Cable Operators

FCC Gets Back to Business (Data)

Deregulatory approach is a net gain for cable providers 4/10/2017 8:00 AM Eastern
FCC chair Ajit Pai
TakeAway

FCC deregulation of business data services could help cable double its take by 2019.

Washington — Federal Communications Commission chairman Ajit Pai is proposing major deregulation of broadband business data services (BDS) — such as credit card readers, ATMs and institutional hookups — and that’s good news for cable ISPs looking to get a bigger piece of that business without government restrictions.

While former FCC chairman Tom Wheeler’s proposal initially imposed potential new rate regulations on cable Internet-service providers and reimposed them on incumbent providers, Pai mostly sees a booming, competitive business in business broadband.

“The extensive record compiled by the commission’s excellent staff shows substantial and growing competition in many areas of the country, thanks to new market entrants like cable companies,” Pai said in a blog post.

Pai is extending his deregulatory view to that marketplace with a proposed report and order he plans to vote on at the April meeting.

‘VIGOROUS’ MARKET
Generally, the new takeaway from that proposal is that competition for most business broadband services is “robust and vigorous” and legacy regulations are “more likely to impede the introduction of new services and raise prices than to benefit consumers.”

That’s in contrast to the Wheeler proposal, which was predicated on the assumption that incumbent providers were levying “artificially high prices being charged to small businesses, schools, libraries and, ultimately, consumers.”

Scott Cleland, chairman of the ISP-backed NetCompetition, said, “Everything the Pai FCC has signaled so far is much less regulation of the BDS market not more, and that is very good news for more competitive infrastructure investment.”

Cable is recognized as a major force in the order, a dramatic change in the market over the past decade. “Cable providers have emerged as formidable competitors in this market,” citing stats from MoffettNathanson principal and senior analyst Craig Moffett that cable’s annual BDS growth rate has been 20% over the past few years, as it takes on the incumbents and competitive local-exchange carriers.

That translated to a $12 billion piece of the BDS market in 2015, said the FCC, with a projection for that share to double by 2019.

Cable operators, including NCTA: The Internet & Television Association, had pushed the FCC this time around to clarify that some broadband business services are private carriage not subject to the requirements of Title II of the Communications Act, such as “just and reasonable” rate regulation.

The order delivers that clarification, or at least it proposes to do so, confirming that cable operators can offer BDS service as a private carriage service not subject to Title II regulations. That would allow smaller operators that might not typically offer BDS to provide one-off offerings for specific customers.

Cable operators had sought that flexibility under the Wheeler proposal, but the idea did not get traction.

The FCC also concluded that having a competitor “nearby” is sufficient to qualify a market as competitive or, as the order puts it: “Traditional and nontraditional providers of business data services constrain an incumbent’s pricing outside of immediate geographies used to describe market concentration” in the Wheeler proposal.

The order cites cable as such a competitor, using as an example a cable company with “nearby” fiber nodes and the ability to provide Ethernet service over either fiber or hybrid fiber coax.

While the thrust of the order is to deregulate the price cap on incumbent carriers such as AT&T and Verizon Communications, a deregulatory tide lifts all boats.

At first blush, it might appear to be an advantage to have your competitors reregulated. A cable executive speaking on background, though, said that subjecting competitors to rate regulation is frequently “not a good thing.”

For instance, he suggested, were the FCC to cap rates at cost for an MSO’s ILEC competitor, cable operators would be forced to compete at that capped price. Thus, the free market of rates Pai is aiming for is preferable to self-regulating at a competitor’s level.

Being able to provide BDS as a non-common carrier service is one advantage, as is not subjecting cable operators to a new category of rate regulations should they invest to compete against the ILECs.

CLEC PUSHBACK
INCOMPAS, which represents the competitive telecoms that backed Wheeler’s regulatory approach to ILECs, was pushing back last week, looking for proof of the FCC’s assertion that most markets (92%) were sufficiently competitive to preclude price regulations to prevent monopoly and duopoly pricing.

Invoking the transparency chairman Pai has been pushing, INCOMPAS called on the FCC to release that information before the April 20 vote.

“It is critical to a thoughtful and reasoned consideration of this order to be able to assess exactly what that means, and how many small and medium-sized businesses and critical community institutions could face dramatic price hikes,” INCOMPAS said.

SIDEBAR: Tale of the Tape
According to an FCC summary, the agency’s new business data order, scheduled for a vote April 20, would:
■ “Confirm that certain competitive offerings constitute private carriage.”
■ ”Find that competition for lower-speed services (DS1s and DS3s) is robust in some, but not all, counties, and apply a competitive market test to determine where actual and potential competition is likely to constrain prices and lead to additional investment.”
■ “In areas with sufficient competition, modernize rules to facilitate additional infrastructure investment and next-generation services by ending tariffing and other legacy pricing regulations.”
■ “In areas without sufficient competition, maintain price caps …”
■ “Grant carriers additional flexibility to offer discounts in such areas to schools, libraries, r ural healthcare clinics, and other special access customers.”
■ “Ensure continued Commission oversight by prohibiting the use of agreements that would bar disclosure of contract terms to the FCC going forward.”
— John Eggerton

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