The Federal Communications Commission has concluded that its 1999 rules on market-based special access rates "have not worked," and so it is suspending its rules. At stake are special access revenues of incumbent LECs of about $16 billion annually, as well as business costs for rival suppliers who lease such circuits to connect their own customers. 

The suspension of rules is but the latest round of sparring between incumbent service providers who lease services to competitors, and the competitors who want lower prices. 

In the 1999 "Pricing Flexibility Order," the Commission adopted rules intended to allow price capped service providers to show that certain parts of the country were sufficiently competitive to warrant pricing flexibility for special access services. Competitors generally have complained that the relaxation of price controls was unwarranted. 

The FCC now says it does not believe its rules have worked as expected, "likely resulting in both over- and under- regulation of special access in parts of the country." Some will argue that the FCC's suspension of its rules likely will result in the re-imposition of price controls. 

Originally, the FCC expected rather more robust market entry by new competitors, starting in the areas of highest business demand, and then gradually extending elsewhere throughout a metro area.

The FCC says "recent data indicates that competitors have a strong tendency to enter in concentrated areas of high business demand, and have not expanded beyond those  areas despite the passage of more than a decade."

In other words, competitive providers have tended to cluster their investments in the areas where potential customer density was highest, and have tended to underplay investments elsewhere. 

A reasonable person might say that is about what a rational supplier might do, if the financial return was too low, and the risk too high, in the outlying areas. "Incumbent LECs generally concede that competitors have focused on areas in which demand for special access services is very concentrated," the FCC says. If that is the case, then regulation of necessary special access rates is needed, competitors argue. 

There isn't much doubt that facilities-based competition is less extensive than some had anticipated. "Demand for special access services is highly concentrated in a relatively small number of dense urban wire centers and ex-urban wire centers containing office parks and other campus environments," the FCC says.