Regulatory Sleight of Hand

I was looking through a list of ideas for blogs and noticed that I had never written about the FCC’s odd decision to reclassify commercial mobile broadband as private mobile broadband service in WC Docket No. 17-108 – The Restoring Internet Freedom order that was used to kill net neutrality and to eliminate Title II regulation of broadband. There was so much industry stir about those larger topics that the reclassification of the regulatory nature of mobile broadband went largely unnoticed at the time by the press.

The reclassification was extraordinary in the history of FCC regulation because it drastically changed the definition of one of the major industries regulated by the agency. In 1993 the Congress had enacted regulatory amendments to Section 332 of the FCC’s rules to clarify the regulation for the rapidly burgeoning cellular industry.

At that time there were about 16 million cellular subscribers that used the public switched telephone network (PSTN) and another two million private cell phones that used private networks primarily for corporate dispatch. Congress made a distinction between the public and private use of cellular technology and coined the term CMRS (Commercial Mobile Radio Service) to define the public service we still use today for making telephone calls on cell phones. That congressional act defined CMRS service as having three characteristics: a) the service is for profit, b) it’s available to the entire public, and c) it is interconnected to the PSTN. Private mobile service was defined as any cellular service that didn’t meet any one of the three tests.

The current FCC took the extraordinary step of declaring that cellular broadband is private cellular service. The FCC reached this conclusion using what I would call a regulatory sleight-of-hand. Mobile broadband is obviously still for profit and also available to the public, and so the FCC tackled the third test and said that mobile broadband is part of the Internet and not part of the public telephone network. It’s an odd distinction because the path of a telephone call and a data connection from a cellphone is usually identical. A cellphone first delivers the traffic for both services to a nearby cellular tower (or more recently to pole-mounted small cell sites). The traffic for both services is transported from the cell tower using ethernet transport that the industry calls trunking. At some point in the network, likely a switching hub, the voice and data traffic are split and the voice calls continue inside the PSTN while data traffic is peeled off to the Internet. There is no doubt that the user end of every cellular call or cellular data connection uses the network components that are part of the PSTN.

Why did the FCC go through these mental gymnastics? This FCC had two primary goals of this particular order. First, they wanted to kill the net neutrality rules established by the prior FCC in 2015. Second, they wanted to do this in such a way as to make it extremely difficult for a future FCC to reverse the decision. They ended up with a strategy of declaring that broadband is not a Title II service. Title II refers to the set of rules established by the Telecommunications Act of 1934 that was intended as the framework for regulating common carriers. Until the 2017 FCC order, most of the services we think of as telecommunications – landline telephone, cellular telephones, and broadband – were all considered as common carrier services. The current FCC strategy was to reclassify landline and mobile broadband as a Title I information service and essentially wash their hands from regulating broadband at all.

Since net neutrality rules applied to both landline and mobile data services, the FCC needed to first decree that mobile data was not a public and commercial service before they could remove it from Title II regulation.

The FCC’s actions defy logic and it’s clear that mobile data still meets the definition of a CMRS service. It was an interesting tactic by the FCC and probably the only way they could have removed mobile broadband from Title II regulation. However, they also set themselves up for some interesting possibilities from the court review of the FCC order. For example, a court might rule that mobile broadband is a CMRS service and drag it back under Title II regulation while at the same time upholding the FCC’s reclassification of landline broadband.

Why does this matter? Regulatory definitions matter because the regulatory process relies on an accumulated body of FCC orders and court cases that define the actual nature of regulating a given service. Congress generally defines regulation at a high level and later FCC decisions and court cases better define issues that are disputed. When something gets reclassified in this extreme manner, most of the relevant case law and precedents go out the window. That means we start over with a clean slate and much that was adjudicated in the past will likely have to be adjudicated again, but now based upon the new classification. I can’t think of any time in our industry where regulators decided to arbitrarily redefine the basic nature of a major industry product. We are on new regulatory ground, and that means uncertainty, which is never good for the industry.

