Commission to Vote on IP Transition Item at March Open Meeting

In a March 4 blog post, FCC Chairman Brendan Carr announced that at its March 26 open meeting the Commission will vote on a draft notice of proposed rulemaking (NPRM) "that builds on our prior efforts to streamline copper retirement and reduce outdated regulatory burdens that force providers to maintain aging networks instead of investing in modern, high‑speed ones." In a news release released the same day, he highlighted the fact that "[t]his FCC decision will free up billions of dollars in private capital so that Americans in communities across the country can go from old and slow copper lines to modern, high-speed ones."

Among other things, the draft item would eliminate filing requirements; simplify the technology transitions discontinuance application process; and provide carriers with blanket authority to grandfather legacy services delivered via copper wire. It also would preempt state and local requirements that "have the effect of continuing to require carriers to provide legacy voice services" even after the Commission has authorized them to stop doing so.

In a companion proceeding that remains pending, the Commission proposed to exercise its Section 10 forbearance authority and relieve incumbent local exchange carriers (ILECs) from a statutory obligation to offer interconnection via legacy time-division multiplexing (TDM) equipment. Free State Foundation President Randolph May and I filed supportive comments in response to that NPRM, emphasizing that "[t]his is yet another key regulatory reform proposal that is crucial to advancing the implementation of the FCC's 'Build America' program by spurring the deployment and use of advanced broadband IP networks."

FCC Proposes Order to Remove Old Unbundling and Resale Requirements

The FCC has released the tentative agenda for its October 27 public meeting. Among the items scheduled for a vote, is a draft Report and Order that would eliminate several unbundling and resale requirements. The deregulatory proposal that preceded this order was the subject of my February 2020 Perspectives paper, "FCC Should Go Full Speed Ahead in Removing Unbundling Regulations." As briefly explained in that paper, the rationale for unbundling regulation has long since gone up in smoke, as voice markets are competitive and the retail market share for incumbent local exchange carriers is a fraction of what it was in 1996. The draft order builds upon agency precedent that recognized the market's competitiveness as the basis for removing outdated unbundling regulations. 

The Commission's draft order embodies compromises struck between ILECs and competitive local exchange carriers. If adopted, the Commission's draft order would constitute an important deregulatory achievement in doing away with costly requirements that have outlived any usefulness they once held for consumers and enable communications providers to dedicate additional resources to next-generation broadband networks. Notably, the draft order provides transition periods for eliminating unbundling regulations in competitive areas, and it retains unbundling requirements in areas where there apparently is less competition.

In two paragraphs, the Commission's draft order sums up the competitive and innovative progress that compels the agency's proposed transition to a less-regulatory policy:

22. The communications marketplace has dramatically transformed since Congress passed the 1996 Act. Incumbent LECs controlled 99.7% of the local telephone service market at that time. Incumbent LECs’ wireline voice subscriptions now account for only approximately 39% of all wireline voice subscriptions and only 9% of all voice subscriptions across all technologies. The fixed voice marketplace, once monopolized by incumbent LECs, now includes cable companies offering VoIP, fixed wireless providers, over-the-top VoIP providers, as well as competitive and incumbent LECs. As for fixed broadband, incumbent LECs are just one of many intermodal competitors, providing only about 22% of residential broadband subscriptions at or above 25/3 Mbps, which the Commission has defined as advanced telecommunications capability. As of December 31, 2019, 99% of Americans had access to three providers of mobile voice and broadband. Finally, as the Commission found in the BDS Order, the enterprise market is subject to “intense competition,” with 95% of census blocks with business data services demand in price cap MSAs, representing 99% of business establishments, featuring at least one competitive provider in addition to the incumbent LEC. 

 

23. The communications marketplace has also seen rapid technological change. In the enterprise services marketplace, DS1 and DS3 loops, dominated by incumbent LECs, have been increasingly replaced by packet-based services, provided by a range of providers who benefit from a “considerably more level playing field” compared to TDM-based services. The copper-to-fiber and TDM-to-IP transitions have also increasingly reached residential consumers, as incumbent LECs have been retiring last-mile copper and replacing it with fiber or fixed wireless technologies. And of course, American consumers have themselves transitioned to newer technologies, increasingly moving from fixed legacy voice to fixed or nomadic voice over Internet protocol (VoIP) and mobile voice services, and from DSL to broadband provided over fiber and fixed and mobile wireless. The widespread deployment of 5G wireless networks will only accelerate this process.

The IP Transition: Focus on Consumers, Not Propping Up Competitors

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.

