What Should the Next FCC Do?

Telecom is really more about regulatory posture than technology.  The US is now looking at a change in the FCC Chairmanship and the overall political balance of the body, and so there’s a chance that regulatory policy will shift.  It might even shift sharply.  However, FCC workings are murky so it’s not always easy to say what will happen or to relate realistic chances to what’s being said.

The current FCC, under Wheeler, has been characterized as being “pro-competitive” but that’s actually probably giving him credit for a more consistent, strategic, vision than he actually has exhibited.  The FCC has been pro-OTT, pro-consumer, in mindset but in the latter case the question has always been whether the stances it took were actually beneficial to the consumer in the long run.  Like most bodies in the political world, the FCC was probably responding more to lobbyists than anything else, and policy biases were really more about what lobbyists it listened to most.

Making things even harder, the FCC has been about as polarized as government overall.  The two “Republican” commissioners have opposed what the three “Democratic” ones proposed.  Given the likelihood of knee-jerk opposition, we can’t draw much from how the Republican commissioners voted or what they said.

Then there’s the Trump-versus-Republican problem.  Traditionally, Republicans have supported M&A as being consistent with their pro-business position.  Trump said he would block the TW/AT&T deal, and the FCC Commissioners are appointed by the President.  DoJ policies on anti-trust are also largely driven by the views of the Executive branch, and the now-to-be-Republican Attorney General.

Given all the uncertainty, any prediction here could be a waste of time, but I think there are at least a couple points that might emerge as new policy, and they could have a major impact.

The most important point is that the Internet and OTT community favored, and was favored by, the Democrats while the telcos were more on the Republican side.  Net neutrality policy had shifted rather far in favor of the OTTs, much further than I personally believed was smart.  It would be very reasonable to expect that it would now start to shift back, even in areas where the FCC’s rulings had passed court review.

The two most controversial elements in the FCC neutrality policy were the banning of paid prioritization and settlement for the Internet, and the application of the same neutrality rules to mobile services as to wireline.  I think it’s likely that the new FCC will reverse at least elements of both.

The current FCC policies, to the extent that there’s a systematic foundation for them, are based on the presumption that anything that favors incumbents over startups hurts innovation.  If Netflix had to pay for premium delivery, they might have to increase prices a bit or reduce profits a bit, but it would (so the FCC believes) limit other media-related startups’ ability to raise money because they couldn’t afford the charges, and so wouldn’t be competitive.  If settlement were required, then OTTs would have to pay for traffic to access ISP customers, which could limit OTT growth.

The flip side of this is our current problem with return on infrastructure, a problem that has cut operator spending and reduced equipment vendor revenues.  The telecom industry would be transformed in an instant if the FCC restored paid prioritization (by anyone, consumer or OTT) and required settlement among Internet players to replace the bill-and-keep model.  I’ve said that both prioritization and settlement would net out to be better for the industry, so in my view this shift would be a good thing.

On the mobile side, the challenge we currently face is the transition to 5G.  Our use of mobile devices continues to outrun our infrastructure planning.  5G, if it were done right, would go a long way toward fixing that problem.  Where regulations could impact this is in the doing-it-right part.

Any issues in return on infrastructure will end up slow-rolling infrastructure, and 5G is arguably a very critical transformation.  The most important part of it is its attempt to harmonize infrastructure between mobile and wireless, and that would improve efficiency and also potentially build an alternative to FTTH by uniting fiber and 5G last-football-field technology.

Mobile operators also believe that they face greater risks in capacity exhaustion than wireline operators, due in no small part to the tendency of phone vendors and OTTs to push applications that would expend a lot of capacity.  That risk could be particularly significant facing a 5G transition because if 5G is to obsolete the old model of mobile backhaul, the more we spend now on that area, the more we waste.  Regulations today tend to favor just giving the consumer and the OTT everything.

Where regulatory change could really impact things is in IoT.  In the model of IoT that most people seem to hope for, the “things” are free to be exploited by all, much as the Internet is.  That’s a nice model if you’re not one of those expected to supply the exploited things, but if you are it’s a non-starter.  The telcos would be perhaps the most logical investors in thing-tech (forgetting their notion of everything-on-5G), and if they could frame an IoT proposal that included thing-utility status, it might get approval under the new FCC regime.

The question is whether even a change in policy would help either of these major initiatives.  5G is a 2020-and-beyond phenomenon, and IoT is even further out.  There’s another election in 2020 and if the FCC changed political ownership then, even policy changes made today wouldn’t assure that telcos would invest assuming those policy changes would endure through another transition.

Networking is a long-cycle industry, and that’s a problem in the real world, including the political and regulatory world.  If we want operators to continue to fund broadband, we have to be sure they get an adequate ROI, or at least that we don’t foreclose all the options to achieving that.  We don’t have to use public policy to save the telcos yet, because significant opex reduction is still available.  That won’t change infrastructure much, though.

If we want to see modernized infrastructure, then we have to look to service-revenue drivers to create incremental benefits beyond opex.  That’s where regulatory policy can help, or hurt.  I think that an FCC that was willing to focus “net neutrality” on the original non-discrimination goals and allow the same amount of business experimentation in the connection services as we have in OTT would help us all in the long run.  Listening, FCC?