U.S. Broadband and ICT Sector Adds More than $1 Trillion in Annual Value for the American Economy under Light-Touch Regulation
Report authors Hassett and Shapiro argue that the broadband/ICT sector has grown dramatically under light regulation, and increased regulation could slow Internet ecosystem investment and impair other sectors that depend on broadband/ICT technologies
For the past decade, the broadband and information and communications technologies (ICT) sector has fueled enormous growth and development in the American economy, according to a new 20-page report from the Internet Innovation Alliance (IIA) that analyzes broad trends in the economic value, output, and employment in this key sector. The study concludes that the Federal Communications Commission’s (FCC) effort to impose Title II regulation on broadband providers could “adversely affect broadband/ICT sector investment, with potentially significant secondary costs for the other industries that depend on it and the overall American economy,” the study states.
Authored by Kevin A. Hassett and Robert J. Shapiro, “The Impact of Broadband and Related Information and Communications Technologies on the American Economy” highlights how steady demand for the broadband/ICT sector’s goods and services has helped spur U.S. employment and GDP growth over the past decade. Principal findings of the research include:
• In 2014, the U.S. broadband/ICT sector produced $1,019.2 billion in value added for the American economy, equal to 5.9 percent of U.S. GDP of $17,420.7 billion in 2014. “This substantial share of all U.S. economic value added has been roughly stable for the past decade and likely understates the sector’s full contribution by undervaluing technological improvements,” the paper explains.
• The use of U.S. broadband/ICT goods and services by U.S. private industries, and the information sector (and government), contributed an additional $692.0 billion in output in 2014, equal to 2.7 percent of their combined output and 4.0 percent of GDP. Including the government sector, the use of U.S. broadband/ICT goods and services by other industries and sectors contributed $843.3 billion in output in 2014, equal to 2.9 percent of their combined output and 4.8 percent of GDP.
• The companies that comprise the broadband/ICT sector employed 4,933,000 workers (full-time equivalents or FTE) in 2014, or 4.2 percent of all U.S. private employment and 3.5 percent of all non-farm employment. Demand by the broadband/ICT sector for goods and services produced by other industries was responsible for an additional 2,784,683 jobs (FTE) in 2014. All told, the broadband/ICT sector was responsible for 7,717,683 jobs (FTE) in 2014, or 6.4 percent of all U.S. private employment and 5.5 percent of all non-farm employment.
• The average compensation of broadband/ICT sector workers in 2014 was $104,390, 59.3 percent greater than the average compensation earned by other U.S. workers ($65,517).
“The large economic gains associated with the broadband and ICT sector have flourished in an environment of light federal regulation,” commented Hassett and Shapiro. “The FCC’s proposed regulation of broadband ISPs and their service offerings would stifle broadband/ICT sector investment, growth and employment, negatively impacting the American economy.”
“Today, high-speed Internet is the backbone for 21st century economic growth in the digital economy,” said Rick Boucher, a former Democratic congressman who chaired the Energy and Commerce Subcommittee on Communications and the Internet and now serves as honorary chairman of the IIA. “Unnecessary price regulation in competitive broadband markets will have far-reaching negative impacts on U.S. economic growth and development. Without ample investment in modern networks, consumers and the entire broadband ecosystem – from Internet Service Providers (ISPs) to edge providers – will suffer from reduced innovation and fewer cutting edge broadband services, as well as reduced jobs and economic growth in the nation’s Internet economy.”
A lot has changed since 1996. But one thing that hasn’t changed are so-called “Special Access” regulations. Below is a collection of IIA’s work on Special Access and how the FCC should take a smart and sensible approach when it comes to regulations.
The Federal Communications Commission has been extremely active as of late, and this rush to regulate has not been without its headaches. Case in point: The Commission’s proceeding in relation to Special Access services (Business Data Services (BDS).
The market has transformed dramatically as cable companies now offer competitive business data services. Their reliable high speed cable/video systems now pass a huge number of the nation’s businesses, and entry into this market makes obvious sense for them as they face increasing competition for their traditional video services.
But for the FCC, this evidence of real competition is not enough.
Based on an analysis of the FCC’s own data, it turns out that 25% of buildings that have a connection only to an incumbent local exchange carrier’s (ILEC) special access services are only 17 feet away from the nearest competitive provider’s fiber network; 50% are 88 feet away, and 75% percent are within 456 feet. The mean distance for all relevant buildings is 364 feet.
