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ACA To FCC: Don’t Rate Regulate BDS Providers Bringing Competition To The Market

Setting Prices For Non-Dominant BDS Providers Would Reverse Decades Of Progress, Undermine Consumer Benefits

PITTSBURGH, June 29, 2016 -  The American Cable Association urged the Federal Communications Commission to retain its time-tested methods of not regulating the provision of Business Data Services (BDS), or special access, by cable and other competitive providers.  Such an about-face in fundamental policy would run counter to solid economic and antitrust principles and undermine existing and future investment and the development of competition.

For decades, the FCC has consistently adopted regulatory frameworks in non-competitive BDS markets that target the dominant provider for oversight while leaving the new entrants essentially free from regulation. 

"This approach has resulted in enormous investment in new networks, more innovative services, and increased competition.  It would be a grave error for the FCC to turn its back on these significant benefits and reverse course," ACA President and CEO Matthew M. Polka said.  "Because the FCC has failed to provide a sound economic rationale to support such a dramatic shift in policy or set forth potential benefits for consumers, the agency should summarily reject this misguided concept."

ACA set forth its views in comments filed on June 28 in connection with an FCC proposal to abandon its long-standing "light touch" approach to the regulation of non-dominant BDS providers, including cable operators. ACA estimates that its members are spending tens of millions and potentially as much as  $300 million annually to deploy fiber-rich facilities to support the provision of BDS, according to an analysis that was included with the comments.  These investments have led to smaller competitive providers reducing prices by more than 50% over the past five years, far more than would result from any reduction from proposed regulation.

The FCC dominant/non-dominant approach to regulation, in place for almost four decades, is rooted in sound and compelling economics since it provides entrants with incentives to commit effort, initiative, and financial investment and avoids needlessly burdening them with regulation.

In the comments, ACA told the FCC it must not veer off in a direction that treats cable and other competitive BDS providers as if they possess the kind of market power wielded by incumbent local exchange carriers (ILECs) - which these incumbent carriers gained from government-granted monopolies long ago.

Smaller cable providers offer BDS to all major customer segments, including government institutions, educational institutions and medical facilities located in the smallest rural markets. Smaller providers are increasingly offering BDS to Mobile Network Operators (MNOs) to connect cell towers to mobile switching centers in urban and rural areas. And, smaller providers are offering wholesale BDS services, enabling other market participants to support their own end customers.

Cable BDS providers also face competitors in virtually all instances.  This holds true even in rural areas, where an ILEC is always present and is offering some variant of BDS in competition with a cable provider.  In addition, often there is an additional fiber-based BDS supplier, such as an adjacent ILEC building out from its territory.

ACA said that preserving incentives for cable and other competitive BDS providers to invest and innovate requires the FCC to eschew price regulation. To offer BDS, cable providers typically need to invest in and deploy dedicated new fiber connections.  This is a risky undertaking, and rate regulation would not only jeopardize such investment, but it would also degrade the companies' general credit worthiness, and thereby increase their cost of capital and/or diminish their ability to borrow.

If the FCC engaged in price regulation of BDS cable and other competitive providers, compliance burdens would serve as a deterrent to investment and would disproportionately harm smaller BDS providers. Many ACA members - which hitherto have been free from price regulation - have had minimal dealings with the FCC on the host of issues implicated by rate regulation.  They would face a steep "learning curve."  This would be particularly the case for the smallest providers and coping with new regulation would be disproportionately burdensome for them.

"Subjecting competitive providers to price regulation would discourage them from upgrading and expanding their infrastructure to provide BDS, surely a perverse outcome," Polka said.

About the American Cable Association: Based in Pittsburgh, the American Cable Association is a trade organization representing nearly 750 smaller and medium-sized, independent cable companies who provide broadband services for nearly 7 million cable subscribers primarily located in rural and smaller suburban markets across America.  Through active participation in the regulatory and legislative process in Washington, D.C., ACA's members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business.  For more information, visit http://www.americancable.org/

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