Progress Snapshot
Release 1.5 July 2005

by Randolph J. May *

When Senator John Ensign, the Nevada Republican who sits on the Senate Committee on Commerce, Science, and Transportation, dropped his new communications bill into the Senate hopper this morning, the sound you heard was history being made. I'm willing to stand corrected, but to my memory, Senator Ensign's proposed "Broadband Investment and Consumer Choice Act" is the most deregulatory, market-oriented bill ever introduced in Congress, and commendably so. The bill is based on the underlying premise that now, as we move full-steam ahead into the digital age, the traditional economic regulation of most communications services that was appropriate in a monopolistic environment is no longer necessary. A foundational premise of the stand-alone bill is that when marketplace competition exists, it can protect consumers better than public-utility style regulation.

While the actual bill language will bear much closer scrutiny in the days ahead, and while there are some caveats noted below, at first blush the bill has many commendable features, which make it a useful marker for examining the telecom reform bills that are anticipated to follow shortly in the Senate and the House. Here are some positive features, with a few of the caveats noted:

• Broadband services, regardless of technology platform, are largely freed from federal and state regulation at both the wholesale and retail level.

• On the sensitive subject of interconnection, broadband facilities-based providers are required to establish "commercial arrangements" for the purpose of direct interconnection with other facilities based providers. Interconnection is defined narrowly as "the physical linking of two networks for the purpose of exchanging traffic." The bill says a failure to comply may lead to the filing of a complaint at the FCC and in the court. Note: This is one of those points likely to receive further attention. If the two network operators cannot reach agreement regarding a "commercial arrangement", what is the standard that the FCC or a court is to use to resolve the complaint? Perhaps good faith bargaining under the circumstances, taking into the account all of the marketplace considerations. So, while the reference to "commercial arrangements" rather than a "just and reasonable" standard is a very important step forward, there are ways this provision could be tightened to reduce further the possibility of unnecessary regulation.

• With regard to interconnection of narrowband services, the FCC has six months to develop a regulatory framework. The FCC-established framework sunsets after five years.

• Regarding "net neutrality"-type regulation, the bill appears to allow broadband providers to offer customized content consistent with a customer's service agreement. While all of the implications are not clear at this point, the bill seems to be trying to avoid adoption of a regime that uniformly mandates a subscriber right "to access any content, anytime" in favor of recognizing that efficiencies can result from tailoring services. The bill also provides that broadband providers shall not prevent the use of any connectivity device. Note: Like the subscriber right to access content, the right to interconnect end user equipment sounds fine in theory. But as a practical matter, there may be sound reasons from an overall efficiency and consumer welfare point of view for the providers, who have invested billions in building out the networks, to retain control over the use of their facilities. This aspect of the bill will bear more scrutiny.

• The bill removes all state and local franchise requirements for cable and telephone (these labels soon will become archaic!) video providers. Although the VSPs must still "compensate" the appropriate governmental authority for use of public rights-of-way by means of a reasonable fee based on gross revenues, the elimination of the rent-seeking associated with the franchising process is a major step forward. And the provision that says the VSPs are not required to build out their systems in any particular manner makes sense as a recognition of economic reality when we should be trying to speed the introduction of new competitive services. Note: While the bill puts the cable and telco video providers on the same footing, it does not really tackle the elimination of some of the existing Title VI requirements that probably no longer make sense into today's competitive environment. For example, the bill would maintain program access requirements and economic and content regulation mandates that likely are no longer necessary in today's environment.

The major caveat, of course, is that the bill does not deal at all with the thorny issue of reforming the rapidly expanding Universal Service system. Ultimately, reform of the US system to direct the subsidies in a more targeted fashion to those who really need them should be part of a more comprehensive transformation of our nation's communications policy. When universal service is addressed, the political reality is that a more comprehensive bill may look a lot less market-oriented that the bill Senator Ensign has introduced.

But, for today, Senator Ensign deserves a lot of credit for laying down a marker against which reform efforts going-forward ought to be measured. Of course, PFF's release of a new regulatory framework as part of our DACA project effort lays down an important marker too. When the history of the next phase of communications reform is written, I'm sure Senator Ensign's bill most certainly will deserve favorable mention, and I am confident the DACA project will as well.

* Randolph May is Senior Fellow and Director of Communications Policy Studies at The Progress & Freedom Foundation. The views expressed are his own