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Dec 06, 2016

Predicting the FCC’s Path Forward Under President-Elect Donald Trump

9 Areas of Communications Law Policy Likely to Undergo Material Changes under a Trump FCC

Jonathan Marashlian

President-elect Donald J. Trump will become the 45th President of the United States of America on January 20, 2017.Many in the tech, media and telecom industry remain uncertain about what to expect from the Federal Communications Commission under the Trump administration.While Trump has not publicly addressed communications policy at length, we can make some educated predictions based upon current trends, hints that were dropped during the campaign, and the make-up of Trump’s transition team overseeing the FCC and communications policy.Peering into the crystal ball, we identified nine issues that will likely be tackled by Trump’s FCC, many of which would be stark departures from the outgoing Obama FCC, under current Chairman Wheeler.

 

#1 - Net Neutrality

Net Neutrality has been a hot topic for several years now, and a big target of Republicans, both in the FCC and on Capitol Hill.  With a Republican President and both houses of Congress under Republican control, Net Neutrality is likely to come under intense fire.  Out on the campaign trail, President-elect Trump criticized the Obama Commission’s Net Neutrality rules and members of his FCC Transition Team, Jeff Eisenach and Mark Jamison, are outspoken opponents of Net Neutrality regulations.  The writing would appear to be on the wall.  

Yet, despite unambiguous distaste for the Obama Net Neutrality regulatory framework, it is unlikely Trump would target Net Neutrality as the first area of FCC reform for the simple fact that the rules are popular and Trump is a self-avowed populist.  Net Neutrality continues to enjoy a great deal of populist appeal, as consumer demand largely drove adoption of Net Neutrality principles in the first place.  On the flip side, however, Trump, and possible FCC Chairman, Ajit Pai, could make Net Neutrality a top issue if the Administration is able to champion a roll-back of regulations as a way to spur investment and job creation.  Ever the showman, most recently evidenced by the deal with Carrier to keep jobs in America, one could envision a backroom deal where the FCC announces the elimination of Net Neutrality rules concurrent with major network construction and job-creating commitments being announced by AT&T, Verizon, Comcast and perhaps other major, facilities-based broadband carriers. 

A total dismantling of the Net Neutrality rules wrapped up in a major jobs-creation announcement –to counter the populist appeal of the rules with something having even greater populist appeal—is certainly within the realm of possibilities.  More likely, however, a Trump FCC will likely seek to maintain certain consumer-centric Net Neutrality regulations while eliminating the less popular creep into regulating broadband using Title II of the Communications Act.  In its 2015 Open Internet Order, the FCC reclassified certain mass market broadband Internet access services (“BIAS”) as regulated telecommunications services under Title II.  With the new administration, this reclassification is very much in jeopardy.  We anticipate a common theme where President Trump seeks to keep elements of Obama Era programs that are popular with consumers while disbanding or weakening those elements that are less popular (albeit, arguably, necessary); indeed, we are already seeing this play out in the context of Obamacare.  One way or another, the Communication industry should prepare itself for changes –likely significant ones—to the way broadband services are regulated by the FCC.

 

#2 - Lifeline

The Commission’s Lifeline program may also be destined for major changes under a Trump FCC.  Lifeline provides consumers with subsidized phone service and free cell phones, disparagingly referred to throughout the 2012 election cycle as “Obama Phones.”  Although the FCC recently overhauled the program to phase out subsidies for voice services and emphasize support for wireless broadband plans, the “Obama Phone” moniker conjures negative thoughts for many conservatives and Trump supporters.  Also, one of the major beneficiaries of the Lifeline program over the past decade has been TracFone, a U.S. prepaid wireless carrier owned by Mexican billionaire and Trump foe, Carlos Slim.  Combine the lingering reputation of “Obama Phones” with a vendetta against a vocal opponent from south of the border and it becomes quite obvious why the Lifeline program could be imperiled under a Trump FCC.

