US Federal Communications Commission Suspends Special Access Pricing Flexibility Rules

The Federal Communications Commission recently adopted an order suspending "on an interim basis" its special access pricing flexibility rules.1 The Order states that parties adversely affected by the suspension may seek relief through the forbearance process, and the Commission promised to issue a mandatory data request within 60 days, which will help it subsequently conduct a detailed market analysis of the special access market. The two Republican Commissioners, Robert McDowell and Ajit Pai, dissented.

The actions taken in the Order are unlikely to have any immediate effect on special access prices. However, the analytic framework articulated in the order suggests that it may take significant time for the Commission to adopt permanent replacement rules, and that these replacement rules are likely to be significantly more complex and administratively burdensome than the suspended rules.

Special access services are telecommunications services that employ a dedicated link between two points. They are purchased by business customers that, for example, seek to connect multiple offices, and by other carriers that seek to provide service in areas where they lack their own facilities. Both voice and data may be carried using special access services. Special access services offered by incumbent local exchange carriers (ILECs) traditionally have been rate regulated, either through rate of return or price-cap regulation.

In 1999, the Commission adopted the Pricing Flexibility Order,2 which gave ILECs subject to price-cap regulation greater flexibility to set special access prices as competition developed. First, the Commission allowed all ILECs greater flexibility to adopt density zone pricing plans, under which they could charge different prices in different zones within a study area.3 Second, the Commission established certain competitive triggers that were designed to "measure the extent to which competitors had made irreversible sunk investment."4 If ILECs demonstrated that they met the trigger, they could receive greater pricing flexibility.

The Commission established two phases for pricing flexibility. Under Phase I, the ILEC would be able to offer contract tariffs and volume and term discounts, while remaining subject to price cap regulation. Under Phase II, the ILECs would be freed from price-cap regulation. In part to ensure "administrative workability," the Commission adopted the metropolitan statistical area (MSA) as the geographic area...

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