Before the

Federal Communications Commission Washington, D.C. 20554

In the Matter of Business Data Services in an Internet Protocol Environment Investigation of Certain Price Cap Local Exchange Carrier Business Data Services Tariff Pricing Plans Special Access for Price Cap Local Exchange Carriers AT&T Corp. Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Service

) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

WC Docket No. 16-143 WC Docket No. 15-247 WC Docket No. 05-25 RM-10593

COMMENTS OF THE UNITED STATES TELECOM ASSOCIATION

Jonathan Banks Patrick Brogan Diane Griffin Holland 607 14th Street, NW, Suite 400 Washington, D.C. 20005 (202) 326-7300

June 28, 2016

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TABLE OF CONTENTS

Page

I. INTRODUCTION .......................................................................................................................... 2

II. SMALL AND MEDIUM BUSINESS CUSTOMERS OFTEN VIEW BUSINESS INTERNET (“BEST EFFORTS”) AND DATA NETWORKING SERVICES (“BDS”) AS COMPETITIVE SUBSTITUTES. ................................................................................................ 3

A. Our Survey Provides Valuable Insight into the Broadband Product Market for Small and Medium-Sized Businesses. ..................................................................... 3

B. A Significant Number of SMBs Have Recently Switched to Cable Service Providers. ................................................................................................................... 7

C. There is Evidence that SMBs Find Key Business Internet and Data Networking Services Attributes be Comparable and Interchangeable. ................................. 10

D. The Survey Invalidates the Commission’s Conclusion that Certain Business Internet Access Services are not in the Same Product Market as BDS. ............ 13

III. THE COMMISSION’S COMPETITIVE DETERMINATIONS MUST BE DATA-DRIVEN, NOT OUTCOME-DRIVEN. ....................................................................................................... 18

A. The Commission’s Existing Competitive Analysis Cannot Form the Basis for Regulating the BDS Marketplace. ......................................................................... 19

B. Claims That ILECs Have Competitive Advantages Outside of Their Regions and In Greenfield Situations are Unsubstantiated. ............................................. 21

IV. THE COMMISSION MUST EXERCISE REGULATORY RESTRAINT AND PROVIDE INCENTIVES FOR INVESTMENT. ......................................................................................... 23

A. The Competitive Market Test Should Encourage Investment by Adjusting to Market Changes As They Become Evident. ......................................................... 23

B. The Commission Must Ensure That Regulation Promotes a Path to Facilities-Based Competition. ................................................................................................. 26

V. CONCLUSION. ............................................................................................................................. 28

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SUMMARY

The 2013 data collection paints an encouraging picture of the state of BDS competition. Competition is strong in virtually every census block with BDS demand, and providers who are not competing in certain markets have facilities that are close enough to compete if they so choose. But there is another part of the story - what has transpired since 2013 - which is not reflected in the 2013 data collection. Due to aggressive growth through investment and targeting of business customers from CLECs and cable providers, BDS competition has exploded in the last three years. This is especially true of cable providers who have deployed fiber and upgraded hybrid fiber-cable facilities capable of providing high speed services, dedicated and business grade, that compete head-to-head with ILEC-provided services. Our own study shows that business customers want these services and are choosing them over comparable ILEC and CLEC services. In other words, competitive benefits are flowing to customers, as intended. So, where competition is working, less regulation should be the goal, not more – right?

As encouraged as we are that this proceeding is moving forward, we continue to fear that it is headed in the wrong direction. Many of the proposals prioritize facilities sharing over facilities building, and pricing subsidies to encourage leasing over incentives to encourage investment. The Commission is giving new life to relics of the past – the X factor, UNE-P, resale – rather than embracing forward-looking approaches that recognize the present, thriving state of the BDS marketplace. And, according to the Wireline Competition Bureau, newly-reported data demonstrating that the presence of cable facilities capable of providing BDS that was understated by a factor of 22 supposedly will have no impact on the conclusions reached by the Commission before that data was reported. None of these developments bode well for the future of true, facilities-based BDS competition.

What is at stake cannot be overstated; our ability to continue to innovate and lead the world in broadband deployment, including 5-G and other next-generation technologies, hangs in the balance. Where competition exists, the Commission must leave market forces alone. Where competition does not exist, the Commission should tread lightly to encourage it, without diminishing incentives for providers ultimately to compete on a level playing field by deploying their own facilities. That starts with defining what is a “competitive” market in a reasonable way to reflect that business customers perceive that they have choices for their internet services. It is not clear that the Commission’s proposals will in fact benefit business customers, rather than merely benefit competitors who will get lower input prices without the attendant burdens of infrastructure building. The Commission must seek to ensure that all providers are incented to invest in the modern fiber and IP networks that businesses need.

Before the Federal Communications Commission

Washington, D.C. 20554

In the Matter of Business Data Services in an Internet Protocol Environment Investigation of Certain Price Cap Local Exchange Carrier Business Data Services Tariff Pricing Plans Special Access for Price Cap Local Exchange Carriers AT&T Corp. Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Service

) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

WC Docket No. 16-143 WC Docket No. 15-247 WC Docket No. 05-25 RM-10593

COMMENTS OF

THE UNITED STATES TELECOM ASSOCIATION

The United States Telecom Association (USTelecom)1 submits these comments in

response to the Federal Communications Commission’s (FCC or Commission) Further Notice of

Proposed Rulemaking (Further Notice) in the business data services (BDS) rulemaking

proceeding. The Commission seeks input on its proposals to replace the existing BDS regulatory

structure with a new framework that regulates markets according to whether they are competitive

or non-competitive.2

1 USTelecom is the premier trade association representing service providers and suppliers for the telecom industry. Its diverse member base ranges from large publicly traded communications corporations to small companies and cooperatives – all providing advanced communications service to both urban and rural markets. 2 Business Data Services in an Internet Protocol Environment, et al., WC Docket Nos. 16-143, 15-247, 05-25, RM-10593, Tariff Investigation Order and Further Notice of Proposed Rulemaking (rel. May 2, 2016) (Further Notice).

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I. INTRODUCTION

Competitive facilities have emerged in accordance with the vision in the

Telecommunications Act of 1996 (Telecom Act), as evidenced by the fact that the original

providers that were subject to traditional, incumbent regulation have seen their market shares

decline as more providers compete for business customers of all sizes. The competitors making the

most inroads are those investing in their own facilities; most notably, cable broadband providers

have experienced a compound annual growth rate in business revenues of 20 percent for more than

5 years.3 But competitive LECs (CLECs) have also gained significant market share. The special

access data, as well as the filings to date on those data, bear this out.4

There are areas of both agreement and disagreement among commenters over what the data

show. But there can be no real dispute that the data show a BDS marketplace characterized by

multiple providers competing for business, enterprise, and institutional customers. Those

competitors include CLECs and cable companies, whose market shares have reached 51 percent in

terms of BDS revenues,5 and which have a presence in about one half of all buildings with fiber.6

There can also be no dispute that competition from CLECs has steadily grown since their entrance

into the special access business in the mid-1980s. This was accomplished during a time when

monopoly-era regulation was adjusted to encourage competition and to spur investment, and that is

exactly what happened.