This week the FCC allowed parties to release some aggregate data in the broadband market collected as part of the ongoing special access proceeding. And this data, even though partial, confirms what I and others have been saying all along: virtually all businesses have access to real, facilities-based competition today.
The data provided publicly by U.S. CLECs and cable operators confirms the few facts that have so far emerged from the FCC’s special access data collection, i.e. that there is extensive facilities-based competition in the business broadband market.
One would think that preserving competition and expanding investment would always be the principal task and goal of a regulatory agency, but this hasn’t been the case with special access. Instead, we’ve seen the CLECs, for two decades, hold on to their special privileges, including price regulation, forcing ILECs to maintain two networks, one of which the CLECs use to offer a slower, technologically inferior product to that which cable now offers.
Wall Street knows that in the competitive world of telecommunications, the companies that invest in newer and faster technologies are the ones most likely to do better over time—even better if these investments lower the companies’ operating costs, as Sprint claims on its backhaul costs. Sprint obviously knows all this, too, which is why it is so eager to convince Wall Street analysts that it is a thoroughly modern company deserving of their money.
But Sprint can’t perform the straddle forever. Let’s take Sprint at its word that it is investing and competing in a highly competitive market, even at the same time reducing capital expenditures. It’s time to end the special pleading for special access, invest, and compete. That’s what great companies do.
Special Access is receiving a lot of attention these days, mainly due to the FCC’s controversial stance on the topic. And now US Telecom has released three white papers on Special Access and the competitiveness of business broadband.
In 1973, the Edgar Winter Group scored a Top 20 hit with “Free Ride.” In 2016, Competitive Local Exchange Carriers (CLECs) are trying to score a free ride from the FCC via heavy regulation of special access rates.
While the CLECs like to claim there is a monopoly in the business broadband market, investment numbers say otherwise.
SUBJECT: Economic Growth, Innovation and Prosperity
As you know all too well, the 2016 Presidential race has been one of the most divisive in recent years. In these unsettled times, with uncertainly about economic prospects, a troubling and dangerous world abroad, and a sharply divided populace at home, wouldn’t it be good to find an issue that unites us and advances economic growth and prosperity for all?
Such an issue exists: the broadband Internet.
Twenty years ago (or, if you prefer, five Presidential elections ago), Congress enacted the Telecommunications Act of 1996, the first major rewrite of our telecommunications laws in over 60 years. At that time, only 20 million American adults had access to the Internet. Virtually no American had access to broadband at that time (which was defined in kilobits, not the megabits or gigabits of the networks being deployed today). Fewer than 35 million Americans subscribed to a wireless telephone service at that time, none of which included data; today, it’s flipped – over one-third of households don’t even have a landline phone.
It was almost impossible to foresee the broad changes in the telecommunications and technology landscape that would result from the broadband and wireless revolutions that followed. But Congress and the President took a visionary path and said the best way forward was to promote investment, competition and innovation.
Look at what has happened since: these revolutions have impacted virtually every sector of our economy and society (finance, commerce, manufacturing, media, music, transportation, tourism, energy, healthcare, education – and even government). The Internet and related technologies spurred trillions in private investment and venture capital, innovation, job growth, and broadly-based economic growth far beyond the telecommunications and IT industries. None of that would have been possible but for our telecommunications infrastructure.
The U.S. economy today is driven by Internet-based concepts that almost no one had conceived of 20 years ago: cloud computing, social media, streaming, big data, and the gig economy.
Nor will this progress stop anytime soon. Numerous developments are just over the horizon, including virtual reality, the Internet of Things, Machine2Machine communications, advanced machine learning, and others. These will benefit both business and consumers. All of them will require continued investment in a robust broadband infrastructure, both wired and wireless.
Policymakers in 1996 understood that growth of the then still-nascent Internet would require policies that promoted investment and innovation. All of us have benefited from their insight and foresight. The explosion of innovation and connectivity here in the United States is a direct result of the regulatory and policy climate established by the 1996 Act. We have made progress because policymakers on both sides of the aisle, on both ends of Pennsylvania Avenue, and (for the most part) at the FCC have generally agreed on fundamental principles for development of the Internet and on broadband policy.
Now, we have an opportunity to build on the foundation established over the past two decades and extend the benefits of the broadband revolution to more Americans.
So what should the agenda be? There are several clear principles for progress:
Show preference for private sector investment. Government alone can’t build out these networks. Where would government find the tens of billions of dollars every year necessary to keep pace with technological change and demand? Cut Medicare, farm subsidies, education? Of course not. Some things are core functions of government, but there are others at which the private sector is simply better and more efficient – and building telecommunications networks is one of them. In the last two decades, the U.S. private sector has invested over $1.5 trillion in networks. Imagine what the multiplier effect has been considering the total impact of that investment – new companies, applications, platforms, services, entirely new industries that have grown up because of this investment in networks. So the first principle is to maintain the conditions under which private sector investment can flourish.
Promote competition – and recognize that it exists. The 1996 Act was about promoting competition, and that’s exactly what happened. Cross-platform competition is a reality and will only continue to become more intense if government does not interfere.
Effectively manage spectrum resources, balancing the needs of the private sector and government spectrum users, and licensed and unlicensed uses. Spectrum is the lifeblood of the mobile broadband revolution. As a finite resource, it is vital that spectrum resources be made available for mobile broadband services. We should continue efforts to make spectrum available for mobile broadband by either reallocating spectrum currently used for other purposes or making underutilized government-controlled spectrum available for commercial wireless services. Policymakers should also continue to ensure we find the right mix in making spectrum available for licensed and unlicensed services.
Maintain an open Internet, with appropriate protections for non-discrimination. Here’s the good news: you don’t need a new policy on this. The FCC already did it for you in 2010, when it published reasonable rules necessary to preserve the Open Internet and ensure non-discrimination among network providers and access to information. Don’t confuse this with the rules the FCC put out in 2015; those rules inappropriately and unwisely apply decades-old, monopoly-style regulation to vibrant, competitive broadband and wireless Internet. They deter investment, not foster it. They limit innovation, not promote it. Their impact has been small at first, but it will become more evident over time. Europe had a lead in broadband at one point, too, and then it chose the path of regulation and fell dramatically behind the United States. Don’t let that happen here. Fortunately, the courts may strike down the FCC’s new rules, perhaps even before you take office. At that point, all you have to do is to say that the FCC had it right the first time – and perhaps even encourage Congress to codify those rules in statute law.
Assure access to connectivity, irrespective of geography or income, through universal service. This is easy: everyone deserves access to broadband, which is the key to the 21st-century economy – but the trick is to do it right. We need more rural investment and more investment in schools and educational institutions (50 percent of students today don’t have the tools they need to do their schoolwork). In November 2014, the FCC put forward great ideas on universal service reform, focused on modernizing the Lifeline program, expanding it to cover broadband, closing the “homework gap,” and giving consumers more power over how they spend their Lifeline dollars – while deterring waste, fraud and abuse.
Protect the privacy and security of users. Protecting the privacy of Americans in the broadband ecosystem is vital. Today, different privacy rules apply to the same information traversing the Internet, depending on the regulatory classification of a particular service provider. Policymakers should engage in open discussions across the broadband industry, along with privacy advocacy groups, on the best way to reach agreement on future consumer protections. Cybersecurity is a hugely important issue for both business and consumers. Only by working together with network providers can we achieve the strongest possible level of defense against cyber-attacks of all kinds.
Think through a new Telecommunications Act. While the 1996 Act has been a great success, it’s time to update the Act to reflect current conditions and the competitive markets that now exist with a new regulatory model that ensures government does not slow down the pace of innovation. Support for a new Act would be a major accomplishment of your Administration and would show the public that bipartisan cooperation in Congress is still possible – no small achievement in this time of sharp partisan division.
Wise policy choices over the last 20 years have given the country a spectacularly successful run of innovation and investment, the results of which you see every time you look at your smartphone. Our continued success in this area – and continued economic growth on the foundation of broadband – will hinge on the choices you make with regard to policies affecting this often ignored but extremely robust sector of our economy. You have an opportunity to build bipartisan cooperation, a better economy, and maintain America’s technological edge. Don’t pass it up.
