PSC’s Market Ideology Clashes with Goals of Affordable Universal Broadband Service

Last week, PULP reported on the comments filed at the FCC regarding the development of a national universal broadband policy. See PSC to FCC: We Oppose Measures to Effectuate Universal Affordable Broadband Service. The New York State Public Service Commission (“PSC”), in conjunction with the state’s Chief Information Officer, submitted comments which in essence argue for continued reliance on failing market-based policies, policies which exacerbate the digital divide and have left millions of households without broadband. A review of other comments filed with the FCC reveals that New York is behind the times and out of step with every other state that submitted comments.

As we reported, the PSC comments did not directly voice support the goal of affordable, universal broadband, grudgingly acknowledged that the FCC has been tasked to address the problems, and then endorsed a lack of government involvement in broadband deployment:

“The [Federal Communications] Commission has been directed to develop a plan, but it may reasonably question the use to which the plan is to be put. The underlying assumption seems to be that the market is not providing the appropriate level of broadband service and that government should reallocate resources so there is more broadband. More broadband means less of something else and it isn't clear that people want to consume less of that commodity and more broadband. Indeed, given that the market is free, just the opposite is true.”

Essentially, the PSC seems to be saying that policy makers elected by the people who see the importance of universal affordable broadband to the future of the economy and society should not disturb the results of the broadband “market” - which in most localities is a duopoly of landline and cable providers. Such blind faith in the market, however, has already left New York far behind countries that have been proactive with policies to lower the cost of broadband, increase speed and bandwidth, and increase its deployment and actual use by citizens. The PSC even questioned the need to bring broadband to every citizen today:

A broadband plan seeking to bring broadband immediately to 100 percent of the country may be ill-advised. A goal of 100 percent broadband deployment may not be economically rational with traditional, wired service. However, the evolution of technology, like third generation wireless, could provide more efficient and cost effective alternatives for ubiquitous broadband.

This is a familiar refrain to defend market power of existing providers: someday the market will bring providers with a new technology that magically would bring affordable service to unserved or underserved areas, so therefore regulators and government should do nothing.

Groups that provided comments similar to those of the PSC were free-market think tanks, such as Americans for Prosperity, FreedomWorks Foundation, and Americans for Tax Reform (ATR). ATR, founded by anti-tax radical Grover Norquist. The PSC’s positions closely resonate with the comments of ATR, which glossed over the market failure and reduced competitive position of the United States in comparison to other countries, and wrote:

We are on the right track; the free market is working. Consumers are enjoying an ever-expanding array of choices and performance. . . . In order for free-market models to provide for the further development of broadband access, however, it is absolutely critical that government intrusion not prevent private capital from recouping its investment. If private capital becomes convinced that its ability to recoup its investments is less likely, it will be less likely to make the significant investments in broadband that is the very goal of this FCC inquiry.”

Both the PSC and ATR take these “hands off” positions when it comes to the price and deployment decisions of the cable and phone company duopoly, even though

• millions of people who in theory have “access” to broadband cannot afford it,
  
• the U.S. has some of the world's slowest, most costly broadband (per megabit per second),
• the U.S. subscribership rate has sunk from 4th to 15th in the world in recent years, even as other countries with more affirmative broadband policies surge ahead.

See The Broadband News Is In, but it Isn't All Good. The myths spouted by the PSC and ATR about markets and competition are addressed in the comments of Consumers Union:

The disappearance of potential competitors through mergers, the domination of the in-region wireless market by the dominant incumbent local exchange carriers, and the failure of CLEC competition on the platform have left residential consumers with, at best, a cozy duopoly that dribbles out bandwidth at high prices. While the Commission should prioritize its efforts according to the extent of market failure – zero providers is a worse outcome than one and one is worse than two – it should not fool itself in to believing that the mere presence of two competitors is sufficient rivalry to ensure consumers will get the benefit of real competition. This is particularly true in urban areas, where low-income households have been priced out of the marketplace. There is nothing in economic theory or real world experience to suggest that two is enough for vigorous competition.

In contrast to the New York PSC, other states that submitted comments recognized reality: the marketplace is failing to provide universal affordable broadband and that more steps need to be taken if the United States is to keep up with countries that have a sound broadband policy and program. This is what they had to say:

The Michigan Public Service Commission (“MPSC”) hit many important notes in its comments , stating:

the FCC should develop a national broadband plan with the goal that all Americans have physical access to broadband service . . . at the location of their residence. While physical access alone does not imply that all Americans choose to adopt broadband service due to constraints like price, the FCC should not overlook this essential component. . . . The best solution would be to work toward an infrastructure that allows for broadband connections at reasonable prices at every residence, as well as robust broadband connections at free or further reduced prices available at community centers such as libraries. These two goals need not be mutually exclusive. While the national broadband plan will likely need to prioritize which of these types of projects to fund with public money, such as the money available under the [American Recovery and Reinvestment Act] ARRA, the FCC should ensure that the ultimate goal of the national broadband plan is true access for all Americans, including access through community centers and at their place of residence.
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While the MPSC believes that demand-side policies will help encourage competition, thereby reduce price for consumers, it cautions the FCC against simply ‘allowing market forces to work.’ Due to the largely deregulated environment for broadband technologies, the FCC should closely monitor the competitive marketplace for broadband in order to address any areas where the market fails to provide broadband services at reasonable prices and with reasonable privacy protection. In the cases where the market does not produce sufficient demand for broadband at reasonable prices, the national broadband plan should include recommendations for reforming the universal service fund in such a way that broadband services would be supported.

