Will FCC Use its Forbearance Authority and Universal Service Benefits to Justify Broadband Reclassification?
October 17, 2014 | by Andrew Regitsky
The pressure continues to mount on the FCC to reclassify broadband Internet access service as a telecommunications service. Recently President Obama made his feelings clear. At a town- hall meeting in California last week, the President stated that he was “unequivocally committed to net neutrality. It is what has unleashed the power of the Internet, and we don’t want to lose that or clog up the pipes.” The President joins a chorus of millions of Americans who have filed comments supporting net neutrality and who strongly oppose the Commission proposal permitting Internet fast lanes as part of commercially reasonable agreements.
While no one knows what will ultimately happen, some telecom experts believe that the FCC will move forward with reclassification on the basis that once broadband Internet access service is classified as a telecommunications service, it could use its forbearance power to free Internet Service providers from some of the more onerous Title II requirements such as filing tariffs and unbundling, while still ensuring all Internet traffic is treated equally. In addition, reclassification would enable the Commission to use broadband Internet access revenues to contribute to its universal service goals. This combination of forbearance and additional universal service revenues could be an incentive to reclassify the Commission simply cannot pass up.
The Commission gains its forbearance power from Section 10 of the Communications Act which requires the Commission to forbear from applying to a telecommunications carrier any Communications Act provision or Commission regulation if certain statutory criteria are met. These criteria include:
- Enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;
- Enforcement of such regulation or provision is not necessary for the protection of consumers; and
- Forbearance from applying such provision or regulation is consistent with the public interest.
Under Section 10(c), any telecommunications carrier or class of telecommunications carriers may file a petition with the Commission asking that it exercise this forbearance authority. If the Commission fails to act on a forbearance petition within one year (extended by three months, if necessary), the petition is deemed granted by operation of law.
Thus, forbearance advocates believe that reclassification with forbearance, when appropriate, would provide the FCC with the best of both worlds, ensuring continued Commission regulatory authority over the Internet while recognizing that some Title II requirements are unnecessary.
Such an outcome might work if telecommunications existed in an ideal world in which all parties play their assigned roles. However, the telecommunications industry is far from ideal and the forbearance procedure could easily be misused with every attempt at forbearance challenged in court and tied up for years. There is little doubt that consumer advocates would perceive any forbearance attempt as a threat to the open Internet.
So then why would the Commission pursue an outcome that could lead to years of industry uncertainty and litigation? Former FCC Commissioner Harold Furchtgott- Roth believes that the Commission will pursue reclassification specifically to finance its universal service programs. Currently, as an information service, revenues from broadband Internet access service are not part of the contributions to the Connect America Fund (CAF). That is because the Internet Tax Freedom Act Amendment Act of 2007 prohibits taxes on electronic commerce such as broadband Internet access service.
The moratorium on Internet taxes was supposed to end on November 1, 2014, but has been pushed back until mid-December and may be extended further. Reclassifying broadband Internet access service as a telecommunications service would remove this Internet tax restriction and immediately make revenues from this service eligible to contribute to the CAF. And as Mr. Furchtgott-Roth notes, these additional revenues would go a long way toward supporting the Commission’s universal service goals:
The FCC imposes fees of 16.1% on interstate telecommunications services that will generate more than $8 billion in federal universal service funds in 2014. Additional FCC fees on interstate telecommunications services raise $1 billion for federal telecommunications relay services. Although Congress mandates the general nature of the federal universal service fund and telecommunications relay services, it is the FCC alone that sets the budget size of the funds and develops the fee structure to raise receipts for the funds. Even with all of its power, the FCC does not have the money to fund all of the new programs it seeks. For example, just in the past year, the FCC announced an ambitious multi-billion program to connect schools and libraries with Wi-Fi. Other advocates seek expansion of the low-income program. But where can the FCC find funds for new social programs not required by statute? The FCC’s network neutrality proceeding may easily provide the answer. By classifying broadband access services as “interstate telecommunications services,” those services would suddenly become required to pay FCC fees. At the current 16.1% fee structure, it would be perhaps the largest, one-time tax increase on the Internet. The FCC would have many billions of dollars of expanded revenue base to fund new programs without, according to the FCC, any need for congressional authorization. (See, “FCC Plans Stealthy Internet Tax,” Harold Furchtgott-Roth, Forbes On-Line, October 12, 2014.)
While we don’t know if the ability to require broadband Internet access service revenues to universal service will tip the Commission’s scale toward reclassification, you can bet that it is a prime consideration. Moreover, if the Commission decides on reclassification, it is likely to also justify such a decision by claiming it would use its forbearance power to remove onerous telecommunications requirements. Please note, however, that such forbearance is unlikely ever to occur.
By Andrew Regitsky, President, Regitsky & Associates
