|“||Despite claims that this deregulatory approach would bring down prices, lower entry barriers, and increase diversity, the 1996 law has resulted in less competition, with fewer companies controlling the sources of information, its content, and its cost.||”|
Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (Feb. 8, 1996), codified as amended in scattered sections of 15 and 47 U.S.C.
In 1996, Congress enacted comprehensive reform of the nation's statutory and regulatory framework for telecommunications by passing the Act, which substantially amended the Communications Act of 1934. The general objective of the 1996 Act was to open up markets to competition by removing unnecessary regulatory barriers to entry. At that time, the industry was characterized by service-specific networks that did not compete with one another: circuit-switched networks provided telephone service and coaxial cable networks provided cable service.
|“||The Act was an unusually important legislative enactment. As stated on the first of its 103 pages, its primary purpose was to reduce regulation and encourage 'the rapid deployment of new telecommunications technologies.' The major components of the statute have nothing to do with the Internet; they were designed to promote competition in the local telephone service market, the multichannel video market, and the market for over-the-air broadcasting. The Act includes seven Titles, six of which are the product of extensive committee hearings and the subject of discussion in Reports prepared by Committees of the Senate and the House of Representatives. By contrast, Title V — known as the 'Communications Decency Act of 1996' (CDA) — contains provisions that were either added in executive committee after the hearings were concluded or as amendments offered during floor debate on the legislation.||”|
The Act created distinct regulatory regimes for these service-specific telephone networks and cable networks that included provisions intended to foster competition from new entrants that used network architectures and technologies similar to those of the incumbents. This "intramodal" competition has proved very limited. But the deployment of digital technologies in these previously distinct networks has led to market convergence and "intermodal" competition, as telephone, cable, and even wireless networks increasingly are able to offer voice, data, and video services over a single broadband platform.
However, because of the distinct regulatory regimes in the Act, services that are provided by different network technologies, but compete with one another, often receive different regulatory treatment. Also, the Act created a classification, “information services,” that was not subject to either telephone or cable regulation. Today, voice and video services that are provided using Internet protocol technology may be classified as information services and therefore not subject to traditional voice or video regulation.
Problems with the current statutory and regulatory framework for telecommunications
Technological change is driving the convergence of a number of previously distinct telecommunications and media markets. Digital technologies are being deployed in and carried over wireline, cable, and wireless networks that are increasingly capable of providing voice, data, and video services over a single broadband platform. The U.S. communications infrastructure is evolving from circuit-based networks, in which individual applications (such as voice telephony) are tightly woven into the network architecture, to Internet Protocol networks (IP-based network), in which multiple applications ride on top of the physical network layer. There is consensus that the current statutory and regulatory framework for telecommunications is ill-suited for the current market environment. There is disagreement, however, about what modifications are necessary and how comprehensive those modifications should be.
At the time of the 1996 Telecommunications Act, today's environment was barely contemplated:
- voice, data, and video transported in packets of digitized bits over routes that pay no attention to state or even national boundaries;
- network usage measured in terms of bandwidth rather than time;
- an end user service provided over competing wireline, cable, and/or wireless broadband networks;
- those networks capable of providing multiple services; and
- no knowledge of the next “killer application” (comparable to the World Wide Web or e-mail) that will drive network and software investment.
Given the distinct, service-specific networks then in use, the 1996 Act created distinct vertical regulatory “silos” that equated specific services with specific network technologies. The statutory framework for regulating telecommunications services is found in one title of the 1996 Act and for cable services in another title. In addition, the 1996 Act defines a category of services, “information services,” consisting of
- the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications.
These information services are not subject to any of the specific regulatory regimes in the 1996 Act; FCC jurisdiction over them is limited to its ancillary authority under Title I of the 1934 Act. The distinction in the 1996 Act between telecommunications services and information services was an outgrowth of a line of FCC decisions dating back to the 1970s that distinguished between “basic” services that were subject to regulation and “enhanced” services that the Commission chose not to regulate in order to foster their development and deployment. Keeping with this regulatory history, the Commission has chosen to forbear from regulating information services, again seeking to foster their development and deployment.
