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 gave his assessment on where the FCC may go on broadband regulation should the United States Court of Appeals-DC Circuit decide to uphold the FCC’s net neutrality rules issued back in December 2010. Here is an excerpt from his opening remarks before the Phoenix Center :

“On a more serious note, I would like to spend a few minutes this morning previewing the
year ahead in broadband policy. I believe that 2013 will be a watershed year. And the most
important action probably will not occur either at the FCC or on Capitol Hill. Instead, it will
take place in the federal courthouse about a mile away on Constitution Avenue. At some point
next year, the D.C. Circuit likely will decide the fate of the Commission’s 2010 net neutrality
order. Whatever the court’s decision, the consequences are likely to be profound.

Should the D.C. Circuit uphold the FCC’s order, I would expect to see revitalized efforts
to expand the Commission’s regulation of the Internet. In particular, I would not be surprised if
the FCC looked into whether we should stiffen our oversight of the network management
practices of wireless broadband providers and whether we should begin to regulate usage-based
pricing. With a court victory under the Commission’s belt, I believe that the net neutrality order
would be the first step, not the last, on our regulatory path.

I expect that a court victory also would result in more calls to enforce the FCC’s net
neutrality rules. To date, we’ve received few complaints that these rules have been violated, and
we’ve done little with any that have been filed. But if the regulations are upheld, the agency
could well receive more complaints alleging violations and it could spring into action
adjudicating them. Uncertainty over how the FCC would resolve these complaints could persist
for some time.

Now let’s look at the opposite (and perhaps more likely) scenario. What would happen if
the D.C. Circuit decides that the FCC lacked the authority to adopt the net neutrality order? The
big question confronting the Commission would be this: whether to abandon the drive to regulate
network management practices or instead to sidestep the court’s decision by reclassifying
broadband as a Title II service.

For what it’s worth, I have already made my view on this matter clear. Under no
circumstance will I support Title II reclassification. I am convinced that grafting creaky,
burdensome common carrier regulations onto the Internet would dramatically slow broadband
deployment, reduce infrastructure investment, frustrate innovation, hamper job creation, and
diminish economic growth.”

Investors, naturally, should keep their fingers crossed that the court does not uphold net neutrality rules thus giving the FCC authority to apply common carrier treatment to broadband providers. The just and reasonable standard when it comes to pricing and to whom service can be provided a priori would see carrier costs of service increase with pressure from the FCC on pricing. Not only would grass roots advocates scream about justifiable price increases implemented to cover compliance the costs, advocates would press for additional hearings on network management practices.

Based on the court’s rejection in Comcast to treat broadband as a Title II service, I do believe that Verizon should be successful with its opposition before the DC Circuit to the FCC’s net neutrality rules. I would have to conduct a more thorough analysis to draw a definitive conclusion.

The Wall Street Journal reporting today that Comcast is playing with usage-based pricing for its services. The usage pricing must be for video distribution services since they don’t sell smart phones.

Law professor Susan Crawford wrote a post for Wired.com arguing that H.R. 3309 would take the FCC in the wrong direction by gutting the agency’s power. After giving a brief history of deregulatory efforts and market entry spawned after the signing of the Telecommunications Act of 1996, Professor Crawford concluded that,

“You’d think that Congress would want to have an empowered regulator able to do something to protect the country from the rational, profit- seeking depredations of our new generation of monopolists.”

According to Professor Crawford, that new generation of monopolists includes Comcast and Time Warner for high-speed internet access; and AT&T and Verizon for wireless services.

The last thing the FCC needs is any more encouragement to follow an increased interventionist scheme. Just yesterday, T-Mobile USA announced the closing of seven call centers and the layoffs of hundreds of workers. The FCC was asked to consider a projection of job losses and call center closings in its review of the request to transfer licenses from T-Mobile to AT&T.

Instead, the FCC decides to play merger expert and, along with the Department of Justice, forced AT&T and T-Mobile to abandon their merger plans. Just like its net neutrality rules, the FCC never considered market impacts of its decisions. They refuse to carryout and document a market failure analysis before implementing decisions. This is not type of agency that anyone wants to have greater regulatory control.

It should stick to its number one priority: ensuring access to public resources such as spectrum and rights-of-way.

Comcast Cable Communications wants the Federal Communications Commission to find that its franchise areas in Aberdeen, Maryland; Bel Air, Maryland; and Havre de Grace, Maryland are subject to effective competition. See Comcast’s filing here.

A franchise area is said to subject to effective competition when two conditions are met.
First, the franchise area is served by at least two unaffiliated multichannel video programming distributors, each of which offers comparable programming to at least 50% of the households in the franchise area.

Second, the number of households subscribing to multichannel video programming other than the largest MVPD exceeds 15% of the households in the franchise area.

If the FCC says that the areas are indeed effectively competitive, rates for basic tier services in these areas would no longer be subjected to rate review by the local franchise authority.