3 Further Notice ¶236. 4 See, e.g., Drs. Mark Israel, Daniel Rubinfeld and Glenn Woroch, Competitive Analysis of the FCC’s Special Access Data Collection, at 24 (filed Jan. 26, 2016) (IRW White Paper) (“we find evidence of abundant competition for special access services”). 5 Mark Rysman, “Empirics of Business Data Services,” White Paper, Table 1 (April 2016)(Appendix B to Further Notice) (Rysman Paper). 6 See id., Table 8. Of the total buildings served with fiber, 49 percent are ILEC-only buildings, 45 percent are competitive provider-only buildings, and 6 percent have both ILEC and competitor fiber, giving competitors a presence in 51 percent of all buildings with fiber.

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II. SMALL AND MEDIUM BUSINESS CUSTOMERS OFTEN VIEW BUSINESS INTERNET (“BEST EFFORTS”) AND DATA NETWORKING SERVICES (“BDS”) AS COMPETITIVE SUBSTITUTES.

A. Our Survey Provides Valuable Insight into the Broadband Product Market

for Small and Medium-Sized Businesses.

In the Further Notice, the Commission’s analysis of BDS competition, including its

market share calculations, rests in significant part on product market definitions.7 At the core of

the Commission’s product market definition is a series of assumptions and predictions about

customer preferences and switching behavior without any direct supporting evidence from

business customers. For example, the Commission states its belief that “best effort services”8 and

BDS may not be in the same product market or markets. 9

Below USTelecom reports results from a recent small and medium business (SMB) retail

customer survey that offers insight into customer preferences and switching behavior.10 Prior to

the release of the Further Notice, USTelecom had commissioned this market research to

understand how retail SMBs perceive the marketplace and the choices available to them.

Understanding the extent of competition in SMB markets is of particular interest since these

customers, on average, have less in-house expertise and negotiating leverage compared to carrier

customers and large enterprises. SMBs also provide an early indicator as to how successful cable

operators are likely to be in the wider marketplace, since the cable industry focused on SMB

markets long ago and has gradually migrated up-market to serve the largest businesses in the

7 The Commission sought comment on its analysis of product markets. See Further Notice ¶ 196. 8 “Best effort services” are described as mass-marketed, residential services that are less reliable and offer lower bandwidths that do not meet the requirements of all BDS purchasers. See Further Notice ¶¶ 13-14, 191. 9 Further Notice ¶ 191 (“We believe it is likely that best effort services may not be in the same product market or markets as BDS.”) 10 The survey was fielded from April 28, 2016 to May 9, 2016, and USTelecom received final results and tabulations on June 17, 2016. A description of the survey’s methodology is attached as an Appendix to these comments.

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nation.11 A significant portion of customers in our survey use cable for business Internet,

business data networking, or both. Our survey indicates that the retail SMB market is dynamic

and competitive, in contradiction to many of the “key beliefs” underlying the Commissions

product market analysis.

1. The survey focuses on small and medium businesses.

USTelecom commissioned this market research survey in order to better understand how

small and medium retail businesses perceive their service choices and how they are purchasing

services in the actual marketplace, given the importance the Commission places on customer

perception.12 USTelecom’s market research consultant collected 795 surveys from an online

panel of small and medium businesses ranging from 5-100 employees. The sample was

distributed by firm size as follows: 23 percent, 5-9 employees; 27 percent, 10-24 employees; 25

percent, 25-49 employees; and 25 percent, 50-100 employees. Businesses with 5-100 employees

represent approximately 31 percent of all business establishments in the U.S. and 59 percent of

all business establishments with five or more employees.13

11 See Letter from USTelecom to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-25, RM-10593 (Sep. 18, 2015). 12 See, e.g., Ensuring Customer Premises Equipment Backup Power for Continuity of Communications, et al., PS Docket No. 14-174, GN Docket No. 13-5, RM-11358, WC Docket No. 05-25, RM-10593, FCC 14-185, Notice of Proposed Rulemaking and Declaratory Ruling, ¶ 117 (rel. Nov. 25, 2014) (taking into account “the perspective of the relevant community or part of a community” in determining whether a carrier is discontinuing a service under section 214 of the Communications Act). See also United States Telecom Association, et al. v. FCC, Case No. 5-1063, at 24 (DC Cir. Jun. 14, 2016) (explaining that the Commission concluded that broadband internet access service is a telecommunications service “by examining consumer perception of what broadband providers offer”). 13 Further Notice ¶ 73 (citing U.S. Census Bureau, Statistics of U.S. Businesses). There were 7,488,353 total U.S. business establishments in 2013. There were 3,907,716 with five or more employees, and there were 2,323,167 with 5-100 employees.

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2. The survey screens for knowledgeable respondents.

The survey included several questions aimed at screening respondents to ensure we were

surveying respondents who were knowledgeable about business broadband and data options. In

particular, we included only respondents who affirmatively responded that they, with respect to

“telecommunications products and services used by [their] business, including telephone, data

and internet,” make or are involved in the decisions regarding who they use and what services

they need, or who do not make these decisions but know the providers they use and what their

options are. Respondents involved in making decisions on communications services represented

79 percent of respondents. The other 21 percent did not make the decisions but were

knowledgeable about the providers used and the options available. The survey excluded potential

respondents who said that they were “not involved in this area.” The survey also excluded

telecommunications manufacturing and services companies, given that such companies’ views

might be biased due to their interests in the business broadband marketplace.

3. The survey provides insight into business broadband and data services.

We asked respondents a series of questions regarding their business’ use of two types of

business broadband and data service: “Business Internet Access Service” and “Data Networking

Service,” which correspond to the Commission’s terms “Best Efforts” and “Business Data

Services” (BDS), respectively.14 Among respondents, 702, or 88 percent, used a Business

14 The survey questionnaire defined “Business Internet Access Service” as follows: “An Internet service marketed to businesses, typically with assurances of speed, quality, or 24/7 customer support. These services are usually used for basic Internet access or e-mail. They may be sold on a standalone basis or bundled with voice and video services. Examples include cable modem, DSL, or similar services.” It defined “Data Networking Service” as follows: “Dedicated service provided over facilities such as T1/DS-1, T3/SD-3, and dedicated fiber, including carrier-grade Ethernet service. These services are typically used for large data transfers over company networks, management of services requiring high reliability such as webinars or video conferences, or high volume Internet access.” We note that the “best efforts” services the

6

Internet Access Service and 422, or 53 percent, used a Data Networking Service. Of these, 329,

or 41 percent, had both Business Internet Access and Data Networking services; 373, or 47

percent, had Business Internet Access Service only; and 93, or 12 percent, had Data Networking

Service only.

