In a 3-2 vote, the Federal Communications Commission recently decided to jack up its official definition of “broadband” from 200 kbps download to the 4 mbps dpwnload/1 mbps upload used as a benchmark in Our Big Fat National Broadband Plan. The three commissioners in the majority also declared that the definition of broadband will continue to evolve as consumers purchase faster connections to utilize new applications.
Several months earlier, the FCC launched a proceeding to figure out how to convert universal service subsidies for rural telephone service into universal service subsidies for rural broadband service. Put these two decisions together, and it looks like the majority on the FCC is hell-bent on establishing rural broadband subsidies as a perpetual entitlement program that will never “solve” the rural availability problem because the goalposts will keep moving.
The current USF program taxes price-sensitive services (long distance and wireless) to subsidize a service that is not very price sensitive (local phone connections). If the FCC takes a further step on the funding side and starts collecting universal service assessments from broadband, it will diminish broadband subscribership by taxing a service that is even more price sensitive: broadband connections. (I explained this a few months ago here.)
It’s time to get off this merry-go-round. The solution was suggested by MIT economist Jerry Hausman back when the FCC first started creating the current universal service programs in response to the Telecom Act of 1996: use revenues from spectrum auctions.
Instead of having the FCC perpetually collect assessments from broadband or telephone services to subsidize broadband buildout in rural areas, Congress should earmark revenues from the next spectrum auction for one-time buildout grants in high-cost areas. The grants should be awarded via a competitive procurement auction that would force subsidy-seekers in different locations to compete with each other for the federal dollars. And Congress should explicitly wind down the universal service telephone subsidies in high cost areas and prohibit the FCC from using universal service assessments to fund broadband deployment in these places.
Using revenues from spectrum auctions would avoid the distortions and perverse consequences caused by ongoing universal service assessments on broadband or telephone services. One-shot deployment grants would ensure that the availability problem gets solved, so the federal government can declare victory and get out of the perpetual subsidy business.
Of course, some locations in the US are so expensive to serve that the potential revenues might not even cover the operating costs of broadband. But it does not follow that operators in these places need an ongoing stream of subsidies. When preparing their subsidy bids, they will have to calculate how large the one-shot payment needs to be to induce them to take on the capital costs and the ongoing operating costs. In other words, they can bank some of the one-shot subsidy and use it to cover the difference between revenues and operating costs.
This modest proposal does not address all aspects of the universal service fund. But it would achieve a clear objective — bringing broadband to rural areas — while allowing the FCC to extricate itself from the business of distributing $4.6 billion a year in subsidies. Let’s see a timetable for withdrawal!
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.