Broadband Reclassification Plan Dampening Investment in Telecom Equipment, Furchtgott-Roth says

"Businesses look at the legal uncertainty and they're not sure with the equipment they're going to invest in this year, how it will be treated from a legal perspective,” said Furchtgott-Roth, a Republican who was on the FCC from 1997-2001. Furchtgott-Roth said “for better or worse” Congress is unlikely to step in and approve legislation clarifying FCC authority over broadband. “Although there’s frequently legislation introduced, few observers give it much chance at passage,” he said. The Court of Appeals for the D.C. Circuit is likely to view the Genachowski proposal “with some skepticism if it believes that the commission is simply trying to circumvent its ruling in the Comcast decision,” he predicted.

The FCC got in trouble in the Comcast case because its rules did not clearly follow the law, Furchtgott-Roth said. “The commission has a history of coming up with, shall we say, inventive rules that don’t fall narrowly within the law,” he said. “It’s a very risky prospect. It puts not only the commission’s legal reputation at risk, it puts businesses at risk of making decisions that they don’t know how the courts will view in the future."

It would be hard for any court to view the proposed third way “as being the clearest, narrowest interpretation of the Communications Act,” Furchtgott-Roth said. “What America needs is a commission that says, ‘This is what the law says. We're going to write rules that are absolutely certain to withstand court scrutiny. We're not here to take risks.'” He likened the approach to a “casino” style of regulation. “We say we'll take a risk. We're going to write rules we have no idea whether they're going to work or not, but we think they will."

Furchtgott-Roth told us this FCC is not the first to start with a regulatory goal and then work backwards. “I don’t think investors are going to invest in companies to compete if there is not a clear legal foundation,” he said. “We went through this in the late 90s where there were multiple interpretations of the Communications Act and they changed over time. But at the end of the day, clearly hundreds of billions of dollars were invested in companies that turned out to have business plans that were based on interpretations of the law that turned out not to be accurate.”

Russell Hanser of Wilkinson, Barker, on the webcast with Furchtgott-Roth, said the FCC proposal raises a large number of concerns for carriers. “The third way raises very significant risks that ISPs are just going to be subject to a series of complaints under Sect. 208, in which the commission is going to be looking at whether their behavior is just and reasonable,” Hanser said. “One can imagine a very detailed common law of broadband developing which is every bit as restrictive as the entire set of Title II requirements."

"There’s a risk of direct price regulation at either the retail or wholesale level, with the trafficking requirements,” Hanser said. Also possible are “entry and transfer control regulations under Sect. 214 of the Act, interconnection requirements similar to those set forth in Sect. 251 of the Act, detailed billing and truth and billing requirements,” he said.

"We're extremely concerned about what the reclassification of broadband would mean for TIA’s member companies and the information and communications technology industry,” said TIA President Grant Seiffert. “This would be a tectonic shift with potentially drastic effects, both long-term and near-term, especially as it comes on the heels of the worst recession in nearly a century.”