Economic Policy Vignette: The FCC’s BDS Proposal and the Dangers of Skewing Investment

Economic Policy Vignette: The FCC’s BDS Proposal and the Dangers of Skewing Investment

A summary of a proposed order to reform BDS regulation was issued by Chairman Thomas Wheeler on October 7, 2016. The summary explains that BDS, also known as special access, “are enterprise data services that are a fundamental part of the U.S. economy.”2 The Further Notice of Proposed Rulemaking (FNPRM)3 issued in May 2016, which sought comment on the approach the FCC was then considering, pledged reform that is technology neutral. The Chairman’s recent proposal, however, is very much technology specific. It targets legacy circuit-switched DS1 and DS3 services4 for ex ante rate reductions. For modern packet-based services, it proposes extensive new regulations but not ex ante rate reductions. For both circuit- and packet-based services, it prohibits some contract terms and conditions.

The summary states that the Chairman’s intent is to “Promote Competition and Investment in Packet-based Services”: “The Order applies a light-touch regulatory approach that promotes continued investment.”5 In other words, the summary recognizes that regulation is likely to reduce investment, and apparently attempts to skew investment toward packet-based services by avoiding immediate rate regulation of those services. Even if one were to accept the premise that it is the FCC’s job to skew investment from an obsolete technology to its state-of-the-art successors, the implementation suggested by the summary is deeply flawed.

Business Data Services: The potential harm to competitive facilities deployment

Business Data Services: The potential harm to competitive facilities deployment

he Federal Communication Commission (FCC) has proposed re-regulation of the business data services (BDS) market, with price-regulation in markets deemed “non-competitive” as the primary tool.  Markets would be defined by geography, technology, and speed of transmission.  We find that FCC- mandated price cuts on BDS are likely to damage the financial viability of both competitive and incumbent BDS providers, with facilities-based providers taking the greatest hit.  At the same time, the FCC is unlikely to advance the migration from 4G to 5G, without even more devastating hits to providers.  Thus, the FCC’s proposals will, in fact, frustrate two of the agency’s key objectives for this proceeding.

Economist letter to FCC: Existing BDS Regulatory Regime is Sound

Economist letter to FCC: Existing BDS Regulatory Regime is Sound

A letter from Professor Marius Schwartz, Department of Economics at Georgetown University to the FCC.

On September 14, 2016, a group of economists who have submitted declarations and white papers in the above-referenced proceedings filed a letter (“Joint Economists’ Letter”) urging the Commission to not regulate business data service (“BDS”) markets with multiple facilities-based competitors and instead, adhering to accepted principles of regulatory economics, adopt a competitive market test targeted at combating supracompetitive rents in entrenched monopoly markets.

Economists Join to Write Letter on BDS

Economists Join to Write Letter on BDS

The undersigned economists have submitted declarations and white papers in this proceeding analyzing the Commission’s 2013 Business Data Services (BDS) data collection and opining on the merits of the proposed regulation of BDS. Both economic theory and past experience show that rate regulation imposes significant costs and typically obstructs innovation and acts as a disincentive to investment. These significant risks outweigh the benefits of rate regulation in technology markets that are not monopolies.

Analysis of the Regressions and Other Data Relied Upon in the Business Data Services FNPRM And a Proposed Competitive Market Test: Third White Paper

Analysis of the Regressions and Other Data Relied Upon in the Business Data Services FNPRM And a Proposed Competitive Market Test: Third White Paper

By Mark Israel, Daniel Rubinfeld, and Glen Woroch

Pursuant to the protective orders adopted by the Commission in the above-referenced dockets, we respectfully submit the enclosed Public version of the Analysis of the Regressions and Other Data Relied Upon in the Business Data Services FNPRM And a Proposed Competitive Market Test: Third White Paper (the “IRW Third White Paper”), which was prepared by Drs. Mark Israel, Daniel Rubinfeld, and Glenn Woroch of Compass Lexecon.

Ex Parte: Request for Access to Additional Information

Ex Parte: Request for Access to Additional Information

Re: Request for Access to Additional Information, Business Data Services in an Internet Protocol Environment (WC Docket No. 16-143); Special Access for Price Cap Local Exchange Carriers (WC Docket No. 05-25); AT&T Corp. Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Service (RM-10593).

FCC Data Analysis: Facilities-Based Competitors Extremely Close to Most Locations with Special Access Demand

FCC Data Analysis: Facilities-Based Competitors Extremely Close to Most Locations with Special Access Demand

On behalf of AT&T and CenturyLink, I hereby submit the attached Second Supplemental Declaration of Mark Israel, Daniel Rubinfeld, and Glenn Woroch (“Israel-Rubinfeld-Woroch Second Supplemental Decl.”). The Commission’s original releases of data last fall established that competitive carriers have deployed facilities-based networks in the vast majority of census blocks that contain special access demand.[1] The Commission recently released new tables, however, which for the first time provide the exact distance of each competitor’s fiber network from each unique building with special access demand (within a 1000-meter radius).[2] As the attached declaration shows, these new, more precise data show even more dramatically that the vast majority of locations with special access demand are extremely close to multiple facilities-based competitors – indeed, in most cases, within a few hundred feet.

[1] See Mark Israel, Daniel Rubinfeld, and Glenn Woroch, “White Paper: Competitive Analysis of the FCC’s Special Access Data Collection,” at 16-17 (filed Jan. 28, 2016) (“Israel-Rubinfeld-Woroch Decl.”).

[2] FCC, “FCC Special Access Data Collection Project” at 1 (circulated April 4, 2016) (“Cross-Walk Table Delivered to NORC on March 30, 2016:  The table provides the shortest distance between each filer’s fiber network and the building, though fiber networks more than 1000m from the building were not analyzed.  The table contains three fields: BuildingID, which identifies the building; filer_frn, which identifies the competitive provider’s fiber network; and DistanceToFiber_Meters, which identifies the distance in meters between the competitive provider’s fiber network and the building.”).

Assessing the Consequences of Additional FCC Regulation of Business Broadband: An Empirical Analysis

Assessing the Consequences of Additional FCC Regulation of Business Broadband: An Empirical Analysis

This paper seeks to model the likely impact of the FCC’s recent effort to preserve and extend its special access rules on broadband deployment, as telcos transition from TDM-based copper networks to IP-based fiber networks to serve business broadband customers. The deployment impact of expanded special access rules can be measured as the difference between (1) how many buildings would have been lit with fiber by telcos in the absence of the rules and (2) how many buildings will be lit with fiber by telcos in the presence of the rules. With an estimate of the cost per building, the deployment impact can be converted into an investment impact. And with estimates of broadband-specific multipliers, the fiber-to-the-building network investment impact can be converted into job and output effects.

By Dr. Hal Singer

Business Broadband: Assessing the Case for Reregulation

Business Broadband: Assessing the Case for Reregulation

The Federal Communications Commission (FCC) is conducting two proceedings to examine the U.S. special access market, which is part of the fixed-line business broadband market. Various competitive local exchange carriers (CLECs) allege that the incumbents (ILECs) have a competitive advantage due to their ubiquitous wireline networks. They seek regulation of rates, terms, and conditions. BT goes even further, recommending UK-style regulation for the U.S.

Fiber is the Foundation of Wireless

Fiber is the Foundation of Wireless

A look behind the scenes of daily digital communications.