We will turn to more substantive responses to the coalition's alarmism later, but it is rather remarkable that the rather august group of scholars we brought together could allegedly be so starkly misinformed and careless. In Mike Riordan and Simon Willkie, we have the participation of two former FCC Chief Economists. With Jerry Ellig, we have an eminent regulatory economist known for his work at the FTC and Mercatus, and Bob Crandall has few peers in analyzing regulatory economics. Dale Hatfield, meanwhile, is a rightful industry legend and former FCC Chief Technologist. Phil Weiser is incomparable in all ways, and decidedly moderate in his views on USF. Finally, the Roberts Atkinson, of PPI and CITI, respectively, have long reputations in the regulatory arena, with "Columbia Bob Atkinson" having been Deputy Bureau Chief at the FCC. I realize that arguments from authority are not dispositive, nor should they be, but I do submit that the DACA proposal brings serious intellectual firepower to the fore and offers a considered proposal to make universal service viable for the future.
The depressing part of all of this is the political reaction of the subsidized companies can be nothing but hysterical in the face of proposed reform. I cannot blame these companies for protecting their self-interest by continuing claims to subsidies, but their attempts to dress up their claim as anything more than Logic of Collective Action interest group rentseeking is unavailing.
]]>I don't mean this as a cute or loaded question, but rather I sincerely wonder whether BITS with Trinko still vital as precedent would make the respective layers of the Internet realtively antitrust-free? I think the mechanics would be as follows:
Trinko can be read a number of ways, but it seems to me the best readings are as an institutional competence/separation of powers decision. In essence, the Court said that if Congress creates a prophylactic regulatory system that encompasses an entire industry sector, and if that system governs the economic and competitive relationships within that sector, then traditional antitrust will yield to that regulatory scheme. This is because the interrelation between the two systems of law could be potentially quite hazardous, and further because the theory of an administrative occupation of the regulatory field makes the agency more competent than the court to make the relevant decisions.
BITS (v. 2.0), meanwhile, extends the reach of the FCC's jurisdiction clearly and wholly within the Internet space. Instead of the current focus on physical networks, BITS gives the FCC regulatory authority over the logical (net neutrality mandate/interconnection) applications (VoIP) and content (broadcast rules) of the Internet protocol stack.
With the FCC then clearly having regulatory power over the entire Internet protocol stack, to what degree then does antitrust and competition policy fall by the wayside in favor of the specific mandates in the act?
Please discuss....this has to draw Professor Speta out.
]]>Beyond that common ground, however, speakers' views diverged, generally echoing significant disagreements that erupted during the Working Group's deliberations. Without restating those here, a few observations of the conference are in order.
]]> Whither State and Local Regulatory Leadership?The Working Group's proposal balances regulatory integration and experimentation primarily by providing states and cities substantial leeway to promote consumer protection, public safety, homeland security and prudent rights-of-way management. And depending on the outcome of any future DACA releases, states also could play a role in distributing federal universal service support and in helping the FCC adjudicate allegations of "unfair competition" in specific markets.
It also is worth noting that, in certain respects, the Working Group's proposal would do little to straightjacket forward-thinking state and local regulators. As discussed in DACA's various publications, much of what regulators (at all levels) can do to "adapt" to digital technologies is to accept that the potential competition inherent in these technologies often erodes or erases the justification for regulation. Thus, the proposal's limits on state and local regulation should not impair state and local regulators' efforts to get out of the market's way. Far from constraining these efforts, the proposal would require less insightful regulators to abandon traditional approaches that may do more harm than good in the current environment. Accordingly, the proposal serves as a complement to DACA's separate proposal to trigger economic regulation primarily when market power is abused (i.e., where competition may not promote consumer welfare adequately).
Allocating Regulatory Responsibility and Institutional Reform
Speakers at yesterday's conference also worried that the Working Group's proposal would hamstring forward-thinking state and local regulators by shifting some responsibility for adjudicating disputes from the states to the FCC. Another fair point. The current FCC may be less experienced than the most competent states to conduct adjudications. Much of the agency's energy in recent years has been devoted to broad rulemakings, either to implement new legislation or to address topics on which the Communications Act is shockingly ambiguous or deeply ambivalent. Many states, by contrast, conduct adjudications as a matter of course.
