Articles by Brent Skorup

Brent SkorupBrent is a senior research fellow with the Technology Policy Program at the Mercatus Center at GMU. He has an economics degree from Wheaton College and a law degree from George Mason University. Opinions are his own.

Every week, it seems, there is a news story about another air taxi startup or test flight. Another signal of the industry’s development is that at a House Transportation and Infrastructure hearing last week, Eric Fanning, the President and CEO of the Aerospace Industries Association, devoted most of his testimony to urging lawmaker action on air taxi (also called vertical takeoff and landing aircraft and, colloquially, flying cars) policy and infrastructure.

The technology is exciting but federal officials are interested in whether the air taxi industry will be a drain on taxpayers. Using government estimates of the air taxi industry and current tax rates for infrastructure-based industries like wireless and oil extraction, I estimate that the air taxi industry could deposit tens of billions of dollars into the US Treasury annually. Hopefully the hundreds of air taxi “vertiports” required are privately funded as well.

Air Taxi Market Size

In November, I published a Wall Street Journal piece about the rapid development and promise of the air taxi industry. Around that time a Treasury official inquired as to the potential size of the air taxi market and government revenue. I wasn’t aware of any estimates at the time. Nevertheless, I estimated that the US market could one day reach $200 billion in revenue annually–about the size of the current US aviation market and the US wireless broadband market.

Other analyst and government estimates are now coming out, turns out, my estimates were on the conservative side. For instance, a NASA-funded study (.pdf) estimated that, at the upper limit, the US market could approach $500 billion annually, which is nearly the size of the US auto market. That would require tens of thousands of air taxis serving over 10 million passengers per day.

Experts at McKinsey, NASA, and JP Morgan Chase estimate that the global air taxi market could be anywhere from $615 billion to $3 trillion annually by 2040. Given the potential for this industry, other countries are moving quickly to commercialize air taxis. A German consultancy, Roland Berger, predicts there will be 3,000 commercial air taxis by 2025. The drone expert at the World Economic Forum believes Chinese companies are far ahead when it comes to autonomous air taxi service. That said, the operator of the Frankfurt airport announced a partnership with an eVTOL company recently, and the powerful Japanese trade and industry ministry has convened a 25-member private-public council to develop air taxis. Japanese regulators intend to make Japan the birthplace of urban air taxi service.

Private or Public Funding of Vertiports?

A key decision for US lawmakers is whether the hundreds of vertiports in the US will be privately funded and operated or will, like today’s airports, receive subsidies and public operation. A NASA study estimates that each major US city could support on average about 200 “vertiports.” That would be a major drain on taxpayers if publicly funded.

My working paper on the subject of air taxi traffic management contemplates entirely private funding of urban vertiports and infrastructure. It also proposes that the government auction aerial corridors to air taxi operators. Private infrastructure and the auction of exclusive aerial corridors, in my view, is the safest and most fiscally responsible way to develop the American air taxi market.

However, the FAA and NASA’s plans are unclear on whether air taxi infrastructure will be funded by taxpayers or funded privately. There’s a good chance the FAA and NASA will import the norms and regulations for traditional aviation–open access airspace and public funding of shared airports–into the urban air mobility market. I think that would create an anticompetitive market and be an unnecessary drain on taxpayers.

Government Revenue From the Air Taxi Industry

How much government revenue could be generated by the air taxi industry? We can look to other assets that are auctioned by government for analogues: spectrum and offshore oil sites. There is no “spectrum tax,” but wireless taxes and fees resemble a de facto tax on cellular spectrum. The Tax Foundation puts government (federal, state, and local) wireless taxes and fees at around 9% of annual wireless revenues. For oil leases on federal property, there is a government royalty amounting to about 12.5% of oil revenue.

With these figures in mind, let’s assume that government taxes and fees will one day amount to about 10% of air taxi revenues. Supposing that the US air taxi market will one day fall between my conservative estimate, $200 billion annually, and NASA’s best-case estimate, $500 billion annually, the air taxi industry could one day generate about $20 billion to $50 billion in tax revenue annually. That doesn’t include the auction revenues of aerial corridors, if implemented. If spectrum auctions and offshore oil leases are the best comparison, the auction of aerial corridors could return another $100 billion to the US Treasury.

