Four companies, including AT&T and Verizon Communications, are being investigated by the Federal Communications Commission over the terms they set for business customers in a $20 billion market to carry high-speed data.
Competing companies such as Sprint and Level 3 Communications that need to rent the high-speed lines for their customers’ traffic have told the FCC they’re unfairly locked into long-term contracts and face large early-termination fees.
“New network builders struggle to attract customers who are held hostage by AT&T and Verizon in lockup provisions that can extend up to seven years in length,” said Chip Pickering, CEO of the Comptel trade group, whose members include Sprint, Level 3, Amazon.com and Cogent Communications Holdings.
Business data services are dedicated network connections often used by banks, manufacturers, schools and other organizations that need to transport large amounts of data. They include, for instance, the lines connecting cash-dispensing ATMs to banks and credit unions.
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The other companies named in the investigation are Frontier Communications and CenturyLink.
Competitors say the four companies use pricing plans with “a complicated web of all-or-nothing bundling, loyalty and term commitments, complex enforcing penalties” and other provisions, the FCC said in an order. “They assert that the effect is to lock up substantial proportions of carrier and end-user demand, which locks out competition.”
The FCC said it had found “potentially unjust and unreasonable practices” that raise “sufficient questions regarding the lawfulness of certain terms and conditions.”
The agency asked the four companies to respond by Dec. 18.
“We believe the FCC probe will confirm how market failure in the $40 billion dedicated broadband access space has enabled a few powerful firms to leverage their dominance to extract excessive fees as part of anti-competitive contracts,” Sprint spokesman Jeff Silva said in an email.
Silva asserted that “questionable tactics” hold down competition and add to the costs paid by consumers, businesses, government agencies, health care providers, schools and libraries.
“For the nation to realize the benefits of real choices and lower prices for broadband services, the FCC must take steps to address the stranglehold a few companies have on these basic inputs,” Silva’s statement said.
But AT&T called the FCC’s inquiry “perplexing.” In an emailed statement, Frank Simone, AT&T vice president of federal regulatory, said: “The terms the commission is reviewing are commonplace in most commercial contracts.”
AT&T said in a filing that the complaining companies had alternatives and were seeking to have the FCC rewrite contracts.
One alternative is Great Plains Communications, a Nebraska company that said this week it is connecting its fiber-optic network to the Kansas City market. It serves companies with large data transmission needs and other carriers.
Ed McFadden, a spokesman for Verizon, said the plans “have been in place for years and reflect reasonable agreements.”
The terms and conditions “are fair and lawful,” said Walter McCormick, president of the USTelecom trade group with members including AT&T, Verizon, CenturyLink and Frontier.