A "light touch" toward regulating broadband under Title II rules is not a credible commitment the Federal Communications Commission can make, said George S. Ford, Phoenix Center for Advanced Legal & Economic Public Policy Studies chief economist, and Lawrence J. Spiwak, Phoenix Center president.

 

In part, that is because the current Commission's own actions demonstrate it lacks the necessary self-discipline or mindset for "light touch" regulation, Ford and Spiwak said.

 

The other problem is that such strong forms of regulation choke off investment. In other words, like it or not, government regulation of this sort 'kills the goose that lays the golden egg.'

 

Under the existing ancillary approach to regulation, the burden is on the agency to make a compelling and legally sound case for regulatory intervention in the broadband marketplace, Ford and Spiwak say The "Third Way" or reclassification approach, in contrast, opens the door to heavy-handed regulation, thereby requiring the Commission to exercise substantial self-imposed discipline to limit regulatory intrusion.

 

From a legal standpoint, the Commission can either rely on the courts to impose discipline on its regulation of broadband; or rely on its own self-control. The problem is simply that the second approach lacks credibility with the capital markets.

 

Firms and investors make decisions based on their profitability, and this profitability depends on how they will be regulated going forward. Yet the prospect of heavy regulation reduces profits and can dissuade investors from the outset, Ford and Spiwak note.

 

And investors will take note of existing language suggesting, contrary to claims, that price regulation is very much on the mind of regulators. The Commission currently has two proceedings, National Broadband Plan Public Notice and Special Access, open to expand regulatory oversight, including pricing regulation, of broadband transport.

 

In the FCC's (News - Alert) consumer survey conducted as part of the National Broadband Plan, the FCC staff established a price point of $25 per month as what people consider to be "affordable." The mission of the National Broadband Plan is "affordable broadband," and the Plan claims the largest barrier to adoption is price.

 

Section 201, as proposed by the Commission, requires rates to be "affordable." Thus, the FCC's plain interest in price regulation of broadband services has been established: a price exceeding $25 is "unaffordable.'

 

Oddly, the FCC says its light touch resembles its similar 'light touch' towards wireless regulation, though skeptics would point to active proceedings that attempt to regulate wireless more heavily.

 

Not only is the Commission currently contemplating subjecting wireless broadband providers to the pricing rules contained in the Open Internet NPRM,49 but it also is still considering the potential application of mandatory "Wireless Carterfone (News - Alert)" rules that would undermine and essentially destroy an important--perhaps the ultimate way--mobile providers now differentiate themselves. 

 

The FCC also wants to regulate early termination fees.

 

Furthermore, anyone with experience in communications regulation immediately will recognize that promises to 'forebear' from imposing rules an agency has authority to impose, are unstable and unreliable, long term.

 

Another example of the FCC's light touch for advanced services was the deliberate decision to allow local exchange companies to "invest their way out of regulation" by exempting "new wires" (fiber access) from requirements to unbundle legacy copper networks. But the FCC now is sending signals that it wants to revisit those rules.

 

Most notable in this regard are several provisions in Chapter 4 of the National Broadband Plan that refer to "wholesale competition regulations,' Ford and Spiwak note.

 

Although the Plan did not call for a return to unbundling outright, the Plan did recommend that the "FCC should comprehensively review its wholesale competition regulations to develop a coherent and effective framework and take expedited action based on that framework to ensure widespread availability of inputs for broadband services provided to small businesses, mobile providers, and enterprise customers."

 

'If the FCC could not write legally sustainable rules to unbundle the legacy copper network in a monopoly environment, it strains credulity to think that the FCC could draft legally sustainable unbundling rules for fiber and coaxial cable, and possibly even mobile broadband networks, in the current workably competitive broadband environment,' Spiwak and Ford say.

 

A rational observer would conclude that the FCC wants to reexamine its earlier rules on mandatory wholesale.

 

On the subject of investment incentives, the FCC says the most basic goal of broadband policy is "to encourage private investment and the building of a communications infrastructure,' and avoid 'heavy-handed prescriptive regulation [that] can chill investment and innovation."

 

The FCC recognizes that reclassification exposes broadband providers to the very "extensive regulations" that "chill investment," but apparently wants industry participants to trust that this will not happen.

 

FCC actions suggest that Title II will amount to an increased probability of strong, price regulation of broadband services. Both common sense and empirical evidence support this interpretation, and such a state of affairs will depress rates of expected return, and hence investment.

 

Disclaimers aside, financial analysts simply do not believe FCC claims that price regulation and unbundling, both highly negative matters for investment, are not on the table. Craig Moffett, a New York-based analyst with Sanford C. Bernstein & Co., said that "cable operators and Verizon (News - Alert) … could be forced to share … network with competitors."

 

Bernstein Research argues that "the potential for price regulation speaks to longer term expected growth rates."

 

Bank of America/Merrill Lynch analysts say that 'based on our analysis the potential for lower investment are likely and the ramifications will be felt not just in telecom and cable, but potentially in the vendor sector as well.'

 

'Jobs and investment and both could be threatened by this move,' Bank of America/Merrill Lynch says.

 

Light touch Title II regulation is not possible, the Phoenix Center concludes.