About the FCC

I have probably averaged a blog a week over the years talking in some manner about the FCC. I thought today I’d discuss a few basic facts about the industry that might help a non-regulatory person understand how they operate.

The FCC’s mission statement is straightforward – the stated mission of the FCC is to ensure that the American people have available—at reasonable cost and without discrimination—rapid, efficient, nation- and worldwide communication services, whether by radio, television, wire, satellite, or cable.

The FCC is an independent agency, meaning it’s not under the direct control of either Congress or the White House. With that said, each new administration gets to select at least a few FCC commissioners, but can’t have more than three of the five commissioners from the same party as the president.

Since 2009 the FCC has been funded through regulatory fees it collects from various industry sources such as annual licenses on cable TV providers, long distance providers, or owners of spectrum. The budget for the year just started on October 1 is $322 million. Starting this year, none of the monies collected from spectrum auctions can count towards the FCC’s budget. The Ray Baum Act that authorized the FCC earlier this year is the first FCC reauthorization bill since 1990. The agency could theoretically operate indefinitely without reauthorization as long as it generates enough fees to cover its budget.

The FCC has a lot of flexibility in determining how it will regulate the various industry. Their authority is only limited by specific rules established by Congress, such as the Communications Act of 1934 that created the FCC or the Telecommunications Act of 1996. Congressional bills that change FCC regulations are somewhat rare, but Congress may pass a number of bills in any year that change some specific aspect of operating the agency. In this past year there were bills that did such things as change the reporting requirements by educational broadcast stations, eliminated some obsolete reports that were prepared for Congress, and established the office of Inspector General at the FCC.

The FCC can establish new rules for regulating the various industries as long as those rules don’t conflict with past Congressional mandate. Many of the challenges that are filed against new FCC decisions question if the FCC’s actions are in conflict with the authority granted to the agency by Congress. The extent and limitations of the FCC’s authority has been defined over the years by a series of court decisions.

The FCC’s rules are encapsulated into seven sections, called ‘Titles’. The FCC rules that govern the telecom industry are included in a few of the Titles:

  • Title II regulates Common Carriers that include telephone companies, CLECs, wireless providers and long-haul fiber networks. Some of the regulation in Title II must be coordinated with a Joint Board, that includes both FCC and state regulators.
  • Title III regulates broadcasting of radio and television.
  • Title VI regulates cable TV communications, including Video programming provided by telephone companies.

The day-to-day functions of the FCC are carried out by 7 bureaus – the Consumer and Governmental Affairs Bureau, the Enforcement Bureau, the International Bureau, the Media Bureau, the Public Safety and Homeland Security Bureau, the Wireless Telecommunications Bureau and the Wireline Competition Bureau.

Most FCC rules are adopted using a process known as ‘notice and comment’ that are defined in Title I. The FCC will issue various forms of proposed rules and anybody in the public can comment.

The public is also free to file complaints to the FCC about actions by regulated companies that have harmed them. The FCC has a defined process for handling such complaints, and most are referred back to the offending regulated party with instructions to explain their actions of make amends if they acted incorrectly.

There is also a more formal process for regulated companies to make complaints against each other, or which seek resolution of industry disputes and the FCC has Administrative Judges that hear such complaints and make rulings or assess fines. Many of the ‘orders’ we see from the FCC, such as a whole series of rulings over the last few years about access charges, are actually rulings from Administrative Judges and not from the FCC Commissioners.

The FCC also has an Engineering and Technology bureau that advises the FCC on technical issues such as spectrum allocations. This group also authorizes the use of equipment, and most telecom equipment must be approved by the FCC before it can be introduced into the public networks. This group also can grant the use of experimental licenses to test new ideas in the field.

Is Net Neutrality Hurting Telecom Investment?

Network_neutrality_poster_symbolLeading up to the net neutrality decision a lot of the big carriers claimed that putting broadband under Title II regulation would kill their desire to make new investments in broadband. AT&T went so far as to tell the FCC that they would stop all capital investments if net neutrality was ordered. Chairman Tom Wheeler of the FCC quickly called their bluff on this and AT&T backed down.

But net neutrality has been the law now for a while and the large carriers are still crying the same tune. There are regular postings by USTelecom, the trade group for the large carriers, claiming that Title II is hurting investment in the industry.

