Archives For NTIA

To Close the Digital Divide, Broadband Infrastructure Funds Must Be Spent Efficiently

Kristian Stout —  27 May 2022

States seeking broadband-deployment grants under the federal Broadband Equity, Access, and Deployment (BEAD) program created by last year’s infrastructure bill now have some guidance as to what will be required of them, with the National Telecommunications and Information Administration (NTIA) issuing details last week in a new notice of funding opportunity (NOFO).

All things considered, the NOFO could be worse. It is broadly in line with congressional intent, insofar as the requirements aim to direct the bulk of the funding toward connecting the unconnected. It declares that the BEAD program’s principal focus will be to deploy service to “unserved” areas that lack any broadband service or that can only access service with download speeds of less than 25 Mbps and upload speeds of less than 3 Mbps, as well as to “underserved” areas with speeds of less than 100/20 Mbps. One may quibble with the definition of “underserved,” but these guidelines are within the reasonable range of deployment benchmarks.

There are, however, also some subtle (and not-so-subtle) mandates the NTIA would introduce that could work at cross-purposes with the BEAD program’s larger goals and create damaging precedent that could harm deployment over the long term.

Some NOFO Requirements May Impinge Broadband Deployment

The infrastructure bill’s statutory text declares that:

Access to affordable, reliable, high-speed broadband is essential to full participation in modern life in the United States.

In keeping with that commitment, the bill established the BEAD program to finance the buildout of as much high-speed broadband access as possible for as many people as possible. This is necessarily an exercise in economizing and managing tradeoffs. There are many unserved consumers who need to be connected or underserved consumers who need access to faster connections, but resources are finite.

It is a relevant background fact to note that broadband speeds have grown consistently faster in recent decades, while quality-adjusted prices for broadband service have fallen. This context is important to consider given the prevailing inflationary environment into which BEAD funds will be deployed. The broadband industry is healthy, but it is certainly subject to distortion by well-intentioned but poorly directed federal funds.

This is particularly important given that Congress exempted the BEAD program from review under the Administrative Procedure Act (APA), which otherwise would have required NTIA to undertake much more stringent processes to demonstrate that implementation is effective and aligned with congressional intent.

Which is why it is disconcerting that some of the requirements put forward by NTIA could serve to deplete BEAD funding without producing an appropriate return. In particular, some elements of the NOFO suggest that NTIA may be interested in using BEAD funding as a means to achieve de facto rate regulation on broadband.

The Infrastructure Act requires that each recipient of BEAD funding must offer at least one low-cost broadband service option for eligible low-income consumers. For those low-cost plans, the NOFO bars the use of data caps, also known as “usage-based billing” or UBB. As Geoff Manne and Ian Adams have noted:

In simple terms, UBB allows networks to charge heavy users more, thereby enabling them to recover more costs from these users and to keep prices lower for everyone else. In effect, UBB ensures that the few heaviest users subsidize the vast majority of other users, rather than the other way around.

Thus, data caps enable providers to optimize revenue by tailoring plans to relatively high-usage or low-usage consumers and to build out networks in ways that meet patterns of actual user demand.

While not explicitly a regime to regulate rates, using the inducement of BEAD funds to dictate that providers may not impose data caps would have some of the same substantive effects. Of course, this would apply only to low-cost plans, so one might expect relatively limited impact. The larger concern is the precedent it would establish, whereby regulators could deem it appropriate to impose their preferences on broadband pricing, notwithstanding market forces.

But the actual impact of these de facto price caps could potentially be much larger. In one section, the NOFO notes that each “eligible entity” for BEAD funding (states, U.S. territories, and the District of Columbia) also must include in its initial and final proposals “a middle-class affordability plan to ensure that all consumers have access to affordable high-speed internet.”

The requirement to ensure “all consumers” have access to “affordable high-speed internet” is separate and apart from the requirement that BEAD recipients offer at least one low-cost plan. The NOFO is vague about how such “middle-class affordability plans” will be defined, suggesting that the states will have flexibility to “adopt diverse strategies to achieve this objective.”

