Beahn, John

Bush, Antoinette Cook

Tuesley, Mick

Indiana University Bloomington Maurer School of Law

Federal Communications LawJournalVolume 57 | Issue 2 Article 43-2005Convergence and Competition-At LastAntoinette Cook BushSkadden, Arps, Slate, Meagher & FlomJohn BeahnSkadden, Arps, Slate, Meagher & FlomMick TuesleySkadden, Arps, Slate, Meagher & FlomFollow this and additional works at: http://www.repository.law.indiana.edu/fcljPart of the Administrative Law Commons, Antitrust and Trade Regulation Commons,Communications Law Commons, and the Legislation CommonsThis Essay is brought to you for free and open access by the Law SchoolJournals at Digital Repository @ Maurer Law. It has been accepted forinclusion in Federal Communications Law Journal by an authorizedadministrator of Digital Repository @ Maurer Law. For more information,please contact wattn@indiana.edu.Recommended CitationBush, Antoinette Cook; Beahn, John; and Tuesley, Mick (2005) "Convergence and Competition-At Last," Federal CommunicationsLaw Journal: Vol. 57: Iss. 2, Article 4.Available at: http://www.repository.law.indiana.edu/fclj/vol57/iss2/4Convergence and Competition-AtLastAntoinette Cook Bush*John Beahn**and Mick Tuesley***Nearly nine years after enactment of the 1996 TelecommunicationsAct and thirteen years after the 1992 Cable Act, the convergence set inmotion by these landmark statutes is beginning to materialize. Intermodalcompetitors are entering each other's voice, video, and data markets,investing substantial capital to build out the facilities necessary for largescale competition and operation. Indeed, despite nearly a decade of falsestarts, cable operators seem poised (finally) to roll out local phone offeringsin the near term to compete against the regional bell operating companies("RBOCs"). Such entry is significant considering that today, cable is thelargest provider of wire-based broadband services. Moreover, while RBOCpartnerships with Direct Broadcast Satellite ("DBS") operators havetemporarily filled their video needs, their long term plans clearly revolvearound the provision of fiber-based video offerings.While a boon for consumers, who enjoy increased choices and lowercosts, this convergence presents significant challenges for policymakerscontemplating revisions to the 1996 Act. Indeed, constrained by anobsolete statutory scheme, the FCC has engaged in regulatory* Antoinette Cook Bush, Skadden Arps Slate Meagher & Flom, LLC. Formerly served asExecutive Vice President of Northpoint Technology Ltd. and BroadwaveUSA, Inc., andSenior Counsel to the Communications Subcommittee of the U.S. Senate Commerce,Science and Transportation Committee.** John Beahn, J.D., Skadden. Arps, Slate, Meagher & Flom, LLC. J.D., CatholicUniversity of America; B.A.,Boston College.*** Mick Tuesley, Skadden, Arps, Slate, Meagher & Flom, LLC. J.D., B.S.B. IndianaUniversity-Bloomington; Former Editor-in-Chief of the Federal Communications LawJournal.FEDERAL COMMUNICATIONS LA W JOURNALincrementalism rather than regulatory overhaul during the past severalyears. Agency gradualism, coupled with technological advances and therapid expansion of IP-based services, has caused regulatory policies to fallbehind current marketplace realities. In light of the gap betweenregulationand the actual marketplace and technological realities, somemembers of Congress and the FCC, as well as many leaders of thecommunications industry, recognize the need for legislative and regulatoryaction to rationalize the policies applicable to voice, video, and data serviceproviders.The policy model for converged service providers should be the samelight touch regulation applied to the wireless industry. As exemplified bydevelopments in the wireless market over the past ten years, the existenceof unregulated facilities-based service providers not only results indecreased prices, but also expanded and innovated services for consumers.With the advent of PCS (and Nextel-type) technologies, the wirelessmarketplace experienced a significant increase in facilities-basedcompetition, directly resulting in dramatic price declines and a substantialincrease in innovative content-based service offerings. Lacking regulationscovering their facilities or the bundles they provided, wireless operatorsdeveloped unique and innovative service offerings in order to compete.Developments in bucket pricing plans, free nights and weekends, textmessaging, ringtones, music downloads, mobile gaming, and video andInternet-capable phones all took place in the absence of intrusiveregulation. The wireless marketplace proves that consumers benefit whenderegulation sparks facilities-based competition since it inevitably leads todecreased prices, increased service offerings, and dramatic marketplaceinnovation.To adapt to the technological and competitive upheaval that is takingplace, policymakers must discard the statutory and regulatory schemes ofthe past and follow the successful policies that are working in the wirelesscontext. Policymakers must reward and promote facilities-basedcompetition in all transmission media. Deregulation of broadband facilitieswould promote the regulatory parity between wireline, cable, and wirelessthat is vital to spur investment in the facilities that will deliver the IP-basedapplications of the future. The regulatory finality provided by these policieswould provide the market certainty needed to fund these facility roll-outsover the next decade. Ultimately, freeing distribution platforms from alegacy of overregulation would enable them to compete and innovate. Thiswould expand consumer options for voice, data, and video services; reduceprices for these services; and augment consumers' ability to receive diverseinformational services.