All-IP networks continue to overtake copper-based legacy
voice services. The FCC has staked out a role for itself in furthering the IP
transition. But having done so, the Commission must face the reality that
transitioning to all-IP requires eliminating all monopoly-era regulations that
stand in the way.
Right now the FCC is taking public
comments on a plan by
CenturyLink whereby the Commission would relax but not eliminate certain
legacy telephone regulations. CenturyLink seeks partial relief from certain
monopoly-era network cost allocation rules – so-called Part 32 account rules,
in particular.
Part 32 contains about 67 pages of
complex accounting rules. It requires the maintenance of an entirely separate,
detailed accounting system by incumbent voice carriers. That is, such carriers
must maintain a Part 32 accounting system in addition to standard business
accounting systems that follow generally accepted accounting principles. An
AT&T estimate of Part 32 accounting rule compliance costs ran $15-20
million for systems and $3-4 million for personnel. This is on an annual basis.
Part 32 regulations are a relic of
the monopoly-era legacy telephone regulatory system. The accounting rules were
initially adopted to address potentially harmful capital and accounting cost
practices incentivized by rate-of-return regulation. In a nutshell, Part 32
rules were intended to monitor rate-of-return incumbent voice carriers to
prevent overbuilding capital facilities and incurring unnecessary costs.
Otherwise, carriers could recover misallocated costs through rate-of-return regulated
prices and use accounting tactics to hide profits.
But incumbents such as CenturyLink
have long since moved out from under rate-of-return regulation; they are now
price cap carriers. Under price cap regulation, end-user charges are capped at
a flat rate. That gives carriers incentive to lower overhead costs and provide
more efficient services. Additional technical changes to FCC policy regarding
legacy voice services – such as the FCC's 2001 freeze of separations cost
allocation between interstate and intrastate jurisdictions as well as its
2011-to-present universal service and intercarrier compensation reforms – have also
rendered Part 32 accounting rules unnecessary, if not irrelevant.
In the bigger picture of things,
Part 32 rules are totally unnecessary because of the momentous changes in the
communications marketplace over the last twenty years. Competitive and
technological breakthroughs have dismantled the old monopolies and brought a
bounty of choices to consumers.
According to the FCC's Local
Telephone Competition Report, as of December 2013, wireless voice subscriptions
number 305 million, whereas the number of switched access lines has dropped 96
million. Over the past four years 33.6 million Americans dropped their copper
landlines. October 2012 data cited in the FCC's Sixteenth Wireless Competition Report
indicates that 92.8% of the population is served by four or more mobile
wireless voice carriers, and 80.4% is served by five or more. Interconnected
VoIP service offered by cable operators offers consumers another major
competitive alternative, with 42 million subscriptions nationwide.
On account of these market changes,
through prior orders the FCC granted forbearance from aspects of Part 32 to
various incumbent voice carriers. Such relief was conditioned on those carriers
filing compliance plans outlining how they would still maintain accounting
records consistent with Part 32. The Commission's USTelecom Forbearance Order (2013)
likewise granted partial forbearance from Part 32 but requires carriers to continue
to maintain Part 32 accounting and provide such data to the FCC upon request.
But that partial relief is conditioned on filing a compliance plan. CenturyLink's
compliance plan follows the conditions set out in the USTelecom Forbearance Order.
Recent data regarding voice
competition and the unmistakably permanent decline in switched access lines
reinforces the urgency for removing legacy telephone regulations. Incumbent
voice carriers that are now migrating their own customers to VoIP services remain
needlessly burdened by regulatory requirements to maintain increasingly
expensive copper-based networks. The costs of keeping up duplicate networks –
one copper-based network for switched access lines and the other IP-based –
include the costs of duplicate accounting systems.
The FCC established a Technology
Transitions Policy Task Force dedicated to facilitating the ongoing transition
from copper-based legacy telephone networks to all-IP networks. When ultimately
completed, the IP transition means the end of the public switched telephone
network upon which legacy regulation was premised.
To encourage the completion of the IP transition process, the
FCC should relieve carriers from regulations requiring them to run duplicate
networks. Carriers should also be relieved from the unnecessary burden of having
to run a separate set of books for outdated networks. Time and money spent by
carriers to comply with the FCC's antiquated Part 32 accounting mandates are
dead-weight losses. Ultimately, consumers would be better served by allowing carriers
to rely on their knowledge of markets and technology by directing those
freed-up resources to all-IP network deployment.
Yes, by all means, the FCC should grant CenturyLink's compliance plan for
partial relief from Part 32. But no compliance plan should have been required
in the first place. Rather, the FCC already should have relieved carriers from
having to maintain outdated, unnecessary, costly duplicate accounting systems.
The FCC has the authority to act now and grant forbearance relief from Part 32
accounting rules in their entirety.
In dynamic markets, eliminating unnecessary regulations shouldn't be
bogged down by half-measures. Granting partial relief from unnecessary and
costly legacy regulations pursuant to compliance plans is a formula for
needlessly dragging out the IP transition. Stacking one set of transition plans
on top of another will not make for a smooth process. When it comes to
advancing the IP transition, the FCC should remove monopoly-era regulations
like Part 32 in full.
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