These are tentative estimates. Market size estimates vary widely, and much depends on whether a workable regulatory framework develops. In any case, like aviation 100 years ago, it’s an exciting area to watch.

Air taxis and electric vertical takeoff and landing aircraft (eVTOLs) will receive significant regulator attention in 2019 as companies test these aircraft and move towards commercialization. I’m fairly bullish on the technology and its potential and I’m pleased to see state lawmakers and mayors, however, seem to be waking up to the massive possibilities of this industry.

A recent NASA-commissioned study estimates that in the best-case scenario, the U.S. air taxi market would be worth about $500 billion annually, which is nearly the size of the U.S. auto sector. This translates into about 1 million air taxis in the air and 11 million flights per day. Morgan Stanley researchers recently estimated that the global flying car market could be about $1.5 trillion annually by 2040.

You can quibble with the numbers, but it’s clear that aircraft companies and governments believe flying cars are no longer science fiction. Uber plans to offer commercial eVTOL flights in 2023, with testing beginning in 2020. Boeing plans testing later this year.

Federal and state lawmakers need to start preparing for the industry. In November, I published a paper and a Wall Street Journal op-ed proposing that the FAA demarcate and auction highways in the sky–exclusive aerial corridors–for air taxi flights, as a way to manage airspace congestion and preserve competition.

As I wrote in the Detroit News a few weeks ago, state lawmakers also need to start planning for air taxis. States don’t manage aircraft flights but they do manage zoning, property rights, and other areas where state policy can inhibit or encourage the air taxi industry. I mentioned in the op-ed that there are two things states can do in the near future.

Aerial Navigational Easement

First, a good policy is to grant small aircraft a navigational easement to low-altitude airspace. Trespass lawsuits from landowners could scare away companies and innovators who want to test passenger drone and air taxi flights.

About half of states created these aerial navigation easements in the 1920s and 1930s so that trespass lawsuits would not interfere with the new aviation industry. Per these state statutes, flights over property are allowed so long as they do not substantially interfere with the homeowner’s use and enjoyment of the land.

Aerial navigation easement laws have a few benefits: They:

  1. Reaffirm the primacy of landowner property interests.
  2. Reinforce state prerogatives to determine property rights.
  3. Encourage the drone and air taxi industry by precluding most trespass lawsuits.
  4. Avoid a fight with federal regulators by leaving air traffic management policy untouched.

This 80-year old policy will see new relevance in the states this year. Last month, in Washington, a landowner sued a drone operator for aerial trespass. Washington, notably, does not provide for an aerial navigational easement in law.

Air Taxi Advisory Committee

Second, governors or legislatures should consider creating advisory committees for the air taxi industry. Air taxis will raise all sorts of novel state and local issues. A few come to mind:

  • Should municipal zoning laws for helipads and air taxi “vertiports” be liberalized?
  • EVTOLs require substantial electrical grid improvements and distributed, powerful charging stations on rooftops and landing sites. Are state regulations standing in the way?
  • Air taxis, like trains and autos, create significant noise and local nuisance laws could essentially preclude all air taxi testing and operation. What decibel levels are appropriate to balance industry and public acceptance? Should that be decided at the state or local level?

State advisory committees were created for another emerging technology sector–autonomous vehicles. Committees are composed of stakeholders, including public safety representatives, consumer groups, industry representatives, and academics. They can create policy recommendations for legislators and participate in hearings as air taxis come closer to commercialization.

For the air taxi industry to reach its potential, there needs to be collaboration between and foresight from state and federal lawmakers. Air taxi technology has moved far ahead of law, regulation, and public perception. Fortunately, I expect state and local officials to start examining their current laws and whether modernization is in order to stimulate this transportation sector.

Below are the top 10 posts on the Technology Liberation Front in 2018. Everything from privacy, to 5G, to tech monopolies, and net neutrality. Enjoy, and Happy New Year!

