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Prepared Witness Testimony The House Committee on Energy and Commerce
The Regulatory Status of Broadband Services: Information Services, Common Carriage, or Something in Between?
Subcommittee on Telecommunications and the Internet
Commissioner Robert B. Nelson
Mr.
Chairman and members of the Committee, I am Robert B. Nelson, a Commissioner
with the Michigan Public Service Commission and the Chairman of the
Telecommunications Committee of the National Association of Regulatory Utility
Commissioners (NARUC). I would like to thank you for providing me the
opportunity to testify today on behalf of NARUC. As many of you
know, NARUC, founded in 1889, is recognized in Sections 410(c) and 254 of the
Communications Act by this esteemed body as the organization that represents the
interests of State Public Service Commissions operating in each of your home
States. Communications Act of 1934, as amended by the Telecommunications
Act of 1996, 47 U.S.C. § 151 et seq., Pub.L. No. 101-104, 110 Stat. 56 (1996)
(West Supp. 1998) ("1996 Act" or "Act"). Your State commissions, like each of you, have a direct interest in promoting vigorous competition in the intrastate telecommunications market. Each of NARUC's member commissions is responsible for implementing: (1) State telecommunications laws; and (2) federal statutory provisions specifying incumbent local exchange company obligations to interconnect and provide nondiscriminatory access to competitors. See, 47 U.S.C. § 252 (1996). Federal law requires the States (and the FCC) to promote advanced telecommunications services like those at issue here. See, 47 U.S.C. § 706 (1996). Before
turning to NARUC's views on the FCC's current initiative to reclassify all
high speed data services as "information services," I want to briefly
discuss the negative impact these proceedings could have on Michigan's efforts
to promote broadband deployment and economic growth in the telecommunications
market throughout the state. Michigan's Broadband Deployment Initiatives Could Be Undermined. The concept of "regulatory parity" is compelling to policy-makers of all stripes. The FCC is attempting to promote broadband deployment by minimizing the regulation of DSL and other Internet platforms. However, the agency's approach, which is based on an obvious misreading of text of the Act is misguided as a matter of both the law and policy. While I am sympathetic to the overall policy goal of making it easier for providers to invest in innovative technologies and services, I have serious reservations regarding the FCC's creation of a whole new federal regulatory oversight system by reclassifying services - services that even the FCC, until recently, agreed were stand-alone common carrier service regulated under Title II of the Act - as "information services." I am even more concerned about recent agency action that threatens to eliminate State-imposed line-sharing requirements over the existing network designed to enable multiple providers to offer a choice in voice and broadband services to end-users. In 1996, Congress authorized the
regulatory treatment of bottleneck transmission facilities of the incumbent
Local Exchange Carriers (ILECS) as common carrier services under Title II of the
Communications Act. It did not leave the FCC to freely reclassify these
services at its own discretion. To endorse the FCC's new approach, one
must believe that Congress knew nothing about either the Internet or high-speed
data services - a notion that ignores the clear text of the 1996 Act and
common sense.[i] High-speed data services/ISDN existed well before 1996, and nothing in the Act suggests these facilities should be exempt from the scope of Title II requirements simply because they employ a broadband technology. Section 251 of the Act makes no distinction between conventional common carrier service and high-speed transmission technologies in defining the obligations of incumbent local exchange carriers. Moreover, in Section 706, Congress made clear its desire for the States and the FCC to use their regulatory mandate over common carrier services to further the deployment of advanced Internet services. Among the tools identified is "forbearance" under Section 10 of the 1996 Act, which gives the FCC authority to forbear from applying Title II requirements to telecommunications services under specified criteria. The proposal to reclassify broadband transmission service that the FCC itself has, until 2002, consistently classified as common carriage constitutes an impermissible end-run around that section.[ii] As
you know, Mr. Chairman, our home State of Michigan has been at the forefront of
State broadband policy initiatives, enacting a comprehensive package of bills in
2002[iii]
that were designed to stimulate the availability of high-speed Internet
connections in rural and urban areas of Michigan. These initiatives
have resulted in Michigan being rated #1 in both supply-side policies and
demand-side policies by Technology Network (TechNet) in its recently released
"State broadband Index," which can be found at www.technet.org.
