Forbearance Redux — Still Easy Peasy

As the groundswell for reclassifying broadband as a Title II telecommunications service grows, the arguments against reclassification have grown increasingly shrill and desperate. Like Democrats frantically emailing supporters to try to hold the Senate, the National Cable Telecommunications Association (NCTA), has been flooding DC radio stations with advertising denouncing public infrastructure and calling for the privatization of our roadways in an effort to whip up anti-Title II sentiment (I notice their newfound embrace of Ayn Rand does not include repeal of poll attachment subsidies). As I’ve noted previously, only inside-the-beltway does anyone think “death to public roads, death to your right to clean water, and lets deregulate energy so we can have the lights flicker when the wind blows” is a winning argument. But panic does things to people . . .

 

Which brings me back to the arguments about “forbearance.” I blogged last July that the FCC can forbear fairly easily from any provisions of the Communications Act it thinks shouldn’t apply to broadband if it reclassifies broadband as Title II. As my employer Public Knowledge has pointed out at length in our official comments, this is neither necessary or good policy. Most of the provisions the anti-Title II crowd point to as potentially crushing the spirit out of Broadband Equestria (“Broadband Is Magic!”) have been effectively deregulated already for traditional telephone service, and other provisions actually support good stuff like Universal Service Fund or privacy rights for consumers. Nevertheless, if the FCC feels the need to indulge in broad forbearance, it has the authority to do so.

 

Needless to say, those invested in portraying reclassification as The Death Of Freedom As We Know It do not take kindly to having their nonsense called out in plain English, with lots of links to the relevant documents. Some folks have therefore devoted some considerable effort in the last few months to explaining why, all cited evidence to the contrary, forbearing from Title II would be Utterly Impossible.

 

So I find myself once again revisiting this topic. Happily, the arguments break down into 2 basic categories:

 

1. None of the precedent I cited applies anymore because of the “Qwest Forbearance.”

 

2. There is something magical and exceptional about broadband that makes it impossible to forbear here where it would be contrary to the interests of the carriers, but forbearance would be easy-peasy in any case where carriers want forbearance.

As I shall explain below, argument #1 relies on a fundamental misunderstanding of how administrative law works (and a failure to read any recent forbearance cases, which address this issue squarely and reject this argument), whereas argument #2 relies on a fundamental (and rather self-serving) misunderstanding of how the forbearance statute works.

 

More below . . .

 

A Crash Course On The Forbearance Statute.

 

Sorry to get all lawyerly, but to understand why the arguments against easy-peasy forbearance fail, we must start with the actual statute. That would be 47 U.S.C. 160. I will shorthand this as “Section 10” primarily because it appears at Section 10 of the Communications Act (codified at 47 United States Code Section 160), but also because we lawyers like to confuse people that way.
Section 10 says the FCC “shall forbear” (which is pretty strong mandatory language) from enforcing any provision of the Communications Act, or regulation under the Communications Act authority, if it finds:

 

(1)  enforcement of such regulation or provision is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;

(2) enforcement of such regulation or provision is not necessary for the protection of consumers; and

(3) forbearance from applying such provision or regulation is consistent with the public interest.

 

In other words, the Forbearance statute gives the agency a basic checklist to apply. At the same time, Section 10 recognizes that the FCC will apply this general checklist in a broad set of dissimilar circumstances ranging from application to a specific carrier in specific markets for a specific service to a broad class of carriers (including “all of them”) and a broad class of services (such as “broadband”). In all of these cases, the FCC must determine how to apply the statutory standard.

 

A Brief Course In Administrative Law and Delegation Doctrine

 

Allow me to illustrate by example from a different provision of the statute. Section 307(a) (47 USC 307) says the FCC “shall grant an application for a station license” if it finds that doing so will serve “the public interest, convenience and necessity.” Likewise Section 310(d) (47 USC 310) says no license can be transferred without a finding by the FCC that the transfer serves “the public interest, convenience and necessity.”

