Obama FCC’s Second Term Telecom Agenda Likely to Be Dominated by Spectrum, USF Reform

Upcoming oral argument at the U.S. Court of Appeals for the D.C. Circuit on carriers’ challenge to the December 2010 net neutrality order loom large. If the rules are overturned in a decision in Verizon v. FCC, the next chairman of the FCC will have to decide what to do next and whether to reignite the massive fight that led to approval of the net neutrality order the first time around.

"There’s a certain set of issues where the table is already set. The second-term FCC is going to have to deal with them regardless,” said telecom lawyer John Nakahata of Wiltshire Grannis, chief of staff under former FCC Chairman William Kennard. “You've got continued implementation of USF and [intercarrier comp] reform. You've got incentive auctions. You've got FirstNet and first responder interoperable broadband issues. And you probably have net neutrality depending on what the court does. Those are four big issues that are already on the table or waiting to come back on the table with the second-term chairman not really having a choice on the matter."

Beyond the core issues, most observers agree AT&T and Verizon Wireless are more likely to face regulation designed to help other carriers stay competitive under an Obama FCC. A few larger mergers and acquisitions were possible if Mitt Romney was elected, but harder to complete under Obama, industry and government officials we interviewed agree. Then there are several issues already before the agency where a Democratic FCC is widely considered more likely to impose new regulation.

One example is a proposed mandate requiring all devices built for lower 700 MHz spectrum to work across the band. Genachowski has urged an industry-negotiated solution, but warned the FCC might impose rules if an agreement isn’t reached. Republican commissioners have historically been less than enthusiastic about such mandates. While many small carrier officials are Republicans, they have long conceded an Obama win was better for their side on that one discrete issue. “It’s becoming increasingly obvious that Lower 700 MHz LTE deployments in the US are stalled, and we have been waiting for the FCC to take some clarifying action on this issue,” a spokeswoman for the Interoperability Alliance said Thursday. “We are hopeful that the commission will get this done by the end of the year to the benefit of consumers, the 700 MHz ecosystem and the U.S. economy."

"The interoperability issue has been before the commission for more than three years and a clear solution has been teed up for almost a year now,” said a competitive carrier executive. “Unfortunately, with each passing day it seems less likely that this chairman will resolve the issue. I believe the commission will eventually restore interoperability in the lower 700 MHz band, but it’s anyone’s guess which chairman will get credit for it."

Another issue several mentioned is spectrum sharing, as an alternative to clearing, which has been embraced by the Obama administration while viewed with skepticism by many Republicans (CD June 25 p1). An area likely to face regulation, FCC officials say, is some kind of backup power requirement, even though it’s unclear that such a requirement would have made much of difference following superstorm Sandy. “I think they're going to need to show some regulatory victory after the storm,” an agency official said Thursday. “I think there’s going to be a lot of political pressure to do something.” Genachowski also appears committed to push through a text-to-911 mandate over possible Republican reservations depending on how the order is written, two officials said.

Guggenheim analyst Paul Gallant said M&A faces a “more difficult” environment with an Obama win. “Potential deals like DirecTV-Dish, Sprint/T-Mobile, and AT&T-Dish are very close calls and will face a somewhat higher regulatory hurdle under Obama,” he wrote. “For deals that do get approved, companies will probably need to accept more extensive (and expensive) concessions.”

The possibility of Title II classification of IP services “still hangs out there,” said Michael Santorelli, director of New York Law School’s Advanced Communications Law & Policy Institute. Santorelli expects “external forces,” such as potential unfavorable court cases striking down the commission’s net neutrality order, will dictate the commission’s Title II agenda in Obama’s second term. A lot of people think the net neutrality order doesn’t have a good chance of surviving on appeal, he said. If the court strikes down the order, the commission might selectively implement some of the Title II regulations onto broadband, or classify broadband as a Title II service, he said. The net neutrality case, and other cases working their way through the courts, could call into question the FCC’s authority in an IP world, he said. “That could lead to a crossroads, perhaps, for the FCC, in terms of its role in the world."

The focus at the FCC during Obama’s second term will be on spectrum and incentive auctions, and in getting more infrastructure built throughout the country, a telecom official said. “The National Broadband Plan is a Julius document.” Reforming the USF and intercarrier compensation rules in 2011 was a fundamental step toward reforming the system overall, he said. “Julius’s people are thinking about this the right way."

"The general perception, and my own perception, is that the election is going to result in a general sense of staying of the course,” said Genny Morelli, president of the Independent Telephone and Telecommunications Alliance. “I don’t expect that there are going to be any major changes in the way the FCC regulates the communications industry as a result of the election, and that I think will hold regardless of whether Chairman Genachowski remains chairman.” That the administration is not changing -- and so there won’t immediately need to be a new chairman, and its partisan composition won’t change -- is “definitely a factor” and could result in FCC being able to make decisions on important pending issues more expeditiously than they would otherwise, she said. “There’s something to be said for the continuity and the fact that the omission doesn’t need to take a time out, and doesn’t lose any steps in moving forward on initiatives that are already underway."

Free State Foundation President Randolph May is hopeful the FCC will back away from regulation where possible. “Realistically, your first instinct might be to think nothing much has changed and the FCC will simply continue along its present course with its somewhat pro-regulatory bent,” May said. “That may be what happens. But communications policy was not really a campaign issue at all in the presidential or congressional elections, so in that sense, the election did not serve to box in the commission one way or another or create any mandates.” So he hopes with increasing competition “obvious to all, the commission majority will recognize they have the flexibility to move forward to relax existing regulations, even if this relaxation occurs at a slower pace than it would with a Republican majority,” May said. “And President Obama could get some credit if his FCC got rid of some legacy regulations that most people agree no longer make sense."

"The big, remaining going-forward uncertainty is court review of the Open Internet order, which could determine the boundaries of the FCC’s broadband regulatory authority,” said Scott Cleland, chairman of NetCompetition, by email. “The FCC wildcard not on people’s radar screens is the immediate and dominant political issue of addressing the ‘fiscal cliff’ facing the nation. There will be exceptional political demand for ’score-able’ revenues, and more sale of the Government’s vast spectrum hoard is among the easiest and most bipartisan potential revenue sources to lower the deficit."

Minority Media and Telecommunications Council Executive Director David Honig said the FCC continues to face pressures not to regulate where possible. “The administration still has to worry about holding the White House in 2016, and with trying to pick up seats in Congress in 2014,” Honig said. But he predicted the commission could take on some of the issues key to MMTC with some of the big issues out of the way. “There’s another, much more mundane factor that could in theory result in more regulatory, or deregulatory, activity: the agency’s successful completion of its largest docketed proceedings over the past four years,” he said. “The commission may now find it possible to dive into its very deep backlog of proposals that impact diversity.”