Verizon's Silliman on creating regulatory balance for special access, privacy, net neutrality


with Craig Silliman, Executive Vice President of Public Policy & General Counsel, Verizon

Craig Silliman, Verizon

Silliman

Whether it is special access, net neutrality, the recent labor strike, or shedding wireline assets to Frontier, Craig Silliman, EVP of Public Policy and General Counsel of Verizon, has a full plate. A nearly 20-year company veteran, Silliman assumed additional duties in May 2015 when Randall Milch retired.

Sean Buckley, senior editor of FierceTelecom, caught up with Silliman during the TIA 2016 trade show in Dallas to talk about the pressing policy issues Verizon is dealing with today.

FierceTelecom: Tom Wheeler has certainly made waves since taking the reins of the FCC. What's your sense of his policy strategy?

Silliman: Certainly, Tom Wheeler came in with an aggressive agenda and has been around the industry for a long time. He hasn't slowed down from the day he has come in and has had a full agenda for the last year. With anyone who has a very proactive style, reasonable minds can differ on what things are positive and which things are negative. I think some things may have not been thought through and may have troubling policy implications. Privacy is one of them. Here, you have a very aggressive move by the FCC to move on privacy that actually fragments a policy regime based on center-specific regulation that sets different standards from the FTC and FCC exactly at a time when the sectors and the technologies are blending together and are becoming interdependent and indistinguishable.

I think that's an odd priority and counterproductive from the consumer perspective. On the flipside, Tom Wheeler has been extremely proactive and aggressive on 5G in a way that I think is putting the U.S. at the forefront of global 5G initiatives.

I think the FCC deserves a lot of credit for that because they could have said, 'let's wait for the standards bodies to act, you're in the last year of your administration and you won't see this come to fruition,' but they decided to lay the groundwork for this. The proactive and aggressive approach is a mixed bag. I think they deserve credit for some things and on other things they may be getting a little ahead of themselves.

FierceTelecom: You mentioned privacy proposals. What can the FCC do to make it more balanced?

Silliman: Privacy is a very hot issue and everyone wants to be at a forefront of a hot issue. I understand that and companies have their incentives, individuals have their incentives, and agencies have their incentives. Having said that, it is an odd thing in that the FCC has jurisdiction over a subset of a very large ecosystem so you're dealing with something that's very interconnected and from a consumer's perspective isn't entirely clear. You have this device and you're saying to a consumer: 'you have different rights depending on if something is happening at the network layer, versus the app layer players versus OS layer,' which is not something we should expect consumers to understand.

You also have an aspect, interestingly, where the primary players in this are easily outside of the FCC's jurisdiction. The big players in online advertising and data monetization are not the companies within the FCC's ambit. It's odd in that sense that you'd be setting a different level of rules for the companies that are potentially the insurgents and the challengers to the big players. It's one that will go on well beyond Tom Wheeler's tenure.

FierceTelecom: A number of telcos maintain that FCC's net neutrality rules to reclassify ISPs under Title II of the Communications Act will chill investments. Do you think this is the case?

Silliman: We're all guilty of being a little too binary on these things: investment just turns on and off. It's not that simple. There are many, many factors that go into capital allocation and business cases. Now, is regulation one of them? Absolutely. But is it the only one? I was amused when we did the AOL deal. There was one particular group that said this is $4.4 billion of wasted money that could have been invested on broadband buildout. That's the point in that you look at your capital dollars, and where do you invest, and you allocate your capital dollars accordingly. Clearly, it does drive investment one way or another.

Part of the reason it gets more nuanced is that the Title II reclassification was about asserting jurisdiction. The real question is, what do they do with the jurisdiction? Does the FCC use that jurisdiction in ways that say I can't make a business case on something versus something else?

It's premature to see that, because they have not done very much in terms of that jurisdiction yet. If they don't, it may not have much of an impact on investment, and if it does then you could see an impact. I think the idea that suddenly a decision was made on one thing, you won't see people that built capital plans suddenly turn off the spigot. It's more like turning an oil tank where over time you see the impact and how the decisions are actually implemented and you begin to see investment dollars flow one way or another accordingly.

FierceTelecom: Another key issue is special access front, where Verizon joined with Incompas to come up with a compromise for CLECs and incumbents. How do you see this market progressing and how does your proposal address concerns of all of the stakeholders?

Silliman: We thought long and hard about that. When you look at the regime that applies to the purchase of various network elements, there's a regulatory regime that applies to special access, which is basically ILECs selling copper services. There's a different regime that applies to Ethernet and it differs based on providers. Cable operators are regulated a certain way and ILECs are regulated a certain way and Verizon was regulated a certain way because we had this deemed forbearance request that was different than anyone else in the industry.

We often talk about in the policy regime that good policy is technology neutral, it's provider neutral, there's a coherent framework, and where there's competition you have less regulation and where there's not competition it should be carefully tailored. We stood back and said that and looked at this overall regime and said, 'you have this proceeding running on special access, but it's fragmented.' You have different regulatory regimes based on different technologies that are competing with each other, different providers that are competing with each other. The FCC was coming out and are saying: 'we want to step back and put in place a regime that says we want to regulate on a level playing field basis across providers and technologies based on an analysis of, is there competition or is there not. If there's competition we'll have a lighter-touch regime, and if there's not competition we'll have more regulation.'

