The Coming Federal Communications War
Photograph by Andrew Harrer/Bloomberg
After winning confirmation from the Senate, Tom Wheeler will likely be sworn in as the Federal Communications Commission’s chairman in the next few days, something many observers say can’t happen fast enough. Since Julius Genachowski stepped down in March, the commission has been in a kind of limbo that it could ill-afford to maintain. The FCC faces not only some big policy decisions but big threats to its regulatory authority as well. How those battles play out will have a big impact not just on carriers and consumers, but also on any company that makes its business off the internet.
The FCC under acting Chairwoman Mignon Clyburn did take action on many pressing issues facing the country, such as brokering an interoperability deal between AT&T (T) and regional carriers and its largely perfunctory approval of the three-way tie-up of Sprint (S), SoftBank (9984:JP), and Clearwire (CLWR). But some major M&A deals and policy debates were still on the table waiting for the next chairman’s attention. On Tuesday, that wait was finally over after U.S. Senator Ted Cruz (R-Tex.) lifted his hold on the nomination (after getting assurances that Wheeler would take it easy on campaign ad disclosure requirements, according to Variety).
While Wheeler will have a lot on his plate over his five-year term, we have identified what we think are the three biggest issues facing Wheeler during his tenure.
The incentive auction
The FCC hasn’t auctioned any major hunks of airwaves since the 700 MHz of auction of 2008, which became the basis for the first nationwide rollout of LTE. In 2014, it hopes—perhaps wishfully—to open up the spectrum spigot again, targeting broadcast airwaves in the 600 MHz band for future mobile broadband services.
This time around, the FCC doesn’t want to evict TV broadcasters from their spectrum. So it’s proposing an extremely complex mechanism called an incentive auction designed to match up the airwaves broadcasters are willing to sell with the prices carriers are willing to pay. Broadcasters would submit the equivalent of reverse bids to the FCC, which would then repackage their airwaves into chunks usable by the mobile industry. Operators would then bid on those frequency bundles.
If that already sounds ridiculously complex, you don’t know the half of it. There’s no guarantee the broadcasters will part with their spectrum, especially in urban markets where it’s most valuable, and there’s no guarantee carriers will take a shine to the repackaged bands or pay the prices the broadcasters are asking. What’s more, it’s not just the broadcasters, carriers, and government that have a stake in its outcome. Consumer advocacy groups, labor unions, and even Google (GOOG) and Microsoft (MSFT) are involved.
Many questions are still open, such as whether regional carriers and smaller nationwide operators, such as T-Mobile (TMUS), will get a bidding advantage in the auction and whether a portion of those airwaves will be set aside for unlicensed white-space broadband. Depending on how Wheeler and the FCC handle it, this auction could set a new precedent for the redistribution of public airwaves. It could also be a disaster.
Carriers can’t discriminate against different types of traffic on their networks—that’s the basic premise of net neutrality. It prevents Comcast (CMCSA) from slowing your Netflix (NFLX) video stream to a crawl and AT&T from blocking Skype (MSFT) to your mobile phone. The FCC established its network neutrality guidelines last decade, but since then ISPs and carriers have been chipping away at them in court.
In 2010, Comcast won a case against the FCC that determined the commission could regulate ISP pipes but not the bits flowing over them. Verizon Communications (VZ) is in court arguing it should be allowed to charge content providers to prioritize their traffic on its networks. The FCC is a bit hamstrung because under Genachowski it chose not to go before Congress to ask for more authority to regulate network neutrality. That decision could cost the commission, Internet content providers, and consumers dearly. Here’s how Stacey explained those ramifications in September:
“If the courts decide the FCC doesn’t have the legal authority to enforce the network neutrality rules, it not only could gut the rules, but it also gives ISPs a free pass to start making decisions about the information aspects of their service—and in today’s non-competitive broadband environment—that could mean throttling Netflix or charging Google more money to deliver a clean YouTube stream. It also neuters the agency moving forward when all content will flow as information over broadband pipes—from TV to your doctor visits.”
Wheeler may not have been aboard when the guidelines were written, but he’ll have to deal with the fallout if net neutrality is overturned. There’s also a question of how hard Wheeler will fight to preserve the FCC’s net neutrality powers. In his career Wheeler has been chief lobbyist for the cable industry and the mobile industry, both of which want to see the rules overturned.
The IP transition
In the IT world, moving away from a legacy technology to an all-IP environment seems like a good thing, but in the communications world, such a transition could have nasty repercussions for consumers.
As Harold Feld, senior vice president of Public Knowledge, a nonprofit public interest group in Washington, D.C., pointed out, our entire system of communication regulation hinges on old-time division multiplexing (TDM) technologies and the copper wiring that provides the backbone of telephone networks. Universal service, ensuring rural access to communications services, and the interconnection of networks—so a Comcast customer can call a Verizon telephone—are all defined by those regulations. Telephone companies face those regulations. IP communications companies do not.
AT&T has already announced plans to do away with its copper networks and transform itself into an all-IP provider. But the implications of the IP transition have manifested themselves first in Verizon’s territory. When superstorm Sandy destroyed the copper infrastructure on Fire Island in New York, Verizon didn’t replace it, offering customers more expensive wireless connections instead to handle their voice and broadband services.
Wheeler has a sticky policy debate ahead of him. It’s not just a question of how regulations evolve as carriers enter the IP age. It’s a question of whether all IP communications companies—that is, half of Silicon Valley—should be regulated like carriers.
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