There is uncertainty in the industry due to the fact that much of the FCC’s ruling is being challenged in the courts. At a recent hearing of the House Communications Subcommittee, Frank Louthan of Raymond James told the committee that the big carriers are making investments in line with what they think will be the final rules after the court fights. I’m sure he’s right because that’s what large companies always do when they face uncertainty – they pick what they think will happen and operate under that assumption. But in this case the uncertainty is ironic since it is being caused directly by the lawsuit brought by the carriers that don’t like the uncertainty.

And it’s hard to see that net neutrality is hurting the biggest carriers. Certainly nobody was affected more by the rule changes than the big cable companies who had essentially no regulation on their broadband before the net neutrality rules. Ars Technical has dug into the most recent financials for these companies and reports that large cable companies have increased capital spending. They report that Comcast’s capital spending this year is up 11% over last year and Time Warner is up 10%. And every large cable company has said they are going to be pouring money into upgrades to DOCSIS 3.1 over the next year, so their capital spending is not going to go down in the foreseeable future.

I always wonder what exactly the carriers don’t like about net neutrality. Net neutrality stopped the carriers from making deals that enriched themselves but that restricted customer choices. But it seems like the public was very much on the FCC’s side on this issue and it’s hard for the carriers to find any sympathy for their cause. Probably more problematic for the carriers is that the FCC, in a surprising part of the net neutrality ruling, put in place rules on the network side of the carriers. They were all getting ready to start charging large content providers like Netflix for bringing content to their networks. The FCC decided that the millions of customers paying for monthly broadband were already paying that cost. What the carriers seem most annoyed about is that customers actually want to use the broadband to which they subscribe. The carriers have plans to put an end to that and everybody is watching Comcast’s new attempt at data caps.

One topic that came up in the House hearings was the fact that much of the net neutrality order was done by forbearance, meaning that the FCC chose which existing rules for telephone service would apply or not apply to regulating data. The carriers fear that a future activist FCC could change their mind at any time on the rules that have been forborne and either change the regulations or else hold change over the carriers’ heads while negotiating other issues. On that topic I agree with the carriers and what the FCC has given they also have the right to take away. The only real fix for this would be a new telecom act from Congress, and with our divided political parties that doesn’t seem very likely.

I remember this same level of teeth gnashing and hair rending by AT&T and Verizon after the Telecommunications Act of 1996. They challenged that ruling and spent the next several years complaining about it loudly. But eventually they were complaining to deaf ears, and in this case one has to think that whatever the courts order is going to stand as the law for a while. But eventually the complaining about the Act died down and both companies have gone on to be far more profitable than they were before the Act. Perhaps they ought to go back and revisit their own recent history and just get on with what they do best—make money.

Broadband CPNI

FCC_New_LogoThe FCC said before they passed the net neutrality rules that they were going to very lightly regulate broadband providers using Title II. And now, just a few weeks after the new net neutrality rules are in place, we already see the FCC wading into broadband CPNI (customer proprietary network information).

CPNI rules have been around for a few decades in the telephony world. These rules play a dual purpose of providing customer confidentiality (meaning that phone companies aren’t supposed to do things like sell lists of their customers). They also provide protection of customer calling information by requiring a customer’s explicit permission to use their data. Of course, we have to wonder if these rules ever had any teeth at all since the large telcos shared everything they had with the NSA. But I guess that is a different topic and it’s obvious that the Patriot Act trumps FCC rules.

The CPNI rules for telephone service are empowered by Section 222 of Title II. It turns out that this is one of the sections of Title II for which the FCC didn’t choose to forebear for broadband, and so now the FCC has opened an investigation into whether they should apply the same, or similar, rules for broadband customers.

It probably is necessary for them to do this, because once Title II went into effect for broadband this gave authority in this area to the FCC. Until now, customer protection for broadband has been under the jurisdiction of the Federal Trade Commission.

There clearly is some cost for complying with CPNI rules, and those costs are not insignificant, especially for smaller carriers. Today any company that sells voice service must maintain, and file with the FCC, a manual showing how they comply with CPNI rules. Further, they have to periodically show that their staff has been trained to protect customer data. If the FCC applies the same rules to ISPs, then every ISPs that sells data services is going to incur similar costs.

