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Crude oil is a poor analogy for business data services

Tom Wheeler, chairman of the Federal Communications Commission, in a remarks delivered to INCOMPAS recently likened special access or business data services to crude oil given crude oil’s impact on energy prices. As a barrel of crude grudgingly inches higher (now up almost seven dollars from last week and hovering around $42.), prices at the pump have increased as well (although still $.34 a gallon less than last year).

Mr. Wheeler’s comparison struck me at first as a weak attempt to tie special access prices to the prices consumers pay for broadband. I can see that argument for being made for mobile broadband prices given that the costs for ordering special access services are built into the price consumers pay for accessing broadband services.  For other industries such as banking and large grocery chains, the cost for procuring special access is probably built into bank fees or the price per pound of potatoes.

But the reason crude oil is a poor analogy is because its price is not regulated by a government agency although some of its supply may be controlled by the output decisions of a cartel. The prices for special access services, especially those provided by so called dominant carriers, are regulated by the Commission. Rather than hint at letting regulation go if competition is identified, Mr. Wheeler should just go all out and deregulate the industry, period. Mr. Wheeler’s technology-neutral principle is on point and in line with that of INCOMPAS and Verizon, two entities that, by their own admission, don’t agree on much when it comes to special access. Mr Wheeler, INCOMPAS, and Verizon also see eye-to-eye on promoting the movement from legacy TDM services to IP services, arguing that enterprise clients want digital services versus legacy services.

But saying we’ll promote competition after we see competition doesn’t incentivize more private capital to enter the business data services markets to fund additional deployment. That’s the type of uncertainty that scares capital away. Demand for special access services and the price set when providers and business enterprises decide to enter an agreement for such services should be the framework for regulating the market. Private capital is always prepared for high risk with the flip side providing high reward, but not with a regulator ready to erode those rewards.

 

http://www.verizon.com/about/news/compromise-enables-networks-future