What happens to your members and your task in Congress if the Senate flips this fall?
What we've seen is a Republican party — in the 1980s and 1990s that was pro-competition — grow increasingly captured by the incumbents. So we're going to have to remind them of their historical roots and principles. Being on the side of competition really is consistent with their free-market views.
The other political reality is that members of Congress of both parties will operate in what they believe is in their political self-interest. This is one objective of COMPTEL: We have to create a large enough association and a diverse enough group that covers everything from Internet companies to Google Fiber, the new networks to the competitive business providers, to all the wireless companies, to international companies that are new entrants into the American market, to the regional and rural companies that also feel threatened by the very large megacompanies of Comcast, Verizon and AT&T.
That large coalition across all networks, politically, can begin to get Republican and bipartisan support. If you look at "Braveheart," they were going to take on the king, and the only way they could take on the king was to unite the tribes. What COMPTEL's doing is, we're uniting the tribes so we can take on the king.
FCC Chairman Tom Wheeler is getting serious about competition policy. Meanwhile, Congress wants to revise the Telecommunications Act of 1996. To what extent can competition be adequately served by the FCC taking action, versus a Telecom Act rewrite?
We would argue that the '96 act is flexible enough to change the rules. If Wheeler can promote new technologies like Google Fiber and licensed and unlicensed spectrum, we can begin bypassing the bottlenecks or the barriers that create failed or non-functioning markets. The '96 act gives Tom Wheeler all the authority he needs to do all of those things. He can do all those things to achieve competitive objectives without a rewrite. What a rewrite could do though: You do have an FCC structure that is based on the old silos of broadcast, cable, wireless, common carriage — so there could be structural FCC reform that would make it a more modern FCC.
Are we talking about eliminating those silos?
Tom Wheeler, in a speech earlier in the year, talked about 'Do you need the difference between Title II, III and VI' — which is wireline, wireless and cable. Could you be more efficient if you combined them and looked at a smarter way for the FCC to function?
Do you get the sense that that idea is gaining traction?
You could have bipartisan competitive-incumbent consensus around a number of FCC reforms. You could have bipartisan consensus on removal of local barriers to entry, greater access to local infrastructure. [Writing] the '96 act, we tried to do that. Where we never really achieved our objective was in the last-mile local network. If you followed Wheeler's speech at 1776, he said 85 percent of America has a choice of two carriers — at best — at slow speeds [in fixed broadband].
It's kind of ironic; we're 30 years after the breakup of AT&T. For 50 years, from 1934 to 1984, we had one network, one technology — copper — and one phone. Fifty years. We break up AT&T, and within five years, everything is fiber in long distance, the Internet backbone, the whole information-age infrastructure is built in five years.
The '96 act drove down the cost dramatically of connecting wireless to wireline and drove up dramatically consumer use. And in 20 years you get four deployments of major networks in wireless, all because you got competition. Where's the only place you don't have it? It's in the last mile.
With the rewrite, another component that could get broad consensus is video reform. Retrans reform.
We've discussed some of the things you'd want changed about the act. What needs to be preserved?
Competitive interconnection — that you have data roaming between wireless networks, you have the ability of a competitive carrier to connect to an incumbent, at a market rate. You cannot have functioning markets without competitive interconnection. If you have interconnection at monopoly rents versus at market rates, that can be a barrier — here you're getting into the issues a little bit on Netflix and the edge and interconnection. [Large broadband providers are trying to] monetize the interconnection in a way that has never been done in Internet history. It's always been settlement-free and peer-to-peer. [These terms basically mean 'for free.' –Ed.]
So, going back to the act: Maintain competitive interconnection, don't touch open Internet once it's settled, and then the act should be about removing barriers, making the FCC structure modern and smart, and finding new ways of getting new networks out, whether they are wireless or fiber.
Is it going to be a lift to convince lawmakers that certain parts of it should be kept?
The incumbents have been, always will be, from the times of Adam Smith, trying to protect their markets or networks. And the new entrants, the new disruptive models, whether it's Netflix or Google — they will face opposition from the incumbents. The interesting thing is, incumbents will say that they are free-market when they are actually doing everything they can to keep free-market competition from occurring.
It seems like incumbents, by invoking this free-market idea, would be naturally aligned with conservative lawmakers who also promote free-market principles. To what extent can competitive providers pressure lawmakers, particularly Republican members who may feel sympathetic to that argument?
Usually political parties that are in the minority begin representing the new entrants and competitors and the dominant economic incumbents go with whichever party is in power. The incumbents will use whatever language is of the party in power. So when the Democrats had the power, the Bells would say, 'We are the only ones who will give universal, affordable access to the network to all people.' It's a great Democratic principle.
As soon as Republicans came into power, they started saying, 'Do not regulate us. Do not regulate us because we are free-market, and any intervention to make rules is regulation.' Regulation is bad if you're a Republican.
So what is the antidote to that?
The antidote is for — in the [Comcast-Time Warner Cable] merger conditions and in the open Internet and interconnection proceeding, for Wheeler to say, at the edge of the network, you'll have bill-and-keep, or settlement-free.
