# Developing a New Regulatory Framework for Business Data Services (Special Access) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2016-12058 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** June 3, 2016 - **Citation:** 81 FR 36030 ## Text FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 69 [WC Docket Nos. 16-143, 15-247, 05-25 and RM-10593; FCC 16-54] Developing a New Regulatory Framework for Business Data Services (Special Access) AGENCY: Federal Communications Commission. ACTION: Proposed rule. SUMMARY: In this document, the Federal Communications Commission seeks comment on replacing the existing, fragmented regulatory regime applicable to business data services (BDS) ( i.e., special access services) with a new technology-neutral framework, the Competitive Market Test, which subjects non-competitive markets to tailored regulation, and competitive markets to minimal oversight. DATES: Comments are due on or before June 28, 2016; reply comments are due on or before July 26, 2016. Written comments on the Paperwork Reduction Act proposed information collection requirements must be submitted by the public, Office of Management and Budget (OMB), and other interested parties on or before August 2, 2016. ADDRESSES: You may submit comments, identified by WC Docket Nos. 16-143, 15-247, 05-25 and RM-10593, by any of the following methods: • Federal Communications Commission's Web site: http://apps.fcc.gov/ecfs/. Follow the instructions for submitting comments. • People With Disabilities: Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by email: FCC504@fcc.gov or phone: 202-418-0530 or TTY: 202-418-0432. For detailed instructions for submitting comments and additional information on the rulemaking process, see the SUPPLEMENTARY INFORMATION section of this document. In addition to filing comments with the Secretary, a copy of any comments on the Paperwork Reduction Act information collection requirements contained herein should be submitted to the Federal Communications Commission via email to PRA@fcc.gov and to Nicole Ongele, Federal Communications Commission, via email to Nicole.Ongele@fcc.gov. FOR FURTHER INFORMATION CONTACT: Christopher Koves, Pricing Policy Division, Wireline Competition Bureau, 202-418-8209 or Christopher.Koves@fcc.gov. For additional information concerning the Paperwork Reduction Act information collection requirements contained in this document, send an email to PRA@fcc.gov or contact Nicole Ongele at (202) 418-2991. SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Further Notice of Proposed Rulemaking (FNPRM), WC Docket Nos. 16-143, 15-247, 05-25 and RM-10593, FCC 16-54, released May 2, 2016. The summary is based on the public redacted version of the document, the full text of which is available here: https://apps.fcc.gov/edocs_public/attachmatch/FCC-16-54A1.pdf. To request alternative formats for persons with disabilities ( e.g. accessible format documents, sign language, interpreters, CARTS, etc.), send an email to fcc504@fcc.gov or call the Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 or (202) 418-0432 (TTY). Pursuant to Sections 1.415 and 1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments on or before the dates indicated on the first page of this document. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS). See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998), http://www.fcc.gov/Bureaus/OGC/Orders/1998/fcc98056.pdf. • Electronic Filers: Comments may be filed electronically using the Internet by accessing the ECFS: http://apps.fcc.gov/ecfs/. • Paper Filers: Parties who choose to file by paper must file an original and one copy of each filing. If more than one docket or rulemaking number appears in the caption of this proceeding, filers must submit two additional copies for each additional docket or rulemaking number. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission. ○ All hand-delivered or messenger-delivered paper filings for the Commission's Secretary must be delivered to FCC Headquarters at 445 12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes and boxes must be disposed of before entering the building. ○ Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. ○ U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street SW., Washington, DC 20554. People with Disabilities: To request materials in accessible formats for people with disabilities (braille, large print, electronic files, audio format), send an email to fcc504@fcc.gov or call the Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (tty). I. Introduction 1. Business data service (BDS) is critical to the delivery of innovative broadband services for businesses and government institutions and is a major contributor to the nation's economy. Incumbent LECs and competitive providers reported revenues of almost $45 billion for 2013 for the sale of dedicated services. It is, however, important to recognize that BDS is an important input (sometimes self-supplied) in the broader market for enterprise services, which include voice, Internet, private network, web-security, cloud connection, and other digital services. Available information suggests that the annual revenues for the broader enterprise services industry could exceed $75 billion annually. 2. In this FNPRM, we provide our analysis to date of the 2015 Collection. We then seek comment on a number of proposals to establish a new regulatory paradigm for BDS to more appropriately address the technological changes occurring today and to facilitate the continued evolution of the type of robust competition that will result in ever-improving services for American businesses and consumers. To that end, the FNPRM seeks to develop a technology-neutral framework that no longer classifies BDS through the legacy prism of traditional services and company classifications. Rather, the Commission seeks to enter a new era where regulatory determinations are made based on whether a market is competitive and the concomitant regulatory obligations apply to all providers, looking to legitimate differences in products, places, and customers. The goals of this FNPRM are supported by the joint principles recently announced by INCOMPAS and Verizon urging the Commission to “adopt a permanent framework for regulating all dedicated services in a technology neutral manner.” That two of the entities who were once diametrically opposed have joined together urging the Commission to adopt such principles is further evidence of the evolution in the BDS market today and the need for this new paradigm to harmonize regulation with the changing technology. II. Further Notice of Proposed Rulemaking A. Competition Analysis 1. Our Approach 3. We analyze the data collected and the evidence submitted in this proceeding to reach preliminary evaluations as to the degree of competiveness in BDS markets. Our public interest evaluation necessarily encompasses the “broad aims of the Communications Act,” which include, among other things, a deeply rooted preference for preserving and enhancing competition in relevant markets with increased private sector deployment of advanced services. In conducting this analysis, we take a forward-looking view of technological and market changes. 4. We examine the effectiveness (and likely effectiveness) of competitive restraints, to identify where market power exists in BDS markets. We focus our analysis on BDS prices, and terms and conditions, and consider the effectiveness of current competitive restraints and whether market power, where it exists, has enabled unreasonable pricing or other practices or an ability to unlawfully exclude competition. 5. To distinguish product markets, we generally look to include products in the same market if they are reasonably interchangeable, with differences in price, quality, and service capability being relevant. In the case of geographic markets, we look to supply, rather than demand substitution. For both product and geographic markets, we do not believe it is necessarily required to engage a formal hypothetical monopolist test considering likely consumer substitution if a hypothetical monopolist imposed at least a small but significant and non-transitory increase in price (SSNIP), taking a more direct approach to demonstrate the use of market power. 2. Product Markets 6. In our data collection we defined BDS as a dedicated end-to-end telecommunications service. Leading technologies of this type are DS1s and DS3s, typically carried over copper pairs, which account for the majority of the BDS revenue in 2013 according to these data. DS3 lines carry about 30 times the bandwidth of a DS1 line, which is a symmetric 1.5 Mbps service. It is also possible to achieve higher bandwidth levels over other circuit-based technologies. An alternative to circuit-based technology is packet-based service, more commonly delivered over fiber optic cable or HFC cable using a standard called DOCSIS. Fiber can deliver higher bandwidth and service levels, and most new investment is in fiber optic and coaxial cable, and in next generation DOCSIS 3.1 electronics. Cable companies also provide BDS at competitive rates over the coaxial-fiber hybrid technology, commonly referred to as “Ethernet over DOCSIS,” that have characteristics of BDS carried over fiber: It can be used to provide access to the Internet and point-to-point communications (such as a virtual private network); it is generally available at symmetric bandwidths up to 10 Mbps; and is often supplied with service reliability guarantees, even if not at the same level as what is typically offered over fiber. We agree with several commenters recognizing that since this proceeding began in 2005, there has been significant innovation, investment and deployment of IP-based technologies, and DOCSIS relied on by cable companies, and that increasingly business customers purchase these technologies instead of TDM services. However, many business customers continue to rely on TDM services. 7. We described best efforts services above. Several commenters, including certain competitive LECs, claim that best efforts Ethernet over DOCSIS provided by cable companies does not provide the requisite dedicated access needed by certain, notably mid-sized and larger business customers and carriers, even if it meets other demands. Other commenters contend the Commission should include best efforts DOCSIS cable service within a broader product market definition. 8. We believe it is likely that best effort services may not be in the same product market or markets as BDS. The prices of best efforts services are considerably lower than the prices of roughly comparable BDS. Compared with BDS, best effort services are less reliable, notably in terms of guaranteed uptime, and other service level guarantees; in some cases do not offer higher bandwidths; and characteristically lack upload/down symmetry. Although fit for many customer purposes, best efforts services do not meet the requirements of all BDS purchasers, nor is it offered by sellers as a product intended for all customers. Sellers generally distinguish best effort services from other BDS products to meet customer needs at the right price point, and organize sales efforts accordingly. Finally, underlying characteristics of the way best efforts services are supplied can make it hard for certain higher quality BDS to be supplied on the same network as best efforts services. We seek comment on this view. 9. If two readily available services have substantially different prices, then they are likely dissimilar (otherwise buyers would prefer the cheaper service which would constrain the price of the other service). Best efforts services are uniformly the least cost alternative offered by carriers, with the lowest functionality. Prices for best efforts services typically start at levels consistent with residential broadband service, increasing as service speed, capacity and reliability increase. For example, “Comcast's Business Internet service is available for purchase online starting at $69 per month for its 16/3 Mbps service.” Verizon similarly offers a variety of best efforts services under $100, beginning with a “Starter” package with speeds up to: 1 Mbps download/384 Kbps upload (“Best for: Single—person business, Light Internet use”) to the “Fastest” with speeds up to 10-15 Mbps download/1 Mbps upload (“Best for: Multiple employees, Online-based business eCommerce with orders”), with prices ranging from $39.99 to 94.99 per month. Verizon's Fios ranges from 50/50 Mbps to 500/500 Mbps, with prices from $49.99 to 269.99 per month. TWC offers six best efforts products online, ranging from $14.99 for (“up to”) 2 Mbps download/1 Mbps upload to $64.99 for (“up to”) 50 Mbps download/5 Mbps upload. In contrast to these best efforts services, TWC's average monthly BDS pricing ranges from [REDACTED]. 10. That demand exists for symmetric [REDACTED], and customers do not switch to available best efforts services with at least as much bandwidth in both directions that are priced at approximately one tenth of that level (compare with the FiOS 50/50 price of $49.99), implies some customers must value certain characteristics of BDS highly relative to best efforts service. This suggests such 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. 11. In fact, 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. Consistent 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. Other end users are willing to pay considerably more for services that include greater (particularly upload) speeds, are more reliable, and come with more rigorous guarantees. Sprint, for example, [REDACTED]. Best efforts services do not satisfy these requirements. 