10. How Well-Intentioned Privacy Regulation Could Boost Market Power of Facebook & Google, April 25.

9. Nationalizing 5G networks? Why that’s a bad idea., January 29. (Republished at The Federalist.)

8. The Pacing Problem, the Collingridge Dilemma & Technological Determinism, August 16.

7. GDPR Compliance: The Price of Privacy Protections, July 9.

6. Evasive Entrepreneurialism and Technological Civil Disobedience: Basic Definitions, July 10.

5. No, “83% of Americans” do not support the 2015 net neutrality regulations, May 18.

4. The FCC can increase 5G deployment by empowering homeowners, July 26.

3. Doomed to fail: “net neutrality” state laws, February 20.

2. Should We Teach Children to Be Entrepreneurs, or How to Pay Licensing Fees?, Aug. 21.

1. The Week Facebook Became a Regulated Monopoly (and Achieved Its Greatest Victory in the Process), April 10.

One year ago, the FCC majority passed the 2017 Restoring Internet Freedom Order, largely overturning the 2015 Open Internet Order. I consider the 2017 Order the most significant FCC action in a generation. The FCC did a rare thing for an agency—it voluntarily narrowed its authority to regulate a powerful and massive industry.

In addition to returning authority to the Federal Trade Commission and state attorneys general, the 2017 Order restored common-sense regulatory humility, despite the courts blessing the Obama FCC’s unconvincing, expansive interpretation of FCC authority. National policy, codified in law, is that the Internet and Internet services should be “unfettered by Federal or State regulation,” which, if it means anything, means Internet services cannot be regulated as common carriers.

Net neutrality is dead

Net neutrality advocates who want the FCC to have common carriage powers over Internet applications and networking practices were outraged by the approval of the 2017 Order. Joe Kane at R Street has a good roundup of some of the death-of-the-Internet hyperbole from the political class and advocates. Some disturbed net neutrality supporters took it too far, including threats to the lives and families of the Republican commissioners, especially Chairman Pai.

But the 2017 Order hadn’t killed net neutrality. It was already dead. A few hours after the passage of the Restoring Internet Freedom Order, I was on a net neutrality panel in DC for an event about the First Amendment and the Internet. (One of my co-panelists dropped out out of caution because of the credible bomb threat at the FCC that day.) I pointed out at that event that while you wouldn’t know it from the news coverage, the Obama FCC had already killed net neutrality’s core principle—the prohibition against content blocking. The 2015 “net neutrality” Order allowed ISPs to block content. Attributing things to the 2015 Order that it simply doesn’t do is what Commissioner Carr has called the “Title II head fake.” The 2017 Order simply freed ISPs and app companies to invest and innovate without fear of plodding scrutiny and inconclusive findings from a far-off FCC bureau.

Long live net neutrality

The net neutrality movement will live on, however. The main net neutrality proponents aren’t that concerned with ISP content blocking; they want FCC regulation of the Internet companies and new media. It’s no coincidence that most of the prominent net neutrality advocates come out of the media access movement, which urged the FCC’s Fairness Doctrine, equal time laws, and programming mandates for TV and radio broadcasts.

The newer net neutrality coalition, as then-FCC Chairman Wheeler conceded frankly, doesn’t know precisely what Internet regulation would look like. What they do know is that ISPs and Internet companies are operating with inadequate public supervision and government design. 

As Public Knowledge CEO Gene Kimmelman has said, the 2015 Order was about threatening the industry with vague but severe rules: “Legal risk and some ambiguity around what practices will be deemed ‘unreasonably discriminatory’ have been effective tools to instill fear for the last 20 years” for the telecom industry. Title II functions, per Kimmelman, as a “way[] to keep the shadow and the fear of ‘going too far’ hanging over the dominant ISPs.” Internet regulation advocates, he said at the time, “have to have fight after fight over every claim of discrimination, of new service or not.”

So it’s Internet regulation, not strict net neutrality, that is driving the movement. As former Obama administration and FCC adviser Kevin Werbach said last year, “It’s not just broadband providers that are fundamental public utilities, at some level Google is, at some level Facebook is, at some level Amazon is.” 

