The Winds of Change
Let’s begin by counting all the items FCC has put in play in the past two months with its decision and follow-on proceedings and the timelines for decisions:
- There are numerous proceedings delegated to the Commission’s Wireline Competition Bureau, including the implementation of the regression model for Phase I support for price cap providers and the development of a forward-looking broadband cost model for Phase II support in price cap provider areas.
Timeline: The FCC’s list for Phase I support comes out by the end of March, and the cost model by the end of the year. - There are some 18 new rulemakings, including those to determine the design of a competitive bidding process in Phase II price cap provider areas, specific parameters for capping rural telephone company capital and operating expenses, the rate of return for rural telephone companies, and numerous intercarrier compensation issues.
Timeline: The FCC has adopted an accelerated comment cycle, which enables it to reach some decisions by the third quarter of this year. - There seems to be an endless list of formal and informal requests for clarification, including those dealing with the Phase I price cap process and regression model.
Timeline: There is no official deadline, but the FCC has already demonstrated it is engaged by issuing a new order to deal with two of the more pressing requests. You can expect to the Commission to continue this practice. - There have been so far over two dozen petitions for review filed with the Federal Court of Appeal, some of which, such as those filed by individual state regulators and NARUC, question the very heart of the Commission’s decisions.
Timeline: The timeline for court review is more difficult to predict because the court may defer to the FCC to address first the issues raised on reconsideration. If this occurs, a court decision is unlikely until next year. Even if the court does not defer, a decision is unlikely until the end of this year. That said, certain FCC rules will be phased in during the year, and it is likely that petitions to stay these actions will be filed with the court. - Most recently, 24 parties filed petitions for reconsideration, including lengthy submissions by the National Exchange Carriers Association and US Telecom, both asking the Commission to revisit key parts of its new rules.
Timeline: The FCC just issued a notice seeking comments on these petitions, some of which raise significant problems with the earlier decision and others of which simply want the Commission to reverse its earlier ruling. You can expect the Commission to deal with any pressing issues mid-year. - There also has been a steady stream of federal and state tariff filings as providers wrestle to comply with new and often opaque or imprecise intercarrier compensation rules; in many instances, regulators or other parties are challenging these filings.
Timeline: Tariff issues are being dealt with right now. - Finally, the Commission intends to begin a proceeding sometime soon to deal with the excessive (18%) universal service contribution levy.
Timeline: The proceeding is expected to begin in the second quarter.
So, the FCC has created a complex and uncertain regulatory brew, but that is only one part of the equation – and it is an environment that experienced regulatory players understand how to deal with.
Service Providers React
At the same time as the Commission continues its work, major technology and structural changes in the industry advance inexorably, forcing telecommunications and broadband providers to react. Among recent headlines and events:
- The telephone trade association, US Telecom, released a Research Brief concluding that the share of the primary voice market held by incumbent providers is approximately 45% and declining; incumbents are the “first choice” of no more than 35% of households when it comes to choosing voice service.
- Speakers at the Consumer Electronic Association meetings in Las Vegas confirmed that broadband demand and supply (speeds) continue to double every two years.
- Verizon Wireless anointed the major cable companies as its wireline partner, while the cable companies simultaneously backed out of the mobile market.
- The costs of sports programming continue to skyrocket, and the recently concluded retransmission consent negotiations resulted in price increases for distributors ranging from 200-300%.
While providers may despair about how slowly the Commission is moving in contrast to the market, this is not all that surprising. In fact, it is the norm, and it is within this environment that providers need to map out their strategic course. Broadband distribution is a big business, and it is bound to grow.
For telecommunications broadband providers, you will need to hit a moving target, and it can be done. To gain any control over regulatory events, providers should persistently engage with the FCC as it continues to address open issues. What’s more, be prepared to react to new, regulatory events, which are certain to occur. At the same time, providers need to find new ways outside of the regulatory process to control their fate. I know of many that are involved with private negotiations with other providers and their customers to work outside the regulatory process. While all of this will take a disproportionate amount time and resources, adopting such an approach will pay off.
