The Federal Communications Commission pushes its universal service program the way a drug dealer pushes cocaine. To keep carriers in check, it has devised a system that some carriers believe they have to depend on, while the FCC sells them on the need to keep doing lines because it will give the carrier the confidence it needs to go out and serve unserved areas of the country. It’s time for carriers to break the dependency and free themselves from this regulatory crossfire. The carriers are not the bad guys when it comes to broadband adoption and I would go further and argue that they should not be responsible for financing its expansion. That responsibility should lie with online content producers, including companies that publish news, movies, and blogs.

Content providers, not broadband providers, are the primary beneficiaries of broadband adoption by the remaining 100 million households the FCC targeted in its national broadband plan. If a land developer wants to ensure people come to its development, buy houses, and live in the development, the land developer is going to build roads, lay conduits for communications and water, and maybe throw in a school building. Google, Amazon, and Netflix are not doing that with broadband, even though it’s broadband that brings them the eyeballs for their content.

Content providers are not doing that with broadband networks. With the help of the FCC, they have dumped the negative externality of adoption costs unto broadband providers. Net neutrality is famously their prime mechanism for doing so; by requiring that traffic from all content providers be given first class treatment on a broadband provider’s network. The other instrument, universal service via the moniker Connect America Fund, while reimbursing broadband providers for the cost of deploying facilities where their business models dare not tread, really takes final payment of this subsidy out of the wallets of the end using consumer.

The Connect America Fund had about $185 million left on the table for broadband providers to apply for and use to help with the cost of getting broadband to Farmer Smith and Dr. Jones so that they can deliver services to an increasingly demanding broadband consumer. These funds are also meant to help people access the Internet at high-speed so that they can take advantage of news,information, goods, and services provided by larger e-commerce entities including Amazon, Ebay, Walmart, and Google.

If these companies, who need the Internet like humans need air, want to reach their potential customers that bad, why don’t they invest the cash sitting on their books to subsidize broadband adoption? For example, Google, with four dollars of current assets with one dollar of current liabilities, has enough cash on hand to kick in and incentivize broadband adoption. And let’s not forget Facebook, with 1.1 billion subscribers, some of whom are connecting via wired and wireline broadband, has ten dollars in current assets for every dollar of current liability has enough liquidity and cash to kick in some direct funding for broadband adoption.

Carriers are just middlemen, unless they are endowed with content properties like Comcast. Being in the middle makes you a target for regulation, including the onerous requirements of a universal broadband service fund, but equity calls for the incidence of broadband adoption initiatives to fall on the entities with the most to gain, and those entities are the content providers and e-commerce companies selling goods and services.

Federal Communications Commission member Ajit Pai today issued a statement assessing state and local governments’ potential role in the delayed deployment of an all Internet Protocol (IP) digital infrastructure. Here is some of what he said today:

“It is critically important that states and local communities adopt broadband-friendly policies when it comes to rights-of-way management. When broadband service providers seek to construct next-generation networks, they need to access government-controlled land, poles, and conduits in order to lay fiber and install other infrastructure. Currently, too many providers who try to obtain such access are confronted with daunting sets of federal, state, and/or municipal regulations that often delay and sometimes deter infrastructure investment and broadband deployment .”

“More generally, to enable the nationwide deployment of next-generation networks like
Google Fiber, we need to eliminate regulatory barriers to innovation and investment at all levels
of government. Whether we are dealing with economic regulation or rights-of-way management,
we cannot apply 20th century approaches to our 21st century challenges.”

Commissioner Pai has hit it on the nail head. As I tweeted earlier today, local governments have been on an extortion rampage when it comes to extracting franchise fees for I-Net projects and funding their in-house television studios so that they can broadcast useful information like how to get your cat out of a tree without calling the fire department. These fees are eventually passed through to consumers on their cable and telephone bills.