Questions addressed how long customers have been utilizing their current provider; who

their current provider is; the extent to which customers had switched to their current provider and

when; whether they have contractual Service Level Agreements (SLAs) or other service

commitments and assurances; and how they value a range of service characteristics and attributes.

4. The survey provides special insight into cable business broadband.

Cable operators were the primary provider for a significant portion of businesses in our

sample. Of respondents with Business Internet Access Service, 45 percent identified a cable

operator as their primary service provider. Of respondents with Data Networking Service, 40

percent identified a cable operator as their primary service provider. This is not to suggest that

our survey reflects a nationally representative market share, but it does indicate that cable has a

very significant presence in the SMB business broadband and data marketplace. It also enables

us to gain insight into user perceptions and behavior in the marketplace with respect to cable

business broadband and data services.

For respondents who had a cable provider for Business Internet Access or Data

Networking Service, the survey asked whether they had switched to their cable provider, and, if

so, when they switched. The survey also asked the type of service from which the business

switched, whether another Business Internet Access Service or a Data Networking Service. For

respondents who did not have service from a cable provider, the survey asked whether they Commission focuses on are described as mass market “residential” services, Further Notice ¶ 13, while the survey reflects services used by small and medium businesses.

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would consider cable for their Business Internet Access or Data Networking Service. For the full

group of non-cable customers, including the subset that said they would not consider cable, we

asked what factors influence or would influence their willingness to choose a cable operator.

B. A Significant Number of SMBs Have Recently Switched to Cable Service Providers.

1. SMB churn over the last five years has been robust.

Most surveyed customers have changed providers within the last five years, and many

have changed providers within the last two years. Among Business Internet Access Service

customers, 49 percent have used their current Business Internet Access Service provider for

between two and five years and 19 percent for less than two years, while only 32 percent have

been with their current provider for more than five years. Among Data Networking Service

customers, 55 percent have used their current Data Networking provider for between two to five

years and 20 percent for less than two years. Only 25 percent of customers have had their current

Data Networking Service provider for more than five years.

2. SMBs are purchasing cable internet service, enabling cable providers to significantly penetrate the market.

The survey data indicate that many SMB cable customers have recently switched to

cable from other providers and that they have switched among Data Networking Service and

Business Internet Access Service. In addition, a significant majority of current non-cable

customers is willing to consider cable and only a very small portion said that they currently are

not willing to consider cable.

Among current cable Business Internet Access Service customers, when asked if they had

switched from another provider to their current provider, 36 percent said yes, and 51 percent said

no. Of the 36 percent that said they switched to cable Business Internet Access Service, 26

percent did so within the last two years, 52 percent in the last two to five years, and 22 percent

8

more than five years ago. In addition, of the 36 percent that said they switched to cable Business

Internet Access Service, 78 percent said they switched from another Business Internet Access

Service and 19 percent from a Data Networking Service.

Among current cable Data Networking Service customers, when asked if they had

switched from another provider to their current provider, 40 percent said yes and 48 percent said

no. Of the 40 percent that said they had switched, 36 percent did so within the last two years, 51

percent switched two to five years ago, and 13 percent switched more than five years ago. Of

the 40 percent that switched to cable for Data Networking Service, 70 percent switched from a

Business Internet Access Service and 28 percent from another Data Networking Service.

The survey also found that a significant majority of respondents was willing to consider

cable, while only a very small portion was unwilling to consider cable for both Business Internet

Access and Data Networking services. Among non-cable Business Internet Access Service

customers, when asked if they would consider switching to cable, 61 percent said yes, 23

percent said they were unsure, and only 16 percent said no. Among non-cable Data Networking

Service customers, when asked if they would consider switching to cable, 63 percent said yes,

24 percent said they were unsure, and only 13 percent said no.

Those who said they would not consider cable were asked to rank the factors that would

influence them to consider cable. For Business Internet Access Service, the portions assigning

“very important” rankings to the various factors were as follows: Greater Reliability, 80 percent;

Higher Bandwidth, 72 percent; Faster Service Restoration, 70 percent; Lower Cost for Cable

Business Internet, 68 percent; Better Data Security, 67 percent; Better Customer Service and

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Support, 63 percent; Contractual Service Level Agreement (SLA), 42 percent; and Different Type

of Network Facilities, 34 percent.15

Data Networking Service customers who said they would not consider cable were also

asked to rank various factors that would influence them to consider cable. The portions giving

“very important” rankings to the various factors were as follows: Greater Reliability, 81 percent;

Higher Bandwidth, 81 percent; Faster Service Restoration, 77 percent; Lower Cost for Cable

Business Internet, 67 percent; Better Data Security, 66 percent; Better Customer Service and

Support, 62 percent; Contractual SLA, 41 percent; and Different Type of Network Facilities, 31

percent.16

It is also notable that willingness to consider cable was even stronger among those who

actually make the purchasing decisions – and these decision-makers provide a more reliable

indicator than the broader sample with respect to future intentions. Among non-cable Business

Internet Access Service customers, when asked if they would consider switching to cable, 67

percent said yes, and only 13 percent said no. Among non-cable Data Networking Service

customers, when asked if they would consider switching to cable, 68 percent said yes, and only 2

percent said no.

15 These customers value the service characteristics and attributes, as opposed to certain types of facilities and contractual service guarantees, which is consistent with overall ranking of the various factors outside of the context of willingness to consider cable. However, the sample size for this subgroup that said it would not consider cable for Business Internet Access Service is fairly small (61 respondents) so there is a greater potential margin of error when interpreting the results. 16 These rankings are also consistent with overall ranking of the various factors outside of the context of willingness to consider cable. However, the sample size for the subgroup that said it would not consider cable for Data Networking Service is fairly small (32 respondents) so there is a greater potential margin of error when interpreting the results.

10

C. There is Evidence that SMBs Find Key Business Internet and Data Networking Services Attributes be Comparable and Interchangeable.

The survey asked respondents how they valued certain service attributes and

characteristics for both Business Internet Access Services and Data Networking Services. The

characteristics or attributes evaluated included: Reliability; Service Restoration Times; a

Contractual Service Level Agreement (SLA); Cost; Service and Support; Size/Reputation of

Carrier; Bandwidth/Speed; Type of Network Facilities (copper, coaxial cable, hybrid fiber-coax,

fiber); and Data Security. For each service they had, respondents were asked to rank a series of

characteristics or attributes as “very important,” “important,” or “not important.” Most of the

characteristics or attributes were given either a “very important” or “important” ranking, and few

were given a “not important” ranking. We can see relative valuation by comparing the difference

in the portion of “very important” versus “important” rankings given to each characteristic or

attribute.

1. SMBs do not seem to place a high value on particular technology types.

Surveyed customers value service characteristics rather than particular technologies.

