A Year of Changes

fast fiberI can’t recall a time when there were so many rumors of gigantic changes in the telecom industry swirling around at the same time. If even half of what is being rumored comes to pass this might be one of the most momentous years in the history of telecom. Consider the following:

Massive Remake of the FCC.  Ajat Pai has been named as the interim head of the FCC, but it’s been said that the president is already referring to him as the Chairman. We know that Pai was against almost every initiative of the Wheeler FCC and there are expectations that things like net neutrality and the new privacy rules will be reversed or greatly modified.

There are also strong rumors in the industry that the new administration is going to follow the advice of the transition telecom team of Jeff Eisenach, Roslyn Layton and Mark Jamison. That team has proposed the following:

  • A reapportionment of ‘duplicative’ functions at the FCC. Functions like fostering competition and consumer protection, for example would be moved the Federal Trade Commission.
  • A remake of telecom rules to remove ‘silos.’ For as long as I can remember we’ve had separate rules for telcos, cable companies, wireless companies and programmers. That probably made sense when these were separate industries, but today we see all of these business lines about to converge within the same corporation like Comcast or AT&T. The transition team says it’s time to change the rules to reflect the reality of technology and the marketplace.

At this point I’ve not seen any specific proposals on what those streamlined rules might be. And Congress will have to take an active role in any changes since the current FCC responsibilities are the results of several major telecom and cable acts.

Verizon Looking to Buy a Cable Company. It’s been reported that Lowell McAdams, the CEO of Verizon, has told friends that the company will be looking for a cable acquisition to boost demand for its wireless data. McAdams also talked to analysts in December and described how Charter might be a natural fit with Verizon. There is also speculation on Wall Street that Comcast could be the target for Verizon.

Mergers of this size are unprecedented in the industry. Charter has over 20 million residential data customers and is second behind Comcast’s 23 million data customers. And both companies now have a significant portfolio of business customers.

I remember a decade ago when AT&T started buying back some of the RBOCs that had splintered off during divestiture back in 1984. We all joked that they were slowly putting Ma Bell back together. But I don’t think anybody ever contemplated that the biggest telcos would ever merge with the cable companies. That would remove the last pretense that there is any competition for broadband in urban areas.

More Merger Mania. At one point it looked like the new administration would be against the AT&T and Time Warner merger. But Wall Street now seems to be convinced the merger will happen. The merger will likely come with the typical list of conditions, but we know from past experience that such conditions are only given lip service. AT&T has already taken a strong position that the merger doesn’t need FCC approval. That would mean that most of the government analysis would come from the Justice Department. Just like with the rumored Verizon acquisitions, this merger would create a giant company that operates in all of the FCC-controlled silos. We don’t really have an effective way today to regulate such giant companies.

Verizon might need to hurry if it wants to buy a giant cable company since there is a rumor that Comcast, Charter and Cox plan to go together and buy T-Mobile. That makes a lot more sense than for those companies to launch a wireless company using the Verizon or AT&T platform. Such an arbitrage arrangement would always allow the wireless companies to dictate the terms of using their networks.

FCC Takes Shot at Zero-rating

Network_neutrality_poster_symbolIn perhaps the most futile government decision I’ve ever seen from the FCC, the agency last week ruled last week that AT&T was in violation of net neutrality rules with its zero-rated Sponsored Data plans. AT&T allows customers who buy DirecTV Now the ability to stream the service over cellphones without counting the data against wireless data caps. The agency didn’t take any action against AT&T as a result of the decision, and probably will not.

I call the gesture futile since it’s clear that the new Republican-led FCC is going to either gut or weaken the net neutrality rules. There are even those in Congress talking about disbanding the FCC and spreading its responsibilities elsewhere – something that would require a new Telecommunications Act. So it’s obvious that this decision doesn’t have any teeth.

I guess it’s not hard to understand that the current FCC staff wants to make one last stand for its signature policy. I don’t think there was anything in the history of the agency that got so much positive public feedback. It’s still hard to imagine that over a million people made formal comments in the FCC net neutrality docket.

