As we enter the last few days of 2014, it is the perfect opportunity to look back and review the challenges the Commission faced entering this year and see what it has or has not accomplished. We will also provide our grade for the Commission in each crucial area.

The Transition to the IP-Based Network

At the end of 2013, we wrote that the most important task facing the FCC was to develop rules and regulations that would govern the phasing out and eventually elimination of the existing ILEC Time Division Multiplexed (TDM) networks and the move to networks based on Internet Protocol (IP) technology. How did the Commission do?

The Commission started the year strongly when it issued an Order January 31, in Docket 13-5 announcing that it would conduct a variety of experiments and data collection initiatives that would allow it to evaluate how the industry would be affected by the network transition. Since that time, it has approved a major AT&T trial in Alabama and Florida and may soon approve a CenturyLink trial in the city of Las Vegas.  Such trials are necessary to protect end user customers and their importance cannot be minimized. It is notable, however, that the ILECs conducting these trails have emphasized that the wholesale services and interconnection they provide to CLECs for these trials cannot be construed as long-term lawful regulatory obligations.

Speaking of wholesale issues, despite an entire year of lobbying from CLECs, the Commission has completely failed to develop rules for CLEC-ILEC IP interconnection. This failure has permitted ILEC s to argue that the section 251 interconnection rules in the 1996 Telecom Act such as TELRIC pricing and reciprocal compensation do not apply to IP interconnection and ensures that they can use their market power to negotiate favorable interconnection agreements.

Belatedly, the Commission finally released a Notice of Proposed Rulemaking (NPRM) on November 25, in Docket 14-174 addressing CLEC concerns about the availability of wholesale services during the transition to the IP network. In the NPRM, the Commission tentatively concluded that to receive authority to discontinue, reduce, or impair a legacy service that is used as a wholesale input by CLECs, an ILEC must commit to providing CLECs equivalent wholesale access on equivalent rates, terms, and conditions.  Industry comments and reply comments on the Commission’s tentative conclusion are due in January and February of 2015 respectively.

Commission Grade: C-   

The Commission is lagging terribly in developing regulation s to keep pace with the changing network technology.  It is doing a good job in protecting consumers, but up to now, it has failed the wholesale industry.

Net Neutrality    

2014 was a rough year for the FCC as it attempted to develop rules to regulate the Internet. On January 14, the DC Circuit Court of Appeals issued a decision rejecting key aspects of the FCC’s net neutrality Order issued in Docket 09-191 on December 21, 2010. Specifically, the Court rejected the following provisions of the Order: 

No Blocking – A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not block lawful content, applications, services, or non-harmful devices, subject to reasonable network management.

No Unreasonable Discrimination – A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not reasonably discriminate in transmitting lawful network management over a consumer’s broadband Internet access service. Reasonable network management shall not constitute unreasonable discrimination.   

As was expected, the Court found that the Commission went too far and did not have the authority under Title II of the 1934 Telecommunications Act to regulate broadband Internet service providers as if they were common carriers, after the Commission had previously classified broadband Internet service as a Title I information service.

On May 15, in response to the DC Circuit rejection, the Commission issued a new NPRM seeking industry comments on future Internet regulation. The Commission tentatively concluded that broadband Internet access should remain an information service regulated on an ancillary basis under section 706 of the Act. Moreover, the Commission controversially concluded that companies should be permitted to pursue commercially reasonable agreements that would allow them to pay more to prioritize their traffic. The Commission requested industry comments on how to devise a rigorous, multi-factor screening to analyze whether any such commercial agreement hurts consumers, competition, free expression, or civic engagement as a test of its “reasonableness.”

Consumer advocates reacted harshly to the Commission’s proposal and managed to create an uproar demanding the Commission reclassify broadband Internet access as a Title II telecommunications service. President Obama added to the voices when he too demanded reclassification, putting the FCC in a tough position.