Both Business Internet Access Service and Data Networking Service users rank service

characteristics (such as speed, service and support, reliability, and security) more highly than

particular technologies or facilities (such as copper, cable, or fiber).

Among Business Internet Access Service users, the following characteristics received

high percentages of “very important” rankings: Reliability, 91 percent; Data Security, 87

percent; Service Restoration Times, 82 percent; Service and Support, 80 percent; Bandwidth /

Speed, 80 percent. On the other hand, only 36 percent ranked Type of Network Facilities “very

important.” There was little variation between cable and non-cable Business Internet Access

Service users, with the difference typically ten percentage points or less. The only characteristics

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for which the difference between cable and non-cable in the portion of respondents giving a

“very important” ranking was greater than five percentage points were Reliability, Bandwidth

and Data Security. For these three items, the percentage point difference was closer to ten

percent, all in favor of cable.

Among Data Networking Service users, the following characteristics received high

percentages of “very important” rankings: Reliability, 89 percent; Data Security, 85 percent;

Bandwidth / Speed, 81 percent; Service and Support, 80 percent; and Service Restoration Times,

79 percent. On the other hand, only 43 percent of Data Networking Service users ranked Type

of Network Facilities as “very important.” There is little variation between cable and non-cable

Data Networking Service users, with the difference in all cases being five percentage points or

less.

Among other service characteristics, a more moderate portion of respondents ranked Cost

“very important”: 65 percent of Business Internet Access Service customers and 60 percent of

Data Networking Service customers. Relatively smaller portions of respondents ranked Size /

Reputation of Carrier and Contractual SLAs “very important.” Only 46 percent of Business

Internet Access Service customers and 52 percent of Data Networking Service customers ranked

Contractual SLAs as “very important.” Only 42 percent of Business Internet Access Service and

41 percent of Data Networking Service customers ranked Size / Reputation of Carrier as “very

important.”

2. Customers of business internet access service and data networking service value the same service characteristics.

As a comparison of the “very important” rankings above for Business Internet Access

Service and Data Networking Service shows, customers of both types of services seem to value

the various characteristics and attributes similarly. For example, the proportion giving the

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highest rankings for characteristics such as Reliability, Service Restoration Times, Bandwidth /

Speed, Service and Support, and Data Security are all relatively high. The same is the case for

characteristics or attributes receiving relatively low portions of respondents assigning the “very

important” ranking. For example, as discussed above, while there is a difference in the “very

important” ranking given to network facilities between Business Internet Access Service users

and Data Networking Service users, the difference is only seven percentage points; and, in

addition, the actual percentages are fairly low, ranging from only 36 percent for Business Internet

Access Service users to 43 percent for Data Networking Service users.

3. Most SMBs surveyed believe their service comes with some kind of service level assurances or guarantee, although many do not place the greatest value on contractual SLAs.

Of Business Internet Access Service users, 83 percent say their service comes with

service promises or assurances, such as speed, availability, and 24/7 customer support

commitments. There is little distinction between cable and non-cable Business Internet Access

Service customers, with 85 percent of cable customers and 81 percent of non-cable customers

stating they have such assurances. Of Data Networking Service customers 79 percent say their

service comes “with guarantees, such as Contractual [SLAs] that specify speed, availability, and

quality performance criteria.” Like Business Internet Access Services, Data Networking

Services show little variation between cable and non-cable customers, with 78 percent of cable

and 80 percent of non-cable customers stating they have such guarantees.

At the same time, a relatively small portion of users of Business Internet Access Service

and Data Networking Service rank Contractual Service Level Agreements (SLAs) as “very

important.” The increase is only six percentage points for Data Networking Service compared

to Business Internet Service. Rankings were as follows: for Business Internet Access Service,

46 percent, very important; 45 percent, somewhat important; 9 percent, not important. For Data

13

Networking Service, 52 percent, very important; 44 percent, somewhat important; 4 percent, not

important. As discussed above, this low “very important” ranking contrasts with the relatively

high ranking – between approximately 75 percent and 90 percent – for various other service

characteristics (e.g., Reliability, Service Restoration, Service and Support, Data Security, and

Bandwidth / Speed).

There appears to be little variation between those who are currently cable and non-cable

customers for Business Internet Access Service and Data Networking Service as to how they

value Contractual SLAs. For each of these categories, approximately 40 percent-50 percent of

respondents ranked Contractual SLAs as “very important.” Among cable Business Internet

Access Service customers, 46 percent ranked Contractual SLAs as “very important,” compared to

41 percent for non-cable Business Internet Access Services customers. Among cable Data

Networking Service customers, 50 percent ranked Contractual SLAs as “very important,”

compared to 52 percent for non-cable Data Networking Service customers.

D. The Survey Invalidates the Commission’s Conclusion that Certain Business Internet Access Services are not in the Same Product Market as BDS.

The survey data contradict many of the Commission’s “key beliefs” and the underlying

assumption that “best effort” Internet service is in a different product market than BDS. For

example, the Commission in the Further Notice states, “[c]ompared with BDS, best effort

services are less reliable, notably in terms of guaranteed uptime, and other service level

guarantees” and “in some cases do not offer higher bandwidths.”17 Yet, our survey demonstrates

that SMB customers who have chosen Business Internet Access Service value Reliability and

Bandwidth as highly as Data Networking Service customers. 91 percent of Business Internet

Access Service customers and 89 percent of Data Networking Service customer rank Reliability

17 Further Notice ¶ 191.

14

as “very important” in their choice of service. 80 percent of Business Internet Access Service

customers and 81 percent of DNS customers rank Bandwidth / Speed as “very important.”

Moreover, as discussed below, with similar churn rates for Business Internet Access Service and

Data Networking Service, there is no indication that there are materially different levels of

customer satisfaction among the two service types.

The Commission also states that “customers would be unlikely to be tempted to switch to

a best efforts service even if its price were to fall by a significant amount. It also suggests a

customer currently purchasing a best efforts service would not switch to a BDS with a price of

several multiples of the best efforts service, even if the BDS price were to fall significantly.”18

Yet, our survey data show that SMB customers have switched from Data Networking Service to

Business Internet Access and vice versa over the last five years. As discussed above, only

approximately one-third of Business Internet Access Service and one-fourth of Data Networking

Service customers have been with the same provider for more than five years. The rest have

changed providers in the last five years, with about one-fifth of both Business Internet Access

Service and Data Networking Service customers having switched in the last two years.

At the same time, and even more directly pertinent to the Commission’s prediction

regarding switching among service types, among current cable customers, 19 percent of those

who switched to a cable Business Internet Access Service have switched from a Data Networking

Service. Of those switching to a cable Data Networking Service, 70 percent switched from a

Business Internet Access Service while 28 percent switched from another Data Networking

Service. So, cable operators appear to be winning customers who are switching among Business

Internet Access and Data Networking service types, as well as winning customers of the same

service type. Moreover, although prices for a range of business broadband and data services have 18 Further Notice ¶193.

