FCC Opens Probe Into 'Special Access' Market

By Ryan Knutson

For at least a decade, telecom companies like Sprint Corp., XO Communications LLC and Level 3 Communications Inc. have complained that large phone companies like AT&T Inc. and Verizon Communications Inc. have abused their market power in an obscure but important part of the telecommunications market.

On Friday, the Federal Communications Commission said it was opening an investigation into the tactics of AT&T and Verizon, as well as Frontier Communications Corp. and CenturyLink Inc.

The investigation centers around what's known as special access, which is the bulk data connections businesses buy to connect things like retail outlets, ATMs and cell towers.

AT&T, Verizon, CenturyLink and Frontier dominate the special access market because they effectively control the wires that were built by the legacy AT&T monopoly, which was broken up by the government in 1984. The FCC estimates the size of the market under investigation is roughly $20 billion.

The smaller companies accuse the carriers of locking up the market by forcing them to sign volume commitments and by charging monopoly prices and early termination fees. Level 3, for instance, says Verizon requires it to buy 90% of its special access from Verizon in some markets to avoid substantial fees. Since there aren't enough alternative providers to supply Level 3 with all of its special access needs, it has no choice but to buy from Verizon.

Sprint, which uses the special access to connect its cell towers, says it had to pay huge termination fees to the larger carriers when it switched many of its 38,000 cell towers to alternative providers.

AT&T, Verizon and the other large carriers deny the allegations and say the market is competitive.

"The terms the commission is reviewing are commonplace in most commercial contracts," Frank Simone, AT&T vice president of federal regulatory, said in a statement.

The FCC's investigation will take at least a few months, an agency official said. Any action the agency takes as a result of the findings will require approval from a majority of the FCC's five commissioners. One possible outcome is the carriers being forced to modify the terms of their contracts.

The 1996 Telecommunications Act gives the FCC authority to police competitive behavior in the telecom market, but the agency's jurisdiction over these types of contracts primarily only covers older technologies. AT&T, Verizon and other carriers have invested in newer network technologies that aren't subject to FCC oversight in this way.

The investigation announced Friday is separate from an FCC effort to collect data about the special access market as it considers a broader set of new regulations.

Write to Ryan Knutson at ryan.knutson@wsj.com

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(END) Dow Jones Newswires

October 16, 2015 17:13 ET (21:13 GMT)

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