12. BDS uptime reliability is also generally higher than with best efforts services. For example, Windstream on its Web site contrasts an Ethernet Internet service with a 99.99% uptime guarantee with cable (presumably) best efforts services, while best efforts services do not typically come with such guarantees. AT&T's best efforts Broadband SLA applicable to its High Speed Internet Business Edition family of services (AT&T U-verse® HSI-Business Edition; AT&T High Speed Internet Business Edition; and FastAccess® Business DSL) comes with a guarantee of 99.9% uptime. The AT&T “three nines” service (99.9%) service permits approximately 8.76 hours of downtime a year, plus disclosed allowances for many other downtime events, which are material to the offering and, as discussed immediately above, would not be acceptable for many users. “Comcast best efforts Business Internet service is sold without SLAs or contractual performance objectives.” Comcast best effort offers include seven Internet packages online ranging from a 3 Mbps, “Economy Plus” service to a 2000 Mbps, “Xfinity Gigabit Pro” service; each of the seven Comcast services include a disclaimer, “Actual speeds vary and are not guaranteed.” And in contrast Comcast BDS, like those of Windstream and AT&T, come with considerably greater reliability guarantees. Comcast “business class data services come with a variety of performance metrics and assurances,” which for Ethernet transport services include an SLA “committing to [REDACTED] for fiber-based service and [REDACTED] for HFC-based service, with penalties for failure to meet those service levels.” Similarly, without a guaranteed throughput speed, “Time Warner Cable offers six Internet speed options, up to 50 Mbps in most locations and up to 300 Mbps in select areas.” Time Warner Cable guarantees for its Business Internet Access (BIA) service vary slightly from Comcast, “[w]hile TWC's BIA service may be just as [REDACTED], leading certain customers to choose one service over the other.” Moreover, as discussed above, the price differences for these services are large, suggesting customers highly value the product differential BDS has over best effort services. 13. We seek comment on these analyses. We ask whether the Commission should consider alternative factors or aspects of the market and invite parties to submit alternative evidence in the record. 14. Some commenters argue that packet BDS place competitive pressure on TDM BDS. TDM BDS offers point-to-point connectivity in essentially the same way that packet BDS does. Since each technology can be used for the same purposes, this suggests that they are in the same product market. This is not to say that there are no differences between packet and TDM services. For example, while both perform similar roles, Ethernet is more easily scaled. 15. But Existing Customers Can Face High Switching Costs. Record evidence suggests that once a customer has installed a business data service, it faces high costs in switching. Consequently, switching most commonly occurs when a customer outgrows its service, for example, requiring a demand not available on their current service, or because they need the functionality of a different technology (most usually leading to a switch from TDM to packet BDS). In particular, high switching costs can both slow the transition from TDM to packet BDS and limit the potential market for packet BDS which could in turn limit investment. 3. Customer Markets 16. Carriers organize how they market around distinct fairly similar customer groups. These customer groups also have their own distinct characteristics, and hence distinct service requirements. As Comcast explains, “although all of Comcast's business class data services may be used by various types of customers, the unique needs of certain customers may make one service more appropriate than others.” Put together these facts suggest the possibility of separate customer markets. In particular, if supply to a first customer group cannot be readily extended to supply to a second, then supply to the first customer group may not place material competitive constraints on supply to the second. We seek comment on whether such customer markets are possible in the supply of business data services, and if so, what these are. We are particularly interested in the extent that multisite customers may fall into such a category as we propose below. 17. At a high level, possible customer categories are retail purchasers of business data services and carrier purchasers. These groups, in turn, could be further subdivided. Retail purchasers of business data services come in all shapes and sizes, and include retail businesses, governmental and educational institutions, and other enterprises that require dedicated enterprise services. Their needs vary depending on, among other factors, the number of employees and locations they have, the volume of their traffic, and the technological sophistication of the services they require. Many call for a competitive wholesale BDS access market. Large businesses are especially likely to require “high quality phone and Internet services” that “depend upon special access services as the building blocks of their corporate networks, from workhorse DS1s to the growing number of Ethernet connections to the highest capacity OCns.” Medium-sized and small businesses also require “advanced IP and fiber connections,” which are “mission critical.” Retail banks, for example, “rely heavily on broadband service” to enable “financial transactions and provide [customer] support in a timely fashion.” Reliable broadband connections also allow brick and mortar companies to meet customer needs “as efficiently and effectively as possible” and to “enhance the customer shopping and buying experience.” 18. Most larger, sometimes called enterprise, customers require connections to more than one site, and some, such as retail banks, and large retail sales outlets, may require many sites in diverse locations, often in areas with limited business density. Moreover, at many of these locations such large customers may only have low bandwidth requirements, even if each connection must have a high degree of reliability (for example, in the case of a retailing outlet, to ensure rapid credit card processing) and/or be highly secure (in the case of a retail bank). Larger customers are typical users of dedicated fiber-based, symmetric services; some have service demands for a limited geographic area while others require service for any number of locations within the country. Multi-location customers are often provisioned by BDS providers that “have a broad regional footprint without significant gaps in coverage to serve large enterprises with multiple sites across given geographic regions effectively.” Such providers may be relatively rare. We seek comment on our implicit finding below that such “spread-out” multi-site customers may be sufficiently distinct from other customers to constitute a separate market (below we find that competitive supply to other customers may not place a competitive constraint on supply to these “spread-out” multi-site customers), especially to the extent that such customers require lower bandwidth, highly reliable, services in areas with lower business densities, may not face the same competitive choices as other customers. 19. Carrier purchasers are different again. They are typically large and sophisticated buyers, with substantial capacity to leverage scale, for example, in seeking tenders to supply. Wireless carriers rely on business data services to connect their radio towers to their mobile switching centers. Mobile carriers purchase business data services often with bandwidths of around 50 Mbps and greater, but small cell demands, which look set to grow, may generally require lower bandwidths, and may require backhaul to many locations with low levels of business density. Sprint, a purchaser of wireless backhaul transit services, explains that it requires a specific BDS capable of more than traditional copper twisted pair and coaxial cable can support. Even where next-generation HFC is available, it is more suitable for mid-range demands. Sprint, for example, describes Ethernet over HFC as a poor substitute for fiber-based services because [REDACTED]. Sprint specifically notes that its macrocell sites [REDACTED] and a service level guarantee not available for generally best efforts or mid-tiered products. 20. Competitive LECs purchase BDS wholesale to sell retail services to end users. They do this where the purchasing competitive LEC does not currently have network and where extending their networks would not be profitable. While competitive LEC demand reflects end-user demand and so is highly diverse, competitive LECs again have the ability to leverage scale. We seek comment on whether carrier purchasers have countervailing power even when dealing with an entity that may otherwise have market power, and whether they need different protections than end users. 4. Geographic Markets 21. In this section, we express the view that the likely BDS geographic market, even for lower bandwidth services, likely extends beyond the area of the average Census block in which there is BDS demand. We come to this assessment by focusing on supply-side substitution, and seek comment on how we might refine this definition. 22. Relevant geographic markets are often determined by estimating demand side response if a hypothetical monopolist in a specified region, facing competition from beyond that region, tried to set prices above competitive levels. In this industry, given that most BDS customers would not shift their location to purchase special access from a different carrier, we focus on the supply response, that is—under what circumstances, if any, will nearby suppliers geographically extend their existing facilities distances to obtain new consumers. If suppliers were generally willing to extend their networks to meet nearby demand, then they would place a degree of competitive pressure on the prices nearby customers would face. 23. Geography also impacts product substitution. In certain areas, higher bandwidth services are not available due to the lack of technical capability. Available service could be limited in speed and capability to best efforts and similar, lower-level service levels that are provisioned over copper and coaxial lines. Increased service speeds, capacity, and guarantees are not available unless and until a BDS provider builds or extends new facilities (such as fiber or a hybrid technology) in a range close enough to the customer to readily extend a service that replaces best effort. Sprint points out, for example, that Ethernet over HFC “is not yet available in all business locations served by ILEC special access—nor at most cellular tower sites.” 24. We consider it unlikely that BDS supply in one part of an MSA would constrain the provision of BDS where it is demanded everywhere in the MSA. However, we also see good evidence that the presence of fiber competition not only could be expected to impact, but actually can impact, supply of lower bandwidth services over the whole Census block in which that fiber is located. This suggests a geographic market definition for lower bandwidth BDS lies somewhere above the average area of the Census block with BDS demand and below the MSA. We seek comment on these assessments and how to refine them. We seek this information for the purpose of developing an administratively feasible test for determining where we can replace regulation with market forces. 25. In the Suspension Order, the Commission explained that “demand varies significantly within any MSA, with highly concentrated demand in areas far smaller than the MSA” and some areas with little or no demand. Our record reinforces that view. The Commission stated that competitive entry is considerably less likely to occur in areas of low demand, regardless of whether other areas within the MSA contain sufficient demand to warrant competitive entry. The Commission also observed that “competitors have a strong tendency to enter in concentrated areas of high business demand, and have not expanded beyond those areas despite the passage of more than a decade since the grant of Phase II relief.” 26. The distances competitive LECs are generally willing to extend their facilities to reach potential customers beyond the locations they currently reach are quite short. These distances, which vary among competitive LECs and business opportunities, typically range from [REDACTED]. In fact, the distance Comcast will generally build within [REDACTED]. Similarly, TDS Metrocom estimates the average length of its competitive LEC's fiber laterals is [REDACTED]. Most [REDACTED]. If an end point of a “transport facility is outside a [central business district], and perhaps the first ring of suburbs . . . the competitive presence is far less. . . . As a result, these non-[central business district] areas are largely served only by ILEC facilities.” Buildouts of [REDACTED] and farther occur, but variables, including cost and demand factors, entailing traditional return-on-investment calculations, become increasingly determinative as the distance from a cost-effective and viable fiber junction point increases, which “are often collocated at or housed near ILEC central offices.” Incumbent LECs have similar buildout criteria. AT&T, for example, “engineering guidelines demonstrate that AT&T engineers its network to maintain lateral distances at or below about [REDACTED]. 27. Responses to the data request indicate that competitive buildout to customers becomes increasingly less likely with a potential customer at a location [REDACTED] or farther away. Narrative descriptions of how far competitive carriers will buildout broadly align with observations of data submitted. For example, Cbeyond reported its “maximum build distance” is a “distance of [REDACTED] from existing lit fiber of a competitive fiber provider.” TDS METROCOM explained, “If the location is beyond [REDACTED] experience has shown us that customers are not willing to pay the extra monthly cost that would be required to pay for such an expensive build.” Cablevision Lightpath reported [REDACTED] buildout parameters, requiring a potential customer “be within [REDACTED] of a splice point in [its] core network,” excluding certain areas of density, and “[i]f [REDACTED] from splice point, no business case is required [while] [b]uild[ing] [REDACTED] from splice point involves ROI [analysis].” XO similarly notes that “[REDACTED] or less from its existing fiber infrastructure” is most attractive, while “buildings that are 200 feet or less from exiting fiber assets are of particular interest.” The distances and build criteria reported by Submitting Parties are generally in-line with that the Department of Justice in 2006. Beyond these general distances (and to a lesser extent within these distances), carriers typically rely on long-term loyalty agreement to guarantee a return-of-investment. 28. These buildout distances, which rarely exceed [REDACTED] are orders of magnitude less than those encountered in an MSA. For example, the smallest MSA, Carson City, Nevada has a land area of 144.7 square miles. If competitive fiber is deployed in the center of Carson City, it will be 6.9 miles from Mound House, Nevada, or 5.8 miles from Indian Hills, Nevada. Moreover, the Carson City MSA is quite small. The land area of the average MSA, 2,494.5 square miles, is 17.2 times larger than the Carson City MSA. In fact, the largest MSA, Riverside-San Bernardino-Ontario, California, has a land area of 27,263.4 square miles. If competitive fiber is deployed in the center of Riverside, it would be 20.6 miles from Chino, California. Indeed, MSAs are large geographic areas that “often contain smaller geographic areas across which competitive conditions are widely disparate.” As the Commission has observed, “MSAs are comprised of communities that share a locus of commerce, but not necessarily common economic characteristics as they relate to telecommunications facilities deployment . . . Due to the wide variability in market characteristics within an MSA, MSA-wide conclusions would substantially over-predict the presence of actual deployment, as well as the potential ability to deploy.” 