FCC Chairman Tom Wheeler knows that reclassification would have a difficult time withstanding judicial scrutiny. He also knows lawful discrimination is permitted even under Title II, which would result in Internet prioritization anyway. That is why he did not push for reclassification originally. However, as the year ended, it appeared that the pressure was negatively affecting the Chairman. He first proposed a hybrid regulation approach which was immediately rejected by all sides. And it now appears likely that he will give in to the public pressure and propose reclassification in January or February of 2015.

Commission Grade: Incomplete

We’d like to give the Commission an F due to its making Internet regulation so political and appearing ready to concede to the incessant if uninformed political pressure. Since no final decision has been made, however, that would be unfair. If the Commission does choose to reclassify broadband Internet access, it will lead to years of litigation and uncertainty in the industry.

Special Access Investigation

On December 18, 2012, in Docket 05-25, the FCC released its data request regarding the special access market. The data will be used to determine if the ILEC’s are using special access pricing flexibility to unfairly control the special access market. Two years later, data is finally being filed. Unfortunately the Office of Management and Budget (OMB) has significantly narrowed the scope of the data and that will make the Commission’s investigation close to meaningless. For example, the Commission originally required responders to provide data for 2010 and 2012. OMB now requires that data be provided for only a single calendar year, and that should be the most recent year for which data exists (i.e., 2013).

ILECs quickly took advantage of the new requirements. On October, 24, the United States Telecom Association (USTelecom) filed a Petition for Review requesting the Commission to require special access providers and customers to file 2014 data chosen at random. US Telecom argued that any Commission decision to re-regulate ILEC special access services based on a single year’s worth of data would be arbitrary and capricious and would be swiftly overturned by the courts. USTelecom is correct and unfortunately that means that any FCC conclusion in this investigation is not likely to stand.

Commission Grade: C

The Commission gets some credit for finally obtaining special access data. However, this proceeding originally began in 2005 and will soon be 10 years old without resolution. In the meantime, special access tariff services are being phased out and replaced by Ethernet and other IP services. Thus, it is hard to see how this proceeding will have any real impact by the time it is finally concluded.

Other Issues

The Commission did have a few successes in 2014. Most importantly on May 23, when the 10^th Circuit Court of Appeals reaffirmed the FCC’s Connect America Fund (CAF) and its inter-carrier compensation regulatory plan to move all interstate and intrastate terminating rates to bill-and-keep. NARUC and others plan on appealing to the US Supreme Court in early 2015, so this is not yet a guaranteed victory for the FCC.

The Commission also made progress in Phase II rules in the CAF for price cap ILECs but permanent universal service rules for rate-of-return ILECs is still a work in progress.

Finally, the Commission made some helpful revisions to its 2013 Call Completion Order on November 13, in Docket 13-39. Specifically, the Commission will no longer require call providers to collect and report data for certain intraLATA toll calls to ease their collection burden.

Other Issues Grade: B+

Appeals court approval of the inter-carrier compensation plan which allows the Commission to control intrastate access charges was far from a given. Only the fact that the final appeal for this issue has not yet been exhausted keeps the Commission from receiving an “A.” 

Overall 2014 Grade: C-

The Commission is extremely behind the curve in developing rules for the transition to the IP network.  Interconnection agreements are currently being negotiated without any regulatory backstop to the detriment of small wholesale providers. The failure to act proactively on this issue is enough to give the FCC a low grade for 2014.

The Commission’s most egregious failure, however, is its failure to stick to its guns and finalize Title I net neutrality rules that permit reasonable commercial agreements. It’s progressive backtracking and attempts to mollify consumers with one concession after another have put the FCC in an untenable position entering 2015. It has alienated all sides on this issue and gotten the President involved. At this point, whatever it decides is going to make a lot of people unhappy and potentially damage the industry for years.

Throughout 2014, CCMI has worked to create a comprehensive Resource Center to help you navigate through one of the most complex times ever experienced in the telecom industry. Check it out here.