Caroline Van Wie

[Press release] May 15 the Eighth Circuit Court of Appeals heard oral arguments in a challenge to the Federal Communications Commission’s new Business Data Services (BDS) regime.

As the business data services (BDS) proceeding is drawing to a close, some are still arguing for an additional delay, suggesting that resolution of this proceeding is contrary to the facts and will slow the deployment of 5G services. These objections miss the mark (and ignore the massive pile of competitive data compiled by the Federal Communications Commission). Removing unnecessary regulatory burdens will increase investment, particularly in fiber facilities, and create jobs. And, in the end, that incremental fiber investment will be essential to the deployment of the next generation of wireless technologies.

Over the past several months, the Federal Communications Commission – first through its hired economist, and later through Staff – has released over 100 regressions that purport to analyze the data the Commission has collected about the Business Data Services market. Each time, the FCC announced that the regressions show that incumbant local exchange carriers (ILECs) retain market power for legacy DS1 and DS3 services. Each time, economists, including those the FCC asked to conduct peer reviews of the FCC regressions, observed that the regressions suffer from significant flaws that render them unreliable, including the severe correlation/causation problem that economists refer to as “endogeneity,” incomplete and incorrect data on pricing and the number of competitors, mismatches in the pricing and competitor data, and incorrect methods for computing the statistical significance of the results. And each time, we noted that some of the most significant of these flaws are not fixable because of the limitations of the data available to the FCC’s economists.

Without reliable evidence of significant market power, there is simply no data-driven basis for new heavy-handed rate regulation of BDS services. Chairman Wheeler astutely declared soon after joining the FCC that “[i]ncentivizing competition is a job for governments at every level. We must build on and expand the creative thinking that has gone into facilitating advanced broadband builds around the country…Working together, we can implement policies at the federal, state, and local level that serve consumers by facilitating construction and encouraging competition in the broadband marketplace.” But, as the record in this proceeding makes clear, government rate regulation will not “facilitate advanced broadband builds around the country.” Instead, it will do exactly the opposite – discourage facilities-based entry by limiting the returns, particularly in rural areas, available to those willing to risk investing and punishing those that already have taken that risk.

The Federal Communications Commission has spent the last year analyzing the data submitted in the Business Data Services proceeding to understand what is driving the BDS marketplace. It has committed to a “data-driven” rulemaking process in its analysis of whether additional BDS regulation is needed. The jury is still out as to whether that will take place.

As we explain in our reply comments, the facts show that competition in the BDS market is thriving. Even as of 2013, competitors had deployed competing facilities in more than 95% of MSA census blocks with BDS demand, and those blocks contain 97% of all BDS connections and 99% of business establishments. And, according to the NPRM, ILECs’ in-region market share was already under 50%. Undoubtedly, competition is now even more pervasive, particularly given that cable companies are now prioritizing the BDS marketplace to grow their revenues in the face of more intense competition for their core video offerings.