Building a Better Framework for Business Data Services Regulation


Today, NCTA submitted to the FCC a new model for smart, targeted regulation of Business Data Services (BDS) that draws from the voluminous record in the current proceeding and accomplishes the Commission’s stated goal of preserving and enhancing competition where it exists and regulating rates where it does not.

This new framework is far superior to the “regulate everything” approach that Verizon and INCOMPAS have sought to advance. That proposal and the expansive new regulation it advocates “lacks support in economic theory, in regulatory experience, and in the record on BDS” according to a separate letter filed today by seven of the economists participating in this proceeding, including two former Chief Economists at the FCC.

The undisputed evidence is that BDS investment is growing, prices are declining and competition is increasing. NCTA has demonstrated that cable operators are building new facilities to serve business customers all over the country. And this deployment is not just taking place in dense urban areas. Companies like Mediacom in Iowa and Midco in the Dakotas are bringing state-of-the-art competitive services to rural businesses, resulting in lower prices for customers whether they purchase from cable or from the incumbent provider.

Where the marketplace exhibits these characteristics, expansive regulation like Verizon and INCOMPAS are proposing is not only unnecessary but, according to the economists, “imposes significant costs and typically obstructs innovation and acts as a disincentive to investment.” As today’s filing from NCTA explains, virtually every element of the Verizon/INCOMPAS proposal – from the sham competitive test to the unwarranted across-the-board rate cuts to the convoluted Ethernet benchmarking regime – is designed to produce a completely unprecedented and unjustified wealth transfer from companies that are building networks to those that are not. That such an approach will discourage new investment in fiber networks should be obvious to everyone.

In contrast, the NCTA framework would target rate regulation to those services, providers, and areas where competition and investment are lagging. In particular, our approach would regulate the provision of legacy services by incumbent carriers in areas where there are:

  1. no existing competitors;
  2. few customers and therefore limited prospects for competitive entry; and
  3. no evidence customers are being offered modern fiber-based services.

Consistent with FCC precedent and sound economic principles that focus regulation on firms with market power, competitive providers would not be subject to rate regulation. Similarly, the provision of state-of-the-art Ethernet and fiber services would not be subject to rate regulation to ensure that companies investing in these services are able to earn a return on those investments. This modern, forward-looking framework would preserve and enhance incentives for all types of providers – cable operators, competitive fiber providers, incumbent LECs – to continue investing in new fiber facilities.

Verizon and INCOMPAS have dominated the discussion for the past few months of this proceeding with a steady stream of self-congratulatory press releases accompanying the slow reveal of their so-called “compromise” proposal. But now, with the submission of the NCTA framework and the economists’ lettertoday and a thoughtful submission from USTelecom last Friday, we hope the debate at the Commission will shift to a more measured, forward-looking approach that will promote fiber investment and limit regulation to markets where competition does not exist and is unlikely to emerge. We are confident that the FCC ultimately will recognize the irredeemable flaws in the proposals put forward by Verizon and INCOMPAS and view the NCTA and USTelecom frameworks as a welcome attempt to inject some rationality and balance into this proceeding before it is too late.