April 3, 2017 12:21 PM
Last Thursday, the FCC released its Draft Report & Order
("Draft R&O") in the Business Data Services ("BDS") (formerly "Special Access") proceeding. At first glance, the Commission's Draft R&O does a lot of things right; not least of which is finding the needle of rational, targeted rules in a gigantic 15 year old haystack of a public record.
As we've explained
previously, then-Commissioner Pai's characterization
of the previous Commission's "analysis" in its Tariff Investigations Order/FNPRM
in this proceeding as "a trip through the looking-glass" was not wrong. In the Lewis Carroll story, Alice escapes from the looking-glass world by imposing rationality (she grabs and shakes the Red Queen--who she blames for all the chaos of the day--which then places the Red King in "checkmate," thus ending her dream by ending the metaphorical "game"). See Wikipedia summary
Similarly, Chairman Pai returns the FCC's BDS proceeding to reality by seizing control of a chaotic record and wringing some logic out of the multiplicity of data in the Commission's possession (compiled at great cost to both BDS providers and the Commission). Pai, thereby, places the previous Commission's focus on the preferred outcomes
of specific parties in "checkmate," and returns the proceeding to reality. But, what does this mean?Return to Procedural Integrity/Reliance on Public Record
While many are aware of Adam Smith's observation that, "[p]eople of the same trade seldom meet together . . . but the conversation ends in a conspiracy against the public," few are aware of how the paragraph ends:
But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.Wealth of Nations
, Book I, Ch. 10, Para. 82
(emphasis added). Chairman Tom Wheeler's FCC was arrogantly dismissive of both Smith's initial concern--that competitors' collaborations might harm the public--as well as Smith's admonition that the "law" should not promote, much less condone, such assemblies between competitors.
Thus, Wheeler supported
adopting a negotiated proposal between two self-interested parties that would have imposed across-the-board, nationwide price regulation on any service below 50Mbps
. Worse still, as we noted
then, the Wheeler FCC was actively manipulating procedural rules in order to foreclose public comment (that the Commission's own evidence did not support this privately negotiated outcome). By contrast, the current Commission's Draft R&O focuses entirely on the record evidence and getting its analysis correct. Eliminates Barriers to 5G Backhaul Investment
The FCC, on its 5G page
, acknowledges that the many benefits of the projected speed/capacity advances (10X-100X LTE) of 5G are critically dependent on massive fiber investment to provide backhaul to the many more small cell sites that this technology requires. Even former FCC Chairman, Tom Wheeler, acknowledged the necessity of increased fiber backhaul in this June 2016 speech
. See p.6.
Wheeler, however, was prepared to disregard the consensus
view of economists that governmental price controls generally have the paradoxical effect of reducing both the quality, and availability, of the product/service subject to price controls
. See, e.g.
, experience w/rent control
policies. Instead, Wheeler embraced the idea (of interested parties) that the FCC should set price limits on all services below a certain threshold.
This Multichannel News article
from 9 months ago, notes that 50Mbps was considered "table stakes" and likely would have ultimately included even higher capacity services. At this time, speculation about a radical change in regulatory policy was rampant, and it is almost certain that some plans for additional fiber investment were put on hold.
We can see further evidence of the chilling effect of previous threats of price regulation in the FCC's tentative decision (in its Draft R&O) to affirmatively classify certain new competitive services (Ethernet over legacy cable facilities) as "private carriage." In doing so, the FCC rejects the previous Commission's desire to classify--as a predicate to expanded price regulation--all BDS services
as common carrier telecommunications services. See Draft R&O, paras 253-273. This classification allows these new entrants to participate in the provision of fiber transport/wireless backhaul without being subject to legacy common carrier regulations, like the obligation to serve all customers on similar terms. Rationally Protecting Consumers
The measure of good economic regulation is that it works to limit market power where competition does not yet exist. In 2002, AT&T (the CLEC) filed its Petition for Rulemaking
because, after only two years, the Commission's 1999 Pricing Flexibility Order
allowed widespread deregulation (throughout the entire MSA) on the thinnest of theoretical evidence ("collocation" in a small number of ILEC central offices.)
In the Draft R&O, the FCC fixes this problem in two critical ways. First, it reduces the size of the geographic market over which deregulation is granted. On average, the Commission shows that an MSA is about 7X larger than the county-wide market that the FCC proposes.
Second, the FCC demands real-world proof that effective competition exists in the county, before granting deregulation. At least 50% of the locations in the county that use BDS must be within a half mile of a competitive network, or at least 75% of the census blocks in the county must be served by mass-market cable broadband service.
The Commission estimates that, under present market conditions, most of the 3,100 counties in its initial market test computation (about 63%) will be considered "competitive," and deregulated entirely. See Draft R&O, para 146. Customers still in "non-competitive" counties, however, will now be even better protected by regulation, because the FCC re-imposed the dormant-since-2003 "productivity factor," which allows customers to benefit (in the form of lower rates) from expected ILEC cost declines. See Draft R&O, paras 190-248. All Things Considered . . .
