Thursday, April 24, 2008

Midnight Madness

No, it’s not the traditional beginning of basketball season one midnight in mid-October. It’s tonight at the Portals, the FCC’s headquarters on 12th Street. Not having heard anything yet about the decision on AT&T’s petition seeking forbearance from the Commission’s cost assignment rules, which must be decided today, it wouldn’t surprise me now if the decision is made, literally, at the last minute.

It will surprise me, though, if a majority of the Commission that claims to be market-oriented doesn’t grant the petition. I have explained here and here that the cost allocation rules are a relic from a bygone era. They were put in place when AT&T was the dominant telecommunications carrier in a monopolistic environment. Rates for various AT&T services were based on cost assignments to various categories. This is no longer true in an era when rates are capped by both the FCC and the states.

Almost all economists will tell you that even in the old analog monopolistic environment in which multiple AT&T services used common plant the cost allocation rules necessarily were always somewhat arbitrary and, therefore, subject to manipulation. They are even less relevant and useful, as a practical matter, in a digital era characterized by convergence in which a “bit is a bit is a bit.”

The chief objection appears to be that, although the cost allocation data is not being used now for any important regulatory purpose, it might possibly be useful in the future. This seems a doubtful proposition to me.

For example, in today’s Communications Daily it is reported that the Tennessee regulatory authority says that AT&T accounting data might be useful in the future in evaluating competition, or might be useful if the agency should adopt a state universal service fund. It is hard to understand how cost data collected for regulatory accounting purposes, sliced and diced on a somewhat arbitrary and artificial basis, is necessary, or even useful, for evaluating competition. Information concerning number of existing and potential providers, locations and customers served, prices, and the like, are much more useful in this respect than accounting regulatory data.

As for concerns expressed by Tennessee and a few other states that they might possibly need data in the future, say, if they decide to establish universal service funds, it seems to me that such speculation is not a good reason for maintaining in place a regulatory relic. The FCC’s outdated rules should not be held hostage to speculations about potential future needs that haven’t yet materialized and most likely never will.

Finally, in my view, if it turns out certain states, on an individual basis, decide they want to collect certain cost assignment information relating to intrastate services provided within their states, I see no reason why they would not be free to do so on a focused basis, as long as the information relates to a valid regulatory purpose within the ambit of the state’s lawful jurisdiction.

For that matter, and importantly, I see no reason why the FCC, if it grants AT&T’s petition in the exercise of its forbearance authority, cannot, on a proper record, subsequently change its mind if circumstances warrant. In other words, the FCC could reinstitute whatever cost assignment regulations it deems necessary if it has a rational basis for doing so. A grant of forbearance is not necessarily a decision to forbear forever.

What is not rational is for the Commission to refuse to employ the deregulatory tool that Congress put in place for situations like this when rules that are no longer necessary should no longer be applied. While it may be unlikely that Democratic Commissioners Michael Copps and Jonathan Adelstein, with their pro-regulatory inclinations, will vote for forbearance, it will be disappointing if the three Republicans, Chairman Kevin Martin and Commissioners Deborah Taylor Tate and Robert McDowell, don’t.