FCC Suspends AT&T’s Special Access Tariff Revisions

The only way the public switched telephone network can be retired by 2018 is if stakeholders “undertake the important work now of identifying and removing obstacles to that transition,” said AT&T in a filing Friday defending its tariff (http://bit.ly/1d5qHrB). One reason for eliminating contracts over three years was to move customers toward IP services, AT&T said. An agency official told us in response that while the IP transition is hugely important, so is special access, and the FCC has an obligation to ensure that tariff filings are consistent with the law. CLECs had slammed AT&T’s request (CD Dec 4 p3).

"There are substantial questions regarding the lawfulness of AT&T’s tariff revisions that require further investigation,” said Kalpak Gude, chief of the Pricing Policy Division, in an order Monday (http://fcc.us/1fea9jy). “Petitioners argue that AT&T’s elimination of the discount plans effectively results in substantial price increases for special access customers, because lack of competition gives Petitioners no choice but to continue purchasing DS1s and DS3s from AT&T. Moreover, Petitioners dispute AT&T’s claim that the proposed changes are necessary to advance the technology transition to IP technology. Among other things, Petitioners allege that in many instances AT&T has refused to interconnect with carriers via IP-based circuits and that in many locations Ethernet services are not available."

CLECs such as Cbeyond and Sprint offered several justifications for investigation of the tariff revisions, the order said: Withdrawing the “widely relied upon discounts” constitutes an “unjust and unreasonable practice” that would result in unreasonable rates and rate structures under Section 201(b) of the Communications Act. They also argued it’s an “unlawful exercise of market power” that would lead to irreparable harm, and that it’s a “restructuring of existing rates” in price cap areas without sufficient information about how the new price cap indices would be calculated, the order said. The order also cited an argument by Consolidated that by prohibiting customers from signing up for new five- or seven-year contracts, “AT&T is unilaterally altering the essential terms of its contracts in violation of the Sierra-Mobile doctrine.” That rule, which regards the interplay between tariffs and pre-existing contracts, precludes enforcement of a tariff provision if enforcing that provision would conflict with an existing agreement, it said.

AT&T continues to “meet with our customers in a good faith effort to address their needs,” said a spokesman. “As the transition to more robust and efficient Internet-based network and services moves forward, we will remain flexible in attempting to meet their needs."

The FCC has to decide whether AT&T’s tariff revision is “unjust” or “unreasonable.” That’s under the agency’s criteria for evaluating such requests when they're not deemed automatically granted 15 days after the request. Those two terms aren’t subjective, said Lawrence Spiwak, president of the Phoenix Center. “There’s a tremendous amount of law on the unjust and unreasonable standard.” The rate must fall within what’s called the “zone of reasonableness": between “confiscatory” -- the equivalent of a government taking -- and “excessive” or “creamy” returns on the top end, he said in an interview. Spiwak invoked a 1984 U.S. Court of Appeals for the D.C. Circuit case, Farmers Union v. FERC, in which the court cautioned that the “just and reasonable” standard is not so flexible as to be “a mere vessel into which meaning must be poured.”

Spiwak doesn’t think the FCC is prepared to have a full-blown rate case over AT&T’s request. That’s especially when the agency is in the midst of two other proceedings that could affect things, he said: Its attempt to update its regulations for the IP transition, and its ongoing effort to collect data on the state of the special access market. Those two proceedings could provide cover for the FCC either way, Spiwak said: If the agency rejects the tariff filing, it could say it’s already in the process of revamping the special access cost structure. If the commission grants the tariff modification -- which in its elimination of discount plans over three years, essentially sets a time frame -- it would “send a very clear signal that we're serious about the IP transition,” and moving away from the special access infrastructure going forward, he said.

Legislators and CLECs had asked the FCC to suspend and investigate the tariff. Sen. Edward Markey, D-Mass., on Friday told FCC Chairman Tom Wheeler he was “concerned” that AT&T’s elimination of long-term special access discount plans would lead to price increases throughout the U.S. “At a time when we should seek to spur competition, increase investment and innovation, enhance rural broadband deployment, and improve wireless coverage, such a move may undermine these vital goals,” Markey wrote Wheeler. “I urge you to suspend and investigate AT&T’s proposal so that the Commission does not prematurely take an action that impacts the special access market prior to concluding its important ongoing data collection process and analysis.”

Also Friday, three other members of Congress cautioned that the move could lead to hundreds of millions of dollars in additional fees (CD Dec 9 p14). The U.S. Small Business Administration also has opposed the move, which SBA and CLECs have said will harm competitive providers and the businesses that depend on them. It’s not just a “popularity contest” that tallies up the number of supporters on each side, said a CLEC attorney; it’s about the potential for real harm to business customers.

The FCC cannot “force them to offer discounts,” the CLEC attorney said of AT&T. But if the telco eliminates something that has become the “key means by which people buy a service” -- without offering a reasonable alternative -- “that could be an unlawful practice,” the attorney said. Imagine a world in which wireless carriers decided to stop offering subsidized handsets with two-year contracts, he said. The FCC would have authority to find that’s an unreasonable practice, because elimination of term plans with discounted prices results in less availability, affordability, he said. “It’s not a crazy notion, right? Well that’s exactly what we're talking about here."

"The FCC needs to be consistent in trying to reach its goals,” said Anna-Maria Kovacs, Georgetown Center for Business and Public Policy visiting senior policy scholar. The USF encourages America’s poorest, oldest and most remotely located consumers to adopt broadband, she said. But “its special access regime encourages America’s largest and richest corporations to retain low-speed connections that mostly operate at 1.5 megabits” a second, Kovacs said. “That makes no sense. Corporate America should be at the forefront of broadband adoption."

Wheeler, like former Chairman Julius Genachowski, has been clear that any actions the commission takes will be fact- and data-driven, said Medley Global Advisors analyst Jeffrey Silva. It’s hard to make decisions on a special access tariff filing without accounting for the broader migration from circuit-switched to packet-based services, he said. Plenty of stakeholders have spoken out, but the agency has got to “scrub the numbers and see what’s hyperbole and what is real,” Silva said. If the tariff filing really would affect businesses as gravely as has been said, a new chairman might not want to “take chances that it will just work out,” he said. All indications are that Wheeler’s going to move ahead aggressively on the IP transition, Silva said. AT&T might not get what it wants in this case, but it’s the bigger picture that matters, he said. “AT&T has to feel optimistic, certainly, with the signals that Chairman Wheeler’s given them.”