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Monday, June 17, 2019

But what about me?

Yesterday's post look at the question, "Why is the contribution factor so high?"

Today's question: "What will it do to my phone bill?"

I pay 3 phone bills, one for my business, one for my home, and one for cell phones.  The office is my cable company, home is my ILEC (Incumbent Local Exchange Carrier, aka "Baby Bell," aka "the local phone company").

How much does the USF cost me?  On my business bill, it's 2.29% of the voice portion of my bill. On my home bill, 2.75%.  Cell phones, 3.27% of the line charge.  So how much the current jump in the Contribution Factor from 18.8%  to 24.4% actually make those bills increase?

Office: 0.68%
Home: 0.82%
Cell phone*: 0.97%

Mind you, the percent increase on the total bill will be much smaller; those percent increases are only on the portion that's affected by the USF (voice service on landlines, line charges on my cell phone bill).  Most of my bill (charges for Internet/data, equipment, etc.) is not affected by changes in the USF.

So while the Contribution Factor is jumping almost 30%, consumers will see their bills go up less than 1%.  Because the vast majority of what you buy from phone companies is not considered interstate, and so not subject to USF fees.

*The grammar curmudgeon in me does not like the inclusion of "phone" in the last item, but not the previous two.  Originally, I had just "Cell" instead of "Cell phone," but I thought that looked too much like I was talking about phone service to my jail cell.

Let's be more demanding

Well, that's not good.

The USF Contribution Factor is going up.  Way up.  To a record-setting level.  That's not good for the E-Rate.  Because some of the Commissioners will cast this as a tax increase due to unrestrained spending, and it's going to encourage them to inflict all sorts of caps on Universal Service.

Is it a tax increase?  Technically, no.  The GAO and CBO have both complained that it isn't a tax.  But really, if the government makes you give up some of your money, and the government decides how that money is spent...well...sorry, but that's not a "contribution."

Is it due to unrestrained spending?  Let's look at the numbers.  Wait, I can't find a table of USF contribution calculations over the years?  Hang on, I'll build one.  At least the FCC has a page of the Contribution Factor orders going back to 2000.  Here's my compilation.

But I like my data in pictures, so here are two simple graphs that explain why the contribution factor keeps going up.  First, look at the total revenue from which the USF is drawn (revenue in billions):

Next, look at the how much money the USF programs need (demand in millions):

So clearly, we're looking for a lot more money from a much smaller pool.

But let's take a closer look at the components of that increase in demand:

Let's unstack that graph, so you can look at the growth and relative demand for each program:

In 2000, the E-Rate and High Cost were the big boys in the fund, but while the High Cost fund has more than doubled, the E-Rate bumped along at about the same demand, losing ground recently.  Meanwhile, Low Income spiked around 2012, but has dropped recently, and while Rural Healthcare has grown the most in terms of percentage, it's still the smallest program.

I can't resist playing with the graphics, so I'm going to pull out each program, adjust the scale to fit that program, and add a trendline.  This will show us which programs have been growing fastest.

Seems pretty clear which program is not to blame for the increase in demand.

Monday, June 10, 2019

Straying from my lane

I should know better than to take a look outside the E-Rate, but I can't help it; I'm a curious fellow.  So when the announcement of the latest Connect America Fund (CAF) grants came out, I looked to see which states they went to.  What?! New Jersey?!  What's the goal of the CAF?  "to accelerate broadband build-out to ... Americans ... who lack access to infrastructure capable of providing 10/1 Mbps fixed broadband."  OK, maybe in southern NJ, or the northwest corner.  Wait, there are three grants in Monmouth County.  This county is thoroughly blanketed by broadband from Verizon FiOS and a cable company.  Who can't get 10 Mbps?

Let's look at this grant: Block 1017, Block Group 1, Census Tract 8038 (in the FCC data file, it's Census Block ID 340258038001017). That block contains parts of 2 riverfront properties in one of the richest towns in the state: the properties are each assessed around $6.9 million.  The USF is paying Verizon to run fiber to 2 homes worth $7 million each?  The award list says that Verizon is only getting $2,577.70 from CAF, but still.... 

Verizon says those properties can already get 200 Mbps of Internet for $40/month.  Comcast offers 150 Mbps for $40/month.

Exactly what is Verizon getting $2,577.70 for?

I have got to stop peeking at the other USF programs, because it just gets my dander up.

Wednesday, June 05, 2019

Wireline Not-Too-Much Competition Bureau

Yesterday's blog post had me reading Alenco v. FCC, where I came across this statement: "The FCC must see to it that both universal service and local competition are realized; one cannot be sacrificed in favor of the other."  And that got me thinking about overbuilding and competition.

