FCC’s New BDS Proposal Discourages Investment in Modern Infrastructure

Morning Consult By Anna-Maria Kovacs

On October 7th, the Federal Communications Commission issued a summary of Chairman Tom Wheeler’s proposed business data services (BDS) order. Perhaps the most interesting thing about this fact sheet is its admission that ex ante rate regulation is harmful to investment. Despite this understanding of the potential consequences, the proposed order would drain free cash flow from broadband providers – primarily incumbents, but also some of their facilities-based competitors.

The summary explains that “to promote continued investment in packet-based BDS, no price caps, benchmarking, or other forms of ex ante pricing regulation will apply.”

The proposal does, however, apply ex ante price regulation to low-speed TDM (circuit-switched) BDS, whose infrastructure is provided largely by incumbent broadband providers and competitive fiber providers (CFPs) and resold by others. Business customers have been migrating away from TDM to the more technologically advanced packet-switched services, but lowering TDM’s price can only slow that migration because of the mixed signals it creates for providers versus customers.

Even if the desire to be free of regulation incents TDM providers to try to reduce sales of this obsolete service, they are helpless to do so. The mandatory lower prices encourage customers to stay with the legacy service. Moreover, the signal the FCC is sending about packet-based BDS to the providers is confusing. While the proposal does not apply ex ante regulation to packet-based services today, it does sweep them under Title II and proposes far-reaching ex post regulation of competitive providers as well as incumbents. INCOMPAS has already come back and demanded that the FCC apply ex ante regulation to Ethernet at speeds below 50 megabits per second.

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investinbbandFCC’s New BDS Proposal Discourages Investment in Modern Infrastructure