But one has to wonder if the FCC is going to go further with protecting customer data. In the telephone world usually the only information the carriers save is a record of long distance calls made from and to a given telephone number. Most phone companies don’t track local calls made or received. I also don’t know of any telcos that record the contents of calls, except in those circumstances when a law enforcement subpoena asks them to do so.

But ISPs know everything a customer does in the data world. They know every web site you have visited, every email you have written, everything that you do on line. They certainly know more about you than any other party on the web. And so the ISPs have possession of data about customers that most people would not want shared with anybody else. One might think that in the area of protecting customer confidentiality the FCC might make it illegal for an ISP to share this data with anybody else, or perhaps only allow sharing if a customer gives explicit permission.

I have no idea if the larger telcos use or sell this data today. There is nothing currently stopping them from doing so, but I can’t ever recall hearing of companies like Comcast or AT&T selling raw customer data or even metadata. But it’s unnerving to think that they can, and so I personally hope that the FCC CPNI rules explicitly prohibit ISPs from using our data. I further hope that if they need a customer’s permission to use their data that this is not one of those things that can be buried on page 12 of the terms of service you are required to approve in order to use your data service.

What would be even more interesting is if the FCC takes this one step further and doesn’t allow any web company to use your data without getting explicit permission to do so. I don’t have idea if they even have that authority, but it sure would be a huge shock to the industry if they tried to impose it.

My Take on the Net Neutrality Ruling

Network_neutrality_poster_symbolChairman Wheeler announced the highlights of his proposed order on net neutrality, and since I have been following this closely I guess I should weigh in on what he is proposing. Assuming the FCC vote goes along party lines, this ought to be passed later this month.

My first reaction is one of huge respect for the Chairman. When he first came to office I looked at his background and was highly skeptical about a guy who had worked as the head lobbyist for both the wireless and the cable industries. I assumed it was going to be difficult for him to make the hard calls against those two industries. But with this ruling, and with other rulings such as the expected ruling later this month about allowing municipal broadband, he has proven he is willing to make hard choices.

The Chairman is proposing to implement Title II as the mechanism for regulating the Internet. He is fixing the mistake the FCC made a generation ago when they decided not to use Title II. There is no doubt that one of the big telcos, cable companies, or wireless companies will take this order to court. And that’s too bad, because in this case I think it just delays the inevitable. This is something that the FCC is allowed to do, and I think ultimately any court is going to agree with that.

The carriers hate this ruling because it gives the FCC the ability to tell them no. The FCC can stop ISPs from abusing the public through their broadband policies. It’s a bit ironic since the big companies have mostly been on their best behavior for several years so that they didn’t get this kind of net neutrality ruling. But even so they have done things that harmed the public. Look at the whole fiasco last year when most of the big ISPs were slowing down Netflix on purpose and trying to extract payments from them.

The largest ISPs have proven many times that they are only out for profits. This is somewhat sad because the old Ma Bell, even with many flaws, was mostly a company that did the right thing by the public. There were times when they would dig in their heels and take a stupid position, but the old AT&T also built and operated a telecom network that was the envy of the rest of the world.

But I see zero morality these days out of the likes of AT&T and Comcast. They only care about profits and stock prices and they will try anything and do anything that makes them the most money. And that is why these net neutrality rules are badly needed. I’ve always assumed that they have had a pile of bad ideas ready to foist on the public the second they think that net neutrality is no longer an issue.

So I view these net neutrality rules as a safety net for all of us little people who otherwise have no power against the oligopoly telecom providers. Now the FCC can step in when they get complaints and tell the large ISPs to stop bad behavior.

The FCC published this document of talking points that outlines what will be up for a vote later this month. I am sure that there is going to be a lot more detail to wade through when the order comes out, but this provides a pretty complete picture of how it is going to work.

One thing that I hope doesn’t happen is for politics to raise its ugly head, get involved, and interfere to give the carriers what they want. For instance, there is a bill  circulating in Congress right now that says that it provides for an open Internet without using Title II. That may sound okay, but the bill was written by the big carriers, and it says all the right feel-good stuff about net neutrality but doesn’t give the FCC the authority to crack down on carriers when they misbehave. No bill like that is going to make it into law because the President will veto anything that endangers net neutrality. But you have to worry about the carriers sneaking in watered-down net neutrality rules through some backdoor approach.

