It's Nice WhenThe FCC Listens — Sorta. Why I like The Proposed Resolution Of Comcast's Complaint Against Verizon But Why Some Of It Makes Me Uneasy.

Back in February, I blogged about Comcast’s complaint against Verizon for its “retention marketing” practices. That’s Verizon’s practice that, when they get a request from another carrier to terminate voice service and transfer the phone number of a customer who is switching from Verizon (a practice called “porting” the number), they make one last run at trying to persuade the customer to stay. At the time, I observed (as I have for well over a year now, since I first made this argument at the at the Federal Trade Commission’s 2007 workshop), that if we are going to rely on competition, then we cannot have rules that privilege one side over another. To cancel video service, you have to call the cable operator, who then gets a last chance to pitch you hard to stay and makes it as difficult as possible to terminate service. But to change telephone provider, the cable company can ask the telco provider and the telco provider isn’t allowed to try to keep the customer — but must wait to pitch the customer until after the customer has already switched. That’s crazy. It needs to be consistent, or it puts the telcos at a serious disadvantage against the cable cos.

Well, back in April, the Enforcement Bureau issued a recommended decision that adopts this same argument. (I’ve been a shade busy, or would have blogged on this earlier.) It strongly recommends that the Commission commence a notice of proposed rulemaking designed to harmonize the rules for switching video and voice. No surprise, as this also tracks a Verizon Petition for Declaratory Ruling — as noted by the Bureau in a footnote.

Needless to say, I wholeheartedly approve of such harmonization, having supported this approach for well over a year. So why does the recommendation make me uneasy?

Because of the legal reasoning around the facts of the instant complaint. The Bureau recommends a finding of no violation because number porting is not a Title II telecom service and cable providers offering voice over IP (VOIP) are not providing Title II services. Which means that the FCC can flit back and forth between Title I and Title II at will, depending on its policy needs of the moment. It also means that Title II telecommunications service has now been reduced to only the voice component of plain old telephone service. And even critical elements of POTS, like managing the phone number systems, no longer count as telecommunication services under Title II.

I’m even more queasy about this because it is probably right under the enormous deference shown to FCC definitional hair splitting thanks to the combination of the Brand X decision and the D.C. Circuit’s decision on CALEA in ACE v. FCC. Well, Scalia warned the Brand X majority, but they didn’t listen. And Michael Powell, by trying to put broadband services beyond the reach of FCC regulation, ended up enormously expanding the power of the FCC to regulate services on a whim.

More on what I’m talking about and what this means for the future (if adopted by the Commission) below . . .

A few points I should emphasize. First, I wholeheartedly support the idea of doing a NPRM that will harmonize the market retention practices for voice, video and data. Mind you, I nderstand why voice competitors such as Vonage don’t want telcos to use number porting requests (which are critical to moving phone numbers, which is important in overcoming the switching cost) to go after newly acquired customers. From the perspective of a Vonage, it is damn hard to get a customer to switch in the first place, to give the incumbent one more chance to keep that customer because of an unavoidable porting request is one more barrier in an already nearly impossible market.

At the same time, however, we cannot ignore that the current set up radically favors the cable cos in the cable v. telco war. And for the same reason. We make it much easier for a customer to drop the ILEC voice than the incumbent cable video provider because the customer terminating ILEC voice can do so by signing on with the cable company making the pitch. But the customer moving to ILEC video or data must call the cable op to terminate service, giving the cable op both new opportunities to re-acquire the customer and opportunities to make it difficult for the subscriber to quit. Just needing to stay on the phone for ten minutes to terminate service may dissuade a customer that wants to susbcribe to ILEC video.

So we need to harmonize the rules for switching. Either everyone can request through third parties (the voice rule) or the customer must terminate service him/herself (the video rule). Otherwise, we massively favor one set of competitors over the other, and our reliance on competition in place of regulation is even more pathetic and unworkable. To quote one of my favorite Dilbert strips: “If this is my one benefit, I want a lot of sand.”

Second, the current pending complaint by Comcast against Verizon is a closed proceeding. Only the actual party participants can file things, and no going in to talk to Commissioners or staff about the proceeding (which is why staff recommend a Notice of Proposed Rulemaking for the bigger picture issue). That was the choice of Comcast and the cable cos, who opted to file the comlaint in the FCC’s “fast track” docket. Now that they’ve lost at the staff level, they want the FCC to make this a “permit but disclose” proceeding where folks can go in and talk to the staff and Commissioners provided they file an ex parte afterwards. Needless to say, the Verizon folks argue that the cable guys can’t change the rules in the middle, rules are rules, etc., etc.