And yet, as popular as the concept of net neutrality is – the concept of keeping an open internet – there probably is not a worst place to take a stand than zero-rating. This is a practice that the public is going to love. For the first time people will have the ability to watch video on cellphones without worrying about the stingy cellular data caps. I’m probably a bit old and my eyes have a problem enjoying video on a small cellphone screen. But after seeing my daughter watching video on her Apple smartwatch I am positive that this is going to be popular.

But zero-rating is eventually going to lead to exactly what net neutrality was designed to protect against. In this case AT&T is promoting its own programming with DirecTV Now, and perhaps there is nothing wrong with that. But it won’t be long until other content providers are going to be willing to pay AT&T to also carry their video on cellphones outside the data caps. And that will eventually create an environment where only the content of the biggest and richest companies will be sponsored.

The only video that will be available on cellphones will be from companies with the ability to pay AT&T to carry it. And that eventually means the end of innovation and of new start-ups. It means that Google and Facebook and Netflix will be available because they can afford to pay to sponsor their content, but that the next generations of companies that would naturally have supplanted them, as is inevitable in the tech world, will never get started. You can’t become popular if nobody watches you.

On the flip side, zero-rating is going to point out the hypocrisy of the current cellular data prices. A customer will be able to watch 100 gigabytes of DirecTV Now with no extra fees, but will quickly figure out that watching other video would have cost them $1,000 at the current price of $10 for each gigabyte of extra download. The supposed reason for the high data prices is to protect the cellular network – but it will quickly become clear that the high prices are only about profits. So perhaps this will begin the process of lowering the outrageous cost of cellular data – which is clearly the most expensive data in the world today.

2017 Regulatory Trends

FCC_New_LogoNow that we are at the end of the year I’m going to spend a few blogs looking forward into 2017 from the perspective of small carriers. Predictions about the direction of regulation is perhaps the easiest trend to write about since it looks like the trend for 2017 will be to undo many of the things done by the FCC over the last few years. So here are the regulatory trends I think will be most important to small carriers.

Net Neutrality Will be Reversed. It’s pretty obvious that the FCC’s current net neutrality rules will be reversed in short order in the new year. We already have Commissioners Ajit Pai and Mike O’Rielly strongly on the record opposing the FCC’s prior actions. This could be done in two ways. First could be a direct reversal of the net neutrality ruling. But another tactic might be to reverse Title II regulation but allow the net neutrality principles to stay in place – basically to acknowledge the net neutrality principles that the public clearly likes but to remove the ability to enforce those rules.

Interestingly, net neutrality hasn’t had much direct impact on small carriers since none of them have the market power to violate it. The one impact of this reversal for small carriers is that it will unfetter Comcast, Charter, Verizon and AT&T from most regulations and will give them greater market power and the ability to more aggressively squash smaller competitors.

One benefit of net neutrality was that it gave the general public some comfort that they couldn’t be preyed upon by large ISPs. So small carriers might want to periodically remind your customers that you will still be adhering to the principles of net neutrality even though this might not still be a formal requirement.

Reversal of New Privacy Rules. It’s also clear that the FCC is going to reverse most or all of the new privacy rules. These rules stopped ISPs from using customer data without explicit permission. There were parts of these rule that small carriers didn’t like. But for the most part small ISPs don’t use customer data for marketing purposes and don’t sell customer data to marketers. I think small carriers should periodically remind your customers that you don’t misuse or sell their data, but that your big competitors do.

Lifeline Changes. I think it’s likely that the new FCC will change the data lifeline program that pays $9.25 per month towards the data bill for qualifying families. At a minimum they might curtail this for cellular data plans, but there is even the possibility that they will eliminate it.

There is also talk of going back to a numbers-based method to fund the Universal Service Fund. This would impose a tax of around $1 on every telephone number. This is supported by the big telcos since they no longer control the majority of telephone numbers, but even more so because this would remove USF assessments on special access circuits.

