Time for a New Telecom Act, Part 2

FCC_New_LogoYesterday’s blog postulated that we would see a new telecom act this year from Congress. That blog looked at what was accomplished by the last Telecommunications Act of 1996. Today I’m looking ahead at the issues that a new Act needs to address.

Last week we learned more about how the process will probably work. A new telecom act would likely be spearheaded by the Energy and Commerce Subcommittee on Communications and Technology. Last week Rep. Marsha Blackburn, head of that committee, told the press that she favored giving the new FCC a shot at fixing the things under its purview before the House would tackle a new Act. The FCC doesn’t have the authority to make many of the needed changes in telecom regulation, but it does have considerable power. Anyway, this probably means a new act is at least a year away.

Here are some of the things that I think the FCC and Congress need to address to modernize telecom:

Need for More Spectrum. It’s becoming clear that a lot of big ISPs are thinking of deploying 5Gn and various other millimeter wave technologies. The FCC needs to continue to open up more spectrum for broadband. There is still a lot of spectrum has been reserved for government use and there needs to be more attempts to share frequency when possible. There also needs to be a fresh look taken at how frequency is used. Historically many bands of frequency had narrow channels aimed at accommodating voice traffic or a single channel of television. From an engineering perspective we can get a lot more out of spectrum if we can make wider channels in the spectrum bands that are already in use.

Tackling Cybersecurity. 2016 was a year when security breaches led the industry news weekly. There is no easy fix for security issues, but there are big steps that can be taken. For example, we are flooding the world with IoT devices that are easily hacked and which can now be used to launch coordinated denial of service attacks. With Congressional backing the FCC could create standards to make IoT devices more secure. The government will never make us free from hacking, but there are a lot of sensible standards and fixes needed for IoT devices.

Expanding Access to Fast Broadband. As somebody who works regularly in rural America I know that lack of broadband there is now one of the biggest problems identified by rural households. We need to find ways to get good broadband to more places, and we have to do this smartly by building infrastructure that will last for decades. We’ve already seen how not to do this with the CAF II program that is being used to expand DSL and LTE wireless – two technologies that are already inadequate today.

Unless we see that fiber is built everywhere this is going to be an ongoing major issue. For example, if we fix broadband for those that have none but ignore the bigger swathe of the country that has only marginally acceptable broadband today, we will be back in a decade looking at how to fix broadband in those places.

We also need rules that unleashes anybody willing to spend money on fiber. I see numerous rural counties and towns that are ready to spring for bond issues to get fiber. We need rules that allow anybody willing to invest in fiber be able to do so – be that local governments, electric cooperatives, rural telcos or anybody else.

Infrastructure Issues. There are still a lot of infrastructure roadblocks to deploying fiber. We have never done a good job of fulfilling the mandate from the 1996 Act to provide access to poles and conduit. And we are now looking at deploying a fiber-fed wireless network that is going to mean bringing both fiber and power to buildings, rooftops, poles and other infrastructure. We need to find a way to get this done without also trampling over the legitimate concerns of local jurisdictions. For example, the FCC can’t just demand that cities allow free and quick fiber construction if that means digging up newly paved streets or overburdening poles – we need to find rules that work. And we need to do a much better job of this than we have done so far.

Programming. It’s now clear that online video content is competitive alternative to traditional cable TV. We need rules that unleash cable companies and anybody else to sell programming that people really want to buy. That means stepping away from the current rigid cable rules that mandate the giant channel lineups. Companies need to be free to create programming bundles that people want to buy. This might mean allowing a la carte programming. And there must be rules that require content providers to sell to everybody in an unbiased manner.

I don’t know how many of these big issues the current FCC is going to be willing to tackle. It seems like a lot of their agenda for the first six months will be to undo things ordered by the previous FCC. While I understand the desire to mold the FCC to the political persuasion of whatever party is in power, most of the issues on my list above are not partisan. They are just things that we all need to solve if we are to have a telecom infrastructure that serves us all well.

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.

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.

A New Telecom Act?

