Implementation of the National Broadband Plan: Issues, Opportunities and Challenges

Jonathan S. Marashlian Michael P. Donahue

Speaker Bios

• Jonathan Marashlian, partner at Helein & Marashlian, LLC, The CommLaw Group, assists clients with regulatory compliance and strategies, transactional, litigation & regulatory defense matters before the FCC and state regulatory agencies across the nation. He counsels clients in all aspects of state and federal regulatory matters, focusing on compliance with the Universal Service Fund and similar regulatory programs through his firm’s unique Compliance & Reporting Services. Jonathan earned his J.D. from the George Mason University School of Law.

• Michael Donahue is a Senior Associate at Helein & Marashlian, The

CommLaw Group. He has represented CLECs, ISPs, VoIP providers, DSL providers, and other domestic and international data and voice telecommunications providers and technology companies in all aspects of their businesses, including regulatory compliance, corporate and transactional matters, public policy advocacy and litigation. His recent experience as Senior Counsel for a Tier I broadband Internet provider with one of the largest IP transit networks in North America gives him an inside perspective on the issues facing broadband network and service providers. Michael earned his J.D., cum laude, from the Catholic University of America Columbus School of Law.

Introduction: Purpose of this Series

• Part 1 – Introduction, Background, Predictions (June 8, 2010)

• Part 2 – Issues for Government – public safety, next generation E911, privacy/cybersecurity, etc. (Date TBD)

• Part 3 – Competition Issues – Access to poles, conduits, and rights-of-way, USF contribution reform, etc. (Date TBD)

Part 1: The National Broadband Plan: Issues, Proposals and Predictions

Overview of the National Broadband Plan

• Comprehensive plan aimed at improving broadband deployment

• Aggressive regulatory reform • USF reform, intercarrier compensation reform • Opportunities for growth & investment

Purpose of the Plan

• What are the FCC’s goals? 1. Improved broadband deployment, access & adoption

in un/under-served areas • Goal of 100 MBPs access to 100 million people by 2020

2. Promote world-leading mobile broadband infrastructure & innovation

3. Enhance broadband competition to promote innovation and benefits to consumers

4. Advance robust and secure public safety communications networks

FCC Broadband Action Agenda & Implementation Timeline

• Announces 60 proceedings & initiatives aimed at implementing the Plan

• Plan released April 8, 2010 • At least 40 policy/rulemaking proceedings expected

from Q2 – Q4 2010 – VoIP classification order possible in 2011, USF

subsidy methodology possible • Begin implementing USF contribution changes and

intercarrier compensation in 2011

Broadband Action Agenda & Implementation Timeline Cont’d • USF transition 2011-2016 • Complete intercarrier compensation transition 2012-2016 • Eliminate high-cost fund, complete transition to Connect

America Fund & Mobility Fund, complete transition to $0.00 intercarrier compensation 2017-2020

• 100 Mbps to 100 million people in 2020

Specific Proposals: USF Overhaul, Background on the USF

• Subsidy program created by Telecommunications Act of 1996

• Created to achieve “universal [telephone] service” • Not designed to support broadband deployment

Why the USF Needs Reform

• ILECs receive a disproportional amount of subsidy funds

• Huge error rates in pay-outs • Exponential growth in contribution factor • Inability to close the digital divide

USF Overhaul: The Big Picture

• Shift support from voice services to broadband • To be achieved in three stages, with the goal of

connecting 99% of Americans by 2020 • Two revenue-neutral funds to be created

– Connect America Fund- to extend broadband to un/underserved areas

– Mobility Fund- to promote 3G service

USF Overhaul, Stage One

Stage One (2010-2011) 1. Identify funding that can be shifted immediately to jumpstart

broadband deployment 2. Create a framework for the Connect America and Mobility

Funds 3. Establish a long-term vision for intercarrier compensation 4. Examine middle-mile costs and pricing

Specific Proposals: USF Overhaul Cont’d; FCC Releases NOI/NPRM

• On April 21, 2010, the FCC approved a NOI and NPRM proposing and seeking comment on ways to cut inefficiencies in the current USF system and transition to the Connect America Fund

