By Chip Pickering
CEO of INCOMPAS, The internet and competitive networks association
Americans are screaming for more broadband competition. That is why reforming the broken business data services market is a national priority. It’s a rigged system dominated by monopoly control and consumers and small businesses are paying the price.
The FCC, now led by Republican Chairman Ajit Pai, recently announced plans to address the business data services (BDS) issue at the Commission’s meeting on April 20th.
Done right, reforming BDS could bring more competition and provide time for a sound technology transition to faster networks. Done wrong, it will shock business customers, raise prices, and chill investment.
Competition at Risk
From President Ronald Reagan breaking up Ma Bell, to the landmark bi-partisan Telecommunications Act of 1996, competition policy has been the law of the land for decades.
This policy has encouraged new companies to build new networks with the promise of competitive access and connection. It’s a free-market cure put in place to combat a 100 year-old monopoly disease.
Wholesale access and competition laws reward innovators and risk takers. Even a modest level of competition has delivered powerful results. In the past two decades, over $4 trillion in private investment and millions of new jobs have defined the sector as a shining star for our economy. Ethernet, IP, and the Cloud — they’re all competitive innovations that helped drag an old industry kicking and screaming into the future.
But bullying by big broadband and monopoly rents has slowed investment and kept competition at bay. It is critical for the FCC to stay true to the law. A BDS Order that reverses competitive gains, such as the one proposed, would cut off competitive access to 92 percent of the buildings and cell towers nationwide.
Massive Price Hikes
Cutting off competition will result in one of the biggest broadband price hikes in history. Businesses across America should plan on at least a 25 percent price increase.
Small businesses, which cannot afford a rise in operating costs, will be hit the hardest. Mid-sized industries, hotels, schools, universities, and hospitals will suffer as well.
National retailers, chains, and banks with multiple branches have flocked to competitive service. In fact 18 of the top 20 retailers, and two-thirds of the Fortune 100 companies take advantage of competitive offerings.
But everyday consumers pay too. Business broadband lines at risk for price hikes power ATM machines, gas pumps, and America’s wireless backbone. A leading consumer economist found as much as $150 billion in overcharges can be attributed to the current broken market over the last five years alone.
Transparency on Economic Impact
We ask the Chairman to do two things to live up to his promise of full transparency.
First, provide a straightforward cost-benefit analysis of the impact of its proposed actions, an analysis the Chairman has said is critical to any major Commission action. There may not be a Commission action more deserving of such analysis given that this is a $45 billion market that supports the broader $75 billion enterprise broadband market.
Second, release a list of counties impacted by their proposed regulatory changes. This will present providers, consumers, and Members of Congress with the ability to assess the impact of the BDS Order on their service offering, business plans, and communities they represent.
Data, Cable, and Consolidation
Just last year the FCC concluded a historic data collection of this market. No surprise, it found overwhelming market power abuse.
86 percent of business locations only have ONE broadband provider at aggregate speeds of 50 MGB or below. That’s a monopoly. And 98 percent of the market has no more than TWO choices, or a duopoly.
The data was clear, but the new FCC is poised to choose a different interpretation.
First, by moving the goal posts from competition available to actual customers in actual buildings out to potential competition in census block and broadband lines a half mile away.
Second, the FCC proposal puts a lot of faith in the possibility of cable service. But cable’s residential product won’t work for most BDS customers. A bank transmitting massive financial data, or a hospital sending critical X-ray imaging — these businesses need guaranteed speeds and service quality. They cannot risk capacity constraints.
In the FCC record, cable acknowledged most services are not a substitute, and their BDS penetration is limited, stating they are unable to offer “meaningful competition against incumbent providers.”
But the data finding is about to get worse. Mega mergers and consolidation over the past year will take three major BDS competitive providers, EarthLink, XO Communications, and Level 3 out of the market. These are buyers, sellers, and builders.
Actual Monopoly Does Not Equal A Competitive Free Market
One of the biggest concerns with the FCC BDS proposal is that for the first time in history, the FCC defines a “duopoly” as a satisfactory level of competition. In fact, it states the remote potential for a duopoly is sufficient. It’s not. Business customers know it. Consumers know it.
A “potential duopoly” is a fancy way of saying monopoly. Speaker Paul Ryan had this to say about the insurance market just last week: “people are down to like one choice, or in some cases no choices. That’s not good. Having a monopoly isn’t a choice. It’s a monopoly. ..With more choices you have more competition. And with more competition you have lower prices.”
We agree. That is why the goal of BDS reform should be to replicate the robust wireless sector — a market that outlawed duopoly 20 years ago. Today, the third, fourth, and fifth national competitors continue to force the two largest providers to slash prices, adopt unlimited data plans, eliminate contracts, and offer better deals.
Time to Transition
If the Commission takes the proposed route that puts main street America at risk of higher prices and less competition, it needs to adopt a sound transition timeline. This is important for both customers and providers.
Absent a transition timeline, customers may face service disruption, higher fees, or termination of service notices without warning. Thousands of business customers, content with their current service, deserve time for education on changes, new products, and new costs that impact business operations and their bottom line.
Providers, absent wholesale access, will need time to review hundreds of local markets, and make tough choices about which markets to exit, and which markets to try to build to just to retain customers they have already won.
Building new networks is not easy. The FCC has recognized this point. Chairman Pai launched an important deployment agenda to help streamline construction and eliminate regulatory barriers. We applaud his effort, and believe it makes sense to preserve functioning wholesale access while his deployment solutions have a chance to take hold.
Input from the insurgents and innovators, who are some of the most prolific builders of fiber networks, can help Chairman Pai build and connect a faster broadband future.
It’s a goal we all share.
- INCOMPAS, The Internet and Competitive Networks Association.
- Follow us on Twitter @INCOMPAS @ChipPickering