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Call Centers and Fiber Optics

The construction and expansion of the global fiber optics network and its effect on labor markets worldwide is arguably one of the most significant developments of the past decade. And while it has taken a back seat to the War on Terror here in the US, it is topic of choice in many other countries (especially Asia). Certainly the offshoring process has garnered attention in this election and US businesses have been the most adaptive at outsourcing, but other national governments are engaged in major reconstruction of legal, educational and private sector practices in response to this phenomenon.

In my MA dissertation titled “The Offshoring of Teleservices, Opportunities and Macroeconomic Effects in Developing Countries,” I explore the future possibilities for the export of real-time service jobs performed over a telephone as well as the economic and social implications for recipient countries.

One of the major barriers for countries to absorb back office processing (BOP) work is their heavily regulated telecommunications industries, characterized by high access fees and weak infrastructure. In fact, my paper points to India’s telecom reforms of the early and late 1990s as one of the key policy moves that allowed India to capture billions of dollars worth of service employment for their economy. International trade in services is growing, and there will be many opportunities for countries that possess and prioritize an appropriate regulatory framework.

- posted by Rich @ 10/29/2004 03:28:24 PM

And another thing . . .
The FCC intends to resolve an impressive number of pressing issues by year end. (See Comm Daily, Oct. 22 2004 [Lexis subcription required].) So it may seem too much to ask, like an urchin from the musical “Oliver!”: Please, sir, may I have some more?” Yet, at least in the voice over Internet Protocol (VoIP) context, there are a few areas in which “some more” may mean a great deal to companies hungry for as much regulatory certainty as they can ingest before this season’s porridge pot runs empty. In particular, the Commission should pay careful attention to the scope of its decisions and proceedings regarding VoIP.

First, the Commission should do as much as it can to decide jurisdiction in a manner that covers as many VoIP offerings as possible. Ideally, this would mean deciding that all VoIP should be subject to exclusive federal jurisdiction, whether or not a company provides the service using its own network. Without asserting federal jurisdiction over VoIP, the FCC cannot secure from state intrusion the “minimally regulated” environment that has served as the linchpin of its efforts to promote investment and innovation in broadband networks and related services and applications. These efforts have encompassed narrow requirements for leasing telephone company networks, attempts to establish a consistent regulatory framework for cable modem and DSL services, and even with respect to calls for broadband providers to maintain consumers’ freedom to use the content, applications and devices of their choice voluntarily and without government mandate.

The jurisdictional determination should cover as many VoIP offerings as possible so as not to undermine the Commission’s longstanding commitment to promote deployment of competing broadband networks. Deciding only that non-network-based VoIP providers offer interstate services runs the risk that parties will argue, future Commissions will decide or courts will conclude that network-based providers should be treated more onerously, notwithstanding their investment in the very wires and equipment that have spurred the emergence of these transformative services. This kind of “network versus no network” approach, of course, is the traditional method by which the FCC has regulated services related to data processing, and much of the criticism surrounding the agency’s current treatment of broadband and advanced services centers around its wise divergence from that traditional method given the existing and prospective competition among networks that new digital technologies make possible. Leaving companies that have built or hope to build their own networks exposed to potential regulation could ultimately mean the Commission withstood all that criticism for nothing. More importantly, the regulatory uncertainty that such an approach would maintain or even exacerbate for those considering future investment in competing broadband networks leaves a critical flank of the agency’s campaign to promote such deployment unprotected.

If time or other practical considerations prevent the FCC from deeming all VoIP services interstate, it should at a minimum avoid concluding or suggesting that these services somehow mutate into different jurisdictional form based simply on who owns “last mile” broadband networks. In particular, the agency in this case should state expressly that it is declining to determine the jurisdictional nature of services offered over a provider’s own network. Further, in concluding that the other VoIP offerings are interstate, the Commission should avoid relying on any factors that, by implication, subject network-based VoIP providers to state jurisdiction. Given that all VoIP services rely on broadband networks whether or not they own them, it does not seem to follow that a provider’s ownership or lack of a network is a logical jurisdictional distinction to make in any case.

Second, to the extent the Commission falls short of preempting state jurisdiction over VoIP entirely, it should be as clear as possible about the type of role state utility commissions will be allowed to play. The Telecommunications Act of 1996 maintains a framework of “cooperative federalism,” in which the FCC shares regulatory authority with state utility commissions. Thus, states have been involved even with respect to issues the Act gives the FCC to address, such as states’ successful attempts in the context of telephone numbering to obtain authority to help establish new area codes.

Although there are likely problems associated with state regulation of services like VoIP that inherently defy state and even network boundaries, those problems will be compounded if the FCC fails to preclude state involvement and then leaves ambiguous what role states can play. About half of state commissions have taken some action on VoIP, and that activity seems likely to continue even to the extent the Commission deems VoIP interstate. Rather than allowing states to fill this perceived gap “piecemeal,” the agency should identify as clearly (and narrowly) as possible the areas in which it does not reject state involvement, relying heavily on some survey of where states’ actions suggest they may intervene next. In addition to promoting regulatory certainty, detailing a role for states might discourage any court that is skeptical about the FCC’s authority to eclipse states on VoIP from overruling the agency’s decision that VoIP is interstate. Such a court might deem semantic the “difference” between allowing states to participate in regulating an “interstate” service and treating the service as though it were both interstate and intrastate.

Third, the agency should state affirmatively that it has no intention of regulating the overwhelming majority of services and applications that fall under its impossibly broad IP-Enabled Services proceeding. That proceeding sweeps in, not only voice, but any service or application (existing, emerging or as yet unborn) that relies on the Internet Protocol – a vast universe that will continue expanding rapidly in the foreseeable future. The Commission’s instinct in asserting authority over computer applications that it has not traditionally regulated was not without some base; the agency might have predicted greater success in maintaining its commitment to “minimal regulation” if it lumped new offerings that (to some) quack like the “duck” of traditional phone service with other services few have considered subjecting to FCC regulation. (Do we really want the FCC to regulate online interactive video games?) But predictably, the record supporting -- or even mentioning -- regulation of most non-voice services covered by the proceeding is scant and diffuse.

Given the almost limitless possibilities that the Internet Protocol offers applications developers, this near silence is understandable; there are simply too many existing or emerging applications for participants in the proceeding to focus on any of them constructively without the kind of policy imperative that VoIP faces. This silence, however, is not golden – it has a dark side. As common sense and a recent report suggest, the uncertainty caused by such a cloud of potential future regulation strikes at the heart of the Commission’s overall plan to promote investment and in innovation in digital technologies. In any event, the Commission does not need to assert authority over services it has never intended to regulate simply to acknowledge that VoIP is technologically similar or identical to those unregulated services. Thus, the Commission should rope off as broad a category of services as possible from regulation in the proceeding, beginning with primarily non-voice applications that do not rely heavily on the traditional public telephone network. In doing so, the Commission should underscore that, much like it has in decades past, it is promoting the development of data processing applications by expressly exempting them from regulation at the federal and (hopefully) state levels.

