Dave's note to the planners
Tuesday, 23 February 2010 03:38
I believe strongly in open process, so I'm posting this on DSL Prime although it is far too rough to be an article. A leader on the broadband plan asked me "So what would you do/" Working as fast as I could, I brought together some of the possibilities. I've had no specific reply other than "some are in the works, others wrong, and I wish I had enough time to chat."

 
The most important five things I see are
 
  • bringing down rural backhaul, which has a huge impact on cost to community anchor institutions, local competition,  and even wireless for the last 5%. A rebutable presumption of market failure if local bandwidth prices are three times  the national average seems worth fighting for. There's a record, an opening proceeding, and Sharon's expert tells me you have clear statutory authority  Because only a few percent of the country is involved, the total cost isn't that much and probably less than the office building part of special access.
  • getting the real costs studies on USF/ICC and making it all explicit USF (Huge dollars. I bet a tough auditor could find $5B with a few sensible rule changes, good enforcement and sunshine.
  • Directly eliminating low-priority/wasteful things in USF. I'd start by going back to your original purpose - internet to classrooms - and phase out the amazing high spending on things like Centrex phones. I'd put everything substantial out for bidding, with no bars on bidders. (Let WISPs serve local schools with 10 and 100 megabit microwave), and allow opt-in to any government (including federal) contract where it saves money. Note that #1 lowering backhaul in rural areas is big for high speed school/library/hospital connections.
  • Targeted interventions for high local broadband prices. Verizon charges $20 for basic; Frontier, $42 for similar. All but the smallest have costs within a dollar or three, but some are taking advantage of weak competition. I'd threaten a USF/ICC cut to any carrier above 20,000 lines with DSL prices more than 30% above the national average.
  • The four million or so homes with cable TV but not data are by far the cheapest way to provide better rural choices. Bringing down rural backhaul costs #1 is key here, but there are several other opportunities. Letting small cablecos access RUS loans is a good idea. Charter as of last quarter reduced 600K unserved to 500K. They plan to do more, which could give you a nice bit. There are half a million at the other big cablecos they refuse to provide me info on.
 
Possibly doable changes, some certainly already in. Straightforward except politically:
 
Pull away from the broadcast spectrum debate and let the bells carry their own water on this. Getting more spectrum is a good thing, but since the bells want it so much you don't need to spend your very few political chips. Make it possible to buy sell - ideally with a cut to government so it isn't a pure windfall - but don't make it your key fight.
 
Re-emphasize what Julius has been saying on efficient use of spectrum, which needs government support to happen and experts (including Stagg and Glen Campbell) tell me has even more potential. This includes "use it or lose it", direct sharing in congested or rural areas, a standard of minimal interference rather than no interference (powerful impact), and the many other spectrum efficiency bits on the table such as extending white spaces from broadcast to almost everything. Getting more spectrum is good, but I'm 98% sure this kind of thing over a decade can do 5-10 times as much.
 
Of course statewide average to prevent a windfall on non-rural court case. Go further, and get rid of the old rules that created an exemption for BellSouth to get extra. If you can't actually do that, put together a task force loaded with honest conservatives who want all support made explicit and hate government spending (Gifford, Crandall, Atkinson of Columbia, Dan Gonzalez)
 
Measure, measure, measure. Everyone thinks "data-driven" is good, and I think it particularly effective as a test of whether the plan as well as future policies actually are achieving goals. This shouldn't be hard to include (although it is) and is one of my responses to the power of lobbying. Most folks in policy simply are overwhelming and don't have the facts.
 
Enforcing the law on ICC. This is big dollars I'm told by a former USAC board member. He tells me that the law is clear ICC should be based on the additional costs of carrying a call, not the building costs of the network. (I haven't read the law itself.) If so, the number almost everywhere is under two tenths and possibly seven hundredths  Affirming that principle without details is important if you can't do more, defining the debate. ICC is never set by a market and hence balloons if not severely limited. It's an example of a "terminating monopoly" that is almost always inclined to high prices.
 
Take a share on the windfall profits on the license transfers your economists are so enthusiastic about. In practice, it's not close to the panacea a Tom Hazlett thinks, but probably generally good. It complements your "reuse broadcast spectrum" moves, especially if you allow all existing stations to grandfather must carry if they sell spectrum. This turns out to be reasonable because SDV is bringing the actual cost to cable of more channels close to insignificance.
 