One of the things economists on the other side say to that is, 'Even if you mandate free peering, that's effectively rate regulation because you're setting the price at zero.'
And they would say monopoly rents can actually drive investment.
Economically, historically, if you have no competition — to divert their return back into their network when they have no competition is against the shareholder interest and a non-market model.
If you have competitors… seven wireless companies led to four generations of deployments; you break up AT&T, and then Sprint builds fiber, MCI builds fiber, AT&T has to build fiber, and in five years you've had the greatest explosion in investment that you've ever had.
So you would point to history.
History shows competition always drives investment, protection always drives investment down. That's what my argument would be. If you allow the terminating monopoly, whether it is Comcast, or AT&T or Verizon, if you allow them to start doing something other than settlement-free, it's a sign of a non-functioning, non-competitive market and you'll eventually stifle the new entrants and the new applications and you'll actually stifle investment as well.
Given your work in drafting the '96 act, is the FCC's effort at preempting state barriers to municipal broadband consistent with the intent of the legislation?
Legally, it could go either way. It's a close call. There are precedents on both sides of the question. One provision of the '96 act was to reform the Public Utility Holding Company Act, PUCA. We reformed that in the '96 act to say utilities — municipal, co-op and investor-owned — could enter into telecommunications. So I think that the intent of the '96 act, by that provision, would favor municipal entry.
Personally, I would prefer to incentivize private investment into local deployments in last-mile and broadband deployments in the local markets. I think it'd be more effective, more efficient.
If the Democrats keep the Senate but Sen. [Jay] Rockefeller is retiring, that makes Sen. Bill Nelson (D-Fla.) the chair of the Commerce Committee. What do we know about him?
I think Nelson will be 1) open Internet — he's sent a good letter on that. That'll be off the table. I actually think Nelson would not likely go into a rewrite, and he would defend the authority of the FCC and you would have policy be made by Wheeler both in his proceedings and in the merger conditions.
If [Sen. John Thune (R-S.D.)] is the chair, you'll have a rewrite effort in the House. The Senate will be slower and because of the rules, will be somewhat more balanced or blocked by filibuster, and if they can get over the filibuster, you have Obama waiting to veto. Whatever happens in the next two years will shape some reform and consensus over these issues within the next four years. So it may not happen by 2016, but some reform will likely begin to emerge over the next three to four years.
And all of this effort on the reform will also be intended to either check Tom Wheeler, or protect Tom Wheeler.
The congressional deadlock now seems like one thing that's different from the last time.
We do not currently have a functioning Congress to create functioning markets.
What other conditions are different now that'll have an impact on what a Telecom Act rewrite looks like?
What happened in '96 is that you had a large group of competing interests, each wanting and standing to gain by changing the old monopoly policies. Everyone thought they could compete and gain marketshare, and you could put a large coalition together for change versus the status quo.
[Today, with the exception of Comcast], which is a bit of a hybrid, everyone in the cable industry, telco industry, competitive industry, Internet and the fiber deployers, would want this. This is something that has usually been bipartisan and consensus-driven. You want to modernize it to be broadband-centered and to be better for education and better for healthcare and better for public safety. You can find a bipartisan consensus on that. Everyone thinks the FCC structure is outdated. So you could get consensus around that. These are things that you could, over a process, politically build a large enough coalition that you can isolate the incumbent in a given market and overcome their opposition, and get a pretty big consensus.
And where do the broadcasters fit in in all of this?
The broadcasters, they could be the odd man out in this. A lot depends on what happens in the incentive auction. If the incentive auction doesn't work, the broadcasters are sitting on a lot of spectrum and they're inefficiently using it.
Even if the auction goes well, you still have X number of broadcasters exiting the market, reducing their power.
That's right. The broadcasters' political power is diminishing as the wireless industry and the ones building the new networks need lower-cost content.
Is there anything broadcasters want that they could get out of this process?
Right now you have Reps. [Fred] Upton and [Greg] Walden protecting them. So you have the old — all the old business models being protected now by the Republicans so AT&T, Verizon, Comcast, and broadcasters are being protected under the guise of 'free market' when, in reality, it is the age-old protectionism of the incumbents. To protect them from free-market competition.
For the broadcasters a win would be, what — keeping things from running too far? If Walden and Upton are so interested in reform and yet they're big defenders of the broadcasters, how does that square?
Republicans are becoming divided on this issue. The old incumbents think they can get future protections. But the thing is, as you go through a process of a rewrite, that may or may not be true. If Google Fiber and C Spire fiber and rural co-ops and regional companies like Centurylink and all their political influence begin to engage on these issues, Republicans are going to begin to break. My job at COMPTEL is, again, to unite the tribes, and then in each of these categories bring in the competitive force to it.
What happened in 1996, which is actually a good outcome, you'll begin to have Republicans on both the incumbent side and the competitive side, and you'll have Democrats on both the incumbent side and the competitive side, and what happens then is you have a negotiating balance of power. That's what happened in '96. And it's what we would be responsible for creating politically, in any rewrite.