Ending Lopsided Legacy Broadband Regulation Is Imperative

On January 30, the FCC green-lighted geographic trials in which incumbent voice providers will offer all-IP technologies in place of copper-based legacy telephone service. In its IP Transition Order, the Commission stated its intent to “act with dispatch,” and to “facilitate the momentum of technological advances that are already occurring.”

The FCC staked out the right approach to promoting the transition to all-IP networks. But that same sense of urgency needs to infuse the Commission’s broader responsibilities that bear on the IP transition.

The FCC is not proactively using its forbearance and waiver authorities to free next-generation technologies from legacy regulations. And if not eliminated, legacy regulations will continue to serve as a harmful counterweight to broadband deployment and competition. Now that the groundwork for IP transition trials is set, FCC forbearance from legacy regulation of broadband-related services remains part of the unfinished business of the IP transition.

In its IP Transition Order the FCC explained:

Modernizing communications networks can dramatically reduce network costs, allowing providers to serve customers with increased efficiencies that can lead to improved and innovative product offerings and lower prices. It also catalyzes further investments in innovation that both enhance existing products and unleash new services, applications and devices, thus powering economic growth. The lives of millions of Americans could be improved by the direct and spillover effects of the technology transitions, including innovations that cannot even be imagined today.

Indeed, the consumer welfare benefits resulting from modernizing communications networks should be obvious. Even a cursory view of the dynamic changes that have taken place over the last two decades in the advanced communications market confirms this. Competitive broadband Internet services have appeared. Old phone monopolies have disappeared. Consumer choice in IP-based services is now abundant.

But despite digital age advances in competitive choice and technology, too many legacy telephone regulations remain in force. Outdated, unnecessary, and often arbitrarily-enforced, such restrictions are actually putting a drag on the increasingly IP-based world.   

A case in point is FCC’s unjustifiable, selective regulation of CenturyLink’s broadband enterprise services. 

Businesses with special communications and information technology needs often seek out enterprise broadband services to meet those needs. Typically, such businesses are savvy customers, willing to consider competing offers for the best customizable deal. The national broadband enterprise services market has over two dozen competing providers. Because the enterprise broadband market is highly competitive, there are no dominant carriers. The enterprise broadband services offered by all traditional incumbent voice carriers were relieved from legacy telephone regulations more than years ago – all except for CenturyLink, that is.

Inexplicably, some of CenturyLink's Ethernet and other broadband enterprise offerings are still subject to dominant carrier and Computer Inquiry tariff obligations. This leaves CenturyLink stuck with dominant carrier restrictions on its ability to offer flat-rate pricing on a nationwide basis to potential customers. Tariff obligations require CenturyLink to give the public advance notice of its price offerings, giving rivals a jump in luring enterprise customers.

Unfortunately, the FCC is not proactively using its forbearance and waiver authorities to free next-generation technologies from legacy regulations. In 2012, CenturyLink petitioned the FCC for forbearance relief. The proceeding failed to turn up any evidence that CenturyLink possessed market power. But the FCC pressed CenturyLink for additional information – a thinly veiled signal that the Commission was unlikely to grant forbearance. Not surprisingly, CenturyLink withdrew its petition. 

Now CenturyLink is again seeking forbearance relief from legacy regulation of its broadband enterprise services. FCC Chairman Wheeler should make granting justified forbearance relief on a timely basis a priority.

Rule of law considerations also warrant forbearance relief. As it now stands, one major provider of enterprise broadband services is placed at a significant regulatory disadvantage compared to all competitors. This is unequal treatment under the law, plain and simple. Judicial precedents applying the Administrative Procedures Act’s “arbitrary and capricious” standard make clear that agencies cannot treat like cases differently. Rather, agencies must apply the same criteria to all parties that petition for exemptions.

Finally, there are regrettable but important lessons to be learned from FCC’s record of foot-dragging on forbearance relief. The Section 10 regulatory forbearance process, particularly when applied in light of the Commission’s procedures, still treats legacy regulation as the default position. By placing the burden on market competitors to obtain regulatory relief, the process tends inherently to preserve the status quo rather than lead to prompt reform. 

A new Communications Act must reverse that presumption. Where markets are competitive, free markets should be the default approach. The burden should be on the regulators or pro-regulation parties to offer evidence justifying government intervention and restrictions. Actual evidence of market power and likely consumer harm should supply the deciding criteria under a new Communications Act.

The FCC needs to bring the same urgency to its elimination of legacy regulation of broadband services as it demonstrated in approving experimental trials. Putting an end to its unnecessary and arbitrarily-applied regulation of enterprise broadband services would serve as a solid first step. For now FCC forbearance from legacy regulation of broadband-related services is unfinished business of the IP transition. Forbearance should become an IP transition imperative.

