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Focus on Regulation

Seven Legacies of the Genachowski Era: Part One of Two

Amid widespread speculation that the current Chairman of the Federal Communications Commission Julius Genachowski will soon leave the agency, what legacy will he leave behind? In a recent Washington Post interview, the Chairman observed, “One thing I learned from my predecessors is that people don’t remember the day-to-day battles, but they remember you got it done.” Below, we identify seven achievements that the Chairman can rightly claim as his own. Not all of them are complete. And few of them are entirely original. But Chairman Genachowski has left his stamp on each one.

(1)  USF Reform. Chairman Genachowski deserves praise for tackling one of the more challenging – and contentious – issues in all of telecommunications: the Universal Service Fund. USF is an $8 billion fund originally created in the mid-1990s when dial-up still represented state-of-the-art broadband internet delivery. USF is the source of the extensive capital needed to make a baseline level of telecommunications service available to all Americans. Chairman Genachowski’s challenge was to bring the increasingly creaky mechanisms of USF into the modern era.

The Commission’s November 2011 Report and Order and Notice of Further Proposed Rulemaking sought to modernize the web of subsidies that is USF by attempting to make them technologically neutral. The goal of these reforms was to extend “robust, affordable voice and broadband service, both fixed and mobile, . . . to Americans throughout the nation.”

To meet that goal, the FCC established the Connect America Fund to subsidize qualifying voice services regardless of the technology used to provide them so that IP-based providers could be eligible for USF funding. The rules also require that funding recipients provide broadband as a condition of receiving high-cost universal service funds. To make mobile broadband service universally available, the FCC also established the Mobility Fund to subsidize mobile wireless services in high-cost areas. Finally, the FCC reformed its Lifeline program to establish uniform, national criteria for subsidy eligibility, and to adopt technologically neutral criteria for receiving support. The Commission further installed a pilot program to explore using Lifeline subsidies to support broadband services for low-income customers.

(2)  Competition. The Commission’s close scrutiny of transactions that may affect broadband competition, as well as its willingness to take on complicated, deep-seated issues such as competition in the special access market, are defining features of Genachowski’s tenure.

  • AT&T/T-Mobile. The stage was set in March 2011 for one of Genachowski’s highest-profile decisions when AT&T announced its plans to acquire T-Mobile for $39 billion. The FCC has rarely moved to block a merger of communications companies – the last time was nearly a decade before. But under Genachowski’s command, the FCC assumed an active role, issuing extensive data requests to the parties, competing carriers, and other stakeholders in the wireless ecosystem, and pledging to give the transaction a thorough review. The FCC’s primary concern was that the merger could lead to a duopoly in the market for wireless broadband, with AT&T and Verizon controlling as much as 80% of the nation’s wireless market. Even after the Department of Justice sued to block the transaction in August 2011, AT&T and T-Mobile continued to press their applications for approval at the FCC. With court proceedings against the deal grinding on, the merger’s death knell came when the FCC’s Wireless Telecommunications Bureau’s Staff Report found that the transaction would not serve the public interest and would cost jobs, and Genachowski ultimately decided to block the transaction.
  • Verizon-SpectrumCo.  In 2011 and 2012, the Commission also closely scrutinized applications from Leap Wireless, Comcast, Time Warner Cable, and Bright House Networks (SpectrumCo) and Cox to assign to Verizon multiple Advanced Wireless Service and Personal Communications Service licenses. In its Order approving the transactions, with conditions, the Commission expanded its traditional reach to several commercial agreements between the parties to sell one another’s services, finding those agreements were part of a larger transaction that included the license applications. Among the potential harms cited by the Commission was its concern that the transaction would foreclose competition or raise rivals’ costs. To mitigate this harm, the Commission required Verizon to assign many AWS-1 licenses it had planned to retain for itself to T-Mobile, and to make commitments regarding roaming service and build-out in the AWS-1 band. The FCC also considered whether to modify its spectrum screen to account for other forms of competitive harm. While the Commission eventually declined to modify its spectrum screen, its inquiry may have laid the groundwork for redefining that screen in future transactions.
  • Special Access Reform.  Chairman Genachowski’s FCC also has taken on long-simmering competition issues, including reform of the multi-billion dollar special access industry. CLECs and other customers in the market for special access services have long complained that the market lacks competition and that the rates, terms, and conditions offered by ILECs for those services are unlawful. Heeding their call for action, the FCC in August 2012 adopted an Order temporarily suspending its pricing flexibility rules, preventing ILECs from raising (or lowering) prices in the absence (or presence) of competition. The Commission has since issued a comprehensive mandatory data collection and sought comment on how to use the data to evaluate competition in the special access services market.

