AT&T Special Access Rate Cuts to End 6 Months Sooner
May 14, 2007 (Vol. 28, No. 10)
Brace yourself for June 30, 2010. That’s the day – six months earlier than previously expected – that AT&T’s special access rate time bomb could blow.
To win the FCC’s blessing of its recent union with BellSouth, AT&T originally agreed to reduce its rates to the price-cap level on its DS1 and DS3 channel terminations as well as its DS1 and DS3 mileage services in deregulated areas for 48 months after its merger. Since the merger became official on Dec. 29, 2006, that would have required the carrier to keep its prices low until at least Dec. 29, 2010.
In a move announced March 26, however, the FCC now has granted the carrier a shorter term to keep its prices low: 39 months from the date the carriers filed the tariffs putting the rate reductions in place, April 5.
How much of a difference does using the FCC’s price cap make? Consider AT&T/BellSouth’s monthly charges in Miami for DS3 services, relying on rates listed for a 24- to 48-month contract in the federal tariff: $3,175. Before rate reductions took place on April 5, the monthly charges were $3,530. [See chart.]
AT&T Concession Met Resistance from Verizon & Qwest
Why did the FCC allow AT&T to shorten its commitment to special access rate reductions just a few months after approving the carrier’s merger?
The answer is buried on page five of the 11-page list of concessions AT&T submitted in late December [VR 1/8/07]. Under the heading of “Special Access,” AT&T said it only would agree to reduce its rates to the price-cap level as long as the FCC also forced Verizon Business and Qwest to similarly lower their rates when providing special access to AT&T in deregulated areas.
The “reciprocity” condition, which apparently was intended to protect AT&T from paying a higher fee than it could pass along to enterprises, didn’t slip quietly by. On Dec. 29, the same day the FCC approved the merger order, FCC Chairman Kevin Martin and Commissioner Deborah Tate – both Republican appointees – issued a joint statement to declare their opposition to the condition and threatened to reject the tariffs AT&T would need to file to fulfill it. Then, over the next two months, both Verizon and Qwest took the matter to court, filing separate actions in the U.S. Court of Appeals for the District of Columbia Circuit.
Backed into a corner, AT&T submitted a letter to the FCC on March 26 in which it surrendered its reciprocity clause but simultaneously asked for one concession that the FCC spontaneously granted: Reduce the obligation to lower rates in deregulated areas to price-cap levels for 39 months, not 48 months as originally agreed.
The Window of Opportunity is Now
Whether AT&T’s special access prices increase after June 2010 depends on how much competitive pressure cable companies and WiMAX providers exert on special access in AT&T’s region, says regulatory expert Colleen Boothby, a partner at telecom law firm Levine, Blaszak, Block & Boothby, in Washington, D.C. The FCC has been citing these alternatives for 10 years, and WiMAX still needs the standardization of applications and equipment, assignment of spectrum and deployment of wireless facilities to become a reality, she notes.
“The only hope for competition and enterprise pocketbooks is some commission will do something about special access rates before the conditions expire,” Boothby says.
Don’t count on the current FCC members. Chairman Martin, who has made it clear that he doesn’t see special access rates as a problem that won’t be corrected by new entrants to the marketplace, began serving his second five-year term in April 2006. Tate, who is filling out the remainder of another commissioner’s term, is expected to serve until June 2007. Robert McDowell, the third Republican on the commission who abstained from the recent AT&T merger vote, was sworn in on June 2006 and is expected to serve the remainder of a term that ends in June 2009.
So take advantage of the remaining 37 and a half months of AT&T’s special access rate reduction, Boothby suggests. You likely also can negotiate for lower rates from Verizon Business and Qwest, since their cost of doing business in AT&T/BellSouth territory will be decreased, she says.
Capitalize on rate-review provisions in your contracts, Boothby advises. Enterprises often forfeit rate review during contract negotiations because the possibility that rates could go down seems remote, she says. There’s also the temptation to pass up a rate-review clause in favor of scoring lower rates on this year’s books. Additionally, enterprises “all too often” settle for a rate-review clause in which the carrier commits to “talk” about changing rates, but there’s no guarantee.
An ideal rate-review clause stipulates that your enterprise and the carrier will hire a consultant to benchmark the prevailing market rate, Boothby says. Your rates should be lowered to the prevailing rate once you and the carrier agree on what that rate is. Put in the contract that disagreements over the prevailing market rate should go through a dispute resolution process, she recommends.It’s smart to keep your contract terms short and give yourself the option to renew so you can make a unilateral decision to continue the contract at the current rates, Boothby says. Also, try to keep your MARC low so you have the flexibility to move some of your traffic to a carrier with lower rates. Just be sure to meet your commitments. (