Research Notes

Many speculate on the future of US telecom policy. Strand Consult comments on the festive rumors from a number of media

In this research note Strand Consult reviews the President Elect Transition Team, the Trump administration, and other key actors and then describe the real policy and its impact on the telecommunication industry.  Many over-interpret the role of the transition team.  A far better indicator of policy is the Republican party platform which was released well before the election.

The Role of the Presidential Transition Team
Over the last few months there have been articles in which sensationalize the US under Trump, the new leadership at the Federal Communications Commission, and the future of American and global telecom policy. Headlines such as “Farewell to the FCC as we know it”, “This is the year Donald Trump kills net neutrality”, and so and so will “strip FCC of consumer protection” reflect the irrational and uninformed view of many journalists whose knowledge of telecom policy starts and ends with net neutrality.  The truth of the matter is that there are more important issues at stake including spectrum, cybersecurity, and billions of dollars in subsidies.

It is also clear that many do not know what a presidential transition process is, despite the fact that it has been part of the American political system for 220 years. These uninformed stories ascribe unrealistic power to transition teams, as if they could select the FCC Chairman, make policy decisions for the President, and secure approval from Congress.  Moreover opinions have been wrongly attributed to transition team members.  It seems many journalists could not be bothered to read what transition team members have actually written and published. Instead they prefer to invent a story which is then copied by other lazy journalists.   

In any case, the Center for Presidential Transition contains archived documents from previous transitions. The transition’s team job is to support the smooth transfer of power from one administration to the next and to help the incoming President to be ready to govern when taking office.  Given that that the US government is a $4 trillion operation with some 4 million employees, people should take some comfort that prospective candidates begin transition planning well before the election.  That is to say, no candidate takes office starting from scratch.

In the same way that new a CEO needs to understand the strengths, weaknesses, opportunities and threats of any company, the President needs to know what’s working and what isn’t among the many agencies of government.  Specifically agency landing teams such as those assigned for the FCC or Federal Trade Commission (FTC) collect information about the unique roles and responsibilities of the agency and relevant information for the new administration.

In point of fact, the President’s role vis-à-vis independent agencies such as the FCC or FTC is limited to nominating commissioners, which then must be approved by the Senate.  The President can also appoint acting and permanent chairs at the agencies.  Most recently President Trump appointed sitting Republican commissioners to take the role of Chairman, a task that does not need Senate approval.  Ajit Pai became Chair of the FCC; Maureen Ohlhausen, Acting Chair of the FTC. The agency boss is actually Congress, which writes the statues and appropriates the budget.  

Given the sensitive nature and limited time frame of the transition team’s work (about 70 days), transition team members are generally instructed not to speak to the press and to sign confidentiality agreements.  Their silence can lead some outsiders to speculate, if not imagine incorrectly, what is going on.  As transition team members are not in a position to correct misconceptions, rumors and conjecture stirs.  As such, a more balanced perspective is needed.

How to predict the future of American telecom regulation
Instead of trying to predict the future of telecom by extrapolating the opinions of the transition team, a better method is to read the Republican Party Platform which was published before the 2016 November election. There is no doubt that the Grand Old Party (GOP) has had a resurgence with Trump. In addition to the Presidency, it has majorities in both houses of Congress as well as 33 of the 50 governorships in the US and 32 of the 50 state legislatures. The platform is notable in that ”technology” is not included as an item in the contents, though it appears as a major sub-section. This suggests that the Republicans see a limited role in the sphere and will likely opt for market based approach. 

Under the rubric of “Building the Future: Technology”, the GOP focuses on drivers such as taxation, investment, and innovation. They see government as a partners with individuals and industry, not meddlers. They want a business climate that rewards risk, promotes education and training, and an international order for fair and open markets. They say data privacy should foster innovation, growth, and free flow of information. They see innovation as positive for creating jobs, providing access to markets, opening opportunity to underserved, and expanding consumer choice.  They want innovators to have the freedom to create, but winning or losing on their merits.  Intellectual property plays a significant role in the platform.  

They note wanting to facilitate access to spectrum by paving the way for high-speed, next-generation broadband deployment and competition on the internet and for internet services. They encourage the sharing economy, on-demand platforms, and the Internet of Things.  They note that the government must keep pace with technology deployed in the private sector, noting the urgency of modernizing the federal government’s legacy systems and to recruit the skilled technical personnel who can advance the adoption of innovation in the public sector.

While the platform celebrates public-private partnerships between NASA, the Department of Defense, and commercial companies, it criticizes universal service subsidies, “At the cost of billions, the current Administration has done little to advance our goal of universal broadband coverage. That hurts rural America, where farmers, ranchers, and small business people need connectivity to operate in real time with the world’s producers. Almost ten million Americans have given up wired broadband connections in just the last two years alone, and millions more have never been connected in the first place. We encourage public-private partnerships to provide predictable support for connecting rural areas so that every American can fully participate in the global economy.”

This commentary is consistent with Ajit Pai’s statement in his first speech at the FCC: “One of the most significant things that I’ve seen during my time here is that there is a digital divide in this country—between those who can use from cutting-edge communications services and those who do not. I believe one of our core priorities going forward should be to close that divide—to do what’s necessary to help the private sector build networks, send signals, and distribute information to American consumers, regardless of race, gender, religion, sexual orientation, or anything else. We must work to bring the benefits of the digital age to all Americans.”