Fortunately, because of the Restoring Internet Freedom Order, IP networks and apps companies have a few years of regulatory reprieve at a critical time. Net neutrality was invented in 2003 and draws on common carriage principles that cannot be applied sensibly to the various services carried on IP networks. Unlike the “single app” phone network regulated with common carriage, these networks transmit thousands of services and apps–like VoIP, gaming, conferencing, OTT video, IPTV, VoLTE, messaging, and Web–that require various technologies, changing topologies, and different quality-of-service requirements. 5G wireless will only accelerate the service differentiation that is at severe tension with net neutrality norms.

Rather than distract agency staff and the Internet industry with metaphysical debates about “reasonable network” practices, the Trump FCC has prioritized network investment, spectrum access, and rural broadband. Hopefully the next year is like the last.

Addendum: The net neutrality reprieve has not only freed up FCC staff to work on more pressing matters, it’s freed  up my time to write about tech policy areas that the public will benefit from. In November I published a Mercatus working paper and a Wall Street Journal op-ed about flying car policy.

Until recently, I wasn’t familiar with Freedom House’s Freedom on the Net reports. Freedom House has useful recommendations for Internet non-regulation and for protecting freedom of speech. Their Freedom on the Net Reports make an attempt at grading a complex subject: national online freedoms.

However, their latest US report came to my attention. Tech publications like TechCrunch and Internet regulation advocates were trumpeting the report because it touched on net neutrality. Freedom House penalized the US score in the US report because the FCC a few months ago repealed the so-called net neutrality rules from 2015.

The authors of the US report reached a curious conclusion: Internet deregulation means a loss of online freedom. In 2015, the FCC classified Internet services as a “Title II” common carrier service. In 2018, the FCC, reversed course, and shifted Internet services from one of the most-regulated industries in the US to one of least-regulated industries. This 2018 deregulation, according to the Freedom House US report, creates an “obstacle to access” and, while the US is still “free,” regulation repeal moves the US slightly in the direction of “digital authoritarianism.”   Continue reading →

By Brent Skorup and Trace Mitchell

An important benefit of 5G cellular technology is more bandwidth and more reliable wireless services. This means carriers can offer more niche services, like smart glasses for the blind and remote assistance for autonomous vehicles. A Vox article last week explored an issue familiar to technology experts: will millions of new 5G transmitters and devices increase cancer risk? It’s an important question but, in short, we’re not losing sleep over it.

5G differs from previous generations of cellular technology in that “densification” is important–putting smaller transmitters throughout neighborhoods. This densification process means that cities must regularly approve operators’ plans to upgrade infrastructure and install devices on public rights-of-way. However, some homeowners and activists are resisting 5G deployment because they fear more transmitters will lead to more radiation and cancer. (Under federal law, the FCC has safety requirements for emitters like cell towers and 5G. Therefore, state and local regulators are not allowed to make permitting decisions based on what they or their constituents believe are the effects of wireless emissions.)

We aren’t public health experts; however, we are technology researchers and decided to explore the telecom data to see if there is a relationship. If radio transmissions increase cancer, we should expect to see a correlation between the number of cellular transmitters and cancer rates. Presumably there is a cumulative effect: the more cellular radiation people are exposed to, the higher the cancer rates.

From what we can tell, there is no link between cellular systems and cancer. Despite a huge increase in the number of transmitters in the US since 2000, the nervous system cancer rate hasn’t budged. In the US the number of wireless transmitters have increased massively–300%–in 15 years. (This is on the conservative side–there are tens of millions of WiFi devices that are also transmitting but are not counted here.) Continue reading →

By Brent Skorup and Michael Kotrous

In 1999, the FCC completed one of its last spectrum “beauty contests.” A sizable segment of spectrum was set aside for free for the US Department of Transportation (DOT) and DOT-selected device companies to develop DSRC, a communications standard for wireless automotive communications, like vehicle-to-vehicle (V2V) and vehicle-to-infrastructure (V2I). The government’s grand plans for DSRC never materialized and in the intervening 20 years, new tech—like lidar, radar, and cellular systems—advanced and now does most of what regulators planned for DSRC.

