms constitute “reasonable practices” and, if not, how the agency should rewrite them. (As is typical for agreements between large businesses, the specific terms and conditions are not publically disclosed at the insistence of both buyers and sellers.)

Not surprisingly, the Broadband Coalition, a trade group of companies who traditionally simply resold analog services under the protection of the FCC, cheered the investigation.

“Consumers and business customers are demanding more broadband choices,” the group said in a statement. “They want the freedom to choose their own service provider. But in markets controlled by large incumbent providers who charge monopoly-era rents, archaic lock up tactics in the terms and conditions to which their customers are subject are hurting competitors who want to bring new affordable options to the marketplace.”

Enterprise customers who committed to long-term deals when the price seemed attractive, it seems, now regret their decision in light of better and perhaps cheaper alternatives from a growing list of providers offering high-speed, IP-based special access using newer network technologies.

Given the secrecy typical of business-to-business commercial arrangements, it’s hard to know precisely how many crocodile tears are really being shed here.   But the business prospects for non-IP services are decaying as fast as the old copper networks. Perhaps as much as half of the special access market has already moved to a growing set of competitors (including companies in the Broadband Coalition) offering faster connections and IP-based solutions.

Cable and fiber-based services, everyone agrees, are the future of the market, especially as broadband traffic continues to explode and higher-speeds are demanded by businesses and consumers alike.

And that future is coming up fast in the rear-view mirror of the regulated providers. Already, mobile operators including Sprint and T-Mobile have dramatically reduced their dependence on the incumbents, deploying fiber-based backhaul to the vast majority of their towers.

T-Mobile claims, for example, to have fiber at 50,000 of its 54,000 locations.  Middle mile providers including Windstream, Level 3 and XO Communications, who once relied on capacity leased from incumbent phone companies at rates overseen by the FCC, are investing in their own faster connections.

Even absent the increasingly competitive offerings of non-regulated providers, sophisticated enterprise businesses buying wholesale high-speed services do not need more mothering. Strip away all the rhetoric from these grandmasters of regulatory arbitrage about “locking out competition” and the “freedom a customer has to take their business elsewhere,”  and this is rent-seeking pure and simple. The complaining companies are asking the FCC to rewrite contracts only now that they apparently feel they should have negotiated different deals.

Whatever the motivation of the complainants, the FCC’s decision to investigate could prove a pyrrhic victory. Why? While one FCC official told The Wall Street Journal that this new proceeding “will take at least a few months,” the likely reality is that it will drag on for years. By then, the current set of “tariff pricing plans” subject to the review will have expired or become irrelevant, or both.

Indeed, given the typically glacial pace of the agency’s 2012 special access proceeding, last week’s move may not result in a forced rewrite of existing contracts no matter what the FCC ultimately decides. If anything, it will simply slow down rather than speed up the transition of their former suppliers to more competitive offerings.

The Broadband Coalition claims to want the latter, but given their own entry into the IP-based middle mile market, presumably what they really want is the former.  Which is perhaps what was behind their complaints all along.

But why in any case is the FCC bothering with yet another expensive fishing expedition in a dying lake? And why should we non-combatants care?

Beyond proving once again how easy it is for the FCC’s agenda—and taxpayer resources—to be hijacked by quarrelling industry insiders, the Commission’s continued tilting at the special access windmill reveals just how determined the agency is to insert itself deep inside the largely unregulated broadband markets, both enterprise and consumer. And how dangerous that misguided decision may prove to be.

Make no mistake. The FCC knows the special access market is moving from regulated rate capped analog circuits to all-IP technologies offered by a wide range of high-speed competitors. Competitors that are outside of its jurisdiction.

Though the agency claims to be undertaking this investigation in part to speed up the transition away from what’s left of the analog phone network to an all-IP infrastructure, the Commission has its own agenda here. Emboldened by the White House-led coup that redefined the FCC’s public utility authority, under cover of saving “net neutrality,” to include all of the Internet, the agency is putting all service providers on notice. The Commission intends to remain an active participant even in markets that are unarguably competitive and growing moreso.

This latest move, in other words, has nothing to do with the “lawfulness of certain terms and conditions contained in certain special access tariff pricing plans” offered by incumbent phone companies.

Instead, it has everything to do with the FCC’s unrelenting campaign to appoint itself the official global governance body for the Internet, despite the explicit and prescient decision by a bi-partisan Congress to deny it that authority as early as 1996.

The link between that cause and effect can be found hidden in February’s misnamed “Open Internet” order. A little-understood provision changes the meaning of “the public switched telephone network,” over which the agency maintains vast regulatory power, to include any “service” that “uses” IP addresses.

Since Congress had denied the agency jurisdiction over the Internet, the Commissioners reasoned, the only way they could enforce the net neutrality rules was to redefine “the Internet.” Presto change, the 21st century digital network was now the same as the 20th century analog network, simply because the agency needed it to be.

If that bit of legal and linguistic doublespeak somehow survives an on-going court challenge, it magically extends the FCC’s full public utility jurisdiction from fast-fading analog services to broadband ISPs, mobile networks, and most anyone with a website or Internet service.

Including, of course, IP-based middle mile services. The FCC’s renewed tinkering with the regulated special access market, in other words, is simply prologue for future regulation of new cable and fiber-based competitors, all of it considered and applied at the same leisurely pace we’ve seen since the 2012 order.

And why stop at special access? The FCC’s about-face on a decade of decisions to leave the middle mile of the Internet alone won’t just stymie incumbent phone companies eager to retire obsolete analog equipment. Next will be the first mile, the last mile, and every mile in-between.

One way or the other, every participant in the Internet ecosystem will feel the hot gaze of the FCC—or at least the ones the agency is pressured to focus its withering attention on by one set of special interests or another.

That’s the real danger here.

Ironically, self-styled consumer advocates cheered loudly when the Commission tried to assert its authority to prophylactically protect the Open Internet from hypothetical dangers in 2008, 2010, and again this year.

But it should at last be clear to even the most naïve Internet activists that the FCC is hardly a benign occupying force that will efficiently and unobtrusively ensure corporate interests don’t somehow ruin the greatest engine of innovation of this century, leaving the rest of us in peace.

After all, as FCC Chairman Tom Wheeler is proud to repeat, the FCC has appointed itself the “cop on the beat” for the global Internet. And true to his word, the special access proceeding has spread its tentacles into the kind of arbitrary and secretive proceeding worthy of a Star Chamber.

It’s the latest indication, unfortunately, of precisely the kind of police state the Commission’s leadership has in mind.