The Special Access Market Failure

The special access market failure
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The Special Access Market Failure October 1, 2007

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What is Special Access? Exceptional get to circuits are key data sources (devoted media communications offices) that all broadcast communications transporters, both wireline and remote suppliers, use to achieve their clients and interface their systems. Mobile phones, Internet, Data systems, nearby administration, intra-organization systems, ATMs, purpose of procurement—to give some examples, all depend on Special Access. For instance, the transporter that serves Georgetown University may utilize an uncommon get to circuit to interface the primary grounds in Georgetown to the graduate school on Capitol Hill. Also, remote transporters utilize uncommon get to circuits to associate its cell towers to the its exchanging office.

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Special Access Arrangement

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Special Access: A Brief Regulatory History 1984-90 – Traditional "rate-of-return" direction. 1991 – Incentive Regulation ("value tops"). 1999 – Pricing "adaptability", in light of FCC forecast that opposition is approaching. By 2004 – Vast lion's share of BOCs' exceptional get to is outside of motivation or "value tops" control. 2005/2006 Mega-mergers dispensed with the two biggest option systems to the officeholders – AT&T and MCI

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How would we know there is a market disappointment? Overpowering Market Share is Increasing Inflated Prices are Increasing Anti-Competitive Terms and Conditions are Increasing accordingly, Significant Consumer Harm is Increasing

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Overwhelming Market Share Is Increasing

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Overwhelming Market Share : ILECs, officially prevailing before cost flex, expanded their piece of the pie Wholesale Special Access Market Share 2001 2005 ILEC Sources: FCC Monitoring Report Table 1.5 and Telecommunications Industry Revenue Table 5. Note: 2005 conformed to rename pre-merger AT&T and MCI evaluated in-region income as ILEC

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Overwhelming Market Share : Nearly 98% of Sprint Nextel's DS1 associations with cell locales in the Top 50 MSAs are given by ILECs (basically AT&T and VZ) 2006 DS1

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Overwhelming Market Share : ILEC Share of Sprint Nextel DS1 Connections to Office Buildings has Increased

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Overwhelming Market Share : Alternative Facilities at Cell Sites are Nearly Non-Existent A February 2007 Sprint Nextel survey of its merchants demonstrates that there are NO option offices at the mind dominant part of Sprint Nextel cell-destinations 77 elective sellers surveyed on fiber accessible at more than 52,000 Sprint Nextel cell-locales 16 merchants reported offices accessible at around 1% of the phone locales Cell-Sites

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Inflated Prices Are Increasing

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Inflated Prices : Prices AT&T and Verizon Charge for Special Access Greatly Exceed the Economically Efficient Price The 5 Year Term Rate for a DS1 Special Access Circuit is 90% Higher than the Functionally Equivalent Unbundled Network Element Rate DS1 Circuit Price= 2 Channel Terminations and 10 miles of Transport Cost Based Price = 2 DS1 UNE Loops and 10 miles of Transport Comparison utilizing the most urban arrangement of UNE and unique get to rates Average is basic normal of rates in these 9 states.

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Significant Consumer Harm is Increasing

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Artificially Inflated Special Access Prices Increase Costs, Reduce Infrastructure Investments and Harm Consumers Special get to speaks to roughly 33% of the month to month arrange cost of working a cell site. Customers would profit by diminished unique get to costs . Foundation upgrades = more prominent administration choices and scope. Quicker sending of remote Internet broadband administrations (i.e., WiMax). Genuine rivalry benefits purchasers . Driving one contender to back another contender (BOC) twists rivalry in the commercial center .

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The Customer POV Who is "we"? Venture clients Ad Hoc Telecommunications Users Committee No transporter individuals, no bearer cash FCC and the courts – no administrative promotion, no underwriting of authoritative recommendations We bolster de-direction of focused markets We restrict de-control of non-aggressive markets

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The Special Access Problem Why do undertaking clients think about extraordinary get to? It's how we say "broadband" It's what we purchase frequently It's what our systems keep running on

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The Special Access Problem So what's our issue? 1. Rivalry : There isn't any. Link benefit? Just in private neighborhoods. Satellite/Wireless/BPL? Gracious please. CLECs? They assemble conduits, they should purchase vessels 2. Control : There isn't any, where it's required. "Evaluating adaptability," not motivation rules ("value tops") Predictions, not reality, before the air pocket burst

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What happens when the FCC's expectations are simply off-base?

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Competition Works : Prices for comparative limit in business sectors with rivalry are evaluated fundamentally bring down DS1 Price = Average Price of 5 Year Term Plan for 2 Channel Terminations and 10 Miles of Transport

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How huge is the issue? RBOC Special Access Rates of Return : 2006

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What the BOCs say Big clients are complex purchasers So we can discuss musical show while we're paying excessively? We require rivalry simply like the following person Prices are going down Only in the event that you take a gander at incomes rather than costs Because transports are less expensive than autos, per situate So how about we discuss costs, not incomes or "VGEs" There are a lot of contenders Who are all subject to exceptional access for the "last mile" Armis, shmarmis But the principles have dependably been diverse for unique get to, on the grounds that it's… well… extraordinary.

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It's greater than you might suspect Special get to + data economy = gigantic expansive influences Macro-monetary effect of supra-focused costs Deadweight misfortune, diminished customer and maker surplus According to an AT&T display Jobs : 234,000 new occupations lost (1Q07-4Q09) GDP development : discouraged by $66 billion

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What we've been doing about it Nag, pester, bother Performance Standards Rulemaking – Jan '02 Broadband Regulation Rulemaking – Mar '02 Broadband Wireline Internet Access Rulemaking – Jul '02 AT&T Special Access Rulemaking Petition – Dec '02 ILEC Separate Affiliate Rulemaking – Jun '03 AT&T Mandamus Petition before D.C. Circuit – Jun '04 SBC-AT&T/VZ-MCI Merger Proceedings – May '05 Special Access Rulemaking – Jun '05 Verizon Forbearance Petition – Mar '06

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THE TIME IS NOW! The record prove overwhelmingly supports activity A wide cluster of gatherings (customers, organizations, AT&T and Verizon contenders) support activity Now – in 2007 – is the time bearers are building their focused broadband systems Now – in 2007 – is the time buyers are prepared for aggressive other options to the regularly uniting, always capable AT&T and Verizon Now – in 2007 – is an ideal opportunity to ACT

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AT&T & MCI Used to Agree: "There is currently undeniable confirmation that ... the Bells ... are mishandling their market control with patently out of line and nonsensical rates that force a multi-billion dollar yearly cheat or expense on American organizations and consumers...."  AT&T "The Bells have utilized rate deregulation to gouge both their hostage unique get to clients and the general public."  AT&T " The Bells' extraordinary get to . . . yearly returns are basically disgusting ." AT&T "The Bells' extraordinary get to rates are horribly over the top and unlawful and are turning out to be more so."   AT&T "The BOCs have earned extreme profits for uncommon get to administrations to the detriment of their hostage unique get to clients." MCI

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What is the Solution? The FCC Special Access rulemaking stays pending with a choice expected by October 2007. The FCC must stride into instantly redress the market disappointment that has brought about hostile to aggressive estimating. The FCC should likewise evacuate the obstructions to the improvement of a focused get to showcase, including anticompetitive contracting hones utilized by the Bell Companies.