Regulating Prices For Business Data Services Will Widen Network Gap Between Urban and Rural America

Thursday, August 11th, 2016

The Federal Communications Commission (FCC) is preparing to foist new rate regulations on the “business data services” (BDS) market, the dedicated broadband links that provide Internet access to businesses of all sizes. Unfortunately, the proposal has many shortcomings, and it would impose–for the first time–regulations on new fiber infrastructure in an expanding and well-working market that is attracting new service providers as competitors…but its most detrimental effects would be in rural America.

As the representative for 28 years of Virginia’s most rural and mountainous congressional district, I came to an early appreciation of the unique barriers that make developing advanced communications networks in rural areas highly challenging. First, thin population density means that the fiber-optic lines must traverse longer distances to serve fewer people than comparable investments in suburban or rural areas. Secondly, challenging terrain, particularly in mountainous areas, dramatically increases deployment costs. Third, with rural incomes generally lower than metropolitan area incomes, once modern networks arrive, there are often fewer subscribers per capita within the local population than the national average. Consequently, rural networks are deployed more slowly, and advances in network capability come later than in metropolitan areas, producing an existing rural versus urban deployment gap in 4G LTE services.

Telecom policymakers at every level of government and at the FCC must keep these realities firmly in mind. If they fail to do so, the challenges of developing rural networks inevitably become even harder. The FCC’s pending BDS regulation is, regrettably, a glaring example of rural reality nonobservance.

Under the FCC’s proposal, areas the agency deems competitive with multiple business data service providers would remain unregulated. While good for urban and suburban America where high demand for BDS currently exists and multiple service providers meet the demand, that approach will worsen the existing 4G LTE deployment gap between urban and rural areas and severely hinder the rural area deployment of next-generation, super-fast 5G mobile networks. Instead of bringing nearer the time when all Americans will have the benefits of broadband service, the FCC’s proposal flies in the face of the Obama Administration’s longstanding goal of bringing high-speed broadband to 98% of Americans within this decade.

It’s well understood that high-speed networks are deployed most quickly when investors can foresee a profitable rate of return on investment. Because of the unique challenges to network deployment in rural America, the need for a predictable rate of return on investment is essential for rural providers. The Commission’s proposal would impose on rural America a system that, by design, is assured to diminish new network investment. With price regulation, rural deployments would bring lower returns. With the incentive to invest removed, few companies would be willing to dedicate the capital needed to modernize rural networks. The deployment gap will widen, and the arrival of competition in the business data market will be delayed. Even if one high-speed network company proved willing to invest in the currently unserved rural market, it would immediately be saddled with de facto monopoly status and subjected to price regulation.

Under these conditions, it’s certain that few companies would make rural investments. The FCC cannot simply overlook the reality of these markets and remain true to its and the Administration’s commitment that all Americans, and all American businesses, including rural hospitals and educational institutions that are the lifeblood of many local communities, deserve and should receive the same broadband services available in metropolitan areas.

And there is no articulated need to control prices in order to speed the transition to the faster and better 5G systems for either urban or rural areas. There is nothing about the nature of 5G technology that implies a need for price regulation or even a fear that competition in 5G will not mature as robustly in the BDS market as in the unregulated wireless broadband market. With four strong national wireless competitors and cable, a strong new business data services provider, BDS competition is robust and growing. Even Sprint, which seeks FCC regulation of business data services and has a history of abandoning rural markets, has easily found over 20 suppliers for its new advanced Network Vision deployment, belying its contention that the national market is not competitive.

The rewards of meeting the growing demand for BDS in both rural and urban America belong to those who invest and compete. The key is investment, whether that investment comes from incumbent local exchange carriers, from new entrants such as cable, or from competitive local exchange carriers (CLECs). One can reasonably ask why CLECs choose not to redouble their efforts at investment in a market that is both rich in potential and critical to the future of American businesses and large institutions, such as hospitals and universities. Instead, the CLECs are relying on the Commission to regulate the BDS market in their favor, sacrificing future network investment in the name of price regulation for both existing and newly deployed networks. That’s a backward-looking approach that will poorly serve the entire nation and particularly disadvantaged rural Americans.

Guest post written by Rick Boucher. Congressman Boucher is head of the government strategies practice at the law firm Sidley Austin. Mr. Boucher is Honorary Chairman of the Internet Innovation Alliance, which is funded in part by Alcatel-Lucent and AT&T T +0.28%, among other institutions. Mr. Boucher was a member of the U.S. House for 28 years and chaired the House Energy and Commerce Committee’s Subcommittee on Communications and the Internet.

http://www.forbes.com/sites/realspin/2016/08/09/regulating-prices-for-business-data-services-will-widen-network-gap-between-urban-and-rural-america/#5f89ecac11d6