CenturyLink deal means higher prices for Californian consumers, businesses


Four into three equals market domination.

Expect to pay higher prices for broadband service – residential, commercial and industrial class alike – if CenturyLink is allowed to buy Level 3, the major independent fiber operator in the U.S., as recently proposed. That’s the picture you get when you connect the dots of a draft decision regarding the state of telecommunications competition which is currently on the table at the California Public Utilities Commission.

You don’t have to connect many dots. CenturyLink and Level 3 are competitors in California’s inter-city fiber market. A quick look at the map published by the two companies shows the overlapping fiber routes that they own throughout California, including critical north/south and east/west links. Since the bulk of the rest of California’s intercity fiber is owned by AT&T and Verizon, CenturyLink’s proposed acquisition would put it all in the hands of legacy Bell System telephone companies that aggressively – and largely successfully – pursue monopoly business models.

Because those legacy companies control the resources that competitors, including cable companies, need, they also control market prices, leading to higher costs for everyone, according to the draft CPUC decision

Because none of the competitive carriers can build a network from the ground up, they depend on the legacy companies for wholesale inputs, including (variously) last-mile or “local loop” access, middle mile or other dedicated special access transport, pole attachments and/or conduit access, and (for the wireless carriers) spectrum…

The legacy phone companies generally claim there is a surfeit of wholesale competition; intervenors argue that the legacy companies are able to use their market power to extract supra-competitive rates from, and impose disadvantageous terms on, competitive carriers, and ultimately on the large and small businesses, and consumers. A middle ground is occupied by cable providers like Cox that have no legal obligation to provide unbundled elements to non-cable CLECs, but need wholesale inputs in order to enter the business market…

Of the wholesale inputs discussed here, only spectrum is not controlled to some extent by the incumbent telephone companies. Intervenors’ testimony and FCC decisions suggest that the higher prices for wholesale inputs, the higher the price that the consumer or business will pay for retail services.

The draft decision calls for collecting more data and monitoring the market for middle mile services more closely. Nominally, it’s scheduled to be taken up by the CPUC next month. But commissioners will be meeting behind closed doors on Wednesday to discuss it. No formal decision is expected but since it’s the first chance for all five commissioners to thrash it out, what eventually comes out of it will give a good indication of where the decision is heading and what kind of reception CenturyLink’s buyout of Level 3 is likely to get.