 

The term “public interest, convenience and necessity” means different things depending on context. Having television broadcast licenses, mobile phone licenses and licenses for microwave transmitter links all “serve the public interest, convenience and necessity,” but for different reasons and we use different standards to evaluate them. We don’t ding TV stations because they don’t provide LTE, and we don’t ding mobile phone providers because they fail to provide local programming or prevent them from buying a local newspaper. Why? Because the services are different and attempting to judge them by identical criteria would be mind-bogglingly stupid.

 

The FCC is not alone in this. All Administrative agencies work this way. Congress provides general standards and expects the agencies to implement them based on the facts in front of them. For example, the Federal Trade Commission (FTC) is generally charged with preventing “unfair methods of competition” and “deceptive acts or practices.” (15 USC 45) The Commission applies this very broad standard to target specific behavior that varies by industry and circumstances. A particular advertisement or business method may or may not be “unfair” or “deceptive” based on the specific circumstances and what sort of expectations people have with regard to a particular service or product.

 

Mind you, this doesn’t give agencies total freedom. Under the Administrative Procedure Act, agencies have to justify their decisions, explain why they treat cases differently and, if they decide to change their mind about how to do something, they need to at least acknowledge that “hey, we recognize we used to do this one way, but now we are going to do this a different way.” But the agency isn’t changing its mind or reversing precedent if it says: “We are going to apply the statutory standard in a particular way over here because the way we apply it over in those completely different cases over there is totally inapplicable.”

 

Now this is where the ideology part comes in. My Libertarian opposite numbers positively hate all this delegation stuff. They think the fact that the statute gives the agency flexibility to function in the real world is a serious flaw, leading to all manner of agency abuse, lack of accountability, etc. They are untroubled by the fact that requiring Congress to pass a specific law for each service using spectrum would be impractical since the whole point is to avoid regulating in the first place.

 

That’s fine as an ideological perspective, and I freely grant I am exaggerating a tad for comic effect and clarity. But my broader point stands. Agencies generally, and the FCC in particular, take broad statutory grants of authority that give general guidance and apply them to specific cases in a manner that reflects the reality of each case. As with the common law and other forms of statutory law, the strength of a given precedent depends on how precisely the facts of the precedent fit the circumstances of the instant case.

 

So What The Heck Is the Qwest Forbearance and Why Do We Care.

 

First, here is a link to the relevant case out of the 10^th Circuit. I will summarize below.

 

After the Republicans took over in 2001, the FCC started granting all kinds of forbearance petitions on the expectation that even if things weren’t particularly competitive now, deregulating the existing incumbents would actually make things more competitive. If this sounds crazy, I will note that Michael Powell laid out this philosophy in his first press briefing as FCC Chairman where he said: “I do not believe that deregulation is like the dessert that you serve after people have fed on their vegetables. I believe instead deregulation is a critical ingredient for facilitating competition.” Since Section 10(b) permits the FCC to make a public interest finding on a theory that deregulating will promote future competition, these forbearances sailed through pretty easily and got affirmed.

 

In particular, the incumbent local exchange carriers (ILECs) – aka the traditional local phone providers – have obligations to make their facilities available to competitors at just and reasonable rates. These go by various names such as “unbundled network elements” (UNEs) and “special access lines.” The ILECs started filing petitions for forbearance on a market-by-market and service-by-service basis to get out of their UNE and special access obligations. Generally, the FCC looked at whether there were competing local exchange carriers (CLECs) in the market (which there were, using UNEs and special access to provide competing retail service), concluded that these CLECs might build their own network next month if you removed the obligation to contract with them (because how hard can it be to build an entire infrastructure with no customers to compete with the infrastructure with all the customers?), granted the Petition for Forbearance, and waited for all that competition to get nourished on the Powell Deregulation Diet.

 

By about 2007, it was becoming clear that the Powell Deregulation Diet was about as effective at stimulating competition as the magic weight loss methods you see advertised on late night TV informercials. Oddly, competition did not magically emerge in response to deregulation. Also oddly, absent an express duty to deal, ILECs charged monopoly rates to end user enterprise customers and competitors (or simply refused to deal with competitors at all). Shocking that an incumbent would rather collect monopoly rents than sell wholesale to rivals, despite all Libertarian economic theory to the contrary. Shame on reality for not complying with the models!

