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FCC Ex Parte regarding the Framework for Broadband Internet Service ("the Third Way")

Submission Date: 

October 25, 2010


Marlene Dortch
Federal Communications Commission
445 12th Street, SW
Room TW-A325
Washington, DC 20554

Re: American Cable Association ("ACA") Notice of Ex Parte Presentation; Framework for Broadband Internet Service, Notice of Inquiry; GN Docket No. 10-127.

Dear Ms. Dortch:

ACA has previously filed comments in this docket discussing how departure from the Commission's highly successful "light touch" regulatory environment for broadband Internet services to impose economic regulation on providers of broadband Internet services risks foisting on smaller providers increased regulatory burdens and costs that will impair their ability to expand their broadband offerings. In particular, in its filings, ACA has highlighted the practical implications of adoption of the "Third Way" proposal put forth in the Notice of Inquiry (NOI) on smaller operators. In addition, ACA has placed particular emphasis on the legal and procedural infirmities of the Commission's apparent intention to bypass the rulemaking and regulatory flexibility analyses of the Administrative Procedure Act and the Regulatory Flexibility Act and move instead directly from the NOI to a declaratory ruling reclassifying broadband Internet service as a telecommunications service, subject only to those provisions of Title II of the Communications Act over which the Commission declines to exercise its forbearance authority.

The Small Business Administration recently marked the 30-year anniversary of the Regulatory Flexibility Act with a full-day event, "RFA@30." During the event, Cass R. Sunstein, Administrator, Office of Information and Regulatory Affairs ("OIRA"), delivered a speech entitled "Open Government is Analytic Government (and Vice-Versa) Remarks on the Occasion of the 30th Anniversary of the Regulatory Flexibility Act," that fully supports ACA's call for the Commission to follow the mandates of the Regulatory Flexibility Act before taking the formidable step of reclassifying broadband Internet service from an unregulated information service to a heavily regulated common carrier service. As the OIRA Administrator succinctly states, the RFA requires agencies to "‘look before they leap,' obtaining a sense of the consequences" of regulatory action before it is adopted. This is precisely what ACA has urged the Commission to do in its filings in this docket. By failing to heed this call, the Commission appears poised to do the exact opposite of what OIRA Administrator Sunstein and the Administration say government agencies should do with respect to new regulations: by leaping before it looks.

In an ex parte letter describing a meeting with General Counsel Schlick filed on September 15, 2010, ACA explained that following standard rulemaking procedures before taking steps to reclassify broadband Internet service as a common carrier offering is not discretionary to the agency, but is in fact required by law.

[A]ny action that requires a notice and comment rulemaking proceeding under the APA and that will have a significant economic impact on small entities also requires that an initial and final regulatory flexibility analysis be performed pursuant to the Regulatory Flexibility Act prior to the ruling taking effect. Because ACA has conclusively demonstrated that reclassification under the Third Way will impose substantial regulatory obligations that will have an immediate and significant economic impact on small providers, the Commission is required by law to perform both an initial and final regulatory flexibility analysis prior to permitting the ruling to take effect. ACA's Comments and Reply Comments discuss the fact that Congress has recognized that federal regulatory and reporting requirements designed for application to large scale entities can have a disproportionately burdensome impact (including legal, accounting, and consulting costs) upon small businesses. Further, that failure to recognize differences in size and scale and resources of regulated entities "has in numerous instances adversely affected competition in the marketplace, discouraged innovation and restricted improvements in productivity."

Accordingly, the RFA requires administrative agencies to assess the level and extent of the regulatory burdens, their impact on small entities, and also to consider flexible regulatory proposals aimed at minimizing the impact on small entities, when contemplating the imposition of rules with significant economic impact on small entities. Specifically, this legal obligation attaches to rulemaking proceedings requiring notice and comment under the APA. For all such proceedings, the RFA requires agencies to perform an initial and final regulatory flexibility analysis. The analysis must, inter alia, (i) describe the impact of the proposed rule on small entities;(ii) provide a description of the projected reporting, recordkeeping and other compliance requirements, as well as the type of professional skills necessary for preparation of the report or record; and (iii) offer a description of any significant alternatives to the proposed rule which accomplish statutory objectives to "minimize any significant economic impact of the proposed rule on small entities." Further, the statute requires that the "initial regulatory flexibility analysis or a summary shall be published in the Federal Register at the time of the publication of the general notice of proposed rulemaking of the rule." Additionally, the agency "shall transmit a copy of the initial regulatory flexibility analysis to the Chief Counsel for Advocacy of the Small Business Administration."

These are mandatory obligations, imposed by Congress in the RFA for the protection of small entities, and they require a level of specificity and analysis of prospective regulatory burdens and economic impacts entirely lacking in the NOI. ACA and others have demonstrated that the Third Way regulatory obligations contemplated by the NOI will have significant economic impact on providers. Furthermore, reclassification risks imposing precisely the types of disproportionate burdens on small providers that Congress intended administrative agencies to assess and minimize prior to the adoption of rules with prospective effect.

In his RFA@30 speech, Sunstein relates the role of the RFA to President Obama's call for open government by focusing on transparency, participation and collaboration.

My central claim in these remarks is that there is a close connection, even an inextricable relationship, between analytic government and open government. If regulatory choices are based on careful analysis, we will be able to identi[fy] new and creative approaches designed to maintain and to promote entrepreneurship, innovation, competitiveness, and economic growth. These points have special importance in a period in which it is crucial to consider the effects of regulation on small business - and to ensure, in accordance with the first declaration of purpose in the Regulatory Flexibility Act, that agencies "seek to achieve statutory goals as effectively and efficiently as possible without imposing unnecessary burdens on the public."

