UPDATE: November 4, 2015 at 11: 55 – FCC Chairman Wheeler’s Special Counsel contacted us this morning to object to the use of the word “exhort” in characterizing the Light Reading article which described her remarks at the Incompas conference in San Francisco last month. Out of respect to Ms. Sohn’s concerns, we removed the word “exhort” from the blog. It doesn’t change any of the analysis, however. We’re still not rocket scientists, and we still see where this is headed. And it’s not good for private investment.
This has been an interesting couple of weeks in the area of private fiber infrastructure investment policies in the United States. It started with news that the FCC is sending out “SWAT” teams of FCC employees to preach the use of Universal Service Fund (USF) and E-Rate dollars to build government-owned and operated broadband infrastructure in rural and non-rural areas. For a flavor of the message, take a look at the speech given by the head of the FCC’s Office of Strategic Planning at the North Carolina Rural Center’s broadband conference. Similar presentations and meetings are purportedly occurring across the country.
Because the FCC voted to preempt state laws that prohibit municipalities from using tax dollars to build broadband facilities where private-sector funded broadband infrastructure already exists, I suppose the move to hire consultants and send government employees to promote those networks is not shocking. To be clear, we at AT&T have no problem with government-owned networks in areas where there has been a market failure because the economics for the private sector just don’t work. Unfortunately, the FCC’s advocacy here, like the agency’s preemption decision itself, doesn’t appear to be limited to circumstances of market failure. And, bottom line, government owned networks are going to have a negative impact on private investment. But the FCC’s desire to insert itself in the marketplace doesn’t end there.
The Commission has also opened a proceeding to examine the terms and conditions surrounding plans that offer discounts off lawful month-to-month special access rates (plans that, according to the DC Circuit Court, carriers are not even obligated to offer). The crux of the arguments made by the competitive local exchange carrier (CLEC) community in support of this investigation boils down to the assertion that they want the significant discounts that attach to term and volume commitments without actually making any term or volume commitments. I get it. When I go to Costco, it would be great to be able to buy a single box of tissues at the per unit price for 50 boxes. But that’s just not how a volume discount works.
This tariff investigation is, of course, on top of the massive special access review the Commission opened back in 2012 to examine the level of competition in the special access services marketplace (including asking for enormously broad amounts of data on pricing) – even for services like Ethernet that have been de-regulated for years. Some might say these are only investigations, not orders. But that distinction got lost on me when I read an article describing remarks given by the FCC Chairman’s Special Counselor at a recent CLEC gathering: “Ideally, Sohn said, the same kind of consumer activism that helped drive the Open Internet rule changes earlier this year — including pickets at Wheeler’s home and the White House, and widespread TV coverage — could be brought to bear on some of the more arcane issues, such as special access and IP transition rules.”
You don’t have to be a rocket scientist to see where this is headed. This FCC increasingly has no interest in free markets – it prefers to keep the power in its own hands, and is using it to pick winners and losers. Prediction: Policies that promote private investment won’t be the winner here.
And my fear is that we aren’t done yet.
One of the more vocal CLECs – Windstream – has been complaining that the FCC should regulate “special construction” next. Where there is no spare last mile access line, someone has to “construct” a new facility. That’s right, the CLECs who won’t build it themselves want the FCC to make someone else build it for them, and at a speed and price more to their liking!
Seriously, if the last mile fiber isn’t there, Windstream has at least three options: It could build the fiber itself; it could hire a contractor to build the fiber (when Sprint issued an RFP to build fiber/microwave to its cell towers back in 2012, it ultimately awarded business to more than 25 different vendors); or, it could simply run to the FCC. Not surprisingly in this environment, Windstream went with Option #3.
CLECs and others are now arguing that they can’t build fiber connections themselves – not even to large multi-tenant buildings. Unbundled network elements (UNEs) and wholesale leasing, rather than being a path to facilities-based competition, is really their end game. Yet cable has done exactly what the CLECs say they cannot (and will not) do – build competitive broadband infrastructure where none existed in the face of competition. Cable companies had no guarantee of subscribers but they extended their fiber and HFC plant to businesses across the country and have become ferocious competitors in the traditional special access services market.
Cable is not the only one investing in broadband infrastructure. As part of our DIRECTV merger review, the FCC ordered AT&T to build 12.5 million new fiber connections (on top of the one million businesses that will soon be fiber-ready as part of Project VIP). This construction is going primarily to residential customer locations where we already face a cable competitor. The FCC even placed limits on our ability to count enterprise business customer connections as part of the 12.5 million. Obviously, the Commission would not have ordered us to build if our model showed it was uneconomic even though we, like the CLECs and cable, have no guarantee of any customers. And the FCC had no qualms about including those commitments as part of its order.
So, how will the FCC find that we can build residential fiber at a profit while concluding that CLECs can’t even extend their downtown business networks to multi-business buildings in densely populated urban environments? Stay tuned and find out. That order promises to be a real page-turner.
It used to be that incenting all companies to build broadband was THE goal of all policymakers. It doesn’t feel that way anymore. Back in 2012, when the FCC started down this circa-1980’s regulatory journey, I fretted that these moves signaled its intent to abandon policies that were designed to, and did, result in significant broadband infrastructure investment in the U.S. I called the FCC’s moves the Bridge to Nowhere. My point then, and still is, that the FCC should be focused on establishing policies that lead to more fiber and broadband infrastructure investment in this country. That means carving a path away from the antiquated 1.5 Mbps services which represent almost the totality of the circuits that constitute the special access proceeding. Instead of declaring war on broadband infrastructure investment, how about taking a different path: promoting policies that actually encourage CLECs (and other private companies) to build those facilities themselves like many other competitors in the market are doing.
Everyone seems to agree that our country needs more broadband infrastructure investment. It’s high time the FCC got serious about policies that incent that kind of investment. Instead, sadly, they seem more intent on rewarding those who don’t invest and penalizing those who do. This may be a dandy way to enhance the power of an agency, but it’s ill-advised when one considers the best interests of consumers and our nation’s economic wellbeing.