Hard Time

Does it seem as if FCC regulations and paperwork are dragging you down?

Over the past six months, the FCC has made several decisions that have the potential to significantly increase wireless providers' regulatory cost of doing business. Although few would debate that many of the goals of these decisions — such as provisioning E-911 service and assisting law-enforcement surveillance — are laudable, the question that arises is whether the costs incurred are appropriately distributed. Some believe that the economic burdens of these "unfunded mandates" accumulate and can be likened to a ball and chain.

Perhaps one of the most significant economic shifts occurred in December 1999, when the FCC removed provider compensation as a prerequisite for provisioning E-911 service. Until December, the commission's rules said that as a precondition for E-911 service, states had to have a mechanism in place for recovering the costs of providing this service. But in December the FCC eliminated this precondition because it "had become a significant impediment to implementation of (the first phase of E-911 deployment)." The FCC argued that providers wouldn't be hurt by this action because they remained free to recover their implementation costs by passing them on to their customers "without waiting for a State-adopted mechanism."

Not surprisingly, providers didn't welcome this action. CTIA argued in its comments that this approach would threaten both existing funding agreements and ongoing efforts to establish cost-recovery mechanisms. Small and rural providers believed that they would be unfairly injured by this rule modification because their recovery costs would be higher than those of larger providers serving denser populations. They also argued that their businesses would suffer unless compliance costs could be spread equitably among all wireless subscribers within a state. The FCC wasn't persuaded and noted that states aren't precluded from pursuing a cost-recovery mechanism "that addresses special requirements such as any disparity between urban and rural carriers."

In January, the Rural Cellular Association (RCA) and CorrComm, a small provider, filed petitions for reconsideration, arguing that the rule modification created disincentives for establishing cost-recovery mechanisms and shifted the burden onto providers. CorrComm also argued that "requiring small and rural carriers to comply with this rule, with no means for cost recovery, would be economically devastating." It criticized the FCC for failing to comply with the Regulatory Flexibility Act, which requires agencies to minimize the economic impact on small entities before issuing a final rule.

On April 21, RCA filed a petition requesting a stay of the rules pending the outcome of the petitions for reconsideration. RCA's petition is still under consideration. Meanwhile, U.S. Cellular filed a petition for review before the courts. Regardless of the outcome, compliance will come at providers' expense by consuming both man-hours and capital.

CALEA Conniptions
Like E-911, CALEA has led to FCC requirements to ensure that providers are technically capable to assist governments with call interceptions. The deadline for complying with the industry-developed standards, known as the "J-standard," is June 30, 2000. Providers unable to meet that deadline must request an extension. In addition to shouldering much of the economic burden of making their systems CALEA-compliant, providers also must participate in a time-consuming petition process if the CALEA deadline can't be met:

• Providers seeking extensions were "strongly encouraged" to file a Flexible Deployment Assistance Template with the Department of Justice (DOJ) and the FBI.

• The DOJ and the FBI will review each template and consult with the provider to develop an individual deployment schedule.

• In the meantime, the provider must file a petition with the FCC for an extension, which would be supported by the DOJ and FBI if they and the provider had reached a deployment agreement.

Many equipment vendors were unable to deliver CALEA-compliant software before the deadline. When it became clear that there would be wholesale requests for extensions, the FCC decided not to provide an industrywide waiver but instead required providers to file streamlined petitions. FCC Commissioner Harold Furchtgott-Roth vehemently criticized this approach: "We have adopted an individualized approach to a group problem (by requiring) thousands of showings by thousands of individual carriers and FCC assessments of thousands of individual petitions." In his view, "this imposes an unnecessary burden on carriers, particularly small and rural providers."

Most recently, the FCC added to the regulatory burden by creating Form 477, which providers that meet certain criteria must fill out once this year and semi-annually thereafter. On March 30, the FCC introduced the new Form 477 to gather data on the service provided to end users. Providers that met the state-by-state threshold requirements were to file their first Form 477 by May 15, 2000, and subsequent forms before March 1 and Sept. 1 each year.

The FCC said that the form's purpose is "to collect basic information about the development of local telephone service competition and the deployment of broadband services." According to the FCC, "access to this information will materially improve its ability to develop, evaluate, and revise policy in these rapidly changing areas." Although the FCC noted its attempt to "minimize the burden imposed" and focus on the provision of "easily quantifiable and readily available statistics that will reflect the level of service that is actually provided," the burden of a semi-annual filing might outweigh the value of the FCC's purpose.

Both the Small Business Administration and rural providers argued that this form would unduly burden some smaller entities and recommended exemptions for certain classes of small and rural providers. Despite these recommendations, the FCC exempted only the smallest entities because it was concerned that enlarging the scope of exemptions would create gaps in the information reported.

Offense as Defense
Although obligations such as the new Form 477 in and of itself might not appear overly burdensome, the total additional responsibilities recently imposed on providers is a matter of concern. Providers should closely watch rulemakings emanating from both the Wireless Telecommunications Bureau and the Common Carrier Bureau (CCB) because regulatory initiatives that begin in the CCB have been expanded to include wireless providers.

Providers also should play an active role in filing comments and use their comments as vehicles for assisting the FCC in evaluating the actual burden, in terms of man-hours and capital, that proposed regulations would create. In addition, ex parte presentations should focus on quantifying specific proposals' regulatory burdens in an effort to sensitize the commissioners to the cumulative effect.

As Michael Altschul, CTIA vice president and general counsel, put it: "The FCC and the public would benefit from an increased sensitivity to the economic impact of regulatory initiatives. It is up to carriers and their associations to aid this process."

Sill (wsill@wbklaw.com) is a partner and Lin (clin@wbklaw.com) is an associate at Wilkinson Barker Knauer LLP.