Our Co-Chairman Larry Irving has recorded a series of videos for our Let’s Get Nerdy series on net neutrality, Title II, and the potential for Congressional action. Here, he talks about the approach to tech policy during his time with the Clinton Administration, and whether there are lessons from then that should be applied today.
In this bonus edition of Let’s Get Nerdy, our Co-Chairman Bruce Mehlman breaks down how the business special access marketplace has changed since the 1990s, and discusses whether FCC special access rules are still necessary.
A new paper from Anna-Maria Kovacs, Ph.D., CFA published by the Georgetown Center for Business and Public Policy makes a convincing case that the FCC can save hundreds of millions of taxpayer dollars as it reboots Lifeline for the broadband age.
The full paper, “Regulation in Financial Translation: Rebooting Lifeline for Broadband,” is available for download, but here are some highlights:
The FCC’s FNPRM states that the FCC seeks to make the program more efficient by “targeting support to those low-income consumers who really need it while at the same time shifting the burden of determining consumer eligibility for Lifeline support from the provider. We further see to leverage efficiencies from other existing federal programs and expand our outreach efforts.” An effective way to accomplish this goal is to link Lifeline to SNAP [Supplemental Nutrition Assistance Program] for eligibility verification and enrollment.
As Kovacs points out in the paper, reducing waste, fraud and abuse of the Lifeline program is important. But just as important is ensuring those reduction efforts aren’t duplicative. Again, from the report:
As the FCC’s FNPRM indicates, the job of verifying that households have low-income is already being verified by other federal agencies. Most notably, the USDA verifies the eligibility of those households that quality for SNAP. SNAP not only enrolls those households whose low income qualifies them, but de-enrolls them if their income rises. In other words, SNAP already does the job the FCC duplicates at a cost of roughly $600 million. Thus, the first argument for relying on SNAP for eligibility verification is that doing so would save roughly $600 million in wasted administrative efforts.
$600 million is obviously a lot of savings. But as Kovacs goes on to note, the benefits of linking Lifeline to SNAP go beyond the monetary because:
It would provide automatic enrollment for low-income households that need Lifeline, and make it easier for them to apply the discount to the technology and provider of their choice. By making it easier for both providers and low-income households to participate in Lifeline, the FCC would also enhance competition.
With bipartisan support in Congress, the FCC now has a unique opportunity to completely overhaul and reshape the program for the 21st century. The central challenge is to add broadband as a Lifeline benefit without a significant increase in program costs. Tinkering with the existing program or making minor modifications to program administration at the edges will likely fail to deliver the promise of ubiquitous and modern high-speed broadband access for low-income consumers.
Is broadband a social determinant of health? Prominent health care leaders, practitioners, and researchers came together last week in Detroit to answer that question during a discussion that I co-moderated with Federal Communications Commissioner (FCC) Mignon Clyburn. The FCC Connect2Health Task Force’s Broadband Health Tech Forum was part of its “Beyond the Beltway” series, which is encouraging efforts to improve healthcare in communities across the nation.
According to the Centers for Disease Control and Prevention (CDC), your zip code is a greater indicator of your health than your genetic code. Why? The quality and availability of care is vastly different based on where you live.
Low-income Americans are at a distinct disadvantage for managing chronic diseases, for example. Heart disease and diabetes are among the top 10 causes of death in the African-American community, and Latinos are challenged by a 66 percent higher rate of diabetes than Caucasians. Thankfully, there’s consensus that technology can go a long way toward closing the health divide.
The digital divide is directly linked to the health divide. Without Internet connectivity, people lack the tools that they need to become educated on critical health issues, to find nearby healthcare providers, and to take advantage of the exciting health applications and tools that are available. While some Americans with diabetes are using Internet-connected devices like AgaMatrix to monitor blood glucose, others are left in the dark. Broadband empowers underserved populations to take charge of their health.
One panelist pointed out that the digital divide is creating health problems in unexpected ways. Many Americans who lack broadband at home are going to the local McDonald’s to use the Internet. To do so, they’re required to purchase at least one item. Imagine how your health would be impacted if you were drinking super-sized soft drinks and eating Big Macs every time you wanted to check your email.
