On March 21, 2013, the Free State Foundation held its Fifth Annual Telecom Policy Conference at the National Housing Center Auditorium at the National Association of Home Builders, Washington, DC. Entitled "Completing The Transition to a Digital World: How to Finish the Job and Why It Matters," the conference panelists explored issues including broadband competition and Internet policy, video and wireless regulation, spectrum policy and spectrum auctions, and FCC institutional reform.
In addition to a Keynote Address by Sen. Marco Rubio and a Conversation with FCC Commissioner Ajit Pai, there were three different panels. The Free State Foundation is now releasing a transcript of the conference's first panel session, "The Right Regulatory Approaches for Wireline and Wireless Broadband Providers."
The panel discussion was moderated by RANDOLPH MAY, President of the Free State Foundation. The panel consisted of the following FCC, industry, and academic experts:
- REBECCA ARBOGAST, Comcast
- DANIEL LYONS, Boston College Law School, FSF Board of Academic Advisors
- ROBERT MCDOWELL, FCC Commissioner
- MELISSA NEWMAN, CenturyLink
- ROBERT QUINN, AT&T
The transcript should be read in its entirety for an appreciation of all of the views of each panelist. Nevertheless, in the meantime, immediately below are selected excerpts in the order of the panelists' presentations. These excerpts provide an indication of the various perspectives presented at the session. But, again, the transcript should be read in its entirety in order to obtain a full appreciation of each panelist's views. And if you would like to watch the YouTube video of the proceedings, it is here.
ROBERT MCDOWELL
"Some of these IP transition issues have been lurking for years and years, but we have hit a point in the market where we need to rethink things. The Commission has a lot of statutory authority to act here, so I agree that its proceeding on the AT&T and NTCA petitions is a good forum. And I do think Congress needs to step up and as quickly as possible look at a fundamental rewrite of the Communications Act... A lot of these ideas regarding the IP transition were being envisioning with DACA back in 2005."
"I think regulators and policymakers need to be patient, and wait to see what markets can do. If I think back to 10 years ago, exactly right now, I was in the throes of the debate over the unbundled network element platform, "UNE-P," as we called it. That was all about trying to bring residential voice competition to wireline services. The best and the brightest on both sides of that debate did not foresee - did not foresee - the rise of cable telephony or the rise of wireless as a substitute....Now, more than a third of all U.S. households are wireless-only.... But 10 years ago, nobody saw the rise in rise in wireless competition happening. If you're patient as a regulator, or as a member of Congress, the markets will find a work-around."
"Consumers are telling us that wireless broadband is a substitute - not in every case, not for every market. But it is a substitute. The fastest growing segment of the broadband market is wireless, with the vast majority of consumers having a choice of at least four wireless broadband providers. And that number will increase as we see the build-out of LTE continue. If LTE continues to spike it will be game changing, as we will get broadband in the car and things like that. We don't know what's coming over the horizon. And the last thing we want is the government to preempt or nip in the bud the innovation coming over the horizon."
"Regarding the IP transition, I certainly want to make sure that consumers aren't cut off.... For those who depend on that, and that's all they have, my concern is that we don't want to cut them off. But we do want to nudge them. There's good precedent for this. Let's talk about the analog cellular sunset, for instance. That was overdue when it happened. But I was proud to have been part of the vote that finally got rid of analog cellular. So let's be patient and let's be optimistic. Let's not try to think that we're smarter than markets."
"When it comes to the IP transition, the idea of test beds could be very useful with a controlled environment and with the parameters premised on consumer protection. Let's answer some of these questions in the real world with a variety of test beds under different circumstances, different geographic locations, different states of competition and all the rest. Let's get on with that. It's something that could be very, very useful. I don't understand the vehement opposition to that way of approaching things, when premised on consumer protection. It's a test."
REBECCA ARBOGAST
"[W]e know that the U.S. is a global leader in the Internet. There's been hand wringing over the alleged failing state of the U.S. broadband market. But most of this has been based on misunderstood and misused statistics. And that's not the way to create policies that would create a better future. The U.S. is the leader in broadband speed. We hear claims that it ranks low in broadband speeds internationally. But it's a comparison that's designed to confuse, because it compares average speeds in the U.S., which is a huge country with a varied population density, with countries like Korea. We're seven percent of their population density. Comparisons that ignore those differences are silly, at best. The U.S. also has the second most affordable entry level broadband among OECD countries. This is important because it helps bring people online, which is key."
