What’s up with special access: the $12B surcharge on Sprint and T-Mo?

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Sprint and T-Mobile are rejoicing, as are many other rural telcos and other companies that are reliant on buying access back to the Internet from circuits that are primarily owned by AT&T and Verizon. On Wednesday night the Federal Communications Commission said that it would halt the deregulation of the special access business while it looked at the rates charged by the companies providing the circuits connecting rural telcos and many wireless towers back to the Internet.

The FCC is halting the ability of circuit providers to raise their prices while the regulatory agency gathers data on how the prices are set and how those prices affect competitors and rural carriers. The FCC plans to issue a mandatory data request in the next month or two, but that in itself is a long process requiring approvals and comment periods that mean the FCC won’t even have a conclusion on whether or not it needs to reform special access until next year.

The issue is esoteric, and is a long time coming given the FCC began its look at the problem in 2009, but it does indirectly affect consumers. Sprint and T-Mobile both pay AT&T and Verizon a lot of money to buy access to those backhaul circuits so they can keep their network running. This means even when T-Mobile and Sprint are doing well, a portion of their proceeds ends up feeding Verizon and AT&T. FCC Chairman Julius Genachowski estimates that special access charges are roughly $12 billion a year industry, which isn’t chump change.

As one might expect Verizon isn’t terribly thrilled about the decision. It issued a statement that said:

“While today’s Order acknowledges that the current rules fail to capture the full extent of existing competition, the FCC, before taking any action, should have collected the data it repeatedly has said it needs to evaluate the marketplace. There are many providers – cable companies and CLECs – that compete vigorously with special access. Given this intense competition, any efforts to impose new pricing regulation are unjustified and will depress investment in these networks so critical to our economy.”

Meanwhile, Sprint is celebratory:

“We applaud the Commission for addressing this aspect of the failed special access market, an important step at a time when the American economy needs it most….The ILECs’ unchallenged control of these high-capacity broadband lines continues to harm U.S. businesses and consumers to the tune of at least $10 billion annually in over-charges — with profit margins over 100% to these monopoly service providers every year that this failed marketplace is allowed to persist.”

But the most realistic assessment came from a more independent source, the analyst firm Stifel Nicolaus, which issued a note this morning that read:

We continue to doubt the FCC action will have much impact near term, as it won’t affect existing deregulation and we’re not aware of any pending or expected telco petitions for relief. We nevertheless believe the proceeding, on balance, creates opportunities for wireless competitors and CLECs and risks for telcos — most notably the Bells — which collect $12-18 billion a year in special-access revenue according to the FCC.

Regardless, any relief for Sprint and others may be temporary since this is an election year, and a Republican-led FCC will likely let the deregulation continue without the data collection. So competitive local exchange carriers and wireless firms that aren’t associated with the Baby Bells can party now, bite their nails during November and then deal with the uncertain aftermath.

Tower Image courtesy of Flickr user Nikhil Verma

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