TCS Daily

FCC: Preserve State Role

By James K. Glassman - February 18, 2003 12:00 AM

The Federal Communications Commission is scheduled to act this week on new rules for the implementation of the Telecommunications Act of 1996. To look inside the FCC process, Tech Central Station Host James Glassman talked with former FCC Commissioner Harold Furchgott-Roth.

James Glassman: It's been reported that Federal Communication Commission Chairman Michael Powell's agenda has run into stiff opposition from his own colleagues and he's been forced to postpone a vote (until Feb.20 on telecommunications regulations). Does it look now as though there's a new majority or an emerging majority will establish a policy on broadband and the last mile?

Harold Furchgott-Roth: I think it's perhaps a little too early to tell. Having been inside the Commission for three and a half years, appearances from the outside are not always true to reality. What does seem to be clear is that the chairman is grappling with some decisions on unbundled network elements in regulation of broadband services and he's not been able to neatly reach a conclusion on how best to proceed at this point.

Glassman: Would you say that there appears to be an emerging majority? There are clearly differences of opinion on this commitment, but there may be at least three votes to do something, is that right?

Furchgott-Roth: There seems to be a majority view to retain the states' role in telecommunications regulation. There appears to be some majority view to not radically change parts of the current regulatory structure. And certainly the states' rights view is entirely consistent with traditional Republican views of the relationship between the federal government and the states.

Glassman: On that score, is it unusual that you have seen a coalition of - what appear to be a very different type of advocacy group? On one hand, traditional consumer groups which have pretty much been to the left, I guess you would say, as well as conservatives who are interested in preserving the rights of states as well as conservatives like me who are very much interested in competition. Is that an unusual coalition?

Furchgott-Roth: Politics make strange bedfellows at times. What strikes me as interesting about the shifting political alliances is that I think sometimes people get lost in the alliance of the moment. As recently as three or four years ago, the states were thought to be more sympathetic with the incumbent companies and the FCC was thought to be more sympathetic with the competitive carriers. And those alliances have flipped around entirely.

Glassman: What should the commission do?

Furchgott-Roth: The issue before the commission is how to come up with some rules that can withstand the certain judicial review that they're going to get and to give a bit of certainty to the marketplace, which I think the market is pretty desperate for at this point. And for that I really think you probably do need to preserve some substantial roles for the states. With the USTA decision last on spring and its call for granularity of unbundled network elements, it's really hard to see how you construct that without a substantial role for the states.

Glassman: How did the reports over that SBC is in preliminary talks to acquire DirecTV factor into the FCC's decision on the course of deregulating the Bell companies voice and data services, or is it a completely separate issue?

Furchgott-Roth: I think at first glance they're separate issues, and certainly corporate America has every right and prerogative to look at different investment alternatives. DirecTV is a very interesting investment that's out there, and potentially a lot of different companies would be interested in it. I guess the timing is a little surprising in the following sense: I think a corporation pursuing DirecTV - it's a very major acquisition, a different line of business -- would take up a lot of management time. And for a corporation to be actively engaged in trying to acquire DirecTV, I would have to think they would have less central management time to think about other issues and potentially less free capital as well.

Glassman: Could you describe in kind of broad terms, as you understand it, what the two or maybe three different approaches are to the unbundling issue and the broadband issue as well within the FCC?

Furchgott-Roth: The FCC has rules on the obligations of incumbent local exchange carriers to make available certain elements, which under the statute are called unbundled network elements. And the commission is reviewing these. In 1999, the commission had setup something called a triennial review just for these unbundled network elements, which was the last time the FCC revised these rules. The second reason the commission has to review these is the D.C. Circuit last spring remanded to the FCC the 1999 rules. The third reason, which hasn't gotten any attention at all, is the commission is required every two years under Section 11 of the (Telecommunications) Act (of 1996) to review all the telecommunications rules.

Glassman: Why not just approve the rules as they are?

Furchgott-Roth: The most immediate problem the FCC faces is the USTA court decision from the D.C. Circuit, which at first glance was a major victory for traditional Bell operating companies. That decision concluded that the commission's rules improperly defined impairment, and concluded that impairment has to be done at a very granular level. In fact, though, I think there are a lot of problems with the D.C. Circuit opinion. The granularity requirement is administratively infeasible, and the D.C. Circuit never really addressed that reason, which the Commission gave in 1999 verdict.

