To Jumpstart Broadband Buildout, Let Consumers Decide Who Gets FCC Subsidies

Universal Service funding that is supposed to spur broadband development in rural America is padding the bottom line for incumbents who provide lousy service. To change the system overnight at no extra cost, let the subsidy follow consumer choice instead.

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“The government used to be able to coordinate complex solutions to problems like atomic weaponry and lunar exploration. But today, after 40 years of indefinite creep, the government mainly just provides insurance; our solutions to big problems are Medicare, Social Security, and a dizzying array of other transfer payment programs.” Peter Thiel, Zero to One

Peter Thiel is right.

Among the dizzying array of transfer payment programs are the Federal Communications Commission’s Universal Service programs. In particular, there is the rural and high cost program, now named the Connect America Fund (CAF).

Each year, the FCC directs the collection of approximately 18% of companies’ revenues from interstate and international telephone services and redistributes $4.5 billion of the funds to telephone companies offering mostly slow and limited internet access in rural areas. Rather than promote the best that technology has to offer, Connect America Fund is a form of insurance – insurance for incumbent telephone companies against competition.

When I worked at the FCC, folks at the agency seemed simultaneously confident and puzzled about certain phenomena. Confident that it was too expensive to build fiber optic networks throughout rural America, and puzzled about how best to encourage the telephone companies to improve their networks. The one mechanism never tried by the FCC was competitive pressure. Though the agency was once headed by a man who repeated as his mantra “Competition, competition, competition,” neither he nor his predecessors employed competition as a tool to spur investment in rural broadband.

What has been missing is the pressure of consumer decisions to direct the use of public funds. Whose decisions matter under the current system? The decisions of three people in an office building in southwest Washington, D.C. Three people pick the technologies, the type of service available in rural areas, and even which rural areas should get service. They pick winners and losers. They alone decide the type of broadband service that is supported by public funds.

If you live in rural America, how is government planning for broadband working for you? After tens of billions of dollars of public money spent in this manner, and nearly half of rural America still lacking broadband service, I’d suggest it is time to try a different approach.

So, as an alternative and fundamental shift in current policy, I offer a proposal to move the decisions about rural investment from Washington policymakers to individual rural Americans. If we change the locus of decision making, the power will shift from lobbying and campaign contributions to service and consumer spending. Such a shift would spur rural investment and would also prevent most rural areas from being locked into one technology or one service provider.

These steps require no new public funding, and they use existing structures. As such, implementation could occur within months. The fundamental change in policy resides only in who makes the decisions about the services and technology. Public funding would follow consumer choice, rather than limit consumer choice. The decisions about who gets funded would move from those three people in Washington to millions of consumers in rural America.

Here’s a five-step system to create Portable consumer subsidies for broadband.

1Use the FCC’s data to identify all areas unserved by broadband. Census blocks would be considered unserved if they lack broadband as defined by the FCC. Broadband is defined today as an evolving standard consisting of four attributes: speed (currently 25/3 Mbps), capacity (150 GB per month of data or the median household usage), latency (100 milliseconds) and price (median national price).

Aim high. Rural Americans need real broadband, too. Don’t adopt the soft bigotry of low expectations.

2.Use the FCC’s Connect America cost model to determine the appropriate level of public funding for each location in each census block. The FCC cost model was developed over many years with the cooperation of the nation’s telephone companies to calculate the cost of constructing, maintaining and operating fiber-to-the-premise networks. The FCC has used this model to calculate a level of subsidy necessary to build and provide service to every location in every census block throughout the country.

Even the best models are only tools that must be adjusted as better information becomes available. Avoid the fallacy of spurious accuracy and use the FCC model only as a starting point.

3. Make available such support to all internet service providers (ISPs) that are certified in states as eligible telecommunications carriers (ETC). The count of each ETC’s subscribers should only include broadband service and should be limited to one subsidy per location, similar to the limitation of the Lifeline program of one subsidy per household.

The concept of natural monopolies in telecommunications should have been abandoned decades ago. Telecom monopolies are government constructs that have been perpetuated by government funding. Let new companies and new technologies compete for consumers and the associated public support – rural home by rural home.

4. Every six months, when ISPs submit data to the FCC indicating geographic area, speed, technology and numbers of customers, each eligible telecommunications carrier that wishes to participate in the Connect America Fund would submit their data to the Universal Service Administrative Company. The fund administrator would compensate each carrier based upon the number of locations served with broadband and the subsidy per location per census block. The FCC would also continually update its information on where services were provided without the use of a subsidy in order to eliminate those areas from further public funding.

Adopt programs that can start quickly and be updated continually. This is a different, more flexible approach than multiple year planning processes and decades long funding commitments.

5. Any ISP could win back a customer it loses, and thereby win back the subsidy amount. This will encourage ISPs to continue to improve service offerings even in rural areas, and allow public funds to follow ongoing consumer decisions, rather than pre-set government decisions. Whether the service chosen is fiber-based, copper-based, wireless (fixed or mobile), satellite, drone or balloon, the FCC would get out of the business of determining the type of technology and attempting to compare the relative weights of technologies.

The standards for broadband should be based on objective criteria, but once that decision is made, who receives funding should be based on subjective individual consumer decisions. Don’t supplant consumer decisions with your own subjective criteria.

Unlike affordable health care, the federal debt, nuclear proliferation, or other intractable problems, the solution to broadband deployment in rural areas is straightforward. It is a solvable problem because the nation set the necessary foundation 80 years ago.

Jonathan Chambers is a partner at Conexon, LLC, a company dedicated to working with electric cooperatives interested in serving their members with broadband. Jonathan has spent most of his career working with companies building broadband networks. From 2012-2016, he took was chief of the Office of Strategic Planning.

 

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