This is a bold move by the FCC. I’ve read every proposal imaginable about how to make net neutrality work and this is the only approach that has enough teeth to be able to rein in the ISPs while fitting within the existing law in a way that should survive legal challenge. In fact, when the courts overturned the last net neutrality order they basically suggested Title II as an approach they could approve. A year ago nobody gave this solution a chance. But Chairman Wheeler has done the right thing and preserved the Internet for a while longer.

Forbearance and Net Neutrality

Network_neutrality_poster_symbolAs the FCC crawls slowly towards a decision on net neutrality, I thought it would be useful to talk a bit about forbearance. Forbearance means restraining from doing something, and all of the proposals to protect net neutrality that involve Title II regulation require forbearance to some of the FCC’s rules.

The FCC is somewhat unique when it comes to regulation because Congress has given them the right for forbearance, meaning the FCC can selectively decide when to apply certain laws and regulations. Most federal agencies don’t have this power. But this makes sense for the FCC since they are regulating such diverse companies such as cable companies, telephone companies, cellular companies, fiber networks, microwave companies and a number of other niche technologies. It’s always been obvious that rules that make sense for one of these industries might not make any sense when applied to another one.

If the FCC was to put broadband providers under Title II this means subjecting them to all of the rules that are still in place from the Telecom Act of 1934 as well as many of the rules in the Telecom Act of 1996. It is the fear of having to comply with all of these rules that is causing the harsh reaction of ISPs to the idea of being regulated. (Well, that, or just the idea of being regulated at all).

Let’s look at one example of the kinds of rules that are required by the Telecom Act of 1934. That Act requires all telephone companies to issue tariffs. People tend to think of tariffs as a price list and a description of the products offered by a telephone company. But tariffs are much more than that. Tariffs include details of the way that a carrier must interact with its customer. Tariffs define things like how much notice you have to give a customer before you can disconnect them for non-payment. Tariffs require a carrier to give notice before changing rates, meaning that rates can’t be changed on the fly, but must wait for a period of time before being implemented. Tariffs also require nondiscrimination between customers, and that might be the biggest part of tariffs that scare ISPs, who routinely offer different deals to customers every day.

Additionally, every state has developed specific rules for what must be contained in tariffs filed in that state. This means that a nationwide ISP would have to file a different tariff in each state and follow different rules in each state. If forbearance is not applied to these parts of Title II then ISPs would not just be regulated by the FCC, but by each of the fifty states.

There are many parts of Title II that would also not make sense to apply to ISPs. For example, there are sections of the various Acts that look at things like protecting customers from obscene phone calls or the requirement to provide operator services that obviously don’t apply to data services.

But there are other requirements that have the ISPs running scared. For example, the Telecom Act of 1996 requires the large telephone companies to unbundle their networks and to give access of their networks to competitors. And this does not just apply to telephone lines but also to DSL. There is no reason why this could not be applied to cable companies to bring competition into the data market. And there are related rules that regulate things like collocation and that require interconnections between carriers that exchange voice and data traffic.

There are yet other portion of the Title II rules where it is not clear if forbearance ought to be applied. For example, the FCC requires jurisdictional separation of revenues and costs to determine what is under the control of the FCC versus the control of states. Would the FCC just declare broadband to be an Interstate service to keep it all under their control? That is what has been done with DSL, and yet the states are still involved in many aspects of regulating DSL.

It appears to me like the idea of forbearance in this case is going to be extremely complicated. There are repercussions for deciding to forbear or not to forbear different parts of the existing telecom rules. It’s a huge puzzle to solve, and I am going to guess that every decision to forbear or not forbear will present a chance for legal challenge.

But the FCC forbears things all of the time. In fact, there is a legal process that allows for carriers to ask for forbearance from a specific rule, and if the FCC does not act within a year then the forbearance is assumed to be granted.

We already know that Verizon and AT&T are threatening to sue the FCC should they try to regulate broadband under Title II. Even should the FCC be able to win such a challenge, they would have to expect a decade where ISPs are constantly asking for additional forbearance from whatever regulation the FCC chooses to apply to broadband. If nothing else, this sounds like a full employment act for telecom lawyers.