From Bad to Worst: Assessing the Long Term Consequences of Four Very Bad FCC Decisions

Abstract

Far too many major decisions of the Federal Communications Commission (“FCC”) rely on flawed assumptions about the current and future telecommunications marketplace. If the FCC incorrectly overstates the current state of competition, it risks exacerbating its mistake going forward if actual competition proves unsustainable, or lackluster. In many key decisions the FCC cited robust competition in current and future markets as the basis for decisions that relax restrictions on incumbents, abandon strategies for promoting competition, or apply statutory definitions of services that trigger limited government oversight. The Commission ignores the secondary and tertiary consequences of decisions that deprive it of the jurisdiction and flexibility necessary to respond to technological and marketplace changes. Rather than promote competition, the FCC has exacerbated the trend toward concentration of ownership generated by technological innovations that promote bundling of previously stand alone services. Ventures diversify and expand to accrue scale economies and to exploit new opportunities to serve adjacent markets. Rather than make sure that this trend does not lead to oligopolistic behavior, the FCC have removed increasingly essential regulatory safeguards designed to curb market power without robbing ventures of opportunities to operate efficiently. Intentionally or not the FCC contributes to market concentration even as it abandons lawful techniques and policies to monitor and remedy marketplace abuses.

The FCC’s deregulatory decisions operate in one direction - the elimination of regulatory safeguards - without any option or vehicle for reasserting safeguards should assumptions prove wrong, or circumstances change in ways necessitating public interest safeguards. For example, the Commission’s decision to classify Internet access technologies as information services appears to eliminate entirely the ability to respond to anticompetitive practices of Internet Service Providers. So when Comcast or other carriers deliberately disrupt subscribers’ traffic in the absence of legitimate network management needs, the FCC has no statutory authority to impose safeguards. Worse yet the decision to treat basic bit transmission as an information service severely restricts the Commission’s ability to impose safeguards on services that combine Internet access with software, to provide the functional equivalent of a telecommunications service, e.g., Voice over the Internet Protocol (“VoIP”). The FCC decision to apply the information service classification to all Internet access technologies means that the Commission has abandoned any direct statutory authority and must resort to questionable ancillary jurisdiction to impose even light-handed regulatory safeguards.

Other instances of unintended consequences from overly optimistic findings and assumptions about marketplace competition include removal of caps on the total spectrum a single wireless carrier can control, premature abandonment of local loop unbundling requirements and conclusions that incumbent carriers have no duty to deal with market entrants even when the incumbent opts to offer retail rates below the so-called market-driven wholesale rate charged competitors. For each of these decisions the FCC compounded its initial mistakes by foreclosing the option of making necessary and lawful future modifications.

This paper will examine the consequences of the FCC’s wishful thinking about the viability of current competition and the sustainability of competition going forward. The paper concludes that flawed fact finding and market projections have adverse initial consequences, but even worst future impact. In response to vigorous lobbying by incumbents, impatient law makers and jurists and deregulatory bias the FCC has contributed to the development of a telecommunications industry structure that appears less competitive, innovative and responsive than what occurs in many other countries.

Keywords: FCC, regulatory reform, information service classification, local loop unbundling, structural separation, common carrier, duty to deal, antitrust, spectrum caps

JEL Classification: K21, K23, L86, L96