Chairman Pai deserves a lot of credit for coming close to the ideal of intelligent regulation: rules that are applied on a granular basis where needed, and eliminated entirely in those product/geographic markets where competition is sufficient to provide a superior result than regulation. Not everyone will like the FCC's approach, but, it efficiently solves the problem identified by AT&T in 2002--and late is better than never.
February 10, 2017 11:40 AM
It interesting to note how former FCC Chairman Tom Wheeler passively and aggressively defied the House
post-election requests for the agency to focus "only on matters that require attention under the law." In ignoring that Congressional request, on December 1, 2016, Wheeler ordered the Wireline Competition Bureau to designate
4 carriers as "eligible telecommunications carriers" ("ETC's") for purposes of participating, as broadband providers, in the Commission's "Lifeline" program, which offers a $9.25/month subsidy to carriers serving low-income customers. Then only two days before Chairman Wheeler left the Commission, the Wireline Competition Bureau, without Commissioner input, went ahead and designated
5 additional carriers as broadband ETCs.
To put the Bureau's actions into context, consider that since the FCC first initiated reform of its Lifeline Rules back in March, 2011
--it has designated exactly 0 carriers as wireless, or broadband, ETCs
. Thus, in more than 6 years the FCC made no ETC designations, despite having applications that have been pending for longer, and from equally--or better--qualified applicants. Oddly, the recent ETC Designation Orders offer no explanation for why these carriers
, out of all the pending applications
, were chosen for approval.
So, it's against this backdrop, that Chairman Pai took the incredibly wise and unremarkable step to request a pause
and take a second look at the two orders, which represented the first agency action on ETC designation in at least 6 years. Nevertheless, that did not hold the Washington Post
back from breathlessly issuing a sensational, and misleading headline that the "FCC is stopping 9 companies from providing subsidized broadband to the poor."
By Monday, the story grew only more misleading as activists on the Left amplified it on social media. Against this backdrop (keeping in mind that Chairman Pai's very first policy pronouncement
to the FCC's staff prioritized the importance of improving the quality/speed of broadband service available to rural and low income Americans), the Chairman, on Tuesday, personally penned an article
on Medium, explaining in detail the Commission's recent decision.
Perhaps concerned that a good fake-news-cum-Twitter-outrage-campaign story was going to die from exposure to the cold hard facts, Gigi Sohn, a former senior advisor to previous FCC Chairman Wheeler, penned her own blog post
yesterday--to address a "controversy" resulting from a misleading article (that she probably sourced in the first place). In her post
, she argues that Chairman Pai's Medium article
"doth protest too much" and that his "arguments fail to mask two clear truths."
While the normal use of the Hamlet line
"doth protest too much" means the person protesting actually supports the conclusion they argue against, it's obvious that Sohn does not think that Pai secretly supports the previous FCC's post-election change of policy. Moreover, even though the "clear truths," to which she refers
, are both actually "arguments;" let's look at these.
The first "clear truth" she argues is that Pai's "actions will make the market for Lifeline broadband services less competitive, limiting choice and keeping prices high." But if you read the two ETC Designation Orders, you will see that the only firms that are already selling their "broadband" services are wireless resellers offering 3G and 4G data as part of overall wireless plans. This is not to impugn these firms' offerings, but to clarify that the same offers were already available to Lifeline consumers from other carriers, e.g
,--and will remain so, despite Pai's decision to rescind these designations.
Yet, if Sohn felt this strongly about the merits of Lifeline "competition," why didn't she and Chairman Wheeler approve more qualified providers as ETCs, starting at the beginning of his term as Chairman?
I, personally, have a client
that--during the terms of the last 3 Democratic FCC Chairs--has consistently been rated
as the "best," or among the very best, wireless service providers in the country, and which has been waiting over 7 years for ETC Designation
The second "clear truth," which Ms. Sohn believes Chairman Pai's Medium article exposes, is that "[Pai] and fellow FCC Commissioner Michael O'Rielly, fundamentally disagree with the structure and goals of the Lifeline program and will seek to undermine it in word and deed." This statement is a textbook example of the logical fallacy of ad hominem
, in which an argument is rebutted "by attacking the character, motive, or other attribute of the person making the argument, or persons associated with the argument, rather than attacking the substance of the argument itself." Here, Ms. Sohn fails to refute any reason proffered by Chairman Pai for taking a second look at the ETC Designation orders, and simply accuses Pai, and the other Republican FCC Commissioner, for having some broader "evil" motive ["disagree[ing] with the 'structure and goals of the Lifeline program'"] unrelated to this specific dispute.
