5 wireline issues Wheeler will face if he becomes FCC chairman

Samantha Bookman, FierceTelecomLast week, Tom Wheeler faced a Congressional panel, one of the last formalities before he is approved as FCC chairman. It's a deal that appears to be almost done.

While Wheeler's nomination is still up in the air, it's easy to speculate as to how he'll conduct the FCC's affairs if he becomes chairman. His ties to big telcos' interests are well-known; he was head of CTIA for a decade and before that he led the National Cable Television Association, now known as the National Cable and Telecommunications Association (NCTA).

What will Wheeler's legacy be? What side will he take on the issues in front of the regulatory agency?

While spectrum allocation is currently on the table as the biggest issue in front of the FCC, what's likely to be the most notable challenge of Wheeler's tenure will be the ongoing consolidation in the industry, both between media companies and between telcos.

Let's take a look at five issues that directly affect the wireline side of the industry.

1. Broadband access

The explosive expansion of broadband-dependent applications, and the corresponding increase in consumer demand, has the FCC scrambling to regulate across several fronts. Broadband access, rural broadband initiatives, a tepid National Broadband Plan and implementation of the Connect America Fund marked the final months of Julius Genachowski's term as commissioner.

Wheeler will continue to face many of the same issues. Broadband reach is still not as widespread as it should be, particularly in rural areas; and the ability to access broadband is still a problem, particularly for citizens living below the poverty line.

In his remarks to the Senate panel about E-Rate and other broadband access initiatives for the education sector, Wheeler stuck with the obvious answer: that classrooms need next-generation connectivity. He pointed out in his opening remarks that 80 percent of E-Rate schools reported that available bandwidth was below their instructional needs. However, that didn't answer the underlying question of whether, under his tenure, most U.S. schools will get the support they need to get connected to high-speed broadband.

2. Death of the PSTN

The Telecommunications Industry Association last Friday held a meeting with AT&T (NYSE: T), Verizon (NYSE: VZ), GENBAND and XO, as well as other service providers, to talk specifically about the end of the traditional public switched telephone network (PSTN). The FCC will likely have to rule on this within the next few years. Should carriers be forced to continue to provide landline service when IP-based and wireless alternatives are surpassing it in popularity and usage?

Despite talk of shutting down POTS that stretches back for at least half a decade, many argue that it's still a critical and useful service. Verizon's recent move to replace damaged landlines on barrier islands in New York and New Jersey with its Voice Link device, which uses cell towers and a distributed antenna array to provide voice-only service, was met with howls of protest from residents and local unions.

At the same time, Verizon and AT&T are moving to migrate legacy customers across their footprints onto IP-based networks. While many of those networks still utilize copper in some fashion--for AT&T U-verse, it's typically a hybrid mixture of fiber and copper at the last mile--both want customers off of the dedicated PSTN. AT&T filed a proposal with the FCC in November 2012 asking the agency to conduct trials around the TDM-to-IP transition, one that was backed in January by the TIA.

3. Telecom and media consolidation

Beyond the essential duopoly in the United States between AT&T and Verizon when it comes to voice service and fiber-based broadband services, we are smack in the middle of an era of mega-consolidation between both telcos and media companies. Last year's nixed AT&T / T-Mobile US deal would have created a wireless giant and dampened competition, but such mergers are not impossible.

The most prominent media merger in the past two years was that of Comcast (Nasdaq: CMCSA) and NBCUniversal. Approval of the merger put the FCC under fire from several watchdog groups, which argued that programmers should not be media distributors.

But plenty of other consolidation deals have happened since then in both the telecom and cable segments. In the United States, service providers like Zayo Group have been purchasing smaller companies to expand and consolidate network assets. CenturyLink (NYSE: CTL) catapulted to Tier 1 status in 2011 thanks to targeted acquisitions of Qwest Communications and Savvis. Meanwhile, outside the United States, Liberty Global (Nasdaq: LBTYA) became the largest cable operator in the world with its purchase of Virgin Media in early June. What the influence of such multinational media companies will be on the FCC remains to be seen.

But it's this area that has a lot of people talking about what Wheeler intends to do. On the one hand, he's represented industry interests for much of his career. Does that mean he'll be in the pocket of the big companies like Comcast and Verizon? On the other hand, his September 2011 blog post about the AT&T /T-Mobile deal indicated that Wheeler is interested in expanding FCC power in order to exert greater control over the mobile broadband segment. At any rate, he downplayed that statement to the Senate panel, reported Fortune's Dan Mitchell in a recent article.

Wheeler mollified the panel further during last week's hearing. "If I am fortunate enough to be confirmed, my client will be the American public, and I hope I can be as effective an advocate for them as humanly possible," he said when asked about his industry and lobbyist ties.

4. Retransmission and online video regulation

The growth of online video, along with increasing ways to deliver content, is one of the reasons behind a dramatic jump in fees charged by media companies to cable operators and other service providers, like Netflix (Nasdaq: NFLX), to retransmit their programs.

The FCC has not formally addressed retransmission consent since March 2011, when it announced that it would take a "fresh look" at its retrans rules after several disputes led to service disruptions for consumers in many areas--such as when New York City viewers were left in the cold during the first game of the 2010 World Series due to a dispute between Cablevision (NYSE: CVC) and Fox.  

In fact, by the middle of 2012, there were at least 69 blackouts across several regions of the United States due to retrans disputes. That was a huge rise compared to the 12 blackouts recorded in 2010 and 51 blackouts in all of 2011, according to statistics provided by Time Warner Cable (NYSE: TWC) EVP Melinda Witmer at a 2012 Senate hearing to review the 1992 Cable Act.

The agency isn't authorized to participate in such disputes, but that could change. As the price of programming jumps--in the case of News Corp., as much as 100 percent year over year--and as online video providers like Hulu, Netflix, Amazon (Nasdaq: AMZN) and now Verizon's Redbox vie for content alongside more traditional broadcast mediums, retransmission may well come to the forefront of the rulemaking process during Wheeler's tenure.

The nominee himself remained neutral in his replies to the Senate panel about retransmission consent. "Today, broadcasters are using retransmission consent as a way of developing a new revenue stream where they can get revenue from subscribers through the intermediary of the cable provider," he said. "I believe in that kind of evolutionary market. What does bother me, and I think the commission needs to be attuned to, is when consumers are held hostage over corporate disputes."

5. Net neutrality

Genachowski's legacy as FCC commissioner was his pushing through approval of net neutrality rules. While net neutrality has withstood several legal challenges since, it faces at least one more under the next commissioner's watch. In September, a federal appeals court will hear arguments from Verizon and the FCC over whether the FCC is overstretching its authority in regulating the Internet.

While it's unlikely that Wheeler would upset the apple cart on this point, net neutrality will likely remain under threat for years as major carriers search for ways to gain greater control over the public Internet. FCC commissioners will need to shepherd net neutrality through a number of possible legal pitfalls, some of which haven't even been thought up yet.

Again, while Wheeler's nomination looks like a shoo-in, there's always a chance he won't be approved, and we'll go through the process with another shortlisted candidate. Either way, the issues faced by the FCC over the next three years aren't going to go away. The only thing that might change is how they're handled and where the emphasis is placed.--Sam | +Sam Bookman | @FierceSamantha