The Third Way: The Unpacked Director’s Cut

Posted by: Bob Quinn on June 24, 2010 at 11:43 am

The problem with the Open Internet fight generally and the Title II fiasco specifically is that fiction tends to trump facts in the debate.  It’s understandable.  It’s easier sometimes to understand and write about the vague and empty rhetoric than it is to unpack the facts and legal framework that lie at the heart of the dispute.

But, with the FCC proposing, unfortunately, to dip the Internet into the sugar-coated world of Title II regulation – light touch or not – specificity and clarity are really essential to understanding the extent and limits to the regulation that the FCC and particularly its General Counsel are advocating.

So, starting today, and over the coming days, we will do the hard work of unpacking the complex and esoteric legal issues of this debate so you won’t have to.

It’s been said repeatedly that the FCC must examine Title II regulation to put the Open Internet on a “solid legal foundation.”  See here and here.

I will begin our examination by noting that the absence in the Notice of Inquiry (“NOI”) issued last week of that “solid legal foundation” is a very large problem which is compounded by the notion that the FCC might actually attempt to go directly from NOI to Final Order in this proceeding.  

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Investment: Compared to What?

Posted by: AT&T Blog Team on June 24, 2010 at 11:32 am

Authored By Jeanine Poltronieri, AT&T Assistant Vice President-Federal Regulatory

In the FCC’s 14th Annual Wireless Competition Report, the Commission spends a lot of time discussing investment. It also delves into profits. Now, before your eyes glaze over, stick with me on this. I’ll try to be brief.

The Commission analyzes capital investment and concludes that it is “robust” but “declining relative to industry size.” An analysis of either of these areas may be helpful. But why link them together?

The idea of comparing investment to industry size was proposed last year in comments filed by certain interest groups. They specifically focused on the capex and revenues of AT&T and Verizon and concluded that there was a decline in investment compared to profits. This decline, they said, is “a strong sign that providers are not competing on non-price factors such as investment.” In its report, the FCC adopted this idea but broadened the capex/revenues comparison to include the whole industry, rather than just AT&T and Verizon.

The notion that this comparison is a cause of concern, let alone the idea that this comparison demonstrates increased levels of concentration or declining competition , is simply untrue. AT&T made these points in our comments, but they bear repeating here.

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AT&T Statement on FCC NOI

Posted by: Margaret Boles on June 17, 2010 at 2:29 pm

The Federal Communications Commission (FCC) today moved forward, in a 3-2 vote, to consider subjecting broadband Internet services to Title II phone regulations. Attribute the following statement to AT&T’s Senior Executive Vice President-External and Legislative Affairs, Jim Cicconi:

“Today’s decision by the FCC is troubling and, in many respects, unsettling. It will create investment uncertainty at a time when certainty is most needed. It will no doubt damage jobs in a period of far-too-high unemployment. It will also undermine the FCC’s own goals for the National Broadband Plan. A better and more proper approach is for the FCC to defer the question of its legal authority to the US Congress. A clear and bipartisan majority of Congress has urged this, and in his comments today the chairman did acknowledge Congressional action as an option. AT&T continues to feel Congressional action is far preferable, and far less risky to jobs and investment, than the FCC’s current path.

“The FCC has argued that it is not seeking to regulate the Internet. The facts—indeed the very words of the proposal voted on today—tell a different story. The Internet is commonly defined as “a network of networks”, and the FCC proposes to regulate broadband networks virtually end to end under a regulatory structure devised in 1934 for monopoly telephone networks. This is impossible to justify on either a policy or legal basis, and we remain confident that if the FCC persists in its course—and we truly hope it does not—the courts will surely overturn their action. We would also note that, significantly, the FCC’s proposal today fails to articulate any legal theory on which it feels it can proceed with a Title II reclassification.

“The Open Internet is a reality today. It is the stated policy of AT&T and every other major broadband provider to preserve Internet openness. That is the basis on which we have spent billions to build broadband networks, and it is the basis on which we operate them today. Just as we have worked at an industry level to create private sector mechanisms for protecting the Open Internet, we stand ready to work with the FCC on narrow, targeted authority for the FCC to ensure today’s Internet openness is preserved in the future.”

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The FCC: Having Its Forbearance Cake and Eating It Too

Posted by: AT&T Blog Team on June 16, 2010 at 4:08 pm

Authored by Paul Mancini, AT&T Senior Vice President and Assistant General Counsel

Over the last month, various members of the FCC and others have publicly promoted the agency’s proposal to change the classification of broadband Internet access service.  In a nutshell, the FCC wants to take broadband Internet access service out of the competitive-oriented Title I “information service” category where it has resided for more than a decade and put it into the old-style, monopoly phone-oriented Title II “telecommunications service” category.  No need to worry about those heavier Title II regulations deterring investment, innovation and jobs, say these folks, because the agency will only apply what it thinks are the six most essential sections of Title II and it will “forbear” from all the rest.

As more details on the legal theories girding this proposal come out, we’ve noticed a rather curious contradiction in the FCC’s proposal.  On one hand, when the FCC explains why it can jettison over a decade of bi-partisan deregulatory precedent and impose Title II common carrier regulations on the Internet, the agency claims that the legal threshold for “reclassification” is quite low.  Citing the Supreme Court’s decision in FCC v. Fox Television Stations, the FCC says it need not show any major change in circumstances or “market shift;” it only needs to take a “fresh look” at Internet technology and the broadband market and then “simply provide a reasoned justification” for its decision.  (As you might expect, we and others have a very different view of Fox)

On the other hand, when explaining why nobody should be concerned that the FCC will later rely on this same permissive interpretation of Fox to simply “unforbear” and impose some or all of the remaining Title II regulations on broadband Internet access, the agency says that reversing its forbearance precedent would involve a “painstaking process”  requiring it “to compile substantial record evidence that the circumstances it previously identified as supporting forbearance had changed.”  

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Right Brain vs. Left Brain

Posted by: Rich Clarke on June 10, 2010 at 12:23 pm

The FCC’s annual report on competition in mobile wireless is 308 pages chock-a-block with detailed information and analysis about developments in this quickly-evolving business.  We read how customers are continuing to flock to mobile services – especially broadband data.  We are informed that TracFone, a subsidiary of global giant América Móvil, has become the fifth-largest carrier in the U.S. with over 14.4 million subscriptions.  We learn that U.S. wireless customers pay only a third as much per minute as their international peers and consume three times as many minutes.

We read that over the past three years text messaging per user has octupled as per-message prices have dropped by 70%.  We are informed that our smartphone take-up leads the world and is continuing to explode – driven by multiple new app stores and mobile device operating systems.  We are told that customer churn between carriers remains significant but stable at one out of every four customers each year, indicating that lock-in is weak but service quality is not declining.  We learn that even more capable 4th generation wireless technologies are on the cusp of being deployed.  And we read that no other major developed country has as many similarly-sized large competitors or is less concentrated.

Faced with all of this left-brain information and analysis indicating the tremendous pro-consumer performance of the U.S. mobile wireless industry, it is astounding that certain commenters have chosen a right-brain reaction to fixate on one concentration statistic as the report’s headline conclusion.  This scarlet statistic is 2848, a weighted average of the Herfindahl-Hirschman Indexes (HHIs) that the FCC has calculated for each of 172 geographical areas (known as EAs) covering the country.  While some people are anxious because by the FCC’s calculation of this statistic, its value now exceeds 2800 and has risen moderately over the past five years, economists know this is of no great concern.  There are several reasons.

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