The Financial Times (FT) ran a story recently highlighting British Telecom’s efforts to get the Federal Communications Commission (FCC) to re-establish stricter rate regulation over special access services sold to business customers. The essence of BT’s position was that BT was paying more for special access service than anywhere else in the western world and getting poor performance to boot, therefore the United States should re-establish strict rate regulation like that adopted in other countries, particularly the UK. In filings in the US, BT and others have argued for the US to abandon the bi-partisan policies adopted in the late 1990s and early 2000s to promote investment in fiber and other technologies necessary to provide fast Internet services in the US.
By all accounts, those were wildly successful policies, stimulating massive broadband infrastructure investment in the United States, where, even today, fiber expansion is exploding – AT&T itself committed to build 12.5 million new fiber-to-the-home connections as part of the recent DIRECTV merger. Conversely, other parts of the world, including the UK, have been left to figure out how to change their regulatory environments to promote a similar level of broadband infrastructure investment.
Where’s the Investment?
Before getting to BT’s claims that it pays more for special access services here in the U.S. than elsewhere and for poorer service, let’s first discuss the most important thing that BT did not even mention in the FT article….And, that’s investment in infrastructure.
The BT representative never explained in the article how the return to strict rate regulation would promote any entity to invest in more fiber. I suspect the reason for that is because history tells us a return to those policies won’t promote investment. To the contrary, when you look at the Organisation for Economic Co-operation and Development (OECD) investment numbers for the US versus Europe generally and the UK in particular, you understand why the European Commission is looking at different policies in order to boost investment in broadband infrastructure. For the latest periods measured 2011-2013, the US per capita investment was almost 50% higher than Europe in total and almost 100% higher than the UK’s investment figures. Industry experts like Fred Campbell and UPenn’s Professor Christopher Yoo have done significant analysis in this area if you want to learn more about it.
Given that, it is not surprising that Ofcom, the UK regulator, opened proceedings to, among other things, figure out how to incent greater fiber investment in the UK. BT’s position then was that the regulated rate structure in the UK prevented BT from making additional investments in fiber and similar technologies. Then, when Ofcom proposed new rates (for both new services and legacy services) that BT deemed were too low, BT quickly issued a statement exclaiming, “If we are prevented from making a fair return on our copper network, it may force us to reconsider whether to go ahead with the roll-out of fibre broadband.”
And, when BT’s competitors earlier this year asked Ofcom to halt any further rate increases and require that BT spin its special access arm, Openreach, into a separate company (which would, according to BT, negatively impact BT’s continued capability to invest in superfast broadband), BT’s CEO accused those competitors of “quite staggering” hypocrisy.
“Quite staggering” seems like a pretty high level of hypocrisy to me….at least equal to the level of hypocrisy that BT is engaged in here in the U.S. It turns out BT does opine on the impact of rate regulation on investment…when it comes to their rates and their investment.
Special Access Rates and Service Quality
Now, how about BT’s claims that it is paying more for special access service here in the US than elsewhere? According to the OECD data, the prices BT charged in the UK in 2014 were actually almost 50% higher than BT or anyone else was paying in the US for equivalent services. Here are a couple of charts with specifics:
One would think that BT must have a great provisioning story in the UK as a result of all of the regulation they want imposed in the US, right? I know, I’m sounding like a broken record here…wrong again. In fact, BT’s provisioning problems in the UK are so bad that Ofcom is considering some pretty radical steps to address those issues (which of course BT is vehemently opposing). Ofcom’s position on BT’s poor provisioning record could not be clearer: “We consider that BT’s quality of service in providing wholesale Ethernet leased line services is not acceptable. Provisioning performance since 2011 has deteriorated and currently shows little sign of sustained improvement. We also consider that whilst the quality of BT’s repairs of these services is broadly acceptable, this too could easily decline if BT were to choose to divert resources to improve the quality of provision.” Not surprisingly, BT’s competitors there are asserting that the provisioning woes are caused by….lack of investment. (Vodafone’s response to Ofcom’s 2014 Business Connectivity Market Review Call for Inputs, at page 7;UKCTA response to Ofcom’s 2015 Business Connectivity Market Review Consultation, ¶2.4)
So, here is my takeaway. BT wants the US to adopt a regulatory regime like it has back home in the UK even though, based on the facts, that would mean significantly less broadband investment, higher prices, and really bad customer service. And all so BT can get lower prices for services that are already cheaper in the US than the same services the UK. Why on earth is that a remotely tenable policy argument? Or even a good idea?
Frankly, the very problems now experienced in the UK are reasons the US abandoned strict rate regulation through bipartisan actions more than 15 years ago. But BT, in its “staggering” hypocrisy, apparently assumes people here are not only ignorant of the real facts, but that we’ll also overlook BT’s own past statements criticizing those same UK policies it now says the US should emulate. Good luck with that.