October 28, 2004

COMMUNICATIONS AND INTERNET DAILY

Panelists Urge FCC Preemption of IP Technologies

It wasn't surprising to most audience members that a panel Wed. of conservative-leaning think-tank fellows and govt. officials tended to agree that the FCC should preempt state regulators in order to lessen oversight of VoIP. However, 2 of the panelists warned that the desire to move more telecom authority to the federal govt. can vary depending on who is in office. It's fine to have the federal govt. preempt if you like the policies espoused by the federal govt., said ex-FCC Comr. Harold Furchtgott- Roth, but it's different if the federal policies aren't ones you like. Fla. PSC Comr. Charles Davidson said he could support preemption now because he supports the federal govt.'s policy of economic deregulation. "If you are talking about past times [when the federal govt. supported] managed competition... regulating up instead of down, my take might change."

In a seminar sponsored by the New Millennium Research Council, Mo. PSC Comr. Connie Murray said she supported "federal preemption of all economic regulation of broadband and forbearance by the FCC." She said the states should concentrate on such roles as assuring consumer protection and reviewing "the underlying costs of which universal service distribution is based" and the FCC should be restructured "to resemble the FTC." It just doesn't make sense to regulate IP providers such as Skype, which aren't even located in the U.S., at the state level, said Cato Institute's Adam Thierer. States on the other hand should be in charge of rights of way, easements, maybe universal service, which ought to be more targeted, Thierer said. However, that won't be easy to do because supporters of a strong state role may not accept such changes, he said. "You have to deal with the art of the possible," added Analysis Group Vp Paul Vasington, who said nonetheless he'd like to see state economic regulation of retail markets "dissolve into the ether" because there's "no market power" there.

Telecom experts also agreed that the FCC could be reduced in size and scope, with several think tank fellows even recommending reducing the 5 commissioners to one. Christopher Libertelli, aide to FCC Chmn. Powell, said he wasn't sure he supported that view unless, he said with a smile, that one commissioner was Powell. Vasington said it might be worth looking at the British model of one telecom regulator, at least for rule making. For adjudication tasks, more than one commissioner makes sense, he said. Thierer said he's "generally against the idea of a single commissioner" because he's against the concept of "czars or monarchies."

Libertelli recommended 3 regulatory reforms: (1) "Adopt regulatory humility" by not requiring new providers to gain their approval before introducing new services. (2) Consider an "enforcement model" as the basis of regulation. (3) Gain congressional help to broaden regulatory language that now places services in "boxes" of either information services or telecom service. "Harmonizing federal and state universal service policies" would be a plus because it "would ultimately solve intercarrier compensation" disparities, Libertelli said. Rowe and others said things can be done within the existing structure to improve operations, such as quicker decisions.

"Any plan that reduces the role of the FCC is a long term gain for consumers," said Braden Cox, technology counsel for the Competitive Enterprise Institute's Project on Technology & Innovation.

An earlier panel said there's little argument that a less-stringent regulatory model will be used for IP-based services but they didn't necessarily agree on which model. Progressive Policy Institute Vp Rob Atkinson said regulation of VoIP providers should be limited to assuring access to telecom platforms, making sure incumbent telcos don't discriminate against VoIP providers. The "layers approach" forwarded by MCI might be a good regulatory model, said Cal. PUC Comr. Susan Kennedy. She said she also liked "a self-policing approach along the lines of Chairman Powell's 4 freedoms" that would assure public safety needs were met, network interconnection was assured and consumers protected.

Progress & Freedom Foundation Senior Fellow Randolph May said it doesn't make sense to replace "vertical stovepipes" with layers that are just "horizontal stovepipes." What's needed is a more "market-based paradigm" that includes, among other things, reforming universal service to make it "more narrowly focused on those who really need it." Mont. PSC Chmn. Bob Rowe said he's a "fan" of the layers model as an "analytical tool." That's just the problem, said May: "I want to drive a nail into the layer model. Having something that's analytically helpful but not good policy framework just confuses" the debate. May said regulators should look at markets and how consumers perceive them. The layers approach envisions telecom being made up of layers such as content, applications and physical (or network) layers, with only those with bottleneck facilities being regulated.