A New Telecom Act. I expect Congress to enact a new telecom act. There are certainly parts of the Telecommunications Act of 1996 that are way out of date. That Act concentrated on copper telco networks and on traditional large cable line-ups and we need to now acknowledge that copper telco networks are quickly disappearing and that the public wants non-traditional cable packages.

But I also expect that any new act is going to drastically change the role of the FCC. My guess is that Congress wants to throttle the FCC’s power so that the agency won’t have much power if there is another change in administration. There have been threats from Congressmen in the past year to abolish the FCC altogether, but I think once they look at all of the things the agency does that cooler heads will prevail. But we might be seeing permanently reduced federal regulatory oversight of the industry.

Resurgence of State Regulation. If the FCC delivers on the stated goal of the new administration to whack FCC regulations, I expect that some state regulators will step in to fill the regulatory gap. After all, regulators like to regulate! It would not be surprising to see the most active state regulatory commissions like California, New York, Texas and Illinois tackle topics that the FCC might drop. And that would undoubtedly mean a string of states-rights lawsuits.

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.

What the New Administration Means for Small ISPs

white-houseI’ve seen a dozen articles in the last week speculating what the change in administration means to the telecom industry. The articles range from predictions of doom and gloom (mostly from a consumer perspective) to near glee (from the giant telcos). But my audience and clients are primarily small telcos, ISPs, cable companies and municipalities, so I’ve been thinking about what this change means for small carriers.

There has been a lot of speculation about a big spending program to build infrastructure. But nobody has any idea if this might include money for broadband infrastructure. And even if it does, might that money go to a wide number of broadband providers or just to the big companies like the CAF II funds? So until we find out more details, any talk about infrastructure is pure speculation. I’m sure details will start solidifying in the first quarter after the new administration is in place.

One thing that every prediction I have seen agrees on is that we are going to see reduced regulation. This might come about due to having a republican majority at the FCC. Every major decision during the Wheeler regime has been passed with a 3-2 democratic vote. So it would be easy to see a new FCC reverse everything that Wheeler got passed. There is also speculation that Congress might pass a new Telecom Act which would direct the FCCC to cut regulations.

So what does less regulation mean for smaller ISPs? When looking at every regulation that has passed over the last decade I come to the conclusion that, from a regulatory perspective, this will have very little effect on smaller service providers. Almost everything that has been passed has been aimed at curbing the practices of the giant telcos and cable companies.

Smaller carriers would see some benefit due to reduced paperwork. For instance, competitive voice providers have had to provide an option to customers for battery backup. That sort of requirement might disappear. There was undoubtably going to be some new paperwork involved with the new privacy rules that will likely be canceled. My clients all find some of the federal paperwork to be annoying and unneeded and perhaps some of that will go away.

But the big changes over the last decade didn’t really impact small companies at all. I have to laugh to think of one of my clients somehow creating a product package that violates net neutrality. It’s silly to think that small ISPs might might somehow profit from using their customers’ data. If those big initiatives get reversed it will mean almost nothing to small companies since none were engaging in the activities that these new regulations are trying to fix.

There is one downside for small ISPs to reduced regulation. A lot of small carriers compete against the giant telcos and cable companies. Anything that takes away restrictions on the giant companies probably gives them even more of a competitive edge than they have today. So I guess my biggest concern is what an unfettered Comcast or AT&T will be able to do to crush smaller competition.

There are aspects of Title II regulation that help the small carriers compete against the big ones. My favorite, which is due to be implemented soon, is the requirement that ISPs tell their customers the truth about their broadband products. This will be done in the format similar to the label on foods where the ISPs have to disclose actual speeds, latency, prices, etc. about their products. I think that will give small carriers a way to show that they are better than the big companies. If Title II regulation goes away then the good parts go away along with the bad parts.

I’ve always thought that net neutrality was focused on reining in the big companies from developing products that nobody else can compete with. The big carriers have wanted to make exclusive deals with content providers and social media networks that would give them a leg up over anybody they compete against.

So my message to small ISPs is not to worry too much. If the FCC reverses everything done in the last ten years you are not going to see much practical change in your regulatory processes or costs. The only real worry is what an unregulated Comcast or AT&T might look like. And who knows? Maybe you’ll get some federal dollars to expand your broadband network – we’ll just to wait and see about that one.