"Absolute prices for broadband have remained essentially flat over the past decade while, at least for cable, the speeds have increased by 900%. So that positive trend in broadband stands in sharp comparison to trends in other key services, like education and health, to determine a person's and a country's future. While the costs of broadband remain flat, the average annual cost of college... increased by 72% over the last decade. Private health insurance costs increased by 114% over that same period. Those are real problems. Broadband isn't."
"The U.S. is a leader in how we use broadband. It's important to remember that broadband is not an end in itself; it's what we do with broadband and the Internet that counts. Several independent organizations rank the U.S. at the top in qualitative measures of the Internet's impact on economic, political, and social life... We're also a leader in competition and infrastructure. We have the third highest population served by different Internet networks. Retail based competition that's achieved by mandated network unbundling led to somewhat initial lower retail prices in Europe and elsewhere. But it also discouraged investments in the networks. And now we hear Neelie Kroes, who is the E.U. leader in broadband policy, has charged the EU with turning around their policy so that their networks can catch up with ours."
"[I]nternational voices that are shaping Internet governance are only going to increase...[T]here's a hardcore set of countries that are presenting a challenge to Internet freedom. But there's a much larger group of countries that recognize the power of the Internet for their people in their countries, and they just don't want to be left behind. They don't necessarily trust the United States, but they're not necessarily looking to join the block of countries that are working to control the Internet. So we need to show that there are good alternatives to the ITU with multi sector private associations around the world."
"There's been considerable confusion about what is encompassed by Internet governance and Internet freedom in these international debates. Some think that governance just refers to the ICANN address system. But it's much more than that. And some would restrict the definition of the Internet to just the content and the applications providers. But what we need to recognize is that it includes ISPs as well. So we need to accept that Internet governance encompasses all the elements of the Internet as well as all of the ways that international and domestic governments can regulate the Internet."
"[T]he one thing we don't know is the future. A decade ago, some people argued that cable would never become an effective competitor to telephone companies, and that telephone companies should be under heavy utility regulation. Back then they didn't mention wireless broadband or the platforms that are being developed by Apple and Google, which now have a rich and integrated suite of content, applications, devices, and networks. They didn't mention these things because we couldn't predict the future. So the one very important thing we don't know is what the Internet's going to look like 10 or even 5 years from now. Through broad and, I would say, nonpartisan consensus, we decided a decade ago that the government should be cautious and that business should be bold. That opened the road to this crazy, fractured, vibrant, messy, experimental Internet world we continue to enjoy. The path we took back then was the right path."
"On the issue of market competition, how you define the market is a huge part of the conversation. I think on wireless the answer is simple, which is: It's complicated... [C]learly wireless competition is a trend that's going to increase competition. Exactly how it's going to unfold, exactly for whom it's going to be a substitute, and for what sub-segments it's going to be something that's ancillary, we don't know. But as Commissioner McDowell said, and that anybody who's awake would know, wireless is already and is going to be a huge force. We do need to get more spectrum out for wireless to be able to continue to grow, that's for sure."
"Just looking at the cable industry, about 10 years ago our speed was 1.5 MBs per second. It went up to 16 MBs per second in 2007. And then with DOCSIS 3.0 rolling out, went up to 50, and now we're up to 300. Just this week we doubled our speeds in many of our markets at the most popular tiers without imposing any cost... Frankly, I don't think the notion of broadband being an ossified market that isn't making any changes and that needs to be regulated by public utility is a serious proposal."
DANIEL LYONS
"The National Broadband Plan says the vast majority of us have two or more fixed broadband providers. Now for most of us two or more means the cable company and the phone company. That's a reason for some to be a bit concerned. But Fred Kahn, the late dean of regulated utilities law, tells us that it's not clear from an economic perspective whether a two player market is one that's going to trend toward cooperation or competition. So the question then is: "Do we have evidence of competition?" I agree with Commissioner Pai that the substantial amounts of capital investment that we've seen evidence competition....What that shows is that companies are competing. They're competing with capital dollars to try to attract customers. Customers are responding by actually switching providers. So it's a mistake to assume that just because we have few players there's no competition. And that ignores wireless. With LTE we're finally reaching wireless speeds that might give us a robust third competitor nationwide."
