Perspective: Broadband users, watch your wallets

Michael Powell, the Federal Communications Commission's chairman, recently said President Bush has set out a "bold vision for broadband investment and deployment over the next four years."

Silicon Valley, you'd better watch your pocketbooks, if that vision is anything like the tortured history of FCC and state public utility commission involvement in telephone investment and deployment. This bold vision will not only be costly but could well end up stymieing the goal of competitive broadband deployment.

In Washington, choosing words carefully is important. Every sentence uttered by the president can cause tectonic shifts in thinking and actions. The president made an incredibly simple, feel-good statement about broadband: "We ought to have a universal, affordable access for broadband technology by the year 2007, and then we ought to make sure, as soon as possible thereafter, consumers have got plenty of choices, when it comes to purchasing the broadband carrier."

Those simple words will cause lots of action, not all of it positive.

There are hundreds of people running around Washington trying to figure out how they can profit, both monetarily and politically, from this bold new policy initiative. Economists call those people "rent seekers." Like all rational people, they respond to incentives--as did Powell, who heard his president call for universal broadband and claimed to be ready to work on implementing the vision.

The current slush funds used to provide narrowband service subsidies are a terrific example of what not to do.

Powell will be buffeted by all sides (and there are many) in the rush to profit from the newly articulated vision. The incumbent telephone companies will respond to the president's call by saying, "We need to get rid of the rules that were enacted by the 1996 Telecommunications Act so that we have incentive to build advanced infrastructure."

The competitive local telephone providers will respond by saying, "You need to ensure that competition can survive, so you need to doubly enforce the provisions of the Telecommunications Act.

And then there are the fiber companies, the satellite companies, the cable companies and state regulators. Consumers, overall, are likely to be underrepresented in the process.

This supposedly market-oriented administration must find a way to fund its call for "universal affordable access." The tens of billions or hundreds of billions of dollars for building the network and providing the service do not come free, even with this record-setting, deficit-spending administration.

Where will it come from? The current slush funds used to provide narrowband service subsidies are a terrific example of what not to do. These billions of dollars are raised within the telephone system and are redistributed disproportionately, on the basis of political clout; representatives of rural states have disproportionate power in the Senate and even more so on the powerful Committee on Commerce, Science & Transportation. The FCC and state commissions are looking to perpetuate the historic narrowband system by taxing voice over Internet Protocol and other broadband services they claim to want to perpetuate at low cost. Talk about a mixed message.

We need a president who can articulate a plan, not a simplistic vision that will get twisted and end up frustrating broadband deployment.

While there may be a case for providing vouchers for low-income households that would not otherwise be able to afford broadband service, the history of telecommunications subsidies shows that the vast majority of money will go to rural states and come from urban areas. This means that low-income residents of San Jose, Harlem and Washington, D.C., will not be the recipients of the majority of subsidy dollars. Instead, they will be asked to pay higher prices to subsidize high-cost rural residents, many of whom can much more easily afford to pay for broadband service.

Higher prices will frustrate the broadband desires of many low-income folks who are likely to be more price sensitive than the few higher-income rural residents they would subsidize. If our high-tech economy really wants a broadband nation, companies should fight tooth and nail against the current inefficient subsidy system and instead work to ensure that cable, digital subscriber line, wireless and satellite services--in addition to power companies and anyone else--have the ability to provide competitive service without the shackles of the narrowband subsidy system.

If the idea is to ensure that lots of people get access to broadband service, making a simplistic, bold statement like, "We want a universal monopoly provider by 2007 and competition at some point in the future" and then having policy wonks run amok is not the way to succeed.

Much better leadership would include outlining a clear and specific plan to ensure to broadband service provider competition and then to let the market provide the services Americans want. Words matter a lot in Washington. We need a president who can articulate a plan--not a simplistic vision that will get twisted and end up frustrating broadband deployment.

Biography
Gregory L. Rosston is deputy director of the Stanford Institute for Economic Policy Research and previously served as deputy chief economist of the Federal Communications Commission. He provided auction advice to Frontline Wireless.

More Perspectives

Rosston's criticism is simplistic

Rosston's article masquerades as legitimate commentary, but upon closer examination it is revealed as simply a thinly-veiled political attack on President Bush. The article is laced with Democrat talking points such as "even with this record-setting, deficit-spending administration". Not surprisingly, his partisan conclusion is that the President's leadership is lacking, and that what we need instead is a President who can articulate a plan instead of a "simplistic vision". Yet it is Rosston himself who is being simplistic. Notice how he manages to work in the mean-spirited and cliched attack on the President's supposed difficulty with public speaking. Does anybody believe for an instant that Rosston would have leveled the same criticism of "simplistic, bold statements" at President Kennedy's 1961 speech that stated, "this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth"? Yet that bold, simplistic statement catalyzed a technological earthquake whose benefits are still being reaped by humankind. That's what Presidents do, Mr. Rosston. They set agendas and lay out broad goals and policy directions, while the details are filled in afterwards by lawmakers and technologists and voters and regulatory agencies. Surely Mr. Rosston understands that, and so his commentary is shown to be merely a political harangue, nearly devoid of substance. It's a shameful performance by someone who clearly should know better.

