Small Business Saturday and the Broadband Ladder to the Top

Small businesses have many nicknames: America’s economic growth engine, mom and pop, pre-IPO, or startup. But no matter what you call them they are an indispensable ingredient to our economy.  Besides employing half of the private sector workforce in our country, the U.S. Small Business Administration says that these employers also create seven of every ten new jobs. 

On Small Business Saturday we thank them with our support, and join them in serving our communities. Over 50 percent of the dollars you spend at a small business stay in your neighborhood. And when you tweet about your purchase using the #Shopsmall hashtag, you both shop locally and share globally.

Twitter is a great example of a broadband fueled start up. The company that encourages expressions of 140 characters has thrived on access to ubiquitous and affordable broadband platforms – successfully completing its IPO earlier this month.  Without broadband we have no Twitter (or YouTube, or Pinterest, or Scribd, or…well you get the picture). 

The Broadband Coalition recently released a report called “Broadband Driving Small Business Forward.” Whether your company HQ is based in your home, garage, dorm room or an office park, the report details examples of how broadband makes the wheels of commerce turn.

But like with all other expenses, there is a disproportionate telecom cost for small businesses versus large businesses.  And to help curb those costs, we need to ensure that there is a properly competitive telecom marketplace that is responsive to the needs of our small businesses and helps to drive down the cost of this critical resource. 

Since their birth of the competitive telecom marketplace over a decade ago, when “broadband” meant a T-1 connection and speeds of 1.5 megabits per second (Mbps), competitive providers have been on the cutting edge of innovation, nimbly tailoring their services to the small businesses that are well below the radar of the big telecom megaliths. 

These competitive startups brought innovations like VOIP, Ethernet and the cloud to market. Today many have grown into household names by helping small business tailor their growth needs - providing telephone, high speed data and cloud computing. Competitive broadband makes it their business to serve businesses. 

Today, thanks to competition-fueled innovation, we talk about bandwidth speeds in the tens, if not hundreds, of megabits.  And thanks to the pro-competitive framework that Congress passed in 1996, many businesses that have their choice of providers.

But the big guys don’t always like the small guys. In the broadband industry, competition laws are always under assault. Just Monday, AT&T told the FCC it’s going to raise rates for high capacity business connections by 15 to 25 percent. The FCC only has until Dec. 10th to stop AT&T’s rate hike. If you are a small business and would like to help, please tweet and sign our petition at now.

AT&T’s rate hike will put the 29 million small businesses across America at risk. Less competition means fewer choices as your business grows. It’s pretty simple. When there is true market-based competition, prices for broadband go down and small businesses can move up the ladder of success. 


Wheeler Hits the Ground Running on Technology Transitions

Broadband Coalition Releases Statement in Support of FCC Chairman’s Goals 

WASHINGTON DC (November 20, 2013) – Yesterday Tom Wheeler, Chairman of the Federal Communications Commission (FCC) posted comments on the FCC blog entitled, “The IP Transition: Starting Now.”

In response to Wheeler’s comments, Chip Pickering, a former Member of Congress and spokesperson for the Broadband Coalition, released the following statement:

“FCC Chairman Tom Wheeler has hit the ground running, and he’s got competition, innovation and access on his relay team.

“The competitive broadband community brought IP technology to the small business market.  These innovations have both created jobs and transformed how America does business.

“We welcome immediate FCC action built on the principle of competition. We welcome any test that fosters innovation. We welcome any policy reform that keeps our customers connected to services that are both flexible and affordable. 

“The ‘Network Revolution’ that Chairman Wheeler describes is about the future, but any game plan for the IP transition without measures focused on ensuring competition would simply be an AT&T time capsule from the past.

"We know what the world looked like before Congress opened our telecom markets to competition, ending a 100-year old Bell monopoly system.

"What followed redefined the telecommunications landscape -- for the better -- and we must never go back.  The FCC has the tools to ensure competition and Tom Wheeler has the vision to effectuate it.”


Competition Driving Evolution of Wired Communications

Big Telecom Attempting to Slam Door on Innovation

WASHINGTON DC (October 23, 2013) – Today the House Energy and Commerce Committee will hold a hearing entitled, “The Evolution of Wired Communication Networks,” to examine the current and future state of communications systems. The hearing will feature testimony from competitive provider TelNet and the incumbent giant AT&T.