These distinct regulatory regimes did not create significant problems so long as technological and market forces did not erode the distinctions between cable, telecommunications, and information services — and so long as it was possible to unambiguously classify services into these categories. But they became problematic when technological change made it more difficult to determine which service category a particular service fell under and when market convergence resulted in competition between services that were classified, and thus regulated, differently.
Since 1996, the distinctions between these service categories have become increasingly blurred. For example, some providers are offering voice over Internet Protocol (“VoIP”) services that meet the definition of information services while competing directly with traditional voice telecommunications services. Similarly, some providers have begun to offer IP video services that arguably would meet the definition of information services while competing directly with traditional cable services. Those IP-based service providers assert that their offerings should be subject only to the limited regulatory oversight of information services, not to the more intrusive regulation of telecommunications services and cable services, respectively.
It has proven to be an administrative and legal morass to determine whether an information service — which, by definition, provides certain capabilities via telecommunications — is purely an information service, and therefore subject only to a light regulatory regime, or has a distinct telecommunications service component that would make it subject to the more rigorous common carrier regulation imposed on telecommunications services. For example, in 2002 the FCC concluded that the telecommunications functionality in the cable modem service offered by cable companies to provide high speed access to the Internet is integral to the service, and not transparent to the consumer, and therefore cable modem service should be treated as a pure information service, and not subject to the access requirements imposed on [[telecommunications services]. That decision was upheld by the U.S. Supreme Court in June 2005.
At the same time, although the FCC had tentatively concluded that DSL service, which is offered by telephone companies to provide high-speed access to the Internet, also is an information service, with an integral telecommunications component, rather than a telecommunications service, it had continued to treat the transmission component of DSL as a telecommunications service, and therefore DSL continued for more than three years to be subject to the access and other telecommunications service requirements.
Local telephone companies were required to unbundle and separately tariff the underlying transmission component of their DSL Internet access services. On August 5, 2005, the FCC adopted an order that granted DSL Internet access providers the same regulatory classification and treatment as cable modem Internet access providers.
There is an expectation that providers of information services will attempt to configure their service offerings in a fashion that will maximize the likelihood that the FCC will classify them as pure information services for regulatory purposes. As explained in greater detail below in the section on VoIP, however, the Commission continues to make determinations, based on the underlying network architectures used, about whether any specific service offering should be classified and regulated as an information service or as a telecommunications service.
The current siloed statutory and regulatory framework has not been able to accommodate the rapid pace of market convergence; it sometimes treats differently providers or services that are in direct competition with one another. The disparate rules have sometimes created incentives for providers to tailor their investment decisions and product offerings to avoid/exploit artificial regulatory distinctions rather than to efficiently serve customer needs. Similarly, the mechanisms currently embodied in statutes and rules to support such social policy goals as universal service are based on the pre-1996 market environment and are no longer sustainable or as effective as they could be.
Public policy issues to debate
While there are many dimensions to the debate about reform of the statutory and regulatory framework for telecommunications, there appear to be two fundamental underlying issues that affect all others.
First, in this new environment in which applications are no longer tightly woven into the network architecture, what is the best regulatory framework for fostering investment and innovation in both the physical broadband network and in the applications (services) that ride over that network? The physical network providers (local exchange carriers and cable system operators) argue that they will be discouraged from undertaking costly and risky broadband network build-outs and upgrades if their networks are subject to open access and/or non-discrimination requirements that might limit their ability to exploit vertical integration efficiencies or to maximize the return on (or even fully recoup) their investments. On the other hand, the independent applications providers argue that in order for them to best meet the needs of end users and offer innovative services in competition with the vertically integrated network providers and, in some cases, services not offered at all by network providers. They must have the same unfettered open access to the physical networks that the network providers enjoy or, at the least, be protected by non-discrimination rules. Similarly, many end users argue that their broadband network providers should not be allowed to restrict their usage of the broadband network so long as they do not in any way compromise the integrity of the network.