During the discussion in Detroit, Commissioner Clyburn emphasized the importance of adding broadband to the federal Lifeline program as part of the Commission’s reform efforts. Making the subsidy available for high-speed Internet will help close the digital divide and – bonus – concurrently shrink the health divide. Modernizing the Lifeline program is a key to improving access to health care services, regardless of socio-economic background or geographic location.
The goal of the Broadband Health Tech Forum in Detroit was to start a critical conversation that translates into action – and it appears that the event did just that. Panelists and audience members alike were inspired, vowing to stay connected and work together toward solutions. Broadband is a social determinant of health. In fact, it’s foundational for health equity.
In his debut post at Medium, our Co-Chairman Larry Irving writes about bringing the Lifeline program into the digital age. An excerpt:
The Lifeline Program, which was extended to wireless phones in 2005, now provides phone service to 14 million people. But times have changed, and the telephone no longer is the principle tool of communication for many Americans. Broadband Internet is now a critical part of our communications infrastructure. In 2015, broadband Internet is as essential as basic telephone service was in 1985. It is time that our Lifeline policies reflect that reality.
Fortunately, members of the FCC recognize the need for updating Lifeline policies. Commissioners Mignon Clyburn and Jessica Rosenworcel, in particular, have outlined thoughtful approaches that can help bring the Lifeline Program into the 21st Century.
Late last week, our Co-Chairman Bruce Mehlman penned an op-ed for Morning Consult on the need for the FCC to rely on data as it reforms special access. An excerpt:
For a decade, the FCC has had an effective policy of “new wires, new rules.” Relying on that policy, the Incumbent Local Exchange Carriers – even though forced by the special access rules to subsidize a second network of non-competitive older technology – eagerly invested billions to roll out the faster broadband network people want to compete with cable, wireless and fiber networks. Now, some CLECs want to toss deregulation out the window, changing the rules in midstream without a formal data analysis and imperiling that needed investment.
That’s just wrong. Why would the FCC want to re-impose regulation on a competitive environment without understanding the marketplace? And what about the ILECs’ reliance on the FCC’s regulatory promise of “new rules” for new wires – does that just get washed away?
In an opinion piece for Multichannel News, our Honorary Chairman Rick Boucher makes the case for shifting Lifeline into the world of EBT:
To spur competition by encouraging a larger number of carriers to participate in the program and to give consumers the most flexible way to choose from among competing carriers, we support moving the Lifeline subsidy to an electronic benefit transfer (EBT) card.
Putting the Lifeline benefit on an EBT card and asking the states to confirm eligibility would empower consumers in the marketplace and help prevent fraud. Yet even as many states have adopted the convenience and accountability of moving government-provided benefits to an EBT card, some still resist this change for Lifeline.
They contend that EBT cards would burden certain beneficiaries, such as the elderly, disabled and rural poor, based on an incorrect assumption that the cards would have to be swiped at a retail location on a regular basis.
Let’s review how eligibility determinations and EBT cards would work in practice under a new Lifeline program.
Recently, our Co-Chairman Bruce Mehlman talked with Amir Nasr of the Morning Consult about the problems with the FCC’s pricing rules for high-grade network lines. An excerpt:
FCC Chairman Tom Wheeler said the rule “preserves competitive choices as the technology transitions move forward… Competitive providers rely on these inputs to serve hundreds of thousands of businesses and other enterprise customers at competitive rates, often offering customized services not offered by incumbents.”
Mehlman said some in the industry are frustrated at the FCC’s apparent shift in thinking after the agency left the matter alone for over a decade. “They promised no regulation for over 10 years, and now they’re proposing to fundamentally change the game,” he said.
FCC Commissioner Ajit Pai, a Republican and outspoken adversary to the agency’s Democractic majority, decried the pricing proposal in a recent speech at the center-right American Enterprise Institute. “These regulatory roadblocks are bad for consumers, bad for infrastructure investment, and bad for our nation’s economic competitiveness,” he said.
Mehlman concurred. “As long as you have regulations on some providers, forcing them to help their competitors at regulated rates, you will have less investment because there is a meaningfully lower return,” he said.
Over at CNBC, Co-Chairman Jamal Simmons highlights the role of broadband access in closing America’s “homework gap.” An excerpt:
One way to make sure students from all backgrounds have the strongest start is by closing what Federal Communications Commissioner Jessica Rosenworcel calls the “homework gap,” which impacts students in five million American households. These students from low-income families have less regular access to broadband Internet at home than their peers from wealthier households, making completing homework assignments tougher.