(3)  Net Neutrality. In December 2010, the FCC released its Open Internet Report and Order, adopting network management rules intended “to preserve the Internet as an open platform for innovation, investment, job creation, economic growth, competition, and free expression.”  The rules apply to providers of broadband Internet service access whether they use wire, fixed and mobile terrestrial wireless, or satellite platforms, with fewer restrictions on mobile broadband providers. The rules are designed to require transparency, prevent blocking of lawful content, applications, and services, and proscribe unreasonable discrimination, while allowing reasonable network management practices. The FCC also created informal and formal complaint procedures to address disputes related to its rules.

The full effect of the rules has yet to be felt, and may never be. Verizon has challenged the FCC’s authority to regulate broadband services, as well as the constitutionality of the rules, in the Court of Appeals for the District of Columbia (Case No. 11-1355), and oral argument in the case is expected in early 2013. The case ultimately may be resolved in the Supreme Court.

If the rules are upheld, the Chairman would have left the FCC with a roadmap for potentially regulating other aspects of the emerging broadband services landscape, including consumer issues like data caps and competition issues such as special access on all-IP networks. Judicial ratification of the FCC’s authority may also embolden it to extend the breadth and reach of its current open Internet rules.

If the rules are invalidated, the Chairman’s failed efforts to regulate broadband services could be his lasting legacy. An adverse ruling would leave unanswered questions about whether the FCC has any authority to regulate broadband services, whether the Chairman should have persisted with his initial proposal to regulate such services under the FCC’s Title II authority, and, if the courts credit Verizon’s argument that it has a First Amendment right to decide what it transmits online, whether the FCC has authority to make many other decisions affecting the emerging broadband economy. In short, the Chairman’s broadband legacy may very well turn on the validity of the open Internet rules.

(4)  Spectrum. In its November 2012 article, Politico quoted the Chairman saying that he’s “been very focused on freeing up every megahertz of spectrum out there for mobile broadband, and it’s very clear that we need to remove unnecessary regulatory barriers.” A laser-like focus is necessary to meet the National Broadband Plan’s lofty goal of making 300 MHz of spectrum available for mobile broadband by 2015.

To date, Genachowski has made progress toward that goal. The FCC has taken steps, for example, to make 75 MHz of Advanced Wireless Service spectrum available for mobile broadband by 2015 through a series of auctions. The FCC also has worked to open up 40 MHz of mobile satellite spectrum and 30 MHz in the Wireless Communications Service band for mobile broadband by removing rules and restrictions limiting the use of this spectrum.  Additionally, the FCC has begun the process of opening up portions of the mobile satellite spectrum in the L- and Big LEO bands for terrestrial broadband service. These represent just a few of Genachowski’s multi-faceted efforts to free up spectrum for mobile broadband.

Another approach the FCC has taken to freeing up spectrum for mobile broadband is the development of a spectrum sharing paradigm to allow unlicensed devices to access unused white spaces in between broadcast TV channels. Perhaps more controversial is the Chairman’s efforts to implement a plan developed by the President’s Council of Advisors on Science and Technology (PCAST) to share 1,000 MHz of federal spectrum with commercial wireless providers. In December 2012, the Commission took the first step to implement the PCAST plan by proposing to free up 100 MHz of spectrum in the 3.5 GHz band for small cell use. Spectrum sharing between the federal government and wireless carriers, however, may not be a panacea, as analysts have expressed misgivings about the effectiveness and efficiency of spectrum sharing, including the bold proposals of the PCAST plan.

Some question whether the Chairman’s efforts to free up spectrum are enough, and whether conventional regulatory solutions can keep pace with the explosion of demand for mobile broadband in the marketplace. Thus, while Chairman Genachowski has pursued the more or less conventional approaches to freeing up spectrum described above, an innovative approach – incentive auctions – warrants a discussion of its own, and is a topic addressed in Part Two of this post.