June 29, 2010 5:34 PM
Regulate. Rinse. Repeat. Three Steps to the Third Way
"I can't believe that!" said Alice.
"Can't you?" the Queen said in a pitying tone. "Try again: draw a long breath, and shut your eyes."
Alice laughed. "There's no use trying," she said: "one can't believe impossible things."
"I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast." --Lewis Carroll, Through the Looking Glass, Chapter 5
The quote is apropos of almost nothing. I just saw it recently, and I liked it. I suppose if you substituted "contradictory" for "impossible" you might get some meaning out of it by the end of this post.
The title should probably say: regulate, forbear, repeat. But, here's what's got me thinking in circles. Less than two weeks ago, under the color of protecting consumers and broadband deployment in an Internet age, the FCC released an NOI (Notice of Inquiry) proposing to classify some part of broadband Internet service as a "telecommunications service." OK, so far, so good . . . I mean, I understand. If you're the FCC, and you classify some type of broadband Internet service as a Title II service, then you have broad powers to regulate the service (however it is defined) and ensure that consumers are protected through wholesale and retail rate regulation, regulation of terms of sale, etc.
But, here's the hitch: the FCC is talking about applying only a fraction of Title II regulations to broadband Internet related service . . . and then applying a type of "blanket" forbearance under Section 10 of the Act. Forbearance means that enforcement of a particular rule or regulation is not necessary to protect consumers, because the market is competitive enough to protect consumers without regulation with respect to that particular rule or regulation. This is where it starts to get a little weird.
You see, this whole "telecommunications service" classification idea is a response to the Comcast decision, in which the D.C. Circuit said that the FCC lacked authority under Title I to impose "net neutrality" principles/rules on providers of broadband Internet access service. So, a classification of some part of broadband Internet service as a "telecommunications service" would allow the FCC to impose its own consumer protection rules--in the form of "net neutrality" rules--on providers of broadband Internet access service.
To make things more clear, here's what's going on: the FCC thinks consumers and competition for broadband Internet connectivity services need protection. Only, the thing is that the FCC doesn't think the regulations that Congress established for the protection of consumers of "telecommunications services" are quite right--maybe a little too much consumer protection, or not quite the right mix of "heavy-handed" and "light touch" regulation? Or maybe the FCC just likes their proposed regulations for "telecommunications services" better than the regulations written by Congress. Weirder, still.
Only, here's where we go from weird to weirder to weirdest. Last week--only four days after the Commission came out with the NOI on Title II, replete with suggestions for blanket forbearance, the FCC comes out with its Order on Qwest's Petition for Forbearance from certain wholesale requirements imposed under Title II for the Phoenix MSA. The Qwest Phoenix Order was released four days after the NOI was released, but it was adopted two days before the NOI was adopted and released. So why is this so weird?
Well, the Qwest Phoenix Order adopts a very thorough analytical framework that must be satisfied before the Commission grants forbearance from certain requirements imposed on providers of telecommunications services. The Commission's analysis is "market power" based--meaning the FCC must assure itself that the market for the service for which forbearance is being considered must be a competitive market. A significant factor in the Commission's market power analysis is the concentration level of the market being analyzed. Said differently, the Commission will take a careful look at product and geographic markets, how many firms are in the market, and the relative market share, of the firms in the market for which forbearance is sought.
Stay with me now . . . we're almost there. So, in the Qwest Phoenix Order, even though cable providers are large and growing providers of mass market telephone service, even though many customers use over-the-top VoIP service, and even though as many as 25% of all households use only wireless service (Qwest Phoenix Order, ¶ 55, n.164), Qwest was unable to demonstrate the requisite level of competition and lack of concentration to justify forbearance from certain requirements of Title II for the mass market for retail telecommunications services. Given the fact that broadband Internet access services are almost always (approximately 91% of the time, according to the Qwest Phoenix Order, ¶53, n.159) bundled with, at a minimum, telephone service, it seems hard to reconcile the "blanket forbearance" suggested in the NOI with the analytically rigorous "market power based" analytical framework introduced in the Qwest Phoenix Order.
I'm not being critical of the Commission's methodology in Qwest Phoenix, but it does sort of strain credibility to pretend that the FCC can turn its new framework on and off--classifying broadband Internet connectivity as a type of telecommunications service, but then "looking the other way" on every exercise of forbearance from most of the requirements of Title II . . . especially not for incumbent LECs . . . and certainly not for Qwest . . . in Phoenix. Will a court buy the Jekyll/Hyde forbearance analysis necessary to implement the Third Way? Does the Third Way really bring regulatory certainty?
In a way, the reasoning is so circular that it reminds me of that old anti-drug PSA where a guy is trapped in a small stark room, which he paces around, faster and faster. He says that using cocaine helps him work hard . . . to make more money . . . to buy more cocaine, and he keeps pacing around the room, and repeating that phrase faster and faster, and, well . . . you get the point. In this case, it seems like the Commission is justifying classifying more services as being subject to more extensive regulatory classifications in order to protect consumers, so they can apply "lighter touch" regulations in order to protect more consumers, but, not to worry the Commission will subject more regulations to forbearance so they can promote more investment for the benefit of consumers, but, not to worry, the Commission will adopt more thorough forbearance standards so more regulations will remain available to protect more consumers. . . .