Regulating VoIP

The regulation of Voice over IP (VoIP) has been disputed since the late 1990s when Vonage and other VoIP providers burst onto the scenes. In the latest action, the Eighth Circuit Court of Appeals ruled that the Minnesota Public Utilities Commission cannot regulate the VoIP service offered by Charter Communications.

Before looking at that ruling, let me review the history of VoIP regulation. When Vonage and others first offered VoIP a number of states immediately sought to regulate the VoIP companies using what I would call the ‘quack like a duck’ argument that the function of VoIP was to complete telephone calls and that changing the underlying technology didn’t change the nature of the service.

After various regulatory rulings and the subsequent legal challenges it was finally determined that the VoIP offered by Vonage was not the same as regulated voice service because it wasn’t ‘interconnected’ voice. Interconnection is a term defined by the FCC meaning that a telephone call must be originated and terminated using the public switched telephone network (PSTN) established to trade calls between different phone companies. Vonage originated calls using the open Internet and only used the PSTN to terminate calls. This loophole, based upon the FCC definition of a phone call, eventually freed Vonage from most telco regulation, although VoIP providers were required to offer access to 911.

When cable companies started to offer telephone service they adopted the strategy of trying to get their telephone service also classified as VoIP to avoid regulation. They talked about offering VoIP before their voice product even hit the street. However, telephone service on a cable network is not the same as Vonage. Where Vonage customers bypass the PSTN on the originating side of the call, cable companies have always used the PSTN to originate and terminate calls, and from a functional perspective their networks and telco networks look identical.

Cable companies argued that they are VoIP because a customer called is converted to an IP format at the customer location and transmitted digitally across their networks. Their argument relied entirely on the fact that their technology used the ‘IP’ part of VoIP and that preempted them from regulation. Surprisingly, a lot of state regulators agreed with the cable companies and freed them from voice regulation, in what I would classify as regulatory rulings as a result of heavy lobbying. Cable company voice has never, to this day, passed the ‘quack like a duck’ test and they still use the PSTN in the same manner as telephone companies.

We ended up with a patchwork of VoIP regulation as different states took different positions on the issue. Cable companies eventually changed tactics and shot for a different regulatory loophole. They began to argue that VoIP is an information service and not a telecommunications service. They wanted this classification since the FCC had several rulings in other areas, not related to VoIP, that the agency isn’t authorized by Congress to regulate information services. I literally laughed out loud the first time I read this argument and I didn’t expect any regulator to ever accept it, because if making a telephone call isn’t a telecommunications service, then nothing is.

However, in the Minnesota case the cable companies finally talked a court into accepting the argument. The Minnesota case arose when Charter moved their VoIP product to a different subsidiary in an attempt to avoid the assessment of regulatory taxes and fees. The Minnesota PUC sought to impose the same taxes and fees on the new subsidiary, which prompted the lawsuit.

Charter still made the same technology argument that cable companies have used for years. They argued that their product isn’t a telecom service because telephone traffic on their network undergoes a ‘protocol conversion’ as the signal is transformed from analog to digital (for telephone folks, from TDM to IP). This is the decade-old argument that it’s VoIP if some portion of the call uses IP technology.

However, in this case Charter bolstered this argument by claiming that they offer features that prove that their VoIP is an information service. Charter cites as proof the use of features like offering a web portal to listen to voice mails, converting voice mails to text, and providing caller ID on a connected TV.

Technically, these are all ancillary services that have nothing to do with the direct delivery of a telephone call. Most telcos and cellular companies today offer these same features – and they all happen outside of the direct voice path. Recording a call to play back later doesn’t change the fact that a telephone call was made.

Surprisingly the courts agreed with Charter and declared that their VoIP product is an informational service. That exempts Charter from state regulation and the case is going to be used elsewhere by cable companies hoping to avoid regulation. You might want to read the ruling, but I’ll warn you that the circular logic will hurt your head. Apparently, if something now quacks like a duck it might really be a turkey.