Too often, however, government technology plans linger, kept alive by interest groups that rely on the new regulatory privilege, even when the market moves on. At the eleventh hour of the Obama administration, NHTSA proposed mandating DSRC devices in all new vehicles, an unprecedented move that Brent and other free-market groups opposed in public interest comment filings. As Brent wrote last year,

In the fast-moving connected car marketplace, there is no reason to force products with reliability problems [like DSRC] on consumers. Any government-designed technology that is “so good it must be mandated” warrants extreme skepticism….


Rather than compel automakers to add costly DSRC systems to cars, NHTSA should consider a certification or emblem system for vehicle-to-vehicle safety technologies, similar to its five-star crash safety ratings. Light-touch regulatory treatment would empower consumer choice and allow time for connected car innovations to develop.

Fortunately, the Trump administration put the brakes on the mandate, which would have added cost and complexity to cars for uncertain and unlikely benefits.

However, some regulators and companies are trying to revive the DSRC device industry while NHTSA’s proposed DSRC mandate is on life support. Marc Scribner at CEI uncovered a sneaky attempt to create DSRC technology sales via an EPA proceeding. The stalking horse DSRC boosters have chosen is the Corporate Average Fuel Economy (CAFE) regulations—specifically the EPA’s off-cycle program. EPA and NHTSA jointly manage these regulations. That program rewards manufacturers who adopt new technologies that reduce a vehicle’s emissions in ways not captured by conventional measures like highway fuel economy.

Under the proposed rules, auto makers that install V2V or V2I capabilities can receive credit for having reduced emissions. The EPA proposal doesn’t say “DSRC” but it singles out only one technology standard that would be favored in this scheme: a standard underlying DSRC

This proposal comes as a bit of surprise for those who have followed auto technology; we’re aware of no studies showing DSRC improves emissions. (DSRC’s primary use-case today is collision warnings to the driver.) But the EPA proposes a helpful end-around that problem: simply waiving the requirement that manufacturers provide data showing a reduction in harmful emissions. Instead of requiring emissions data, the EPA proposes a much lower bar, that auto makers show that these devices merely “have some connection to overall environmental benefits.” Unless the agency applies credits in a tech-neutral way and requires more rigor in the final rules, which is highly unlikely, this looks like a backdoor subsidy to DSRC via gaming of emission reduction regulations.

Hopefully EPA regulators will discover the ruse and drop the proposal. It was a pleasant surprise last week when a DOT spokesman committed that the agency favored a tech-neutral approach for this “talking car” band. But after 20 years, this 75 MHz of spectrum gifted to DSRC device makers should be repurposed by the FCC for flexible-use. Fortunately, the FCC has started thinking about alternative uses for the DSRC spectrum. In 2015 Commissioners O’Rielly and Rosenworcel said the agency should consider flexible-use alternatives to this DSRC-only band.

The FCC would be wise to follow through and push even farther. Until the gifted spectrum that powers DSRC is reallocated to flexible use, interest groups will continue to pull any regulatory lever it has to subsidize or mandate adoption of talking-car technology. If DSRC is the best V2V technology available, device makers should win market share by convincing auto companies, not by convincing regulators.

A few states have passed Internet regulations because the Trump FCC, citing a 20 year US policy of leaving the Internet “unfettered by Federal or State regulation,” decided to reverse the Obama FCC’s 2015 decision to regulate the Internet with telephone laws.

Those state laws regulating Internet traffic management practices–which supporters call “net neutrality”–are unlikely to survive lawsuits because the Internet and Internet services are clearly interstate communications and FCC authority dominates. (The California bill also likely violates federal law concerning E-Rate-funded Internet access.) 

However, litigation can take years. In the meantime ISP operators will find they face fewer regulatory headaches if they do exactly what net neutrality supporters believe the laws prohibit: block Internet content. Net neutrality laws in the US don’t apply to ISPs that “edit the Internet.”

The problem for net neutrality supporters is that Internet service providers, like cable TV providers, are protected by the First Amendment. In fact, Internet regulations with a nexus to content are subject to “strict scrutiny,” which typically means regulations are struck down. Even leading net neutrality proponents, like the ACLU and EFF, endorse the view that ISP curation is expressive activity protected by First Amendment.