As the proposal notes, however, not all state regulators are created equal, such that many will lack the expertise or other resources to "out-judge" the FCC. More importantly, worrying that the current FCC might not be able to handle the adjudications envisioned by DACA ignores the reality that meaningful telecom reform also will entail reform of how the FCC operates. As when the FCC hired more litigators to beef up its enforcement efforts, the agency will have to obtain or develop the skills necessary to implement any new statutes governing its behavior, either through internal management decisions or through more sweeping institutional reform.
There is unavoidable risk that the substance of communications reform could outstrip policymakers' ability to make conforming changes at the FCC. But declining to assume that risk now would pronounce hopeless the prospects for meaningful telecom reform overall. And given the critical nature of communications to our economy and to our society, it seems too early to throw in that towel.
Taxation by Regulation
Finally, speakers on the conference's concluding panel discussed the issue -- which extends well beyond federal, state and local relations -- of "taxation by regulation." Richard Posner coined this term to describe the frequency with which regulators achieve ends, not by enacting programs paid for by general tax revenues, but by forcing regulated entities to behave in ways that deviate from their self-interest (e.g., shifting money from one set of consumers to another through "implicit" subsidies). The discussion yesterday emerged in reaction to the Working Group's proposal to ban states and localities from requiring local franchise fees (beyond the costs of accessing rights-of-way), public access channels and similar social obligations. Panelists discussed whether taxation by regulation should remain a feature of communications policy in the digital age.
To be clear, the Working Group's proposal takes no express position on this question. Read literally, the proposal merely preempts states and localities from pursuing the goals underlying public access channels and the like. The proposal does not preclude the pursuit of such policies at the federal level. That said, it would be disingenuous to deny that the proposal evinces some skepticism regarding whether government should be allowed to reap the "goodies" associated with taxation by regulation without adding the bill for these benefits to the ever-growing tab for government programs generally.
This skepticism is well-founded. The nature of taxation by regulation schemes is that they often go unnoticed even by astute observers, let alone the general public. Yet as communications services "converge" via increasingly flexible broadband networks, policymakers will need to consider whether enhanced competition and innovation justify eliminating these largely invisible schemes. Alternatively, to the extent taxation by regulation remains justified, policymakers will need to consider whether the underlying requirements should apply solely to traditional providers and services, or whether these obligations should be extended to new "converged" competitors.
In either case, and especially given the perceived importance of taxation by regulation policies, it would be odd (and arguably anti-democratic) for policymakers to make these momentous decisions hidden from the glare of public scrutiny. This does not suggest that taxation by regulation or other indirect approaches should be ruled out as means to achieve social and other policies. But it does suggest that, before policymakers settle on using such approaches, they should explain to the public what they are attempting to achieve, lest those aims turn murky or corrupt outside the light of day.
So, in another CNET piece, this one published in October 2004 and entitled "Calling for Regulatory Overall Bit by Bit," I called for a new communications law framework that would not be based on what I called "highly abstruse techno-functional constructs." I said such a regime would lead to continuing disputes about the boundaries of service categories that determine regulatory consequences. And I concluded: "What we need is a new market-oriented regulatory model, not a replacement regime based on another set of techno-functional definitions."
Regretfully, the discussion draft released by the House Commerce Committee staff late last week is a framework built on regulatory techno-functional definitions--classifications of BITS providers, VoIP providers, and broadband video providers with attendant regulatory consequences. The serious difficulty with this approach from a political economy and public choice standpoint is that, on the one hand it lends itself to legislators and regulators fiddling with the techno-functional constructs in ways that allow them to shape the market to their own ends, however well-intentioned. And, on the other hand, it leads those who might be benefitted or disadvantaged by manipulating the interpretation of such techno-functional definititons to invest in doing so.
