If the Federal Communications Commission (FCC) approves lower rates for business data services or BDS, a $45 billion market, it will pose significant challenges to telecom network operators in America.
Offices, retailers, manufacturers, hospitals, schools and universities use dedicated network connections to transport huge amount of data from one point to another. Similar services are used every time to withdraw cash from an ATM or swipe their credit card at a store.
Technology companies like AT&T, Verizon and CenturyLink are leading the enterprise data market, while Comcast and Charter Communications are joining the big league. American businesses have been paying an additional $75 billion over the past five years to benefit from data for enterprises, according to the Consumer Federation of America.
As of 2013, as many as 95.2 percent of all U.S. census blocks and 98.9 percent of businesses in the U.S. had access to a competitive BDS market, i.e had access to two or more nearby providers either already offering service to businesses or close enough to be able to easily connect a business to its network, which became 82.6 percent of census blocks and 92.1 percent of businesses, when cable providers were excluded, as per Glenn Woroch, Economist, University of California.
At the same time, many proponents of the plan by FCC like the telecom trade group, INCOMPAS, and Sprint did not agree with the above data stating that as per their reading of the 2013 data, 96 percent of locations and 91 percent of census blocks are controlled by one and sometimes two providers.
Verizon and INCOMPAS issued details on the BDS framework that Verizon had proposed in June, which supports both Time Division Multiplexing and packet-based services. The addition information in their filing continues to reflect a middle ground and would result in an administratively simple framework that can help guide the commission towards pro-competitive reform, suggest the companies.
Among other factors, the plan suggests that after lowest-speed benchmarks are established, the benchmarks for higher Ethernet speeds can be derived by applying the price-cap carrier’s respective relationship of rates.
The companies conclude that the framework should result in actual price reductions from current levels for TDM and Ethernet services and suggests that the commission should make clear that Ethernet services provided to wireless providers are subject to this framework, including the benchmarks.
AT&T which is the largest phone operator, having fixed strategic services and legacy voice and data services including BDS, comprising of 20 percent of its 2015 revenue of $146.8 billion will face maximum losses with the act, even considering the fact that about half of its revenue comes from pay-TV and wireless.
Even though FCC has not informed when it will act, the regulator is dealing with arguments in the election year while battling back views regarding existing competition being enough to regulate prices.
Current phone companies are already facing competition from cable operators, the mergers of smaller providers and the rise of new technologies, capable of offering cheaper and better alternatives.
The amount by which FCC will cut costs is still vague. The commission may lower price caps by 11 percent to 16 percent, fuelled by smaller competitor Sprint Corp. urging a 45 percent decrease, as per Bloomberg Intelligence.
The new regulations will be announced by the Democratic FCC Chairman Tom Wheeler and will be among his last major initiatives, as the head of the regulator in this tenure.
Supporting FCC, mobile-phone providers like Sprint have rented out high-capacity lines for user data traffic, requesting cheaper prices which has not went well with the nation’s largest telecoms.
US Telecom, a trade group including telecoms like AT&T and Verizon, conveyed through a white paper in February that the rate regulation put forth by Sprint is a move to enhance its own facilities to better compete in the market.
“Most business customers surveyed expressed a willingness to switch to cable-provided BI and DN services, contrary to suggestions in the record that cable services in general, and cable ‘best efforts’ services specifically, are not regarded as adequate substitutes for BDS. These findings contradict claims in the record suggesting that business customers feel ‘locked in’ by a lack of competitive choices,” said USTelecom in its new study of customer preferences.
The telecom also claimed that FCC is speeding up its procedures with AT&T claiming in its blog posting that the FCC has ignored standard processes to achieve a desired result.
“It’s just very fast when you look at how things are done at the FCC from when the comments, replies, writing the order, getting it done,” added Melissa Newman, vice president, Federal Regulatory Affairs, Centurylink.
The impact by the FCC rules will be more on a company like Centurylink, which is generating 64 percent of its revenue from business customers by depending more on its landline phone and broadband business for growth.
At the same time, cable operators having already invested in network expansion have possessed a part of the market, and are reaping benefits from it. For 10 years now, cable companies including Comcast, Time Warner Cable, Charter, Cox Enterprises Inc. and Cable Systems Corp. have transformed to significant suppliers of business-data services.
Cable operators are hence reacting strongly against this because they were not much regulated till now, claim analysts.
Other reports also suggest that, the proposed rules can also impact an adverse effect of slowing down broadband network investment, particularly in rural markets. The price cap regulation to the BDS market could cost the local telecoms as much a $1.4 billion in revenue and do significant harm to broadband network investment, as per reports from James E. Prieger, professor of economics and public policy at Pepperdine University and a former FCC economist.
Without enough revenue to continue supporting rural network infrastructures across the country, local telecoms may not be able to fully support and continue investing in the services required by smaller communities across the U.S. to remain nationally competitive.
The report sponsored by the Invest in Broadband for America coalition, insists that FCC acknowledge and account for the fact that four of the largest cable providers admitted they “significantly under-counted the number of locations that are capable of providing business data services.”
“In a rush to regulate, the FCC has missed the negative consequences of this proposal, particularly the potential for widening the digital divide between urban and rural economies” said John Jones, SVP of public policy and government relations for CenturyLink and a member of the coalition, in a statement.
The FCC proposed the rules on April 28, and received final comments from the public on Aug. 9. The next formal step will be a final vote, which could happen during either of the meetings scheduled on 29 September, 2016 or 27, October 2016 by the regulator, claim Bloomberg analysts.
Vina Krishnan
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