What's This I Hear About “Special Axes?”

What’s this I hear about “special axes?” Posted by Brett Glass to Richard Bennett’s “Broadband Politics” blog at http://bennett.com/blog/2009/06/whats-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. [].

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