15

been falling,19 the Commission offers up a blanket conclusion unsupported by customer data that

such price changes are not a factor driving switching, even at the margins.20

The Commission also states in the Further Notice that, “the characteristics of best efforts

service and BDS appear to be very different. BDS comes with substantial reliability guarantees

and functionality that do not accompany best efforts services, leading us to the view that the two

services do not play important roles in constraining the quality-adjusted prices of each other.”21

Yet, as discussed above in section C.3., our survey data show that very large portions of Business

Internet Access Service (83 percent) and Data Networking Service (79 percent) customers –

approximately four-fifths for each, with little variation among the two types of services – believe

their service comes with some kind of service assurance or guarantee. At the same time,

relatively small portions of customers value Contractual SLAs as “very important” with little

variation among Business Internet Access Service (46 percent) and Data Networking Service (52

percent). This suggests that perhaps SLAs are not so important because they are surrogates for

more directly important and more directly valued characteristics, such as reliability and security.

The Commission also states that, “[c]onsistent with the observed price differences

between the different types of services, some end users do not require ‘mission critical’

connectivity, and prefer best efforts services to BDS, prioritizing cost savings over reliability and

specific functionality.”22 Yet, the USTelecom survey finds that Business Internet Access Service

users as well as Data Networking Service users appear to value factors such as Reliability and

Data Security over Cost – and, again, there is not much variation among the service types. If the

19 See, e.g.,Vertical Systems Group, @Ethernet Pricing, Overview (2016) (subscription service) (indicating that U.S. retail Carrier Ethernet pricing fell by double digit rates for all services across all speeds between 2010 and 2015). 20 Further Notice ¶193 21 Further Notice ¶194. 22 Id.

16

Commission’s analysis was correct, we would presumably see relatively greater portions of

Business Internet Access Service customers ranking Cost as “very important” and a relatively

smaller portion of Business Internet Access Service customers ranking factors such as Reliability

and Data Security as “very important.”23

Based on the USTelecom survey, there appears to be a significant amount of churn among

business users. In addition, many SMB customers (41 percent of the sample) are using both

Business Internet Access Services and Data Networking Services. Along with the discussions

above about how customers rank Contractual SLAs and different Types of Facilities, this puts

into question the idea that there is a clear demarcation point between discrete Business Internet

Access Services and Data Networking Services, as the Commission claims, and that pricing (or

innovation) in one area does not influence customer activity in the other. To the contrary, the

Commission appears to be drawing hard distinctions based on very small variations along a

spectrum of business customer preferences.24 Similarly, the churn data also appear to contradict

claims that SMB customers are locked in and that there are entrenched incumbents with market

power. Finally, the data from our survey indicating that there has been a significant amount of

churn and switching, especially in the last two years, suggest that the FCC’s 2013 data cannot

accurately reflect current market conditions.

23 See Section B.2., supra, showing that customers rank Cost in the 60-65% range and rank Reliability and Security in the 80-90% range, for both Business Internet Access Service and Data Networking Service. 24 See Paul de Sa, Bernstein, “U.S. Telecom: A Primer on the $70B Enterprise Telecom Market (Cable’s Opportunity – Telco’s Loss?)” (Jul. 16, 2015) at 3-6 (showing strong penetration by competitive providers, especially cable, and a high degree of variation in demand characteristics such as employees per location, among small and medium businesses in the 10-100 employee range).

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Finally, the Commission suggests that competition may be lacking below a certain speed

threshold, such as 50 megabit per second, and seeks comment on that conclusion.25 Our survey

of SMBs indicates that that competition is present at all levels of BDS offerings, and there does

not appear to be such a threshold below which there is a lack of competition. Such a conclusion is

common sense. Cable networks are among the most widely deployed and available networks in

the U.S., and SMBs are the customer group that cable has targeting the longest, as much as a

decade or more ago for some cable operators. According to the cable industry, today it offers

facilities that “serve, or are capable of serving,” business customers in “virtually any area with

special access [BDS] demand.”26 Moreover, as USTelecom has shown on the record in this

proceeding, cable operators have been deploying fiber and Ethernet services as a rapid pace since

2013.27 The prevalence of cable networks capable of providing SMBs with business broadband

and Ethernet-based data services over fiber or hybrid fiber-coax network facilities implies

widespread competition for services at lower speeds, as Ethernet over HFC often includes lower

bandwidth services (typically up to 10 megabits per second upload and download)28 and fiber is

scalable.

25 See, e.g., Further Notice ¶ 285. 26 Reply Comments of the National Cable & Telecommunications Association, WC Docket 05-25, RM-10593, at 14 (Feb. 19, 2016). 27 See Reply Comments of United States Telecom Association, WC Docket 05-25. RM 10-593, at 9 and n.31 (Feb. 19, 2016) (providing a non-exhaustive list of metro areas where Comcast has deployed Ethernet since 2013 through early 2016). 28 See, e.g., Comcast Business, Ethernet over HFC, http://comcast.x4knowledgebase.com/view/content/XGcZQ (last visited Jun. 28, 2016) (“SERVICE SPEEDS: 2 Mbps; 4 Mbps; 6 Mbps; 8 Mbps;10 Mbps”); Time Warner Cable Business Class, Time Warner Cable Business Class Announces Major Enhancements to its Ethernet Services Portfolio (Sep. 2014), https://business.timewarnercable.com/resource-center/news/twcbc-announces-major-enhancements-to-its-ethernet-services-portfolio.html (last visited Jun. 28, 2016) (“Flexibility and scalability: Increased number of speed tiers, delivered over Hybrid Fiber-Coax (HFC) for 512k – 10 Mbps….”); Spectrum Business (Charter), Ethernet, https://business.spectrum.com/content/business-ethernet#coax (last visited Jun. 28, 2016) (“Symmetric speeds from 1M to 5M; Asymmetric speeds up to 30M/3M”).

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III. THE COMMISSION’S COMPETITIVE DETERMINATIONS MUST BE DATA-DRIVEN, NOT OUTCOME-DRIVEN.

The rhetoric from CLECs claiming steep wholesale input prices and insurmountable ILEC

market power has been relentless, and has been the driving force behind this proceeding from day

one. Despite consistent evidence that ILECs have steadily lost BDS market share while CLECs

have steadily gained market share since they began entering the special access business in the

mid-1980s and now earn more than half of BDS revenues,29 the Commission seems to be

persuaded more by the rhetoric than by the facts. For example, the facts show that ILEC BDS

market share is at an all-time low and falling. The facts show the trend of easing monopoly-era

regulation to reflect existing and growing competition has worked to increase competition, and

thus should be expanded rather than be pared back. The facts also show that CLECs are doing

just fine competing, especially where they choose to invest.