FCC Commissioner Mignon Clyburn has proposed revamping the Lifeline program as one way to help close this gap. Started during the Reagan administration, Lifeline was created to help low-income Americans get access to telephone service. As mobile phones became more ubiquitous, the George W. Bush administration expanded the program to allow Americans to choose wireless phone service under Lifeline. Today, broadband is the critical service that connects Americans to jobs, health care, entertainment and family, and the current FCC should allow the Lifeline program to evolve again.
In addition to expanding Lifeline to cover broadband, you can read IIA’s specific recommendations for modernization of the Lifeline program in the full op-ed at CNBC.
When the FCC moved forward with Title II reclassification, proponents of the regulations claimed it would lead to more investment and more competition in the cable and broadband industries. But as Dow Jones reports, that’s already being proven wrong:
In May, Cablevision Systems Corp. Chief Executive James Dolan publicly implied that his family-controlled company could be a prime acquisition candidate amid needed cable-industry consolidation.
Nobody on Wall Street or in the media world knew how seriously to take the comments, made at an industry convention. After all, the Dolans had been at the altar in the past, but price was an obstacle and it wasn’t clear if the family would part with its core asset.
Why is Dolan selling Cablevision? Among the reasons:
People familiar with the Dolans’ thinking said the price was too good to pass up, and they believe Mr. Drahi will be a good steward. Another issue: Charles “Chuck” Dolan sees certain industry developments, such as utility-style “net neutrality” regulations and cable “cord-cutting,” as negatives for the future, making it a good time to cash out, people familiar with his thinking said.
As for what the sale will mean for the industry, and consumers:
As the Dolans bow out of Cablevision, the cable industry will lose a formidable contrarian voice. Because of its family-controlled roots, Cablevision wasn’t afraid to take different paths from its larger cable peers. It was the first operator to deploy tens of thousands of outdoor Wi-Fi hotspots, allowing it to offer an alternative to cellular phone service that transmits calls over Wi-Fi. It also fought a landmark legal battle against major media companies that legalized the cloud-based digital video recorder. It took on Viacom Inc. in court to press for the right to “unbundle” TV channel packages, a case that is pending.
Exciting news for those who appreciate how vibrant and competitive today’s telecommunications market is… and perhaps even bigger news for those who don’t yet believe it.
According to this morning’s Wall Street Journal, Comcast has set up a new unit to sell data services to large businesses across the country, including (and this is the important part) outside Comcast’s regular footprint, by negotiating wholesale agreements with other cable providers to sell Comcast data services. In short, the cable guys are taking on the telco guys and setting up a new national provider to offer meaningful competition, so that national businesses would be able to choose cable as an alternative where they have been reluctant to do so before.
As the Journal notes, the new arrangement “threaten[s] the longtime status quo in the cable industry, where operators historically haven’t competed with each other for customers in the same geographic area.”
Some industry observers anticipated this move. As I wrote in the spring, an article in FierceWireless commented that cable is entering the special access market, claiming that “[t]he presence of cable operators could potentially shake up the wholesale special access space where incumbent telcos… have enjoyed a monopoly position for decades.”
Actually, I was wrong — I thought that cable might seek a more mid-market position rather than going after the largest customers, but now cable is doing just that, even more proof of the competitive nature of the market.
So the question naturally arises: if Comcast can do this, why can’t the CLECs who are pleading for continued “special access” regulation? Why can’t the CLECs challenge their own “status quo” as well? CLECs still maintain that they want to continue their current business model, forcing network providers to subsidize their antiquated, copper-based technology, for “decades” more (even though the transition to an all IP-network is supposed to happen this decade). Even worse, they now seek to expand their price regulated access to new fiber facilities built by investment not traditionally subject to regulation.
Comcast estimates the potential size of this new market at $40 billion. By any standard, that’s real money. It’s another nail in the coffin of an old uneconomic business model that is being propped up only by regulation. Why wouldn’t the CLECs want to go for that market rather than relying on a protected business model selling antiquated technology?
And isn’t it time for the FCC to note what’s happening in the marketplace?
