A New National Broadband Plan?

Senator Edward Markey (D-Mass) introduced a bill that would require that the FCC create a new National Broadband Plan by July 2021. This plan would lay out the national goals needed for broadband going forward and also provide an update on how the COVID-19 crisis has impacted Internet access. I am not a big fan of the concept of a national plan for many reasons.

Can’t Trust FCC Data. The FCC would base any analysis in a new plan on the same flawed data they are using for everything else related to broadband. At this point, the best description of the FCC’s broadband data is that it is a fairy tale – and not one with a happy ending.

Gives Politicians Talking Points rather than Action Plans. A national broadband plan gives every politician talking points to sound like they care about broadband – which is a far cry from an action plan to do something about broadband. When politicians don’t want to fix a problem they study it.

Makes No Sense if Broadband is Unregulated. Why would the government create a plan for an industry over which the government has zero influence? The FCC has gifted the broadband industry with ‘light-touch regulation’ which is a code word for no regulation at all. The FCC canned Title II regulatory authority and handed the tiny remaining remnant of broadband regulation to the Federal Trade Commission – which is not a regulatory agency.

The Last National Broadband Plan was a Total Bust. There is no need for a National Broadband Plan if it doesn’t include a requirement that the FCC should try hard to tackle any recommendations made. Almost nothing from the last broadband plan came to pass – the FCC and the rest of the federal government stopped even paying lip service to the last plan within a year after it was published. Consider the primary goals of the last National Broadband Plan that were to have been implemented by 2019:

  • At least 100 million homes should have affordable access to 100/50 Mbps broadband. Because the cable companies implemented DOCSIS standards in urban areas, more than 100 million people now have access to 100 Mbps download speeds. But only a tiny fraction of that number – homes with fiber, have access to the 50 Mbps upload speed goal. It’s also impossible to make a case that US broadband is affordable – US broadband prices are almost double the rates in Europe and the far East.
  • The US should lead the word in mobile innovation and have the fastest and most extensive wireless network of any nation. US wireless broadband is far from the fastest in the world – our neighbor Canada is much closer to that goal than is the US. Everybody acknowledges that there are giant areas of rural America without good wireline broadband, but most people have no idea that cellular coverage is also miserable in a lot of rural America.
  • Every American Community should have gigabit access to anchor institutions such as schools, libraries, and government buildings. We probably came the closest to meeting this goal, at least for schools, and over 90% of schools now have gigabit access. However, much of that gain came through poorly-aimed federal grants that paid a huge amount of money to bring fiber to anchor institutions while ignoring the neighborhoods around them – and in many cases, the fiber serving government buildings is legally blocked from being used to help anybody else.
  • Every American should have affordable access to robust broadband and the means and the skills to subscribe. A decade after the last National Broadband Plan there are still huge numbers of rural homes with no broadband, or with broadband that barely functions. Instead of finding broadband solutions for rural America, we have an FCC that congratulates itself each year for being on the right trajectory for solving the broadband gap.
  • To ensure that America leads in the clean energy economy, every America should be able to use broadband to track and manage their real-time energy consumption. I can’t come up with anything other than a facepalm for this goal.

As hard as I try, I can’t think of even one reason why we should waste federal dollars to develop a new national broadband plan. Such a plan will have no teeth and will pass out of memory soon after it’s completed.

It’s Hard to Like AT&T

Over the last year, I’ve said some nice things about AT&T. It was nice to see AT&T wholeheartedly embrace their commitment to build fiber past 12 million homes as they had promised as part of the conditions of buying DirecTV. In the past, they might have shrugged that obligation off and faked it, but they’ve brought fiber to pockets of residential neighborhoods all over the country. It seemed that they were unenthusiastic about this requirement at first, but eventually embraced when somebody at the company realized that new fiber could be profitable.

I also thought that AT&T was by far the most responsible wireless carrier in terms of not ridiculously exaggerating the supposed coming of 5G, although they finally gave in to their marketing arm and started labeling the latest version of 4G LTE as if it is 5G.

But overall, AT&T is hard to like as a company. AT&T puts stock prices and Wall Street above everything else and is probably as good of an example as any of large corporations gone amuck. AT&T clearly values the bottom line over employees, customers, and the public good.

If you look back a few years, you can find numerous times where AT&T lobbied against net neutrality and broadband regulation. The company repeatedly said that unfair regulation was stopping them from making capital investments and promised that if the government would lift regulations that they would invest more. The FCC handed them even more than they had publicly asked for when the agency eliminated Title II regulation along with net neutrality.

