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.

The United States Court of Appeals for the 11th Circuit held yesterday that a federal district court had no jurisdiction to review an action of the Federal Communications Commission. Only the court of appeals has exclusive jurisdiction to enjoin, set aside, suspend, or determine the validity of all final orders of the FCC. District courts cannot determine the validity of FCC orders.

The ruling came on appeal of a federal district court decision that the court had no jurisdiction to rule on a decision by the FCC to apply, on a prospective basis, an order that required universal service funds be calculated based on a carrier’s interstate and international revenues. Prior to the FCC’s order on recalculating universal service contributions, the FCC had calculated universal service support for rural healthcare providers, and schools and libraries based partially on a carrier’s intrastate revenues.

A 1998 ruling from the United States Court of Appeals-Fifth Circuit had determined that federal universal service support could not be based on intrastate rates. To implement the court’s holding, the FCC issued an order that starting November 1, 1999, universal service support would not be based on intrastate revenues.

Citing the ruling in the Fifth Circuit, an individual plaintiff brought an action in federal district court seeking refunds retroactively of pass through charges she had been assessed for universal service support. The district court found that pursuant to the Communications Act it had no jurisdiction to rule on the validity of the FCC’s prospective order on universal service support. The court of appeals concurred with the district court’s ruling.

Investors should be mindful that neither the 5th or 11th circuits addressed the issue of refunds of universal service contributions made between January 1, 1998 and October 31, 1999. The total amount of contributions made during this period was $1.6 billion. An action could still be brought to recover this amount in refunds. I do not believe that the FCC or the industry would endorse initiatives to identify who these refunds would go to because of the administrative burden that would be imposed. The cost to the FCC and the industry to identify potential recipients and distribute these funds may well exceed $1.6 billion.

Martha Self v. BellSouth Mobility, No. 11-13998, United States Court of Appeals, 11th Circuit

Sometimes the Federal Communications Commission gets it right. As our knowledge economy grows and we exchange more data via the airwaves, the FCC responsibility for regulating interstate and foreign commerce in communications by wire and radio by making available a rapid, efficient, nation-wide and world-wide radio and communication service becomes more apparent.

For us regulatory geeks, it’s hard to miss that I lifted most of the above verbiage from the opening paragraph of the Communications Act of 1934. The FCC has gotten so focused on internal behavioral aspects of communications companies that I have to remind myself and them through this blog that they should focus on the bigger interstate picture. A recent order on Fixed Microwave Services, I believe, shows that the FCC has at least one eye still on the ball.

The FCC’s second report and order in WT Docket No. 10-153 removes regulatory barriers to make better use of Fixed Service spectrum and provide additional flexibility to enable fixed service licensees to reduce operational costs and facilitate the use of wireless backhaul in rural areas.

Fixed wireless services, known also as microwave, operate from 1 GHz to 90 GHz. Higher frequencies mean optimal operations at shorter distances. This type of spectrum is ideal for short range, high capacity wireless network systems.

Common carrier systems use fixed services for point-to-point, long back-haul services. For example, microwave networks would be ideal for connecting cellular towers located in rural areas, where the terrain makes microwave technology the better option.

The new rules, if approved, would allow for the use of smaller antennas in the microwave portion of the spectrum. The antennas would operate in the 6, 18, and 23 GHz bands and hopefully avoid interference with the signals of other carriers. The hope is that carriers can make more efficient use of spectrum in rural areas.

In addition, the FCC is prepared to authorize wider channels that would result in higher capacity links in the 6 and 11 GHz portion of the microwave spectrum.

In short, the FCC is removing barriers that widen the broadband access ramps and highway. That’s good news for businesses and content providers that want to truck information from rural areas to other points nationally and globally. This is what today’s commerce in the emerging knowledge economy is all about.

Today the House Committee on Small Business heard from the heads of the Federal Communications Commission, the National Telecommunications and Information Administration, and the Rural Utility Service. Each agency described how it was contributing to the deployment of broadband, ensuring competition amongst broadband providers, and financing the construction of facilities.

The testimony of the agency heads did not provide any new information that would move markets, raise any additional concerns about regulatory uncertainty, or otherwise would cause investors any heart burn.

Notable mention should be given to FCC chairman Julius Genachowski for telling committee members that the FCC intended to continue a light touch approach to regulating the Internet and RUS head Jonathan Adelstein taking the position that industry consolidation was not necessarily good for broadband deployment in rural areas.

My take away from this afternoon’s hearing is the reminder that the Congress is responsible for regulating commerce. Commerce refers to trade on a large scale, usually across states or countries. Large scale trade needs the appropriate infrastructure to move large volumes of goods and services. E-commerce has the same needs from the infrastructure we call broadband.

What Congress needs to do is continue with its light touch approach to regulating commerce that goes across the broadband infrastructure. Speed limits and other network management requirements don’t need to be placed on it. Additional requirements will only dampen economic growth. The innovation and job creation each agency head mentioned today has been emerging from a light touch regulatory scheme. There is no need to change that.

Last Friday the United States Court of Appeals for the District of Columbia Circuit upheld a Federal Communications Commission decision to collect high-cost support fees from telecommunications companies that give up their designations as eligible telecommunications carriers. The court held that contributions to a temporary reserve program go to subsidizing broadband Internet access from which contributing carriers will benefit.

The issue of whether the collections were a tax versus a fee came up. The court described the collections as a fee that bestows a benefit on the telecommunications carrier that pays it.

And what would the benefit be? It goes to the benefit of the network effect. According to the court, there is an increase in utility of the Internet that comes from a greater number of users having access to broadband.

Will we see more broadband deployment in rural areas as a result of the rule? It depends. If rural carriers decide to put more lines of service into unserved areas versus more lines of service into easier to reach areas, then maybe the court’s order will go a longer way in incentivizing broadband deployment.