The whole idea of controlling overbuilding is antithetical to the Telecommunications Act of 1996, which is the act that created the E-Rate.  The first words of that act: "An Act To promote competition and reduce regulation...."  The FCC's page on the Act says, "The goal of this new law is to let anyone enter any communications business -- to let any communications business compete in any market against any other."  [Side snark: "new law"?! Maybe it's time to refresh that page.]

That's the reason that the E-Rate is overseen by the FCC's Wireline Competition Bureau (WCB).  Congress realized that to provide a level playing field, the existing Universal Service rules were going to have to be rewritten, and while they were rewriting the Universal Service rules, they created 2 new programs: the E-Rate and Rural Healthcare.

The recent Petition for Rulemaking on overbuilding stands the whole competitiveness debate on its head.  When the Telecommunications Act was past, the goal was to force the ILECs (Incumbent Local Exchange Carriers, the Regional Bell Operating Companies (RBOCs) spun off from AT&T in 1984) to allow competitors to use their facilities.  In this case, the petitioners want to force competitors to use their facilities.  So the rules written then don't apply all that well to this situation.  When the Telecommunications Act was written, no one foresaw that overbuilding might one day be an option.

But it just seems very wrong to use the E-Rate to inhibit competition.  It seems wrong to use this program, created by the Telecommunications Act, to reduce competition by increasing regulation.

On a complete tangent, how did the 1984 breakup of the AT&T monopoly work out?  Not so good.

Tuesday, June 04, 2019

Universal ≠ capped

As expected, the FCC has released a proposed rule to put a cap on the USF as a whole (currently, each programs has its own cap).  I've already opined on the overall cap, but I'll give one more overall argument against the proposal, then dive into the NPRM.

Let's take a step back.  Why should an increase in demand for broadband to schools reduce the funding available to bring broadband to rural communities?  Why should the spending in one program have anything to do with the rest?  As things stand, if one of the programs hits its cap, and the Commission has 2 options:
  1. Enforce the cap for that program.
  2. Increase the cap for that program and increase the Contribution Factor.
Under the new rules, if demand in one of the programs exceeds the cap for that program, then the FCC has three choices:
  1. Enforce the cap for that program.
  2. Increase the cap for that program, increase the overall cap for the USF, and increase the Contribution Factor.
  3. Increase the cap for that program, don't increase the overall cap for the USF, and start cutting other programs.
The only result of these rules is to create option 3.  And option 3 sucks.  The overall cap allows the FCC to cut the E-Rate by saying something like, "While we acknowledge the educational value of increasing broadband access for students, 99% of schools are already connected, so the real digital divide is at home, so we are prioritizing the Lifeline program."  They will be able to create a false choice between options 1 and 3, leaving option 2 behind the curtain.

Who likes this proposal?  Former U.S. Representative Joe "Bleed It Dry" BartonRep. Barton has left the House, but an overall cap could achieve his goal "to so underfund [the E-Rate] that it goes away."  

OK, let's take a look at the report.  As usual, I'll just be picking out things that strike my fancy and offering my ill-considered commentary.

"as courts and the Commission have recognized, too much subsidization could negatively affect the affordability of telecommunications services for those consumers who ultimately provide the support for universal service."  OK, I'll bite.  I'm not a lawyer, but I'll look up the cases and see what they say.  OK, Alenco v FCC (2000) does say, "Because universal service is funded by a general pool subsidized by all telecommunications providers and thus indirectly by the customers excess subsidization in some cases may detract from universal service by causing rates unnecessarily to rise, thereby pricing some consumers out of the market." But Qwest v FCC (2001) says that assertion is arguable, and notes that the FCC has not made it a principle of the program to limit the burden on ratepayers.  Let's study this to see if subsidization actually would hurt affordability for anyone.

" we seek to promote a robust debate on the relative effectiveness of the programs."  Why?  What does it matter if the Lifeline (née Low Income) program is more effective than the Connect America Fund (CAF, née High Cost Program)?  If they're both incredibly effective, why does it matter if one is more effective than the other?  And how are you going to compare the effectiveness of two programs that have different goals?

Oh, look at the table on page 5.  The CAF/High Cost is already over cap.  So there you go: the CAF will immediately start eating into the other programs, only we won't notice it right away, because the other programs have unused cap space.  The boiling frog fable comes to mind.

