Monday, July 29, 2013

Washington (DC) Should Follow Washington (State)

For well more than a decade now the jurisdictional line between interstate and intrastate communications has become increasingly blurred. As communications have moved from narrowband to broadband networks, and from analog to digital platforms, with transmissions circumnavigating the globe in little more than nanoseconds, at times it can become impractical, if not impossible, to determine whether a transmission is properly classified as an interstate or intrastate communication. In any event, implementing such jurisdictional separations can be costly. 

Accordingly, for many years I have expressed concerns regarding the ability of the states, through the exercise of their jurisdiction over intrastate communications, to impede the development of modern telecom networks through overzealous regulation. Because intrastate and interstate communications travel over the same networks, the FCC and the states share jurisdiction over the same physical plant. So an unnecessarily burdensome, unduly costly regulatory regime in one jurisdiction may affect the delivery of telecom services in the other by impacting incentives to invest in upgrading and building-out networks.

This is truer in today's increasingly "IP world" than ever before, as more and more traffic transitions from legacy analog telecom networks to Internet Protocol-based platforms, regardless of the specific technology employed.

Certainly there are a litany of state actions over the years that might be cited as cases in which the states' exercise of their jurisdictional claims have failed to take into account the changing telecom environment and technological advancements.

But, consistent with Louis Brandeis' observation that the states may serve as "a laboratory" for experimentation, there are other instances when states, by their example, have led the way. In some sense, especially in the last couple of years, this is happening in the communications arena where many states have adopted deregulatory policies. Indeed, some of the states are ahead of the FCC in adjusting their regulatory regimes to account for technological advances and today's competitive marketplace realities.

For instance, more than half the states have adopted legislation or otherwise acted to restrict state regulation of VoIP services. This is consistent with the recognition that there is no public interest reason to subject these IP services to legacy telecom regulation.

And on July 22, the Washington Utilities and Transportation Commission issued an Order remarkable for the clarity with which the agency explained its determination to deregulate legacy wireline services. The order addresses a petition for regulatory relief filed by Frontier Communications earlier this year. The state commission determined that:

Frontier faces strong competition for the majority of [its] services throughout most of that geographic area….[T]his docket affords the Commission the opportunity to acknowledge the realities of the 21st Century marketplace by reducing unnecessary regulation and bolstering the ability of Frontier and its competitors to provide effective competitive telecommunications services to the ultimate benefit of this state’s consumers. [Page 2] 
I commend the entire decision to you. But for those short on time, here are a few key excerpts that demonstrate the extent to which the Washington commission, historically not known for its deregulatory tendencies, is attuned to the changing communications marketplace.

Wireless, VoIP, and bundled service options to basic single-line service place competitive pressures on providers of such basic service. Even if Frontier were the only provider of single line basic service, should Frontier seek to raise its rates for such service customers could opt for one of these other service options – in fact, that is what has been happening. While we understand Staff and Public Counsel’s strong desire to define services narrowly to protect the interests of those consumers with the fewest competitive alternatives, we do not believe the legislature intended the Commission to adopt such a rigorously constricted approach in assessing competitive conditions. Indeed, the narrow market definition Staff and Public Counsel propose would undermine legislative intent by virtually ensuring that Frontier could never demonstrate the existence of effective competition for these services. [Page 19]

To the extent possible, consumers, not the Commission, should determine whether other providers’ services are viable alternatives to the incumbent telephone company’s services. The record evidence overwhelmingly demonstrates that most consumers consider wireless, VoIP, and CLEC services, individually and in bundles, to be alternatives to Frontier’s basic residential or small business services….We would be ignoring reality if we were to accept Staff and Public Counsel’s definition of the relevant market as limited to stand-alone, single landline residential and small business services provided at Frontier’s tariff rates. [Pages 19 - 20]

And, finally, in its Conclusion, the Washington commission summed up this way:

Our assessment of the merits of Frontier’s Petition for relief from traditional regulation is guided by the remarkable transformation in the telecommunications industry that continues to occur…. If alternative providers of telecommunications services exist and the Company no longer serves a significant captive customer base, we will substantially reduce historic regulation, particularly economic regulation, in favor of the disciplines of an effectively competitive marketplace. In the world as it exists today, our traditional role must devolve to one increasingly focused on preserving and promoting conditions for competition. [Page 26]
As I said, in years past the state commissions often have adopted regulatory postures that had the effect, whether intended or not, of deterring innovation and investment. Not so with regard to the states that recently have acted to preclude regulation of VoIP services. And not so with respect to last week's Washington UTC decision. 

And now for the moral of the story: The FCC commissioners and staff could benefit much from an open-minded reading of the Washington state commission decision. Put bluntly, the FCC has been too slow to provide regulatory relief in the face of what the Washington commission called "the remarkable transformation in the telecommunications industry that continues to occur." The FCC has been too slow to "substantially reduce historic regulation, particularly economic regulation, in favor of the disciplines of an effectively competitive marketplace."

Many examples of the FCC's reticence to "reduce historic regulation" could be given. Here I will simply point out that, in rejecting several forbearance requests for regulatory relief, the FCC has continued its failure to account properly for the obvious competitive impact of wireless and VoIP services. And, based on its actions thus far, it appears unlikely the agency will consider in a timely fashion the competitive impact of over-the-top Internet video services on traditional cable and satellite video services still shackled by outdated legacy regulations.

So, again, if anyone at the FCC needs a copy of the Washington state commission's decision for inspiration, please just click here