The%20Politics%20of%20Bandwidth:%20Convergence,%20Globalization%20and%20the%20Future%20of%20Telecom%20Regulation

1
The Politics of BandwidthConvergence,
Globalization and the Future of Telecom
Regulation

• Glenn B. Manishin, Esq.
• Patton Boggs LLP
• 8484 Westpark Drive
• McLean, VA 22102
• 703.744.8095
• ltgmanishin_at_pattonboggs.comgt

2
Overview

• Public Policy in the Convergence Era
• Network Scale and Market Concentration
• The Regulatory Trilogy Redux
• Bandwidth Unlimited Internet Everywhere
• Beyond the 1996 Telecom Act
• Regulatory Uncertainty and Innovation
• Back to the Future

3
Public Policy in the Convergence Era

• The Cycles of Convergence

4
Technical Factors in Convergence

• Commoditization of transport
• Integration of IP
• Decentralization of intelligence
• Growth of edge networks
• Fiber to the RT (project pronto)
• Ubiquity of wireless networks
• Caching, content and privacy

5
Policy Uncertainty of Convergence

• TA96 avoiding complexities
• Political issues dumped on regulators
• Regulatory bureaucratic imperatives
• Policy as social engineering
• Electoral politics
• Business imperatives
• Market instability creates regulatory risk
• The ostrich syndrome

6
The Regulatory Impact of Convergence

• Who regulates?
• What is regulated?
• How is regulation applied?
• Where is regulation applied?

• FCC v. States, EU v DOJ, congress v. Courts, etc.
• Computer II, VoIP, etc.
• ROR, price caps, benchmarks, etc.
• Rates, interconnection, mergers, content, etc.

7
Network Scale and Market Concentration

• Big fish in little ponds
• End user pressure for globally integrated
  services and content
• MA activities creating larger-scale networks
• Existing regulatory silos preserve artificial
  market distinctions from earlier technical eras
• Merger review and policy extortion
• Policy challenges from intermodal MA

8
Regulatory Leverage in Concentration

• Out-of-region RBOC entry obligations
• OSS/271 conditions
• Advanced services collo., line sharing
• Internet backbone and sales divestitures
• USF and access pricing concessions

• Title VI (cable) open access
• Wireless market divestitures
• Content neutrality
• MSO deconcentration
• Standards development (IM, etc.)

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The Policy Inversion of Concentration
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The Regulatory Trilogy Redux

• Interconnection, universal service and access
  charges
• 1996 Act dictated standards for only 2 of 3 legs
  of the stool
• Congress provided broad, ambiguous and internally
  contradictory principles
• FCC developed phased-in approach
• State PUC political pressures
• Protective regulation of small/rural market
  networks

11
Interconnection in the Convergence Era

• UNEs, UNE-P and resale
• Federal/state dichotomy creates forum shopping
  and policy delay
• UNE theory conflicts with network architecture in
  large-scale network interconnection
• TELRIC pricing remains frozen (Iowa Utilities
  Bd.)
• Non facilities-based I/C is short-run policy only
• Voice (telephony) and data (DSL, etc.)
  interconnection rules differ markedly

12
USF in the Convergence Era

• USF, costing and social engineering
• Existing structure accepts historical revenue
  requirement approach to internal subsidies
• 1996 Act allows broad regulatory leverage over
  scope of USF-supported services
• Schools/libraries Internet initiative confuses
  regulatory paradigms
• Asymmetric contribution scheme incentivizes
  creative classification of convergence services

13
Access Charges in the Convergence Era

• Costs, CALLS and uneconomic bypass
• Failure of USF costing preserves inflated access
  rates and CLEC arbitrage opportunities
• Universal service constraints to loop/NTS cost
  allocations to end users (SLC, PICC, etc.)
• Competing financial (depreciation) and market
  (bandwidth charges) ILEC challenges
• Major players (CALLS) unilaterally dictating
  access charge policies

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Reexamining the Trilogy?

• FCC and Congress resist fundamental assessment of
  conflicting policy goals (competition v.
  subsidies, etc.)
• Market pressures force transitional exemptions to
  efficient pricing and explicit subsidization
  principles
• Hidden taxation inherent in current scheme is
  political Emperors New Clothes

15
Bandwidth and Internet Everywhere

• Bandwidth impacts markets and regulation
• Availability increases multi-purpose use of
  networks that cross regulatory boundaries
• Commoditization decreases justification for price
  regulation of transport and final services
• Caching architectures place pressures on pipe
  networks to play in content space
• Regulators caught in MOU, circuit-switched model
  that doesnt translate

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The Bandwidth Dilemma

• Should new networks be subjected to economic
  regulation or should legacy networks be
  deregulated?
• How to harmonize long-run convergence competition
  and short-run residual market power?
• Are social policy goals (digital divide)
  justification for regulatory taxation?

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The Trilogy (Now and Tomorrow)

• Switched MOU and per-line special access charges
• USF limited to telecom revenues
• Interconnection applicable only to telephony

• Capacity-rated charges indifferent to usage
• Contributions assessed evenly on IP and legacy
  networks
• Backbone (peering) and cable systems subject to
  I/C rules

18
Internet Ubiquity

• From PDAs to cars to refrigerators
• Standards become competitive battles
• Content distribution becomes problematic
• Transport becomes even more essential
• Content integration creates new regulatory cycle

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Beyond the 1996 Telecom Act

• When will telecom policy evolve?
• The VoIP abyss (1996-?)
• Access charges and USF (CALLS)
• Broadband policy
• Open access (cable)
• ILEC deregulation (DSL)
• Beyond the basic/enhanced dichotomy
• Chinese water torture of policy

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Building a New Paradigm

• Difficult long-run policy issues take time
• Transitional level playing field regulation or
  wholesale deregulation?
• Moving communications away from subsidies and
  social policy-based regulatory structures
• Conclusion on sustainability of CLEC comp.
• Politics and policy leverage (agency and
  competitors) incent even more delay

21
Who Will Build the New Order?

• Congress satisfied with delegation, oversight and
  blame-shifting
• FCC/Administration enjoying unparalleled policy
  success from extortion
• Private sector too engrossed in building new
  networks
• Eggheads politicized and indecisive
• EU meanwhile flexes regulatory muscle

22
The Consequences of Temporizing

• Network and business strategy lacks predictable
  policy planning basis
• Bad results/precedent from application of
  antiquated classifications (e.g., Frame Relay)
• Increased difficulty of political consensus
• Costs of regulatory true up increase (e.g.,
  1984 Cable Act)
• Policy formation ceded to Europe

23
Regulatory Uncertainty and Innovation

• Innovation effects of uncertainty
• Technical developments freed from shackles of old
  classifications and silos
• Cooperation among players incentivized, except
  where in conflict with leverage goals
• Efficiency and QOS influenced by hard economics
  instead of regulatory considerations
• How much does policy temporizing impact network
  design and development?

24
Back to the Future

• Future of bandwidth regulation looks like distant
  past
• Achilles Heel of 1996 Act era is extinction of
  utility regulation principles

25
Conclusions

• I feel the need for speed
• Superman and X-Men (Rubber Soul)
• If you build it, they will come
• 40 years in the desert?
• La Plus Ca Change
• Enjoy the ride!