For years, consumers complained that they were tied to their cellular provider by lengthy contracts and early termination fees. Now, some of America's biggest companies say Internet providers have tied them up with similar unfair deals — and federal regulators are looking into the claims.
The Federal Communications Commission announced a probe Friday into the $40 billion market for business broadband, responding to accusations by Sprint, Level 3 and others that large Internet providers — chiefly AT&T and Verizon — have tried to lock up the market for high-speed data connections powering everything from ATMs to credit card readers to Web connections at offices, universities and libraries.
The agency plans to examine the terms and conditions of contracts worth roughly $20 billion for "special access" services. It won't investigate the prices large incumbents charge to rivals and business customers, but AT&T warned in a statement that the FCC's probe could lead to the agency directly regulating the prices it and other companies could charge for business broadband.
"The terms the Commission is reviewing are commonplace in most commercial contracts," AT&T said, "and in fact are being used by our competitors in their own contracts."
AT&T added that the FCC's "perplexing" probe is a waste of time that the agency could be using to encourage more investment in next-generation Internet networks.
Among the practices the FCC will look into? Contracts that last as long as 7 to 10 years, which critics say suppresses competition by making it impossible for would-be challengers to lure those customers away. Also, high fees that allegedly deter business customers from switching providers or canceling service, because it would be more expensive to do so than to continue paying for service.
The investigation, according to an FCC official, will also consider so-called "percentage commitments." These deals force companies to buy a certain amount of their total broadband service from a given provider — or face penalties or restrictions.
Verizon downplayed the significance of the market the FCC intends to investigate, saying that "innovation and business demands are making [it] less relevant" in the modern age of Internet Protocol-based networks.
"If the FCC is going to examine these tariffs, it should at least first analyze the data it has collected from the industry so that the agency has an accurate view of how this marketplace is quickly evolving before taking action."
Sprint hailed the FCC's move, saying that the "high prices [incumbents] protect are slowing the transition to an IP world."
The Broadband Coalition, an industry group whose members include XO Communications and Level 3, called the fine print on such contracts a form of "archaic lockup tactics" aimed at charging businesses "monopoly-era rents."
The FCC says it has not reached any conclusions about the concerns raised by businesses. But if the agency determines that what they say is true, it could rule the practices "unjust" and "unreasonable" under the Communications Act of 1996, its congressional charter. That would likely result in significant changes to the market for business broadband, similar to the way eliminating contracts and early termination fees affected the consumer market for cellular service.