FCC National Broadband Plan: Wholesale Access/Special Access Recommendations

March 16, 2010

On March 16, 2010, after a 13-month study, the Federal Communications Commission released to the public and Congress "Connecting America: The National Broadband Plan," containing its policy recommendations for achieving national goals identified by Congress in 2009 legislation, including ensuring that every American has "access to broadband capability." This report focuses on the aspects of the Plan that relate to wholesale access by competitors to incumbents’ networks, including special access. This topic is principally covered in Chapter 4 of the Plan, but is also addressed in Chapter 8, in the context of the Plan’s discussion of universal service.

While the Plan recognizes and discusses extensively the importance of facilities-based competition, it also acknowledges that “ensuring robust competition,” especially for businesses, “requires particular attention to the role of wholesale markets, through which providers of broadband services secure critical inputs from one another.” The Plan says that “well functioning wholesale markets can help foster retail competition, as it is not economically or practically feasible for competitors to build facilities in all geographic areas.”

The Plan notes that the FCC’s current regulatory approach is “unfortunately … a hodgepodge of wholesale access rights and pricing mechanisms that were developed without the benefit of a consistent, rigorous analytical framework. Similar network functionalities are regulated differently, based on the technology used.” It asserts that “longstanding competition policy objectives” are undermined by the fact that “while networks generally have been converging to integrated packet-mode, largely IP networks, regulatory policy has followed the opposite trajectory.” It also criticizes distinctions the FCC has drawn based the technology used or on the capacity of the facility.

Recommendation 4.7 calls upon the FCC to (1) undertake a comprehensive review of its wholesale competition regulations to develop a coherent and efficient framework and (2) to take expedited action based on that framework to ensure widespread availability of inputs for broadband to business customers and mobile providers. The Plan highlights the need for the FCC to address, in the context of pending petitions, (1) competitive access to local fiber facilities; (2) copper retirement rules; and (3) implementation of Section 271.

Recommendation 4.8 urges the FCC to ensure that special access rates are “just and reasonable,” noting that “special access circuits play a significant role in the availability and pricing of broadband service.” The Plan observes that the FCC is “currently considering the appropriate analytical framework” and calls on it to “establish an analytical approach” that will “ensure that rates, terms and conditions” for special access are “just and reasonable.”

The Plan also discusses special access pricing in the context of Universal Service. It says that special access circuits “are critical inputs in the provision of fixed and mobile broadband services in rural America.” Thus, “the rules governing special access services also affect the economics of deployment and investment, as middle-mile transmission often represents a significant cost for carriers that need to transport their traffic a significant distance to the Internet backbone.” It notes that the rates that carriers must pay for special access “have an impact on the business case for the provision of broadband in high-cost areas.” The Plan therefore calls upon the FCC to consider the middle mile as part of government support to high-cost areas. This differs from current policies for the distribution of high-cost funds, which are based on loop and switching costs, not middle-mile costs. The Plan also questions whether special access rates are high in rural areas solely because the costs of providing such circuits are high or also because the prices are excessive, considering costs. It adds that demands on the new universal service fund for broadband may be affected by special access rates. It therefore recommends that the FCC consider the interrelationship of special access policies affecting middle-and second mile costs in concert with the comprehensive reform of Universal Service and intercarrier compensation.

Recommendation 4.9 calls on the FCC to ensure appropriate balance in copper retirement policies. It recognizes that CLECs currently use unbundled ILEC copper loops to provide broadband to small and medium business, but that as ILECs replace these copper loops with fiber, if the copper loops are retired, CLECs will lose the ability to provide competitive broadband. The Plan acknowledges, however, the countervailing considerations that maintaining fiber is generally cheaper than copper and that maintaining both copper and fiber loops “would be costly, possibly inefficient, and would reduce the incentive for incumbents to deploy fiber facilities.” The Plan concludes that “the FCC should ensure appropriate balance in copper retirement policies as part of developing a coherent and effective framework for evaluating its wholesale access policies generally.”

Recommendation 4.10 calls upon the FCC to clarify interconnection rights and encourage the shift to IP-to-IP interconnection where efficient. The Plan denounces a court ruling, followed by several state commissions, holding that rural carriers have no basic obligation to negotiate interconnection agreements with CLECs. The Plan asserts that applying such rules would deny a broadband provider the ability to “capture voice revenues that may be necessary to make broadband entry economically viable.” The Plan calls on the FCC to “confirm that all telecommunications carriers, including rural carriers, have a duty to interconnect their networks.” It also calls on the FCC to “determine what actions it could take to encourage transitions to IP-to-IP interconnection where that is the most efficient approach.”

This is one of a series of reports by Bingham’s Telecom, Media, and Technology practice group focusing on specific aspects of the FCC’s National Broadband Plan. If you would like to receive our reports on other topics, or to consult with us about how the Plan and its implementing proceedings may affect your business, please contact:

Andrew D. Lipman, Partner, 202.373.6033

Catherine Wang, Partner, 202.373.6037

Russell M. Blau, Partner, 202.373.6035

Or any other member of the Telecom, Media, & Technology Practice Group.

This article was originally published by Bingham McCutchen LLP.