FCC To Scrap Stringent Business Data Service Regulations

Yesterday, the U.S. telecom regulator – Federal Communications Commission (FCC) – voted 2-1 to withdraw most of the stringent regulatory requirements to reform the business data service (BDS) market. The BDS reform report was introduced by the previous FCC body that was led by Tom Wheeler under the Democratic rule. However, the new FCC, reconstructed by President Trump and headed by Ajit Pai, has ushered a less restrictive regime.

The BDS market, where telecom operators and cable MSOs (multi service operators) provide a host of network related services to business entities of various sizes, has been a lucrative source of revenues in the recent years for service providers. Significantly, these service providers have been generating handsome revenues by frequently charging steep prices from small and medium businesses. At present, BDS is a $45 billion market opportunity per annum.

In 2016, the FCC proposed rules to regulate pricing in the market, citing low competition. The proposals include: (1) removal of tariffs (2) not classifying telecom providers as either dominant or non-dominant carriers (3) implementing a new Competitive Market Test to determine where competition exists (4) imposing technology neutral regulations (5) instituting price caps on access to legacy TDM networks in non-competitive markets (6) setting wholesale prices in relation to retail prices for any given service in non-competitive markets.

Yesterday’s voting outcome will substantially ease the regulatory requirements in the business data services market. However, some price caps in areas with little competition will be retained. Welcoming the voting result, Pai said that stringent regulations would be detrimental to competition and future investment need for technological upgrade.

Gainers from FCC’s New Decision

The BDS reform proposals adopted by the FCC under the previous regime have been criticized by industry players and several industry organizations. They argued that being that the BDS regulations will cause more harm than good, discouraging further network investments, costing jobs and reducing economic output. Incumbent service providers like AT&T Inc. (NYSE:T) , Verizon Communications Inc. (NYSE:VZ) , CenturyLink Inc. (NYSE:T) and Comcast Corp. (NYSE:S) together with several other telecom operators and cable MSOs, vehemently opposed this proposal. These companies are set to gain the most from today’s FCC decision.

On the other hand, the vote comes as a blow to Sprint Corp. (NYSE:S) and other firms that backed a 2016 FCC plan under Wheeler’s chairmanship that would have cut business data prices. All the stocks mentioned above currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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