Again, it may seem somewhat gratuitous to ask more of an agency that already has too much on its plate. But if the FCC gives this kind of attention to the scope of its decisions and proceedings on VoIP, its care will be more than rewarded by making its actions more effective in promoting these innovative services and, ironically, by saving the Commission some work and headaches in the long run.

- posted by K Dixon @ 10/28/2004 04:00:27 PM

How to Avoid Long Distance Charges, II

Last week on this weblog, Ray mentioned how his Vonage Colorado home phone and mobile could be reached from Washington, DC using a local 202 area code that acts as a ‘toll bridge’ to circumvent paying distance charges and this threatens the principal redistributive purpose of telephone rates.

Indeed what Vonage and other VoIP companies are doing on a nationwide basis, Primus’ Lingo VoIP service is doing worldwide. Look at their $19.99 a month plan that includes unlimited calling in the US, Canada, and Western Europe (landline only). If you call someone in Western Europe the number that will appear on that person’s caller ID begins with a local European number (usually the nearest big city). So, that if I call a friend in the UK, it comes up as a London number. When they ask, “Hey are you in London? Let’s meet up!” I have to respond, “No, I’m calling from an internet based phone in Washington, DC which is tricking your national PSTN system into thinking that I’m in London so that I don’t have to pay any international toll charges.”

Lingo doesn’t stop with Europe; it also has a $34.95 a month plan that will add on eight Asian countries as well as Australia and New Zealand. For $79.95 a month it offers unlimited international calls to 35 countries worldwide. No doubt other VoIP providers will begin to offer similar plans, but Lingo has taken the lead.

Routing over the IP network is a neat little technique that illustrates quite clearly how VoIP technology is well ahead of current national based regulation regimes. This diagram below shows how a call made over a broadband line is transported via the internet (1) in IP format to a gateway in the terminating country, where it is then converted (2) to analog format and completed as a local PSTN call (3) with no international settlements paid. Cool huh?

How Lingo routes international calls:

- posted by Rich @ 10/28/2004 01:13:56 PM

Modernizing Antitrust Gives Easterbrook "the Willies"
The Federalist Society sponsored a panel today on Antitrust Modernization and Public Choice. Judge Easterbrook, former antitrust chief Douglas Melamed and FTC General Counsel William Kovacic generally agreed that the "Antitrust Modernization Commission" shouldn't have much work to do.

Judge Easterbrook noted that "modernization" implies that there is a need to craft special rules for emerging technologies, but that industry-specific rules should be avoided at all costs. Instead, if there's a shortcoming in the antitrust laws, that should be fixed across-the-board. Much of his talk was a refresher of his classic article, The Limits of Antitrust.

Kovacic discussed the interplay between public choice and institutional design, recommending that agencies look at the use of self-limiting principles (such as merger guidelines), efforts to increase transparency (e.g., committing to explain decisions not to prosecute after antitrust investigations are complete), ex post reassessment of completed matters, and heavy investments in both offensive and defensive advocacy. Or, much of what the FTC has been doing.

Melamed warned the Modernization Commission to stay away from addressing questions involving the substance of antitrust law, such as overruling Trinko v. Verizon. He noted that these issues would be: (1) intensely politicized, and (2) better left to the common law process, as our understanding of the underlying economic principles behind antitrust changes over time.

On the whole, as the old saying goes: If it is not broken, then there is no need to repair it.

- posted by Adam @ 10/27/2004 05:24:09 PM

In Search of the Third Pillar
BPL is finally going mainstream - at least as far as media attention is concerned. Today's Boston Globe and the Pittsburgh-Tribune Review highlight the challenges facing regulators and potential entrants - including interference issues, standards and entrenched broadband providers offering bundled services.

- posted by Adam @ 10/25/2004 04:21:48 PM

Tech Policy: It's Hard Work!
Today's San Francisco Chronicle contains the latest attempt to decipher a substantial difference between the Bush and Kerry platforms on tech and telecom issues. Cato's Adam Thierer points out that the current administration has given Chairman Powell little support over the past four years - yet the article includes the FCC's recent broadband over powerline and fiber-to-the-premises orders on its list of the President's 'accomplishments.'

- posted by Adam @ 10/25/2004 03:54:14 PM

A Bracing Wind in Boston
Some of us attending this week’s Voice on the Net Conference shuddered, not because of Boston’s damp cold, but because of what we thought we witnessed: an expanding effort by competitive local exchange carriers (CLECs) to co-opt voice over IP (VoIP) providers by playing on fears that large broadband providers would begin to degrade VoIP providers’ use of those “last mile” networks. (See October 19, 2004 issue of TR Daily (subscription required). This strategy appears to build on the “regulate the biggest pipes and leave the rest of the Internet alone” rationale underlying the so-called “layered model” of regulation.) Never mind that CLECs’ revival of a familiar justification for government to impose “net neutrality” mandates fails (as always) to provide any persuasive evidence that cable modem and DSL providers want to and, in fact, do single out certain packets for poor treatment. The appeal of this would-be alliance is less factual or economic than it is political.

Many CLECs are, unfortunately, fighting for their regulatory survival in the face of repeated slaps by the courts. These stern rebukes – which focus mostly on past FCC efforts to promote competition by companies with few of their own facilities – had the effect of exacerbating uncertainty even for those CLECs who hoped to or did rely primarily on their own facilities. Simply put, the courts balked whenever the FCC attempted to stretch the 1996 Telecommunications Act to erase the advantage the latter, facilities-based entrants would otherwise enjoy relative to entrants relying exclusively on the facilities of the incumbent LEC. CLECs may thus see opportunity in joining forces with the political darlings that VoIP providers (with good reason) have become in the minds of policymakers seeking to promote broadband and innovation.

Beyond politics, the substantive rationales for such an alliance are difficult to fathom. Certainly, VoIP providers have little to gain. In the reality that stubbornly refuses to fade, broadband providers continue to offer consumers generally unfettered access to and use of the content, applications and network devices of their choice, notwithstanding long-standing assertions that such freedom is imperiled. Unless and until broadband providers’ long-anticipated incentive and ability to “discriminate” materializes, VoIP providers will flourish whether or not CLECs survive in sufficient numbers to augment broadband alternatives that are expanding in the form of cable, DSL, wireless and emerging technologies such as broadband over power lines. And there is no inkling that companies investing in broadband networks will decide to jeopardize those substantial sums by denying premium-paying consumers the freedom they want, just so the broadband provider can fight a doomed battle to wield power in the unconcentrated national market for obtaining broadband content.