Michigan's extensive work in creating a positive environment for broadband
investment could be seriously undermined if either Congress or the FCC moves
forward to classify wireline broadband services as an "information" service
under Title I of the Communications Act. For example, one key
component of Michigan's broadband deployment initiative lauded by TechNet, is
its dependence on reform of right-of-way access policies. Specifically,
the Michigan legislation, among other things, streamlined the process for
authorizing access to rights-of-way by providers of telecommunications services,
which is defined in much the same way as the 1996 Act defines them. If
Section 251(b)(4), which requires local exchange carriers to provide access to
rights-of-way by competing providers of telecommunications services, is defined
to exclude broadband access services, it could undo Michigan's attempt to reform
its policies and promote greater broadband deployment. Nothing under Title I allows
the States to exercise any specific authority to ensure open access for ISPs or
any other service provider, as is the case under Title II. Even with the
authority provided under Title II, Michigan and the surrounding States have
still seen an alarming surge in SBC's dominance over the residential DSL
market in the last two years. Simply put, Michigan needs the ability to
apply the provisions of Sections 251 and 252 of the 1996 Act to require RBOCs to
provide nondiscriminatory access to the underlying facilities necessary for
competitive, non-dominant providers to provide Internet access services to their
customers. Michigan could provide all the financial incentives to spur
broadband deployment imaginable but if competitive providers are unable to
interconnect with SBC's facilities, the incentives are worthless. Michigan is not the only State
with programs focused on broadband deployment. Several other States like
Minnesota, California, Texas and others, have, as a matter of State law, imposed
various access requirements on facilities, e.g., "line sharing" - which
could face court challenges once the long-awaited Triennial Review decision is
released. Many other State initiatives like those in Michigan have
targeted programs designed to encourage the deployment of broadband facilities
rather than encumber it with additional direct regulation. We believe this is
the right path toward invigorating the entire sector. The Current Framework
under Title II of the Communications Act. Today, ILECS' provide their
own DSL service as a stand-alone telecommunications service over their own
bottleneck local loop facilities. These services are governed by the
Act's Title II (common carrier) regulations that prohibit a carrier from
charging unjust and unreasonable rates. At the federal level, such
services are also subject to the FCC's Computer II and Computer III rules,
which require the ILECs to provide non-affiliated information service providers
(ISPs) with non-discriminatory access to their facilities so that all
non-incumbent ISPs can compete with the ILEC ISPs (e.g. Verizon.Net, SBC
Yahoo!). The broadband sections of the recently passed Triennial
Review Order appears to offer significant regulatory relief for the incumbents
from access requirements to new facilities and overbuilds of existing
facilities. The FCC's approach
to promoting broadband investment. In the FCC's Broadband Framework
proceeding, the ILECs have urged the FCC to declare that Internet access over
DSL is an information service provided via telecommunications, rather than a
telecommunications service. The ILECs want the FCC to find that DSL
Internet access is an integrated information service, subject to Title I, and
that there is no common carriage component of the offering that is subject to
Title II safeguards. The impact of reclassifying
broadband services on voice services. If the FCC proceeds in making this new paradigm shift in the current rules, the requirement that ILECs provide DSL as a telecommunications service regulated under Title II of the Communications Act, and consequently their obligations under FCC's Computer II and III rules to provide non-discriminatory access to non-affiliated ISPs, will be eliminated. Although the scope of the FCC notice
apparently is limited to "broadband" information services, once the legal
principle has been established, it will be difficult to prevent ILECs from
offering an "information service," such as voicemail integrated with every
voice product, and declaring those voice services (which are virtually always
offered to consumers over bottleneck local loop facilities) to be information
services that are not subject to common carrier regulation by either the States
or the FCC. At best, such questions will have to be litigated. As voice traffic continues to
migrate to the broadband platform, all of the consumer protections attendant to
even the most basic common carrier voice service will no longer automatically
apply if the FCC declares that broadband services are a "deregulated
information service" instead of a common carrier service, as it is currently
classified. The current common carrier protections under Title II also include
the assurance of fair and reliable service at just and reasonable rates; the
assurance of just and reasonable terms and conditions of service such as billing
and service termination practices; and the assurance of compliance with basic
service quality standards. The FCC's reclassification also undercuts
additional goals that Congress established to ensure that low-income customers
who live in rural high-cost areas, and disabled customers have reasonable and
affordable access to the network. See 47 U.S.C. §§ 254, 255.
