Tag: usf

Solving the Rural Broadband Equation — Fund Infrastructure, Not Carriers.

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A happy confluence of political circumstances has made rural broadband a hot topic and makes it possible to believe that perhaps, finally, the stars will properly align to do something more than the Connect America Fund. No offense to CAF, but everyone knows that CAF alone cannot provide quality, ubiquitous affordable broadband to all Americans. Not by a long shot.) Needless to say, Republicans and Democrats have rather different approaches to how they want to close the rural digital divide. I’ll save a comparison of what’s out there for a different post, because I want to take this opportunity to propose an entirely different approach than anything else out there at the moment.

 

It begins by recalling some wisdom I learned at my father’s knee. My father teaches tax law at Boston University. When grading student exams, he would often shake his head and sigh. “Answer the question asked,” he would say. “Don’t answer the question you want to answer because you have the answer, answer the question asked.”

 

What does that have to do with rural broadband? When we think about solving the rural broadband problem, nearly everyone tries to answer the question: “How do I find a carrier to serve rural areas.” But that’s not actually the problem we’re trying to solve. The problem we’re actually trying to solve is getting people access to quality broadband so they can participate in the modern digital economy and modern society generally. On the surface, that may look like the same thing. After all, you can’t get broadband access without some kind of carrier, right?

 

But if we start by framing the question in terms of a goal (get people broadband access) rather than a solution (find people a broadband carrier), we open a whole new world of solutions and approaches. As I discuss in more detail below, the reason rural communities don’t have broadband access is fairly straightforward: the communities in question are not sufficiently profitable to serve to justify the investment by profit maximizing firms (I’ll get to the importance of the word “sufficiently” below). If we then apply the skills we all (hopefully) learned back in high school math, we then break the problem down into solvable components. So we can either (a) raise the profitability of the target area; (b) lower the cost of deployment and operation; or (c) find entities that are either not motivated by profit or that are satisfied with much smaller profits.

 

We solved this one way back in the 20th Century. But the great virtue of the modern communications market, which allows us to break up the supply chain and bring in economies of scale from other markets, provides us with a bunch of new ways to solve the problem. Ideally, used in combination, we can have a solution that doesn’t lock rural areas in to a single, permanently subsidized provider, but instead closes the digital divide and enhances competition and potentially drives down everybody’s costs.

 

Short version — fund infrastructure, not carriers. And by “fund” I don’t just mean “throw money at,” although we need to be clear there is no way to avoid throwing money at this if we want to get the job done.

 

Lets break this out below . . . .

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

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

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

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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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Commission Meeting Happens! Begins With Gifts To Verizon and AT&T . . . .

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O.K., we finally started at 3:50 p.m. Three items left, VZ/Alltel, New Clearwire, and White Spaces. I’ll split tdo my happy dance on his in two, so I can gripe about the suckiness of the mergers while doing my happy dance on white spaces unsullied by this market consolidation.

Details of merger suckiness below . . .

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Live Blogging the FCC Vote — What If They Called A Vote and Nobody Came?

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So here I am, waiting for the white spaces vote, votes on the merger items, and a few other things. The FCC adopted two orders on circulation already — an item on closed captioning and an item on distributed television systems, a technology that will allow digital television broadcasters to keep their current viewers after the transition (I will explain this later). Given that Martin pulled the USF/Intercarrier comp itemyesterday at the insistence of the other Commissioners, that leaves (a) The Verizon/Alltel deal, (b) the New Clearwire deal, (c) the white spaces item, and (d) Google’s pending petition to have the FCC put some teeth into the C block conditions before granting the licenses to Verizon.

The meeting was scheduled for 11 a.m. It’s now after 12:30 p.m. Martin was down here for about an hour before heading back upstairs again. He appeared surprised at the delay.

Stay tuned . . . .

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

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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 . . . .

A Clarification From George Ou and Richard Bennett.

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During the VonTV Debate, I stated that I was “sensitive to the arguments of George Ou and Richard Bennett that mandatory disclosure might allow people to circumvent network management tools, but I believe we can strike a balance.” I received an email from George Ou stating that he believed I misrepresented his and Bennett’s position.

Certianly it was not my intention to misstate anyone’s position. I therefore asked both George Ou and Richard Bennett to provide me with a statement of their position to reprint on my blog. They are reproduced below in their entirety.

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