As the FCC prepares to vote Thursday (Nov. 17) on its latest proposal to regulate Business Data Services (BDS), my thoughts turn to an issue that has unfortunately not played much of a role in this debate: broadband service in rural America.
For 28 years, I represented in Congress the most rural district in Virginia. I understand the pleasures of living in rural America, as well as the challenges regions like my former district face in promoting economic growth. For these places, broadband is an equalizer, a destroyer of distance, a critical aid to realizing a brighter economic future.
During this contentious Presidential campaign, the need to increase infrastructure investment in all parts of the country has been a rare point of bipartisan agreement. The broadband growth we have seen in rural America, like the explosion in broadband throughout the country, has been driven almost entirely by private investment. That’s not going to change with advances in technology—in fact, faster broadband will require greater private sector led investment, not less.
BDS forms the communications link connecting rural hospitals, community colleges, and businesses of all sizes—institutions that are the major drivers of rural economies. They rely on fast, modern broadband connections as their bridge to the nation and the world. As their communications needs grow, they need ever faster broadband services, which only come to them through greater private sector investment.
The FCC’s plan will impose price regulation on certain aspects of the BDS market and threaten it for others. The question that concerns me is whether the FCC’s action will make that investment easier or harder.
The FCC is proposing direct price regulation on older copper-based “TDM” communications links, which are disproportionately concentrated in rural areas. It also says that it will examine case-by-case the pricing of new, faster Ethernet systems—the kind institutions and businesses in rural America need.
Basic economics posits that driving down prices on older systems will hurt deployment of newer systems. With lower returns on the older systems, there simply will not be sufficient revenues for companies to undertake expensive deployments of the newer ones. Moreover, companies will constantly be at risk of newly deployed Ethernet systems being singled out for price regulation under case-by-case review.
The resulting combination of diminished revenues and increased regulatory risk will greatly dampen the willingness of carriers to meet the needs of BDS customers for faster services. Our rural economies will be the major losers.
The problem is greatly magnified by the higher deployment costs that are endemic in rural areas. When longer lines must cross more vertical terrain to reach less densely populated communities, the economic case for making new investments is especially challenging.
And making the logic even more puzzling, the FCC will be flying in the face of a time-honored bipartisan commitment stemming from the Clinton administration to refrain from broadband regulation in order to promote private investment and obtain the fastest deployment of broadband possible.
Regulation proponents argue that there is more competition for BDS in urban and suburban areas where most businesses, and most people, are located, and less competition in rural areas. But there is some level of competition almost everywhere. Taking a close look at the FCC’s own data reveals that competition exists in over 95 percent of census blocks where there is demand for BDS, and these census blocks account for 99 percent of American businesses.
With 99 percent of BDS customers served by more than a single provider, a clear picture emerges of the pervasiveness of competition, including in rural areas. So what’s the point of imposing investment-killing price regulations that will delay the arrival of the Ethernet services rural institutions so urgently need?
The impending harm rural America will suffer from the BDS regulation has not been prominent in the debate. Rural America is the table on which the FCC proposes to conduct its experiment in price regulation of broadband. In fact, rural America stands to be the biggest loser.
It’s time that these rural realities are brought into the FCC’s deliberations. I just hope that happens before it’s too late.
Originally published at Bloomberg BNA