FCC_New_LogoThere has been a lot of talk during the last year about putting together a new Telecom Act. It’s been twenty years since the Telecom Act of 1996 which created CLECs. But a lot has changed in twenty years and that Act is largely obsolete. Unfortunately it’s unlikely with political gridlock that we’ll get a new Act that fixes our real problems. But I asked myself what I would include in a new Telecom Act if I was allowed to write it. Here are some of the top changes I would make:

Fund Fiber Everywhere. There was recently a bill introduced in Congress to add $50M to the RUS for rural broadband grants. That makes such a tiny dent in the problem as to be embarrassing. If we believe as a country that broadband is essential for our economic future, then let’s do what other countries have done and start a federal program to build fiber everywhere, from rural America to inner cities. I could write a week’s worth of blogs about how this could be done, but it needs to be done.

Make Broadband Affordable to All. The Lifeline program that subsidizes $9.25 per month for broadband for low-income households has the right intentions. But the amount of subsidy is ridiculously low. If we believe that schoolkids ought to have broadband to succeed then let’s do this right and pony up and find a way to pay for it.

Tax Broadband. The continuing ban against taxing the Internet is stupid. It was put in place years ago to protect a fledgling new Internet industry. Let’s put a tax on landline and cellular broadband to pay for getting fiber everywhere and broadband to everybody.

Stop Subsidizing Non-Broadband. It should be impossible for the FCC to provide any funding or subsidies to broadband connections that don’t meet their own definition of what constitutes broadband speeds.

Fix Pole Issues. Pole issues have been a bane to competitors since the last Telecom Act required pole owners to allow access. Let’s create common-sense rules that don’t allow pole owners to hold new competitors hostage.

Break the Power of the Programmers. Most of what has been broken in the cable TV industry has been due to the immense power and greed of the programmers to set the price and conditions for their content. It’s time to put a halt to contracts for content that force cable providers to buy programming they don’t want. And it’s also time to consider requiring programmers to offer each network a la carte and not in big bundles.

Unleash Skinny Bundles. Existing cable rules put handcuffs on cable providers. Rules that require specific kinds of bundles such as basic and expanded basic means that a cable provider has a nearly impossible task of putting together offerings that customers really want to buy. Let’s scrap those rules and start fresh with customer choice as the driver behind the new rules.

Make Cable Rules Apply to Everybody. Any new cable rules need to apply to everybody that provides content – over wirelines or over the Internet. Anything less than this gives massive advantages to one side or the other. I would be fine if the best way to do this is to have almost no rules!

Reinstitute Limitations on Ownership of Media. Allowing a handful of companies to own all of the television and radio stations has put a huge dent in our free press and in local control of news stations and reporting. Let’s break up these conglomerates and start over.

I could easily add forty more items to this list, but these were the ones that first came to mind as I was writing. What would you add to a new Telecom Act?

Getting Access to Conduit

innerduraFuturePathGroupThere is an interesting case at the California Public Utilities Commission where Webpass is fighting with AT&T over access to conduit. You may have seen that Webpass was just recently bought by Google Fiber and I would think this case will be carried forward by Google.

The right for competitive providers to get access to conduit comes from the Telecommunications Act of 1996. In that Act, Congress directed that competitive telecom providers must be provided access to poles, ducts, conduits, and rights-of-way by utilities. A utility is defined as any company, except for electric cooperatives and municipalities, which owns any of those facilities that are used in whole or in part for communications by wire. Under this definition telcos, cable companies, commercial electric companies, gas companies, and others are required by law to make spare conduit available to others.

If a utility allows even one pole or piece of conduit to be used for communications, including for its own internal purposes, then the whole system must be made available to competitors at fair prices and conditions. About half of the states have passed specific rules governing those conditions while states without specific rules revert to the FCC rules.

Webpass tried to get access to AT&T conduits in California and ran into a number of road blocks. It seems like there are a few situations where AT&T has provided conduit to Webpass, but AT&T denied the majority of the requests for access.

