Tales of the Sausage Factory

Title II And The Return of the “Gore Tax.” Or, The Debate We Should Be Having.

Hal Singer and Robert Litan over at Progressive Policy Institute caused some stir recently with this paper claiming that if the Federal Communications Commission (FCC) reclassifies broadband as a Title II telecommunications service, it will tack on over $15 billion in new state taxes, fees and federal universal service charges. As Free Press already pointed out, (a) Congress extending the Internet Tax Freedom Act (ITFA) in the recent “CRomnibus” funding bill” takes the state tax issue off the table; and (b) even without ITFA, the PPI Report made a lot of questionable assumptions to reach their high number.

 

Update: Senator Ron Wyden (D-OR), one of the drafters of the IFTA extension, has this short but forceful statement about the claims that reclassifying broadband as Title II will allow states to tax broadband access despite IFTA. “Baloney.”

 

Happily, the ITFA extension lets us blow past the debate about whether states even use the FCC definition of “telecommunications” for revenue services (many don’t, see, e.g., this tax letter from Tennessee as an example). We can cut right to the chase on the big thing ITFA doesn’t cover — Universal Service Fund (USF). Here again, I want to blow past the question of the numbers used by PPI (which rely on a set of assumptions that amount to what we call in the trade a SWAG (“scientific wild ass guess”)) and focus on the debate we should be having — do we still believe in Universal Service or not?

 

If we no longer believe in Universal Service as a fundamental principle, fine. Lets own that and end the program. If we do believe in the principle of universal service, and we agree that broadband is the critical communications medium of the 21st Century, it makes no sense to play tax arbitrage games with definitions. The FCC continues to play silly, complicated games with the Connect America Fund (CAF) because everyone wants to redirect USF support to broadband but nobody wants to include broadband in the contribution base. As a result, an increasingly smaller base of voice services is supporting an increasingly larger set of overall services. This makes no sense and is inherently unsustainable.

 

As I explain below, this isn’t the first time we’ve debated the importance of universal service and whether we care enough about it to pay for it. Nor will reclassification trigger some sort of “sticker shock,” as the PPI paper suggests. Instead, as I explain below, reclassification is the prelude to the real debate we need to have on whether we still believe in the fundamental principle of service to all Americans, or not.

 

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Tales of the Sausage Factory

First Step Reforming FCC’s Universal Service Fund? An Honest Evaluation of the Goals and Trade offs.

The problem of reforming the Universal Service Fund (USF) without Congressional direction means working without clear guidance on what the FCC should, institutionally, hope to achieve. “Broadband!” Is the usual answer from reform proponents. “Basic broadband for everyone! And eliminate waste. And spur investment. And promote innovation. And create jobs. And education. And –“ Well, you get the idea.

Listening to the FCC Commissioners at the open meeting, and reading through the released materials, my sense is the FCC has decided that we ought to maximize the number of people who have access to a threshold level of broadband. That’s not necessarily a bad goal. At the same time, the general impact of the proposed reforms favor larger carriers providing minimal service over smaller, local providers that may provide significantly better service.  That may still end up being the best way to maximize “bang for the buck” and may ultimately benefit the largest number of Americans. But if we are going to make that choice, we ought to do it explicitly, and in a way that minimizes the harm to those who did a good job under the old rules. Even better, we ought to consider whether we will really get the broadband bang for the USF buck the FCC appears to expect by reverting to what is, in essence, a return to the universal service model we had under the AT&T monopoly and the Communications Act of 1934 rather than the more locally-oriented model adopted by Congress in the Telecommunications Act of 1996.

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Tales of the Sausage Factory

What’s A POTUS SOTU Shout Out On Wireless Worth?

Last night, the wonkiest corner of telecom policy experienced its 15 picoseconds of fame when President Obama invoked spectrum policy in his State of the Union (SOTU) Address. In nerdness terms, this would be like James Franco and Anne Hathaway pausing before the Best Picture Oscar to announce this year’s Nebula Award for Best Dramatic Presentation.

Needless to say, I am uber-pleased to have the geekiest of Presidents acknowledge the wonkiest of my issues. But does it do any actual good? I explore this below . . . .

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Tales of the Sausage Factory

Incumbents Bring Tea Party Tactics To Title II Reclasification Fight.

I have never accused the incumbents of being overly subtle, especially when they feel threatened. But this new 14-page letter from the major cable and telco trade associations — as well as from the three biggest ILECs and Time Warner Cable (Comast shows unusual, perhaps merger inspired, diplomacy by sitting this one out) — hits a new low on the “Lack ‘O Subtlety Meter.” Given that the only one actively pushing reclassification these days has been yr hmbl obdn’t blogger, I should take this as a tribute to my personal skill. But it seems more likely an extension of the “shock and awe” tactics used by the incumbents to try to derail NN from the beginning.

Of course, this goes well beyond network neutrality. As AT&T’s previous lengthy exercises trying to justify Universal Service Fund reform under Title I (as well as AT&T’s less-than-direct acknowledgment that eliminating the phone network in favor of an IP-based network would eliminate interconnection requirements and complicate public safety access) attest, the question of FCC authority over broadband and what it can or can’t do under Title I impacts every area of the National Broadband Plan agenda.