“Where competition exists, there is little for government to do except maintain the

traditional oversight of telecommunications services.”30 Those are the Commission’s words, and

we wholeheartedly agree with them. In the multichannel video programming distributor (MVPD)

services context, the Commission seems to have taken those words to heart, having declared that

cable operators are now subject to effective competition based on DBS providers’ capture of

almost 34 percent of MVPD subscribers, and easing regulations on them as a result.31

Competitive BDS providers, by comparison, appear to be exceeding the performance of their

satellite counterparts by a comfortable margin; CLEC and cable competitors control over 45

29 Rysman Paper, Table 1. 30 Further Notice at ¶ 5. 31 See Amendment to the Commission‘s Rules Concerning Effective Competition, Implementation of Section 111 of the STELA Reauthorization Act, Report and Order, MB Docket No. 15-53 (rel. Jun. 3, 2015).

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percent of business lines,32 and take home 51 percent of all standalone BDS revenues.33 The

competitor revenue share is especially significant, despite unsubstantiated claims by the

Commission that a substantial share of those revenues are probably from circuit-based, resold

ILEC UNE lines, and as a result competitive provider revenues are overstated.34 But even if

some portion of competitor revenues are from resold facilities, that is nevertheless a form of

competition that has allowed competitive providers to earn over half of retail revenues.

Moreover, the Commission cannot continue to promote and facilitate (through regulation) the

availability of UNEs as a price-controlled alternative for competitors, but at the same time

discount the value of competitor revenues gained through such resale. If UNE resale is, as the

Rysman Paper states, “a relatively weak form of competition for ILECs,” then the Commission

should adopt policies that will ensure the phasing out of UNEs in favor of a more rapid and

sustainable transition to facilities-based competition.

So, by these measures, there is more evidence of a competitive BDS marketplace than

there is of effective MVPD competition. We urge the Commission to follow its own lead in this

context as it decides how much BDS competition is enough to trigger a hands-off approach

similar to what it has adopted in the MVPD context.

A. The Commission’s Existing Competitive Analysis Cannot Form the Basis for Regulating the BDS Marketplace.

The Commission’s analysis of the extent of BDS competition in the Further Notice is

based on its analysis of the 2013 data collection and stakeholder comments.35 It was recently

revealed that the data upon which the analysis is based significantly underrepresents the number 32 See Attachment to Letter from USTelecom to Marlene H. Dortch, Secretary, FCC, GN Docket No. 13-5, WC Docket No. 05-25 (Jun. 24, 2015). 33 Rysman Paper, Table 1. 34 See id.(explaining that revenue shares reflected in Table 1 “overstate the competitive presence of [competitive providers]”). 35 Further Notice ¶ 160.

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of locations with cable provider facilities that provide or are capable of providing BDS in the

form of Metro-Ethernet service. This omission is far from negligible; there are 22 times more

such locations than originally reported, which represents 9 million business locations.

This revelation calls into question the price study and other economic analysis in the

Rysman Paper that forms the basis of most or all of the Commission’s assumptions and the

resulting proposals. Perhaps it does not, as the Bureau asserts, change the conclusion “that there

is evidence that local competition affects BDS prices.”36 But this is not news – we did not need a

data collection to figure that out because we already knew that local competition always affects

telecommunications service prices. This new data will, however, directly affect a central

component of the analysis underlying this proceeding – the Commission’s determination of the

number of areas deemed to be competitive. To illustrate the significant role this new data could

play, let us presume that the Commission will decide that areas with X (number of) facilities-

based BDS competitors will be deemed “competitive” because sufficient competition exists. If

we further presume ubiquitous ILEC presence and no CLEC presence, and if X equals two, then

there are 9 million more locations that could be deemed “competitive” with the new data than

without. The implications of not taking these new data into account before determining things

like what the competitive test will entail and how prices are affected by the presence of

competition in the areas are enormous.

A motion asking the Commission to strike the Rysman Paper and other analysis that relies

on a data set that excludes the newly filed information37 more clearly demonstrates the

significance of this data omission. The bureau denied that motion, explaining that the existing

36 Business Data Services in an Internet Protocol Environment, Order, WC Docket Nos. 16-143, 15-247, 05-25, RM-10593 (Jun. 8, 2016) (Extension Denial Order). 37 Motion to Strike, WC Docket Nos. 16-143, 15-247, 05-25, RM-10593 (filed Jun. 17, 2016).

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comment period provides sufficient time for stakeholders “to account for the updated cable data

in their ongoing analysis.”38 But that is little comfort, and it certainly is no cure; the problem is

with the Commission’s analysis. Everything in the Further Notice is based on the analysis of

incomplete data, and stakeholders cannot replicate the Commission’s analyses because they do

not, and will not, have access to the same full set of data used by the Commission and its

consultant.39 As we stated in comments supporting the motion to strike, the Commission itself,

or its consultant, must rerun the analyses and provide time for stakeholders for peer review and

comment.40 Moving forward without taking into account the new cable BDS deployment data

would be reversible error.

B. Claims That ILECs Have Competitive Advantages Outside of Their Regions and In Greenfield Situations are Unsubstantiated.

CLEC tales of woe claiming that they cannot compete with ILECs to provide BDS do not

hold water. The data collection has debunked their claims of suffering at the hand of ILECs in

large part by demonstrating that competitors in 2013 earned 51 percent of all standalone BDS

revenues.41 We submit that this is not a “cannot” problem, but a “will not” problem. The

Commission says as much: non-cable competitive LECs typically do not deploy ubiquitous

networks, but rather they “target deployment in dense urban areas in response to significant

business demand for BDS,” deciding on a case-by-case basis where to build to maximize their

return on investment.42 Incumbents are vilified when they engage in such targeted business

decision-making, which amounts to “cherry-picking” to serve only where they have decided it is

38 Extension Denial Order ¶ 10. 39 See id. (explaining that the Commission will not provide access to certain raw data to mitigate risk to critical infrastructure). 40 See Comments of the United States Telecom Association in Support of CenturyLink et al’s Motion to Strike, WC Docket Nos. 16-143, 15-247, 05-25, RM-10593 (filed Jun. 23, 2016). 41 See Rysman Paper, Table 1. 42 Further Notice at ¶ 54.

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profitable. Yet somehow it is acceptable for CLECs to forego facilities investment where they

could build, but their business models show a richer return from using ILEC facilities. In a truly

technology-neutral environment, the Commission must no longer facilitate CLECs by making it

profitable to rely on resale where investment is achievable.

