A Personal Reflection on the FCC’s USF/ICC Reform Order

A Personal Reflection On The FCC’s USF/ICC Reform

Yesterday, the FCC approved an Order addressing about 10 years of accumulated undone work in the telecom world and at least starting work on the more serious issues – such as interconnection for IP-based services – that will govern the next ten years. I have, no surprise, plenty of personal opinion about the substance and I expect that when the Order is published I will have my share of things to say and that some of them will be quite scathing, skeptical and snarky. Nevertheless, it is important to pause first and reflect on why yesterday’s vote represents a real accomplishment for Genachowski and the Commission. Similarly, it is important to appreciate the context of the Order and the limitations on the agency imposed by law.

None of this negates the very real and substantive criticisms that I and others will have – particularly with regard to the self-inflicted wound over the FCC’s legal authority. I have no delusion that hard work and good will somehow transform poor policies into better ones. My appreciation for what the agency did right and its limitations under law do not blind me to the part that political influence plays, nor does it somehow make it more palatable to those who feel that the outcome will make jeopardize their livelihoods or that we missed significant opportunities to do better.

But it is just as poisonous to public policy when we focus only on its flaws and failures as when we excuse them. It is not simply a matter of basic fairness, or that decisionmakers are human beings who do better when praised for what deserves praise. I believe failure to recognize the achievements and limitations of the policy process makes one a less effective advocate and prevents one from seizing opportunities when they arise. This is neither bogus pragmatism that counsels surrender and diminished expectations, nor delusional Pollyannaism that insists we live in the best of all possible worlds. The world is messy and complicated, and policy reflects that.

So, all that said, the accomplishments and context of the Order below . . .

Many of the issues addressed in the Order take on thorny problems that the FCC, Congress, industry and the states struggled with for ten years. This Order address a number of them in real ways and makes an effort to try to rationalize and reframe a whole set of complex and interrelated policies while simultaneously preventing a disastrous transition because every single piece of this relates to every single other piece. Which brings us to accomplishment Number 1.

Genachowski actually produced an Order that took on some of the toughest issues in telecom, He did so in the timetable he committed to, got a unanimous vote, and with the general recognition by most stakeholders that no matter how much they may dislike some elements of the Order or how much of a missed opportunity it is, the Order on balance probably does more good than bad.

It’s a common human failing that when people or institutions do things that we would otherwise like or find impressive, we find lots of reasons to minimize the accomplishment. Point out to any progressive how George W. Bush worked hard to reduce the debt of African nations and fight the spread of AIDs in sub-Saharan Africa and you will get an earful about how he could have either done more or done it better differently or did it for bad reasons or whatever. Point out to a conservative that Obama got Bin Laden, that his Libya strategy worked to remove a dictator without putting US soldiers at risk and at fairly low cost, or that his decision to bail out the auto industry saved GM, and you will get a similar lengthy explanation about how it isn’t true and even if it is it wasn’t really something Obama can take credit for and look at all the other stuff he does wrong anyway.

So as a frequent critique of Genachowski, I shall say this clearly and unambiguously. Getting this thing done is pretty damn impressive. For all the things I don’t like about how this was done, including the emphasis on “industry consensus,” I gotta give credit to Genachowski for digging in and pressing on and getting to the October meeting with an Order that actually takes on major issues and makes some tough calls.

Not a lot of folks thought we would get here, as Commissioner Copps noted in his concurrence. So the fact that we did, and in the time that Genachowski said he would, deserves acknowledgement as a major accomplishment. No doubt others will explain how Genachowski “didn’t really do anything” (as if staff never do most of the work) or lucked out that Congress was distracted with the deficit and debt ceiling fights or “just rubber stamped the industry plan” or any of a long list of reasons why Genachowski shouldn’t get credit for doing all that much.

But the fact remains that Genachowski closed the deal on ICC and USF reform that 3 preceding commissioners (not counting Copps in his brief stint as interim), for whatever reason, couldn’t. Any serious assessment of the Order needs to recognize just how huge an accomplishment that really is.

The Order Makes A Stab At A Rational And Consistent Framework.

Again, it’s too early to tell for sure, but every description of the Order indicates that it tries to take a lot of irrational pieces of our telecom reimbursement system that were designed at different times to address different problems and integrate them into a system that at least pretends to have a rational narrative. One of the biggest problems has been that we have a complex system of how carriers pay each other for traffic that has been designed to try to accomplish a lot of different things such as recover costs while also subsidizing certain actors and technologies that, at the time, had the political clout to win a subsidy. This not only made it difficult to reform any one piece of the system because it implicated every other piece, it also set up a conflict between what the system was explicitly supposed to do (e.g., recover cost) and what it actually did (e.g., subsidize certain favored players). This tension between what intercarrier compensation was supposed to do and what it actually did not only made it difficult to implement real reform (since reform is supposed to move you closer to what the program is supposed to do, which is resisted by those benefiting from what it actually does), it actually encouraged irrational and inconsistent results.

