November 12, 2015 - 2:09 pm
By Michael O'Rielly | Commissioner

With old school switched access telephone service on a steep decline, accounting for an ever smaller proportion of total voice connections, it may come as a surprise that the FCC continues to regulate incumbent telephone companies as “dominant” providers. While it is true that incumbents still account for most of the remaining switched access lines, that’s no longer a useful or relevant way of looking at the voice market. Consumers have an abundance of options to choose from when they want to make a call—to the extent they are even making calls these days. It is time for the FCC to see market realities and eliminate the requirements associated with this supposedly “dominant” status.

The waning relevance of switched access phone service in the voice market is well documented, including in the FCC’s own Local Telephone Competition Reports. Since the peak over a decade ago, the number of incumbent switched access lines has fallen by more than 50 percent, and incumbent switched access minutes of use have dropped by more than 70 percent. In 2013, less than one-third of American households purchased an incumbent switched access service, and that figure is projected to drop to under 20 percent by the end of this year.

The reason is that consumers can choose from a wide array of competing services. The 2014 Local Telephone Competition Report shows that between December 2010 and December 2013, interconnected VoIP subscriptions increased at a compound annual growth rate of 15 percent, and mobile telephony subscriptions increased at a compound annual growth rate of 3 percent, while retail switched access lines declined by 10 percent a year.

Indeed, that report marked the first time that the number of residential VoIP connections exceeded the number of residential switched access lines. Over 80 percent of total VoIP connections are provided by non-ILECs (typically cable). That does not even count non-interconnected or “over-the-top” VoIP service, or the popular voice alternatives like texting and messaging.

Wireless penetration is another reason for the decline in switched access service. According to the latest CDC data, over 45 percent of American homes have cut the cord and no longer have a landline telephone at home. Additionally, more than one-half of all adults aged 18-44 and of children under 18 were living in wireless-only households. Even consumers that maintain landline service are likely to have a cell phone or smartphone as well given the high percentage of cell phone and smartphone ownership. Moreover, the CDC reports that among households with both landline and wireless telephones, over one-third received all or almost all calls on wireless telephones.

Given these technological and marketplace changes, it is time to rethink rules that single out one class of voice providers for more burdensome regulations simply because they account for a larger share of a shrinking slice of the overall voice pie. That’s like regulating typewriters in the modern age of computer keyboards, tablets and smartphones.

In 2012, the agency received a petition asking the Commission to undertake such a review, but it remains pending. In other words, it has been sitting in an abyss for nearly three years, which is a problem in and of itself. Notably, the petition did not seek complete deregulation, which I would argue is worth considering for both dominant and non-dominant carriers given the competitiveness of the larger market as a whole. Rather, it simply requested that carriers currently subject to dominant carrier rules be regulated in the same manner as non-dominant carriers with respect to switched access service.

The petition noted three areas of disparate treatment: (i) dominant carriers are subject to price cap or rate-of-return regulation, and must file tariffs with applicable cost support for services on a minimum notice of seven days or more, while non-dominant carriers are not subject to rate regulation and may file tariffs on one day’s notice and without cost support; (ii) dominant carriers are subject to a 60-day waiting period for applications to discontinue, reduce, or impair services to be granted, as compared to a 30-day period for non-dominant carriers; and (iii) dominant carriers are eligible for presumptive streamlined treatment for fewer types of transfers of control under section 214 than non-dominant carriers.

When I read the petition, I was struck by how narrow the relief would be. This is hardly a major departure from their current burdens but such reasonable flexibility may be helpful for providers. To clarify, incumbents would still file tariffs and their services and transactions would remain subject to Commission oversight. Moreover, the petition is limited to switched access service and would not impact special access or UNE rules.

I fail to see how maintaining additional burdens that are not applicable to non-dominant carrier competitors, much less to wireless providers, VoIP providers, or edge providers, serves consumers. The costs of these extra burdens cannot possibly be justified by any supposed benefit. All they do is make a legacy service even less attractive for providers to offer and for consumers to buy. It is not surprising, therefore, that it is the voice services and applications with little to no regulation where we are seeing the most innovation and the biggest growth.

Part of the goal of the so-called “tech transitions” proceeding is to identify and remove regulations that no longer serve a purpose so that providers can direct their investments towards the new technologies and services that consumers are embracing. Reducing unnecessary regulations on switched access telephone service would be a positive step in that direction. After nearly three years, it's time to dust off the filed petition and grant some relief.