House Subcommittee Holds Hearing on Classification of Broadband Services, 7/21/03.

House Subcommittee Holds Hearing on Classification of Broadband Services

July 21, 2003. The House Commerce Committee's Subcommittee on Telecommunications and the Internet held a hearing titled "The Regulatory Status of Broadband Services: Information Services, Common Carriage, or Something in Between?" The Federal Communications Commission (FCC) has several open proceeding that pertain to the issue.

Positions of Senior Representatives. Rep. Fred Upton (R-MI), the Chairman of the Subcommittee, stated at the outset of the hearing that "To the casual observer of Title I versus Title II, and classifications of broadband as either a telecommunications service, or an information service, may seem mind numbingly arcane. However, the distinctions are critically important, and the FCC's decisions in this regard may have a profound effect on our nation's consumers, and our economy."

Rep. Fred Upton Upton (at right) stated that "outmoded regulation is getting in the way of investment in broadband deployment. The FCC needs to act now."

He advocated "deregulatory parity, not regulatory parity." He added, "in my view, we ought to endeavor to provide the same deregulatory treatment to all broadband services, regardless of the platform by which they are delivered. We need to knock down regulatory barriers which are stifling barriers to invest, if we are to bring the promise of broadband to the American people, and realize the economic stimulus which it will create."

He explained that "old legacy telephone regs are simply not appropriate for broadband services, particularly given that there are numerous technological platforms by which broadband services are delivered. And, it makes not sense to tie one hand behind the backs of the telephone companies seeking to provide the same service as the cable companies, or for that matter, satellite TV companies, wireless companies, or hopefully, in the not to distant future, powerline carrier companies."

Rep. Ed Markey (D-MA), the ranking Democrat on the Subcommittee, argued for parity, but based upon applying rules to both telephone and cable companies providing broadband services. He said the "distinction in nomenclature is important because the providers of information services has differing legal and regulatory obligations than those entities providing telecommunications services. Information services are largely unregulated, as opposed to providers of telecommunications services. Providers of information services do not currently have the universal service, consumer privacy, law enforcement, interconnection, unbundling, or resale obligations that telecommunications carriers have, just to name a few items."

Moreover, "By recently classifying broadband access to the internet over cable systems as an interstate information service, the FCC took jurisdiction away from state regulators, and local franchising authorities for such services, offered by cable operators, and rendered cable modem broadband services unregulated."

He added that "The telephone companies who compete with cable broadband offerings in the residential marketplace with their DSL offerings correctly point out that their service is comparable to that offered by cable operators", and "the fact that the telephone companies seek equal treatment for cable modem and DSL offerings is understandable. They should be treated the same way."

"However, not by deregulating the phone industry by redefining their services so that they have minimal obligations, in the public interest, but to spur on digital technologies and competition, the Congress enacted the Telecommunications Act of 1996. That Act broke down historic barriers to competition", said Rep. Markey. "Central to the Act was the notion that we would treat entities based on the services that they were providing, rather than based on their pedigree as a cable company, or phone company, or on the particular type of facilities used to deliver the service."

However, he continued that the argument that the Congress "also meant to obviate a phone company's or cable company's obligations to law enforcement, interconnection, equal access, universal service, or consumer privacy, is mistaken."

He concluded that "The latitude, however, that the Commission has afforded itself to redefine the very services that we sought to promote in the Telecommunications Act puts in jeopardy, not only many current provisions of law, it also undermines our ability to legislate in the future, especially if the words and terms we use to describe the rights and obligations of unregulated entities may be subsequently swapped for others by regulatory fiat, and in headlong pursuit of obtaining a level of deregulation that Congress did not endorse."

Rep. Billy Tauzin (R-LA), the Chairman of the full Committee, stated that "what we are talking about today is an area of free speech, in a new form. And, every time we talk about the capacity or the power of the federal government, and local governments, to regulate the manner in which Americans speak to one another, in whatever new form they find, I generally fall on the side of less regulation than more."