AT&T didn’t react to the end of regulation by increasing capital investment as promised. They instead laid off a lot of employees and in the year after net neutrality was eliminated spent about the same for capital – only due to big spending on their sole-source First Net contract. Then in 2019, capital spending dropped by $1.9 billion and they are planning to cut an additional $3 billion this year. The drop in capital spending is hard to reconcile with the supposed 5G race that we are supposedly waging against China.

AT&T also joined with other large corporations and publicly pledged that if the government would lower the corporate tax rate that they’d hire thousands of new high-paying tech jobs and again promised to increase capital spending.  The unions that work for AT&T claim that since the enactment of the 2017 tax act that AT&T has laid off nearly 38,000 employees and are down to under 248,000 employees. Rather than investing in new capital and people, AT&T has been spending billions to buy back their stock to help keep stock prices high. The company used excess cash to buy back almost $2 billion of its stock in the fourth quarter of 2019 and had announced $4 billion of additional buybacks this year that was just recently put on hold due to the COVID-19 pandemic.

Meanwhile the company significantly raised consumer prices. There were moderate rate increases for broadband and cellular customers, and larger ones for video customers. But the biggest increases came when AT&T ended promotional pricing on video and expected customers to pay full price at the end of contracts. This move raised video rates significantly and led 4.1 million customers to drop DirecTV, U-verse TV, and the online AT&T TV in 2019. The company has said they were glad to be rid of low-margin customers.

In the summer of 2019, AT&T was sued in a class-action suit alleging that the company was selling real-time customer location data for cellular customers, even though the company had repeatedly told customers that they were not doing so. A series of reports by Motherboard showed that AT&T, Sprint, and T-Mobile had continued selling customer data even after promising to stop the practice.

AT&T recently made headlines by dropping data caps during the COVID-19 crisis. What’s worth noting is that the company has perhaps the most restrictive data caps in the country, particularly on DSL and fixed-wireless. The data caps at AT&T are clearly in place to make money over and above any rates promised to subscribers. Hopefully, there will be a huge public outcry when the company quiets puts the data caps back in place.

During all of the above, the company has significantly increased compensation for its CEO Randall Stephenson. His salary in 2019 was more than $32 million, up from $29 million the year before. However, much of that number is based upon stock bonuses, and shares of AT&T closed under $29 last week, down from over $39 at the start of this year. The company announced a new CEO last week and we’ll have to wait to see how he is compensated.

It’s honestly hard to say much nice about AT&T these days. I think back to when I worked at the company pre-divestiture, when the company made a steady, but unspectacular monopoly profit. The company and employees in those days were proud of the US communications network which was second to none in the world. It’s been clear for a long time that none of that old Ma Bell thinking is left in the company that now is driven to maximize stock price over everything else.

Reconsidering Brand X

Jon Brodkin recently wrote in Ars Technical that Supreme Court Justice Clarence Thomas has reconsidered and regrets his original position on the Brand X decision in 2005. The Brand X decision supported the FCC’s decision in the early 2000s to classify broadband as an information service.

There was a government push during the Bush administration to protect the newly burgeoning broadband industry. The FCC, and federal politicians all thought correctly that broadband was going to become a huge economic driver of the economy. This story was pushed by the lobbyists of both the cable companies and the big telcos, because at that time the broadband from both telcos and cable companies was functionally equivalent with similar speeds. At that time, the US was in front of the rest of the world in broadband adoption and the unified story out of Washington DC was that overregulation might squelch the new broadband industry.

The primary fear in Washington DC (and among lobbyists) was that states were going to regulate broadband. At the time there were already investigations by many state regulatory commissions about regulating broadband in the same manner that telephone service was already regulated. Since broadband was regulated under FCC Title II, state regulators felt they had the full authority to also regulate broadband prices and the actions of ISPs.

The Brand X decision was the culmination of early FCC rulings and ensuing court cases. In 2000 the US Court of Appeals for the Ninth Circuit had ruled in AT&T Corp versus the City of Portland that broadband services are subject to Title II common carrier regulation, including tariff, interconnection and wholesale access obligations. The FCC reacted to the City of Portland ruling by declaring that cable modem service is an ‘information service’ exempt from Title II regulation. The Ninth Circuit reversed the FCC’s ruling based upon the City of Portland Ruling, thus leading to the appeal to the Supreme Court that resulted in Brand X.