29. Census tracts are large relative to the deployment distances discussed immediately above. If the median Census tract in which we observe BDS demand were a circle, it would be approximately 1.5 miles across. Moreover, the geography of Census tracts vary significantly. A circular tract at the 75th percentile would be around 2.6 miles across. In contrast, if the median Census block were a circle, then it would be approximately 0.2 miles across. Again Census blocks can be significantly larger than the median. If the Census block at the 75th percentile were circular, then it would be around 0.4 miles across. This analysis suggests that a supplier's presence anywhere in most, if not all, Census blocks could have a material competitive effect on other suppliers. It also suggests that a supplier's presence anywhere in smaller Census tracts could have a material competitive effect on other suppliers. This is consistent with the analysis contained in the Rysman White Paper, and in the Baker Declaration, which suggests that the presence of a fiber competitor can have material competitive effects on lower bandwidth services in Census blocks in which we see BDS demand. 30. We seek comment on how close competition must be to place material competitive pressure on supply at a given location, and whether this distance might vary with the nature, most notably the bandwidth, of the BDS in question. We also seek comment on how such analysis might be developed, and call for that analysis to be undertaken. For example, recognizing that Census tracts and Census blocks vary in size, we recently placed in the secure data enclave information on the distance from all locations with BDS demand to the nearest competitive providers' fiber networks. Consequently, regression analysis might be used to identify the range over which distant networks no longer have material competitive effects. 5. Concentration by Any Measure Appears High in This Industry 31. In this section, we report several measures of geographic concentration, including at the national level. What these measures show are uniformly high levels of concentration. While we remain agnostic as to what the right unit or units of geography are for measuring concentration (noting these might also vary for different services and customer groups), we expressly reject the idea that many, if any, BDS markets are national in scope (it is unlikely that a supplier's presence in Miami constrains prices in Seattle). To the extent that markets are not national, national measures of concentration likely understate both market concentration measures and the shares of incumbent LECs. While national revenue shares make sense from the perspective of incumbent LECs, whose territories do not overlap, and which, in aggregate, cover all price cap territories, national shares greatly exaggerate competitive LEC presence, since there are many geographically diverse, and in some cases very small, competitive LECs, none of which competes across all the incumbent price cap LECs' footprints. 32. As part of our data collection, carriers reported their aggregate BDS revenues. These provide an approximate indication of the revenue shares of different provider types supplying sophisticated services to end users, that is, of revenue shares in the supply of BDS and more complex managed services. As the pie chart below shows independent competitive LECs, that is, competitive LECs not affiliated with incumbent LECs, only capture 18% of BDS revenues. However, this estimate is subject to three biases, which in aggregate overstate the shares of independent LECs. First, a greater proportion of incumbent LECs' sales of BDS and managed services are BDS as compared with competitive LECs, a bias that likely overstates incumbent LEC revenue shares. Second, because a valid measure of concentration would measure facilities-based revenues, rather than resale revenues, and because a substantial proportion of incumbent LEC BDS sales are to competitive LECs who then resell those services, the preceding bias is likely to be more than offset (managed service revenues earned on the resale of incumbent LEC BDS will be greater than the LEC BDS sales to the resellers). Third, there is the bias identified immediately above from measuring national shares. 33. In 2013, cable companies reported nearly two billion in BDS sales (or less than 5% of all sales). However, because cable BDS revenues have been growing at around 20 percent per year, by the end of 2016 cable BDS revenues will be close to $3.5 billion (likely still less than eight percent of BDS revenues). 34. This section considers the extent to which in 2013 there was competition, as indicated by various measures of the number of rivals (for example, by counting or excluding competition based on UNEs and/or HFC with DOCSIS 3.0) at the level of the unique location, Census block and ZIP code. We take this broad approach because, as discussed above, we are agnostic as to the exact geographic range of BDS markets. In particular, we do not yet know is how much competitive pressure different forms of supply place on other suppliers, or how many suppliers, accounting for their differences, are sufficient to make prices effectively competitive (matters we have sought comment on above). Moreover, the Rysman White Paper suggests that competitive effects may occur at the level of the building, even when there are additional competitive effects from more distant competition. Under all these measures, market concentration is large. For example, when counting fiber, and DOCSIS 3.0 over HFC and UNE supply as forms of competition, we find more than ten percent of unique locations with BDS demand are supplied by one provider, and that slightly over half of such locations are only supplied by two providers (so 2/3 rds of such locations have only a choice of one or two suppliers). 35. Table 3 considers how many unique locations have one through six suppliers in the location, under two measures of competition. In both cases, the incumbent LEC is considered ubiquitous, and ILEC-affiliated supply is counted as competitive, but in the first case (the left side of the table), only competitors with fiber in the building are counted, while in the second, competition over UNEs is also counted. Under both cases, more than half of all unique locations only have one supplier, and less than five percent have three or more. 36. In 2013, cable companies reported being able to serve something just over 150,000 unique locations (or less than 15 percent of unique locations with BDS demand), almost entirely on their own facilities (cable companies make limited use of UNEs). Looking forward, if cable adds 20 percent more lines every year (in line with historic BDS revenue growth), then at the end of 2016 cable would be able to serve over 260,000 unique locations. However, in 2013, cable provision of BDS was much more limited than it is today. In particular, BDS was not typically supplied over HFC. Looking forward, it may already be or soon will be the case that cable companies are able to supply BDS everywhere they have deployed DOCSIS 3.0. We seek comment on this. Counting cable supply as being capable of reaching every unique location with BDS demand in every Census block that cable reports as being able to serve greatly increases the extent of competition at the level of unique location. Table 4 shows the resulting number of providers that can supply one through six buildings. More than half of unique locations are only supplied by one or two providers, and more than ten percent have only one supplier. 37. Firm concentration falls as the square areas of the geographic region under examination increases. Table 5 provides the number of Census blocks with BDS demand that have one through six fiber suppliers (so is similar to the left half of Table 3 in that it excludes UNE competition). It shows that around 16 percent of Census blocks with BDS demand are only served by an incumbent LEC (compared with more than 75 percent in Table 3), while more half of such Census blocks have a choice of two suppliers (compared with more than 20 percent in Table 3). It remains true that nearly 70 percent of Census blocks with BDS demand have two or fewer competitors capable of serving a unique location in the block. 38. Table 5 also gives an indication of the strength of different classes of providers. For example, incumbent-affiliated competitive LECs have very few facilities indeed. This is true even if competition over UNEs is added in (not shown in the table) and is indicative of the extent to which incumbent-affiliated competitive LECs rely on other incumbent LECs' BDS. 6. Entry and Entry Barriers 39. Similar to the antitrust enforcement agencies, we consider entry by competitors to be an important part of our analysis of competition. The viability of potential competition is significantly affected by barriers to entry, which are “cost[s] of production that must be borne by competitors entering a market that is not borne by an incumbent already operating in the market,” as well as conditions that impact entry. Both costs and conditions exist in the BDS market with enough significance in any measure of a geographic market to deter rapid competitive entry or expansion, including “high capital expenditures, large sunk costs, long lead times, scale economies, and cost disadvantages.” High barriers to entry at local levels may particularly affect competitive entry or expansion to service customers with national and multi-region demand that requires “an extensive network footprint to be able offer services widely.” The competitive provider's footprint most often includes a combination of locally-based facilities owned by the competitor and network access purchased from the regional incumbent or other competitors, which may be available at a regulated UNE- (by the incumbent LEC) or unregulated wholesale-basis (by a LEC or, in some instances, a cable company or other competitive LEC). Although there is evidence of potential competitors becoming increasingly relevant, commenters assert substantial barriers limit the timelines, likelihood, and sufficiency of entry to counteract anticompetitive effects in BDS markets. 40. The passage of the 1996 Act increased the Commission's focus on how barriers to entry impact competitive buildout. Like incumbent LECs, competitive LECs build facilities to meet consumer demand. Deploying facilities requires incurring costs that vary, “among other things, on the length of the laterals and fiber rings built, the nature of the electronics added, whether the lines are buried, and local regulations ( e.g., a city may require replacement of cobblestones on scenic streets).” In addition to deploying facilities, a provider frequently needs to obtain building access and/or rights of way to reach the building. 41. The barriers to entry do not materially differ whether the technology being deployed is TDM- or Ethernet-based. As Ad Hoc notes, “[t]he underlying transport facilities for Ethernet services are the same as the underlying transport facilities for TDM services,” which is consistent with AT&T's observation that “Ethernet is simply a service that can be provided over many different types of transport facilities, including copper, fiber, coaxial, and wireless facilities.” BT adds that it is reasonable to conclude that that the main Ethernet access cost elements—duct, fiber, and electronics—do not vary much across service speeds up to 1 Gbps.” Legacy TDM services require the same transport facilities and, in most geographic areas, the incumbent already provides TDM service and therefore has an advantage over a new entrant. That historical incumbent advantage allows the incumbent LEC to lower its costs through its “initial control of all customers” and “us[ing] the same rights of way, trenches, conduit, wires, poles, building access, riser, truck rolls, employees, outside plant, central office equipment, administrative expenses, and other legacy inputs that they use when the provision TDM-based special access services.” 42. One recent study asserts that current barriers are sufficient to deter new construction in most business locations. Certain issues cannot be easily overcome, such as “when the building owner refuses to grant the CLEC access or charges a high access fee, or when it is difficult or costly to obtain rights of way to a specific building ( e.g., pole access or costs of burying lines).” Also, competitive carriers can connect their networks to “customer locations that are near to their fiber transport facilities, where the customer at the location is suitable for the competitive carrier's service offerings, and where the revenues associated with the location are sufficient to make loop deployment profitable.” Areas of low BDS demand, which would include most suburban and rural areas, present additional issues for those considering an extension of facilities, principally a lack of a timely potential for a positive return on investment. Charter, for example, notes how in its [REDACTED]. Cablevision Lightpath also faced issues outside of its traditional, denser, region because [REDACTED]. Many simply avoid higher-cost areas, such as, [REDACTED]. 43. In addition to deploying their own facilities, competitive LECs extend their network reach by purchasing incumbent LEC facilities at a regulated price on an unbundled basis or at non-regulated wholesale prices. Obtaining UNEs often is the most economical way to reach a new customer for a competitive LEC, and it is important to account for the effects of UNE competition. However, UNE competition has its limits. UNEs are not always available “because of insufficient or insufficiently-conditioned facilities, regulatory or contractual constraints.” And even with significant investment in facilities in an area, competitors “must depend heavily access to on the incumbent LECs' facilities and services to serve its customers.” When purchasing from the incumbent LEC, proximity to a collocation point near the customer lowers cost, meaning costs increase the farther the competitor's facilities are located from the potential customer. UNE reliance, therefore, is successful “only in some locations, only for some customers, and only to some extent.” 