Most of the argument in the letter is pretty standard, boiling down to “the universe is great under Title I dereg, don’t mess it up,” “Title II will impose horrible regulation, kill investment, destroy jobs, strangle puppies, etc.” with an additional “the FCC has no basis to change classification because nothing important has changed since the FCC reclassified last time.” Two things, however, require attention. Sadly, they mark the introduction by major players into the realm of “Tea Party” tactics similar to the Death Panels and mud slinging that have infected the health care debate and the financial reform debate.

More below . . .

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Tales of the Sausage Factory

Fairpoint Tries To Scuttle Maine Broadband Stimulus Grant

Ya know, if my state got a grant for $24.5 million to build out broadband networks in underserved areas, I would jump for joy. Not only does that mean jobs in the short term, but economic development in the long term. So why did Maine State Senator Lisa Marrache (D-Waterville) and Maine State Rep. Stacey Fitts (R-Pittsfield) introduce legislation to keep the University of Maine from participating in the $30 million partnership project with Great Works Internet (also based in Maine)? is it a coincidence that Fairpoint — that champion of rural private sector broadband which has proved the power of the private sector by defaulting on debt, declaring bankruptcy, and pissing off regulators — has been busy challenging this application and has been chanting the usual slogans about how the public sector should (a) keep out of broadband, and (b) hurry up with my Universal Service Fund bailout?

Without knowing whether Marrache and Fitts are direct recipients of Fairpoint’s campaign contribution largess, or merely ideologically sympatico with the notion of keeping federal money for job creation out of Maine and telling their constituents that they’ll get broadband when Fairpoint is good and ready to give it to them, this little incident provides a valuable reminder why Congress ought to finally pass the Community Broadband Act, which would prevent states legislatures from shafting their citizens in the name of ideological purity.

More below . . .

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Tales of the Sausage Factory

Waxman Gets It Right On USF Reform –Use Subsidies To Open Networks.

Although it doesn’t have a chance of passing this Congress, particularly with the utter gridlock over the bail out, but I gotta give a shout out to Rep. Henry Waxman (D-CA) for his targeted approach to solving the roaming problem in wireless. The proposed bill, H.R. 7000, says that any wireless provider that takes Universal Service Fund (USF) money needs to provide roaming to all other carriers “at just and reasonable rates, consistent with Sections 201 and 202” of the Communications Act. It does not require tariffing or rate regulation. It refers disputes over whether the terms are reasonable or the technology technologically compatible to the FCC, to handle under its well developed wireline procedures.

An entity can opt out of the program at any time by saying it no longer wants high-cost USF subsidy. But if you take government money, you need to provide roaming at just and reasonable rates.

And here is the kicker that makes it effective. The obligation to provide roaming applies to the entity accepting the USF, and any affiliates. In other words, if you have a rural subsidiary of one of the major carriers, then that carrier has to enter roaming agreements for its entire network. So if AT&T or Verizon are getting subsidies for “rural affiliate co.,” taking the money would require them to do roaming agreements on reasonable rates throughout their systems nationally. Don’t like it? Either stop taking public money or sell the rural carrier off to someone else who will do reasonable roaming.

I expect critics to say that this will mean wireless rural carriers will go under and the only thing to do is give wireless carriers money with no strings attached. I am dubious myself. Yes, the larger carriers may value their control over roaming to divest rural carriers. But there are plenty of mid-size carriers or small carriers willing to absorb these companies in exchange for federal subsidies who won’t mind making roaming agreements. Nor am I so convinced that the major carriers will actually decide they’d rather forgo the considerable subsidies they get now simply to preserve their control over roaming. Besides, if excluding parties from commercially reasonable roaming agreements is such an important element of the business model of major carriers, we have a bigger problem that needs to be more broadly addressed.

For too long, we’ve succumbed to the twin arguments that we must subsidize business to get policy goals, but we cannot actually demand anything in return because that would scare away the shy little beasties we are trying to coax, cajole and outright bribe into good behavior. I think it’s time to test that theory a bit. Although I’m doubtful the Waxman bill goes anywhere in the current Congress, I can hope that when Congress reconvenes in 2009 it will be reintroduced and given serious consideration.

Or instead, perhaps carriers will see the writing on the wall and try to solve this problem at the FCC before Congress reconvenes. Either way, its a good bill that nudges us closer to a more pro-competitive roaming policy.

Stay tuned . . . .

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Tales of the Sausage Factory

Senators McCaskill & Klobuchar Understand The Biggest Problem in Telecom Policy: Changing How Policy Gets Made

If their performances at Tuesday’s Senate Hearing on Universal Service Fund Reform (USF) are any indication, I am definitely going to become a huge fan of Frosh Senators Claire McCaskill (D-MO) and Amy Klobauchar (D-MN). After listening to FCC Commissioner Deborah Tate (who chairs the Federal-State Joint Board on universal Service that oversees the Universal Service Fund) explain that USF reform has stalled because it has been impossible to get “consensus” from the industry “stakeholders,” Senator McCaskill said:

What you’re basically saying to us is the FCC is incapable of moving forward on reform unless all the people who are making money say it’s OK, and that’s hard for me to get my arms around.

Senator Klobuchar echoed similar incredulity and disbelief.

I hope these two maintain that sense of disbelief and outrage. Because the ideas espoused by Tate on the proper role of the FCC and Congress have become so embedded in telecom policy that even friends of the public interest take it as a given.

But hopefully, thanks to McCaskill, Klobuchar, and the other progressive “freshmen,” that may change.

More below . . .

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