Tuesday, May 24, 2011

Section 706 and the FCC's Pro-Regulatory Proclivities

So, the Federal Communications Commission has now issued its Seventh Broadband Progress Report pursuant to Section 706 of the Communications Act. Section 706 requires the FCC periodically to determine whether broadband capability "is being deployed to all Americans in a reasonable and timely fashion." If the Commission's determination is negative, the Commission is directed to "take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market."

Suffice it to say that by virtue of their indeterminateness "reasonableness" and "timeliness" are, to some extent, in the eye of the beholder – or, in this instance, in the eye of the regulator. Before Julius Genachowski became Chairman of the FCC, in each of the prior five Section 706 reports the agency had determined that broadband was, in fact, being deployed on a reasonable and timely basis. Under Chairman Genachowski's watch, the FCC has determined precisely the opposite in the last two reports.

This does not mean that in making such a negative determination Chairman Genachowski and his two Democratic colleagues are acting in bad faith. But it does drive home the point I made in a blog almost two years ago that "data" – no matter how sweet-sounding the oft-repeated "data-driven" mantra – not infrequently is viewed differently, and put to different uses, depending upon one's regulatory philosophy and perspective.

It is clear that the communications policy perspective of Chairman Genachowski and his two Democratic colleagues is presumptively pro-regulation. In my view, in light of the technological and market dynamism that characterizes the communications and information services marketplace, their perspective should be presumptively deregulatory. Be that as it may, viewed through its presumptively pro-regulation mindset, the FCC majority evaluated the data and determined broadband is not being deployed in a "reasonable" or "timely" manner.

As noted above, this negative determination may have important consequences because Section 706 directs the Commission to take immediate action to accelerate broadband deployment. And, we know that, based on recent history – for example, think net neutrality and data roaming mandates -- the actions taken by the Genachowski Commission are most likely to be adoption of more new regulations – despite the fact that the statute refers to "removing barriers to infrastructure investment."

While I have acknowledged above that it is possible to draw different conclusions from the available data depending upon one's regulatory perspective, Commissioner McDowell in his dissenting statement persuasively argues that, in this instance, the majority's ultimate determination is highly questionable. As Commissioner McDowell points out, for the first time, the Commission claims the statutory terms "deployment" and "availability" refer to something other than deployment of physical network infrastructure. The Commission's apparent motivation in abandoning the previous understanding is to re-interpret the terms to encompass the notion of "adoption" of broadband, not just access to broadband networks. In other words, the Commission now factors into its "reasonableness" and timeliness" determination, in an amorphous, unconstrained way, various professed concerns about the rate of adoption (already over 65% of Americans use broadband at home). Without digressing here into a discussion of the proper modes of statutory construction, it is enough to say that the Commission's novel re-interpretation of Section 706 – after a contrary interpretation in previous reports – is almost certainly incorrect.

The Commission's concession that, for purposes of its Section 706 determination, it will completely exclude the deployment of wireless broadband capabilities – even though 4G wireless networks are now being deployed – casts further doubt on the validity of its ultimate determination. Even as the number of wireless-only households now exceeds 25%, the Commission has stubbornly refused to consider wireless phones a competitive alternative to landline phones in forbearance proceedings. It now appears that, even as the number of smartphone subscribers increases rapidly, the Commission will pursue a similar tack of simply ignoring wireless broadband network deployment and availability for purposes of its Section 706 determination. This despite Chairman Genachowski's very recent statement that "3G wireless services can deliver speeds capable of handling a dramatically wide array of consumer applications." And despite the acknowledgment in the Section 706 report that "[c]urrently, a number of wireless providers are building out nationwide fourth-generation (4G) mobile broadband networks."

The Genachowski Commission's inclination to interpret evidence – not to mention re-interpreting statutory terms – in a way designed to provide support for its pro-regulatory proclivities is likely, over time, to have adverse consequences. In the news release accompanying release of the report, the Commission states: "Despite the difficult economy, the private sector continues to invest tens of billions of dollars in broadband infrastructure each year -- $65 billion in capital expenditures in 2010 alone -- expanding capacity, increasing speeds on fixed networks and rolling out next-generation mobile services like 4G." In a recent press release, Broadband for America, an industry trade organization, claims that since 2008 cable operators, telephone companies, and wireless firms have invested over $250 billion in private capital in broadband networks." To be sure, private investment of this magnitude, during the "difficult economy," is extraordinary, and a testament to American private enterprise.

The Commission refuses to acknowledge, or fails to understand, that the costs imposed on broadband providers by increased regulations, such as the recently adopted net neutrality mandates, likely will have the effect of discouraging private investment. Discouraging private sector investment, especially on the huge scale indicated by the figures above, would be contrary to the goal, shared by all, for broadband to be made available to those remaining unserved areas (96% of American households already have broadband access), and for existing facilities to be continually upgraded with higher speed offerings.

In sum, the Commission, by filtering certain evidence through its embedded pro-regulatory lens, and departing from its previous interpretations of key statutory terms, has reached a determination in its Section 706 report that apparently it will use to adopt more new unnecessary regulations. I fear that, in the end, American consumers – and the American economy -- will be the real losers.


Finally, the Commission's handling of the evidence in this most recent Section 706 report has left me more convinced than ever that Congress should amend the Communications Act as l suggested in my recent essay, "A Modest Proposal for FCC Regulatory Reform." As I explain there, and in this more abbreviated "Rolling Back Regulation at the FCC" version published in the National Review Online, the Communications Act's forbearance and periodic regulatory review provisions should be amended to establish a presumption that, absence clear and convincing evidence to the contrary, the statutory consumer protection and public interest criteria for granting regulatory relief have been satisfied. I invite you to consider my proposal in conjunction with the way the FCC evaluated the evidence in its Section 706 report.