Former Congressman (D-VA)
Honorary Chairman, Internet Innovation Alliance
Co-Chairman, Internet Innovation Alliance
Co-Chairman, Internet Innovation Alliance
Co-Chairman, Internet Innovation Alliance
Sprint tells Wall St. that
competitive market rids need for special access,
yet lobbies FCC to extend regulation for competitive advantage
tells Washington regulators it needs regulated access to business data lines:
“The mobile broadband
network of the future will require large network “densification” investments to
address exploding consumer demand for wireless data services. Densification
will require Sprint to deploy tens of thousands of new cell sites. Every one of
these sites will require additional backhaul, and Sprint and other
competitors will depend on both TDM and Ethernet special access more than ever
to be able to compete.” (Sprint, FCC ex parte
“Sprint relies primarily
on wireline facilities from other providers for the links between its cell
sites and its mobile switching centers (“MSCs”), including the last-mile
connections between its cells sites and LEC serving wire centers that it must
reach in order to aggregate traffic for transport to its MSCs.” (Sprint, FCC ex parte
Sprint simultaneously boasts to Wall Street of cost savings achieved by NOT
relying on FCC-mandated business data circuits:
2015 SEC quarterly
filing: “As expected, our network
modernization program has allowed us to realize financial benefit to the
Company through reduced network maintenance and operating costs, capital
efficiencies, reduced energy costs, lower roaming expenses and backhaul
savings.” (Sprint, Form 10-Q,
·“As part of our recently
completed modernization program, we modified our existing backhaul
architecture to enable increased capacity to our network at a lower cost by
utilizing Ethernet as opposed to time division multiplexing (TDM) technology.”
2014 SEC filing: “As part of our recently completed modernization
program, we modified our existing backhaul architecture to enable increased
capacity to our network at a lower cost by utilizing Ethernet as opposed to
time division multiplexing (TDM) technology. As expected, our network
modernization program has allowed us to realize financial benefit to the Company
through reduced network maintenance and operating costs, capital efficiencies,
reduced energy costs, lower roaming expenses and backhaul savings.” (Sprint, SEC Form 10-K, 2014)
2013 SEC filing: “We are also modifying our existing backhaul
architecture to enable increased capacity to our network at a lower cost by
utilizing Ethernet as opposed to our existing time division multiplexing (TDM)
technology.” (Sprint, SEC Form 10-K, 2013)
2013 – 2015, Sprint repeatedly told the SEC of its efforts to purchase
alternative Ethernet services in the competitive marketplace:
“We are also modifying
our existing backhaul architecture to enable increased capacity to our network
at a lower cost by utilizing Ethernet as opposed to our existing time division
multiplexing (TDM) technology.” (Sprint, Form 10-Q,
2/5/15; Sprint, Form 10-Q,
11/6/14; Sprint, Form 10-Q, 8/8/2014)
“As part of Network
Vision, we are currently modifying our existing backhaul architecture to enable
increased capacity to our nationwide network at a lower cost by utilizing
ethernet as opposed to our existing Time Division Multiplexing (TDM)
technology.” (Sprint, Form 10-Q, 11/06/2013)
Press Releases also boast of lower costs for Ethernet and maintain it’s “a
cost-effective alternative to traditional TDM” in numerous press releases:
And again in 2012: “Aggregated Ethernet access can provide a
cost-effective alternative to traditional TDM access, while Dedicated
Ethernet access expands easily to meet specific customer bandwidth needs,
offering fixed-rate and fractional (burstable) billing.” (Sprint, Press Release, 6/19/12)
·“Building upon the continued
strong demand from businesses for Ethernet access, Sprint plans to extend the
service to 143 markets domestically and 38 countries globally by the end of
2012; this includes building out existing markets and expanding into new
markets. Available for both business and wholesale partners, Ethernet access
over Sprint’s all-IP network for Global MPLS and Dedicated Internet Access
provides more opportunities to reduce network costs for high-bandwidth
locations and simplify the complexity of maintaining multiple types of
technologies.” (Sprint, Press Release, 6/19/12)
·“Today’s IT leaders
increasingly need services that help them reduce costs, simplify networks and
enable greater flexibility and scalability for the future,” said Mike Fitz,
vice president –solutions engineering and converged services, Sprint. “Sprint
Ethernet access answers the call, while providing the bandwidth, speed and assurance
businesses demand for connectivity and business continuity – backed by our
industry-leading service-level agreements and delivered over an all-IP network.
Over the past few years, Sprint has been actively expanding its Ethernet access
footprint.” (Sprint, Press Release, 6/19/12)
Access to Broadband Internet: Top Ten Areas of Saving — 2015
In updating the “Top 10 Ways Being Online Saves You Money” report, IIA looked at the top areas of consumer spending, and the discounts that are available to Internet users. Based on the 2014 Consumer Expenditure Survey released by the U.S. Department of Labor, we used online resources and applications to find discounts on essentials like housing, apparel, gasoline and food. Mobile broadband and apps have changed the way that people shop online, providing access to discounts on everything from leisure activities to groceries. Some areas of this analysis, like housing, gasoline and newspaper expenditures, required data specific to certain cities. For the purposes of this report, we chose five of the top 12 U.S. cities by population (New York, Chicago, Los Angeles, Dallas and Jacksonville) also keeping geographic diversity in mind. Overall, we found that the savings in this year’s analysis ($10,504.25) were significantly higher than those in our 2013 analysis ($8,674) and the year prior ($8,870).
