Special Access Pricing Getting FCC Review

By Gary Kim December 10, 2013

Few issues have been as contentious as special access pricing. The only other issue which historically has generated similar levels of acrimony is pricing levels for other wholesale services sold by incumbent fixed network service providers to competitors.

In both cases, prices at which access services can be purchased wholesale from the incumbent service provider have been the issue. Obviously, buyers complain of unfairly high prices, while sellers defend the prices as appropriate.

The new twist is that the legacy public switched network is going to be shut down in the foreseeable future, which poses an issue that has been in the background for some time; namely, what becomes of the wholesale access products competing and other service providers traditionally have purchased from incumbents with local access assets?

In other words, special access “T1” and “DS3” lines won’t exist when the switch to the IP network is completed.

To be sure, Ethernet-based access products will replace those “special access” products. But it remains unclear what rules will pertain to the purchase of such products.

Consider the possible revision of the Telecommunications Act of 1996. One big problem with communications law is that different rules apply to different suppliers of the same products. The difference in rules pertaining to cable TV companies offering voice and data services provides a salient example.

Telcos face Federal Communications Commission oversight on prices, terms and conditions of service. Cable TV companies are free of such restrictions.

So one concrete issue is whether the rules on mandatory access should apply only to telcos, should be extended to cable TV companies, or whether no providers should be forced to sell wholesale products on anything other than a commercial agreement.

AT&T does not want to sell five-year or longer-term contracts, with discounted pricing for such term lengths, since it plans to decommission all such services before the expiration of the contracts.

The FCC is taking a look at whether AT&T should be allowed to do so.

Make no mistake, the availability of mandatory wholesale access, at healthy discounts, has a key effect on competitor strategy. Some business models are possible when such access is widely available. Many U.S. competitive local exchange carriers, for example, could build a business case when the FCC required wholesale discounts of 40 percent.

Most CLECs found a business case was not possible when discounts were lowered to 20 percent, and then became a matter of negotiated commercial agreements.

Likewise, Verizon Communications argues that the existence of wholesale rules in the mobile industry in Europe make possible the creation of a mobile business without the need to invest in network infrastructure or equity ownership of firms operating in European markets.

Wholesale discounts make a big difference, and not only for business plans of competitive providers. Many say such discounts drastically reduce the revenue potential for investment in next generation networks as well, which explains lower European investment in such networks.

Edited by Rory J. Thompson

Contributing Editor

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