FCC Endorsement of Private Carriage is Signal to Industry to Take Advantage of Deregulatory Opportunity

DISCLAIMERS: This Advisory has been prepared for informational purposes only.  It is not for the purpose of providing legal advice and does not create an attorney-client relationship between Marashlian & Donahue, PLLC and you.  You should not act upon the information set forth herein without seeking experienced counsel.   

True to President Trump’s calls for massive, across the board reductions in federal government regulations to stimulate investment and job growth (and in line with our post-election prediction), the Federal Communications Commission (FCC) recently handed the telecommunications industry a major win by both clarifying and endorsing de-regulation through invocation of the “Private Carriage” regulatory classification.  This advisory highlights the importance, potential scope, and risks associated with this major development, and invites affected service providers to contact our firm to determine:

  1. Whether your Company and its bottom line may be impacted by the confirmation and clarification of the private carrier exemption,
  2. Whether opportunities to lower regulatory costs exist and what your company can do to capitalize on the FCC’s clarification (at both the FCC and state utility commissions),
  3. Whether additional operational or procedural changes may be needed to enhance your Company’s ability to capitalize on the deregulatory opportunities unleashed by the FCC’s action, and
  4. What actions must be taken to broaden the scope of the private carrier exemption to cover providers of Interconnected VoIP service.

In the context of de-regulating the “Business Data Services” (BDS) market, the Ajit Pai-led FCC recently issued a rare, fifteen-page explanation and endorsement of the “Private Carriage” regulatory classification.

The ability to classify a service offering (and the associated revenue stream) as “private carriage,” as opposed to common carriage, empowers telecom providers that negotiate deals on an individualized basis the opportunity to avoid the full regulatory oversight and associated costs imposed under Title II of the Communications Act.  Private carrier classification may also reduce regulatory burdens at the state public utility commission level.

By rendering a detailed and full-throated endorsement of the private carriage line of precedent, the FCC delivered much-needed clarification to the telecommunications industry, which – for years – struggled to capitalize on the de-regulatory classification due, in large measure, to uncertainty and fear.

Why uncertainty and fear?  As our firm detailed in a White Paper filed with the FCC earlier this year, the legal precedent surrounding the private carriage classification lacked the necessary degree of clarity regarding the facts and evidence required to support a claim of private carriage status (either entity-wide or as applied to a particular service offering).  Couple this uncertainty with the fear of the economic consequences of classifying services as private carriage, only to be denied private carriage status by the FCC or USAC, the Universal Service Fund administrator, and it is no wonder much of the telecommunications industry ignored the private carrier exemption opportunity for the better part of two decades.

This dynamic is counterproductive, hampering the effectiveness of the private carriage deregulatory solution implemented by Congress and upheld by the Courts.  But as we suggested during the transition to the Trump Administration, Chairman Ajit Pai’s deregulatory goals would be well served by embracing legal precedent that effectively deregulates enterprise and non-consumer facing telecommunications contracts, spurring innovation and expanding market-based competition.

The FCC’s recent action is an important step forward on the private carriage path to a less regulatory, more market-based telecommunications future.  In the FCC’s Order, the Commission defended private carriage precedent and applied the precedent to “business data services” – services providing dedicated point-to-point transmission of data using high-capacity connections.  “In doing so,” the FCC wrote, “we reiterate the Commission’s longstanding approach to the associated classification issues, guarding against any lingering misunderstandings regarding classification…”  While the FCC’s conclusions were not unanimous, with the lone Democrat Commissioner Mignon Clyburn criticizing what she termed a “lax interpretation of what constitutes private carriage,” the FCC’s action nonetheless confirms that private carriage occupies a new position of influence among the Commission’s Republican majority.

FCC Proceeding Confirms Cable Has Been Outsmarting Telcos

The FCC clarified its position on private carriage as a response to disagreement over the eligibility of business data services for private carriage classification.

Cable providers such as Comcast and Charter told the FCC in comments that they already treat business data services that they provide as private carriage services, including:

  • wholesale cellular backhaul service;
  • E-Access service (Comcast-offered service allowing service provider to purchase wholesale fiber-based Ethernet connectivity to businesses within Comcast’s footprint);
  • retail Ethernet service; and
  • business data services provided to enterprise customers.

After analyzing the way in which these companies provide service to customers to confirm they negotiate deals on an individualized basis, the FCC agreed with the classification selection chosen by Comcast and Charter.

Among those opposed to private carriage for business data services, Verizon wrote to the FCC, “some cable companies claim in their comments to be private carriers that should be allowed to operate outside the framework that applies to their competitors.  Their arguments are inconsistent with the facts and the Commission’s longstanding approach to these services.”

The FCC disagreed with Verizon.  Critically, the FCC made clear that it reviews the classification of services on a case-by-case basis, and arguments about how others in the marketplace offer their services has no bearing on the analysis.

This back-and-forth debate points to a larger trend: large cable companies have been taking advantage of private carriage for years, while some telecommunications companies have taken a more cautious approach that has meant they have forgone the benefits of private carriage.

The FCC’s Order confirms that the new Commission stands behind private carriage classifications provided that the specific facts about how the provider offers the service comply with private carriage requirements.

Am I Impacted by the FCC’s Order?

Critically, the FCC’s comments on private carriage are not limited to business data services or Ethernet services.  Most telecommunications services can qualify for private carriage status, depending on the facts and circumstances of how the service is offered (with the exception of Voice over Internet Protocol (VoIP) services, which are not currently eligible for treatment as private carriage or common carriage services for reasons explained in our White Paper).  Companies that negotiate service contracts with their customers and do not offer to provide service to the public at large can evaluate whether they are offering service on a private carriage basis.  In contrast, a business’ identity as a wholesale provider, reseller, wireline carrier, wireless carrier, cable provider, or traditional telecommunications provider is not determinative of whether private carriage can apply.  The benefits of private carriage are numerous, including exclusions from certain regulatory fees and FCC rules, even state regulatory burdens in many jurisdictions across the U.S.

If you are interested in evaluating your company’s eligibility to take advantage of the private carriage exemption; or if you have questions about the Business Data Services Order, please contact Jonathan Marashlian at (703) 714-1313, or jsm@commlawgroup.com.

DISCLAIMERS: This Advisory has been prepared for informational purposes only.  It is not for the purpose of providing legal advice and does not create an attorney-client relationship between Marashlian & Donahue, PLLC and you.  You should not act upon the information set forth herein without seeking experienced counsel.   This Advisory 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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