Ending Lopsided Legacy Broadband Regulation Is Imperative

On January 30, the FCC green-lighted geographic trials in which incumbent voice providers will offer all-IP technologies in place of copper-based legacy telephone service. In its IP Transition Order, the Commission stated its intent to “act with dispatch,” and to “facilitate the momentum of technological advances that are already occurring.”

The FCC staked out the right approach to promoting the transition to all-IP networks. But that same sense of urgency needs to infuse the Commission’s broader responsibilities that bear on the IP transition.

The FCC is not proactively using its forbearance and waiver authorities to free next-generation technologies from legacy regulations. And if not eliminated, legacy regulations will continue to serve as a harmful counterweight to broadband deployment and competition. Now that the groundwork for IP transition trials is set, FCC forbearance from legacy regulation of broadband-related services remains part of the unfinished business of the IP transition.

In its IP Transition Order the FCC explained:

Modernizing communications networks can dramatically reduce network costs, allowing providers to serve customers with increased efficiencies that can lead to improved and innovative product offerings and lower prices. It also catalyzes further investments in innovation that both enhance existing products and unleash new services, applications and devices, thus powering economic growth. The lives of millions of Americans could be improved by the direct and spillover effects of the technology transitions, including innovations that cannot even be imagined today.

Indeed, the consumer welfare benefits resulting from modernizing communications networks should be obvious. Even a cursory view of the dynamic changes that have taken place over the last two decades in the advanced communications market confirms this. Competitive broadband Internet services have appeared. Old phone monopolies have disappeared. Consumer choice in IP-based services is now abundant.

But despite digital age advances in competitive choice and technology, too many legacy telephone regulations remain in force. Outdated, unnecessary, and often arbitrarily-enforced, such restrictions are actually putting a drag on the increasingly IP-based world.   

A case in point is FCC’s unjustifiable, selective regulation of CenturyLink’s broadband enterprise services. 

Businesses with special communications and information technology needs often seek out enterprise broadband services to meet those needs. Typically, such businesses are savvy customers, willing to consider competing offers for the best customizable deal. The national broadband enterprise services market has over two dozen competing providers. Because the enterprise broadband market is highly competitive, there are no dominant carriers. The enterprise broadband services offered by all traditional incumbent voice carriers were relieved from legacy telephone regulations more than years ago – all except for CenturyLink, that is.

Inexplicably, some of CenturyLink's Ethernet and other broadband enterprise offerings are still subject to dominant carrier and Computer Inquiry tariff obligations. This leaves CenturyLink stuck with dominant carrier restrictions on its ability to offer flat-rate pricing on a nationwide basis to potential customers. Tariff obligations require CenturyLink to give the public advance notice of its price offerings, giving rivals a jump in luring enterprise customers.

Unfortunately, the FCC is not proactively using its forbearance and waiver authorities to free next-generation technologies from legacy regulations. In 2012, CenturyLink petitioned the FCC for forbearance relief. The proceeding failed to turn up any evidence that CenturyLink possessed market power. But the FCC pressed CenturyLink for additional information – a thinly veiled signal that the Commission was unlikely to grant forbearance. Not surprisingly, CenturyLink withdrew its petition. 

Now CenturyLink is again seeking forbearance relief from legacy regulation of its broadband enterprise services. FCC Chairman Wheeler should make granting justified forbearance relief on a timely basis a priority.

Rule of law considerations also warrant forbearance relief. As it now stands, one major provider of enterprise broadband services is placed at a significant regulatory disadvantage compared to all competitors. This is unequal treatment under the law, plain and simple. Judicial precedents applying the Administrative Procedures Act’s “arbitrary and capricious” standard make clear that agencies cannot treat like cases differently. Rather, agencies must apply the same criteria to all parties that petition for exemptions.

Finally, there are regrettable but important lessons to be learned from FCC’s record of foot-dragging on forbearance relief. The Section 10 regulatory forbearance process, particularly when applied in light of the Commission’s procedures, still treats legacy regulation as the default position. By placing the burden on market competitors to obtain regulatory relief, the process tends inherently to preserve the status quo rather than lead to prompt reform. 

A new Communications Act must reverse that presumption. Where markets are competitive, free markets should be the default approach. The burden should be on the regulators or pro-regulation parties to offer evidence justifying government intervention and restrictions. Actual evidence of market power and likely consumer harm should supply the deciding criteria under a new Communications Act.

The FCC needs to bring the same urgency to its elimination of legacy regulation of broadband services as it demonstrated in approving experimental trials. Putting an end to its unnecessary and arbitrarily-applied regulation of enterprise broadband services would serve as a solid first step. For now FCC forbearance from legacy regulation of broadband-related services is unfinished business of the IP transition. Forbearance should become an IP transition imperative.