The Initial NOI

• NOI seeks comment on use of economic model to tariff support areas where no private-sector business can provide broadband and voice services (eliminates the gap between cost of deploying broadband and the potential additional revenue generated from the broadband investment)

The Initial NPRM

– NPRM seeks comments on proposals to reduce legacy universal service spending and shift to support for broadband communications

– Proposals include: 1. Capping the overall size of the high-cost program at 2010 levels 2. Reexamining current regulatory framework for smaller carriers 3. Phasing out support for multiple competitors in areas where the

market cannot support even one provider – Comments due July 12 ; Reply comments due August 11

USF Overhaul, Stage Two

• Begin disbursements from CAF and Mobility Fund • Reform contribution methodology

– Numbers-based – Connections-based – Revenue-based

USF Overhaul, Stage Three

• Complete Transition of High-Cost Fund into CAF and Mobility Funds

• End support for voice only networks • Finish intercarrier compensation reform

Implementation Obstacles

1)FCC’s Authority to Regulate Broadband absent Congressional Action

2)Magnitude of the Plan 3)Technical Limitations 4)Funding

Obstacles: Legal Authority to Regulate Broadband

• Commission must have authority to regulate broadband generally, and to impose USF obligations on broadband service providers

• To support USF, FCC requires contributions from broadband providers

• Only “telecommunications” subject to USF • Must reclassify broadband as “telecommunications”

Obstacles to Implementation – Authority to Regulate Broadband, Comcast v. FCC Comcast v. FCC DC Circuit found FCC did not have expressly delegated authority

to regulate Comcast’s provision of Internet service and could not exercise its ancillary authority without tying the ancillary authority to an express statutory delegation of authority

The Congressional statements of policy cited by the FCC are not statutory delegation of authority and, therefore, cannot support exercise of ancillary authority

Commission faced with high hurdle on path to National Broadband Plan implementation

The First Way – Stay the Course

• Continue to treat broadband as an unregulated “information service” • Concede limited authority under Comcast • FCC must rely upon its ancillary authority to regulate broadband which will subject

the Commission to jurisdictional challenges based upon the Comcast ruling • Continued treatment of broadband as an information service deprives the FCC of

any real chance to implement its Plan (Unless the Commission can get USF contributions from broadband service providers, it can’t support broadband deployment because the Fund is dwindling)

The Second Way – Heavy Regulation

• Reclassify broadband Internet access as a telecommunications service subject to the full suite of provisions under Title II

• Could regulate broadband like a traditional telecom service & assess USF fees on providers

• Inconsistent with regulatory policy and new technologies

The Second Way – Cont’d

• Commission would have to find an alternate basis for regulating broadband

• Would fall subject to jurisdictional challenges • Complete overhaul of existing regulatory regime • Not a realistic solution in light of the Comcast decision

The Third Way

• Would separately classify the transmission component of broadband Internet access services as “telecommunications,” when offered on a common carrier basis, subject to limited Title II regulation

• The information component would be subject to a limited set of regulations pursuant to the FCC’s ancillary jurisdiction under Title I

• Preserve common vs. private carrier distinction

The Third Way Cont’d - Details

(1) The Commission would recognize the transmission component of broadband Internet access services as a telecommunications service when provided on a common carrier basis

(2) The Commission would apply only a handful of Title II provisions to the transmission component of broadband Internet access services, particularly Sections 201, 202, 208, 222, 254 and 255, requiring (a) USF contributions (254); (b) 201, 202 & 208- prevention of unreasonable denials of service & other unjust practices; (c) Section 222- protection of confidential subscriber information; and (d) 255- making equipment accessible to individuals with disabilities unless not reasonably achievable

(3) The FCC would renounce the application of other “unnecessary” provisions of the Communications Act to broadband service providers; and

(4) The Commission would erect “meaningful boundaries” to prevent regulatory overreaching

The Third Way & Brand X

NCTA v. Brand X – Supreme Court upheld an FCC order classifying cable

modem Internet access service as an information service, exempt from Commission jurisdiction

– Scalia dissent found Commission’s interpretation of the Communications Act to be unreasonable and unlawful

– Third Way consistent with Scalia’s dissent in Brand X

Implementation of the Third Way

To implement the Third Way, the FCC must: (1) Adopt a notice of inquiry or notice of proposed

rulemaking proposing to reverse its own decisions classifying Internet access as an information service, including the order that was upheld in Brand X