 

#3 - Universal Service Fund Contribution Reform

Almost from the day it was created, it seems, the FCC has sought to reform the way the Universal Service Fund (“USF”) is funded (“USF contribution reform”).  In 2006, the Commission opened a docket for filings related exclusively to USF issues and reform.  Later, in 2012, the FCC renewed calls for reform through a further Notice of Proposed Rulemaking.  Yet, the Commission has not managed to adopt the type of wide-ranging and long-lasting reforms that are needed to drop the USF contribution factor from its current levels –approaching a 20% tax-- to more sustainable levels.

A few years ago, the FCC passed the hot potato to the Federal-State Joint Board on Universal Service, which has been tasked with making USF contribution reform recommendations to the Commission.  The Commission has been waiting on the Joint Board’s recommendations, which were delayed due to the FCC’s release of its 2015 Open Internet Order, before making any reforms to the existing revenue-based contribution system.  The timetable for delivery of the Joint Board’s USF Reform report appears poised for further delay under the new administration.

The Joint Board was likely to support a continuation of the current revenue-based contribution system, only with a greatly expanded base of contributions (notably including wireless and wireline broadband revenue) in order to sustain the Fund.  However, Republicans have historically supported more fundamental, structural reforms to the contribution system.  Former Republican FCC Chairman Kevin Martin proposed a material change to the USF system – shifting from a revenue-based contribution regime to a numbers-based methodology; but Martin’s proposal was tabled following the 2008 election of President Obama.  This numbers-based system (or a hybrid system of numbers and connection capacity) has been widely supported by AT&T and Verizon, among others.   Under Republican leadership, a significant shift in the calculation methodology may be on the horizon, quite possibly in the direction of a system that fundamentally diverges from the revenue-based system the industry has, begrudgingly, become accustomed to over the past two decades.

 

#4 - Privacy Rules

As previously noted, in 2015, the FCC reclassified BIAS from an unregulated information service to a telecommunications service, regulated under Title II.  The Commission opted to forebear from applying many of the Title II regulations currently applicable to regulated telecommunications services to the newly minted BIAS offerings. However, the Commission elected not to forbear from applying Section 222 generally to BIAS providers.  But, because the current implementing rules (the CPNI requirements in Sections 64.2001 – 64.2011 of the Commission’s rules) are not “well suited to broadband Internet access service,” the Commission elected to forbear from applying the existing CPNI rules to BIAS providers.  Instead, the Commission pledged to evaluate privacy issues for broadband, with the goal of adopting broadband-specific privacy rules. 

In late October, the FCC overhauled existing privacy and data security regulations and adopted new rules for broadband service providers. The rules implement privacy requirements under Title II of the Communications Act, and therefore, hinge on the FCC’s reclassification of broadband as a Title II regulated service.  Because the Net Neutrality rules are at risk of being scaled back (particularly the reclassification of broadband), the new privacy rules may thus be in jeopardy of elimination.

 

#5 - Unlicensed Spectrum; Facilitating Wireless Broadband Network Roll-Out; Ushering in the Internet of Things Era

There’s a lot going on in the spectrum department right now, with some innovations that will, under a Trump administration, likely to be rolled out sooner rather than later.  For example, the 3.5 GHz, three-tiered shared spectrum proceeding has had strong bi-partisan support in the current FCC, with presumptive Chairman Pai as a strong advocate.  This proceeding has some important milestones that are coming up soon (e.g., choosing the frequency coordinators and setting up the potentially convoluted auctions).  This proceeding, which cedes a good deal of FCC oversight to the private sector and is intended to open the door to a lot of small-scale service providers, will likely be given priority under the likely Chairman.  

Another priority for the new FCC will likely be wireless broadband facilities roll-out.  As part of his “Digital Empowerment Agenda,” Pai has expressed his full support for federal preemption over state and local governments zoning and permitted processes in order to facilitate the siting of small cells, distributed antenna systems (“DAS”) and other wireless infrastructure, with the goal of facilitating 5G.