This is not unusual. Over the years I have had several clients try to get access to AT&T and Verizon conduit and none of them were successful. AT&T, Verizon, and the other large telcos generally have concocted internal policies that make it nearly impossible to get access to conduit. When a competitor faces that kind of intransigence their only alternative is to take the conduit owner to court or arbitration – and small carriers generally don’t have the resources for this kind of protracted legal fight.

But even fighting the telcos is no guarantee of success because the FCC rules provide AT&T with several reasons to deny access. A utility can deny access on the basis of safety, reliability or operational concerns. So even when a conduit owner is ordered to provide access after invoking one of these reasons, they can just invoke one of the other exceptions and begin the whole fight again. It takes a determined competitor to fight through such a wall of denial.

Trying to get conduit reminds me of the battles many of my clients fought in trying to get access to dark fiber fifteen years ago. I remember that AT&T and Verizon kept changing the rules of the dark fiber request process so often that a competitor had a difficult time even formulating a valid request for dark fiber. Even when Commissions ordered the telcos to comply with dark fiber requests, the telcos usually found another reason to deny the requests.

This is a shame because getting access to conduits might be one of best ways possible to promote real competition. AT&T and Verizon both claim to have many hundreds of thousands of miles of fiber, much of it in conduit. I am sure there are many cases where older conduit is full. But newer conduits contain multiple empty tubes and one would have to think that there is a huge inventory of empty conduits in the telco networks. The same is true for the cable companies and the large electric companies, and I can’t recall any small carriers who has ever gotten access to any of this conduit. I think some of the large carriers like Level3 or XO probably have gotten some access to conduit, but I would imagine even they probably had to fight very hard to get it.

I remember talking to a colleague the day that we first read the Telecommunications Act of 1996 that ordered the telcos to make conduit available to competitors. We understood immediately that the telcos would adopt a strategy of denying such access – and they have steadfastly said no to conduit requests over the years. I am glad to see Webpass renewing this old fight and it will be interesting to see if they can succeed where others have failed.

The Rural Exemption

FCC_New_LogoI was recently surprised when I saw a small telco in Minnesota invoke the rural exemption. This is a set of rules that was created by the Telecommunications Act of 1996. In those days the rural telephone industry had an effective presence in Congress and this was added to that legislation as a protection for small rural telephone companies.

The Act created CLECs and made it possible for anybody to create a competitive telephone company and compete against the incumbent providers, who were all heavily regulated monopolies at the time.

The purpose of the rural exemption was to provide a pause in the process of allowing a competitor telephone provider into rural markets. The big fear was that there would be markets where a competitor would come in and cherry pick the market and make the remaining company unviable. This was a real concern. For instance, I had one client at the time that made over 60% of their revenues from one very large factory. They didn’t think that if they lost that factory as a customer that they could remain viable and continue to serve everybody else. Their fear was that competition would wipe out the only telephone company in their small community.

This was a legitimate fear. But it turns out the rural exemption was not really the right answer to their problem. It became quickly obvious that they would eventually lose that customer and that the rural exemption wouldn’t really protect them. So I helped that company to branch out into the surrounding towns to offer their own competitive product. They needed to have a customer base that was big enough to survive losing the big factory.

And sure enough, it worked. They lost that factory as a customer a few years later when a competitor offered cheap broadband to the factory that they couldn’t match. But when they lost the factory they didn’t fold. In fact, they are doing better today than they were before they lost the big customer. They beat competition by becoming competitive themselves.

In the 90s there were a number of small companies that invoked the rural exemption. This forced the the state regulatory commission to have a formal hearing before allowing in a competitor. The small companies were in the unenviable position of having to argue that competition was bad for their community. And as you might guess, I don’t think a small company ever won a rural exemption case and the competitors were always granted the ability to serve their markets.

Over the next decade there was a huge increase in competition in the rural areas as cable companies got the technology that allowed them into the telephone and data business. Competition from the cable companies was so inevitable that almost nobody wasted the legal fees needed to invoke the rural exemption. And I think that after enough of these cases were filed and always lost I think small companies got the message that being against competition sent the wrong message to their customers. There were still a few rural exemptions invoked into the 00s but most of these were nothing more than a feeble attempt to keep competitors at bay for a few extra months.

