Furchtgott-Roth Slams FCC for a ‘Terrible Set of Rules’ on Broadband

The FCC’s regulation of rural broadband is akin to the taxation of the British government two and a half centuries ago, said Harold Furchtgott-Roth, former FCC commissioner and head of the Hudson Institute’s Center for Economics of the Internet. “Today the situation is eerily similar,” he said at a Hudson Institute panel on rural telecommunications Monday. His comparison kicked off a series of scathing critiques among panelists of how FCC policy contributed to the U.S.’s rural broadband divide. “Flat out, it’s a terrible set of rules that they came up with,” Furchtgott-Roth said of the FCC’s USF/intercarrier compensation order of November 2011.

Today’s rural broadband gap will result in a huge economic “loss of opportunities,” said a Hudson Institute white paper (http://xrl.us/bnub83) released at the event. There’s the “particularly American problem” of low population density, which creates high costs to serve those rural Americans, said paper author and Hudson Institute Visiting Fellow Hanns Kuttner in a presentation preceding the panel. The U.S. is 81 percent urban and 19 percent rural but the rural fraction suffers from slower speeds, he said. His presentation compared the download speeds available in rural and urban areas, showing a sharp disparity. “We need to be thinking about future uses,” he said, describing ways rural communities can financially benefit in the fields of education, healthcare and e-commerce with better broadband. He talked of “the evolution of agriculture in a cyber-physical system,” with tractors capable of assessing the needs of different crops.

The panel following Kuttner’s presentation included strong critiques of current FCC policy. The U.S. needs to “migrate to a broadband-centric support world” and away from voice, argued Larry Thompson, CEO of rural-focused engineering and consulting company Vantage Point Solutions. Unless that changes, he predicted, there will be “a slowing of the rural broadband deployment.” The real rural broadband obstacle isn’t technical but financial, he said, advocating public commitments similar to what followed the 1934 Communications Act, he said. “The reality is the [FCC] Order still keeps [providers] in a voice-centric world,” he said. The FCC “largely ignored” stakeholders despite engaging them in discussions, he said. Former Rural Telecom Congress President Greg Laudeman encouraged more public-private partnerships. Players “sitting on the sidelines” will need to step up, he said, pointing to both the tech industry and the universities. Many community leaders don’t yet understand how to utilize the new technology, according to Laudeman. A “learning environment” is necessary, and “if you gain that knowledge, you're going to create that demand,” he said.

British occupation of America, like the FCC’s actions today, was “the catalyst” for an “interruption of fundamental economic signals in the market,” Furchtgott-Roth said. The British government’s goal “was not to punish the American colonies, it was not to harm rural America,” with their actions despite causing harm, he said. He described federal actions today that disproportionately impact rural residents in many sectors, from energy to telecom. “But there are people distant -- whether in rural America today or in the colonies 250 years ago -- who look at these rules and they scratch their heads and they say ‘Why? Why are we doing this?'”

The FCC’s USF methodology will create uncertainty and other problems, panelists said. “There’s something wrong in America,” Furchtgott-Roth said, citing telephone companies that have to hire economists to deal with a quantile regression analysis model that “changes by the quarter or the year.” “Is this the way to run a government?” he asked. “I don’t think so.” He called the methodology “regulation at its worst” and said he’s “mystified as to how the Commission came up with its results.” Other panelists agreed. “No one’s sure if they're going to be able to repay their loans,” Thompson said. “The punishment doesn’t fit the crime.” He said the FCC reform will accelerate the decline in support and help widen the broadband gap between urban and rural Americans. Laudeman called current FCC rules “a huge barrier to innovation.” NARUC, USTelecom and NTCA have all voiced objections to quantile regression throughout the past year, and NARUC called this fall for the methodology’s suspension (CD Oct 9 p2). “The user fee is too big,” Furchtgott-Roth said of the $8-billion USF fund, which has what he called a “completely broken” collection mechanism that should have been fixed years ago.

Current U.S. broadband efforts fall short and the country likely faces a widening gap, panelists said. The $7.2 billion stimulus “wasn’t substantial enough to make a big difference,” Thompson said. Furchtgott-Roth criticized the “extraordinarily complicated application process” of NTIA’s Broadband Technology Opportunities Program. There was “a very good set of intentions” with the stimulus but “a lot of counterexamples, unfortunately,” to success, he said. The funds have been a “classic example” of a “leaky bucket,” said Laudeman. Panelists didn’t see any immediate game-changing technology that would speed broadband deployment and also spoke of changes to come. “The reality is you need the fiber in the ground,” Thompson said, which he said was a cost “heavily dictated by” the labor involved. The current standard of 4 Mbps “will not be remotely enough” for future years, said Foundation for Rural Service Executive Director Elizabeth Crocker.

The challenges of deploying broadband to rural communities are “reflective of the economic history of the United States,” Furchtgott-Roth said. The U.S. economy has historically been large and with great resources but “with a great shortage of capital and a great shortage of labor,” as he described it. “When the government erodes property and contract rights, when the government decides to make decisions in Washington, all Americans suffer,” he said, but rural Americans “suffer the most” when rights are eroded. Market forces are the ideal economic drivers, Furchtgott-Roth said.