By a vote of 2-1 yesterday, the FCC adopted a Report and Order (R&O) which relaxes or lifts regulatory requirements for many providers of special access, or business data services (BDS), based on the agency’s conclusion that the U.S. market for BDS is largely competitive. Valued last year at $45 billion, the U.S. BDS market sources the high-capacity broadband connections used by thousands of businesses to facilitate ATM and credit card transactions and a host of other essential services.

The deregulatory approach approved yesterday by the FCC’s Republican majority stands in contrast with proposed BDS rule changes that were announced a year by a Democratic FCC majority led by former FCC Chairman Tom Wheeler. In an April 2016 Further Notice of Proposed Rulemaking (FNPRM) from which then-FCC Commissioner Ajit Pai and Commissioner Michael O’Rielly dissented, the agency proposed to replace its existing special access regulatory framework with a new, technology-neutral approach to BDS that would classify markets as competitive or non-competitive in accordance with certain principles. Citing data collected over a period of years in the FCC’s long-running special access proceeding, the FNPRM maintained that “competition in this essential market is uneven, and . . . the FCC’s existing rules have failed to identify markets where competition is lacking, even as they have failed to identify competitive markets.”

Relying on the sources of data highlighted in the April 2016 FNPRM as well as “a robust public record garnered from numerous requests for comment,” the FCC instead found that “strong competition” exists in the U.S. BDS market. In support of that conclusion, the FCC noted that BDS has evolved from copperbased TDM technologies deployed by incumbent local exchange carriers (ILECs) to high-speed, Ethernet network technologies that “are often deployed by lightly-regulated competitive carriers which now account for nearly half” of the BDS marketplace. Asserting that “legacy regulation inhibits the investment required for the transition of BDS” from TDS to broadband Ethernet connectivity, the FCC decided to lift price regulations for packet-based BDS services that operate at speeds in excess of 45 Mbps. With respect to TDM BDS, the R&O eliminates price regulation in counties where (1) at least half of the buildings are located within a half mile of a location served by a competitive BDS provider or (2) 75% of the census blocks have at least one cable network provider. ILECs that satisfy either tenet of TDM competitive test will no longer have to file tariffs with the FCC at the end of an unspecified transition period. Price regulation will remain in effect for lower-speed TDM services in counties that fail to satisfy the competitive test. All BDS providers—whether TDM or packet-based—will “continue to be subject to statutory requirements that rates, terms and conditions be just and reasonable.” Industry reaction to the R&O was mixed, with ILECs and cable operators applauding the rule changes and representatives of competitive carriers warning that deregulation will lessen competition and lead to higher rates.