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 Communications Workers of America delivered 7,184 petitions to the Federal Communications Commission today, from union and digital activists nationwide, calling on the Commission to give careful review to proposals to regulate business data services, keeping the priorities of broadband buildout and job creation front and center.
investinbbandCWA Delivers 7,100 Petitions to the FCC on Business Data Services Proposal
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.”
investinbbandFCC’s New BDS Proposal Discourages Investment in Modern Infrastructure
Excerpt from a letter sent by Comcast Corporation to FCC Secretary Marlene Dortch:
…During these discussions, we emphasized that (1) the current record cannot support a finding that all business data services (“BDS”) are offered on a common carrier basis; (2) the Chairman’s October 7 Fact Sheet correctly recognizes that it is unnecessary and would be both contrary to the record and counterproductive to subject the robustly competitive Ethernet segment to ex ante rate regulation; and (3) evidence of an increasingly competitive BDS marketplace also warrants treading lightly in applying rate regulation to legacy TDM services offered by incumbent local exchange carriers (“ILECs”). In addition, on October 18, 2016, the undersigned spoke by telephone with Mr. Litman, and on the same day, Kathryn Zachem of Comcast spoke by telephone with Matthew DelNero, Chief of the Wireline Competition Bureau, and Stephanie Weiner, Associate General Counsel and Special Advisor to Chairman Wheeler, regarding the same matters.
investinbbandComcast Warns FCC Ruling Would Cause Collateral Damage in the Broader Market for Low-Bandwidth BDS
Excerpt from a letter sent by Cox Communications, Inc. to FCC Secretary Marlene Dortch:
…At this meeting, we discussed Chairman Wheeler’s proposed BDS rules as outlined in the Fact Sheet released on October 7, 2016. We stated that the Chairman’s decision to exclude cable companies and Ethernet services from ex ante rate regulation was consistent with the strong record of competition for these services. Although we also concurred in the decision to focus regulatory efforts on incumbent LEC TDM-based BDS, we expressed concern over the decision to impose new regulation on those services on a nationwide basis without any assessment of whether there was sufficient competition in any area to constrain ILEC pricing.
investinbbandCox Expressing Concerns of FCC Decision to Impose New Regulation without Accessing Data