44. Competitive LECs also lease dedicated, non-regulated, wholesale services to connect to commercial buildings over non-UNE facilities from incumbent LECs or other competitive LECs. Even competitive LECs with well-developed regional fiber rings rely on an incumbent or competitive LEC wholesale inputs for last-mile connections. Leasing last-mile dedicated services from the ubiquitous incumbent LEC oftentimes is the only option due to a lack of competitive build-out. Level 3, for example, explains that it “usually has no choice but to lease dedicated services from the incumbent LEC in order to reach locations that Level 3 cannot reach with its own network.” 45. While wholesale access can be a cost effective means for a competitive LEC to expand its reach, such a wholesale purchaser cannot place competitive pressure on supply of the underlying facility that it purchases, but rather can only compete by being more efficient at retailing. Thus, we do not consider competition over resold lines as a material competitive restraint on any facility-based supplier with market power. Moreover, we are told that in some cases an incumbent LEC's wholesale prices can be near or above retail levels (sometimes referred to as a “price squeeze”). Similarly, we are told that rates below retail, available through many incumbent LEC purchase agreements, also can create barriers to entry when they include “penalty clauses and loyalty discount provisions in their wholesale contracts” that are not related to a competitive efficiency and simply have the effect of raising the rival's cost. XO, for example, generally declines to build facilities when doing so will increase its risk of falling short of a minimum purchase requirement under an incumbent LEC commitment plan. Level 3 similarly reports added costs due to incumbent LEC loyalty agreements, which forecloses an opportunity to purchase from other lower-priced wholesale inputs. In the end, competition is constrained. A motivated and efficient competitive LEC, such as Level 3—the largest competitive LEC and the third largest provider of fiber optic internet access (based on coverage area) in the United States—only “deploy[s] new loops to approximately 3,000 to 4,000 commercial buildings in the U.S. each year.” 46. Cable providers encounter similar barriers to entry, even within their incumbent franchise areas, although their in-region networks present economies of scale, similar to incumbent LECs, and present lower barriers for in-region expansion, compared to other competitive LECs. Nevertheless, for traditional competitive LECs and cable companies alike, “loop deployment costs are distance-sensitive,” limiting competitive reach, even if cable companies would likely have “lower loop deployment costs in areas where they have deployed extensive transport networks.” As CenturyLink notes, even cable companies must incur significant investment costs and rely on the networks of others to expand their footprints.” 47. Efforts to enter and expand in markets are being made with success, however, which has required investment and new networking initiatives to address barriers to entry. Comcast, for example, has recently established a new business unit to target Fortune 1000 businesses. But to reach Fortune 1000 companies, and satisfy their varying and broad geographic requirements, Comcast could not rely on its own facilities alone. To compete, “[i]t struck wholesale agreements with other cable companies including Charter, Time Warner Cable, Cox, Cablevision, and Mediacom, and it acquired Contingent Network Services—a managed services firm with “aggregation or wholesale relationships with many other CLECs, ILECs, [and] small cable providers.” Some companies are more risk-adverse or sensitive to barriers than others, however. Charter, for example, notes that a “partner model creates high transaction costs, as multiple networks and personnel must be coordinated, and these costs impact the price at which these services can be offered.” 48. Incumbent LECs face lower overall barriers within region and barriers similar to independent competitive LECs out-of-region. Within region, the Commission has recognized that incumbents can “increase capacity on many special access routes at a relatively low incremental cost (relative to the total cost of trenching and placing poles, manholes, conduit, fiber, and copper, and securing rights and access) by adding or upgrading terminating electronics.” Carriers with incumbent LEC and competitive LEC affiliated entities confirm the lower incumbent LEC barriers to entry. For example, TDS, which operates both incumbent LEC and competitive LEC subsidiaries, has explained that “it is generally far less expensive and more efficient for TDS ILEC to deploy new fiber to business customer locations than is the case for TDS CLEC.” Windstream, which also operates both incumbent LEC and competitive LEC businesses, has found that “ILECs continue to enjoy a dramatic advantage over CLECs in the average cost per building of new last-mile fiber deployment—an advantage that is largely attributable to the incumbents' much larger market shares, which is 6+ a direct result of the ILEC first mover advantage rooted in the monopoly era.” As TDS explains, this is because (1) “business customer locations are, on average, located much closer to TDS ILEC's existing fiber plant than TDS CLEC's”; (2) “TDS ILEC possesses many advantages due [to] its operation of a preexisting network along potential fiber routes”; and (3) “TDS CLEC must incur much higher equipment and fiber splicing costs than TDS ILEC when deploying new fiber.” 49. High barriers to entry and carrier agreements that have the effect of preventing switching over an extended time create “low elasticities of demand for the incumbent and low elasticities of supply for competitors.” Such low elasticities respectively mean few customers switch away from a supplier due to an increase in price, and few suppliers are able to switch away from resale to reliance on new network deployment. If the service had lower barriers of entry, customers would be more able to switch carriers when faced with higher prices or unfavorable or inefficient supply agreement terms and conditions. Level 3, for example, reports that it must purchase “a large percentage of its overall dedicated services requirements” under what it terms “lock-in” agreements, which mean it cannot switch to purchasing from a lower-priced competitive providers when a lower rate is available. The resulting higher downstream prices, therefore, offset any claimed efficiencies brought by the so-called lock-in requirements. 50. It would be a mistake to assume, however, that all barriers to entry are insurmountable, or that they exist to the same degree everywhere. The record and our data collection support the view that competition is growing, and that potential competition, appropriately defined, is important. When investments are made to self-provision facilities to customers, competitors typically first look to a region, such as a metropolitan region, and then focus on deploying facilities, such as fiber construction, to reach specific buildings. “[U]rban centers where costs are low ( e.g., zero or low mileage) and demand is significant” are attractive to competitive LECs. For many competitive LECs, “the reach of an embedded network can extend beyond the location of its current connections to serve additional customers in the surrounding region.” XO, for example, “entered initially by building metro rings in dense areas of major cities, since these could aggregate traffic from more users and hence were more economical.” Many competitor carriers prefer to provide services over their own network facilities because it allows greater efficiency and permits flexibility to control the type and quality of the competitor's service offerings. After deploying a “core fiber network . . . extending laterals requires significantly smaller capital expenditure per unit of bandwidth” resulting in a lower-cost expansion. Relying solely on independent lateral facilities without a core fiber presence, in contrast (by carrying traffic from a single location), limits scale of economies and requires significant customer spend to justify investing in facilities. Other advantages with a region-first approach include familiarity with local marketplace, which can be useful for a local sales force. 51. The great entry success story has been that of cable. Less than a decade ago cable largely provided no businesses services of any kind that were materially different from the services marketed to residential customers. Yet, for more than half a decade cable business revenues have experienced compound annual growth rate of 20 percent, starting with the smallest business customers and working their way up to the largest. More recently, cable began offering BDS services over HFC, as well as fiber, and has forced even the largest incumbent LECs to focus on maintaining market share. In addition, Israel et al., estimate, based on our data collection, that over the course of 2013, competitive LECs' “bandwidth grew at six times the growth of the rate of the ILECs”. 7. Evidence of Market Power in the Delivery of DS1 and DS3 Services and Lack Thereof for Higher Bandwidth Services 52. Our own analysis, the Rysman White Paper, and the Baker Declaration, provide direct evidence of market power in the supply of various services. We seek comment on validity of these analyses, on how they might be extended, or tested. At the same time, we recognize that no analysis is ever perfect, and look for comments on what the broad evidence available to us ultimately says about competition and market power, even if alternative theories cannot be entirely ruled out. Key pieces of evidence before us are regression analyses that show price effects due to the presence of competition, which imply that in the absence of competition prices are higher than they otherwise would be; the fact the price capped incumbent LECs have no headroom under our price caps, and have been in that situation for at least several years; that competition in areas with pricing flexibility lowers prices more than in price cap areas; and that incumbent-affiliated competitive LECs do not appear to be focused on facility-based or UNE competition (with some interesting exceptions). We also note that the Rysman White Paper concludes that there may not be market power in the supply BDS at bandwidths in excess of approximately 50 Mbps and seek comment on this analysis. 53. A central finding in the Rysman White Paper is that, in regressions controlling for a range of other factors, competitive supply in a unique location is correlated in both statistically and economically significant ways with lower ILEC prices for DS1s and DS3s at that location. Similarly, the Rysman White Paper finds that competitive supply in a unique location anywhere in a Census block, and competitive supply anywhere in the Census tract, is correlated in both statistically and economically significant ways with lower prices within the Census block. Analysis in the Baker Declaration comes to similar conclusions, though others have criticized the Baker Declaration. We seek comment on these analyses, on how such analyses might be extended, further verified or disproved, and indeed for additional analysis from interested parties. 54. As a result of the CALLS Order, the price cap indices for BDS services have been frozen (outside of exogenous cost adjustments) since 2004. Over the period since then, there has been no evidence that the price caps have been a source of any kind of financial stress to the incumbent LECs. Yet, at the same time, the price capped incumbent LECs have essentially raised prices up to the maximum allowed by the price caps. In our view, this does not suggest that over the last decade or more our caps were too harsh, and rates as constrained by the caps were too low, and this was the reason the price capped incumbent LECs kept their prices at the top of the cap. Consequently, it is our view that the fact that the price capped incumbent LECs have kept their prices at the top of the cap is additional evidence of market power. 55. Price cap incumbent LECs file their respective annual access charge tariff filings to become effective on or around July 1st of each year. In that filing, price cap incumbent LECs file Tariff Review Plans (TRPs) to demonstrate that the carrier's Actual Price Index (API) does not exceed its Price Cap Index (PCI). To the extent that a carrier's API is less than its PCI, the difference, often referred to as “head room,” is a measure of the extent to which such a carrier is able to increase its rates under the price cap rules. By calculating the average ratio of the API to the PCI, based on the APIs and PCIs in each carrier's TRPs, we can determine how close each carrier is to the maximum prices it is permitted to charge overall. The ratios, based on the TRPs, demonstrate that the six largest price cap incumbent LECs have been charging close to maximum prices for the last four tariff years. This also implies that if the price capped carrier had any headroom in previous years, then in or prior to 2012 took advantage of that headroom and raised its prices effectively eliminating that headroom. 56. As demonstrated from the table above, the APIs of the six largest price cap incumbent LECs are more than 99 percent of their PCIs. Therefore, the largest carriers have almost zero headroom under the price caps; even a small rate increase would likely cause the carriers' APIs to exceed their PCIs. 57. The Rysman White Paper finds evidence that prices in areas granted pricing flexibility respond more to competition than prices in pure price capped areas. We seek comment on the validity of this finding, and whether it might be evidence that granting incumbent LECs the ability to offer contract tariffs allows them to respond more effectively to competitive pressures in pricing flexibility areas, and if so, does this support allowing contract tariffs throughout areas we might designate in a future order as non-competitive. We also seek comment on the Rysman White Paper finding that in price cap only areas competitive effects are smaller than in pricing flexibility I and II areas. Is that a valid finding, and if so does it indicate less competition in pricing flexibility areas, or something else? 58. The Approach to Competition of Competitive LECs Affiliated with Incumbent LECs. Competitive LECs affiliated with incumbent LECs have engaged in limited facilities-based investment relative to certain other competitive LECs and in some cases have avoided the use of UNEs. In particular, the [REDACTED]. 