We looked at similar products and used similar websites for comparison, though our research revealed several new studies on Internet savings in the health insurance and automotive categories, along with a new collection of apps available for tablets and other mobile devices.
The greatest sources of additional savings in this year’s analysis were found in two categories: entertainment and automotive. We found that “cutting the cord” on traditional cable TV subscriptions in favor of streaming content via Netflix or a similar service could produce significant savings. In the automotive category, we found that using an online tool like TrueCar could save on a new car purchase. In a departure from last year’s methodology, we factored in the average annual cost of a mobile data plan AND home Internet connection ($1,440).
The below methodology provides more detail as to the calculations used for each savings category.
Source: Search based study on apartments in New York, Chicago, Los Angeles, Dallas and Jacksonville
Methodology: Sampled 50 online postings in the above markets to determine average cost savings relative to local apartment rent. Considered the average annual expenditure on shelter ($17,798) minus the annual mortgage interest and charges for owned homes ($3,200) based on the Department of Labor annual study on consumer expenditures. Applied 16.53% savings factor to the remaining average expenditure for apartment living ($14,598).
Source examples: www.craigslist.org, Craigslist App, www.trulia.com, Trulia Rent App, www.zillow.com, Zillow App
TWO. AUTOMOTIVE. POTENTIAL SAVINGS: $3,000 (A ONETIME SAVINGS OF 9.26%)
THREE. HEALTH INSURANCE. POTENTIAL SAVINGS: $430/YR (15%)
Source: Kaiser Family Foundation Study
Methodology: Applied 15% savings factor from Kaiser study to the average amount spent on health insurance ($2,868) based on the Department of Labor annual study on consumer expenditures.
FOUR. FOOD. POTENTIAL SAVINGS: $1,020/YR (25.68%)
Source: Search based study on basic basket of groceries based on top selling items (Carbonated beverages, Milk, Fresh bread, Produce, Snacks, Cheese, Frozen dinners/entrees, Cold cereal)
Methodology: Created a standard basket of monthly groceries to establish a baseline retail cost. Conducted a series of online searches against the baseline to identify cost savings exclusive to the Internet. Potential savings based on cost reductions at the aggregate basket level. Applied 25.68% savings factor to the average annual expenditure on food at home ($3,971) based on the Department of Labor annual study on consumer expenditures.
Source example: www.couponmom.com, www.peapod.com, www.coupons.com
FIVE. NON PRESCRIPTION DRUGS. $59/YR (17.52%)
Source: Search based study on common over the counter medicines (Pain Relievers, Antacids, Cold Remedies, Allergy Relief, Natural Remedies)
Methodology: Created a standard basket of the best-selling non-prescription drugs to establish a baseline retail cost. Conducted a series of online searches against the baseline to identify cost savings exclusive to the Internet. Potential savings based on cost reductions at the aggregate basket level. Applied 17.52% savings factor to the average annual expenditure on non-prescription drugs, $338 annually according to a study by the Consumer Healthcare Products Association.
Source example: www.drugstore.com, www.overstockdrugstore.com
Source: Search based study on lowest gasoline prices in New York, Chicago, Los Angeles, Dallas and Jacksonville
Methodology: Researched average gas prices for each of the above cities, and found the lowest advertised prices in each, for a savings of 12.28% off of average gasoline expenditure ($2,468) based on the Department of Labor annual study on consumer expenditures.
Source example: www.gasbuddy.com, GasBuddy App
Source: Search based study on restaurant dining, sporting/concert tickets and leisure activities in New York, Chicago, Los Angeles, Dallas and Jacksonville
Methodology: Applied savings factor of 55.64% on dining outside of the home ($2,787) and entertainment such as concerts, events and leisure activities to the entertainment budget ($2,728) based on the Department of Labor annual study on consumer expenditures.
Source example: Groupon App, Living Social App.
Also added cost savings of “cutting the cord” on cable TV. To calculate savings, we looked at the average monthly cost of a cable subscription in the U.S. ($99, according to Yahoo Finance) and assumed the use of a streaming service like Netflix. Applied savings factor of 89.91% to the total average spent on cable as a percentage of total entertainment spending.