Brand X was an interesting decision. The Supreme Court said that the FCC was free to classify broadband as either an information service or as a telecommunications service that would be regulated under Title II. The FCC only had to provide a rationale for any decision they reached.

Brand X has been the source of the mess that we’ve had at the FCC since then. Each subsequent FCC can invent a new rationale and reclassify broadband. The Wheeler FCC used Brand X to reclassify broadband under Title II and the Pai FCC used Brand X to go in the opposite direction.

What Justice Thomas realized is that the ruling gives federal agencies regulatory powers separate from Congress. An agency like the FCC needs to only concoct a good story and can then ignore laws passed by Congress. In the case of broadband, Congress has clearly conveyed that they want the FCC to monitor and regulate broadband, and yet Brand X gave the agency cover to do otherwise. Brand X is now being cited by other federal agencies defending decisions they make and is now the law of the land.

As Brodkin points out in his article, Brand X also ties the hands of courts, giving even more power to federal agencies to do whatever they want. The courts upheld the appeal of the FCC’s decision to kill net neutrality. In that decision Circuit Judge Patricia Millett said that the FCC’s rationale for killing Title II regulation was “unhinged from the realities of modern broadband service”, and yet she felt unable to rule against the FCC due to Brand X.

Justice Thomas’s change of heart doesn’t change anything for now. At best it means that if another case hits the Supreme Court testing the ability of a federal agency to hide behind Brand X that he might be ready to vote against it.

The other message that comes from the misuse of Brand X is that Congress has a responsibility to provide its intentions to agencies like the FCC. It’s somewhat unbelievable that Congress hasn’t taken any action concerning broadband since the days when we all were using dial-up. We’re long overdue for an update the Telecommunications Act of 1996, and Congress could reset the meter on many of the decisions the FCC is making. Unfortunately, that doesn’t look to be coming any time soon.

AT&T Cutting Capital Spending

AT&T announced it will be reducing capital spending in 2020. That news is significant for several reasons. AT&T’s capital plans are always big news because they have the largest annual capital budget of the big telcos and cable companies. The AT&T capital budget for 2019 was $23 billion. It’s big news when they are only planning on spending $20 billion in 2020.

It’s worth noting that some of AT&T’s capital spending is not being done with their own money. In 2020 they will be receiving the final installment of $428 million for the sixth year of the CAF II program. AT&T recently announced that they are 75% finished the construction of the FirstNet network for first responders, so the company should be receiving the last 25% of the $6.5 billion of federal funding next year. In future years AT&T will likely be collecting some significant share of the recently announced $9 billion 5G Fund paid out of the Universal Service Fund to bring better cellular service for the most rural parts of the country.

There are ripples throughout the telecom sector when AT&T increases or decreases its capital budget. For example, a significant slash of AT&T spending has a significant impact on the various major electronics vendors that will now have to lower their revenue expectations for 2020. While the whole telecom sector is busy, this still means lower revenues for the major telecom vendors.

This reduction in AT&T spending makes me wonder about the 5G war we are supposedly having with China. If you listen to the carrier-driven rhetoric in Washington DC, you would think that there is an urgent need to spend huge amounts of capital immediately on 5G infrastructure. It was that rhetoric that gave the FCC cover to double the size of the recently announced 5G Fund to $9 billion.

It’s hard to imagine that AT&T would be cutting its capital budget if 5G implementation was truly a national priority and a crisis. The truth about 5G can be seen by how the cellular carrier CEOs communicate with their stockholders – the big carriers are struggling right now to find an immediate business case that justifies huge spending on 5G. It turns out that much of the public isn’t willing to pay more for faster cellular broadband. Every carrier has a list of future benefits from 5G, but there are no applications that will create the quick revenues that would prompt AT&T to keep spending capital at historic levels.

This is not to say that AT&T and the other wireless carriers aren’t spending money on 5G – but AT&T is fitting 5G expansion into its shrinking capital budget. Contrary to everything that the carriers have been telling Washington DC, the carriers are not planning on spending massive amounts of their own money on 5G just yet.

Lower capital spending by AT&T also takes the wind out of the sails of the FCC’s argument that net neutrality was holding back the big ISPs from making capital expenditures. This was the primary reason cited by FCC Chairman Ajit Pai for killing net neutrality and Title II regulation. He argued that overregulation was stopping the big carriers from investing, and he’s still making this same argument today to justify his decision. If Chairman Pai was right, we should be seeing AT&T increase capital spending rather than cutting it.

