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CHAPTER VI - Charting a Path to the Future

The vision—broadband markets that are contested, networks whose capabilities constantly improve and more Americans securely using digital tools for personal improvement—requires a set of practical steps for it to be fulfilled. Here is what participants proposed in the areas of competition, digital inclusion and consumer protection.

Competition
Classic textbook competition, whereby many providers in a market sell to fully informed consumers, is not a realistic scenario for the broadband market. Markets are not likely to have more than two wireline providers and many, for the foreseeable future, may have only one. Given markets with few players, the challenge is how to encourage investment in networks so that capacity stays ahead of consumer needs. Policymakers must devise ways to discourage firms from becoming complacent in their investment plans. That is, policy must ensure that marketplace outcomes settle firmly on the side of a vibrant duo- poly, where firms invest to ward off competitive threats, not stagnant monopoly, where firms have little reason to upgrade their networks.

In places where there currently are not plans to deploy fiber net- works, looking for ways to encourage such deployment becomes an imperative. There are three possible ways to do that:

  • Municipal broadband: There was not much enthusiasm for this as a strategy, but it nonetheless may make sense for municipalities to have the capability to do this. Such authority was seen, as Phil Weiser, Dean of the University of Colorado Law School reported out on behalf of the working group, as providing a credible threat that could encourage private-sector investment in fiber deployment.
  • Aggregate demand: The approach fostered by Gig.U, which consists of city officials and other stakeholders coordinating on ways to lower costs of network deployment, thereby making the investment proposition more attractive.
  • Direct government investment: This is a “last resort” option that is likely most relevant in rural areas where the size of the market makes private investment unattractive. In such cases, government subsidies for fiber deployment may be justified.

A single “grand strategy” to foster fiber deployment may not be possible, given the variety of market conditions in different parts of the country. Rather than develop such a strategy deployment, the group set forth a set of ideas they labeled a “modest proposal” to pressure high- end wireline providers to invest in communities where they currently are not.

  • Develop a playbook to lower deployment costs and reward compliance with it. The playbook notion was borrowed, to varying degrees, from Google Fiber, Gig.U and NTIA, each of which have compiled ways in which localities can make it easier and cheaper to deploy fiber.
  • Prohibit states that ban municipal broadband networks from using any Connect America Funds (CAF).
  • Tax incentives to promote network investments, such as accelerated depreciation.
  • Increase broadband adoption. Expanding the market and revenue opportunities improves the investment proposition.

The centerpiece of the “modest proposal” is the notion of a playbook for governments to follow in order to lower the cost of building new fiber infrastructure. Google has set forth a number of steps to reduce deployment barriers. They include:

  • Establish a national inventory of utility pole and conduit information.
  • Reduce delays associated with pole attachment and conduit occupancy.
  • Allow use of utility-approved contractors to perform all pole attachment and conduit make-ready work.
  • Encourage adoption of local best practices.

On the final recommendation, the “Google Fiber City Checklist” could serve as a guide to localities that would like to accelerate the process of building a new fiber network. Similarly, Gig.U’s “The Next Generation Connectivity Handbook” offers, on the basis of the combined experience of Gig.U participants, a blueprint on not only the rationale for upgrading communications networks in a city, but also ways to lower the cost of network deployment.

An idea, which Chris Lewis of Public Knowledge put forth, was regulation of wholesale access of a stagnant monopoly. The group rejected this approach: notwithstanding short-term benefits, over the long-term such regulation would dampen incentives for network upgrades.

Changing the MVPD model

A “less modest” proposal was promulgated to create incentives for the private sector to upgrade their broadband networks. Jonathan Chaplin, Managing Partner of New Street Research, proposed that broadband providers should get out of the pay TV business altogether and provide broadband service only. By upending the multichannel video programming distributor (MVPD) model, video would become a pass through service.

In the current model, out of a $120 bundled service for broadband and video, $80 covers video service and $40 covers broadband. Carriers should switch the model, argued Chaplin, so that $80 is revenue from broadband “stand alone” service with consumers purchasing video services at $40 per month. The additional revenue would create incentives for providers to upgrade to or invest in fiber. Chaplin noted that essentially all the value created in the consumer broadband market in the past 15 years has gone to video content providers. Notwithstanding dramatic growth in broadband’s utility in the past 15 years, average revenue per user (ARPU) has remained constant at $45. It should be noted that the proposed change would affect only consumers who take video and Internet service in a bundle. While video-only consumers would presumably see price decreases, broadband-only consumers would likely face steep price increases.

And the latter concern is a stumbling block to this proposed change in the market. Chaplin said that providers believe that the FCC will not allow $80 per month broadband pricing and step into regulate the market. Title II, with its potential for rate regulation, thus becomes a roadblock to changing the pricing model for carriers.