Source: Search based study on basic clothing combinations for men and women
Methodology: Created a set of standard baskets of apparel for a man (khakis/jeans and shirts) and a woman (skirts/jeans and tops) to establish a baseline retail cost in each of five price categories. Conducted a series of online searches against the baseline to identify cost savings exclusive to the Internet. Applied 62.55% savings factor to the average annual expenditure on apparel ($1,786) based on the Department of Labor annual study on consumer expenditures.
Site example: www.6pm.com
Source: Search based study reviewing major newspapers in New York, Chicago, Los Angeles, Dallas and Jacksonville
Methodology: Calculated the standard annual rate for a daily delivery (including Sunday) subscription for three top papers in each of the above cities. Potential savings factor based on average annual daily subscription rates vs. online subscription rates and access to the newspaper’s app (where available).
Source: Cost analysis based on average consumer’s postage for seven bills per month.
Methodology: Created a standard multiple of monthly bills that are traditionally paid via postage (Rent/Mortgage, Gas, Electric, Water, Cable/Phornet, Mobile, Credit Card). Applied average cost per U.S. postage stamp ($
0.49) for each monthly bill.
Site examples: www.mycheckfree.com, www.chase.com, www.bankofamerica.com
A sea change in the Lifeline Program is needed. IIA strongly believes that the Lifeline Program should cover broadband services. As Commissioner Mignon Clyburn has noted, broadband is “the greatest equalizer of our time.” But while broadband access is nearly ubiquitous for upper-income Americans, those with low incomes struggle to achieve comparable connectivity. IIA believes that, if the FCC fails to fundamentally alter the program to cover broadband, then the FCC may inadvertently and unnecessarily jeopardize the program’s future existence.
In bringing Lifeline into the 21st century, broadband should be included as an integral, more affordable offering of the program, and consumers should be empowered by providing the subsidy directly to eligible people instead of companies. Moreover, to enhance administrative efficiency, we urge the FCC to shift program eligibility verification away from companies that are not accountable to the American people, and instead allow states to verify eligibility for Lifeline at the same time they determine consumer eligibility for other federal low-income programs.
To protect the innovation that has been a hallmark of the Internet ecosystem and to advance the overall mission of broadband deployment, the Commission should rely on its authority, reaffirmed by the Verizon court, under Section 706 of the Telecommunications Act of 1996 rather than on a radical proposal to reverse decades of Commission precedent and practice by reclassifying broadband services under Title II. Selective forbearance would pose serious legal and practical difficulties. Section 706 – the text of which speaks of the need to promote investment – presents the better alternative to protect the open Internet, protect consumers, and promote innovation.
In summary, IIA believes the existing unpredictable, non-public process for changing spectrum screens undermines economic growth by failing to provide investors with the transparency, predictability and flexibility needed to properly consider wireless broadband investments. While freeing more spectrum for mobile broadband use remains the most important new policy priority, creating an open and predictable process for evaluating the amount of spectrum carriers will be allowed to possess is essential to promoting investment and growth in commercial mobile services.
An effective National Broadband Strategy will enable the government to partner with the private sector to extend broadband service to every corner of the country, while at the same time raising awareness of its benefits. A national broadband strategy should also evolve as technologies improve, and as we learn more from broadband mapping and from the return of initial stimulus investments. The best strategy will start by examining where we stand today and then identify policies to get us where we want to be.
Fundamental reforms should include expanding the Lifeline Program to cover broadband and completely overhauling program administration
WASHINGTON, D.C. – August 31, 2015 – Today, the Internet Innovation Alliance (“IIA”) urged the Federal Communications Commission (“FCC”) to embrace fundamental and sweeping reform as the agency moves forward in its effort to modernize the existing federal Lifeline Program. 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, according to IIA.
IIA’s comments filed today in response to the FCC’s Further Notice of Proposed Rulemaking (FNPRM) on Lifeline Program modernization emphasize the core need to include broadband as a new eligible service under Lifeline. IIA contends that the failure to update the program to include high-speed Internet would potentially jeopardize Lifeline’s future existence.
“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,’” commented Rick Boucher, a former Democratic congressman who chaired the Energy and Commerce Subcommittee on Communications and the Internet and now serves as honorary chairman of the IIA.
Beyond making broadband an eligible Lifeline service, IIA’s filing urges the FCC to squarely address existing structural flaws that today hamstring the program and the Lifeline marketplace. IIA proposes 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.
Boucher added, “IIA stands with Commissioner Clyburn and her fellow Commissioners in the belief that the time for comprehensive Lifeline reform is now to ensure the relevance and fiscal integrity of the program so that all Americans may participate fully in the broadband century.”