For example, some Eligible Entities might require providers receiving BEAD funds to offer low-cost, high-speed plans to all middle-class households using the BEAD-funded network. Others might provide consumer subsidies to defray subscription costs for households not eligible for the Affordable Connectivity Benefit or other federal subsidies. Others may use their regulatory authority to promote structural competition. Some might assign especially high weights to selection criteria relating to affordability and/or open access in selecting BEAD subgrantees. And others might employ a combination of these methods, or other methods not mentioned here.

The concern is that, coupled with the prohibition on data caps for low-cost plans, states are being given a clear instruction: put as many controls on providers as you can get away with. It would not be surprising if many, if not all, state authorities simply imported the data-cap prohibition and other restrictions from the low-cost option onto plans meant to satisfy the “middle-class affordability plan” requirements.

Focusing on the Truly Unserved and Underserved

The “middle-class affordability” requirements underscore another deficiency of the NOFO, which is the extent to which its focus drifts away from the unserved. Given widely available high-speed broadband access and the acknowledged pressing need to connect the roughly 5% of the country (mostly in rural areas) who currently lack that access, it is a complete waste of scarce resources to direct BEAD funds to the middle class.

Some of the document’s other problems, while less dramatic, are deficient in a similar respect. For example, the NOFO requires that states consider government-owned networks (GON) and open-access models on the same terms as private providers; it also encourages states to waive existing laws that bar GONs. The problem, of course, is that GONs are best thought of as a last resort to be deployed only where no other provider is available. By and large, GONs have tended to become utter failures that require constant cross-subsidization from taxpayers and that crowd out private providers.

Similarly, the NOFO heavily prioritizes fiber, both in terms of funding priorities and in the definitions it sets forth to deem a location “unserved.” For instance, it lays out:

For the purposes of the BEAD Program, locations served exclusively by satellite, services using entirely unlicensed spectrum, or a technology not specified by the Commission of the Broadband DATA Maps, do not meet the criteria for Reliable Broadband Service and so will be considered “unserved.”

In many rural locations, wireless internet service providers (WISPs) use unlicensed spectrum to provide fast and reliable broadband. The NOFO could be interpreted as deeming homes served by such WISPs as underserved or underserved, while preferencing the deployment of less cost-efficient fiber. This would be another example of wasteful priorities.

Finally, the BEAD program requires states to forbid “unjust or unreasonable network management practices.” This is obviously a nod to the “Internet conduct standard” and other network-management rules promulgated by the Federal Communications Commission’s since-withdrawn 2015 Open Internet Order. As such, it would serve to provide cover for states to impose costly and inappropriate net-neutrality obligations on providers.

Conclusion

The BEAD program represents a straightforward opportunity to narrow, if not close, the digital divide. If NTIA can restrain itself, these funds could go quite a long way toward solving the hard problem of connecting more Americans to the internet. Unfortunately, as it stands, some of the NOFO’s provisions threaten to lose that proper focus.

Congress opted not to include in the original infrastructure bill these potentially onerous requirements that NTIA now seeks, all without an APA rulemaking. It would be best if the agency returned to the NOFO with clarifications that would fix these deficiencies.

In Administrative Law, Broadband, Federal Communications Commission, Net Neutrality, Regulation, Telecommunications, Truth on the Market, Wireless , , , , , , ,
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Build Broadband Better: Focus on Competition, Not Competitors

Geoffrey Manne & Ben Sperry —  28 June 2021

President Joe Biden named his post-COVID-19 agenda “Build Back Better,” but his proposals to prioritize support for government-run broadband service “with less pressure to turn profits” and to “reduce Internet prices for all Americans” will slow broadband deployment and leave taxpayers with an enormous bill.

Policymakers should pay particular heed to this danger, amid news that the Senate is moving forward with considering a $1.2 trillion bipartisan infrastructure package, and that the Federal Communications Commission, the U.S. Commerce Department’s National Telecommunications and Information Administration, and the U.S. Agriculture Department’s Rural Utilities Service will coordinate on spending broadband subsidy dollars.

In order to ensure that broadband subsidies lead to greater buildout and adoption, policymakers must correctly understand the state of competition in broadband and not assume that increasing the number of firms in a market will necessarily lead to better outcomes for consumers or the public.

A recent white paper published by us here at the International Center for Law & Economics makes the case that concentration is a poor predictor of competitiveness, while offering alternative policies for reaching Americans who don’t have access to high-speed Internet service.