 

At this point, Chairman Kevin Martin, who took a much more pragmatic and less ideological view of promoting competition, began to pull back from relying on potential competition and focused more on existing market share and actual competition. The FCC denied a forbearance request from Verizon and another one from Qwest, both of whom appealed to the D.C. Circuit. In a case called Verizon Tel. Cos. v. FCC, 570 F.3d 294, 302 (D.C. Cir. 2009), the D.C. Circuit reversed – reaming out the FCC for daring to make it harder for companies to get forbearance. As the court held (and I’m paraphrasing): “We will pretend you violated the Administrative Procedure Act by not saying clearly enough: ‘we hereby acknowledge that we are reversing our previous standard of relying on potential competition and instead going with something reality based.’ Remember, we at the D.C. Circuit hate regulation, don’t give a crap about actual rule of law, and want forbearance to stay totally easy-peasy. Reversed and remanded.”

 

So the FCC asked to have the Qwest forbearance decision remanded so it could apply the rationale of the Verizon Forbearance case. Qwest then dismissed its original forbearance petition and applied for a more limited forbearance request from UNE and special access obligations in Phoenix, providing a bunch of new Phoenix-specific data. The FCC issued a Public Notice formally asking (and again, I’m paraphrasing): ‘Hey, we think our previous analytic framework for analyzing these forbearance requests about UNEs and special access rules totally sucks. Competition doesn’t magically spring from regulation after all. We have not found any economist who is not paid by an ILEC or just plain hates regulation generally who thinks this analysis has any validity at all. We therefore invite public comment on doing something a little more reality based.’

 

After taking public comment, the FCC concluded that their previous approach on UNE and special access forbearance had been an utter disaster, and that therefore they would no longer rely on the “hope future competition magically happens” analysis. The FCC adopted a new analysis much more competition and reality based and denied the Qwest Petition. Qwest appealed to the 10^th Circuit. In Qwest Corporation v. FCC, the 10^th Circuit said: “Yeah, Chevron deference. Agency did not act arbitrarily in changing standard given circumstances of this case and public notice, yadda yadda. Standard FCC adopted supported by substantial evidence. Defer to expert agency, yadda yadda yadda.”

 

Well That Was Long. Now Why Do We Care?

 

A bunch of my opposite numbers have been raving about how THE QWEST FORBEARANCE TOTALLY CHANGED THE STANDARD FOR DECIDING FORBEARANCE!!! This means FORBEARANCE IS INSANELY IMPOSSIBLE AND NOT EASY-PEASY ANYMORE!!! TITLE II WILL CRUSH US LIKE GRAPES!!!!

 

For example you can see this from Fred Cambell. I like Fred, and he’s a smart guy. But I fear the ideological stuff I mentioned about 10 paragraphs ago has lead him astray here. The Qwest Forbearance established a standard for a market-specific, service-specific (UNE and special access) forbearance. It did not change the overall obligation of the Commission with regard to forbearance generally, or dictate a single standard for all forbearance cases. Especially in cases that involve big policy predictions for national markets ‘n stuff, it remains the same old easy-peasy stuff that I cited to in my first blog post.

 

But How Can You Be So Sure?

 

As it happens, the FCC has addressed this very question of the proper standard twice since the Qwest Forbearance and decided that Fred is totally wrong and I am totally right. Technically, of course, the FCC did not say “Fred is totally wrong and Harold is totally right,” but the FCC faced exactly the argument made by Fred (and others) and rejected them based on the same analysis I outlined above.

 

First, in 2012, the FCC issued this massive Lifeline Reform Order. As part of that Order, the FCC granted general forbearances and some conditional forbearances around certain statutory restrictions on who could get Lifeline funds. The Commission did so on its own motion (as it would here). The Commission did not require any factual finding beyond its broad general prediction that letting wireless resellers offer Lifeline by generally forbearing from the obligation to own and operate one’s own facilities satisfied the 3 statutory criteria. It relied on all the “easy peasy” cases and said “forbearance is great, forbearance is good, be deregulated like you should. Section 214(e) expelliramus.”