It’s possible that there have been some cases filed in the last few years that I missed, but I can’t recall having heard of a rural exemption being claimed for many years. The law is still on the FCC rulebooks, but it’s obvious by now that every regulatory body is pro-competition. There is basically zero chance of a rural telco convincing a regulator that they should be exempt from competition. Particularly since the rural exemption only looks at voice competition and we have move to a world where it’s all about broadband.

This current case is a perfect example of why the rural exemption ought to be obsolete. The competitor in this case is a new cooperative that is building gigabit fiber optics to everybody in the community including the farms. The farmers in this area either had very slow DSL, or if they were too far from town they had no broadband at all other than dial-up or satellite. The telco that filed the rural exemption has known about this coming competition for at least five years.

This small telco should have taken the same advice I gave my small client with the factory in 1997 – they should have found a way to participate in the innovation. This telco could have taken a lesson from the hundreds of other rural telcos that have built their own fiber to customers. Nobody is going to build a second fiber network in a rural community and this company could have built fiber and ensured their prosperity for decades to come by being the first with fiber. But instead, they now are going to have to go to the state regulatory Commission and tell the citizens of their community why they would be better off without fiber and faster broadband. I’m glad I’m not their consultant or lawyer because I don’t think anybody can make that argument these days with a straight face.

Unbundling the Broadband Networks

canada_flag-1920x1080The Canadian Radio-television and Telecommunications Commission (CRTC) has ordered that large telecom companies, both telcos and cable companies, must unbundle the last mile of their network and make the facilities available to competitors.

With this ruling the CRTC has said that competition and choice is important. This was a surprising ruling because all telecom companies had filed comments stating that forced unbundling would be a disincentive for them to build expensive fiber facilities to homes and businesses.

This ruling was only the first step; the processes and procedures needed to accomplish unbundling still need to be worked out. It’s estimated that perhaps the first unbundled connections will be available to competitors by the end of 2016

This ruling applies to both fiber and coaxial networks and will apply to the larger providers like BCE (Bell Canada Enterprises) as well as to the two biggest cable companies, Rogers Communications and Shaw Communications. But the biggest impact is expected to be on BCE which has invested heavily in fiber to both businesses and residences.

The CRTC said that this was the only path they saw towards competition since the cost of building duplicate fiber networks was expensive and not likely to happen.

We know something about unbundling in this country. The Telecommunications Act of 1996 ordered large US telcos to unbundle their copper networks and make them available to competition. This promoted the explosion of CLECs in the late 90s, but the use of unbundled copper largely died when many of the CLECs formed during that period imploded during the telecom crash in the early 00s.

But the FCC in this country has never required unbundling of fiber. In fact, the 1996 Act removed the unbundling requirement as soon as a telco replaced copper with fiber. The Act did require the unbundling of dark fiber (fiber sold without electronics), but as is typical in this country, the telcos chipped away at that requirement to the point where it became incredibly difficult for a competitor to get access to telco dark fiber.

Our experience in this country is that the large companies will comply with this requirement only reluctantly, and here they put as many roadblocks as they could in the way of competitors. The telcos here required difficult paperwork for every step of the process and dragged their feet as much as possible any time they worked with a competitor. There is a famous rumor in the industry that in the work space at one of the large US telcos that dealt with unbundling there was a large sign reading “Delay, Delay, Delay”. Too bad this was before cellphone cameras because several reputable industry people swear this is true.

The idea of unbundling active fiber is an interesting one. Certainly if a competitor could get access to fiber affordably they could offer an alternate suite of products and bring both product and price competition into the network.

The idea of unbundling a cable company’s coaxial network is not as easy to contemplate. Coaxial cables are arranged so that there is not a unique cable for each customer. At the pole each customer is added into the same data and cable TV transmission path as everybody else in their neighborhood. It’s hard to think of a neat technical way to unbundle anything in an HFC network. It might be possible to unbundle the data path, but this is also shared through most of the network. It will be interesting to see how the CRTC deals with the technical issues.