59. The Rysman White Paper finds little statistical relationship between the presence of local fiber-based competition and lower incumbent LEC prices for BDS above 45 Mbps. At least three possibilities could account for this observation: (1) Competition broadly exists for these services, (2) to the extent any competition existed, it was too little competition to produce material competitive effects, or (3) there are too little data and/or too many uncontrolled for variables for a statistical relationship to emerge. However, given limited complaints in the record about higher bandwidth services, and evidence that competitive LEC market share of fibered buildings is much higher than its general share, we recognize that supply of higher bandwidth services may often be more competitive than supply of lower bandwidth services. We, however, seek comment on this assessment. Is it correct generally? If so, could it be incorrect in particular cases that are sufficiently important that the Commission should consider action specific to those cases? How should any conclusion reached in the future about the nature of higher bandwidth services be applied, given the data on geographic areas, different categories of customers, and other factors? B. New Technology Neutral Regulatory Framework for Business Data Services 60. The BDS market has changed substantially since this proceeding was initiated, both in terms of technology and providers. While the price cap LECs maintain substantial market power in some areas for some services, it is clear the market will continue to evolve and that market power and market positions are likely to shift over the next ten to fifteen years and beyond. The Commission's prior adoption of bright line rules based on what turned out to be a poor measure of the presence of competition led to some of the problems we start to solve today. 61. Some parties to the proceeding have raised objections to being fully included in the new framework. We note that business data services are telecommunications services, regardless of the provider supplying the service. BDS providers are therefore common carriers. And as such, with the unique exception of Verizon's forbearance, the providers are subject to Title II in the provision of their services, including packet-based BDS services such as Ethernet. Sections 201 and 202 of the Act require that the rates, terms, and conditions under which common carriers provide telecommunications services, such as the broadband data services we address herein, must be just, reasonable, and not unjustly or unreasonably discriminatory. These requirements are enforced through section 208 of the Act, which permits any person to file a complaint against any common carrier for acts or omissions in violation of the Act or a Commission rule or order. 62. The presence, and use, of market power can inhibit the evolution of a competitive market, both through prices and terms and conditions. For example, we examine certain terms and conditions in the Tariff Investigation Order and prescribe changes to address terms we found to be unreasonable and, in some cases, anticompetitive. This Order and its findings in this and other areas will provide substantial precedent to guide the Commission in its consideration of any section 208 complaints challenging the reasonableness of conduct in the provision of business data services. Likewise, the Commission seeks comment in this FNPRM on significant issues such as the basis for determining the presence of material competitive effects that would support the removal of direct rate regulation in some areas for some services. Such analysis will provide further guidance for resolving the threshold question whether the services are offered in a non-competitive area, in any complaint asserting unreasonable conduct under sections 201 and 202. 63. While a case-by-case adjudication under section 208 is one option to provide guidance for what is reasonable conduct in light of the market analysis conducted in this proceeding, we find clear rules of the road will be valuable to all broadband data service providers as the market evolves. Accordingly, in this FNPRM, we propose a new regulatory framework for broadband data service that distinguishes between broadband data service providers based on market circumstances, rather than technology or the happenstance of prior Commission action and inaction. 64. The proposed technology-neutral framework will apply depending on the classification of a specific market as either competitive or non-competitive. This framework will depend on the adoption of a new Competitive Market Test to then determine whether market power is present and we additionally seek comment on such test below. As another significant piece of the technology neutral framework, we additionally propose actions to change the regulatory structure for the historically dominant price cap LECs. These proposed rules will establish a path towards technology-neutral regulation for broadband data services, while protecting against harm from lack of competition where it continues to exist. C. Statutory Authority for New Regulatory Framework 65. Sections 201 and 202 of the Communications Act are foundational requirements for all telecommunications services, designed to ensure that such services are offered to the public on just and reasonable rates, terms and conditions, and that services are not offered on an unreasonably discriminatory basis. 66. These sections have served as the statutory basis for a wide range of rules and other actions over the years. In addition to providing the substantive authority for various rules and requirements, section 201(b) states that the Commission “may prescribe such rules and regulations as may be necessary in the public interest to carry out the provisions of this Act.” 67. We propose that sections 201 and 202 of the Act serve as an adequate basis of statutory authority for actions that the Commission would take to create and implement the Technology-Neutral Framework that we propose to apply to BDS going forward. We have forborne from tariffing provisions for many BDS providers over the years. In this FNPRM, the Commission proposes to transition away from tariffing requirements for the last portion of BDS (incumbent LEC TDM), and to establish benchmarked prices for non-TDM services. We note that the Verizon/INCOMPAS Joint Letter urges that the Commission should make clear “that all providers offering dedicated services are subject to Title II of the Communications Act, including Sections 201 and 202 of the Communications Act.” The Commission seeks comment on whether its authority to ensure just and reasonable prices, terms and conditions under sections 201 and 202, and its explicit rulemaking authority in section 201(b), is adequate to require price cap filings for TDM services and benchmarked prices for non-TDM services. 68. Commenters have noted that the Commission's existing price cap regime was adopted with reference to section 204. If the Commission were to forbear from tariffing provisions for incumbent LEC TDM services, as it has with respect to the incumbent LECs' non-TDM services and all BDS telecommunications services of competitive providers, could it continue to require price cap filings for incumbent LEC TDM services in non-competitive markets based solely on the statutory authority in section 201(b)? Likewise, could the Commission use benchmarked prices to ensure that non-TDM services in non-competitive markets are offered on just and reasonable prices, as required by section 201? If not, why not, and what additional authority or action would be needed? 69. The Commission's proposed Technology-Neutral Framework also would place certain limits on terms and conditions of BDS to ensure that they are offered on just, reasonable, and not unreasonably discriminatory terms, especially in non-competitive markets. We seek comment on whether sections 201 and 202 provide the Commission with the statutory authority to take such actions. If not, why not, and what additional authority or action would be needed? 70. A fundamental aspect of the new Technology-Neutral Framework for BDS would be the adoption of new triggers to determine whether markets are competitive or non-competitive. We seek comment on whether sections 201 and 202 are themselves sufficient to support the adoption of such triggers, which could be used to determine whether (and if so, where) regulations are required to ensure that rates, terms and conditions of BDS services are just and reasonable. We note that such triggers have been tied in the past to the Commission's authority under sections 201-205, and we seek comment on whether the Commission should rely on additional sources of authority. 71. Some entities have suggested that the Commission address certain issues such as wholesale pricing under section 251, where Congress has imposed specific resale requirements. However, section 251 has an explicit savings clause, which states: “Nothing in this section shall be construed to limit or otherwise affect the Commission's authority under section 201.” Does the savings clause indicate that the Commission has ample statutory authority to address resale issues for BDS under section 201 authority, notwithstanding that the statute imposes particular resale requirements on certain types of providers in sections 251(b) (local exchange carriers) and 251(c)(4) (incumbent local exchange carriers)? If not, why not, and what additional authority or action would be needed? 72. Are there any other statutory provisions that the Commission should consider invoking to support a Technology-Neutral Framework for BDS? For example, section 706 of the 1996 Act provides that the Commission “shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.” Does that section have any particular applicability to the actions proposed in this FNPRM, such as promoting competition for BDS and removing obstacles to technology transitions? 73. Finally, we seek comment on whether any transitional or incremental policy actions are appropriate as the Commission considers and moves to comprehensively reform the BDS regulatory framework. Are there incremental changes the Commission could take as it evaluates broader reforms and a Competitive Market Test that furthers our goals? Should we adopt any transition to a new Competitive Market Test and, if so, how should we structure the transition? D. Competitive Market Test 74. We propose to replace the 1999 pricing flexibility regime with a new regulatory framework for BDS. The new framework, as proposed, builds on the analysis of the 2015 Collection to establish a comprehensive Competitive Market Test to determine whether a relevant market is competitive or non-competitive. Where competition is sufficient in a relevant market, based on objective criteria to measure competitive effects, the Commission is proposing to rely upon market forces to constrain rates, terms, and conditions. That is, we propose to subject markets determined competitive to minimal regulation to protect consumers as proposed in Part V.E. The Commission would subject relevant markets, determined non-competitive, to specific rules as proposed in Part V.F on the ground that customers in those markets are being harmed. A separate question concerns the scope of regulation in a non-competitive market, and whether it should apply to all or some providers and, if some, which ones and on what basis (such as market power)—and we seek comment on these questions below. The ultimate goal going forward is to apply regulatory obligations on a technology and provider neutral basis where it is necessary to protect and promote competition. 75. On the criteria for the Competitive Market Test, we invite comment. Initially, we are proposing a test, which focuses on multiple factors, including bandwidth, different customer classes, business density, and the number of providers in areas consisting of census blocks where each block in the relevant market meets the specified criteria. As described above, the data and our analysis suggests that competition is lacking in BDS at or below 50 Mbps in many circumstances, and that competition is present in BDS above 50 Mbps in many circumstances. Such evidence will guide how the Commission uses product market characteristics in applying the Competitive Market Test to a relevant market. We seek comment on the appropriate factors to include in the test and, in particular, the appropriate weight to attribute to the various factors in application of the test. With any test criteria and for application of the test as a whole, we seek comment on how to create a test that is simple to administer and, to this end, ask about the commercial practicalities and administrative feasibility of any particular approach. We also seek comment on how any approach would further our goals of promoting competition and investment. 76. We propose to apply the Competitive Market Test across all geographic areas served by price cap carriers. The Commission would use publicly available information, the 2015 Collection, and other information in the record to apply the test to create a list of geographic areas that are deemed competitive and non-competitive by relevant product market. To provide certainty but also ensure accuracy of the data, we seek comment on whether the Commission should reapply the test every three years for example, with updated data to reflect changes in business density or the number of providers in a geographic area. Once the initial competitive/non-competitive determination is made, we seek comment on a process to address instances where a provider or purchaser disagrees with the determination finding and suggestions for the appropriate standards and procedures to govern that process. 77. The pricing flexibility framework adopted in 1999 based regulatory relief on the presence of third-party collocations in the incumbent LEC's wire centers, which were considered proxies for competition in the marketplace. In 2012 the Commission concluded after a substantial review that, despite the many administrative benefits to reliance on the triggers, collocations are a poor proxy for predicting the entry of facilities-based competition and suspended, on an interim basis, further automatic grants of pricing flexibility. The Commission found the 1999 regime retained unnecessary regulation in areas that were very likely to be very competitive and deregulated over large areas where competition was unlikely to occur. 