Like the current Democratic debate over seating Michigan and Florida delegates, I have mixed feelings. OTOH, I’d like to get my input into the record. OTOH, I have zero tolerance for letting big companies change the rules in mid-proceeding just because that would favor them. Comcast & co. made the strategic choice to file in the fast track docket; they should have to live with those consequences the same way some poor shlub or small business would have to live with it.

All that said, on to the main point.

The Rise of the Information Service Definition

Susan Crawford gives this excellent summary of the information services v. telecomunications services dichotomy and why it matters. We in the legal trade sometimes call this “Title I” (information services) v. “Title II” (telecommunications services), based on what Title of the Communications Act of 1934 you find these things. You can also find more background in my old but still servicable network neutrality primer.

The important legal takeaway from the background is that if you can defne something as “telecommunication service,” it has certain rights (such as interconnection with other networks) and certain obligations (such as interconnection). In information services, you have no set rights and no set obligations, although the FCC can impose either rights or obligations under it Title I “ancillary jursidiction.” And, from the FCC’s perspective, the ideal world lets you jump back and forth between Title I and Title II depending on the policy objective — rather than having statutory definitions that clearly define what gets put in what box. (This was one of the points in Scalia’s dissent in the Brand X case. Policy outcomes should be irrelevant to statutory definitions rather than drive statutory definitions.)

But under the existing case law, the FCC now has tremendous leeway in defining what services go into what boxes. We can praise/blame former FCC Chair Michael Powell for empowering the FCC to play the definitional shufflelike this. As in all such cases, the result is likely to be the exact opposite of what he intended — a lesson I expect all of the “deregulate to avoid unintended consequences” folks to ignore. See, Powell wanted to do more than deregulate broadband, he wanted to make it as hard to regulate as possible. That meant puting broadband access into Title I. But how to reconcile the fact that, at heart, internet access is basically about moving bits from one place to another — the classic definition of a telecommunications service?

Meanwhile, Powell had another problem. The Department of Justice adamantly wanted broadband access classiifed as a Title II telecom service, so that it could apply CALEA. CALEA (Communications Assistance to Law Enforcement Act) requires telecommunications providers to make their networks monitorable by law enforcement. CALEA explicitly exempts “information services,” so if broadband access were an “information service” it would remove broadband networks from CALEA jurisdicition. So how could Powell achieve his deregulatory goals while keeping DOJ happy?

The answer was a brilliant bit of legal hairsplitting and technobabble. In the cable modem broadband declaratory ruling, the FCC found that broadband access is an information service, but that it is provided through a “telecommunications component.” Because cable operators didn’t offer plain vanilla transport but insisted on bundling it with their own DNS (and, in theory, other things), and because the statutory definition of “telecommunications service” hinges on the nature of the offer to the public, the sale of broadband access was an information service. But, because the broadband access providers used a telecommunications component for the actual transport of bits, they could be classed as “telecommunications carriers” for purposes of CALEA.

In other words, although the two pieces — the offer and the underlying telecommunications component — are inextricably linked, the FCC can treat them separately depending on the regulatory context. It can peel away the features associated with the provision of a service and treat them as wholly separate from the actual transport function. And, when necessary, it can go after the telecom core and treat it as a Title II telecom service.

The Courts Go Along, Politics Confirm

Read this way, it sounds like an amazingly complex and Byzantine scheme by first Michael Powell and then Kevin Martin to manipulate the law and create a flexibility that violates the will of Congress. Except that it wasn’t nearly that organized. It grew from the needs of the moment and two significant court opinions. In Brand X, the Supreme Court said the FCC had discretion to classify broadband as an information service because courts should defer to the expert agency’s technobabble. In American Council on Education v. FCC, the D.C. Circuit said it was O.K., for the FCC to split the telecommunications element from the information service element based on context, because the Communications Act addresses consumers and CALEA regulates carriers using telecom.

Meanwhile, the FCC was busy using its Title I ancillary power to achieve what it should have achieved through Title II, imposing popular regulations where politically required while declining to regulate when politically convenient. Thus, VOIP providers, despite being information services, got tagged for E911 obligations. Cable operators got the FCC to require that telcos terminate VOIP calls as if they were teelcommunications services over telecommunications networks. But the FCC declined to adopt specific non-discrimination rules, preferring to rely on its broadband policy statement.

