July 9, 2010

Public Interest Comment on the Connect America Fund

  • Jerry Ellig

    Research Professor, George Washington University Regulatory Studies Center
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Creation of the Connect America Fund offers the FCC the opportunity to make a clean break with past subsidy disbursement practices that were often ineffective, inefficient, and unaccountable for achieving the outcomes articulated in the 1996 Telecommunications Act. Competitive procurement auctions would allow the FCC to achieve the greatest possible improvement in broadband availability or subscribership with limited subsidy dollars. In designing the auctions, the commission will need to address four issues:

Creation of the Connect America Fund offers the FCC the opportunity to make a clean break with past subsidy disbursement practices that were often ineffective, inefficient, and unaccountable for achieving the outcomes articulated in the 1996 Telecommunications Act. Competitive procurement auctions would allow the FCC to achieve the greatest possible improvement in broadband availability or subscribership with limited subsidy dollars. In designing the auctions, the commission will need to address four issues:
1. Decide whether the goal is availability or subscribership, and craft selection criteria and performance measures accordingly.
2. Articulate a definition of broadband that is consistent with all of the factors the FCC is supposed to consider according to Section 254 of the Telecommunications Act. The fastest minimum broadband speed subscribed to by a substantial majority of residential consumers is likely only 748 kbps, not the 4 mbps proposed in the National Broadband Plan.
3. Identify which areas are considered “unserved” and hence eligible for subsidies. A minimum speed of 1 mbps or lower would substantially reduce the amount of subsidy required to accomplish the goal of bringing basic broadband to all Americans.
4. Identify in advance the pricing provisions providers would have to accept in exchange for subsidies. A price within two standard deviations of the urban average may be a workable standard. The most flexible way to implement this standard would be to require providers to bid on both subsidies and price, and give greater weight to bids that offer a price within two standard deviations of the urban average. As an alternative, providers who already offer unsubsidized service elsewhere could be presumed to offer “reasonably comparable” rates if they offer to charge a price in subsidized areas no higher than the price they charge for the same service in unsubsidized areas.
Competitive procurement auctions designed according to these guidelines would give the FCC the best possible opportunity to use universal service funding to bring broadband to as many Americans as possible

1. Decide whether the goal is availability or subscribership, and craft selection criteria and performance measures accordingly.

2. Articulate a definition of broadband that is consistent with all of the factors the FCC is supposed to consider according to Section 254 of the Telecommunications Act. The fastest minimum broadband speed subscribed to by a substantial majority of residential consumers is likely only 748 kbps, not the 4 mbps proposed in the National Broadband Plan.

3. Identify which areas are considered “unserved” and hence eligible for subsidies. A minimum speed of 1 mbps or lower would substantially reduce the amount of subsidy required to accomplish the goal of bringing basic broadband to all Americans.

4. Identify in advance the pricing provisions providers would have to accept in exchange for subsidies. A price within two standard deviations of the urban average may be a workable standard. The most flexible way to implement this standard would be to require providers to bid on both subsidies and price, and give greater weight to bids that offer a price within two standard deviations of the urban average. As an alternative, providers who already offer unsubsidized service elsewhere could be presumed to offer “reasonably comparable” rates if they offer to charge a price in subsidized areas no higher than the price they charge for the same service in unsubsidized areas.

Competitive procurement auctions designed according to these guidelines would give the FCC the best possible opportunity to use universal service funding to bring broadband to as many Americans as possible.