Current National Cable and Telecommunications Association (NCTA) and former FCC Chairman Michael Powell said in an interview with CNET last week that the upcoming DC Circuit Court’s decision on the FCC’s Open Internet Order, as well as the 2016 presidential election and possible congressional action, have the potential to soon cause chaos in the telecommunications industry.

I have been in regulation too long to not know, win or lose, we are all going to kind of lose, because we are going to have a prolonged, protracted, complex, messy fight with uncertainty and confusion around products and services (Quote from Michael Powell. See CNET May 25, 2016 online article by Mauguerite Reardon).

The DC Circuit’s decision is expected any day now, and a complete win by either the FCC or Internet service providers (ISPs) would almost certainly be appealed to the US Supreme Court, leading to two to three years of more industry uncertainty. Powell believes, however, a split-decision by the Court is a more likely outcome.

Powell expects the Court to side with the Commission and find that the agency has the authority to reclassify wireline broadband Internet access service as a Title II telecommunications service. On the other hand, he anticipates that the Court will find that the Commission did not have similar authority to also reclassify wireless broadband Internet access nor insert itself into the contractual negotiations between ISPs and edge providers in their interconnection agreements. 

Powell is convinced the agency will try to spin this mixed result as a victory, but believes instead this would be a major loss since different classifications for wireline and wireless Internet access cannot be sustained since more and more Internet traffic uses mobile devices. Moreover, this Court result would eliminate FCC control over edge providers, resulting in net neutrality rules for wireline ISPs only.  Clearly this sort of Court decision would leave the industry in a very uncertain position and both sides of the dispute would likely pursue appeals. 

Adding to the confusion, the Commission would also likely begin remand proceedings on any issues it lost, in an attempt to craft new legal justifications for net neutrality for wireless broadband Internet access and edge providers that would be more likely to pass judicial muster. This would simply add to the confusion.

Of course, the DC Circuit decision is not occurring in a vacuum. Net neutrality continues to be a political football.  We are in the middle of a presidential election with two unpopular major candidates in which either could choose to make net neutrality a populist issue in an attempt to win support. More certain is that Republicans in Congress will continue to seek to undermine the FCC’s net neutrality funding. For example, last week Republicans released their 2017 financial services appropriations bill which would cut funding for the Commission by $69 million. Specifically, the bill would forbid the Commission from enforcing net neutrality until the courts (including the Supreme Court) makes a final decision. 

According to Powell, all of these actions are going to cause an industry mess:

There's going to be this three-ring circus as the court process continues and the FCC starts some remand and a legislative effort gets reinvigorated. And all of this is happening in the midst of this crazy presidential election. So just for fun we are going to spin the dial and replace all the players.  As a former regulator, I'm very frustrated that this is beyond about who is the winner and who is the loser.  We have created a lot of confusion (Id.)

Net neutrality is only one of several areas in which we are likely to face confusion in the industry for the next several years. The decision by the FCC to price regulate ILEC and cable Ethernet services in the broadband data services market almost certainly will face court appeals, and makes it almost certain ILECs will have to keep reasonably comparable Ethernet services available for years to compensate for special access services replaced as part of the Technology Transitions Order. It is hard to see how all this uncertainly will do anything but hurt broadband investment and slow the transition to Internet protocol (IP) technology.

Moreover, like Powell, we find little to be optimistic about in the short run. If the Democrats win in November we are likely to continue to see more and more encroachment by the FCC into individual company business plans and more and more price regulation. Even the courts would not slow the FCC advance, since if a Democrat wins this fall, she (or he) would likely have the opportunity to name one or more like-minded justices to the Supreme Court.

On the other hand, if the Republicans win, we would almost certainly have a Commission with a more free-market philosophy. However, many of the proceedings that have been fought over for years would likely be reversed and the industry forced to start from scratch. Certainly in such a scenario ILECs would have more opportunities to flex their market power. 

It should never be forgotten (especially by freer market proponents such as myself), that the main reason regulations continue to be needed in the telecommunications industry is that ILECs by the existence of their ubiquitous networks continue to have tremendous advantages over their competitors.  While those advantages have lessened over time and especially with new technologies, they continue to exist today in many markets, making some regulations continue to be necessary.

Thus, we believe that Michael Powell is correct. Once the DC Circuit rules, we are likely to have extraordinary uncertainty for the next few years as the industry gropes with uncertain broadband rules.  It is likely to be a very bumpy ride.

By Andy Regitsky, CCMI