More Thoughts on the House Telecom Act Discussion Draft

by on September 22, 2005

The September 15 discussion draft from the House Energy & Commerce Committee is aimed at reforming the nation’s telecom and cable laws. While it does change and “update” the law, is also succeeds at creating no less than 30 new mandatory and discretionary FCC powers!

It creates new complicated, technology-based rules to replace old ones (see Randy May in his PFF blog entry where he warns against regulatory techno-functional definitions–classifications). Congress should not expand the powers of the FCC by giving it a new role to regulate the latest technologies. But this is precisely what the discussion draft does (and Adam seems to concur in his post that the draft goes way too far in imposing new rules on broadband service and video providers).

At least 30 new functions for the FCC! Talk about full employment for FCC attorneys and economists (and their private sector equivalents). These new powers can be categorized as the ability of the FCC to a) create explicit rules, b) establish procedures, c) increase jurisdictional authority, and d) involve itself in determination proceedings and market oversight.

a) Rules: The draft mandates 18 different rulemakings or official inquiries, such as requiring that the FCC establish rules regarding intercarrier compensation, mandating the terms for franchise licensing, creating national consumer protection rules, devising a federal registration form for companies providing communications service, and any such regulations “as are necessary to implement this Act.”

b) Procedures: The FCC must invent procedures for overseeing the design of broadband infrastructure, for mediating and arbitrating disagreements regarding the exchange of VoIP traffic, and for resolving disputes over consumer complaints.

c) Jurisdiction: The draft bill provides the FCC increased authority to involve itself in standards setting, and even investigate and resolve disputes over network equipment standards.

d) Market Oversight: The FCC would have considerable powers overseeing broadband market decisions, such as the reliability and integrity of communication networks and to whom and on what basis to offer video service.

Some of the above increase in FCC powers can be outweighed by the few positive aspects of this bill: it creates exclusive federal jurisdiction over broadband modem and IP-enabled services, and bars FCC and state price and entry regulation of these services.

However, the draft bill’s central failing is that it relies too heavily on government forces to ensure the welfare of consumers. It seemingly ignores findings of fact that evidence the market’s ability to promote healthy competition in communications services. Indeed, the discussion draft can be best summarized by what it left out–a “to be determined” in the section on Purposes/Principles/Findings. This is perhaps the most important section of any telecom reform bill. As my contribution, allow me to offer up draft language for this section:

* The purpose of this bill is to change the way we currently regulate the telecommunications and cable industry to reflect current technological developments and consumer preferences that have resulted in a competitive marketplace;

In addition, we find that:

* The market is competitive and becoming increasingly so. Cable companies provide local phone service. Satellite competes against cable for consumers of video programming, and phone companies are rapidly developing a video offering that will compete against both satellite and cable. Wireless companies compete for long distance. Wireless is also replacing wireline phones, as 8.9 million new wireless subscribers in 2004 were the result of people “cutting the cord” to become wireless-only households;

* More people communicate using broadband connections. During the year 2004, the FCC reports that high-speed lines increased by 34 percent to 37.9 million lines. DSL lines increased by 45 percent to 13.8 million lines. Cable modem service increased by 30 percent to 21.4 million lines;

* The various forms of content delivered over multiple and competing communications networks guarantees that the merged entities will face a competitive marketplace. Cable broadband service is available in 95% of occupied homes in the country. At the beginning of 2005, cable providers offered VoIP services to 15% of U.S. households. By year end 2005, 41% of U.S. households will have access to VoIP services and 58% will have circuit switched telephony services available from cable providers;

* Increased uptake in broadband helps enable substitution of communication services. Substitution occurs when providers compete with different technologies that supply the same service. An economic study released by the Competitive Enterprise Institute in December 2004 reveals intense price competition in the local phone market from wireless. It finds conclusive evidence that if a wireline local phone company raised its rates by just one percent, wireless demand would increase by two percent. Thus, wireline and wireless phones are substitutable for each other because consumers can use them interchangeably; and

* All broadband services are interstate in nature and subject to exclusive Federal jurisdiction.

U.S. communications is at an important inflection point. Cable, telephone, and wireless companies aim to compete against each other using the latest technologies. Our current laws, however, hinder this new competition by creating legal distinctions at odds with market developments. Unfortunately, the House discussion draft does not change this problem.

Comments on this entry are closed.

Previous post:

Next post: