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Let a private capital business model meet un-served, underserved broadband market

Federal Communications Commission member Ajit Pai yesterday sent a letter to the chief executive officer of the Universal Service Administrative Company, the not-for-profit entity designated by the Commission to administer the universal service program. In the letter, Mr. Pai questions apparent waste in the Lifeline program arising from certain households receiving more than one Lifeline subsidized service and the application of exceptions used to to allow additional members of household to qualify for a subsidy.

USAC administers four programs: high-cost and low-income; rural health care; Lifeline; and schools and libraries.  Universal service is premised on the principle that all Americans should have access to a baseline of telecommunications services. These principles were recently expanded by the Commission to include high-speed internet access.

To meet these goals, a federal universal service fund has been established where telecommunications providers and voice-over-the-internet service providers make contributions to the fund and telecommunications companies may apply to receive reimbursement of the expenses involved in meeting universal service goals. According to USAC, in 2014, $7.9 billion in funding were disbursed from the fund to telecommunications providers.

My bird’s eye view of the extension of Lifeline to mobile broadband here in Atlanta tells me that mobile carriers are focusing on lower income neighborhoods. Here in the West End sector of Atlanta there appears to be a table and tent pushing free phones on every other corner. Assurance Wireless, a subsidiary of Virgin Mobile  is pretty busy pushing its Lifeline wireless services here. Fraud and waste as discussed above has been a big issue with policymakers. Rather than a government program where a private company is being required to act as a social welfare agency determining whether a consumer is eligible for a government aid program and rather than telling households how many phones they should be limited to having, why not let entrepreneurs and private capital identify and sell to underserved markets for cell phones.

The technology is there where cell phones, capable of accessing the internet, can be provided to lower income consumers at prices a fraction of what it costs to get an iPhone. Technology continues to innovate where low cost phones can be provided. For example, Verizon offers smartphones at retail prices ranging from $94 to $120. Plop down the cash and for the monthly data plan fee a consumer can make calls or surf the internet.

If private capital sees returns from investing in a company that can provide handsets and data plans to low income households, private capital will make the investment. The problem is the premise that everyone should have access to the internet via mobile broadband. That premise is faulty because it assumes a value to the consumer and forces that value into Commission rule. Yes, commerce benefits from the deployment of a telecommunications infrastructure that facilitates the flow of data, knowledge, and information, but those providing and extracting this value should be ready to compensate the providers of services or invest in its deployment out of their own pockets or with funds raised in the capital or credit markets.

Yes, telecommunications networks may increase in value with an increase in end-users accessing it, but spreading the cost of facilitating access by one consumer who probably brings no value communications wise to other consumers is an externality that I view as negative. Not only will we see fraud in the current government-based universal service, but a taking of consumer property via the taxes paid by consumers to support universal service.

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Why can’t agricultural interests and web companies fund rural broadband deployment

Sections 214(e), and 254 provides that certain telecommunications companies contribute to a universal service pot from where certain eligible telecommunications carriers can recover the costs for providing services, deemed by Congress and the Federal Communications Commission as “universal.” Section 214(e) requires that only carriers designated as eligible telecommunications carriers receive funding to help deliver universal services, an, according to section 254, “evolving level of telecommunications services that the Commission shall establish periodically …. taking into account advances in telecommunications and information technologies and services.” These evolving services include access by schools and libraries; access by rural healthcare facilities. access by low income subscribers, and access to advanced services such as broadband.

The individuals that foot the bill for funding these pots are the end-users, the consumers, who may not be recipients or beneficiaries of the universal services. Not only is the State determining what services should be provided in order for a carrier to receive funding, but the State, using the carriers as licensed fee collectors, is requiring that consumers foot the bill. Broadband providers have long made the valid economic argument that servicing rural customers is a more expensive proposition due mainly to population and density and topography. By law the Commission is required to bring about an efficient, nationwide wire and radio communication service and brings this about by “regulating interstate and foreign commerce in communication by wire and radio ….” Since telecommunications carriers literally provide the channels through which commerce in communications flows, they are naturally the low hanging fruit that gets picked by the Commission.

