October 11, 2013 12:58 PM

Surprise! FCC Regulations Promote Investment

Earlier this week, the Internet Innovation Alliance released a study on old networks, new networks, wireless networks, red networks, blue networks; who's using them, and how much they cost.  Coming in at 45 pages, including numerous pictures (each worth ~1000 words), the IIA had more to say than Sen. Ted Cruz on bath salts.  Luckily, you've got me to unpack this baby for you.  

In short, the IIA report dramatically shows what every FCC commenter has ever said in support of their comments: and that is that if FCC adopts the regulatory (vs. de-regulatory) policies advocated, then these policies will promote investment above and beyond the level necessary to deliver the regulated service.  To be clear--FCC regulations (they have to be affirmative burdens on regulated firms) promote investment.

Let's take a closer look.  According to IIA, only 5% of households depend on "POTS" (plain old telephone service), and the switched telephone network handles only about 1% of the voice traffic handled by IP networks (wireline + wireless + cable + CLEC).  Yet, and here's the kicker, from 2006 through 2011 more than half of incumbent LEC investment was used to support the POTS network in order to comply with . . . wait for it . . . FCC regulations!  

This investment--which was clearly not necessary to deliver voice service to consumers--amounted to over $13.5 billion dollars/year.  This is investment that can only be attributed to successful regulation.  I'd say former Chairman Julius Genachowski has something else to crow about . . . as if he needed another feather in his cap.
                                                                       
The impact of this report cannot be understated.  The Commission has scarcely seen such vindication of its efforts.  While the IIA tries to shy away from its pro-regulatory conclusions by saying that but for the FCC's legacy rules, more resources would have been diverted to providing advanced IP services that consumers want to use, this is idle speculation from self-interested parties.  The IIA knows full well that maintenance of this "museum network" is critical to our country's economic recovery.

Interestingly, the IIA study confirms what the left has been saying for years: cable needs to be regulated.  Why?  Well regulation certainly won't make them better companies--apathy is in their DNA--but regulation will make them pay their fair share.  Take, for example, Comcast's customer service rating: a resounding "disappointing", but only a step away from "terrible."  Verizon comes in almost even (the result you would expect in a competitive market).

The only difference between the two companies?  Verizon is contributing to the economy, and Comcast is getting a free ride--regulation-wise.  If Comcast were regulated, would they all of a sudden improve by providing "mediocre" or "somewhat acceptable" customer service?  No!  Of course, not--they would in all likelihood remain competitive with Verizon, but they would be contributing to US economic development.

Perhaps the party that comes off looking the worst out of this study is US Telecom.   US Telecom, in case you don't know, is the trade association of the incumbent LECs, and US Telecom has repeatedly fought the Commission's efforts to preserve these pro-recovery, pro-investment regulations. 

US Telecom filed an extensive petition last year explaining why a ton of legacy regulations no longer serve any useful purpose.  In fact, US Telecom has another petition pending with the Commission right now, seeking to remove some of these regulations by having its members declared "non-dominant" in the provision of wireline telecommunications services. 

In its arguments, US Telecom conveniently fails to list "investment" [for the sake of regulation] as a useful purpose of regulation.  This omission, of course, makes the US Telecom requests look deceptively reasonable.

Hopefully, the Commission will see through this shameless ploy and do what's right for the economy.  Frankly, it matters little whether 5% or .0005% of consumers use incumbent LEC wireline services: dominant is dominant, and dominant = regulations, dammit.  You know who "gets it?"  The competitors of the US Telecom members, that's who. 

Because of the government shutdown (costing countless jobs from regulations that are simply not being adopted), I couldn't check the FCC website to see who else had the foresight to oppose the US Telecom petition, but I did manage to find these opposition comments from CompTel here and here.  Thank goodness someone cares about preserving the investment burdens incentives of their competitors.
 

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