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AT&T Is Right: Comcast Does Not Deserve An “Access Charge Bail Out” As Part of USF Reform

October 26, 2011 , , , ,

It says
something about the messed up world of telecom today that the “Connect America
Fund” the FCC will vote on tomorrow has become the “what the heck are we going to do about
IP-based interconnection” proceeding. In particular, the rather high-profile spat between AT&T and Comcast (and other cable companies) over access charges illustrates exactly the kind of cosmic cluster#@$! we predicted would happen if the FCC failed to classify broadband as a Title II telecom service. AT&T is 100% right
on the key argument
: Comcast has the access charge regime it fought for and
deserves. Letting Comcast collect access charges as if it were a traditional
telecom provider subject to Title II, while shielding it from any actual oversight or obligations as a Title I information service, is nothing more than an undeserved
windfall to the company that tore up the social contract in the first
place.  If they don’t like the outcome, then
perhaps they should have thought about it before they declared Jihad on Title
II.

So What Are AT&T and Comcast Fighting
About?

For those new to
the issue, access charges are part of a complicated suite of charges and
payments
between providers of what we collectively think of as “telephone
service.” What makes this complicated, irrational and dysfunctional system even
less manageable is the confusion over voice-over IP (VOIP). The old public
switched telephone network (PSTN) is the classic (and increasingly the only)
telecommunications service governed by Title II of the Communications Act. Why? Because the
FCC decided ten years ago that anything sprinkled with Magic IP Pixie Dust is not, in fact, a
Title II “telecommunications service” but an “information service” governed by Title I of the Act. Thanks
to Comcast challenging the FCC’s enforcement of its old Internet Policy
Statement (aka Net Neutrality 1.0), the DC Circuit has found that the FCC has
extremely limited and uncertain authority over information services
.

A VOIP call that
interconnects with the old public-switched telephone network resides in a
mysterious no man’s land. The FCC could classify it as Title II, since it looks exactly like a phone call and the statute does not say anything about Magic IP Pixie Dust. But the same
cabal that waged Jihad against classifying broadband as Title II last year
(which included Comcast and the assembled cable operators) have waged a similar
campaign to prevent VOIP (or anything for that matter) from ever being declared
as Title II ever again. Indeed, Michael Powell, the man who as Chairman of the FCC engineered the
“lets deregulate the entire telecom system by refusing to ever classify
anything new as Title II so that telecom regulation will whither away and only
unregulated information services remain,” now heads the National Cable
Telecommunications Association (NCTA), the trade association for Comcast and
the other cable providers which spent last year telling the FCC, the Tea Party
and Wall St. that if the FCC ever thought the phrase “Title II” too hard it
might drive away all future investment in broadband and amounted to a
“government take over” of the internet
.

The result is that
Comcast Voice and most other cable voice services, although advertised as phone
services and performing identical functions to phone services in every way, are
not “phone services” for regulatory purposes. Thanks in large part to their own
massive lobbying efforts and legal challenges, through the magic of IP Pixie
Dust, cable voice services exist outside of the traditional telecom regime and
potentially outside the FCC’s regulatory authority. Sadly for Comcast and its
industry allies, this has not turned out to be the free market nirvana that
Powell and the other architects of the Magic IP Pixie Dust strategy foresaw. Rather than producing the Free Market Paradise envisioned by the Faithful, the title II Jihad appears on its way to creating a market much more akin to Somalia or Sudan.

Why Did This Come Up Now?

Many years ago,
I worked for the Department of Energy and they had a pigeon problem. So they
set up a bunch of plastic owls around the areas of pigeon infestation. The
pigeons, recognizing their traditional predator, at first stayed away. Over
time, however, some adventurous pigeons moved closer. When nothing happened,
they began to settle on the owls. Eventually, one could see hordes of pigeons
gleefully doing their business all over the plastic owls, delighting in the
symbolic humiliation of their ancient enemy. I have no doubt pigeons flocked from
their usual perches at the neighboring buildings for the sheer joy of
symbolically crapping on the plastic owls.

Over the past
decade, the FCC has become a plastic owl for the telecom industry. As a result,
an increasing number of carrier pigeons (if you will pardon the pun) are doing the
equivalent of taking a dump on the owl. Normal modes of behavior are breaking
down, and behavior that was simply unthinkable as between carriers a few years
ago now happens on a regular basis.  With
the very authority of the FCC to address these issues questionable, coupled
with the lack of any political will to make hard decisions that offend powerful
interests, the FCC has remained in a state of continual paralysis. Meanwhile,
the campaign by the telco and cable industry for state deregulation and federal
preemption of IP-based services has made it increasingly impossible for state
authorities to resolve these disputes.

