Private investors are more than capable of funding a workable broadband initiative

Regulators should beware of gifts brought by academics. Susan Crawford’s op-ed in The New York Times earlier this week still left me perplexed as to why she believes that increasing the level of regulation on broadband providers will some how create a more competitive environment while increasing the level of broadband adoption to the remaining one-third of American households who do not have high-speed broadband access. Let’s take a closer look at her arguments as presented in the piece.

First, Professor Crawford argues that broadband prices are too high and speeds too low because access to high-speed Internet is hampered by the concentration of providers in the broadband access industry.

In actuality prices are high because of the overall growth in demand for broadband access, both wired and wireless. Where cable companies are providing broadband, bundled packages may be increasing in price because of the pressures cable operators get from programmers who seek to increase their prices every year. Just look at the demands of an ESPN.

In fairness to Professor Crawford, she has a point on how wired access increases productivity especially in the area of home businesses. My son is more productive with broadband coming into the home, and I sure can’t blog on a smartphone.

Second, Professor Crawford argues that regulation unleashes competition and innovation. It never has. Where she is wrong is in her assumption that regulation will create a globally competitive, ubiquitous communications infrastructure. On the contrary, the opposite may happen due in part to actions of local and state governments.

If state and local governments continue to push the enevelope on gross tax receipts, franchise fees, and public, governmental, and educational access channel requirements, investors will have less incentive to finance the entry of a competitive broadband provider. These requirements bite into the bottomline of these firms which means less shareholder wealth to pass on. In addition to less shareholder wealth there are less residuals with which to reinvest into innovative products and services.

And while in her third point Professor Crawford argues that municipalities can provide competitive broadband networks, do they really have to be financed by tax-payer funded infrastructure banks? We have a private equity and investment bank structure capable of raising the capital for public and private broadband deployment initiatives. Taxpayers shouldn’t have to fund a communications infrastructure from taxes.

Finally, unless Professor Crawford is a closet supply-sider, with 100 million households allegedly unserved and hungry for broadband why not offer these households vouchers instead of directing universal support funds to new entrants who may have a hard time showing they have the scale to serve 100 million households. After determining the average annual cost to consumers for broadband, a voucher system could be implemented that provides directly to the consumer the difference between what a consumer pays for teleccommunications services and what the consumer would pay for a bundled package of telephone and Internet access. Rather than arguing that the Connect America Fund is flawed for directing money to incumbent providers ( I think it’s flawed because it exists, but that’s another blog piece), the CAF could be redirected to stimulate further demand for broadband by putting the funds in the hands of the consumer.

We can get to what Professor Crawford wants without another piece of regulation

The Federal Communications Commission yesterday denied T-Mobile USA’s request for an extension on construction of its Local Multipoint Distribution Service (LMDS) for wireless backhaul services. T-Mobile was originally required to demonstrate by 5 June 2008 that it was in compliance with the substantial service requirements of 16 LMDS licenses. The FCC then granted an extension until 1 June 2012. Yesterday’s denial of T-Mobile’s request for an extension in yesterday’s order resulted in a termination of the 16 LMDS licenses.

LMDS was originally conceived for digital television transmission, but has been used as a fixed point to multipoint technology for signal distribution in the last mile.

T-Mobile argued that it faced difficulties obtaining equipment for construction at an affordable rate. It also pointed out that LMDS did not yet represent an attractive alternative technology for wireless backhaul services. In addition, the company claimed that its merger negotiations last year with AT&T required that its LMDS construction plans be delayed.

The FCC found that none of T-Mobile USA’s arguments justified its request for an extension. To be eligible for an extension, T-Mobile had to show that failure to meet its construction deadline was due to involuntary loss of site or other causes beyond the company’s control.

The FCC found that because T-Mobile USA had other ways to develop its service independent of the backhaul market that pace of development of the LMDS market was not justification for granting an extension. In addition, the FCC found that the market for LMDS has been developing steadily.

Also, as a carrier with increasing backhaul demand, T-Mobile was in a better position to develop LMDS equipment for backhaul use. While T-Mobile was failing to make an active attempt to develop LMDS for backhaul and use and meet its deadline, other carriers met the 1 June 2012 deadline.

The FCC also severely discounted T-Mobile USA’s merger excuse finding that decision to enter negotiations with AT&T was a voluntary decision.

There was no indication yesterday that the decision to deny the extension request and automatically terminate the licenses had any impact on the share price of Deutsche Telekom AG, the parent of T-Mobile USA.

Last week the Innovation Technology and Information Foundation released a report comparing the expected policies and platforms of President Barack Obama, Governor Mitt Romney, and the Republican and Democratic parties in a number of areas including broadband, special access, and spectrum. Here is a summation of the findings in the report.

On broadband, specifically a digital infrastructure, President Obama has promoted a robust wireless and wireline broadband infrastructure capable of supporting an enhanced electrical grid, health care, and education. The Romney campaign has not articulated a position on the nation’s digital infrastructure.

The Obama Administration would like to see high-speed wireless capability within reach of 98% of Americans. The Romney campaign has not taken a position on expanding high-speed wireless access, but current FCC members agree with Democrats on the issue of modernizing the Universal Service Fund mechanism to support access to broadband.

In the area of special access, the Democratic majority on the FCC supports suspending deregulation of special access, while Republicans want to see deregulation continued.

Republicans and Democrats agree that the USF should be modernized so that rural and underserved households receive greater access to broadband services.

Republicans are opposed to the FCC’s net neutrality rules that were imposed in December 2010. Democrats, including the President, have been steadfast about removing the rules. While Democrats would like to see net neutrality rules not applied to wireless services, Republicans want the same forbearance for both broadband wireline and wireless services.

Can we really say we see any surprises?

BIA/Kelsey today issued a press release stating that consumer spending on online deals is expected to reach $3.6 billion in 2012. This, according to the online deal adviser, should represent a 86.9% increase over 2011. BIA/Kelsey also expects consumer online deal spending to increase 23% in 2013, with spending hitting $5.5 billion.

Online deals offer discounts on consumer items, such as clothing, electronics, toys, and travel.

In addition, a BIA/Kelsey survey of small businesses found that 26% of small businesses are likely to participate in an online deal over the next six months, while 24.3% of small businesses are somewhat likely to participate in a deal.

Affordable broadband, especially affordable wireless broadband can keep millions of minority and low income consumers connected to such deal offerings. Making necessary resources like spectrum available to carriers willing to service these markets puts the FCC in an indirect position to positively impact consumer welfare.

An article got me thinking about the disruptive nature of broadband, especially wireless. In this piece by Chris Matyszczyk for CNET.com, Mr. Matyszczyk shares some statistical data on the declining use of voicemail.

Voicemail. Voicemail? What’s that? People still use it?

I admit that I am one of the many described in the piece that rarely checks it and prefers not to leave one. I’d rather leave an e-mail, and I only use e-mail for business purposes. Friends are texting (which I was forced to do while dating an old girlfriend), instant messaging, or communicating via a social networking site.

Does this mean much for telecommunications policy? I think only to the extent that it is additional evidence showing how demand for bandwidth and spectrum is being driven today.