 

But even more relevant and controlling was the FCC’s decision in the broad forbearance petition from a laundry list of regulations filed by US Telecom in 2013. US Telecom sought national forbearance for all of its members (ILECs), just as the FCC would grant national forbearance for all broadband carriers here. The opponents of the US Telecom Forbearance raised exactly the same argument the OMG THE QWEST FORBEARANCE CHANGED EVERYTHING folks make here, i.e., that the Qwest Forbearance changed everything and now the Commission must require an exacting standard of evidence on a market-by-market basis, broad general forbearances no longer acceptable under the statute, etc., etc.

 

The Commission rejected this argument explicitly, relying on the theory outlined above. i.e., That the statute provides the Commission with a set of criteria and the Commission decides based on the nature and type of case before it. It even quoted the D.C. Circuit cases that all the OMG THE QWEST FORBEARANCE CHANGED EVERYTHING people claim no longer apply, except that the FCC explicitly held in ft. 18 that these cases do apply. In fact, to add insult to injury for my opposite numbers, ft. 18 explicitly cites the Qwest Forbearance Decision for the proposition that ‘we can use whatever market analysis we think is appropriate.’ (As I have admonished my opposite numbers before, real lawyers read the footnotes.)

 

So, at least as far as the FCC is concerned, the OMG THE QWEST FORBEARANCE CHANGED EVERYTHING! WE WILL BE SQUASHED LIKE GRAPES BY THE AWESOME POWER OF TITLE II AND NO FORBEARANCE CAN SAVE US! Has been explicitly rejected.

 

So How About This Other Theory?

 

The other theory is being flogged fairly hard by Phoenix Center, although it has other admirers as well. Discussing everything wrong with Phoenix Center’s white paper Tariffing Internet Termination would take a whole ‘nother 3000 word blog post. Like the White Queen advising Alice to practice believing 6 Impossible Things before breakfast, Phoenix Center asks us to believe 6 Erroneous Things, combined with some false premises, to reach a conclusion that the FCC cannot forbear from the Section 203 (47 U.S.C. 203) requirement to file a tariff because it has defined the problem as a “termination monopoly.”

 

A few examples of misstatements among the multitude will have to suffice. First, Phoenix Center claims that Public Knowledge and others have not specified what service the FCC should reclassify as Title II. Since we’ve been fairly explicit that what we want is for the FCC to reverse the 2002 cable modem ruling, the 2005 DSL reclassification order, and the 2007 mobile broadband declaratory ruling, this constitutes a pretty straight up willful misstatement of fact. Mind you, since the FCC rules under review here also include a definition of “broadband Internet access service” (47 C.F.R. 8.11(a)), even if our filings were not replete with phrases like “the FCC should reverse its previous Cable Modem Ruling,” it would be pretty obvious what we were talking about because the FCC has already defined the service at issue here.

 

Having brushed aside the actual thing we are talking about with some airy hand waiving and a mass of footnotes that appear to be a rather deliberate effort at misdirection, Phoenix Center then offers its own straw man of what we must be talking about – a service defined purely as terminating traffic. There follows much tail-chasing over why, despite the fact that such arrangements are fairly common, are generally called “bill and keep, and the FCC has actually imposed bill-and-keep on Title II traffic in the Intercarrier Compensation Reform Order (via Section 251 rather than 201/202, but I am prepared to argue why 201/202 would also provide such authority). Phoenix Center again elides over the fact that the D.C. Circuit in the Verizon case found sufficient evidence in the record to support the no blocking and no discrimination rule (what Phoenix Center calls, ‘setting the rate at zero’), so the statement that there is insufficient evidence in the record to support such a thing must qualify as another in our 6 Erroneous Things.

