Wednesday, May 27, 2015

FCC Must Forbear from Costly Rules to Further Transition to Next Gen Networks

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 Too often, the Commission still clings to outdated rules meant for copper-based networks.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.