Glassman: Define that word granular - what does that mean, highly detailed or what?

Furchgott-Roth: The D.C. Circuit said that they didn't believe that there could be a single national impairment standard. That impairment in New York City would be different than impairment in rural Kansas. And I think in an abstract formula, that's probably exactly right. The difficulty is how do you go about measuring impairment on the central office by central office spaces? There are thousands of central offices in the country, each one with slightly different conditions -- each one with different conditions that vary month-by-month, year-by-year.

Glassman: Wouldn't that be impossible for the FCC to administer?

Furchgott-Roth: If the FCC wanted to make all of those decisions itself and cut the states out, that would involve reviewing the impairment conditions of roughly 10,000 central offices around the country. There are 200 working days in a year roughly, and even if the commission was very efficient to handle five central offices a day, from now until eternity they would only be able to review all of the central offices in the U.S. roughly once every 10 years. And this is no way to run a government and no way to do much of anything. They would have to be able to review an incredible number of central offices every day to even get this down to once every two years. For each central office there's a potential for litigation. Under administrative procedures the FCC would have to allow public comment and the whole process quickly becomes bogged down.

Glassman: That would argue for state involvement, wouldn't it?

Furchgott-Roth: It's hard to see how you interpret the USTA decision without ultimately having some role for the states. Moreover, independent of the USTA decision, it's hard to read the statute without seeing substantial roles for the states in sections 251 and 252 of the 1996 act. The commission has been very reluctant in the past several years to try to preempt the states. This commission is thinking about doing that. It's just not clear what legal authority they would rely on to do that.

Glassman: Who would benefit from that?

Furchgott-Roth: It's not clear who benefits. I don't know whether centralizing the decision making at the FCC would benefit incumbent carriers or competitive carriers. Keep in mind just recently -- three years ago -- almost everyone would have said centralized decisions at the FCC - that's a benefit to the competitive carriers. This year people say it's the incumbent carriers who benefit. But at the end of the day, you shouldn't look at who benefits - you should sort of say, well, what's the right answer under the law? How is this going to move forward, how can we get some certainty out into the marketplace?

Glassman: And how can the commission do that?

Furchgott-Roth: I think the only way to do that with the USTA decision is to toss a lot of these decisions back to the state. That's the groundwork. So, what are the decisions the commission could make? The decisions the commission has to make have to do with what to do with the list of unbundled network elements. The commission has to decide if there's going to be a federal national list and, if so, what elements would be on that federal national list. They'll have to decide what role, if any, the states or some third party will have in being able to add or subtract elements from the federal national list and what procedures would be followed to make those additions or subtractions. The third thing they'd have to decide is who has the final say on what's on the list in each central office or each local area, whether that's the FCC or the state or someone else. It's hard to see that you could setup the situation where the states made a decision that was then reviewable by the FCC. It's just kind of hard to see that.

Glassman: Within the FCC you have some people represented by Chairman Powell who seem to think, clearly from this order, that the state should play a very small role in making these unbundling decisions, is that correct?

Furchgott-Roth: I just don't know. I haven't seen the order. I only know what I read, and from what I've read, I'm not 100 percent certain that is a clear reflection of reality. I can sketch out the decisions that are before the commission, but who's on which side, I'm not sure I want to speculate on that.

Glassman: So, forget the people. It's essentially a decision about how much of a role the states should play in making these unbundling decisions.

Furchgott-Roth: I think at the end of the day that's where it's a difficult decision before the commissioner. I think a lot of the rest, at the end of the day, probably doesn't matter that much.

Glassman: Just to go back to the law, and that's something you always did when you were on the FCC, does the '96 Telecom Act make it clear whether these kinds of unbundling decisions are supposed to be made by the states or by the FCC?

Furchgott-Roth: The initial responsibility for drawing up the list, if you will, is with the FCC. But it is not preclusive of the states adding on to that list. The federal law also does not address limitations on the states acting under state law and, in fact, it would seem that under the federal law, to the extent the states wanted to do something that they viewed as "pro-competitive," the FCC would not be in a position to stand in the way.

Glassman: Tell us about your book?

