Level 3 Communications, Inc. (NASDAQ: LVLT) filed a proposal with the Federal Communications Commission (FCC) suggesting a possible resolution to the special access regulation proceeding currently pending before the FCC. Level 3’s proposed solution would enable the FCC to undertake a comprehensive review of the competitive marketplace and establish new rules to address concerns over current special access services.
Special access services are communications circuits offered by incumbent carriers like AT&T, Verizon and Qwest. Business customers and competitive carriers frequently buy these services to enable voice, data and video communications between customer locations. Even competitive carriers with their own extensive networks frequently purchase special access services to allow them to deliver services to buildings not reached by their networks. As a result, incumbent carriers can dramatically influence the extent of competition within their regions by making it more difficult or expensive to purchase special access services.
Carriers and businesses spend an estimated $16 billion annually on special access services, the vast majority of which is paid to large incumbent carriers. In most instances, special access purchasers do not have a competitive choice for such services, and must purchase from the incumbent carrier because that carrier owns the only facilities serving the customer location. Due to this effective monopoly, Congress and the FCC have regulated prices, terms and conditions for special access services since the passage of the 1996 Telecom Act.
The FCC is currently considering revising those regulations, and both buyers and sellers of special access services have a large stake in the proceeding.
Level 3’s proposal for resolving the issue proposes a two-step “investigate and freeze” approach.
First, the FCC would promptly use its investigative power to initiate a comprehensive examination of competition in the special access market by collecting data from facilities-based competitive carriers. The FCC would ask those carriers, within each area that they compete, to provide information on the buildings where they currently have the ability to provide competitive services over their own networks.
Second, the FCC would impose a “true freeze” on current special access rates while it completes its investigation of special access competition. Under a “true freeze,” special access customers would have the option of extending their current contracts on the same commercial terms as exist today.
“This issue is too important to attempt regulation or deregulation based on incomplete facts,” said John Ryan, assistant chief legal officer of Level 3. “Our proposal is designed to allow the FCC to determine the appropriate level of regulation with full knowledge regarding competition in the special access market. The information that we ask the FCC to collect will allow intelligent and targeted regulation of incumbent carrier special access offerings, eventually permitting incumbent carriers more freedom where competition exists, but restraining uncompetitive pricing, terms and conditions in areas where carriers and customers have no alternative but to purchase services from the incumbent carrier.”
Under Level 3’s proposal, the FCC would determine how to regulate incumbent carriers in areas where the collected data shows little or no competition. While the FCC collects accurate competitive data, Level 3 believes that the FCC should, at a minimum, implement a freeze on incumbent special access rates. Such a freeze would assure that, while competitive information is collected and evaluated, special access market conditions would not worsen.