FSF Comments Oppose Regulating Business Broadband Rates
Free State Foundation President Randolph May and Senior Fellow Seth Cooper submitted comments yesterday in response to the Federal Communications Commission's proposal to impose a new rate regulatory regime on so-called "special access" or "business data services" (BDS). In effect, the Commission's data-neglectful proposal would amount to rate regulation of broadband business services in markets that are effectively competitive.
A PDF of the Free State Foundation comments, with the Appendix, is here.
These comments are submitted in response to the Commission's Further Notice of Proposed Rulemaking released May 2, 2016. The Notice seeks comment on the Commission's proposal to impose a new regulatory framework on so-called "special access" or "business data services" (BDS). The Notice proposal to regulate - or in some respects re-regulate - those services is purportedly based on the Commission's analysis of its 2015 data collection regarding BDS services.
The primary purpose of these brief comments, along with the attached appendix containing a recently published Free State Foundation Perspectives, is to urge the Commission to refrain from imposing new regulations on BDS services. New regulations would deter competitive entry and investment in next-generation IP-based broadband services to the detriment of consumers. More specifically, this comment calls attention to highly problematic aspects of imposing a building-by-building definition of the BDS market as contemplated in the Notice. Such an improper extremely narrow market definition should not be adopted. A building-by-building definition of the DBS market would produce a distorted picture of the market that ignores the existing and potential competition. And the imposition of new rate regulation based on such a distorted picture would needlessly and harmfully deter competitive entry and investment in the DBS market. Moreover, it would constitute rate regulation of broadband services. Today's dynamic communications market offers consumers - including business customers - an increasing variety of choices. Competitive entry into the BDS market by cable operators and 4G LTE wireless options are among the alternatives for broadband data services. A decade ago those options scarcely or never existed. These developments and their potential for future competition confirm the soundness of the Commission's Clinton Administration-era reductions of special access regulatory burdens. Given market advancements and ongoing competitive entry and investment, the wisest and preferred course of action is for the Commission to refrain from imposing new regulatory burdens on BDS services. Cable operators are investing significant amounts of private capital to compete in the BDS marketplace. Such investments pose far better potential for enhancing BDS competition and consumer welfare than new regulation. Moreover, mandated rate reduction of BDS services would likely have the negative effect of deterring development of further facilities-based competition - competition that, in any event, already is progressing. If the Commission forces down incumbents' rates, cable operators and other BDS competitors will have greater incentive to rely on non-facilities-based rate-regulated options. And those competitors will have correspondingly reduced incentive make significant investments to provide commercial customers with next-generation IP-based services that are more robust and less expensive than the services offered by the incumbent providers. Nonetheless, the Commission has spent an entire decade now in a quixotic quest to determine whether - in its own data-distorted and pre-conceived notion opinion - BDS services are priced reasonably and whether to re-regulate rates for those services. Above all, it would be serious mistake for the Commission to define the BDS market on a building-by-building basis. Excessively narrow definitions of markets result in distorted pictures of competitive conditions. An extremely narrow building-by-building definition of the BDS market - which the Notice seeks comment on - would ignore competition that actually exist for BDS services. Indeed, a building-by-building market definition would ignore the potential competition posed by competitors serving neighboring buildings. Also critical to any competitive analysis of the BDS market is the number of consumers or business customers. The Notice's myopic focus on the number of competitors serving individual buildings fails to factor in the potential downward effects on pricing that results from bilateral monopoly situations where only one provider and one customer are present. These points are discussed further in the attached Perspectives from FSF Scholars paper, "The FCC Cannot Proceed in the BDS Proceeding with a Flawed Analysis," by FSF Research Fellow Michael Horney, published on June 6, 2016. The Commission, therefore, should reject calls for imposing building-by-building market definitions of BDS services and regulating them on that basis. Some geographic locations or even buildings will undoubtedly have more competitive options than others. But it is not the Commission's job to supervise the competitive conditions governing every building location and commercial contract regarding BDS services in the nation. Rather, the Commission should focus on the unmistakable, long-term trend towards more competition and more choices for consumers in most locations - a trend enabled and furthered by the deployment of lower-cost, more efficient digital technologies. Consistent with these comments the Commission must not define the BDS market on a building-by-building basis. Instead, in a long-overdue move, it should close this proceeding. It should seek ways to facilitate continued competitive entry and investment in new facilities, rather than imposing new rate regulations based on improperly narrow market definitions and flawed data analysis. * * * Randolph J. May, President of the Free State Foundation, is a former FCC Associate General Counsel and a former Chairman of the American Bar Association's Section of Administrative Law and Regulatory Practice. Mr. May is a current public member of the Administrative Conference of the United States, and a Fellow at the National Academy of Public Administration. Mr. May is a nationally recognized expert in communications law, Internet law and policy, and administrative law and regulatory practice. He is the author of more than 180 scholarly articles and essays on communications law and policy, administrative law, and constitutional law. Most recently, Mr. May is the co-author, with FSF Senior Fellow Seth Cooper, of the recently released The Constitutional Foundations of Intellectual Property and is the editor of the book, Communications Law and Policy in the Digital Age: The Next Five Years. He is the author of A Call for a Radical New Communications Policy: Proposals for Free Market Reform. And he is the editor of the book, New Directions in Communications Policy and co-editor of other two books on communications law and policy: Net Neutrality or Net Neutering: Should Broadband Internet Services Be Regulated And Communications Deregulation and FCC Reform.
Seth L. Cooper is a Senior Fellow at The Free State Foundation. He previously served as the Telecommunications and Information Technology Task Force Director at the American Legislative Exchange Council (ALEC), as a Washington State Supreme Court judicial clerk and as a state senate caucus staff counsel. He is an attorney, and he graduated from Seattle University School of Law with honors. Mr. Cooper's work has appeared in such publications as the San Jose Mercury News, the Iowa Des Moines Register and the American Spectator.
The Free State Foundation is a non-profit, independent free market-oriented think tank.
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