FCC Must Close Door on Market Power, Open the Future of Competition
By Chip Pickering
On Thursday, we will celebrate the birthday of a great American president, Teddy Roosevelt. Revered for a number of things, the 26th President stands out to me for his role as America’s trustbuster. A man who stood up to the bully of market power in favor of consumers and competition alike.
To mark Teddy’s birthday on Thursday, the FCC has an opportunity to do something that would make Roosevelt smile — announce it will take a step forward in addressing market power abuse in the business data services market (BDS) for its November meeting. Setting a vote on BDS would advance a proceeding that has dragged on for over a decade.
Competition means business. And more businesses want more affordable choices, better service and new network investment that will bring faster speeds.
Since the Telecommunications Act of 1996, when a bi-partisan Congress made competition the law, $1.4 trillion in private sector investment has been injected into broadband infrastructure, and network capacity has almost doubled every two years since the Act.
But we currently live in the EpiPen world of broadband, where companies like AT&T and CenturyLink use their market power to overcharge customers. A leading consumer economist recently found that the economy has been impacted by as much as $150 billion from unreasonable overcharges on business customers, schools, hospitals, libraries and tax payer funded government agencies over the past five years alone.
Chairman Tom Wheeler’s proposal to adopt a remedy to address market abuse on legacy BDS services is an important first step toward more competition that we support. Abuse in the BDS market is overwhelming and well documented. FCC data shows 77 percent of business locations have just one choice for provider, and around 98 percent have no more than two choices. As the Chairman indicated in his speech at 1776, a duopoly is less than vibrant competition.
The FCC has wide support for BDS reform from both the wired and wireless industry, schools, health care providers, libraries, public interest groups and innovative start-up companies. In fact, even the companies that have opposed the FCC, suggesting the sky would fall and markets would crash if the FCC takes action, have told Wall Street a different story. AT&T’s CFO said the measures would not impact its business, while CenturyLink’s CFO called its business broadband lines “high margin” cash cows.
With a remedy for legacy services in place, the FCC must continue to look to the future of broadband competition. Indeed, the very same data that demonstrates clear market power abuse for the legacy technology, tells an equally bleak story for newer technology — specifically Ethernet.
The Commission, in this Order, could help stem future market abuse in several ways.
First, the Commission should establish a mechanism or clear guidelines for Ethernet BDS pricing that fosters competition, not monopoly rents. This is necessary to drive innovation and investment in future offerings of critical broadband services. Innovators need a framework to compete, not just complain. This should include maintaining the tech transitions policy that this FCC has already put in place to speed the migration to Ethernet services and ensure no price increases.
Second, it can straighten out a crooked market that currently enables a price squeeze on competition by allowing wholesale service to be priced equal to or greater than the retail service price. Yes, you read that correctly. Wholesale should always be less than retail.
Third, the Commission must ensure the reforms adopted occur quickly and are not thwarted by lock-up agreements. If we unleash competition, we will unleash investment.
We applaud the Chairman on taking this first step by reforming prices for legacy services, and we will continue to fight for Ethernet competition policy which is paramount for the nation’s broadband future.
Announcing a BDS vote on Teddy Roosevelt’s birthday would not only be great symbolism, it would be a gift to those customers who have been overcharged and denied real choice. Let’s get that savings back in the hands of teachers, nurses, and new network builders as soon as possible.
**INCOMPAS, The Internet and Competitive Networks Association. Follow us on Twitter @INCOMPAS @ChipPickering