Wheeler Has Opportunity to Reshape How Communications Industry Is Regulated, Hundt Says

In an interview Friday, Hundt said once Tom Wheeler is confirmed as FCC chairman, he should do something Hundt wasn’t “smart enough” to do when he took over the FCC in November 1993. “The very first thing to do is to decide the order in which decisions are going to be taken,” he said. “What’s the first decision, what’s the second decision, not what am I going to decide but how am I going to order them? ... Either events shape you or you have a little bit of a chance to shape the events.”

Hundt said when he arrived two letters were waiting on his desk, both signed by hundreds of members of Congress. One letter called on the FCC to give small, rural long distance companies a regulatory break and the other said the agency should redo the rate regulation of cable that had just been done. “I walked in, looked at those two letters and said, ‘I guess those are the first two things I have to do,'” he said. Shortly after that Rosston arrived at the FCC to work for him, Hundt noted. “Greg showed up and said, ‘Really, the first thing you need to do is get the spectrum auctions right,'” he said. “Over the course of six months we kind of stumbled into a better priority list and I'm saying it would be better for Tom if he didn’t spend the six months that I spent thrashing around, trying to get a priority list."

Wheeler will also be more effective if he makes clear early on where he is headed on some issues facing the FCC, Hundt said. “Every new chairman either says pretty clearly and pretty explicitly the priorities of his term or he doesn’t say it and everybody interprets his hints and gestures and hiccups and inclinations and then provides explanation for him,” Hundt said. “The vacuum gets filled either by the chair’s own words or by other people say[ing] what they think he means. That always happens to every regulator."

Wheeler has a big job ahead, Hundt said, noting a recent U.N. report placed the U.S ninth in the world in wireless broadband connections, 20th in fixed line broadband penetration and 24th in Internet use (http://bit.ly/189csRK). “In the 1990s the United States was No. 1 on everything about the Internet and it has been overtaken by many, many, many countries,” he said. “Why? Well, one answer that we are giving in our essay is we should have stuck with the modern approach and found more ways to have competition drive penetration, period, end of intervention."

Today’s challenges are particularly tough, Hundt told us. “Every chair ought to try to be the greatest chair ever and your opportunity is defined by the situation you inherit,” he said. “You can’t just make up the facts. The situation is what it is. But the situation that Tom and his colleagues ... inherit is dramatic. It’s dramatic because AT&T and Verizon are saying ’time to adopt the laissez-faire approach.’ It’s dramatic because the statistical performance of the United States is not anything to brag about. It’s dramatic because the economy is lackluster and needs the jumpstart of a new knowledge platform. ... It’s dramatic because the [U.S.] Court of Appeals [for the D.C. Circuit] may be saying we don’t know why you exist.”

There’s no shortage of things that Wheeler’s “going to have to do relating directly to competition policy,” Rosston told us. “One of the biggest things, I think, is the incentive auction to get more spectrum out there, and having the auction work and get broadcasters to come to the table is really important, but it’s not just sufficient to hold the auction and have some spectrum go. You have to have a lot of spectrum and you have to have a competitive wireless marketplace."

"We believe the laissez-faire stance suits some markets on occasion,” the paper argues (http://stanford.io/14PxjZY). “It may be ideal, for instance, in nascent or rapidly changing markets when technological roadmaps are unclear and bottlenecks are hard to create.” Under the law, the FCC has been given a role it cannot avoid, the paper contends. “Congress counts on the FCC to use its historical experience, technical skills, and good culture in constant pursuit of the ultimate objective: make sure America, and the world, has the best ICT [information and communications technology] platform imaginable. As a result, in some cases where the FCC lets the market work, bottlenecks and exercises of market power may develop as technology changes. In those cases, it may be beneficial for the FCC to step in with new, pro-competitive rules to ensure consumers benefit to the extent possible."

Hundt and Rosston see the FCC’s history as breaking down into three periods, starting with the classic period when the agency was more of a classic regulator. “Adhering to the classic view, the FCC selected the number of firms for markets: monopoly (AT&T, cable), duopolies (early wireless), or three-firm oligopoly (broadcast networks),” the paper said. “The FCC’s regulations covered end user prices, prices between parties in a supply chain, the nature and quality of service offerings, specific capital expenses, and interconnection to other networks."

In the 1970s, the FCC entered the modern era, the paper said. “In the 1993 budget law ... Congress gave the FCC authority to auction spectrum,” it said. “In doing so, it enabled the FCC to create a multi-firm wireless market, while largely abandoning regulation of the terms and conditions of sale in that industry. The 1996 Telecommunications Act had as its central operating principle the commandment to issue rules that promoted competition and to strike from the books rules that restricted competition.” Under former President George W. Bush the FCC entered a third era, where laissez-faire became the rule of the day, the paper said. Aided by the U.S. Court of Appeals for the D.C. Circuit, “the agency moved to undo many Clinton era regulations prohibiting increased concentration and promoting competitors. Chairman Michael Powell expressly announced that ‘intermodal’ competition existed.” Powell and his successor, Kevin Martin, “seemed to adhere, for the most part, to the laissez faire view,” the paper argues. “Hence, they led the FCC to abandon the unbundling rules for the telephone network, approve most mergers, and remove spectrum caps."

The paper lists what Hundt and Rosston see as Wheeler’s top six priorities as he takes over the FCC: “(1) Addressing the Open Internet order; (2) Ensuring a competitive broadband market that benefits consumers, including new services, and privacy; (3) Fulfilling its role to maximize the value of the spectrum resource (including the role of satellites); (4) Monitoring the transition to IP networks; (5) Determining the role of government in negotiations between content and multi-channel video distribution providers; and (6) Reviewing mergers in conjunction with the antitrust agencies.”