Obviously competitors here will keep an eye on the Canadian experiment to see how it progresses. There has been no cry here for unbundling of fiber networks, but if there was such a ruling I think it would enable a raft of new competitive providers and would bring real competition into the duopoly networks we have in most US markets. Certainly the US suffers from the same duopoly competition that drove Canada to make this ruling.

Control of the Future Voice Network

FCC_New_LogoThe FCC is looking at how to transition from the traditional TDM-based PSTN to an all-IP telephone network. A number of carriers have submitted proposals that provide their vision of an all-IP network. Today blog looks at AT&T’s vision of the future IP network.

AT&T has proposed to the FCC that there be a handful of major switching hubs created in the country. Every carrier would then send their voice traffic to these hubs to be sorted and handed back to the various terminating carriers. Their argument is that the whole idea behind the IP transition is that the network be made as efficient as possible; they are promoting this idea as the simplest network to implement.

But is it the most efficient? Over the years I’ve done a lot of traffic engineering, meaning that I’ve helped companies analyze where their voice traffic comes from and goes to. What I’ve seen is that approximately 80% of voice traffic for most companies stays in a relatively small circle of perhaps 60 miles. This distance can vary a bit by company depending on how far away they might be from a major metropolitan area, but this basic traffic rule seems to apply pretty much everywhere I’ve looked.

So let me first look at the practical application of what AT&T is proposing. One would have to assume that if there was only a handful of nationwide interconnection points that they would be put in the same places as the major internet hubs – Atlanta, Chicago, Washington DC, New York City, Dallas, etc. What this idea means is that states not near to those hubs—say Montana, Nebraska, Maine, etc. would have to ship all the voice traffic from their state to the nearest big hub and back again.

While it might be more efficient to have only a few hubs, it certainly would not be efficient from a transport perspective. Somebody has to pay for all of that transport to and from the main hubs, and that is the real purpose behind the AT&T proposal. Under their proposal carriers other than them would pay to have all traffic brought to these main hubs. That is a major change from the way the industry works today.

Today there are two different sets of transport arrangements—one for regulated telcos and one for competitive CLECs and other kinds of carriers. Regulated companies today provide joint trunking between each other. For instance, if there is a fiber route between AT&T and another telco, AT&T generally owns the part that is within their territory and the other telco owns the part in their own territory. Sometimes this is negotiated differently, but under this arrangement both sides bear some of the cost of carrying voice traffic.

CLECs and other competitive carriers have a different situation. CLECs are allowed by the Telecommunications Act of 1996 to establish a point of interface (POI) at any technically feasible spot within a LATA (or region). Once that point is established, the CLEC is responsible for all costs on their side of the POI and AT&T (or Verizon or CenturyLink) is responsible for the costs on the other side of the POI.

AT&T’s suggested new network gets rid of both of these arrangements and instead moves all of the points of interconnection to the small handful of locations, and in doing so shifts 100% of the cost of the transport onto other carriers.

In a further money grab, AT&T would (as the assumed owner of these large hubs) charge a fee to other carriers for handing traffic from carrier to another. These fees exist today and are called transit fees. But today transit fees are charged on a relatively small percentage of voice calls since there are no fees charged for all of the jointly-owned arrangements I described above. Instead, under this new arrangement there would be a transit fee charged for every call that is handed from one carrier to another.

AT&T’s proposal is ridiculous for several reasons. First, the transit fees are not cheap and they cost more today than the traditional access charges that the FCC has been trying to eliminate. So AT&T’s proposal would increase the cost of making voice calls. The proposal is also a blatant attempt to shove all of the cost of carrying voice traffic to somebody other than AT&T. And finally, it forces companies to carry calls a much greater distance than they go today. This likely will lower call quality and increases the danger of the voice network going down due to a fiber cut or other network problem.