AT&T’s IP Transition

telephone cablesA few weeks ago I talked about how Verizon and AT&T are using the FCC’s IP Transition to try to get out of serving regulated services on copper landlines. Today I want to talk more about AT&T. Earlier this month they met with the FCC staff to talk about their ideas on the IP transition and they followed up that meeting with this memo.

The FCC’s IP Transition looks at replacing the PSTN (Public Switched Telephone Network). This is the complex network that has been used to carry voice traffic and that assures that every call attempted ought to be completed. It’s now an old network, is separate from the Internet and it still mostly uses time division multiplexing technology (TDM) that is based upon using circuits that are some multiple of T1s.

The PSTN has served the country well, but pure IP technology is a lot more efficient and the FCC is working towards replacing the PSTN with something new and IP-based. The PSTN is a series of connections, called trunks that connect the central offices switches of all of the carriers in the country along with the electronics that control the network. It’s important to note that the PSTN is only the network between carriers and does not involve any connections to customers. The PSTN has always been technology agnostic in terms of supporting any kind of network such as copper, coaxial or wireless and in allowing any kind of phone or customer device as long as a carrier can locally support it.

But the PSTN network is more than just the wires connecting carriers because it includes things like the SS7 network that is used along with each call to transmit the calling number and other information. And the PSTN comes with a number of specific regulatory requirements that define the ways that carriers of different types can interconnect with each other. The FCC’s major role in this process is to rework all of the rules that define how carriers interact in the new IP world. So the FCC is being careful in dismantling the PSTN because if it’s done incorrectly there could be chaos between carriers and even problems in completing calls. Before they order a mass migration from the PSTN the FCC has authorized a number of trials to convert parts of the PSTN to IP to look in detail to make sure that everything works as hoped.

But AT&T and Verizon have hijacked the IP Transition and persist on using it as an excuse for replacing copper connections with something else. In the case of AT&T they talk about wanting to replace millions of home phones on copper with cellular. The FCC’s IP Transition never intended to require or be associated with changing technologies used by customers. The FCC must be getting very frustrated to see AT&T and Verizon continuously blame them for the changes they are trying to foist on customers. I’m actually somewhat surprised that the FCC hasn’t told them to knock it off. If I was the FCC I would be telling customers that it is not my intention to kick people off of copper. There is no technical or regulatory reason that copper networks can’t work with an IP version of the PSTN.

As you can see by this memo, AT&T intends to kick people off copper in several communities as part of what they call Technology Trials. But they don’t want to say ahead of time where those communities are because they know full-well they will be met with a lot of resistance. It’s funny that AT&T says they don’t want to divulge where their trials will be done due to fear of how competitors will act. The only competitors that benefits from AT&T’s plan will be the cable company in each town which will pick up most of the abandoned customers along with AT&T’s own cellular business. It’s incredibly unlikely that the cable companies are going to find any problem with AT&T’s plans or that releasing the information early would somehow give the cable companies some kind of edge.

AT&T has some really great writers and their memos always sound very logical and well thought out. This memo certainly seems reasonable if one didn’t understand what they are actually talking about doing. They want to knock people off copper, wait until the last possible minute to announce who that will be, and then blame it on an FCC as part of the IP Transition. AT&T will largely be forcing customers to the cable companies if they want landline voice or data.

One might not think this is all that bad of a thing. After all, the copper is getting old and perhaps it is time for it to go. But a large part of the reason rural copper is so bad is from years of neglect. One might not feel so bad about people living in small towns who end up having to go to the cable company if AT&T bails on a town. But you have to realize that small-town cable networks are sometimes in worse condition than the copper. And in most places, if AT&T shuts down the copper then the cable company becomes the only game in town.  One really has to feel bad for the people who live outside rural towns, outside the reach of the cable companies. They are going to lose the only wire to their homes.