FCC Suspends Special Access Rules, Uncertainty Grows

The Federal Communications Commission has concluded that its 1999 rules on market-based special access rates "have not worked," so the FCC is suspending its rules. At stake are special access revenues of incumbent LECs of about $16 billion annually, and also business costs for rival suppliers who lease such circuits to connect their own customers.

At stake is the market cost to a competitive supplier to gain access to high-bandwidth circuits serving customers who cannot be reached by any single supplier's own network. But the markets have changed, and some would say dramatically, over the intervening years.

What remains uncertain, as the FCC collects new data, is the impact of new supply side changes such as circuits sold by cable companies, for which no mandatory access to competitors is required, or other facilities-based suppliers that might be able to supply DS-1 type circuits, for example. As always, the definition of "the market" and "the suppliers" will be important.

Businesses might well be able to buy high capacity circuits from cable operators, who do not have to allow third parties access to those services. The issue is whether services for business customers, or costs of doing business for competitive local exchange carriers, is the policy objective.

One historic limitation of cable networks was their initial concentration on residential areas. Over the last couple of decades, though, business customers have become more important, and cable operators now are aggressively selling services to business customers, including business grade high speed access services operating up to 100 Mbps.

It is true there are not mandatory access requirements for cable operators. But neither is it true that telco bandwidth now is the only alternative, especially outside the densest areas of business customer concentration.

In the "Pricing Flexibility Order," the Commission adopted rules intended to allow price capped service providers to show that certain parts of the country were sufficiently  competitive to warrant pricing flexibility for special access services.  

But the FCC does not believe its rules have worked as expected, "likely resulting in both over- and under- regulation of special access in parts of the country." But some will argue that the FCC's suspension of its rules likely will result in the re-imposition of price controls.

Originally, the FCC expected rather more robust market entry by new competitors, starting in the areas of highest business demand, and then gradually extending elsewhere throughout a metro area.

The FCC says "recent data indicates that competitors have a strong tendency to enter in concentrated areas of high business demand, and have not expanded beyond those
areas despite the passage of more than a decade." In other words, competitive providers have tended to cluster their investments in the areas where potential customer density was highest, and have tended to underplay investments elsewhere.

A reasonable person might say that is about what a rational supplier might do, if the financial return was too low, and the risk too high, in the outlying areas. "Incumbent LECs generally concede that competitors have focused on areas in which demand  for special access services is very concentrated," the FCC says.

"Demand for special access services is highly concentrated in a relatively small number of dense urban wire centers and ex-urban wire centers containing office parks and other campus environments," the FCC says.

Verizon told the FCC that more than 80 percent of demand is generated in eight percent of its wire centers, allowing new competitors to address a large portion of demand through targeted investments.

SBC, for example, states that a large percentage of its demand for DS1 and DS3 services
runs within 1,000 feet, or about three city blocks, of existing alternative fiber. The implication is that competitive local exchange carriers could extend their networks if they wanted. CLECs tend to say that is untrue, in large part because the incumbents make such expansion unduly expensive.

But CLECs also argue that there are other important barriers to entry, including the delays in or
impossibility of securing municipal franchise agreements, rights-of-way agreements, building access agreements, and building and zoning permits.

In 2006, the U.S.  Government Accountability Office (“GAO”) analyzed 16 metropolitan areas in which the Commission  had granted pricing flexibility and found that facilities-based competitors served fewer than six percent of  buildings with at least a DS1-level of demand.

But a rational executive also would note that it virtually never makes financial sense for a CLEC to build its own facilities to serve even a confirmed customer with that level of demand.

The point, CLECs argue, is that there perhaps "never" will be a business case for extending CLEC facilities much beyond their current state.

TW Telecom relied on data supplied by Verizon in arguing that, between 1996 and 2004, non-incumbent LEC channel termination buildout to commercial buildings increased from 24,000 buildings to  approximately 31,467 buildings (a change of 7,467), in contrast to the “millions of buildings served by  incumbent LEC fiber.

