Posted by: Hank Hultquist on May 26, 2010 at 1:06 pm
When a Red Sox fan hears the words “separation” and “freeze” in close proximity, he or she might think of Ted Williams. Unless, of course, that Red Sox fan also happens to be a telecom policy wonk (like your humble blogger). In which case, he or she might also think of “Part 36” and the regulatory alchemy by which “costs” are “separated” between the “interstate jurisdiction” and “intrastate jurisdiction.” I put these words in quotes because their peculiar usage in this arcane context should always be kept “separated” (at least mentally) from their normal meanings. In this context, we’re not talking about costs but expenses; they’re not separated like an egg, but divided like the Solomonic child; and the distinct jurisdictions arise only as a consequence of the formalities associated with the process. At its heart, “separations” is an artifice created to enable bi-jurisdictional regulation.
The rate-making process for regulated utilities always involved somewhat complicated formulas for translating capital expenditures, overhead and administrative costs (SG&A), and other expenses into prices. But only in America did regulators further “refine” this process by subdividing these things into their “interstate” and “intrastate” subparts. (I like to think of them as telecom equivalents to Leibniz’s monads, but that’s not quite right since I have complete confidence in the ability of ingenious regulators to divide them even further.)
This system, while never exactly elegant became increasingly complicated with the proliferation of unregulated services and network unbundling, the move toward incentive regulation, and the rise of competition in communications markets. As consumers have voted with their wallets for all-distance, geography-agnostic services, the continued relevance of bi-jurisdictional regulation has come into question.
By 2001, it had become apparent that the patient (by which I mean the entire system of bi-jurisdictional regulation) had an acute case of jurisdictional separations syndrome that was incurable with current regulatory technologies. So the FCC responded in the only rational way and put separations in the deep freeze for five years, in hopes that by 2006 better medicine would be available. Of course, regulatory innovations move more slowly than one would hope and in 2006 the FCC decided to keep the separations factors on ice for another three years. Needless to say, things were no better in 2009, but hope springs eternal and the FCC extended the freeze for another year in 2009 and, as of yesterday, until June 30, 2011.
I don’t mean to be critical of the FCC. In fact, I want to give a shout out to the FCC for the humane practice of regulatory cryonics. The freeze is the right thing to do, at least until we get to the point where the patient can be quietly, and respectfully, put to rest. The truth is that the patient is terminal and no future innovation in regulatory technology will change that.