The idea that there is a direct correlation between capital spending and regulation was always fictional. Big ISPs spend money on capital that they think will increase future returns – it’s hard to imagine regulations that would stop the big companies from pursuing good business ideas. AT&T’s capital spending is much more related to what its competitors like Verizon, T-Mobile, and Comcast are doing. When the FCC killed Title II regulation and net neutrality, the agency was removing the last regulations major from a broadband industry that was already barely regulated. It’s hard to think that change had much impact in the Board room or the business development groups at the big ISPs.

It’s worth noting that AT&T has now joined many other big US corporations and is using free cash to buy back its own stock. The company already announced plans to buy back $4 billion of its own stock in the first quarter of 2020 – retiring roughly 100 million shares. I’m sure that decision had some impact on the capital budget. This might mean that AT&T upper management values stock buy-backs to increase earnings per share more than they value capital spending.

Court Upholds Repeal of Net Neutrality

The DC Circuit Court of Appeals ruled on the last day of September that the FCC had the authority to kill Title II regulation and to repeal net neutrality. However, the ruling wasn’t entirely in the FCC’s favor. The agency was ordered to look again at how the repeal of Title II regulation affects public safety. In a more important ruling, the courts said that the FCC didn’t have the authority to stop states and municipalities from establishing their own rules for net neutrality.

This court was ruling on the appeal of the FCCs net neutrality order filed by Mozilla and joined by 22 states and a few other web companies like Reddit and Etsy. Those appeals centered on the FCC’s authority to kill Title II regulation and to hand broadband regulation to the Federal Trade Commission.

Net neutrality has been a roller coaster of an issue. Tom Wheeler’s FCC put the net neutrality rules in place in 2015. An appeal of that case got a court ruling that the FCC was within its power to implement net neutrality. After a change in administration, the Ajit Pai FCC killed net neutrality in 2017 by also killing Title II regulation. Now the courts have said that the FCC also has the authority to not regulate net neutrality.

The latest court order will set off another round of fighting about net neutrality. The FCC had quashed a law in California to introduce their version of net neutrality and this order effectively will allow those California rules to go into effect. That battle is far from over and there will be likely new appeals against the California rules and similar rules enacted in Washington. It wouldn’t be surprising to see other states enact rules in the coming year since the net neutrality issue is overwhelmingly popular with voters. It’s possibly the worst of all worlds for big ISPs if they have to follow different net neutrality rules in different states. I think they’d much prefer federal net neutrality rules rather than different rules in  a dozen states.

The reversal of net neutrality rules only went effect in June of 2018 and there have been no major violations of the old rules since then. The ISPs were likely waiting for the results of this court ruling and also are wary of a political and regulatory backlash if they start breaking net neutrality rules. The closest thing we had to a big issue was mentioned in this ruling. Verizon had cut off broadband for firemen in California who were working on wildfires after the firemen exceeded their monthly data caps. It turns out that wasn’t a net neutrality violation, but rather an enforcement issue on a corporate cellular account. But the press on that case was bad enough to prompt the courts to require the FCC to take another look at how ISPs treat public safety.

This issue is also far from over politically. Most of the democratic presidential candidates have come out in favor of net neutrality and if Democrats win the White House you can expect a pro-net neutrality chairman of the FCC. Chairman Pai believes that by killing Title II regulation that a future FCC will have a harder time putting the rules back in place. But the two court appeals have shown that the courts largely believe the FCC has the authority to implement or not implement net neutrality as they see fit.

While net neutrality is getting all of the press, the larger issue is that the FCC has washed its hands of broadband regulation. The US is the only major economy in the world to not regulate the broadband industry. This makes little sense in a country where are a large part of the country is still controlled by the cable/telco duopoly, which many argue is quickly becoming a cable monopoly. It’s easy to foresee bad behavior from the big ISPs if they aren’t regulated. We’ve seen the big ISPs increase broadband rates in the last few years and there is no regulatory authority in the country that can apply any brakes to the industry. The big ISPs are likely to demand more money out of Google, Facebook and the big web companies.

The FCC handed off the authority to regulate broadband to the Federal Trade Commission. That means practically no regulation because the FTC tackles a single corporation for bad behavior but does not establish permanent rules that apply to other similar businesses. The FTC might slam AT&T or Comcast from time to time, but that’s not likely to change the behavior of the rest of the industry very much.