FCC Wireline Bureau Chief Jeffrey Carlisle said economic regulation "works" for some: "Incumbent providers who have been playing the game for 80 years [and] telecommunication attorneys who are heavily invested in the process." He said jokes often are made about regulation keeping telecom attorneys in business, but there's some truth to the fact that attorneys who earn their living making policy arguments at the FCC have a vested interest.

When moderator James Gattuso of the Heritage Foundation asked when regulators will know that there's enough competition to ease most regulation, Atkinson said "you will know it when you see it, like pornography." However, Kennedy said regulators can't depend "on a Rohrschach test, we need a bright line. Regulators need a line that tells us what not to regulate. That's why I like layers." -- Edie Herman

BNA REGULATION & LAW

Communications
FCC, State Regulators Debate Roles Of States in Upcoming VoIP Proceeding

By Cheryl Bolen

Current and former Federal Communications Commission officials and state regulators Oct. 27 largely agreed that there will be some role for state utility commissioners to play in governing Voice over Internet Protocol (VoIP), the only question is how large.

The FCC is widely expected to vote on a petition at its Nov. 9 open meeting that would declare VoIP service to be "interstate" in nature and therefore outside the reach of state regulators. But a closer examination of the FCC's ability to preempt state regulators shows that the service will not be completely off limits, several panelists agreed.

A panel of federal and state regulators and industry analysts spoke at an event hosted by the New Millennium Research Council.

Christopher Libertelli, senior legal adviser to FCC Chairman Michael Powell, said that there needs to be more than just cooperation and coordination among regulators. "In the end, federal and state regulators have to share a common vision of where the telecommunications industry is going," he said.

Libertelli made three recommendations for the future. First, regulators should adopt a position of "regulatory humility" that recognizes they will never be able to keep up with advances in the market.

Second, regulators need to think harder about an enforcement model, rather than a proactive regulatory approach that tries to anticipate problems, Libertelli said. Finally, the commission is "in a box" when it comes to classifying services, and the Congress must agree to recalibrate the balance of jurisdiction, he said.

Preemption at Issue

Connie Murray, a Missouri public service commissioner, said she advocated federal preemption of all economic regulation, and forbearance from regulation where appropriate. Moreover, federal antitrust law and the Federal Trade Commission could provide adequate consumer protections, she said.

Similarly, Harold Furchgott-Roth, a former FCC commissioner, said that he felt the commission had too much power, combining elements of executive, legislative, and judicial powers under one roof.

However, the idea that the federal government can simply say that it has authority over a service and states do not, is not necessarily something the states will take to heart, Furchgott-Roth said.

Libertelli argued that the context of preemption is key. What the FCC is doing is trying to describe VoIP, much like long-distance service, as "inherently interstate," he said.

Furchgott-Roth said that preemption has a specific meaning, and that the issue is whether the commission can adopt a blanket preemption. But Libertelli said that Section 253 of the Telecommunications Act of 1996 gives the commission broad preemption authority on a case-by-case basis.

Under the act, the FCC may preempt any state and local requirements that prohibit or have the effect of prohibiting any entity from providing interstate or intrastate telecommunications services. However, the act also preserves state authority to impose the requirements necessary to preserve and advance universal service, public safety and welfare, and ensure the quality of telecommunications service.

Separations Issue Raised at FCC

Separately, the state members of the Separations Joint Board filed comments with the commission Oct. 26, requesting that it not declare VoIP service to be interstate.

The joint board was created by the FCC to advise the commission on matters related to separations, or the allocation of costs between federal and state jurisdictions. The board consists of seven members: three FCC commissioners and four state commissioners.

In a summary of their filing, the state members said such a decision would significantly affect the jurisdictional separation of common carrier property and expenses between interstate and intrastate operations. "Therefore, consistent with section 410(c) of the act, the commission should make a referral to the joint board before acting," they said.

The filing concludes that federal preemption of VoIP traffic would have significant effects on jurisdictional separations and also on the ability of states to recover costs separated to the intrastate jurisdiction through the existing separations process.

"In summary, preemption would exacerbate the tendency of VoIP traffic to impose costs on the state jurisdiction, but with little or no revenue; and it could prevent states from collecting a reasonable contribution to joint and common costs from VoIP traffic."

According to its Web site, the New Millennium Research Council was created in 1999 to develop workable, real-world solutions to the issues and challenges confronting policymakers, primarily in the fields of telecommunications and technology.