In reference to the hearing, Chip Pickering, former Member of Congress and spokesperson for The Broadband Coalition, released the following statement:

“We applaud the House Energy and Commerce Committee for holding this important hearing on the evolution of wired communications and for featuring innovator and entrepreneur Mark Iannuzzi from the competitive carrier TelNet Worldwide.

“Before Congress passed smart, bipartisan telecom laws in 1996, innovation was locked behind the secretive walls of Bell Labs. But as a result of federal reforms, competitive carriers brought industry-leading advancements, such as VOIP, Ethernet and the Cloud to market.

“By opening markets, Congress opened the door to new ideas from entrepreneurs whether they were working from their garage, dorm room, or an office park. These ideas have led to billions of dollars of competitive carrier investments in new communications service offerings.

“Innovation has not only been limited to new ideas. It’s exhibited in the work done by competitive providers who have found solutions to more efficiently integrate networks. This saves American small and medium sized businesses money and provides them with the flexibility for growth.

“AT&T’s latest effort to raise rates on business customers, both small and large, by eliminating longer term discounted rates, is a prime example of the telecom giant's massive market power. AT&T’s vision of the future would slam the garage door on new ideas and undermine substantial investments made to offer robust communications services to businesses along the last mile of our telecommunications infrastructure.

“Preserving last mile access and technology neutral interconnection is critical to ensuring that the telecommunication market remains open as we move into an IP environment.”


Kovacs’ Big Bell Funded Study Rings False

In a recent paper entitled “Telecommunications competition: the infrastructure-investment race,” Anna-Maria Kovacs, an advocate for the large incumbent LECs, continues the unconvincing refrain that regulations applying to large incumbent LECs’ legacy wireline operations should be eliminated in all markets.  

Like other large incumbent LEC advocates before her, Kovacs maintains, without meaningful factual support, that these regulations prevent the LECs from efficiently competing with other network owners, and indicates that only intermodal competition (competition between different platforms such as between cable and large incumbent LEC) yields real benefits.  

But in trying to make this case, Ms. Kovacs gets several important facts wrong and fails to recognize crucial differences between residential and business markets.  Once these inconvenient truths are acknowledged, the need for targeted policies to address large incumbent LECs’ monopoly over broadband connections to American businesses becomes clear as day.    

To begin with, the paper includes numerous inaccurate and misleading assertions that leave the reader thinking that telecommunications regulation always undermines investment and competition.  But this is simply not so.  For example: 

  • Kovacs repeatedly asserts that, when large incumbent LECs seek to replace copper with fiber and circuit-switched services with superior IP services, existing regulations prevent them from doing so.  But the FCC’s rules do no such thing.  The rules allow large incumbent LECs to prove that the new services are adequate substitutes for the old and that the transition is in the public interest.  If they do so, the incumbents need only notify customers using legacy services and allow for a transition period to the new services.  The rules do not require that copper be retained, and they do not require that legacy services be retained.  The problem is not the rules, it is that the large incumbent LECs however, have tried to exploit the technology transition (which, incidentally, they are not yet ready to implement in most locations) to escape even the duty to comply with the existing, entirely reasonable discontinuance process.  
  • Kovacs further claims that existing regulations are forcing large incumbent LECs to disproportionately invest in obsolete copper networks.  But the facts belie this claim.  As AT&T stated back in 2009, “[a]pproximately two-thirds of AT&T’s 2009 investment will extend and enhance the company’s wireless and wired broadband networks to provide more coverage, speed and capacity.”  These types of investments allowed researchers to conclude in 2011 that “the major telephone companies have [clearly] shifted wireline capital from their ‘legacy’ telephone networks to wired broadband.” 
  • Kovacs asserts that the Internet is the “most successful progeny of the” 1996 amendments to the Communications Act and that those amendments left the Internet to be “unregulated.”  In fact, the Internet was the “progeny” of a government program (the so-called ARPANET) funded and overseen by the Department of Defense; it is a product of government regulation.  Moreover, the 1996 amendments did not mandate that it be “unregulated.”  In fact, in adopting regulations governing the Internet in its Open Internet proceeding, the FCC relied primarily on Section 706, one of the 1996 amendments.
  • Kovacs implies that copper networks are used to provide only circuit-switched services, not IP services, and that retaining these facilities is always inefficient.  This is of course untrue. Copper facilities are used to provide IP-based services throughout the country.  In fact, AT&T uses copper end user connections to provide its U-verse service, its most cutting-edge consumer broadband, IP service, and competitive carriers, like XO, have used copper to provide Ethernet services to business customers for years.  

