FCC Report Reconfirms the Reality of Wireless Innovation and Competition

On Friday, March 21 the FCC released its 16th Wireless Competition Report. Information and estimates compiled in the new Report cover the course of wireless innovation and competition since 2010. Report descriptions and data regarding wireless products and services put into concrete terms what anyone paying attention to the wireless market would already know; namely, the wireless market is indeed "effectively competitive."

Wireless market providers continue to create and make available to consumers new products, services, and pricing choices, with consumer prices decreasing in many instances. Meanwhile, the wireless market is characterized by heavy private investment, infrastructure deployment, and network upgrades. All this is spurring job creation, cutting business costs, and increasing workplace productivity to benefit the entire economy.

Dynamic markets like wireless are the success stories of free market enterprise. And their vibrancy is best preserved by a minimal regulatory environment.

Consider the following dozen indicators of wireless marketplace innovation and competition, as revealed in the FCC's report:

• Consumer choice among mobile service providers prevails. As of October 2012, 99.3% of the population is served by 2 or more mobile voice providers, 97.2% by 3 or more, 92.8% by 4 or more, and 80.4% by 5 or more. Additionally, as of October 2012, 97.8% of the population is served by 2 or more mobile broadband providers, 91.6% by 3 or more, 82% by 4 or more, and 68.9% by 5 or more.

• Mobile subscriptions continue to climb. "[A]t the end of 2011 there were 298.3 million subscribers to mobile telephone, or voice, service, up nearly 4.6 percent from 285.1 million" from a year before. Also, "there were 142.1 million subscribers to mobile Internet access services at speeds exceeding 200 kbps in at least one direction, up from the 97.5 million were reported for the end of 2010, and more than double the 56.3 million reported for year-end 2009."

• Upgrades to next-generation broadband wireless networks are proceeding. As of November 2012, "[Verizon's] LTE network covered more than 250 million POPs," with "[p]lans to expand LTE nationwide in 2013." As of November 2012, "[AT&T's] LTE network covered 150 million POPs," with "plans to deploy LTE to…250 million POPs, by the end of 2013, and to 300 million by the end of 2014." Also, "[a]s of September 2012, [Sprint's] LTE service is offered in 19 cities and plans to deploy LTE to 100 additional cities within the next several months and to complete LTE build-out by the end of 2013." The FCC's order approving the T-Mobile/MetroPCS merger was based, in significant part, on the post-merger potential to further LTE deployment. And providers such as Clearwire, Leap, U.S. Cellular, and C-Spire already have 4G services available, with further expansions underway.  

• Wireless-only households are increasing even more. "As of the second half of 2011, just over one-third, or approximately 34 percent, of all U.S. households were wireless only, up from 29.7 percent in the second of 2010 and 24.5 percent in the second half of 2009." And that number should be expected to continue its upward trajectory since "[a]pproximately half of all adults aged 18-24 and aged 30-34 lived in wireless-only households, while nearly 60 percent of adults aged 25-29 did so."

• Smartphone consumers now a growing majority. "[A]mong those who acquired a new cell phone in the second quarter of 2012, 67 percent opted for a smartphone, up from 30 percent in the fourth quarter of 2009. As of the second quarter of 2012, 55 percent of U.S. mobile subscribers now own smartphones."

• Consumer mobile data consumption is sharply increasing. Average consumer data consumption rose to 500MB/month at the end of 2011, up from over 200MB/month in 2010 and 150MB/month in 2009. For that matter, "mobile data traffic more than doubled from 226.5 billion MB in the last six months of 2010 to 525.7 billion MB in the second half of 2011."

• Consumer prices have seen decreases. Voice revenue per minute "has declined over the past 18 years, from more than $0.40 to the current $0.05," according to one estimate. Moreover, "the effective price per megabyte of data declined from $0.47 per megabyte in the third quarter of 2008 to about $0.05 per megabyte in the fourth quarter of 2010, which is roughly an 89 percent decrease."

• Private investment is sizeable and also increased. 2010 capital investment by wireless providers totaled between $23 and $25 billion, marking double-digit increases in investment from the year before. Those numbers exclude investment in spectrum licenses.

