October 11, 2013 12:58 PM
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
. Thank goodness someone cares about preserving the investment
incentives of their competitors.
August 4, 2011 7:28 PM
Last Friday--after months of intense negotiation, compromise, and an exhaustive re-calculation of the Mayan Calendar
--the six largest "price cap" LECs submitted a comprehensive USF/Intercarrier Compensation reform plan
to the FCC ("the Plan"). [Note: you really only need to read "Attachment 1"--the rest just provides legal and economic support for the FCC to adopt the Plan.]
Under the Plan, the only economic incentive to keep the PSTN
alive will disappear on July 1, 2017. On that date, the Plan--and the Prophecy--require that Price Cap LECs shall be required to make money just like any other business: by efficiently selling services to customers who voluntarily decide to purchase these services.
This Plan, if adopted by the Commission, will serve to streamline intercarrier compensation, while more efficiently promoting the goal of universal access to broadband, as well as voice, services. At first, all of this will sound kind of scary to many of you.
Therefore, let me assure some of you that arbitrage will still be around for 6 more years
, and the Plan only requires the end of subsidies as they currently exist. The Plan is by no means a "Doomsday Prophecy", but merely a gateway to the implementation of simpler, more efficient, and more transparent, subsidy recovery mechanisms.
Let's look at how the Plan would affect two large, PSTN-dependent industries, if adopted today:VoIP Providers
1) Positive: allows for recovery of all VoIP-originated or terminated "toll" calls at interstate access rates for the next two years! That's a crazy incentive to upgrade to more efficient technology ASAP. As a LEC, you don't have to maintain "big iron" to get big bucks. There will also be a strong short term benefit to interconnected VoIP providers. No more haggling with big LECs who only want to pay you $.0007/min, and there's a big difference between $.05 and $.0007. For the next 6 years--albeit at descending rates--carriers serving end-users of VoIP service will be able to collect larger revenue streams than they are generally being paid today.
2) Negative: costs to over-the-top VoIP providers will increase, as may wholesale costs of transmission to interconnected VoIP providers (if purchased from a third party backbone operator--because as the costs collected from other carriers goes down, customer costs will increase; even in the wholesale world).Wireless Carriers
: Stone cold positive. No negatives here at all. Wireless providers get a quick transition from intrastate access rates (which are usually much higher than interstate) to the much lower interstate rates, and decreasing rates over time. It is notable that most of the Price Cap LECs in the Plan, DO NOT have wireless affiliates.Regulatory "Underbrush" Grows on Both Sides of the Fence
All of the price cap LEC's supporting the Plan have waxed eloquent at one time or another about the need for the FCC to eliminate its outdated regulations a/k/a "regulatory underbrush." The Price Cap LEC's Plan accomplishes a lot of these goals, but keep in mind, "regulatory underbrush" grew on both sides of the fence.
The same byzantine, opaque, universal service system also resulted in cost recovery mechanisms in the form of "services" that are no where to be found in the modern, competitive services offered by cable companies, and wireless carriers. For example, in a competitive market that didn't start as a regulated monopoly with the goal of keeping "basic" service rates low, would any of these things really emerge as "services" that customers would buy?
--"unlisted" phone numbers;
" service (in wireless, you can port a NY number to a TX carrier, but LEC voice providers still make you pay to "port" your landline number a mile away);
" (say a customer has one number for its business, but the customer actually buys 10 lines to make sure calls are always answered--the automatic process of "hunting" (finding an open line attached to the main number)--is sold as a separate service);
--phone handset "rentals": there have got to be some people still renting that bakelite phone
for 3 bucks a month;
--inside wiring "protection";
--selling common PSTN "vertical" switch features
, like caller ID, a la carte;
--charging extra for "touch tone" dialing (still happens
Bottom Line: The Price Cap LECs have a good plan to streamline regulations for "cost recovery." But, allowing carriers to to recover costs by receiving explicit subsidies and charging a fair price for service may cause the FCC to wonder how much in costs is still recovered via distorted "services" that emerged from the antiquated regulatory regime in need of reform. If you can think of any "cool" old, tariffed "services" that seem to have originated as a form of "cost recovery"--and are still being "sold"--please post in the comment section.