The Cost of Regulation

On February 26, The Cable Center modified its cable history timeline by adding the two latest actions of the FCC. The first was a vote to preempt state broadband laws. The second was a vote to reclassify Internet Service Providers (ISPs) under Title II of the Communications Act of 1934. Both passed 3-2 along party lines, as expected. Although it is the first entry, it is not likely to be the last in a continuing saga that will undoubtedly play out over the coming months or even years. While the issue of the day was net neutrality, the debate will now turn to whether the FCC actually has the authority to regulate in both areas. This authority is really the central issue that will be tested in the coming months.

In the first case, Tennessee and North Carolina asked the FCC to preempt state law to allow the expansion of municipal broadband services beyond their current service area. The Obama administration is clearly pushing the expansion of municipal broadband to compete against the incumbent ISPs and bring more competition to the marketplace. The Democrats believe the FCC has the authority to preempt under section 706 of the Telecommunications Act of 1996. The two Republicans dissented and stated that the FCC did not have the authority to preempt state law and that it was a constitutional issue.

In the second case, the FCC reclassified Internet Service Providers as a Title II service, which means they now come under the same common carrier regulation as the old telephone companies. In a new twist, the Democrats on the Commission say they would forbear (not enforce) numerous provisions of the Communications Act of 1934 they see as problematic. The Republicans stated that the FCC could un-forbear at any time, that new taxes are probable, the FCC does not have the authority to take new powers, and the new rules would do nothing to encourage competition. In a few weeks, these new rules will become official when they are published in the Federal Register.

The Internet is now part and parcel of a political struggle that will cause uncertainty for investors who need to make decisions in an ambiguous environment. While this is nothing new for the industry, companies will spend much more of their time in legal proceedings and will reassess their current investment in plant, equipment, research, and development. One of the biggest questions is best summarized by AT&T’s Randall Stephenson who recently said AT&T “can’t go out and invest that kind of money”, while “not knowing under what rules that investment will be governed.” This debate will go through the courts and take years to resolve. As in past battles, it is likely we will eventually see Supreme Court and even Congressional action.

After the hearings, I could not help but think about the 650+ small-cable operators who bring Internet service to many of the smaller communities in our nation. The new regulations will put more of a squeeze on them as regulations designed for the largest ISPs in the country will apply to the small operators, as well. If we want to bring the Internet to more communities, we should design regulations that would encourage these operators instead of burdening them with additional regulations. As the court cases are filed, I am sure they will be at the front of the line. As the story unfolds, we will surely observe a number of unintended consequences of the FCC’s action, as well. Our industry is living in an historic era where the only clear winners for the near future will be the lawyers.

(Larry Satkowiak is president and CEO of The Cable Center, the nonprofit educational arm of the cable industry. The Center preserves cable’s enduring contributions to society, strengthens relationships between cable and academia and unites the industry around the advancement of exceptional customer service. www.cablecenter.org)

Featured Stories

Featured Stories

Curated By Logo