FCC Plan offers bold suggestions, few details

The FCC’s National Broadband Plan (NBP) correctly recognizes that improved broadband to the end-user cannot be achieved without significant changes to certain critical “behind the scenes” elements of the nation’s broadband “ecosystem” – including the resale of facilities to competitors; the cost of “backhaul” (i.e., the radio or wired paths between and among the cell towers and the cellular switching office); availability of “data roaming” (i.e., the ability of a mobile wireless user to receive and transmit data traffic when outside of the data service coverage of its own carrier); and transition of the telephone network away from copper to fiber. While short on details, the NBP (in particular the section titled “Competition in Wholesale Broadband Markets”, in the “Broadband Competition and Innovation Policy” chapter of the NBP) suggests a return to regulatory schemes that, in addition to being troublesome and cumbersome, simply haven’t ever worked in the past.  

Nevertheless, no one can accuse this FCC of lacking boldness.

Resale. Historically, the FCC has attempted to use competition to regulate markets in two ways: (a) by establishing a regulatory environment conducive to competitors who own their own facilities (so-called “facilities-based competition”); or (b) by forcing facilities-based carriers to make their facilities available to non-facilities-based companies at rates that will allow the latter to earn a reasonable profit (a “resale market” approach).  

Facilities-based competition tends to promote a wider diversity of consumer choices, greater responsiveness (in time and substance) to consumer desires, and lower service rates – while avoiding the various downsides of direct regulation. Still, the Commission sees a role for the resale market approach in promoting broadband because, in the agency’s view, “well-functioning wholesale markets can help foster retail competition”, particularly in view of both (a) the economies of scale, scope and density of telecom networks, and (b) the economic and practical infeasibility of building out competitive facilities in all geographic areas.

This may ultimately prove, like third marriages, a triumph of hope over experience.

The history of the resale approach is long and not especially happy. Beginning in the 1970s, the FCC embraced that approach, apparently convinced that forcing incumbent telcom companies to resell to competitors would serve as an effective alternative to rate and service regulation.  Resale was in such vogue that Congress incorporated it as a central feature of the competitive policies of the Telecom Act of 1996. (which relied upon the resale of network elements by incumbent telcos (ILECs) to competitive carriers (CLECs) at below-cost prices.)

Many, perhaps most, observers would agree that the government’s efforts along those lines have failed. Indeed, over the last 10 years the FCC itself has quietly, and gradually, dismantled the ILEC-to-CLEC resale program. For example, the FCC ended the right of resellers like Covad to gain unbundled access to the high frequency portion of the subscriber access line (that is, the twisted copper pair running from the telco switching office to your home), thus spelling the end to competition in the provision of Internet access via the subscriber access line (xDSL). While dismantling the resale regime, the FCC pursued a “hands-off” approach to broadband regulation.

But in the NBP the FCC now wants to resurrect its resale policies for broadband providers. Recognizing that it lacks coherent and tested resale policies geared to today’s IP world, the FCC acknowledges that careful evaluation of the data and the many complex related issues will be necessary. The Commission also admits that the pursuit of other policy goals, such as retiring the copper plant used for over 100 years by telcos, cannot be ignored in the analysis. So resuscitating the resale market approach for broadband will require consideration of a range of difficult issues over and above the fact that the resale approach historically hasn’t worked – making an already complex method of promoting competition even more difficult to implement. The FCC surely recognizes that there are legal and political tensions inherent in restoring resale as a competitive tool after having largely abandoned it.

Backhaul and other special access services. Wireless carriers need to connect their various facilities (cell sites, switching and router systems). For that purpose they use either microwave radio systems or LEC facilities. The latter are now referred to as “special access” services. (Think, for example, of a T-1 or an OC-3 line that is always on and not shared with other users.) But the need for wireless backhaul is old news – why should it be an NBP issue now?

Wireless carriers complain that the FCC’s microwave radio rules make radio-based backhaul too expensive. But the wireless carriers complain that the alternative – i.e., special access services – is also prohibitively expensive because the FCC’s deregulation (or non-regulation) of such services has allowed the incumbent, often monopolistic, telcos to charge sky-high rents for backhaul services. And exacerbating the burden of this cost factor is the brutal fact of increasing demand. With more and more cell phones using more broadband apps requiring higher data rates, the amount of wireless traffic is skyrocketing, which necessarily leads to dramatically increased backhaul volume – for which those sky-high rates will be charged, making the cost of backhaul an even larger issue.  This same complaint is made by (a) businesses who rely on special access services to get to the Internet and (b) Internet access providers who use special access services to connect their points of presence or extend their services to areas they cannot otherwise serve.

Given the FCC’s lackluster history with resale, we are not surprised that the NBP makes no concrete recommendations for regulating the special access through resale.    Instead, in a throwback to days of yesteryear, the FCC appears to be proposing old-style rate regulation. That’s right: tariffs, not competition.

Wireless data roaming. By wireless data, the FCC is referring to the use of the cell phone to access the Internet and use data applications – oh, and voice too, as it’s all data now. The FCC has for years required wireless carriers to allow the customers of other carriers to roam on their networks (although that rule is limited to voice traffic). But while the FCC has been happy to impose that requirement, it has been loathe to regulate roaming rates charged between carriers (even though the FCC has the authority to do so). The FCC’s regulatory reluctance has opened a path for avoiding the roaming access mandate: if Carrier A does not want to let Carrier B’s subscribers roam on Carrier A’s system, Carrier A simply imposes rates that carrier B can’t afford to pay.

While the FCC seems more than happy to jump back into rate regulation of special access, it is still struggling with how to ensure universal data roaming on reasonable terms – a goal it never quite achieved with voice roaming. Perhaps that’s why the NBP proposes to encourage voluntary roaming agreements among carriers while continuing to study the issue of whether to make data roaming access mandatory. It makes no concrete recommendations for regulation.

Transition from switched-based services to IP-based services. We are all familiar with regular telephone service. It is “switched”, meaning that a whole circuit is created for each call, and that call and that circuit are created by the switching process. The two common forms of call switching are analog and time division multiple access (TDMA). We are all familiar with voice over IP service (VoIP). This service uses IP and session initiated protocol, rather than switching, to move, send and receive voice calls.

Recently, AT&T proposed to transition from the twisted pair and circuit switched technology to fiber and IP technology. The FCC supports that transition, seeing the greater public and consumer benefits that will arise when we rely upon fiber rather than the twisted pair.

But the transition will cause dislocations, particularly to DSL providers (like Covad) who rely on access to the high frequency portion of the twisted pair. The NBP concedes that using copper to provide DSL can be beneficial. But the NBP appears to see a greater good in “copper retirement”, i.e., transitioning from the twisted pair to fiber-to-premises. While the NBP does not provide any final answer, it’s probably safe to say that copper-reliant competitive DSL providers should count their days.

Interconnection also is a problem. The FCC sees a need to clarify that the Telecom Act of 1996 requires rural ILECs to interconnect with CLECs. The Commission also plans to study the interconnection challenges and opportunities that the Nation will face as we transition to all IP networks.

[Blogmeister note: This is one in a series of posts describing the range of regulatory and societal areas in which the National Broadband Plan could, and likely will, affect us all. Click here to find other posts in this series.]