Blog

January 10, 2017

The FCC protects legacy networks. Let rural consumers choose their future with portable subsidies.

 

In 1995, at a ceremony at the FCC, I had the privilege of representing the largest of a new wave of wireless providers, the winning bidders in the first broadband PCS auction. When asked at that ceremony how we expected to compete against the cellular companies, who had been given free licenses over a decade before, I responded that we thought the cellular market was too narrow a focus. “We won’t compete against just the cellular providers,” I suggested, “We view every form of communication to be our market. Every time people make phone calls or access the internet, we want them to be using our phones.”

Over the subsequent years, I argued in my advocacy that the FCC’s focus on wireline voice service was similarly too narrow, especially when it came to competition between government subsidized telephone companies and everyone else. In rural areas, I argued for portable subsidies.

 

Me: If we provide wireless service in a rural area, we should have equal access to the subsidies. Or, no one should be subsidized.

FCC: You don’t provide 1000 minutes of voice service per month. (This was the 1990s, before unlimited minute plans.)

Me: But if our customers value mobility over lots of minutes, why isn’t their choice the appropriate measure.

FCC: You also don’t provide location accuracy for 911 calls. What if a person drives into a ditch and can’t tell the 911 operator where he is. (This was before GPS location accuracy in mobile phones.)

Me: Their wireline home phone won’t help them when they’re in that ditch either.

 

Twenty years later, rural America is in a digital ditch. At a time when most major ISPs tout 1 Gigabit and even 10 Gigabits per second internet access service, the FCC set its sights on 10 Megabits per second for rural America for the next 10 years. That is to say, mostly copper-based DSL service when all other manner of speed and service and technologies exist today. If you don’t think that matters, try to convince a business to relocate or invest in an area that will not have access to anything better than 10 Mbps over the next decade.

While I was inside the FCC over the past several years, I was no more persuasive with the policymakers than I had been on the outside. I argued in favor of auctions for one-time capital investments in fiber infrastructure. At the end of my tenure, I got my hand slapped for publicly promoting my views. “You don’t make policy, the Commissioners make policy,” I was told. And they sure did. In a single year, the FCC committed over $30 billion to telephone companies for 10 Mbps service – simultaneously squandering the public’s money and condemning rural America to digital poverty.

What happens to that $30 billion worth of subsidy if consumers in rural areas prefer Gigabit fiber optic service from an electric membership cooperative? Prefer mobile broadband service instead? Prefer satellite broadband service? Prefer anything but the telephone company’s service? Nothing. The legacy telephone companies continue to receive subsidies as if they are the only providers of service, even where broadband and voice alternatives exist. No portability, no technology competition, no pressure to innovate, no accounting for consumer preference.

So, here’s an old idea. Make the subsidies portable. The FCC has already calculated the per location level of subsidy for every penny of the $30 billion it committed. Let the subsidies follow a rural consumer’s choice. Consumers can port their phone number, let them port their subsidies, too. I’d go one better. If a competitor to the telephone company convinces a consumer to switch, give them 75% of the subsidy or 50% of the subsidy. Reduce the burden on the American consumer at the same time as promoting choice in rural America.

As I pursue this proposal (again), I will be accused (again) of not understanding network economics. Of not understanding carrier of last resort obligations. Of not understanding that portability will undermine the telephone companies’ delicate financial position. I will be accused again of trying to break the Deal between regulators and the telephone lobby. I will be accused again of wanting to blow things up.

In my career, I helped develop a cost model for a national wireless carrier, helped develop business models for cable broadband operators in Europe, participated in the FCC’s Connect America Fund cost model exercise, and have helped develop fiber-to-the-home business models for several dozen rural electric cooperatives. I have helped companies build networks.

I believe the FCC is wasting over $30 billion. I believe gigabit fiber-to-the-home service is affordable to every home that has electricity. And, while I believe the FCC should invest the public’s money in fiber optic networks, there is no consensus in Washington (on much of anything). So, instead of new infrastructure spending, instead of increasing spending on telephone companies, let’s try something simpler and more direct. Move the decision-making from the top floor of a building in southwest Washington to the homes and small businesses of rural America.

 

 

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About Jonathan Chambers
Jonathan has worked for over twenty-five years at start-up companies, large corporations and the U.S. Government. For the past four years, Jonathan was Chief of the Office of Strategic Planning for the Federal Communications Commission. Jonathan was part of the senior leadership at the FCC that reformed $12 billion in annual federal spending, including the rural and high-cost fund, e-rate, telecommunications relay services and the lifeline programs. Jonathan also conceived of the Rural Broadband Experiment and was involved in the auction design for the Connect America Fund. Prior to the FCC, Jonathan worked in the cable and telecommunications industry in the U.S. and Europe. He was one of the original employees at Sprint PCS, where he was Vice President of Public Policy and Associate General Counsel. In Europe, he worked with Telenet (Belgium), Ono (Spain) and Ish (Germany). He was General Counsel of TVGateway, a company formed by Comcast, Cox and Charter to develop an electronic program guide. Jonathan was Chief Strategy Officer, General Counsel and a founder of Movida Communications, Inc., an MVNO focused solely on the US Hispanic market. At the start of his professional career, Jonathan spent eight years in the U.S. Senate, as staff director for the Commerce Committee, staff member of the Intelligence Committee and legislative director to Senator Jack Danforth (R-MO). Jonathan holds a BA in economics from Yale College, an MA in international affairs from Columbia University and a JD from Georgetown University Law Center. In March 2016, Jonathan left the FCC to join Conexon to help electric cooperatives bring FTTH broadband to rural areas throughout the country. He is currently a member of the board of directors of the Nicholville Telephone Company in upstate New York.

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