The age-old business strategy of regulatory arbitrage unfortunately seems to be gaining purchase – and even privilege – at the FCC these days. In a nutshell the strategy can be summed up as this: if you don’t want to invest to compete and win in today’s mobile marketplace, just ask your regulators to lower the cost of doing business for you. The most recent case in point: special access. Here is the background.
In 2015, after many years of advocacy based on anecdote and unsubstantiated claims, providers and purchasers of business broadband services, “special access,” were required to report a massive amount of data so the FCC could assess the competitiveness of the market. Connections to cell towers that provide necessary wireless backhaul for mobile carriers were included in the data submitted but notably absent were many other forms of technology that modern wireless carriers depend on to meet their backhaul needs. While an honest assessment of the special access market makes clear that this market is highly competitive, and increasingly so, one national wireless provider and its trade association continue to ask the FCC to ignore the record in order to achieve the carrier’s business objectives – ensure access to lower-cost infrastructure without investing in its own networks. This is hardly what was envisioned by the 1996 Telecom Act and FCC intervention is not supported by present day facts.
One of the reasons why we have so many competitive special access service offerings today is because of demand for high-capacity wireless backhaul that existing 4G and future 5G services require. To justify asking the FCC for rate-regulation for virtually all special access, including new IP-based Ethernet services, self-interested companies, including Sprint, are knowingly ignoring the meteoric rise of cable in the business broadband market, increasing competitive Ethernet offerings, and growth in fixed wireless microwave backhaul. For the same self-interested parties to point to growing demand for wireless backhaul to justify increased regulation is simply absurd.
Wireless carriers have long had a choice – including building their own backhaul or diversifying their networks through a variety of providers. Its noteworthy that T-Mobile has not filed any comments in this proceeding since 2011 and announced in August 2012 that it had “upgraded to fiber backhaul on over 32,000 cell sites,” which it achieved by “working with dozens of backhaul partners,” including cable operators and numerous CLECs. And, when asked by an analyst in October 2015 whether any action in the FCC’s special access proceeding would impact T-Mobile, Neville Ray, the company’s Chief Technology Officer, noted that T-Mobile began five years ago to deploy fiber to its cell sites. As a result, he declared that special access is “not so much our battle to fight” because T-Mobile was “in a good place already.”
Yet, in a recent speech on competition policy, the FCC’s General Counsel suggested that “the structure and efficient performance of the market for dedicated business data services may be fundamental to the deployment of 5G mobile broadband, which will require many more cell sites and thus much greater demand for the business data services generally referred to as backhaul. Control of a necessary input can impact the competitiveness of the downstream market, in this case mobile broadband.” Yet the marketplace reality, as well as T-Mobile’s experience, simply doesn’t support the intrusive old school rate regulation that Sprint now advances and the FCC appears to be contemplating.
Here are the facts. Cable is the fastest growing segment in the wholesale and retail business Ethernet markets. The largest U.S. cable operators – Time Warner Cable, Comcast, and Cox – are now the fifth, sixth, and eighth largest providers of Ethernet services in the United States, respectively, and Comcast was recently named the fastest-growing Ethernet provider for the second consecutive year. Today, all of the major cable companies use their networks to provide wireless backhaul services. Here is what NCTA recently told the FCC: “From a presence that was virtually non-existent when the Commission first started this proceeding back in 2005, cable operators now offer business customers a wide variety of high-capacity services … The additional backhaul needs that are expected to be generated by 5G services over the next few years provide a perfect opportunity for wireless carriers to attract bids from a variety of providers willing to extend new facilities to towers.”
Beyond cable, incumbent carriers have been steadily losing market share due to a rise in investment and booming competition from large competitive carriers as well, like Level 3, which is now ranked second in overall Ethernet connections. No single provider has more than 20% of the market today and non-incumbents like Level 3, Time Warner Cable, Comcast, and Cox all have connections exceeding 5% of the total market.
At a time when our government should be doing everything it can to continue to encourage investment in modern fiber infrastructure, including to cell towers, the FCC should reject these unsubstantiated calls for greater regulation. Competition in the wireless backhaul special access market has flourished due to the bipartisan hands-off approach taken by Chairmen of both parties for over a decade. Rather than ignore the facts and possibly do more harm than good, the Commission should embrace the success of its competitive, market-driven approach.