Some would argue that this flexibility represents the best of all worlds. The expert agency has the flexibility to do what it wants based on its analysis of the best policy outcome. Others, however, would argue that this puts an awful lot of power in the hands of the FCC and circumvents the whole point of Congress defining different services in the first place. Congress, however, loved it. It took the pressure off to make hard decisions (which, sadly these days, too many in Congress view as resolving industry food fights while pretending to care about the public interest — but I have hopes that this attitude is changing). So the only people with the power to reign in the FCC while it was stumbling toward transforming statutory definitions into a policy tool not only had no incentive to stop the transformation, they had every reason to acquiesce.

The Bureau Decision And Where We Are Now

Which brings us to the proposed Enforcement Bureau resolution to the cable complaint against Verizon for retention marketing. The cable cos complained that Verizon violated the rules on customer premise network information (CPNI). CPNI is information that a customer must provide for the telecommunications network to actually work. For example, your name, address, and what services you want to buy. Back in the day when Congress saw its job as protecting people from being exploited rather than “facilitating business opportunities,” Congress included a provision that absolutely prevents carriers from using CPNI for marketing purposes. It has the same rule for any information that a “telecommunication carrier” provides for purposes of making a telecommunications service work.

The Enforcement Bureau reasoned that, despite the fact that regulation of phone numbers and the mandate to do number portability is found in Title II, a request from a competing carrier to port a number does not fall under the CPNI rules because porting a phone number is not a “telecommunications service.” Instead, the process of a carrier requesting a number port and the subsequent number port is an ancillary “information service” separate from the actual telecommunications service (i.e., providing the phone service impacted by the number port). Accordingly, Verizon can use the information in the same way any information service provider can use whatever info it collects.

On the surface, the idea that number portability is an information service rather than a Title II telecommunications service is ludicrous. The goddam statute requiring portability is in Title II. More generally, regulating the use of phone numbers has always been regarded as a critical aspect of the FCC’s regulation of telephone service, the archetypal Title II telecommunications service.

But the scary thing is that, from a legal perspective, this actually makes perfect sense. It is the logical culmination of the reasoning in Brand X and ACE, which allows the FCC to slice and dice the functionalities and focuse exclusively on the nature of the service offered. It is no more silly to regard number portability as a discrete and separate service in the same way that broadband access sold to consumers is a discrete and separate service from the actual transport of IP packets from one place to another. That it is impossible to provide one service without the other is, under Brand X, not a matter of any consequence, since the only relevant aspect is what a provider chooses to offer to a consumer. Nor does this prevent the FCC from ordering number portability for VOIP, depite the fact that it is now ancillary to ancillary, since in that context we are concerned about the telecommunications component and can regulate the carrier as a telecommunications carrier.

I can’t say the FCC is doing anything wrong. But it makes me queasy and makes my head hurt — even when I like the overall result.

Stay tuned . . . .

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4 Comments

  1. barry payne says:

    retention marketing = an evolved version of earlier practices associated with forcing customers to use particular long-distance providers via slamming, jamming and cramming, now known as “retain and remain, load-up and lock-in, or surge,secure and hold”, widely touted by major tele and cable carriers as a measure of competition

    number portability = the mobility of one’s personal cyber identity similar to an IP, street or mailing address necessary to conduct communications and business – a form of private property once owned and controlled by individuals on an opt-out basis, only available to others on a consumer sovereignty basis before it died out, widely touted by major tele and cable carriers as a measure of competition

    ratchet deregulation = the stairstep, us-too manipulation of conflated telecommunication services and information services which evolves in one direction as each player blames the other for having a competitive advantage based on a prior regulation, widely touted by major tele and cable carriers as a reason to deregulate everything except their exclusive franchises

  2. JohnMc says:

    Harold, the rules on number portability did not go far enough in my estimation. The rule should have simply stated that the number is the ‘property’ of the consumer. Further any request to port must be acted on within reasonable limits. Way too many cases of slamming occuring though that has improved over time.

    Retention marketing is getting a very bad name. Not much we can do about it I guess.

  3. Harold says:

    Understand, I am not defending retention marketing. I am saying that we either need to have one rule or the other. If we let cable ops create barriers to entry to switching while making it easier to switch voice, we are driving customers to the cable ops.

    If we are counting on competition, we need to have policies that make competition possible. Alternatively, we could have a national policy that did not rely on competition. Talk to me in six months. 🙂

  4. Brett Glass says:

    Since when is a lawyer — one who is, in fact, campaigning for microregulation of ISPs — complaining about legal hairsplitting?

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