Repealing De-Regulation:
How Not to Build a Roadmap
Towards an All-IP World

Posted by: Bob Quinn on June 5, 2012 at 7:55 am

The FCC has circulated an order that would undo more than 12 years of Clinton-era, deregulatory pricing policy on legacy non-packet services.  The services in question are called “special access” services – 95% of which are slow 1.5 megabits per second (Mbps) TDM (think POTS) services.  That is not a misprint.  We are not talking about 100 Mbps connections – services we should actually be figuring out how to get to more people in more places.  We are not even talking about fiber.  We are talking about legacy, copper-based services that are so slow the services would not qualify for a single dollar of Universal Service Fund (USF) support if they were deployed to homes throughout rural America under the Commission’s recent USF order.

We are concerned about the impact the proposed action is going to have for the overall transition to IP technology that the FCC had begun in that USF order.  The transition to IP cannot happen fast enough. The industry needs to move to a more cost-effective, all-IP infrastructure if we are going to remain a globally competitive economic force.  In regulatory time, that transition must occur with incredible speed.  Once subsidies are removed from TDM/POTS infrastructure, carriers will need to nimbly move to retire that infrastructure to make way for an all-IP world.  In the USF order, the FCC took a great step in that direction by declaring the obsolescence of TDM/POTS. 

To make those investments work, however, there must also be a path away from the costs of the legacy infrastructure.  AT&T itself is in the process of evaluating how we are going to address the overall rural investment issues in our own footprint.  Today’s announcement by the Commission will have a significant impact on those calculations and the feasibility of long-term rural investment.  Simply put, if there is no clear path to migrate to an all-IP infrastructure, that investment calculation looks much more challenging.

The FCC should be creating a parallel path for these services like it created in the consumer market.  In other words, we should be crafting a plan to retire these services and get businesses and competitive carriers on the path towards deploying fiber-based broadband services that are much faster than 1.5 Mbps. 

Some competitors may argue that they can’t build more fiber to businesses.  But the reality is that many of them do exactly that.  Level 3 says it has fiber within 500 feet of more than 100,000 “enterprise” office buildings.  Sprint just conducted a huge RFP for fiber-based backhaul services and awarded contracts to between 25 to 30 different backhaul vendors across the U.S. all willing to build high-capacity Ethernet backhaul.  

Cable companies have been aggressively competing for years by building out their own footprint.  Verizon builds fiber to three homes in the hope that that one customer of three chooses to buy video, voice and broadband service from them.  Clearly this is not a “natural monopoly” where investment is impossible. 

With the right policies, we could have this type of significant investment in every area on the path to an all-IP world.  That is what the Obama Administration called for in its mission to get high speed wireless broadband to 98% of Americans and its renewed call earlier this year to create jobs by upgrading the nation’s infrastructure, including its communications infrastructure. And this is exactly the kind of wide-scale infrastructure investment that can create jobs, keep the economy moving and keep America globally competitive.  The mission is clearly articulated and appears to have universal bi-partisan support – broadband infrastructure investment creates jobs.  But we need a plan to get there and, unfortunately, that does not appear to be the road the FCC has chosen to go down.  The rhetoric is good, but at some point we have to walk the talk.  Right now, it’s all just talk.

So, what are we going to do instead?  Apparently, we are going to go backwards and try to figure out the perfect way to price-regulate a technology that is fast becoming obsolete.  The one thing guaranteed is that the stable pricing regimes that have been in place for 12 years will be challenged in litigation by competitive carriers across the country – all arguing for lower rates; none explaining how lower rates on yesterday’s technology will actually spur investment in fiber-based IP technologies.  Who will benefit?  Those companies who are clinging to yesterday’s technology so that they do not have to invest in America’s future.

Instead of creating a path to fiber, significant infrastructure investment by all carriers, job creation and achieving the nation’s broadband goals, we are going to instead pursue policies that will result in less fiber, less infrastructure investment, less job creation, and less broadband.  It’s not that we haven’t pulled this kind of transformation before.  We managed the move from horse and buggy to automobile and became the world’s automotive leader in the process back then.  But if we pursued policies early in the 20th century with the same game plan we are pursuing broadband policies today, we’d have a lot of cars still being pulled around by horses.

Comments (2)

In short, it sounds like the FCC wants to encourage the use of POTS infrastructure as a “competitive” alternative to true broadband access providers. If this is correct, this schizophrenic approach to market manipulation will only, as the author has correctly stated, scare off investors in the advanced broadband platforms that we need.

Alton Drew June 5, 2012 at 10:31 am

One thing that I don’t understand is why AT&T is so concerned how FCC regulates this, as you put it, obsolete technology. Your points are not clear enough on why this is bad for AT&T.

All that I can gather is that AT&T is reliant on the income that they receive from the leases that they hold on “special access.” This income would be then used to upgrade your network. You state that this would put the nation back instead of advancing it further.

I would like to pose an alternative to your theory. I think that it would put AT&T back and not all of industry. If other companies are able to reduce the cost of their special access needs, then they could free up capital to invest in their own network upgrades. Your strong response lends strength to my theory; on one hand you say that this infrastructure is obsolete, but on the other you state the need to keep the status quo. That status quo is for AT&T to retain lease rights to special access.

Could you elaborate further on why you think that this proposed change is bad for the industry as a whole?

Tim Arnold October 7, 2012 at 10:27 pm

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