Friday, October 05, 2012

If Forbearance Relief Granted, Transition to All-IP Networks Would Be Hastened

A forbearance petition now being considered by the FCC has important consequences for the future of broadband in the United States. A positive outcome – one that will best promote investment in network infrastructure upgrades and competition in the enterprise broadband services market – is much to be desired.
But such an outcome depends on two critical factors: first, the FCC's adhering to the rule of law; and second, its taking a deregulatory approach to facilitating the transition from copper-based legacy networks to all-Internet Protocol (IP) networks.
The pro-investment and pro-deployment incentives offered by deregulation of enterprise broadband services formed the basis of my prior blog post, "FCC Forbearance Needed to Further Broadband's Benefits." That post regarded a pending CenturyLink forbearance petition. Some of CenturyLink's Ethernet and other broadband enterprise offerings remain subject to dominant carrier and Computer Inquiry tariff obligations. But CenturyLink is not a dominant carrier, the enterprise broadband market is highly competitive, and most of its rivals are not subject to similar regulations. Some of its rivals have even secured forbearance relief from those regulations. Based on those considerations, I made the case for why the FCC should consider CenturyLink's petition in a favorable light.
Nonetheless, opponents of deregulation have called for the FCC to throw up roadblocks to forbearance relief. It has been suggested that the FCC should disregard its deregulatory and court-approved precedents granting forbearance for enterprise broadband services. The agency is being urged to expand its pro-regulatory framework for analyzing forbearance petitions in cases involving legacy voice services to enterprise broadband services. Such an approach would be highly problematic on several counts.
Forbearing from regulating enterprise broadband services would be in keeping with the rule of law. Through a series of orders issued between 2006 and 2008 – its Enterprise Broadband Orders – the FCC granted forbearance relief to several incumbent local exchange carriers (ILECs) from the same regulations at issue in CenturyLink's petition. The U.S. Court of Appeals for the District of Columbia Circuit expressly upheld the FCC's analytical approach and granting of forbearance relief in Ad Hoc Telecommunications v. FCC (2009).  
This clear set of precedents for analyzing forbearance petitions involving enterprise broadband services should straightforwardly apply to CenturyLink's petition. In the time since its Enterprise Broadband Orders, those services have been further deployed and the market has become even more competitive. So there are no good reasons for the FCC to disregard its precedents. And there are certainly no good reasons for CenturyLink to remain subject to disparate regulatory treatment.
Regulatory uncertainty and confusion would almost surely result if the Enterprise Broadband Orders were to be suddenly discarded. Inequity would also result. Such an agency about-face would likely be deemed arbitrary and capricious by a court of law.
Continued FCC adherence to its Enterprise Broadband Orders is also sound policy. As the agency recognized in those precedents, the market for switched-packet data systems is "highly competitive." High financial returns for enterprise broadband service providers incentivize wider infrastructure deployment and market entry. Echoing this point was the D.C. Circuit in Ad Hoc Telecommunications: "Perhaps an obvious point, but a decision that gives owners of telecommunications lines more control over access to those lines tends to increase the incentive for competitors to build competing lines."
In its 2011 USF Reform Order, the FCC reiterated the National Broadband Plan's "express goal of facilitating industry progression to all-IP networks." But discarding deregulatory precedents would undermine that progression. The policy imperative of promoting IP networks is best furthered by forbearing from regulating broadband services. Once relieved of dominant carrier regulations and tariff obligations, enterprise broadband service providers will be empowered to offer more flexible and competitive pricing options to business customers and thereby incentivized to more aggressively invest in broadband infrastructure to meet those customer demands. 
It would be a mistake for the FCC to pull enterprise broadband services under the 2010 Qwest Phoenix MSA Order's framework. That order established an analytical framework for analyzing forbearance petitions that imposed high hurdles to deregulation. I have elsewhere criticized that framework for its over-reliance on static market indicators, narrow market definitions, and misconceptions regarding pricing in networked services that are highly regulated. Similarly, I have pointed to the rule of law problems with the Tenth Circuit's recent decision upholding the FCC's "goalpost-moving" in the Qwest Phoenix MSA Order.
Those problems aside, what is unmistakable is that the Qwest Phoenix MSA Order's framework applied specifically to legacy voice services, not broadband services. That order nowhere indicated that it was somehow supplanting the Enterprise Broadband Orders' analytical approach. To the contrary, paragraph 39 of the Qwest Phoenix MSA Order stated:
Indeed, a different analysis may apply when the Commission addresses advanced services, like broadband services, instead of a petition addressing legacy facilities, such as Qwest’s petition in this proceeding. For advanced services, not only must we take into consideration the direction of section 706, but we must take into consideration that this newer market continues to evolve and develop in the absence of Title II regulation.
This regulatory distinction between legacy voice services and broadband services trades on Section 706's directive that the agency use forbearance to remove barriers to investment in infrastructure for advanced services such as broadband. The distinction also traces back to the FCC's 2003 Triennial Review Order and to its 2005 Wireline Broadband Order, which kept broadband free from unbundling requirements and Title II common carrier requirements, respectively. The Qwest Phoenix MSA Order's framework, by contrast, is steeped in concerns underlying unbundling and common carrier regulations applied only to legacy voice services. Or to put it another way, as the D.C. Circuit declared in Ad Hoc Telecommunications: "Broadband services do not correspond to the old telephone-cable regulatory divide" and both Congress and the FCC have recognized that "regulation of broadband can pose different issues and challenges than regulation of local telephony."
Should the FCC grant CenturyLink's forbearance relief according to the standards established in its Enterprise Broadband Orders, it would comply with the rule of law. In so doing, the FCC would also fulfill the deregulatory purpose of Section 706 by promoting investment in broadband infrastructure and aiding the transition to all IP-networks. At a time when the nation desperately needs additional capital investment and new job creation, this would be a good thing.