The FCC has touted its role in facilitating
the ongoing transitions to next generation network technologies. But the Commission
has serious difficulty transitioning itself out of its role a monopoly-era
telephone regulator. Too often, the Commission still clings to outdated rules
meant for copper-based networks.
Complying with old rules diverts communications
providers' time and resources away from network upgrades. The Commission must finally
make earnest attempt to use its Section 10 authority to forbear from applying costly
legacy telephone regulations.
Right now the FCC is taking public
comments on a plan by Frontier Communications whereby
the Commission would relax certain monopoly-era network cost allocation rules. Frontier
seeks forbearance relief from Part 32 account rules, in particular.
Part 32 includes nearly 70 pages of complex
accounting requirements mandating maintenance of a separate accounting system. That
means incumbent voice providers must keep a Part 32 accounting system in
addition to their business accounting systems following generally accepted
accounting principles. An AT&T estimate of annual Part 32 compliance costs
ran $15-20 million and $3-4 million for personnel.
Cost allocation rules were meant to address questionable
capital and cost practices that were incentivized by rate-of-return regulation.
The concern was that incumbent voice providers would overbuild capital
facilities and run up unnecessary costs. Such providers, it was worried, could
recover misallocated and unwarranted costs through rate-of-return regulated prices
and hide profits using accounting tactics. Part 32 rules were intended to prevent
that.
Frontier and other incumbent voice providers
are no longer under rate-of-return regulation. Frontier is now a price cap
carrier. Under price cap regulation, end-user charges are capped at a flat
rate. Providers have an incentive to lower overhead and offer service
efficiently.
Part 32 rules no longer make sense on account
of the dramatic technological and competitive changes in the communications
market that have taken place over the last twenty years. Old telephone monopolies
no longer exist. For consumers, local and long-distance calling is no longer a
meaningful distinction. Entry into the voice services market by wireless
carriers and cable operators offer consumers ample choices.
According to the FCC's latest Local Telephone Competition Report, as of December 2013, the
number of switched access lines has dropped to 85 million. Over the past years
some 32 million Americans dropped their copper landlines. Interconnected VoIP
service offered by cable operators offers consumers a major competitive
alternative, with nearly 48 million subscriptions nationwide. Meanwhile, wireless
voice subscriptions exceed 310 million. 2014 data cited in the FCC's Seventeenth Wireless Competition Report indicates that 96.8% of the population is served by three or
more mobile wireless providers, and 91.4% is served by four or more.
Steep, permanent decline in the number of switched
access lines reinforces the urgency for forbearance. For voice providers
migrating customers to VoIP services, operating copper-based networks grows increasingly
expensive. Upkeep costs for duplicate networks – one copper-based network for
switched access lines and the other IP-based – includes the costs of duplicate
accounting systems.
The FCC has previously forbore from applying some
of Part 32, albeit reluctantly. Its USTelecom Forbearance Order (2013) granted partial forbearance relief, conditioned on
providers filing plans outlining how they will keep accounting records
consistent with Part 32 and turn over data upon request. CenturyLink previously filed its plan and
received relief. The FCC should now grant Frontier's requested relief.
Timely transitioning of voice providers from copper
TDM networks to all-IP networks depends on prompt elimination of regulatory
roadblocks. The FCC needs to finally take a proactive role in granting full
forbearance from monopoly-era regulations like cost allocation rules. Not
half-measures. Partial relief from irrelevant and costly regulations pursuant
to compliance plans needlessly distracts from technology transition efforts.
Forbearance relief from duplicate network
requirements is another step that will further the technology transitions
process. Voice providers should be relieved from the burdens of keeping an
extra, separate set of books for outdated networks. Time and money spent complying
with old Part 32 mandates are dead-weight losses. And they are no help to
consumers. Ultimately, consumers are better served by providers’ directing
their resources to next-generation network deployment.
Yes, the FCC should certainly approve Frontier's
compliance plan and grant partial forbearance relief from Part 32. But in light
of today's dynamic and competitive market conditions, no compliance plan should
be required. Instead, the Commission should relieve carriers from costly
duplicate accounting systems requirements altogether. The Commission has
authority under Section 10 to act now and grant across-the-board forbearance
relief from all cost accounting rules.
Timely technology transitions, including the
transitioning of voice providers from TDM networks to all-IP networks, depend
upon prompt elimination of legacy regulatory roadblocks. The FCC needs, finally,
take proactive steps to forbear in full from impeding progress toward next-generation
networks by continuing to apply cost allocation rules.