Chaplin noted further that at least one MVPD, Cable One, has used this model. Cable One exited the video business a few years ago and, though it lost some customers, it increased cash flow by 23%. This made clear to customers that the cost of video content is high. And the hope is that, with consumers having to purchase video content outside the context of a bundle, competitive pressure will lower the cost of video content.

Julie Brill, Commissioner of the Federal Trade Commission, asked whether this plan should include a requirement that programming distributors unbundle program choices for consumers. Chaplin agreed that this should happen—and is already beginning to happen. Though unbundling may be attractive in theory, Johanna Shelton, Director of Public Policy and Government Relations at Google, noted that this may be difficult in practice. Many programming contracts are long- term and staggered, meaning instantaneous unbundling may be impossible. In other words, transactions costs in negotiating for content would not go away in this proposal and may present barriers to its feasibility. Additionally, added Chris Libertelli, Vice President of Global Public Policy at Netflix, the set-top box technologies of incumbent cable providers can make it hard for new entrants to the video market to deliver their programming to consumers.

Inclusion: Fixing policy mismatches
An important theme identified on the digital inclusion topic is how existing policy instruments do not map effectively to the nature and scope of the problem. Although the Obama Administration made investments in closing access gaps in the Recovery Act, that funding has expired. Private sector efforts, though effective, are not wide- ranging enough to tackle the scope of the problem. The FCC’s program to promote connectivity—the Lifeline Program—has been aimed at telephone connectivity, although the Commission is in the process of allowing Lifeline subsidies for phone service to be used for broadband service.

The main goal of the group, therefore, was to bend the adoption curve by delivering the financial resources to the people in need in order to spur demand for broadband. The primary method the group proposes to do this is a “Smart Voucher.” The vision for the program is to knit together three things needed to close broadband adoption gaps:

  • Digital skills: Develop robust digital literacy and relevance training.
  • Connectivity: Use a consumer subsidy, paid monthly, to sup- port fixed or mobile broadband at minimum service levels.
  • Devices: In partnership with the private sector, develop leasing or ownership programs that build a secondary market for devices that use vouchers for transactions.

From this vision came a detailed proposal to operationalize Smart Vouchers as a means to increase broadband adoption. Given the strong rate of smartphone adoption among the low-income population the program targets, the objective is for this population to have “an app for that,” meaning eligible consumers could use an app to receive vouchers, transfer payments, learn about broadband service offerings and choose among broadband offers and attributes. The vouchers would work for wireless providers as well as wireline ISPs.

To maximize convenience for eligible consumers—both in signing up for and using the benefit—the vouchers would also be integrated into other government programs, i.e., broadband vouchers might be made available to people when they apply for Food Stamps. The vouchers might also be tethered to commercial offers of service, merchandise coupons and ads. Finally, the group emphasized the need for feedback on effectiveness of the program and subsequent fine-tuning. Smart Vouchers would use data generated in program operations to improve program operations and thereby maximize the impact of vouchers.

The Smart Voucher program design therefore creates a policy instrument that reaches the target population in a way that has a strong potential to encourage eligible consumers to use the vouchers. That leaves two important ingredients to specify: who is eligible for the benefit and how it will be funded.

Eligibility: Given the size of the broadband adoption gap, participants proposed to expand eligibility for Smart Vouchers beyond the current criteria used for the FCC’s Lifeline program. A household would be able to participate in the Smart Voucher program if its income was 185% of poverty level (adjusted for need and household size), compared to the 135% threshold currently used. This proposal would, potentially, have millions of households as beneficiaries—far more than currently take advantage of the Lifeline subsidy for telephone service. Today, some 40 million households are eligible for Lifeline (at the 135% of poverty income threshold), though only 12 million take advantage of the benefit. Determining eligibility and signing people up would be in the hands of the government, not broadband providers.

Funding: As to how to fund a program with expanded eligibility, the group proposed several options. First, funds could come from general revenues, either from congressional appropriations or from economic development programs. Additional funds might come from cost-savings that accrue from agencies using less costly online service delivery methods. The group said that this approach—relying on funds from general revenues—would be preferable to the existing reliance on user fees, though changing the program to one dependent on general revenues may not be politically feasible at the moment.

