How the FCC “Rigs the Game” for Broadband Regulation Under Section 706…

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Over the last several years, we have seen the Federal Communications Commission put forth a rather clever argument to expand its regulatory authority over broadband services.  The argument goes basically like this:  Under Section 706(a) of the Communications Act, the Commission “shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans … by utilizing … price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.”  As part of its mandate, Section 706(b) requires the Commission to conduct a regular inquiry into “whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion” and, if the agency’s determination is negative, then “the Commission shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications markets.”  (Emphasis supplied.)  So, stating it plainly, if the Commission reasons that deployment is not “reasonable and timely”, then the agency reasons it has the legal authority to impose broad-reaching regulation over advanced services.

For the first five Section 706 Reports, the agency refused to take the bait and concluded that deployment, though not ubiquitous, was nonetheless “reasonable and timely.”  Chairman Julius Genachowski, however, couldn’t resist the temptation.  In 2010, the FCC reversed this pattern and concluded that broadband deployment was not “reasonable and timely.”  The Commission’s determination hung on the standard of universal broadband availability, and since “we have not achieved this goal today,” the agency declared that deployment is not “reasonable and timely.”  Following its interpretation of Section 706, the agency has since used this determination to motivate implementation of the National Broadband Plan and to justify the regulation of broadband services in decisions such as the Open Internet Rules and the Data Roaming Order.  And, as much of the current FCC’s aggressive regulatory agenda hangs on this determination, the FCC’s latest Section 706 Report—released just this week—again finds that broadband was not reasonable and timely.

However, in a new analysis we released last week entitled Justifying the Ends:  Section 706 and the Regulation of Broadband, we show plainly that there is a profound defect with the FCC’s Section 706 analysis:  Specifically, while 95% of Americans have access to broadband, the FCC continues to ignore its own financial analysis conducted as part of its National Broadband Plan which shows that ubiquitous availability requires the expenditure of $50,000 or more in government subsidies to make broadband available to some homes, even though many of these households may not even use broadband service.  Such a high cost exceeds any plausible measure of the benefit from deployment.  As such, ubiquitous availability is today an unreasonable expectation and unreasonable goal.

That’s right, ubiquitous deployment is not “reasonable” unless you believe it is good public policy to spend $50,000 or more to serve a single home, recognizing that the household may or may not subscribe to broadband. 

So what does this mean?  By ignoring its own evidence and rudimental cost-benefit logic, the FCC has successfully rigged the game to permit expansive broadband regulation under Section 706.  Making matters worse, I think that was the cynical point of the exercise.

This is not to say that nothing can be “reasonable and timely” done to try to serve the remaining 5%.  For example, as the National Broadband Plan explicitly recognized, if the cost of ubiquitous coverage of terrestrial broadband cannot not be justified, then what about counting “satellite broadband” as a legitimate alternative to serve the remaining 5% as an alternative since it is ubiquitously available?  Nope.  As the agency clearly wants to use Section 706 as the foundation for an aggressively regulatory agenda, the agency continues to conveniently exclude satellite Internet service from the definition of broadband.  (See Eighth Report at para. 41.)

The fact that Chairman Julius Genachowski—who regularly likes to proclaim that he wants “to run a process that is fact-based and data-driven”—consistently allows the agency to so patently ignore its own data for the sake of imposing more regulation is disturbing. Fortunately, such cynicism is not going unnoticed.  For example, a spokesman for the House Energy and Commerce Committee observed that “… the FCC twists the facts and the law to denigrate our nation’s advanced telecommunications capability and justify past and presumably future regulatory intervention.”  Similarly, FCC Commissioner Robert McDowell observed that “the majority has used this process as an opportunity to create a pretext to justify more regulation.

Indeed, rather than push for more regulation, perhaps the Commission should instead look to Section 706’s instructions to “accelerate deployment … by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.” As Commissioner Pai astutely noted in his dissenting statement,

In my view, there is plenty to do. Twenty years after the advent of price-cap regulation, most price-cap carriers still must file the same studies and accounting information as rate-of-return carriers. Sixteen years after the Telecommunications Act of 1996, incumbent local exchange carriers still must file tariffs as if they were local monopolists, despite competition from all corners.  Thirteen years after the Commission provided a path to pricing flexibility for special access services, carriers are facing the specter of re-regulation.  Eight years after the Vonage Order, we still treat interconnected VoIP providers as second-class carriers rather than first-rate competitors.  And two years after the Commission considered reclassifying broadband Internet access service as a telecommunications service, that docket (GN Docket No. 10-127) remains open, a sword of Damocles hanging over every broadband investor’s head.

Like it or not, if we want more investment, then we must earn it, not sabotage it.  Creating an environment where firms perceive the fruits of their investments will be confiscated by political interest groups, competitors, and the government is not helpful.