Embedded in the big telco proposal to increase prices using their monopolies is an economic study that purports to show all the good their UNE forbearance plan will do for the economy. Do not let the study’s title, “Assessing the Impact of Forbearance from 251(c)(3) on Consumers, Capital Investment and Jobs,” fool you – this is at its heart a work of fiction. Or maybe it’s a fairy tale. It’s definitely not an impartial study. (And, yes, I too often wonder who names these economic studies.)

The study has a seemingly benign thesis: “If forbearance were granted to the ILECs that are currently obligated to sell UNEs at below-market rates, customer migration to next-generation services would accelerate, as asset-light service providers may either raise prices or shift emphasis to next-generation products offered over their own facilities.” Then, it does contain a bit of fact: “We assumed ILECs would charge asset-light service providers a higher market-set wholesale rate for UNE equivalents, based on public benchmarks and estimates. We then assume that some of this cost increase would be passed onto end customers.”

This is one of the few things that the study gets right. Customers certainly will see a price increase driven by the big telcos. By the way, the big telcos want to impose this increase immediately after the FCC grants the forbearance petition.

The more substantive issues are around the actual impact to customers, and here the study has the classic academic flaw. It is clear these economists have never done a conversion from a UNE T1, a TDM service, to next-generation products. This part of the study is actually a bit funny as it states: “In our more gradual and realistic scenario, we assume 40% of end-customers will migrate to next-generation services in Year 1,” and the economists base that on the discontinuance of voice residential UNE-Ps many years ago. Comparing simple voice UNE-P conversions to full-scale technology changeout is comical.

Windstream is well-versed on the subject of technology migrations. We are aggressively moving customers to next-generation platforms, such as SD-WAN and UCaaS, and we know firsthand the real-world complexities of technology changeouts. This academic study, on the other hand, makes a huge assumption – and an errant one – that companies can snap their fingers and magically convert to the newest technologies. In reality, the conversion process entails costs for customers in both money and time.

Here are some real-world examples. Customers may have to purchase new switch or routing equipment. They may have to rewire their buildings to enable new IP/Ethernet technologies. They may even have to buy new phones. Taken together, these costs can make the technology change more expensive than the difference between the legacy service and the next-generation service. Conversions also can be lengthy and divert customers’ attention from the day-to-day task of running their businesses, especially if they do not have full-time IT staffs. I believe economists refer to this as opportunity cost. Perhaps the big telcos don’t care and simply want to generate a tidy profit through a 15% price increase.

The study acknowledges the destructive power of price increases on consumers and the authors refer to that as a “loss in consumer surplus,” but the study says all next-generation technology changes result in increases in consumer surplus. Of course, this does not account for the transition costs I noted, nor does it assume, as is most probable, customers with the least amount of transition expense have already made the transition. I do not know the economic term for that, but in Little Rock, Ark., we call that common sense.

By the way, another truthful nugget in the study was the following: “Because the additional revenue for ILECs from these services do not incur material additional operating costs, ILEC EBITDA (earnings before interest, tax, depreciation and amortization) would increase at more or less a one-to-one ratio with the growth in revenues from UNE equivalents.” In plain English, there is no incremental cost for the big telcos, so this is all profit for them.

The next big assumption is this: “Our model assumes that additional revenue generated by ILECs from selling the same element or an equivalent service for a higher price would be invested at the higher capital intensity of ILECs versus the much lower capital intensity of asset-light service providers whose business models are more focused on leveraging leased facilities.” In other words, the reason this is so good for the economy is that all the excess profits generated from the price increases are going to be invested back in the form of capital. Sure, they are. That money is going to go to the big telcos’ bottom line or to pay down their debt, pure and simple. Also, Windstream, one of the nation’s largest CLECs, invests at rates comparable to the big telcos.

It is easy to point out flaws in this study from a conceptual basis, but parts of it are much more difficult to challenge as the authors used “confidential data provided by the four price-cap ILECs” to establish their findings. Without access to the underlying data, our evaluation is necessarily incomplete.

Windstream will hire its own economist and put forth the real-world economics of what is at stake. We share FCC Chairman Pai’s belief in rigorous cost-benefit analysis and strong economic analysis so that the FCC can make informed decisions. That’s why we joined INCOMPAS in a request for an extension of the current forbearance petition notice period so we can do the rigorous work required to give an informed view. It is pretty clear this study fell far short of that standard.