How high cost telecom subsidies might work if Title II common carrier regulation was “Obamacare for the Internet”

President Obama’s call this week to the U.S. Federal Communications Commission to regulate Internet service providers as common carrier telecommunications providers provoked Sen. Ted Cruz of Texas to disapprovingly dub it “Obamacare for the Internet.”

A political shot to be sure. But what if the high cost of building fiber to the premise infrastructure to all American homes and businesses were subsidized using tax credits such as those used to make individual health insurance more affordable to low and moderate income households under the Patient Protection and Affordable Care Act?

Instead of directly subsidizing Internet providers to build infrastructure in high cost areas using the FCC’s Connect America Fund – which many providers have spurned or only selectively accessed – customers in high cost areas would receive the subsidies and not providers.

Providers would be able to charge higher rates (not based on bandwidth use or connection speeds) for fiber connections to homes and businesses in high cost areas. Owners of these properties could then use the telecom tax credits to offset the higher cost of getting them connected.

That would create incentive for these premises to get online while also reducing the business risk of the current subscription-based models that are heavily dependent on how many customer premises sign up for service and which act to inhibit infrastructure construction in higher cost areas of the nation.

What do you think? Share your comments.

Western Massachusetts coop creates financial template for regional fiber telecom infrastructure

Steve Nelson: Towns hold the key to broadband - Berkshire Eagle Online: To participate in the last-mile project, a town must take these steps:

1. By Dec. 31, its Select Board must pass a nonbinding resolution expressing the town's intent to participate;

2. As early as next spring at a town meeting, it must authorize the issuance of bonds to cover the town's share of construction costs above the funds contributed by MBI;

3. At the same time, 40 percent of households in a town must sign a conditional contract to take service — Internet, phone and/or TV — when it becomes available.

WiredWest, a Western Massachusetts cooperative formed to construct a regional fiber telecommunications network, has developed the above financing plan for the build out of the network. It's a model that other regions of the United States might wish to study for their own infrastructure development.

Section 706 of Telecom Act offers FCC little to address telecom infrastructure deficit

Net neutrality storm engulfs FCC - POLITICO: FCC officials are meeting with congressional staff this week as Wheeler tries to better explain the options on the table to industry players and the public interest community. Across those meetings, the FCC chairman and his aides haven’t tipped their hand about how they want to proceed, according to multiple sources. The officials have given a rundown of the various options, including adopting the utility-style regulation known as Title II, using a weaker authority known as Section 706 or some combination of the two — but failed to lay out a clear path forward, the sources said.

Section 706, found in Title VII (Miscellaneous Provisions) of the Communications Act, isn't really a mandate on telecommunications providers. Rather, it merely affords the Federal Communications Commission authority to issue rules creating incentives to remove barriers to telecommunications infrastructure investment and to promote competition.

The main barrier to wireline Internet infrastructure investment that according to the FCC has left about 19 million American homes without Internet connections is economic, not regulatory. The business models of investor-owned providers typically require relatively quick return on monies invested to build infrastructure. In less densely populated areas, there is greater risk that standard won't be met, extending out the time for investors to break even and begin generating profits. No FCC rulemaking can change those economics.

The FCC provides subsidies to help bridge the gap (the Connect America Fund), but providers have generally spurned them. Instead, they've concentrated capital investments in more densely populated and profitable parts of their service territories and in mobile wireless services.

As for removing barriers to competition, there is little the FCC can do within the existing market-based model for telecommunications service. That's because telecommunications infrastructure is a natural monopoly that due to high cost and risk barriers deters would be competitors from entering the market.

FCC Chair Wheeler faces either/or choice on Internet regulation; the baby can't be split.

Obama’s call for an open Internet puts him at odds with regulators - The Washington Post: Huddled in an FCC conference room Monday with officials from major Web companies, including Google, Yahoo and Etsy, agency Chairman Tom Wheeler said he has preferred a more nuanced solution. That approach would deliver some of what Obama wants but also would address the concerns of the companies that provide Internet access to millions of Americans, such as Comcast, Time Warner Cable and AT&T. “What you want is what everyone wants: an open Internet that doesn’t affect your business,” a visibly frustrated Wheeler said at the meeting, according to four people who attended. “What I’ve got to figure out is how to split the baby.”

It's natural given Tom Wheeler's background as a telecom lobbyist that he would look for some kind of deal or compromise that opposing parties in a contentious policy issue can live with. But that's not what President Obama -- who designated Wheeler as Federal Communications Commission chair -- had in mind when he issued a statement this week calling on the FCC to issue rules defining Internet service a common carrier telecommunications service under Title II of the Communications Act instead of a more narrowly offered, specialized information service under Title I of the statute. These are entirely different regulatory schemes that don't lend themselves to hybrid models. It's an either/or choice. The baby can't be split. Moreover, doing so will only create legal uncertainty and fuel litigation. Rather than satisfying various stakeholders, none will be happy and more inclined to turn to the courts for redress of their grievances, potentially creating years of regulatory uncertainty.

Judging from the millions of comments filed with the FCC on the question, it's eminently clear the public preference is for Title II common carrier regulation of Internet service providers. Which makes sense given the Internet is gradually replacing the role the telephone system served in the past: a universal communications system accessible to everyone regardless of their location and whether they received or placed calls. Even the legacy incumbent telephone companies agree, saying it doesn't make sense for them to have to adhere to regulations governing landline telephone service.