BENTON'S DAILY HEADLINES

QUICKLY…

Telecom Experts Call for Less Regulation and Reduced State Intervention in the IP World TELECOM EXPERTS CALL FOR LESS REGULATION AND REDUCED STATE INTERVENTION IN THE INTERNET PROTOCOL WORLD Speaking at a New Millennium Research Council (NMRC) event, some telecom experts agreed that the pace of technological change in the industry has made many existing telecom regulations passé and the cross-border aspect of many new technologies reinforces the idea of regulating from a unified national perspective. ‘The End of Regulation? Reforming Telecom Policy and Regulators’ Roles to Meet New Market Realities’ brought 14 experts from across the country together to examine whether the current machinery of regulation is working and how best to improve the federal and state roles of regulation. Experts acknowledged that traditional telecom services are rapidly migrating to Internet protocol based technologies over broadband platforms and that this change requires policy makers to reconsider the worth of existing ‘rules of engagement ‘for the telecom industry.

[SOURCE: New Millennium Research Council Press Release] http://www.newmillenniumresearch.org/news/102704nr.pdf

October 27, 2004

National Journal's Technology Daily (p.m.)

TELECOM: POLITICAL FACTORS COMPLICATE TELECOM DEBATE, EXPERTS SAY
Current telecommunications laws are at the breaking point, but the politics surrounding the current structure complicates reform efforts, panelists discussing telecom regulation agreed Wednesday. The panelists generally agreed on the need to deregulate many current telecom rules and to pre-empt states from much regulation, particularly economic regulation of new communications-based technologies. The event was hosted by the New Millennium Research Council, which is supported by regional Bell telephone companies.

Members of the first panel debated whether telecom laws need to be comprehensively rewritten or whether smaller changes would suffice.

"It is a mad, mad telecommunication world out there," said Randy May, senior fellow at the Progress and Freedom Foundation. "We obviously need to change our regulatory model. The current model needs to be eliminated" because such rules "don't make sense in a digital world." Jeff Carlisle, chief of the FCC's Wireline Bureau, said telecom regulation is most suited to the dominant Bell companies with prices that are set by the government. New technologies and competition have changed that world, he said, yet "all sorts of policies are basically artifacts of the fact that telecom consisted of huge companies [and] you knew where to go to get their money" to cross-subsidize other services.

Several panelists said they believe targeted reforms by Congress or the FCC could meet the challenge that new technologies pose for telecom policy. "The traditional model for the circuit-switched network is one that the FCC has already decided it doesn't want to go down," said Mathew Brill, senior legal adviser to agency Commissioner Kathleen Abernathy.

David Peyton, director of technology policy for the National Association of Manufacturers (NAM), praised the FCC for a series of recent decisions clarifying that Bell companies do not need to share access to their fiber networks. The last such decision came Friday, when the FCC approved a petition by Verizon Communications declaring that the agency would not use one section of the telecom law to override liberalizations made under another section.

Previously, "FCC rules discouraged firms [from] making discretionary investments in last-mile broadband," Peyton said. He said NAM's support for the High-Tech Broadband Coalition is aimed at driving more high-speed Internet access for businesses. He also praised FCC Chairman Michael Powell's "four freedoms," a set of self-regulatory principles designed to ensure that cable companies do not attempt to steer Internet traffic toward cable-owned Web sites. "Chairman Powell's four freedoms mirror what the [coalition] has been saying," Peyton said, and added that he wants cable operators to join Bells in agreeing to them. Susan Kennedy, a member of the California Public Utilities Commission, said the FCC should draw a firm line against regulation of "information services," and she praised a proposal dubbed the "layers model" that she said would help guarantee that.

May disagreed with that model, which is advocated by MCI. "It is not a good public policy framework and just confuses the issue" by substituting one regulatory framework for another, he said.

National Journal's Technology Daily (p.m.)(2)

TELECOM: REGULATORY SHORTCOMINGS HURT U.S. ECONOMY, EXPERTS SAY

The United States' failure to craft an intelligent approach to telecommunications regulation is jeopardizing the country's technological and economic leadership, an economist who helped craft a major telecom study said Wednesday. "Telecom is the central nervous system [of the economy] and is just too important to be looked at as a regulated industry," said John Rutledge, chairman of the economic advisory firm Rutledge Research. "It needs to be the core of a national economic policy for growth." One of three authors of a telecom study this month by the U.S. Chamber of Commerce, he was the keynote speaker at a conference sponsored by the New Millennium Research Council.