For an example of the first hand, look at the broadband video provisions which require the provision of certain types of (not-yet-offered) integrated Internet functionalities in order to qualify for streamlined franchising treatment. Do the legislators (or regulators who will implement the provisions and, inevitably, the courts who will ultimately interpret them) really know what consumers will demand in the marketplace and or technological capabilities might evolve in the future, absent regulatory constraints, to meet such demand?
Or, to take on the second hand the market participants who seek to qualify for treatment as a BITS provider, or disqualify their competitors. Will the dispute over whether a new protocol is a "successor protocol" of the TCP/IP protocol really be anything other than a metaphysical food fight? And one with likely ongoing uncertainty and attendant long running litigation that will impede marketplace development? (Anyone reading this who remembers the FCC's decade-long struggle to define protocol processing for purposes of drawing the lines between "enhanced" and "basic" services please raise your hand!)
I have great admiration for those who have put in many long hours to produce the discussion draft. It is not easy making sausage on hilltops, especially with a lot of chefs in the kitchen. By virtue of the nature of the process, I believe, however, that the production of the discussion draft can be a constructive step in helping to focus the coming legislative debate. There are elements of the draft that have a deregulatory thrust that are commendable, putting aside for the moment ambiguities in the language that call into question whether that thrust would, in fact, be realized.
I am sure that if one assumes that the discussion draft model, which is what we called the IP Migration model in our DACA regulatory framework group, is the only basis for moving forward with communications legislation, there are ways to improve on the draft language to diminish the likelihood of regulation that is unnecessary and unwise in the current communications environment. To some extent the draft takes what one might call a "clean version" of an IP-Migration model and then reimposes some of the old legacy regulation on top ot it. See, for example, the Section 104 Net Neutrality provision governing "access to bits" or the entry registration requirements throughout. By definition, it is very difficult for any model based on technology distinctions to establish a deregulatory firewall in today's fast-changing technological environment. But it is my intent to offer a few such drafting suggestions that move in the direction of tightening up in another post, assuming for the sake of argument the current draft. I bet some of my colleagues might as well.
But, for now, what I suggest is this: Compared to the techno-functional approach taken in the discussion draft, the market-oriented model ("FTC model") that the DACA Regulatory Framework Proposal released in June presents an attractive, non-techno-functional alternative that deserves to receive renewed attention. It is likely that the reform debate will continue well into next year. There is time enough to reflect and make sure we get the overall fundamental framework right.
]]>
Here at PFF, of course, we've been working hard with a group of respected academics and experts to provide a new framework for communications policy reform. That project is called "DACA," which stands for Digital Age Communications Act.
One thing we largely left out of DACA effort was any in-depth discussion of video regulation. That is, the extensive "public interest" regulatory regime that currently covers the broadcast sector and to some extent cable and satellite services. There were several reasons we left it out of the DACA project; most importantly, we simply felt that most of these rules could easily be sunset in light of growing competition in the multi-channel video marketplace and the media universe more broadly. Under our DACA framework, any "market power" problems that might develop in the future video / media marketplace would be handled with simple competition policy principles borrowed from antitrust law.
So Much for "Hands Off the Net"
Unfortunately, after looking through the House Commerce Cmmt. draft legislation last night, I realize that not everyone shares our opinion about the growing media market competition alleviating the need for extensive "public interest" regulation of the video marketplace. Specifically, Sec. 304 of the bill (which begins on pg. 41 of the discussion draft) is entitled "Application of Video Regulations to Broadband Service Providers." Section A which immediately follows is appropriately labeled "Comparable Requirements and Obligations," and then goes on to not how "each of the following provisions of the 1934 [Communications] Act, and the regulations under each such provision, that apply to a cable operator shall apply to a broadband service provider under this title in accordance with regulations prescribed by the Commission..."
* "Program Ratings" -- Sec. 303(w)(2): These rules mandate ratings schemes.
* "Facilities for Candidates for Public Office" -- Sec. 315: These rules mandate special access to broadcast facilities while running for office.
* "Announcements with Respect to Certain Matter Broadcast and Disclosure of Certain Payments" -- Sec. 317: These rules forbid "payola," or the practice of broadcasters accepting payment to run certain programs without acknowledging receipt of payment for doing so.