This big-picture issue raises a number of corollary issues:
- In a complex technical environment in which a broadband platform typically consists of a physical (transmission) network layer, a logical layer (usually the TCP/IP suite of protocols), an applications layer, and a content layer, and in which services pass over both the broadband network provider’s last-mile network and the Internet, where and how can denied access harm consumers? What does it mean to have nondiscriminatory access? Should access be viewed from the perspective of an end user or of an independent applications provider or of a competing network? Which access restrictions are justifiable to maintain the integrity and operational efficiency of the network? Should access regulation take the form of structural open access requirements or ex ante non-discrimination rules or ex post adjudication of abuses of market power as they arise on a case-by-case basis? Or should there be no regulation, with industry voluntarily adhering to non-discrimination principles such as the Internet Consumer “four freedoms” enunciated by former FCC Chairman Michael Powell or the principles in the non-binding policy statement adopted by the FCC on August 5, 2005?
- How many competing physical broadband networks are needed for market forces alone to ensure that the network providers lack the incentive and the ability to restrict access or otherwise discriminate against independent applications providers to the detriment of consumers? To what extent can federal spectrum policy and infrastructure programs foster the deployment of multiple competitive broadband networks, thereby alleviating the need for access rules?
Second, while market demand appears to be sufficient to generate competitive broadband network deployment in many urban areas without government intervention, that may not be the case in rural or other high cost (or low income) areas, where high costs and/or limited demand may render it economically infeasible to deploy multiple broadband networks, or even a single network, without government intervention. Does Congress want to expand the scope of universal service to include universal access to a broadband network at affordable rates? If so, how can the needed universal service support mechanisms accomplish this in an efficient and sustainable fashion that does not harm other policy goals, such as competitive neutrality? More basically, how “broad” is the “broadband” that should be provided as part of universal service? Bigger may be better, but only at an associated cost. Is it sufficient, for example, to limit a subsidy program in high cost areas to support for broadband service capable of (relatively low quality) video streaming if the unsubsidized market is driving companies to deploy broadband capable of offering (higher quality) broadcast-quality video service in urban areas? Should the universal service subsidy support access to the physical broadband network or should it support specific services provided over that network?
There are corollary issues relating to how the universal service program would be affected by changes in economic regulation. For example, when the FCC re-classified DSL service as an information service rather than a telecommunications service, it had two effects on universal service. First, the current universal service assessment base, interstate and international telecommunications revenues, was immediately reduced. Second, currently federal universal service funding is only available to support telecommunications services. If DSL services are no longer telecommunications services, eligible high-cost carriers would no longer be able to obtain universal service funds in support of those services. Thus, reform of economic regulation must be undertaken in conjunction with review of existing universal service programs.
Another important element of the debate is how to develop a regulatory framework that will not quickly become obsolete as the market continues to experience rapid technological change. For example, many technologists envision the development of highly decentralized peer-to-peer networks to efficiently deliver interactive services in the future; these networks would have no major nodes and therefore no single points of failure, making them more secure and robust than current networks that rely on key servers. Already there is discussion of the need to construct a new, more secure Internet. Thus, although it would not be appropriate to base a new regulatory paradigm on a presumption that peer-to-peer network architecture will predominate, it also would not make sense to construct a regulatory framework that cannot accommodate that architecture.
Further complicating these issues, it will be necessary to chart a transitional course as the shift to a digital, broadband environment will not occur instantaneously and some providers and customers will continue to be dependent on old technology for some period of time.
Finally, although the current statutory and regulatory framework allows the FCC to preempt state laws that restrict competition, it generally limits FCC regulatory authority to interstate and international services, leaving jurisdiction over intrastate telecommunications services to the states. It also gives states or localities the authority to grant cable franchises and to regulate rights-of-way. As voice, data, and video services increasingly are provided over technologies and networks that do not follow state, or even national, borders, however, it is becoming less effective to perform certain types of regulation — and especially economic regulation — at the state or local level. One task of telecom reform is to identify those regulatory elements that can continue to be performed effectively at the state or local level and those that should be centralized.
- The Information Commons: A Public Policy Report, at 6.
- Reno v. American Civil Liberties Union, 521 U.S. 844, 857-58 (1997).
