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The Open Internet Order’s Authority Grab: Congress Calls the Tune, Not the FCC

Last week, we looked at the false equivalence the FCC engaged in with its mobile voice case study, and disproved the agency’s claims that wireless investment won’t suffer under its Open Internet Order. We now examine how the FCC usurped the policy-setting role of Congress by unilaterally upending the system for regulating mobile services.

Despite the FCC’s repeated attempts to equate or compare the treatment of mobile voice services under Title II and its recent action, it is the role of Congress – not the FCC – to create the regulatory framework for broadband services. The Commission’s role, of course, is to implement Congressional policy as prescribed by law.

By attempting to appropriate the responsibility of the legislative branch, the FCC engaged in yet another effort of laying a regulatory framework on a foundation of sand. It now falls to Congress to remedy this administrative agency overreach to ensure America remains the global leader in wireless.

Congress Prohibited the FCC from Applying Common Carrier Mandates to Mobile Broadband. In 1993, Congress enacted a specific framework that, in essence, divided mobile services into two categories, voice (called CMRS) and everything else, including data services that evolved into today’s mobile broadband (called PMRS). Specifically, under Section 332, Congress directed the FCC to apply a modified Title II regime to mobile voice to ensure that similar voice offerings were treated similarly. At the same time, Congress forbade the agency from applying common carriage regulations to other new and evolving non-voice services offered by the nascent wireless industry.

The concept that the FCC derived from the statute was straightforward: if a service works like telephone service, uses phone numbers and connects to the traditional phone network, it’s CMRS; if a service operates separately from the phone network, or doesn’t use phone numbers or doesn’t connect directly to the phone network, it’s PMRS. For these reasons, wireless broadband has always fallen under PMRS. And in Section 332, Congress stated unambiguously that the FCC “shall not” treat any PMRS provider “as a common carrier for any purpose.”

For years, courts, lawmakers and FCC leadership of all political affiliations recognized that under this structure, mobile broadband was free – always and forever, unless Congress acted – from Title II regulations. Four years ago, before Chairman Wheeler joined the Commission, he noted in his blog that common carrier regulation is “unavailable in the wireless arena, because Section 332 of the Communications prohibits its imposition on wireless carriers.” The D.C. Circuit Court of Appeals confirmed this reading when it overturned the Commission’s 2010 attempt at instituting Open Internet rules, emphasizing that “treatment of mobile broadband providers as common carriers would violate” the Act.

Rewriting Legislation and Reversing Decades of Precedent. The Open Internet Order departs from this shared understanding, concluding – contrary to more than two decades of its own precedent – that mobile broadband is a CMRS service, and places mobile broadband under Title II’s thumb for the first time. To do so, the FCC took a relatively straightforward statute and its own implementing regulations, and insisted on a startling and byzantine reversal.

To wit, in order to achieve its desired outcome, the FCC had to reverse its own decision on the classification of mobile broadband as a PMRS service, determine that mobile broadband interconnects with the traditional phone system and radically alter its own definition of the public switched network.

In doing so, the FCC concluded that although the language of Section 332 had not changed since 1993, somehow the meaning of those words has changed. Where once – so the FCC told us – those words meant that a service had to use phone numbers and connect to the traditional phone network to be CMRS, now those very same words mean that a web address is the same as a phone number and the Internet is the same thing as the phone network. To add insult to injury, the FCC never suggested that it was proposing to radically re-write these definitions when it initiated the Open Internet rulemaking in 2014, thus violating the Administrative Procedure Act.

Perhaps cognizant of these shortcomings, the FCC concludes, “[i]n the alternative,” that mobile broadband is the “functional equivalent” of a CMRS service just in case mobile broadband actually “falls outside the definition” of CMRS.   That is to say, the service that allows you to stream a movie or play a multiplayer video game or download a book (like, say, George Orwell’s 1984) is the “functional equivalent” of a service that allows you to make a phone call but not much else.

Such twisted and pained legal contriving stems from the difficulty in placing a square peg – mobile broadband service – in a round hole – the CMRS definition provided by Congress. And recall this is all in addition to the FCC’s equally unconvincing effort to ignore decades of understanding of the distinction between information services and telecommunications services.

Only Congress Can Create a “Modern” Mobile Broadband Policy. In 1993, Congress, acting pursuant to its constitutionally granted authority, gave the FCC a framework for the regulation of mobile services – a point which even the Order recognizesPDF: “In 1993, Congress established a new regulatory framework for CMRS ….”; “Congress prescribed the standard ….”. It was Congress, not the FCC, that set the guideposts and established the regulatory regime. And Congress was clear that the FCC should apply a modified common carrier treatment only to mobile offerings that mimic traditional voice service, while leaving other wireless services unregulated.

Yet the FCC’s Open Internet Order transforms this unmistakable directive and turns it upside down. The purpose of the bifurcated structure Congress enacted over 20 years ago in Section 332 was to free wireless voice from old regulatory yokes and “foster the growth and development of mobile services that, by their nature, operate without regard to state lines as an integral part of the national telecommunications infrastructure ….”[1] For the FCC to take it upon itself to invert that framework in 2015 to meet its own desired outcome represents a fundamental overreach of a regulatory agency’s authority.

It is axiomatic that the Commission cannot simply act to undo or ignore what Congress enacted into law. While the Order may find it convenient to do so, we are confident that Congress – or the courts – will negate the FCC’s commandeering of such broad policymaking authority.

