The Dawson Internet Act of 2018

A few days ago I wrote that we are not likely to get any significant telecom legislation this year. That’s unfortunate because we really need a major new Act to update all of the regulatory rules concerning broadband, telephone and cable TV. That got me thinking what I might write into such an act if I was the author, so following are the highlights of the envisioned Dawson Internet Act of 2018 (it’s time we stop calling this the telecom industry):

Cable TV. It’s time to scrap all requirements that dictate cable tiers. Cable companies need to be able to offer whatever channels they think make economic sense, including offering a la carte channels, if that’s what the public wants. I’d also scrap the must-carry rules for major network stations. The retransmission costs for those channels are one of the primary culprits for rate increases and removing the requirement to carry channels will return cable companies to a position of fair bargaining for price since they could walk away from any local station that wants too much.

Telephone. Other than a few rules that govern customer privacy I’d totally scrap federal regulations for landline service. I’d eliminate the CLEC classification and deregulate traditional telephone and VoIP equally to put the products on a non-regulated level playing field. I think I would retain the historic monopoly service territories, although I’d have to give that a lot more thought.

Interconnection. I’d keep the mandate that network owners must continue to interconnect with other carriers. They can’t be allowed to shut out a competitor by refusing to give them access to the underlying backhaul networks. But since I would eliminate the CLEC status, the big network owners need to be required to interconnect with anybody who meets specified technical standards.

ETC Status. Today a company must become an Eligible Telecommunications Carrier in order to participate in Universal Service Funds or other federal funding programs. I’d eliminate this requirement because it’s nothing more than a paperwork barrier to market entry. The current rules also disallow certain types of providers, such as owners of open access networks, although customers almost universally prefer that operating model.

Broadband. The FCC needs to regulate broadband, even if they elect to regulate it lightly. Congress can mandate this and get rid of the nonsense of trying to make broadband fit under Title II and just explicitly give the FCC the authority and obligation to regulate it.

Network Neutrality. I would make network neutrality the centerpiece of broadband regulation. The most important aspect of network neutrality is prohibiting paid prioritization – because once the ISPs start doing that all of the nightmare scenarios of a broken Internet emerge.

Spectrum. I think the FCC is already on a good path to free up spectrum for broadband. But I think they are missing the boat by not providing more spectrum for public access. One only has to look at the huge economic boom created by WiFi to see that giving all spectrum to big monopolies is not the best answer. I’d also make a firmer use-it-or-lose it rule for rural spectrum. A huge amount of spectrum sits unused in rural America but is still under control of the big carriers who purchased large-area licenses. Finally, rather than turn spectrum auction proceeds over the US Treasury I’d redirect these revenues towards meeting universal service goals.

Universal Service. I’d maintain the requirement that the FCC monitor broadband connectivity and require them to try to find solutions for areas without good broadband. I’d also prohibit them from funding any broadband programs like CAF II that support technologies that are slower than the federal definition of broadband. I’d also mandate an ongoing process for defining the official speed of broadband.

Privacy. I like what I’m reading about the European Union privacy rules. They are allowing ISPs and others to monitor and track customers only with customer consent. That will allow people who care about privacy to maintain it while allowing others who choose to sacrifice privacy for services to allow tracking. The penalties for violating customer privacy must be economically severe.

Municipal Broadband. I’d eliminate all barriers to municipal competition. Local communities ought to be able to decide themselves if they want to tackle the risk of building broadband. This is particularly needed in rural America where, in many cases, the local government might be the only one willing to tackle funding a network.

Access to Poles, Ducts and Dark Fiber. I’d make these assets available to anybody that can meet technical standards to use them. I’ve still not decided how I feel about federal one-touch rules, but I’d have the FCC institute a major rulemaking to get more facts on the issues involved.

I’m sure everybody in the industry has a different list than mine. I remember all of the discussions and negotiations leading up to the Telecommunications Act. That Act took  some political bravery since Congress was taking on the big telcos for the greater public good – and that Act did a fairly good job of promoting competition. But I don’t see this same courage in Washington today and most of the topics on my list are sadly not even being discussed.

Time for a New Telecom Act, Part 1

capitalNothing is ever certain in the regulatory world, but it looks like there is a good chance that we will see a new telecom act this year. There are certainly parts of the old Telecommunications Act of 1996 that need to be refreshed and there are a lot of new topics like broadband, OTT and the IoT that need to be addressed by Congress. Today’s blog is going to review the old telecom act and tomorrow I will address the changes that I hope are included in any new act.

It’s hard to believe but the Telecommunications Act of 1996 was enacted 21 years ago. From a technological perspective that was almost the dark ages. 1996 was the year that AOL launched its unlimited dial-up product for $19.95 per month (before then subscribers paid by the minute). This drew millions of people to the Internet and convinced them to pay a monthly fee for access. DSL and cable modems were still in the lab and dial-up access ruled the world.

The main thrust of the 1996 Act was to create more competition with telephone service. Ma Bell had been broken up in 1984 which had resulted in long distance competition. Long distance rates dropped steadily over the years after divestiture. Congress decided that it was time to also create competition for dial tone. They recognized that the roadblock to competition was that the big telcos owned the vast majority of the copper lines going to homes and businesses and that nobody was likely to build a second telecom network.