Bottom line at this point, this is now primarily a political and not a regulatory issue. As such, expect politics to come more sharply into play. If Wheeler can't bring himself to make a clear policy call for Title II, President Obama could end up designating another Democrat on the FCC to replace him as chair. Speaking of Democratic politicians, I expect former President Bill Clinton will weigh in siding with Obama, saying something like Title II was where he ultimately intended Internet regulation to go when he signed the 1996 Telecommunications Act into law, with Title I more of a transitional but not permanent regulatory scheme. His vice president, Al Gore, could also join the Title II juggernaut.

Common carrier universal service obligation -- not net neutrality – primary reason for incumbent telephone and cableco opposition to FCC Title II enforcement

Threats by the legacy incumbent telephone and cable companies to sue the U.S. Federal Communications Commission if it acts to enforce Title II of the Communications Act aren’t solely motivated by net neutrality. President Obama and other net neutrality supporters look to enforcement of Section 202 of the statute that bars “discrimination in charges, practices, classifications, regulations, facilities, or services...” Net neutrality supporters maintain enforcement of this provision will prohibit telephone and cable companies (and other ISPs) from creating “fast lanes” to speed traffic from users like Netflix to its subscribers. They also argue enforcement would similarly bar ISPs from charging consumers more to access selected websites, for example.

The primary reason the big incumbents are gearing up for possible litigation against the federal government isn’t net neutrality. Rather, it’s two words in Title II: common carrier. The incumbents don’t want to be classified as common carriers. Why not? Because Section 254(b) of the Communications Act requires common carriers to provide access to advanced telecommunications and information services (i.e. Internet service) in all regions of the nation. Section 202 of the law also contains an anti-redlining provision barring providers from discriminating against localities in providing service. That means they’d have to serve all premises in their service territories and not just selected neighborhoods, roads and streets. That would obligate the incumbents to invest billions to connect the approximately one in five premises they have opted to leave unconnected to the Internet.

That doesn’t jibe with their business models because those customers tend to be located in less densely populated areas that are less likely to generate a quick return on the investment in infrastructure needed to serve them. In addition, Section 214(e)(3) empowers the FCC to "determine which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such service for that unserved community or portion thereof."

It could be the policy environment on Internet regulation has reached a tipping point. Oftentimes it takes just a single, well publicized incident to create the final push toward change. The previous post on the sad plight of an upstate New York family being asked to pay more than $20,000 to get their home connected to the Internet might be one of those proverbial straws that brought us to that point

CNY man says Time Warner Cable wants to charge $20,000 for broadband Internet | syracuse.com

CNY man says Time Warner Cable wants to charge $20,000 for broadband Internet | syracuse.com: Think your cable and Internet bill is too high? Jesse Walser might disagree with you.

Walser, who lives about 20 miles outside of Syracuse in the rural town of Pompey, told Ars Technica that Time Warner Cable wants to charge him more than $20,000 to hook him up with broadband Internet. What baffles him is that he can see TWC lines from his house, just 0.32 miles from the road.

"I didn't think it would be that difficult, because the cable was on my road," he told the tech news site. "I have phone. I have electricity. It's not completely 'Green Acres.'"

As this blog has previously pointed out, many Americans lack wireline Internet access because of this kind of arbitrary redlining by legacy incumbent telephone and cable companies. It's difficult to make a credible argument that living less than a half mile from existing infrastructure puts a customer premise out in the middle of nowhere, making it cost prohibitive to serve. As Mr. Walser points out, his circumstance bolsters the argument that last mile Internet service providers be classified as common carriers.

This situation has existed unchanged throughout much of the United States over the past decade (and isn't likely to change anytime soon), leaving some 19 million homes offline according to the U.S. Federal Communications Commission. The FCC is currently considering common carrier regulation of Internet service providers.

The view from South Korea: Incumbent protectionism hobbles U.S. Internet infrastructure

Now that the Internet is maturing to the point that it's the de facto global telecommunications system, the view of the United States -- the nation that innovated the Internet -- from the outside can be quite unflattering. Other developed nations watch as Americans struggle with high cost, low value service. Or no service at all as is the unfortunate circumstance for some 19 million U.S. homes, according to the U.S. Federal Communications Commission.

Why didn't the U.S. put in place policies and plans decades ago to ensure all American homes and businesses have fiber optic connections to the Internet? How did it lose its way? Sometimes when one is lost, they don't know it until someone else points out to them they're off course or wandering about.

A spokesman for South Korea's SK Broadband, which is preparing to introduce 10Gbps fiber service, provides an answer: protectionism of legacy telephone and cable companies that failed to put in place plans to transition to fiber infrastructure.

“In my travels to the United States, it is very plain they have lost their way in advancing broadband technology,” said Pyon Seo-Ju. “Internet access is terribly slow and expensive because American politicians have sacrificed Americas’s technology leadership to protect conglomerates and allow them to flourish. Although unfortunate for America, this has given Korea a chance to promote our own industry and enhance the success of companies like Samsung that are well-known in the United States today."