But interstate and foreign commerce in communication by wire and radio has evolved since 1934. Commerce by wire and radio is no longer about charging a consumer for the privilege of sending and receiving voice calls no matter the content of the message. The commerce now takes the form of video, voice, texts, and graphics sent via wire and the use of various bands of spectrum. The commerce now takes the form of various content delivery entities storing data and information either for future distribution or data analysis by data mining companies or marketers. The commerce by interstate and foreign communication via wire or radio has morphed into an internet protocol eco-system that is home to internet service providers, broadband providers, content providers, and app providers. However, after eighty-two years, investors in telecommunications companies are the ones still holding the regulatory bag and shouldering the expense for getting broadband services to the underserved.

When we think of rural consumers, I wonder if we focus too much on the stereotypical family of eight living on a couple acres with a tractor riding mower in the yard. The chemicals-agricultural sector has operations in rural areas and with a $19.7 billion market cap has incentive to invest in getting broadband into its surrounding market areas. And Google and Facebook have not been shy about wanting to connect the underserved, particularly in India and on the African continent. Get the chemical-agricultural sector to pitch in and the United States could lessen the temptation to spread the costs over the entire population and allow those with the most skin in the game to bear the burden of funding access.

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Georgia PSC five dollar fee for Lifeline impacts Georgia’s black citizens

There are a lot of “brothers and sisters” living here in Georgia, and the Georgia Public Service Commission rule imposing a five dollar monthly fee on recipients of free cell phones through the Lifeline program could have a disproportionate impact on blacks in Georgia, particularly as internet access and broadband adoption are concerned.

According to data from the U.S. Census Bureau, 31.2% of Georgia’s residents are black, more than double the percentage of all Americans.  Nationwide, 80% of black adults use the internet, according to a report issued yesterday by the Pew Research Council.  This compares with 87% of white adults that travel the information superhighway.

The gap is wider when you compare broadband adoption at home between blacks and whites.  Sixty-two percent of black adults have broadband internet access at home versus 74% of white adults, according to Pew.

The picture levels somewhat when considering wireless access to broadband internet.  According to Pew’s findings, 92% of blacks and 90% of whites own cell phones.  Ironically in households where income is under $30,000, 90% of black adults own a cell phone while 82% of adult whites in these households own a cell phone.  Black adults edge out white adults in smart phone ownership, with 56% of black adults owning a smart phone compared to 53% of white adults.  In addition, 10% of black adults indicate that while they have no broadband connection at home, they connect to the internet via their smart phones.

According to data from the Kaiser Foundation, 35% of blacks nationwide live in poverty.  In Georgia, that percentage rate is 33%.  In its federal lawsuit seeking to overturn the Georgia PSC’s rule, the CTIA cited a position taking by the Federal Communications Commission on imposing a minimum fee on Georgia Lifeline recipients:

“The FCC found that a minimum charge could potentially discourage consumers from enrolling in the program and could result in current Lifeline subscribers leaving the program.”

If we assume a close relationship between national data on adoption of broadband and internet access by blacks with Georgia’s black residents, a minimum charge would have a negative impact on broadband adoption and continued internet access by blacks in Georgia.  This means reduced access to mobile wireless health services and employment opportunities for a significant portion of Georgia’s black population.

In an economy that is not yet fully employing its labor resources, reducing access to broadband by continuing to impose this fee would be devastating to blacks.

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Broadband and tuberculosis. The health benefits shouldn’t be ignored

Taking medication to address a health concern can be tedious and depressing.  I know first hand having been diagnosed as diabetic.  Those of us on insulin go through the daily routine of checking our blood sugar; administering our insulin; counting carbohydrates; and ensuring we get a sufficient amount of exercise in so that we can burn that excess sugar.

