Net Neutrality Caused Market Uncertainty, McDowell Says
Carriers face “economic” regulation if not “price” regulation under the broadband classification scheme proposed by FCC Chairman Julius Genachowski as the “third way” alternative, Commissioner Robert McDowell said Thursday. McDowell told a Phoenix Center conference on the broadband gap that uncertainty in the markets increased right after Genachowski’s speech in September when he announced the commission would move forward on net neutrality rules.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
McDowell acknowledged there’s been some confusion about whether the third way proposal includes price regulation because Genachowski proposes that the FCC forbear from tariffing under Sect. 203 of the Communications Act. The FCC would not forbear from Sects. 201 and 202, he noted. Sections “201 and 202 are broad and sweeping and talk about the regulation of rates, terms and conditions,” McDowell said. “You are looking squarely at economic regulation because that’s what 201 and 202 are all about. … You could say there is the absence of tariffing under 203. Okay, terrific, so how are you going to regulate those rates, terms and conditions as 201 and 202 call for? That would be case by case.
Investors are concerned, McDowell said, based on many meetings with small and big players in the financial world. The FCC may be adding to problems caused by general market uncertainty, he said. “There’s a great deal of concern and anxiety in the investment community about what is going on at the FCC,” he said. “That’s because some big dramatic ideas have been proposed that would change the regulatory landscape and discard a couple of decades worth of consensus.”
McDowell said he continues to believe that Title I of the Communications Act gives the FCC adequate authority to do its job. “Title I still exists. The Congress wrote it,” he said. “It’s still on the books. It has been upheld over the years as a tool for the commission to do a lot of things, provided that whatever that action, it is really tethered to a specific mandate as envisioned by Congress.”
Verizon Senior Vice President Kathy Brown said it would be “short sighted” and “going backwards” for the FCC to reclassify broadband under Title II of the Communications Act. Title II imposes requirements “developed for an entirely different market and a market that frankly was a government-regulated, rate-of-return market,” she said on an earlier panel. As a former FCC chief of staff, Brown said she understands “the reaction and the institutional urge” that has driven the push to reclassify broadband. “It will confuse the future,” she said. “It will confuse future decisions."
Paul Glenchur of the Potomac Research Group said investors are being scared away by the reclassification proposal. “Wall Street is looking at this and they're a little confused by it and I think that they want to steer clear [of the sector] to a great extent until they see how the dust settles on something like this,” he said. “I mean there’s a lot of focus on certainty and uncertainty.” When the amount of risk increases, “your cost of capital goes up,” he added.
The Comcast decision by the U.S. Court of Appeals for the District of Columbia Circuit, which led to the reclassification proposal, shows that federal courts are tougher on regulatory agencies when they make decisions based on questionable legal authority, said former FCC General Counsel Chris Wright, now of Wiltshire & Grannis. “Even under Title II there will be lots of fights in the future and it will be a very detailed argument,” he said. “I don’t think there’s any absolute certainty here and I don’t think there’s ever been absolute uncertainty for investors.”
Wright cited the opinion of Supreme Court Justice Anton Scalia in AT&T v. Iowa Utilities Board, in which Scalia called the Telecom Act “a model of ambiguity or indeed even self-contradiction.” Wright said: “Nobody’s going to change that. If Congress rewrites it there'll probably just be more uncertainty and ambiguity and self-contradiction.” Commenting on whether the commission would be upheld if it changes how broadband is regulated, Wright cited a second opinion by Scalia in FCC v. Fox, the fleeting expletives case. “Agencies can change their mind and they don’t have to have changed circumstances, they don’t have to have a better argument,” Wright said. “It just has to have a plausible argument.” He said FCC General Counsel Austin Schlick “is right to think he has a pretty strong argument” if a reclassification order is challenged in court.