There is only one clear path for dealing with net neutrality. Congress can stop future FCC actions and the ensuing lawsuits by passing a clear set of laws that either implements net neutrality or that forbids it. However, until there is a Congress and a White House willing to together implement such a law this is going to continue to bounce around.

The big ISPs and Chairman Pai argued that net neutrality was holding back broadband investments in the country – a claim that has no basis when looking at the numbers. However, there is definitely an impact in the industry from regulatory uncertainty, and nobody is benefitting from an environment where subsequent administrations alternately pass and repeal net neutrality. We need to resolve this once way or the other.

Will Congress Be Forced to Re-regulate Broadband?

Last year the current FCC largely deregulated broadband. They killed Title II regulation and also handed off any remaining vestiges of broadband regulation to the Federal Trade Commission. The FCC is still left with broadband-related tasks associated with broadband. For instance, they still have to track broadband adoption rates. They are still required to try to solve the rural digital divide. They still approve electronics used to provide broadband. But this FCC has killed its own authority to make ISPs change their behavior.

I wrote a blog a month ago talking about the regulatory pendulum. Industries that become dominated by monopolies are always eventually regulated in some manner – governments either proscribe operating rules or else break up monopolies using antitrust laws. One only has to look at the conversation going on in Washington (and around the world) about somehow regulating Facebook, Google and other big web platforms to see that this is inevitable. Big monopolies always grow to trample consumers and eventually the public demands that monopoly abused be curbed.

It’s only been a little over a year since the FCC deregulated broadband and there are already topics looming that beg for regulation. There is nothing to stop this FCC or a future FCC from reintroducing regulation – the courts already gave approval for regulating using Title II. Regulation can also come from Congress – which is the preferred path to stop the wild swings every time there’s a new administration. Even the ISPs would rather be regulated by Congress than to bounce back and forth between FCCs with differing philosophies.

Over half of the states have introduced bills that seek to regulate data privacy. Consumers are tired of data breaches and tired of having their personal information secretly peddled to the highest bidder. A year ago the California legislature passed data rules that largely mimic what’s being done in Europe. The Maine legislature just passed rules that are even more stringent than California in some ways.

It’s going to be incredibly expensive and complicated for web companies to try to comply with rules that differ by state. Web companies are in favor of one set of federal privacy rules – the big companies are already complying with European Union rules and they’ve accepted that providing some privacy to consumers is the cost of doing business. Privacy rules need to apply to ISPs as much as they do to the big web companies. Large ISPs are busy gathering and selling customer data in the same manner as web companies. Cellular companies are gathering and selling huge amounts of customer data.

There are other regulatory issues that are also looming. It seems obvious that if the administration and the Senate turn Democratic that one of their priorities will be to reimplement net neutrality. The ISPs are already starting to quietly violate net neutrality rules. They are first tackling things that customers like such as sponsored video as part of a cellular plan – but over time you can expect the worst kind of abuses that were the reasons behind net neutrality rules.

I think that broadband prices are going to become a major issue. The big ISPs have all acknowledged that one of the few tools they have to maintain earnings growth is to raise broadband prices. Cord cutting is accelerating and in the first quarter the ISPs lost cable customers at a rate of 6% annually. Cord cutting looks like it’s going to go much faster than the industry anticipated as millions of customers bail on traditional cable each quarter. The pressure to raise broadband rates is growing.

We’ve already seen the start of broadband price increases. Over the last few years the ISPs have been raising rates around the edges, such as increasing the monthly price for a broadband modem. More recently we’ve seen direct broadband price increases such as the $5 rate increase for bundled broadband by Charter. We’re seeing Comcast and other ISPs start billing people for crossing data caps. Most recently we know that several ISPs are talking about significantly curtailing special rates and discount for customers – eliminating those discounts probably equates to a 10% – 15% rate increase.

At some point, the FCC will have to deal with rising broadband rates. Higher broadband rates will increase the digital divide as households get priced out from affording broadband. The public will put a lot of pressure on politicians to do something about ISP prices.

Deregulating broadband at a time when a handful of ISPs have the vast majority of broadband customers was one of the most bizarre regulatory decisions I’ve ever seen. All monopolies, regardless of industry need to be regulated – we’ve known this for over a hundred years. It’s just a matter of time before Congress is forced to step up and re-regulate broadband. It may not be tomorrow, but I find it highly unlikely that broadband will still be deregulated a decade from now, and I expect it much sooner.