"It is governmentspeak as to whether or not this new digital world is really information or telecommunications", said Tauzin.

However, he got technical too. He reviewed to the FCC's triennial review order, and praised it for providing that "broadband facilities should not have to be provided on an unbundled basis". He added that "the fact that they decided these are not telecommunications services is a good start."

He also stated that "The underlying transmission component of broadband services is also at stake here. And if you decide that that underlying transmission is going to be subjected to the same sort of regulation by which telephone traffic was formerly regulated, then I think we could get into some deep trouble here."

Background on FCC Proceedings. There are many proceedings at the FCC that relate to this hearing. Several open proceeding are most important.

First, there is the FCC's cable modem service declaratory ruling (DR) and notice of proposed rulemaking (NPRM). On March 14, 2002, the FCC adopted a Declaratory Ruling and Notice of Proposed Rulemaking [75 pages in PDF] that addresses the legal classification and the appropriate regulatory framework for broadband access to the Internet over cable system facilities. It states that "we conclude that cable modem service, as it is currently offered, is properly classified as an interstate information service, not as a cable service, and that there is no separate offering of telecommunications service. In addition, we initiate a rulemaking proceeding to determine the scope of the Commission's jurisdiction to regulate cable modem service and whether (and, if so, how) cable modem service should be regulated under the law ..." (Parentheses in original.)

See also, March 14 FCC release. This is Docket No. 00-185 and Docket No. 02-52.

This NPRM states that "we examine the appropriate classification for wireline broadband Internet access service. As discussed more fully below, we tentatively conclude that, as a matter of statutory interpretation, the provision of wireline broadband Internet access service is an information service. In addition, we tentatively conclude that when an entity provides wireline broadband Internet access service over its own transmission facilities, this service, too, is an information service under the Act. In addition, we tentatively conclude that the transmission component of retail wireline broadband Internet access service provided over an entity’s own facilities is ``telecommunications´´ and not a ``telecommunications service.´´ We seek comment on these tentative conclusions and ask additional questions with regard to the proper classification of wireline broadband Internet access service." This is Docket 02-33.

See, TLJ story titled "So, Just What Are All of These FCC Broadband Proceedings About Anyway?", December 12, 2002.

Third, there is the FCC's triennial review proceeding. On February 20, the FCC adopted, but did not release, a report and order regarding the Section 251 unbundling obligations of incumbent local exchange carriers (ILECs). The FCC issued only a short press release [2 pages in PDF] and an attachment [4 pages in PDF]. See, stories in TLJ Daily E-Mail Alert No. 609, February 21, 2003.
• FCC Announces UNE Report and Order
• FCC Order Offers Broadband Regulatory Relief
• FCC Announces Decision on Switching
• Commentary: Republicans Split On FCC UNE Order
• Congressional Reaction To FCC UNE Order
While the FCC announced this report and order on February 20, 2003, it has yet to release the order.

The order, among other things, provides that (1) there is no unbundling requirement for fiber to the home (FTTH) loops, (2) there is no unbundling requirement for a transmission path over hybrid loops utilizing the packet switching capabilities of their DLC systems in remote terminals (however, ILECs must still provide unbundled access to a voice grade equivalent channel and high capacity loops utilizing TDM technology, such as DS1s and DS3s), (3) ILECs must continue to provide unbundled access to copper loops and copper subloops, and (4) line sharing as an unbundled network element is eliminated.

Positions of Witnesses. Tom Tauke, SVP for Government Relations at Verizon, and a former member of the House, and its Commerce Committee, stated in his prepared testimony that "We believe that the FCC took the first step in that direction in the broadband sections of the Triennial Review order, limiting some of the ``old rules´´ to the ``old wires´´ of traditional telephony. And Verizon has reacted in the marketplace to what it believes that order says. The FCC now needs to finish the job and free the ``new wires´´ from the remaining ``old rules´´ by acting promptly to establish a consistent national policy that does not interfere with industry's deployment of broadband capabilities. If the Commission does that, Verizon and, I believe, others will respond with greater investment in and deployment of broadband."