So the Act implemented new rules to promote competition. Some of the changed mandated by the new Act were:

  • Creating a new regulatory category for telephone competitors that was labeled CLEC (Competitive Local Exchange Carrier).
  • Requiring the big telcos to ‘unbundle’ their copper network. This meant that they had to provide access to their copper plant to CLECs. To accomplish this the FCC mandated that CLECs had the right to interconnect to the big telco networks and to collocate in their central offices when necessary.
  • Mandating that the big telcos offer up telecom services for resale. They basically had to sell bulk services to competitors who could then sell them to customers.
  • Requiring that anybody that wanted to build new network be given access to poles and conduits and be allowed to connect to telco network at any reasonable place of their choosing.

The Act was immediately successful and unleashed a flurry of competitive activity. Giant new CLECs were formed that collocated in telco offices gained access to copper loops. The most popular product was the unbundled T1 that allowed new competitors to sell data and telephone services to businesses over one connection. There were also giant companies formed to tackle resale. I recall that one of my clients in those days, Talk America, got over one million residential customers by reselling local phone service along with cheap long distance. Many consultants were formed to help the new competitive companies including my company, CCG Consulting.

The Act also brought about many other changes, some of the most significant being:

  • The regional Bell companies were allowed to get into the long distance business and compete against AT&T.
  • The Act granted the FCC the right of preemption to allow it to override conflicting state rules.
  • The Act created intercarrier compensation for paying for the exchange of traffic between telcos and CLECs.
  • The Act also shook up the Universal Service Fund and made compensation more directly cost-based.
  • The Act also tackled a number of other regulatory issues such as preempting telecom services from franchise fees, establishing rules to define obscene programming, and enabling the over-the-air transmission of digital TV signals.

In many ways the 1996 Act was a big success. Prices for telecom services plummeted in subsequent years. But over time the effective lobbying of the large telcos reversed some of the aspects of the Act, like resale and the unbundling of dark fiber. The Act also did not foresee the explosion of cellphones and of landline broadband and those industries have never gotten the same level of regulatory scrutiny that applies to telephone service. There are still CLECs today making a living by providing DSL over telephone copper. But the increasing needs for faster broadband speeds is starting to make that technology irrelevant and it’s definitely time to consider a new Act to deal with today’s issues.

The Future of Interconnection

A Verizon payphone with the Bell logo.

A Verizon payphone with the Bell logo. (Photo credit: Wikipedia)

AT&T and Public Knowledge both testified yesterday at a House Communications Subcommittee hearing about the transition of today’s PSTN to an all-IP network.

Both parties agreed that there were five areas that must be addressed to maintain a functional telephone network:

  • Service for everybody
  • Interconnection and competition
  • Consumer protection
  • Reliability
  • Public Safety

I want to look a little more at the issue of interconnection and competition. Today a large percentage of my clients have interconnection agreements with the incumbent telephone companies. Most of my clients are CLECs but a few are wireless carriers, and each negotiates interconnection under a different set of FCC rules.

Interconnection is vital to maintain competition. Interconnection basically covers the rules that define how voice traffic gets from one network to another. The agreements are very specific and each agreement defines precisely how the carriers will interconnect their networks and who will pay for each part of the network.

For the most part, the rules of Interconnection adopted as part of the Telecommunications Act of 1996 work well and there are probably over 2,000 companies using these agreements to interconnect with each other.

There is a lot of danger that changing the interconnection rules could harm and force competitive companies out of the market. Let me just revisit a little bit of history to talk about what I mean. A long time ago the FCC decided that interconnection for local calls between incumbents should be free, and so incumbent telephone companies don’t charge each other to exchange local minutes. However, I can think of at least five times during my career when the RBOCs like AT&T tried to put in reciprocal charges for this traffic. That means that both parties would pay each other the same amount for terminating local calls from the other. Sounds okay until you recall that AT&T basically serves all of the metro areas in the country while smaller telcos serve the rural areas. Still today there is a lot more calling made from rural areas into metros than in the other direction, and if such a change was made the rural companies would be sending big checks to the RBOCs for ‘free’ calls

And the RBOCs have tried to do similar things to competitive carriers with interconnection. The FCC’s interconnection rules say that a competitive carrier can choose to interconnect with a larger company at ‘any technically feasible point’, and yet every few years the RBOCs try to change interconnection agreements to force carriers to carry the traffic to the RBOC hubs. Again, this is a matter of money and the RBOCs want the competitive carriers to pay for everything.

Changing to an all-IP network is likely to open up the same battles. Rather than maintain a system today of many tandem offices in a state, it is not impossible that the RBOCs will have only one hub in each state, or even only one hub in each region of many states. And if they make that kind of change you can expect that they will then expect competitive carriers to pay to carry all if their traffic to and from such hubs. I can tell you that such a change would devastate the business plan of many competitive carriers and would greatly reduce competition in the country.

The FCC has to be diligent in making the changes to IP. Everybody agrees that the technological change needs to be made. It’s more efficient. But we can’t let a technology change be grounds for a land-grab by AT&T and Verizon in an attempt to quash competition. They will, of course, claim that they are not trying to do that, but during my 35-year career I have seen them try exactly that kind of change a whole lot of times. And there is no doubt in my mind they will try to do it again.