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Overturning The FCC’s Fraudulent Accounting Rules Will Save Consumers Billions and Establish True Competition in Digital Communications

Adapted from a press release by Mark Cooper, Oct. 10, 2019 | Original Consumer Federation of America, Press Release here.

Washington D.C. — In a major analysis published almost three years ago, Consumer Federation of America (CFA) showed that consumers are being overcharged over $70 billion a year for their broadband, wireless and television services.1 One of the key factors behind this overcharging is the decision of the FCC to freeze the collection of network costs, parking two-third of the total at the local (intrastate) level, even though today two-thirds of communications revenue is collected in the interstate jurisdiction.2 Today the IRREGULATORS filed their reply brief to the FCC’s decision to continue its fraudulent accounting rules for another six years.3

Dr. Mark Cooper, CFA’s Director of Research4 says:

“CFA applauds the court case, and looks forward to participating in the new rulemakings that will force the FCC and state commissions to adopt a more realistic, pro-competitive and pro-consumer allocation of costs."

Today, CFA is releasing an issue brief explaining the history of the issue and the huge stake the public has in the case. Here is a link to Why the Case of “The Irregulators V. The FCC” is So Important to Consumers: 20-Years of Broken Accounting Rules Have Caused Immense Pocketbook Harm to Consumers and Undermined Competition and Universal Service.

Cooper continues:

“The initial and reply briefs of the IRREGULATORS demonstrate, beyond a shadow of a doubt, that the case against the extension of the massive misallocation of cost to the local phone service is compelling. The FCC’s effort to avoid its responsibility to look at real world costs, fails on legal and empirical grounds . . . In fact, the FCC recently lost a case in the same court because it had engaged in bad math, and as the court said: its analysis is so insubstantial that we cannot say it provides a reliable foundation for the Commission’s conclusions. 5

The ongoing case brought by the IRREGULATORS, embodies a much bigger mistake — one that is worse than just bad math, it involves no math at all.

For two decades the FCC has stopped gathering data and refused to look at the reality of the communications sector. The result has been excessive charges for local service, anti-competitive subsidy of competitive services (looting unregulated services to enrich unregulated services) and excess profits for dominant telecommunications service providers, Verizon and AT&T. Thus, the “frozen” allocation violates the Communications Act of 1934, The Telecommunications Act of 1996, and the Administrative Procedure Act of 1946.

Specifically, these FCC actions violate 47 U.S.C § 254(k): Subsidy of competitive services prohibited:

"A telecommunications carrier may not use services that are not competitive to subsidize services that are subject to competition. The Commission, with respect to interstate services, and the States, with respect to intrastate services, shall establish any necessary cost allocation rules, accounting safeguards, and guidelines to ensure that services included in the definition of universal service bear no more than a re

Recent developments, like the network neutrality order and the continued push to misallocate billions of dollars of Densified 4G + 5G installation costs via cross-subsidies from regulated services to unreagulated services, only highlight the utter stupidity of freezing the interstate/intrastate allocation of costs for nearly two decades . The communications sector has gone through massive changes, but the FCC’s split (called a separation) between the federal and the state jurisdictions was frozen two decades ago.

The urgency of this court case is magnified by the fact that network operators are on the verge of spending tens of billions of dollars on the next generation of wireless, Densified 4G + 5G, while misallocating those costs to the local, wireline network.

The filing of the IRREGULATORS’ reply brief, which we are certain will compel this case to a favorable conclusion for consumers, is the beginning, not the end of the process. The remedy sought, vacating or remanding the rules with instructions, will compel the FCC to consider the current reality of the communications sector, and push the states to reassert jurisdiction over the local communications network – both its cost and its use.

"CFA applauds the IRREGULATORS for bringing the case and looks forward to fully participating in the future proceedings that will take place when the FCC order is overturned,” Cooper concluded.

  1. Mark Cooper, Overcharged and Underserved, Consumer Federation of America and Public Knowledge, December 2016 ↩

  2. This is explained in “Comments of the Consumer Federation of America and the New Networks Institute,” In the Matter of Business Data Service in an Internet Protocol Environment, Investigation of Certain Price Cap Local Exchange Carrier Business Data Service Tariff Pricing Plans, Special Access for Price Cap Local Exchange Carriers, AT&T Corporation Petition for Rulemaking to Reform Regulation of Incumbent Local Exchange Carrier Rates for Interstate Special Access Services, before the Federal Communications Commission, WC Docket No. 16-143, 15-247. 05-25, RM-10593, June 27, 2016; Mark Cooper, “Business Data Services After the 1996 Act: The Failure of Potential Competition to Prevent Abuse of Market Power in the Core Service of the Digital Communications Network,” Telecommunications Policy Research Conference, September, 2017 ↩

  3. United States Court of Appeals, District of Columbia, No. 19-1085, The Irregulators et al. v. Federal Communications Commission and United States of America. ↩

  4. While CFA did not have standing to participate in the court case, Mark Cooper is a member of the Irregulators, a group of individual telecommunications experts with past close associations with consumer advocate and industry competition groups, who were granted standing and CFA will have the opportunity to participate in any federal or state proceedings that must be implemented if the accounting rules are overturned. ↩

  5. Prometheus Radio Project et al. v. Federal Communications Commission; United States of America Prometheus Radio Project and Media Mobilizing Project, Petitioners in No. 17-1107, Decided September 23, 2019., p. 10. CFA was active in the initial phase of this case, a decade and a half ago. Our press release at the time, noted that “The fact that the Court of Appeals has demanded a coherent analytic framework based on empirical facts does not necessarily indicate a relaxation of the limits on ownership is warranted. To the contrary, the court recognized that the limits could go be loosened or tightened.” (Promoting the Public Interest Through Media Ownership Limits, May 21, 2003). This is the very order the court cites in criticizing the FCC’s recent bad math. ↩