Parity rules: mapping regulatory treatment of similar services.

• Author: Ismail, Sherille

1. INTRODUCTION II. TELECOMMUNICATIONS SERVICES A. Background 1. Wireline Telecommunications 2. Wireless Telecommunications B. Regulatory Issues 1. Market Power 2. Local Competition 3. Universal Service 4. Intercarrier Compensation C. Summary and Analysis 1. Statutes 2. Commission Rules 3. Jurisdictional Differences III. VIDEO SERVICES A. Background. 1. Broadcast Television 2. Cable Services 3. Direct Broadcast Satellite B. Regulatory Issues 1. Content Restrictions 2. Access 3. Structural Limits C. Summary and Analysis 1. Statutes 2. Jurisdictional Differences IV. DATA SERVICES A. Background B. Regulatory Issues 1. Information Services a. Narrowband Internet Access b. Broadband Internet Access 2. Ancillary Data Services a. Wireless Data b. Broadcast Data c. DBS Data C. Summary and Analysis V. CONCLUSION I. INTRODUCTION

   Regulatory parity arguments are hard to ignore because they are grounded in notions of fairness and equality that are fundamental values in our society. Additionally, in the context of communications policy, an economic justification for regulatory parity is that, if all other factors are equal, regulators should treat similar services similarly in order to promote efficiency. As Michael Katz, a former FCC Chief Economist, states, "unless all suppliers are treated equally, regulation--rather than the ability to satisfy consumer demands efficiently--will determine which suppliers prevail in the telecommunications marketplace." (1) If regulatory policy (rather than the marketplace) decides who prevails, the result is likely to be "lower quality, less innovation and investment, and higher costs and prices." (2)

   Yet, as this survey will show, although regulatory parity may be a laudable goal it is not an easily achievable goal. There is disparate treatment in all areas of communications policy. To identify the reasons that disparities continue to exist, it is helpful to keep in mind the following questions:

   * Is the disparity required by statute?

   * Is the disparity due to jurisdictional differences? In other words, is one set of competing providers subject to rules established by one jurisdiction (such as the FCC) while another set of providers is subject to rules established by a different jurisdiction (e.g., states or localities)?

   * Is the disparity due to a Commission rule or policy?

   * If so, what is the stated justification for the disparity?

   The objective of this survey is to understand the extent to which disparities exist and to explore whether the disparities are justified by legitimate policy goals. To the extent that disparities are derived from statutes, it may be beyond the ability of regulators to change. Similarly, to the extent that disparities result from the allocation of jurisdictional authority to state or local policymakers, federal regulators may have no ability to eliminate the disparity. This issue arises, for example, if one provider is required to pay for spectrum in order to offer a service and another does not use spectrum at all but has to pay a franchise fee to offer the service. Should policymakers seek to remedy only disparate treatment flowing from a specific rule?

   An important caution is that it is essential to compare apples to apples and oranges to oranges (i.e., similar services). This is sometimes not an easy matter. For purposes of this Article, services are broadly grouped into voice services (including wireline and wireless telecommunications), video services (including broadcast TV, cable TV, and Direct Broadcast Satellite ("DBS") services), and data services (including "information services" such as narrowband and broadband Internet access, and ancillary data services). This categorization is necessary in order to permit an examination of regulatory parity arguments but, clearly, it has its limits. Indeed, as noted in subsequent sections, there are strong arguments that broadcast TV and cable TV are not similar services in many respects. Further, the categorization used here should not be considered as endorsing the view that these are similar services for other purposes, such as defining relevant markets in the context of a merger review.

