Federal Communications Commission member Ajit Pai today shared with the Federal Communications Bar Association some thoughts on injecting some efficiency into the review process at the FCC. You can see his remarks here.

I feel Mr. Pai’s frustration. I remember as a analyst with Telecommunications Reports International my initial bewilderment with how long it took the FCC to make a decision in a docket. I had been spoiled during my tenure at the Florida Public Service Commission where staff and commissioners worked together to move items as quickly as possible through the review process. In addition, we were pretty transparent about the process, including seeing commissioners have lively and invigorating public debates on the issues.

Ironically, Mr. Pai proposed implementing an online dashboard that would give the public a play-by-play view of how well the FCC is meeting its review deadlines and other goals. It’s a great idea, but unless Mr. Pai is a great diver or swimmer, he shouldn’t hold his breath. As much as the FCC talks about robustness and transparency in the industry, allowing a robust public review of FCC actions through a transparent mechanism like an online dashboard is not a part of this FCC’s way of doing business.

When you espouse a particular philosophy, but reason, that little voice in the back of your head, says this philosophy doesn’t fly, and your practices run counter to the school of thought you subscribe to, you’ve met a necessary condition for cognitive dissonance. The Federal Communications Commission is at that crossroad, staring at the signs, and wondering which fork in the road it should follow.

FCC chairman Julius Genachowski’s statements yesterday on proposed municipal broadband legislation sent that red flag up; the sign that the agency’s voices in its head were out of sync with the actions it prefers. On the one hand, Mr. Genachowski says the following:

“High-speed broadband is vitally important to our global competitiveness and the continued
growth of our economy, and we must keep pushing for faster speeds and greater capacity through new
investments in broadband networks. This investment has and will come overwhelmingly from the private
sector, which is why it’s vital that we continue to focus on policies to incentivize private investment and
remove barriers to broadband build-out.”

But then Mr. Genachowski starts to sing the benefits of government owned networks (GON):

“If a community can’t gain access to broadband services that meet its needs, then it should be able
to serve its own residents directly. Proposals that would tie the hands of innovative communities that want
to build their own high-speed networks will slow progress to our nation’s broadband goals and will hurt
economic development and job creation in those areas.”

What Mr. Genachowski failed to stress is that GONs, armed with cash from tax revenues, will have access to an interest free source of funding from which to wage broadband war against traditional broadband providers. Also, these GONs may choose, unless prohibited by the very same statutes Mr. Genachowski opposes, to compete in areas where there is already significant service. The robust competition that Mr. Genachowski has spoken about for almost four years would be picked away at if not totally eroded.

The FCC should choose a philosophy on market intervention and stick with it. Either it promotes commerce by allowing the market to determine how resources are going to move or it goes all out and promotes a publicly-owned network that may be more immune to regulation than a privately owned counterpart.

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.

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.

There have been calls, one notably from Harvard Law Professor Susan P. Crawford, for a regulated broadband monopoly, the underlying premise that a regulated monopoly would further the goal of affordable universal access to broadband services. Such a scheme, in my opinion, is not advisable and is merely a form of what I term as “net neutrality pile on.”

Regulation can provide incumbents with the benefit of keeping other competitors out by making the cost of compliance so onerous for market entrants that they change their minds about providing a community with competing services. One small example would be RCN’s attempts to provide cable services in Fairfax County, Virginia. Between franchise fees and requirements to build I-Nets, providing capacity on their cable network to deliver public, educational, and governmental programming (PEG), the requirements were enough to break the camel’s back already ladened with other issues of financing the deployment. Broadband providers would face a similar regulatory moat.

Any benefits of regulatory protection incumbent broadband carriers would enjoy would be offset by the increased costs of compliance a regulated monopoly regime would call for. As a former regulator I believe we spent more time engaging company staffs on the phone and in meetings than we did on the phone and on dates with our girlfriends and wives. I have no doubt that proponents of a regulated broadband monopoly stand ready to put the Title II regime in the Telecommunications Act along with the Federal Communications Commission’s two-year old net neutrality rules to full use against a Comcast, AT&T, or Verizon and consumers would be the ones paying for the increase in regulatory scrutiny a regulated regime would bring about.

In addition, the regulated regime never incentivized quick deployment of new services. bell operating companies would not have deployed in businesses and residences access to high-speed services were it not for the threat that cable companies were prepared to mount in the mid 1990s. In theory and reality, monopolies promote stodgy unimaginative technology.

Advocates for a regulated monopoly believe such a scheme is our future, but going back in time to the days of ISDN is not the move away from regulation intended by the Telecommunications Act of 1996.