As I’ve pointed out, these First Amendment concerns were raised during the 2016 litigation and compelled the Obama FCC to clarify that its 2015 “net neutrality” Order allows ISPs to block content. As a pro-net neutrality journalist recently wrote in TechCrunch about the 2015 rules, 

[A] tiny ISP in Texas called Alamo . . . wanted to offer a “family-friendly” edited subset of the internet to its customers.

Funnily enough, this is permitted! And by publicly stating that it has no intention of providing access to “substantially all Internet endpoints,” Alamo would exempt itself from the net neutrality rules! Yes, you read that correctly — an ISP can opt out of the rules by changing its business model. They are . . . essentially voluntary.

The author wrote this to ridicule Judge Kavanaugh, but the joke is clearly not on Kavanuagh.

In fact, under the 2015 Order, filtered Internet service was less regulated than conventional Internet service. Note that the rules were “essentially voluntary”–ISPs could opt out of regulation by filtering content. The perverse incentive of this regulatory asymmetry, whereby the FCC would regulate conventional broadband heavily but not regulate filtered Internet at all, was cited by the Trump FCC as a reason to eliminate the 2015 rules. 

State net neutrality laws basically copy and paste from the 2015 FCC regulations and will have the same problem: Any ISP that forthrightly blocks content it doesn’t wish to transmit–like adult content–and edits the Internet is unregulated.

This looks bad for net neutrality proponents leading the charge, so they often respond that the Internet regulations cover the “functional equivalent” of conventional (heavily regulated) Internet access. Therefore, the story goes, regulators can stop an ISP from filtering because an edited Internet is the functional equivalent of an unedited Internet.

Curiously, the Obama FCC didn’t make this argument in court. The reason the Obama FCC didn’t endorse this “functional equivalent” response is obvious. Let’s play this out: An ISP markets and offers a discounted “clean Internet” package because it knows that many consumers would appreciate it. To bring the ISP back into the regulated category, regulators sue, drag the ISP operators into court, and tell judges that state law compels the operator to transmit adult content.

This argument would receive a chilly reception in court. More likely is that state regulators, in order to preserve some authority to regulate the Internet, will simply concede that filtered Internet drops out of regulation, like the Obama FCC did.

As one telecom scholar wrote in a Harvard Law publication years ago, “net neutrality” is dead in the US unless there’s a legal revolution in the courts. Section 230 of the Telecom Act encourages ISPs to filter content and the First Amendment protects ISP curation of the Internet. State law can’t change that. The open Internet has been a net positive for society. However, state net neutrality laws may have the unintended effect of encouraging ISPs to filter. This is not news if you follow the debate closely, but rank-and-file net neutrality advocates have no idea. The top fear of leading net neutrality advocates is not ISP filtering, it’s the prospect that the Internet–the most powerful media distributor in history–will escape the regulatory state.

The US government has spent about $100 billion on rural telecommunications in the last 20 years. (That figure doesn’t include the billions of dollars in private investment and state subsidies.) It doesn’t feel like it in many rural areas.

The lion’s share of rural telecom subsidies come from the FCC’s “high-cost” fund, which is part of the Universal Service Fund. The high-cost fund currently disburses about $4.5 billion per year to rural carriers and large carriers serving rural areas. 

Excess in the high-cost program

Bill drafters in Congress and the CBO, after the passage of the 1996 Telecom Act creating the Fund, expected the USF program subsidies to decrease over time. That hasn’t happened. The high-cost fund has increased from $800 million in 1997 to $4.5 billion today.

The GAO and independent scholars find evidence of waste in the rural fund, which traditionally funded rural telephone (voice) service. For instance, former FCC chief economist Prof. Tom Hazlett and Scott Wallsten estimate that “each additional household is added to voice networks at an annual USF cost of about $25,000.” There are at least seven high-cost programs and each has its own complex nomenclature and disbursement mechanisms.

These programs violate many best practices for public finance. Shelanski and Hausman point out, for instance, that a huge distortion for decades has been US regulators’ choice to tax (demand-elastic) long-distance phone services to fund the (demand-inelastic) local phone services. The rural fund disbursement mechanisms also tempt providers to overinvest in goldplated services or, alternatively, inflate operational costs. Wallsten found that about 59 cent for every dollar of rural subsidy goes to carriers’ overhead.