"we also seek comment on the appropriate way to reduce expenditures automatically."  There it is: we want to cut your funding without actually having to vote to cut your funding.  It's not us cutting your funding, it's "the legal imperative to remain within the cap."  Please pay no attention to the fact that we created that "legal imperative" in order to create exactly this situation, and we could remove it.

"We also seek comment on extending our projections out further than one year to better anticipate potential spending over the cap. ...the Commission would have a better opportunity to coursecorrect if it can evaluate demand over a more extended period of time."  Wait, so you're saying that if USAC projects that we might hit the cap in 3 years, you're going to start to restrict funding now?  Yeah, no.

"should we prioritize based on the cost-effectiveness of each program or the estimated improper payment rates?"  What does "cost-effectiveness" mean?  Here are the improper payment rates from page 81 of the FCC's 2018 financial report:
CAF/High Cost 0.03%
E-Rate 2.59%
Lifeline 18.47%
So when the CAF busts the cap, Lifeline (and to a lesser extent the E-Rate) would take the pounding.  (It appears that 2 IPIA audits were conducted on the Rural Healthcare program, and no improper payments were found.)

"Should we instead consider reducing each program’s disbursements by the same amount...?"  The same dollar amount?  Because a reduction of $582,000,000/program would mean a 13% decrease in the CAF, but would completely obliterate Rural Healthcare.

" unexpected increases in demand in one program could affect the funding levels of other programs that have not experienced similar unexpected increases in demand."  C'mon, the purpose of the overall cap is to have demand increases in one program affect the funding of the other programs.  If you don't want that to happen, don't create an overall cap.

"would self-enforcing caps on each of the programs provide more predictability to universal service spending?"  Yup.  It's hard enough trying to read the tea leaves to determine demand within the E-Rate program.  Having to guess what will happen in the other programs would make life much more unpredictable for E-Rate participants.

"Are there ways to compare effectiveness across the programs more holistically in order to measure program efficiency?"  There are many ways, all of them flawed.  Let's use penetration rates among residential, business, and community anchor institution locations potentially served by the program.  I've mentioned that the E-Rate participation rates are dropping, but the other programs are worse. I've mentioned that Lifeline only serves 28% of those eligible, and I'll bet the CAF has very low penetration rates among potential residential customers.  Side bonus: focusing on penetration would encourage the FCC to remove the barriers that are driving away E-Rate applicants.

"We also seek comment on combining the E-Rate and RHC program caps."  Um, no.  The caps should only be combined if the programs are combined.  Why should those 2 programs have to fight over the scraps left over after CAF busts the cap and the pain gets split between Lifeline and the E-Rate/RHC?  Another boiling frog budget cut.

"In other USF proceedings, some stakeholders have asked the Commission to reexamine the rules to better harmonize the USF program rules."  So instead of harmonizing the rules, you're going to combine budget caps?  No one asked for that.

"It is reasonable, therefore, to consider combining the caps to create additional implementation efficiencies and flexibility."  No, it isn't.

On to the Commissioners statements.
Commissioner O'Rielly:
"Since the fee is generally spread among consumers on an equal and agnostic basis, low-income households pay a far greater share of their income to the USF than their high-income counterparts."  Can I get a source?  It certainly could be true, but I'm not aware of any study on the relative telecom spending of low-income and high-income families.  If it is true, then someone at the FCC should look into why the Lifeline program is so ineffective....

"This NPRM initiates a dialogue...."  Who will take place in that dialog?  When is it my turn to discuss ideas with the Commission?  In my experience, an NPRM does not promote dialog.  The Commission has said it is considering some rules, stakeholders have 30 days to write comments (with another 60 days for reply comments), and then the Commission makes a rule.  If you want to start a dialog, post a Request for Comment before posting an NPRM.  An NPRM is the last step in the process before publishing an order.

"This NPRM’s proposed budget would NOT cut funding to Universal Service."  If it never limits USF funding, then it serves no purpose.  It makes no current cuts, just sets arbitrary limits on future growth.

"Certain special interest groups have claimed—incorrectly—that establishing an overall budget is a roundabout way to cut funding to the Lifeline program for low-income Americans." Guilty as charged.  Does that make me a "special interest group"?  I'm coming up in the world.  Who else is saying this?  Am I single-handedly "certain special interest groups"?

Commissioners Rosenworcel: "I do not support an approach that fosters the universal service hunger games."  Wait, would we get to meet JLaw at USAC trainings?

Commissioner Starks: "...the FCC should be focused on mapping not capping."  The Dems sure went for the sound bites, didn't they?

Me, I say the FCC should be focused on the "universal" part of Universal Service, by taking steps to increase participation.  Growing, not capping.