Just Because the FCC Is Cutting TDM Access Costs, Don’t Assume It Will Happen

Brian Washburn
Brian Washburn – Service Director, Business Network and IT Services

Summary Bullets:

• The FCC is getting ready to release an Order forcing double-digit rate cuts to DS3/DS1 special access services over three years.

• Enterprises looking for cost savings have a surer bet moving to Ethernet on broadband and/or fiber access alternatives wherever available.

The U.S. Federal Communications Commission (FCC) appears finally to be in the home stretch of a move to force incumbent carriers to reduce rates for certain types of access. Specifically, after much back and forth on details, the proposal is now tilting to an 11% blanket rate decrease in access costs implemented over three years, from July 2017-2020, and by 3% per year after that (adjusted by inflation). These new price protections cover dedicated access services at speeds below 45 Mbps — that puts a bull’s-eye on the venerable DS3 and DS1 circuits. Also planned are new price protections for buyers, and more power for the FCC to handle complaints.

So far, that might look like good news for many U.S. enterprise network buyers: TDM access is a costly component of network services, whether enterprises purchase it directly, or the cost is passed along by third-party service providers that source access. The apparent final trajectory of the Order (“To Promote Fairness, Competition, and Investment in the Business Data Services Market”) has been a long time coming. The current move was in progress for more than a year, and technically the review started as early as 2012. It’s also not done yet, though the FCC expects now to implement the Order before year-end 2016 — a parting shot of the present administration.

Are enterprises going to benefit from these access price cuts? Not right away, and possibly not ever. Businesses are already broadly turning to Ethernet on fiber- and broadband-based alternatives where they are available, and the FCC deems these services competitive today. Incumbent carriers are going to disagree with the FCC about the actual cost to operate DS3/DS1 access services, and they have some points: They can claim the FCC’s Order is making decisions based on old data in a fast-moving market; it’s also possible that as DS3/DS1 access services decline, the economies of scale are reversing, increasing net operating costs for these services. Providers don’t like the idea of being forced to sell services at a loss, and that almost guarantees the Order is headed for court challenge.

The FCC and operators are split on whether the Order is an attempt at incentive or disincentive to invest in business services for more rural areas. The FCC logically concludes that price pressures will get operators to invest in higher-speed, packet-based access upgrades. Operators counter that the price decreases mean they have to manage to lower margins, and that means fewer dollars for new infrastructure investment.

So for enterprises, even though cost reductions for traditional TDM access seems to be tantalizingly close, any Ethernet-based alternatives riding on broadband or even fiber services are likely to be a better bet if cost savings are a key issue. This Order, while well-intentioned, seems more likely to go sideways than move forward.

What do you think?

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