To that end, the high-cost program appears to be supporting fewer households despite the program’s increasing costs. I found in Montana, for instance, that from 1999 to 2009 subsidies to carriers rose 40 percent even while the number of subsidized rural lines fell 30 percent. The FCC’s administrative costs for the four USF programs also seem high. According to the FCC’s most recent report, administrative costs are about $172 million annually, which is more than what 45 states received in high-cost funds in 2016.

A proposal: give consumers tech vouchers

A much more transparent and, I suspect, more effective way of satisfying Congress’ requirement that rural customers have “reasonably comparable” rates to urban customers’s rates for telecom services is to give “tech vouchers.” Vouchers are used in housing, heating, and food purchases in the US, and the UK is using them for rural broadband.

My colleague Trace Mitchell and I are using Census and FCC data to calculate about how much rural households could receive if the program were voucher-ized. Assuming all high-cost funds disbursed to states in 2016 were converted into broadband vouchers, these are our estimates.

If vouchers were distributed equally among rural households today, every rural household in the US (about 20% of US households) would receive about $15 per month to spend on the broadband provider and service of their choice. Low-income rural households could tack on the $9.25 USF Lifeline subsidy and any state subsidies they’re eligible for.

Perfect equality probably isn’t the best way to subsidize rural broadband. The cost of rural service is driven primarily by the housing density, and providing telecom to a rural household in the American West and Great Plains is typically more expensive than providing telecom to a rural household in the denser Northeast, and this is borne out in the FCC’s current high-cost disbursements. For instance, Vermont and Idaho have about the same number of rural households but rural carriers in Idaho receive about 2x as much as rural carriers in Vermont.

However, some disparities are hard to explain. For example, despite South Carolina’s flatter geography than and similar rural population as North Carolina, North Carolina carriers receive, on a per-household basis, only about 40% what South Carolina carriers receive. Alabama and Mississippi have similar geographies and rural populations but Alabama carriers receive only about 20% of what Mississippi carriers receive.

A tiered system of telecom vouchers smooths the disparities, empowers consumers, and simplifies the program. We’ve sorted the states into six tiers based on how much the state received on a per-household basis in 2016. This ranking puts large, Western states in the top tier and denser, Northeastern states in the bottom tier.

In our plan, every rural household in five hardest-to-serve Tier 1 states (Alaska, Kansas, Montana, North Dakota, and South Dakota) would receive a $45 monthly discount on the Internet service of their choice, whether DSL, cable, fixed wireless, LTE, or satellite. As they do in the UK, eligible rural households would enter a coupon code when they receive their telecom services bill and the carrier would reduce the price of service accordingly.

Similarly, every rural household in:

Tier 2 states (ten states) would receive a $30 monthly discount.

Tier 3 states (ten states) would receive a $19 monthly discount.

Tier 4 states (ten states) would receive a $13 monthly discount.

Tier 5 states (ten states) would receive a $6 monthly discount.

Tier 6 states (five states) would receive a $3 monthly discount.

$3 per month per rural household doesn’t sound like much but, for each of these states (Connecticut, Delaware, Massachusetts, New Jersey, Rhode Island), this is more than the state currently receives in rural funds. In Connecticut, for instance, the current high-cost funding amounts to about 25 cents per rural household per month.

Under this (tentative) scheme, the US government would actually save $25 million per year from the current disbursements. And these are conservative numbers since they assume 100% participation from every rural household in the US. It’s hard to know what participation would look like but consider Lifeline, which is essentially a phone and broadband voucher program for low-income households. At $9.25 per month, 28% of those eligible for Lifeline participate. This is just a starting point and needs more analysis (see link below for spreadsheet), but it seems conceivable that the FCC could increase the rural voucher amounts above, expect 50% participation, and still save the program money.


As Jerry Hausman and Howard Shelanski have said, “It is well established that targeted subsidies paid from general income tax revenues are often the most efficient way to fund specific activities.” Current law doesn’t allow allow for tech vouchers from general income taxes, but the FCC could allow states to convert their current high-cost funds into tech vouchers for rural households. Vouchers would be more tech-neutral, less costly to administer, and, I suspect, more effective and popular.


