We applaud the FCC for taking an initial step towards fixing the broken and non-competitive special access market by suspending further price flex petitions and by moving forward with mandatory data requests to gather additional information so that working rules can be established. The incumbent phone companies will cry foul respecting the suspension of granting new price flex petitions, but in our view, it was the right thing for the FCC to do. However, we feel the FCC can do even more.
While the suspension of granting new price flex petitions is far better than continuing to grant pricing flexibility using mechanics that many in the industry, including the FCC itself, have agreed are faulty, the FCC should also act quickly to impose rules prohibiting the incumbent telephone companies’ use “demand lock-up” clauses in their agreements, which have and will continue to prevent the special access market from becoming competitive.
In 1999, the FCC established the pricing flexibility process with the belief that the “triggers” it established (which were based on competitive local exchange carrier collocations in the relevant area) would ensure adequate competition. The FCC has since recognized what, in hindsight, was obvious at the time AT&T (before it was bought by an incumbent phone company) initially challenged these processes in 2002— that the triggers are not a reliable indicator of the presence of competition adequate to ensure that rates, terms and conditions will be reasonable and reflective of a competitive market. In other words, the triggers are broken.
The incumbent phone companies have argued that this broken process cannot be suspended without gathering additional and extensive evidence. In our view, given that the triggers were adopted without sufficient evidence to back them in the first place, it is appropriate for the FCC to now suspend using them going forward on the basis of the extensive record now before it demonstrating that the triggers are not working properly. For the same reasons, the FCC should closely scrutinize any rate increase proposed by an incumbent phone company for special access services which are already subject to pricing flexibility.
While the FCC has taken this good first step, it can do more. The FCC has more than adequate data to find that the incumbent phone companies have dominant shares of the special access market and are uniformly engaging in unlawful contracting practices designed to maintain that dominance and keep special access prices artificially high. They do this by effectively forcing their large customers to commit to buy all, or nearly all, of their special access services from them in exchange for discounted pricing or other important contract terms. Such demand lock-up terms and conditions tying up significant portions of special access demand have no place in what is supposed to be a competitive marketplace, particularly when employed by incumbent phone companies with dominant shares of the market.
The Telecom Act declares unlawful “unjust and unreasonable” contracting practices, and authorizes the FCC to prescribe rules and regulations that may be necessary to carry out the provisions of the Act. As it has on several other occasions, the FCC should immediately impose rules prohibiting the enforcement of existing demand lock-up clauses and the execution of new ones.
The FCC needs no further data to do so.
10/05/2012 Read Part II: Special Access Gains Traction