- In circuit-based networks, for the duration of any communication, a circuit is tied up from the calling party’s premise all the way to the called party’s premise. In IP-based networks, a communication is converted into digital bits and small packets of bits are transmitted over whatever route is available. With broadband in place, even the “last-mile” into the calling and called parties’ premises may accommodate multiple simultaneous applications, depending on each application’s bandwidth requirements.
- Title I of the 1996 Act, which is incorporated into Title II of the Communications Act as amended, 47 U.S.C. §151.
- Title II of the 1996 Act, which is incorporated into Title VI of the 1934 Act.
- Title I, §3(20) of the 1934 Act.
- 47 U.S.C. §154(i) states: “The Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this Act, as may be necessary in the execution of its functions.”
- See Regulatory and Policy Problems Presented by the Interdependence of Computer and Communication Services and Facilities, Docket No. 16979, Notice of Inquiry, 7 FCC 2d 11 (1966) (known as the “Computer I Notice of Inquiry”); Regulatory and Policy Problems Presented by the Interdependence of Computer and Communications Services and Facilities, Docket No. 16979, Final Decision and Order, 28 FCC 2d 358 (1971) (known as the “Computer I Final Decision”); Amendment of Section 64.702 of the Commission’s Rules and Regulations(Second Computer Inquiry), Docket No. 20828, Tentative Decision and Further Notice of Inquiry and Rulemaking, 72 FCC 2d 358 (1979) (known as the “Computer II Tentative Decision”); Amendment of Section 64.702 of the Commission’s Rules and Regulations (Second Computer Inquiry), Docket No. 20828, Final Decision, 77 FCC 2d 384 (1980) (known as the “Computer II Final Decision”); Amendment of Section 64.702 of the Commission’s Rules and Regulations (Third Computer Inquiry), CC Docket No. 85-229, Report and Order, 104 FCC 2d 958 (1986) (known as “Computer III”). In its Computer II Final Decision, at 432-35, ¶¶ 126-32, the Commission found that the enhanced services market was highly competitive with low barriers to entry and therefore declined to treat providers of enhanced services as common carriers subject to regulation under Title II of the Act.
- See, e.g., In the Matter of Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities; Internet Over Cable Declaratory Ruling; Appropriate Regulatory Treatment for Broadband Access to the Internet Over Cable Facilities, 17 FCC Rcd. 4798, 4799 (Mar. 15, 2002).
- In the Matter of Inquiry Concerning High-Speed Access to the Internet Over Cable and Other Facilities; Internet Over Cable Declaratory Ruling; Appropriate Regulatory Treatment for Broadband Access to the Internet Over Cable Facilities, 17 FCC Rcd. 4798, 4799 (Mar. 15, 2002).
- National Cable & Telecommunications Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005). This decision does not preclude the FCC from regulating information services, such as cable modem service or DSL services, based on its ancillary authority under Title I of the Act.
- Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, Universal Service Obligations of Broadband Providers, CC Docket Nos. 02-33 and 01-337, Notice of Proposed Rulemaking, adopted Feb. 14, 2002.
- Appropriate Framework for Broadband Access to the Internet over Wireline Facilities; Universal Service Obligationsof Broadband Providers, CC Dockets Nos. 02-33 and 01-337, Report and Order, adopted Aug. 5, 2005 and released Sept. 23, 2005. In order not to disrupt markets, however, the FCC created a one-year transition period during which independent ISPs would continue to be able to obtain DSL transmission service from incumbent local exchange carriers and also a 270-day transition period (which could be extended) during which the DSL revenues would continue to be treated as interstate telecommunications service revenues for the purposes of funding universal service. The FCC also stated that it retained ancillary authority to regulate DSL service and adopted a Further Notice of Proposed Rulemaking to determine whether it should construct consumer protection rules for broadband services. In addition, the Commission adopted a non-binding policy statement consisting of four principles: consumers are entitled to access the lawful Internet content of their choice; consumers are entitled to run applications and services of their choice, subject to the needs of law enforcement; consumers are entitled to connect their choice of legal devices that do not harm the network; and, consumers are entitled to competition among network providers, application and service providers, and content providers.