[mtbdude666]

simplistic commentary?

i thought i used to know what a conservative was. they had principles, whether i agreed or not. they were deficit hawks and anti-regulation. they were for free markets and individualism. now so many of them are just blind followers of a lying, inept president. amazing to see the author of this piece being smeared, as i guess a liberal, for promoting the notion of free markets and fearing government control of the world's most phenomenal free market space, the internet. sad to see "conservative principles" become an oxymoron.

[nanuk2]

not simplistic, just wrong

Whether you think he's being simplistic or not, he's flat out wrong in many of his assumptions. He seems determined to drive the idea that the rural U.S. has

A) Too much political Power
B) Lots of wealthy inhabitants

What a quaint city-guy way of looking at things. When he says the rural areas "wield a dissproporionate amount of power in the senate", I guess that is sort of correct. Technically, the rural states wield exactly THE SAME power in the senate as more populous states. This is also glossing over the fact that rural states have MUCH LESS power in the House of Reps. You need both to get laws passed, by the way. Apparently he wants a situation where the more populous states decide everything, and the rest of us should sit down and shut up.

As far as his idea that all those poor urban people are paying inflated rates so rich country-dwellers can get subsidized access, I say HA!! After making a point like that, I can't believe he's ever been to a rural state. I think where he's been is a slightly rural area in a very urban state. Filled with all those "rich rural" people. Cause I can tell you not many exist in true "rural" states. Mostly poor farmers, and people who have no job opporunities outside McDonalds. And lest he forget....without those subsidies he hates, many of those people would get NO ACCESS at all. There's just not enough population density to support the cost. But I guess according to him, too bad, so sad. While he moans about an extra dollar or two on his broadband bill, most true rural areas have trouble getting even 28.8 speeds on their modems. Broadband isn't even available at all in a lot of the truly rural states. If it is, it's in one or two main population centers. Next time, try visiting alabama, north dakota, kansas, or wisconsin when you say rural. 30 miles outside of San Diego, or 50 miles from Buffalo are not rural in any way shape or form.

Where's The Beef

Another article about what...Broadband and what's not being done about leveling the field of engagement. If you're going to write about the problem, be focused in the area of where the breakdown occurs. Always quick to point out a problem but not quick to offer a solution or idea. I have been in telecom for 27 years and remember the rush to compete back in the late 90's, but never saw anyone step forward and make a stand to unify the initiative. Applause is in order to the author for writing about the obvious and providing nothing of real value in return. What a waste of talent.

Broadband Deplpyment - Many players and factors to be balanced

The broadband world has lots of obvious and not-so-obvious participants, many of whom find benefit in over-simplification or vilification. Very few of the players seem interested in getting to the "right" public policy balance of competing interests.
So who's involved and what do they need/want ?

1. Consumers: choice of more than one provider would be nice as it may actually improve both price and quality of service. But given the capital cost of deploying , it is not realistic to think that every location in every state will have multiple high-speed providers from which to choose. Many areas will be lucky to have even one high-speed option. One has only to look at how few communuities have cable tv overbuilders to figure out that multiple wires to the home (beyond current cable and phone) is only feasible in the densest of urban or commercial areas. And who should subsidize whom in the urban vs rural debate? Also, Consumers get the wool pulled over their eyes when state PUCs and feds allow telecom/cable companies to separately line item gov't fees or taxes which are imposed on the company but put on the bill as if imposed on the consumer or transaction. I never saw a case of soda or box of dish detergent that had more than a single sticker price. The latest is telcos imposing a 99 cent "regulatory fee" that looks like yet another newly imposed "governmental" charge... until you read the fine print...it's actually for the telcos to lobby the feds, and cover other "regulatory" costs, etc....

2. I-LECS. No matter what the RBOCs promise state legislators about build-outs, they seem to prefer to deploy if only they do not have to share their lines with competitors. It's probably safe to opine that RBOCs "love" the presence of competition only in-so-far as it lets them back into businesses taken away at divestiture in the mid-80's. At the same time, RBOCs in many states have gone to court to demand/preserve 100 year old advantageous regulatory schemes leftover from the "one phone company" days... A major thing the Telecom Act should have done but didn't: eliminate incumbent monopoly advantages that had no place in a the post-96 competitive environment (with the possible exception of carrier of last resort in a low density area)

3. CAPs and CLECs - some are "facilities-based", building their own selective networks; some simply want to re-sell what they get from the ILECs at wholesale prices. Most are cash-strapped and many have gone bankrupt. None have universal service requirements - often cherry-picking the most lucrative of big business customers. Residential choice for facililties based providers - except for some downtowns, only a handful of cities in the country.

4. Wireless - perhaps the most efficient means to get highspeed broadband to outlying areas and remote areas. No super expensive land-line capital costs, and perhaps, along with satellite, the only service that will ever reach parts of rural America. Assuming it was really needed, Spectrum could made available by feds with whatever free/cheap or other incentive they want to give. Except of course the feds love to auction off that public spectrum to the highest bidder.... and puts lots of money in the federal treasury...

