Every time you swipe your credit card at a store, withdraw money from an ATM or place a call from your cellphone, you jumpstart a series of complicated, behind-the-scenes data transfers that has your information zipping across the country. The pipes that carry this data traffic are vital to the economy, but they’re largely controlled by legacy telecom companies that — in some cases — have sought to stifle competition by locking business customers into restrictive contracts, according to the government.
Now, regulators are preparing to crack open this $40 billion-a-year industry with new rules. The result, they hope, is more competition in business data services that will give retailers, banks, universities and other institutions more flexibility to choose a carrier. And it could benefit providers of business broadband by rolling back other burdensome requirements, officials from the Federal Communications Commission said Friday.
“We need a fresh start,” FCC Chairman Tom Wheeler said in a blog post. “The marketplace is changing.”
New connection technologies like fiber optics are opening up wider lanes for data traffic. And the more data Americans consume, the more important it is to make sure there’s enough capacity to go around at affordable rates.
So, under the revamped regime, which the FCC wants approved by the end of the year, regulators could decide to impose pricing regulations on certain markets for business broadband where its calculations show competition is lacking. The agency’s analysis could include factors such as the quality of the service available to businesses in a given region; how many competing service providers there are; and whether there’s enough variation in service to support a range of different business types.
The proposal would also seek to ban a tactic known as “tie-ins,” where broadband providers agree to offer service to a business customer in one region but only if that customer also buys service in a different part of the country.
In other cases, customers have been locked into long-term service contracts and face stiff early termination fees if they attempt to cancel their service, critics of the existing system have said, making it hard for new broadband providers to set up competing service in a new market if they cannot be sure that customers will swallow the costs of switching.
The FCC proposal, which was circulated internally Thursday night, only addresses those types of terms on a limited basis. But they somewhat resemble the issues faced by ordinary consumers before a series of moves — by smaller wireless carriers such as T-Mobile — forced changes in the industry.
The agency’s proposal comes hours after Verizon and INCOMPAS, a trade association representing smaller competing carriers, announced a compromise on the business broadband issue that will lend the FCC some political cover moving forward. The deal lays out a number of principles that closely resemble what regulators have been planning, FCC officials said.
But Verizon may be one of the few large telecom companies to support the move. It did not consult with others, such as AT&T, before striking the INCOMPAS compromise.
Some industry officials argue there is ample competition in the market for business broadband. Technological upgrades driven by cable and fiber companies are already giving customers faster, better service — so there’s no need for further regulation, they said. And, they add, calls by smaller carriers for new FCC rules amount to “favor-seeking.”
“Cable operators have invested $14 billion and competitive fiber providers have 1/8 invested3/8 $30 billion since 2009 to expand business broadband networks,” the trade group USTelecom said last month. “As a result of direct facilities investments, competitively supplied Ethernet service is rapidly displacing legacy business broadband services.”
The cable industry is expected to push back hard against the FCC’s proposal. Because the type of connectivity it sells does not currently fall under the agency’s rules for business data services, it has largely avoided much regulation in this part of the market. That could change with the FCC’s proposed action.
“Cable operators are new entrants in the business services market,” said the National Cable and Telecommunications Association Thursday. “The FCC will not achieve competition if it burdens new facilities-based entrants with regulation.”
Meanwhile, a study released this week by Economists Incorporated appeared to show that in some markets, additional regulation could reduce investment by large incumbent carriers such as AT&T. It also implied that competing carriers would be driven to stop investing as well, in favor of repackaging and reselling business broadband from the larger providers.
But proponents of more aggressive intervention, such as the networking company Level 3, have said that the current rules protect monopoly prices and “limit the deployment of more and better communications networks.”
The FCC will vote on whether to launch the rulemaking process on April 28.