Rutledge said high-speed global telecom networks have made capital and education transportable from country to county. That reality cuts against the United States when jobs are moved to other countries but benefits Americans when local economies treat capital investments well, he said.

He cited his own experience as the part-time owner of a small company in Memphis, Tenn., that manufactures picture frames. The woeful state of broadband in neighboring Mississippi meant that "Memphis cannot talk with a factory 70 miles south as easily as we can talk with a vendor in China," Rutledge said. He said Mississippi's U.S. senators were "interested and a little surprised" by that reality. "In this environment, the way to bring business in is to make your location a destination for capital," particularly through policies that encourage broadband deployment, he said.

The chamber study largely endorsed the deregulatory position pushed by regional Bell telecom companies, which seeks to eliminate rules imposed on telecom companies that could benefit competitors. The study also urged pre-emption of any state role in regulating Internet telephone traffic. Rutledge predicted that a successful American telecom policy would flip the role of public-utility commissions "from traffic cop to economic development agency to entertain tourists bringing the capital in." Most of the members of a subsequent panel at the conference endorsed the need for pre-emption, and many discussed their hopes for sweeping structural changes to the FCC.

Braden Cox, technology counsel with the Competitive Enterprise Institute, displayed a modified FCC organization chart that would eliminate several bureaus or transfer their jurisdiction to the FTC or Justice Department. "An ounce of pre-emption and non-duplication [of FCC functions] equals a pound of deregulatory cure," he said.

Missouri Public Service Commissioner Connie Murray said, "The FCC should be restructured similar to the FTC, or the duties could be taken by the FTC," to ensure there is no deception or unfair trade acts. "This shift would no doubt reduce the size" of the FCC.

Former agency Commissioner Harold Furchtgott-Roth said he is wary about pre-empting state telecom regulation. And Chris Libertelli, a senior legal adviser to FCC Chairman Michael Powell, said Powell has sensibly restructured the agency. Adam Thierer, director of telecom studies for the Cato Institute, said the debate over FCC processes or commissioners is a distraction from ensuring that Congress sets good policies and limits the agency's power.

TR DAILY

BROADBAND REGULATION, LAYERS MODEL DEBATED

More broadband competition may not necessarily be better, given that the likelihood of sharing the revenues among more players gives each one less incentive to invest, the vice president of the Progressive Policy Institute suggested at an industry panel discussion this morning in Washington.

"The reality is, when you build four networks, it takes four times the capital," Rob Atkinson, who also is director of PPI's Technology & New Economy Project, said at a forum sponsored by the New Millennium Research Council.

Panelists largely agreed that it was time for a deregulatory approach to telecom policy. "If we're in a hyper-competitive world, why would we need to regulate?" said California Public Utilities Commissioner Susan Kennedy. In addition to deregulation, she said she liked "self-policing" and the "layers approach" advocated by MCI, Inc., which calls for basing regulatory policy on ensuring access to the physical layer of the Internet.

Randolph J. May, senior fellow and director of communications policy studies for the Progress & Freedom Foundation, however, said, "I don't think we want to replace the vertical stove pipes [of regulatory classifications in the 1934 Communications Act, as amended] with horizontal layers," which would amount to embodying another set of technological arrangements into legislation.

Matthew Brill, senior legal adviser to FCC Commissioner Kathleen Q. Abernathy, said Mr. May's critique "assumes there will be heavy regulation of the physical layers." Instead, he suggested, network owners "are going to have to be subject to certain rules about [such things as] interconnection [and] the use of phone numbers."

Commissioner Kennedy called for a "bright line" to tell state commissioners when they should regulate, rather than a "Rorschach test" they would have to interpret.

Montana Public Service Commission Chairman Bob Rowe said that the merger guidelines on market concentration used in antitrust oversight "are a place to start" in defining that bright line. He also opposed "legislating" the layers model as a basis for policy, although he said he was a "fan" of the model as an analytical framework. - Lynn Stanton, lstanton@tr.com