The Universal Service Fee - "Tax" - Hits a New High

The FCC’s Office of Managing Director has announced that the proposed universal service contribution factor for the third quarter of 2019 will be 24.4%, absent action by the Commission.

This is a new high for the USF fee that applies as a surcharge -- a tax, in effect -- to all interstate and international calls. In other words, a tax of 25%! The universal service programs won't be sustainable without meaningful reform.  

FSF President Randolph May on the State AG Lawsuit Against T-Mobile/Sprint Merger

The following statement regarding the proposed T-Mobile/Sprint merger may be attributed to Free State Foundation President Randolph May:

“The lawsuit filed by the Attorneys General of ten states to block the T-Mobile/Sprint is disappointing and misguided. It is noteworthy that all ten Attorneys General are Democrats, and that their counterparts in the other 40 states chose not to sign onto this unusual, if not unprecedented, maneuver.

Antitrust law should not be a matter of partisan politics or predilections, but rather a matter of adherence to widely accepted jurisprudential principles that know no party. The fact that all of the AGs bringing the lawsuit are Democrats is troubling but perhaps revealing.

In its essence, the principal focus of the AGs’ suit appears to rest on counting competitors rather than on assessing the impact of overall competition and consumer welfare. Because the proposed merger will make the combined T-Mobile/Sprint a stronger competitor to the top two wireless providers, it is likely to enhance competition — and consumer welfare — in the wireless market rather than reduce it. The lawsuit also errs in not taking into account the marketplace dynamics that dictate that the relevant market is broader than wireless providers only; it is a ‘ roadband' market that encompasses providers using various technological platforms, including cable, fiber, satellite, and combinations of these.

It may be that the Department of Justice itself has concerns with the proposed merger, and if so, that is the proper venue for consideration of the antitrust analysis that should take place and the state AGs surely can make their views known to the DOJ. In any event, most of the states, including those bringing suit, have little or no regulatory authority over wireless providers and little or no experience or expertise regarding the spectrum issues, including the prospects for 5G deployment, that are central to the merger’s rationale. The AGs should stand down.”

U.S. Policymakers Should Stick to Their 24 GHz Spectrum Band Plan

On June 3, the FCC announced winners in the successful auction of 5G-critical spectrum licenses in the 24 GHz band, raising $2 billion for the U.S. Treasury. Yet news outlets have reported on last-minute objections by agencies within the U.S. Department of Commerce to use of this spectrum that had been planned through a careful interagency process. U.S. policymakers shouldn't be deterred. It's important to the integrity of U.S. spectrum policy and to 5G deployment that the 24 GHz spectrum be used as planned. 

Rules regarding 24 GHz spectrum use were established through a five-year interagency process, and they are consistent with longstanding FCC standards limiting out-of-band emissions. Agencies in the Commerce Department have made claims, apparently without reliable and verifiable evidence, that 5G operations in the 24 GHz band could interfere with a weather sensor in an adjacent band. But their calls to change rules for the 24 GHz band, now echoed by some members of Congress, threaten the integrity of the interagency process and U.S. spectrum policy in international circles. Changes to rules would upend the investment-backed expectations of auction winners and hamper 5G deployment.

Indeed, there are many reasons to be skeptical of claims being made by NASA and Department of Commerce agencies NTIA and the National Oceanic and Atmospheric Administration (NOAA) about future interference with a single weather sensor. 

First, the claims by the Commerce Department agencies didn't timely persuade other agencies that were part of the 5-year interagency spectrum planning process. According to a March 8 letter to the Commerce Secretary and NASA Administrator by Chairman Ajit Pai: "For over two years, the studies produced by NOAA were never endorsed by either the FCC or NTIA due to outstanding technical concerns" and "[t]he interagency consensus was that these studies failed to demonstrate a need to tighten the international limits." Agencies may validly seek to influence policy based on alleged signal interference during the process but shouldn't do so after, when the FCC has already auctioned the spectrum. 

Second, Chairman Pai's March 8 letter pointed out: 

In order to settle the U.S. position, the FCC thus invoked the reconciliation process in light of our upcoming auction of the 24 GHz band—a critical band for the development of 5G services in the United States. Under that process, as you know, the Department of State becomes the arbiter—'breaks the tie' if you will—and determines the U.S. Government position. That is what happened here. The Department of State agreed with the FCC's approach, and that reconciled position is in fact documented. 

The State Department agreed with the FCC's approach, and that reconciled position is in fact documented." As the U.S. strives for a leadership role in 5G, a confused spectrum policy could undermine U.S. leadership in international venues, such as the International Telecommunications Union (ITU). The U.S. government's position ought to be communicated with one voice overseas.

Third, NASA and NOAA want ad hoc changes to out-of-band emission standards for the 24 GHz band. In other words, the dispute doesn't involve alleged interference according to existing standards. In fact, the rules established for the 24 GHz band are consistent with longstanding FCC standards limiting out-of-band emissions to protect passive services from high powered fixed services. Goalpost shifting is almost always suspect. And changes to the out-of-band emission standards would significantly reduce commercial service providers' ability to offer 5G, undermining the basis for their purchase of spectrum licenses. 