Similarly, the Vermont Public Service Board and the Vermont Department of Public Service wrote that the deployment of broadband needs to be supported by the Universal Service Fund, stating:

The Vermont Public Service Board and the Vermont Department of Public Service (“Vermont”) are of the view that our national communications and technology culture have evolved to the point where broadband has become an indispensable tool for how Americans obtain and disseminate information, and communicate with each other about that information. Furthermore, for rural states such as Vermont, broadband internet service is vital for efforts to promote job creation and to retain a modern and technologically literate workforce. For these reasons, it is imperative that a national broadband policy be implemented that facilitates the deployment of a robust, inclusive broadband infrastructure that reaches American communities large and small with rate and service parity and reliability. To this end, Vermont recommends that the Federal Communications Commission (“FCC” or the “Commission”): (1) adopt a technically robust definition for “high speed” broadband; and (2) treat the deployment of broadband as a service to be supported by the Universal Service Fund (“USF”).

Vermont favors creation of a separate Broadband Fund, as outlined in the Federal-State Joint Board Recommendation, which would be tasked with expanding broadband Internet services to unserved areas.

The New Jersey Department of the Public Advocate's Division of Rate Counsel made several recommendations in its comments, including expanding universal service support to include broadband services and to make broadband affordable for all citizens.

Absent such regulatory intervention, the United States may become a two-tiered society of disparate access to and use of broadband.

The California Public Utility Commission in its comments stressed the need for government involvement for a broadband universal service fund:

At the federal level, we do support a limited federal Lifeline/Link-up Pilot Program to provide computers and discounts for monthly Internet access service to low-income consumers as a way to gauge the costs of such a program. However, if the Commission or Congress decides to permanently add Internet access or broadband service to the definition of federal ‘universal service’, all broadband and Internet access providers should be required to contribute to the federal Universal Service Fund. The FCC should then expressly clarify state authority to seek contributions from all broadband providers and Internet access providers for their respective universal service programs.
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Another suggestion for funding of broadband would be for the FCC to explore universal service, at least initially, as a matter of ubiquitous availability of broadband infrastructure separate from universal subsidy of broadband service. If the broadband infrastructure is in place universally, then service plans and their costs can be approached relatively free of the costs associated with infrastructure deployment.

The Massachusetts Department of Telecommunications and Cable supports a broadband fund in its comments:

In response to the Commission’s queries with regard to universal service, the Joint Commenters affirm the [Massachusetts Department of Telecommunications and Cable] MDTC’s previous position that universal service support should be expanded to include broadband. Specifically, if the Commission were to incorporate broadband access into high-cost support, then it should establish a separate broadband fund for that purpose. In fact, the Commission should adopt the creation of a Broadband Fund comparable to that proposed by the Federal-State Joint Board on Universal Service.

The biggest telecom providers in New York support movement away from market-based solutions that have not worked. For example, Verizon in its comments stated its support for “policies that increase computer ownership, teach people how to use those computers and navigate the Internet, and demonstrate the relevance and benefits of broadband to their lives could go far in increasing broadband adoption.” Its preferred method to address affordability, however, was for refundable tax credits for low income families to help them afford broadband access. Time Warner Cable in its comments wrote that it:

encourages the use of federal funds to support broadband demand side programs, with a focus on outreach and education, subsidies for low-income consumers, and
programs that distribute laptops to low-income schools and families. Such initiatives are a core component of the broadband stimulus legislation, and figure prominently in the Rural Broadband Strategy. Even where broadband services are available from multiple providers, penetration remains relatively low in certain at-risk communities. Addressing that gap should be among the Commission’s highest priorities, facilitated by the process of obtaining improved information about the extent of that gap already underway, independent of this proceeding.

In sum, every state that submitted comments, consumer groups, and two of the largest voice and broadband providers in New York all recognized the need for a national policy and action to address the inadequate deployment and unaffordability of broadband. It is unfortunate that the New York PSC still has its head in the quicksand of the last century's market ideologies and continues to leave broadband deployment and pricing to the whims of the duopoly "marketplace" – despite the duopolies’ continuing failures to bring affordable broadband to all.

Lou Manuta