May 14, 2009 7:41 AM

[Go] Back to [Get to] the Future: The Foundation of a National Broadband Plan

Saul Hansell had a great post on May 8th, that is well worth reading if you are one of the many parties struggling to come up with comments to file on June 8th in the FCC's National Broadband Plan proceeding.  In fact, the last paragraph/sentence of the post provides what, with very little (if any) editing, could be the first sentence in a compelling set of comments.  Indeed, it is too bad the FCC didn't start its request for suggestions for big plans with such a simple, commonsense, and obvious premise.  Mr. Hansell concludes:

"What good will it do for the F.C.C. to come up with a spiffy new plan to get faster cheaper broadband to more people if the phone companies fail and millions of people won't be able to dial 911 in an emergency?" 

To really understand what he is talking about, I strongly encourage reading the post.  For too long, telecom industry "insiders"--what you might call the FCC's constituents--have been whistling past the graveyard, assuming that the FCC has all the tools it needs to keep any type of company/industry in business if it really deems that company's services to be in the "public interest."  The "tools" of which I am referring are the implicit and explicit subsidies of intercarrier compensation (what companies--telephone, cable, or wireless--pay each other to deliver voice calls to the party being called) and the Universal Service Fund, which all users pay into in order to ensure (theoretically) that all Americans have access to telephone service.  Mr. Hansell understatedly characterizes these interrelated mechanisms as "inscrutably complex."   They are all that, and a bag of chips.

Let's start with the Byzantine structure of intercarrier compensation--just the way it works.  In America, we have a "calling party's network pays" system for landline voice calls.  A simple illustration is that your phone company (e.g., Verizon) pays the phone company serving the person you are calling a prescribed, usually "per minute", rate (based on a number of factors that have nothing to do with the actual costs of doing so) to "terminate" (or deliver) the call. 

What this means is that the person who "chooses" [the supplier of call termination services], doesn't pay [their phone company pays the "terminating" carrier], and the party that pays [Verizon in this example] doesn't choose who they want to pay.  Consider also that Congress requires all long-distance companies to charge the same rates for long-distance service, regardless of where any particular customer is located.  The "calling party's network pays" mechanism, with mandated averaged toll rates, presents a virtually limitless array of temptations to engage in inefficient, rent-seeking behavior (i.e., "scamming") by carriers who are, or who could claim to be, "terminating" traffic.

This is just the framework of the system.  When you take this framework, and then compound it--over years of regulation--by creating multiple different regulatory rate classifications for the termination of different types of calls in order to achieve some important, but long-forgotten, regulatory objective, then you have an absolute mess.  When you add to that absolute mess, the Internet, and the explosion of technologies that can make just about any call look like any other type of call, you have an irreparably broken system.  

Without even getting into the "whats", the "whys", and the "hows" of the rates being charged, just understand that the rates that apply are different depending on a number of things--the device you are calling from (wireless, for example), whether you are making a local or "toll" call, and whether the call is within one state, or between two states--despite the fact that the "work" being performed (delivering the call) by the called party's carrier is always the same

The fact that reforms--and drastic reforms--to the fundamental regulatory underpinnings of the system are necessary, are clearly evident to the Commission, even though intercarrier compensation reform (and universal service reform) is the last thing anyone on the Commission wants to confront.  How do we know?

The "National Broadband Plan" Notice of Inquiry ("Broadband NOI"), with its lofty purpose and aspirational goals, does not stoop to ask the retro-regulatory questions that must be asked if we are truly to clear away the existing regulatory debris in order to create a firm foundation for such a grand, and new, policy development.  However, on the same date the Commission adopted the Broadband NOI, the Commission also released another Notice of Inquiry--to refresh the record on reforming universal service for non-rural, high-cost carriers. The reason?  To ostensibly create a "fresher" record on which to explain its rules to the 10th Circuit Court of Appeals--for the second time . . . an explanation the court requested in 2005.

Less than a week later, the FCC wrote a letter to Comcast, clarifying that "[t]he statutory classification of Voice over Internet Protocol (VoIP), with limited exceptions, remains an open question, and the intercarrier compensation issues with regard to many kinds of VoIP likewise are under active consideration." (citations omitted)  The FCC has been actively considering the statutory classification of VoIP services since 2004.

Anyone can ask people for ideas and plans for how to turn their house into a castle, but when that house is sitting an a cracked and shifted foundation, and surrounded by an unkempt yard, it's a little hard to expect people to believe that such a house will turn into a castle.  Until the Commission repairs, and prepares, the regulatory groundwork, it will be hard to believe that the Broadband Plan (if developed) will ever become more than a plan . . . and a plan with little prospects for implementation.

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