The Commission long ago made clear its preference for limiting reliance on competitors’

use of ILEC facilities in favor of facilities-based competition in the Triennial Review

Proceeding.43 Specifically, the unbundling rules were designed “to remove unbundling

obligations over time as carriers deploy their own networks and downstream local exchange

markets exhibit the same robust competition that characterizes the long distance and wireless

markets.”44 Chairman Wheeler recently confirmed that preference for facilities-based

competition, stating that “competition is a facilities-based issue, it is not an ersatz unbundling

issue,”45

In any event, the advantages CLECs and others claim ILECs have by virtue of their

incumbency do not necessarily hold true out-of-region, where they are competitors just like other

CLECs. This is also the case in so-called “greenfield” or new build situations. In such instances,

incumbents must compete head-to-head with other competitors to build infrastructure from

ground zero. The Commission agrees, recently rejecting competitors’ contentions that they are

not on equal footing with incumbents when seeking to deploy facilities in greenfield areas, and

43 See generally Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Deployment of Wireline Services Offering Advanced Telecommunications Capability, Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, FCC 03-36, 18 FCC Rcd. 16,978 (2003) (TRO); Unbundled Access to Network Elements, Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Order on Remand, FCC 04-290, 20 FCC Rcd. 2533 (2005) (TRRO) (collectively Triennial Review Proceeding). 44 TRRO, 20 FCC Rcd. at 2536, ¶ 3. 45 Ars Technica “Why Tom Wheeler rejected broadband price caps and last-mile unbundling,” Mar. 16, 2016 (available at http://arstechnica.com/business/2016/03/why-tom-wheeler-rejected-broadband-price-caps-and-last-mile-unbundling/).

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finding ILECs to have no overall advantage over competitors in terms of costs and relationships

with owners, prospective customers, and municipalities.46

CLECs have also asserted that ILECs are at a significant advantage because of their

national footprints and “deep pockets” that give them an automatic advantage over competitors.

But that claim has never, to our knowledge, been substantiated and is facially absurd given that

many of the “MegaCLECs” doing the complaining have national footprints themselves and are

leaders in the provision of competitive Metro-Ethernet services.47

IV. THE COMMISSION MUST EXERCISE REGULATORY RESTRAINT AND PROVIDE INCENTIVES FOR INVESTMENT.

A. The Competitive Market Test Should Encourage Investment by Adjusting to Market Changes As They Become Evident.

If the Commission’s competitive determinations are to be data-driven, there should be

sufficient flexibility for regulation to change as market conditions change. The Commission

proposes to reapply whatever competitive market test it settles on every three years, stating that

“[a] periodic reassessment reduces burdens on providers as well as the Commission and balances

the need to ensure accurate data.”48 This would coincide with a data collection every three years.

46 See Petition of USTelecom for Forbearance Pursuant to 47 U.S.C. § 160(c) from Enforcement of Obsolete ILEC Legacy Regulations That Inhibit Deployment of Next-Generation Networks, et al., WC Docket Nos. 14-192, 11-42, 10-90, Memorandum Opinion and Order, ¶ 79 (rel. Dec. 28, 2015) (“we agree with USTelecom that both incumbents and competitive LECs are subject to the same permitting and legal requirements for the construction of entrance conduit in new developments, and that both have incentives to build out entrance conduit in greenfield areas when it is justified by new revenue opportunities”). 47 See USTelecom BDS Comments at 8-9 (describing how “MegaCLECs have reshaped the marketplace, boasting footprints that stretch from coast to coast.”). For example, Level 3 is now the second largest Ethernet provider in the country, surpassing two of the three major ILECs, Verizon and Century Link, and trailing only AT&T. See id. at 9 (citing Vertical Systems Group, Mid-Year 2015 U.S. Carrier Ethernet LEADERBOARD (Aug. 24, 2015), http://www.verticalsystems.com/vsglb/mid-year-2015-u-s-carrier-ethernet-leaderboard/). 48 Further Notice ¶ 299.

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We agree that consideration of up-to-date competitive data is an important part of the

regulatory framework, but believe a more tailored approach would be preferable to repeating a

massive data collection every three years. At the same time, however, the Commission must base

any new regulations on the most current data available, including data that are not reflected in the

2013 data collection. For example, USTelecom has submitted data showing cable fiber and

Ethernet deployments and CLEC fiber deployments since 2013.49 In these comments, we are

submitting additional, up-to-date survey data showing substantial churn and customer switching

in the last two years, as well as a willingness to switch to cable in the future.

Regulations based on data that are known to be outdated and unreflective of current

market conditions do not reflect the kind of sound, forward-looking decision-making required of

agencies. Old data are old data, and the Commission’s plans to eventually update its rules based

on new data are insufficient. Even if the Commission undertakes a new data collection in 2018

based on a collection of 2017 data, it is unlikely to issue new rules until 2019 or 2020, and

possibly later given the history of the current proceeding. The decisions the Commission makes

today are likely to be in effect for a very long time and, therefore, it is critical that the new rules

reflect current and expected market conditions based on the record.

At the same time, parties should be able to demonstrate competitive entry to get relief

from regulation as soon as feasible where they can credibly assert that an area has become

competitive and would be deemed so under the competitive market test. A challenge process, as

proposed by the Commission, seems like a feasible way to accomplish this.50 The burden of

showing that regulatory relief is warranted should be less than the burden for imposing more

49 See generally Comments of the United States Telecom Association, WC Docket No. 05-25, RM-10593 (Jan. 28, 2016); Reply Comments of the United States Telecom Association, WC Docket No. 05-25, RM-10593 (Feb. 19, 2016). 50 Further Notice ¶ 302.

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regulation. Otherwise there will be perverse incentives for parties to forgo or decrease offerings

for the purpose of increasing regulatory burdens for their facilities-based competitors. The test

for regulatory relief should mirror the initial competitive market test by taking into account the

same factors to ensure that areas that later gain competitive status are on equal footing as those

originally deemed competitive.

This would be a good start. We would also propose, in addition, that the Commission

consider an alternative mechanism that could work similar to how the unbundling regime was

intended to work, which proved to be successful in providing incumbent LECs incentive to build

next generation, IP-based broadband facilities with the promise that those IP-based facilities

would not be subject to unbundling.51 In that proceeding, the Commission sought to avoid

undermining the incentives of both ILECs and new entrants to invest in new facilities and deploy

new technology52 by adopting an approach that allowed for greater unbundling for legacy copper

facilities and more limited unbundling for next-generation network facilities to stimulate

competition.53 The goal was to decrease the need for unbundling and other ILEC regulation as

markets become more competitive due to increased facilities-based competition, so at some point

regulation would cease altogether.

As noted before, the Commission should no longer facilitate or encourage competitors

who could, but choose not to deploy their own facilities to compete for BDS customers. One way

to wean competitors off the use of their competitors’ facilities as a primary business plan would

be to time limit their ability to lease those facilities at regulated rates. For example, for areas

initially deemed non-competitive, the Commission would assess whether that is because there are

51 See generally Triennial Review Proceeding, supra n.43. 52 TRO, 18 FCC Rcd. at 16,984, ¶ 3. 53 Id. at ¶ 200; see also TRRO, 20 FCC Rcd. at 2535, ¶ 2 (noting the additional steps it was taking “to encourage the innovation and investment that come from facilities-based competition”).