Fourth, when NASA and NOAA initially raised their last-minute objections to the planned use of the 24 GHz band, those objections involved a weather sensor, known as "the Conical Microwave Imager Sounder" that was neverdeployed. Rather, those agencies expressed concerns that out-of-band emissions from 5G operations would harm a weather sensor that was cancelled in 2006. 

Fifth, although Commerce Department agencies later raised still more last-minute objections, they appear unsubstantiated. For instance, the newer objections involve one of the weather sensors on a single satellite that reportedly is acknowledged to be much less susceptible to interference than the cancelled weather sensor. And in an April 29 letter to the Chairwoman of the House Committee on Science, Space, and Technology, Chairman Pai reiterated the Commission has never been presented with "a validated study" indicating operations consistent with existing out-of-band admissions standards would adversely affect existing use in the 24 GHz band, including weather forecasting. 

Technical engineering expertise isn't necessary to spot the credibility problems with these last-minute claims by Commerce Department agencies. They have offered too little, too late to justify pulling the rug out from under the interagency spectrum process.

Commercial providers made good faith pledges of $2 billion in spectrum license bids, and the federal government owes a pledge of good faith in sticking to its rules. U.S. policymakers should stay the course on the 24 GHz band and help ensure American competitiveness in the global race to 5G. 

Broadband Investment Increased in 2018

In a blog by Patrick Brogan, USTelecom has released its latest report in its ongoing series on broadband investment. Here's the lead: 

U.S. broadband provider capital investment increased by approximately $3 billion in 2018, continuing the positive momentum shift that began in 2017 when the FCC initially signaled its intention to restore a forward-looking regulatory framework for broadband.  According to a preliminary analysis of 2018 company data, USTelecom estimates that U.S. broadband providers invested approximately $75 billion in 2018, up from $72 billion the prior year.

This is good news for the American economy and for American consumers because it is robust investment by major broadband providers that enables the continuing increase in speeds and bandwidth that enable new services and applications.

While the amount of investment by Internet service providers is affected by various factors in any given year, it is noteworthy that the amount of investment by major broadband providers has increased each year since the FCC eliminated public utility-style regulation of ISPs.

There is more data and analysis in the blog. 

FCC Gives the First Amendment Its Due in Cable Leased Access Proposal

On June 6, the FCC will vote on a proposed order and rulemaking to modify its analog-era leased access rules, including its dispute procedures and rate formula. To its credit, the Commission factors First Amendment free speech protections into its proposed modifications of its leased access rules. Indeed, the Commission expressly recognizes that leased access requirements, which restrict the editorial and speech rights of cable providers, are constitutionally on shaky ground. This is an important point that Free State Foundation scholars have been making for several years. 

As I wrote in "FCC Over-Regulation of Video Services Undermines Free Speech, a 2012 Perspectives from FSF Scholars paper:

The Supreme Court's First Amendment jurisprudence holds that content-based restrictions are presumptively unconstitutional and that government is generally prohibited from telling speakers what they must say. But many of the FCC's regulations applicable to video service providers include access or forced sharing mandates. Some agency restrictions are even based on speech content. These continuing legacy regulations governing video services infringe upon the editorial choices of MVPDs. Court precedents recognize that MVPDs are entitled to First Amendment protection. The logic of the Court's relevant First Amendment decisions therefore renders significant aspects of current federal regulation of MVPDs' free speech constitutionally suspect. …The FCC's leased access regulations [] pose First Amendment problems. Under the statute, MVPDs lose "editorial control over any video programming" on the leased channel capacity. Rate controls constitute another facet of leased access regulations, which are another variety of forced access regulation. MVPDs are subject to FCC-set maximum amounts that independent video programmers can be charged for leasing channel capacity.  

Previously, legacy cable regulations, including leased access rules, were upheld under the intermediate scrutiny standard because of perceived cable video programming distribution bottlenecks in the early 1990s. Under intermediate scrutiny, speech of cable operators may be restricted so long as the regulation furthers an important government interest by means substantially related to further that interest. 

But by the time of my May 2011 blog post on ending legacy cable regulation we already were long past the days when cable operators possessed a 91% or more nationwide market share. And we already were long past the days when consumers' only option for subscription video services was a single local cable provider. Data from the Commission's Communications Marketplace Report (2018) reflect a video services ecosystem featuring competitive cable, direct broadcast satellite (DBS), and online platforms for video programmers to distribute content to consumers. As I summed things up in a February 2019 Perspectives paper:

For video services, the report found that at the end of 2017 all or nearly all U.S. consumers have access to three competing multi-channel video programming distributors (MVPDs). Some consumers had access to four. Furthermore, MVPDs lost subscribers to competing broadcast TV and – especially – to online video distributor (OVD) services. Whereas MVPDs lost 3.6 million video subscribers in 2017, a drop to 94 million, 16.6 million TV households (13.9%) relied exclusively on over-the-air (OTA) TV broadcast signals, up from 15.7 million TV households (13.2%) in 2017. Top three OVDs Amazon Prime, Netflix, and Hulu exceeded 125 million subscriptions in 2017, up from about 103 million in 2016. And "Virtual MVPDs" such as SlingTV and DIRECTV NOW climbed from 2.2 million subscribers to 4.8 million. 