Why is the FCC Still Spinning Net Neutrality?

Chairman Ajit Pai and several other FCC Commissioners are still sticking with the story that regulation and net neutrality were quashing capital spending and innovation in the industry. This was the primary argument that justified killing net neutrality and gutting Title II regulation. Pai claimed that net neutrality was disrupting the big ISPs so much that they were reining in capital spending. Chairman Pai further claimed that killing regulation would free the big ISPs to expand their networks and to improve broadband coverage – he’s also repeatedly argued that without regulation that ‘the market’ would solve the rural broadband divide. Chairman Pai launched this story on his first day as Chairman and hasn’t let up – even now, over a year after the FCC successfully killed net neutrality and Title II regulation.

I find this to be unusual. Normally, when somebody in the industry wins a regulatory battle they quietly move on to the next issue, but at almost every public speaking opportunity the Chairman is still repeating these same talking points. I’ve been thinking about why Chairman Pai would keep harping on this argument long after he successfully killed net neutrality. I can think of a few reasons.

The Lawsuits. The FCC is probably concerned about the lawsuits challenging net neutrality. That order used some legal gymnastics in the FCC argument to kill Title II regulation. So perhaps Chairman Pai is continuing to make these same arguments as a way to let the courts know that keeping Title II regulation dead is still the number one priority of this FCC. I’m sure that if the courts challenge the FCC order that the agency will appeal, and so perhaps he continues to make the same arguments in anticipation of that coming court battle.

5G Deployment. In a very odd back-door way, the FCC has been using the net neutrality argument to grease the skids for an unregulated roll-out of 5G. The FCC’s message couldn’t be simpler: “all regulation bad / 5G and innovation good”.

I doubt that the average American understands the magnitude of what this FCC did when they killed Title II regulation. The agency basically killed its own authority to regulate what is probably the most important product it has ever regulated. Broadband is vital to both the economy and to people’s everyday lives. Yet this FCC thinks that their best regulatory role is to not regulate the industry in any manner. That means not regulating the many issues covered by net neutrality. It means not caring about consumer privacy on the web. It means not being concerned with runaway price increases and data caps. Killing Title II regulation means that future FCCs might have a hard time trying to reintroduce any regulation of broadband. The FCC handed the keys of the broadband industry to the monopoly ISPs and told them to run the industry as they see fit.

At the strong urging of the big wireless companies, this FCC wants to also make sure there are no restraints on 5G. It seems the only parties the FCC wants to regulate are those that might create roadblocks for 5G, such as cities that control rights-of-way.

Congress. Congress has the ability to permanently resolve the Title II and net neutrality battle. Congress could codify the current deregulated state-of-affairs or they could put Title II and net neutrality permanently back on the books. In fact, it’s the lack of Congressional action that led the FCC to kill net neutrality – they would much have preferred that Congress did it. But the Congress hasn’t undertaken any policy initiatives in the telecom industry since the Telecommunications Act of 1996, when most of us still were using dial-up.

There has been a lot of recent discussion in Congress on telecom issues and perhaps one of the reasons that Chairman Pai continues to lobby against net neutrality is to keep that position in front of Congress. However, it seems unlikely that any significant regulation is going to come out of a split Congress.

No Better Argument? Finally, and what is my favorite theory, perhaps the FCC doesn’t have any better argument about why they should be killing regulation. They’ve had years to come up with a story that the American people will buy, and the best they’ve come up with is that killing regulation will unleash innovation.

I think the FCC is afraid to touch the policy issues that the public really cares about. People in rural areas are adamant that the FCC finds a way to get them real broadband. The vast majority of broadband users are worried about being hacked and are worried about how the big ISPs are spying on them and selling their data. Everybody is concerned about the talk on Wall Street that encourages the big ISPs to significantly jack up rates. A large majority of the country cares about net neutrality and an open Internet. I can see why the FCC would rather stick with their story about how killing regulation unleashes innovation – because they are afraid of opening Pandora’s box to let all of these other issues into the open.

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.

Deregulating Text Messaging

“This is one of the oddest dockets I’ve ever seen”. That’s roughly quoting myself several times over the last year as I read some of the things that the current FCC is up to. I find myself saying that again as I read the FCC’s recent docket that proposes to classify SMS text messaging as a Title I information service. Their stated reason for the reclassification is that it will make it easier to fight text message spam, and that stated reason is where the FCC loses me.