On the heels of Federal Communications Commission Chairman Tom Wheeler’s proposal to restructure and modernize the Commission’s Lifeline program, IIA sent a letter today in support of the rulemaking proceeding soon to be initiated to advance Lifeline reform.
From the letter, signed by IIA Chairmen Rick Boucher, Bruce Mehlman, Larry Irving and Jamal Simmons:
“The Internet serves as a 21st century tool that promotes civic engagement and enables citizens to access education, healthcare, government services and job opportunities. Not having high-speed broadband service limits access to the benefits and opportunities offered in today’s global digital economy.
“In the U.S., consumers with economic means have nearly ubiquitous access to broadband, yet almost two-thirds of our nation’s low-income community continues to seek that similar opportunity. Without broadband availability, low-income families face an uphill battle in obtaining the American dream.
“In bringing Lifeline into the 21st century, broadband should be included as an integral, more affordable offering of the program, and consumers should be empowered by providing the subsidy directly to eligible people instead of companies. Moreover, to enhance administrative efficiency, we urge the FCC to shift program eligibility verification away from companies that are not accountable to the American people, and instead allow states to verify eligibility for Lifeline at the same time they determine consumer eligibility for other federal low-income programs. Such ‘coordinated enrollment’ would benefit consumers by streamlining the eligibility process and ultimately enable subsidy recipients to receive a ‘Lifeline Benefit Card’ where consumers could apply the funds to the provider of their choosing. These reforms would make program participation for all service providers more attractive, thereby broadening consumer choice and stimulating competition for the low-income consumer purchasing power.
“IIA applauds the Commission for quickly moving forward to initiate a new proceeding aimed to advance Lifeline reform this year. The time for reform is now, the need is great, and the goal is achievable. “
Some believe that an open Internet was safely secured by the FCC’s net neutrality rules that now treat broadband Internet access service as a public utility under Title II of the 1934 Communications Act.
Yet, in choosing the impose rules designed to regulate the original telephone monopolies on the nation’s dynamic Internet economy, the FCC now faces the real threat that its monopoly-era approach will be reverse either by a court or through the election of a Republican President that would alter the Commission’s leadership in 2017.
While Democrats and Republicans have fought for the past decade over the adoption of rules that assure network neutrality, Republicans now appear ready to engage in a real and thoughtful discussion about preserving an open Internet. They have moved a great distance from their traditional approach. If Democrats are willing, Congress can once and for all create legal permanence for the network neutrality principles Democrats have long sought with “rules of the road” that preserve Internet openness and restore the light-touch regulatory approach that has promoted the exponential growth of the Internet.
Impact of “Title II” Regulation on Communications Investment
Updated as of 3/6/15
By every relevant measure of broadband capability, the US is ahead of Europe, with greater levels of broadband deployment, competition and access to the fastest wireless and next-generation wired facilities.
A light-touch regulatory approach to broadband leads to greater deployment, competition and coverage than Title II-style regulation, according to our new 36-page report comparing the state of broadband in the United States to Europe.
Authored by Fred Campbell, executive director of the Center for Boundless Innovation in Technology and former Wireless Bureau Chief at the Federal Communications Commission (FCC), “Impact of Title II Regulation on Communications Investment” sheds light on the different outcomes resulting from Title II-style Internet policy adopted by the European Union (EU) in 2002 and the deregulatory approach to broadband that the United States (US) adopted that same year.
The study reveals the European Commission’s acknowledgement that:
• High-speed broadband investment is taking place more quickly in the United States;
• Title II-style regulations are the reason European broadband networks have fallen behind the United States; and
• Europe must adopt investment-friendly broadband policies in order to maintain its global competitiveness.
“It is ironic that, as the EU embarks on relaxing its Title II-style approach to broadband regulation to mimic US success, the FCC is now about to reverse course and embrace failed public utility regulation for the Internet. Instead, as the data in the study reveals and the EU experience demonstrates, the US has had it right all along. We should maintain a bi-partisan light-touch regulatory approach to ensure continued innovation, investment and rapid deployment of 21st century broadband networks.”
— Fred B. Campbell, Jr.
According to the study, the EU’s wholesale access regulations have posed major barriers to network investment, to the introduction of facilities-based competition and to the availability of the fastest wireless services and next-generation networks.
