Entner: Re-regulating a dying market won't impact cost structure of operators

Roger Entner
As part of its 10 year ongoing investigation of the "special access" market, the FCC is now considering whether to freeze/eliminate its pricing flexibility rules--the tool it has used since 1999 to grant relief from price regulation in response to competitive changes in the market.

Special access is a category of business services that include copper-based data lines such as T1s and T3s. These data lines are used, among other things, to connect both corporate customers and especially cell sites to the telecom cloud. Over the last decade companies such as Sprint and T-Mobile complained that they paid too much for special access lines-- purchased from incumbent telephone companies--and used to backhaul traffic from their cell sites. Sprint and T-Mobile have thus advocated for federal price regulation of special access services and opposed efforts to eliminate price regulation where competitive alternatives exist.

Ironically, wireless carriers have dramatically changed the special access market by leading the shift away from special access copper-based lines towards purchasing Ethernet services and other packet-based services for their backhaul traffic needs. Just as data demands have increased the wireless industry has rapidly switched to fiber-based backhaul solutions.

Most wireless providers now have 70 to 80 percent of their backhaul switched to fiber, provided by numerous alternative suppliers, given that it provides dramatically more capacity at significantly lower cost. In fact, T-Mobile has publicly announced that it is moving forward to use Ethernet backhaul for all of its 3G cell sites and has mostly completed this transition.

In this rapidly growing, unregulated market, more than half of T-Mobile's 3G-capable cell site connections have been awarded to several cable operators, alternative fiber providers, and even a wholly owned subsidiary of a utility company. Competition has brought choice and lower prices to the backhaul market.

So, if the FCC goes ahead and decides to re-regulate the special access market, it will have little or no impact on the cost structure of wireless operators, given that TDM-based DS1 and DS-3 legacy copper services are dying. If FCC actions, however, are designed to expand the scope of its regulatory reach to fiber it would achieve exactly the opposite of what it intends. Since prices are already at extremely competitive rates, any price regulation would turn what the FCC would intend as a price ceiling into a price floor. This would be about the worst possible outcome as it would eliminate competition in the currently unregulated Ethernet market where competition is vibrant, and where prices have fallen dramatically to help offset the cost for rapidly increasing data consumption.

Roger Entner is the Founder and Analyst at Recon Analytics. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner

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