CLECs, ironically, also bear some risk in this gambit, particularly those who have invested in their own facilities. For it would be unwise to forget that calls for “net neutrality” mandates performed an effective “end run” around earlier calls by Internet service providers (ISPs) for regulators to guarantee them "open access," i.e., use of other companies’ broadband networks to provide Internet access to their customers. Facilities-based CLECs and ISPs in the broadband context are in many cases rough analogs, in the sense that both may serve as physical middlemen between end users and a wider global network beyond. Thus, these CLECs should be concerned about championing mandated access to content, as they may find themselves shortchanged if the political powers that be figure out that CLEC facilities are not technically or economically necessary for beloved consumers to enjoy the freedoms they have come to expect in surfing the Internet. How concerned are politicians likely to get about protecting wholesale competition that relies on the legacy telephone network when neat, new broadband networks are deploying and consumers can use the Internet as they please?

Yet “net neutrality” promises to be a live issue among policymakers for some time, as shown by FCC Chairman Powell’s stirring re-endorsement of the importance of broadband and other Internet companies promoting consumers’ Internet freedom without regulation. Thus, the rhetorical appeal of linking “the fate of telecommunications competition” with consumers’ freedom to use the Internet will remain undeniable, reminiscent of the “anti-big company” groundswell that so complicated the FCC’s efforts last year to address repeated court remands in the charged media ownership context. This regulatory strategy also seems well-suited to the business plans of those entrants that once sought to dominate, with few facilities, in the local telephony market, but that now may be betting (perhaps the farm) on VoIP. The political sway held by those companies, of course, was at least in part responsible for the FCC’s finally-aborted collision course in promoting certain types of local telephone competition under the 1996 Act.

So broadband providers would do well to monitor the issue of “net neutrality” closely and be prepared, not just to shudder, but to reiterate their support of the status quo, which has brought consumers both increasing investment in broadband networks and unfettered use of and access to content, applications and devices without the need for government intervention.

As for VoIP providers and facilities-based CLECs, they should think carefully about whom they partner with as they push (hopefully with much success) for sustainable and economically rational reforms that will allow them to bring more of the benefits of competition to American consumers. In politics, bedfellows may prove more harmful than strange.

- posted by K Dixon @ 10/22/2004 11:53:39 AM

Deregulate it and They Will Come
The FCC's decision last week that unbundling obligations will not extend to Fiber-to-the-Curb loops (see Ray's posting on "Ownership, Investment and the FCC" below) accelerated deployment plans by BellSouth and SBC. Now, according to an article in Telephony Online,
it appears that a yet-to-be announced ruling on the interplay between sections 251 and 271 of the Telecom Act is behind Verizon's announcement that they will be deploying Fiber-to-the-premises in six former Bell Atlantic states.

- posted by Adam @ 10/22/2004 11:02:45 AM

How to Avoid Long Distance Charges
A microcosm of the demise of toll charges (and the access charges embedded within them) is an e-mail I just sent to my staff. I told them to call my virtual "202" VoIP number, which rings here in Denver and simultaneously on my mobile phone. Both of these are "720" Denver-located area codes. So now, any call from Washington to me reaching me on a Denver VoIP line or my Denver cell phone incurs no long distance toll charge.

From a cost and competition standpoint, this is a ho-hum point. I as a consumer am taking advantage of the competitive pressures in a declining cost industry to save money.

But wait. There is a hue and cry against this practice--regulatory arbitrage!! goes the epithet. Indeed, my old days as a regulator, if this were taking place wholly within the state of Colorado, we would have been petitioned to stop this practice as illegal "toll bridging," the practice of routing calls simply to avoid access charges. [Qwest to its credit has embraced a "no-access charge for VoIP" position.] From a regulatory perspective, this "toll bridging" is intolerable. It threatens a principal redistributive purpose of telephone rates.

This just goes to show how legacy regulation and its internal logic has ceased to have the individual consumer's interests at heart, but rather exists to preserve the prerogatives of a given set of consumers, usually in rural, high-cost areas (and, oh yes, it also persists to protect and perpetuate the interests of the regulatory class).

- posted by Ray @ 10/21/2004 09:38:30 AM

Lessig on Coase
After reading Larry Lessig’s article on “Coase’s First Question” in the current issue of Regulation, I finally understand the argument that the commons proponents have been making. A commons for goods such as spectrum and broadband is the same as free trade, and we all know that free trade is a good thing. Q.E.D.

Lessig’s article—which is a comment on Bruce Owen’s very good discussion of “net neutrality” in a property rights context in the Summer 2004 Regulation—illustrates the pitfalls of practicing economics without a license. (Owen’s article is a short version of the paper Bruce and Greg Rosston presented at PFF’s Net Neutrality conference last year, which will be included in our forthcoming conference volume.)

Citing Coase’s famous 1959 Journal of Law and Economics article on the FCC, Lessig argues that “proper-Coaseans” first ask the question of whether the resource in question should be the subject of property at all, before asking where the property right should reside. This is in contrast to “property-Coaseans” (e.g., Owen), who go straight to the second question.

Clever language aside, Lessig’s “proper-Coasian” concept is based on quoting Coase out of context. As Lessig indicates, Coase did write, “All property rights interfere with the ability to use resources. What has to be insured is that the gain from interference more than offsets the harm it produces.” But, the point he was making (yes, I did go back and reread it) was that once property rights are defined, the market can bring about an optimum utilization of those rights and that, in the context of spectrum, the optimum interference, e.g., between operators on adjacent frequencies, is not necessarily zero. He was not suggesting the need to subject every property rights decision to an ex ante cost-benefit analysis to determine “whether the resource should be the subject of property at all.” That would be a pretty radical notion, indeed.

The free trade argument comes from a 2002 article on spectrum rights by Yochai Benkler—another apostle of the commons approach—that Lessig also quotes. The argument appears to go as follows. The right to trade internationally, like spectrum, is a valuable right. If we were to create a set of tradable international trade rights and auction them off, people might pay a lot of money for them. But we know that this “property system” would interfere with free trade and be inefficient. The same reasoning applies to goods like spectrum and broadband.

