Forbearance: What Congress Intended?

One of the very few positive things in the Telecommunication Act of 1996 is Section 401 (codified as Sec. 10 of the Communications Act of 1934, as amended), which requires the Federal Communications Commission to forbear from applying unnecessary regulation to telecommunications carriers or services.

Congress tucked the provision into the 1996 act to improve the chances that pro-competition regulation would be eliminated once fully implemented and no longer necessary to ensure competition.

On Friday the FCC issued a notice of proposed rulemaking requesting public comment on whether the forbearance procedure needs more procedure. Commissioner Michael J. Copps issued a statement indicating dissatisfaction with the whole forbearance concept:

Too often forbearance has resulted in industry driving the FCC’s agenda rather than the reverse being true. Decisions are based upon records lacking in data and the Commission faces a statutory deadline that requires a decision with or without such data. Perhaps most egregious is the fact that if the Commission fails to act, forbearance petitions may go into effect based upon the industry’s reasoning rather than the Commission’s own determination. All of this is to say that I do not believe that forbearance is being used today in the manner intended by Congress.

I admire Commissioner Copps’ confidence that he knows what Congress intended, but I actually sat on the Senate floor when the Telecommunications Act of 1996 was debated and the forbearance provision (which originated in the Senate) wasn’t debated at all. It was included in the committee mark, which was supported by Commissioner Copps’ old boss, the committee’s ranking member and former chairman, Senator Ernest Hollings (D-SC).

Hollings could have kept the forbearance provision out of the Telecom Act if he had chosen. He had won the ideological battle over immediate deregulation versus eventual deregulation. And the committee chairman, Larry Pressler (R-SD), was up for reelection and desperate to pass a major piece of legislation.

Hollings didn’t keep it out. And although his reasons aren’t a matter of public record, I can think of a couple reasons why he let it become law.

One, there was great concern at the time that the Telecom Act wasn’t sufficiently deregulatory to reflect well upon a Republican-controlled Senate. Senator McCain and a few others were highly critical. Majority Leader Bob Dole didn’t like it, either. The bill’s chief sponsors, Pressler and Hollings (and also various cosponsors such as Trent Lott), were anxious to title the bill “Telecommunications Competition and Deregulation Act”; and the forbearance provision was one of the few things in the entire bill which could be described as deregulatory.

The justification for the pro-competition sections of the act – which were undeniably regulatory in nature – was that they would lead to competition and that competition would make it possible to deregulate, thus they were a temporary evil. Everyone agreed that regulation should go away when the local telephone market was competitive. For example, Reed E. Hundt, who was FCC chairman at the time, claims: “On competition, I had two sub-themes: clear, enforceable rules opening monopolized markets to entrepreneurs, and the elimination of regulation where competition existed.”

I’ve always suspected that the regulate-now-so-we-can-deregulate-later argument ignores the slippery slope and therefore is or should be regarded as a completely disingenuous fiction, but since Hollings used it, that undoubtedly placed him in a difficult position to object to the forbearance provision.

Also, it was Hollings’ staff, I believe, who limited the reach of the forbearance provision. The only concern I can recall being raised against the provision (it was during the premarkup phase) was, what if the FCC forbears from applying a provision of the ’96 act immediately? A limitation was added prior to markup prohibiting the FCC from forbearing to apply the pro-competition portions of the Telecom Act until it determined that they were fully complied with.

Origin of the “Deemed Granted” Clause

The “deemed granted” clause was very intentional.

The forbearance provision allows a carrier to request forbearance, and provides that the request shall be “deemed granted” in one year (with the option of a 90 day extension) if the FCC doesn’t deny the request.

In the absence of something like Sec. 10, the FCC could simply ignore a forbearance petition, allowing it to languish for eternity. That’s because inaction can’t be appealed. If the FCC accepts or rejects a petition, there is “final agency action” which can be appealed. But if it ignores a petition, there is nothing to appeal. Sec. 10 forces the FCC to take final action – and if it doesn’t, turns inaction into final agency action which can be appealed.

In 1995, when I was legislative assistant to the chairman of the Senate Communications Subcommittee and the former chairman of the full Commerce Committee and when we were deliberating the Telecom Act of 1996, we were mindful that the FCC had attempted to forbear from tariffing long-distance and the Court of Appeals for the DC Circuit said it didn’t have the authority. We were mindful that it took the FCC decades to license cellular telephony and almost a decade to repeal the Fairness Doctrine. We knew that the long-distance carriers – AT&T, MCI and Sprint – would do anything to block deregulation of the Regional Bell Operating Companies. We knew that the FCC frequently ignored – or failed to meet – deadlines set by Congress.

Sec. 10 was intended to shift the paradigm from regulation, unless Congress specifically repealed it; to deregulation, unless the experts at the FCC could demonstrate that it is still needed.

The “deemed granted” clause recently became controversial because the deadline for action on a Verizon petition occurred while Commissioner Robert M. McDowell was awaiting Senate confirmation. With two Republicans and two Democrats, the FCC deadlocked on the Verizon petition. The petition was deemed granted by operation of law because of the tie vote.

The outcome was, and is, a disappointment for struggling competitive local exchange carriers who are trying to compete on price rather than innovation. These entrants invested in sales and marketing rather than their own facilities. They are mere retailers who can only offer the incumbents’ services under a different name. Now that cable companies offer VoIP and wireless pricing is comparable with wireline rates, there is no non-political reason for the CLECs to exist.

The problem with emasculating the forbearance provision is that it takes the FCC years to accomplish anything novel or controversial.

Will the forbearance provision lead to chaos, e.g., will the FCC allow large carriers to refuse interconnection with small carriers(?) as Rep. Ed Markey, chairman of the House telecommunications subcommittee suggests:

Take the issue of forbearance. Some incumbent phone companies have asked the FCC to eliminate their essential network sharing arrangements under Section 10 of the Act. One of today’s witnesses – Cavalier Telephone — leases copper phone lines for the last mile and provides residential consumers with the “triple play” bundle of voice, 150 channels of cable TV, and high speed broadband for approximately $80 a month. But if the forbearance petitions are granted, Cavalier, Time Warner Telecom, and other broadband competitors will lose access to the critical, bottleneck facilities they need.

Of course I can’t, and would never, say no one would disagree to interconnect with, Cavalier, Time Warner Telecom, and other broadband competitors. But considering there are approximately 1,000 local telephone companies in the U.S., I am confident at least one or two would interconnect if Cavalier, Time Warner Telecom, and other broadband competitors are willing to pay their freight. And, of course, one or two interconnections would gain Cavalier, Time Warner Telecom, and other broadband competitors access to every consumer in the country.

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