The new framework at least tries to be honest about this, clean up the implicit subsidies and make them explicit. While it may end up working poorly, things have a much better chance of working out to some form of rational and consistent system if what the system is supposed to do and what it actually does aren’t in violent tension.

Can We Talk About IP Interconnection Now Please?

One of the great clichés you hear as a parent is that your rebellious child secretly wants you to be around to provide authority and protection. The same can be said of major telecom and cable companies and the FCC. Much like your rebellious teen, they spend most of their time trash talking the FCC as a complete dorky embarrassment at best and a destructive beast at worst. And whenever they get in a fight over something like consumer protection or being a little too greedy on extracting monopoly rents, AT&T or Comcast will totally stomp around saying “You are soo ruining my life! You don’t want me to invest in my networks or create any jobs! I totally, totally hate you and your stupid command and control socialist agenda!” Then they slam the door of the Portals, stomp off to their PACs, and cry to their Congressional BFFs about how the FCC is so mean and doesn’t understand them and constantly treats them like some rapacious profit maximizing firm with no respect for their customers or competitors instead of the innovators and job creators they so totally are.

But the embarrassing truth is your mega telecom/cable corporation secretly craves the safety and stability of an FCC that can protect them if something really bad starts to go down. Which brings us to IP interconnection. Officially, all the carriers are: “Keep your evil regulating hands off our gloriously unregulated Internet.” But in reality they are all like “But if something went really, really wrong you’d still be here to save our ass, right? Not like we will ever need it, you socialist command-and-control agency that hates freedom you, but if we ever did need you, you’d be here, right?”

Much as I may think the companies deserve to crash and burn if that is where the free market Nirvana takes them, it would kind of suck for the rest of us. And even if this FCC isn’t going to do what I think needs to get done, it does deserve credit for at least getting us going on the conversation.

The Law Requires Their To Be A  Universal Service Fund, And You Don’t Just Turn Off A Payment System That Has Existed Since The 1980s.

A lot of the criticism of undertaking USF reform is actually directed at the continued existence of USF and the intercarrier compensation regime. Critics note that these things drive up costs to consumers (true). They also note that they are structured to favor the telcos and wireline incumbents, to the disadvantage of competitors and would be competitors (also true).

Here’s the problem. Section 254 of the Communications Act requires the FCC to have a Universal Service Fund. Because the telcos had a heavy hand in drafting the statute, they got to stack the deck. The question before the FCC is: “OK, given the statute, what do we do? Go on paying for the network we don’t want anymore or try to figure out how to pay for the network we do want?” “Lets just cancel the USF fund as a total give away to telcos” really not a possible answer. Similarly for ICC, you can’t ignore the fact that the system for ICC compensation exists and that phasing it out takes time. If you think ICC cheats consumers and competitors, having a transition means continuing to funnel money for awhile to the same cheaters.

So I can’t agree with those who want to judge the USF/ICC reform against not having it or what it would be like if we designed from scratch. Instead, let me ask one of my favorite rhetorical question from the Babylonian Talmud: “If one has eaten garlic so that his breath smells, should he eat more garlic so that his breath should go on smelling?” Absolutely the USF and ICC programs are broken, and were structured poorly. So do we refuse to address them, or try to work with what we have? We can debate whether the FCC made the right choices, but it is unfair to blame them for the continued existence of USF and ICC.

Absolutely Guaranteed We Will Have Some Bad Results

Whenever you have a reform this comprehensive and impacting so many industry segments and so many people, I can reasonably predict that the following things will happen to some degree or another:

1. Worthy local providers will lose money, and unworthy companies providing lousy service will keep or receive new funding.

2. Corruption and arbitrage will somehow continue in some cases.

3. Verizon, AT&T, and the other telco incumbents everyone loves to hate will still make money.


As I have said on numerous occasions, life is messy and so is public policy. The question for evaluating the Order and its policy choices is whether, at the end of the day, we have improved things by bringing broadband to folks who otherwise couldn’t get it while at least reducing fraud and minimizing the ability of the telco incumbents to suck up all the money will giving nothing in return. When the Order is published, and even more so when it is implemented, we will have to evaluate how well or how poorly the policies chosen accomplish this. But the fact that there may be isolated cases where change makes things worse, not better, does not make the entire reform effort a failure.


I do not think this is the best USF/ICC reform we could have had. Worse, I think that the biggest barrier to genuinely transformative change is the self-imposed refusal to actually step up and do what the statute requires by defining interconnected VOIP as a Title II service.

But none of that takes away from the basic truth best expressed by Commissioner Copps. Genachowski actually did it, where nobody else before him could. That accomplishment needs to be acknowledged and respected for what it is.

So, Genachowski, Yasher Koach.

[tip hat]

OK, done now. I promise to be snarky again next week.

Stay tuned . . .

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