Critiquing this argument would be a good question for an undergraduate economics exam. But the central point of the answer is obvious. Creating international trade rights creates an artificial scarcity where no real scarcity exists. This, by definition, is inefficient. In fact, such rights—quotas—have been used to protect domestic industries, with adverse effects on efficiency that are familiar to most economics undergraduates. Spectrum and broadband, on the other hand, really are scarce, which is why they need to be subject to a property-rights regime to be allocated efficiently. Broadband obviously has scarcity value, because it takes lots of real resources—capital and labor—to provide it. We know that spectrum is scarce, at least in the amounts that the government has made available, because it commands very high prices in the market. Q.E.D.

- posted by Tom Lenard @ 10/20/2004 01:36:00 PM

The Middlemen Win
The FCC has denied several petitions seeking a rulemaking or a waiver of the designated entity (or DE) rules in an upcoming auction of so-called "C Block" PCS licenses in January. These licenses were returned to the Commission in a settlement following the now-infamous NextWave bankruptcy.

As I explained in a previous posting and argued in reply comments filed at the FCC, the DE set asides create a perverse set of incentives by creating a layer of "middlemen" who obtain valuable spectrum licenses, meet their first construction benchmark, and then (if they don't go bankrupt first) flip the spectrum to larger regional or national carriers for a hefty profit. By keeping this spectrum out of the hands of those firms who value it the most, the rules make little sense where, as here, the market for wireless services is predominantly national in scope. But according to the FCC's Order, these and other arguments for opening a rulemaking are insufficient to force further delay and a reexamination of existing rules. Score it a 10-8 round for the Commission.

In related news, today's Communications Daily analyzes a rumored deal between Verizon Wireless and DE licensee NextWave, whereby VZ Wireless would pay up to $3 billion for 20 MHz of spectrum in New York. That's nearly half of Qwest's market capitalization. And, best that I can figure, between NextWave's initial down payment for its licenses and its settlement payment to the FCC after filing for bankrupty and years of litigation, NextWave paid out $1.6 billion. NextWave already has sold remaining licenses to Cingular, Verizon and Metro PCS in the past year for around $2.4 billion. The Comm Daily report mentions that NextWave shares were trading at $6.15 in over-the-counter trading last Friday, up over one dollar for the week.

Car dealers have nothing on these guys. Last month, an illuminating article in the The Washington Post noted that, due to bankruptcy protection, NextWave "has networks up and running in 26 markets but has never served a single paying customer." NextWave's founder is pictured standing in front of a courthouse grinning from ear-to-ear. I would be, too.

- posted by Adam @ 10/18/2004 09:35:26 PM

A Mighty (albeit Pricey) Wind
In an op ed in today's Rocky Mountain News, Ray and fellow former Colorado PUC Chairman Bob Hix oppose a proposed state statutory mandate for renewable energy. Amendment 37 would require electric retailers with more than 40,000 customers to get 3% of their electric power from renewable energy by 2007, increasing to 10% by 2015. Seems like the advocates of the amendment view it as a panacea - but as any resulting rate increase will be recovered by the utilities, they appear to forget that somebody may have to pay for it.

- posted by Adam @ 10/18/2004 08:44:26 PM

FCC Reform Blogsplosion IV--Guest Blogger
Before Ray's blogsplosion following Friday's PFF FCC reform program dies down, I want to supplement something Ray says about the Reed Hundt commission on which Susan Ness served as a Democrat appointee. (See especially Ray's Blogsplosion II). In a piece I did for Legal Times in June 2000 entitled "An Agency for Bill and Al" I chronicled how Reed Hundt bragged in his "Revolution" memoir about the extent to which he coordinated FCC activities on a regular basis with the White House. For example, he recited how he “orchestrated” a White House summit to pressure television broadcasters to air additional children’s programming, and how, by doing so, “we were helping the President and Vice-President win re-election.” He talks about meeting regularly with Ann Lewis in the White House, one of President's Clinton's top political operatives. Read the book, please.

I doubt Susan Ness, who spoke at Friday's seminar, was oblivious to all the White House coordination. I expect she welcomed it, if it would help secure a Children's Television Rule more to her liking.

I don't much appreciate those who act as if the FCC is not already a institution heavily influenced by politics. And I appreciate much less anyone who acts like the politics that do exist only come from one side of the political aisle.

What I do believe is what I said way back in the June 2000 Legal Times article, when I didn't know and (for purposes of the point I was making) could have cared less about who would be elected president that November:

As much as anything else, You Say You Want a Revolution is Reed Hundt’s justification for why he coordinated his actions so closely with the White House. He may be on to something. Placing what’s left of a slimmed-down FCC in the executive branch at least would place accountability for policy making squarely in the president’s hands.

In other words, political accountability for policymaking decisions that Congress has delegated and refused to make itself is a good thing in a democracy, not a bad thing. As I said at Friday's seminar, there is no one right answer to policy questions such as media ownership (or the question of how much children's television programming should be mandated, or what type) that is discernible by "expert" commissioners. If the White House wants to closely coordinate policy on Children's Television with the FCC, as the Clinton White House clearly did, that is fine with me---but only so long as some don't pretend that politics is not involved and so as long as the president can be held accountable at the ballot box for the resulting policy.

- posted by Randolph May @ 10/17/2004 01:10:51 PM

A Contract -- A Real Live Contract
I activated my Vonage phone account today, with the nifty virtual phone number feature so I have both a "720" Colorado number and a "202" DC number on the same phone. In with the welcome package, behind the voice mail instructions and advanced features directions, there is this peculiar document called "Terms of Service." And, sure enough, you read it and it's a bona fide contract between me and Vonage.

So what, you say? I have contracts o'plenty in my life, most of which I've never read.

But in alternate universe of landline telecommunications, there are no contracts (except for large enterprise customers). Tariffs have ruled as the only valid contract terms. Only if state regulatory commissions allow a tariff to go into effect, are its terms legal between the provider and the customer. Further, those are the only legal terms. No one can contract around them. A small step in the creative destruction of regulation.

- posted by Ray @ 10/16/2004 05:46:26 PM

James Crowe on Wednesday when asked if he could do one thing at the FCC replied: "More spectrum." Mind you, this is from the CEO of Level 3, a company that runs a high speed fiber backbone.
- posted by Ray @ 10/16/2004 03:58:02 PM

FCC Reform Blogsplosion III: Personnel is Policy
James Miller III, former FTC Chairman and OMB head, made a point endorsed by all panelists. During the Reagan administration, the mantra was “personnel is policy,” which meant that the policy that came out of government (and hence regulatory institutions) depended on appointing people who shared a common vision. Miller noted that “he knew all of the people” nominated by the President to serve with him on the FTC and hence made sure that the President’s and his priorities were reflected. Similarly, Darius Gaskins noted President Carter's interest in trucking deregulation, and hence his determination to appoint a top-notch group to the ICC to get something done. Susan Ness likewise agreed that the type and quality of appointees is of enormous import.