Text message spam is a real thing and I’ve gotten some annoying text spam over the last year and I’d sure hate to see my texting inbox get polluted with crap like my email inbox. However, I doubt that you’ll find any technologist in the industry that will tell you that the way to fight spam of any kind is by waving a magic wand and changing the way that something is regulated. The way you fight spam is to put barriers in place to detect and block it – and that is something that only the carriers that control the flow inside of a communications path can do. It’s the solution that the FCC themselves just pushed recently to try to stop robocalling – by demanding that the telephone industry find a solution.

Yet here sits a docket that blindly declares that reclassifying texting as an information service will somehow dissuade bad actors from sending spam text messages. I’m pretty sure that those bad actors don’t really care about the differences between Title I and Title II regulation.

One of the interesting things about this filing is that past FCCs have never definitively said how texting is regulated. Over the years the industry has come to assume that it’s regulated under Title II just like a telephone call – because functionally that’s all a text message is, a telephone call made using texted words rather than a voice call.

To some extent this docket is the first time the FCC has every officially addressed the regulatory nature of text messaging. In the past they made rulings about texting that implies a regulatory scheme, but they never have officially put texting into the Title II category. Now they want to remove it from Title II authority – the first time we’ve ever been told definitively that text is already a Title II service. Here are some of the past FCC treatment of the regulatory nature of text messages:

  • In 1994 the FCC ruled that systems that store and forward telecommunications messages, like SMS texting are ‘interconnected’ services, which at that time were clearly regulated by Title II. But there was no specific statement at the time that texting was a Title II service.
  • In the Telecommunications Act of 1996 the FCC defined a telecommunications service for the first time – which was defined as a service that uses telephones and the PSTN to communicate. The 1996 Act didn’t mention texting, but it clearly fits that definition.
  • In 2003 the FCC declared that text messages were ‘calls’ when the agency implemented the Telephone Consumer Protection Act, which was the same treatment given to other Title II telephone services.
  • In 2007 the FCC included texting as one of the Title II services for which cellular carriers must allow roaming.
  • In 2011 USAC began enforcing the inclusion of text revenues as a Title II interstate revenues that used to assess monies owed to the Universal Service Fund.

All of these regulatory actions implied that texting is a Title II service, although that was never explicitly stated until now, when the FCC wants to reclassify it to be an information service. Reclassification doesn’t pass the ‘quack like a duck test’ because telephone calls and anything like them fit squarely as Title II services. Texting is clearly a type of telephone call and any person on the street will tell you that a text message from a cellphone is just like a phone call using text rather than voice.

Unfortunately, the only conclusion I can draw from this docket is that the FCC has an ulterior motive since their stated reasons for wanting to reclassify texting are pure bosh. There seem to be no obvious reasons for the reclassification. There are no parties in the industry, including the cellular carriers, that have been clamoring for this change. Further, the change will have the negative impact of further shrinking the Universal Service Fund – and expanding rural broadband is supposedly the number one goal of this FCC.

This is disturbing for somebody who has followed regulation for forty years. By definition, regulatory agencies are not supposed to push for changes without first opening an industry-wide discussion about the pros and cons of any suggested changes. Regulators are not supposed to hide the motives for their ideas behind false premises.

The only justification for the FCC’s proposed ruling that I can imagine is that the FCC wants to kill all Title II regulation. It seems they are on a mission to eliminate Title II as a regulatory category to make it hard for future FCC’s to reregulate broadband or to bring back network neutrality.

If that’s their real agenda, then we ought to have an open discussion and ask if we ought to eliminate Title II regulation – that’s how it’s supposed to work. The rules establishing the FCC call for a process where the agency floats new ideas to the world so that all interested parties can weigh in. The FCC is not ready to face the backlash from openly trying to kill Title II regulation, so instead of an open debate we are seeing a series of ridiculous attempts to chip quietly away at Title II regulation without overtly saying that’s their agenda.

In my opinion the time when we ought to stop regulating telephone services is getting closer as technology changes the way that we communicate. But that time is not here and there is still room for monopoly abuse of text messaging. There are a number of examples over the last decade where carriers have blocked text messages – sometimes when they disagreed with the content.