2. TELECOMMUNICATIONS SERVICES

   1. Background

      Telecommunications carriers discussed in this section include Incumbent Local Exchange Carriers ("ILECs"), Competitive Local Exchange Carriers ("CLECs"), Interexchange Carriers ("IXCs"), and Commercial Mobile Radio Service ("CMRS") carriers. These carriers, whether they offer wireline or wireless services, supply a conduit over which two-way, switched voice communications are transmitted. (3) Consumers increasingly view all telecommunications services as similar services, even though carriers may use different transmission platforms and offer different rate plans. (4)

      1. Wireline Telecommunications

         The Communications Act of 1934 grants the states jurisdiction over intrastate telecommunications and the FCC jurisdiction over interstate calls. (5) Jurisdictional disputes between federal and state regulators are inevitable because, as one commentator notes, "[e]very telecom box or wire is located in one state or another, and is thus a candidate for local regulation. Virtually every box or wire also connects in one way or another to facilities that cross state lines, and is thus a candidate for federal control." (6) The most recent boundary drawing gave the FCC, and not the states, authority to set the rules for interconnection and unbundling of local telephone networks, pursuant to Section 251 of the Telecommunications Act of 1996 ("1996 Act"). (7)

         An important jurisdictional issue involves separations issues, such as cost allocation of joint and common costs between interstate and intrastate rate bases. Separations issues arise because, "virtually [every] telephone plant that is used to provide intrastate service, is also used to provide interstate service, and thus is conceivably within the jurisdiction of both state and federal authorities." (8) Congress did not resolve separations disputes, but instead required the FCC to adopt a procedure for resolving them. (9) Separations issues are addressed in a Federal-State Joint Board. (10)

         The FCC's role in regulating access to the interstate interexchange services market has undergone several changes over time. First, for about twenty-five years beginning in 1934, the FCC generally held that telecommunications was a natural monopoly that foreclosed competitive entry. (11) Second, after permitting limited competition to surface in the 1960s, the Commission, in a crucial decision, agreed with AT&T that it had no obligation to interconnect with new entrants, other than for the limited purpose of offering private line service. (12) The U.S. Court of Appeals for the District of Columbia Circuit reversed this ruling, leading the Commission in 1980 to adopt an open entry policy for all interstate services. (13) Third, the FCC further undermined the Bell long-distance monopoly in the 1980s by permitting resale and requiring equal access. (14) Finally, as required by the 1996 Act, the FCC has sought to implement the Section 271 requirement that the Bell companies satisfy certain preconditions for long-distance entry. (15)

         All carriers, except the former Bell companies, (16) are permitted to offer domestic interexchange services without obtaining prior authority from the FCC. (17) Within their in-region states, the Bells are required to open up local markets as the quid pro quo for offering long-distance services. (18)

      2. Wireless Telecommunications

         Wireless telecommunications services include mobile and fixed wireless services. As required by Section 332 of the 1996 Act, providers of "mobile services" (including cellular, paging, specialized mobile radio ("SMR"), and personal communications services ("PCS")) are collectively referred to as CMRS carriers. (19) In 1994, the Commission adopted rules generally distinguishing mobile from fixed wireless services for purposes of implementing Section 332. The Commission held that services provided through equipment that is "capable of transmitting while the platform is moving" are mobile services. (20) The Commission subsequently amended its rules to permit CMRS carriers to provide fixed wireless services on a co-primary basis with mobile services. (21)

         Cellular licenses, first issued in 1981, were assigned to the incumbent wireline carders ("B" Block) and awarded through comparative hearings to the new entrants ("A" Block). (22) SMR licenses were initially issued for private carriage services, such as taxicab dispatch services, but were subsequently modified to authorize wireless telecommunications services. (23) PCS was authorized in 1992. (24) Since 1993, licenses for most wireless telecommunications services (including cellular, PCS, SMR, and paging) have been issued by auction. (25) CMRS providers generally are permitted to disaggregate or partition their spectrum for sale. (26)

         For CMRS services, Congress preempted state authority to regulate intrastate rates and entry. As a result, the FCC has authority over regulating interstate rates and entry, (27) and the states have authority to regulate "other terms and conditions." (28) States continue to have authority to regulate rates and entry of fixed wireless services. In addition, states and local governments also have authority over siting towers and other facilities used to provide wireless services. (29) Moreover, states may petition the FCC for authority to regulate rates, and several states which had been regulating rates filed petitions to continue doing so, but these petitions were denied. (30) In practical terms, the FCC has "close to absolute authority over the structure of the [wireless telecommunications] industry, the geographic markets it serves and the services it provides." (31)

   2. Regulatory Issues

      1. Market Power

         Under long-established principles, all telecommunications carriers are generally classified as common...