Friday, October 19, 2007

Bearing in Mind the Broadband Forbearance Order

I have only had a chance to do a quick read-through of the FCC’s October 12 order granting AT&T some regulatory relief regarding certain packet-switched and optical transmission broadband offerings. I would have preferred to have seen a more robust exercise of the Commission’s authority to forbear from regulation to include an elimination of Title II common carrier requirements. Nevertheless, the Commission’s Republican majority (over the dissent of the two Democrats) deserves credit for forbearing from dominant carrier regulatory requirements for these high-capacity business broadband services.

The Commission’s action offers some hope that a Commission majority will move forward promptly, and with more constancy, to grant fuller regulatory relief for the broadband services of other providers—and to refrain from imposing new regulations on broadband providers. There is certainly a rationale for adopting such a deregulatory posture based upon certain statements in the Commission’s order.

Here are some statements and determinations that the agency offered in support of regulatory relief that struck me as significant. The logical import of these statements should not be lost on the Commission going forward.

· The Commission points out that, even in 2004, it determined “that a diverse range of broadband technologies and facilities-based platforms that promote both price and quality-of-service competition will be available to consumers….” [Para. 48] The competitive environment is more robust now than in 2004. The Commission should recognize, with a consistency that has not always been present, the significance of this competitive finding whenever it considers any issue relating to broadband regulation.

· The Commission considers the broadband market to be national, rather than one more limited in geographic scope. [Paras. 20-21] This is appropriate and consistent with past FCC actions regarding broadband.

· Significantly, the Commission views “a broadband marketplace that is emerging and changing.” [Para. 20] Shortly thereafter, the Commission again refers to “the emerging and evolving nature of this market….” [Para. 23] This is a key insight that should lead the Commission to be wary of imposing regulatory straight-jackets of various kinds on broadband providers as they experiment with new business models that respond to evolving and changing consumer demand.

· In assessing the status of competition, the Commission states that “we find that competitors either are providing, or readily could enter the market, to provide these services.” [Para. 23] Recognizing the role that potential competitors play in disciplining the market is significant and welcome because there have been many times when the agency appears not to have considered the relevance of potential competition.

· In light of the evolving and changing nature of the market, the agency says it “would not give significant weight to static market share information in any event.” In a marketplace as technologically dynamic as communications, and especially broadband, it is necessary for the Commission to take a dynamic rather than a static view. This appreciation of the dynamic nature of the marketplace should carry forward to many other issues before the agency, not least of which is special access, but also to issues such as the consideration of the Sirius-XM merger, where focus on static market definitions and static market shares seems to dominate the thinking of regulatory proponents.

· At several places in the order there is an appreciation that, even where competing services do not presently exist, competitors can deploy facilities “to the extent there is a demand for such services….” [Para. 25] In other words, the ability to deploy new facilities is ever present if there is a demand, and this potential competition constrains the prices of the incumbents.

· Finally, there is this: “As the Commission has stated before in reducing regulatory requirements where competition is present, there comes a point at which constraints become counter-productive, especially in terms of carriers’ ability to respond to customer needs.” [Para. 35] This is the timing issue about which I have written before, especially in the special access context. For a discussion of the timing of deregulation and other regulatory principles in the context of special access, click here. As competition develops, it is better for the enhancement of consumer welfare to deregulate too early rather than too late. And it is important not to go backwards ---that is, to re-regulate—absent demonstrable proof of market failure. The Commission’s statement above seems to be acknowledging that, while there will always be disputes about the particular market situation, consumers ultimately suffer when regulatory relief actions are too halting.

So, while I would have preferred bolder action, the majority should be commended for going as far as it did.

As importantly, going forward, the Commission should be considerably more constant than it has been in charting a deregulatory course for all broadband providers, regardless of the technological platform the providers employ. This deregulatory course is warranted by the current marketplace environment. As indicated above, much of the Commission’s reasoning in the AT&T forbearance order --with its emphasis on market dynamism, the impact of potential competition, the evolving nature of the marketplace, and the like --provides a basis for a principled deregulatory policy, if only the agency would take its own words to heart.