Progress for a Data-Driven Approach to Telecom Markets, Finally

Last year saw one of the more memorable regulatory flaps in recent history, as the Federal Communications Commission continued its long push to regulate business data services – essentially data services for businesses and large consumers like hospitals and universities – despite the clear absence of market failure and any justification for regulation. The effort to collect data and continue price regulation of this competitive market had been going on since 2005, but former FCC Chairman Tom Wheeler decided to pull out all the stops – and some funny-looking regressions – to try to regulate the market, even though upward of 95 percent of businesses already had access to competitive providers.

Now, new FCC Chairman Ajit Pai is taking the first step toward recognizing what even traditional BDS regulation proponent Level 3 has recognized – that the “BDS industry is vibrant and competitive and will remain so.” The FCC’s record in this proceeding actually closed in 2013 – a lifetime ago in telecom – so there is even more evidence of competition now, particularly from cable, than the record even shows.

Since 2007, the commission has found packet-based business data services, such as Ethernet, to be competitive and thus obviating the need for price regulation. Going forward, the chairman plans to reaffirm that decision given that unnecessary regulation is more likely to harm the introduction of new services and increase prices for consumers.

For slower, legacy TDM copper-based services where there is less demand, competition is also vibrant, even though most businesses want newer, faster service offered by cable and other broadband providers. For these services, the chairman acknowledges that some areas of the country may experience varying degrees of competition, and thus he proposes that the FCC apply a real-world competitive market test to determine where actual and potential competition will most likely work to check prices and promote more investment.

Why does all this matter? Because the effect of regulation, especially price cap regulation (among the most intrusive types of regulation), is to lay a dead hand on innovation and investment. As the parties objecting to Wheeler’s regulations have long argued, it simply makes no sense to have utility-style “price cap” regulation where competitors have established investment and competition provides choice for business customers in the marketplace.

Last week, Pai shared with his fellow FCC commissioners a way forward that will recognize reality and let the industry get back to focusing on competition and investment rather than administrative litigation.

Pai now seeks to set a new course for the agency, one that will enhance facilities-based competition. And it will help pave the way for the coming 5G wireless deployment. Small cells using 5G will require a tremendous amount of investment – better to spend the money on the services of the future rather than forcing subsidization of copper-based legacy services of the past. Investment and innovation: That’s why it’s important to recognize competition where it exists and ignore calls for the continuation of price cap regulation.

I have every confidence that Pai will do the right thing and convince his fellow commissioners that competition truly exists in the BDS market. After 12 years, it’s time to end the special access show. It didn’t last quite as long as the Broadway hit “The Fantasticks,” but then again, it was nowhere near as enjoyable.

Twelve years of study – someone who started in first grade when the FCC began its work would be graduating from high school this year. When the FCC finally puts this to rest, it will be time for some “Pomp and Circumstance.”


Bruce P. Mehlman is founding co-chairman of the Internet Innovation Alliance and served as assistant secretary of Commerce for technology policy under former President George W. Bush.

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