 

#6 - Enforcement

Over the past eight years, the FCC’s Enforcement Bureau has been more active than in any other time in the Commission’s history.  Under Travis LeBlanc’s leadership, the Bureau has been particularly aggressive, proposing nearly $200 million in fines in the last three years alone.  At a high level, the Bureau has focused on pursuing violations of laws aimed at protecting consumers.  The Republican minority at the Commission (Pai and O’Reilly) have repeatedly been critical of the Enforcement Bureau under LeBlanc, complaining that the FCC seemed more interested in grabbing headlines than with correcting bad behavior.  Commissioner Pai, in particular, has challenged the FCC’s enforcement, calling into question the Bureau’s sloppy investigations, noting in one recent forfeiture order that “[T]he Commission’s ability to lawfully impose a forfeiture upon these companies has been fatally compromised by its inadequate and incomplete investigation into their conduct.”

While it would be unwise to predict a reduction in enforcement activity, the Republican mantra has historically trumpeted the phrase: “We don’t need new regulations; we simply need to enforce the rules already on the books.”  As such, it remains to be seen where the FCC will focus its enforcement efforts in the coming months and years. Will it focus on consumer protection? Or fostering competition and innovation?  Likewise, the question remains as to how the Commission will approach enforcement.  Will it issue fair and reasonable fines based on what statute and FCC forfeiture guidelines require?  Or will it continue the LeBlanc policy of headline grabbing fines? 

We expect the FCC’s Enforcement Bureau to be less active than it has been over the past 8 years.  We expect the FCC to enforce “settled” areas of regulation much more so than it seeks to create new regulations through adjudications – which would be a stark departure from the LeBlanc Bureau’s approach.  We expect the Bureau to strictly enforce the rules that are on the books and not pursue headline grabbing fines.  But we also expect that when fines are handed out, those fines will be collected either by the FCC or the Department of Justice in collection actions.

 

#7 - Mergers & Consolidation 

In general, the industry should prepare for an administration more amenable to mergers and consolidations than the current administration.  Even though Trump publicly criticized the AT&T and Time Warner hook-up (mistakenly referring to Time Warner Cable), we do not expect Trump to stand in the way of or insist on excessive conditions on future mergers that would otherwise be beyond the FCC’s authority to mandate.  With both Sprint and T-Mobile being up for sale for several years now (but shunned due to the Wheeler / Democratic desire to keep four players in the wireless market), we’re also likely to see mergers in the wireless space.  Although unlikely that we’ll see a Sprint-T-Mobile marriage, it is certainly possible that Cable providers – Comcast, Charter – will swoop in and gobble up one or both.  Finally, in light of the general Republican preference to eschew regulation in favor of letting the market dictate transactions, the FCC is likely to play a lesser role in reviewing mergers in the Communications and Media sectors generally, leaving government involvement to the Federal Trade Commission, focused on anti-trust (than consumer protection) issues.

 

#8 - Streamlining Regulation and Exempting Private Carriers from Title II

In general, the communications market can be expected become less regulated as a whole under President Trump. During the campaign, Trump publicly called for a 70-80% reduction in regulations, across the board.  In fact, members to Trump’s FCC Transition Team have advocated for the complete dismantling of the FCC.  While the total elimination of the FCC is highly unlikely, we certainly anticipate a concerted effort by the Trump FCC to eliminate many regulations, having already noted several in this article (from Net Neutrality to Privacy and more). 

Because the Commission functions as an independent agency, some of its rules are likely to escape the chopping block.  We do, however, expect the FCC to explore many different methods of narrowing its regulatory footprint.  One way the FCC could substantially reduce the scope of its regulations –particularly under Title II of the Act—is to start honoring the existing judicial precedent governing the distinction between “Common Carriers” (which are covered by Title II) and “Private Carriers” (which are not). 

