When the CLECs Jumped the Shark…

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Last month, I authored a blog entitled It’s Time to Start the Conversation on the IP Transition where I argued that we could no longer postpone the development of a cohesive regulatory paradigm to manage the complicated issue of facilitating the transition from legacy TDM networks to the more efficient IP-based networks.  This view is shared by FCC Commissioner Ajit Pai,who has long-proposed the creation of an “IP Transition Taskforce.”  And now, the chorus of supporters widens to include FCC Chairman Julius Genachowski, who announced today that the FCC intends to form an agency-wide “Technology Transitions Policy Task Force” that will “coordinate the Commission’s efforts on IP interconnection” as well as “conduct a data-driven review and provide recommendations to modernize the Commission’s policies in a process that encourages the technological transition, empowers and protects consumers, promotes competition, and ensures network resiliency and reliability.”

As part of its effort, the Commission would be remiss to ignore a novel proposal to “establish a new proceeding to conduct, for a select number of wire centers, trial runs for a transition from legacy to next-generation services, including the retirement of TDM services and offerings” as a procedural vehicle to develop a cohesive policy paradigm that will enhance Broadband Service Providers’ incentives to increase deployment of advanced IP-based infrastructure to American consumers.  Indeed, given the complexity and uncertainties surrounding such significant technological and regulatory changes, conducting a few field experiments will help reveal the rich nature of the IP-transition.  This approach greatly reduces the risk of significant (but needed) regulatory change and should render, in time, a well-designed policy approach that can be ported more broadly across the country.  If the Chairman wants a “data driven” process, then he needs a data-generating mechanism, and the proposed local wire center experiments are exactly that.

While the “test bed” approach fits neatly into the Commission’s “data driven” approach, we should certainly expect some resistance to change.  Resistance is inevitable in regulated industries, where each regulation creates its own constituency.  As I noted in my earlier blog,

as we work our way through the IP transition, I have no doubts that there will be lots of bumps in the road.  While this challenge will certainly be difficult enough given the legal and technical issues involved, I also suspect that we will see tremendous opposition to developing a smooth transition from companies whose business plans are based upon arbitraging the current system.  But such is the nature of the modern telecommunications policy debate.  Without question, there are many stakeholders who benefit from the status quo and are adverse to change.  Yet, whether we like it or not, TDM architecture is rapidly becoming antiquated and, equally as important, we need to push fiber further down into the network to mitigate spectrum exhaust.  As a result, broadband policy must adapt for the greater societal good.  Indeed, the caselaw is clear that the FCC may not “subordinate the public interest to the interest of ‘equalizing competition among competitors’.”  If the Commission is truly serious when it says that “Broadband is the great infrastructure challenge of the early 21st century” (National Broadband Plan at 3 and emphasis in original), then it’s high time the various stakeholders all stopped quibbling over the rents and focus on the big challenge before us.

As expected, the opposition to a much-needed update to telecommunications regulation has mounted.  Most notably, last week several firms filed an ex parte with the FCC opposing the field experiments, arguing that because many of the issues raised by the IP transition are currently subject to a myriad of pending proceedings, the need for experimentation in a single holistic proceeding would, in fact, be “distraction” and a “waste of resources.”  According to these CLECs, the goal of regulation should not be on facilitating more broadband investment and deployment, but on “updating the Commission’s competition policies to ensure that competitors are able to obtain incumbent LEC last mile facilities and interconnection on reasonable rates, terms and conditions.”

Unsurprisingly, the firms opposing the IP-transition experiments in the ex parte are the very companies whose profits depend on regulated access to ILEC last mile facilities.  The self-serving nature of the opposition’s arguments is not only apparent, but weak.

First, the argument that we should not have a single proceeding where we can look at this crucial issue in a cohesive way is difficult to justify.  An IP-transition will affect a wide range of interdependent regulatory influences on the market, so the liberty to modify many parameters in search of an “optimal” framework is desirable.  As Commissioner Ajit Pai reiterated at Part I of the Phoenix Center’s Annual Telecoms Symposium last week, given the complexities of the issues involved, we need to “address this challenge in a comprehensive manner rather than handling issues on a piecemeal basis as they happen to pop up.”  (Emphasis supplied.)  This idea is nothing new or partisan.  For example, the National Broadband Plan observed back in 2010 that that the Commission should not hand this complex issue in a piecemeal fashion, but rather:

start a proceeding on the [IP] transition that asks for comment on a number of questions, including whether the FCC should set a timeline for a transition and, if so, what the timeline should be, quality of service requirements and safeguarding emergency communications.  This proceeding should consider questions of jurisdiction, regulatory structure and legacy voice-specific regulations, including interconnection, numbering and carrier of last resort obligations.  It should consider the impact of the transition on employment in the communications industry, particularly given the historic role of the sector in providing high-skill, high-wage jobs.  In the proceeding, the FCC should also look at whether there are requirements from other federal entities, such as tax requirements, that would affect the path of the transition. (National Broadband Plan at p. 59 and emphasis supplied).

Heck, even the National Telecommunications Cooperative Association—the trade association for rural telecommunications carriers who will clearly feel the impact of the IP transition given the FCC’s recent Universal Service Reform Order which deliberately excluded future subsidization of legacy TDM architecture—filed a petition for the FCC to institute a comprehensive rulemaking to “examine means of promoting and sustaining the ongoing evolution of the Public Switched Telephone Network from a Tie-Division Multiplexing (“TDM”)-based platform to an Internet Protocol (“IP”)-based infrastructure…”  Claiming that we should postpone limited field experiments in which the full scope of regulation can be evaluated because some believe it will be “years before consumers and businesses will be ready to cease purchasing TDM-based services of any kind” is not a reasonable position to take.  No one, to my knowledge, has a proposed a radical, widespread, and flash cut approach to the IP-transition.  In fact, the proposal is exactly the opposite.  If it is true that it will be years before a full transition is possible, but the transition is inevitable, then a call for using limited market-based experiments is exactly the right approach.

Second, the policy focus of the IP Transition should not revolve around the maintenance of old regulation to support the parochial business interests of a few players.  The IP Transition is about a whole lot more.  For example, in the preceding quote from the National Broadband Plan, the Commission outlines several broad policy issues that need to be resolved.

And, perhaps most significantly, the IP Transition should be about “incentivizing investment in next-generation networks.”  While regulated access to network elements may have made sense way back in 1996 when we were trying to jumpstart competition in a monopoly environment with mandatory resale of the ILECs TDM facilities, the communications market has undergone a radical transformation, and so must our policy priorities.  As Chairman Genachowski has observed and the Commission has noted in the National Broadband Plan, the maintenance of competition among networks requires those building and operating networks receive a “healthy return on investment”.  Similarly, with spectrum exhaust a perennial problem, it would seem that we should want wireline firms to push fiber deeper into their networks.

The IP Transition will be a complex and difficult process as we work through all of the issues.  But, it’s pretty clear that we can postpone this discussion no longer.  Establishing a formal task force is an excellent place to start. Establishing a single proceeding where we can look at this issue in a holistic fashion, coupled with actual field tests, seems to me to be the logical next step.