Why Involve the FCC in Business Data Services?

Thursday, November 19th, 2015

Unless you’re a business owner, or are involved in purchasing IT services for your company or a large institution, you may not be familiar with the data services purchased by the majority of stores, restaurants and other small to medium-size businesses. Mostly these customers buy services that are far slower than current consumer broadband Internet services, which are mainly designed for downloading data/entertainment from the Internet.

While these services are available in a wide variety of technologies and capacities from both cable companies and competitive fiber providers in most areas of the country, the Federal Communications Commission (FCC) retains the authority to regulate the terms on which traditional telecommunications companies sell this service. One set of buyers are called “competitive local exchange providers” or CLECs, which resell services to business customers instead of making their own investments.

The CLEC industry is facing significant competition from other cable and fiber transport providers that see an opportunity in the market, as businesses seek more robust broadband service. To address this problem, the industry is asking for a helping hand from the FCC to set even lower rates on contracts with legacy phone companies, despite the fact that the legacy providers’ share of the business market is declining, and is lower than the cable companies’ share of the residential broadband market.

Meanwhile, legacy phone companies, confronted with the surge in competition, want to upgrade the services they offer to all-IP networks like their cable and fiber competitors have already done.  The “competitive carriers” know it’s only a matter of time before customers choose to go with more advanced networks.

But, these customers aren’t profitable enough to justify the CLECs’ investing in facilities to serve them. Instead, the “competitors” have convinced the FCC to help them out based on the faulty premise that the market has “failed.”  In this way, the “competitors” make the most profits from the customers for the short time the customer will remain on the legacy network.

Policies that promote discounts for legacy technologies that won’t survive in a competitive future create the wrong incentives for infrastructure investment. The FCC should resist extending a helping help to an industry that’s stuck in the past.