Gross domestic product did a 180 degree turn in the fourth quarter as the nation saw national output shrink by an annualized rate of .1%. The Bureau of Economic Analysis attributed the shrinkage to decreases in private inventory investment, federal government spending, exports, and state and local government spending.

The one saving grace was the increase in equipment and software expenditures, up 12.4% in the fourth quarter. While not the best proxy for broadband spending in America, it does reflect the demand for the lifeblood components of an all IP network.

This positive growth jives with an observation made today by Federal Communications Commission chairman Julius Genachowski who, in remarks made before the Southwest Family Enhancement Center, that annual capital investment in wireless has grown 25% since 2009, and that the U.S. accounts for 1/4 of global investment in mobile infrastructure.

Wireless broadband in particular and information technology in general are having a positive impact on gross private investment and overall GDP. Scaring off investors with even hints of new regulation is the last thing the economy needs.

Highways, airports, roads, bridges, harbors. All are part of the conduit that moves American commerce, getting goods and services from consumer to producer. They are part of the commonwealth, owned by municipalities, states, and the federal government. When commenters talk about building or renovating America’s infrastructure, these are typically the components they are referring to.

The financing of these components is usually done with tax revenue or revenue or bond issues paid back with tax revenues. Accounting wise, a municipality may have a specific fund established which accounts for the revenues dedicated to and expenditures resulting from an infrastructure project.

Broadband facilities tend to be mentioned in the same breath as the infrastructure components mentioned above. Broadband facilities, the “information superhighway”, carry digitized voice and data between our cell phones, lap tops, and tablets. Broadband facilities are described as the on ramp to electronic commerce, much like the on ramp to Interstate 20 at Joseph E. Lowery and Oak Street in the West End of Atlanta.

That’s about where the similarities end.

Unlike airports, highways, bridges and toll roads, the vast majority of broadband facilities are owned by private entities; Comcast, Verizon, Time Warner, and AT&T, to name a few. The vast majority of the capital used to build and deploy central offices, nodes, other packet switches, and cable is provided either from equity shareholders or creditors. Broadband providers go into the markets to buy the capital needed to meet the demand for facilities. The private versus public ownership of these facilities creates a dependence on the private sector for the financing. Price paid for capital, not government mandate, determines whether capital will be available to meet the consumer demand for broadband facilities.

Sometimes the consumer demand comes from geographical areas that make a business model very expensive to finance; specifically rural and insular areas. Terrain and climate raise challenges to broadband providers because in addition to the physical deployment of facilities, a business case must be made about the probability that consumers in rural and insular areas will be able to pay the higher than average cost of receiving broadband services. The price mechanism may preclude broadband providers from buying the investment capital needed to make the investment. The rational investor or underwriter may not buy into a rural or insular broadband business model.

Enter the irrational. Enter the Federal Communications Commission.

Driven by its interpretation of universal service as provided in the Communications Act, the FCC has over the past few decades implemented a universal service and inter-carrier compensation scheme designed to subsidize delivery of telecommunications services to the poor, underserved rural markets, and health care providers in underserved areas. Business customers were basically overcharged in order to subsidize residential customers. Interexchange companies paid originating and terminating fees to local exchange companies with these funds placed into a pot where LECs would receive a cut after certifying the expenses claimed were for providing telecommunications services.

The FCC, threw its Connect America Fund, has essentially modified the model so that funds go to broadband services versus the legacy plain old telephone service network prior universal service finds financed. To date, the FCC is still trying to get broadband companies to bite on the remaining $180 million in subsidies available during the first phase of CAF. Broadband providers leaving money on the table should be a red flag that something is wrong with this model.

What’s wrong with this model is that it does not take into account that the infrastructure belongs to private entities, entities that could borrow at near zero rates, but who do not finance infrastructure projects in unserved, rural, or insular areas because a strong business case cannot be made for it. The FCC and the Congress throw money at them anyway, hoping that the initiative will get broadband to the homes. In a free market, capitalist society where the method of production and delivery is held in private hands, this 1930s view of stimulation cannot work. What is needed is something more direct especially if government is to participate in stimulating broadband demand.

While it is good to see Mr. Genachowski and his Gang of Four act like supply-siders, what is needed for broadband deployment is a combination of demand stimulation and a “private equity” mindset on the part of government, in this case, the FCC.

First, Congress should get rid of language describing the methods of implementing universal service. Rather than extorting money from IXCs to fund universal service, Congress, via the FCC, should issue poor consumers vouchers to be used with the broadband provider of their choice. This voucher could reflect the difference between the average monthly amount paid for broadband in the consumer’s market area and what they pay for telephone service.

Second, Congress should establish a broadband infrastructure bank to be administered by the U.S. Department of Commerce. The infrastructure bank would be funded from general tax revenues and would lend funds to broadband providers who present innovative business plans for providing service in insular, rural, and urban unserved and under-served areas. Funds would be paid back to the infrastructure bank at some rate below prime. The infrastructure bank could also issue debt giving investors another avenue for hedging other investments. Profits would either be returned to the Treasury, reinvested in the voucher program, or go on to support broadband in schools and libraries.