A recent Petition asks the FCC to confirm the validity, strength and scope of the Common/Private carriage dichotomy, which still exists in decades-old precedent interpreting the Communications Act, but which seems to have been overlooked, ignored or rebuked under the Obama FCC.  Taking steps to affirm the distinct nature and regulatory treatment of Common vs. Private carriage services could provide a Trump FCC with a simple and straight path towards achieving Trump’s goal of massively reducing the total amount of regulations impacting the industry.  Very simply stated, if the FCC decides it wants to exempt from heavy-handed regulation any service that is marketed and sold to sophisticated business consumers (as opposed to “mass market” offerings), the statutory, judicial and Commission precedent exists and would likely support a Trump FCC’s decision to exempt such service arrangements from Title II regulation; applying, instead, either lighter touch regulation or no regulation at all.   

 

#9 - Media / Broadcast / Auctions

Broadcasters are hopeful that the Commission under the Trump administration will prove to be more sympathetic to their concerns.  With his prior roles as President and CEO of the National Cable Television Association (NCTA) and the Cellular Telecommunications & Internet Association (CTIA), some broadcasters viewed Chairman Wheeler with suspicion.  This colored their perception of most of Wheeler’s initiatives and had some feeling that the Commission did not value the industry’s concerns.  With Trump’s appointment of Jeffrey A. Eisenach as the head of his Commission transition team, broadcasters have some hope that their issues will once again be at the fore of the Commission.  Mr. Eisenach is a free market economist that has held prominent consulting positions with the National Association of Broadcasters, the Walt Disney Company and NCTA.  It is believed that he will instill a deregulatory approach into the Commission under a Trump administration, particularly benefitting media companies.

Broadcasters are anxious to see a role back of the Commission’s regulatory approach to broadcast ownership.  Some view the Commission as hamstringing the industry with outdated regulations, such as the Newspaper Broadcast Station Cross Ownership Rule, when compared to lack of restraints on cable and Internet companies.  Broadcasters would also like to see elimination of the Commission’s focus on Joint Sales Agreements and other cooperative contractually relationships between broadcast stations, which have been shown to help marginally profitable stations compete.  As for the cable industry, it has already seen a benefit to Trump’s electoral victory.  The current Commission removed Wheeler’s proposal to bring competition to the Set Top Box market from its agenda based on the presumed views of the incoming administration and it is not expected to be taken up again.

 

Conclusion

A new administration always brings many questions from clients about how their FCC issues may be impacted. A Trump presidency brings even more questions than usual, because his campaign did not set out detailed proposals on telecommunications and spectrum policy. While we hope the discussion of “9 Areas of Communications Law Policy Likely to Undergo Material Changes under a Trump FCC” provides you with some insight and ideas, we understand that “predictions” are like “opinions,” everyone has one! Only time will tell how a Trump FCC will shake out. We also recognize that uncertainty isn’t good for business and businesses in the Communications, Technology and Media arenas will be eager to gain as much certainty and confidence in the future as possible.Our best advice is to stay tuned, pay close attention, ask good questions of your lawyers and consultants, and even give some thought to participating in the process. If you are concerned about a possible rule change or shift in policies and how such changes might impact your company’s current plans and future opportunities, then the best way to prepare is to be a participant that helps shape the final outcome. You may not always get everything you wanted, but you will have a leg up on the rest of your competition that will be taken by surprise and likely be forced into playing catch-up.

 

Jonathan Marashlian is the Managing Partner of Marashlian & Donahue, PLLC, The CommLaw Group (www.CommLawGroup.com). Mr. Marashlian may be reached at (703) 714-1313 or jsm@CommLawGroup.com

 

DISCLAIMERS: This publication may be considered Attorney Advertising in certain jurisdictions. The determination of the need for legal services and the choice of lawyer are extremely important decisions and should not be based solely upon advertisements or self-proclaimed expertise.

 

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