78. Our review of the 2015 Collection supports the Commission's earlier findings that the existing triggers do not reflect the existing competitive nature of the market. Specifically, in 97.9 percent of the wire center territories where a cable competitive LEC has reported locations—where the connection to the location is not a UNE obtained from an incumbent LEC, a cable company has not collocated in the wire center. Of these wire centers, 62 percent remain subject to price cap regulation without pricing flexibility for channel terminations. If we include census blocks where a cable company reported having DOCSIS 3.0 coverage for 2013 for the National Broadband Map, the percentage of wire center territories without any collocations from the cable company increases to 98.4 percent. Of these wire centers, 66 percent remain subject to price cap regulation without pricing flexibility for channel terminations. This strongly shows the collocation triggers are substantially underestimating the entry of facilities-based competition from cable companies for last-mile facilities and hindering deregulation. 79. When we look at all competitive providers and remove locations with UNEs, in 32.3 percent of the wire center territories where the Commission has granted the incumbent LEC pricing flexibility for channel terminations, competitive providers have reported no locations where they own or lease, pursuant to an indefeasible right of use (IRU), a connection to a location. If we expand the inquiry to include census blocks where a cable company reported having DOCSIS 3.0 coverage for 2013 for the National Broadband Map, this percentage decreases to 24.7 percent. This shows that collocations at a substantial percentage of wire centers do not accurately predict the entry of facilities-based competition for last-mile connections. 80. We now believe it is appropriate to modernize our triggers to ensure we capture all competitive entrants. Therefore, we propose to abandon the collocation-based competition showings for channel terminations and other dedicated transport services for determining regulatory relief for incumbent LECs. Instead, we propose to apply a new Competitive Market Test. Our intent, discussed in more detail below, is to create a framework that is provider and technology neutral. Our goal is also to create a framework that is simple and minimizes regulation only to the extent necessary to ensure rates are just and reasonable. 1. Business Data Service Definition 81. A definition for BDS is critical to any new regulatory framework. We suggest below a definition similar to the definition used for dedicated services in the 2015 Collection. Specifically, we would define BDS as a telecommunications service that: Transports data between two or more designated points at a rate of at least 1.5 Mbps in both directions (upstream/downstream) with prescribed performance requirements that typically include bandwidth, reliability, latency, jitter, and/or packet loss. BDS does not include “best effort” services, e.g., mass market BIAS such as DSL and cable modem broadband access. 82. We seek comment on this definition and ask whether the definition should include minimum performance guarantees, such as 99.99 percent reliability. Also we seek comment on whether we should reduce the minimum symmetrical speed to 1 Mbps to account for dedicated service offerings below 1.5 Mbps. 2. Multi-Factor Competitive Market Test—Relevant Market(s) and Test Criteria 83. We are guided by traditional economic principles in identifying relevant market(s) and the competition criteria for a Competitive Market Test. We also consider, and seek comment on, the administrative feasibility and commercial practicalities of any particular approach both for providers as well as the Commission. A proposal under consideration, as discussed in more detail below, is to define the relevant market for applying a test along customer classes and varying bandwidths in geographic areas consisting of census blocks, including groupings of census blocks. The proposed criteria for the test would focus on business density and the number of providers in the relevant market area. 84. The Commission has traditionally applied the pricing flexibility competitive showings to two different BDS segments, channel terminations and other dedicated transport services. There is little discussion in the Pricing Flexibility Order as to why the Commission chose these two particular service categories. Historically, incumbent LECs tariffed these services separately, and the charges reflected different traffic sensitivities. The Commission explained in the Pricing Flexibility Order that a lower competitive showing was required for other dedicated transport services because these services, which move traffic from one point of concentration to another, require “less investment per unit of traffic,” than channel terminations. The Commission found that competitors were more likely to enter the market to provide other dedicated transport services than channel terminations. Looking at how non-cable competitive LECs have deployed their networks, we find this approach holds true today for those types of providers (and as discussed above, appears as much driven by bandwidth demand as it does by the channel termination/transport distinction). 85. Developing a new framework, however, gives us the opportunity to re-evaluate the triggers and product markets used in the application of a competitive test to ensure that they reflect technology transitions and the current market. Today, competitors, and even incumbent LECs with their forborne services, do not typically offer consumers BDS by charging a customer separately for transport, last-mile access, and channel mileage. They instead offer connectivity at certain bandwidth levels and performance guarantees and packaged communications solutions that include a transmission component to meet the demands of different types of customers. Our framework should reflect how the market operates today. 86. Moreover, the needs of the customer dictate the service offerings. As discussed in our competition analysis and as providers have told us, different types of customers have different needs. A small business with less than 20 employees at one location is unlikely to need the multi-office networking connectivity, or even the same level of bandwidth capacity, as would a large enterprise customer. The needs of a mobile operator to backhaul aggregated traffic from cell sites are different than the needs of a retail chain wanting to securely process credit transactions. The needs of competitive LECs, as wholesale customers, for last mile access as an input for their own service offerings differ from the needs of retail end users. And as the needs change by customer class so do the service substitutes, the economics of providing service, and the likelihood of facilities-based entry by competitors. 87. We therefore seek comment on whether to apply our Competitive Market Test based on different BDS customer classes at varying bandwidths and ask for comment on whether, and if so how, the Commission should separate the product market by customer type and bandwidth. For example, should the customer classes consist of the following categories: Small business with less than 20 employees, mid-sized businesses with 20-500 employees, national/enterprise businesses with 500+ employees that typically require service at multiple locations? And should we adopt a separate product market to address the cell site backhaul needs of mobile providers and another one for sales to wholesale customers? We seek comment on the benefits of segmenting product markets by customer class and whether the data supports such an approach. In lieu of customer classes by size of retail customers, should we instead have fewer customer classes, such as just wholesale, mobile backhaul, and retail? Or are the benefits of using customer classes outweighed by the burdens due to the complexity and practicality of implementing such a framework? 88. To the extent the Commission adopts such an approach, we seek comment on whether we should also subdivide the relevant product markets by bandwidth to capture the varying demand and competition levels within each customer class. For example, we could divide the wholesale segment into BDS ≤50 Mbps and >50 Mbps. In developing the appropriate bandwidth overlay, we can look to evidence in the record and our own analysis of the 2015 Collection as to the level of competition at different bandwidth levels. To what extent, should evidence indicating that the supply of BDS above 50 Mbps tends to be more competitive than the supply of BDS at lower bandwidths factor into this overlay? We seek comment on whether 100 Mbps or some other bandwidth level is better supported by the evidence in particular market segments? Should we recognize different tiers of products (or distinct product markets) based on differences in speed? Should the bandwidth overlay levels vary depending on a particular customer class? Should the relevant bandwidth level(s) be static or evolve over time? For example, should product market re-evaluation be made part of the review conducted in light of future data collections? 89. We seek comment on these issues and encourage commenters to suggest other alternatives for consideration. Commenters should address whether a customer class/bandwidth approach would appropriately capture the nature of competition in these markets, whether the approach is administratively feasible, the appropriate bandwidth and/or product-feature categories, and whether we should include additional customer classes or make other modifications to the classes identified. For example, is it correct to base a product market identification on speed or do we need to factor in as well additional performance features and, if so, which ones should be used and how should multiple product features be used to identify different product markets? We also seek comment on how various approaches would further our goal of promoting competition and investment for BDS services. 90. In 1999, the Commission chose to grant pricing flexibility on an MSA and non-MSA basis with the intent of defining “geographic areas narrowly enough so that the competitive conditions within each area are reasonably similar, yet broadly enough to be administratively workable.” The Commission in the Suspension Order concluded “MSAs have generally failed to reflect the scope of competitive entry.” In reaching this conclusion, the Commission found “that business demand can vary significantly across an MSA” and that competitive entry tends to occur in smaller areas with the highest density of business establishments. The GAO reached a similar conclusion in 2006. 91. Our analysis of the 2015 Collection further confirms these findings. According to our analysis, the price regressions of incumbent LEC rates for DS1 and DS3 lines show consistent negative effects for the presence of competition in the building, and the census block, much of which is both economically and statistically significant. In addition, the regressions show some effects for the presence of competitive fiber in the census block, even if that fiber is not connected to any buildings in the block. 92. Given our analysis, we seek comment on using census blocks as the geographic area for applying the Competitive Market Test. We also ask whether using a more granular area, e.g., the building or cell site location as the relevant geographic market, or whether a larger geographic area is appropriate. For example, if the geographic area were the building location, the provider's regulatory obligations could change building-by-building, which could make it difficult not only for regulators but also for providers trying to offer services to customers at multiple locations. Could a building approach reduce the challenges to determining the necessary proximity to fiber, thereby simplifying administration? A census block or even census tract approach would create a similar patchwork of geographic areas with different regulatory treatment. Census blocks in metropolitan areas are also often very small in size. For example, according to AT&T, “[t]he average size of census blocks in MSAs with demand for special access services is only about one-seventh of a square mile.” However, we anticipate that areas adjacent to a census block will often have similar business density and facilities-based competitor characteristics resulting in a similar determination as to the level of competition. 93. Our goal is to learn from past experiences and to not repeat the errors of the 1999 pricing flexibility regime by granting relief too broadly to cover areas where competition is not present or unlikely to occur. 94. We seek comment on these proposals. Commenters should address the administrative feasibility of the proposals and how each option would impact the goal of promoting competition and investment in the BDS market. We also invite commenters to suggest alternative geographic units and ask commenters to explain how any alternative is supported by the data and furthers our goals. 95. Our intent, as with any of the proposals under consideration, is to focus regulation on areas where actual or potential competition is insufficient to ensure rates, terms and conditions are at just and reasonable levels. We believe that bright-line criteria are best suited to meet these goals. Based on our review, we have identified two possible criteria for determining whether or not a market is competitive, i.e., business density and the number of providers in the relevant geographic area. We seek comment on these criteria below and whether alternative or additional criteria should be incorporated into the test. 96. Our analysis shows there is a significant correlation between business density and the presence, or likelihood, of competition. We therefore seek comment on the appropriate business density metric for the Competitive Market Test. Should we use the number of businesses establishments in a defined geographic area, the number employees, the level of payroll, or some other variable that is readily available and shown to be a good proxy for business demand? For example, should we look to any census block with more than some number of businesses establishments per square mile? Also to what extent should a different density standard apply when evaluating mobile backhaul? The deployment of cell sites may not necessarily correspond to business density and may more likely relate to population density or public travel areas. Should the Commission instead focus on the density of existing cell sites in a census block area when evaluating a mobile backhaul market? If so, what is the appropriate cell site density metric? 