Special Access Battle Heats Up, Again

Some of us cannot remember a time when “special access” was not a contentious issue. The reasons--irrespective of all valid public policy concerns--are that special access has been, and remains, a major product for business customers.

The other issue is that most sellers of special access do not own their own facilities, and lease access--for their own use or for resale--from a few companies that do own facilities. So disputes over wholesale pricing typically are at the center of dispute.

So it is not surprising that special access once again is on the docket of the U.S. Federal Communications Commission, and not surprising that prices are at the center of the dispute.

By some estimates, annual sales of special access circuits (T1 and DS3, for example) are about $24 billion.

To be sure, access is transitioning to Ethernet, but smaller customers and sites frequently rely on time division multiplexing (TDM) access.

In some ways, continuing debates about legacy TDM access, at a time when everybody agrees the legacy network needs to be shut down in favor of modern IP infrastructure, is curious.

In fact, some might argue it is silly to stupid to delay rapid network modernization to protect a $24 billion business that is shrinking and as much a part of the legacy infrastructure as “all copper” access media.

To be sure, many advocate a logical approach, namely preserving TDM access as IP infrastructure is turned on, at the legacy prices. There is room to debate the notion of fair” prices.

After all, new optical infrastructure and all-copper legacy infrastructure have different cost recovery requirements. New infrastructure is not fully amortized. Copper infrastructure might be nearly fully amortized.

There is less room to argue about the scarcity of high-capacity access, as access networks are scarce, and only one of two ubiquitous fixed network access suppliers in each market is subject to mandatory access requirements in most markets (some telcos, not any cable TV companies).

In 2013, incumbent local exchange carriers sold roughly 75 percent of the approximately $20 billion in annual revenues from the sales of DS1 and DS3 channel terminations, and received nearly 66 percent of all revenue from TDM sales.

That finding, in and of itself, might not be surprising, since only one provider in each market has both ubiquitous access assets and mandatory wholesale obligations (the underlying carrier makes money from its own retail sales and wholesale sales as well).

Only special access sales made by cable TV companies or independent providers with their own owned networks do not create revenue for the underlying carrier.

The latest inquiry centers on contract terms competitors say are unfair.

Some might also note that, no matter what is done, TDM-based access is going to keep declining, as do all legacy access methods do, when the next-generation network becomes ubiquitous and as end users switch from legacy to next-generation access equipment and software.

That is not to deny a transition period of some length. But TDM-based special access is going away, as IP access takes its place.

At one level, the issue is how to create policies that encourage faster transition while not disrupting legacy operations too much. At another level, the dispute is over relative commercial advantage. All valid public policy disputes always involve considerations of private interest.