"Now what's the role of the FCC as the regulator of this increasingly dynamic and competitive marketplace? It's a mistake to assume that the agency's role is to manage competition by guiding companies toward some preconceived notion of what the industry should look like and what the optimal level of competition is. History shows that we're notoriously bad at these kinds of predictions. The 1996 Act was going to break the ILEC monopoly. And the way it was going to do that was by artificially creating intramodal competition from CLECs. There's still a few CLECs hanging around, but it didn't really take off the way the regulators had hoped. Similarly, those with longer memories would know that in the '60s and '70s the Commission saw the need for more competition in broadcasting. And the grand solution was the UHF band, which never really took off in any big way despite huge regulatory subsidies. At this conference last year, Professor Howard Shelanski was talking about the AOL-Time Warner merger. The agency was obsessed with preventing the combined company from having monopoly control of the market for instant messaging. That sounds silly now. Of course, we did get telephone and video competition. But that competition came from intermodal sources that the FCC didn't anticipate. And our biggest successes since 1996 have been the two areas that the Act didn't touch, the Internet and spectrum."
"[W]e have to fight the urge to believe the way things are is necessarily the way things must be. We need to consider the cost of regulations that require the homogenization of a product because they eliminate points of potential differentiation in competition among providers. Net neutrality is one good example. If all providers have to carry traffic in the same way, then it closes the door to non-net neutral business models like the low-cost Facebook phones that we're beginning to see emerge in Latin America. Similarly, it's a mistake to prohibit tiered pricing and other forms of usage based broadband pricing. Different pricing structures could allow companies to shift their cost across their customer bases in ways that might be more efficient than the traditional, all-you-can-eat, unlimited flat rate plan. The reality is that innovation flourishes with minimal ex ante regulation, because it maximizes the flexibility for competitors to try new business models and differentiate themselves."
"So what is it that the FCC should be doing? It's not a paper tiger. Rather, its role should be policing the market to stop specific anti-competitive practices. If an entity has market power and is abusing that market power in a way that causes consumer harm, then by all means the Commission should intervene in order to stop the practice. But my sense is that type of intervention is probably the exception rather than the rule. The Commission should also help address market failures. Here I'm speaking specifically about USF reforms. There's a role for the agency in funding build outs where it doesn't necessarily make economic sense to build. But that is different than providing regular, ongoing subsidies of operations the way the High Cost fund has been historically."
MELISSA NEWMAN
"Step back and look at the history of our regulated utility model. For many years, both the monopolistic business environment and the regulatory environment that we operated under were aligned. Along comes the 1996 Telecom Act. We move to competition. We make tweaks to the regulatory model, but we don't really change it. In part we accommodated this model to the 1996 Act's provisions for competition. What we have then is a continuation of this model for writing rules upfront, anticipating problems. As we look forward, especially with the TDM-to-IP transition, we have to turn that model on its head. It's the perfect example of how the construct for how we look at things needs to be changed. We can't write the rules upfront."
"It's going to be messy, but you need to allow the problems to be resolved on a case-by case basis. And there will be problems. But resolving problems through the courts, the regulatory agencies, and arbitrators is the best way to approach this brave new world of IP. Over time the rules of this world will become clear. In the meantime, regulations will not be accidentally holding back technology or innovation leaps."
"With all the universal service reform that we've seen, there are areas where network deployment is uneconomic or there are issues with serving an area. And that is the right place and the right time to have rules-of-the-road regulations about funded areas and tailored obligations to meet those needs. They work hand in hand, depending on the situation that you're in."
"The time to look at the TDM-to-IP transition is now. We agree that the phased approach proposed by AT&T would allow for meaningful market trials and resolve issues. Or, it would at least bring up issues. And then we can try to resolve issues as they arise in a controlled environment.... We at CenturyLink are pursuing our own migration to IP. The dynamics are different for companies. AT&T has one approach. CenturyLink is going to have to have another approach. We serve a lot of rural America. Those are going to be the most challenged areas to get IP, like they always are, in terms of when you move and what you do.... Notice I'm not talking about setting the rules of the road for regulation right now. We can't do that."