Our Honorary Chairman Rick Boucher has penned an op-ed for The Hill laying out how Lifeline should be reformed. An excerpt:
A thoroughgoing reform is needed, one that delivers a fundamentally new program based on core principles similar to those recently announced by FCC Commissioner Mignon Clyburn. For example, why not start by putting the consumer in charge? Today’s program is centered around the carriers who receive the $9.25 per month Lifeline subsidy and also determine the eligibility of individuals for the program. A reformed Lifeline program should be consumer-centric, recognizing the power that consumers exercise in today’s competitive communications marketplace and building off of that recognition.
Instead of giving the subsidy to the carriers, it should be given directly to consumers who could then decide where it should be spent. To promote consumer choice, eligible individuals could be issued a “Lifeline Benefit Card,” similar to food stamp cards, which would allow them to easily apply the subsidy to broadband or basic telephone service or some combination of both. Consumers could also shop among the various service providers and submit their Lifeline Benefit Card to the one they choose. In theory, this change could be made with little increase in program costs.
Today, IIA delivered a filing to the FCC urging the Commission to embrace fundamental and sweeping reform as the agency moves forward in its effort to modernize the existing federal Lifeline Program.
It is our strong belief that only a “sea change” in the program’s current design will advance the goal of creating a 21st Century program capable of efficiently and effectively delivering broadband Internet technologies and meaningful opportunities to America’s low-income consumers.
“The time for bold action is now. As Commissioner Clyburn aptly noted, Lifeline reform gives us a unique opportunity to ‘rid us of antiquated constructs’ and ‘design a future-proof program that enables low-income consumers to have access to broadband services comparable to everyone else.” — IIA Honorary Chairman Rick Boucher.
Beyond making broadband an eligible Lifeline service, we urge the FCC to squarely address existing structural flaws that today hamstring the program and the Lifeline marketplace. We propose that the Commission move swiftly to adopt the following essential reforms:
1. Safeguard the Lifeline Program by taking eligibility determinations away from self-interested service providers.
In its comments, IIA enthusiastically supports the FCC’s proposal to remove the responsibility of consumer eligibility determination from Lifeline providers. IIA points out that determining eligibility for receiving benefits from a government program is an inherently governmental function; as such, eligibility determinations should not be left to service providers that may have improper economic incentives to increase enrollment.
2. Simplify and protect the Lifeline Program by vesting administration in a state agency using a “coordinated enrollment” and de-enrollment process.
IIA supports relying on state governmental agencies as the neutral entities charged with using a coordinated enrollment process to verify consumer eligibility and administer the enrollment and de-enrollment processes. Under this process, consumers determined eligible to receive Supplemental Nutrition Assistance (SNAP) by the State would automatically be deemed eligible to receive Lifeline assistance. IIA believes that a reformed federal Lifeline program should link eligibility determination to a single, mature assistance program – SNAP – which would increase administrative efficiency, promote participation by both consumers and service providers, and reduce the potential for waste, fraud, and abuse.
3. Empower consumers and promote dignity with a “Lifeline Benefit Card” – a direct-to-consumer benefit.
To preserve and advance the personal dignity of Lifeline beneficiaries, IIA believes that Lifeline Program benefits should be transferred directly to the consumer using a “Lifeline Benefit Card” or similar approach (e.g., coordinated enrollment taking advantage of existing SNAP EBT cards and adding the Lifeline benefit to that EBT card). Eligible consumers could use the “Lifeline Benefit Card” as a voucher to buy whichever communications service meets their needs from authorized and registered providers, whether broadband, wireline, or wireless voice service (on a stand-alone or bundled basis).
4. Incentivize voluntary participation in the Lifeline Program by cutting red tape.
IIA recommends delinking the ETC designation from the Lifeline Program so subsidy recipients receive the complete benefits of robust competition that full service provider participation could offer. Removing existing regulatory roadblocks will make it easier for service providers to participate in Lifeline and incentivize them to compete for the purchasing power of Lifeline consumers.
Over at Fierce Telecom, Sean Buckley chatted with our own Bruce Mehlman about the FCC’s current stance on legacy copper and TDM-based networks. An excerpt:
Bruce Mehlman, co-chairman of the Internet Innovation Alliance, told FierceTelecom in an interview that what’s troublesome about the regulator’s proposals is that it’s a step backwards.
He said that competitive carriers should focus more of their attention on building their own network infrastructure versus trying to leverage existing facilities built by incumbent telcos.