The current universal service program is open to abuse, such as skewing most funding toward carriers that do not need the funds. It introduces additional government regulation for the purpose of financing broadband deployment by private actors when those actors could go into the markets and get financing themselves; financing based on the showing of a good business model. By requiring the showing of a good business model, broadband providers would be required to develop innovative technologies to provide service. Innovation will beget financing which begets the value added to a service, value that consumers will identify and demand.

I saw an insightful interview conducted by Bloomberg Television’s Deidre Bolton. She was talking with Kathryn Minshew, chief executive officer of The Muse, a firm that provides career advice online. Ms. Minshew with listeners how important a role social media is playing in the search for jobs and in the search for employees. You can check out The Muse’s team here at this link.

From a broadband perspective this provides more fodder for the argument for how important it is for households to adopt broadband, especially broadband delivery to the home. More prospective employers, for example, are conducting interviews via Skype, according to Ms. Minshew. It saves employers money that would have been spent flying interviewees into town for one-on-one interviews. Skyping also provides employers the opportunity to size up a prospective employee’s intangibles such as body language and how they respond to pressure cooker moments online.

If what Ms. Minshew observes continues to pan out, there may be greater demand for blogging cameras and wired broadband. To what extent I cannot say with any specificity.

The New York Times yesterday posted on article on real time bidding for online advertising that I found interesting. The article cited a petition filed with the Federal Trade Commission by the Center for Digital Democracy, where the CDD alleged that real time bidding, a process where advertising space on web sites is sold via an electronic trading platform, amounts to an unfair and deceptive practice.

Specifically, CDD alleged that electronic trading systems for advertising, where marketers can bid for consumers within milliseconds of a consumer visiting a web page, can unfairly stratify consumers, relegating some to inferior treatment while offering better pricing to others. According to CDD, not only does it resemble a cattle auction while reducing consumers to a “chattel” status, but these trading systems also threaten consumer privacy because advertisers are using consumer data obtained via data mining practices by third party aggregators. Consumers are not reaping the financial benefits of their very own data while advertisers, web sites, and third-party aggregators reap the profits.

Under section 45(n) of the Federal Trade Commission Act, the FTC applies a standard of proof and other public policy considerations when determining if an act is unfair and deceptive. There has to be, under the Act, a showing of substantial injury to a consumer from the party exhibiting bad behavior. The substantial injury must be a kind that is not reasonably avoidable by the consumer and not outweighed by countervailing benefits to the consumer and competition.

When reaching its conclusion on whether an action is unfair or deceptive, the FTC may consider, on a secondary basis, public policy.

I think the primary public policy consideration the FTC needs to take is whether a transaction has taken place where consumers are seeing degradation in their welfare. First of all, real time bidding does not directly involve the type of consumer that CDD is apparently concerned about. Consumers visiting web sites may not be interested in purchasing anything. Even if a consumer has a fetish for Gucci handbags and as a result of real time bidding finds her looking at ads for designer accessories, that’s not a deceptive act. It would be as if she walked into her favorite store and the attentive clerk who is aware of her penchant for these items lets her know that the store has some in stock. It’s simply information being shared.

Real time bidding gets information to a consumer faster because it leverages the history of the consumer’s tastes, desires, and ability to pay to get product in front of the consumer that she, based on these consumer characteristics, may be interested in. Back in my merchant days, we called this good marketing. The consumer’s welfare is also increased because she is receiving information that she can take into the market place and use when the time is right for her to make a purchase.

Also, the FTC needs to stay mindful that as households who have not yet adopted broadband continue to see other households take advantage of goods and services marketed directly to them based on their perceived tastes and desires, these unconnected households may choose to join the 21st century and get connected to e-commerce via broadband access. Following CDD’s lead and tainting cyberspace as a scary space to transact in will only delay the closing of a digital divide too many households are still facing today.

Last Sunday, Federal Communications Commission chairman Julius Genachowski wrote an op-ed piece describing America’s standing in spectrum and broadband deployment, its continued progress, and what the country needs to do to promote the markets for broadband and apps. Below are comments I made in response to the Chairman’s piece:

“I’m happy to see Chairman Genachowski acknowledge the need for more broadband deployment. There is an urgency when it comes to spectrum. The emerging regulatory speed bump to getting more spectrum into the hands of wireless carriers is the hoarding of spectrum by government agencies. The FCC and the NTIA should work diligently on identifying and freeing up spectrum that is not being used for national defense or otherwise laying fallow.

In addition, the FCC should encourage state and local governments to remove unnecessary barriers to entry to broadband markets. The FCC should also continue a light touch regulatory regime for broadband. By keeping regulatory costs low, carriers can provide new and innovative service packages that will allow more Americans access to broadband.”