FCC Reform: The Video

With what my mother always called "the dog days of summer" fast upon us, and while we're anxiously awaiting Homeland or Boardwalk Empire to start up again, I've got just the hot short video for your August viewing. I'll call it "FCC Reform: The Video" to get your juices flowing. 

OK, Homeland or Boardwalk Empire it's not... 

But, as regular readers know, I am passionate about FCC regulatory reform, even during dog days. In the video immediately below, which runs only 10 minutes, I discuss the "FCC Process Reform Act" and the "FCC Consolidated Reporting Act" bills put forward in the House Subcommittee on Communications and Technology by Chairman Greg Walden and the "FCC's 'ABCs' Act" put forward by Subcommittee Vice Chairman Bob Latta.

In the video, I explain why the proposed changes to the FCC's rulemaking requirements in the FCC Process Reform Act are needed in order to reorient the FCC away from its tendency to default to regulation even when there is no clear and convincing evidence of market failure or consumer harm. And I support the adoption of revisions to the FCC's forbearance and periodic regulatory review authority. Indeed, I proposed just such changes in April 2011. 

I also explain in the video why the merger review reform provisions contained in the Process Reform Act should be adopted and why the proposed Consolidated Reporting Act makes perfect sense in today's multi-platform competitive, converged marketplace environment. 

And there's more...but I shouldn't keep you from watching any longer.   

 

My testimony before the House Subcommittee at the July 11, 2013, hearing on "Improving FCC Process" is here. My July 16 blog entitled "FCC Regulatory Reform and Administrative Law" is here.

Computer III: R. I. P.

By Greg Vogt

Visiting Fellow

Since the Third Computer Inquiry rules were adopted in 1986, the FCC has received multiple rounds of comments, including in an outstanding rulemaking proceeding, concerning whether the rules should be eliminated. Despite its recognition that the market has changed drastically, the FCC recently denied a US Telecom request for forbearance from these rules. Instead it once again requested comment on the rules’ elimination. The available evidence justifies that these rules should promptly be consigned to the graveyard reserved for outdated regulations.

The Computer III rules established a complex framework that was designed to enable independent “enhanced services” providers to purchase piece parts of the analog telephone network. These rules now apply only to three companies in a growing field of wired and wireless network providers of considerable size and strength.

Some rules have been streamlined (in its recent forbearance order the FCC rightfully eliminated thousands of annual pages of compliance reports) and the Computer III rules for broadband have largely been eliminated. Notwithstanding, the substantive rules remain in place for a much narrower category of so called “narrowbanding” enhanced services. The Commission specifically identified only a small number of voice mail and alarm monitoring service providers that currently rely on Computer III functionality.

US Telecom demonstrated that these “narrowbanding” services are being provided today over broadband and cable TV networks without reliance on Computer III functionality. Current evidence of competing facilities-based network platforms provide alternatives that justify eliminating the substantive Computer III rules.

Computer III was adopted when telephone service was largely a monopoly. Since then, multiple network platforms provide a communications path into the home. In 2010, Cable MVPD facilities passed 98.5 percent, and wireless services covered over 97.8 percent, of homes. Over 93 percent of Americans in 2012 could receive wireline broadband services at 3 Mbps download speeds or greater.

In its denial of US Telecom’s forbearance request, the Commission asserted that it needed evidence that alternative services were available on competitive terms. This focus was overly narrow and misplaced. The Commission should instead evaluate the technological capabilities of alternative network platforms to determine whether there is a sufficient competitive alternative to Computer III-compliant facilities. The FCC engaged in such an inquiry when it deregulated wireline broadband without looking at specific prices. The same type of inquiry for narrowbanding enhanced services would demonstrate that competitive alternatives do exist, which would promote reasonable terms. There is thus no reason to force Computer III carriers to identify irrelevant information that they may not even be able to access in the first place.

Given the existence of competing alternative platforms, there is little need to be concerned that either consumers or providers could not find “enhanced” services without the legacy rules. In the past, the Commission has solved this type of potential disruption to consumers and providers through limited grandfathering, such as it did when wireline broadband was deregulated. With a reasonable time to locate an alternative source of supply, there is no further need for continued regulation to assure consumer protection. 

The FCC should not retain rules solely to protect existing business plans or services. Both the FCC and the antitrust laws have long refused to protect individual competitors rather than competition. Freezing services in place stifles innovation and unnecessarily increases carrier costs.

The Commission has admitted that the Computer III requirements are burdensome. Other public interest benefits support elimination. As the Commission found when deregulating wireline broadband, eliminating Computer III is in the public interest because it would promote innovation and investment, and reduce compliance costs. And unnecessary rules should be repealed in any event because they skew competition, harming consumers.

It is also ironic that the FCC elsewhere has announced that it needs to promote conversion to a modern network to promote broadband and meet other goals. Its stubborn retention of legacy rules applicable only to the analog PSTN, such as the Computer III rules, potentially works at cross purposes with these other goals.

In its NPRM to explore elimination of the remaining Computer III rules, the Commission should rely on available evidence to eliminate these unnecessary rules without further delay. Competition will continue to make available services consumers desire through a variety of platforms. Computer III: Rest In Peace.

FCC Slow-Moving Forbearance Process Isn't Getting Any Faster

My March 14 blog "FCC Opts for Delay over Deregulation in Forbearance Process," I cited a dozen sorry examples of agency delay in deciding forbearance petitions. At the time of posting, two significant petitions were pending—a USTelecom petition seeking relief from 17 categories of legacy voice service regulations and a CenturyLink relief from enforcement of legacy regulations with respect to its enterprise broadband services. And I observed the FCC granted itself 90-day extensions in reviewing both of those pending petitions. 