Cable Companies under Regulatory Siege?

FCC_New_LogoEarlier this year Michael Powell (the head of the National Cable Television Association) complained that the FCC has launched a regulatory assault again cable companies – and in some ways he is probably right. Some of the regulations ordered or contemplated are clearly aimed at cable companies – yet much of the new regulation was aimed at somebody else but still affects the cable companies.

Consider all of the changes affecting the cable companies right now:

  • Net neutrality has meant that cable companies and other ISPs can’t make lucrative deals with content providers to bundle content as part of broadband access.
  • But the biggest change from the net neutrality order is the advent of Title II regulation of the internet. This is resulting in a raft of new regulations for broadband. All of a sudden the FCC is looking at data caps. The agency has demanded that all ISPs disclose all of the details of their broadband connections to customers. Cable companies are suddenly covered by customer privacy regulations – the biggest being that they probably can’t use the information they gather as an ISP without a customer’s approval.
  • The cable companies have become huge sellers of broadband transport and data pipes to businesses. The FCC is about to make major changes in the special access market and that is likely going to lower prices for these products. Special access rates are incredibly high and cable companies and CLECs have made a living out of selling services to businesses at a discount from the published special access rates. The result is that businesses pay a gigantic premium for dedicated broadband connections, and everybody expects the FCC to lower rates across the market.
  • The FCC’s move to somehow eliminate settop boxes is aimed right at the cable companies. To a large extent the industry brought this on themselves as they’ve raised rates to rent a settop box from $5 to $10 or more in most markets. But the idea that there can be some sort of generic solution that can work on every type of network sounds idealistic, at best.
  • The FCC seems to want to allow anybody to carry video content on the Internet without saddling the new providers with the same rules that govern cable companies. So cable companies, for now, are stuck with rules that force them to offer certain kinds of tiers of service while OTT providers can cook up any creative package they can cobble together.

As a telecom guy I find this all to be somewhat ironic. I remember when I first read through the Telecommunications Act of 1996 that my first reaction was that the FCC had let the cable companies completely off the hook. The big telcos were being forced to unbundle their networks to offer voice loops and DSL connections while the cable companies had no corresponding obligation to unbundle for cable modem connections. In the decade following the Act, most state Commissions also excused cable companies from most forms of voice regulation. The cable companies were able to somehow characterize the voice on their networks as VoIP and got out of most voice regulations – but from a customer perspective the cable voice product was indistinguishable from telco voice products. It’s one of the first times that the FCC made an exception for a product based upon the technology used to deliver it – a trend that has since led to some very odd regulatory rulings.

So now it seems that the wheel has turned and the cable companies are being brought back into the regulatory arena with everybody else. I think Powell is right and those in charge of a cable company must feel like they are under regulatory siege. But except for the settop box issue, which is an odd set of regulations clearly aimed at the cable companies – the other regulations can mostly be described as leveling the playing field – something that the cable companies have always said should apply to municipal broadband providers.

But from a regulatory perspective the protections provided to consumers ought to be the same across all broadband technologies. It makes a lot of sense to finally require cable companies to provide privacy protection and to disclose the details and terms of the products they are selling. I have to laugh once in a while about regulation. Five years ago a colleague of mine said he could foresee the end of telecom regulation. But I countered by saying that regulators like to regulate, and sure enough it seems like we have as many – or more! –  regulations today as ever.

What’s Next After the Net Neutrality Ruling?

Network_neutrality_poster_symbolNow that the US District Court has affirmed the net neutrality ruling in its entirety it’s worth considering where the FCC will go next. Up until now it’s been clear that they have been somewhat tentative about strongly enforcing net neutrality issues since they didn’t want to have to reverse a year of regulatory work with a negative court opinion. But there are a number of issues that the FCC is now likely to tackle.

