Legislative and Regulatory Strategies for Providing Consumer Safeguards in a Convergent Marketplace

1. Legislative and Regulatory Strategies for Providing Consumer Safeguards in a Convergent Marketplace A Presentation at The Broadband Act of 2011: Designing a Communications Act for the 21st Century Washington, D.C. September 30, 2010 Rob Frieden, Professor of Telecommunications and Law Penn State Universityrmf5@psu.edu Web site : http://www.personal.psu.edu/faculty/r/m/rmf5/ Blog site: http://telefrieden.blogspot.com/

2. Opportunities and Challenges Presented by Convergence • Technological and market convergence has become a reality with IP-centric networking and carrier “quadruple play” offers. • Service definitions created by Congress create mutually exclusive regulatory silos that don’t work when carriers offer convergent services like Voice over the Internet Protocol (“VoIP”) and Internet Protocol Television (“IPTV”). • The Comcast case leaves little doubt whether the FCC can apply even streamlined Title II common carrier, telecommunications services regulation to information services. Deregulation appears to operate one way, irreversibly. • Congress should create an Internet Service definition with quite limited nondiscrimination, reporting and transparency requirements for the bit transport function of ISPs. The likelihood of this: near zero. • In lieu of clear legislative authority the FCC risks exceeding its statutory authority (Chairman Genachowski’s “Third Way”). • The paper explores what the FCC can and should do in the absence of a new legislative mandate: impose structural or functional separation of bit transport from services; require transparency, nondiscrimination and network congestion reporting coupled with sanctions like that imposed on the Madison River Telephone Company which blocked DSL subscriber access to VoIP services.

3. One Size No Longer Fits All • Incumbent firms, in particular, have vertically and horizontally integrated to exploit technological convergence. While this can promote competition, market consolidation also occurs through more numerous mergers and acquisitions. • Congress contemplated that public utility, economic regulation need only apply to core telecommunications services that favored monopolization and scale economies. Information services qualified for limited oversight as new technologies initially and perhaps later based on their non-essentialness and the likelihood of sustainable competition. • The FCC considers statutory service definitions to be mutually exclusive and has evidenced an inability to apply 2 or more classifications to ventures offering multiple and convergent services. • Either/or classifications create regulatory quandaries and irrational outcomes: 1) the FCC cannot provide consumer safeguards when information service providers operate anticompetitively, and 2) the Commission has to finesse or avoid providing clarity in classifying services, e.g., having classified basic Internet access (DSL, cable modem, wireless broadband) as an information service, how can the FCC not treat “over the top” software and applications as an information service as well? • If the FCC acts consistently VoIP and IPTV would qualify for information “safe harbors” leading to harmful secondary effects, e.g., a bankrupt universal service fund.

4. The FCC Lacks Regulatory Flexibility • As evidenced by the need to backtrack from near complete abandonment of broadband access regulatory oversight, the FCC needs to find a lawful way to impose limited safeguards. • For VoIP the Commission found a way to stretch Title I “ancillary jurisdiction” in light of the potential economic harm to universal service funding and carriers providing conventional telephony. • Without ever specifying which statutory definition applies to VoIP that has access to or from conventional networks (the “PSTN”), the FCC has applied some Title II requirements ostensibly to safeguard consumers at the expense of VoIP competitive attractiveness. • VoIP operators with PSTN access must contribute to universal service funding, support number portability, provide access to subscribers with disabilities, and install wiretaps for law enforcement. • Remarkably the FCC has avoided classifying IPTV and applying the same sort of Title I jurisdiction in light of the potential for IPTV to cause economic harm to television broadcasters and adversely impact public policy goals such as localism.

5. The FCC Abandoned the Most Effective and Straightforward Safeguards While many nations have successfully imposed structural/functional separation of basic and enhanced services, the FCC abandoned such requirements over twenty years ago based on unproven assertions of lost synergies. No one has demonstrated significant economic harm and inefficiency in requiring the dominant incumbent carrier to split its basic line provisioning duties from other value added services. The FCC could but will not pursue this option in light of heavy lobbying pressure and the benefits the Commission accrues in deregulating powerful stakeholders. The FCC has eliminated other safeguards still mandated by the Communications Act, e.g., local loop unbundling based on also unproven assertions that such requirements cost jobs and remove incentives to invest in next generation network plant. LLU in other nations has promoted price competition, even for broadband access, without the significant predicted harms.

6. The FCC Creates Regulatory Quandaries When It Engages in Results-Driven Decision Making The FCC’s deregulatory bias creates incentives for the Commission to “fudge” the facts by failing to generate a complete evidentiary record, relying on stakeholder advocacy masquerading as facts, generating suspect statistics to favor preferred outcomes and failing to subject its fact finding to peer review. Consider the number of instances where the FCC has generated flaws or deceptive statistics: ala carte cable; 70/70 rule trigger; counting media outlets by number regardless of market share; broadband floor or 200 kilobits per second in one direction; zip code geographical wingspan for broadband measurements; 99% of all merger proposals approved as ways to “promote competition;” deliberately obscuring and sanitizing data through redactions and trade secret classification.

7. Recommendations The FCC should: Refuse to grant blanket trade secret/confidentiality requests from stakeholders; Resolve to compile understandable, credible, granular, and reproducible statistics based on reasonable benchmarks; Seriously consider the consequences of mergers to consumers; Commit to best practices that would survive peer review; Use open hearings and compile a complete evidentiary record; and In the absence of legislation, require Internet Service Providers to separate their bit transmission conduit function from content; this would require the FCC to abandon the semantic distinction between offering and providing telecommunications—part of the flawed rationale for deregulating broadband access which Justice Scalia in the Brand X case identified as too clever.