It notes that even though the EU is smaller in geographic size, has greater population density and surpasses the United States in gross domestic product, US wireline broadband providers have invested nearly three times more capital in their networks than their European counterparts. Our nation’s broadband investment greatly overshadowed European investment despite the fact that total European service provider revenues exceeded those of US providers by $15 to 20 billion annually.
“Rhetoric and partisanship have derailed the net neutrality debate. Rather than basing regulatory choices on philosophical principles and hypothetical concerns, policymakers should rely on real numbers that tell the success story of broadband in the US.
“The EU has acknowledged that its Title II-style regulatory approach is the reason European broadband networks have fallen behind those in our nation. The FCC has ample authority to assure Internet openness without imposing utility-style regulation on broadband. We should learn from the European example and avoid gambling on the future of the world’s most innovative Internet economy.”
— IIA Honorary Chairman Rick Boucher
The study highlights how US mobile operators have invested twice as much capital in their networks as EU mobile operators, and have reinvested a significantly greater percentage of their revenues (15-16%) in their wireless network infrastructure versus their EU mobile operator counterparts (7-8%).
Data from the study demonstrate how these higher levels of capital investment in the US correlate with high levels of facilities-based competition and next-generation coverage:
• US competitors have a larger share of the telephone market (US 65% vs. EU 41%); competitors also hold a larger percentage of the US broadband market.
• The vast majority of US households have access to multiple facilities-based fixed broadband operators while a majority of Europeans lack access to any alternative fixed facilities-based broadband alternative;
• US has 5 or more facilities-based mobile operators in most markets, while EU averages fewer than 4 facilities-based mobile operators per market (typically 3-4);
• 82% of Americans are covered by next-generation broadband at 50 Mbps download speeds vs. 63% of Europeans covered by broadband networks offering at the most 30 Mbps speed; and
• As late as 2012, high-speed wireless broadband (LTE) coverage in the US was more than double that in the EU (79% of US population had LTE coverage vs. 30% of EU households).
Bringing the FCC’s Lifeline Program Into the 21st Century
A white paper by the Internet Innovation Alliance
Our new white paper, “Bringing the FCC’s Lifeline Program into the 21st Century,” calls for fundamental reform of the Federal Communications Commission’s existing Lifeline Program to provide access and enhanced consumer choice to 21st Century broadband services for the nation’s low-income consumers.
“The FCC’s Lifeline Program is a 20th Century government program aimed at spreading a 19th Century technology, voice service. It’s time to start a new conversation in Washington on how best to provide America’s low-income communities with greater access to 21st Century broadband communications services.”
— former Congressman, and Honorary Chairman of IIA, Rick Boucher
In our report, we highlight how this antiquated, cumbersome and complex program currently perpetuates a market imbalance that obligates only wireline telephone providers to participate and maintain the administrative systems and processes required to operate the program.
We recommend streamlining the program to provide the flexibility necessary to broaden participation among various communications providers to help bring the benefits of competition to low-income consumers — more innovation, better service, lower prices—while also lowering administrative costs. One step toward attaining this goal is to transition the current program toward a voucher model, by providing eligible consumers with a “Lifeline Benefit Card” that empowers them to purchase a range of communications services, including broadband, wireline or wireless voice services.
Today, service providers determine the eligibility of consumers for the Lifeline subsidy. The white paper recommends that, given the economic incentives that service providers have to increase enrollment, eligibility determinations for Lifeline benefits and core program administration oversight should be performed by a governmental agency rather than by communications service providers.
Our report offers the following recommendations on how best to modernize and transition the Lifeline program so that it can help ensure next-generation broadband access for low-income consumers:
1. Bring the Lifeline Program into the 21st Century by making broadband a key part of the program’s rubric;
2. Empower consumers by providing the subsidy directly to eligible people instead of companies;
3. Level the playing field between service providers to broaden consumer choice and stimulate competition for their purchasing power;
4. Safeguard and simplify the program by taking administration away from companies that are not accountable to the American public, instead vesting that governmental responsibility with an appropriate government agency.
“Only five percent of U.S. consumers still rely solely on the antiquated, circuit-switched telephone network for their communications needs. This trend is reflected in the FCC’s Lifeline Program, with 80 percent of its dollars currently going to wireless carriers.
As consumers abandon their wireline telephones for modern broadband services, the Lifeline Program — adopted during the 1980s — should be modernized and upgraded to reflect the realities of the current IP-based world. Expanding the program to focus on broadband, and simplifying its administration to welcome participation by more service providers, will help millions more Americans access modern communications services.”
— former Congressman, and Honorary Chairman of IIA, Rick Boucher
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