Meanwhile, the market
and the technology have changed dramatically, enhancing both the incentive and
the capability of participants to game the system. Back when cable operators were
just getting into the voice business, and when the FCC still pretended to have
some regulatory authority over these services via Title I “ancillary
jurisdiction,” AT&T and Verizon agreed to treat interconnected VOIP like
standard phone calls. If a Comcast customer called an AT&T or Verizon
customer, Comcast paid access charges. If AT&T or Verizon customers called
Comcast, Comcast paid access charges (or reciprocal compensation, or whatever
was appropriate under the existing crazy-quilt of things).

Years pass, and
cable operators replace incumbent local exchange carriers (ILECs, like AT&T
and Verizon) as the dominant providers of residential phone services. So now,
instead of AT&T and Verizon being a net receiver of access charges, they
are a net payor of access charges. Add to this hard economic times, and the
transformation of the FCC from fearful regulator to plastic owl, and you have
all the ingredients for parties to start rethinking how they do business.

Unfortunately,
markets undergoing flux like this tend to be unsettled and destructive, with
lots of disputes. Most of the time in free market capitalism, we don’t care. An
extremely important element of how markets work is that firms that businesses
can, through no fault of their own, become irrelevant and die. When that
happens, business expectations can get disrupted until the market settles. But
where this impacts critical infrastructure, we care a lot, because the period of
disruption can have what economists call “negative externalities.” I.e., lots
of people get screwed very badly.

Put another way,
I was sad when Borders died and the death of book stores generally is rather
hard on those of us who like paper books. But if the communications grid
crashes because the communications market is “unsettled,” and “going through a
period of transition” which may “result in service interruptions while parties
negotiate and learn to evaluate the true value of their products and services,”
I am more than sad. I am in deep pigeon crap, and the only thing I (and other
consumers or even businesses) have to protect me in that circumstance is a
stupid plastic owl.

So AT&T and
other traditional carriers have increasingly been telling Comcast and other
VOIP providers that, because VOIP is not a Title II service, they are not
entitled to access charges or other revenues governed by Title II. Nor are they
entitled to mandatory interconnection – another Title II right/obligation.
Instead, these terms should be negotiated in good old Title I free market
information service fashion. You know, like the way Comcast negotiated its
“access charges” with Level 3 last year for video traffic. Says
AT&T to Comcast: “what’s the difference between video and voice? It’s
all IP! There are the same things, just different applications. Why does
Comcast get to charge Level 3 all the traffic will bear for video but AT&T
can’t do the same to Comcast for voice?”

Comcast (and, to
be fair, a lot of other folks, but it rains on the just and the unjust alike in
the Libertarian Free Market Paradise of Title I) argue that this is NOT FAIR.
After all, VOIP networks are functionally identical to traditional PSTN
networks (even if they are regulated totally differently by virtue of Magic IP
Pixie Dust), and if access charges (and other forms of compensation) are
supposed to be about recovering costs then we ought to treat functionally
equivalent networks the same. Unless it involves video, in which case it is
TOTALLY different. Besides, having different rules for different networks invites fraud and arbitrage and waste. Unless, of course, we are talking about different rules applicable to different video distributors so that we can deny access to over the top video providers like Sky Angel, which is TOTALLY DIFFERENT from AT&T treating us differently on voice.

So Who Is Right?

As you might
have guessed from the above, I think AT&T is spot on the money when it tells
Comcast: “Y’all didn’t want to be Title II. Hell you’re the guys that filed the
case that killed the FCC’s ‘ancillary authority’ over Title I information
services. Now you want the guaranteed revenues of a Title II telecom service
without the obligations or regulatory oversight? Fuggetaboutit.” 

Comcast’s
argument, by contrast, is essentially a species of “too big to fail.” If the FCC doesn’t give Comcast an access charge bail out from the deregulated Title I Paradise Comcast insists on, then our telecom infrastructure will up an die. The FCC therefore needs to make sure that Comcast gets all those
yummy access charges and other revenues for connecting calls because its business model depends on it (and there are actual costs involved). On the
other hand, you can’t force Comcast to accept the other side of the social
contract, like consumer protection regulation, because the FCC lacks authority
to regulate Title I information services like cable voice-over-IP. And as a cherry on top of this free money Sundae, Comcast and its trade association claim any
effort to regulate VOIP or classify it as Title II is a “regulatory overreach”
so offensive that opponents routinely analogize it to China and Iran censoring
internet freedom
.

I also don’t
think much of the “we do all the same work and incur all the same costs”
argument. If you do the same work as Title II networks, have the same costs as Title II networks, and provide the same service as Title II networks, the WHY THE HECK AREN’T YOU TITLE II NETWORKS? That
is, after all, what the statute requires. There is nothing in the statute about
Magic IP Pixie Dust. But if Magic IP Pixie Dust really works, then it works
equally as well for access charges and for interconnection as it does for
network neutrality and for Comcast/Level 3 “peering.” Because, I say to
Comcast: other than the fact that the result would be convenient for you, why does
the FCC have authority over your “peering dispute” with AT&T for voice but
not with your “peering dispute” with Level 3 for video?

