Means Testing for FCC Funding – Part II

Yesterday I wrote about the recent blog by FCC Commissioners Michael O’Rielly and Mignon Clyburn that suggests that there ought to be a means test for anybody accepting Universal Service Funds. Yesterday I looked at the idea of using reverse auctions for allocating funds – an idea that I think would only serve to shift broadband funds to slower technologies, most likely rural cellular service for broadband. Today I want to look at two other ideas suggested by the blog.

The blog suggests that rural customers ought to pay more for broadband since it costs more to provide broadband in sparsely populated areas. I think the FCC might want to do a little research and look at the actual prices charged today for broadband where commercial companies have built rural broadband networks. It’s something I look at all of the time and all over the country, and from what I can see the small telcos, cooperatives, WISPs and others that serve rural America today already charge more than what households pay for broadband in urban areas – sometimes considerably more. I am sure there are exceptions to this and perhaps the Commissioners have seen some low rural pricing from some providers. But I’ve looked at the prices of hundreds of rural ISPs and have never seen prices below urban rates.

The small rural ISPs have to make a commercial go of their broadband networks and they’ve realized for years that the only way to do that is to charge more. In most urban areas there is a decent broadband option starting around $40 per month and you rarely see a price close to that in rural America. If you see a low price in rural America it probably offers a very slow speed of perhaps a few Mbps, which certainly doesn’t compare to the 60 Mbps I get from Charter for $44.95 per month.

The issue of rural pricing does raise one policy issue. Historically the Universal Service Fund was used for precisely what this blog seems not to like – to hold telephone rates down in rural America so that everybody in the country could afford to be connected. That policy led to the country having telephone penetration rates for decades north of 98%. I’m not advocating that USF funds ought to be used to directly hold down rural broadband rates, but it’s worth a pause to remember that was the original reason that the Universal Service Fund was started and it worked incredibly well.

The second idea raised by the blog is that Universal Service Funds ought not be used to build broadband to wealthy customers. They suggest that perhaps federal funding ought not to be used to bring broadband to “very rich people who happen to live in the more rural portions of our nation.”  The blog worries that poor urban people will be subsidizing ‘some of the wealthiest communities in America.’  I am sure in making that statement that the Commissioners must have a few real-life communities in mind. But I work all over the country and there are not very many pockets of millionaires in rural America, except perhaps for farmers.

Farmers are an interesting case when it comes to broadband. By definition farmers are rural. But US agriculture is the largest industry in the country and the modern farmer needs broadband to be effective. We are headed soon towards a time when farm yields can increase dramatically by use of IoT sensors, farm robots and other high technology that is going to require broadband. I know that a lot of the rural communities that are clamoring for broadband are farming communities – because those farms are the economic engine that drives numerous counties and regions of the country. I don’t think it’s unreasonable if we are going to rethink policy to talk about bringing broadband to our largest industry.

The FCC blog suggests that perhaps wealthier individuals ought to pay for the cost of getting connected to a broadband network. It’s certainly an interesting idea, and there is precedent. Rural electric companies have always charged the cost of construction to connect customers that live too far from their grid. But with that said we also have to remember that rural electric grids were purposefully built to reach as many people as possible, often with the help of federal funding.

This idea isn’t practical for two reasons. It’s already incredibly hard today to finance a fiber network. I picture the practical problem of somehow trying to get commitments from farmers or other wealthy individuals as part of the process of funding and building a broadband network. As somebody who focuses mostly on financing fiber networks this would largely kill funding new networks. To get the primary borrower and all of the ‘rich’ people coordinated in order to close a major financing is something that would drive most lenders away – it’s too complicated to be practically applied. The FCC might want to consult with a few bankers before pushing this idea too far.

But there is a more fundamental issue and the FCC blog touches upon it. I’m trying to imagine the FCC passing a law that would require people to disclose their income to some commercial company that wants to build a fiber network. I’m not a lawyer, but that sounds like it would bump against all sorts of constitutional issues, let alone practical ones. For example, can you really picture having to report your income to AT&T?  And I then go back to the farmers again. Farmers don’t make a steady income – they have boom years and bust years. Would we put them on or off the hook for contributing towards a fiber network based upon their most recent year of income?

