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Bickering over BDS reform

The communications industry remains irrevocably split on how best to reform the business data services market.

After the FCC said in April that it would be considering new rules to make the business data services, or special access, marketplace more competitive, Verizon Communications Inc. and the trade group INCOMPAS spent the summer coming up with a series of so-called compromises aimed at advancing the commission's proceeding.

Together, Verizon and INCOMPAS outlined a "competitive market test" that would evaluate competition in the market based on the number of facilities-based providers with connections of a certain speed in a given census block. Verizon and INCOMPAS suggested the FCC define a business data service "non-competitive" if its speeds do not exceed 50 Mbps, while all services above 1 Gbps would be deemed competitive.

Verizon and INCOMPAS also agreed price caps should apply to time division multiplexing-based, or TDM-based, business data services in certain areas. TDM is essentially the older alternative to packet-based Ethernet technology, and though businesses are increasingly moving away from it, the FCC noted in June, "Many business customers continue to rely on TDM services."

As for packet-based business data services, including Ethernet connections, Verizon and INCOMPAS have suggested a "benchmark approach" that involves a rather complicated formula.

Sprint Corp., a member of INCOMPAS, has come out in support of the proposal. In an Oct. 5 filing, the company said it "presents an administrable framework" that the commission can use to ensure "rates, terms, and conditions for all BDS services are just, reasonable, and not unreasonably discriminatory."

The Oct. 5 filing followed a Sept. 28 chart from Sprint that provided an itemized overview of the comments in the FCC's BDS proceeding. Sprint said despite objections raised by AT&T Inc. and various cable operators, the record showed "overwhelming evidence in support of the Verizon/INCOMPAS proposal."

NCTA – The Internet & Television Association, however, objected to that characterization, and even took a swipe at Sprint's style of presentation.

"Sprint’s letter appears to be premised on the theory that arguments that are unconvincing on an individual basis somehow gain credence if they are compiled in a colorful chart. Unfortunately for Sprint, that theory, like so much of its advocacy in this proceeding, is nothing more than wishful thinking," the association said in an Oct. 4 filing.

NCTA reiterated key provisions in the Verizon/INCOMPAS proposal are "wholly unjustified" given that "the BDS market, particularly Ethernet BDS, bears all of the hallmarks of an effectively competitive market, including substantial investment, rapidly declining Ethernet prices, expanding output, and continued improvements in quality and efficiency." The association warned that if the Verizon/INCOMPAS proposal is adopted, it could damage future investment.

Comcast Corp., a member of NCTA, submitted its own filing objecting to the Verizon/INCOMPAS proposal, saying that it calls for expanded rate regulation for both incumbent telephone companies and new entrants like cable operators.

"Embracing Verizon’s self-contradictory and arbitrary proposals to extend rate regulation to new entrants without regard to whether they possess market power would undercut core policy goals, defy decades of precedent, and trample on bedrock administrative law principles," Comcast said.

Instead, the cable company said the commission should focus on eliminating barriers to entry in the BDS marketplace and limit rate regulation only to "dominant providers where monopoly conditions are present."

Another point of contention is that Verizon and INCOMPAS have billed their proposal as a "compromise" given that Verizon is a leading incumbent and INCOMPAS is a trade group dedicated to competitive networks. But Fred Campbell, the director of Tech Knowledge, argues that the proposal is not a true compromise, and that Verizon is more interested in growing its wireless business than protecting its wireline assets.

"A true compromise requires both sides to make concessions. In its agreement with INCOMPAS, however, Verizon stands to reap substantial gains for its wireless business while conceding nothing that would harm its bottom line," Campbell wrote in an opinion piece for Forbes.

Despite the various objections, or perhaps in light of them, Cowen & Co. analysts reportedly believe the Verizon/INCOMPAS recommendation appears to be "the leading proposal." On. Oct. 4, FierceTelecom cited the analysts as noting the proposal "has been widely attacked in recent weeks," and is likely to be circulated by FCC Chairman Tom Wheeler in the near future.

The analysts expect Wheeler to push for a vote on the BDS proposal at the Oct. 27 public meeting.