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The Year Of Telecom Reform That Wasn't
by Drew Clark
This was supposed to be the year of telecommunications reform, but thus far Congress has passed no major legislation. What's more, neither House nor Senate committee leaders have even introduced comprehensive bills.
Much of lawmakers' policymaking bandwidth has been devoted to legislation that would set a "hard date" for the transition to digital television. They had expected such a measure to move rapidly before debating broader telecom legislation, but that has not happened. The push may have been further sidetracked by communications failures after Hurricane Katrina in the Gulf Coast, particularly because those failures highlighted inadequacies in the nation's emergency 911 call centers.
The telecom debate has changed significantly in the past year. Twelve months ago, the biggest issues were pre-empting states from regulating Internet telephony and ensuring that the high-speed Internet offered by telecom companies was treated the same as that offered over cable modems. Both matters now seem like non-issues.
Instead, the battles of 2006 are likely to be waged over entirely different topics: video franchises and "network neutrality," or the requirement that cable or telecom companies not impede data flowing over the Internet from other companies.
All Video Is Local -- But Should It Be?
SBC Communications and Verizon Communications are leading the charge against the current system of municipality-by-municipality video franchises, which was codified in the 1984 Cable Act. Although tweaked in 1992 and 1996, the basic rule remains: To offer pay-television over wires, companies need to get separate franchises from each municipality.
That means paying up to 5 percent of revenues as fees, plus up to 3 percent more to provide financial support for public, education and government access to television, known as PEG for short. Video providers also must meet other requirements imposed by localities. Those may include offering service in the entire city or county in question within a period of years.
SBC argues that such municipal-based franchises cause higher cable prices. "More than 20 years after the Cable Act, the video distribution market has yet to witness transformative competition," James Ellis, senior executive vice president and general counsel for SBC, said at a House subcommittee hearing. "Cable prices have been rising over three times as fast as the Consumer Price Index. And that trend continues: 2005 has already seen another round of price hikes."
Ellis endorsed draft legislation of the committee's leading Republicans. It would create the ability for national video service while preserving franchise fee revenue and PEG requirements.
But Michael Willner, the CEO of Insight Communications, stated objections at the same hearing. "The draft bill creates different regulatory regimes for like services based on technological distinctions," he said. Furthermore, he said the draft would impose net neutrality when none is warranted and would gut important rules requiring telephone interconnection.
In other words, Willner said, the bill combines unfair, excessive and inadequate regulation.
The Debate Over 'Net Neutrality'
While the franchising issue divides cable operators and Bell companies, both have reservations about rules on network neutrality. Their concerns set the stage for a second clash over telecom reform, one between the communications carriers and technology providers, like Google and Microsoft, which seek to promote broadband with new applications and content.
Neutrality has been an abstract principle for fans of the Internet for some time -- at least since 2002, when the FCC implemented a rule change that classified cable modems as an "information service." Cable transportation previously was considered like telecommunications service, subject to rules designed to check potentially anti-competitive actions by network providers.
The FCC's action on cable broadband, taken while Michael Powell was chairman of the agency, was sustained by the Supreme Court in June. Under new FCC Chairman Kevin Martin, the agency in August took the next step and declared the digital subscriber lines that telecom firms use to offer broadband a similar information service.
But if network operators' services are lightly regulated, what stops them from attempting, like Madison River Communications did with the Internet telephone company Vonage, to block a competing service? From the major telecom operators' perspective, Vonage is a "free rider," attempting to offer a telephone service on the networks of others. But to consumers, Madison River is stopping them from running a completely legal application on bandwidth already paid for and upon which consumers should be able to run whatever they choose.
The debate over net neutrality also encompasses issues such as whether telecom and cable companies with the ability to block Internet telephone service also would block Internet video services like an anticipated "Google TV" or hypothetical, user-friendly videoconferencing via a combined eBay online auction house and Skype Technologies.
The FCC has conditioned SBC's acquisition of AT&T and Verizon's acquisition of MCI on two years' worth of net neutrality. They now have an incentive to push for some version of it in telecom law -- unlike cable operators. But the devil will be in the details, and some observers already see potential loopholes in the latest House draft's definition of the term.
Lingering Issues
The final wildcard of telecom reform is how to change the universal service fund. Everyone seems to agree that a change to the fund for guaranteeing communications services to all Americans is necessary, but few are willing to commit to such reforms to paper. Reform of the program has been a priority of Senate Commerce Committee Chairman Ted Stevens, R-Alaska.
Sources said opposition from Stevens was a factor in last week's announcement of one -- not two -- new FCC commissioners. Richard Russell, associate director of the White House Office of Science and Technology Policy, was initially seen as a likely contender for one of the FCC's open Republican spots. But ultimately, sources say, he was not sufficiently supportive of USF, which funds telephone service in rural states like Alaska, and he did not receive a nomination.
At the FCC, Martin hopes to make progress on reshaping the system but is not likely to have complete legal authority to do so without action by Congress. Sen. Conrad Burns, R-Mont., is working on such legislation, and on Tuesday, Reps. Lee Terry, R-Neb., and Rick Boucher, D-Va., plan to introduce their own USF bill.
Although not central to the emerging battle between the cable and telecom sectors the end of analog-based TV signals would free at least 108 megahertz of spectrum for use by other wireless services. But that could be addressed this year. The differences between the House and Senate proposals are not great on issues like the deadline for the digital transition and a subsidy for boxes converting digital signals to analog for viewing on older televisions.
As for the nation's system of "enhanced 911" services based on callers' locations, the Senate Commerce Committee on Nov. 2 unanimously approved legislation to revamp the 911 system. The bill also would delay for up to four years, a Nov. 28 deadline for Internet telephone companies to implement such E911 service. But the bill does not appear to be on a fast track in the House.
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