Special Access Dispelling the Myths

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Special AccessDispelling the Myths
Wendy M. Moser Vice President Public Policy,
Qwest July 14, 2007
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Background of Special Access Reform

• 1991, FCC instituted price cap regulation for the
  BOCs and GTE, and permitted other LECs to adopt
  price cap regulation voluntarily with goal of
  having price cap companies (1) improve
  efficiency (2) invest efficiently and (3)
  develop and deploy innovative service offerings.
• 1996, Telecom Act set a pro-competitive,
  de-regulatory national policy.
• 1997, FCC adopted a primarily market-based
  approach to accelerate the development of
  competition in all telecommunications markets and
  to ensure that regulation does not unduly
  interfere with the operation of the markets as
  competition develops.
• 1999, FCC provided the rules for implementing the
  market-based approach and sets the framework for
  how price cap LECs would receive pricing
  flexibility.
• Phase I (price caps, volume and term discounts
  with contracting ability with price cap
  constrained tariffed rates for services) or
• Phase II (volume and term discounts with
  contracting ability and no requirement to
  maintain price cap constrained tariffed rates)
  or
• None (price cap constrained tariff rate only,
  with no ability to offer discounts or enter into
  contracts)
• 2002, Qwest granted Phase I or Phase II pricing
  flexibility in some of its MSAs. For example,
  for DS1 and DS3 Loops a.k.a. Chan Terms
• Phase I (e.g. Denver, Minneapolis, Seattle)
• Phase II (e.g. Phoenix, Portland)
• None (e.g. Wyoming)

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Current Market Conditions

• Competition for the end user business customer is
  flourishing.
• Wireline competition from competitive access
  providers, including ATT and VZ in Qwests
  region
• Cable providers
• Wireless providers
• CLECs
• Competitors either self provision, purchase
  special access from us, purchase special access
  from alternative providers, purchase UNEs, or
  some combination of the above.
• Qwest has responded to growing competition by
  offering customers substantial promotional, term
  or volume discounts, i.e., most customers do not
  purchase special access at Qwests month-to-month
  rates.

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Special Access Rates are Decreasing

• In Qwest's Major Markets (Denver, Minneapolis,
  Seattle) and others (such as in Tucson AZ, Tacoma
  WA, Fort Collins CO, Salem OR, and Provo UT),
  Special Access rates for Qwests highest rate
  offering (its month-to-month rates) have
  decreased between 2000 and 2007
• 15 for DS-1 services
• 7 for DS-3 services
• The Services that most customers buy have even
  deeper discounts--Term, Volume or Both as most
  customers purchase out of contracts, not the
  month-to-month tariffs
• Overall, rates for the majority of Special Access
  have decreased!
• It is true that some Special Access
  month-to-month rates have increased (such as in
  Phoenix AZ, Des Moines IA, Colorado Springs CO,
  Omaha NE, and Salt Lake City UT), but for the
  majority of these month-to-month rate increases,
  they have been about the same as the rate of
  inflation between 2000 and 2007about 3.
• And in these areas, the services that most
  customers buy have the deep discounts
  available--term, volume or both, such that
  customers have not seen even this minimal rate
  increase

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Comparisons to ROR Benchmarks and UNEs Are
Useless

• Price cap LECs and special access are not rate of
  return regulated and have not been since the
  1980s.
• Separations has not been updated or changed
  making an accurate rate of return calculation
  impossible.
• Special Access month-to-month rates are usually
  higher than equivalent UNEs as UNEs are only
  available for express purposes in express
  circumstances, offered at the lowest rate that
  regulators may lawfully mandate.
• The purpose of the Act is not to provide the
  widest possible unbundling, or to guarantee
  competitors access to network elements at the
  lowest price that government may lawfully
  mandate. Rather, its purpose is to stimulate
  competitionpreferably genuine, facilities-based
  competition. Where competitors have access to
  necessary inputs at rates that allow competition,
  not only to survive, but to flourish, it is hard
  to see any need for the Commission to impose the
  costs of mandatory unbundling. USTA II, 359 F3d
  at 580.
• Wireless carriers are not eligible to purchase
  UNEs.
• Consistent with USTA II, we deny access to UNEs
  in cases where the requesting carrier seeks to
  provide service exclusively in a market that is
  sufficiently competitive without the use of
  unbundling. In particular, we deny access to
  UNEs for the exclusive provision of mobile
  wireless services and long distance services.
  TRRO, FCC 04-290, para. 34.
• The Special Access market is flourishing and the
  customer demand and supply for high capacity
  circuits is at an all-time high.

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Next Steps in Special Access

• FCC has released NPRM, asking parties to refresh
  record in the Special Access Notice of Proposed
  Rulemaking.
• FCC 07-123, released July 9, 2007, in WC Docket
  No. 05-25, RM-10593
• FCC is requesting parties to comment on all
  aspects of the issues raised related to special
  access.
• The FCC is in the best position to evaluate
  competition in the special access market and the
  appropriateness of the rates in the special
  access market.