The second approach would be to build on the existing method, namely user-fees employed by the Universal Service Fund. To meet the needs of expanded eligibility, the base for USF contributions could expand to include other services (such as satellite or cable). The group left unresolved the issue of whether the program would be a budgeted appropriation (with a ceiling on expenditures) or an open-ended entitlement.
As to projected cost, the group presented a “back-of-the-envelope” figure of roughly $23 per recipient, per household, per month for the voucher amount. At the same time, that would be a provisional figure and the final one would be determined by a one-year pilot, with heavy emphasis on data collection on what increases adoption. The pilot would be important; the program cost may be $2 billion in early years but climb to $11 billion in time. This makes the pilot important in order to make sure program funds are directed in such a way to maximize impacts.

Training: Providing resources for Internet training programs to community institutions such as neighborhood non-profits or libraries can accelerate new users’ paths to meaningful online use. The voucher amount for eligible recipients might be increased—or even conditioned upon—completion of a training course on Internet use that could focus on how to use digital resources for job applications, workforce skills or education. A federal block grant program could serve as the funding mechanism for institutions providing training services.

Supported services: The final piece of the proposal had to do with what would qualify as a broadband service to be supported through the voucher program. There has to be a set standard of “good enough broadband” that enables users to carry out online tasks that justify policy intervention (e.g., education). Although such a standard may not be premium service, “good enough broadband” might result in users migrating to higher service tiers as they gain experience with home broadband connectivity.

To determine the standard, the FCC should define an eligible broad- band service (EBS) which would have to support:

  • Emergency communications (while the other listed services are being used)
  • E-government services
  • Job applications and training programs
  • Homework and teacher interaction outside of school

Carriers would submit offerings that the Commission would certify as an EBS. Qualifying standards could display a seal that signifies that they meet the standard and are offering an EBS service for eligible consumers. If a consumer chose a non-EBS offering, carriers would have to reimburse the cost of the voucher to the government. The FCC would report where EBS offerings are available to consumers.

As to quality metrics for an EBS, they would have to evolve over time just as networks and uses do. At any given time, though, an EBS should be sufficient to support two high-quality video streams in addition to web browsing. This could be set at half of average fixed download speed in the United States, or roughly 10-12 Mbps today. A similar logic would apply for upload speeds and other metrics of network quality, such as latency (e.g., an EBS must support real-time voice and two-way video) and reliability. Finally, some data caps and usage charges might be permissible, given differences in fixed versus mobile technology and peak versus off-peak usage patterns.

Reimagining the Universal Service Policy

An enduring feature of communications policy is the uneasy relationship between competition and universal service. At several points during the conference, questions arose about whether the two policy goals can comfortably co-exist in the future. Coalition for Green Capital CEO Reed Hundt characterized the tension as a long-standing one that poses universal service against incentives for companies to upgrade their net- works. R. David Edelman, Special Assistant to the President for Economic and Technology Policy at the White House’s National Economic Council, wondered whether today’s policy environment can accommodate promoting both competition and universal service.

A proposal, offered by Hundt, sought to essentially bypass the periodic debate about whether the Universal Service Fund (USF), as currently structured, makes sense. Annual spending on USF is approximately $11 billion, which includes support for network construction and subsidies for telephone service. Rather than spend that amount annually, the FCC should commit to spend $5 billion per year on universal service over the next 20 years, and then declare an end to the Universal Service Fund.

Using the $5 billion commitment over 20 years, the FCC should issue a bond which could yield on the order of $70 billion today. With those funds, the FCC could hold a series of regional auctions with rules designed to ensure build out of fiber networks to buildings that need them, along with service conditions designed to make service affordable to low-income people. The revenue stream would not (and would not need to) fund construction to all structures in the country, but should support running fiber to buildings in low-income areas. Those are the areas where, because revenue opportunities may not be great, one would expect the private sector to be reluctant to invest. Auction rules could also specify that monthly service fees for low-income customers would have to be set at afford- able levels (e.g., $10 per month over a five year period). With network construction cost defrayed by the government, the lower revenue stream from serving customers in those areas would be less of a problem for ISPs.

This proposal was not intended to supplant the Smart Voucher proposal, but instead offer an alternative way of addressing, and perhaps settling, universal service policy disputes.

Consumer protection
Driven by a strong sense of consumer worry over data vulnerability, the group felt that promoting information security for Americans is a crucial priority, especially as the role of data in society deepens. This led to a “moonshot” proposal to create a new federal entity called the Federal Information Security Coordinator (FISC). The FISC would own the various dimensions of information security for consumers, rather than have that responsibility diffused among several different agencies. A single coordinator, who would serve a seven year term, would not just have the broad view across all federal agencies, but would also interact with existing private-sector self-regulatory organizations (SROs). The FISC would have enforcement powers, but would not supplant those of the SROs.
More specifically, the mission of the FISC would be to:

  • Analyze the current “information security” environment
  • Set minimum standards for data protection and collection1
  • Review the performance of SROs
  • Make legislative recommendations.