Sunstein's speech notes that President Obama has also "placed a great deal of emphasis on the importance of sound analysis and of ensuring a careful accounting of the anticipated consequences of regulation. As the President as said, ‘Sometimes regulation fails, and sometimes its benefits do not justify its costs."" The key to smart regulation, accordingly, is analysis, and that analysis includes both the cost-benefit analysis required by Executive Order 12866 and the regulatory flexibility analysis required by the RFA. The RFA, according to Sunstein, plays a key role by imposing analytic demands on government that attempt to ensure that important decisions are properly informed by taking into account in advance the effects of regulations on small business. The President's call for open government emphasizes three separate points, government accountability via "sunlight," government access to dispersed information through public participation, and government providing public access to data used in decision-making. The RFA, in Sunstein's view, plays a vital role in achieving the goals of transparency, participation, collaboration and sound analysis.

Analysis in general, and the RFA in particular, should be seen as part of a broader effort to subject regulatory decisions to public scrutiny, with close reference to evidence, and thus improving them - not least by increasing benefits, decreasing burdens, and pointing the way toward creative and original solutions.

This approach is fully consistent with steps that Chairman Genachowski has taken to steer the Commission on a course to conduct its business in an open, transparent, and data-driven manner.

Sunstein describes how the following the mandates of the RFA will help to realize the shared open government value of transparency:

Sunlight/Accountability: "Before acting, regulators should attempt to obtain a clear and concrete understanding of the likely effects of what they propose to do. To do that, they should enlist sunlight as a disinfectant. This is a central goal of the RFA insofar as it requires, in advance, a statement of the need for the rules, a description of alternatives that minimize economic effects on small entities, and a process that calls for responsiveness to public comments." "It helps ensure that policies are not based on speculation and guesswork, but instead on a sense of the likely consequences of alternative courses of action. It helps to reduce the risk of insufficiently justified regulation, imposing serious burdens and costs for inadequate reason. It also helps to reduce the risk of insufficiently protective regulation, failing to go as far as proper analysis suggests."

Dispersed Information/Public Participation: "A large advantage of notice-and-comment rulemaking is that it allows agencies to offer proposals, and supporting analyses, that are subject to public scrutiny, and that can benefit from knowledge that is widely dispersed in society." "With its emphasis on public comment, the Regulatory Flexibility Act reflects the same understanding. The initial regulatory flexibility analysis is subject to a comment period, followed by an analysis that explores significant issues." "In its 2010 Report on the Benefits and Costs of Federal Regulations, OMB specifically noted that ‘some regulations have significant adverse effects on small business' and that ‘it is appropriate to take steps to create flexibility in the event that those adverse effects cannot be justified by commensurate benefits.'"

Data/Accessibility. "The RFA creates a process by which the public is able to find (among other things) (1) a succinct statement of the need for and the objective of relevant rules; (2) a summary of the significant issues raised by the public, alongside a summary of the agency's assessment of those issues; and (3) a description of the projected reporting, recordkeeping, and other compliance requirements. Importantly, small entities are entitled to participate in the RFA process, to help shape rules, and to see relevant material long before regulations put in place. This material is something they can "find and use" not least because advance notice promotes predictability and avoids unfair surprise."

Sunstein also notes that in 2010, the Office of Management and Budget has issued two data calls to agencies that are closely aligned with the goals of the RFA. The first encourages information collection burden reduction initiatives by agencies in recognition of the fact that economies of scale may make a collection more burdensome for a small entity than for a large one. The second reminds "each agency of its obligation to ‘tailor its regulations to impose the least burden on society . . . taking into account, among other things, and to the extent practicable, the costs of cumulative regulations," and asks that each agency "‘identify regulations that are of particular concern to small businesses,'" and discuss them "‘in a separate section of the introductory narrative.'"

As ACA has urged in its previous filings in this docket, the Commission can better achieve its goals of protecting and promoting an open Internet through open and analytic government if it conducts its examination of the appropriate regulatory framework for broadband Internet service in accordance with the mandates of the Administrative Procedure and Regulatory Flexibility Acts. This will require adoption of a notice-and-comment rulemaking notice that includes an initial regulatory flexibility analysis that contains, among other things:

  • A description of the reasons why action by the agency is being considered;
  • A statement of the objectives of, and legal basis for, the proposed rules;
  • An accounting of the number of small entities to which the rules will apply;
  • An exploration of the significant alternatives that minimize significant aspects of impacts on small entities; and
  • A description of the reporting, record-keeping, and compliance requirements.

Following receipt of public comment and analysis, the report and order adopting the rules must have a final regulatory flexibility analysis that contains a response to significant issues raised by public comments. In light of the significant economic impact that reclassification of broadband Internet service will have on small providers, it is incumbent upon the Commission to "look before it leaps" into Title II until it can assess and adopt flexibility regulatory approaches for small entities. As a recent Oregon ruling demonstrates, the courts will invalidate regulations adopted without the benefit of regulatory flexibility analyses required by law. The Commission similarly would put at risk any reclassification determination if it fails to conform to required processes in this case.

If you have any questions, or require further information, please do not hesitate to contact me directly. Pursuant to section 1.1206 of the Commission's rules, this letter is being filed electronically with the Commission.



Barbara S. Esbin



2010 10 25 ACA Ex Parte FINAL as filed.pdf263.31 KB

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