* "Retransmission" -- Sec. 325: These regulations govern how various types of signals are carried or retransmitted to the public. The draft also specifies that FCC network non-duplication, syndicated exclusivity, and sports black-out rules are to be rolled onto broadband service providers as well.
* "Ownership" -- Sec. 613: These rules impose ownership caps on the reach of cable systems and would be extended to broadband providers.
* "Carriage of Local Commercial and Noncommercial Educational Television Signals" -- Sec. 614 and 615: These "must-carry" mandates force cable operators to carry local broadcast TV signals on their cable systems.
* "Blocking and Scrambling of Channels" -- Sec. 624(d)(2): Mandates that a cable provider scramble access to certain channels if a subscriber demands it.
* "Public, Educational, or Governmental [Set-Asides]": These are the mandates imposed on video operators forcing them to carry certain local programs on their systems. (You know those dreadfully boring channels between roughly 11 and 35 on your cable box that absolutely no one watches? Those are the "PEG" access channels that Congress is now proposing every broadband provider carry.)
And there are many other mandates in the bill that I have not summarized here, including anti-"redlining" regulations and yet-to-be-determined "build-out" requirements governing the pace and structure of broadband diffusion. To repeat, all of these regulations, and the many others I chose not to list, would be imposed on all new broadband video service providers. What are we to make of these proposals?
"Mother, May I" Regulation: Will It Ever End?
Well, the first conclusion we can draw from this is that, contrary to their announced intentions, these proposals clearly contradict the supposedly deregulatory thrust of the measure. This is not deregulation, this is expanded regulation. This is not "Hands Off the Net;" this is Hands All Over the Net. In fact, right from the start of the bill, I was shocked to see just how much "Mother, May I" regulation this bill contains.
Its 77 pages (and do we really need 77 pages to deregulate an industry?) are filled with numerous prophylactic provisions forcing broadband carriers to get permission before they do much of anything.
Here's a fairly simple exercise for you to conduct if you want to see just how much regulation is in this bill. Use Adobe Acrobat to search the bill and type in the word "registration." You'll get 51 hits and Adobe will list each one of those registration requirements out for you so that you can see what is required. I'm not sure that there were this many registration requirements in old Soviet Union factories! Here's another test of just how much "Mother, May I" regulation you'll find in the measure: Search for the word "shall" in the document. You'll get a stunning 151 hits. Now, admittedly, not every use of the term "shall" in the bill is followed by a pro-regulatory proposal. Regrettably, however, most are.
I don't see how the FCC is going to get much smaller under this measure. In fact, I can't seem to find anything in the bill about downsizing the FCC at all. The bill's authors even felt the need to cap off the bill with 20-plus pages of regulations listed under the banner of "National Consumer Protection Standards" to apparently keep us all safe from those evil new broadband service providers. Wheh! Thank you Congress! God only knows what I do without those protections. I might do something stupid like switch carriers if I was unsatisfied.
Excuse Me, But Isn't It the Other Way Around?
OK, let me stop being so sarcastic for a moment and get back to the video competition provisions of the measure since I think they deserve special attention. First, there is no explanation in the text of the discussion draft regarding why the old public interest regulations new to be extended to cover all new broadband networks and providers. It is important to remember that the rationale underlying most of these old regulatory mandates was that we lived in a world of scarcity and regulated monopoly. Competition was thought to be impossible in this environment and, therefore, regulation was to serve as a rough surrogate to ensure price competition and program diversity.
Well, along comes more competition, first from direct broadcast satellite (DBS) sources and then from overbuilders, and now from the telephone companies, and what do we propose in this discussion draft? Regulate 'em. All of 'em. Apparently the presence of new competitors and the overall explosion of media diversity mean absolutely nothing to these lawmakers. The discussion draft basically says that we're just going to go right on regulating the way we always have. You thought public interest regulation was dead? Ha! This bill basically says: Long live public interest regulation!