"Verizon broadband today is primarily DSL services, which provide significant improvements in data transmission speeds. But DSL is only a first step, with the goal being fiber optic deployment into neighborhoods and homes. But as costly as the job is of making DSL capabilities widely available, the task of rewiring the country with fiber makes DSL deployment look like pocket change", said Tauke.

He argued that "we need a Triennial Review order on broadband that is clear and that cannot be gamed. We need the FCC to finally declare that Broadband technologies will not be subject to the unbundling rules that were devised for a voice network." He also stated that "we need the FCC to finish the job on broadband NOW. It needs to classify our broadband services the same way it already has classified comparable services provided by the dominant cable companies. The FCC should first decide that all broadband services should not be regulated under Title II, and instead should be classified under Title I of the Communications Act. Broadband is not telephony, and it should not be regulated like telephony. Imposing old telephony rules on broadband makes no sense."

In contrast, Thomas Jones, an attorney with the law firm of Willkie Farr & Gallagher, testified on behalf of three competitive local exchange carriers (CLECs), Allegiance Telecom, Conversent Communications, and Time Warner Telecom. He stated in his prepared testimony that "the FCC's proposal to reclassify the transmission used in ILEC broadband Internet access as an unregulated Title I service threatens Congress' established telecommunications policies".

He said that "by reclassifying these services out of Title II and reversing decades of precedent, the FCC would eliminate the ILECs' obligation to sell broadband loops to their CLEC competitors. For most small and medium-sized business customers, the ILECs own the only broadband loops. No other service provider, including cable, wireless or satellite, has deployed ubiquitous business end user connections that have the upstream capacity, reliability and security features of ILEC loops. The ILECs' market power over business loops remains, regardless of what is sent over its loop facilities, whether it be broadband or narrowband, or if the loop is old, new, borrowed or blue. Therefore, the only way for CLECs to serve the business market is by purchasing ILEC broadband loops. Eliminating their right to do so under Title II, which mandates reasonable prices and service quality, will likely destroy competition in this dynamic and innovative segment of the economy."

David Baker, VP for Law and Public Policy at Earthlink, a large ISP, stated in his prepared testimony that the effect of classifying all broadband services as information services "would be far reaching because the common carrier transmission services that are the foundation of the information economy would no longer be required to be made available to information service providers upon reasonable request on non-discriminatory terms and conditions. Network owners would be free to arbitrarily decide who can use their networks, at what price, and on what terms. This would not only work against consumer interests, but vital communications links that can be reached today under court order by law enforcement agencies would suddenly be beyond reach because laws like the Communications Assistance to Law Enforcement Act (CALEA) would no longer apply. Congress would have re-write an entire body of laws that have been carefully enacted over the years to promote competition, protect consumers, and provide for public safety."

He elaborated that all internet access services, whether provided by an ISP, a phone company, or cable company, are information services. However, he said that "all information services are, by definition, delivered via telecommunications, and the offering of such telecommunications, whether by a telco or a cable company, for a fee to the public makes them telecommunications services. This is true whether the Internet access is provided by an independent ISP or by the network operators themselves. Internet access, broadband or otherwise, is therefore an information service riding on top of a transmission component which is a telecommunications service."

Baker criticized the FCC suggestion, which he summarized as "so long as the facility owner refuses to offer consumers the option of buying the transmission link separately from the information services component, the bundled package of transmission and information service is an ``information service´´". He argued that "As a result, facility operators are able to shield their transmission networks from requirements for non-discriminatory access by other ISPs. This all but eliminates competition among broadband Internet service providers and not only violates the letter and intent of the Telecommunications Act, but also does great harm to independent businesses and to consumers."