Gaskins pointed out a chronic weakness in the composition of commissions is their relatively low-level on the presidential priorities list. Cabinet officers and judges are inevitably more important to Presidents. Unless a President particularly cares about a regulatory issues, like Carter, or makes sure their commissions have avowed deregulators (or rather analytically rigorous and hesitant regulators) like Reagan, there will be a tendency for the administration to give short-shrift to who ends up on commissions. ["We need to appoint this person somewhere...what about ambassador to Fiji? Nah, that's for bigger donors, put 'em on FERC."]

- posted by Ray @ 10/16/2004 03:49:01 PM

FCC Reform Blogsplosion II: A Question I Didn’t Get to Ask Susan Ness
Former FCC Commissioner Susan Ness argued on behalf of the “leave it alone” coalition, or to be more generous, “it ain’t that broke, so doesn’t need that much of a fix.”

She argued for leaving the Commission as an independent fourth branch agency, keeping the number of commissioners at 5, and noted that the Hundt FCC post-96 Act moved with dispatch to meet its congressionally-mandated deadlines. This was largely in opposition to Randy May’s proposal to move the Commission into the executive branch, reduce the number of commissioners to 3 or even 1.

She argued against putting the FCC into the executive branch because of fears of political influences. My question would have been: The FCC is already a hyper-politica l organization, why not just ratify that reality be making it accountable to the executive? Chairman Hundt, who Commissioner Ness served with, openly brags in his memoir about his constant contact with the White House. The media ownership proceeding last year was nothing but political mau-mauing, with Commissioner Copps in particular both fomenting and celebrating the mob opinion surrounding that decision. As Randy May pointed out, media ownership ends up being a quintessential political question -- one that you normally would not give to an appointed "expert" agency.

- posted by Ray @ 10/16/2004 03:38:55 PM

FCC Reform Blogsplosion I: History Repeats Itself?
Former Carter ICC Chairman Darius Gaskins had a portentous tale today about the political forces behind the Staggers Act railroad deregulation. Mr. Gaskins recounted how, with the Staggers Act, the railroads pushed for deregulation thinking it would give them the ability to raise prices and escape their slow inevitable march toward bankruptcy under price regulation. In contrast, the shippers argued against price deregulation, fearing that the price-deregulated railroads would raise prices with impunity.

What happened post-deregulation? Rail shipping prices dropped at the fastest rate in the industry’s history. Shippers benefited immeasurably from the end of economic regulation; railroads were forced to compete even more ferociously to stay alive against the competition from trucking, air cargo and other railroads.

History is poised to repeat itself in communications. The end of economic regulation, I predict, will bring declining prices (excepting, of course, those prices that are already below cost). The economics of VoIP utterly eviscerate and pricing power a company might have or hope to have. When companies are replacing $10 million circuit switches with $10,000 IP-routers, you know the economics of the industry have changed.

- posted by Ray @ 10/16/2004 03:34:46 PM

"Fair Compensation" for Rights-of-Way?
The Ninth Circuit decided Qwest v. City of Portland (2004 WL 2283287) earlier this week, approving the use of a revenue-based right-of-way fee or “privilege tax” by a number of cities in the Northwest, so long as these fees do not have the effect of prohibiting the provision of telecom services.

Under the Telecom Act, states and localities may require “fair and reasonable compensation” from telecom providers for the use of public rights-of-way. Qwest had argued that the standard under the Act should limited to the recovery of cost, citing the Ninth Circuit’s City of Auburn decision as stating that “[s]ome non-tax fees charged under the franchise agreements are not based on the costs of maintaining the right-of-way, as required under the Telecom Act.”

After the City of Auburn case the Oregon Court of Appeals decided US West v. City of Eugene in December 2001. There, the court found that there is nothing wrong with the imposition of a gross revenue fee. In turn, the Ninth Circuit held that City of Eugene precluded Qwest’s argument on appeal in the City of Portland case. As to the curious quote on the standard of cost from the preceding paragraph, the Ninth Circuit stated: It is far from clear that the quoted language was intended to address the precise issue we now consider. . .

Ultimately, City of Portland would appear to add to an already murky area of the law. In addition to the tension between cost recovery and the possibility of preemption under the Telecom Act, state law can also weigh in and govern how local governments own and control their property. If cost recovery is too low, it may constitute a taking. At the other extreme, local governments can extract a windfall at the expense of shareholders and distort the competitive market at the physical layer. While City of Portland veers toward the latter characterization, other court decisions have held that a cost recovery approach is required. Expect the confusion and litigation to continue.

- posted by Adam @ 10/15/2004 05:16:52 PM

James Crowe Speech
The text of Level 3 CEO James Crowe's speech is here.
- posted by Ray @ 10/14/2004 05:35:28 PM

VoIP and 911
Vonage and the good folks at Intrado have announced that they have successfully tested an E-911 solution in Rhode Island, home of PFF Fact Book co-author (and disgruntled Red Sox fan) Mike Pickford. The technical verbiage from the Vonage press release:

When Vonage customers dial 9-1-1, the call is routed over Vonage's 9-1-1 server using industry standard SIP protocol. The Vonage server then queries Intrado for routing instructions. The call is then directed to the selective router that serves the Rhode Island Public Safety Answering Point ("PSAP"). Simultaneously, Intrado places the customer's address and telephone number into the Automatic Location Information (ALI) server. The supplementary special key unique to the call is included in signaling, and allows the PSAP 9-1-1 operator to pull the customer's address and phone number from the ALI database.

Good news to see these companies moving to the market with new solutions, regardless of the regulatory uncertainty and merits of the positions surrounding public safety and VoIP at the moment. For those in Colorado, Silicon Flatirons will be providing a break from the Salazar/Coors Senate race deluge by hosting a conference on USF and 911 issues next week. This may be the last SFTP event before Colorado invades North Dakota, so I'm fairly confident that Professor Weiser's synapses will be firing on all cylinders.

- posted by Adam @ 10/14/2004 03:35:14 PM

Ownership, Investment and the FCC
Property has remarkable qualities. For instance, with a property right, the rights-holder might put the property into the stream of commerce, entering into contracts with other parties to use or transfer the right. A key in this bundle of rights is the ability to derive and realize economic benefit from what you own. Thus, parties will invest in and improve their property when they perceive the opportunity to realize gain from it.

