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Let Some Fresh Air Inside the FCC’s Smoke-Filled Tent

Let Some Fresh Air Inside the FCC’s Smoke-Filled Tent

FCC

According to a recent blog post from Public Knowledge executive and telecom pundit Harold Feld, negotiations to reach final rules for the FCC’s Business Data Services (BDS) proceeding are underway and he is encouraging AT&T to stop “throwing a hissy fit,” “read [] the writing on the wall,” and “come into the tent and negotiate.”

While we have previously raised concerns about some of the strange statements coming out of Public Knowledge in the BDS proceeding, Feld’s post deserves a particularly close look. Specifically, in explaining why he thinks AT&T should join Verizon in negotiating a solution, Feld speculates that if the Commission addresses the “ILEC monopoly” but does not “limit the emerging cable operators,” cable will somehow take advantage of this asymmetric regulation and dominate the marketplace. This theory is wrong in so many different ways that it requires some unpacking.

First, it’s jaw-droppingly hard to conceive that an advocate who has consistently complained about the “ILEC monopoly” in the BDS market for more than a decade would suggest that the biggest ILEC should join the second biggest ILEC in negotiating a regulatory regime that raises obstacles to emerging competitors. If you are concerned about market power and in favor of competition, why would you ever support regulation that constrains emerging competitors – particularly competitors investing in fiber networks that are tremendously expensive to build and that everyone agrees are vital to the future of the nation? Does Feld support FCC action to constrain the new small business services just announced by Google Fiber or is it just cable that should be limited? And how do you justify regulation of emerging competitors when the Commission has gathered “an insane boatload of data” over 15 years and absolutely none of that data even hints at those emerging competitors exercising market power in this space?

“If you are in favor of competition, why would you ever support regulation that constrains emerging competitors?”

Second, the theory that limiting the rates the ILEC can charge – but not limiting the rates new entrants like cable operators and others can charge – will somehow enable cable to dominate the BDS market is absurd. As NCTA explained in its recent comments, cable’s share of the BDS market today is somewhere in the range of 10 percent. To grow that share, cable operators have to offer lower prices than the incumbent, even if FCC rules allow them to charge higher rates. That’s why the Commission’s bipartisan, “asymmetric” policy for the last four decades has been to apply rate regulation only to dominant carriers, not to competitive providers. Note that there is broad range of parties that build networks – cable operators, competitive fiber providers, even some INCOMPAS members – that support retaining this framework for competitive providers. Feld’s suggestion that the Commission should abandon this policy because “the modern communications market has evolved to where we should look less to history and more toward the current state of the market” is meaningless nonsense. Markets change, but basic economic principles don’t. There is nothing about the current state of the BDS market that changes decades of settled competition policy that regulating the rates of new entrants is a terrible idea for those who care about promoting competition.

Not only does Feld miss the mark on the substantive issues, but his suggestion that AT&T “come into the tent and negotiate” illustrates just how broken this process has become – encouraging a ‘wheel and deal’ mentality more apt for the selling of used cars than the settling of sound policy through fair, open, and considered analysis. Even as the role that cable operators play in the BDS marketplace has become a key issue in the proceeding, the “negotiation” Feld refers to seems to be taking place only among the FCC staff, INCOMPAS, and Verizon (and with this group at the table, is it any wonder that the idea of regulating cable and other new competitors found its way into the proposal?)

At the same time, the Commission seems to be going out of its way to limit the ability of parties to raise concerns with its proposed rules, whether by rejectingrequests for a reasonable amount of time to file comments or waiting until the comment deadline to release peer reviews of its economic analysis, many of which raised significant concerns regarding the report submitted by the FCC’s economic consultant.

If we care about getting this right, we ought to start by returning to first principles. By any objective measure, cable simply does not have market power in the market for BDS services. That’s an inconvenient fact for advocates like Feld who would rather reflexively attack cable rather than cheer for its success in bringing new high-quality, lower priced services to business customers, but we are where we are. If we hope to get this proceeding back on track, perhaps we should avoid skipping to the end, and go back to encouraging more honest and rigorous analysis that incorporates the views of all parties to the proceeding.

"If you are in favor of competition, why would you ever support regulation that constrains emerging competitors?"

Second, the theory that limiting the rates the ILEC can charge – but not limiting the rates new entrants like cable operators and others can charge – will somehow enable cable to dominate the BDS market is absurd. As NCTA explained in its recent comments, cable’s share of the BDS market today is somewhere in the range of 10 percent. To grow that share, cable operators have to offer lower prices than the incumbent, even if FCC rules allow them to charge higher rates. That’s why the Commission’s bipartisan, “asymmetric” policy for the last four decades has been to apply rate regulation only to dominant carriers, not to competitive providers. Note that there is broad range of parties that build networks – cable operators, competitive fiber providers, even some INCOMPAS members – that support retaining this framework for competitive providers. Feld’s suggestion that the Commission should abandon this policy because “the modern communications market has evolved to where we should look less to history and more toward the current state of the market” is meaningless nonsense. Markets change, but basic economic principles don’t. There is nothing about the current state of the BDS market that changes decades of settled competition policy that regulating the rates of new entrants is a terrible idea for those who care about promoting competition. Not only does Feld miss the mark on the substantive issues, but his suggestion that AT&T “come into the tent and negotiate” illustrates just how broken this process has become – encouraging a ‘wheel and deal’ mentality more apt for the selling of used cars than the settling of sound policy through fair, open, and considered analysis. Even as the role that cable operators play in the BDS marketplace has become a key issue in the proceeding, the “negotiation” Feld refers to seems to be taking place only among the FCC staff, INCOMPAS, and Verizon (and with this group at the table, is it any wonder that the idea of regulating cable and other new competitors found its way into the proposal?) At the same time, the Commission seems to be going out of its way to limit the ability of parties to raise concerns with its proposed rules, whether by rejecting requests for a reasonable amount of time to file comments or waiting until the comment deadline to release peer reviews of its economic analysis, many of which raised significant concerns regarding the report submitted by the FCC’s economic consultant. If we care about getting this right, we ought to start by returning to first principles. By any objective measure, cable simply does not have market power in the market for BDS services. That’s an inconvenient fact for advocates like Feld who would rather reflexively attack cable rather than cheer for its success in bringing new high-quality, lower priced services to business customers, but we are where we are. If we hope to get this proceeding back on track, perhaps we should avoid skipping to the end, and go back to encouraging more honest and rigorous analysis that incorporates the views of all parties to the proceeding.