Congress further sought to ensure that confidential customer information would
be safeguarded from disclosure to commercial entities without customer consent.
See 47 U.S.C. § 258. All of these provisions, however, apply solely to
"telecommunications services." Nothing in the Act demonstrates that all of these public interest safeguards should be left to the FCC, in its sole discretion under its vaguely-defined authority under Title I, to decide unilaterally where and how to regulate essential bottleneck transmission services to further the Act's goals. Nor is it clear how the FCC could simply assert its Title I "ancillary authority" to extend basic consumer protections applicable to Title II services to Title I services. The consumer impact must be considered carefully before going forward. The ILECs have already received
substantial unbundling relief for new facilities and overbuilds of existing
facilities in the FCC's soon-to-be released Triennial Review order. In
addition, the FCC's proposed "information services" approach also recently
received a chilly reception in the 9th Circuit Court of Appeals. These
events suggest that the FCC should proceed with its "information services"
initiative with caution - if at all. For either the FCC or Congress to
alter the current regulatory structure for broadband and access to
telecommunications facilities is a risky undertaking that at best is premature.
The FCC is basically proposing, through the use of Title I, a new, undefined,
and potentially unlimited paradigm shift in federal authority over ILEC
"information services." NARUC is on record opposing the legal
rationale the FCC used to justify this action. If the agency chooses to
proceed, Congress should urge them to carefully consider the following issues
before making any final determinations. 1. Impact on Intra-Platform Competition: Broadband services are provided over several different technology platforms: wireline broadband Internet access (primarily via xDSL service provided over the legacy telephone infrastructure); wireless broadband Internet access; cable modem broadband Internet access; powerline, and satellite broadband Internet access. All these platforms have different availability and performance characteristics, some of which are substitutes for others and some of which are not. Most consumers live in communities where they receive only one provider per technology platform and some consumers have no choice at all. The FCC's approach may allow specific platform technologies, e.g., cable modem or ILEC DSL facilities, to maintain their dominance over specific facilities in specific geographic areas. Before taking any action, the FCC should seek additional comment on the potential impact its proposed revised regulatory structure may have on intra-platform competition and innovation. 2. Examine The Current Demand for Existing Facilities: Before
moving forward with deregulation, the FCC and Congress should examine the
current status of demand-side issues and solutions. In ¶ 3 of the Notice,
the FCC suggests that the primary focus of this proceeding is to promote
broadband offerings. As Chairman Powell suggested in his October 24, 2001
presentation to the National Summit on Broadband Deployment, the existing
regulatory structure may not be the root cause of the existing penetration
problem. In his presentation, Chairman Powell noted: "According to J.P.
Morgan, 73% of households have cable modem service available, and 45% of
households have access to DSL. Combined broadband availability is estimated to
be this year almost 85%. The intriguing statistic is that though this many
households have availability, only 12% of these households have chosen to
subscribe." Although the gap between availability and subscriptions is narrowing, it remains substantial. For example, in October of last year, the National Cable Association announced that the cable industry finished the third quarter with 10 million broadband subscribers nationwide out of 75 million U.S. households then passed by broadband-enabled cable networks. These reports suggest demand and not supply is the primary existing impediment to the expansion of this market. The lack of demand has been identified, but the reasons for that lack of demand have not been fully explored. The United Kingdom's recent experience suggests that one major factor limiting demand may be the way current services are priced.[iv] Others have suggested copyright and content issues have negatively affected demand. A more careful examination of what factors affect take rates for broadband Internet access will help the FCC determine when it should act. 3.
