FCC Needs Market Data Before Changing Rules of the Road

Like a cat that won’t give up trying to get on a table, the Competitive Local Exchange Carriers are back, pushing for more special treatment for special access lines. In their latest salvo, three CLECs claim that the Federal Communications Commission should re-regulate special access business services and Ethernet lines on the theory that price deregulation has somehow not worked (read: not been helpful for their business models), even though price deregulation/non-regulation expanded investment and competition in every other telecom market, from cable to wireless to broadband.

Unfortunately for these CLECs, however, the FCC has no legal authority to do what they want. US Telecom recently noted the Commission’s proposal “cannot upend forbearance and other deregulatory decisions with little or no data analysis” and that the FCC’s discretion is constrained by relevant statutes and the agency’s own precedent.

For a decade, the FCC has had an effective policy of “new wires, new rules.” Relying on that policy, the Incumbent Local Exchange Carriers – even though forced by the special access rules to subsidize a second network of non-competitive older technology – eagerly invested billions to roll out the faster broadband network people want to compete with cable, wireless and fiber networks. Now, some CLECs want to toss deregulation out the window, changing the rules in midstream without a formal data analysis and imperiling that needed investment.

That’s just wrong. Why would the FCC want to re-impose regulation on a competitive environment without understanding the marketplace? And what about the ILECs’ reliance on the FCC’s regulatory promise of “new rules” for new wires – does that just get washed away?

As US Telecom correctly contends, “[t]he FCC cannot step in and set prices without a fact-specific, full and fair analysis of the competitive landscape” and instead rely on “procedural shortcuts.”

The FCC has in the past realized all of this, and I’m hopeful it will again. In 2010, for instance, the agency denied a Qwest petition for forbearance and in doing so, significantly increased the burdens on parties seeking forbearance by raising the evidentiary standard for relief. [1]  Perhaps of greater relevance, in his first major address, Chairman Wheeler said that he is “a rabid believer in the power of the marketplace” and that his focus will be to see “what, if any action (including governmental action) is needed to preserve the future of network competition” (Wheeler’s emphasis). He also stated that his policy is to use the tools of government regulation “in a fact-based, data-driven manner” and that if “a market is competitive, the need for FCC intervention decreases.”

That’s exactly right. So what’s happening in the marketplace? Honest examination of real-world data will show the “new wires, new rules” paradigm has worked well to generate investment, competition and innovation, and perhaps exposure of those stubborn facts are what some CLECs fear.

But even if the FCC were tempted to move away from Wheeler’s wise guidance, the courts wouldn’t give deference to such a decision. Judicial tolerance for unreasoned switches in policy is already low and getting tighter. The Tenth Circuit affirmed[2] the FCC’s policy shift in the Qwest case yet warned that “goalpost-moving does not reflect an optimal form of administrative decision making.”[3] No kidding! Why would any company invest billions of dollars in networks if their expected ROI can simply be erased with the stroke of a political pen?

In short, the FCC does not have either the legal authority or marketplace basis to change its rules for the convenience of the business models of certain companies selling outdated technology. Perhaps yet more litigation is needed to figure this out again, but that would be a shame.

Of course the CLECs will keep pushing, even lacking facts to substantiate their case. I’m not sure who first coined the phrase “the plural of anecdote is data,” but I’m starting to wonder if that person works at a CLEC.

[1] See Petition of Qwest Corp. for Forbearance Pursuant to 47 U.S.C. S 160 (c) in the Phoenix, Arizona Metro. Statistical Area, Memorandum Opinion and Order, FCC 10-113 at paras. 21, 46, 58-61 25 FCC Rcd. 8622 (2010).

[2] Qwest Corp. v. F.C.C., 689 F.3d 1214, 1228-29 (10th Cir. 2012).

[3] See Id. at 1227-28.


Bruce Mehlman is a founding co-chairman of the Internet Innovation Alliance (IIA).

Morning Consult