 

But let us assume we accept for the sake of argument the necessary false premises and misstatements to test the conclusion that one could not forbear from Section 203. (You can read the short version in Larry Spiwak’s op ed here.) As an aside, as the D.C. Circuit noted in affirming the no discrimination rule under Section 706 (before striking it down under the common carrier prohibition), the FCC found that the termination monopoly combined with the difficulty in switching and the ease with which carriers could hide discriminatory conduct from end users, created the need for a flat ban on the practice.

 

But nevertheless, let us take the gatekeeper rationale and compare it with the Section 10 criteria. First, is there anything in the statute that says “you can’t forbear if it is a termination monopoly?” No. Any cases cited in which the court said: ‘Hey because you found that a provider would still have some gatekeeper power via its termination monopoly, you can’t forbear from Section 203? No. For starters, all telecom services are “termination monopolies.” The question under Section 10 is whether the termination monopoly (combined with other factors) gives rise to the ability to raise prices beyond a just and reasonable rate, engage in unjust or unreasonable practices or unjust or unreasonable discrimination, otherwise harm consumers, or is otherwise contrary to the public interest.

 

Now lets run the actual statutory test against Section 203. Remember, the test is not “is there gatekeeper power,” we already established that. The test is “do we need Section 203 tariffing to restrain the gatekeeping power, or do other sources of authority (or other factual circumstances) make it unnecessary to retain Section 203? If other statutes (like Sections 201/202) let the FCC do the job of preventing unjust reasonable rates and practices and otherwise protecting consumers, then the FCC “shall forbear.”

 

Ten years ago, when the FCC exercised forbearance for wireless voice service (also a Title II service), it considered whether to keep the Section 203 tariffing requirement. The FCC decided to forbear from tariffing because it retains sufficient power under Section 201/202 to address abuses, and because disclosure through advertising would (the FCC predicted) keep rates down. (See Orloff v. FCC). The FCC could similarly reasonably conclude here that its 201/202 powers, combined with the mandatory network management practices disclosure rules affirmed by the D.C. Circuit under its Section 706 authority, make tariffing unnecessary. Done.

 

(I will add that even where the FCC has retained tariff requirements, they are largely something of a joke. The horror stories about rate regulation are just that – horror stories designed to scare the gullible.)

 

Indeed, to go even further, the AOL argument for reclassification followed by forbearance of everything subject to Section 706 rules works from a forbearance authority angle (even if I think it is a bad idea from a policy perspective). The Commission would find that it can meet the Section 10 criteria with rules promulgated under its Section 706 authority, rendering the Title II provisions unnecessary. The Commission can even condition the forbearance on compliance with Section 706 so that if the Section 706 rules were struck down, the Title II authority would come back into place. (The FCC used a conditional forbearance in the Lifeline Reform Order I cited above, so there is at least precedent for such an approach. Again, I am not recommending such an approach, but I can see how it can be made to work.)

 

Conclusion

 

The fact that we are debating forbearance – whether and how much – shows how far we’ve come to acknowledging that Title II needs to be part of any real network neutrality solution. As this conclusion becomes increasingly inevitable, we can expect opponents of Title II to invent new objections to forbearance with equally increasing desperation.

 

My goal here, therefore, is not to make a tit-for-tat reply to every objection to forbearance authority that may arise. I’ve gone on at great length to illustrate the basic method for dealing with these objections. In all cases, simply run the argument against the statutory criteria. As explained at length above, the Qwest Forbearance did not change any of this. The cases that make Section 10 forbearance easy-peasy remain good law. Nor is there anything particularly magical about broadband, as compared with other Title II services, that makes it impossible to forbear. Heck, in some ways, the availability of Section 706 as an alternate source of authority makes it easier to forbear. (And yes, Section 706 rulemaking authority has been applied to Title II services, see the ICC Reform/Connect America Fund Order that was upheld by the 10^th Cir., so please don’t try to argue that reclassifying broadband as Title II would somehow eliminate Section 706 authority.)

 

I continue to believe that headlong rush to forbearance is needless, and reliance on Section 706 rather than Title II for rulemaking authority is not the way to go. But it’s pretty clear that if that is the way the FCC ultimately decides to proceed, it has the authority to do so.

 

Stay tuned . . .