Impact on State Proceedings to Promote Competition and Broadband investment:
The FCC's new definition of "information services" will significantly enhance the prospect for protracted litigation over "authority" questions at both the State and federal level. Introducing a new and wholly unknown scheme of regulation into the market at this point injects a substantial level of legal and economic uncertainty. Any regulations that the FCC adopts in this area must not preempt the extensive work already done in a number of States, pursuant to Federal law and following FCC guidelines to promote competition. There are many ongoing proceedings/initiatives designed to foster competition and facilitate broadband deployment, (271 proceedings, DSL transport proceedings, comprehensive OSS third-party testing, UNE pricing dockets), that should be concluded before significant changes are made to the existing regulatory paradigm. The Notice, at ¶ 61, explicitly leaves open the possibility that such access would not be subject to provisions of the Act that require unbundled access to competitors. Under that scenario, access to the transmission path by telecommunications competitors is foreclosed. As a result, a significant number of those competitors may lose the ability to compete for the whole package of services demanded by today's telephone consumers. 4.
The Impact On State/Federal Universal Service/Protections That Apply Only To
Common Carrier Services:
Adding
to the difficulty of analyzing the impact and applicability of the FCC
proposals, the Notice applies only to "domestic wireline broadband Internet
access services," but does not fully define "broadband." Notice at
footnote 1. Specifically, t
he Notice is not explicit on whether "broadband wireline Internet access"
includes all of a customer's communications, such as voice traffic.
It describes "broadband" as an "elusive concept," and reports on two
earlier Commission efforts to define similar terms. Notice at footnote 2.
It does specify that broadband "presently" consists primarily of DSL
services, but nowhere addresses explicitly how the FCC will treat voice service
associated with such a DSL service. Significantly, nothing in the Notice
suggests that the FCC anticipates a different regulatory scheme in which only
Internet access over DSL is subject to the scheme instigated by the Notice, and
voice service is subject to some other kind of regulation. The Notice
itself, in ¶ 82 raises the specter of problems with universal service, asking
"[s]pecifically, if voice traffic over broadband Internet platforms increases
and traditional circuit-switched voice traffic decreases, how, if at all, will
that impact our ability to support universal service in an equitable and
non-discriminatory manner? Will migration lower or raise the cost of
providing service? What, if any, will be the impact on the level of
high-cost universal service support needed as voice traffic migrates from
traditional circuit switched networks to broadband Internet platforms?"
See also ¶ 62 where the FCC first notes its expectation that "traditional
services [will] migrate to broadband platforms." These questions raise a myriad of concerns regarding the FCC's perception of regulatory oversight of voice over DSL services. Aside from the possible impact on State and Federal universal service programs raised in the Notice, for customers who communicate (both voice and data) only through an integrated DSL service, the Commission's decision in this proceeding could eliminate many protections now in place under common carriage principles and Title II of the Communications Act.[v] It could also have a substantial impact on State authority over any local/toll voice service integrated with an ILEC "information service." 5. The Impact on Citizen Access
to Internet Content: Customers using a common carrier today have the
ability to send and receive lawful information of their own design and choosing.
Title II of the Communications Act's prohibition against unreasonable
discrimination has historically protected the rights of those citizens to
transmit and receive information without change in its form or content.