The data show that the state of competition in broadband is generally healthy. ISPs routinely invest billions of dollars per year in building, maintaining, and upgrading their networks to be faster, more reliable, and more available to consumers. FCC data show that average speeds available to consumers, as well as the number of competitors providing higher-speed tiers, have increased each year. And prices for broadband, as measured by price-per-Mbps, have fallen precipitously, dropping 98% over the last 20 years. None of this makes sense if the facile narrative about the absence of competition were true.

In our paper, we argue that the real public policy issue for broadband isn’t curbing the pursuit of profits or adopting price controls, but making sure Americans have broadband access and encouraging adoption. In areas where it is very costly to build out broadband networks, like rural areas, there tend to be fewer firms in the market. But having only one or two ISPs available is far less of a problem than having none at all. Understanding the underlying market conditions and how subsidies can both help and hurt the availability and adoption of broadband is an important prerequisite to good policy.

The basic problem is that those who have decried the lack of competition in broadband often look at the number of ISPs in a given market to determine whether a market is competitive. But this is not how economists think of competition. Instead, economists look at competition as a dynamic process where changes in supply and demand factors are constantly pushing the market toward new equilibria.

In general, where a market is “contestable”—that is, where existing firms face potential competition from the threat of new entry—even just a single existing firm may have to act as if it faces vigorous competition. Such markets often have characteristics (e.g., price, quality, and level of innovation) similar or even identical to those with multiple existing competitors. This dynamic competition, driven by changes in technology or consumer preferences, ensures that such markets are regularly disrupted by innovative products and services—a process that does not always favor incumbents.

Proposals focused on increasing the number of firms providing broadband can actually reduce consumer welfare. Whether through overbuilding—by allowing new private entrants to free-ride on the initial investment by incumbent companies—or by going into the Internet business itself through municipal broadband, government subsidies can increase the number of firms providing broadband. But it can’t do so without costs―which include not just the cost of the subsidies themselves, which ultimately come from taxpayers, but also the reduced incentives for unsubsidized private firms to build out broadband in the first place.

If underlying supply and demand conditions in rural areas lead to a situation where only one provider can profitably exist, artificially adding another completely reliant on subsidies will likely just lead to the exit of the unsubsidized provider. Or, where a community already has municipal broadband, it is unlikely that a private ISP will want to enter and compete with a firm that doesn’t have to turn a profit.

A much better alternative for policymakers is to increase the demand for buildout through targeted user subsidies, while reducing regulatory barriers to entry that limit supply.

For instance, policymakers should consider offering connectivity vouchers to unserved households in order to stimulate broadband deployment and consumption. Current subsidy programs rely largely on subsidizing the supply side, but this requires the government to determine the who and where of entry. Connectivity vouchers would put the choice in the hands of consumers, while encouraging more buildout to areas that may currently be uneconomic to reach due to low population density or insufficient demand due to low adoption rates.

Local governments could also facilitate broadband buildout by reducing unnecessary regulatory barriers. Local building codes could adopt more connection-friendly standards. Local governments could also reduce the cost of access to existing poles and other infrastructure. Eligible Telecommunications Carrier (ETC) requirements could also be eliminated, because they deter potential providers from seeking funds for buildout (and don’t offer countervailing benefits).

Albert Einstein once said: “if I were given one hour to save the planet, I would spend 59 minutes defining the problem, and one minute resolving it.” When it comes to encouraging broadband buildout, policymakers should make sure they are solving the right problem. The problem is that the cost of building out broadband to unserved areas is too high or the demand too low—not that there are too few competitors.

In Administrative Law, Antitrust & Competition, Barriers to Entry, Broadband, COVID-19, Federal Communications Commission, International Center for Law & Economics, Regulation, Regulatory Reform, Telecommunications, Truth on the Market , , , , , , , , , , , , , , , ,
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Chairman Pai’s FCC Followed a Sound Process in Approving L-Band Wireless Services

Seth Cooper —  18 January 2021

[TOTM: The following is part of a digital symposium by TOTM guests and authors on the legal and regulatory issues that arose during Ajit Pai’s tenure as chairman of the Federal Communications Commission. The entire series of posts is available here.

Seth L. Cooper is director of policy studies and a senior fellow at the Free State Foundation.]

