2011 Ends with RLECs, Small Cablecos and AT&T Searching for a Bright Light
Part 4 of “2011: The Regulatory Year in Review.” When you look at everything that has happened in telecom in the last two months alone, the entire rest of the year seems almost inconsequential in comparison. The whirlwind of activity in the past six weeks was one part culmination of several longstanding regulatory-industry entanglements and one part FCC commissioners wanting to get things done before two new commissioners take their seats at the table in 2012. No matter how you mix it up, the FCC served up a smorgasbord of prime cuts and rotten left-overs for both Thanksgiving and Christmas.
November 2011: We endured most of the year with only four FCC commissioners, and the knowledge that Commissioner Michael Copps would be departing at the end of the year. I had some personal objections to a four-member commission approving something as monumental as the USF/ICC Order, but it is unlikely the outcome would have been different even with the full five. Still, one can wonder…
On November 1 President Obama nominated Jessica Rosenworcel and Ajit Pai to fill the empty seats starting in 2012. Rosenworcel will replace Copps; she hails from the Senate Commerce Committee and has served the FCC as senior legal advisor to Copps and Wireline Competition Bureau chief. Pai will fill Baker’s seat and was formerly a partner at Jenner & Block. Pai’s resume also includes the Senate Judiciary Committee’s Subcommittee on Civil rights, the Office of Legal Policy at the Justice Department and the FCC.
Pai might be a much-needed advocate for rural telecommunications as he was raised in Kansas. According to Senator Jerry Moran (R-KS), “Ajit is a humble and hard worker – just what you would expect from a Kansan. He is the type of person you would like to have as your neighbor.“ Moran’s statement continues, “The FCC also needs commissioners who are committed to the needs of all Americans, including those who live in rural America, so its innovators can compete in the marketplace along those in urban areas. A native of Parsons, Kansas, Ajit will bring an understanding of the challenges facing our part of the country at this vital time for the future of telecommunications.” One major criticism of the FCC this year has been that they simply do not understand rural America (even though Genachowski visited Diller, NE), so Pai may bring a welcome and necessary perspective to the urban-centric Commission.
On November 9, Genachowski announced “Connect to Compete,” a broadband adoption initiative focused on low-income families. Connect to Compete and its cousin Comcast Internet Essentials promise to provide broadband to qualifying low-income families for $9.95 per month as well as access to digital literacy training and low cost computers. Dozens of big-name tech companies have signed on to participate in Connect 2 Compete. As these low-income programs pick up steam in 2012, there may be some market pressure for RLECs to respond in kind. However, reports are already coming in that very few low-income families are even qualifying for Comcast’s Internet Essentials program—one requirement is that participants cannot have outstanding bills with the company. (The ILEC Advisor: The FCC’s Egalitarian Cable Broadband Initiative: What does it Mean for RLECs?).
As Thanksgiving drew closer, the entire telecom industry was watching FCC.gov like a hawk waiting for the USF/ICC Order. Rumors swirled regarding the release date, length of the document, and changes that may have been made after the October 27 Open Meeting vote. On November 19 around 6:30 PM EST, I was planning my weekend and looking forward to a relaxing evening when I received the news that the order was released, and it was a doozy at 759 pages long. The Order more closely resembled the February NPRM than the industry’s Consensus Framework, which has caused more than a few to wonder if the FCC’s insistence that the industry draft an alternative was just a smoke-and-mirrors diversion. The Order has received criticism from the Hill for being released late, extremely long, and likely modified after the vote contrary to the open and transparent principles that the Commission is supposed to abide. Criticism aside, the USF/ICC Reform Order is certainly one of the most significant events for RLECs since the 1996 Act. (The ILEC Advisor: Introducing the Connect America Fund – USF Reform Overview).
Many of us were pleased that the USF/ICC Order was released a week before Thanksgiving, thus saving the holiday (although I spent most of the holiday reading it). However, AT&T/T-Mobile merger groupies got their fill of Thanksgiving goodness when the FCC announced on November 23 that it was opposed to the merger and an administrative hearing would be held to further consider the facts—the kiss of death, according to some experts. Following this decision, things got really ugly between AT&T and the FCC for a few weeks. (The Deal Advisor: FCC Calls for Hearing on AT&T/T-Mobile Combo).
December 2011: December has seen RLECs struggling to comprehend the USF/ICC rules, AT&T battling with the FCC and DOJ, small cablecos fighting with local broadcasters over outrageous retransmission fees, and the FCC grappling with when and how to abandon the PSTN.
The best drama unfolded before my very eyes on December 1, 2011. Not 15 hours earlier, the FCC had released its staff report detailing why it was opposed to the AT&T//T-Mobile deal—including AT&T’s egregious jobs claims and questionable economic analysis and engineering models. Needless to say, the staff report was the talk of the town in DC the following morning, when AT&T’s senior executive vice president for external and legislative affairs Jim Cicconi released a sharply-worded blog post damning the staff report as “obviously one-sided” and “an advocacy piece.”
Immediately after Cicconi’s blog post was released, he was a panelist at the Phoenix Center’s 2011 Annual U.S. Telecoms Symposium, which I attended—I was surprised that he even showed up. At the Symposium, Cicconi made some strange remarks comparing consumer behavior with cell carriers to religion; and at one point he commented that he was glad there weren’t any hard questions about the merger or the FCC staff report. He also made a comment about how telecom regulation is designed to protect companies, not consumers, which sent shock-waves through the city. This initiated a day of he-said-FCC-said PR battles on Twitter and the AT&T Public Policy blog. But at the end of the day, the AT&T/T-Mobile merger was still essentially doomed…and just over two weeks later AT&T announced that the deal was, in fact, dead. (The Deal Advisor: The Deal is Dead! Now What?)
Court challenges to the USF/ICC Order predictably rolled in throughout the month, with 13 lawsuits to date from small telephone companies, NTCA, state public utility commissions, a couple wireless companies, and AT&T. A judicial panel selected the Tenth Circuit Court of Appeals in Denver, CO as the venue—apparently a good court for this particular subject matter. The issues in the lawsuits range from states’ loss of power to bill and keep. I got the impression that the FCC protected itself from legal challenges quite thoroughly in the Order, so it will definitely be interesting to see how this case unfolds next year. (The ILEC Advisor: Let the Challenges Begin! USF/ICC Order under Attack as Parties Turn to Courts).
Finally in December the FCC held two informative public workshops on transitioning the PSTN to all-IP; but the workshops left plenty of uncertainty regarding the path forward. Despite gathering over 50 experts from all corners of the industry, there was still not a clear definition on what the PSTN actually is or why it should be forcibly transitioned since it is already clearly in transition. Questions aside, the PSTN workshops were extremely informative and likely signaled the beginning of what is surely to be a high-priority initiative at the FCC in the next year. (The ILEC Advisor: The PSTN is Already in Transition… What is the PSTN, Anyway?, The PSTN: Sunset, Transition, Rebirth, or Just Leave it Alone?).
Well, that about does it for 2011… It has been an exciting year! Coming up next, JSI Capital Advisors will speculate on several big regulatory topics for 2012.