In 2005, WilTel estimated that competitors had deployed to 25,000 buildings,  whereas Sprint asserted in 2007 that only 22,000 buildings had competing connections.

Moreover, TW  Telecom has argued that competitors serve only three to five percent of
commercial buildings nationwide.

Proponents of special access price regulation rely on three central arguments to support a retreat to strict price regulation. Such proponents argue that markets for special access are unduly concentrated, rates of return are very high and prices are lower in more heavily regulated markets than in markets with the most pricing flexibility.  

Economists at the Phoenix Center for Advanced Legal & Economic Public Policy
Studies argue that those assertions are not correct, but additionally do not prove the presence of undue market power. The Phoenix Center further argues that much hinges on the definition of "a market."

55% Say They Order Restaurant Food Using an Online or Mobile App at Least Monthly

More than half of the respondents in a national survey said they use an online or mobile application to order food from a restaurant on at least a monthly basis.

Splick-it, a Colorado-based food ordering services provider, queried 7,122 American consumers for the survey. The sample included 70 percent of respondents between 20 and 40.

Only 25 percent of respondents said they never use online or mobile food ordering services, while a combined 21 percent reported using those services on a daily or weekly basis.

Will 60 Million U.S. Households be Using Peer-to-Peer Payments in 2014?

Javelin Strategy & Research expects 60 million American households to be using person-to-person payments by 2014, a forecast some might find aggressive. PayPal, which launched in 1999, has offered P2P payments using the Web, initiated by use of a PC, for some time. 

Since then, PayPal has extended that capability to smart phones. But what will it take for millions of households to acquire the habit? That's the rub, some would say. 

As with many other new behaviors, it helps if the transactions are the sorts of activities that a user frequently has to conduct. That is one reason transit payments seem to make a lot of sense. Other apps often seen as driving such behavior, such as paying a friend when a restaurant bill is split, might not happen so often. And that will raise the hassle factor, and lower the perceived value. 

Then there is the question of business model. Lots more people will adopt the behavior if there are no transaction fees. But some services do require payment of a fee. 

Popmoney charges 95 cents per payment to send. If a request for money is made and the money is delivered, the same charge applies. Dwolla charges 25 cents to receive money in amounts greater than $10. 

Is that a big barrier? For some it might be. In developing markets the use case is much more clear. Where it is very time consuming, or dangerous, to send money to an organization or a person, mobile P2P transfers offer high value, with or without a transaction fee. 

In developed markets, the value might be relatively slight, and any transaction cost might be viewed as unacceptable by many users. Bill payment might provide some insight. Lots of people pay bills using e-banking. But those transactions generally do not impose fees, so the barrier to adoption is low, and users can see the advantage of not paying a check cashing fee, paying for postage and getting mail to a postal drop-off location. 

Most people probably can point to instances where e-payments requiring a significant fee (several dollars, for example) don't happen, though lots of other payments, not requiring a transaction fee, are made. 

 

Areas of Potential Verizon, Cable Company "Lessened Competition" are Few, Really

The Department of Justice has been concerned about potential lessening of competition if Verizon, Comcast, Cox Communications, Time Warner Cable and Bright House Networks were allowed to fully sell each other's services. 

With the caveat that many of the areas of overlap, shown in this map in purpose, are areas of high population density, the potential danger was largely concentrated in Verizon's fixed network footprint in the U.S. Northeast, with the addition of some areas of Southern California and the Tampa, Fla. area. 

According to J.D. Power, LTE "Works Better" than 2G, 3G, WiMAX

Wireless customers who use 4G LTE-enabled devices experience fewer data-related issues, especially with slow connection speeds, than do customers who use 3G and other 4G-enabled devices, according to  J.D. Power. In many ways, that is logical. The salient feature of 4G is that it is faster than 3G. 

The study finds that the number of data-related problems, especially those related to slow connection speeds, is significantly lower among customers using 4G LTE-enabled devices than among those using devices with older 3G or 4G technology standards, such as WiMAX and HSPA+.  

