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IP, Telecom and Technology Sourcing Bulletin

Date: Jun 23, 2010

The Keller and Heckman "IP, Telecom and Technology Sourcing Bulletin" is written for telecom, IT, and procurement staff of corporations and government agencies responsible for sourcing IP and telecommunications services and equipment and managing relationships with services providers. Keller and Heckman LLP represents corporate and government clients ("enterprises") through an expert, interest-based approach in negotiating these services agreements and in disputes arising under these agreements. In this edition, we highlight the potential impact of the FCC's National Broadband Plan and its controversial proposal to reclassify and regulate high speed Internet access services released on June 17, 2010.

The National Broadband Plan and Internet Reclassification NOI are government-centric, regulation-based initiatives, contrasting with the "deregulatory agenda" pursued by the FCC during the Bush Administration years. Despite this change, by and large, enterprise customers should not be affected adversely and may benefit.

National Broadband Plan: Pivot Point for Domestic Telecommunications Policy

The FCC released its National Broadband Plan on March 16, 2010 ("NBP"). Click here for the NBP. The NBP sets out FCC staff recommendations (largely reflecting the views of FCC Chairman Julius Genachowski) establishing deployment of high capacity broadband services and achieving "digital literacy" as the principal policy objectives for the Agency during the next several years. Equally apparent, major technology companies, such as Apple, Google and Amazon, now rival the major services providers as the most influential group in domestic telecommunications policy making.

A primary goal of the NBP is that, by 2020, at least 100 million American homes will have affordable access to broadband service with actual download speeds of 100 Mbps and upload speeds of at least 50 Mbps. It also proposes a universal broadband service objective of at least 4 Mbps be available to and affordable for all Americans. To achieve this objective, the NBP proposes to reduce funding of existing universal service fund ("USF") programs that support basic voice services and shift funds to the proposed Connect America Fund ("CAF") and Mobility Fund that focus on broadband.

To promote wireless broadband, the NBP recommends a (i) realignment of television channel assignments to create more contiguous spectrum for wireless broadband, and (ii) "voluntary incentive auctions" to encourage television broadcasters to auction portions of their 6 MHz channels to mobile broadband providers. The United States Treasury and broadcast licensees would divide the proceeds of these auctions. In aggregate, the FCC looks to allocate up to 500 MHz of spectrum for high speed wireless broadband applications, licensed and unlicensed.

FCC Pulling Out All the Stops to Restore Its Authority over Broadband Services Providers

The NBP was undercut by Comcast Corporation v. Federal Communications Commission, et al., No. 08-1291, 2010 WL 1286658 (D.C. Cir. Apr. 6, 2010), as the U.S. Courts of Appeal ruled the FCC lacks statutory authority over Internet services and therefore cannot impose network management obligations on Internet services providers. The court vacated the FCC's order that barred Comcast from restricting customers' use of bandwidth intensive, peer-to-peer applications.

Despite bipartisan Congressional opposition to the FCC regulating Internet service without Congressional authority, the FCC is moving to assert jurisdiction over broadband services providers, essentially "side-stepping" Comcast Corporation, so that the FCC may impose network neutrality rules on Verizon, AT&T, the cable companies and the other network operators. Click here for FCC's "Internet Reclassification NOI." The FCC is looking to supplant its Cable Modem and Wireline Broadband policies, adopted five years ago, which hold that facilities-based, Internet services, offered by the cable companies, Verizon, AT&T and other telcos, are non-regulated information services.

By "reclassifying" the transmission component of Internet services as a regulated "telecommunications service", the FCC will have clear statutory authority over Internet services providers. Chairman Genachowski, indicates the FCC would then impose network management regulations, redefine the USF program and adopt consumer protection rules on Internet services providers. The FCC also seeks comment on whether these proposals should be extended to wireless broadband and satellite broadband services.

Underscoring the controversial nature of the proposal, Republican Commissioners McDowell and Baker dissented from adopting the Internet Reclassification NOI.

Significance of the Internet Reclassification NOI

The Internet Reclassification NOI looks to achieve two fundamental policy objectives:

1. Save major elements of the NBP. Comcast Corporation undermines FCC authority to implement aspects of the NBP such as the Commission's efforts to shift Universal Service Fund ("USF") support from plain old telephone services ("POTS") to broadband services and to adopt meaningful network neutrality rules.

2. Establish and clarify FCC authority over the high speed Internet access services of Verizon, AT&T, and the cable operators. The ascendency of the Internet in terms of commerce, news and political speech and the Internet's importance to the country's leading technology companies warrant that the FCC have regulatory authority over the major Internet service providers.

Conversely, Verizon, AT&T, and the cable operators strongly prefer that their high speed Internet access services remain beyond FCC regulation.

Potential Impact of National Broadband Plan and Internet Reclassification NOI on Enterprise Customers

The NBP and Internet Reclassification NOI are government centric, regulation-based initiatives, contrasting with the "deregulatory agenda" pursued by the FCC during the Bush Administration years. Despite this change, by and large, enterprise customers should not be adversely affected and may benefit.

  • Regulation of high speed Internet access services should not affect pricing for these services. All telecommunications services (except in-state, circuit-switched voice services) are offered to enterprise customers on a deregulated, non-tariffed basis.
  • The NBP calls for the FCC to ensure rates paid for RBOC special access services are priced "at cost" so that wireless carriers are not overpaying for backhaul services, thereby driving up the cost of wireless broadband services. Enterprise customers would benefit, as well, from reductions in special access service rates.
  • Under any outcome, USF contribution levels likely will remain well above 10%. If the primary proposals in the Internet Reclassification NOI are adopted, more services may be subject to USF contribution obligations. Today, only interstate and international (wireline and wireless) telecommunications services are subject to USF obligations.
  • While the FCC's goal of securing an additional 500 MHz of spectrum for wireless broadband services suggests improved service (greater capacity) and more competitors, significant hurdles must be cleared:
    • Even assuming voluntary television spectrum auctions occur, it is an open question whether additional wireless services providers will have the resources to pay $100's of millions for auctioned spectrum, invest in infrastructure and compete on a national or regional basis. 

      • The Wireless industry has undergone substantial consolidation in recent years. If AT&T, Verizon Wireless or Sprint/Clearwire acquire this spectrum, they will exert even more control over the wireless broadband services market.
      • Other than broadband networks limited to rural areas, it is doubtful that entities other than Verizon Wireless, AT&T, Sprint/Clearwire and, possibly, T-Mobile have the resources to construct and operate viable wireless broadband networks—locally, regionally or nationally.
    • Even though unlicensed WiFi networks are widely deployed, many operators offer the service as an ancillary amenity (coffee shops, libraries and bookstores, and hotels). Service providers relying principally on unlicensed spectrum don't have a substantial track record of success and growth.
    • So long as the FCC allows wireless carriers to enter into exclusive distribution agreements with handset manufacturers, new wireless carriers will be challenged to deliver innovative wireless offerings.

While the prevailing view is that the FCC likely will adopt a decision regulating Internet services providers perhaps as early as October, the matter will not be concluded until the courts rule on the anticipated petitions for review or Congress amends the Communications Act.

For more information please contact Doug Jarrett at 202-434-4180 or jarrett@khlaw.com