Promoting Competition for Community Anchor Institution Broadband Services

The SHLB Coalition developed Connecting Anchor Institutions: A Broadband Action Plan to provide ideas and actionable policy recommendations for government leaders at the federal, state, and local levels to address the broadband needs of anchor institutions. The ten policy papers highlight connectivity gaps and explain why broadband access is vital to communities nationwide. In the coming weeks, the Benton Foundation will be highlighting each of the Action Plan policy papers. The following is an excerpt of the second paper. Up next -- Broadband Infrastructure Policy. To read the complete Broadband Action Plan, visit www.shlb.org/action-plan

Many studies show that competition breeds greater investment in broadband networks, more jobs, innovation, lower prices and higher quality customer service.(1) Yet many anchor institutions still have only one choice for their broadband provider, and the lack of competitive choices hampers anchor institutions’ ability to acquire high-capacity broadband at affordable prices.

Anchor Institutions Benefit from Open Access and Interconnection Policies

Open access and interconnection policies can open markets to non-traditional providers and promote competition. The American Recovery and Reinvestment Act (ARRA) required Broadband Technology Opportunities Program (BTOP) funding recipients to comply with open access and interconnection policies.(2) The theory was that building “open middle-mile” networks to anchor institutions could make it easier for other competitive providers to build out last-mile networks, not only to the anchor institutions, but also to the rest of the community, including residential users. The evidence shows that this theory has worked. To date, BTOP grant recipients have reached over 800 interconnection agreements with other providers.

Admittedly, it takes open access policies a few years to have an impact, in part because the network needs to be deployed across a large enough footprint to impact the market. Nevertheless, in its 2014 report, three years after the BTOP projects began to deploy, ASR Analytics (ASR) found a yearly increase in GDP in the areas served by the new broadband investment of between $5.7 billion to $21.1 billion. ASR also found that anchor institutions achieved significant cost reductions. ASR also noted that many interconnection agreements were still being negotiated and that it would take time for last-mile build-out to occur.

The FCC Should Consider Price Controls on Special Access Services

Special access (and, more recently, Business Data Services) is the term used to describe direct, point-to-point data connections over both traditional copper telephone and fiber networks. According to the Federal Communications Commission, special access services are used by businesses, schools, libraries, and other institutions of state and local government.(3)

The Communications Act requires that prices for special access services must be “just and reasonable.” There is evidence that special access prices are much higher than they should be. The FCC deregulated special access pricing over a decade ago based on the expectation that competition would develop, but many claim that competitive networks simply do not exist for most locations.

Some analogize the impact of special access service prices to the price of a barrel of oil. When oil prices increase, so do gasoline prices, home heating prices, and even taxi cab rates. Similarly, high prices for special access services impact the rates consumers pay for home Internet connections, for wireless data plans, and even for basic telephone service. Special access services are an input to virtually every other communications and broadband service cost.

Special access prices also affect competition. Competitive local exchange carriers (CLECs) often lease special access circuits from large incumbent providers because CLECs do not have their own facilities to serve schools, libraries, hospitals, and government offices. Competitive carriers say reducing prices for special access services will encourage them to lease circuits and enter new markets, thus increasing competition.

These competitive providers allege that high prices for dedicated (point-to-point) circuits from incumbent companies thwart the rollout of advanced networks to new markets.(4) They have called upon the FCC to place greater price controls over incumbents’ special access prices in order to promote competition. The FCC is considering renewing price controls over telephone companies’ special access services.

Shared Networks Can Facilitate Lower Prices for All Anchor Institutions

The National Broadband Plan spoke eloquently about the value of sharing networks across sectors:

[Government policies] frequently drive institutions to use dedicated, single-purpose networks that are not available for broader community use… These restrictions make it difficult to expand and share broadband with other community institutions in the most cost-effective way. This problem is especially acute in rural areas and Tribal lands where broadband may only be available and affordable to residents and small businesses in a community if the fiber optic infrastructure in that town is shared not only by commercial users but also by the local hospital, government office and school system. Because broadband networks—particularly fiber optic networks—demonstrate large economies of scale, bulk purchasing arrangements for forms of connectivity like second-mile and middle-mile access can drive down the per-megabit cost of such access considerably. As a result, policy restrictions that impede the ability of school networks funded by E-rate to share capacity with hospitals funded by the Rural Health Care program, or the public safety system, which may be funded by state and other federal sources, drive up the cost of connectivity for those institutions and for others in the community.(5)

Conclusion

Policymakers can address the shortage of competition by making it easier for new broadband providers to enter the market; requiring more bidders for E-rate services; ensuring that existing networks are open to interconnection to competitive providers; reducing prices of wholesale access to existing infrastructure and services that competitors need to expand their networks; and promoting network sharing.

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Notes:

1. See, for example, Susan Gately and Helen Golding, The Benefits of a Competitive Business Broadband Market (S M Gately Consulting LLC, April 2013) http://tinyurl.com/jt95wc3; The Executive Office of the White House, Community-based Broadband Solutions: The Benefits of Competition and Choice for Community Development and HighSpeed Internet Access (January 2015) http://tinyurl.com/jgk38nk; and Nathan Newman, “The Benefits of Robust Wired and Wireless Networks,” Economic Policy Institute (November 30, 2011) http://www.epi.org/files/2011/bp332.pdf
2. American Recovery and Reinvestment Act of 2009 Sec 6001 (j), Public Law 111-5 (February 17, 2009).
3. Federal Communications Commission, In the Matter of Special Access for Price Cap Local Exchange Carriers, Report and Order (WC Docket 05-25) (September 18, 2013).
4. See John T. Nakahata, Comments of Windstream Services, LLC, WC Docket 05-25, Jan. 27, 2016 http://apps.fcc.gov/ecfs/comment/view?id=60001386514: “Windstream’s competitive operations typically must rely on other [broadband providers’] existing infrastructure in the last-mile…. Without such access on just and reasonable terms, Windstream will not be able to continue to be a nationwide provider of complex communications solutions to large, medium, and small businesses; federal, state, and local governments and agencies; schools; and healthcare providers.”
5. Federal Communications Commission, Connecting America: The National Broadband Plan, (March 2010) https://transition.fcc.gov/national-broadband-plan/national-broadband-plan.pdf

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About the author
John Windhausen, Jr. is Executive Director of the Schools, Health & Libraries Broadband (SHLB) Coalition. In prior years, he served as President of a telecommunications trade association in Washington D.C., as senior counsel to the United States Senate Commerce Committee working for Senator Hollings (D-SC) and Senator Inouye (D-HI), and as a staff attorney at the Federal Communications Commission. Windhausen graduated from Yale University and the UCLA School of Law.