The FCC Should Remove Outdated Regulatory Roadblocks to an All-IP World

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. 

FSF President Randolph May Testifies in House Hearing on the Evolution of Wired Communications Networks

 Yesterday, Free State Foundation President Randolph J. May testified before the House Subcommittee on Communications and Technology. The topic of the Subcommittee hearing was “The Evolution of Wired Communications Networks,” and the object of the session was to discuss proposals on how to best facilitate and complete the transition from copper-based time-division multiplexed ("TDM") services to digital broadband Internet Protocol (“IP”) services. Mr. May testified in favor of a free-market oriented approach to the transition, which would promote continued investment in the new networks, and remove unnecessary roadblocks to development and build-out. Mr. May testified that the FCC should not apply the out-dated public utility-style common carrier model to new IP-based networks: “The FCC and Congress should not look at the inevitable IP-transition just as an opportunity to implement a new free market-oriented regime fit for the digital age. Given the stakes, implementing such a new paradigm should be viewed as a necessity.”

A New FCC or Same Old, Same Old Week - In Spades

Since the founding of the Free State Foundation in 2006, a primary focus of our think tank has been advocating FCC reform, or to put it another way, advocating that the FCC, within the confines of its statutory authority, reorient its mission and its methods.

What do I mean by reorienting its mission and its methods?

I mean that, in light of the dramatic communications marketplace changes that have occurred in the past decade and a half, attributable in substantial part to technological advances associated with the transition from narrowband services to digital broadband services, the FCC needs to change its regulatory mindset from one grounded in traditional public utility-style and common carrier principles to one grounded in free market-oriented principles.

The FCC needs to implement this reorientation of its regulatory framework because the clear result of the dramatic marketplace changes referred to above – all part of what is often referred to today as the "IP transition" or Internet world – is increasing competition and consumer choice in all the now-converging market segments under the Commission's jurisdiction. And increasing competition and consumer choice means that, putting aside certain public safety and universal service concerns, the agency generally should not intervene in the marketplace absent demonstrable evidence of market failure and consumer harm.

Well, this is all just a brief preface to saying, that even though we focus on reforming communications policy on a day-to-day basis here at FSF, this week is going to be an especially busy one in that regard. Call it the "A New FCC or Same Old, Same Old Week – In Spades."

On Wednesday, I am testifying at the House Subcommittee on Communications and Technology hearing on "The Evolution of Wired Communications Networks." It would not have been a stretch to title the hearing "The Revolution in Wired Communications Networks." Titles aside, there is no doubt that the ongoing IP transition, long in process, not only is changing the technologies employed by communications networks, but, more importantly, also the marketplace structure and the choices available to consumers.

I am sure the hearing will provide a good forum for focusing on the regulatory framework changes that should accompany the IP transition, and I commend Chairman Walden and the committee for holding the hearing.

As I write this, I am drafting my testimony with my other hand. Neat trick! I haven't finished and, in any event, I wouldn't want to give away my testimony here. But I know one thing I will say goes like this: The FCC and Congress should not look at the IP-transition that is inexorably moving forward just as an opportunity to implement a new regulatory model fit for the digital age. Given the stakes, it should be viewed as a necessity.

On Thursday, FSF is holding a lunch seminar at the National Press Club titled, "A New FCC or Same Old, Same Old." Congressman Bob Latta, Vice Chair of the House Subcommittee on Communications and Technology, a leader of communications policy reform efforts, will deliver opening remarks. He will be followed by a session with a diverse panel of industry and academic experts.

With Tom Wheeler and Michael O'Rielly expected to arrive shortly as the new FCC Chairman and Commissioner, the FCC will be back to its full five-member complement.  So, it's a perfect time, especially a day after the important House hearing, to further explore whether we can expect "A New FCC or Same Old, Same Old."

I'm confident we'll have an informed, interesting, and lively discussion, and, as always at Free State Foundation events, we will make sure we have some time for questions and comments.

If you wish to attend Thursday's lunch seminar, registration is complimentary. But you must register to attend. If you haven't done so already, you can register here.

Anyway, it's "A New FCC or Same Old, Same Old Week – In Spades." So, let's get down to work.

Competition Will Produce Better Outcome for IP-Network

Greg Vogt – Guest Blogger

The FCC is now considering the evolution of the telecommunications network from the existing “public switched telephone network” to an Internet Protocol-based network.  AT&T's recent petition filed at the Commission requesting IP-transition trials, along with other proposals, is prompting increased attention to the inevitable transition to an all-IP network.

