FCC, Stop Worrying -- the 'Special Access' Data Market Is Already Competitive

The market for "special access" data services is getting more competitive all the time. And now there is additional fresh economic evidence of this.  

For those who aren't familiar with this important telecommunications issue, "special access" refers to bulk data connections used by businesses. For some time now, large traditional telecom providers have come under fire from critics who contend they make this sector uncompetitive, and the Federal Communications Commission has been investigating the issue.

But three professors (Mark Israel, Daniel Rubinfeld and Glenn Woroch) have analyzed the FCC's own data and found that many businesses have competitive options that are geographically close to them. AT&T's counsel summed up the professors work like this: "... these new, more precise data show even more dramatically that the vast majority of locations with special access demand are extremely close to multiple facilities-based competitors -- indeed, in most cases, within a few hundred feet."

To understand why the market is competitive, it's important to understand how the market actually works. The professors write: "... competitive providers deploy fiber networks in areas where there is demand for special access services, use those networks to compete for customers located in buildings in the vicinity of those fiber networks, and then deploy connections to buildings where they win customers."

Why does this matter? Because the realistic opportunity (a bid) to capture a market from an incumbent itself is a sign of competition, since it constrains the prices the incumbent can offer. With only one provider, prices would be higher. With competitive providers sniffing around and building fiber very close to potential customers, prices are constrained.

So let's look at the facts. Based on an analysis of the FCC's own data, it turns out that 25% of buildings that have a connection only to an incumbent local exchange carrier's (ILEC) special access services are only 17 feet away from the nearest competitive provider's fiber network; 50% are 88 feet away, and 75% percent are within 456 feet. The mean distance for all relevant buildings is 364 feet.

For comparison, 364 feet is about the length of a football field with the end zones. Seventeen feet? There are canoes and snakes that long. Eighty-eight feet? That's shorter than an NBA court and less than Yadier Molina throws every night to get a runner out at second base. What about 456 feet? Well, with the Kentucky Derby coming up, that's more than 200 feet shorter than one furlong. And it's the same height as a roller coaster in New Jersey.

So the economic conclusion is clear. As the authors write:

"In any event, it is not true that most buildings are served by only an ILEC or only by an ILEC and a single other provider. This assertion is based on two incorrect assumptions: (1) competition occurs only among providers that have already deployed connections to a building, and (2) cable companies do not compete for special access customers."

Rather than the distorted picture of a market dominated by ILEC incumbents that the FCC likes to present, in fact, the real picture is one of competition, with an ILEC and two competitors (one of whom may be a cable company offering fast speeds) offering facilities-based competition for most buildings in which there is special access demand. Isn't this the way markets are supposed to work? Why won't the FCC recognize this? 

It's said the longest journey begins with a single step. Here, to reach half of the supposed "monopoly" buildings, competitive local exchange carrier (CLEC) competitors only have to go 88 feet. Why can't they invest? Why do they need government subsidizing their business model? Is stringing fiber 88 feet, to reach half the market, too much of a burden? 

On any reasonable analysis of the FCC's data, the special access market is competitive. It's time to recognize that fact.

Athletes sometimes wonder what to do after their sporting careers are over. For Yadier Molina, the choice is easy: work for a CLEC. He can show them how easy it is to sling fiber 88 feet. 

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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