Regulation and Uncertainty

FCC_New_LogoThe prevalent opinion seems to be that the new administration will shake up the FCC and will make a lot of changes to telecom regulation. I expect I will be writing a number of blogs about those changes as they occur. But today I want to talk about regulation and uncertainty.

There has always been an interesting dynamic between regulators and large telecom providers. No matter what regulators do, the companies always have a wish list of regulations they would like to see, and the companies always complain in the press about being over-regulated. This has always been the case during my 35 years of following regulation in the industry. Regulators regulate and the big companies act like all regulation is killing them.

This has been true no matter the nature of the FCC that is in place. We currently have one of the most consumer-oriented commissions in recent memory. And there have been other liberal FCC’s such as the one under Reed Hundt that oversaw the introduction of the Telecommunications Act of 1996 and the creation of CLECs. There has also been pro-business FCCs like the one under Michael Powell. Almost by definition the FCC changes direction with changes in administration and gets more liberal or more conservative depending upon who is president.

The FCC is an independent agency and so they don’t always act beholden to the president. The make-up of Congress has always mattered as well and having split parties between the president and Congress generally has acted to somewhat temper the decisions of the FCC since Congress holds the purse strings of the agency.

It’s also important to remember that the FCC doesn’t make decisions in a vacuum. Almost every major policy change the FCC tries to implement gets challenged in court, and over the years the courts have reversed a number of major FCC initiatives.

But with all of that said, it sounds like we are going to see big changes. The new FCC is likely to reverse a lot (or even most) of the changes made by the current FCC. To a large degree the big telcos are going to be granted a lot of the things that are on their wish list.

But here is the kicker. The one thing that the big companies hate more than regulation is regulatory uncertainty. You can be sure that if the new FCC makes radical changes and undoes everything done by this democratic FCC, then the next time there is a democratic president things could easily be changed back again.

That uncertainty is poison to the industry. Just try to picture what this kind of regulatory fluctuation can mean. Take the issue of net-neutrality and the way the current FCC feels about zero-rating. This is the practice where an ISP will favor some content over others. For instance, AT&T plans to zero-rate their DirecTV Now product for their cellular customers, meaning customers will be able to watch it on their cellphones without violating their data caps. This gives the AT&T product a huge leg up over any other streaming service for their 110 million wireless subscribers.

If zero-rating is allowed by the next FCC then there will much bigger deals made. One can picture Netflix or Facebook Live paying AT&T to allow their content without violating the cellular data caps. Over a few years this will turn into big business for AT&T and is something that will be expected by their customers. What happens, though when a future democratic FCC reverses the decision on zero-rating and makes it taboo again? That would be hugely disruptive to the industry and would cost a ton of money to the players involved.

As much as AT&T wants zero-rating, I bet if you told them that over the next twenty years it would be allowed, then banned, and then perhaps allowed again, back and forth, that they might have a different feeling about it. What they really want is a regulatory environment that has some staying power, because that allows them to make long-term investments and business decisions. Regulatory uncertainty is bad for the big companies and they know it. And it’s bad for their stock prices. As much as these companies might be happy now to be getting a pro-business FCC, they will be massively unhappy if the pendulum swings too far the other way every four or eight years.

Just as the country is split down the middle between right and left, it looks like we have come to the point where FCC policy might swing wildly based on the party in power. We’ve had changes at the FCC before due to changes in administration, but we have never had anything like the swing that looks to be coming now, and the future ones that might go back the other way. This is not how regulation is supposed to work, but it might be our new reality.

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