Economic report and letter from CenturyLink locate flaws in FCC proposal
In a scathing review of the Federal Communications Commission’s (FCC) latest proposal for new regulation of business data services (BDS), communications provider CenturyLink says the proposal “suggests an intent to ignore” information in the record that demonstrates competition in the market.
In the new filing with the FCC, CenturyLink said the “record clearly establishes the presence of strong BDS competition” and the Commission “not only ignores this evidence, but declines to conduct any analysis of the BDS geographic market at all.”
Despite the FCC’s assurance to members of Congress in September that all available information—including unprecedented market tests performed over several years and with the use of significant resources—would be considered, the proposal reflects the Commission’s intent to ignore the information on the record of competition in the marketplace.
In the proposal, the Commission suggests enforcing a one-time rate reduction of 11 percent on broadband providers, phased in over three years. However, the proposal lacks transparency, as the announcement of the 11 percent rate reduction is a significant understatement to the additional rate reductions that will also be imposed by additional, undisclosed measures in the proposal.
The “Fact Sheet” issued by the Commission did not reveal that providers in many cases will be subjected to an additional preliminary rate reduction, before then complying with the 11 percent reduction initially discussed. Data shows that in some cases, the combination of these two rate reductions on top of one another can get as high as 19 percent in lost revenue for providers, taking away from revenue that would otherwise go towards future broadband investment and the creation of jobs.
The layering of these reductions on top of one another is buried within the proposal, and has the potential to seriously damage providers’ ability to recover from lost income. This drastic rate cut would cripple many providers’ ability to continue providing quality service, much less have money left to invest in broadband innovation for the future.
“The Commission’s lack of transparency in what they’re trying to accomplish places an enormous and unnecessary burden on the communication process, and the trust between all parties involved in this proposal,” said John Jones, Senior Vice President, Public Policy and Government Relations for CenturyLink, a member of Invest in Broadband for America.
While the rate reductions have serious potential to discourage investment in broadband, CenturyLink’s letter asserts the FCC’s approach to the rate calculations has no basis in economics.
Mark Schankerman, Ph.D., of the London School of Economics, and Pierre Regibeau, Ph.D, an economist specializing in matters of industrial organization and law, published a report analyzing the FCC’s proposed rate reductions. In the report, Schankerman and Regibeau explain that the data used in their proposal “reflect[s] fundamentally arbitrary allocations of joint costs that have no justification from an economic perspective.”
As CenturyLink’s letter to the Commission points out, analysis that relies on arbitrary data produces flawed results. Flawed regulation, in turn, leads to damage to broadband investments.
“With so much at stake for the broadband industry, the Commission cannot afford to ignore the facts when it comes to market competition. Further, assigning rate reductions based on arbitrary data is simply reckless. This proposal is littered with flaws, and the FCC must take more time to address the potential damage to broadband investment and the jobs those investments support,” states Jones.
View CenturyLink’s letter and Schankerman and Regibeau’s report.
The "Invest in Broadband for America" coalition (investinbroadband.org) is made up of CenturyLink, Inc. (NYSE: CTL), Cincinnati Bell, Inc. (NYSE: CBB), Consolidated Communications, Inc. (NASDAQ: CNSL), FairPoint Communications, Inc. (NASDAQ: FRP) and Frontier Communications (NASDAQ: FTR).