There is a much simpler alternative to what AT&T is suggesting, which is to let carriers negotiate how and where they hand off traffic. There are already huge numbers of local and regional interconnection points in existence, most established to hand-off local traffic in the local market. Carriers should be free to continue to use arrangements that work and with which they are happy. Think of these local arrangements as voice peering arrangements and they quickly make technical sense. Nobody is going to be unhappy if local connections transition to IP instead of TDM. But making the IP transition doesn’t mean that the whole nationwide network has to be massively reorganized. That is far more inefficient and costly than letting carriers find their own solutions.

What Does the FCC Municipal Ruling Really Mean?

Scales-Of-Justice-12987500-300x300On the same day that the FCC passed its new net neutrality rules it also granted the petitions of Chattanooga TN and Wilson NC to allow them to expand their broadband networks. In both of these petitions the municipal network is surrounded by areas with poor or zero broadband, and residents of the area have been asking the two cities to extend their fiber network to serve them. But in both cases there were state laws that restricted the systems from expanding.

On the surface, the FCC ruling is only about these two specific cases, but the FCC has made it clear that they will entertain petitions by other jurisdictions that are being restricted by state laws. FCC Chairman Wheeler said in the ruling that there are several ‘irrefutable truths’ about broadband: “One is, you can’t say that you’re for broadband and then turn around and endorse limits on who can offer it. Another is that you can’t say, I want to follow the explicit instructions of Congress to remove barriers to infrastructure investment, but endorse barriers on infrastructure investment. You can’t say you’re for competition but deny local elected officials the right to offer competitive choices.”

While this ruling obviously gives great hope to many communities that don’t have broadband, there is still a long way to go until this ruling makes any practical difference in the market. There are already several parties that say they are going to challenge the ruling in court, so this issue will have to slog its way through the legal process before it goes into effect. The primary issue for a challenge is the FCC’s authority to overturn state restrictions on broadband.

The FCC is relying on language passed by Congress as part of the Telecommunications Act of 1996. In that law, section 706 of the Act says the following:

SEC. 706. ADVANCED TELECOMMUNICATIONS INCENTIVES.

(a) IN GENERAL-The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms) by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.

Further, Section 253 of the Act also included language that that bars states from enacting laws that prohibited ‘any entity’ from providing any interstate or intrastate telecommunications service. I’ve read that language from the Act a number of times and it certainly, on the surface, seems to give the FCC the authority to override the telecom laws in North Carolina and Tennessee that stopped the municipal systems from expanding. I’ve chatted with a few of the legislators over the years that helped to write the Telecom Act and they believed that when they wrote the Act that they were enabling municipal competition.

But as is often the case, a law that Congress passes isn’t fully effective until it’s been tested in court. In this case there have been two prior challenges to the law. A year after the passage of the Act, the City of Abilene challenged the Texas law that was a flat ban on municipal competition in the state, and lost before the FCC and then on appeal to the federal Court of Appeals for the DC Circuit. In 1997, Missouri also banned public entities from providing telecom services. Cities in the state challenged this at the FCC, lost and then appealed to the Eighth Circuit Court of Appeals, which unanimously ruled in cities’ favor. The Supreme Court took the case and let the Missouri law stand.

But the current cases are different than the two prior challenges. Both of those cases challenged an outright ban to competition. But in the new cases, the cities asked to be relieved from specific restrictions that stopped them from expanding their existing service beyond a defined footprint. In Tennessee, the City of Chattanooga is restricted to offering broadband in the same area where they serve electric customers. In Wilson, the City is restricted to the City boundaries. In both cases there are nearby customers just outside of those boundaries that each city wants to serve, and the ruling gives them the right to expand.

So this is going to be up to the courts to decide. Certainly one thing has changed since those two earlier rulings in that the FCC is now in favor of overturning states’ rights. In the earlier cases the FCC ruled against the petitioners, and so the courts started with that refusal in judging the cases. These kinds of cases usually boil down to whether the FCC has the authority to rule, which is not exactly the same thing as ruling about whether the challenger to the law was right or wrong. In the last challenges the courts said that the FCC had the authority to deny the municipal petitions. This time any challenges will begin with an FCC ruling in favor of the cities and we’ll just have to wait and see if that makes any difference in the courts.