5. Public Service Commissions and the FCC - locked in an on-going turf battle as to whom will make the regulatory/deregulatory decisions - a "national" policy which demands that "one size fits all" or 50 potentially different policies that address the needs of vastly different states.
Both naturally self-perpetuating and always seeking budget increases; who gets the job may decide which gets to survive with how much money to do the job.

6. State Gov't -They need tax revenue to provide services despite the fact that no one likes taxes. Their legislatures are bombarded by telecom lobbying interests, and, as we have seen in many states, have passed telco-sponsored laws which benefit ILECs, sometimes CLECs, and often no one else. Whatever the FCC did or didn't give gets a second go-round at the state level. Worse, some state laws have eliminated or reduced traditional local revenue from telcos, street degradation fees, or linear foot charges imposed on new conduit construction.

7. Local Govt as Landlord - the unseen and often unconsidered/disrespected player in these wars.
The old "compact" with local govt was paying a business license gross receipts tax in exchange for commercial use of public property (streets) for private profit. Some communities waived this "rent" in exchange for the public interest of circa 1890's universal service or police/fire access to that early telephone system (remember call boxes on street corners?) The majority of Local Govts, however, rely on utility taxes (gas/electric/phone/water)to make up a big chunk of the budgets which fund police, street maintenance, city hall, trash collection, etc, etc. 30% of the annual budget some places. Ditto local sales taxes on many items - including telecom. And many of those places are in states (Michigan/California/Missouri) which have passed "Prop One" type consitutional amendments - no new taxes without voter approval. So if the feds or the states preempt our traditional sales and gross receipts and franchise fee taxes, or exempt certain revenue streams from taxation just what is local government supposed to operate on ? Ironic that feds/states love to premept someone else's money before they think about giving up their own resources in the interests of broadband deployment. (FCC Spectrum auctions brought in billions to federal treasury at a time when local govt was being attacked for wanting money when our streets were dug up over and over. 8 years after Telecom Act, feds are just now announcing that they will try to coordinate use of federal lands for backbone networks - but there was no mention of "free".)Chicago, Wash DC, San Francisco, St. Louis, many others large and small>>>>almost undrivable with the frenzy of telecom conduit installs....did you know that 3 cuts reduces the life of asphalt by 33%....so Joe Taxpayer subsidizes new construction ( that probably won't come to his house ) because streets need repaving more often, or his front end needs alingment from the potholes. Local govt is labeled as "greedy" for wanting fair compensation for use/damage...but if the telcos don't pay their fair share, who covers those new costs ?

8. Local govt as provider of broadband. The Iowa experiment is amazing....Haywarden and others... which built sophisticated networks with voter approval to bring services to small towns that commercial entities hadn't provided. No different than the electric coops of the last century...
The telcos have not deployed to most of rural America but sue the cities that try to do so...

Given all these players and their self-intersts, fundamental agreement over some basic principles and recognizing more than one aspect of the very big and very complex picture related to telecom just might go a long way towards a more productive debate.

***Telephone and cable companies need to make money to suceed - but in a competitive arena, some will survive and some will fail

***Local govt and state govt also need to make money to survive (taxes)but unfortunately can't just "go away" if they go broke.
(Also note that state and local govt operate on "zero-based budgeting" and can't run deficits like the feds do - if they don't get it that year, they can't spend it.)

***If regulation is no longer so "necessary" in a free-market environment (as telcos claim) then fed'l/state/local Gov't subsidies, tax exemptions or preferences should not be needed either. Should the telecom industry as a whole be excused from taxes when other industries and individuals are expected to pay ?

***Cable TV ops pay franchise fees in exchange for use of public right-of-way to deliver private commercial transmissions to their subs. Dish-based video ops pay for transmission delivery costs via satellite. Pick your technology and take your chances - but don't cry that the other guy has a tax advantage when franchise fees are not taxes (per the 5th Circuit) but the cost of renting the route for the chosen delivery technology.

***Dog in manger doesn't cut it and no one wants to hear it any more. Either build your own network or get out of the way while someone else does. CLEC or Muni or Wireless or whatever....

***Any software that can track how much to bill me for every minute that I make a call anywhere in the world can certainly figure out the taxes for my state or city....

Until all the players stop posturing and have a real conversation about acknowleging and fairly addressing as many conflicting needs as possible, broadband deployment will remain mired in gamesmanship, jockeying, backroom lobbying, lawsuits, stalling tactics.

I sure don't have all the answers, or even all the questions. I would just love to see (dreaming tho' it might be)some REAL leadership in the public policy debate arena - looking honestly at the huge shifts inherent in an electronic world>>>>

>>run by a handful of huge and powerful companies no longer segmented into and regulated as single -service providers in limited geographic areas

>>served by multiple platforms for new types of communication methodologies

>>that can easily evade the traditional approaches to taxation on which all government relies

>>in which the consumer isn't the primary benefitee of a comprehensive public policy - only the captive ratepayer covering loads of corporate debt and acquisitions.

(In the interests of full disclosure - in case you can't tell - I work in local govt and have had both the privilege and frustration of a fair amount of personal interaction with the FCC, state PUC types, senior cable and telecom executives, and local govt groups on a number of regulatory issues since 1991. )