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enough business customers to sustain multiple providers such that they would not likely become

competitive over time even if providers were to build facilities, except as enterprise or other

business move in and demand services. If not, however, and there are enough business customers

to sustain multiple facilities-based competitors, the Commission would place a time limit on how

long competitors may lease the facilities of others at regulated prices. This would enable them to

compete on reasonable terms with relatively low barriers to entry, and provide an opportunity to

make a reasonable profit and win customers. Incorporating a mechanism whereby regulations

would sunset after a reasonable period of time where competitors have chosen not to replace

leased facilities is an equitable way to balance the goals of competition and increasing

investment. The advantage of such a mechanism is apparent, and it would send competitors a

clear message that, in Chairman Wheeler’s own words, competition is a facilities-based issue, and

CLECs that continue to rely on buying capacity from their competitors will never win.54

B. The Commission Must Ensure That Regulation Promotes a Path to Facilities-Based Competition.

Even in areas that are deemed competitive, and thus should be left to function under

market forces, the Commission proposes to impose some new rules on markets that go beyond

the general common carrier requirements applicable to all such providers such as sections 201

and 202 of the Telecom Act. For example, the Further Notice proposes to limit the use of

nondisclosure agreements in BDS commercial agreements. It also seeks comment on whether to

prohibit certain conditions found unlawful in the Tariff Investigation Order regarding all-or-

nothing provisions, shortfall penalties, and early termination fees.55

54 Ars Technica “Why Tom Wheeler rejected broadband price caps and last-mile unbundling,” Mar. 16, 2016 (available at http://arstechnica.com/business/2016/03/why-tom-wheeler-rejected-broadband-price-caps-and-last-mile-unbundling/). 55 Further Notice ¶ 312.

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Imposing specialized regulation in areas that the Commission has deemed to be working

well under competitive forces is a step backward, and would only serve to reinforce what has

become an inefficient competitive structure perpetuated by the Commission’s policies and

regulations under which it is easy for competitors to enter and stay in the BDS market without

putting skin in the game. To illustrate, of the 604 entities that filed special access data as part of

the 2013 data collection, 20 identified themselves as ILECs, while 553 identified themselves as

competitive providers, 373 of which identifired as CLECs.56 We question whether an efficient,

competitive market could, without regulatory intervention, sustain so many small, non-facilities-

based competitors that, in all but the most dense urban areas, rely heavily on UNEs and other

leased facilities “in response to significant business demand for BDS.”57

One reason CLECs may, in the Commission’s view, lack economies of scale to overbuild,

and instead invest in transport and rely on leased lines to connect to end users58 is because the

Commission’s regulations prop up a business model where scale matters less, and that is founded

on short-term approaches. But we also know that leasing of UNEs at regulated rates was never

intended to be a long-term, permanent solution to ensure competition. To the contrary, UNE

rates are based on forward-looking costs, and are typically lower than ILEC rates for regulated

DS1 and DS3 services “to facilitate competition through facilities-based entry into local

markets.”59 Although UNEs, where available, provide an alternative for special access service

that could to some extent constrain special access price increases, where UNEs are not available,

competing carriers have invested heavily in facilities,60 which enables them to meet the demands

56 Further Notice, ¶ 42. Thus, CLECs outnumber ILECs by a ratio of almost 28:1. 57 Id. ¶ 54. 58 Id. 59 Id. ¶ 56. 60 See SBC Communications Inc. and AT&T Corp. Applications for Approval of Transfer of Control, Memorandum Opinion and Order, 20 FCC Rcd. 18290, 18320 ¶ 55 (2005).

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of larger business customer who are aware that they have alternatives to ILEC services and seek

them out.61 The Commission should encourage this type of forward-looking behavior, which

promotes a sustainable path to competition, rather than regulate in a manner that would take away

incentives to invest.

V. CONCLUSION.

In light of evidence in the record of this proceeding showing that competition is present at

all service levels the BDS market, the Commission must ensure that any regulations it adopts will

promote and expand that competition, as well as ensure that all providers have incentives to

invest in the modern fiber and IP networks that businesses demand.

Respectfully submitted, UNITED STATES TELECOM ASSOCIATION

By:

Jonathan Banks Patrick Brogan Diane Griffin Holland 607 14th Street, NW, Suite 400 Washington, D.C. 20005 (202) 326-7300

June 28, 2016

61 See, e.g., Application of WorldCom, Inc. and MCI Communications Corp. for Transfer of Control of MCI Communications Corp. to WorldCom, Inc., Memorandum Opinion and Order, 13 FCC Rcd. 18025, 18064 ¶ 65 (1998) (finding that larger business customers are knowledgeable consumers that will have competitive alternatives to the largest three incumbents).

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APPENDIX

30

Business Retail Customer Survey Methodology

The research was conducted by Market Strategies International, a market research consultancy with deep expertise in the consumer & retail, energy, financial services, healthcare, technology and telecommunications industries. Founded in 1989, Market Strategies employs more than 300 consultants, researchers, statisticians and project managers and specializes in brand, communications, CX, product development, segmentation and syndicated research. Please visit www.marketstrategies.com for more information. For this research, Market Strategies collected (approx.) 800 interviews using trusted online panel partners to provide the sample. (The panel partners for this effort were: Branded Research, Innovate, and ROI Rocket). To ensure the inclusion of a broad mix of companies, we employed quota targets of 400 interviews for small companies (5 to 24 employees) and medium companies (25 – 100 employees). Within those broad categories we further targeted between 150 and 250 interviews for each of our company size strata: 5-9 employees, 10-24 employees, 25-49 employees, and 50-100 employees. Our panel partners took steps to support this design by strategically sending invitations in alignment with our desired sample composition. Also, we “soft-monitored” for well-balanced geographic distribution. As with any non-probability sample, the results of this survey sample cannot technically be considered to be representative of a population of interest. This is due to the self-selected nature of opt-in online panels. Not all members of the population of interest self-select into the panel, and as such didn’t have an opportunity to be sampled. However, given the extremely low response rates achieved in many market research studies relying on probability samples, we determined that use of an online panel was the best approach to obtain a sufficient sample size to meet the analytical needs of the study within the study’s cost and timeline constraints. Other Stats: Study was fielded April 28 – May 9th

Questionnaire length for completed interviews: 6.37 mins

Interviews Completed 5-9 employees 184 10-24 employees 211 25-49 employees 201 50-100 employees 199 Total 795

Screeners Employed:

a) 18 years or older, Full time employment, No Telecom Mgr or Svcs, ALL b) Level of involvement in the telecommunications products and services used by your business,

including telephone, data, and internet? Either:

1. I make or am involved in the decisions regarding who we use and what services we need; (628) 2. I do not make these decisions but I know the providers we use and what our options are (167)

c) Type of services do you have at your business location? Business Internet access service (702) Data networking service (422) Both: 329