It’s Time to Modernize Communications Policy

Before Washingtonians could fully digest the election results in early November, there was a mild tremor in the tele-cosmos that could have a significant impact on broadband deployment and hence the U.S. economy. AT&T announced that it planned to upgrade its copper network to an IP-based technology and replace some rural lines with wireless connections. It also petitioned the Federal Communications Commission to commence a proceeding in which market trials would be conducted to determine the policy implications associated with its IP transition. According to one consumer advocate, the news was the “single most important development in telecom since passage of the Telecommunications Act of 1996.”

To understand why, one needs a bit of history. A century ago, voice services were provided by a single firm (also named AT&T) based on a social compact struck in 1913 that has lost its relevance due the advance of technology. In exchange for monopoly privileges, AT&T submitted (over the course of the next decade) to rate regulation and a universal service obligation. And the compact delivered on universality: By the early 1980s, over 90 percent of American households had basic telephone service.

But a funny thing happened since the technological era of the Commodore 64 and the Walkman. Our nation was rewired for a second time by cable plant, a third time by wireless networks, and a fourth time by satellite networks. By 2012, high-speed Internet over a cable connection—which supports voice as one of several IP-based applications—was available to 93 percent of U.S. households. By 2010, 99.8 percent of the U.S. population was covered by at least one wireless voice network. And in September 2012, Dish Network launched a nationwide satellite broadband service, targeting customers in rural areas that are underserved with a $40 per month offer that supports, among other IP-based applications, voice services.

Competitive entry puts telecom regulators in a pickle. Anyone following the recent spat between D.C. taxi drivers and Uber services, or the decade-old spat between cable operators and telco-based video providers, understands that when regulators can no longer provider monopoly protection to an incumbent, their basis for imposing monopoly-related fees or obligations washes away. Why should I pay you for the privilege of driving a cab in your city, the taxi driver asks, when my competitor is free from such obligations?

When it comes to voice services, the regulatory obligation that is now under scrutiny is the duty to provide universal telephone service over the old copper network. Based on the original social compact, that duty falls uniquely (and thus perversely) on the telcos. Cable, wireless and satellite providers are free to provide voice service (or not) over the network of their choosing, and they are free to pick and choose which homes to serve. In contrast, telcos must operate two networks at once—an outdated, copper-based legacy network that provides service to a shrinking customer base and a modern, IP-based network that supports data, video, and voice applications.

To understand how onerous these rules are, consider the decision of Google, a recent entrant to the broadband space, not to offer voice service as part of its Google Fiber offering in Kansas City. After studying state and federal regulations for voice services, the vice president of Google Access Services concluded: “We looked at doing that [VoIP]. The cost of actually delivering telephone services is almost nothing. However, in the United States, there are all of these special rules that apply.” It makes little sense to have the telcos abide by those same rules when cable operators and wireless providers (typically five in a city) are direct competitors for voice services.

If supporting two separate networks imposed trivial costs on the telcos, then consumers would be held harmless. Alas, telcos invest a significant amount of resources to maintain the legacy network. One study by the Columbia Institute for Tele-Informations estimated that nearly half of telcos’ capital expenditures are tied up in this rut. Freed from these obligations, telcos could deploy these resources to higher value services, including expanding the reach of their IP-based networks. Broadband consumers, particular those living in areas served by a single wireline provider of broadband services, would benefit from the enhanced competition with cable operators.

There appears to be a growing consensus on the need for reform. Indeed, Public Knowledge, a consumer advocacy group typically adverse to the telcos, acknowledged that the petition for deregulation “raises a valid point of concern if the rules for the [legacy] to IP [conversion] apply only to it and other Local Exchange Carriers (LECs) upgrading their networks.”

Of course, there are still voices who advocate continued monopoly-era obligations, regardless of how many distinct technologies cover or nearly cover the entire nation for voice service. A recent op-ed in the New York Times fantastically asserted the existence of a telco-cable “cartel.” These incessant calls for a public-utility-style approach are outliers in the policy arena, as rational voices from both the left and right seem to be coalescing around the proper idea for how to transition to the modern telecom era.

Although the elections were polarizing for many policy matters, at least broadband policy seems to be bringing folks to the middle for constructive debate and problem solving. It’s time to bring communications policy into alignment with the modern era.