If there is one thing that Ms. Sohn's blog post
does successfully convey, it is to give us a better idea of where the first misleading headline came from, at least in terms of motive. Perhaps if Sohn took less "surprise and delight" in someone else having to defend themselves against misinformation, then she could have advised Chairman Wheeler to take an interest in Lifeline competition before
being asked by Congress to focus only on matters "that require attention under the law" prior to the change in presidential administrations.
February 8, 2017 2:33 PM
In his first two weeks on the job, newly-appointed FCC Chairman Ajit Pai seems to have already distinguished himself from his predecessor, Chairman Wheeler. The distinction is not merely one of political philosophies--which was apparent when Wheeler was still Chairman. Rather, the two are distinguished by differences in leadership styles and goals.
Wheeler, for his part, took the reins of the Commission with more industry-specific knowledge than any prior Chairman--having been the head of two major industry associations. However, Wheeler had no specific policy goals, a general philosophy ("competition, competition, competition"), and a leadership style more accustomed to dictation than persuasion and cooperation. Thus, Wheeler's legacy as Chairman may have been destined to end up as bitterly disputed as the rules he would adopt.
Chairman Pai, on the other hand, has chosen to be much more inclusive--of both his fellow Commissioners and the public--in order to progress toward an ambitious policy priority; bridging the digital divide. Notwithstanding some predictable hyperbole from "net neutrality" advocates
(dedicated to a dogma that "protects" consumers from a non-existent
"threat"), and a sensational headline
about "stopping services" to few, if any, customers (which Pai himself debunked
), Chairman Pai has been very well-received
. Importantly, Pai deserves credit for his commitment to humble/inclusive leadership, and for prioritizing the goal of improving access to advanced communications services of rural, and low income, Americans.Good Ideas Don't Just Come from the Boss
The advantage of being the Chairman of an independent agency is not only the ability to set the agency's agenda, but also in the Chairman's solitary ability to control every matter on the agenda until the last minute, changing the item as needed to get the votes the Chairman wants. To give up this power requires real humility, but it offers the prospect of getting the best possible advice/information/criticism from one's Commission colleagues and the public.
On February 2nd, as part of a "pilot program," Chairman Pai elected to
release to the public complete drafts of two items (an NPRM and a Report & Order) at the same time the items were included on the agenda for the FCC's next Open Meeting, on February 23, 2017. Pai hopes to make this a routine Commission practice in the future. Likewise, on Monday of this week, Chairman Pai pledged
to share with the other Commissioners the content of matters that would be voted on at future FCC Open Meetings before
disclosing this information to the public or members of the press. Finally, yesterday, he adopted two additional
process reforms--at the suggestion of his fellow Commissioners, Michael O'Rielly (R) and Mignon Clyburn (D). Leading Toward a Specific Goal
Chairman Pai's decision to enlist everyone's talents is smart; because he's going to need all the help he can get. You see, Pai has chosen to address a formidable problem that has long confounded policy-makers: the "digital divide," which has left many Americans without access to advanced communications services. In his first speech
as Chairman (to Commission staff), Pai stated his belief that "one of our core priorities going forward should be to close that divide--to do what's necessary to help the private sector build networks, send signals, and distribute information to [all Americans]."
This was not, by any means, the first time that Pai has drawn attention to this problem. As recently as September of last year, then Commissioner, Pai released his "Digital Empowerment Agenda
" which contained a number of ideas for things the Commission could do, either by itself or as part of a partnership with local governments, to spur broadband buildout to underserved communities throughout the country.
Yet, despite having his own ideas about how to help bridge the digital divide, Chairman Pai, consistent with his process reforms, seems more interested in soliciting the best ideas of others. Thus, at his first Open Meeting as FCC Chairman, Pai announced
the formation of a "Broadband Deployment Advisory Committee" ("BDAC") to "provide advice and recommendations to the FCC on how to [accelerate broadband deployment in underserved areas]." And, while the group's first
project will be to provide recommendations for how to bridge the digital divide "by reducing and/or removing regulatory barriers to infrastructure investment," there is no reason to think the group will only be used for one project. See Announcement
and also Public Notice
. Nothing to Lose
The problem that Pai has chosen is as vexing as it is worthy, and Chairman Pai's willingness to "tie himself" to this problem is both ambitious and risky. However, as someone
once said, "it's amazing what you can accomplish if you don't care who gets the credit."
The full support of the FCC--and the private stakeholders, whose support the FCC is currently enlisting--will lead to cooperation from, at least some, state and local governments, and will improve access for some Americans. But, even in the worst case scenario, policymakers will at least have a better conception of the problem than they did before. In other words, by choosing a specific goal--along with his humble commitment to including the public, private stakeholders, and fellow Commissioners--Chairman Pai has made it more likely that some of the country's most neglected consumers will see a bigger slice by the end of his term.