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De-Tariffing Will Lead to More BDS

04.19.2017

In 1934, Congress decided tariffs were necessary to protect consumers from unreasonable and discriminatory prices because there was virtually no phone service competition to keep providers from charging whatever they wanted. As markets have become more competitive, there’s less need for tariffs to counter possible anticompetitive behavior. The FCC has long recognized de-tariffing as an appropriate response when a service once dominated by a monopolist becomes highly competitive. Remember long distance phone service? Widespread long distance competition meant there were no more dominant providers, so the FCC got rid of tariffing requirements. Market forces have since maintained competitive choice for those services.

A more recent example of tariffs outlasting their usefulness is in the market for certain high-speed business data services, or BDS. Beginning in 2006, the FCC granted relief to several incumbent phone companies from an “extra layer” of tariffing and price regulation. It correctly predicted that action would accelerate competition for Ethernet and similar high-speed data services.

Tomorrow, the FCC is poised to expand on that relief by ending tariffing and other legacy pricing regulation in areas with significant BDS competition. Monopoly-era BDS tariffing requirements no longer make sense except for a few legacy services still subject to price caps. De-tariffing is a significant step toward modernization that will bring more sustainable BDS competition, and more investment and BDS deployment.  Here’s why:

Consumers win when providers can respond quickly to market forces. The ability to price efficiently requires being nimble enough to adjust quickly to changes in things like consumer demand. If you’re an incumbent, not only does tariffing require you to signal pricing plans in advance, it also bars you from changing prices without filing a new tariff (like your competitors can). De-tariffing will free up resources and allow companies to more quickly respond to market conditions, which will help maximize competitive choices for consumers.

De-tariffing will bring regulatory parity. Incumbent providers are the only ones saddled with BDS tariffing requirements. Even where non-incumbent competitors are the sole BDS provider, they don’t have to file tariffs. Imposing these costs on one sector is anticompetitive, and may keep some providers from extending their BDS footprints. By expanding prior forbearance relief to all packet-based and high capacity circuit-based BDS offerings, as well as BDS transport and competitive channel terminations, the FCC finally puts incumbent providers on near-equal footing with competitors that have already captured more than half the BDS market.

Market forces work better to achieve competition than regulation. Regulation is often a deterrent to investment. The imposition of government mandates to set market prices, and the possibility that regulated prices won’t yield a reasonable return on investment are enough to keep many investors out of the game. Relaxing tariffing and other regulations will incent incumbent providers to invest in BDS even more than they currently do.

Modern services need a modern regulatory environment. The FCC recognizes that fiber and packet-based services represent the future of BDS, so any regulatory framework governing them should also be forward-looking. Tariffs are a vestige of the past. Providers should have more flexibility to keep pace with today’s fast moving marketplace demands.