The FISC would focus on actual harms consumers may experience in today’s data environment as well as encourage companies to compete on privacy and security. With respect to harms, consumers could file complaints with either FISC or existing SROs. As to competition, the group was clear in its sense that companies can and will attract consumers if companies aggressively market how they promote information security.

The proposal to create a new federal coordinating body attracted criticism that fell into two categories. First, the harms-based approach (that is, the FISC investigates complaints consumers file with it) may not result in sufficient consumer protection. Second, a new locus of policy activity at the federal level may undermine strong data protections many states have enacted.

Khaliah Barnes, Associate Director and Director of the Student Privacy Project at the Electronic Privacy Information Center (EPIC) voiced concern about the harms-based approach in the proposal because it places so many burdens on consumers. The data environment is very complex and it is unrealistic to expect consumers to understand all the attributes of this environment, much less prove specific harm. An alternative to the harms-based approach, which FTC Commissioner Julie Brill raised, is an enforcement-driven regime whereby tech companies test specific practices and report results to the public. Oftentimes, a few companies are the source of problems, so enforcement should address those problems. They may never be subject of complaints. The harms-based approach, she added, assumed a high level of consumer knowledge, but “consumers have no idea what’s going on in this space.”

The possible pre-emption of state laws on consumer data was the other issue raised. Brill noted that a number of states have developed very strong models for consumer data protection; although California is often invoked as the standard, other states have moved aggressively, too. The coordination challenge may not be across different federal agencies, but between the states and the federal government.

With the premise of creating the FISC under challenge, the issue arose of what to do about consumer information security in the mean- time. The notion of strengthening the Federal Trade Commission quickly rose to the front. David Quinalty, Republican Policy Director for Communications and Technology of the Senate Committee on Commerce, Science and Transportation made an appeal for simplicity; there should be a strong FTC, clear rules, strict enforcement and liability against companies who violate the rules. Julie Brill agreed, saying that the FTC could easily quadruple its budget and still be busy addressing consumer protection in the digital age. The range of potential consumer harms is changing quickly and courts are starting to look outside financial harm in thinking about consumer protection. The risk climate is complex, too, as flaws in data-dependent medical devices and transportation systems have different consequences than in traditional e-commerce transactions. Immediate attention to these issues might make more sense than creating a new institution such as the FISC.

Stefaan Verhulst, Co-Founder and Chief Research and Development Officer of the Governance Laboratory (GovLab) at NYU raised a very different proposal contrary to the idea of creating a new institution such as the FISC. Creating a new institution may not only take time to realize benefits, it also fails to take advantage of contemporary innovations in ICTs that may enable networks of actors to quickly address information security problems. In advocating for a platform model to address consumer information security, Verhulst envisioned a collaborative network of the wide range of public and private sector actors that touch data. He acknowledged that this would be a complex undertaking, but done properly, it could be a much more responsive and flexible approach to addressing security issues that evolve rapidly.

This proposal elicited questions and criticisms. The platform model relies less on rules and more on norms than the FISC proposal. The platform model also has a stronger dose of self-regulation than the proposed FISC and would need to develop specifics on appropriate governance enforcement. Rob Atkinson, Founder and President of the Information Technology and Innovation Foundation (ITIF), noted one specific merit of the more flexible platform approach—many maintain that an environment in which there is a low level of trust in information security is one where some benefits of modern network connectivity go unrealized.

In the end, while there was consensus on the need to address what appears to be consumers’ growing “data vulnerability,” there was not agreement on a proposed mechanism to do something about it.

Conclusion

Participants in the 30th Annual Conference on Communications Policy sought ways that broadband markets could continue to deliver economic and social benefits that improve the quality of life in America. They saw that they needed to break bottlenecks down in the marketplace so as to provide sufficient competitive pressure; raise the level of home broadband subscriptions in the United States to ensure digital inclusion; and enhance information security so as to assuage the sense of data vulnerability among consumers.

Based on these three main principles, the participants made five recommendations, (although not all by consensus). First, there is a need to improve the investment climate for fiber networks to protect against a stagnant marketplace. Next, spectrum should be made avail- able for 5G wireless networks, even though they are in a nascent state. Additionally, we need to develop a “smart voucher” system to promote broadband adoption. Those populations eligible for the smart vouchers should also receive digital and Internet training opportunities. Finally, they proposed, we must all think expansively in promoting information security for consumers, and consider a variety of different plans that would achieve the security goals.


FOOTNOTES
1 The minimum standards would include the baseline protections enumerated in the Consumer Bill of Rights published by the White House in 2012 which are: Individual control, respect for context, transparency, security, access and accuracy, focused collection, accountability.

 
 
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