We looked at that and said as a matter of good policy it's hard to criticize that -- and that in fact is what we often call for. Does that potentially hurt our revenues in some areas? Yes it does. It also is a coherent regime that is a little more predictable.

We sat down with Incompas and said, 'rather than this, we're trying to defend our revenues here and looking at buying things here, and you guys are looking to get prices down here, we should come together and support a regime that makes sense and is not based on different rules and different technologies.' Where is there competition and is there not? If there's not, then let's have some form of regulation.

Then the question you have to get right is how do you measure competition, and what are the rules that apply whether there is less competition. But for us it felt like good policy and that we should get behind it even though it meant giving up some areas where we were beneficially treated, but we felt we're in a position where we both buy and sell. We looked at it and said we can't just argue for policy based on where we sell, but we also want to look at it where we buy. It's a compromise, but it's a compromise based on good principles of saying 'we're going to support the FCC moving towards a principle-based regulatory regime.'

FierceTelecom: While special access addresses copper-based services, Ethernet is the next ongoing step with BDS. Do you think the market is competitive enough that we don't need any additional regulation?

Silliman: We certainly expect that if you have a competitive market and you have competitors coming in and overbuilding, for example. The de facto effect of that is going to be, you're not going to end up regulating those types of providers because they brought competition to the market.

If the FCC sets up the regime properly, you're going to recognize competition and not regulate in those areas. You certainly are going to not want heavy-handed regulation on markets that are competitive. I think the coherent way to do that is look at if a market is competitive and not say there's this category of providers who by definition are regulated or not regulated. You need to get the details right on how you define competition and where there isn't.

Even as a buyer of services, you don't want to discourage new entrants from coming in and building. Our goal as a buyer is we want as much competition as possible. You want in those areas, even where there isn't competition, to set up a regime that encourages competition to come in and overbuild and you can lift the regulatory regime.

FierceTelecom: Speaking of Ethernet and fiber, Verizon will enhance its own footprint when it completes its XO acquisition, but some CLECs say it would hamper Ethernet over Copper (EoC) competition. How should competitors view this deal and its impact?

Silliman: We have our different businesses: we have consumer, wireless, and our enterprise business. Both wireless and enterprise are constantly looking at acquiring network to serve enterprise and for backhaul on cell towers and antennas. Obviously, as you look at your wireless business, there's a tradeoff between buying more spectrum and the capital expenditure of densifying your network to use the spectrum you have. When you look at that from an acquiring backhaul or acquiring services to serve enterprise customers, you can build, buy or lease.

When we looked at XO, we looked at it as an opportunity to say, 'we're leasing a lot of fiber, we're looking at buying in some places, and it was a cost effective way to go in and acquire fiber we need for our wireless and enterprise business.'

I don't there are any major concerns. Outside of our wireline footprint, there's very little overlap with the XO assets. Inside the wireline footprint is the Northeast corridor, which is some of the most competitive and overbuilt areas for fiber. We think there's no anti-competitive effect there and I am not worried about that. It's simply an opportunity to enhance our network in a way that we would have to buy, build or lease.

FierceTelecom: On the local level, Verizon worked with Boston to ease restrictions and delays with the permitting process. How important is streamlined permitting for building out additional wireline facilities in your footprint?

Silliman: You get into the nitty-gritty of putting fiber in a city from rights-of-way, to permitting, to just the business case. A couple of things we did in Boston were very interesting. The city was very progressive in saying 'we wanted to be at the cutting edge of technology and have the infrastructure to draw the talent into the urban environment' so they were great to work with, and we saw it as a win-win.

We looked at it and said, 'if you look at fiber to the home to potentially serve enterprise customers, for smart city applications, and backhaul on 5G -- you look at it holistically.' From our perspective, we began to look at the economics around the builds of what incents you to build fiber. You look at it from the city and say we're putting in fiber and you get smart city benefits, 5G, and fiber to the home.

As a credit to Google Fiber (NASDAQ: GOOG), we realized if you're doing a scattershot build across the entire city you lose efficiencies. One of the things we worked on in Boston was that we'll come in and if we can do a pre-subscription model where we're going to build in neighborhoods where there is the most interest, then you really go after it, you trench the street once, and you have the economy of scale to build a lot of people at once.

We made very sure that we're starting in areas in Boston that are underinvested so they can become investment and innovation hubs. It's all about focusing all of your buildout efforts in one area and moving onto the next instead of being scattershot across the city. We think that will make a difference in the economics and the speed of the build. We're excited about Boston because we'd like to see that as a model with other cities. If we're successful there maybe we can take it elsewhere.

FierceTelecom: If Verizon were to sell more of its properties, would there be a lot of regulatory challenges on the state and local level?

Silliman: If you look at the California, Texas and Florida deal, those were three islands. From a consumer perspective, you're marketing in a particular geography and half of the people who see your ads may not be able to get FiOS because it's not in their area. Having these islands did not lend itself to building out FiOS further. We're now down to the Northeast corridor, from Boston down to D.C., and you have the contiguous areas there that make a lot more sense. We see that as a strategic area of the country. We see as it as a strategically important asset to us, so right now we're not looking to sell. 

Verizon's Silliman on creating regulatory balance for special access, privacy, net neutrality
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