For years, Level 3 has objected to the major incumbent telcos use of “demand lock up” arrangements in the market for special access services. The incumbent phone companies use and maintain their dominance in the special access market to demand that their customers commit to buy as much as 90 percent or more of their wired connections from these incumbents. Customers that refuse are denied access to enormous discounts for each wired connection, and instead must pay highly-inflated “list prices.” Customers that agree must severely restrict their purchases from competitive suppliers, or risk paying “shortfall penalties” to the incumbent.
If a customer needs to buy some connections from the incumbent phone company (and every large customer does given that the incumbents are the only providers for large percentages of the market) their overall pricing will skyrocket unless they commit to buy all, or nearly all, of their connections from them in exchange for the discount. Given this “choice,” it is not surprising that most large customers commit to buy the vast majority of their special access service from the incumbents. Our last objection to these unlawful practices was lodged with the FCC last Friday, June 1st.
We were surprised to read AT&T’s comments (Communications Daily, Monday, June 4th) to our filing. AT&T said that “[t]he Commission’s policies should be looking to move us forward to an all-IP, fiber-based world and getting companies like Level 3 off the sidelines and investing in building out fiber to the 100,000 buildings within 500 feet of its fiber network.”
We agree with AT&T that the Commission should adopt policies that encourage fiber network construction – that is the whole point of our effort to eliminate unlawful demand lock up arrangements. We would love to construct fiber to many more buildings adjacent to our network, but AT&T’s (and the other incumbents’) lock up arrangements prevent it. We are forced to sit out more often than we would like not because we want to, but because if we did incur the expense to build to these buildings, our prospective, large customers would be unable to buy more than a fraction of their demand from us as they are already locked in to buying from AT&T and the other incumbents instead. The FCC itself has rightly concluded that “carriers generally are unwilling to invest in deploying their own loops unless they have a long-term retail contract that will generate sufficient revenues to allow them to recover the cost of their investment.” Consistent with the ultimate goals of the Communications Act, Commission action should be aimed at fostering the growth of facilities-based competition so that competition, rather than regulation, ensures that special access rates, terms and conditions are reasonable. The Commission should immediately abolish price-cap LEC behavior that eliminates potential demand for competitively supplied special access in large portions of the market because that behavior impedes investment in and deployment of facilities-based competitive networks.
AT&T could help us get off the sidelines by agreeing to eliminate its use of demand lock up arrangements. Until they do or the FCC stops them, we are stuck on the bench far more often than we would like.