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Universal service doesn’t encourage capital for entrepreneurs

Regulating commerce is one thing. Failing to encourage capital formation and distribution of capital to entrepreneurs cannot be acceptable. Section 214 of the Communications Act demonstrates how out of touch current law is with today’s technology and the entities that deliver that technology. The 115th Congress and the next Administration need to revamp universal service such that funding actually encourages new entrants into the broadband market and the innovations that come along with that entry.

Under section 214 of the Act, common carriers designated as eligible telecommunications carriers (ETC) qualify for receiving universal service funds. A common carrier is engaged in providing foreign or interstate communications by wire or radio.  The Federal Communications Commission revamped its 20th century based support program, originally designed to subsidize voice services, to now support deployment of broadband services in high cost areas, areas where broadband providers argue it is cost prohibitive to provide high-speed access services.

Among the criticisms of the program is its inefficiency. Specific concerns have been raised about funds supporting services in areas where competition already exists. On reflection why is this a problem? If a carrier sees the opportunity to take a single-digit percent of market share where garnering such a share covers her fixed and variables costs while generating a profit, so what if other choices already exists? New entrants enter the fray when they believe that they have an innovative way of providing services and eventually taking market share. This is part of the adventure of applying venture capital; digging in for a period of time a generating returns based on new ideas.

The Commission’s concerns about funding services in areas where there is already competition also stems from locking itself into an approach that results in common carriers being funded as opposed to wireless internet access providers. Again, current law paints a box where only common carriers can play. Wireless internet access providers may not want to build infrastructure for the purpose of being common carriers. It is too expensive and unnecessary to duplicate existing networks where instead their focus is rightfully on bringing value to those networks and consumers alike by providing alternative methods of accessing them. The Commission speaks of innovation too frequently to then turn around and pass up an opportunity to put its money where its mouth is.

Until the Commission decides to recognize the value that non-common carrier innovators bring to broadband deployment, the universal service fund as currently constructed will continue to be a pool of capital unavailable for use by certain new entrants.

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