Zero-Rating. I would think that zero-rating must be high on their list. This is the practice of offering content that doesn’t count against monthly data caps. This probably most affects the customers in the cellular world where both AT&T and T-Mobile have their own video offerings that don’t count against data caps. With the tiny data caps on wireless broadband there is no doubt that it is a major incentive for customers to watch that free content, and consequently drive ad revenues to their own carrier.

But zero-rating exists in the landline world as well. Comcast has been offering some of its content on the web to its own customers. They claim this is not zero-rating, but from a technical perspective it is. However, now that Comcast has raised the monthly data cap to 1 terabit then this might not be of much concern to the FCC right now.

Privacy. The FCC has already proposed controversial rules that apply to the ISPs and consumer privacy. In those rules the FCC proposes to give customers the option to opt-out of getting advertisement from ISPs, but more importantly consumers can opt-out of being tracked. This would put the ISPs at a distinct disadvantage compared to edge providers like Facebook or Google who are still free to track online usage.

Last year the FCC also started to look at the ‘super-cookies’ that Verizon was using to track customers across the web. This privacy ruling (which is now on a lot more secure footing based upon the net neutrality order) could end the supercookies and many other ways that ISPs might track customer web behavior. Interestingly, both Verizon and AT&T have been bidding on buying Yahoo and this potential privacy ruling puts a big question mark on how valuable that acquisition might be if customers can all opt out from being tracked. I think Verizon and AT&T (and Comcast) all are eyeing the gigantic ad revenues being gained by web companies and this ruling is going to make it a challenge for them to make big headway in that arena.

Lifeline. I think that the net neutrality ruling also makes it easier for the FCC to defend their new plans to provide a subsidy to low-income data customers in the same manner they have always done for voice customers. Now that data is also regulated under Title II it fits right in to the existing Lifeline framework.

Data Caps. At some point I expect the FCC to tackle data caps. It’s been made clear by many in the industry that there are no network reasons for these caps, even in the cellular world. The cellular data plans in most of the rest of the world are either unlimited or have extremely high data caps.

The FCC said in establishing net neutrality that they would not regulate broadband rates. And in the strictest sense if they tackle data caps they would not be. The regulatory rate process is one where carriers must justify that rates aren’t too high or too low and has always been used, as much as anything, to avoid obvious subsidies.

But data caps – while they can drive a lot of revenues for ISPs – are not strictly a rate issue, and in facts, the ISPs hop through a lot of verbal hoops to say that data caps are not about driving revenues. And so I think the FCC can regulate data caps as an unnecessary network practice. It’s been said recently that AT&T is again selectively enforcing its 150 monthly gigabit cap, and so expect the public outcry to soon reach the FCC again, like happened last year with Comcast.

The Real Impact of Network Neutrality

Network_neutrality_poster_symbolThe federal appeals court for Washington DC just upheld the FCC’s net neutrality order in its entirety. There was a lot of speculation that the court might pick and choose among the order’s many different sections or that they might like the order but dislike some of the procedural aspects of reaching the order. And while there was one dissenting option, the court accepted the whole FCC order, without change.

There will be a lot of articles telling you in detail what the court said. But I thought this might be a good time to pause and look to see what net neutrality has meant so far and how it has impacted customers and ISPs.

ISP Investments. Probably the biggest threat we heard from the ISPs is that the net neutrality order would squelch investment in broadband. But it’s hard to see that it’s done so. It’s been clear for years that AT&T and Verizon are looking for ways to walk away from the more costly parts of their copper networks. But Verizon is now building FiOS in Boston after many years of no new fiber construction. And while few believe that AT&T is spending as much money on fiber as they are claiming, they are telling the world that they will be building a lot more fiber. And other large ISPs like CenturyLink are building new fiber at a breakneck pace.

We also see all of the big cable companies talking about their upgrades to DOCSIS 3.1. Earlier this year the CEO of Comcast was asked at the INTX show in Boston where the company had curtailed capital spending and he couldn’t cite an example. Finally, I see small telcos and coops building as much fiber as they can get funded all over the country. So it doesn’t seem like net neutrality has had any negative impact on fiber investments.