Some citizens today use broadband services and facilities as their chief source
of information and news, even to the point of replacing newspapers. Some
citizens can get broadband service only through wireline telephone facilities,
and others can get broadband service only through cable modem facilities. In
such cases, providers of broadband services or facilities have the technical
capability to create a "walled garden" or "fenced prairie,"
designed to attract customers to preferred content while preventing customers
from reaching content other than those of the providers' choosing. Certain
broadband providers may have an incentive to restrict Internet access to favored
news sources or unaffiliated content providers, and if they chose to do so,
could significantly limit free speech. Although the issue of "open access" has
been debated largely as a question of fairness among different kinds of
broadband providers, the restriction of user access and its effect on informed
citizenship is an issue of real significance in a democratic society. Last
November, NARUC adopted a resolution which resulted in the Association urging
the FCC, in this proceeding, to assure that: (1) all Internet users, including
broadband wireline and cable modem users have a right to access to the Internet
that is unrestricted as to viewpoint and that is provided without unreasonable
discrimination as to lawful choice of content (including software applications)
and receive meaningful information regarding the technical limitations of their
broadband service; and (2) where a broadband facilities provider furnishes
facilities on a nondiscriminatory basis to ISPs, including an affiliated ISP,
nothing prohibits the affiliated ISP from promoting or preferring particular
content. If broadband access services are classified as "information
services," the ability of the FCC to provide such assurances will be
non-existent. What can congress do to protect consumers under this scenario? Congress
should encourage the FCC to delay further action until, at a minimum, the 9th
Circuit has ruled in the related Cable Modem proceeding. We further
suggest that the Agency should watch the aftermath of the Triennial Review order
to see if the promised explosion in ILEC deployment actually occurs before
taking action in its pending proceedings. Congress may also wish to review
the success of various State and local initiatives to promote broadband
deployment, many of which were dependent on the tools provided them under Title
II. Conclusion Congress, the FCC, and the
State commissions have worked in tandem to take significant steps to achieve
deregulation of the local exchange carriers and to promote competition in
telecommunications services. These efforts must be continued jointly.
Telecommunications and broadband markets are linked. The approach
offered by the FCC in its broadband dockets is inconsistent with the Act and
will disrupt existing State broadband and competition-related initiatives.
The action proposed in those dockets is, at best, premature and at most a
misguided approach to a problem that doesn't even exist- lack of investment
and growth in broadband subscribership After seven-and-a-half years since the 1996 Act
was passed, competition in the provision of local voice service is a reality in
Michigan and other States, thanks to the tools Congress and the FCC have given
us. However, the "last mile" facilities are still owned largely by
ILECs, who have used this ownership to dominate the DSL market. Now is not
the time to remove all semblance of competition in the provision of wireline
broadband services. ENDNOTES 1.
It is
clear from the Act's explicit textual references, that Congress was aware of
and very interested in broadband deployment issues. It is hard to square the
Act's numerous specific provisions addressing both "advanced" and
"information" services, with the Notice's implied contention that Congress
wants the FCC to assert sweeping and undefined Title I authority over the
"internet and other interactive computer services" through what the Notice
concedes is a new approach to defining "information service." When
Congress wishes to discourage regulatory oversight, it has no difficulty doing
so. See, e.g., 47 U.S.C § 160, § 161, & § 274(g)(2). The
FCC's view of Congressional intent is inconsistent with (1) the very limited
legislative history of the "information service" definition in the Act,
(See, e.g., House Conference Report 104-458 (January 31, 1996) at 114 - 116,
where Congress chose not to go with the "Senate definition" which arguably
can be read to support the FCC's view, but rather went with the House
version.) and (2) the uses of the term "information services" elsewhere in
the Act. The Notice's view of "information service" specifically
includes what the FCC has already found to be a common carrier
"telecommunications service." Other uses of the term "information
service" in the Act undercut such an interpretation of Congressional intent.
The Act repeatedly uses the term "information service" in a much narrower
context, that of a consumer purchase of information that is delivered to the
customer through a telecommunications service. 2.
Treatment
of an ILEC consolidated DSL-ISP offering, as not including a
"telecommunications service" is also inconsistent with the FCC's numerous
findings that DSL is a Title II telecommunications service that can be tariffed.