And scarcity is now a laughable proposition for regulating the video marketplace. Don't take my word for it. Read this FCC white paper from last year entitled "The Scarcity Rationale for Regulating Traditional Broadcasting: An Idea Whose Time Has Passed." This report by John Beresford, an attorney with the FCC's Media Bureau, lays out a devastating case against the scarcity rationale, which has governed spectrum & broadcast regulation in the United States for over seven decades. Calling the scarcity rationale "outmoded" and "based on fundamental misunderstandings of physics and economics," Beresford goes on to show why just about everything the FCC ever justified on this basis was misguided and unjust. He points out what countless economists have concluded through the years, namely that the scarcity the government complained of was "largely the result of decisions by government, not an unavoidable fact of nature." In other words, the government's licensing process created artificial scarcity.
Alas, while the FCC has given up on the scarcity rationale, Congress appears ready to cling to it as long as possible to ensure that they can retain some degree of leverage over media operators in this country. At least that what the House Commerce Committee draft seems to imply.
In sum, the logic underlying these video provisions of the discussion draft get it exactly backwards. Lawmakers could have looked at the current video marketplace with its rapidly expanding choice, competition, and innovation and said to themselves: "OK, this means we can start getting rid of all those old public interest regulations now. Competition can check any stupid, anti-consumer moves a given carrier might make." Instead they looked at the current situation and said: "My God, all these new competitors mean that consumers could get screwed by even more people!" It really shows how little faith the current Congress has in the free market.
The Sun Never Sets on the FCC's Empire
Third, there is no effort made in the bill to sunset any of these public interest requirements in the future. It is troubling enough that lawmakers would propose extending public interest regulation to cover all new broadband networks and providers, but it absolutely unforgivable that they would not propose sunsetting these rules at some point in the future. In the absence of any such sunsetting language, I guess we can assume that these old rules will cover any new provider or technology that comes along in the future, including wireless broadband providers or broadband over powerline companies. Again: Long live public interest regulation!
I must ask again: In a world of increasing competition and media diversity, why do we need ANY rules like this? Heck, there is now more competition in the broadband field than there is in the market for online auctions. Seriously, can you name a competitor to eBay? Despite that fact, no one is proposing extensive public interest regulations and consumer safeguards for the online auction marketplace. Nor are lawmakers asking eBay or any potential competitor to register with the FCC and get permission before they make any moves in that market. Why shouldn't that same mentality apply to broadband?
Should I Bother Mentioning the First Amendment?
Finally, although I'm probably wasting my breath in doing so, I feel compelled to once again point out that all these old public interest regulatory mandates are at odds with the First Amendment. Whether policy makers are looking to compel speech or restrict it, it all runs counter to the "Congress shall make no law..." vision of the First Amendment.
Although the Supreme Court has allowed much of this nonsense to remain on the books, they largely did so by resorting to the now thoroughly discredited scarcity rationale. One wonders what possible constitutional defense can be put forward now to justify treating all these new broadband / media competitors as second-class citizens in the eyes of the First Amendment.
Nonetheless, it is my hope that if this bill passes as is that some new broadband operator will immediately challenge several provisions of the Act, especially the must carry mandates, the PEG requirements, and the regulation buried in Section 402(a)(10) of the bill (on pg. 50) that would "prohibit the use of any equipment used for the provision of BITS, VOIP services, and broadband video services for obscene or indecent communications." Hasn't Congress learned any lesson from the numerous measures the Court has struck down in the wake of the Communications Decency Act of 1996?
Conclusion
I want to make it clear that, despite what I have said here, there are some important things accomplished by this bill. And in some ways, it represents a small improvement over the status quo. Heck, I've been covering telecom and media policy long enough now that I remember reading through proposed Communications Act revisions 15 years ago that obsessed over what to do about telephone company entry into the home alarm market! There was an entire bill introduced on that issue back in 1993. And a year before that, I cut my teeth as a young telecom policy wonk by analyzing numerous proposals to regulate cable rates, one of which finally passed into law as the Cable Act of 1992.
