The Hill.com reported yesterday on a letter sent to the Federal Communications Commission from a number of Democrats on the House Energy and Commerce Committee asking the FCC to look at implementing policy that would lead to the reduction of rates for special access lines.

Special access lines are typically used to connect a customer directly to a long distance provider, avoiding a central office or other portions of the public telephone network. They can also be used to connect various customer locations.

The Democrats aim is to allegedly increase innovation and investment for special access customers. If the Democrats want to increase innovation and investment, they should encourage these customers to generate products, services, and content that stimulates consumer demand for them.

This surprisingly supply-side approach by Democrats won’t work. Special access rates have historically been set higher than other access line rates because of their non-shared nature. It’s just the economics of the network.

The Federal Communications Commission announced today that its Connect America Fund is now ready to dole out subsidies to as many as 500 rural carriers. The carriers will hopefully be able to roll out broadband and voice services to an initial 400,000 households, businesses, and anchor institutions.

CAF is a modification of the old Universal Service Program which subsidized carriers facing higher costs for deploying services in less densely populated areas such as rural and insular areas. Just like the old USF, CAF will be funded by assessments on carriers who will assess the bills of their subscribers an amount that covers carrier contribution.

Shorter answer, we pay for it.

In addition, while participation is voluntary, if a carrier wants funds, they will have to provide both voice and broadband services to their subscribers.

Is this good social policy? It probably is. Let’s face it. This was the policy used to help deploy plain old telephone service (POTS) back before we started deploying all this pretty amazing new stuff (PANS). Since Congress and the FCC have taken the position that we want to get advanced services in as many households as possible, why abandon a mechanism that worked fairly well.

It is kind of touchy, touchy. Fellow citizens, unbeknownst to them, are helping someone, via an assessment on their bills, get phone and broadband services below cost.

On the flip side, I don’t see where this type of subsidy leads to innovation. It takes away the incentive to come up with a new technology that can be used to serve those without broadband access. The desire for affordability is a constraint on innovation that we must contend with, I suppose.

I haven’t spoken yet about the FCC’s proposed FY13 budget. With ten days to go before Chairman Genachowski and Commissioner Robert McDowell testify before the House Appropriations Committee, I figured I’d better bone up on what the FCC will be presenting.

First, there is the FCC’s vision for the next four years or so which reads as follows:

“The FCC’s vision is to promote innovation, investment, competition, and consumer empowerment in and on top of the communications platforms of today and the future – maximizing the power of
communications technology to grow our economy, create jobs, enhance U.S. competitiveness, and
unleash broad opportunity and a higher quality of life for all Americans.”

Overall, I have no problem with the vision. Had the FCC used the word “provide” instead of promote, I would have thrown a fit. It would have insinuated some control over private capital. Promotion tells me that the FCC will consistently announce what it wants in terms of a network that goes as far as possible in reaching every American household.

I saw some of an interesting piece on shoplifting last night on CNBC. The reporter made the point that Americans, when unknowingly buying stolen razor blades at their local five and dime, don’t care about where the product comes from. They care about the price.

Wal-Mart acknowledges this type of consumer perspective when it provides head-to-head price comparisons with local and regional grocery stores. In these economic times, family budgets take a higher priority to whether the grocery store went to the most exotic island to find bananas and cocoa beans.

Consumers also feel the same way about their internet service providers and their broadband service.

In a speech delivered yesterday at the Federal Communications Bar Association spring luncheon, Federal Communications Commission member Mignon Clyburn said that,

“The FCC set forth basic rules of the road, so that consumers can have unfettered access to the lawful content, applications, and services offered over the Internet, in addition to the information they need to understand how their ISPs manage their networks.”

Access to lawful content, applications, and services I can roll with. Understanding how ISPs manage their networks? I don’t think so.

Consumers care about output not throughput. Americans have always been output oriented, whether the issue is politics or having a report generated at work by 4:45p. Unless the way a service provider is going to unleash an environmental hazard on my backyard, I don’t care what management techniques the provider uses to manage the process.

It’s disingenuous to say consumers care about this. Either that or the FCC is totally out of touch and more focused on appeasing the small group of activists who believe that Kafka the Bogeyman lurks around every corner and do a Tebow in front of a Don Quixote poster.

I prefer to say that they are out of touch.

Yesterday the House Committee on Energy and Commerce passed HR 3309 which would require that the Federal Communications Commission ensure that notices of proposed rulemaking are open to public comment and that the NOPR is the logical outgrowth NOPR or court action within the three –year period prior to its issue. In addition, the NOPR should include a finding of any additional burdens that may be imposed on consumers or industry.

HR 3309 also addresses the actual adoption or amendment of a rule. Adoptions or amendments of rules should also be a logical outgrowth of a NOPR issued within the three-year period before the adoption or amendment. There should also be evidence that where the rule has a significant economic impact that the FCC conducted an analysis of market failure, consumer harm, or existing regulation. Some cost/benefit analysis that takes into account alternative regulations would also be in order.

Shorter version: the FCC needs to approach regulation in a disciplined manner with its focus on how regulations may be impacting industry and the market. I think sometimes the FCC forgets that we live and work in an economic system that favors private players leveraging their capital in a manner that creates the greatest value for investors and consumer welfare.

Just imagine if the FCC were required to apply this approach to its net neutrality rule making. Since the FCC’s analysis showed no evidence of market failure much less evidence of any positive impact on economic growth or decrease in consumer prices or expansion of broadband, net neutrality would have been dead in the water.