(2)Alternatively, the Commission could adopt a declaratory rulemaking or report and order providing a reasoned factual and legal basis for changing the classification and regulatory treatment of Internet access services

Third Way Hurdles

To survive appellate review and invoke the third way, the FCC would have to:

(1) Demonstrate why reclassification of Internet access services from an “information service” to a “telecommunications service” is not arbitrary and capricious

(2) Demonstrate why the FCC has Congressional authority to regulate the telecommunications component of Internet access service as a common carrier offering under Title II; and finally

(3) Demonstrate that its action does not infringe the Constitutional rights of ISPs

Particular Challenges – Brand X

• Commission must overcome the order upheld in Brand X

• Must develop the record to support its opinion • Will have to disprove earlier opinion that Internet

access is a single integrated service offering • Jurisdictional confirmation may take time

Third Way Hurdles - Comcast

• Commission will have to justify its shift from reliance upon its ancillary authority to supposedly exercising direct supervisory authority over broadband

• Commission’s reliance upon ancillary jurisdiction in Comcast rejected

Third Way Hurdles – Other Jurisdictional Challenges

• Reviewing courts may have trouble digesting the FCC’s complete reversal of its Brand X position, not to mention 30 years of precedent leaving Internet access services unregulated

• In sum, the approach allows the Commission to keep the Internet unregulated but exercise some supervisory authority over access connections

Fourth Way

• Await action from Congress • Seek direct legislative authority from Congress to regulate

broadband • Path of least resistance, but could take years to materialize

Other General Hurdles to Implementation: Magnitude

• Many of the Plan’s proposals will require new

legislation, FCC or other agency rulemakings, or both.

• Preparing the necessary NPRMs, NOIs, Orders, etc., reviewing comments and developing and implementing rules is likely to require the time and input of a significant portion of the FCC in every bureau

Other Hurdles to Implementation: Funding • The FCC generally contends that its proposals are revenue neutral

because sufficient funds will be available from: – Auction of spectrum, including the 700 MHz D Block spectrum – Comprehensive reform of the Universal Service Fund – Existing government programs; and – Private sector investment and competition

• But some funding may still be required – $9 billion for USF transition – Additional funds if auctions do not meet projections

Our Prediction

• Reclassification inevitable • FCC requires funds from broadband providers to

support a dwindling USF

Implementation Agenda

• Proposed June 17th Open Meeting, Commission will discuss release of NOI seeking comment on: – Whether the Commission’s “information service” classification of

broadband Internet service remains legally sound and adequate to support effective performance of the Commission’s responsibilities

– The legal and practical consequences of classifying broadband Internet connectivity as a “telecommunications service”

– The Third Way

Impact of the Commission’s Decision

• Will impact not only broadband service providers but: – Consumers – Wholesale input providers – Application and content providers

Impact on Service Providers

• Unable to avoid classification of transmission component of services as telecommunications

• AT&T example • All providers offering broadband Internet access on

a common carrier basis subject to limited Title II regulation

Impact on Content & Application Providers

• Depends on net neutrality principles • Net neutrality prohibits broadband service providers

from favoring or discriminating against any traffic transmitted over their networks

• Chairman in favor of net neutrality

Net Neutrality

• Chairman supports net neutrality • Supporters argue that the policy is necessary to

prevent broadband providers from favoring or discriminating against certain websites and online services

• Opponents such as Comcast, AT&T and Verizon argue that, after spending billions on their networks, they should be able to sell premium services and manage their systems to prevent certain applications from hogging capacity

Private vs. Common Carrier Distinction

• Third Way preserves private carriage for large carriers

• Only when offered directly to the public (i.e. on a common carrier basis) will the telecommunications component of Internet access be subject to limited Title II regulation

• Frees large carriers to engage in network management practices

Net Neutrality & Third Way Opponents

• Opponents believe that the Third Way would destroy net neutrality

• They maintain that anything short of full classification of broadband as a telecommunications service is insufficient

• Application and content providers oppose limited Title II regulation because carriers can discriminate against them

Questions?

END OF PRESENTATION

THE END