Conservative thinkers who want to reinterpret the Constitution have won a test case, making broadband regulation a laboratory for their policies.

by Alex Goldman ISP-Planet Associate Editor [March 13, 2003]

On February 20th, 2003, the FCC made a landmark decision that has been greeted by almost universal disapproval. Today, we examine one portion of that decision—covering switching—that could do irreversable harm to telecommunications competition in the U.S.

The switching portion of the FCC's decision asks the states to study their local telecommunications market and decide the extent to which competition exists there—if the states find that competition exists, the Bells' prices and procedures will no longer be regulated. (Note that the FCC has just spent three years on this question, but it expects the states to be able to formulate and present findings after only 90 days.)

If the regulators fail to make a statement within 90 days, there is a "presumptive finding of no impairment," which is essentially equivalent to allowing the Bells to cut off all broadband competition by doing what they've always wanted to do—charge the same price wholesale as retail, putting competitors out of business by forcing them to charge significantly higher prices that the Bells do.

Why "States' Rights" matters to you
A hitherto esoteric legal/ideological argument has suddenly become of vital interest to every ISP in the U.S.: the debate over States' Rights and the interpretation of the commerce clause of the U.S. Consititution. FCC Chairman Michael Powell understood that "States' Rights" ideology played a key role in the recent FCC decision. He said, "To explain their decision, the majority has cloaked itself in the drape of 'States' Rights' (a classic conservative mantra not generally associated with the majority of democrats). This is a trivial misuse of a cherished constitutional precept."

Powell's statement was aimed directly at Commissioner Kevin Martin, who had the swing vote in the decision and got his way on all issues. (For the record, Martin voted with the Democratic Commissioners, Johnathan Adelstein and Michael Copps, on some parts of the decision, but voted with his fellow Republican Commissioners, Powell and Kathleen Abernathy, on other portions of the decision.)

"States' Rights" as a current political code word is a collection of ideas whose core thought is that the federal government has grown too powerful. Adherents hope to give to the states certain powers currently allocated to the federal government by reinterpreting the commerce clause of the constitution (right).

Martin characterized his decision as an idealistic attempt to curtail the powers of the federal government. He said, "I believe in limited government. I believe that competition—not regulation—is the best method of delivering the benefits of choice, innovation, and affordability to consumers."

Chaos alert!
There are two major problems with the switching portion of the FCC's decision, the portion that allocates regulatory power to the states and is therefore motivated by "States' Rights" ideology.

First of all, it may not stand up in court. Whether or not it does ultimately stand up in court, we certainly expect to see a flood of lawsuits in the near future. Leaving the chaos of lawsuits to the future, however, we will not speculate on it further today.

The second, more immediate, problem with the switching decision, however, is that it effectively creates 51 different regulatory regimes in the fifty states plus Washington, D.C. Furthermore, it asks state regulators to make broad and far-reaching decisions but gives them neither the time nor the resources to do so.

The states are in a parlous situation. Given current economic realites, most lack the money to fund the studies that would allow them to make an informed decision. The FCC has compounded the problem by giving the states a mere 90 days to decide on issues that the FCC examined for three years.

Powell's prediction of the effect of the decision is worth quoting in detail—because it is already coming true:

"I believe this decision will prove too chaotic for an already fragile telecom market. In choosing to abdicate its responsibility to craft clear and sustainable rules on unbundling to the State Public Utility Commissions the Majority has brought forth a molten morass of regulatory activity that may very well wilt any lingering investment interest in the sector. And, I fear as much or more for CLECs as I do ILECs, for the prolonged uncertainty of rights and responsibilities may prove stifling.

The nation will now embark on 51 major state proceedings to evaluate what elements will be unbundled and made available to CLECs. These decisions will be litigated through 51 different federal district courts. These 51 cases will likely be decided in multiple ways-some upholding the state, some overturning the state and little chance of regulatory and legal harmony among them at the end of the day. These 51 district court cases are likely to be heard by 12 Federal Courts of Appeals—do we expect they will all rule similarly? If not, we will eventually be back in the Supreme Court of the United States to resolve any conflicts—the same Court that vacated our excessively permissive unbundling regime in 1999. This process will take many years and will hardly be the quieting and stabilizing regime that was so craved by a rocky market.

I also believe that under this decision there will be other negative consequences for the economy. I fear we will see more job loss as carriers cut their capital expenditures and refuse to move forward with new investment and growth against this Picasso-esque regulatory backdrop. I can only imagine how a business plan gets written by a CLEC hoping to enter the local market, not knowing now and not likely to know for years what they will ultimately be entitled to and for how long."

The chaos so far
State governments are already beseiged by Bell lobbyists trying to pre-empt any decision by state regulators by asking the state legislatures to end competition immediately. In Missouri, a bill has passed the house and is currently stalled in the senate that would deregulate broadband completely. A similar bill may stall in Texas, but only because lawmakers feel the FCC has already handed everything over to the Bells.

If the "States' Rights" contingent succeed in establishing a general reinterpritation of the commerce clause, we would have a different set of rules in each state. Surely that is undesirable—even unthinkable? Well, guess what? That is exactly what is about to happen to the broadband market in the United States.

If your livelihood involves broadband, it's time to revisit a piece of modern American folk wisdom: it sucks to be a guinea pig.

— End