See, e.g., GTE Operating Companies Tariff No. 1, 13 F.C.C.R. 22466, 1998 WL
758441 (1998) at ¶16. ("We agree that GTE's DSL Solutions-ADSL service
offering is an interstate service that is properly tariffed at the federal
level.") A recent FCC report to Congress found
that, to the extent certain forms of phone‑to‑phone IP telephony
are interstate 'telecommunications,' and to the extent that providers of
such services offer such services directly to the public for a fee, those
providers would be classified as 'telecommunications carriers' and therefore
subject to the requirement to contribute to universal service mechanisms."
As the FCC acknowledges in ¶ 15 of the Notice, that report, in suggesting
transmission of an information service is separate from the information service
itself, also conflicts with the tentative conclusions in the Notice.
Federal‑State Joint Board on Universal Service, CC Docket No. 96‑45,
Report to Congress, 13 FCC Rcd 11501, 11529, ¶ 57 (rel. Apr. 10, 1998). In the
Advanced Services Second Report and Order at ¶17, the FCC observed that
Internet Service Providers ". . .combine a regulated telecommunications
service with an enhancement, internet service, and offer the resulting service,
and unregulated information service, to the ultimate end user. (emphasis
added) See also Id at ¶ ¶ 14, 19 (note 41) & 21 all referring
to DSL service as "telecommunications services" under the Act). In re
Deployment of Wireline Services Offering Advanced Telecommunications Capability,
CC Docket No. 98-147 (November 9, 1999), 1999WL 1016447.
3.
In 2002,
Michigan passed three laws to stimulate the availability of affordable
high-speed Internet connections. Act 48 of the Public Acts of 2002 creates
a Telecommunication Rights-of-Way Oversight Authority to help telecommunication
providers cut through red tape and get projects done without having to pay
excessive fees or endure unnecessary delays. Act 50 provides tax credits
to providers that invest in new broadband infrastructure and, upon certification
of the MPSC, right-of-way fees paid under the first bill. Act 49 creates
the Michigan Broadband Development Authority to help fund rollout of broadband
services in underserved areas. 4.
See,
e.g., Playing to Lose in the DSL Pricing Game, BROADBAND NETWORKING NEWS, Vol.
12, No. 8 (April 9, 2002) ("Even as cable companies eat their lunch,
U.S. DSL providers are raising prices looking for a sweet spot where they can
make money. Indeed a forthcoming Yankee Group study reportedly calls high
prices the greatest factor preventing broadband adoption from hitting the marks
predicted a couple years ago. In the U.K. they've suddenly inverted the
situation. BT Group's recent move to slash the wholesale prices it charges
British ISPs for providing service through its network has thrown the market
into a tizzy. BT announced earlier this year that, as of April 1, it would
cut wholesale rates by some 40 percent.") See also - Emling, Shelley,
"Broadband Providers Moving to Tiered Fees", Austin American-Statesman April
11, 2002. "Companies say tiered pricing gives them the chance to attract
customers who haven't signed up for broadband because of the price." 5.
See
Notice at ¶ 61-63 acknowledging and seeking comment on the potential impact of
the new classification scheme on existing consumer protection requirements,
including, e.g., 47 U.S.C. § 258 protections against "slamming", 47 U.S.C.
§ 214's limitations on the ability of a telecommunications carrier to
unilaterally discontinue telecommunications service to customers, 47 C.F.R. §§
64.2001-2009 rules restricting carrier use and disclosure of customer
proprietary network information derived from the provision of a
"telecommunications service" 47 U.S.C. § 255's requires a provider
of "telecommunications service" to ensure the service is accessible and
usable by individuals with disabilities, if that is readily achievable. 47
U.S.C. § 201's obligations applicable to the furnishing of service and
charges for "communication service" and § 202 restriction preventing
"common carriers" from "unreasonably discriminat[ing] with regard to like
"communications services."
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