Ultimately, the FCC's stuck to its delay-prone pattern. The final bylines for both petitions could just as well be added to the dozen examples I cited earlier. To wit:

• USTelecom Forbearance Order (2013), granting, in part forbearance from legacy voice services regulations (petition filed, Feb. 16, 2012; order granting relief, in part, and granting extension, Feb. 19, 2013; final order adopted, May 10, 2013; final order released, May 17, 2013)

• CenturyLink Broadband Enterprise Petition (2012-3) seeking relief from legacy regulations with respect to enterprise broadband services (petition filed, Feb. 23, 2012; extension granted, Feb. 22, 2013; order requiring additional information and public notice requesting data, March 5; petition to withdraw granted, March 20)

This is a sorry addendum to make, particularly in the case of CenturyLink, which sought relief identical to that which was granted to other providers through the FCC's Enterprise Broadband Orders.

Don't Forbear Any Longer From Forbearance Reform!

There is a growing consensus that a new Digital Age Communications Act is needed that reflects the technologically dynamic, increasingly competitive digital age communications marketplace. The current "smokestack" regime, grounded in outdated techno-functional constructs that apply differential regulatory burdens to comparable competitive services, needs to go.   

But it is also pretty clear that it may be some time before the growing consensus leads to adoption of the necessary radical overhaul of the current law. 

In the meantime, Congress could simply modify one provision of the current law to require the Federal Communications Commission to act in a less regulatory fashion than the agency generally does now. 

Two years ago this month I published a Free State Foundation Perspectives entitled, "A Modest Proposal for FCC Regulatory Reform: Making Forbearance and Regulatory Review Decisions More Deregulatory." There I suggested that Congress amend the Communications Act's forbearance provision to make forbearance relief the viable deregulatory tool Congress intended when the Telecommunications Act of 1996 added the provision to the law. 

Section 10, the "forbearance provision," mandates that the Commission "shall forbear" from applying any regulation or statutory provision if the agency determines enforcement of such requirement "is not necessary" to ensure that a telecommunications carrier's charges and practices are reasonable and "not necessary for the protection of consumers," and that forbearance is consistent with the public interest. 

This provision is unique among regulatory statues, and Congress obviously intended the FCC to use it as a deregulatory tool. For example, under the provision, if the Commission does not deny a forbearance petition within the requisite statutory period, it is "deemed granted." In other words, by its terms, the statute evidences a deregulatory intention. 

As we have detailed over the years at the Free State Foundation, the FCC has employed its forbearance authority too sparingly, often refusing to acknowledge new realities that, in effect, mean consumers can be protected more effectively by the competitive marketplace than by outdated legacy regulations. For example, as my colleague Seth Cooper has demonstrated in "Forbearance Follies" and elsewhere, in denying several petitions for forbearance relief the agency simply dismissed wireless service as a competitive alternative to wireline service. The Commission acted this way despite the fact that over 30% of U.S. households have discontinued their wireline service. 

As I suggested in April 2011, to redress the FCC's reluctance to grant warranted regulatory relief, a sentence could be added at the end of Section 10(a) to the effect that: "In making the foregoing determinations, absent clear and convincing evidence to the contrary, the Commission shall presume that enforcement of such regulation or provision is not necessary to ensure that a telecommunications carrier's charges or practices are not unreasonable or unreasonably discriminatory or necessary for the protection of consumers and is consistent with the public interest." 

I explained in the "Modest Proposal" essay that establishing such an deregulatory evidentiary presumption in Section 10 "would not dictate the outcome of the Commission's assessment of any particular forbearance petition." That is not the intent. 

"But the presumption would require the Commission to grant regulatory relief absent the presentation of convincing evidence to the effect that the requisite consumer protection and public interest showings have not been made. This should make it more difficult, for example, for the Commission to ignore or minimize the significance of evidence of wireless substitution for wireline in performing a competition analysis." 

I made in clear in a blog posted in May 20111 that the amended forbearance provision incorporating the deregulatory evidentiary presumption should apply not only to telecom carriers, as is presently the case, but as well to cable operators and other entities regulated by the Commission. There is no reason that any entity subject to a Commission regulatory mandate should not be eligible to seek relief. 

It is a hopeful sign that there is increasing support for reform of the forbearance process as a means of granting regulatory relief when justified by competitive marketplace realities. In his superb keynote address at FSF's March 21 Fifth Annual Telecom Policy Conference, I was especially gratified that Senator Marco Rubio declared that the forbearance process should be reformed "so it is more difficult for the FCC to reject regulatory relief petitions when they are justified." This is exactly right. 

And, along the same lines, in his Conversation with me, Commissioner Pai stated that there is "no question the telecommunication marketplace in particular has undergone revolutionary change" and that it "is much more competitive than it has ever been." He agreed that my forbearance proposal was "interesting" because the Commission should be "more liberal in its application of forbearance authority." 

Immediately below, and also here, are links to the videos of Senator Rubio's keynote and the Conversation with Commissioner Pai. Of course, in addition to the remarks relating to forbearance, there is much more of value for those of a reform-minded bent. 

But, today, I am focusing on reforming the Communications Act's forbearance provision by inclusion of a deregulatory evidentiary presumption along the lines I have suggested in my proposal. 

Pending a much-needed wholesale overhaul of the Communications Act, reforming the forbearance process offers an interim avenue for spurring the FCC, more regularly, to grant justified regulatory relief that comports with the competitive realities of today's digital marketplace environment. 

I hope some reform-minded Senator or Representative – or a whole group of them – will pick up the reform cudgel and lead the effort.