Telecom Reboot

Divided Congress Will Need To Unite To Update Aging Laws
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WASHINGTON — As if the current Congress didn’t need another symbol of its behind-the-curve thinking, it has only been four months since the House voted to repeal the FCC’s annual report to Congress on the telegraph.

Repeat. The telegraph.

The change was made to consolidate the Federal Communications Commission’s reporting system, but the act is a much more meaningful symbol for a communications policy regime still stuck in a past of limited competition and ancient delivery systems. Plus, the Senate has yet to act, so the telegraph report obligation is still on the books.

The pace of change in the telecommunications world today is unprecedented. Competition is rampant, delivery mechanisms are morphing and broadband is reaching into every facet of life, yet the current architecture of laws and rules governing their growth are so outdated as to be laughable were the consequences less serious. There exists a wide chasm between the current 20-year-old set of laws and the industries they rule.

CALLS FOR REFORM

And despite the fact there is widespread agreement that an overhaul is warranted, Washington politicians to date have not had either the political will, or the way, to get it done. At stake is nothing short of the future of communications in America.

To be sure, it is an incredibly important yet virtually impossible task. The last big overhaul came in 1996, but did not anticipate the disruption that the Internet of things would cause to the order of things.

“The marketplace and technological changes that have occurred since the last major revision of the Communications Act in 1996 have rendered existing law and policy woefully outdated, if not obsolete,” Randolph May, president of the Free State Foundation and a longtime proponent for updating telecom laws, said. May is a former FCC attorney.

Passing comprehensive legislation in this Congress is a long shot, given the poisonous partisanship over other issues — see the debt ceiling, Obamacare and the deficit — as well as the traditional divide over how much the government should be regulating communications in the first place.

“While a comprehensive rewrite of the act is sorely needed, such a monumental task is unlikely to be accomplished for several years,” former FCC commissioner Robert McDowell said.

But if Washington can’t get a handle on updating communications regulations now, it has an exponentially decreasing shot at getting it right as those targets are advanced relentlessly by technology and consumer expectations.

GOP INITIATIVE

Last week, the leaders of the House Energy & Commerce Committee, accompanied by McDowell, announced their intention to wade into a rewrite, but introducing a bill and getting one passed are two very different things.

The leaders signaled that the rewrite would not happen until at least 2015, after a series of hearings and white papers and public input via a new Twitter hashtag, #CommActUpdate. But there were no Democrats at the announcement, and the dean of the Congress, Rep. John Dingell (D-Mich.), weighed in with a cautionary note about hoping it would be a bipartisan effort and not simply change for change’s sake.

Because the risks of inaction have never been so high, industry players were lining up with good wishes for the effort.

Cable operators, broadcasters and phone companies were saluting the idea, but a revamp appears years in the making, if it ever bears fruit — which might as well be millennia when measured in Internet time. And Republicans and Democrats tend to agree on the need for change, but not on the path forward.

Republicans generally want to remove old regulations to match the freedom of new delivery systems, while Democrats want to level the playing field by carrying over what they see as key regulations — such as access and interconnection — to new models.

BILLIONS IN PLAY

Billions of dollars in investment are at stake as cable MSOs, broadcasters, satellite companies, over-the-top distributors and others try to figure out where to place their next bets.

Twenty years ago, communications-law reform was about video. Now, with the advent of broadband and the seeming inexorable move to a virtual world, it is about everything.

So, at a time when legislators working together has never been more important to the future of video and data distribution, lawmakers have never seemed so far apart or incapable of concerted action.

The last big overhaul of communications policy came in the 1996 Act, and the Cable Act of 1992 was a galaxy far, far away when it comes to reflecting the competitive marketplace.

BARRIERS ARE FALLING

Technology is already knocking down barriers, while Washington watches from the sidelines. Tablets are now TVs; gaming systems are video players; and cable operators are ISPs, phone companies and security companies.

The FCC has been regulating like it’s 1999, and the result is no party — and no parity. Like services that are getting more alike every day are subject to regulations that draw distinctions without differences, adopted when Google was the sound a baby made. Google is all grown up now, with $60 billion in revenue.

Congress continues to make noises about major video legislation. Sen. John McCain (R-Ariz.) offered up a bill earlier this year on the issues of a la carte and online. Sen. Jay Rockefeller (D-W.Va.) introduced his own video reform bill that at first blush would appear to insert over-the-top video into the satellite silo.

Neither measure is necessarily the reform cable operators are looking for. But even if they were, they would have little chance of passage.

There are also bills to address questions about taxation when goods and services are traded over the Internet, on cybersecurity and on privacy protections. The Congress knows it must deal with these key issues, but mostly what it has done so far is talk about how important they are then fail to pass legislation.

One place where some reform is possible is via the Satellite Television Extension and Localism Act (STELA), which has to pass at the end of 2014 or it will sunset. That could be a venue for making changes to the retransmission-consent regime, another law that dates from when cable operators had no major competitor in pay TV distribution.

A reauthorization of the law, which governs the terms under which direct-broadcast satellite providers may carry local broadcast-TV stations, could bring changes to the definition of good-faith bargaining, as well as to what out-of-market programming can be imported by pay TV providers. But it’s unlikely legislators will be able to come to agreement on more than a fairly clean renewal of the current law.

In announcing the Communications Act reboot last week, Rep. Greg Walden (R-Ore.) — himself a former broadcaster — signaled that retrans would be addressed in that measure, rathet than in the STELA reauthorization. The 2015-targeted reboot would also move contentious video issues out of an election year.

