In a blog
posted on July 10, FCC Chairman Tom Wheeler announced he was circulating an item to be considered at the Commission’s
August 6 meeting “that would update the FCC’s rules to help deliver the promise
of dynamic new networks, provide clear rules of the road for network operators,
and preserve our core values, including protecting consumers and promoting
competition and public safety.”
He also said this:
The transition to
efficient, modern communications networks is bringing new and innovative
services to consumers and businesses. The Commission’s approach to these
technology transitions is simple: the shift to next-generation fiber and
IP-based networks from analog switch- and copper-based networks is good and
should be encouraged.
The IP transition is extremely
important for America’s consumers, so it is good that the Commission will be
considering moving forward at its August meeting, because, frankly, the
agency’s process in facilitating the IP transition has lagged more than it
should.
My colleague Seth Cooper and I
submitted comments to the Commission in the IP Transition inquiry
(“Transition from Legacy Platforms to Services Based on Internet Protocol”)
back in January 2013. And Free State Foundation scholars will continue to
comment on the transition going forward. But, for now, I want to highlight, at
a high-level, some concerns arising from the way Chairman Wheeler framed the
issues in his blog and “Fact
Sheet” posted at the same time.
In my view, it appears that
Mr. Wheeler’s disposition – and perhaps that of his colleagues Commissioners
Mignon Clyburn and Jessica Rosenworcel as well – to engage in micro-managing
competition in the name of promoting it will ultimately harm American consumers.
This is true even if this disposition results, in the short term, in propping
up some “competitors.” I am referring to the statement to the effect that, “to preserve competition in the enterprise market,” Mr. Wheeler
proposes to “require that replacement services be offered to competitive
providers at rates, terms and conditions that are reasonably comparable to
those of the legacy services.” This new “unbundling and sharing” requirement is
put forth as an “interim” requirement, “pending completion of the FCC’s special
access proceeding, which is examining these issues more broadly.”
There are several points I want to make about this way of
framing the IP Transition issues (again, which will be addressed as well in
later posts).
First, this is another case of Chairman Wheeler’s
inclination to adopt intrusive regulatory mandates in a market that, by his own
admission, presently is competitive, not subject to market failure. Note that his
Fact Sheet refers to “preserving”
competition in the enterprise market. In his blog, he refers to competitive
providers presently serving hundreds of thousands of businesses and other
non-residential enterprises.
Second, Mr. Wheeler says the new mandates are intended to
be in place “pending completion” of the special access proceeding. Frankly, I just
hope I live long enough to see the end of this interminable proceeding. In one
form or another, it’s been going on for more than a decade. And the way the
Commission has framed the issue – supposedly looking to determine whether competition
exists on a building-by-building location all over the U.S. – and with
competitors, not surprisingly, resisting giving up what they consider to be their
sensitive customer information, the special access proceeding is unlikely to be
completed in the next ten years.
Third, if the special access market is presently
competitive, as Mr. Wheeler acknowledges, why has the Commission been wasting
so much time, and causing the expenditure of so many resources, investigating
that market over the last decade?
Fourth, the proposal to require sharing of “replacement
services” at rates, terms, and conditions that are reasonably comparable to
those under which the wholesale legacy services are acquired is a bad idea. It
makes you wonder whether Chairman Wheeler is fully aware of the ruinous results
of the Commission’s ill-fated Unbundled Network Element regime, which mandated
unbundling and sharing of the legacy copper network piece parts. It is now
widely acknowledged by economists and analysts that the implementation of the
UNE sharing regime, with the Commission setting prices for the unbundled
elements, discouraged new entrants from building out their own network
facilities and incumbents from investing in new facilities. And it is widely
acknowledged in the same quarters that the decision by the Commission – thus
far – to refrain from requiring unbundling and sharing of fiber and IP
facilities has played a substantial role in fueling the last decade’s
investment boom in those advanced facilities.
Policies that encourage sustainable facilities-based investment
enhance overall consumer welfare far more than policies purporting to support
competitors by mandating facilities-sharing. In implementing the Telecom Act of
1996, the FCC paid lip service to recognizing the benefits to consumers when
providers invested in their own facilities. For example, the Commission said: “[C]onsumers
benefit when carriers invest in their own facilities because such carriers can
exercise greater control over their networks, thereby promoting the
availability of new products that differentiate their services in terms of
price and quality.” This is true. But, unfortunately, the Commission’s
policies, by making facilities-sharing so attractive, discouraged new entrants
from investing in their own networks. The agency should not repeat that mistake
now as part of the IP transition.
Fifth, if the Commission adopts a rule that requires
sharing of facilities at “reasonably comparable” rates, then it necessarily
will be embarking on a rate regulation regime that, inevitably, will be burdensome,
time-consuming, and costly. This too is a lesson of the failed UNE regime. It
is naïve to assume that competitors vying for customers are going to agree on
what constitutes “reasonably comparable” rates – joining hands singing
“Kumbaya.” Instead, it is much more likely the FCC will be setting rates for
sharing elements of new fiber and IP facilities.
Sixth, all of the focus on protecting
competitors seems to suppress what should be an important focal point regarding
consumers – who, after all, should be the primary object of the Commission’s
attention. There is a consumer-oriented imperative for the Commission not to
delay the transition to IP networks. Indeed, Chairman Wheeler acknowledges the
benefits new, more efficient next generation networks will bring consumers in
terms of innovative services.
But the reality is that the transition
will be slowed if the service providers are required to maintain two separate legacy
and IP networks. As Seth Cooper and I said in our January 2013 comments, “service
providers necessarily will have fewer funds available to invest in new
broadband facilities as they continue to sink scarce capital into legacy
facilities utilized by a dwindling number of customers.”
In sum, as the Commission moves forward,
it should keep its primary focus on enhancing overall consumer welfare, not on
protecting competitors by adopting measures that will discourage investment in
new IP facilities by newer entrants and established providers alike.
* *
*
Don’t miss FSF’s lunch seminar,
“Implementing Real Regulatory Reform at the FCC,” on Tuesday, July 28, from
11:45 a.m. – 2:00 p.m., at the National Press Club. FCC Commissioner Michael O’Rielly will deliver keynote remarks. His
remarks will be followed by a panel discussion, moderated by FSF President Randolph May, with Richard Wiley, former Chairman, Commissioner, and General Counsel
of the FCC, and Gus Hurwitz and Daniel Lyons, both telecom and
administrative law scholars who are members of FSF’s Board of Academic
Advisors.
A complimentary lunch will be served,
but you must register to attend. You may register here.
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