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Is the FCC About to Put 5G Deployment in the Slow Lane?

June 27, 2016
by Steve Morris
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During a speech at the National Press Club last week, FCC Chairman Wheeler laid out a roadmap for how the U.S. can be the global leader in the next generation of wireless technology, 5G. The speech highlighted several steps the Commission intends to take over the coming months to pave the way for this new era of connectivity.

But one proceeding that the FCC is currently pursuing – the FCC’s Further Notice on Business Data Service (BDS) – could in fact backfire and slow the deployment of 5G if the Commission stays on its current course. 5G networks will rely on substantially more cell sites than prior generations of wireless service and, as a result, there will be a need for significant new fiber facilities to provide backhaul connecting these cell sites. The BDS Further Notice seeks comment on a number of proposals that could result in extensive new rate regulation of BDS services, including backhaul, resulting in less, not more, deployment of fiber.

On Tuesday, NCTA will be filing comments explaining the deep concerns that we have with key elements of the Further Notice. We are particularly concerned with the suggestion that the Commission should abandon the streamlined regulatory approach that has applied to facilities-based competitors (in this case, cable operators and competitive LECs) for the last four decades and begin to regulate the rates charged by those providers. We’ve noted these concerns in previous posts and our comments will explain in detail why regulating competitive providers is both unnecessary and harmful to the goal of 5G deployment.

The arguments being made in support of this radical policy shift are puzzling. For example, the other day the advocacy group Public Knowledge explained that “the Commission’s approach should be technology neutral to adequately address threats to competition from both incumbent and competitive BDS providers, as well as cable BDS providers.” Got that? The federal government should regulate the rates charged by “competitive BDS providers” because those companies are somehow a “threat to competition.” Does that make any sense at all? How exactly is competition threatened by companies investing billions of dollars in new facilities to compete with incumbents like AT&T, Verizon, and CenturyLink?

We would hope that it would be readily apparent to the Commission that such investment is evidence of competition, and not a threat to competition. But in his 5G speech, the Chairman stated that “[b]efore the end of this year the Commission will take up a reform proposal — supported by the nation’s leading wireless carriers, save one — that will encourage innovation and investment in Business Data Services while ensuring that lack of competition in some places cannot be used to hold 5G hostage.”

The notion that wireless providers will be held “hostage” by BDS providers is a pretty serious accusation, but it isn’t remotely supported by the facts. First, it’s important to remember that large wireless carriers like Verizon and Sprint are fully capable of building their own fiber backhaul facilities. If these companies don’t like the price being offered by the local cable operator, telephone company, or competitive LEC, they certainly have the resources and expertise to walk away from the negotiating table and build the facilities themselves.

But that rarely happens because there is robust competition in the BDS marketplace and wireless carriers unquestionably are among the most attractive customers for BDS providers of all sizes. Cable operators have been actively pursuing the backhaul business over the last few years, but they face fierce competition with the incumbent telephone companies and numerous other competitive BDS providers.

Indeed, as a relatively new entrant in the backhaul market, there is virtually no place in the country where a cable operator could offer these services without facing competition from the incumbent telephone company. For almost four decades, the Commission has appropriately and consistently found that new entrants competing with an incumbent need not be subject to rate regulation because they have no ability whatsoever to impose unreasonable rates, terms, and conditions on their customers. In other words, competitive providers have no ability to hold any customer “hostage.”

Given that there is no factual or theoretical reason to think that market forces will result in insufficient investment in fiber for 5G backhaul, regulation of the rates for such service can only have negative consequences. In particular, regulation designed to artificially push prices below market levels will discourage companies from investing in new fiber facilities. That will result in less fiber in the ground and fewer sellers in the marketplace – exactly the situation Chairman Wheeler says he wants to avoid.

Fortunately, there is still plenty of time for the Commission to adjust course in this proceeding and create appropriate incentives for all types of providers – wireless and wireline – to invest in their networks without the Commission tipping the scales in favor of one technology over the other.