Business Broadband Growth Strong & Diverse

Competitive business broadband facilities have emerged just as Congress envisioned in the Telecommunications Act of 1996, USTelecom said in a filing responding to a Federal Communications Commission (FCC) proceeding examining 2013 data on the business broadband marketplace. Over the years, the FCC has carefully eased regulation of business broadband services, reflecting the fact that the marketplace has responded as expected – multiple, intermodal providers are investing in facilities and competing for business customers throughout the country.

This competition has changed the landscape of the business broadband marketplace. The original providers that were subject to 1996-era regulation now are seeing their market share decline as business customers seek out higher-capacity technologies such as Ethernet and IP-based services that are more efficient than legacy DS1 and DS3 special access services.Business customers have benefited from this policy change, which gives them a wide array of options for services. A large number of providers compete to offer Ethernet services, including cable operators and numerous competitive local exchange carriers (CLECs), in addition to incumbent local exchange providers (ILECs). Ethernet services offer savings as high as 80 percent or more as compared to the traditional special access services.

Marketplace competition also is visible in the CLEC industry, which for many years was highly fractured, containing hundreds of regional and local carriers spread throughout the country. Today, through natural consolidation and organic growth, “Mega CLECs” have reshaped the marketplace, boasting footprints that stretch from coast to coast.

Tales of Woe

Some CLECs have adopted business models that rely in part on their ability to obtain high-capacity network facilities from ILECs, unlike cable companies which generally utilize their own networks and facilities. These CLECs often deploy a fiber ring in a metropolitan area, and use a combination of leased circuits and their own facilities to connect buildings and other end-user locations to the ring.
Not surprisingly, the CLEC industry spends considerable time and resources asking regulators to lower the prices they pay ILECs for access. CLECs frequently spin tales of gloom and doom, claiming that unless the regulator modifies the terms of access to ILEC facilities, competitive carriers would likely be unable to serve most of the business customer locations they serve.
Outside of Washington, however, CLECs tell a very different story — one of economic prosperity and growth:

  • Level 3 reported 10 percent growth in 2014 for its Core Network Services to enterprises, according to a Feb. 27, 2015 filing with the Securities and Exchange Commission (SEC).
  • XO has deployed “[o]ne of the largest Ethernet access networks reaching more than 2 million business locations” with customers that include “more than 50 percent of the Fortune 500 as well as the largest cable operators, mobile wireless companies and Internet-based content providers,” according to the company’s website.
  • Zayo Group recently reported “$5.8 billion in revenue under contract with a weighted average remaining contract term of approximately 45 months,” according to a May 13, 2015 SEC filing.

Game-changing cable competition

The disruptive entry of cable operators is not fully captured in the 2013 data collection. In just the last two years – 2014 and 2015 – cable business service units have invested an estimated $6 billion in capital, while competitive fiber providers have invested an estimated $9 billion. Cable companies are enjoying the fruits of their substantial infrastructure investment. Since 2009, cable business revenues have grown from approximately $4 billion to an estimated $14 billion in 2015.
Two years is a particularly long time when examining the strides the cable industry has made in the business broadband marketplace. From “best efforts” broadband services at blazing fast speeds, to the most sophisticated Ethernet services available, and everything in between, the cable industry is effectively targeting all segments of the business broadband marketplace.

Cable annual business services revenue has grown from $10 billion per year in 2013 to $14 billion per year in 2015, an increase of $4 billion in just the last two years. As business revenues and market share grow from the cable industry’s provision of service to small business customers, cable also has increasingly expanded its presence by moving up-market to serve medium-sized business customers, “large locals” such as schools and hospitals, and now the largest enterprises in the nation. Cable’s up-market migration, including its latest efforts in the largest enterprise markets, is not adequately reflected in the 2013 data collection.

Cable companies have succeeded not only in providing high-capacity services directly to business customers on a retail basis, but also in providing these services on a wholesale basis to other carriers. One of the biggest growth areas in the high-speed marketplace is the provision of so-called “backhaul” facilities that connect cell towers to wireless providers’ networks. The bandwidth required at each cell site is rapidly expanding as customers switch to new 4G services, and the number of cell sites proliferates as wireless providers struggle to keep pace with this demand.

Protect competition, not competitors

The FCC’s charge is to protect the public interest and competition, not individual competitors or particular business models. Many competitors in the marketplace have demonstrated the ability to succeed under the current framework developed in 1999. The commission should make every effort to recognize the enormous investment that has occurred since 1999 and to encourage the further investments needed by today’s businesses.