What about Investment, Investment, Investment?

Monday, May 23rd, 2016

By now, we all have heard Chairman Wheeler’s oft-repeated mantra of “competition, competition, competition” when talking about the commission’s charge. We all agree that real competition is good, especially for consumers. The good news is that the Business Data Services (BDS) Further Notice moves the special access ball forward. The not-so-good news is that it seems pretty clear that more regulation to promote fake competition may be coming.

Faced with this prospect, then, the questions are how much more regulation, and how could it be appropriately tailored to achieve the right objectives. The Federal Communications Commission (FCC) says those objectives (or “fundamental principles”) are competition (no surprise there); a technology-neutral framework; removal of barriers that inhibit technology transitions; and regulation that meets both today’s and tomorrow’s marketplaces. But there’s a glaring omission from that list: ensuring that providers keep investing in broadband infrastructure. Only facilities-based competition is real, sustainable competition.

Increased investment is perhaps the most important policy objective in this proceeding, at least in terms of ensuring universal access to more and better broadband throughout the country. And it has long been a central focus of FCC policy. For example, just over a decade ago in the Triennial Review Proceeding, the FCC adopted rules forcing incumbent Local Exchange Carriers (LECs) to allow competitors to use unbundled portions of their networks. The aim was to encourage and provide incentives for companies to invest in new equipment and facilities to meet the growing consumer and business demand for high-speed services, which in turn would accelerate broadband deployment.

In implementing those unbundling rules, the FCC actively sought to balance the goal of promoting facilities-based investment and innovation against the goal of stimulating competition. That is, the unbundling regime was specifically designed to remove obligations over time as carriers deploy their own networks – a way for incumbent providers to invest their way out of unbundling obligations, and an incentive for new entrants to invest and build their own facilities.

It is notable how the FCC has seemingly all but abandoned increasing investment as a primary goal. In fairness, the Further Notice mentions investment; and the fundamental principle focusing on technology transitions, at least by implication, recognizes that it will take a lot of investment to successfully transition to modern networks. But the FCC’s tepid nod to increasing investment as if it would be a nicety rather than a central and essential component is alarming, and disheartening to the scores of providers that have prioritized investment over short-term profits.

Chairman Wheeler has argued that competition should come from companies that build their own infrastructure, not companies that rely on others for access, asking “how can you ever win if you have to buy your capacity from your competitor?” He is absolutely right; there is real competition – the robust, facilities-based kind that leads to infrastructure building and innovation, and there is fake – the kind built on a subsidized leasing house of cards and unsustainable long term. The Further Notice makes some stunning prejudgments that lead one to believe we will end up with the latter.

Take, for example, the doubling down on accommodating competitive providers that make a business decision to rely on leasing others’ facilities instead of building their own. The ultimate irony is that this policy, perhaps more than any other, removes incentives to invest. Also, consider the finding that so-called “best efforts” cable does not appear to be a competitive substitute for BDS (although many business have decided that such services meet their needs). This sets the stage for finding a widespread lack of BDS competition, a necessary precursor to more regulation.

Real competition and increased investment are far from mutually exclusive; in fact they are interdependent, especially in markets with little or no burdensome regulatory intervention. The FCC needs to decide whether fake competition for the sake of competition is good enough. If so, this years-long effort to “fix” special access will almost certainly fall short of meeting the FCC’s stated policy goals.

By Diane Holland