Monitoring all this is a pain in the ass.

I can only imagine what monitoring concerns tuberculosis patients have.  Although the disease is relatively rare today, thousands of Americans have it and have to undergo a time consuming and expensive regimen of monitoring adherence to drug prescription usage and dosage.  According to a piece written by Rose Stuckey Kirk, smartphone technology can be used to reduce the costs of implementing patient monitoring programs, thus facilitating the effectiveness of drugs used to combat the disease.

In her piece, Ms. Kirk describes how video directly observed therapy can be used to ensure patients are taking medication as described.  Using smartphone technology, a patient video records when they take their medication and submits the record to his doctor.  This approach to drug monitoring is now being used in San Diego, New York, San Francisco, and London.  I hope that the technology can be used in other cities here and around the world as well.

What concerns me however, is whether current public and regulatory policy is supporting this path to improving public health.  For example, in the Maryland General Assembly, the House will take up HB 48, a bill that prohibits certain telephone companies from replacing landline or wireline service with certain wireless telephone service, subject to certain exceptions.  The bill also prohibits the Maryland Public Service Commission from authorizing such replacements.  That bill is scheduled to be introduced on the House fllor on January 8.

In Georgia, the Georgia Public Service Commission adopted in  October 2013 a rule that would require low income Lifeline recipients of free cell phones to pay five dollars a month for their mobile service.  The rule, which is currently being challenged in federal court by CTIA, was implemented to address potential fraud in the Lifeline system.

These two actions could adversely impact efforts to adopt the broadband technology necessary for making the tuberculosis drug monitoring program more widespread for patients.  Prohibiting replacement of legacy networks with wireless networks means a wireless broadband network with less of the capacity needed to manage data traffic for drug monitoring and other mobile health services.

A five dollar fee on low income Lifeline recipients puts a subscriber in a position of deciding between accessing broadband data services or using funds for other items.

If people with health needs are to make the most of new technology; if our social policy is to ensure that all citizens are getting the best care available; and if our social goal is universal access to a broadband network that makes delivery of the technology and health services more effective, then public policy should reflect that.

 

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Using broadband to create? Then you need to live in an urban or suburban area

The U.S. Department of Commerce yesterday put out a report documenting gaps in access to broadband between rural and urban communities as well as the variation in access to broadband within these two communities. The major conclusions of the report was that urban areas had greater access to both wireline and wireless broadband versus their neighbors in rural areas. Also, while population density played a role in which areas have higher access to broadband, locating closer to central cities may be of more significance in broadband adoption.

For example, according to the report, residents living in the exurbs, where population density is around 37 residents per square mile, have greater access to higher-speed wireline services than their counterparts in small towns, where population density is approximately 1,447 residents per square mile. Keep in mind that exurbs are considered as part of the rural community while small towns are urban areas. Exurbs, however, are part of metropolitan statistical areas (MSA) where central cities are the core of their populations. The study concludes that this proximity of exurbs to central cities may play a role in why a smaller density jurisdictions like an exurb may have greater access to higher speed services versus a small town which is not located in an MSA.

As I do here as well as on my other blog at Alton Drew, I place a lot of emphasis on accumulating and using capital, whether financial, or natural as in spectrum. Broadband is capital in the hands of creatives. Whether writers, designers, or app developers, access to broadband is key and if location to central cities increases the chances of quality broadband availability, people like me will be staying in Atlanta and other MSAs.

But what should this say about public policy? Should the Federal Communications Commission create more interventionist policies in order to bring some balance to the variations between and within the urban and rural communities? You can’t order carriers to provide the same speeds to rural and urban areas and universal service funding is far from guaranteeing a provider will enter rural markets to provide higher speed services. Evidence shows, especially where municipals provide broadband services, that new entrants are entering markets where incumbent services already exist.

The best policy would be to allow consumers to signal to market players that they are willing to pay the premium for services that are more costly to provide because of the low population densities. This is the best incentive for attracting broadband providers.