Privacy. The FCC has started to pull the ISPs under the same privacy rules for broadband that have been in place for telephone for years. The ISPs obviously don’t like this, but consumers seem to be largely in favor of requiring an ISP to ask for permission before marketing to you or selling your information to others.

The FCC is also now looking at restricting the ways that ISPs can use the data gathered from customers from web activity for marketing purposes.

Data Caps. The FCC has not explicitly made any rulings against data caps, but they’ve made it clear that they don’t like them. This threat (along with a flood of consumer complaints at the FCC) seems to have been enough to get Comcast to raise its data caps from 300 GB per month to 1 TB. It appears that AT&T is now enforcing its data caps and we’ll have to see if the FCC is going to use Title II authority to control the practice. It will be really interesting if the FCC tackles wireless data caps. It has to an embarrassment for them that the wireless carriers have been able to sell some of the most expensive broadband in the world under their watch.

Content Bundling and Restrictions. Just as the net neutrality rules were passed there were all sorts of rumors of ISPs making deals with companies like Facebook to bundle their content with broadband in ways that would have given those companies priority access to customers. That practice quickly disappeared from the landline broadband business, but there are still several cases of providers using zero-rating to give their own content priority over other content. My guess is that this court ruling is going to give the FCC the justification to go after such practices.

It’s almost certain that the big ISPs will appeal this ruling to the Supreme Court. But an appeal of a positive appeal ruling is a hard thing to win and the Supreme Court would have to decide that the appeals court of Washington DC made a major error in its findings before they would even accept the case, let alone overturn the ruling. I think the court victory gives the FCC the go-ahead to fully implement the net neutrality order.

 

Is This an Activist FCC?

FCC_New_LogoSince I have been in the industry there have been fourteen different Chairmen at the FCC. And during that time those have been split pretty evenly between democrats and republicans. We had Chairmen who had the reputation of leaning towards the public such as Reed Hundt and those that have favored the large businesses in the industry like Michael Powell. But you can find FCC decisions under each of Chairman that are in favor of the public or in favor of carriers, radio and television stations that the FCC regulates.

When you read the press about the current FCC (the Tom Wheeler FCC) the public impression is that it is pro-competition and pro-public. And there are plenty of rulings that back that up such as:

  • Net neutrality that regulates broadband ISPs and stops them from various practices that would restrict internet choice.
  • The current proposal for privacy rules that would let people restrict how ISPs can use their personal data.
  • Opposed the Comcast / Time Warner merger.
  • Reset the definition of broadband to 25 Mbps down / 3 Mbps up.
  • The decision last year that said that restrictions on municipal broadband were anti-competitive.
  • Opposed the AT&T / T-Mobile merger.
  • Slashed prison calling rates to make it easier for families to stay in contact with those in prison.

Every one of these orders favors the public over the big companies that are regulated by the FCC. And there are other orders beyond this list.  It’s not hard to see why this FCC has built the reputation of being pro-competition and anti-big business. And yet there are some major decisions that have been clearly in favor of the big companies regulated by the FCC.

Probably the biggest of these was the decision to award over $6 billion to the largest telcos to upgrade rural broadband. In establishing the Connect America fund the FCC gave almost all of the money to AT&T, Frontier, and CenturyLink and is only requiring them to upgrade rural broadband over a six year period to speeds of 10 Mbps / 1 Mbps. Those speeds are already becoming obsolete today and are the equivalent of somebody still sitting on a 1 Mbps DSL connection in 2005. Those speeds will provide Internet access, but a household on those speeds can’t do the same things that those of us with faster connections can do. And by the end of the six years these speeds are going to be completely out of date and inadequate.

And just last week this FCC put a rule in its Lifeline order that can be seen as nothing but a giveaway to cellular companies. The FCC is going to allow the $10 per month Lifeline subsidy for low income households to go to a cellular plan operating on the 3G network and with a monthly data cap of only ½ gigabit. The stated purpose of the Lifeline plan is to close the ‘homework gap’ and yet this one provision will probably end up sending a billion dollars a year to the cellular providers to pay for data plans that won’t meet the stated goal of the Lifeline program.

