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On June 28, OTI filed comments as part of a coalition supporting the reform of  the business data services market. 

Summary

As the Commission recognizes in the FNPRM, BDS supply essential connectivity for businesses, non-profits and community anchor institutions, government agencies, and mobile wireless carriers, and “[BDS] impact the lives of consumers every day.” Yet, the FCC has allowed incumbent providers to exploit their market power in the provision of these critical services by charging exorbitant rates and imposing anticompetitive terms and conditions on purchasers of BDS. As a result, businesses, non-profits and community anchor institutions, government agencies, and mobile wireless carriers must overpay for BDS and those costs are ultimately borne by American consumers and taxpayers. Excessive BDS pricing saps economic growth, costs jobs, limits investment, and burdens local government budgets. Indeed, the Consumer Federation of America recently found that abuse of market power by incumbent BDS providers has resulted in economic losses over the past five years in excess of $150 billion. Absent FCC action, these economic and social losses will only grow as new broadband devices and applications continue to increase the importance of connectivity for even larger segments of the economy.

The advent of 5G wireless, for example, promises radical increases in the ability of the nation’s communications networks to support high-bandwidth applications; enable ultra-reliable, low latency communications; and make the “Internet of Things” a reality. But, as Chairman Wheeler has recognized, the ability of 5G to deliver on any of these promises depends heavily on wireless providers’ access to cost-effective BDS at hundreds of thousands if not millions of locations. Without access to just and reasonable rates for BDS, wireless 5G deployments – and the economic and social benefits these investments promise to deliver to American consumers, anchor institutions, and businesses – will suffer the types of delays and scale reductions that could cost the United States its lead in technological capacity, job creation and economic growth.

By contrast, a functioning BDS market, with reasonable rates, terms, and conditions, would spur a virtuous cycle of demand, innovation, and investment. For example, American businesses would be able to use savings from lower BDS prices to invest in developing new applications and services and, in turn, drive greater consumer participation in the broadband economy and create more demand for faster and better broadband networks. Moreover, as  Engine has explained, access to competitively-priced BDS would lower the costs of starting a small business and result in “more startups, more jobs, and more innovation.” Additionally, reform would allow local governments to reallocate cost-savings towards more productive means, including e-government services. Furthermore, BDS reform would be consistent with President Obama’s recent Executive Order that federal agencies take action to promote competition and the continued growth of the American economy.

BDS reform will also bring substantial benefits to America’s schools and libraries. Reasonably priced BDS will help ensure that these anchor institutions have access to affordable broadband at bandwidths necessary to meet the needs of their communities. In fact, 41 percent of schools do not yet meet the Commission’s short-term connectivity goal of 100 Mbps for every 1,000 students and approximately 42 percent of libraries have broadband connections no greater than 10 Mbps.

For these and the numerous other reasons discussed in the record, the Commission must act now and adopt long-overdue reform of the BDS market. The FCC should reject incumbent LECs’ obvious attempts to delay this 11-year-old proceeding even further and proceed with reform. The FNPRM is consistent with the guiding principles proposed by INCOMPAS and Verizon for a new regulatory framework governing BDS.13 Public Knowledge supports the INCOMPAS/Verizon guiding principles and the Commission’s proposed regulatory framework so long as the agency’s final rules prevent BDS providers from exercising market power and promote technology-neutral competition. As discussed below, as the FCC develops its new regulatory framework for BDS, the following key facts and principles should guide its decision making:

• First, the BDS market is, by any measure, overwhelmingly concentrated and the market power of incumbent BDS providers requires regulatory oversight.
• Second, the Commission’s regulatory framework for BDS should be technology neutral and provider neutral. The industry’s transition from TDM to packet-based technology does not change the fundamental economics of deploying the network facilities necessary to provide BDS, including the extremely high financial and operational barriers to such deployment. Consistent with longstanding antitrust principles, moreover, the FCC’s new framework should apply to all providers that can exercise market power, even if those providers are not incumbent LECs. A BDS provider’s power to control price matters more than its historical regulator label.
• Third, the Commission’s regulatory framework for BDS should be based on actual competition, not the specter of potential competition. As discussed in Part II.C below, if the FCC relies on the presence of competitive fiber in a census block as a proxy for effective BDS competition, it risks repeating the same mistake it made when it adopted its flawed pricing flexibility triggers for BDS.
• Fourth, the Commission should adhere to well-established principles of economics when developing and applying the Competitive Market Test proposed in the FNPRM. Specifically, the Commission should use the general approach set forth in the Department of Justice’s Horizontal Merger Guidelines and define the relevant geographic market as the customer’s location. In addition, the FCC should rely on its precedent that duopoly markets tend to result in supra-competitive prices and refrain from deeming markets with only two facilities-based providers as competitive.
• Fifth, the Commission should establish benchmark prices for BDS that reflect a competitive market. As discussed in Part II.E, the Commission should not establish just and reasonable rates for packet-based BDS by benchmarking them against the very same incumbent LEC TDM rates that the Commission has already suggested are unreasonably high.
• Sixth, the Commission should ensure that incumbent providers’ terms and conditions for BDS do not impede competition in the market. As discussed in Part II.F, the FCC should prohibit the percentage commitments in incumbent LEC tariff pricing plans as unjust and unreasonable in violation of Section 201(b) of the Act. Ultimately, these provisions harm American businesses, anchor institutions, and consumers in the downstream retail business and mobile wireless markets. 

The BDS market is badly broken and reform has eluded the Commission for too long. The costs of continued market failure – in terms of lost economic growth, reduced investment, lower employment and untapped innovation – are simply too great to continue to ignore. The Commission must act now to reform its BDS regime.

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