Further, because the FCC turned the legislative process on its head and ignored the direct guidance of Congress on how to regulate services like mobile broadband, it is entirely inappropriate for the FCC to compare the results of a congressionally approved regulatory approach with one the FCC creates on its own. Congress deregulated mobile service using certain tools and erected significant roadblocks to additional federal or state regulation. It was a system designed for a limited government role demanding regulatory humility from regulators.

Here, the FCC regulates a service for the first time based on a classification of its own making, a regulatory scheme of its own design, with no appreciable limits beyond the one’s arbitrarily set by the Commission itself. What did or did not happen for mobile voice is of little predictive value. It would be hard to imagine a more self-evident example of a federal agency usurping the role of Congress.

Congress Can and Should Correct the FCC Misstep. The Order ignores Congressional intent and the language of the law, as well as years of bipartisan precedent that consistently found no ambiguity in the approach that lawmakers set forth under Section 332. Now is the time for Congress to correct the FCC’s misstep, set ground rules that preserve an open Internet, and usher in a new generation of investment in America’s wireless networks without stifling 20th century public utility regulation.

[1] H.R. Rep. No. 103-111, at 260 (1993), reprinted in 1993 U.S.C.C.A.N. 378, 587

Mobile Voice: The FCC’s Investment Sleight of Hand

Earlier this week, we pointed out how the FCC’s use of the mobile voice “case study” for regulating wireless broadband incorrectly assumes that the investment undertaken by wireless carriers in their wireless voice services is evidence that heavy-handed Title II regulation will spark the same investment for mobile broadband. Let’s dig a little deeper into why this analogy is wrong.

* * *

The FCC, in an attempt to show that an intrusive Title II regulatory approach will not harm investment, engages in revisionist history. Specifically, the Open Internet Order points to the modified Title II approach that Congress instructed the FCC to apply to mobile voice as purported evidence that the application of Title II to all forms of broadband “will not impede investmentPDF.”

This claim is simply not borne out of by the facts. The investment data – corroborated by any awareness of carriers’ marketing campaigns – show otherwise. The focus of wireless carriers’ investment and competition strategies has been on the heretofore unregulated market for mobile broadband networks, speed, and coverage, with less emphasis on the regulated voice market. It’s a fairly simple and intuitive construct: the deregulated market attracts more investment, the regulated market attracts less.

Thus, the light-touch Title II approach for mobile voice, which Congress authorized at the same time as a blanket deregulation of what became mobile broadband, cannot and should not be used to justify applying public utility-style regulations to mobile broadband. The deregulatory treatment afforded to mobile voice and data in 1993, and confirmed by the Telecommunications Act of 1996, showed Congress providing incentives for more investment by moving away from greater government control of wireless. The FCC’s Order reverses course, an abrupt and discouraging signal to investors.

The data show that mobile broadband drives investment in wireless networks. Claims that wireless carriers made huge investments in their networks under a Title II regulatory scheme over the past 15 years are simply false. An examination of the data surrounding mobile investment over the past fifteen years shows that carriers invested heavily in mobile broadband, and less so in mobile voice.

A brief look at the numbers:

  • From 1992 to 2002, when cellular licenses converted from analog voice to 2G digital technology, carriers invested $138.8 billion.
  • But from 2003 to 2013, carriers invested $284 billion with the introduction and rapid deployment of 3G and 4G mobile broadband networks.
  • As a comparison, using constant 2013 dollars, those figures are $193.3 billion and $314.5 billion respectively.
  • In the past decade, carriers invested $260 billion in their networks, and another $90 billion purchasing spectrum at auctions.

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Yet the Commission nevertheless points to the wireless industry’s $400 billion in investment in the past two decades as evidence that a “modernized Title II regulation can support investment and competitionPDF.” Left unsaid of course is that mobile broadband – unlike mobile voice – has never been regulated under Title II.

That distinction is critical because this massive investment in wireless networks was primarily made to handle mobile broadband traffic. As Commissioner O’RiellyPDF explained, any claim that mobile companies were investing “for the sake of voice service … is plainly not the case.” Similarly, Commissioner Pai pointed out that since the introduction of smartphones in 2007, “mobile broadband investment is what is driving tremendous benefits that wireless consumers have been seeing in recent years.”

The mobile broadband proof is in the advertising pudding. If more evidence is needed, just turn on a TV or open a newspaper. Chances are you’ll see ads from wireless carriers, for smartphones. You’ll see maps of 4G/LTE coverage. You’ll see innovative new features and services that benefit consumers. You’ll see words like “fastest,” “newest,” and “most reliable,” boasting about carriers’ wireless Internet services and urging consumers to switch providers.

These advertisements show wireless carriers competing not on voice but on their mobile broadband networks, offerings, and technologies. In fact, mobile telecom is only behind the massive retail and automotive sectors in its advertising spend, with a total of $9.4 billion in 2013.

The FCC’s inapt comparison of mobile broadband to static voice service misses the mark.  A mobile broadband network is always evolving, with revision upon revision in a given generation of technology, constant optimization, and never-ending upgrades. Those improvements require capital spending, and lots of it.

Yet with its “case study,” the FCC attempts to equate the experience of the regulatory structure created by Congress in 1993 for static mobile voice services with that of the dynamic – and lightly regulated – wireless Internet offerings of 2015. In doing so, the Commission chose to engage in obfuscation, rather any sustainable analytical study. That’s hardly the hallmark of a data-driven agency.

Unfortunately, consumers will pay the price in the end, as they have in Europe, which provides a more accurate case study for the impact that Title II will have on mobile broadband service and investment. For instance, in 2011-2012, U.S. carriers invested $55 billion while European operators invested only about half as much.

Of course, the wireless industry will continue to invest, but the uncertainty generated by the FCC’s action means there will be less investment. And that’s no illusion.

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