What’s this I hear about “special axes?”
Those who follow tech policy have probably noticed that, as of this spring, an increasing hue and cry is being raised about the cost of those telecommunications services which are dubbed “special access.”
Most people’s inclination, when they hear the term “special access,” is to dismiss the issue as unimportant. After all, if it’s something “special,” it’s probably rare… so how could it be of much concern? And if it’s “special,” doesn’t this mean that it’s a boutique item that really ought to cost more?
Back in the 70’s, the late comedic actress Gilda Radner played a Saturday Night Live character named Emily Litella, who would rail on about some issue whose name and meaning she’d gotten wrong, such as “violins on TV” or the “deaf penalty.” (She probably would have misheard “special access” as “special axes;” hence the pun in the headline above.) When she suddenly realized that she had completely misunderstood what the issue was, she’d cut off her monologue with a quick “Never mind!”
Likewise, most people — when they find out what “special access” is really about — agree that it’s misnamed and very much deserves attention.
That’s the first thing folks need to understand about this issue: There’s nothing “special” at all about “special access.” It consists of the ordinary wholesale, high capacity, point-to-point data connections — often called the “middle mile” — which connect (among other things) cell phone towers to the telephone system and ISPs to the Internet backbone. And, despite the fact that it’s absolutely essential to the provision of many services, prices for it are held in check neither by competition nor by even a minimal amount of oversight. It’s thus an area that’s ripe for price gouging and anticompetitive tactics, both of which are occurring.
The second thing you need to understand is that overcharging for “special access,” if it’s allowed to continue, will lead to a cellular duopoly in many parts of the country or maybe even the whole country. Why? Because AT&T and Verizon, the two large telephone monopolies, are also cellular providers. When they do business in each other’s territories, each overcharges the other for the “special access” lines which are necessary to hook their towers up to the phone system. But since they do this about equally to one another, it’s a wash. (In fact, it’s mildly beneficial; each gets to report greater revenues, which makes their companies look like they’re doing a little better.)
On the other hand, cellular providers which are not also ILECs (telephone monopolies) are overcharged but do not have anyone to overcharge in return. And they have no “home turf” where they are not overcharged; they must pay exorbitant prices everywhere. So, the two biggest cellular providers — the ones which are also ILECs — can very easily put the others out of business over time and achieve a nice, cozy duopoly. That’s why Sprint and T-Mobile are so much in favor of doing something about the price gouging: their long term survival depends upon it.
A third interesting observation is that the remaining large ILEC, Qwest, doesn’t offer cell phone service. This is intentional. Their idea is to overcharge everyone for “special access” without having to pay any of that money back out! This is how Qwest hopes to prosper without getting into the wireless business in competition with the two larger ILECs.
Finally, it’s important to understand how all of this affects ISPs, including cable companies. ISPs, in nearly all locations, have to buy “special access” lines to connect themselves to the Internet backbone. But the ILECs charge incredibly high prices for it. In fact, to get Qwest to carry data 45 miles in my region costs about twice as much as an Internet backbone provider charges to take it to the rest of the world! This drives up the cost of bandwidth outside major cities. Our rural ISP’s net cost of bandwidth is about $100 per Mbps per month, and some ISPs we know are paying $300 to $400 per Mbps per month. Obviously, at these prices, we can’t afford to allow bandwidth hogging behavior on a $30/month residential connection. We must impose caps or metering, or throttle, or simply prohibit some of the most voracious activities (e.g. P2P) altogether.
Those who have read my writings know that I do not advocate government intervention in markets unless they have truly failed and have little prospect of self-correcting. Alas, this is such a case. If we just say, “never mind,” we’ll pay too much for Internet service and lose the benefits of competition among cellular providers, which include not only lower prices but the innovation that flows from companies seeking to gain an edge. Therefore, either Congress or the FCC (which has been sitting on a docket about this issue since 2005) should pay a little special attention to “special access.” It’s long overdue.
- June 24th
Interesting. I would have gone with Dana Carvey’s Church Lady: “Isn’t that special?”
One of the TLF bloggers has a different POV on this. It certainly warrants some study.
Unfortunately, that blogger — Hance Haney — apparently doesn’t have all of the facts about the market and also appears to be loathe to recognize market failure. (Many doctrinaire free marketeers are.) For example, he claims that cable TV operators could be competitors in the “special access” market, but this is not the case. The cable TV providers most often rent “special access” lines or dark fiber from point to point as needed. They rarely build their own, and thus are subject to the same price gouging as anyone else who needs “middle mile” connectivity.
Even in the rare situations in which they could provide such services (either via their own facilities or via rented ones), they often refuse to deal. For example, when I asked Bresnan Communications, the local cable operator, to connect me to a backbone provider in a city 45 miles away, they refused — even though they have rented and lit “dark fiber” along the route I needed and were advertising an inter-city “digital private line service” to business customers other than me. Why? Because I’m an ISP, and they’re monopolists. They want to drive me out of business, and so of course they will refuse to sell me a service that might solve a business problem for me.
