We now know what direction the FCC will take in reorganising the American telecoms market. For many years I have mentioned the rather bizarre situation in that country wherein broadband is not seen as a telecoms service but rather as an internet service, which is itself classified as providing content.

Thanks to extensive lobbying from among the telcos (who also refer to themselves as ISPs) in the early days of the internet, back in the 1990s, the FCC accepted their unbelievable proposals. As a result, over the last 20 years or so the USA’s telecom market has changed from being one of the most competitive among developed economies to what it is now: a market with hardly any fixed telecoms competition at all.

On top of this, the incumbent telcos have received billions of dollars in subsidies and tax concessions to roll out fibre networks. Although they have only delivered a fraction of what they promised, at a government level nobody is asking questions, let alone suggesting that taxpayers’ money be paid back by the incumbents.

Because of the internet classification of broadband, telcos can essentially do what they want in this monopolistic market. This has resulted in the Net Neutrality issue: in the unregulated broadband market, telcos can create different levels of broadband access based on how much the content providers—who need good quality for the delivery of video—are prepared to pay. If the telcos do not like certain content providers then they can simply choose not to provide that level of quality. They can make exclusive access arrangements based on who pays the most, and starve other content providers out of the market.

It clearly shows that the telcos have reached the stage of being ‘too big to fail’. At this point President Obama has finally stepped in, saying at his recent State of the Union address that enough was enough. These remarks were followed by the FCC ruling, known as ‘Title II’, which will reclassify broadband access as telecom access. This re-definition also applies to mobile broadband services.

Clearly the reclassification of broadband access as a telecoms service is a good first step. However, at least in the short to medium term this is not going to have any significant effect on the incumbents. The reclassification basically sets the US market back to the late 1990s, a time when other western economies started to introduce regulatory changes such as unbundling and various forms of separation (accounting separation, wholesale separation, etc). Those involved in these changes during this period know what sort of battles took place in order to get effective unbundling and effective separation. In relation to the latter, most countries are still struggling to achieve progress even after two decades.

On the Net Neutrality issue, here also the FCC will have better tools to address the misuse. It is likely that this will be enough of a deterrent to stop the telcos from moving in that direction. However, little misuse has taken place so far, so the reclassification will not result in dramatic changes.

So it is no wonder that the reaction of the US telcos has been outwardly one of rage regarding the change, but inwardly very relaxed. The share price of all the major companies involved went up following the FCC announcement.

So even if the FCC can get Title II through Congress, which is still a big ‘if’, it is going to take many years before positive effects of it will become apparent in the market. True, the FCC will have better tools to address the abhorrent lack of broadband access competition and fibre infrastructure roll outs, but the few telcos that are now left in this market are now so powerful—backed by politicians, many of whom heavily rely on telcos’ donations for their political survival—that the way towards a more competitive market in America will be a continuous uphill battle. Each of those steps will see lengthy and costly court battles. The FCC’s record of winning such battle has not been good.