During Chairman Ajit Pai’s tenure, the Federal Communications Commission adopted key reforms that improved the agency’s processes. No less important than process reform is process integrity. The commission’s L-Band Order and the process that produced it will be the focus here. In that proceeding, Chairman Pai led a careful and deliberative process that resulted in a clearly reasoned and substantively supportable decision to put unused valuable L-Band spectrum into commercial use for wireless services.

Thanks to one of Chairman Pai’s most successful process reforms, the FCC now publicly posts draft items to be voted on three weeks in advance of the commission’s public meetings. During his chairmanship, the commission adopted reforms to help expedite the regulatory-adjudication process by specifying deadlines and facilitating written administrative law judge (ALJ) decisions rather than in-person hearings. The “Team Telecom” process also was reformed to promote faster agency determinations on matters involving foreign ownership.

Along with his process-reform achievements, Chairman Pai deserves credit for ensuring that the FCC’s proceedings were conducted in a lawful and sound manner. For example, the commission’s courtroom track record was notably better during Chairman Pai’s tenure than during the tenures of his immediate predecessors. Moreover, Chairman Pai deserves high marks for the agency process that preceded the L-Band Order – a process that was perhaps subject to more scrutiny than the process of any other proceeding during his chairmanship. The public record supports the integrity of that process, as well as the order’s merits.

In April 2020, the FCC unanimously approved an order authorizing Ligado Networks to deploy a next-generation mixed mobile-satellite network using licensed spectrum in the L-Band. This action is critical to alleviating the shortage of commercial spectrum in the United States and to ensuring our nation’s economic competitiveness. Ligado’s proposed network will provide industrial Internet-of-Things (IoT) services, and its L-Band spectrum has been identified as capable of pairing with C-Band and other mid-band spectrum for delivering future 5G services. According to the L-Band Order, Ligado plans to invest up to $800 million in network capabilities, which could create over 8,000 jobs. Economist Coleman Bazelon estimated that Ligado’s network could help create up to 3 million jobs and contribute up to $500 billion to the U.S. economy.

Opponents of the L-Band Order have claimed that Ligado’s proposed network would create signal interference with GPS services in adjacent spectrum. Moreover, in attempts to delay or undo implementation of the L-Band Order, several opponents lodged harsh but baseless attacks against the FCC’s process. Some of those process criticisms were made at a May 2020 Senate Armed Services Committee hearing that failed to include any Ligado representatives or any FCC commissioners for their viewpoints. And in a May 2020 floor speech, Sen. James Inhofe (R-Okla.) repeatedly criticized the commission’s process as sudden, hurried, and taking place “in the darkness of a weekend.”

But those process criticisms fail in the face of easily verifiable facts. Under Chairman Pai’s leadership, the FCC acted within its conceded authority, consistent with its lawful procedures, and with careful—even lengthy—deliberation.

The FCC’s proceeding concerning Ligado’s license applications dates back to 2011. It included public notice and comment periods in 2016 and 2018. An August 2019 National Telecommunications and Information Administration (NTIA) report noted the commission’s forthcoming decision. In the fall of 2019, the commission shared a draft of its order with NTIA. Publicly stated opposition to Ligado’s proposed network by GPS operators and Defense Secretary Mark Esper, as well as publicly stated support for the network by Attorney General William Barr and Secretary of State Mike Pompeo, ensured that the proceeding received ongoing attention. Claims of “surprise” when the commission finalized its order in April 2020 are impossible to credit.

Importantly, the result of the deliberative agency process helmed by Chairman Pai was a substantively supportable decision. The FCC applied its experience in adjudicating competing technical claims to make commercial spectrum policy decisions. It was persuaded in part by signal testing conducted by the National Advanced Spectrum and Communications Test Network, as well as testing by technology consultants Roberson and Associates. By contrast, the commission found unpersuasive reports of alleged signal interference involving military devices operating outside of their assigned spectrum band.

The FCC also applied its expertise in addressing potential harmful signal interference to incumbent operations in adjacent spectrum bands by imposing several conditions on Ligado’s operations. For example, the L-Band Order requires Ligado to adhere to its agreements with major GPS equipment manufacturers for resolving signal interference concerns. Ligado must dedicate 23 megahertz of its own licensed spectrum as a guard-band from neighboring spectrum and also reduce its base station power levels 99% compared to what Ligado proposed in 2015. The commission requires Ligado to expeditiously replace or repair any U.S. government GPS devices that experience harmful interference from its network. And Ligado must maintain “stop buzzer” capability to halt its network within 15 minutes of any request by the commission.