But let me put
aside my personal bitterness and frustration, along with any notion of fairness or equity. I am, after all, a denizen of
Washington, where the regulatory chameleon, the beast that changes its
regulatory classification based on regulatory convenience
, is practically the
local mascot. AT&T itself is fond of claiming a right to programming under Section
628 as a cable provider, but reserves the right to play around with PEG because
it uses IPTV rather than QAM.

Also, there are
a lot of good actors besides Comcast who don’t deserve to be covered with
pigeon poop because Comcast has made hypocrisy a fine art in this proceeding.
Cox, for example, has actually tried to build out a real telephone network –
including a run at wireless services. And many other actors that stand to get
screwed here actually want the FCC to classify the service
they provide. Time Warner Telecom, for example, filed a Petition begging the FCC to classify facilities-based VOIP as Title II.
“Please, oh FCC!” Time Warner Telecom and a number of other competing local
exchange carriers (CLECs) have said. “We are totally cool with the social
contract where we agree to some modest oversight and consumer protection rules
in exchange for making sure that the phone network actually works. We do not
like this Libertarian Free Market Nirvana with its “negative externalities” and
the total breakdown of what had been a functioning (if somewhat inefficient)
market. For the love of God, please stop sitting there like a
freaking plastic owl and actually do your job!”

Unfortunately
these good actors, along with all of us consumers, are trapped in the world
that Comcast and the Title II jihadist have made. Even if the FCC totally agrees
with Comcast ‘n friends that cable VOIP is too big to fail and they ought to
force AT&T to pay out access charges, while simultaneously demanding
nothing in return by way of the social contract, it is not at all certain that
the FCC has the authority to do what the cable guys are asking them to
do. Thanks to that pesky lawsuit Comcast brought that killed Net Neutrality
1.0
, and everything else it and NCTA said about the FCC having no authority
under Title I, the FCC cannot act with any certainty that it will be upheld.

And just to make
sure, Verizon now offers to drive the nail in the coffin with its lawsuits
against data roaming and against Net Neutrality 2.0. Indeed, the FCC’s net
neutrality order explicitly relies (among other things) on its authority over
VOIP as ancillary to the traditional PSTN. That is, of course, precisely the
argument Comcast and its buddies have made here. If Verizon prevails in those
cases, it is difficult to see under what theory the FCC could say: “well, you
guys are not Title II services, but you are entitled to get treated like a
Title II service.”

(Mind you, the
opposite is also true, if the D.C. Circuit finds the FCC has authority to
impose net neutrality rules and/or roaming, it also has authority to fix the
access charge regime with regard to VOIP. This may put Comcast in the odd
position of wanting to intervene in support of the FCC. Y’all have until Monday
to think about it, when the deadline for intervention expires.]

So here we are,
exactly where we at PK predicted we would be, with Comcast now looking for
loopholes in the world of its own creation and taking the rest of the cable
VOIP industry down with it. Because apparently, in their hubris and wounded
pride when the FCC told them to stop throttling BitTorrent and be honest with
their subscribers about network management
, they never considered how they
might need the FCC to have authority to solve their own problems.

Where Do We Go From Here

We do not have
the false choice Comcast has tried to force us into making. It is not a
question of giving Comcast an “Access Charge bailout” with no strings attached
or watching the telecom industry collapse. Even now, the FCC could assert its
unambiguous authority by finding that interconnected VOIP (not even residential
broadband, just interconnected VOIP services like Comcast Voice) is a Title II
telecom service. The FCC solicited comment on this very question in the Connect
America Fund Notice of Proposed Rulemaking. It could include this in the Order
it will vote on tomorrow.

But Comcast and
its club of Title II jihadist still won’t agree to even modest obligations
under the social contract of Title II. Comcast and its cable cohort still dream
of establishing Cable Caliphate where cable operators offer broadband
“information services” preempted from state or federal oversight while enjoying
all the privileges of interconnection and access charges traditionally given to
Title II telecommunications services. As in Somalia and the Sudan, the outcome
of these religious jihads is so rarely the paradise envisioned by believers.

So the question
is not whether we give Comcast what it wants with no strings attached or risk
seeing our telecom infrastructure come crashing down around our ears. The
question is whether the FCC will awake from its paralysis, shake off the bird
poop, and stop being a plastic owl. We have a social contract in the form of
Title II. Until Comcast and the Title II jihadist are ready to accept some
modest obligations on their side in exchange for the privileges they seek, they
can enjoy the Free Market Nirvana they created. Unfortunately, so must the rest of us.