US Telecom beats up FCC over investment

There's your version of competition and ours. We make more money with ours

retro cartoon featuring two men fighting against cloud backdrop

Analysis Telco lobbying group US Telecom has fired another broadside at their erstwhile friendly regulator, the Federal Communication Commission (FCC), saying the billions telcos make each month isn't enough.

This time, in a blog post from its vice president of law and policy, Diane Holland, Big Telco is complaining that the FCC – and in particular chair Tom Wheeler – has lost track of a fundamental element of its job: encouraging investment.

Before we get to that point though, Holland feels driven to spit out a complaint that "more regulation to promote fake competition may be coming."

No, it's not net neutrality. Or slow broadband rollout. Nor is it opening up the set-top box market. Nor the broadband "nutrition label." It's not even data privacy rights. This time it's the FCC looking to change the rules around what it has called "business data services," which used to be called "special access," but which everyone else knows as "backhaul" – basically wired connections from mobile phone masts to the broader network.

Without backhaul, data and voice on your phone would slow down dramatically. And it's so important that the FCC strongly suspects that a few companies are going out of their way to control as much of it as possible and then charge higher rates for its use because, you know, they can and that means more profit.

The FCC says it is focused on competition and that's why it's pushing for a review and some rule changes [PDF]. In response, US Telecom's Holland notes that competition is good but the FCC misunderstands what competition actually is in the telco world.

The blog post lists the FCC's stated objectives of competition, technology-neutral policies, the removal of barriers, and rules that reflect the modern world, but argues that "there's a glaring omission from that list: ensuring that providers keep investing in broadband infrastructure."

According to US Telecom: "Only facilities-based competition is real, sustainable competition." And "increased investment is perhaps the most important policy objective."

Dig in a little

It's hardly surprising that US Telecom promotes investment in infrastructure as a critical aspect of the FCC's work. After all, it is the one thing that its members – who continue to make billions of dollars in profit annually – have entirely within their control.

Big Telco can decide exactly how much, where and when to install or upgrade networks. And they can argue – as they have and continue to do over net neutrality – that they will increase or decrease that investment based on whatever criteria they decide. It is a pure self-contained argument and one that the FCC has no say on. It can be put out there and there is no way to query or fact-check it.

The industry's history on highlighting this issue of investment is not good. A little like the boy who cried wolf, the argument has been rolled out a few too many times to criticize policies the industry doesn't agree with, and while there are no clear accounts of where investment has been scaled back as a result of a decision, there are plenty of occasions where a threat to scale back investment has been conveniently forgotten when the rules have been approved.

That said, it's an argument constantly put forward because it remains a strong one: regulators are there to keep an industry in check, not to decide what it should do. The FCC has been going off on a bit of a wild tangent of late, putting out significant policy proposals month after month, so it's worth hearing US Telecom out.

The argument

In making her point, Holland highlights an FCC decision from a decade ago, when it forced incumbent local exchanges to open up their networks and allow competitors to use them.

The post notes: "In implementing those unbundling rules, the FCC actively sought to balance the goal of promoting facilities-based investment and innovation against the goal of stimulating competition."

What that meant in reality was that as incumbent operators invested more in new networks, they were allowed to take more control of them. Result: more capacity and more competition.

This approach however has been "all but abandoned" according to US Telecom's Holland in the new proposal. She notes that the proposal mentions the word "investment" but describes it as a "tepid nod" that puts it down "as a nicety rather than a central and essential component."

The FCC says its proposal will encourage competition by allowing other companies to build out their own infrastructure. Holland sees it differently, arguing that it would lead to "a subsidized leasing house of cards" that would be "unsustainable long term."

The core issue: the FCC is looking at forcing incumbents to lease their facilities as a way of letting others in to controlled spaces. All this will do, argues US Telecoms, is remove the incentive to invest in new facilities.

"Real competition and increased investment are far from mutually exclusive; in fact they are interdependent," Holland yells, "especially in markets with little or no burdensome regulatory intervention." And she accuses the FCC of pushing for "fake competition for the sake of competition."

More anger

It's not just US Telecom that is mad at the FCC this week, however. Today is the deadline for replies to the set-top box proposal, and the first round of comments on the new broadband privacy proposal are due Friday.

On top of which this week may finally be the week in which the Washington DC appeals court decides on the legal challenge to the FCC's net neutrality rules. And the FCC's commissioners are meeting for their monthly pow-wow.

The result: angry people from all sides of the debate.

Tech Freedom cries: "When it comes to the FCC, we can't always attribute malice to the agency's incompetence. But when the Commission is rushing through rulemakings with almost 100,000 public comments in its backlog, critics have every right to question their motives."

The Free State Foundation: "It is highly doubtful the Commission can justify its rejection of careful tailoring in its proposal, which sweeps so broadly with intrusive technical mandates."

There's even a new paper out in the Federalist Society Review that argues the FCC is undermining the very rule of law in the United States.

Saladin or Richard I?

What's going on? Well, as we've mentioned before, Tom Wheeler, having been turned into a bogeyman by his former industry colleagues for passing net neutrality rules, has decided he might as well fix as many of the persistent inequalities in the telco market as he can before he loses his 3-2 Democratic voting majority.

He's doing it fast, and he's doing it with no holds barred. And he is driving the previously untouchable telco lobby crazy as a result.

The good news: the proposals do carve away at the easy profits made by Big Telco thanks to its control of the system and its previous dominance of its regulator. It does mean competition and that means lower prices for US consumers, who have been paying far too much for their internet connections for over a decade.

The bad news: the FCC and Wheeler are playing a little too loose and fast with the rules. And they are assuming roles they have precious little experience at. As a result they are getting increasingly sucked into Washington's partisan world, where reason is discarded in favor of hyperbole and policy becomes second to politics. Wheeler is on a crusade. But he'd do well to remember that not all crusades end well. ®

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