the politics of bandwidth: convergence, globalization and the future of telecom regulation

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The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation Glenn B. Manishin, Esq. Patton Boggs LLP 8484 Westpark Drive McLean, VA 22102 703.744.8095 <[email protected]>

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As communications networks produce more and more bandwidth, traditional regulatory classifications and policies no longer work well. This presentation to the United States Telecom Association explored the influence of bandwidth from a political, legislative and public policy perspective. It assessed the impact of concentration, interconnection and federal policies — and the continued failure to modify legacy rules — on competition, consumer welfare and United States global leadership in the communications space. September 2000.

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Page 1: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

The Politics of Bandwidth:Convergence, Globalization and the Future

of Telecom Regulation

Glenn B. Manishin, Esq.Patton Boggs LLP

8484 Westpark DriveMcLean, VA 22102

703.744.8095<[email protected]>

Page 2: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 3: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

Public Policy in the Convergence Era

• The Cycles of Convergence

Political and PolicyConflict

Pressure on LegacyRegulations

Pace of TechnicalChange

Business and Market Risks

Page 4: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 5: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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”

Page 6: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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.

Page 7: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

Network Scale and Market Concentration

• Big fish in little ponds– End user pressure for globally integrated

services and content– M&A 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 M&A

Page 8: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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.)

Page 9: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

The Policy Inversion of Concentration

Atomistic monopoly networks

Concentrated competitive networks

Price/entry regulation

Social policy regulation

Page 10: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 11: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 12: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 13: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 14: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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 “Emperor’s New Clothes”

Page 15: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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 doesn’t translate

Page 16: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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?

Page 17: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 18: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Telecom

Cable

TCP/IP

Content Providers

Page 19: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

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

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 21: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 22: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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

Page 23: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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?

Page 24: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

Back to the Future

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

Market I/CPrice dereg.Innovation+

1880s-1920s

Public utility modelUniversal service rationaleCompetition suppressed

1934-1996+

Market I/CPrice dereg.Innovation+

2000-?

Page 25: The Politics of Bandwidth: Convergence, Globalization and the Future of Telecom Regulation

19 Septemer 2000 Glenn Manishin <[email protected]>

USTA NSAC #51

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”!