Other predictions can be gleaned from platform touchstones such as Government Reform, Making government work for the people, Balancing the budget, Regulation: the Quiet Tyranny, Crony Capitalism, and Corporate Welfare. The platform devotes a special section to “Protecting Internet Freedom” in which it rebukes Obama for the imposition of Title II on broadband (the 2015 Open Internet Order) and “abandonment of the international internet by surrendering U.S. control of the root zone of web names and addresses. He threw the internet to the wolves, and they — Russia, China, Iran, and others — are ready to devour it.”

The platform salutes Congressional Republicans who have “legislatively impeded Obama’s plans to turn over the Information Freedom Highway to regulators and tyrants.”   This would include Cruz and Thune in the Senate with Blackburn and Walden in the House. Thune and Blackburn have already teed up the FCC modernization in the 114th Congress. Here is what the GOPs says about the Internet,

We will consistently support internet policies that allow people and private enterprise to thrive, without providing new and expanded government powers to tax and regulate so that the internet does not become the vehicle for a dramatic expansion of government power. The internet’s independence is its power. It has unleashed innovation, enabled growth, and inspired freedom more rapidly and extensively than any other technological advance in human history. We will therefore resist any effort to shift control toward governance by international or other intergovernmental organizations. We will ensure that personal data receives full constitutional protection from government overreach. The only way to safeguard or improve these systems is through the private sector. The internet’s free market needs to be free and open to all ideas and competition without the government or service providers picking winners and losers

But don’t let the Republicans take all the credit for being pro-market. In point of fact it has been the Democrats who have made significant strides to reduce outdated and unnecessary regulation. The chief exponent is the “father of airline deregulation” himself, Alfred E. Kahn, a Democrat appointed by President Jimmy Carter to head the Civil Aeronautics Board and who then dismantled it. Judging by the sheer number of regulations reduced in telecommunications, Bill Clinton who signed 1996 Telecommunications Act (in a Republican Congress) promising to keep the Internet “free and unfettered from state and federal regulation”, was most deregulatory president. Indeed his appointee FCC Chair Bill Kennard offered a proposal to reorganize this agency along the common sense lines of competition and consumers protection like the FTC, but it was ultimately abandoned because of pushback from  Washington lawyers who perceived a potential loss to their billings.

In the many irrational articles, an important point is overlooked. Deregulated markets are still subject to competition law, and in fact, telecom markets could come under closer scrutiny depending on the quality of economic analysis.  Consumer protection standards are in fact tougher than the vague public interest standard employed by the FCC today.  Moreover the FTC can actually recover damages for consumers, whereas the fines collected by the FCC do not go back to those abused.

To be sure, the Chair of the agency has a significant ability to drive the organization, both in the items presented for votes, the cooperation built with other commissioners, and the leadership of the staff to fulfill goals. To get a sense of the future of these agencies, one can read the statements, speeches and dissents of the chairs earlier in their career.  For example Chairman Pai observes that the FCC’s rules have been paused four times in court in the last three years, a record number. This means that the Wheeler FCC was overly aggressive in its rulemaking and exceeded boundaries.  This also suggests that the Pai FCC will likley retract rulemaking and stay within its jurisdiction.

Trump has said little about telecom and internet policy, in contrast to Obama who made net neutrality a campaign pledge.  Trump is emerging as the Twitter president, so it’s likely that he will side with the constitutionalist view of free speech, espousing limited government intervention in the media.

Fake News: the New Net Neutrality
It’s interesting to see European politicians calling for the regulation of fake news. This is simply code for “stopping the messages of journalists who are unfavorable to me”. But the truth is that traditional media have been peddling bad journalism for years, with little to no censure.

Indeed fake news and net neutrality can be seen in a history of policies designed to censor the media, or perhaps more specifically to dampen critique. Recall the FCC’s Fairness Doctrine from 1949 which required broadcasters to present the opposing perspective when discussing controversial issues, a form of compelled speech imposed by the government on private actors. The doctrine had a resurgence in the Obama era as an attempt to muzzle conservative talk radio, but was ultimately removed by Congress in 2011.

USA and EU are on different paths
With the new administration and Pai-led FCC, it appears that the Americans returning to the wisdom of the market while the EU continues to try (and fail) to regulate its way out of recession. It’s not hard to predict where investment will flow in the future – away from EU and over to USA.

US telecom policy is extensive.  Given its scale, the number of providers, the level of investment (about one quarter of the world’s total), and fierce technological competition, it is difficult to compare US policy to other countries and regions.  Even the EU not a good comparison. It is made up of 27-28 different nations, though the European Commission attempts to make the world believe that all Europeans are on the same page—they are not.  There is variation of opinion across the EU.

Strand Consult’s Conclusion
We believe that Ajit Pai has learned from the mistakes of the Obama administration and will attempt, without ego, to promote a regulatory framework that stimulates investment, innovation, competition and consumer protection without favoring any industry or company.

The future for investment, competition, and consumers looks bright for the US. The FCC will likely make strides to modernize their activities for a converged, digital world.  The US will become more attractive for investment, and the EU, which has been unattractive for years, will fall even further behind.

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