Is More Special Access Regulation Needed? Reactions to the NRRI Report on Special Access Competition

04 March 2009
By Dr. Christian Dippon and Dr. William Taylor with Dr. Harold Ware

On 21 January 2009, the National Regulatory Research Institute (NRRI) released a report, Competitive Issues in Special Access Markets, examining whether incumbent local exchange carriers (ILECs) have market power over wholesale special access services in some areas, and if they do, whether market power harms customers or competition. This NERA working paper presents an initial evaluation of that report. While the authors of the NRRI Report acknowledge that their data are incomplete, they conclude that the major ILECs retain substantial market power over special access prices and terms and conditions of sale, and recommend that the Federal Communications Commission consider reestablishing price caps while it conducts a contested regulatory case to reset wholesale special access prices. NERA's review of the NRRI Report indicates that the findings on market power on which the authors base their policy recommendations rest on incomplete, inconclusive, and/or conceptually flawed data analyses. Thus, the dramatic policy changes recommended are likely to generate substantial unwarranted costs -- notably a retrograde regulatory approach that seriously undermines investment incentives -- and little, if any, benefits.