I’m disappointed to have an FCC that is using regulatory trickery to achieve their agenda rather than having a bold FCC that is willing to have the public debate that such a decision deserves. Telephone and related services like text messaging were regulated for many reasons and we ought to examine all of the pros and cons before deregulating them.

I’m guessing that this FCC wants to kill Title II regulation without ever having to tell the public that’s their agenda. I think they want to deregulate text messaging and then point to that deregulation as the precedent to justify deregulating all Title II services without having to suffer to criticism that is sure to come when the public realizes this closes the door on net neutrality.

Now That Net Neutrality is Dead . . .

The FCC’s net neutrality rules expired last week. There is a process for FCC rule changes that require the agency to take steps like publishing their decisions in the Federal Register, and all of the administrative steps have been taken and the old rules expired.

The press and social media made a big deal about the end of the administrative process, but the issue is a lot more complicated than that and so today I’ll look at what happens next. Officially the big ISPs are now free to make changes in their policies that were prohibited by net neutrality, but for various reasons they are not likely to do so.

First, 22 states filed a lawsuit against the FCC challenging various aspects of the FCC’s ruling. That suit now resides at the US Circuit Court of Appeals in Washington DC. The big ISPs are unlikely to make any significant changes in policies that might be reversed by the courts. In the past the whole industry has waited out the appeals process on this kind of lawsuit because the Courts might find reason to reverse some or all of the FCC’s actions. The ISPs aren’t legally obligated to wait out the lawsuits, but I’m sure their legal counsel is telling them to do so.

Interestingly, the judges hearing this case also heard the previous appeals associated with net neutrality and are familiar with the issues. This court previously had ruled that the FCC had the authority to use Title II regulation as the way to regulate broadband and net neutrality. I’ve not read any predictions yet of how the courts might rule in this case. But if the FCC had the authority to institute Title Ii authority I would think they also have the authority to reverse that decision.

The big ISPs also have to worry about Congress. The Senate voted to reverse the repeal of Title II regulations as part of the Congressional Review Act (CRA) that was used to pass the last budget. The issue is not currently slated for a vote in the House of Representatives and it seems clear that there are not enough votes there to reverse the FCC’s decisions. But it’s only four months until the next election and there is a chance that the Democrats will win a majority of seats. One would think that net neutrality would be on the list of legislative priorities for a Democratic House since polls show over an 80% public approval of the issue.

A vote by Congress to implement net neutrality would end the various court cases since the new laws would supersede any actions taking by the FCC on prior rules. It’s been the lack of Congressional action that has been the underlying reason for all of the various FCC actions and lawsuits on the topic over the years – Congress can give the FCC specific direction and the authority to enforce whatever Congress wants done.

There is another wild card in the mix in that numerous states have either passed rules concerning net neutrality or are contemplating doing so. Most of the state laws would restrict the award of state telecom business to vendors that adhere to net neutrality. My guess is that these lawsuits will make it through appeals because States have the authority to determine their purchasing preferences. But realistically these laws might backfire since most ISPs that are large enough to tackle state telecom needs are likely to be in violation of net neutrality. States implementing these rules might find themselves unable to find a suitable telecom vendor.

The most direct state net neutrality law comes from Washington. Their law, which went into effect automatically when the FCC net neutrality laws expired, prohibits ISPs from blocking or throttling home landline or mobile data. It also specifically prohibits paid prioritization.  An even more stringent bill was near passage by the California legislature. As I was writing this blog it appears that AT&T lobbyists were successful in derailing that legislation. It’s likely that we’ll see more actions from state legislatures in the coming year.

The FCC stated in the Title II repeal order that States were not allowed to override the FCC order. But as we’ve seen many times in the past at the FCC, there is a constant battle between federal authority and state’s rights, .and disputes of this kind are almost always resolved by the courts. There is a long history of battles between FCC authority and State’s rights and over the years both sides have won battles.

The big ISPs hate uncertainty and each of these paths provide a way to reinstate net neutrality. It seems unlikely that the big ISPs will be aggressive with changes until they get a better feel for the resolution of these various challenges to the FCC. Some of the ISPs already had practices that skirted net neutrality rules such as zero-rating of their own content. It’s seems likely that the ISPs will continue to push around the edges of net neutrality, but it seems unlikely that the ISPs will be more aggressive with implementing products and practices that are clear net neutrality violations. The bottom line is that the end of the FCC administrative process was only the beginning of the process and we still have a way to go to get a clear resolution of the issue.