Is it Time for New Telecom Law?

Capitol_domeA number of articles published since the recent election claim that both the House and Senate are ready to tackle telecom reform. There have been subcommittee meetings and discussions in both chambers about the topic for several years, but the idea hasn’t gone much yet past talking about it.

We certainly need telecom reform. After all, the Telecommunications Act of 1996 was passed in a very different time. That’s the year where AOL was still the largest ISP in the US and the year they introduced new modems that doubled dial-up speeds from 28 kbps to 56 kbps. 1996 was also the year that kicked off a decade of major investment by cable companies in HFC networks. There were 10 million cable modem customers by 2002, but in 1996 there were almost none. And DSL was just hitting the market in 1996 and didn’t get serious traction until a few years later.

Probably the biggest fault with the 1996 Act is that it treated telcos and cable companies very differently. The Act imposed significant unbundling requirements on the telcos while leaving the cable companies largely untouched. Perplexingly, this was done at a time when everybody in the industry knew that cable companies and HFC networks would soon become major players in both the telephone and high-speed data markets. In 1996 engineers and technologists understood that cable modems were going to soon be faster than DSL due to inherent advantages of coaxial cable over telephone cable. At the time everybody I knew just assumed that the cable company had good lobbyists.

But the Act did impose new rules on cable companies concerning programming. And it is clear that those rules are now growing quickly obsolete with the migration of video to the web. A revised Act certainly needs to address OTT video and the entire gamut of on-line video issues.

In essence the Act of 1996 created a whole lot of rules in silos – separate rules for the cable and telco industries. In doing so the Act almost completely ignored the burgeoning cellular industry. Now that people use every data on every kind of network it’s time for rules that are updated to recognize the new reality.

One of the stickiest points of implementing a new telecom law is going to be net neutrality. If the FCC does not soon put this issue to bed, then net neutrality will be one of the biggest issues of a re-written Telecom Act. Both chambers of Congress have set a goal to have a new Act enacted by the end of 2016. That means that the Republic lawmakers are still going to need the agreement from a Democratic president to get it signed, and that means the two sides have got to somehow come together on net neutrality.

Some of the problems we have today with net neutrality come directly from the 1996 Act. In that Act the Congress very clearly decided to not impose Title II regulations on the budding high-speed cable modem market. They decided to let cable companies and telcos undertake a different path, with the telco path much more regulated than the cable path. We ended up with a decade that required DSL unbundling and DSL resale, but with no attempts to make cable modems open to competition.

There are some parts of the 1996 Act that have been very effective and I hope they remain intact. For example, the Act set forth the concept that any company with the technical knowledge and financial wherewithal ought to be allowed to compete in the telco market. That has given rise to thousands of CLECs and there are numerous markets with vigorous telephone competition. One can hope that a new Act will make it clear that there ought to be competition in every telecom market, and with a lot more products than just telephone.

One can also hope that a new Act will get rid of the silos. It is time to stop having different rules for different parts of the industry. For example, the distinction between traditional voice services and VoIP needs to be eliminated, since in practical terms customers can’t tell the difference. There should not be different rules concerning the provision of cable TV service by different types of providers.

Certainly one of the biggest challenges Congress will face is what to do with the web and video. Hopefully a new Act is forward looking. There is convergence everywhere in the industry and people want to partake of telecom services from any platform using a plethora of devices. The Congress needs to make it as okay to watch a movie on your cellphone as it is to watch it on your TV. The next Act needs to look at programmers as hard as it looks at service providers.

Rewriting the telecom Act is a massive undertaking because every lobbyist from the telecom industry is going to have ideas that they think must be included. And there will be plenty of naysayers and voices from outside the industry arguing on the side of the public. The problem is that there is no one right answer. I think if you sent twenty panels of industry experts off to list what should be in a new Act that you’d get twenty different answers.