97. Our analysis further shows that the competitive effect on pricing increases as the number of competitors in the area increases. How should we incorporate this into a bright-line trigger? The Commission in the Qwest Phoenix Order found a market with only two competitors, a duopoly, not sufficiently competitive. Should we require more than two facilities-based competitors in any area for a competitive trigger? Are there instances where having just one or two competitors is sufficient given the bandwidth level and business density in a given area? There is also the question of whether the type of competitor in the market makes a difference? Should we weight competition from a cable company differently than a non-cable competitive LEC or vice versa? If so, should this different weighting vary with bandwidth levels? There is also the question of how we identify the presence of a competitor in the area. Is it enough for a competitor to have one served location in the area? Is it enough for a cable company to just have DOCSIS 3.0 coverage over their HFC network in the area or should we weight an HFC network differently based on the presence of Metro-E capable nodes in the area? Should we also base the presence of a competitor on the presence of their fiber in the area or is it the presence of a competitor's fiber node in the area? For each customer class and bandwidth level, should we only count competitors in the area that are currently offering such services to that customer class within the stated bandwidth level? 98. We seek comment on the administratively feasibility of using the above test criteria, and encourage commenters to suggest alternative test metrics. 99. Our goal in creating the Competitive Market Test is to adopt a formula using available data, e.g., publicly available business density information and information provided in the 2015 Collection, and information from the National Broadband Map on the presence of facilities-based providers in a given geographic area, to determine whether or not a relevant market in areas served by price cap carriers is competitive. 100. The Competitive Market Test matrix would generate lists of census blocks or whatever geographic area the Commission adopts for each relevant market determined competitive and non-competitive. The corresponding regulatory obligations would then apply to markets within the relevant geographic area going forward, e.g., census block areas. We seek comment on how to ensure that this information is disclosed in a transparent, easily accessible format. For example, should the Commission create a central repository for information on its Web site that could contain an interactive map, which reviewers could filter by product class like the National Broadband Map? Or alternatively or in addition to a map, should the Commission simply create a publicly available database, which simply contains lists of relevant geographic areas by product market as competitive and non-competitive? Commenters should address which approach would be the easiest to administer and simplest for providers. 101. To provide certainty but also ensure that data are accurate and updated, we seek comment on re-applying the Competitive Market Test across all areas served by price cap carriers every three years to account for example, for changes in business density and the presence of facilities-based providers in geographic areas. This periodic reassessment could coincide with our separate proposal discussed in Part V.J to collect data from providers on their supply capabilities every three years starting in 2018. The re-application of the Competitive Market Test matrix using updated data would likely result in changes to the market delineation established by its prior application. For example, the Commission could subsequently determine a relevant market area, previously considered non-competitive, as competitive based on the updated data. And the opposite might also be true. 102. A periodic reassessment reduces burdens on providers as well as the Commission and balances the need to ensure accurate data. We generally seek comment on the administrative feasibility of this approach, both as a whole and as to its individual parts. We also welcome suggestions for alternative approaches. We additionally seek comment on whether we should provide some implementation period to allow providers to conform operations following the application of the Competitive Market Test before any new regulatory obligations resulting from the determination of a relevant market as competitive or non-competitive are effective? If so, how long of a period should we provide? Commenters should also address the commercial practicalities of changing the regulatory treatment of a relevant market area every few years? For example, how could this impact contractual obligations with customers and to what extent could commercial providers adjust or account for a potentially changing regulatory environment every few years? Should the Commission re-apply the Competitive Market Test less frequently, like every five years? 3. Post-Determination Process 103. We ask to what extent and how the Commission should give providers and purchasers an opportunity to challenge the determinations rendered. We seek comment on how best to structure such a process to minimize administrative burdens on providers, purchasers, and the Commission. 104. We seek comment on the timing and frequency of such post-determination challenges. Should the Commission open a window to permit challenges within a specified period of time after the Competitive Market Test determinations are rendered, e.g., 30 or 60 days? If commenters believe that challenges should be permitted on a rolling basis, how would that impact market certainty and the transactions between providers and purchasers of BDS services? 105. We also seek comment on how to build upon lessons learned from the Connect America Fund challenge process. Based on the Connect America Fund experience, we believe a specific, bright-line test is appropriate to ensure that the Commission has data necessary to evaluate the merits of any challenges. We propose that parties seeking to challenge an area determined non-competitive to be designated as competitive should have the burden of proof to provide data demonstrating that the given area satisfies the Competitive Market Test. Should the same hold true of a challenge that a competitive market is non-competitive? What standards or showing should the challenger have to make to overcome a Competitive Market Test determination? For example, should challengers be required to submit new maps of fiber? In addition to providing challengers with access to data collection results subject to confidentiality restrictions, should the Commission give challengers a limited right of discovery to obtain information from providers to help make their requisite showing? If so, should the petitioner be required to meet a threshold evidentiary burden to initiate discovery and what should that be? 106. Should there be a different process if a provider challenges that an area determined competitive is non-competitive? What standard should apply? Is pricing data relevant or just the number of providers? Should the burden shift upon a prima facie showing? If so, what should constitute a prima facie case? 107. To the extent the Commission adopts product markets, how should such product markets factor into a challenge process? For example, what evidence would be necessary to show that a certain class of business customers face competition but smaller businesses do not? 108. In evaluating any challenges, should we limit filings to an affirmative case and a response? Should all challengers be required to submit certifications from officers attesting to the accuracy? We seek comment on how the Commission could build upon lessons from the Connect America Fund challenge processes to improve the implementation and reduce burdens for providers and the Commission. 109. We also seek comment on the how the Commission should implement the results of a post-determination challenge. If a challenge were successful, we propose that any determination for the relevant market changed from competitive to non-competitive as a result of the challenge (thereby changing the regulatory treatment of the relevant market area) would apply prospectively. If a successful challenge resulted in the change of a determination in 2017 to competitive, hypothetically, how should the Commission treat this relevant market area when it comes time to reapply the Competitive Market Test in a later year, like 2018? Should the Commission just reapply the test at that time, which could then trigger another round of challenges for that relevant market depending on the outcome of the determination? 110. Any post-determination process that allows for challenges or even a request for waiver raises serious administrative feasibility and burden concerns for the agency. The Commission must weigh the equitable benefits of allowing such a process to prevent undue harm to providers and customers in the relevant markets against these concerns. We seek comment on the above questions and invite commenters to suggest alternatives balancing benefit and burden. 4. Regulation for Provider(s) in Areas Determined Non-Competitive 111. Once the Competitive Market Test is applied, we ask which provider(s) should be subject to the specific rules that apply to markets determined non-competitive. Should such rules only apply to the largest BDS provider in the non-competitive market as measured by network coverage, locations served, revenues or some other metric or metric combinations? If so, how would we define the appropriate measure of “largest” ( e.g., share of customers, share of revenue)? If we borrow upon antitrust principles and Commission precedent that focused on dominance, should we focus on the provider with the largest market share and therefore market power? Should we focus on the provider with the largest market share? If so, what is the appropriate measure of market share? 112. Alternatively, should we apply specific rules to any firm in the non-competitive market that has a near ubiquitous network in the local territory and rights of way? This could result in specific rules applying to more than one firm in the non-competitive area. Another approach is to apply this framework to all BDS providers in the non-competitive area. However, such an approach could apply additional regulation to new entrants with little or no market share. Given our desire to promote new competitive entry, should new entrants or providers with market share below a certain threshold not be subject to all or some of the proposed rules applicable to non-competitive markets? If so, what is the appropriate market share where providers should be exempt from such framework and why? Is there a better way to encourage new entrants? 113. We seek comment on these questions. Commenters should consider the regulation that would apply, as proposed in Part V.F where the Competitive Market Test resulted in a finding of a non-competitive service area. For example, if it were merely that our proposed benchmarks would apply to disputes about whether a price is just and reasonable, this may not impact providers that currently price below the benchmark. Other proposals, such as limitations on terms and conditions, may be more onerous. 114. Commenters should specifically address the potential impacts on infrastructure investment, innovation, administrative feasibility, and commercial practicalities of any particular approach. We also ask commenters to explain how each approach minimizes regulation to where necessary to ensure that rates, terms and conditions are just and reasonable in the absence of competitive pressures to do so. Commenters should also address the Commission's ability to implement any particular approach given the previous grants of forbearance authority to incumbent LECs for packet-based and optical carrier transmission services. E. Rules Applying to All Markets 115. We first propose limited requirements that would apply to the provision of BDS in all markets, both competitive and non-competitive. All BDS providers are common carriers and, are subject to sections 201 and 202 of the Act. The Commission has long relied on these provisions to ensure just, reasonable and non-discriminatory conduct by competitive telecommunications service providers and we do so here. We have, however, identified an area for which a general prohibition could be valuable in our effort to facilitate the evolution of competitive markets. The proposed rule would limit the use of NDAs to block providers from sharing, subject to appropriate protective orders, the terms of business data services commercial agreements with the Commission and other government entities with oversight responsibilities. Such agreements have restricted competitive LECs from providing information that we believe would have been useful in the course of this proceeding and we find that they could inhibit the Commission's oversight of the business data services market going forward. We additionally seek comment on certain terms and conditions we found unlawful in the Tariff Investigation Order and whether such provisions should be prohibited in connection with the provision of BDS either generally or more narrowly in non-competitive markets. These proposed requirements would be technology neutral in nature and would form a part of our proposed overarching framework for the regulation of BDS generally. 1. Non-Disclosure Agreements 116. We seek comment on prohibiting the use of NDAs or their functional equivalents in business data service commercial agreements that restrict providers' and purchasers' ability to disclose information to the Commission or other government entities with oversight responsibilities. Competitive LECs have asserted that such requirements preclude them from sharing information with the Commission that would inform the Commission's oversight of the business data services market. We recognize that such agreements contain commercially sensitive information and underscore our continuing commitment to ensure the protection of confidential information submitted to the Commission through our protective orders. 