The FCC Backslides on Unbundling

Published February 1, 2005

When I was growing up, when someone would get religion and profess faith, but then fall away from religious practice and slip back into his former way of life, it was called “backsliding.” Even though he knew better, some temptation from his former life was so powerful he was willing to go back to his bad old ways.

We’ve all just borne witness to some serious backsliding at the Federal Communications Commission (FCC), the regulatory agency for broadcast and communications technologies.

The FCC has been one of the most rogue agencies in recent memory. Charged with writing regulations to carry out the will of Congress in the Telecom Act of 1996, the agency has been rebuked by the D.C. District Court no fewer then three times for writing regulations that flew directly in the face of the act’s deregulatory intentions.

The FCC has behaved this way because regulators cannot be trusted to deregulate. They micromanage industries, pick winners and losers, usurp the normal function of markets by interfering with prices. But regulators do not deregulate.

The Right Course?

Finally this year, the commission seemed to get religion. In the last months of 2004, the commission made the correct decision on voice over Internet Protocol (VoIP), determining states could not regulate this transforming new technology.

State utility commissioners, natural FCC constituents, want desperately to tax and regulate VoIP, viewing it for starters as another opportunity to raise revenue. But the FCC did the right thing, in the face of what must have been enormous temptation.

And earlier in 2004, the FCC announced that if a company built a new broadband network, it would be free of the line-sharing rules that plague existing telephone networks and require that anyone describing itself as a “competitor” get virtual free use of these privately owned facilities.

That was the right decision on broadband. It made economic sense and showed respect for the rights of those who create, invest, build, and own. It was the principled thing to do.

But the FCC’s broadband decision was also a victory for the Baby Bells, which–despite the loss of 75 million lines and their collective decline to second place behind wireless service providers in terms of total customer lines–are still perceived in many regulatory circles as monopoly telephone service providers.

Thus the occasion for that most powerful of all temptations for regulators: to try to please all sides. Having made a decision that favored “one side,” the natural tendency for a regulator is to look for an opportunity to do something that favors the “other side” next time.

Well, it’s next time.

UNE v.4

In December, the FCC announced the results of its fourth attempt at network-sharing rules. Until recently, the assumption was that, chastened by the courts and driven by the free-market convictions of Chairman Michael Powell, the commission would do the right thing and quickly phase out line-sharing and unbundling regulations.

But the FCC has backslid. Oddly, although the commission acknowledges the damage done by unbundling regulations, it can’t resist leaving them in place for another year on mass-market lines and indefinitely on high-capacity lines used by businesses.

The FCC seems to have worked from a foregone political conclusion that high-capacity business lines would remain under the unbundling regime, and then manufactured an absurd standard for impairment to justify its conclusion.

It is unbelievable that almost a decade after the 1996 act, the FCC still has not carried it out. It is almost as if the FCC purposely tried to thwart the intent of Congress. The FCC’s failure will result in more lawsuits and continued regulatory uncertainty for telecom companies and investors. It is all the proof Congress should need that it’s time for new telecom legislation that not only completely deregulates communications, but also reforms the FCC.

Tom Giovanetti ([email protected]) is president of the Institute for Policy Innovation, a public policy research institute in Dallas.