The Politics of Bandwidth:
Convergence, Globalization and the Future of Telecom Regulation
Glenn B. Manishin, Esq.
Patton Boggs LLP 8484 Westpark Drive McLean, VA 22102 703.744.8095
Overview
• • • • • • • Public Policy in the Convergence Era Network Scale and Market Concentration The Regulatory Trilogy Redux Bandwidth Unlimited & Internet Everywhere Beyond the 1996 Telecom Act Regulatory Uncertainty and Innovation Back to the Future
Glenn Manishin USTA NSAC #51
19 Septemer 2000
Public Policy in the Convergence Era
• The Cycles of Convergence
Pace of Technical Change Political and Policy Conflict
Business and Market Risks
Pressure on Legacy Regulations
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Glenn Manishin
USTA NSAC #51
Technical Factors in Convergence
• Commoditization of transport • Integration of IP • Decentralization of intelligence
– Growth of ―edge networks‖ – Fiber to the RT (project pronto)
• Ubiquity of wireless networks • Caching, content and privacy
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Policy Uncertainty of Convergence
• TA96 — avoiding complexities
– Political issues dumped on regulators
• Regulatory bureaucratic imperatives
– Policy as social engineering – Electoral politics
• Business imperatives
– Market instability creates regulatory risk – The ―ostrich syndrome‖
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The Regulatory Impact of Convergence
• Who regulates? • FCC v. States, EU v DOJ, congress v. Courts, etc. • Computer II, VoIP, etc. • ROR, price caps, benchmarks, etc.
• Rates, interconnection, mergers, content, etc.
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• What is regulated? • How is regulation applied? • Where is regulation applied?
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Network Scale and Market Concentration
• Big fish in little ponds
– End user pressure for globally integrated services and content – M&A activities creating larger-scale networks – Existing regulatory ―silos‖ preserve artificial market distinctions from earlier technical eras
• Merger review and policy extortion • Policy challenges from intermodal M&A
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Regulatory Leverage in Concentration
• Out-of-region RBOC entry obligations • OSS/271 conditions • Advanced services collo., line sharing • Internet backbone and sales divestitures • USF and access pricing concessions
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• Title VI (cable) open access • Wireless market divestitures • Content neutrality • MSO deconcentration • Standards development (IM, etc.)
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The Policy Inversion of Concentration
Atomistic monopoly networks
Concentrated competitive networks
Price/entry regulation
Social policy regulation
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The Regulatory Trilogy Redux
• Interconnection, universal service and access charges
– 1996 Act dictated standards for only 2 of 3 legs of the stool – Congress provided broad, ambiguous and internally contradictory principles – FCC developed phased-in approach
• State PUC political pressures • Protective regulation of small/rural market networks
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Interconnection in the Convergence Era
• UNEs, UNE-P and resale
– Federal/state dichotomy creates forum shopping and policy delay – UNE theory conflicts with network architecture in large-scale network interconnection
• TELRIC pricing remains frozen (Iowa Utilities Bd.) • Non facilities-based I/C is short-run policy only
– Voice (telephony) and data (DSL, etc.) interconnection rules differ markedly
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USF in the Convergence Era
• USF, costing and social engineering
– Existing structure accepts historical ―revenue requirement‖ approach to internal subsidies – 1996 Act allows broad regulatory leverage over scope of USF-supported services
• Schools/libraries Internet initiative confuses regulatory paradigms
– Asymmetric contribution scheme incentivizes ―creative‖ classification of convergence services
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Access Charges in the Convergence Era
• Costs, CALLS and ―uneconomic bypass‖
– Failure of USF costing preserves inflated access rates and CLEC arbitrage opportunities
• Universal service constraints to loop/NTS cost allocations to end users (SLC, PICC, etc.) • Competing financial (depreciation) and market (bandwidth charges) ILEC challenges
– Major players (CALLS) unilaterally dictating access charge policies
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Reexamining the Trilogy?
• FCC and Congress resist fundamental assessment of conflicting policy goals (competition v. subsidies, etc.) • Market pressures force transitional exemptions to efficient pricing and explicit subsidization principles • Hidden taxation inherent in current scheme is political ―Emperor’s New Clothes‖
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Bandwidth and Internet Everywhere
• Bandwidth impacts markets and regulation
– Availability increases multi-purpose use of networks that cross regulatory boundaries – Commoditization decreases justification for price regulation of transport and final services – Caching architectures place pressures on ―pipe‖ networks to play in content space
• Regulators caught in MOU, circuit-switched model that doesn’t translate
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The Bandwidth Dilemma
• Should new networks be subjected to economic regulation or should legacy networks be deregulated? • How to harmonize long-run convergence competition and short-run residual market power? • Are social policy goals (―digital divide‖) justification for regulatory taxation?
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The Trilogy (Now and Tomorrow)
• Switched MOU and per-line special access charges • USF limited to telecom revenues
• Interconnection applicable only to telephony
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• Capacity-rated charges indifferent to usage
• Contributions assessed evenly on IP and legacy networks • Backbone (peering) and cable systems subject to I/C rules
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Internet Ubiquity
• From PDAs to cars to refrigerators
– Standards become competitive battles – Content distribution becomes problematic – Transport becomes even more essential
TCP/IP
Cable
Content Providers
• Content integration creates new regulatory cycle
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Telecom
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Beyond the 1996 Telecom Act
• When will telecom policy evolve?
– The VoIP abyss (1996-?) – Access charges and USF (CALLS) – Broadband policy
• Open access (cable) • ILEC deregulation (DSL)
– Beyond the basic/enhanced dichotomy
• ―Chinese water torture‖ of policy
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Building a New Paradigm
• Difficult long-run policy issues take time
– Transitional level playing field regulation or wholesale deregulation? – Moving communications away from subsidies and social policy-based regulatory structures – Conclusion on sustainability of CLEC comp.
• Politics and policy leverage (agency and competitors) incent even more delay
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Who Will Build the New Order?
• Congress satisfied with delegation, oversight and blame-shifting
– FCC/Administration enjoying unparalleled policy success from extortion – Private sector too engrossed in building new networks
• Eggheads politicized and indecisive • EU meanwhile flexes regulatory muscle
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The Consequences of Temporizing
• Network and business strategy lacks predictable policy planning basis • Bad results/precedent from application of antiquated classifications (e.g., Frame Relay)
– Increased difficulty of political consensus – Costs of regulatory ―true up‖ increase (e.g., 1984 Cable Act)
• Policy formation ceded to Europe
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Regulatory Uncertainty and Innovation
• Innovation effects of uncertainty
– Technical developments freed from shackles of old classifications and silos – Cooperation among players incentivized, except where in conflict with leverage goals – Efficiency and QOS influenced by hard economics instead of regulatory considerations
• How much does policy temporizing impact network design and development?
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Back to the Future
• Future of bandwidth regulation looks like distant past • Achilles Heel of 1996 Act era is extinction of utility regulation principles
Market I/C Price dereg. Innovation+
Public utility model Universal service rationale Competition suppressed
Market I/C Price dereg. Innovation+
1880s-1920s
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1934-1996+
Glenn Manishin
2000-?
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Conclusions
• • • • • • ―I feel the need for speed‖ Superman and X-Men (Rubber Soul) ―If you build it, they will come‖ 40 years in the desert? La Plus Ca Change ―Enjoy the ride‖!
Glenn Manishin USTA NSAC #51
19 Septemer 2000