"When we look at that TDM-to-IP transition, the FCC and the industry should be guided by a few principles. First, the FCC should refrain from applying any new regulatory obligations on IP based services that are not narrowly tailored to address a specific problem. Second, the FCC should refrain from applying any regulation found to be unnecessary and counterproductive. And third, we need to have some flexible guidelines for the transition to IP. One-size-fits-all standards and deadlines are not going to work for all the companies moving to IP in this country. Each carrier faces unique circumstances and challenges as it migrates over."
"I do think there's a role for the state commissions and consumers. They're the closest on the ground to what's going on in the states. That is especially so with respect to my company serving rural areas and how that transition goes. And there is a role for them from a consumer protection standpoint, from understanding how different areas in the states will fare... But I'll be honest, I'm not sure I yet know what that role is."
ROBERT QUINN
"When we look at the state of the IP transition, across the entire 22 states that we do business in, only 25% of the housing units in those states are connected to the old POTS infrastructure today. And when you break down the individual states the numbers are really striking.... In Michigan, only six percent of the housing units are currently connected to the old POTS infrastructure. In Nevada it's 18%. In a state like Florida, it's 19%. So this transition is not only under way, it's almost done. "
"Over the course of the next 10 years we are going to be dealing with the last adapters - to make sure no one gets left behind in this transition, and with the regulators - because regulators are in large part standing in the way of allowing carriers to make this transition. There are a lot of very thorny issues that have to be addressed in order for us to be able to complete the transition. And because of that we asked for a proceeding at the Commission to partly oversee this transition of the last adaptors and of the regulatory structure that applies to the old POTS network."
"[W]e thought that approaching last adapters and the regulatory structure over the old POTS system in a comprehensive proceeding at the FCC made sense. I'm going to make three points about what the FCC really needs to do in conducting this proceeding on the IP transition... One, they've got to let providers retire old technology. This is not something that has never happened before. We did it with the Internet Backbone when we made a shift from OC 192s to OC 768 Backbones. We did it with digital TV and we did it with the analog wireless networks. Two, when we're looking at the new regulatory structures, we have to be looking at these services at the service level. A lot of the distinctions the FCC wants to make today would apply regulations at the service level, but only to the providers that have infrastructure. It's not a valid way to do that. And we have to be very limited about the areas in which we're going to put regulations on these new services, such as public safety and 911. Does that mean that we have to have a 911 requirement on the Xbox voice service for people to communicate while gaming? No, but we have to figure out where those lines are and what real-time communications services are going to be important for putting in place very minimal regulation, narrowly tailored, to accomplish the purpose that we're trying to achieve. And three, overriding all of this, the policies that are adopted at the Commission should be designed to incent investment and infrastructure. The first and foremost question that gets asked should be: "What is going to be the impact of what we do on the incentives of companies to invest in infrastructure in this country?"
"If you want to build fiber, you will have a plethora of companies willing to build it. You'll be able to choose amongst dozens of bids, and you'll get a market based rate. The problem with going back to a world where we're now going to regulate that market is what the CLECs really want. They want a differential between what is achievable in the market and something less that they will be allowed to make a profit off of. They don't want to build that infrastructure themselves. And that takes us directly back to all the TELRIC wars and below-cost pricing. It's going to have a huge disincentive for any infrastructure investment in this country."
"I don't believe we should have Section 251-style regulation over IP interconnection. IP-to-IP interconnection for real time communications is really just emerging. We have in place a huge structure of Section 251 TDM interconnections in place. In the IP world we have peering in place that impacts networks across the world."
"We were able to interconnect the entire worldwide Internet on an IP basis with no regulatory intervention from the states, from the federal government, or from any of the governments across the entire world. Let's have some patience and let's see how this develops. In an efficient IP world, I envision in the United States a limited number of points of interconnection, not in every individual state, because that's not how people communicate anymore. I don't envision carriers having to interconnect in every city and every state."
"In an IP world, if we're managing the traffic, we can do that at a lot lower cost and a lot more efficiently. Bringing the states and the municipalities back in the game makes it likely we have to have that interconnection in every city and every state. We have a lot of experience in the IP to IP world. Markets and the networks figured it out very efficiently. We need to have some patience and see how this develops."
A PDF of the full transcript of Panel I, "The Right Regulatory Approaches for Wireline and Wireless Broadband Providers," is here.