In an effort to keep out of Internet content regulation while ensuring access, the FCC has drawn a distinction between Internet-service providers — cable and otherwise — which cannot discriminate in provision of access to legal content, and website and search-engine operators, which face no such restrictions.

The discrimination issue came into focus this fall, when CBS blocked Time Warner Cable broadband subscribers from watching streaming episodes of network shows during a retransmission-consent battle over the broadcaster’s TV stations.

Given the power of companies like Google to control access to content via their search engines, the FCC may need to revisit that disparity. That would then become an issue of regulating Internet content, something FCC chairman Tom Wheeler emphasized last week was off the table, beyond preventing child pornography and making sure emergency phone calls get through.

In any event, either the FCC or the Congress will have to decide whether online video distributors qualify for the same rights and responsibilities as traditional multichannel video programming distributors (MVPDs).

Reform is most likely to come in bite-sized chunks. For example, the FCC reform bill with the best chance of passing in the Congress this year is one that combines a number of FCC reports into a single biennial package — getting rid of that report on the telegraph in the process.

Another bill — which would apply “shot-clock” deadlines to FCC proceedings and cost-benefit analysis to both current and future regulations — is supported by Republicans but pilloried by Democrats. And so it goes.

NO NEED TO WAIT

McDowell, who backs the rewrite, said the FCC doesn’t have to wait for Congress to agree — which would likely feel like waiting for Godot.

“In the meantime, what can be done to mitigate the market distortions of the obsolete Acts of 1934, 1992, 1996, etc.?” he asked. “All on its own, the FCC could initiate an audit of all if its rules with an eye toward creating an atmosphere that enhances private sector investment, competition and innovation.

“Working within its existing statutory authority, the commission could prune back potentially scores of counterproductive rules,” McDowell said.

Neither the FCC nor Congress are lacking in advice on what needs to happen.

Scott Cleland, president of Precursor LLC and a former communications policy adviser in the George H.W. Bush administration, points out that “the cloud” has created an omnidirectional free-for-all in which everyone can buy or build systems for delivering any virtual product or service.

“Just like the wisdom that one cannot make a silk purse from a sow’s ear, one cannot make ‘modern’ FCC policy from obsolete communications law,” Cleland said.

TAKEAWAY

The rapidly changing telecom industry is clamoring for an update of federal rules, but the size of the challenge and the political gulf in Washington remain obstacles to critical reforms. 

WHY NEW LAW IS NEEDED

WASHINGTON — Here are some reasons why Congress needs to put down the hammers and tongs and pick up the pruning shears long enough to help bring the communications regulatory system into the 21st century:

Competition. When the Cable Act was passed in 1992, the satellite bird was a fledgling, there was no telco TV, broadcasters did not have multiple digital channels of programming competing for product and there were only 30 million to 40 million people online worldwide in what was primarily a dialup, Netscape world.

The 1996 Telecommunications Act was the first major rewrite since the original 1934 Act, and focused on promoting phone competition in the wake of the breakup of the Bell System monopolies.

While Sen. Ed Markey (D-Mass.) has pointed out that the breakup worked and that broadband has flourished, there are regulatory issues the 1996 act did not contemplate, such as access to Internet-protocol delivered, rather than circuit-switched, phone and data service.

Regulatory certainty. Industry wants it and regulators profess to provide it. But the rise of the Internet has brought with it a thicket of thorny issues that will need to be resolved. That means deciding which regulations should or shouldn’t apply to Internet-protocol delivered communications, such as cable telephony and over-the-top video.

Copyright. Online distribution has muddied the picture, helped by differing court opinions. As Viacom pointed out to the Supreme Court in attacking TV-station streaming service Aereo, “The absence of nationwide, uniform rules governing the public performance right in online streaming transmissions has created, and will continue to create, substantial uncertainty in the marketplace.”

A recently released study of government figures by the International Intellectual Property Alliance puts the value of core copyright industries — TV, movies, music and soft ware — at representing over $1 trillion annually, or about 6.5% of GDP. Reauthorization of the Satellite Television Extension and Localization Act (see above) is the most likely vehicle for dealing with copyright issues in the Congress, but, again, that would depend on getting both the House and Senate to agree on any changes.

The Internet of things. Privacy, security and piracy are big issues with video and distributors of online content. But broadband is now also about nuclear power, national security, health care, online commerce and virtually everything else that touches daily life. Trying to find the right balance for government oversight of the critical infrastructure of online work and play could very literally be a matter of life and death.

The advertising of things. Advertisers need to know what information they can collect from whom online, via smart TVs, tablet, phones and set-tops. Technology has outstripped the privacy protections consumers want. For example, Google last month sett led with state attorneys general for $17 million over allegations that the Web titan rewrote its code to bypass default settings in Apple’s Safari browser preventing third-party cookies.

Privacy. The Electronic Communications Privacy Act was written a quarter of a century ago. The Internet has radically changed the expectations of privacy and the ability to protect it. There are bills currently on the Hill that would protect ISPs from warrantless searches of email and other online communications, and companies like Google and Twitter and groups including the ACLU and Americans for Tax Reform are pushing passage. But nothing has reached the president’s desk.

Internet protocol. Either Congress or the FCC will need to let industry players know about the new rules, or lack of them, on IP-delivered services. FCC chairman Tom Wheeler has said he expects to vote in January on IP transition tests as part of a regulatory framework for IP. Wheeler has already advocated for setting a deadline of 2018 for the transition from traditional circuit-switched telecom when he was head of the FCC’s technological advisory council.

— John Eggerton

WASHINGTON — As if the current Congress didn’t need another symbol of its behind-the-curve thinking, it has only been four months since the House voted to repeal the FCC’s annual report to Congress on the telegraph.

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