Excel spreadsheet of tech vouchers by state (Dropbox): link.

For decades, cities, the FCC, and Congress have mandated that cable TV operators carry certain types of TV programming, including public access channels, local broadcast channels, local public television, and children’s programming. These carriage mandates have generated several First Amendment lawsuits but cable operators have generally lost. Cable operators have junior varsity First Amendment rights and the content they distribute is more regulated than, say, newspapers, Internet service providers, search engines, and Netflix. I submitted public interest comments (with JP Mohler) to the FCC this week explaining why cable operators would likely win today if they litigated these cable carriage regulations.

Regulations requiring newspapers, book publishers, or Internet service providers to carry the government’s preferred types of content are subject to strict scrutiny, which means such regulations typically don’t survive. However, cable is different, the Supreme Court held in the 1994 Turner case. The Supreme Court said regulations about what cable operators must carry are subject to intermediate–not strict–scrutiny because cable operators (in 1994) possessed about 95% of the subscription TV market and nearly every household had a single choice for subscription TV–their local cable monopoly. In the words of the Supreme Court, cable’s content regulations “are justified by the special characteristics of the cable medium: the bottleneck monopoly power exercised by cable operators.”

As a result, the FCC enforces “leased access” regulations that require cable operators to leave blank certain TV channels and give non-affiliated programmers a chance to use that channel capacity and gain viewership. Cable operators in the 1990s sued the FCC for enforcing these regulations in a 1996 case called Time Warner v. FCC. The DC Circuit relied on the 1994 Turner case and upheld the leased access rules.

Recently, however, the FCC asked whether First Amendment interests or TV competition requires giving these regulations another look. In our public interest comment, JP and I say that these rules have outlived their usefulness and cable operators would likely win a First Amendment lawsuit against the FCC today.

Two things have changed. First, cable operators have lost their “bottleneck monopoly power” that justified, in the eyes of the Supreme Court in 1994, giving cable operators weakened First Amendment protection.

Unlike in the 1990s, cable operators face significant competition in most local markets from satellite and telco TV providers. Over 99 percent of US households have at least three pay-TV options, and cable has lost over 15 million subscriber households since 2002. In 1997, when Turner II was decided, cable had over 90 percent of the pay-TV market. Cable operators’ market share has shrunk nearly every year since, and in 2015 cable had around 54 percent market share.

This competitive marketplace has stimulated massive investment and choice in TV programming. The typical household has access to far more channels than in the past. Independent researchers found that a typical US household in 1999 received about 50 TV channels. By 2014, the typical household received over 200 TV channels. In 2018, there will be an estimated 520 scripted TV series available, which is up nearly 50 percent from just five years ago.

This emergence of TV competition and its beneficial effects in programming and consumer choice undermines the justification for upholding cable content regulations like leased access.

Second, courts are more likely to view the Supreme Court’s Denver decision about leased access regulations in a new light.  In Denver, the Supreme Court divided into concurrences as to the proper First Amendment category of cable operators, and whether intermediate or strict scrutiny should apply to the leased access laws at issue. The “Marks test” is the test lower courts use for determining the holding of a Supreme Court decision where there is no majority supporting the rationale of any opinion. Viewed through the lens of the prevailing Marks test, cable operators are entitled to “bookstore owner” status for First Amendment purposes:

Given that four justices in Denver concur that one of the potential bases for deciding cable’s First Amendment status is the classification of cable operators as bookstores and three justices concur that this classification is the definitive justification for the judgment, the narrowest grounds for resolving the issue is simply this latter justification. Under the prevailing Marks test, then, lower courts will apply strict scrutiny to the leased access rules in light of the Denver decision.

For these reasons, and the need to conserve agency resources for more pressing matters, like rural broadband deployment and spectrum auctions, we encourage the FCC to discontinue these regulations.

You can read our public interest comment about the leased access regulations at the Mercatus Center website.

Leased Access Mandates Infringe on the First Amendment Rights of Cable Operators, and the FCC Should Decline to Enforce the Regulations