Observing Troubled Government Telecom Systems

As Yogi Berra said, "You can observe a lot by watching." 

There is now a lot of accumulated evidence – available for observing by those willing to watch – that government-owned and operated communications providers typically underestimate costs and overestimate demand when formulating their "business plans." 

In part, of course, this may be because, by definition, governments aren't schooled in developing realistic business plans in the way that for-profit businesses necessarily must be. Mostly, though, it is because the government planners know from the get-go that taxpayers, ultimately, will be back-stopping their telecom projects. This knowledge does not help focus the mind in a way that sharpens business plans. 

Over the years, FSF and others have chronicled the woes of many of these problematic government-owned telecom ventures, whether the misleadingly named UTOPIA project in Utah, or the troubled Mooresville and Davidson, North Carolina city broadband systems, the Lafayette, Louisiana fiber system, or the Iowa state telecom network. 

Without rehashing the gory details of each project here, the common denominator of these government-owned telecom systems is this: Because of almost universal cost overruns and less than projected demand for the services offered, taxpayers typically are left to bear the burden of the ensuing financial distress, either by providing direct subsidies from government coffers or by providing indirect subsidies through premium guarantees for bond offerings used to finance the projects. 

You can observe a lot by watching these government-owned telecom projects. But, still, despite the record, there are unceasing calls by some for more government systems and municipalities still embark on the projects. 

Speaking of observing, an April 14 editorial in the Raleigh, N.C. News and Observer caught my eye. Entitled "An Intolerable Monthly Jolt," the paper excoriates the N. C. Eastern Municipal Power Agency, comprised of 32 municipalities, for a series of bad decisions over the years that has lead to the government agency's customers "paying rates 40 percent higher than the state average and over 50 percent higher than Duke Energy's." Duke is the state's leading private electric power provider. Aside from the hardship to individuals, the editorial points out that "no job-bearing business is going to take up in a town that charges half again as electricity as most of the state." This is true. One option, according to the News and Observer, is the sale of the agency's power generating assets. 

I understand that government-owned electric power providers and government-owned telecom providers differ in some respects and operate in somewhat different contexts. I understand too that it is probably safe to say that no two government-owned telecom providers are identical or operate in the very same contexts. Nevertheless, there are certain fundamental principles of political economy that remain applicable in any event. 

Governments should not enter the telecom marketplace with government-owned systems when private sector providers, with their own capital at risk, are willing to provide service. 

With the government systems' financial backing and subsidies from taxpayers – even if such backing and subsidies often are extracted unwittingly – along with various special privileges and benefits, it is exceedingly difficult for private sector companies to compete on an equitable basis with government providers. While I have never taken the absolutist position that it is improper under all circumstances for municipal governments to provide telecom services, such entry should be limited to areas in which no private sector provider is offering service and no private operator has shown a willingness to provide service. 

Amidst all the fiscal difficulties that governments at all levels are experiencing, difficulties which sometimes call into question their ability to deliver basic government services, they should not be entering the telecom business in competition with private sector companies able and willing to provide the services that consumers demand. 

There is more than enough evidence available for observing to reverse the trend – I might say the fad – of ill-conceived government forays into the communications business. 

Don't Let the U.S. Become Over-Regulated Like France

Many critics of U.S. regulatory policy point to Europe as an example of how the FCC and other agencies should intervene in the telecommunications market and other industries.  However, the Washington Post recently reported that in France, Italy, and Greece citizens feel “strangled” by the over-regulation.  Over the past two decades, Europe’s pro-regulatory bent has stifled economic growth, especially in the face of the continent-wide recession.

In France, for example, bureaucrats have issued approximately 400,000 regulatory directives which include demands to widen sidewalks to permit two wheelchairs to cross paths without bumping, trim tree branches six feet up their trunks, and allow only government-certified technicians to change light bulbs on city property, among others.  These directives have cost small towns like Albaret-Sainte-Marie more than $2.5 billion over the past four years, and have cost the European private sector 3.7 percent of GDP annually ($10 billion in France’s case). 

According to the Organization for Economic Cooperation and Development (OECD), advanced economies, which traditionally favor a more “hands-off” government generally thrive and experience greater economic growth more than countries that over-regulate. 

In reaction to developing marketplace competition and ongoing technological changes, Congress passed the Telecommunications Act of 1996, which stated Congress’ intention for the FCC to "promote competition and reduce regulation."  The FCC should be cognizant of the pitfalls of over-regulation encountered in France and throughout Europe. Having these pitfalls in mind, the FCC should reduce regulation commensurate with the development of competitive markets in order to effectuate the intent of Congress and to promote economic growth and consumer welfare.

One key way for the FCC to eliminate, or at least reduce unnecessary regulations, would be for it to exercise its forbearance authority more generously. For more background on the FCC's forbearance authority, and for more on the need for reform of the forbearance process, see FSF’s Randy May’s blog, Don’t Forbear Any Longer From Forbearance Reform!”  This post and other releases from FSF scholars explain how reforming the forbearance process will offer an avenue for spurring the FCC, more regularly, to grant justified regulatory relief that comports with the competitive realities of today's digital marketplace environment.

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. 

 

Don't Miss The Administrative Law Review's Annual Symposium, Tomorrow, April 16!

The ABA-sponsored Administrative Law Review, housed at the American University Washington College of Law, is hosting its annual symposium: Lessons from Broadcast Regulation for the Twenty-First Century on Tuesday, April 16, 2013 from 9:00 AM to 2:00 PM.  