We can all give thanks that those days are over and at least measures like this current House Commerce Committtee discussion draft aren't proposing comprehensive price control schemes or new entry barriers for the market. So it's important not to lose perspective and forget just how far we've come.
Alas, I still hoped for something better out of the gates than this discussion draft. Given the intense media and broadband competition we're seeing out there today, one would have hoped that a Republican Congress that supposedly believes in markets and limited government would have kicked off a major reform effort with something bolder than this. As it stands now, however, I do not believe this effort represents a major improvement over the status quo.
"[T]he States can best govern our home concerns and the general government our foreign ones. I wish, therefore... never to see all offices transferred to Washington, where, further withdrawn from the eyes of the people, they may more secretly be bought and sold at market."
Thomas Jefferson, letter to Judge William Johnson, June 12, 1823
If, as Stigler has persuasively argued, regulatory institutions can be captured and public officials of good will tend to work toward the ends of the regulated, which regulatory institutions are more susceptible? Federal or state? Or does the organizational structure matter more than the level of government? Email me your arguments.
If you believe the states are better equipped to resist capture or to err less grievously when captured than their national counterparts, consider that on the one hand, there is generally more diffused power among agencies and the legislature. But, on the other hand there tend to be fewer "watchdogs" at the state level.
]]>First, I would emphasize that it is a standard, not a mandate. Under the framework, regulatory intervention to compel interconnection can only happen upon a showing of: "a substantial and nontransitory risk to consumer welfare by materially and substantially impeding interconnection" to a public communications network. Admittedly, the "public communications network" term is problematic, and I think the working group would be open to alternative terms. Principally, though, this standard does not mandate interconnection but first requires a showing of harm from failure to interconnect.
]]> It follows from this first point that the first option for interconnection under this model remains private negotiation, such as now takes place on the Internet backbone. The framework's "unfair competition" standard only serves as a backstop to the private interconnection model, to be invoked only when refusal to interconnect is being used strategically to harm consumer welfare. This would then be quite similar to the general antitrust default rules in refusal to deal cases -- the presumption is that refusal to deal is OK, but there are certain market circumstances where it could be problematic.Still, there remain concerns about how to treat interconnection. A friend of the Bell persuasion put it to me this way in an email:
Here is what I'm concerned about on the IP connectivity stuff. First and foremost, it probably can't be regulated at least without totally undermining current agreements and rendering IP peering and transit arrangements far less efficient and much more costly than they current are. The reasons for this are largely technical (how IP traffic is routed, who bears most of the responsibility for routing traffic, and the fact that the rates terms and condition of peering and transit agreements are worked out bilaterally and thus reflect the perceived value to each of only two carriers that are party to a given interconnection agreement (which again based in large part on who bears the responsibility and cost of getting packet flows from point A to point B). Regulation would no doubt destroy much if not all of that mostly because it would necessarily replace thousands of individualized (bilaterally negotiated) agreements with "one-size-fits-all solutions" mandates that are laced with a lot of "social engineering" thrown in to boot. It's also not clear whether 7,000 or so ISPs in the U.S. or for that matter 7,500 or so outside the U.S. that currently interconnect on an unregulated basis would sit still for the FCC much less the states imposing their personal political agendas on the IP interconnection process. At best it would be a knock down drag out war.
I am concerned that once you introduce any element of economic regulation into IP space (public safety is different) including, for instance, an interconnection obligation, you start mucking up the current commercial negotiation process possibly to the point of creating enough problems to warrant even more involvement by a bunch of nefarious regulators. It's not an unreasonable concern notwithstanding the merits of guarding against bad behavior under an unfair competition standard versus some technology-centric scheme that "walls off" IP in the hope that the wall will not spring leaks down the road.
One could also make the argument that as the Internet continues to grow and become an even more essential element in our national "fabric" we will soon get to a point where any suggestion that IP conectivity should be subject to economic regulation will simply be dismissed outright. At that point, of course, the anti-trust laws would continue to apply which pretty much gets you to where you want albeit without the interim risk of allowing the regulators to muck things up between now and then. What say you to that?
