TIA: Regulating Broadband Under Title II Will Harm Investment, Innovation

Published June 9, 2010

The Telecommunications Industry Association hosted a Webinar in May explaining how regulating broadband under the Federal Communications Commission’s Title II rules will hamper investment and innovation.

“We’re extremely concerned about what the reclassification of broadband would mean for TIA’s member companies and the [whole] industry,” said TIA President Grant Seiffert. “This would be a tectonic shift with potentially drastic effects, both long-term and near-term, especially as it comes on the heels of the worst recession in nearly a century.

“The Webinar was among the first steps we’re taking to educate the public and the [technology] industry—as well as the Federal Communications Commission (FCC)—on the consequences of this action, which can still be avoided if overwhelming evidence compels the Commission to rethink its proposed course of action,” Seiffert said.

The FCC Plan
In the wake of the Comcast v. FCC decision in April—which stated the FCC could not regulate broadband under its more controlling Title II mandate without explicit congressional authority—FCC Chairman Julius Genachowski in early May unveiled what he called a “third way.”

In essence, Genachowski proposed subjecting “some” broadband services under the restrictive rubric of Title II “telecommunications services,” while allowing most of it to fall under the more lax Title I “information service” rules.

The broadband industry, however, has balked at this compromise, maintaining that the FCC lacks the authority to reclassify even part of a service that Congress put under Title I.

Stifling Growth
During the next four years, more than 37 million customers will add broadband subscriptions—49 percent increase over 2009. But networks will have difficulty keeping up with the demand if government rules are too restrictive, said TIA vice president for governmental affairs Danielle Coffey.

“What will have to be kept up is the networks being build up by private investment, which could be negatively affected by over-regulation,” Coffey said, adding that cumulative spending on telecom equipment has dropped to a projected $492 billion in 2010, down $60 billion since 2008

“Our industry can pull us out of the economic slump, so now is not the time to reverse course and over-regulate,” Coffey said.

Where Does Broadband Fit?
The key question for the FCC, says Russell Hanser, a lawyer at Wilkinson, Barker & Knauer, which specializes in telecommunications law, is whether broadband is a separable telecommunications service (transmission), plus an information service (processing, storage, retrieval). Or, he says, is broadband an integrated service that uses telecommunications?

The FCC initially said, in a 1998 report to Congress, that it was one integrated offering. But because it was an opinion in a report to Congress rather than an outright ruling, it didn’t have the rule of law.

In 1999, a federal court ruled that broadband was a separate service, Hanser said. And in 2002, the FCC ruled that a cable modem was an information service and there was no separate information offering. After a few appeals, however, the U.S. Supreme Court in 2005 upheld the FCC’s approach that cable provides a single, integrated information service.

Yet, while the Supreme Court ruled the FCC’s approach was “reasonable,” it also said that the FCC could have answered the question differently.

The Cloud of Comcast v. FCC
The next big ruling came when the FCC ruled against Comcast for throttling “bandwidth hogs” over its network. In April, the DC Circuit Court ruled against the FCC, which led to Genachowski’s “third way” that left many regulatory details ambiguous.

This third way raises some concerns, according to Hanser’s presentation at the TIA Webinar:

(1) Internet Service Providers (ISPs) will be subjected to a series of complaints;

(2) the FCC will then impose “restrictive measures” for broadband management;

(3) this will lead to uncertainty that will limit innovations due to concerns that any new developments could be declared unlawful in the future;

(4) this could lead to mandatory resale of broadband services to third parties’ and;

(5) there could be a substantial federal taxopayer contributions, through the Universal Service Fund, to complete Genachowski’s idea of  “National Broadband Plan.”

Dampening Broadband Investment
The uncertainty about Genachowski’s “third way” is having a dampening effect on investment, said Harold Furchtgott-Roth, an economist and former commissioner on the FCC.

“Telecom firms and venture capitalists delay investment until they have a greater sense of where things are going,” Furchtgott-Roth said. “I don’t think that anyone who looks at what the FCC has proposed thinks that it has a very clear future.”

Will Congress Act?
Despite all the uncertainty, Furchtgott-Roth doubts Congress will get involved with telecommunications legislation. If the FCC over-reaches by continuing down Genachowski’s path, the courts—and not Congress—will have to settle the dispute.

“At the end of the day, we got into trouble because the FCC wrote rules that did not follow the law clearly,” Furchtgott-Roth said. “The commission has a history of coming up with ‘inventive’ rules that don’t fall narrowly within the law. It puts not only the commission’s legal reputation at risk, it also puts businesses at risk of making decisions when they don’t know how courts will view it in the future.

“What we need is a commission that says: ‘This is what the law says. We’re going to write rules that are absolutely going to withstand court scrutiny. We’re not here to take risks with the American public, we’re not here to take risks with investors.’ “

Furchtgott-Roth that it is likely to take several years to determine whether the FCC has the right to regulate broadband under the “third way.”

Phil Britt ([email protected]) writes from South Holland, Illinois.