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We need more Change
The FCC recently identified what it calls “critical gaps in path to future universal broadband.” First on the list was the “federal Universal Service Fund structure.” I applaud the FCC for grasping the obvious and I hope that they are not just paying lip service to the issue. But based on the FCC’s Public Notice #19 in the Broadband Notice of Inquiry (“NOI”) the FCC is still thinking only about incremental rather than fundamental changes to the current USF program.
First, the FCC clearly wants to migrate USF support to broadband. This means it continues to believe (either as faith or as political necessity) it is necessary to maintain subsidies. Worse yet, the FCC continues to believe companies should be subsidized. (Why is it that when individuals are subsidized it is looked upon with such scorn that someone would take public handouts, but when companies are subsidized it is looked upon as “pro growth.”) Why don’t they consider direct subsidies to consumers (broadband stamps!)?
Subsidies for broadband is a tricky issue. Consider first that the nationwide penetration rate for telephony is about 95% and has remained around that for over a decade. The rate is under 100% not because of affordability or availability, but basically because 5% of the population just doesn’t want phone service. I wouldn’t expect that broadband would have a higher penetration rate than telephony. In fact, I would suspect that the penetration rate could be expected to be a good 10 to 20 points lower since the costs of broadband are significantly higher once you add in the broadband connection, the computer, TV, stereo, phone or whatever is connected to the broadband pipe. If 5% of the population doesn’t feel the need to communicate by phone I am pretty sure 20% can get by without Twitter and Facebook. When you look at just cable penetration rates (over 119 million homes passed with about a 60% take rate) and consider that cable achieved these rates using competitive capital and further consider the continuing growth of these offerings as well as offerings by Verizon (FiOS) and AT&T (U-Verse) I think you can reasonably conclude that subsidies are not necessary right now to drive broadband deployment. And getting back to those computers, TVs, stereos, etc., are we going to subsidize those? After all, deploying broadband to a home is all well and good, but it is useless unless there is a computer or something in the home that can access the Internet. Are we going to subsidize the computer? If not, why not? Arguably, if you bought everyone a computer, demand for broadband would increase and it is arguable that the price of the computer represents the higher obstacle than the price of broadband. If we are going to subsidize computers, what kind of computer? A desk top? A laptop? An Apple? A Dell? One with 4 MB of RAM or only 2 MB of RAM? A DVD burner? It’s a silly discussion to be having for sure, but subsidies are a silly business.
Another sign of incremental change is the FCC’s stated options on what they call the “contribution methodology”. Basically the question is which individuals and/or corporations do you take money from to give to other companies. The FCC is considering a numbers-based and/or connections-based methodology whereby either telephone numbers and/or last-mile connections are taxed. These are clearly superior to the status quo, but hardly a bold advance.
What if instead the FCC extracted a micro-payment from every MAC address? MAC addresses are assigned to each device connected to the Internet. There are expected to be billions of devices connected to the Internet so the payment could be de minimus in relation to the costs of the device. The MAC address is unique to the manufacturer and the payment would be transparently passed through to its customer as a line item on the bill so it is in effect a sales tax. That is a bold advance in thinking about USF. And it makes sense to do this because the utility of the devices is proportional to the network they are connected to so it is only fair to tax these devices to support the expansion of the network.
Hopefully by issuing its statement that USF is a “critical gap” the FCC is signaling its willingness to change the status quo. Unfortunately, as it seems to be the case throughout this Administration it is not much of a change.
Comments
The problem with using
The problem with using MAC addresses is that any devices behind a router won't be visible to the provider. You'd more effectively tie a tax to a MAC address with a tax on the sales of each device with a MAC address, but that would only allow a one-time charge.
IP addresses are a currently scarce resource that could be taxed; many ISPs already charge fees for static IP addresses. (But again, devices behind a router need not use public IP space or be visible to a provider.)