Nearly 230 years after Adam Smith's Wealth of Nations identified this point, the FCC has taken a token step to acknowledge this truism. Today, the FCC "clarified" the Triennial Review order that fiber-to-the-curb (FTTC) installations by the Bells are not required to be unbundled; that is, the FCC recognized that the Bells have property rights in fiber they deploy both into the home (this was done in the original Triennial Order) and, now, to the curb (somewhere outside, but near, the home). In its press release, the FCC said:

Today’s action builds on those broadband principles, and relieves incumbents from unbundling requirements for fiber-to-the-curb (FTTC) loops, where fiber is extended within 500 feet of a customer’s premises. The FCC found that FTTC networks can deliver many of the same benefits as FTTC loops. FTTC networks offer enhanced capability for providing advanced services, including the ability to offer voice, multi-channel video, and high-speed data services. The new rules free companies to choose between FTTH or FTTC networks based on marketplace characteristics, rather than disparate regulatory treatment.

The reaction has been swift and predictable (almost as if one could anticipate this was going to happen...hmmmm). SBC announced immediate expedition of its investment plans from a five-year time horizon to a two- to three-year horizon. BellSouth announced plans to increase its homes-passed plans by 40%.

All this through the simple declaration that if you buy something (like a fiber optic cable), you own it, and get to derive the economic benefits from it. Property rights...all the cool regulators are embracing them, even if it is under implicit threat from the D.C. Circuit.

- posted by Ray @ 10/14/2004 01:54:56 PM

France to Outsource Rude Behavior
So the French will permit cell phone jammers to be deployed in movie theatres, while French company Airbus seeks to deploy technology in 2006 which would allow people to talk on their cell phones during flights.

Can't wait. I look forward to being forced to eavesdrop on somebody else's phone conversation - it might cancel out the distraction created by little Johnny Ringo kicking the back of my seat.

If only we all could adhere to the following (and rather comedic) maxim from Peter Post, who according to an article in CNet is "the great grandson of etiquette maven Emily Post." Be a master of your cell phone.

- posted by Adam @ 10/13/2004 10:42:19 AM

Know When To Hold 'Em
I'm chagrined I am not going to be able to make Jeff Pulver's Fall VON 2000 Conference in Boston next week from October 18-21. It promises to be a very good show.

But as exciting as it will be to hear all the latest scoop on VoIP, the October 17 Charity Poker Tournament underwritten by pulver.com promises some real ol' fashioned action before the official VoIP-talk begins. As far as I can tell, the deck is stacked only in favor of finding a cure for diabetes, as the proceeds from the charity event will benefit the Barton Center for Diabetes Education, Inc. The tourney sounds like a highlight of the Boston confab, and a chance for the attendees to put on their poker faces.

PS--While I'm plugging worthy causes, my colleague Kyle Dixon, who can put on quite a poker face of his own, is moderating a "View from the Hill" panel on Monday afternoon at the VON Conference. No doubt he'll do a great job of sorting out what to expect from those on Capitol Hill who might be planning to shuffle the deck next year.

- posted by Randolph May @ 10/12/2004 02:04:17 PM

Video Game Price War
EA Sports Madden 2005 is the most successful football simulation across videogame platforms. It retails for 49.99. Just as I was about to call for mandatory unbundling and regulatory pricing of this high-priced, market dominant game, ESPN-Sega prices its rival NFL 2k5 at $19.99.

If none of this matters to you, you didn't just have a birthday party for your nine-year-old and eight of his friends. Based on an informal survey, the Sega/ESPN pricing strategy is making inroads among videogame buying parents.

- posted by Ray @ 10/12/2004 01:13:58 AM

Korean Broadband
The OECD has investigated the massive broadband penetration in Korea and found that investment incentives, including deregulation, are critical. Amazingly, the traditional provider, Korea Telecom, still maintains about 95 percent of local access lines while only garnering about half of the broadband “lines”. This is accomplished without extensive unbundling requirements. How? By encouraging investment.

Tom Hazlett has all the details in the Wall Street Journal.

- posted by Kent @ 10/11/2004 10:58:15 AM

And On the Subject Of Jobs
In my post immediately below, I suggested that in the interest of stimulating new investment and the creation of new jobs, the candidates in tonight's presidential debate should prod the FCC to rule quickly that broadband networks will not be required to be unbundled and shared among competitors. Most analysts expect that such a ruling will have a very positive impact on the overall economy and employment.

Speaking of jobs, AT&T just announced last night that it plans to layoff 7400 additional people by the end of the year. No one likes to hear of job cuts anywhere, least of all, of course, those directly affected. Everyone wishes those laid off the best during the necessary transition to new positions. But the layoffs should not obsure the larger point: The way to create sustainable jobs is not through regulators establishing regimes based managed pricing regulatory arbitrage. Indeed, from the beginning, it was assumed that the FCC's UNE regime was intended to be a transitory, not permanent, managed competition device. It does no good--or makes no sense--to blame AT&T's job losses on a regulatory regime that was never intended to last as long as it has, and which has never been lawful for as long as it has lasted.

The reality is that we are entering an era in which we can anticipate competition among facilities-based providers that will be required to invest gazillions of dollars in new networks and in the people who will operate the networks and the innovative applications running on them. As I said yesterday, the overall economy will benefit greatly, if the regulators will get out of the way.

- posted by Randolph May @ 10/8/2004 08:47:27 AM

A Question For Tommorrow's Presidential Debate
I'm not going to be in the audience and have a chance to ask the candidates a question, but if I were here's what I'd ask: "Mr. President [or Senator Kerry], what do you think should be done to speed up the availability of high-speed broadband services, including broadband that will be 10 or 20 times faster than today's speeds."

I know what they say on their websites, but I'd like to hear their answers. Senator Kerry's campaign site highlights investment tax credits as his primary broadband initiative, while President Bush emphasizes--and I wish he had done so much earlier in his term--removal of unnecessary regulatory burdens. In his April speech on broadband and other matters, the President stated: "Broadband is going to spread because it's going to make sense for private sector companies to spread it as long as the regulatory burden is reduced--in other words, so long as policy at the government level encourages people to invest, not discourages investment." The Republican platform declares: "High-speed Internet access should not be governed by regulations established decades ago for the telephone."

President Bush has it right. What is needed are not new tax credits; just the elimination of legacy regulations established in a narrowband world in which the marketplace environment was not nearly as competitive and dynamic as today's.

Wouldn't it be great if President Bush also responded by saying: "And I think the folks over at the FCC ought to--finally and definitively and without equivocation--rule that broadband services, whether provided by telephones comapnies, cable operators, wireless comapnies, or whatever, do not need to be unbundled and shared. I need the help of those FCC folks to keep investment and new jobs growing."