From a process standpoint, the L-Band Order is a commendable example of Chairman Pai’s perseverance in leading the FCC to a much-needed decision on an economically momentous matter in the face of conflicting government agency and market provider viewpoints. Following a careful and deliberative process, the commission persevered to make a decision that is amply supported by the record and poised to benefit America’s economic welfare.

In Administrative Law, Federal Communications Commission, Regulation, Regulatory Reform, Retrospective on Ajit Pai’s Tenure as FCC Chairman, Symposia, Telecommunications, Truth on the Market, Wireless , , , , , , , , , , , , , , ,
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The .AMAZON TLD, cultural identity and competition regulation at ICANN

Geoffrey Manne —  19 July 2013

The ridiculousness currently emanating from ICANN and the NTIA (see these excellent posts from Milton Mueller and Eli Dourado on the issue) over .AMAZON, .PATAGONIA and other “geographic”/commercial TLDs is precisely why ICANN (and, apparently, the NTIA) is a problematic entity as a regulator.

The NTIA’s response to ICANN’s Governmental Advisory Committee’s (GAC) objection to Amazon’s application for the .AMAZON TLD (along with similar applications from other businesses for other TLDs) is particularly troubling, as Mueller notes:

In other words, the US statement basically says “we think that the GAC is going to do the wrong thing; its most likely course of action has no basis in international law and is contrary to vital policy principles the US is supposed to uphold. But who cares? We are letting everyone know that we will refuse to use the main tool we have that could either stop GAC from doing the wrong thing or provide it with an incentive to moderate its stance.”

Competition/antitrust issues don’t seem to be the focus of this latest chapter in the gTLD story, but it is instructive on this score nonetheless. As Berin Szoka and I wrote in ICLE’s comment to ICANN on gTLDS:

Among the greatest threats to this new “land rush” of innovation is the idea that ICANN should become a competition regulator, deciding whether to approve a TLD application based on its own competition analysis. But ICANN is not a regulator. It is a coordinator. ICANN should exercise its coordinating function by applying the same sort of analysis that it already does in coordinating other applications for TLDs.

* * *

Moreover, the practical difficulties in enforcing different rules for generic TLDs as opposed to brand TLDs likely render any competition pre-clearance mechanism unworkable. ICANN has already determined that .brand TLDs can and should be operated as closed domains for obvious and good reasons. But differentiating between, say .amazon the brand and .amazon the generic or .delta the brand and .delta the generic will necessarily result in arbitrary decisions and costly errors.

Of most obvious salience: implicit in the GAC’s recommendation is the notion that somehow Amazon.com is sufficiently different than .AMAZON to deny Amazon’s ownership of the latter. But as Berin and I point out:

While closed gTLDs might seem to some to limit competition, that limitation would occur only within a particular, closed TLD. But it has every potential to be outweighed by the dramatic opening of competition among gTLDs, including, importantly, competition with .com.

In short, the market for TLDs and domain name registrations do not present particular competitive risks, and there is no a priori reason for ICANN to intervene prospectively.

In other words, treating Amazon.com and .AMAZON as different products, in different relevant markets, is a mistake. No doubt Amazon.com would, even if .AMAZON were owned by Amazon, remain for the foreseeable future the more relevant site. If Latin American governments are concerned with cultural and national identity protection, they should (not that I’m recommending this) focus their objections on Amazon.com. But the reality is that Amazon.com doesn’t compromise cultural identity, and neither would Amazon’s ownership of .AMAZON. Rather, the wide availability of new TLDs opens up an enormous range of new competitive TLD and SLD constraints on existing, dominant .COM SLDs, any number of which could be effective in promoting and preserving cultural and national identities.

By the way – Amazonia.com, Amazonbasin.com and Amazonrainforest.com, presumably among many others, look to be unused and probably available for purchase. Perhaps opponents of Amazon’s ownership of .AMAZON should set their sights on those or other SLDs and avoid engaging in the sort of politicking that will ultimately ruin the Internet.

In Amazon, Antitrust & Competition, International, Market Definition, Platforms, Regulation , , , , , , , , , , , ,
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