The Title II Broadband Credibility Gap: Can An Agency Trust Itself?

The problem with Title II regulation of broadband access is that it relies on a "promise" by regulators not to impose a wider range of traditional common carrier obligations on Internet service providers. This is part one of a three part series.

Here is part two:



Here is part three:

8 Liberal Groups Skeptical About Common Carrier Regulation of Broadband

Eight liberal advocacy groups signaled skepticism with a Federal Communications Commission plan for regulating broadband access as a common carrier service.

In a letter to Senate Commerce Chairman John Rockefeller (D-W.V.) and House Energy and Commerce Chairman Henry Waxman (D-Calif.), eight groups called for Congress to restore FCC authority over broadband after an April appeals court ruling appeared to undercut the commission's authority.

The Communications Workers of America, the Minority Media and Telecom Council, the International Brotherhood of Electrical Workers, the League of United Latin American Citizens, the National Urban League, the National Association for the Advancement of Colored People and the Sierra Club signed the letter.

Doubts about reclassification stem from the possibility that it could complicate the regulatory situation and lead to protracted litigation, according to CWA spokeswoman Debbie Goldman.

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Will Reclassification Derail FCC's Broadband Plan?

Some at the top level of the Federal Communications Commission may believe a new legal framework for its authority over broadband services will help keep its ambitious National Broadband Plan afloat, but some cable industry policy pundits wonder if the move might produce the opposite effect.

The FCC's reclassification effort could 'totally sidetrack the Commission from getting some pieces of the broadband plan done,' warned Steve Morris, VP and associate general of the National Cable & Telecommunications Association.

Light Reading Cable - Broadband - Will Reclassification Derail FCC's Broadband Plan? - Telecom News Analysis

FCC Votes to Open Title II Reclassification for Broadband Access

The U.S. Federal Communications Commission has taken the first step toward imposing limited regulations on broadband providers by voting Thursday to launch a notice of inquiry exploring the change.

The commission voted three to two to launch the notice of inquiry, which asks for public comment on a proposal by FCC Chairman Julius Genachowski to reclassify broadband as a common-carrier regulated service. It might be an expensive proposition, if the FCC proceeds.

Proposed regulation of high-speed Internet service as a "common carrier" service could cost the U.S. economy at least $62 billion annually over the next five years--a total of $310 billion--and eliminate 502,000 jobs, according to a study released by the Advanced Communications Law & Policy Institute at New York University Law School.

The report estimates that broadband providers and related industries may cut their investments by 10 percent to 30 percent from 2010 to 2015 in response to additional regulation.

At at 30 percent reduction in investment, the economy might sustain an $80 billion hit, according to Charles Davidson, director of the law school's Advanced Communications Law & Policy Institute.

"There will be follow-on effects in the whole ecosystem," said Bret Swanson, president of technology researcher Entropy Economics in Zionsville, Ind., who co-authored the study with Davidson. "A diminution of investment by the big infrastructure companies will reduce network capacity, new services, and investment by all the ecosystem companies."

These investments would spur capital expenditures by others in the ecosystem. A five-percent incremental increase in capital expenditures by the rest of the  ecosystem companies could boost investment by approximately $18 billion per year between 2010 and 2015--about $90 billion over five years--and yield an additional 450,000 jobs created or sustained.

One might ask whether it makes sense to place further burdens on a business whose revenue steadily is declining as a percentage of total end-user communications spending. It wouldn't be the first time the FCC or Congress has moved to essentially disrupt industry structure in hopes of spurring higher consumer welfare.

In the Telecommunications Act of 1996, voice services were liberalized. What nobody apparently anticipated is that wireline voice would suddenly reach its zenith, and begin a long, steady decline. The background assumption was that the business was a "growth" business, rather than a "declining" business. But common sense suggests that different policies are needed when a business is shrinking, than when it is growing, when a business can grow faster because of more competition and when it will simply decline faster because of new constraints. $310 Billion Economic Loss, Over 5 Years if Title II Rules are Imposed

AT&T Issues First Warning About Common Carrier Regulation

The great danger of the Federal Communications Commission's drive to regulate broadband access as a common carrier service is that it will choke off investment that is needed if we are to get the 100-Mbps network the FCC says it wants to see built.

Now AT&T has fired the first warning shot, saying it will reevaluate spending on its broadband access networks if the Federal Communications Commission decides to regulate broadband access as a common carrier service, the Wall Street Journal reports.

The warning can hardly come as a surprise. Both policy advocates and financial analysts already have warned that a capital strike is precisely what will happen if Title II regulations are imposed on broadband access.

"We would expect a profoundly negative impact on capital investment," warns Stanford Bernstein analyst Craig Moffett in a research note to clients.  "The only potential winners are the satellite providers, DirecTV and Dish Network, for whom incremental broadband regulation would dramatically reduce the risk of competitive foreclosure in the video business at the hands of bottleneck broadband providers," he says.

Former FCC Commissioner Harold Furchgott-Roth says the Federal Communications Commission's drive to reclassify broadband access as a common carrier service is "reckless" and "risky," will lead to a dampening of investment in networks, years of legal challenge and replaces an investment climate with a "casino" environment.

Of course, the drive to regulate broadband access as a common carrier service, despite being described as a targeted "third way" between unregulated information services and regulated common carrier services can be no such thing. The service either is an unregulated data service or it is a common carrier service under Title II. There is no permanent middle ground, as the FCC can later apply virtually any Title II common carrier obligations if it so desires, once the change is made.

