The middle of August is a time for dreaming. The Chicago Cubs and Cleveland Indians are in first place and anything seems possible! That's why the overactive minds of those forced to remain in sweltering Washington begin to envision how to make things better for a telecommunications industry continuing to face year after year of stalemates and litigation with FCC decisions seemingly based on partisan considerations only. For example, in a recent article in The Hill Online, two economists wrote:

When chief economist Tim Brennan left the FCC earlier this year, he remarked that the net neutrality rules passed by his former agency were an economics-free zone – a brutal assessment of regulations that would chart the future of the internet for all Americans. Especially since the problem does not seem limited to net neutrality – in a forthcoming paper we document the shocking extent to which economic analysis has been marginalized at the FCC under Chairman Tom Wheeler (See The Hill, August 19, 2016, “MIA at the FCC,” by Gerald R. Faulhaber and Hal J. Singer). 

Most industry experts believe the best way to fix the problem and make FCC decisions economically sane again is to update the Telecommunications Act of 1996.

The problem with the Act, first written in 1934 and revised in 1996, is that it is written for a circuit-switched world dominated by traditional narrowband telephony and has little to say about today’s fiber-based broadband Internet networks increasingly dominated by mobile telephony. The increasing inability of the 1996 Act to address current issues such as net neutrality, Internet privacy and ISP interconnection has inarguably led to more and more industry battles as the FCC, free from the guiding hand of Congress, intrudes in a partisan way in every industry quagmire.

Republicans, as the party currently not in power, are clearly leading the fight to rewrite the Act. Not surprisingly, they are getting little help from Democrats. For the most part, Democrats have been pleased with the FCC’s decisions and as long as key court decisions continue to back the Commission, have little incentive to work with Republicans. Republicans with leadership in House and Senate telecommunications committees periodically issue proposals for an updated Act that go nowhere since any bill to their liking that conceivably could pass would immediately be vetoed by the President.  Hence, to change the Act, Republicans need to win the presidency or at least some major court cases.

The sad part is that the Act could be easily improved with rewrites supported by both parties. Case in point is net neutrality. There is no longer any battle over the FCC’s bright line Open Internet rules.  Republicans and Democrats agree with the fact that there should be no blocking, throttling or paid prioritizing of Internet traffic. Those were the major issues leading to the net neutrality dispute in the first place. Now all are generally accepted principles agreed to by even ISPs. The only real issue still in dispute is how the Internet should be regulated. Democrats generally support intrusive Title II regulation, fearing ISPs will use their power to abuse consumers. Republicans are concerned that too much regulation is hurting Internet investment and employment. The solution is relatively simple. Keep broadband Internet service as a Title I information service, but increase the FCC’s power to investigate complaints against ISPs. In other words, have a Title I+ regulatory regime in which ISPs are minimally regulated, but the Commission has the power to enforce such Title II requirements to assure that ISP prices, terms and conditions are just and reasonable and not unreasonably discriminatory. FCC investigations would be the result of legitimate complaints and would occur on a case-by-case basis rather than as a result of global intrusive regulations hurting innocent parties.

ISP interconnection would be another area an Act rewrite should include. Currently carriers seeking to interconnect their networks must follow the rules in section 251 of the 1996 Act. That section ensures that both parties fairly recover their costs of terminating the traffic of others and requires ILECs to charge CLECs incremental costs for the use of their networks such as in the leasing of ILEC unbundled network elements. Unfortunately the current section 251 applies only to circuit-switched, time-division multiplexed networks. ILECs have apparently made the case that those rules do not apply to ISP network interconnections. Free of section 251 restrictions, ubiquitous ILECs are able to present CLECs with a take it or leave it scenario. If you want to interconnect with me, you must accept my prices. Smaller CLECs, with their weaker market positions are left in an untenable situation, either interconnect the way the ILEC wants or leave the business. Sadly, the FCC has left this problem to fester, stating only that ILECs must negotiate ISP interconnection requests in good faith, but failing to transmit specific rules. A Telecom Act rewrite could easily ensure that ILECs must be required to follow section 251 for all network interconnection agreements.

Democrats could use an Act rewrite to make section 706 more specific. That section provides the FCC the ability to eliminate barriers and enforce rules to make advanced services such as broadband available to the public. However, the Sixth Circuit Court of Appeals recently found that the language in section 706 is not specific enough for the Commission to preempt state laws in Tennessee and North Carolina to authorize local municipalities in those states to build out their own broadband networks outside of their local jurisdictions to compete with ISPs and cable companies. If Congress wants to provide the FCC with the power to preempt state governments, it should say so in the Act.

The current battle over Internet privacy could also be resolved in a 2017 Telecom Act. While Democrats and Republicans battle over how much consumer protection is needed, there should be little disagreement between the political parties that ISPs and edge (content) providers should follow the same privacy rules. It makes little sense for edge providers to have more lenient rules simply because they are regulated by the Federal Trade Commission while ISPs are regulated by the FCC.

While the chances of an update to the 1996 Act are small in 2017, it is possible. If the economy tanks and ISPs are faced with massive losses and forced job cuts, Congress would have more incentive to rewrite the act to reduce regulations. Unfortunately, the sad way our government works today, things probably need to get worse before there is an effort to make it better.

By Andy Regitsky, CCMI