The fall season is usually a time for new beginnings.  School is back, football starts and of course there are new TV shows, most of which will be gone by year’s end.  For the FCC it is a new season also, one that is likely to define its role for years to come.  That's because the agency has positioned itself to take an activist role that we have never seen before.  In issue after issue, ranging from the transition to the Internet protocol (IP) network, the special access investigation and the Internet, the Commission has provided itself with the regulatory authority to accept or reject individual company business plans and filings to an unprecedented level. 

Of course, every Commission attempt to insert itself deeper into the regulatory process has been or will be greeted with industry protests and legal appeals.  This is due not just to the Commission’s unique actions, but also because the entire regulatory process has become so politicized. The three Democrats on the Commission continually push more activist positions, while the two Republicans argue just as strongly for letting the free market work and try to minimize the FCC’s role. These competing positions continue to diverge further and further apart. Going forward, absent a court setback, since the Democrats remain in charge at least through 2016, we can expect the Commission’s role to continue to grow.     

 As we enter Labor Day weekend and the end of the summer, it is the perfect opportunity to review the challenges the Commission faces this fall and see what is likely to happen.

The Transition to the IP-Based Network

The Commission released a Report and Order on August 7, requiring ILECs to make reasonably comparable wholesale services available to CLECs during the transition to the IP network. The requirements mean that ILECs will have to provide reasonably comparable substitutes not just for DS1 and DS3 special access but also for commercial network platforms, which allow CLECs to bundle together ILEC loops, transport and switches to resell a package to retail customers. 

For many reasons, the Commission’s actions were not greeted favorably by ILECs or Republican commissioners. For one thing, there is no sunset date for eliminating these substitute services, since they must be provided until the special access investigation is complete and new rules are established. 

Second, network platforms have no relation to special access whatsoever since they usually are used to provide voice service to enterprise customers.  Nevertheless, they platforms must also be offered until special access is settled, which is clearly arbitrary.

Third, ILECs are not permitted to discontinue a copper-based service that has some community use even if that use is not part of the tariffed service description. ILECs believe this will require them to continue to deploy their copper networks indefinitely and slow down fiber investment and deployment. The US Telecom Association has already appealed this decision to the Commission and predictably lost, meaning a court appeal is almost certain.

Perhaps most galling to the Republican commissioners is the agency’s analysis of what would constitute a “reasonably comparable” service.  According to these commissioners, the factors the FCC will use to analyze the substitute services are described in a detailed manner that leaves little room to maneuver and the standard of review provides the Commission staff with a great deal of discretion to weigh the factors as they see fit. The Commission even requires ILECs to discuss their service discontinuance plans with CLECs potentially affected to determine how the ILECs will continue to meet their needs. This will certainly slow down fiber deployment and lead to many FCC complaints. It could also lead to the Commission prescribing actual rates for substitute services, as a sort of backdoor rate regulation. 

Thus, this fall we will almost surely see ILECs appealing many aspects of this decision.

Special Access Investigation

The FCC’s special access investigation has been ongoing for more than 10 years. However, the data for the investigation has finally been collected! On September 25, 2015, industry comments are due regarding how the Commission should utilize the data to conduct a market analysis of ILEC special access services. CLECs are aggressively requesting the Commission to re-regulate ILEC pricing flexibility special access services by once again making them part of price cap regulation. They are also seeking huge rate reductions through the re-introduction of a productivity factor that would account for ILEC efficiencies since 2003 and force rates down. We will have more to say about this next week. 

Unfortunately for CLECs, the Office of Management and Budget (OMB) has significantly narrowed the scope of the data that was collected and that will make any Commission conclusion in this investigation easy to challenge. 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). Moreover, any attempt to re-impose price cap regulation on special access will be greeted by ILEC legal appeals. There is simply too much money in special access for ILECs to accept significant special access reductions.

Net Neutrality    

Oral arguments at the DC Circuit Court of Appeals are scheduled for December 4, 2015, with a decision expected next year. The two sides will spar over whether the Commission’s reclassification of broadband Internet access service to a Title II telecommunications service is legally justified. They will also battle over whether the Commission has the authority to enforce its Internet “Future Conduct” rule in which, on a case-by-case basis, it will review Internet Service Provider (ISP) business plans before they are filed to ensure they comply with the no blocking, no throttling and no prioritization of Internet traffic. Expect the loser in this court has to appeal the decision to the US Supreme Court. 

This fall we should see how the FCC deals with the complaint filed by Commercial Network Services (CNS) on June 22^nd. CNS claims that it is being charged unjust rates by Time Warner Cable (TWC) to deliver its streaming Web cam video to customers. CNS wants TWC to carry its traffic for free. It argues that TWC is violating the “No Paid Prioritization” and “No Throttling” rules by sending its traffic through high latency often highly congested routes instead of directly to the edge provider through low latency peering routs. However, the cable company claims that CNS does not qualify for a settlement-free deal.  It states that its interconnection practices are not only just and reasonable as required by the FCC, but consistent with the practices of all major ISPs and well-established industry standards. The industry will be very interested in how the FCC handles this complaint. Will it attempt to control prices for Internet traffic exchange under section 201 and 202 even though it claimed it would not do ratemaking?

It should be an interesting fall for all of us and a harbinger for what we expect from FCC in 2016.

By Andy Regitsky, CCMI