Former Chairman Genachowski tasked an advisory committee, the Technology Advisory Council, to look into the transition and make recommendations for possible FCC actions.  In a 2011 Memorandum, the head of the TAC, Tom Wheeler, recommended, among other things, (1) establishment of common metrics to promote broadband network quality and (2) identification of potentially stranded investment in equipment consumers use to obtain services using the PSTN.  The TAC recommendation seemed to be encouraging public discussion, not necessarily government regulation.

Now, of course, Mr. Wheeler is the Obama administration’s nominee to Chair the FCC. He is well-respected, and he has extensive involvement with the telecommunications industry.  In the written testimony for his June 18 confirmation hearing, Mr. Wheeler stated: “Competitive markets produce better outcomes than regulated or uncompetitive markets.” This perspective is highly commendable because it recognizes that private enterprise competing in the marketplace can make better decisions than government, which doesn’t suffer adverse consequences from potentially ill-conceived decisions.

In describing the transition to an IP network in response to a question, however, Mr. Wheeler said that the transition should not happen without the Commission developing a “stratagem” to develop a “planned structure” to “mitigate” the transition’s impact.  He opined that individual companies changing things on their own could lead to “dislocations and harm to consumers.”

It is unfair, of course, to take individual statements out of context, and general congressional testimony is untethered from a factual context necessary to most decisions. But, considered in one vein, Mr. Wheeler's comments possibly could be taken as favoring too much government management of the transformation of the network, like the government did when over-the-air TV was converted to digital, an example Mr. Wheeler identified in his oral testimony.  However, the TV digital transition was clearly a different animal because TV stations used government-owned radio spectrum. The spectrum rules needed modifying for the digital age and to protect against interference.

The PSTN, on the other hand, was built largely with private plans and investment.  In 2010, the FCC reported that the telecommunications industry had made approximately $777.7 billion in private capital expenditures for the years 1998-2008. Over this same 10-year period, the report concludes that only approximately $34.6 billion, or 4.4 percent, was funded through federal universal service support, which was paid for by consumers. Even much lower investment was made possible through public grants and loans:  the Rural Utilities Service reports that some $13 billion has been invested through its telecommunications program, mostly of that amount through loans.

Even though the wireless part of this network involves government-regulated radio spectrum, there has been virtually no wireless operations regulation or network management.  The government did almost nothing to create a “planned structure” and the vast majority of consumer “dislocations,” if any, were not caused by network operators.  Other than very limited consumer regulations, what part of the wireless network development required “impact mitigation”?

This private-investment-based network of networks is most certainly evolving from an analog, circuit-switched model, to a digital, IP-based model.  This is happening without government mandates and is occurring for legitimate business reasons.  Consumers want these improvements and are willing to pay for them. 

Mr. Wheeler’s prepared testimony appears to recognize this fact. But the hypothetical notion that the FCC might help to create a “plan” for the transition to the IP network to prevent disruptions caused by individual company decisions at the same time says way too much about government’s potential benefits, and way too little about the benefits of competition and private investment.  The notion of government management of private decisionmaking, or a “planned structure,” quite often leads to disastrous results because the “management” is guided by amorphous notions such as the “public interest,” not economics and sustainable business plans.  Focusing instead on limited consumer safeguards, such as ensuring continued access to emergency services, would be sufficient without interfering with the evolution of the network.

A generally deregulatory, hands-off approach without unnecessary government interference would produce a far superior network, and, as Mr. Wheeler put it so well, “better outcomes.” These better outcomes will occur faster and with less money than they will with overly intrusive government mandates.  Producing certainty so that business can feel comfortable investing in the evolving network can occur if the government recognizes it generally should adopt a hands-off approach to the IP transition.

"Everything's Up To Date In Kansas City"

"Everything's up to date in Kansas City." 

I'm a huge fan of Broadway musicals, and Rodgers and Hammerstein's "Oklahoma," an American classic, is one of my favorites – for the way it captures the can-do American spirit, along with its memorable show tunes. 

Reading the communications trade press in the past week or so called to mind – yes, it's true! – a line from the "Oklahoma" tune, "Everything's up to date in Kansas City." Recall the time was 1906 as Oklahoma is on the verge of gaining statehood. Will Parker travels for the weekend to Kansas City, where he discovers he didn't have an idea "what the mod'rn world was comin' to." 

Among his discoveries, the telephone: 

"An' then I put my ear to a Bell telephone.

An' a strange woman started in to talk.

What next! What Next!" 

"Everything's up to date in Kansas City!" 

