An excerpt from a white paper, “Second Supplemental Declaration: Comments on the Price Cap Proposed Order,” prepared by Professor Mark Schankerman, Dr. Pierre Regibeau, and Charles River Associates:
The Fact Sheet issued recently by Chairman Wheeler addresses the key elements of the FCC’s proposed price cap regulation of BDS services. In this declaration, we focus on three key provisions in that proposal: 1) initial reductions to prices for ILEC DS1 and DS3 services by 11%, spread over three years (“reset”); 2) further reductions to DS1 and DS3 prices going forward by an annual “X-factor” of 3%, offset by inflation; and 3) application of these reductions through price cap regulation of DS1 and DS3 services in all geographic markets, including those in which there is extensive provision of Ethernet services by non-ILEC providers. In this declaration, we show that these elements of Chairman Wheeler’s proposal lie completely outside the range of policies that can credibly claim to be “evidence-based.”
The Fact Sheet does not identify the evidence or methodology used to justify this proposal. Based on a briefing provided to CenturyLink by FCC staff, however, it appears that the DSn rate reductions proposed in the Fact Sheet rely (at least as a starting point) on the BLS-KLEMS data for TFP and input price measurement, as we had originally proposed. But the draft order, as we understand it, would then apply an “adjustment factor” based on a comparison of the BLS-KLEMS data to X-factors computed by the FCC for particular points of time as far back as the 1990s.
investinbbandComments on the Price Cap Proposed Order White Paper
The Federal Communications Commission issued a proposed reform in May 2016 to regulate prices for high-capacity telecom “pipes” that are used by telephone and cable companies to provide business data transport services (or BDS, formerly known as “special access”) to wireless companies and other large businesses. According to the FCC, its goal in the reform is “to ensure that competitive benefits flow to customers and onward to consumers” and “to ensure that non-competitive market conditions do not disadvantage business customers and their ability to compete and innovate in downstream markets.”
In a series of five articles, entitled “Assessing the FCC’s Proposed Reform of Business Data Services,” respected financial professionals Michael J. Balhoff and Bradley P. Williams analyze key elements of the proposed reform. Their conclusion is that, if the FCC chooses to implement its proposed regulatory framework for BDS, rapid technological innovation and competitive behaviors could be distorted and critical ongoing network investment might be chilled.
investinbbandAssessing the FCC’s Proposed Reform of Business Data Services
Excerpt from a press release issued by the Phoenix Center for Advanced Legal & Economic Public Policy Studies:
In May 2016, the Federal Communications Commission (“FCC”) issued a Further Notice of Proposed Rulemaking in which it outlined a “new path forward” for imposing price regulation on high-capacity telecommunications circuits sold to businesses and other telecommunications providers. These services have historically been referred to as Special Access Services, but now the Commission prefers the label Business Data Services (“BDS”), a broader classification that includes not only Special Access services but also unregulated high-capacity Ethernet services. In its BDS NPRM, the Commission outlines a two-step procedure for determining if it will apply rate regulation: As a first step, the Commission proposes to determine “whether market power exist[s]” for BDS and where. If the Commission determines that market power exists, then the Agency proposes to apply a price-cap “style” regime to the prices of BDS. The problem, however, is that nowhere does the Commission define its concept of “market power.”
investinbbandNew Phoenix Center Economic Analysis Shows FCC Has Failed to Provide Adequate Justification for BDS Rate Regulation
August 9, 2016
By Dr. Mark Schankerman and Dr. Pierre Régibeau Reports
On August 9, 2016, a report prepared by Dr. Mark Schankerman and Dr. Pierre Régibeau, “Response to the FCC Further Notice: Regulation of DS1 and DS3 Services,” was enclosed for filing to Federal Communications Commission Secretary Marlene H. Dortch.
investinbbandResponse to the FCC’s Use of Price Cap Regulation of BDS Rates