In a June 2018 blog post titled "Improving the FCC's Cable Leased Access Proposal," I again pointed out that the old rationale for leased access rules no longer holds up. Therein I wrote that "the Commission should expressly identify the First Amendment problem posed by the leased access requirements in today’s competitive video market." Furthermore, I wrote: "If the Commission believes it is powerless to eliminate completely the leased access requirements, it should ameliorate the First Amendment problem," perhaps by predicating enforcement of its leased access rules on findings of market power.

Commendably, the Commission's proposed order and rulemaking states: "We agree that dramatic changes in technology and the marketplace for the distribution of programming cast substantial doubt on the constitutional foundation for our leased access rules." It goes on to say: 

[W]e now find that the First Amendment concerns raised by commenters provide additional reason to interpret the statutory obligations of Section 612 in a manner that reduces burdens on the speech of cable operators. We do so here by, among other things, eliminating the Commission rule requiring that cable operators make leased access available on a part-time basis.

The Commission's proposed order would vacate faulty 2008 rules that were never implemented and modify pre-2008 procedural requirements. And its proposed rulemaking would modify its leased access rate formula. Also, the Commission again asks if leased access requirements continue to withstand First Amendment scrutiny, and what discretion the Commission has to reduce the burdens on speech posed by those rules. By this admirable approach, the FCC rightly gives due respect to the First Amendment free speech interests that are burdened by leased access rules. 

More Momentum for New T-Mobile Following Hawaii Commission's Approval

It's been reported that Hawaii state regulators approved the proposed T-Mobile/Sprint merger. As it now stands, the proposed merger has received approval from 18 of the 19 purportedly required state public utility commissions (PUC). That leaves only California's PUC. To repeat what I wrote in a February blog post, California's PUC should promptly complete its review of the T-Mobile/Sprint merger.

Randolph May and I have described the potential 5G benefits of the pending deal in the Free State Foundation's initial public comments and other publications, including our Perspectives from FSF Scholars paper, "T-Mobile/Sprint Merger Offers Public Interest Benefits: Likely Presents a Fast Track to 5G." In that paper, we explained that the merger, if approved, would enable accelerate deployment of a nationwide 5G network. New T-Mobile would strongly challenge mobile wireless market leaders AT&T and Verizon, providing consumers and enterprises faster mobile broadband speeds, increased network data capacity, and lower per-megabit prices. 

Moreover, Sprint faces serious financial challenges. Absent the proposed merger, Sprint faces potentially significant future financial and competitive decline as a standalone provider. (See this blog post and FSF's reply comments for more on this point.)

Now that FCC approval of the proposed T-Mobile/Sprint merger (with conditions) has been signaled by Chairman Ajit Pai and two other commissioners, the U.S. Department of Justice ought to provide its approval, and soon. As FSF President May was quoted in TR Daily on May 19:

[W]ith the new commitments that T-Mobile/Sprint have now offered, the case for concluding there are public benefits from the merger has become even stronger. There is an imperative that the U.S. lead the world in the race to deploy 5G networks, the super-fast next-generation of wireless networks. And there is also an imperative that high-speed broadband be accessible more ubiquitously to rural Americans. The new T-Mobile-Sprint conditions should help the U.S. achieve both of those imperatives… I hope the FCC and the Department of Justice will move forward now with dispatch in completing their merger reviews.

FCC's Proposed Update to Over-the-Air Device Rule Would Boost 5G

The FCC is taking public comments on its proposal to facilitate 5G fixed wireless infrastructure by updating its rules for over-the-air-reception devices (OTARD). If adopted, the Commission's OTARD modernization proposal could clear away obstacles to placement of small fixed wireless infrastructure that is vital to deploying next-generation services. 

Based on Section 207 of the Telecommunications Act of 1996, the Commission's OTARD rule prohibits State and local governments as well as private entities such as neighborhood and condo associations from imposing restrictions on installation, maintenance, or use of over-the-air reception devices. The rule applies antennas installed "on property within the user's exclusive use or control" or on property where the user has an ownership or leasehold interest. 

A 2000 order by the Commission applied the OTARD rule to antennas used for fixed wireless signals, but it expressly excluded "hub or relay antennas." The Commission's proposal would "extend the OTARD rule to cover the hub and relay antennas that previously were excluded from the OTARD framework."

Correctly, the Commission's proposed rulemaking recognizes: "The wireless infrastructure landscape has since shifted toward the development of 5G networks and technologies that require dense deployment of smaller antennas across provider networks in locations closer to customers." Sensibly, the Commission anticipates that its proposal, if adopted, would "allow fixed wireless providers to deploy hub and relay antennas more quickly and efficiently" and "help spur investment in and deployment of needed infrastructure."

The Commission's OTARD modernization proposal constitutes an important step in ensuring rapid deployment of 5G to all Americans and in furthering the U.S. position in the global race to 5G. The Commission should proceed full speed ahead on its worthy OTARD proposal.