“There are folks that have had a decade of notice that if they wanted more advanced structure they needed to be part of the solution of building network infrastructure, but they chose business models that were based on riding investments that were made by other folks,” said Mehlman. “Everybody’s has been notice for over a decade.”
Citing the move by Google Fiber to build out a new FTTH network infrastructure supporting 1 Gbps broadband and video services, Melhman added that “it seems like a mistake to offer a ‘new wire, new rule’ incentive to get all the investment you thought you would and then to say we’re considering going to ‘new wire, old rules.’”
Over at Mobile Future, Jonathan Spalter looks at the future of wireless and finds that as mobile video consumption contines to boom, fiber-based networks will become more and more critical. As he writes:
[A] Cisco report predicts that in five years, 85 percent of Internet consumption in the United States will be from video, primarily over mobile devices. While freeing up more spectrum is critical to meet the demand for mobile Internet and video services, wireless infrastructure also requires backhaul networks with sufficient capacity to deliver these bits between a wireless tower and the Internet backbone.
Deploying that fiber-based infrastructure will take a substantial amount of investment, and as Spalter points out, regulators have — so far — encouraged that investment:
The FCC in 2007 and 2008 decided to forbear from regulating the Ethernet services companies like AT&T and CenturyLink provide, and it predicted competition would increase even further without heavy-handed regulation. Through its Enterprise Broadband Orders the FCC expressly concluded that the market for packet-switched broadband services was “highly competitive” and recognized that the demand for such services was sufficient to incentivize deployment and entry by competitors absent regulation.
As Spalter notes, competition for Ethernet-based special access services has “skyrocketed” since the FCC’s Enterprise Broadband Order. But that hasn’t stopped some companies from urging the FCC to wield a heavier regulatory hammer. Spalter again:
[F]or all of their complaining that the government needs to intervene in the market and lower just their costs of doing business (a refrain these carriers bring to the spectrum set aside and roaming debates as well), national carriers like Sprint and T-Mobile, as well as smaller regional ones have managed to operate their networks and succeed in the marketplace over the past decade without greater government involvement, often as the low cost provider. There is no justification to increase regulation of legacy special access services when the backhaul marketplace is functioning perfectly well on its own, producing remarkable investment, a stream of new competitors and increasing consumer value.
Put another way, what companies like Sprint and T-Mobile are seeking is a form of corporate welfare; a bailout from the government that will only ding their competitors. It’s not exactly the spirit of competition, but you can’t really blame them for trying.
But unfortunately, as Spalter notes, the FCC may be listening to the unfounded complaints:
Competition in the special access market has flourished due to the bipartisan hands-off approach taken by Chairmen of both parties for over a decade. It defies logic for the FCC to continue spending so much energy attempting to regulate legacy services like DS1 and DS3 special access connections provided by incumbent carriers. The Commission should accept the success of its deregulatory approach in which unregulated entities have stepped up, as expected, to create a highly competitive special access market.
If we want to encourage more fiber deployment — and keep our wireless economy humming — let’s hope the FCC is listening to sensible arguments from the likes of Spalter rather than the unfounded complaints of a few companies.
That above quote, in response to the FCC’s latest vote, was echoed by both AT&T Vice President Frank Simone and US Telecom Senior Vice President Jon Banks. From Simone’s blog post reacting to the order:
“The FCC cannot call on the industry to invest in more fiber deployment, raise the bar for what qualifies as a broadband service and then make it more difficult to retire services that do not even qualify as broadband. We share the Commission’s goal to protect consumers as this revolutionary technological movement continues. But requiring carriers to prolong the use of and maintain an outdated infrastructure is not the way to go about doing that.”
USTelecom members have been investing billions of dollars every year to deliver modern broadband services that far surpass the capabilities of older networks to businesses and consumers across the country… These investments to deliver better, faster, more reliable modern services make up the essential compact between providers and customers. We are concerned that today’s FCC Orders handicap delivering on this compact in the name of keeping a regulatory structure under which Fax machines provide a communication service of such importance that they must be preserved.
Giving a select group of competitors, which continue to rely on the copper telephone network due to their failure to invest in their own advanced networks, the ability to influence copper retirement plans creates harmful market incentives that ultimately favor some providers over others, and runs contrary to the Administration and FCC’s National Broadband Plan goal of modernizing our nation’s communications networks for the benefit of the American consumer.
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