Furthermore, Ms. Kovacs treats the markets for residential services and the markets for business services as one in the same, but they are as different as the markets for convertible sports cars and 18 wheelers.  Businesses need much more robust, reliable, and secure wireline connections than can be delivered via the wireline or wireless services targeted to residential customers.  And, there still is relatively little intermodal competition in the provision of business services.  

Fully 17 years after the passage of the Telecommunications Act of 1996, large incumbent LECs still own the only connection to most of the commercial buildings in the U.S.  Cable companies and some facilities-based competitive LECs, such as tw telecom, do compete in some business markets, but they face significant obstacles in doing so and, after years of trying, their facilities still reach a small portion of the market.  According to a recent JP Morgan Chase analyst report, in the fourth quarter of 2012, AT&T and Verizon earned a combined $13.5 billion from business services whereas the two largest cable companies, Comcast and Time Warner Cable, earned a combined $1.2 billion from business services – a ratio of about 11 to 1.  Not surprisingly, the FCC has found that large incumbent LECs have market power over the last mile facilities needed to serve business customers.  This is true even in areas (such as Phoenix, Arizona) identified by the large incumbent LECs as subject to the most extensive (at least in relative terms) competition from cable companies.  The large incumbent LECs’ persisting control over the only viable connection to the end user throughout most business markets means that those markets are nothing like the more competitive markets for consumer services that Ms. Kovacs discusses in her paper.  

Adopting Ms. Kovacs’ recommendation that we only rely on intermodal competition would virtually eliminate competitive alternatives in the business market.  That approach would yield less investment, less innovation, and higher prices than is the case where competitors can lease the large incumbent LECs’ last mile connections at reasonable prices.  This is because competitors that rely on wholesale last-mile access have driven investment and innovation in the business market (just ask a business how it got Ethernet – it will likely be from a competitor that leased large incumbent LEC last mile facilities).  

The relevant question for business broadband competition is therefore not whether regulators must constrain the incumbents’ market power, but how.  It is true that the current rules apply only to legacy DS0, DS1 and DS3 services (and conditioned copper loops), not the more efficient packet-based services (but here again Ms. Kovacs’ narrative is misleading – it was the large incumbent LEC advocates, in particular Verizon advocates, that asked that the FCC adopt this approach in 2003 – they are the reason that current wholesale obligations apply to their legacy services). 

Given the inconvenient truths that characterize the business market, the right approach is to identify the next-generation, last-mile facilities over which the large incumbent LECs have market power and apply appropriate price constraints to those services.  That is of course exactly what the FCC is doing in the special access proceeding.  The FCC should continue this process to ensure appropriately tailored policies are in place.


Charades is for parties, not broadband competition

When the nation’s largest incumbent local exchange carriers (ILECs) claim that cable operators are viable competitors offering business-grade broadband services to the enterprise marketplace, they are—as usual—leaving out some essential facts.

Even if a local cable provider has a presence in a downtown district or an office park where business customers tend to congregate, that doesn’t mean every building in the vicinity is connected to that provider’s services. Due to the high cost of pulling cable lines, or any other newly deployed loop into such buildings, most companies decide not to serve them because it doesn’t make economic sense.

Recent statistics released by J.P Morgan prove this point. The financial giant estimated that during the fourth quarter of 2012, AT&T took in $9 billion from its business customers, while Verizon revenues were $4.45 billion. Meanwhile, the nation’s largest cable providers, Comcast and Time Warner Cable, took in only $667 million and $514 million from their business clients during the same period.  It’s not really competition when ILECs hold about 90 percent of the enterprise market.

While cable’s share of business customers may be growing, facilities-based competition is not a reality for most of America. There is still a need for competitive LECs who purchase special access services from ILECs to provide top-quality Ethernet, cloud services and voice-over-Internet protocol offerings.

CLECs are at the forefront of innovation using the existing network to bring a choice in telecom services to the business community. That’s beneficial for the nation’s economy. At the same time, competitive carriers are creating their own job opportunities through billions in investment. That helps the country, too.

Until the numbers prove otherwise, it’s time for ILECs to drop the cable competition charade. No one else is buying it.