Galley Proof Available for New Law Review Article

                The Brooklyn Law Review soon will publish From Bad to Worst: Assessing the Long Term Consequences of Four Controversial FCC Decisions. Email me if you'd like a copy.

          Here's the abstract:

          Far too many major decisions of the Federal Communications Commission (“FCC”) rely on flawed assumptions about the current and future telecommunications marketplace.  If the FCC incorrectly overstates the current state of competition, it risks exacerbating its mistake going forward if actual competition proves unsustainable, or lackluster.  In many key decisions the FCC cited robust competition in current and future markets as the basis for decisions that relax restrictions on incumbents, abandon strategies for promoting competition, or apply statutory definitions of services that trigger limited government oversight.  The Commission ignores the secondary and tertiary consequences of decisions that deprive it of the jurisdiction and flexibility necessary to respond to technological and marketplace changes. 

          Rather than promote competition, the FCC has exacerbated the trend toward concentration of ownership generated by technological innovations that promote bundling of  previously stand alone services.  Ventures diversify and expand to accrue scale economies and to exploit new opportunities to serve adjacent markets. Rather than make sure that this trend does not lead to oligopolistic behavior, the FCC have removed increasingly essential regulatory safeguards designed to curb market power without robbing ventures of opportunities to operate efficiently.  Intentionally or not the FCC contributes to market concentration even as it abandons lawful techniques and policies to monitor and remedy marketplace abuses.

          The FCC’s deregulatory decisions operate in one direction—the elimination of regulatory safeguards—without any option or vehicle for reasserting safeguards should assumptions prove wrong, or circumstances change in ways necessitating public interest safeguards.  For example, the Commission’s decision to classify Internet access technologies as information services appears to eliminate entirely the ability to respond to anticompetitive practices of Internet Service Providers.  So when Comcast or other carriers deliberately disrupt subscribers’ traffic in the absence of legitimate network management needs, the FCC has no statutory authority to impose safeguards.  Worse yet the decision to treat basic bit transmission as an information service severely restricts the Commission’s ability to impose safeguards on services that combine Internet access with software, to provide the functional equivalent of a telecommunications service, e.g., Voice over the Internet Protocol (“VoIP”).  The FCC decision to apply the information service classification to all Internet access technologies means that the Commission has abandoned any direct statutory authority and must resort to questionable ancillary jurisdiction to impose even light-handed regulatory safeguards.

          Other instances of unintended consequences from overly optimistic findings and assumptions about marketplace competition include removal of caps on the total spectrum a single wireless carrier can control, premature abandonment of local loop unbundling requirements and conclusions that incumbent carriers have no duty to deal with market entrants even when the incumbent opts to offer retail rates below the so-called market-driven wholesale rate charged competitors.  For each of these decisions the FCC compounded its initial mistakes by foreclosing the option of making necessary and lawful future modifications.

            This paper will examine the consequences of the FCC’s wishful thinking about the viability of current competition and the sustainability of competition going forward.  The paper concludes that flawed fact finding and market projections have adverse initial consequences, but even worst future impact. In response to vigorous lobbying by incumbents, impatient law makers and jurists and deregulatory bias the FCC has contributed to the development of a telecommunications industry structure that appears less competitive, innovative and responsive than what occurs in many other countries.
      

Billing Line Items in Telecom and Other Industries

          In a previous blog entry, I questioned why wireless carriers allow sharing of voice minutes with no additional charge for multiple handsets, but new data sharing plans add surcharges for each additional device.  Subscribers incur no recurring fees for multiple device access to voice minutes even though carriers incur higher signaling costs when additional devices are on, even if they are not being used.  Carriers similarly incur such costs for smartphones, and I have seen no evidence that the costs are higher for data than voice.

            So why the difference?  As best I can determine the answer is that consumers have become inured to billing line item expansion.  We see it everywhere: airfares, mortgages, car purchases and even car repair.  I will not do business with auto repair facilities that tack on an additional 10% “shop fee” to the bill, but I seem to stand alone.

            What ever happened to companies having to absorb overhead?  Instead we get nickled and dimed by additional line items that make no sense: “adjusted dealer markup,” “shipping and handling,” “dealer prep,” “regulatory fee,” etc.

            Wireless carriers can charge for multiple device access, because they can praddle on about how multiple devices increase signaling and polling costs.  The carriers had to absorb such overhead for voice, perhaps because of a real or perceived need to enhance the value proposition of their service.  As the Internet diversifies and offers ever increasing options and utility, wireless carriers can capture greater profits simply by providing the essential first and last link.

            Bottom line: wireless carriers are in an increasingly better position to raise monthly subscription costs while reducing the amount of handset subsidies.