I think that the interconnection standard of the framework leaves intact those bilateral contracts of the Internet backbone, and contemplates that they would still remain the preferred method of arranging interconnection. Economic regulation of interconnection under this standard is contemplated, again, after a showing of harm to consumer welfare, not assumed beforehand as under the current interconnetion arbitration regime. Indeed, I cannot imagine a situation where a showing could be made in an all-IP environment to trigger the "unfair competition" definition in the working group report, save for instances where a party attempts to capitalize on a terminating access monopoly.
As a general matter, though, the all IP environment would be largely untouched by any ability for regulators to intervene, muck up, redistribute rents between parties. This is because an all-IP environment and the resulting "hot potatoe" routing and transit agreements make it very hard to acquire market power in the backbone, at least until a network provider can identify and thus disfavor specific packets.
I agree that continuing governmental involvement in interconnection relationships is to be disfavored, but also am convinced that there are a small set of circumstances where interconnection intervention might be warranted. Now, an alternative answer (for which I leave fuller explanations to James Gattuso) would be to have no interconnection obligation whatsoever and leave it all to default antitrust rules. This would obviate the terminating access monopoly problem, and force all interconnection in the first instance into the market. I have some sympathy for this, particularly given the mischief that can come by giving the regulators an opening to intervene here. Nevertheless, I think the working group tried to come up with a tight enough standard so that the interconnection obligations would be narrow, and not be a mandate.
]]>On the broader question of price controls, if it had its druthers, the group would abolish all rate regulation. However, a concession to the longstanding universal service tradition of communications regulation leads toward retaining the basic service rate on a grandfathered basis. Under this model then there would be no rebalancing of the rate, but just a "rough justice" grandfathering of the various state rates. This would mean that companies would remove all tariffs, cease all rate filings and cost studies, leaving only local exchange maps and a single basic res service tariff in place (in the lingo, the 1FR) at the state level. All other rates would be deregulated and there could be no imputation of the 1FR rate into any packages.
]]> Admittedly, the persistence of any rate regulation is abhorrent and an invitation to mischief. Nonetheless, the quarantine around the 1FR rate insulates the model from any litigation risk and allows no room for bootstrapping this single grandfathered rate into broader arenas.The take rate for a basic package is very low (as I recall below 5% and undoubtedly lower than that if you include wireless subscribers), so the negative effects on the market equilibrium are real, but minimal. Furthermore, the concession of a basic rate acknowledges that the universal service hangover in telecommunications policy cannot be slept off overnight. By creating a petitioning process (with the presumptions all heading toward deregulation), the rate can gradually fade into desuetude. Furthermore, the apologia for retaining the rate is consistent with all of the state legislation of the past years, all of which retains some sort of basic service rate. Thus, while limiting price controls to basic local service may not be pure, it is possible and eliminates 80-85% of what is now done under state utility law. (Ironically, most of the mischief states achieved in the past 5 years was under color of federal, not state, law.)
As for the delegation of competition authority portion of the statute, I think that could be tightened up to make it clearer that the state my operate only under color of an explicit grant from the FCC, which shall only extend to hearing specific claims under the FTC Act standard. Thus, there would be no delegation of prophylactic rulemaking authority, or bootstrap its way back into plenary regulatory activitiy. In this capacity, the state can only act like an ALJ, consistent with a federal procedural and substantive standard. (An alternative here is the FERC ALJ’s who “ride circuit” to the location of a given FERC case.) Finally, I still maintain — perhaps out of institutional pride — that there is some value to independently-powered institutions being able to act, within a unitary federal scheme. A small degree of decisional heterogeneity in decisionmakers has its costs, but also has potential benefits, especially on questions where the answer is not clear.
In the end, it seems to me some state province will remain in communications law, even under a unified federal regime. By removing all rate regulation except a basic service rate, the majority of the market-distorting and rentseeking-inducing aspects of state regulation can be eliminated, at the same time giving some ability to perform specifically delegated proceedings under the framework's unfair competition standard.