117. We acknowledge the important role NDAs play in ensuring the protection of confidential information in commercial agreements. Parties to a commercial agreement have the right to seek protection of their confidential information and would be unlikely to enter into such commercial agreements without reasonable assurance that their sensitive business information would not be compromised. The Commission is fully cognizant of this need and ensures confidential data submitted by parties is accorded all necessary protections, principally through the use of protective orders. Protective orders have almost universally fulfilled their purpose. In the rare cases that confidential information has been misused by a party, the Commission has undertaken appropriate steps to ensure the protective orders are enforced. 118. While we respect the importance of protecting parties' confidential information, the Commission must also ensure its access to the information necessary to discharge its core statutory duties. NDAs that obstruct this access may unreasonably interfere with the core oversight functions of the Commission and undermine the public interest in a full and complete record on which the Commission can base its decisions. We therefore propose several alternative prohibitions and restrictions on NDAs for business data service commercial agreements. First, we seek comment on adopting a prohibition on NDAs for commercial agreements that bar the provision to the Commission of any information regarding a commercial agreement. While such NDAs may be uncommon, should any such NDAs be permitted? We seek comment on the effect allowing such NDAs would have on the Commission's fact finding efforts and on its ability to base its decisions on all relevant information. We also seek comment on whether there are any circumstances which would justify precluding parties' ability to share any information in such a blanket fashion. 119. Second, we seek comment on whether the Commission should prohibit NDAs that effectively require the Commission's legal compulsion before parties are able to produce information from a business data service commercial agreement. Do NDAs that require parties to disclose confidential information only when required to do so by the Commission unduly restrict the Commission's access to information necessary to discharge its statutory functions? To what extent does this kind of constraint in practice restrict the Commission's ability to access information to the small number of cases where it is both aware of the existence of a commercial agreement and can devote the time and resources necessary for issuing an express direction for the production of information from the agreement? To what extent do such NDAs place the Commission in a quandary where it can only access information it specifically seeks, the existence and substance of which the parties are bound not to disclose? 120. Finally, we seek comment on whether we should prohibit NDAs that limit parties to disclosing information subject to an NDA only in response to a request by the Commission (in a notice of proposed rulemaking, a public notice or otherwise). Such a prohibition would allow parties to disclose information to the Commission on a voluntary basis at their own initiative and apart from any express request by the Commission. We note that the Commission has previously imposed rules effectively requiring a prior request from the Commission before parties could disclose information subject to an NDA. Section 51.301(c)(1) of the Commission's rules states that “a nondisclosure agreement that precludes [a] party from providing information requested by the Commission” is a violation of the section 251 duty to negotiate in good faith. Should the Commission adopt similar restrictions on NDAs in business data services commercial agreements? Would such an approach to NDAs impact parties' advocacy before the Commission? Would it still constrain the Commission's access to important information from commercial agreements? As with NDAs that require legal compulsion prior to disclosure, how would the Commission know to request disclosure of information in commercial agreements that it may have no way of knowing existed? 121. Eliminating the requirement of a prior request for information would effectively enable parties to disclose information from a commercial agreement on a voluntary basis. We seek comment on whether this is an appropriate approach for the Commission to take. TDS Metrocom notes that NDAs impact parties' ability to fully participate in the rulemaking process. It states that the “practice of subjecting the rates, terms, and conditions of commercial Ethernet agreements to confidentiality restrictions impedes TDS CLEC's ability to advocate in support of new rules and detect unreasonable and discriminatory rates.” Would allowing parties to disclose voluntarily information from a commercial agreement enable fuller and freer advocacy by those parties? Would it also assist the Commission in identifying issues that it otherwise would be unaware of? We also seek comment on how the Commission would ensure the confidentiality of such information once disclosed to the Commission. To the extent the information was related to an existing proceeding, the Commission would presumably either have already adopted a suitable protective order or would be able to do so in response to such a submission. What steps should the Commission take to ensure the protection of such information if the information was not related to an existing proceeding? Are there any other steps the Commission should take to ensure the protection of confidential information voluntarily submitted by a party? 122. Additionally, we seek comment on whether there are other types of NDAs or confidentiality provisions that may inhibit the Commission's discharge of its core oversight and fact finding functions. If so, we seek comment on whether the Commission should also prohibit these or take some other action to modify them. We seek comment on how any rules the Commission adopts related to NDAs or other confidentiality provisions should affect existing contracts? Finally, how would the Commission implement a prohibition on NDAs that restrict its access to information contained in commercial agreements? 2. Scope of Application of Terms and Conditions Requirements Adopted in the Tariff Investigation Order 123. In this section of the FNPRM, we seek comment on the scope of application of the three requirements we adopt in the accompanying Tariff Investigation Order to other tariff pricing plans not subject to the tariff investigation and to commercial agreements for IP based business data services such as Ethernet. We also seek comment on whether such requirements should be applied in non-competitive markets or more generally in all markets. 124. In the Designation Order, the Bureau designated for investigation “all-or-nothing” provisions in certain incumbent LEC tariff pricing plans that required customers that participate in one of the plans to make all of their TDM purchases out of that single plan. In the Tariff Investigation Order, we determined that all-or-nothing provisions are unreasonable and anti-competitive because they restrict a customer's purchase options from both incumbent LECs and other providers. 125. We seek comment on whether we should extend the Tariff Investigation Order's prohibition on all-or-nothing provisions in the plans under investigation to a general prohibition on all-or-nothing provisions in all business data services, including both tariffed offerings and commercial agreements, and whether such a prohibition should be imposed in noncompetitive markets or in all markets. We seek comment on whether other pricing plans or other providers use all-or-nothing provisions or provisions that have materially similar effects for purchasers of TDM or packet business data services. How common are such provisions in TDM tariffs or Ethernet commercial agreements? If all-or-nothing provisions are used in other tariffs or in commercial agreements, what is the business justification for using them? What impact do all-or-nothing restrictions have on the transition to IP business data services? How, if at all, are such requirements different for Ethernet than TDM business data services? Do Ethernet commercial agreements raise any special considerations that would merit unique consideration? Do these provisions help providers lower costs or create efficiencies? If so, we seek quantification of these costs and whether there is any rational relationship between these costs and efficiencies generated by all-or-nothing provisions? Additionally, we seek comment on whether we should impose such a prohibition on noncompetitive markets or all markets. 126. We also seek comment on potential issues regarding the implementation of a prohibition on all-or-nothing requirements. To the extent there are other tariffed incumbent LEC pricing plans or contract tariffs that contain all-or-nothing provisions, how should the Commission implement this proposed prohibition? Should such a prohibition be effective immediately upon publication in the Federal Register ? Should it consider a transition period to allow parties to implement this rule? If so, what would be an appropriate transition period for phasing out these provisions? Should the Commission institute a fresh look opportunity to enable customers of existing pricing plans with all-or-nothing restrictions to remedy the effects of these restrictions prior to the expiration of their current, often long term, pricing plans. 127. Multiple purchases under a single plan. We also seek comment on whether we should find unreasonable restrictions on customers' ability to participate in an incumbent tariff pricing plan more than one time concurrently. In other words, should customers be restricted from splitting their purchases under one pricing plan into two or more separate agreements and managing those separately? Some incumbent LEC tariff pricing plans address this issue and expressly restrict customers to participating in a single version of a pricing plan at any one point in time. For example, the RCP in the CenturyLink Tariff F.C.C. No. 11 states: “A customer can have only one RCP in effect at a time.” We seek comment on whether other pricing plans impose a similar requirement in this or other ways. 128. We seek comment on whether these restrictions on customers are reasonable. Should incumbent LECs effectively force customers to aggregate all their purchases into a single purchase under a pricing plan? Would eliminating such restrictions and allowing customers to split their overall purchases under a pricing plan into separate purchases under that plan provide them with greater flexibility in managing their purchases? Would it allow competitive LECs to better manage increasing shortfall penalty liability in a declining TDM market that is transitioning to packet business data services? We also seek comment on the business rationale for such a requirement. What additional management or tracking burdens would this impose on incumbent LECs and how significant would they be? Can such costs or burdens be quantified? How would any such administrative burdens compare with the benefits of added flexibility for customers in the business data services market? 129. We also seek comment on whether such restrictions are used in Ethernet commercial agreements. If so, commenters should cite examples and discuss the impact they have on customers' flexibility in managing their Ethernet purchases. Would allowing customers to treat their purchases under one Ethernet commercial agreement as separate purchases impose any burdens on providers of business data services? Would the benefits of increased flexibility outweigh any such burdens? Should the Commission prohibit such restrictions solely in noncompetitive markets or should it prohibit them in all markets? 130. Shortfall penalties are fees that are imposed for violations of percentage-based commitments, which competitive LECs assert require them to maintain a large proportion of their total spend with an incumbent LEC provider to obtain discounts and circuit portability typically necessary for wholesale providers. In the Tariff Investigation Order, we found shortfall penalties that provided compensation beyond a price cap LEC's expectation damages were unreasonable and directed certain price cap LECs to remove such provisions from their tariffs under investigation and directed them to make tariff revisions consistent with the terms of the order. We seek comment in this FNPRM on whether we should prohibit the assessment of shortfall penalties that provide compensation beyond expectation damages. Should we prohibit such penalties both in tariff pricing plans and in commercial agreements and should any such prohibition be imposed only on noncompetitive markets or also on competitive markets? 131. We now seek further comment on the reasonableness of shortfall penalties that are contained either in tariff pricing plans that were not the subject of the Bureau's tariff investigation or are contained in commercial agreements for the sale of IP-based business data services. We seek comment on whether shortfall penalties should reflect the economic costs of breaching an agreement or whether they should be set at some other level. Would unreasonable and excessive penalties impair providers' ability to transition to IP based business data services? Could such penalties negatively affect wholesale competition and end-user customers in the form of higher prices, reduced innovation, and reduced investment in broadband services? 132. We seek comment on whether the standard for assessing the reasonableness of shortfall penalties that we adopted in the Tariff Investigation Order should be applied more broadly to all providers of TDM and packet-based BDS through either tariff pricing plans or commercial agreements and either in noncompetitive markets or in all markets. We propose that any action we take in this regard should be applied on a technology neutral manner. Would such a standard allow providers to recover from their customers in the event of a breach sufficient, insufficient or excessive damages? We seek comment on the wide variety of methodologies for calculating shortfall penalties both in tariff provisions and commercial agreements. Commenters advocating for other measures of reasonableness for shortfall penalties should explain their concerns with the proposed standard and identify an alternative standard and provide examples. 133. We seek comment on what approach would best ensure that both parties to a contract, whether through a tariff or a commercial agreement, receive the be [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2016-12058. Public record. Not legal advice.