"Can't you?" the Queen said in a pitying tone. "Try again: draw a long breath, and shut your eyes."
Alice laughed. "There's no use trying," she said: "one can't believe impossible things."
"I daresay you haven't had much practice," said the Queen. "When I was your age, I always did it for half-an-hour a day. Why, sometimes I've believed as many as six impossible things before breakfast." --Lewis Carroll, Through the Looking Glass, Chapter 5
The quote is apropos of almost nothing. I just saw it recently, and I liked it. I suppose if you substituted "contradictory" for "impossible" you might get some meaning out of it by the end of this post.
The title should probably say: regulate, forbear, repeat. But, here's what's got me thinking in circles. Less than two weeks ago, under the color of protecting consumers and broadband deployment in an Internet age, the FCC released an NOI (Notice of Inquiry) proposing to classify some part of broadband Internet service as a "telecommunications service." OK, so far, so good . . . I mean, I understand. If you're the FCC, and you classify some type of broadband Internet service as a Title II service, then you have broad powers to regulate the service (however it is defined) and ensure that consumers are protected through wholesale and retail rate regulation, regulation of terms of sale, etc.
But, here's the hitch: the FCC is talking about applying only a fraction of Title II regulations to broadband Internet related service . . . and then applying a type of "blanket" forbearance under Section 10 of the Act. Forbearance means that enforcement of a particular rule or regulation is not necessary to protect consumers, because the market is competitive enough to protect consumers without regulation with respect to that particular rule or regulation. This is where it starts to get a little weird.
You see, this whole "telecommunications service" classification idea is a response to the Comcast decision, in which the D.C. Circuit said that the FCC lacked authority under Title I to impose "net neutrality" principles/rules on providers of broadband Internet access service. So, a classification of some part of broadband Internet service as a "telecommunications service" would allow the FCC to impose its own consumer protection rules--in the form of "net neutrality" rules--on providers of broadband Internet access service.
To make things more clear, here's what's going on: the FCC thinks consumers and competition for broadband Internet connectivity services need protection. Only, the thing is that the FCC doesn't think the regulations that Congress established for the protection of consumers of "telecommunications services" are quite right--maybe a little too much consumer protection, or not quite the right mix of "heavy-handed" and "light touch" regulation? Or maybe the FCC just likes their proposed regulations for "telecommunications services" better than the regulations written by Congress. Weirder, still.
Only, here's where we go from weird to weirder to weirdest. Last week--only four days after the Commission came out with the NOI on Title II, replete with suggestions for blanket forbearance, the FCC comes out with its Order on Qwest's Petition for Forbearance from certain wholesale requirements imposed under Title II for the Phoenix MSA. The Qwest Phoenix Order was released four days after the NOI was released, but it was adopted two days before the NOI was adopted and released. So why is this so weird?
Well, the Qwest Phoenix Order adopts a very thorough analytical framework that must be satisfied before the Commission grants forbearance from certain requirements imposed on providers of telecommunications services. The Commission's analysis is "market power" based--meaning the FCC must assure itself that the market for the service for which forbearance is being considered must be a competitive market. A significant factor in the Commission's market power analysis is the concentration level of the market being analyzed. Said differently, the Commission will take a careful look at product and geographic markets, how many firms are in the market, and the relative market share, of the firms in the market for which forbearance is sought.
Stay with me now . . . we're almost there. So, in the Qwest Phoenix Order, even though cable providers are large and growing providers of mass market telephone service, even though many customers use over-the-top VoIP service, and even though as many as 25% of all households use only wireless service (Qwest Phoenix Order, ¶ 55, n.164), Qwest was unable to demonstrate the requisite level of competition and lack of concentration to justify forbearance from certain requirements of Title II for the mass market for retail telecommunications services. Given the fact that broadband Internet access services are almost always (approximately 91% of the time, according to the Qwest Phoenix Order, ¶53, n.159) bundled with, at a minimum, telephone service, it seems hard to reconcile the "blanket forbearance" suggested in the NOI with the analytically rigorous "market power based" analytical framework introduced in the Qwest Phoenix Order.
I'm not being critical of the Commission's methodology in Qwest Phoenix, but it does sort of strain credibility to pretend that the FCC can turn its new framework on and off--classifying broadband Internet connectivity as a type of telecommunications service, but then "looking the other way" on every exercise of forbearance from most of the requirements of Title II . . . especially not for incumbent LECs . . . and certainly not for Qwest . . . in Phoenix. Will a court buy the Jekyll/Hyde forbearance analysis necessary to implement the Third Way? Does the Third Way really bring regulatory certainty?
In a way, the reasoning is so circular that it reminds me of that old anti-drug PSA where a guy is trapped in a small stark room, which he paces around, faster and faster. He says that using cocaine helps him work hard . . . to make more money . . . to buy more cocaine, and he keeps pacing around the room, and repeating that phrase faster and faster, and, well . . . you get the point. In this case, it seems like the Commission is justifying classifying more services as being subject to more extensive regulatory classifications in order to protect consumers, so they can apply "lighter touch" regulations in order to protect more consumers, but, not to worry the Commission will subject more regulations to forbearance so they can promote more investment for the benefit of consumers, but, not to worry, the Commission will adopt more thorough forbearance standards so more regulations will remain available to protect more consumers. . . .
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