Grant of AT&T Request by FCC Could Set Back Net Neutrality

By Scott M. Fulton, III, BetaNews

October 12, 2007, 12:28 PM

It was not the same as handing advocates of so-called "net neutrality" a complete failure, but then again, nearly every US Federal Communications Commission decision of late has been a split at or near the middle. AT&T's request for forbearance -- for relaxing of regulation -- of some of its broadband services was partly granted late yesterday, with the result being that the company the FCC acknowledges as dominant in its field has a little more leeway now to charge business broadband customers more negotiable rates.

"The Commission seeks to establish a policy environment that facilitates and encourages broadband investment, allowing market forces to deliver the benefits of broadband to consumers," reads a statement from FCC Chairman Kevin Martin, released this morning. "Today, we take another step in establishing a regulatory environment that encourages such investments and innovation by granting AT&T's petition for regulatory relief of its broadband infrastructure and fiber capabilities. This relief will enable AT&T to have the flexibility to further deploy its broadband services and fiber facilities without overly burdensome regulations."

Because AT&T (both the old and the "new") has been considered a dominant service provider ever since its federally-sanctioned monopoly was dissolved in 1980, it has since been subject to extra federal regulation. Since it owns a sizable chunk of the cable needed for fiberoptic services, and leases -- under federal mandate -- some of that cable to its own competitors, US law compels the company to provide some of its broadband services to customers at predetermined rates. These are so-called "basic services," though value-added features are still allowed to be priced at the discretion of the carrier.

With AT&T's basic service fees being determined in advance, it just so happens that its competitors know what it charges its customers, and they can adjust their fees accordingly. This is where Verizon enters the picture.

In December 2004, Verizon filed a request with the FCC for forbearance of regulations on the rates it charges its broadband customers. As the amalgam of the former Bell Atlantic and the former fiberoptic champion GTE, Verizon is also considered a dominant player in the broadband space, and is thus subject to extra regulation.

With only four voting commissioners at that time, the FCC was unable to reach a consensus, with two voting in favor of Verizon's petition and two against. But internal rules governing FCC voting on forbearance petitions meant Verizon's wishes were granted by default.

AT&T never saw that as fair, basically having to publish its basic service tier fees for the whole world to see while a competitor that may actually own more cable in certain key areas than it does, is granted an exemption. So it sought similar forbearance in the spirit of fair play.

With five voting members now, the FCC couldn't exactly split itself down the middle. But it did find another angle in which to apply its proverbial Sword of Solomon: granting relief to AT&T only with regard to basic services, and excluding that relief from applying to so-called "special access services" such as DS1 and DS3 - specific multiplexed channels often leased in their entirety to businesses for very high speed switching, for instance, between branch offices. There, AT&T is widely believed to play a very dominant role.

According to yesterday's order, the law currently states that the FCC must grant forbearance if it has analyzed the relevant market and has come to the conclusion that regulation no longer assists that market in maintaining fair prices. So to that assertion, commissioners added the notion that free markets are better able to attain fairer pricing on their own accord.

"Moreover...competing carriers are able economically to deploy OCn-level [high-speed optical carrier] facilities to the extent that there is demand for such services in AT&T's incumbent LEC service areas," yesterday's FCC order reads. "These conclusions are consistent with our analysis of retail enterprise services in other recent orders, where the Commission found that 'so long as competitive choices remain' for retail enterprise services, large enterprise 'customers should seek out best-priced alternatives,' limiting the ability of a provider 'to raise and maintain prices above competitive levels."'

Had there been only four commissioners seated yesterday, the outcome would have been similar to the Verizon case two years ago - in which case, AT&T's request would have been granted by default anyway. Nonetheless, Commissioners Michael Copps and Jonathan Adelstein voiced their opinions in a scathing dissent yesterday, calling to question the precise angle of where its Solomon's Sword falls this time around.

"First, the definition of the product market to which we should apply forbearance remains in dispute," their joint dissent reads. "Merely calling services 'broadband enterprise services' does not negate the fact that they are tariffed as special access services and have been identified as such in previous orders. As our colleagues know, there is substantial data available in this and other proceedings to indicate that the special access market is anything but competitive. In fact, the Commission has committed to completing our long-pending rulemaking on this very topic. We should not be granting forbearance for rules covering special access services without a rigorous analysis of competition for these services - an analysis wanting in today's decision."

The danger here is that "special access services" are subject to government tariffs. Giving leeway to a company to set competitive prices for services that should perhaps remain under special classification, Copps' and Adelstein's argument implies, may cheat the government out of a little extra needed revenue.

But arguing in support of the order, Commissioner Robert McDowell -- an advocate of free-market pricing, and perhaps happy not to be a dissenter this time -- stated it would be premature to render a verdict on special access services just yet, since there's not really enough data yet for anyone to conclude any one company is dominant there. That opinion is diametrically opposite of those who contend AT&T is the obvious dominant player there.

"As competition in the broadband market continues to grow, especially through the deployment of new wireless technologies, less regulation should be required," Commissioner McDowell wrote yesterday. "However, many parties allege that competition in the special access market is uneven and is limited to certain urban areas, thus creating supply bottlenecks that favor incumbent local exchange carriers in the business broadband and wireless markets. Despite requests for better data to help us resolve disputes of these material facts, the Commission still has inadequate information to determine whether allegations that competition is scarce in certain segments of the special access market have merit. I will continue to work to ensure that these questions are explored further in the Special Access proceeding after a more granular record has been established through detailed mapping of business broadband facilities."

The setback for advocates of net neutrality comes by way of the FCC having allowed AT&T just a bit greater freedom in determining how it prices basic broadband service. That affair can now be made more private, between itself and its prospective client, taking the basic price tier out of the public eye and making the process somewhat less "open."

But AT&T's basic service customers would also include wholesale buyers - companies that resell service access, often on a more local level, to small businesses.

When applied maximally, the principle of net neutrality would have a supplier charge all of its customers the same fee for broadband access regardless of bandwidth or service quality. This way, theoretically, smaller customers who require lesser bandwidth would not be discriminated against. The FCC's reference to how large enterprises should be enabled to seek lower-priced alternatives from service providers with a national footprint, as explained in yesterday's order, bodes poorly for advocates and lawmakers who prefer a more utilitarian, commoditized pricing model for bandwidth - one which would ultimately require heavy government regulation in order to maintain that uniform pricing tier.

The competing principle to net neutrality is that increased competition should be met with less regulation, not more. That principle was put forth yesterday by Commissioner Deborah Tate, with this comment: "In taking this step, we recognize the facilities-based competition that exists in the business broadband Internet access market. I support moving away from regulation where the record shows that a competitive market exists, rendering those regulations unnecessary."