Fixed wireless is likewise limited, by the technical constraints in the FCC regulations, to about 20 miles per hop, and then can only carry tens of megabits at that distance. (Today’s wireless technology can do far better; it’s the regulations that are the barrier.) What’s more, it’s becoming tougher and tougher to get the spectrum to do any licensed microwave link at all. In my small city of 28,000 souls, nearly every microwave channel that the government will allow us to use is occupied. (There’s plenty of empty spectrum, but we’re not allowed to use it.) You can imagine how much worse the situation is in larger cities.
The fact is that this is a real market failure. Combined with the problem of closed backbones (Level3 owns three backbones which run through our area, but will not open any of them up to us at reasonable cost), it creates a huge “middle mile” connectivity problem.
Mr. Glass, I fail to see why the burden should fall on only the RBOC’s in this case. Your make a point that LVLT doesn’t want to setup the facilities to haul your traffic without billing for the construction, and that the local cable provider has also declined your business. But shouldn’t mandate access apply to all carriers?
With the lines blurring between cableco and telco and more cablecos investing in their own fiber networks and offering DS-1’s over DOCSIS, it’s time that everyone be mandated to provide the same access at the same price or profit margin regardless of their designation as MSO, RBOC or other.
The blogger on TLF also pointed out that the margins quoted by the coalition appear to be distorted due to bad data. Perhaps an new cost studies would reveal much less of a margin, meaning little impact in terms of savings to consumers.
Anton, I agree that the “middle mile” problem is exacerbated by the fact that the large backbone providers won’t open their backbones in many cities. (Technically, this is not “special access,” but it would be a way of solving the problem of “middle mile” connectivity in some areas.)
However, most of the cable providers actually are renting, rather than building, inter-city fiber. So, they themselves are victims of predatory pricing in this area.
I see no evidence to support Mr. Haney’s assertion that the data reported by the GAO was incorrect. On the other hand, I do see reason for Mr. Haney himself to be biased. He seems to work for (and have worked for) organizations which are supported by the very firms which are price gouging for “special access.”
BRAVO! Now, we can get back to selling carrier-class fiber-optic multiplexers for that way-too-over-priced “middle mile” or “long-haul-to-urban-interface”! Yippee! Only nine years too late for the start-up I worked in. Sigh.
Mike, if the non-ILEC backbone owners were building out their infrastructure instead of trying to make bandwidth scarce and therefore expensive, your start-up would indeed be doing well. There would also be no “special access” problem because bypass would be readily available.
But what’s actually happening is this. During the dot-com boom, the fiber companies overbuilt and could not recoup their investments because really bandwidth-intensive applications (such as online video) hadn’t happened yet. Many of them died during the subsequent bust. Then, companies such as Level3 began to buy up all the others. Their strategy was to create enough concentration of ownership to make it scarce, and also to kill the market for “dark fiber” by buying it all up and then refusing to offer any for sale even if they weren’t using it. In some cases, they even bought up fiber routes and just decommissioned them to reduce the available supply.
While these companies were at first the ILECs’ rivals, their plans began to harmonize with those of the ILECs, because they stopped competing with the ILECs in all markets except transport between major cities. The ILECs could then gouge non-urban residents for “special access” lines. So, what we have here is a sort of cozy oligarchy.
The post above is correct; special access (aka “we’ll guarantee your connection will stay up or your money back” access) pricing is absurd in secondary markets, the very markets that need lower special access pricing to thrive internet-wise.
Granted, there’s a lot of infrastructure that needs to be placed between point A and point B, hence the ILEC monopolies, etc. however once that infrastructure is in the ground it’s just a never-ending money well.
Fortunately, in my area the local cable provider (TIme Warner Cable) prices their circuits between $65 and $150 per Mbps depending on whether you et 10 Mbps on a three year contract or 100 Mbps on a five year. However from what I’ve heard reliability is an issue. More conventional special access at higher levels (t3) is, as you said, around $100 per Mbit. More to this, TWC is the only fiber that’s lit into town to my knowledge.
Sure would be nice to have a middle mile provider that just did middle mile service at $x per Mbit per mile…
Ian, $65 to $150 per Mbps isn’t a good deal. An ISP who bought that transport would have to add the cost of backbone bandwidth to it, yielding a very high total cost per megabit.
In fact, the cost of that transport by itself is higher than the retail prices that the cable company and telephone company charge their customers, so no competitor could use it and still offer competitive prices to consumers.
That is, if it will sell it at all. We once approached our local cable operator, Bresnan Communications, and asked to use their “digital leased line” service (which runs over dark fiber they get from Level3) to get to a backbone provider. They simply claimed that the service wasn’t available. But somehow, a local radio station was able to get the service from them!
The reason, of course, is that we’re an ISP. And the cable company, which wants to put us out of business, is refusing to deal. A standard anticompetitive tactic.
A related article from a different blog/newsletter:
http://www.dslprime.com/dslprime/42-d/913-backhaul-cost-clobbering-rural-and-small-carriers