I remember when Chairman Wheeler was announced that industry insiders assumed that he was going to be in favor of the large carriers and cable companies since he had spent his career representing them. But he immediately quieted this criticism by making a number of pro-competitive and anti-carrier rulings.

When I look at the whole record I have a hard time seeing this FCC as activist. They certainly lean towards promoting things that a democratic White House would favor, as you would expect from a democratic FCC Chairman. But at the same time this FCC has handed billions of dollars to big carriers, and in doing so has greatly harmed the public. One can just imagine how far the Connect America Funds could have gone if that money was instead given out over six years as matching funds to build rural fiber systems. That much seed money would have brought a fiber solution to millions rather than stick them with another decade of poor DSL.

But in retrospect, when I look back at all of the various FCC Chairmen I can see that they have presided over decisions on both ends of the spectrum, and that probably comes with the job. The FCC is in charge of regulating very complex industries that change rapidly and which are controlled by large and powerful companies. I’m glad it’s not me sitting in that chair.

Reauthorizing the FCC

FCC_New_LogoSenator John Thune (republican from South Dakota and head of the Senate Commerce Committee) has introduced a reauthorization bill for the FCC. This hasn’t been done at the FCC for nearly 25 years but is a routine process for most federal agencies. The authorization bill would reestablish a fresh basis for how the FCC operates and is funded. As long as controversial riders don’t get attached such as trying to undo net neutrality or something similar, the bill ought to sail through Congress and get signed by the president.

The reauthorization is only for two years, which signals Congress’s intent to tackle a new telecommunications act in the near future. Here are a few things the bill will do if passed:

Examine FCC Regulatory Fees. The FCC charges regulatory fees and the bill would authorize the GAO to take a look at how those fees line up with the costs of running the FCC. Since this hasn’t been examined in a long time it’s easy to imagine fees being added, deleted, or modified to bring the fees in line with current activity and costs of running the FCC.

The FCC charges a number of different kinds of fees. For instance there are fees for processing applications for equipment approval, tariff filings, antenna site registration and other similar functions. The FCC also charges a host of annual regulatory fees to cable television systems, wireless carriers, satellite providers, interstate telco providers, media companies and submarine cable network owners. The agency also charges fees to participate in spectrum auctions.

Protects E-Rate Funding. The bill would shield E-Rate payments made to schools and libraries from being lowered due to any other government funding action, such as last year’s sequester.

Changes FCC Transparency Practices. The Commerce committee oversees a number of other government agencies such as the Consumer Product Safety Commission, the Surface Transportation Board, and the Federal Energy Regulatory Commission. Over the last decade those agencies have had changes in how documents at the agencies are made public and how they report to Congress. The FCC is the only agency that has not been subject to these transparency best practices. However, earlier this year the FCC started to voluntarily make some of these changes on their own.

Clarifies USF Support Rules. In 2004 the USF Joint Board recommended that a household only count for calculating universal service funding one time. This means that a household can’t count for calculating a subsidy for both a wireline and a wireless connection. Congress has been renewing this requirement in the annual funding appropriation for the FCC every year since then and this would codify that restriction to be permanent.

Clarifies Terms of Office for Commissioners. The bill would allow a Commissioner to stay in office after their 5-year term until a successor has been appointed. This has sometimes been done in practice, but this would make this a permanent rule.

Continues Funding for Spectrum Auctions. The bill assures that the FCC will be sufficiently funded to operate spectrum auctions, which often brings in huge revenues to the general government coffers.

The bill is expected to be voted on in the Commerce Committee by the end of March. The danger between now and becoming a law is going to be the temptation of Republicans to use the bill as a way to change a few FCC rules that they don’t like. The two recent FCC rulings they most hate are net neutrality and the rules that ban states from restricting municipal participation in broadband. Both of those FCC rules are under appeal in federal courts, but a number of congressmen have never stopped publicly complaining against the rulings. If the bill gets riders that try to change those rulings it would probably be impossible to get a presidential signature since President Obama strongly supports both of those FCC rulings.