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Regulation - What is it Good For?

State versus Federal Regulation

I’m often asked questions by clients about specific federal or state regulations, and my clients often don’t understand how or why certain regulations apply to them. One of the things I’ve always relied on in understanding a specific regulation is something that I learned many years ago in a class on regulatory theory. Regulatory theory defines five different ways that the federal government and states can impose regulations. I often understand a regulation better when I understand how that regulation was created.

Sometimes federal regulations clearly preempt all state regulatory action. Such federal rules generally stem from a law passed by Congress that is interpreted by a regulatory agency like the FCC. A simple example is CALEA rules that allow federal law officials to wiretap or gain access to customer ISP data through a valid subpoena. Congress passed the Communications Assistance for Law Enforcement Act (CALEA) in 1994, with some modifications that can from the Patriot Act. The FCC followed Congressional action with a list of specific procedures that ISPs must follow to comply with the law. I’m not aware of any cases of state regulatory rules trying to modify the CALEA requirements, so this is a federal mandate that applies in all states, without question or challenge.

More common are federal mandates that preempt less stringent state laws but permit states to establish more stringent standards. A good example of this is pole attachment rules. There have been requirements since the Telecommunications Act of 1934 that pole owners must allow attachers onto poles. These rights were further reinforced by the Telecommunications Act of 1996. The FCC followed the 1996 Act with revised federal pole attachment standards and rules. Thirty states still follow those federal rules, but another twenty states have gone on to clarify and require even stricter pole attachment rules. All states are still governed by the general principles established in the federal rules, but the FCC explicitly invited states to get more specific as they see fit.

We are currently seeing the third example of federal regulation that comes in the form of rules included in federal grants or other forms of assistance. Every federal broadband grant program has included a different definition of broadband and the geographic areas that might be funded by that grant. This is confusing to most people because they want to know the federal definition for terms like unserved and underserved. The FCC has never set a definition of these terms, so there is no federal standard. The confusion comes since every grant program is free to redefine these terms. Sometimes grant programs have no choice – for example, many of the rules used by the USDA for the ReConnect grants were established when Congress provided the money for that program. But the rules used for Reconnect grants have no bearing on grants issued by other agencies. Even when there are Congressional rules for a given grant, the agency issuing the grant always has leeway in setting specific rules that were not mandated by Congress. Anybody who has ever applied for a federal grant knows that the grant rules are unique to each grant and also immutable – you either follow the rules or you don’t get the grant.

We sometimes see regulations established by a cooperative program in which voluntary national standards are formulated by federal and state officials working together. The best historical example of this in the telecom world has been the Federal-State Joint Board. The Joint Board is a cooperative effort by FCC and state regulators to create rules. When I first joined the industry, the Joint Board established many of the rules relevant to cost separations and settlements between carriers. In more recent years, the Joint Board has focused on Universal Service Fund issues.

Finally, some regulations are clearly in the state domain, either from common practice or because the federal government never chose to regulate an issue. There are a number of common state regulations that affect telecom carriers. Some common examples are the establishment of a state Universal Service Fund, annual reporting rules for carriers to a State Commission, state rules that might prohibit municipalities from becoming ISPs, and state rules for specific taxes and levies.

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