Do ILECs Still Face Too Much Regulation?

November 14, 2019 | by Andrew Regitsky

Do ILECs Still Face Too Much Regulation?

Since Donald Trump became president in 2017 his FCC has freed ILECs from many of the regulatory requirements they faced for years. For example, ILECs can now provide most special access services through contracts rather than price-controlled tariffs. Similarly, their broadband services are sold without any pricing rules. In the area of local competition, they no longer must make parts of their networks available to customers at cost, either through unbundled network elements (UNEs) or total service resale. Finally, they are free to operate as ISPs without any regulations if their pricing is transparent, and they don’t engage in anti-trust actions. Most people would say that the ILECs have made out like bandits the last few years under the leadership of the Commission’s Republican majority led by Chairman Ajit Pai. Of course, most people don’t include the ILECs themselves.

In a September 30. 2019 paper sponsored by the ILEC and broadband association USTelecom, ILECs claim the opposite, that freedom from regulations has not caught up to competition. The paper is titled “The More Things Change, the More Things Need to Change: Why New Realities Require New Rules.” In the paper the authors argue the FCC still has work to do.

Despite the competitive pressures faced by today’s ILECs, they continue to be subject to many of the burdens of legacy regulation. They are subject to antiquated rules that govern provider entry and exit — and even grant regulators the right to compel providers to offer service — that affirmatively harm investment and competition in competitive markets. And they continue to be subject to mandatory universal service obligations even when the subsidies that make it possible for them to meet those obligations are redirected to alternative providers.
Against this backdrop of competition in the marketplace, the FCC is poised to introduce competition into the process by which it awards high-cost universal service funding to price cap ILECs nationwide. Namely the next stage of the FCC’s Connect America Fund — the Rural Digital Opportunity Fund (“RDOF”) — will for the first time make billions of dollars ($20.4 billion over ten years) available through a competitive auction in areas where it has previously awarded funds to price cap ILECs. Completely shutting off access to federal universal service support to an incumbent in favor of a competitor is a new frontier in the evolution of the support mechanism. In many areas the ILEC will compete successfully and continue to receive funds to serve those areas.
In other areas, the FCC will award funds to a competitor to overbuild the previously government-funded network. The policy ramifications of this change are significant. Among the implications that should be clear is the following: when the ILEC is no longer receiving support and the FCC has sanctioned a new company to serve in its place, the ILEC should be relieved of all federal and state obligations to provide service in such areas. As government provided benefits are eliminated, associated government mandates to provide service must also fall by the wayside. (ILEC Paper, Tony Clarke, Senior Advisor, Wilkenson Barker Knauer, LLP and Monica Martinez, Founder and CEO, Ruben Strategy Group, at pp. 1-2.)

ILECs are mostly concerned that (1) they still must receive FCC permission to exit markets that are served by subsidized competitors and (2) designated as “eligible companies” by states, they continue to have carrier of last resort (COLR) obligations for up to a year after they leave a market. But the opinion here is ILEC concerns are premature.

Yes, ILECs must gain FCC authority to leave a market, but the process has been drastically streamlined in recent years and permission is routinely granted. Moreover, COLR obligations generally cover voice service only, and that is proper. Many customers that have wireline voice service only are elderly and should not be immediately abandoned by ILECs until these customers are educated (or even automatically connected) to the new eligible company providing comparable service. We don’t want a repeat of the near disaster in which some elderly customers were switched to VoIP without their knowledge and were unaware they would lose emergency service during power failures.

ILECs have done quite well the last few years. Their wireless and broadband units are prospering, and their wireline voice obligations continue to diminish. They should count their lucky stars Hilary Clinton did not win the presidency. If she had won, special access and UNEs would still be price-controlled and the Internet would be regulated as if it was a utility. Then they would really have something to write a paper about!