The Subcommittee also heard from three regulators -- from the FCC, Michigan and Florida. See, prepared testimony of Robert Nelson (Michigan Public Service Commission), prepared testimony of Charles Davidson (Florida Public Service Commission), and prepared testimony of Robert Pepper, the Chief of Policy Development at the FCC's Office of Strategic Planning and Policy Analysis.

Nelson argued that the FCC's approach "is based on an obvious misreading of text of the Act" and "is misguided as a matter of both the law and policy". He stated that "As voice traffic continues to migrate to the broadband platform, all of the consumer protections attendant to even the most basic common carrier voice service will no longer automatically apply if the FCC declares that broadband services are a ``deregulated information service´´ instead of a common carrier service, as it is currently classified. The current common carrier protections under Title II also include the assurance of fair and reliable service at just and reasonable rates; the assurance of just and reasonable terms and conditions of service such as billing and service termination practices; and the assurance of compliance with basic service quality standards. The FCC’s reclassification also undercuts additional goals that Congress established to ensure that low-income customers who live in rural high-cost areas, and disabled customers have reasonable and affordable access to the network."

In contrast, Davidson argued for a less regulatory approach. He stated that "The broadband sector is characterized by fairly robust intermodal competition. While cable modem service and DSL dominate the broadband market, overall take rates for other technologies (e.g., fixed wireless, Wi-Fi, satellite) are increasing. Of the competing technologies, DSL is potentially subject to greater regulation than the others. Where there is technological parity confronted with a regulatory disparity (i.e., where substitutable products are subject to asymmetrical regulation), the predicted economic outcomes in the long run include: a competitive advantage for the less burdened product; decreased investment in the more burdened technology; and less consumer choice." He added that "Technological parity should result in regulatory parity."

See, also prepared testimony of Robert Sachs (National Cable & Telecommunications Association), and prepared testimony of Debbie Goldman (Alliance for Public Technology).

Unimpeded Connectivity. Paul Misener, VP for Global Public Policy at Amazon.com, testified on behalf of Amazon and the Coalition of Broadband Users and Innovators.

His interest was not in the regulatory classification of broadband services. Rather, he focused on "unimpeded connectivity". He stated in his prepared testimony that "the defining characteristic of the Internet is unimpeded connectivity. Americans today may obtain online any lawful information, products, or services available or sold on the Internet, without any discriminatory interference or impairment by network operators." Misener wants the FCC to prohibit providers of broadband consumer access from imposing any impairments to unimpeded connectivity.

He explained that it is now technologically possible to impair connectivity, there are incentives to do so, and broadband service providers have the market power to do so.

"Broadband consumer access is completely digital and, thus, ... service providers can impair connectivity in ways that were virtually impossible in the narrowband, analog dial-up world. The most obvious impairment is blocking access to certain information, products, and services. ... Other likely impairments include the insertion of ``pop-up´´ advertisements or slower delivery rates based on a consumer's intended type or source of information", said Misener.

He continued that "Broadband service providers, especially those that are vertically integrated, also have clear economic incentives to impair consumer access to certain Internet-based information, products, and services. The economic incentive is obvious when the service providers have collateral businesses in competition with other Internet-based enterprises."

He also stated that "For the next several years, while broadband service providers have market power, competitive forces will not be able to check their technical opportunities and economic incentives to impair consumer access to various Internet-based information, products, and services. Put another way, absent regulatory intervention, consumers will have no choice but to accept such impairments until true competition emerges."

Next Subcommittee Hearing. Rep. Upton stated that "I hope that the FCC is listening because I expect to have the Commission back, shortly after we return in September. We will be asking them to explain, if they have not acted by then."

He also stated that "In February, the Commission announced the results of it Triennial Review. Five months later, the Commission still has not issued it order. It seems that the Commission is moving at dial up speeds. Nevertheless, I am cautiously optimistic that the Commission's order, once issued, will remove significant regulatory shackles from the backs of the ILECs' broadband facilities."

Rep. Upton asked the FCC's Robert Pepper whether the FCC will have released its triennial review order by Labor Day. Pepper said only, "I hope so."