What called this tune to mind was an item in the June 3 edition of Communications Daily [subscription required] in which Google's Milo Medin, VP for access services, reportedly said this at a telecom event in…you guessed it, Kansas City: "We do not offer a voice product. Voice can be a pain to implement and carries a substantial regulatory burden with it." 

Well, Will Parker might turn over in his grave if he knew that a "100 short years later" Google is not offering a "voice product" in its new, highly-touted Kansas City fiber system. But because I am aware of the regulatory burden of which Mr. Medin speaks, I can feel Mr. Medin's pain. 

But I can also feel the pain of Verizon, for example, and other Ma Bell-offspring that remain stuck with legacy regulatory burdens in our now competitive telecom environment. Some of these regulatory burdens were put in place not too long after Will Parker visited Kansas City. 

The current back-and-forth between Verizon and Public Knowledge concerning the restoration of telephone service to New York's Fire Island, while somewhat unique, nevertheless is illustrative of Mr. Medin's – and my – point about legacy regulatory burdens. As consumers increasingly, and rapidly, turn away from service provided over old analog copper wires to broadband Internet Protocol ("IP") communications networks, regulators are met head-on with questions concerning the best way to promote continued investment in new digital broadband networks while, at the same time, protecting legitimate consumer interests. 

A good part of Verizon's legacy Fire Island copper network was destroyed last autumn by Superstorm Sandy. That's an indisputable fact. Because a substantial number of Fire Island residents and visitors already use wireless phones, and in order to get ready for the approaching 2013 summer tourist season, Verizon proposes to install a certain fixed wireless technology called Verizon Voice Link to restore Fire Island service, rather than re-installing wireline facilities. This has provoked protest from Public Knowledge representatives and perhaps others that Verizon should not be allowed to install and use the Voice Link technology, at least without further regulatory review to ensure compliance with the public utility-style "discontinuance of service" regulatory filings and so forth. 

In light of what Sandy did to a considerable portion of Verizon's East Coast network, especially including Fire Island, without much investigation on my part I am sympathetic to Verizon's effort to get the Voice Link technology up and running without having to run the gauntlet of a lot of regulatory rigmarole. But my real point here is not to take sides in the spat over Fire Island. You can read the recent blog, "The Fire Island Voice Link Situation," by Verizon Senior Vice President Tom Maguire for Verizon's perspective, and the blog also contains a link to the Public Knowledge critique. Decide for yourself. 

No, my point is more fundamental, transcending the Fire Island dispute. It has to do with the implication of the Mr. Medin's statement that, "We [Google] do not offer a voice product. Voice can be a pain to implement and carries a substantial regulatory burden with it." 

It is because of the continued existence of legacy regulatory burdens to which Mr. Medin refers that the FCC and state regulatory commissions must get on with the task of facilitating the ongoing transition to an all-IP world. And the regulators need to do so with a greater sense of urgency than they have displayed thus far. 

I have said before that Google's entry, even if somewhat timidly, into the communications business by way of constructing high-speed fiber networks in metropolitan areas like Kansas City, Austin, and Provo, Utah is a welcome development. But, as I also said in this late April blog, Google should not receive regulatory benefits and privileges that are not available to other communications providers on the same terms and conditions, whether the others are telephone companies or cable companies. 

The reality is that Google's "no voice product" position, while perhaps understandable from its business case perspective, just serves to illustrate the present asymmetric distortions resulting from the continuation of outdated regulatory regimes. There is an obvious gap, one with real consequences, between the legacy regulatory burdens Google so openly proclaims it will avoid and those burdens that continue to saddle the providers we sometimes still mistakenly refer to as the "incumbent" carriers. 

With the filing of its IP-Transition petition in November 2012, AT&T helped focus the attention of regulators on the need to move forward with the development and implementation of a plan for transitioning completely to all-IP networks. AT&T deserves much credit for doing so. But, unfortunately, the FCC so far appears to be treating the IP-Transition proceeding in a somewhat desultory fashion, rather than with the sense of urgency it deserves. 

Everything was up to date in Kansas City when Will Parker visited shortly after the turn of the nineteenth to the twentieth century. Now, in its own way, Google is bringing its own notion of up-to-datedness to KC shortly after the turn of the twentieth to the twenty-first century. 

But for "everything to be up to date" across America, it is crucial for the FCC and the state regulatory commissions to recognize, especially in light of the last two decades' remarkable technological advances and marketplace changes, that the regulatory environment needs to change as well.  In order to promote continued investment and innovation in the digital age, legacy regulatory burdens that are no longer necessary to protect consumers must be promptly reduced or eliminated. And certainly new ones should not be imposed.