This symposium will reexamine the landmark article, A Marketplace Approach to Broadcast Regulation, by former FCC Chairman Mark S. Fowler and Judge Daniel L. Brenner, thirty years after its initial publication.  Our discussion will feature an author retrospective, as well as a consideration of “lessons learned” from broadcast regulation that may inform future FCC regulation of broadcast, cable, the Internet, and beyond.  

In addition to Judge Brenner and Chairman Fowler, the distinguished speakers include:

Christopher Yoo of the University of Pennsylvania Law School, Thomas Hazlett of the George Mason University School of Law, Lili Levi of the University of Miami School of Law, Ellen Goodman of the Rutgers’ School of Law, Antoinette Bush of Skadden, Arps, Slate, Meagher & Flom LLP, Andrew Jay Schwartzman of Free Press, John Bergmayer of Public Knowledge, Charles Firestone of the Aspen Institute, Chérie Kiser of Cahill, Gordon & Reindel LLP, and former FCC Chairman Richard E. Wiley. 

To  register for the event visit: http://www.wcl.american.edu/secle/founders/2013/20130416.cfm

Questions? Email Senior Symposia Editor, Erica Lynn Tokar at alr.sse@wcl.american.edu

Digital-Era Video Devices Shouldn't Subject to Analog-Era Regulations

The FCC is now taking public comments on a petition from TiVo seeking a waiver from regulations regarding video set-top box devices. At issue are regulations requiring analog tuners or consumer information about analog tuners. As the FCC's notice states: "TiVo claims that these requirements as applied to its set-top boxes hinder innovation, increase costs to customers and serve as an unnecessary barrier to the market for all-digital video recording devices."

 

TiVo's claims are difficult to dispute in this digital era. Analog is increasingly outdated. The DTV transition for full-power TV broadcast stations was completed on June 12, 2009. And cable video service providers are increasingly transitioning to all-digital services, including the use of capacity-conserving switched digital video technologies.

If past waiver proceedings are any indication, however, proponents of expansive new regulatory controls over the designs of video devices make some kind of appearance in public comments.  This is something I discussed in my Perspectives from FSF Scholars paper, "AllVid Regulation Risks Harm to Next-Generation Video Innovation." In that paper, I summarized the case against comprehensive new regulations of video devices that were being called for through comments made in earlier cable set-top box regulation waiver proceedings.

Hopefully, the FCC addresses TiVo's waiver in an expeditious manner.

MMTC Program Honors FCC's Women

I attended today' s luncheon put on by the Minority Media and Telecommunications Council to honor women who have served as FCC commissioners and in other important positions at the agency. The event was scheduled initially back in March during Women's History Month, but due to a late season snowstorm scare it had to be rescheduled. 

I'm glad it was rescheduled – because it was a terrific, inspirational event. Congratulations to MMTC, and especially David Honig, Maurita Coley, Julia Johnson, Deborah Tate, and all the others who worked hard to put together the program. 

And congratulations to Mignon Clyburn and Jessica Rosenworcel, the current sitting FCC commissioners, whose own personal stories imbued the program with special meaning regarding the important role women have played – and, of course, continue to play – at the FCC and, more broadly, in developing communications policy. 

Even while not necessarily agreeing with every jot and tittle of MMTC's positions – and I'm sure MMTC doesn't always agree with every jot and tittle of FSF's positions either – I've always respected the organization's vigorous advocacy of the issues that are at the core of its mission. And I've long admired the leadership and dedication that David Honig, Julia Johnson, Debi Tate, and the other top officials bring to the task of guiding MMTC. 

Over the years, I have always enjoy attending MMTC's events, and I'm glad I didn't miss this memorable one. 

PS – I can't resist adding that I am proud that Debi Tate, in addition to her leadership role at MMTC, is a Distinguished Adjunct Senior Fellow at FSF. I'm proud as well that Donna Gregg, a former FCC bureau chief, and Michelle Connolly, a former FCC chief economist, both of whom are also affiliated with FSF, were both honorees.

Don't Miss The Administrative Law Review's Annual Symposium on Tuesday, April 16!

The ABA-sponsored Administrative Law Review, housed at the American University Washington College of Law, is hosting its annual symposium: Lessons from Broadcast Regulation for the Twenty-First Century on Tuesday, April 16, 2013 from 9:00 AM to 2:00 PM.  

This symposium will reexamine the landmark article, A Marketplace Approach to Broadcast Regulation, by former FCC Chairman Mark S. Fowler and Judge Daniel L. Brenner, thirty years after its initial publication.  Our discussion will feature an author retrospective, as well as a consideration of “lessons learned” from broadcast regulation that may inform future FCC regulation of broadcast, cable, the Internet, and beyond.  

In addition to Judge Brenner and Chairman Fowler, the distinguished speakers include:

Christopher Yoo of the University of Pennsylvania Law School, Thomas Hazlett of the George Mason University School of Law, Lili Levi of the University of Miami School of Law, Ellen Goodman of the Rutgers’ School of Law, Frank Pasquale of the Seton Hall University School of Law, Antoinette Bush of Skadden, Arps, Slate, Meagher & Flom LLP, Andrew Jay Schwartzman of Free Press, John Bergmayer of Public Knowledge, Charles Firestone of the Aspen Institute, Chérie Kiser of Cahill, Gordon & Reindel LLP, and former FCC Chairman Richard E. Wiley. 

To  register for the event visit: http://www.wcl.american.edu/secle/founders/2013/20130416.cfm

Questions? Email Senior Symposia Editor, Erica Lynn Tokar at alr.sse@wcl.american.edu