Furchgott-Roth: I'm finishing a book - the working title is "A Tough Act To Follow." It's about the implementation of the 1996 Telecommunications Act and my views about what went wrong, some of the problems that it's faced with implementation. A lot of focus on what I would describe as regulatory uncertainty, that the business community doesn't like it when it doesn't know what the rules of the road are. And the unbundled network element situation is a very good example of that. Here we are seven years after the passage of the Act and the FCC has yet to pass a set of rules that can withstand court scrutiny. Despite, and not because of the FCC rules, we've seen markets for unbundled network elements proliferate around the country. There would be a great service of the FCC to go back in every instance in which it has lost a court case to actually get those rules clarified so that businesses can move forward with some predictability about what the legal framework will be today, a year from now, and 10 years from now. Right now businesses can't even get pass step one. They really don't know what their legal rights are today, whether you're a competitive carrier or an incumbent carrier, and it's really a disgrace.

Glassman: Is it a disgrace because of the way the law was written, or was the law clear enough so that the FCC, if it wanted to be clear and forthright on these issues, it could have been?

Furchgott-Roth: I think there are a few instances where the law is vague. I think those are the exceptions rather than the rule. I think much of the statute is actually fairly unambiguous. But the rules that have been written have not necessarily tried to find the most unambiguous interpretation, and so we've wound up in court a lot.

Glassman: One other thing that happens a lot, whatever decision is made by the FCC legal action taken by an aggrieved party. What makes you think that just simply the American legal system would not be adding uncertainty about every step of the way?

Furchgott-Roth: I think that's why the FCC, in reviewing this decision and all other decisions, needs to be very careful to try to construct rules that are going to withstand a certain court's scrutiny that it's going to get. As an example of that, I would say, looking back at the USTA decision, there's not a single reference to preempting the states. And so I would think that if the commission, at this point, were to decide to address the USTA decision with state preemption it would just be opening up a new can of worms, a new area of legal battles with no end in sight.

Glassman: Just to be clear, is the USTA decision the one which the FCC has decided not to appeal?

Furchgott-Roth: The FCC actually did appeal to the full D.C. Circuit en banc and the D.C. Circuit en banc did not reverse the three-judge panel decision. The FCC did not seek an appeal to the Supreme Court.

Glassman: And are you critical of the fact that it did not, or do you think it could simply take what it has and make some decisions that would increase certainty?

Furchgott-Roth: Let me try to describe my discomfort with the D.C. Circuit. I think the D.C. Circuit was probably correct in saying the FCC had not done an adequate job of defining impairment in a sufficiently defensible manner. I think the D.C. Circuit's strong suggestion of granularity of a market-by-market determination for unbundled network elements, while I think is arguably theoretically the right answer, I think it's a poor outcome. I think that administratively this is setting the FCC up for deceit and for disaster.

Glassman: How so?

Furchgott-Roth: It's just difficult to see how you actually go about doing that in a meaningful way without sending all of the parties, both competitive and incumbent, into the courtroom for the next many years to litigate this out central office by central office. And at the end of the day, I think that litigation makes a loser out of everybody, and I think it's directly attributable back to the USTA decision. Should it have been appealed? I don't know. I guess when there wasn't much support from any of the judges in the D.C. Circuit, that's probably not a good sign going forward. So probably in terms of the reading of the law, the idea that the FCC in 1999 did not adequately defend the paramount standard is probably correct. But I think the next leap of saying, therefore, you have to go to this granular definition of a list makes me very nervous.

Glassman: This is the last question. The Bush administration ends up taking the blame or the praise for things that happened on its watch, whether it has anything to do with them or not. Here is an area where in telecommunications there are some people who say that we haven't had enough investment; there other people who say this is great, consumer prices are going down. But, at any rate, it seems to me that the White House - and if I remember, the Congress as well - have a stake in the outcome. Should the administration be more active in helping to mold decisions at the FCC, or is it really important that any administration stay out of the workings of an independent agency?

Furchgott-Roth: One of the issues I address in the book is the inherent instability of independent agencies politically unaccountable to no one. I don't think the answer is for an administration to insinuate itself into the decision-making of an independent agency. Independent agencies have enough problems of their own. As you know, there have been examples in the past where administrations have insinuated themselves into the decision making of the FCC. And in the long run, I'm not sure it's been a very helpful activity.

Glassman: OK, I thank you very much for your help and your time.

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