It’s no wonder Verizon said enough is enough and opted for an agreement to just cross sell video distribution services rather than go through the onerous process of satisfying a local government’s need to play local broadcaster.

In addition, these onerous rights-of-way management requirements not only increase fees on consumer bills, but keep out potential broadband competitors. Just ask Starpower and RCN about their experiences with Fairfax County, Virginia, then you’ll see why Cox and Comcast have been sole providers of cable in that county for decades.

Mr. Pai’s assessment is spot on. If his fellow commissioners are serious about broadband deployment spreading universally throughout the U.S., then it si time they put their ears to the ground in local jurisdictions.

The Hillicon Valley reported last Thursday about Senator Al Franken’s displeasure with the settlement agreement between Verizon and the U.S. Department of Justice. The Minnesota Democrat reportedly believes that the Obama Administration via the DOJ has not gone far enough to ensure competition in the video distribution industry.

No wonder Democrats get accused of choosing winners and losers. Mr. Franken is advocating for government forcing companies to compete with each other.

It’s one thing to accuse a company of practices that keep another company out of a market, but just because Verizon knows how to provide video distribution services doesn’t mean it should be compelled to do so versus cross selling the services of another competitor.

If a third party wants to take advantage of the opening Verizon is providing by not providing video distribution services, let them step in and do so.

Free Press filed an ex-parte notice late last week documenting discussions it had with Federal Communications Commission staff regarding the spectrum license transfer proposal between Verizon, SpectrumCo, and Cox. Near the end of the letter, Free Press expressed concern about the joint agreement between the parties to cross-sell each others’ services. Specifically, this is what Free Press had to say:

“We also noted that the transaction between Verizon and T-Mobile does nothing to address our and other petitioners concerns about the harmful joint marketing and operating entity arrangements that are directly tied to the underlying spectrum transaction between Verizon and SpectrumCo/Cox. We noted that these joint arrangements would frustrate the Commission’s goals of fostering a more competitive broadband market, both in wireless and wireline, and urged the agency to focus on these aspects of the transaction as it brings its review to a close.”

Interesting. Is Free Press implying a tying arrangement between Verizon’s wireless services and its proposal to cross sell HBO?

A tying arrangement is a contractual arrangement which conditions the sale or lease of one product on the purchase or lease of another product from the same seller. Verizon hasn’t indicated that it would be branding video distribution services as Verizon cable. Comcast’s cable services are going to remain Comcast’s cable services.

Verizon has been doing fine selling its wireless services without the cross selling, so there would be no need to require Mr. Jones buy cable service in order for him to get wireless services. If Verizon can cross sell cable services, it would amount to a little extra gravy that Verizon’s investors should have no problem with.

Free Press, as usual, is barking up the wrong tree.

Public Knowledge has been on a little rampage, referring to Verizon’s petition to obtain AWS licenses from SpectrumCo, LLC as synonymous to a cartel. Specifically, Public Knowledge is saying that the aggregation of spectrum on the part of Verizon, combined with joint marketing, reseller, and joint operating entity agreements entered into between Verizon and SpectrumCo would effectively result in a cartel.

Should the transfer go through, Verizon and SpectrumCo, a joint venture between Comcast, Time Warner, and Bright House, will cross-sell each others’ services.

In its ex-parte letter posted on the Federal Communications Commission’s website on 18 June 2012, Public Knowledge made its cartel claim, but doesn’t seem to provide evidence of current or projected cartel behavior. For example, a cartel is defined as a group of firms with an explicit, formal agreement to fix prices and output shares in a particular market. Public Knowledge offers no evidence supporting the particular market Verizon and Spectrum intend to carve up, the level at which prices are to eb fixed, or how shares of that undefined market are to be divided up.

Without a showing that Verizon and SpectrumCo have entered a contract, combination, or conspiracy to restrain trade, a cartel argument is a non-starter.

Besides, why even bring this allegation to the FCC? This claim should be in front of the U.S. Department of Justice.