He'd be right about the new jobs and overall boost to the economy. For just the latest affirmation on this point, see study released yesterday by the U.S. Chamber of Commerce, Sending the Right Signals: Promoting Competition Through Telecommunications Reform. The new report estimates that the elimination of telecom regulations, especially the UNE network-sharing rules, can lead to $58 billion in new investment over the next 5 years, an increase in GDP of $167 bilion over 5 years, and the creation of 212,000 new jobs. For another, see Senator Kerry's own web site where he says that the availability of ubiquitous broadband would generate 1.2 million new jobs.

If you are going to be in the audience at tommorrow night's debate, and get a chance to ask a question, maybe you will ask mine. If not, when the focus turns to the economy, it would be a pretty good debating point for the President to up and say on his own: "I sure hope for the sake of keeping the economy moving the FCC gets out that ruling out soon that says broadband services don't have to be shared. I remember back in December 2000 at the PFF Telecommunications Reform Conference when Michael Powell, the fine man who I appointed to be FCC chairman the day after I was sworn in, said we needed new regulatory paradigms and we need them on Internet time. Let's get on with it."

- posted by Randolph May @ 10/7/2004 04:55:57 PM

Lurid Jokes about Satellite of Love now Appropriate
Howard Stern's jump to Sirius satellite radio in 2006 is both a sign the apocalypse is near and an indication that the new digital world allows regulatory escape rather seamlessly, particularly from places like radio broadcast where the First Amendment only applies sometimes. The real sign of the apocalypse will be when competitive platforms and radio broadcasters demand mandatory unbundling of the rather vulgar "King of All Media" because his program is an "essential facility." Don't laugh, there is already a call in Europe to unbundle soccer programming as an essential facility (those rather quaint and parochial Europeans apparently call this game "football," but everyone knows this is football).
- posted by Ray @ 10/6/2004 11:24:56 PM

Study Calls for Broad Reform
The U.S. Chamber of Commerce released a massive study on the telecommunications sector today. The authors made six major recommendations for regulatory reform:

1. Sunset resale obligations in the long-run - but get rid of TELRIC now.
2. Open up 438 MHz of additional spectrum for wireless carriers.
3. Deregulate cable modems and DSL.
4. Federal jurisdiction over Internet services.
5. Support the USF through general tax revenues.
6. Move to adopt a voucher program on the distribution side of USF.

Among other things, the study projects that these reforms will result in over 200,000 new jobs and $58 billion in new capital investment. A summary is available here.

- posted by Adam @ 10/6/2004 05:32:01 PM

Two Schools of Thought
In a recent posting, Ray noted that AT&T and Vonage have engaged in a VoIP "price war," with CallVantage now $29.99 per month and Vonage $5 cheaper. For the time being at least, it looks like Time Warner Cable is sticking to its guns, offering its VoIP "Digital Phone Service" in NYC for anywhere between $39.95 (bundled) to $49.95 (unbundled) per month. This pricing strategy is comparable to traditional, all-distance pricing packages offered by RBOCs.

While a number of early VoIP adopters will shop purely on price or use FWD or Skype, it will be interesting to see whether this marketing strategy will hold up as VoIP continues to penetrate the mass market, particularly once there is RBOC entry. I would guess no, but according to a Time Warner Cable spokesman in yesterday's Communications Daily:

"Our services are not identical" to those of AT&T and Vonage, he said, noting that Time Warner offered E911, was fully CALEA-compliant and used its proprietary network rather than the public Internet. He said cable companies providing VoIP had a marketing advantage because they could bundle phone and broadband with video. "We won't get into the price war," he said.

- posted by Adam @ 10/6/2004 01:15:08 PM

The Non-Event the Morning After
In my "A Glimpse into the Post-Regulatory World" post a couple of days ago (see below), I pointed out that the end of the FCC's mandatory line sharing rules would not mean the end of line sharing. It would just mean that sharers and sharees would have to negotiate with each other, rather than spending their time over at the FCC lobbying.

Tech Daily reports [subscription required] that, for the leading ILEC DSL competitor, life did indeed go on the morning after the rules expired: "But Covad Communications, the leading Bell competitor offering DSL lines, said it was unaffected by the lapse because it had struck commercial deals with its rivals. 'The date coming and going has pretty much been a non-event for Covad,' said Valerie Cardwell, vice president of external affairs for the company."

"Unaffected by the lapse because it had struck commercial deals with its rivals...." Hummm...if only the policymakers would have more faith in the free marketplace.

- posted by Randolph May @ 10/5/2004 06:26:53 PM

Great Moments in ALJ History
Last week, a majority of the California Public Utilities Commission approved an ALJ decision that awarded a temporary restraining order against Verizon. In so doing, the PUC essentially told Verizon that it would have to unbundle the packet switches it was planning on deploying within the state. Verizon, in turn, announced that the PUC decision has put these plans on ice.

Packet switching is advantageous over traditional switching technology because it can jam oodles of data into a loop. Unlike traditional circuit-switch technology, which the FCC has included on its list of UNEs, the FCC has repeatedly denied CLEC requests to require unbundled packet switching. The FCC has not unbundled new technologies like packet switches because it wants to create incentives for carriers -- incumbents and competitors -- to deploy advanced services and to do that it believes that those who deploy new technology should get the economic advantage from that deployment.

Of course, after failing in the cable biz, facilities-based competition never really was part of AT&T's "strategery." So, when Verizon decided it was going to deploy packet switching in areas of California, it notified AT&T and other UNE-P based providers that circuit-switching would no longer be available in these areas (resale over the new packet-switched product, however, would have been made available). This loss of switching meant lower profit margins for these facilities-less carriers and prompted their request for regulators to preserve their margins and business model with a temporary restraining order.

Sidestepping the unambiguous rule of federal law, the ALJ's decision rested on an interpretion of interconnection agreements between Verizon and the aggrieved parties (not being in a masochistic mood today, I have not explored these ICAs, but Commissioner Susan Kennedy's dissent explores the issue of whether these agreements even apply). Verizon argued that the "switching" provisions of these contracts should be read in the context of the law at the time these agreements were formed, and the contract language mirrored the definition of switching from the FCC's Local Competition Order. The ALJ based its decision upon the following rationale:

In 1996, because of an insufficient record, the FCC did not finally decide the issue of whether to unbundle packet switches in the Local Competition Order, and stated it would continue to review and revise the rules. Paragraph 427 of the Local Competition Order provides:

"At this time, we decline to find, as requested by AT&T and MCI, that incumbent LECs' packet switches should be identified as network elements. Because so few parties commented on the packet switches in connection with section 251(c)(3), the record is insufficient for us to decide whether packet switches should be defined as a separate network element. We will continue to review and revise our rules, but at present, we do not adopt a national rule for the unbundling of packet switches."