In fact, the FCC's latest effort is the fourth time the FCC has launched inquiries into the status of information services, concluding three times before (Computer Inquiry I, II and III) that information or enhanced services are in fact to remain unregulated.

"The uncertainty the proposal creates will create a dampening effect on investment in the broadband business,"
says Furchgott-Roth, former FCC commissioner. Companies aren't sure what will happen and will delay
investment until there is certainty, he says.

If the FCC proceeds, and succeeds, "things will be tied up in courts for years an investors will gravitate to areas with greater certainty and opportunity for profit.

"There is a very clear correlation between certainty and investment," says Furchgott-Roth. "Unfortunately, both regulation and uncertainty is where we appear to be headed."

Some policy advocates will dismiss the AT&T threat as bluffing. "If this Title II regulation looks imminent, we have to reevaluate whether we put shovels in the ground," AT&T Chief Executive Randall Stephenson says, according to the Wall Street Journal.

AT&T could cut back spending on its U-Verse home television and Internet service, a move that would damage the FCC's other initiatives to spur more-rapid broadband adoption, at speeds up to 100 Mbps, for 100 million U.S. households.

U-verse service based on AT&T's fiber-to-curb archtiecture now is available to 24 million homes, and AT&T has a target of making it available to 30 million by the end of 2011. But AT&T warns that those plans could grind to a halt if common carrier changes the economics of fiber plant upgrades, which many observers believe is likely.

The reason is simple: common carrier regulation, even if touted as initially having a "light touch," would reverse decades of policymaking in the data services business and give the FCC ability to apply price regulations and wholesale obligations with mandatory pricing. The last time the FCC did that, in the wake of the Telecom Act of 1996, carriers put the brakes on new investment. In fact, Verizon did not begin its aggressive FiOS build until price controls were lifted.

Though the FCC says it won't invoke the most onerous Title II rules, such as regulating pricing, telecom companies worries that posture could be changed easily. And why wouldn't they?

"I'm a 3-2 vote away from the next guy coming in and saying I disagree with that, I take it away," Mr. Stephenson says.

If the FCC is counting on private capital to build the 100-Mbps new networks, and it is, then the drive to impose common carrier regulations virtually everyone expects will dry up investment is an unwise move. Whether the FCC understands this any better than it did in 1996 is questionable.

73 Democrats tell FCC to Drop Title II Gambit

73 House Democrats have sent a letter to the Federal Communications Commission warning the agency not to go forward with its plan to partially reclassify ISPs as common carriers, a move needed to impose net neutrality rules.

'The uncertainty this proposal creates will jeopardize jobs and deter needed investment for years to come,' wrote Texas Congressman Gene Green. 'The significant regulatory impact of reclassifying broadband service is not something that should be taken lightly and should not be done without additional direction from Congress.'"

Common carrier regulation in the U.S. communications business historically has been good for coverage, bad for innovation. It was good for quality but bad for prices.

Whether common carrier regulation would have the same impact on broadband and innovation in the broadband business is the question

73 Democrats tell FCC: drop net neutrality rules

FCC Title II Push is "Reckless," "Risky" and Will Create a "Casino" Environment

Mincing no words, former FCC Commissioner Harold Furchgott-Roth says the Federal Communications Commission's drive to reclassify broadband access as a common carrier service is "reckless" and "risky," will lead to a dampening of investment in networks, years of legal challenge and replaces an investment climate with a "casino" environment.

Of course, the drive to regulate broadband access as a common carrier service, despite being described as a targeted "third way" between unregulated information services and regulated common carrier services can be no such thing. The service either is an unregulated data service or it is a common carrier service under Title II. There is no permanent middle ground, as the FCC can later apply virtually any Title II common carrier obligations if it so desires, once the change is made.

In fact, the FCC's latest effort is the fourth time the FCC has launched inquiries into the status of information services, concluding three times before (Computer Inquiry I, II and III) that information or enhanced services are in fact to remain unregulated.

In light of those decisions, one has to ask: is broadband Internet access a separable telecommunications service plus a separate information service including processing, storage, retrieval, or a single integrated information service that uses telecommunications? If broadband access is deemed to be the former, the FCC might try to regulate some parts of the "access" service under Title II. If broadband access is seen to be the latter, then the current information services classification logically remains in place.

That's the chief problem with the Federal Communications Commission's effort to find some "third way" as it seeks

to impose Title II regulation for the first time, on broadband access services, says Russell Hanser, an attorney at

Wilkinson, Barker & Knauer.

"The uncertainty the proposal creates will create a dampening effect on investment in the broadband business,"

says Harold Furchgott-Roth, former FCC commissioner. Companies aren't sure what will happen and will delay

investment until there is certainty, he says.

The FCC's proposal simply is not conducive to investment, he says. "This is risky," he adds. It "puts businesses at

risk of making decisions they can't be certain about."

Years of litigation are certain to follow if the rules are put into place, Furchgott-Roth says. "The problem is that the proposal is not clear or narrow," and that is the sort of FCC decision that tends to clearly withstand legal challenge," he adds. "Anybody who talks to investors knows how much investors got burned 10 years ago based on faulty interpretations of rules," he says. "This is a casino environment."

If the FCC proceeds, and succeeds, "things will be tied up in courts for years an investors will gravitate to areas with greater certainty and opportunity for profit."

One might argue that means overseas investments will make more sense, or that investments in wireless will make more sense. But the FCC also seems to leaning towards regulating mobile providers more intensely than it already does, arguing that industry concentration is growing.

"There is a very clear correlation between certainty and investment," says Furchgott-Roth. "Unfortunately, both regulation and uncertainty is where we appear to be headed."