As a matter of institutional design, the Regulatory Framework that DACA proposes takes on the first important question--why should agencies and not courts administer telecommunications competition policy? (On the continuing role for an agency in managing telecommunications policy, you can see my explanation (developed with Jon Nuechterlein, my Digital Crossroads co-author) here.) That a critically important question, but its answer begged a second one: could the FCC do it all itself?
For a host of reasons, some of which Ray ably noted, we concluded that the FCC could not implement competition policy all by itself, even though an integrated federal framework was critical. In taking our best stab at a reasonable institutional strategy, we looked for ways to have both the feds and states play an effective checking function against one another as well as to enable the states to provide valuable institutional support for implementing a federal regulatory regime. After all, if there will continue to be regulation of interconnection and other competitively essential wholesale support (see other debates forthcoming), some agency has to do it. And for those who followed the FCC's one effort to do that in the case of Virginia, which opted out of implementing the Telecom Act, it's hard to imagine the FCC doing 51 of those.
]]>All said, the universal service traditions of communications, the rate structures, the access charges, were barely touched by the '96 Act, despite provisions to the contrary. It would be fanciful to think that those universal service traditions can be excised root and branch in this DACA. Therefore, we retain a basic service rate for states to maintain, but largely shift the ground to competition policy, which can only be undertaken by states subject to federal delegation.
]]>Some initial questions then:
1. Why not complete preemption of state authority; that is, why not cut the states out altogether?
2. Why leave any residual rates in place like the group does, even if it is a basic rate subject to attack under the framework's "unfair competition" standard?
3. How, exactly, would a delegation of competition policy authority to a given state work? Wouldn't there be inconsistent outcomes and procedures?
4. Counter to question 1, why not allow states more initial autonomy to experiment with different sorts of rate regulation and competition policy arrangements?
I am sure there are other questions and controversies that my fellow working group members can detail.
]]>1. Why is there a separate interconnection standard? Why can't it just be left to a general "unfair competition" standard?
2. The Internet backbone interconnects without any special interconnection mandate through privately negotiated agreements, does the DACA interconnection standard inhibit this private deal-making?
3. Does your model allow the FCC to continue its practice of rate-setting -- particularly as to interconnection -- and thus continue the time-worn hazards of rent-seeking and industrial policy shenanigans?
4. Does this Model allow for regulation of the higher layers of the Internet protocol stack, thus isn't it more regulatory?
5. Why do you use the phrase "public networks" in your draft statutory language? Doesn't that create problems in defining what is, and isn't subject to your general standard of "unfair competition"?
6. What is wrong with the IP Migration model?
I have some tentative -- and even some good! -- answers to many of these questions, but I'll turn it over to my fellow working group members first. Specifically, I look forward to the Gattuso/Speta/Shelanski discussion on the interconnection standard, and the Sicker disquisition on the limits of the IP Migration model. Plus, it is my hope we get some cross-pollinization between working groups, as folks cross-comment on their colleagues' work.
]]>Well, we are.
But this one will be a bit different. First, we opted for a blog over a wiki. Not only did we already have Movable Type ready to go, we thought that the term "blog" incited slightly less giggling than "wiki." Given these are serious issues, we opted for the lower giggle factor. Second, this will be a group blog, with all participants of the various Working Groups able to post. We will also, for the time being, enable the comment feature here, with the hope that we get some virtuous feedback loops going. We reserve the right to shut comments off in case we are overwhelmed by comment spam, or if the comments take on an uncivil or unhelpful tone.
The reason for the blog is to further explain, discuss, elucidate and generally argue about the provisions in the respective Working Group reports. Since we released the initial framework report, I have found myself in many very similar discussions explaining why the group made the choices it did; where the close calls were; and where disagreements remain. Also, I have found that the FTC model the Working Group endorsed is quite foreign to the understanding of communications lawyers. Accordingly, I hope that the various members of the Working Group can explain how we anticipate our recommended model to work.
Finally, we entitled our Working Group Report "Release 1.0". We take seriously that our proposal is a first draft, and through the workshop a few weeks ago, as well as the discussion on this blog, we hope to refine and make a better Digital Age Communications Act.
With that, let me declare this blog open for posting.
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