Putting antitrust on the table if only to keep them honest. Figuring how it can work in duopoly, which is the situation in high speed in particular. I've a long-running debate with Phil Weiser, who thinks antitrust can be a major force despite the actual market structure and problematic precedents. I don't think he could win the prime issues in court, but there's every reason to make sure that Brian Roberts & Ivan Seidenberg are thinking they might wind up in court. I have anecdotes suggesting effectiveness.

Making additional mergers that reduce wireless competition "unthinkable" because we need more, not less, competition. Wireless competition could just be enough to be ok; the prepaid may (or may not) be showing the cartel is fraying. But the mergers of Nextel, AT&T Wireless, and Alltel have reduced competition to the point that wireless prices have been billions above what they would have been the last few years. The argument that "merged companies are bigger and stronger and hence improve competition" fails when you look at the data.

Make sure you keep on the table that additional spectrum might go to competitors. Canada, France, and Mexico have done that as they've added spectrum as a way to increase competition.

Consider unbundling that brings in T-Mobile and Metro-PCS. European and Japanese wireless/satellite companies are the only ones anywhere coming into the high speed market, including  Vodafone, Telefonica/O2, Bouygoes, and BSkyB. It's a long shot here, and I agree with you other large unbundlers are unlikely this decade. The French made it work in 2002, but the incumbents now have so much scale I wouldn't fund someone new. But the wireless/satellite people in much of the world are using sharing to create a bundle so it's not impossible.

Sunshine on USAC, NECA, and anyone else administering what is essentially ratepayer money. An easy way would be for the chair to simply tell USAC to honor a FOIA request I'd be glad to make, and tell NECA they should adhere to a policy that is equally open as a government agency - including their for-profit side.

Establish a principle that anyone getting USAC/ICC, etc. provide enough information that the public can be assured their money is not being wasted. Enforce with Obama quote from stimulus funding. Make clear that the public interest in knowing where their money is going is more important than possible harm from competitors learning things. Especially because with a little research any competitor easily finds what they need to know, so the whole thing is bogus.

Reduce USF to any company that consistently lets capex drop to 95% of depreciation or less. (?3 year average)  This is enormously powerful; Qwest and most RLECs are running at about 70% to pump cashflow/dividends well above profits. Since USF is about maintain services, pumping up dividends is not a good use of ratepayer money. They aren't investing more anyway. In practice, a provision like this would raise DSL availability from mid 80's to mod 90's quickly. They would do that naturally except for the extreme moves to short term cash flow direct investor returns.

Make clear that USF will never be extend to new entities. Iowa, Fairpoint, Puerto Rico, etc were bought at a price that was discounted because there was no USF. Giving them USF now is simply a windfall for investors. Especially since these guys generally aren't keeping capex up to depreciation anyway. Extend that to middle mile builds as well unless there is no fiber in place. That will also save enormous staff time and future political problems from carriers always hoping to get free money.

Follow up your comments on competitive USF possibilities with a few cases that are clearly a big saving without harming service. Perhaps allow cable or wireless to come in anywhere they will offer universal service and reduce the subsidy required by 50% or more while maintaining the price. It's hard to argue with that even though it's politically difficult. 25% of the U.S. is wireless only, so that isn't a bad solution.

Simply eliminate high cost switching support as depreciation runs out since no one has bought a high cost switch for the better part of a decade. Even for a 3,000 line carrier, a softswitch costs about 50 cents per month per customer over ten years - and switching can be bought as a service.

Put a test on subsidies with a presumption they are too high if they result in more than than an 11% return on actual capital investment. Don't call it the Kevin Martin plan, but tell Michael he owes it to us after he and Jonathan blocked a surprisingly sensible plan. Keep this vague enough to go through.

Do follow-up on USF/ICC with a task force to actually calculate all the numbers based on current data. At a guess, using good data here will cut things 1/3rd because the past is distorted in many ways. That's big, big dollars. Do it directly if you can,

Make sure the poor enroll in lifeline by making it automatic with food stamps, school lunch etc. Vouchers for choice are interesting.

Always set inflation adjustments to the cost of telecom gear, not CPI. Huge difference over time. Just do it.
 
Sunlight helps, so bring that everywhere in practice as well as rhetoric.
 
Improve markets with really strong truth in advertising. Look to truth in lending disclosures to see what's possible.