FCC Bans Early Termination Fees in Business Data Services

(Rob Kunzig/Morning Consult)

Competitor wireless companies T-Mobile and Sprint, along with major users such as hospitals, banks, and retailers, got a big win on Thursday when the Federal Communications Commission voted to prohibit early termination fees and other onerous contractual practices that bigger telecom providers impose.

The commission approved the new prohibitions on a 3-2 party-line vote. They are intended to even out the business data services market, historically known as “special access.” Industry competitors such as T-Mobile and Sprint have been calling for the rules for years, arguing that they are at a disadvantage because of the contracts.

It’s a massive market, with an estimated worth of about $45 billion. Hospitals, banks, retail companies, manufacturers and schools all use special access lines to send vast amounts of data daily. ATMs and machines that read credit cards are two common uses for special access lines.

Smaller mobile network carriers pay to use the lines, which are owned by the major providers like AT&T Inc. and Verizon Communications, to help transmit the calls. The development of 5G mobile network technology makes a strong framework all the more important. With a newer network will come more data traffic, and it’s going to need easy access to avenues to travel smoothly.

The agency’s final rule bans certain contractual practices the major incumbent providers use with their corporate clients. These include early termination fees if a business wants to sever ties with a telecom provider and the requirement from some to force corporate customers to purchase service all over the U.S. if they want to buy it in just one area.

The FCC deemed those practices unfair and discouraging for businesses if they need to switch from old technology to new, internet-protocol based systems.

The rule is designed to encourage competition and foster a tech-neutral framework for companies to develop their products. The FCC analyzed troves of data on the state of competition across the country in the special access marketplace. Democratic Commissioner Jessica Rosenworcel called it “possibly the single largest data set in the history of this commission.”

The agency concluded that regulators needed to make a change in the market. In addition to banning certain contractual practices, the commission voted to begin creating a business data service framework that eventually will minimally regulate competitive markets and institute light-handed pricing regulations in those deemed noncompetitive.

To do this, the FCC first will need to figure out which markets deserve what treatment.  The proposed rule also approved by the commission first asks for public comment on how the agency can develop a data-driven market test that would identify which areas are competitive and which aren’t.

Trade groups representing big users like hospitals and banks, along with competitive mobile companies, were pleased with the move.

“Ending lock-up provisions will empower customers to break free and taste the freedom of competition,” Chip Pickering, CEO of INCOMPAS said in a statement. “A fluid marketplace where business consumers of all sizes, including schools, libraries, hospitals, and local and state governments can choose their broadband provider will incentivize the deployment of faster, next generation wired and wireless networks.”

INCOMPAS represents Sprint and T-Mobile.

The Computer and Communications Industry applauded the new approach that “will help support innovation on the horizon like 5G wireless networks and the Internet of Things.”

“No business should be trapped by unreasonable conditions or unfairly high rates just because there is no competitive alternative,” said Ed Black, CCIA President and CEO, said in a statement.

He added that while CCIA is generally wary about calling for regulation, the group finds that it’s necessary in areas with no competition to prevent abuse.

CCIA represents Sprint, PayPal and eBay.

The FCC’s action worries members of the cable industry. Cable companies are major players in the internet service provider market, and they see the FCC’s action as a gradual move towards regulating cable companies’ rates. The legacy carriers AT&T Inc. and Verizon Communications have traditionally been the biggest sellers of data network services, but David Cohen, executive vice president at Comcast, says the FCC’s rule could impinge on new market entrants like cable.

“The FCC’s proposal to impose rate caps and other regulatory mandates extends beyond the incumbent telco providers to new entrants in that marketplace, such as Comcast and other cable companies that are investing billions of dollars of capital and bringing real competition and innovation to the sector,” Cohen said in a blog post.

The National Cable and Telecommunications Association said the rule is “disappointing” and imposes “onerous new rate regulation” on cable.

FCC Chairman Tom Wheeler was the head of NCTA, as the top cable guy, for five years from 1979 to 1984. On Thursday, he had his own thoughts on cable’s grievances.

“They’ve been offering telecommunications services for some time,” he told reporters in a press conference following the meeting. “When I was running NCTA, the mantra was level-playing field, level-playing field, level-playing field.”

“So here’s a level playing field that says everybody who offers a telecommunications service gets regulated in the same way,” Wheeler added. “‘Oh we don’t like that playing field!’”

Republican Commissioner Michael O’Rielly, who voted against the rule, said it “proposes a brand new scheme to rate regulate anyone who provides enterprise level broadband service.”

“I cannot stress how radical a departure this is from history and precedent,” O’Rielly added, stressing that the current framework that stretches back to the 1980s actually encourages entry to the marketplace. He argued that this led to cable’s entry to the immense market.

Morning Consult