For example, among customers with 4G LTE-enabled devices, the problem incidence for excessively slow mobile Web loading is 15 problems per 100, compared with the industry average of 20 PP100. If you have used either HSPA+ or WiMAX, you might agree. 

Perhaps oddly, though, the overall problem incidence for excessively slow mobile Web loading is even higher among customers with WiMAX and HSPA+ technology (22 PP100 and 23 PP100, respectively). 

There are no substantial differences in problem rates for other data-related issues between 4G LTE and WiMAX and HSPA+ technologies, such as Web and email connection errors.

The analysis was based on 10 problem areas that affect the customer experience (in order of importance): dropped calls; calls not connected; audio issues; failed/late voicemails; lost calls; text transmission failures; late text message notifications; Web connection errors; email connection errors; and slow downloads. 

Network performance issues are measured as problems per 100 (PP100) network connections, with a lower score reflecting fewer problems and better network performance. Carrier performance is examined in six geographic regions: Northeast; Mid-Atlantic; Southeast; North Central; Southwest; and West.

Is the FCC Ignoring its Own Data to Justify More Regulation Over Broadband?

Some believe the Federal Communications Commission deliberately is ignoring its own data to justify more regulation over the broadband business, when the facts might suggest a lighter touch is justified.

In fact, analysts at the Phoenix Center for Advanced Legal & Economic Public Policy Studies go so far as to argue that "ubiquitous availability is today an unreasonable expectation and unreasonable goal."

The Phoenix Center argues that since the FCC analysis requires an expenditure of $50,000 or more, on top of actual and accepted industry investments for a new broadband access line, to serve the last 200,000 or so U.S. locations, the reasonable and proper goal of fostering widespread broadband access descends into an improper specifying of how that access is to be accomplished, in essence. 

The economists at Phoenix Center do not argue "nothing" can be done to serve the remaining five percent or so of isolated locations. Satellite services can reach most of those remaining locations now, with improvements coming, for example. 

That is not to say any of the satellites now delivering satellite broadband are as fast as we would like, cost as little as we might prefer, or can literally reach "every" location in rural areas. Some of the spot beam transponders can become fully loaded, meaning no more customers can be added within the footprint of a particular spot beam. 

Some of the locations could be in areas where a particular satellite does not have any spot beams aimed at the ground. But the launch of new satellites by ViaSat and HughesNet does mean existing load on the older satellites will, over time, be alleviated, allowing some locations to once again buy service, while likely also allowing faster service, even using the older satellites. 

Satellite broadband isn't perfect, nor does it offer speeds as fast as fiber to the home networks. But satellite broadband is getting much better, and already is built. In many areas, that means speeds "up to" 12 Mbps or 15 Mbps can be purchased. Coverage is not 100 percent, by any means. But coverage is quite substantial, and no taxpayer or service provider expenditure of an incremental $50,000 per location, whether a person buys, or doesn't buy, is required. 

PayPal, with Discover Tie, Can Be Used at 7 Million U.S. Retail Locations

In the open-end (general purpose, as opposed to systems that support only one retail brand) mobile payments business, scale really does matter, simply because it is difficult to create a brand new habit unless people can use their new mobile payment features most of the places they ordinarily want to shop.

That’s the reason why the new business agreement between PayPal and Discover is important. Even though Discover lags behind Visa, MasterCard and American Express in terms of active account holders and users, Discover has a big network. PayPal has about 50 million active users.

And although Discover handles fewer transactions than credit-card industry leaders Visa, American Express, and MasterCard, the Discover penetration rate at retail merchants in the U.S. is 95 percent.  That means PayPal can be used at most of the places most people will be shopping, and that is a big deal, indeed.

That represents about seven million retail locations nationwide in the United States. The other angle is that the way PayPal handles the mobile payments also means merchants do not have to buy and install new point of sale gear. That’s another traditional impediment to adoption of mobile payments by merchants.

PayPal users will be able to make purchases using their phone number and a security pin code, a major advantage compared to systems that require installation of new POS terminals.