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August 24, 2015
Special Access Regulation Would Harm Competition

A British telecom executive alleges that Verizon and AT&T may be overcharging corporate customers approximately $9 billion a year for wholesale "special access," services, according to the Financial Times.

The Federal Communications Commission is presently evaluating proprietary data from both providers and purchasers of high-capacity, private line (i.e., special access) services. Some competitors want nothing less than for the FCC to regulate Verizon's and AT&T's prices and terms of service. There's a real danger the FCC could be persuaded-as it has in the past-to set wholesale prices at or below cost in the name of promoting competition. That discourages investment in the network by incumbents and new entrants alike.

As researcher Susan Gately explained in 2007, a study by her firm claimed $8.3 billion in special access "overcharges" in 2006. She predicted they could reach $9.0-$9.5 billion in 2007. This would mean that special access overcharges haven't increased at all in the past seven to eight years, implying that Verizon and AT&T must not be doing a very good job "abusing their landline monopolies to hurt competitors" (the words of the Financial Times writer).

As I wrote in 2009, researchers at both the National Regulatory Research Institute (NRRI) and National Economic Research Associates (NERA) pointed out that Gately and her colleagues relied on extremely flawed FCC accounting data. This is why the FCC required data collection from providers and purchasers in 2012, the results of which are not yet publicly known. Both the NRRI and NERA studies suggested the possibility that accusations of overcharging could be greatly exaggerated. If Verizon and AT&T were over-earning, their competitors would find it profitable to invest in their own facilities instead of seeking more regulation.

Verizon and AT&T are responsible for much of the investment in the network. Many of the firms that entered the market as a result of the 1996 telecom act have been reluctant to invest in competitive facilities, preferring to lease facilities at low regulated prices. The FCC has always expressed a preference for multiple competing networks (i.e., facilities-based competition), but taking the profit out of special access is sure to defeat this goal by making it more economical to lease.

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