[Vol. 57CONVERGENCE AND COMPETITIONIncreased deployment and reduced prices would spur adoption ofthese next-generation services, especially by demographic groups to whomthese services were previously unavailable. In this manner, deregulation ofall facilities-based competitors may assist in closing the digital divide thathas plagued the deployment and adoption of broadband services. Moreover,the ubiquitous availability of broadband to consumers will spur thedevelopment of diverse informational services. Finally, competition amongfacilities-based competitors will ensure that content providers havecontinued access to all consumers.Regulatory certainty has been another key factor in the growth of thewireless industry. Thus, policymakers must determine conclusivelywhether IP-based services should continue to be free from the regulatoryobligations placed on providers of telecommunications services, includingaccess charges, universal service fees, E911 requirements,nondiscriminatory network access, and CALEA obligations. Through itsPulver.com, AT&T VoIP, and Vonage rulings, the FCC has incrementallyestablished the outside markers of regulation. Limited in these rulings by adecades-old statutory scheme, the FCC simply determined that some VolPcan be an information service and some can be a telecommunicationsservice. In these rulings, however, the FCC failed to make any cleardetermination regarding whether end-to-end VoIP services constitute a"telecommunications service" or an "information service." Now that theFCC has preempted the state regulation of IP services, clear federalguidelines are required.A renewed focus on deregulation and regulatory certainty also shouldextend to the media sector. The Commission must complete its multi-yearodyssey with its broadcast ownership rules. The current review of theCommission's rules started in 2001 with Chairman Powell's creation of theMedia Ownership Working Group and represents the most extensivereview of the rules since the 1996 Act established the biennial reviewcycle. As part of the 2002 review (the most recent), the FCC analyzed itssix broadcast ownership rules to determine if, as a result of competition,they were still necessary to further the public interest. The proceedinggenerated the largest public record in the agency's history and culminatedwith the FCC's several-hundred page decision in June of 2003, in which it,among other things: revised the local television multiple ownership rule;tightened the local radio ownership rule by revising the local radio marketdefinition; retained the dual network rule; and developed a single set ofcross-media limits to replace both the radio/television cross-ownership ruleand the newspaper/broadcast cross-ownership rule. A year later, the ThirdCircuit reversed and remanded the Commission's decision and issued astay on the enforcement of the new rules.Number 2]FEDERAL COMMUNICATIONS LA W JOURNALThe Commission should revise its decision to address the ThirdCircuit's concerns. This continued state of uncertainty has greatly restrictedthe market for broadcast properties and adversely affected the flow ofcapital into the sector. Regulators must act expeditiously on reconsiderationgiven the near-certain legal challenges that will meet any new proposal andfurther delay implementation. Modification of the current ownershiprestrictions to reflect the current marketplace will better enablebroadcasters to compete and ensure the continued viability of over-the-airservice. Broadcasters should not be hamstrung by antiquated regulation thatno longer makes sense in today's incredibly diverse media market. Recentinvestments by broadcasters in less-regulated services, like cable andsatellite, speak to the direction that current regulation is pushing the flow ofcapital. Without prompt regulatory action, moreover, the ability ofbroadcasters to serve their communities for the long-term is in serious peril.Policymakers also should work to free media from cumbersome andunnecessary regulation because of the positive impact deregulation canhave on content diversity and the development in new service offerings.For example, in the programming realm, companies differentiatethemselves from their competitors based on their content. As the extensiverecord in the ownership proceeding makes clear, larger operators are ableto provide more diverse programming. This is because these entities havegreater resources and are able to program to different audiences. Once anentity has established itself in a particular segment, it often looks to expandto serve smaller niche markets. Two networks that cater to minorityaudiences (BET and TV One) received important support from large multi-system cable operators (and, more recently, from DBS provider DirecTV)and have thrived on the less-regulated cable platform. Facilities-based entryby the RBOCs into the video space will further increase diversity ofprogramming.In their upcoming debates, policymakers must implement policies thatreflect the technological and marketplace developments that have takenplace since the 1992 Cable Act and 1996 Telecommunications Act. Thesepolicies must reward facilities-based competitors and promote regulatoryparity between intermodal voice, video, and data service providers. Aboveall, these policies must ensure that consumers, rather than the government,decide the future success of any technology or distribution platform.[Vol. 57

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