Wall Street Undecided on National Broadband Plan, Flannery Says

Wall Street has had a mixed view of the National Broadband Plan since it was unveiled by the FCC last month, Simon Flannery of Morgan Stanley said at a New York Law School symposium Monday. Blair Levin, who headed development of the plan, said it’s important that universal service reform did not emerge as a major issue of debate during last week’s Senate hearing on the plan.

"Overall, Wall Street has a balanced view toward the plan,” Flannery said. “They really are focused on the devil in the details to some extent and how exactly the implementation will work over time. So far, generally as you can see from the stock price reaction, people feel like it’s a document that makes a lot of sense for the industry and the players over the next few years.” The reaction was largely muted, he said. “I don’t think we got sort of the panic, the fear, or the euphoria that sometimes happens when there’s a big development like this.”

Year to date, the market as a whole is up 7 percent and the telecom sector down 6 percent, Flannery said. “There’s a lot of things behind that, not least of which is competition in the wireless industry, access line losses and so forth,” he said. Since the day before the plan was released the market is up 3.5 percent and the telecom sector up 2 percent, Flannery said. “Since the plan, telco has pretty much tracked where the market has gone,” he said. “I think that’s not unsurprising because the market hates uncertainty.” The view of the plan also has varied by sector, he said. “The tower companies love to hear about new spectrum coming on board,” he said. “The rural carriers are very focused on issues like universal service and intercarrier compensation. The broadcasters obviously have a real focus on the spectrum issues around them. The equipment makers can’t wait for 100 Mbps to 100 million homes over the next 10 years.”

What didn’t happen at last week’s Congressional hearing at the plan was noteworthy, Levin said. “In what Sherlock Holmes would refer to as the importance of the dog not barking, no senator chose to spend time talking about universal service or intercarrier compensation,” he said. “I'm not claiming that they all agree, but I do think it’s significant for what were the most detailed recommendations in the plan, recommendations that probably affect the most direct payments, and for what has been historically one of the most controversial elements of FCC policy, the plan’s proposals did not generate the kind of controversy that one would have thought from the very beginning."

The amount of detail the FCC has released on follow-ups to the plan is significant, Levin said. The FCC has laid out an agenda for action on more than 60 items over the next few years, he said:. “It’s unprecedented for the FCC to be this public about its agenda this far in advance. We think it’s great for everyone. It’s great for the public that wants to comment, great for businesses that need to know the direction of policy. It’s great for assuring that debate is not compressed."

The plan also forces a focus on “the inevitable spectrum crunch” of coming years, Levin said, saying that’s the part of the plan of which he’s most proud. “Doing that was not inevitable and certainly no one who sees facts through the traditional prism of D.C. politics would have recommended taking on that issue,” he said. “But given the trends for spectrum use in the market, the cost to the economy of having insufficient spectrum, the number of years it takes to reallocate, and the problematic paucity of tools we have to do so, it’s great that we're starting that process."

The FCC gets an A for effort and for providing a readable document in the broadband plan, said Eli Noam, professor at Columbia University Business School. He said it’s important that the U.S. has a plan for the first time: “Or more accurately we have a plan to have a plan. Or still more accurately a plan to have a plan to have a proceeding, which will result in litigation.”

On economics, grades are much lower, an incomplete at best, said Noam, a former state regulator. “I know Blair has said it’s not a budget plan, but as an economist, I can’t quite agree,” he said. “What does it mean to have a plan without a price tag? Hey, let’s go to Mars. Great idea, isn’t it. So one has to add some dimension of costs, and hopefully also benefit, otherwise we can find ourselves in a situation where there’s always benefits and no costs."

The plan itself claims all its provisions will be revenue neutral or even revenue positive, in other words, cost nothing, Noam said. He called that “smoke and mirrors. … I think that’s really perhaps not quite right. I say this with the greatest sympathy, but I do also think that by underplaying the cost dimensions of it we are really reducing the credibility of the whole thing.”

Some consumer groups viewed the plan as a “good start” and some saw it as a “squandered opportunity,” said Public Knowledge Legal Director Harold Feld. Like on Wall Street, the reviews have been mixed, he said. “The questions that a lot of people were asking were was the plan ambitious enough, did it address core issues around competition or consumer protection?” he said. “Did it kick too much down the road, in particular with regard to questions about competition, the open Internet, consumer protection, generally? A number of these things were acknowledged in the plan but a lot of deference was paid to ongoing proceedings, ongoing NOIs, and not a lot of details spelled out in the National Broadband Plan."

Views vary based on what the groups expected going in, Feld said. “My own personal expectation going in was the plan of itself could not do anything, by it’s very nature,” he said. “Because it was a report and especially once the decision was made not to seek a full commission vote on it, it could never have legal binding authority of itself.” Feld said he saw the plan was too pragmatic, in a bad sense. “Having been freed to a certain extent by the fact that there wasn’t going to be a vote and therefore it was always going to be in some way aspirational … this was an opportunity to swing for the bleachers,” he said. “If we were going to talk about phasing out broadcasting we should have been much more aggressive about thinking about it and not go from a trial balloon to a voluntary [approach] to a maybe it won’t be so voluntary [approach]. That’s tough, but if you're going to go for it you ought to go for it.”