Some potential good news for incumbent local exchange carriers (ILECs). The FCC is poised to use its August 7, 2025, meeting to eliminate remaining rate regulation and tariffing requirements on DS1 and DS3 business data services (BDS). The proposal will be part of a Notice of Proposed Rulemaking (Notice) and Third Notice of Proposed Rulemaking and Order (Third Notice) in Dockets 21-17 and 17-144. The deregulatory initiative is part of the Commission’s overall mission to eliminate archaic and cumbersome regulations.
Business data services refer to dedicated point-to-point circuits that transmit data at certain guaranteed speeds and service levels such as DS1 and DS3 to support customer applications that require symmetrical bandwidth, substantial reliability, security, and connected service to more than one location. These circuits have been available in ILEC special access tariffs for years.
BDS fall into two technology categories: circuit-based and packet-based. Circuit-based BDS utilize the Time Division Multiplexing (TDM) protocol, which sends communications over a single circuit-switched channel by dividing the channel into dedicated time slots. TDM is considered a legacy technology, and TDM-based services consist primarily of DS1 and DS3 circuits with symmetrical capacities of 1.5 Mbps and 45 Mbps, respectively. Packet-based BDS, on the other hand, relies on the modern IP in which data are sent using packets, and can generally offer much higher capacities. The Commission generally has historically imposed dominant carrier regulation [requiring tariffs and price regulation] on carriers’ legacy TDM based BDS and abstained from regulating packet-based BDS. (Draft Notice at para. 5).
TDM-based BDS have two distinct segments: end user channel terminations and dedicated transport. Channel terminations refer to the last mile, local loop transmission links to end user locations. Transport involves higher capacity connections between network aggregation points, i.e., middle-mile connections or feeder plant.
For decades, the FCC has used two forms of regulation for ILEC BDS services. Larger price cap ILECs are regulated by capping their BDS revenues at levels
based on a productivity factor adjusted each year. This is a measure of how ILEC productivity outperforms the overall economy. Prices are adjusted down each year to pass productivity savings to consumers. Small rate-of-return (RoR) ILEC prices are set to permit recovery of operating costs and a return on investment of 9.75 percent.
Currently, competitive market tests are used to identify areas subject to potential or actual competition that warrant eliminating ILEC rate regulation and tariffing obligations for DS1 and DS3s circuits. Results of the competitive market test are updated every three years to determine whether any additional regulated counties or study areas meet the competitive threshold.
In the Notice the Commission proposes the following:
Eliminate remaining rate regulation and tariffing obligations for DS1 and DS3 end user channel termination services provided by price cap and rate-of-return carriers.
Eliminate rate regulation and tariffing obligations for transport services provided by rate-of-return carriers.
Grant forbearance from tariffing requirements under section 203 of the Communications Act for carriers in their provision of BDS nationwide.
Mandate a 24-month transition period during which carriers may tariff BDS followed by mandatory detariffing of these services.
Alternatively seek comments on updates to the competitive market tests using Broadband Data Collection data considering technological and market developments.
In the Order, the Commission proposes to:
Waive its rules requiring updates to the competitive market test results due January 2026 pending review of the record in the rulemaking proceeding.
Industry comments on the proposals in the Notices will be due 30 days after they appear in the Federal Register. Reply comments will be due 15 days later.