TC3 Part 2: Likely Strategic Goals for Next FCC Chairman; Obstacles Ahead

Introduction

This is the second article covering the Telecom Council’s annual TC3 summit. The first article covered start-up company value propositions and the SPIFFY Award Winners.  This piece is entirely devoted to likely FCC policies and obstacles faced in achieving their goals and objectives.

Steve Augustino of Kelley Drye & Warren law firm presented an important TC3  keynote speech on the new FCC’s Chairman’s strategic goals for the next few years. The Senate is expected to confirm Obama nominee Tom Wheeeler as the next FCC Chairman later this month. Mr. Wheeler is former head of the Cellular Telecommunications & Internet Association (CTIA) and the National Cable Television Association (NCTA). Since 2005, he has been a venture capitalist at Core Capital Partners.

Mr. Augustino’s talk highlighted the likely goals and objectives of the new FCC Chairman. The FCC spectrum policy and regulatory reform are important not only for the U.S., but also for the rest of the world.  That’s because of the very large U.S. market size and its lead in deploying LTE technology. The scale of the U.S. wireless market affects global availability and pricing of various types of radio equipment and devices. The U.S. also has become a global trend setter for 4G-LTE services and mobile applications.

Prioritized FCC Goals for the new Chairman

The number one FCC goal will be to make more spectrum available for commercial use in 2014.  Augustino predicted that 2014 will be seen as the “Year of the Auction” due to multiple actions to free spectrum for commercial use.  That will be primarily accomplished by a “broadcast incentive auction,” where TV broadcasters will voluntarily relinguish their wireless licenses and auction them for use by mobile broadband service providers.  The broadcasters  will receive part of the auction proceeds  in exchange for relinquishing their licenses.

Another portion of the auction proceeds will be used to fund FirstNet– a nationwide broadband public safety network for first responders. However, FirstNet may be 14 years from actual deployment, according to Steve.

A second goal of the new FCC Chairman will be to make broadband Internet access more pervasive throughout the U.S., especially in unserved and underserved (rural) areas. The Universal Service Fund (USF) for rural areas now includes broadband as well as telephone service. Transforming the existing USF into a new Connect America Fund (CAF) focused on broadband will be progressed by reverse auction.  According to Augustino, that will make support of the program more efficient.

A related goal is for 99% of schools to get 1G bit/sec access as part of the broadband e-rate initiative.

Schools would like upwards of $5B per year to fund public education networks.  However, with sequestration and looming federal government budget battles, that’s not very likely.

Sidebar:  Does the FCC have the authority to regulate broadband service providers?

An overarching question that will impact the effectiveness of future FCC policy is whether or not the FCC has any jurisdiction in broadband communications in the first place. For example, the FCC’s 2008 ruling against Comcast, in a law suit complaint by Bit Torrent, was overturned in August 2010.  A U.S. appeals court ruled that the FCC did not have the authority to order Comcast to stop throttling peer-to-peer traffic in the name of network management.  Mr. Augustino discussed the recent appeals court hearing challenging the FCC’s “Open Internet” Order, in which the FCC attempted to correct the errors cited in the Comcast case and impose modified net neutrality obligations.

In a hearing this month before the U.S. Circuit Court of Appeals in Washington, a lawyer for Verizon argued that when the FCC deregulated high-speed Internet access services in 2002, it gave up any authority to require that network access providers not discriminate in the way they provide their transport services to end-users, other networks and content providers such as Netflix and Google.  AT&T’s chief lobbyist said that policy governing competition in Internet access should be set by the Department of Justice and the Federal Trade Commission, not the FCC.

These changes will raise a host of related issues concerning the transition of the PSTN to IP-based networks, according to Steve (see related discussion below).

A third goal of Mr Wheeler will be to improve public safety networks and the reliability of the nation’s 911 emergency phone service.  Many 911 calls did not go through during  the Ohio Valley / Mid-Atlantic derecho (windstorm) of June 29, 2012 and the New York-New Jersey devastation from Hurricane Sandy in the Fall of 2012.

In the case of the latter, Verizon is not planning to replace its century old copper plant that was severely damaged by the storm. Instead, it plans to use fiber for its public safety network by extending FiOS so that it also provides battery backup power, circuit redundancy, etc. Verizon will also enhance its wireless network (now 100% owned) to permit texts to 911 and for more accurate reports of location based services, especially indoor location positioning.

Other Issues Abound for the FCC

Washington politics are still muddled (e.g. debt ceiling and federal budget debates), which may hamper the FCC’s ability to execute whatever it plans. As noted in the sidebar above, large telcos are challenging the FCC’s ability to regulate broadband communications, which may be a huge obstacle for the FCC to overcome.  There is likely to be pressure from various lobbying and political pressure groups, but Mr. Wheeler is no stranger to that scene, as he has been a lobbyist (as head of CTIA and NCTA) in the past.

Was the FCC’s Broadband Plan a Failure?

In answer to a question from this author, Steve said that it was the many entrenched government interests and plans that derailed the much publicized FCC Broadband Plan, which was first announced in 2010.

A recent TechNet study found that while the Broadband Plan focused primarily on “broadband adoption,” we haven’t seen much of an improvement on that front. Worse perhaps, the study found that nobody was coordinating the plan or tracking its impact.  In an interview with Telecompetitor, Blair Levin lambastes carriers like AT&T and Verizon for freezing their landline broadband deployments, and gives the FCC a tongue lashing for political dysfunction and way too much self-congratulation.  Click here for more on this topic.

Another Issue-not addressed: Replacing the PSTN with IP Telephony

A huge part of the FCC regulatory structure that governs communications is based on the Public Switched Telephone Network (PSTN). We think the FCC must also deal with the dull, complex, and extremely important issue of how to phase out and eventually retire the PSTN. It’s replacements are already here- wireless telephony, broadband access (instead of dial-up modems) and VoIP networks for business.  A sticky issue is fax, which almost always uses the PSTN.

AT&T does not include POTS (Plain Old Telephone Service which uses the PSTN) in its U-Verse triple play bundle.  Like Verizon FiOS, they only offer VoIP with an optional battery backup facility.  Comcast, with no PSTN network to protect, never offered POTS service to its cable telephony customers. 

AT&T has petitioned the FCC to replace traditional PSTN service with internet-based IP telephony (voice and fax). But a business and regulatory structure built up over the past 125 years, with many billions invested, is not so easily disassembled.  Read more here.

About Steve Augustino

Steve Augustino is a partner at Kelley Drye & Warren’s Washington, D.C. office.    He focuses his practice on telecommunications and enforcement matters.Mr. Augustino represents all types of telecommunications service providers, including competitive local carriers, VoIP providers and prepaid calling card providers. His work for these clients covers all aspects of their business, including initial registrations, carrier to carrier negotiations, and billing disputes. Mr. Augustino defends clients in Federal Communications Commission (FCC) enforcement actions, including Universal Service Fund (USF) compliance investigations and Universal Service Administrative Company (USAC) reporting audits. Previous enforcement matters include customer proprietary network information (CPNI), network outage reporting, prepaid card marketing, cramming, fax marketing, slamming, “fat finger dialing” and other carrier practices.