Therefore, the law at the time the interconnection agreements at issue in this proceeding were entered into was unsettled as to whether packet switches were to be unbundled.


First, let's ignore the fact that the entire corpus of unbundling obligations has been . . . "unsettled" since the '96 Act. But the notion that the law surrounding the unbundling of packet switches was unsettled because, as far as one can tell, the evidentiary standard before the FCC was not met, is sophistry. Rather than elevating what equates to dicta above the FCC's actual conclusion, a truly fair interpretation of the Local Competition Order would compel a statement like: the law at the time the interconnection agreements at issue in this proceeding were entered into did not require packet switches to be unbundled as a network element. And the story would end there. But instead, this rationale is the launching pad for a thoroughly tortured analysis, part of which is available here.

As for the result, Commissioner Kennedy's dissent has it exactly right:

The irony of this situation should not be lost on anyone. California is the world leader in the development and manufacturing of new communications technology. While our dynamic innovators in Silicon Valley and elsewhere are creating the means to revolutionize telephony, this Commission is halting the dissemination of the very same technology. Ignoring clear legal precedent while doing so, this Commission is apparently acting out of a mistaken belief that it is somehow pro-consumer to hold back progress.

The CA PUC decision fails not only Schumpeter 101, but also rudimentary contract law analysis. All in a day's work.

- posted by Adam @ 10/5/2004 05:25:10 PM

Business Week Gloomy on Telecom
Business Week's Steve Rosenbush has a gloomy outlook for the telecom sector. Capital spending is down, growth is desultory and commoditization looms. Other than that, things are just dandy.
- posted by Ray @ 10/5/2004 03:49:01 PM

Series Victory is in the Cards
The song remains the same. A Duke men's team lost to Connecticut again - this time in football, but Randy is probably still too busy paying homage to his Coach Krylewisdhodfshefsky shrine to care much. The goat came calling for the Cubs a little earlier this year and spared Kent, and the rest of us, from the inevitable. And Ray's Rockies did what they do best - which is losing in all sorts of original ways - to help usher the Dodgers and Astros into the playoffs last week.

Despite their pitching staff naysayers, this is the year for St. Louis, the home of toasted ravioli and perennial Emmy threats Scott Bakula and John Goodman, to once again win the Fall Classic. Dodgers in 4. Astros in 7. Red Sox in 6. Soulard will be hopping.

- posted by Adam @ 10/5/2004 01:04:55 PM

A Glimpse Into The Post-Regulatory World
The headline from a Oct. 1 TR Daily report states: "Line Sharing to end; Copps Wants FCC Action." The report says the line sharing mandate is supposed to end this past weekend, and Commissioner Copps fears for the future of broadband competition.

Putting aside questions whether regulatorily-mandated line-sharing constitutes competition or has any real postive impact on competition, the last sentence of the report caught my eye: "Line-sharing arrangements won't necessarily disappear immediately or completely. Covad Communications Group, Inc., for example, has negotiated line-sharing deals with SBC Communications, Inc., Verizon Communications, Inc., and Qwest Communications International, Inc., that continue into 2005, and beyond in the case of Qwest."

Say that again, slowly! The end of government-mandated line-sharing won't mean the end of the sharing of lines because COVAD has negotiated a deal with the ILECs to continue using the ILECs' lines. I'm sure we will see a lot more of this type of commercial negotiation if we see the end of more regulatorily-mandated sharing requirements. Both those that have facilities and those that don't will have incentives to reach deals that make sense for both in the marketplace.

- posted by Randolph May @ 10/4/2004 03:39:04 PM

The Universal Service Quagmire
"Universal service means universal service." That was the message from an Illinois Supreme Court decision last week when it reversed the Illinois Commerce Commission's decision to limit state universal service support to a single connection to a home or business, known as a "primary line restriction." By statute, the ICC had been directed to follow, at a minimum, the FCC's list of supported services. Since the FCC currently requires support for all lines, so must the ICC, according to the court.

This decision followed on the heels of a slew of comments submitted to the FCC following the Federal-State Joint Board's recommendation that a primary line restriction be adopted to "preserve the sustainability of the universal service fund." This recommendation essentially amounts to a rear-guard action to protect against further (and potentially substantial) increases in USF demand, as states designate an increasing number of wireless companies and CLECs as being eligible to receive universal service support. The alignment of the parties on this issue is notable. To varying degrees, Qwest, Verizon, AT&T, SBC, NASUCA, Cox and a number of state commissions support the restriction. Parties such as BellSouth, wireless interests, Sprint, NTCA, USTA and rural ILECs oppose it.

The adoption of a primary line restriction has some appeal from an efficiency standpoint (the usage of efficiency being admittedly tortured in this context). Universal service policy is already rife with reliance interests, and expanding the availability of funds to a new set of carriers only increases these incentives. But while the restriction is consistent with the "everybody gets a connection" ethos of universal service, it is inconsistent with the "we support networks, not individuals" reality by which universal service funds are distributed. I say this in full recognition of the 5th Circuit's pronouncement in Alenco v. FCC that the Telecom Act "only promises universal service, and that is a goal that requires sufficient funding of customers, not providers." Agreed. But the point here is that, due to the high-fixed, low-marginal cost nature of networks, designing an individualized subsidy may be exceedingly difficult.

In the end, then, administrability matters and could be dispositive. NASUCA, for instance, has recommended that customers be given the option of choosing which line receives support through the use of a ballot, with support going to the primary carrier (normally the ILEC) if no carrier is designated. The program would be administered by USAC. But the cost of this approach is unknown and the possibility of fraud and waste are not irrelevant factors considering USAC's experience in administering the e-rate program.

The best part, if you've been able to suffer through this entry, is that the whole issue may prove to be moot anyways. The Senate Appropriations Committee has amended an appropriations bill which would bar the FCC from enforcing a primary line restriction. This is a cause for pessimism, as the road for any meaningful universal service reform will ultimately run through the guardians at the gate in the Senate.

And all of this over an issue that is arguably tangential to the fundamental question of how to square universal service policy with the shift to an IP-based world.

- posted by Adam @ 10/1/2004 02:21:13 PM

VoIP Price War
Competing in a declining cost, low margin industry stinks if you are a supplier (unless, I suppose, you are Dell and blow the competition away with your superior efficiency). It's great if you are a consumer. Voice Over Internet Protocol appears to be just such a business, with AT&T and Vonage each dropping the VoIP service packages by $5 per month. For those keeping score at home, or thinking of ordering it for their home, that means Vonage's package is now $24.99 per month and AT&T's is now $29.99. And this is before cable does a full-fledged cannonball into this rather shallow pool.
- posted by Ray @ 10/1/2004 03:12:36 AM

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