The FCC has eased business data services (BDS) pricing rules to encourage continued growth in the market.
Traditional special access services offered by local phone companies (incumbent local exchange carriers, or ILECs) have long been subject to FCC price regulation. But these legacy networks, which operate on copper-based TDM technologies at relatively low speeds, are becoming obsolete.
Instead, high-bandwidth applications are driving demand for high-speed Ethernet packet-based networks. Such networks are often deployed by lightly-regulated competitive carriers, which now account for nearly half of the $45 billion BDS marketplace. In addition, cable-based BDS has been growing by approximately 20% annually for the past several years, a competitive trend that is expected to continue.
Based on more than ten years of study of the market, the FCC has concluded that competition for packet-based services at speeds exceeding 45 Mbps (the top speed of TDM DS3 services) is widespread, making pricing regulation counterproductive for these services. Also, continued price regulation for legacy TDM-based BDS in areas deemed competitive may stifle investment and inhibit the transition to modern IP services.
The Report and Order adopted by the FCC is intended to encourage the investment required for the transition of BDS from legacy TDM networks to high-speed Ethernet connectivity.
Regulatory changes include the following:
- The Order adopts a competitive market test that determines that pricing regulation is no longer required when 50% of the buildings in a county are within a half-mile of a location served by a competitive provider, or 75% of the census blocks in a county have a cable provider present.
- After a transition period, ILECs in counties meeting the competitive market test will no longer file tariffs with the FCC. However, rates must continue to be just and reasonable.
- In counties that do not meet the competitive market test, the Order retains price regulation for lower speed TDM connections to end-users. The Order allows ILECs to offer volume and term discounts, as well as contract tariffs (known as "Phase I pricing flexibility" under the FCC's old rules).
- The Order extends uniform forbearance from certain rules that had previously been granted unevenly. This change includes forbearance from tariffing for all packet-based BDS.
- The Order updates price cap regulation where it remains by reducing the cap annually by 2% on a going-forward basis to account for productivity gains. The productivity adjustment is known as the "X-factor." While the X factor has not been adjusted since 2005, when it was set at the rate of inflation, the Order concludes that no catch-up adjustment is warranted since inflation offset productivity gains for TDM services. The new X-factor takes effect on Dec. 1.
- Packet-based and TDM telecommunications services continue to be subject to statutory requirements that rates, terms and conditions be just and reasonable, enforceable through the complaint process. The Order also concludes that certain business data services constitute private carriage rather than common carriage.