Earlier this month, the trade press reported that FCC Chairman Julius Genachowski was circulating an order among his fellow Commissioners that not only would re-evaluate how the agency de-regulates special access services provided by incumbent local exchange companies (“ILECs”) but would also “temporarily suspend consideration of pricing flexibility pending the development of as new framework.” In a recent blog, Phoenix Center Chief Economist George Ford criticized this plan, arguing that the admitted failure of regulation is not a valid reason to suspend deregulation, and that this “regulate first mentality” threatens investment in the industry. As George stated, “the agency’s decision to suspend deregulation and extend regulation sends a clear signal to the firms doing the vast majority of the investment in broadband infrastructure that they can expect a more regulatory and not-less regulatory bent to policymaking.”
Apparently aware of the mixed signals such a decision would send the industry, the Chairman’s fellow Commissioners didn’t bite on what the Chairman was serving. Last night the trades reported that Mr. Genachowski could not garner sufficient votes to support his draft order and, as such, several pending petitions for deregulation were allowed to go into effect as a matter of law. Accordingly, kudos to the other Commissioners for resisting the temptation to suspend price deregulation of high capacity circuits under existing rules without first conducting a Notice of Proposed Rulemaking (thus ensuring some degree of procedural due process for those entitles still subject to those rules).
I do think there is one more important element to the story that deserves to be highlighted, however.
That is, while the petitions for price regulation relief were deemed granted by operation of law, the trade press also indicated that this issue is far from resolved. According to an email statement sent to the trade press, a senior FCC staff stated that “pursuant to ongoing discussions we expect the Commission will soon vote on an order setting out a path to reform [special access rules]. As part of this path forward, we expect the Commission will also soon issue a mandatory, comprehensive data request, to collect the necessary data from incumbent and competitive providers.” (Emphasis supplied.)
As noted in our blogs here and here, we have been beating the drum for better data all the way back to 2009 when we first released Phoenix Center Policy Paper No. 35, The Need for Better Analysis of High Capacity Services (later published as 28 John Marshal Journal of Computer and Information Law 343 (2011)). As we showed, not only is the amount of data available woefully inadequate in make an informed decision as to whether the benefits of special access regulation outweigh the costs of continued implementation, but the economic arguments set forth for continued regulation by U.S. Government Accountability Office (“GAO”) and the National Regulatory Research Institute (“NRRI”) using this inadequate data—i.e., (1) the market(s) for special access and similar services is unduly concentrated; (2) rates of return on special access services, computed using FCC ARMIS data, are very high; and (3) prices for special access services are lower in more heavily regulated markets than in markets with the most pricing flexibility—failed analytical scrutiny.
Chairman Genachowski’s mantra has always been that policymaking at the Commission should be “fact-based and data-driven and that doesn’t try to pick winners and losers but does the right thing for the country in the longer term.” While the Commission under his tenure has rarely lived up to this standard, finally forcing everybody—ILECs and CLECs alike—to provide adequate data about the market for high capacity circuits upon which sound policy can be made is certainly a first step in the right direction.
Still, I sense that a “good luck with that” is in order.