No Choke Points

There is a lot of talk and concern these days in the halls of Congress and at both the FCC and the FTC about how to promote greater broadband and wireless phone competition. Last week, the battle over whether wireless operators should have exclusive handset deals, a la AT&T and the iPhone and Sprint and the Palm Pre heated up, as the Senate held 2 hearings on the topic, and acting Chairman Copps promised a proceeding on the implications of the practice for consumers and small wireless carriers (hint: bad for both).

Yesterday, competitive wireless and wireline phone and Internet service providers, large corporate users of telecommunications (e.g., car companies, insurance companies, banks and retailers), higher education institutions and public interest groups like Public Knowledge, Media Access Project and the New America Foundation joined together in a new coalition (No ChokePoints.org) to address another “choke point” in our telecommunications system: “special access.” Special access circuits are the high speed digital lines that are controlled (surprise, surprise) by the 3 remaining Bell operating companies, AT&T, Verizon and Qwest. Together, the first 2 control 90% of the special access market in the U.S.

Competitive wireline and wireless carriers like TW Telecom, BT Americas, Clearwire, XO, T-Mobile and Sprint need access to these “middle mile” lines so that they provide Internet, wireless and wireline service to their customers. These customers include retailers, which use special access to verify credit card purchases and manage real-time inventory systems; banks, which use them to operate ATM systems; and health care providers, which use them for digital health records and telemedicine. Put simply, special access lines are key drivers in our digital and non-digital economy.

In 2000, the FCC started to deregulate special access, and today areas serving 87% of the population are deregulated. But as we’ve seen time and again in the telecommunications market, deregulation did not lead to more competition and lower prices. In fact, it has resulted in the exact opposite. The Bell companies now average 110% profit on their special access lines. Both the Government Accountability Office (GAO) (pdf) and the National Regulatory Research Institute (NRRI) (pdf) produced studies that showed both that the special access market was not competitive, and that the methodology the FCC relies upon to determine competitiveness is flawed. Remember, the telecommunications market has changed drastically since 2000 – AT&T took over SBC (which had just swallowed two other Bell companies) and Bell South during that time, and Verizon came to be when Bell Atlantic acquired GTE. Since then, Verizon has acquired the fifth largest wireless carrier, Alltel.

So if special access is mostly a “business thing,” why should consumers and Public Knowledge care? For two reasons. First, if your department store or bank or insurance company is getting ripped off for its telecom services, who do you think pays the difference? The consumer. Second, to the extent that wireless carriers and other telecom providers are paying exorbitant prices for these services, they cannot pass on savings to consumers for their residential service. Nor can they invest in their networks in a way that allows them to compete better with AT&T and Verizon.

Has the FCC done anything since its 2000 order? In 2005 the agency started a proceeding to determine whether the special access market is competitive, and then “refreshed” the record again in 2007. The United States Telecommunications Association, whose two largest members are Verizon and AT&T, are asking the FCC to yet again refresh the record with a "Notice of Inquiry," which would ask a broad set of questions, but not propose rules to remedy this longstanding problem.

I, for one, am feeling adequately “refreshed” about special access. Yes, Public Knowledge is an advocate for data driven decision making, but the agency has already before it 2 proceedings worth of data. If there are particular holes in the record, the FCC should seek comment on those holes, but to engage in a mere inquiry at this stage is a step backward.

Special access may seem an arcane and highly technical concept, but it must be viewed in the larger ecosystem of our broadband economy. The two biggest landline telephone companies are also the two biggest wireless companies, and they have choke points in many parts of the network and beyond, including control over roaming, handsets, text messages, and the local "loop," or last mile to the customer. These choke points are not the makings of a vibrant, competitive market, and are ripe for review and readjustment.

Here is the letter PK drafted and filed on behalf of itself and three other public interest groups asking the FCC to fix the special access market without delay. And just for ha-has, here is an article from 2002 about how AT&T (then a long distance company) sought regulatory relief from the FCC from high prices in the special access market. Yes, things have changed an awful lot since 2000.

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