Thursday, August 27, 2009

Stimulus Strings Tied to Uncertainties

Recent news and commentary have highlighted large incumbent broadband providers' apparent disinterest in federal stimulus dollars. But it's hardly surprising that large incumbents would forego federal broadband grants. Given current and projected private investment in broadband infrastructure, why would anyone expect large broadband providers to suddenly subject themselves to the administrative and legal uncertainties that come with federal stimulus dollars? And why would they want to invite media and public criticisms that would certainly follow from taking taxpayer dollars? One can't read the minds of broadband provider execs, and any number of factors could be playing into their decisionmaking. However, regulatory uncertainties surrounding the broadband grant program and public anti-stimulus sentiment are likely to be contributing factors to the major broadband providers' pass on federal dollars.

The incumbent providers are making broadband investments with their own money and based on their own best judgments about how to provide service in the marketplace. As many stories point out, these broadband providers are investing annually billions of their own dollars into broadband infrastructure. It's estimated that broadband providers have invested over $200 billion in broadband deployment in recent years. This means they’re investing billions and billions more than the entire $7.2 billion federal stimulus appropriation.

Attached to federal stimulus dollars for broadband are statutory conditions governing network management that include 'nondiscrimination obligations.' Those statutory conditions have been interpreted expansively by the National Telecommunications and Information Administration (NTIA) and the Rural Utility Service (RUS) so that 'nondiscrimination obligations' go beyond the Federal Communications Commission's (FCC) 2005 'Broadband Policy Statement' by mandating a so-called 'non-discrimination condition' that prohibits the favoring of any lawful Internet applications or content over others. The literal letter of these new rules might be interpreted to prohibit innovative attempts by broadband providers to more efficiently manage their networks through flexible billing options that tie consumer prices to amount of usage. But the new rules could reach even further into network management practices. Through administrative action, the FCC could conclude that a particular broadband provider’s network management techniques do NOT fit with 'reasonable network management practices.' (The FCC is the primary venue for hearing complaints alleging non-compliance with the broadband grant program’s requirements.) Uncertainties arise from the fact that the FCC has little or no precedent in interpreting and applying its 'Broadband Policy Statement.' And the 'non-discrimination condition' contained in the NTIA/RUS rules gives the FCC an added new hook to rely on.

Through administrative interpretation and enforcement actions, agencies can routinely impose expansive new obligations on private parties without clear pre-existing rules. Arguably, the FCC did precisely this in its recent attempt to impose network management requirements on Comcast concerning peer-to-peer traffic. Without any official rulemaking or any administrative adjudication of the facts, the FCC declared the 'voluntary principles' of its 'Broadband Policy Statement' to be enforceable regulations, and then immediately held Comcast to be in violation. The net result of all this is regulatory uncertainty piled upon regulatory uncertainty, compounded by more regulatory uncertainty. Such and atmosphere of uncertainty could hardly make participation in the broadband grants program more appealing to broadband providers.

Another contextual factor to keep in mind concerning the federal broadband stimulus is the media scrutiny and public outrage over the spending activities of major financial and auto execs whose companies were receiving federal bailouts. America is still in the grips of the Great Recession and a bailout backlash sentiment still exists. Surely, no company wants decidedly negative headlines each time its CEO takes a trip on a private jet that the press, public opinion, and political officials all view as being fueled by federal stimulus dollars. Banks and broadband are apples and oranges, but people recognize the distinction between government and private industry. When private competitors forego federal funds, any perks lavished on their execs are the shareholders' problem. But when private competitors do take federal funds, the shareholders' problem becomes reasonably viewed as the taxpayers' problem. I don't know for sure, of course, but it is certainly plausible that a broadband provider would take these kinds of concerns seriously when considering the broadband grants program. Accordingly, a large broadband provider could simply see its current and existing private investment in broadband deployment as the safer path.

NTIA and RUS acknowledge that the eligibility rules for the broadband grant program and its implementation are works in progress that will be adjusted as the process goes along. Both agencies have received some 2,200 broadband grant applications, with smaller private businesses or municipal broadband providers actively seeking federal dollars. But uncertainties surrounding the regulatory mandates accompanying implementation of the program and consideration of public opinion are two factors that hardly seem favorable to large, incumbent broadband provider buy-in.