Excerpt from a letter sent by AT&T Inc. to FCC Secretary Marlene Dortch:
Chairman Wheeler recently published a “Fact Sheet” that outlines his proposed order in this proceeding. Although the proposal recognizes that “lighter-touch regulation” is more appropriate for Ethernet services, “where there has been new entry and competition may be emerging,” the proposal is startlingly overbroad as it relates to legacy TDM services.
First, the Fact Sheet effectively ignores Commission’s unprecedented data collection and proposes Phase I regulation – i.e., price caps – for all ILEC DS 1 and DS3 services nationwide. Nationwide price cap regulation for DSn services goes far beyond what the record evidence can support and could not be sustained on review. Most notably, the proposal would result in the sudden re-imposition of price caps on dedicated transport services in the dense business districts of the largest cities in the country, like Chicago and New York, where the data collection shows that typically more than twenty CLECs have deployed their own facilities-based interoffice transport networks. There is no conceivable economic or public policy basis for ex ante rate regulation of services offered by dozens of facilities-based competitors. Indeed, the facts confirming ubiquitous transport competition are so clear that the CLECs have not even tried to make a case that transport is not competitive, and sweeping nationwide re-regulation of such services after a decade and a half of deregulation would be a recipe for swift reversal. But the Fact Sheet’s implicit contention that there is no effective competition anywhere in the country for channel terminations is just as misguided. As shown below, the data collection and the CLECs’ own advocacy strongly refutes any such notion.
Second, the Fact Sheet’s proposal for a new annual X-Factor of 3.0 percent and special one-time adjustment of 11.0 percent is also arbitrary. The Bureau of Labor Statistics’ total factor productivity estimates could legitimately support only an annual X-Factor of 2.0 percent and no material one-time adjustment. To goose the numbers higher, the Fact Sheet apparently contemplates starting with the U.S. Bureau of Labor Statistics (“BLS”)-based figures and adding a factor derived from the amount the Commission’s productivity-based X-Factors in the 1990s exceeded the BLS productivity estimates from those same years. Any adjustment to current X-Factor estimates based on the Commission’s 1990s-era X-Factors would be arbitrary. Even if it were the case that the Commission’s X-Factors from the 1990s, which were developed almost entirely from switched access data, were more “accurate” for special access of that era than the BLS figures, there is no constant relationship between those figures that holds true across decades. To the contrary, TDM special access services were experiencing rapid growth in the 1990s whereas today DS1s and DS3s are in rapid decline. Equally important, if the goal is to “correct” the price cap indices to account for past productivity gains, it would be arbitrary to focus solely on the 2005-2016 period when, under the Commission’s own theory, the X-Factors that it applied during the period 1996-2005 were far too high.