I certainly applaud the Commissioners for thinking outside the box, and that is a good thing when it leads to discussions of ways to improve the funding process. I will be the first to tell you that the current USF distributions are not always sensible and equitable and there is always room for improvement. Some of the ideas suggested by the blog have been discussed in the past and it never hurts to revisit ideas. But what most amazes me about the suggestions made by this blog is that the proposed solutions would require a heavy regulatory hand – and this FCC, or at least its new Chairman has the goal of reducing regulation. To impose a means test or income test would go in the opposite direction and would require a new layer of intrusive regulations.

Is the FCC Going to Nationalize the Media?

Pinky_and_the_BrainI ran across an article that just has me shaking my head. It’s by Kurt Nimmo at a site called Alex Jones’ InfoWars. This article claims that the FCC is doing a study as a precursor for privatizing the private media sector, including the Internet.

I certainly understand with people feel a little paranoid about the government right now due to the gigantic data gathering that is being done by the NSA. But it’s pretty incredibly paranoid to think that somehow the US government is planning on taking over every TV station, radio station, newspaper and even the Internet. Of course, one gets the first clue that this article is a bit paranoid and biased when the very first sentence uses the word ‘sovietization’.

So what the heck is this guy talking about that would give him the idea that the FCC was ready to take over the communications world? It starts with a study that the FCC is undertaking through Social Solutions International. I have included here this Research Design Study from SSI so that you can see it for yourself. This document is not the results of the FCC study, but instead is a description of the study that is currently being undertaken, to be published sometime in 2014.

My firm CCG Consulting does market surveys and so I am pretty conversant with the kind of jargon that is used to talk about statistical sampling and market research. And this document is massively jargon-laden and it takes some reading between the lines to figure out exactly what they are doing.

So what is this study trying to find out? They are basically after two things. First, they want to understand better where people go to get their news. The study refers to this as ‘critical information needs’, but it basically boils down to where people to find out what is happening in the world – and that is news

Second, the study is looking at random local markets to do a qualitative analysis of information that is made available to the public. This is the part that has Mr. Nimmo so paranoid because it is going to look at local newspapers, radio broadcasts and TV and judge them according to accuracy, fairness, bias, etc. And somehow they are going to try to do the same thing with the Internet.

But it’s a long stretch to say that the FCC is using this study as a precursor to taking over media. That is a monstrous break in logic and out of touch with reality and with the relatively weak nature of the FCC.

So what do I think of this study? It certainly is within the purview of the FCC to periodically look at how people communicate in the country. After all, they are in charge of monitoring and regulating those very industries.

But I don’t think this particular study is going to be very effective or turn up anything of much interest. Certainly it is going to give us a peek at where people go to get information today. But one would have to think that companies like Google know far more about that today than what this study is going to uncover.

And I have very poor hopes that the qualitative analysis is going to uncover anything that will be statistically valid and have any relevance for the whole country. It would make a lot more sense to study a tiny of handful of markets in complete depth over a long period of time if somebody really wants to understand the barriers and misinformation that is in place today in local media. Those kinds of local studies are best done by academia. This study doesn’t look to me to be as thorough and vigorous as those kinds of studies can be.

And so my expectations is that this study is going to generate a few headlines next year highlighting whatever claims the study makes, and then it will go on the shelf. It’s not likely to have much impact on FCC policy and it certainly is not going to be the catalyst to the FCC somehow taking over the US media (not sure how they would do that even if they wanted to).

But unfortunately in the Internet age people like Mr. Nimmo can stir up paranoia and animosity towards the government over what, in this case, looks more like an expensive boondoggle. There are certainly things that I don’t like about the FCC, being an industry person, but I am not too worried that they are out to conquer the world a la Pinkie and the Brain.