• The number of wireless apps continues to surge. U.S. consumers had access to over 1 million wireless apps by mid-2012. In addition, the "[t]otal number of applications downloaded from Apple’s App Store grew from 100,000 in 2008 to 25 billion in March 2012. By October 2012, Google Play for the Android operating system offered over 675,000 applications and had more than 25 billion total downloads.

• M-commerce services are growing. Although "[m]aking payments by mobile phone is not yet a mainstream payment method due to lack of awareness," "[p]aying-by-phone is playing a growing role in transactions made by U.S. consumers." In particular, "[a]bout 13 percent of U.S. bank account holders regularly use mobile banking services. As of August 2012, 61 percent of these mobile banking customers used their mobile devices to check transaction histories, 45 percent to check balances, and 31 percent to transfer money between accounts." Also, "in June 2012, 45 million smartphone owners accessed applications in the shopping and commerce category, an average of 17 times."

• Wireless infrastructure is expanding. "[T]otal cell sites in use by CTIA’s members was 283,385 as of year-end 2011. This represents an increase in the number of cell sites of 12 percent since December 31, 2010, of 15 percent since December 31, 2009, of 54 percent since December 31, 2005, and of 61 percent since December 31, 2004." This build-out is critical to ensuring upgrades to next-generation wireless networks. And "as infrastructure improves, transaction costs for businesses fall, including the costs of ordering, gathering information, and searching for services."

• Wireless continues to benefit the overall economy. "U.S. wireless providers directly employed 238,071 workers at the end of 2011, up from 184,449 in 2000, yielding an average job creation rate of around three percent per year," and "the mobile app economy employs an additional 466,000 workers." Also, "in 2011, the wireless industry accounted for $33 billion in productivity gains for U.S. businesses." Plus, "the wireless industry was responsible for 3.8 million U.S. jobs in 2011, directly and indirectly, and accounted for 2.6 percent of all U.S. employment."

Like its two predecessors, the 16th Wireless Competition Report "makes no formal finding as to whether there is, or is not, effective competition in the industry." Supposedly, "the complexity of the various inter-related segments and services within the mobile wireless ecosystem" is the reason for the FCC's non-conclusion. But that explanation is unconvincing. The tremendous growth in the wireless market's sophistication and intricacy points to the market's dynamism and competitiveness. (I made this point more extensively in prior Perspectives papers on the FCC's 14th and 15th Wireless Competition Reports, respectively.)

Most important, the FCC must preserve the minimal regulatory environment in which wireless has thrived. That was the basic point of my chapter on wireless policy in Communications Law and Policy in the Digital Age.

Among other things, preserving a minimal regulatory environment means keeping common carrier-like regulations away from wireless voice and broadband services as well as devices, operating systems, and applications. It also means eliminating regulatory barriers to deploying infrastructure. And the FCC must work to foster a light-touch regulatory environment for wireline services and fixed mobile functionalities that will increasingly work in tandem with wireless to offer consumers greater reliability and cost-effective services. The Report, for example, referenced expected adoption and use of new technologies such as small cells and seamless Wi-Fi offloading.

For that matter, the Report's findings, hopefully, should end calls for regulation of handset exclusivity business agreements between wireless handset manufacturers and service providers. Notwithstanding the Report's observation that Apple's iPhone exclusivity deal with AT&T ended in 2011, "[d]uring June 2011, 20 handset manufacturers offered a total of 297 handset models to mobile wireless service providers in the United States." This prompted the FCC to conclude that "[i]nnovative smartphones are available at a variety of price points and with both post-paid and pre-paid service plans."

A simple comparison of the wireless consumer experience from a dozen years go with today's experience should be reason enough for recognizing the dynamism of the wireless market. In that time, the market has transitioned from analog, voice-centric service to a digital, broadband-centric multimedia service of increasing sophistication and variety. Still, assembling the positive data points into a single report drives home the progress that wireless continues to make.

All told, the 16th Wireless Competition Report reconfirms the commonsense conclusion that the market for wireless services is effectively competitive. The task for Congress and the FCC is to ensure that a free market devoid of impediments exists to best ensure that the maximum benefits of the wireless market are bestowed upon consumers in the years ahead.

 

See Videos of Senator Rubio and Commissioner Pai from FSF's Fifth Annual Conference

Now available online is the video of Senator Marco Rubio's Keynote Address at FSF's Fifth Annual Telecom Policy Conference on March 21. It can be found at FSF's YouTube page and it's also embedded below.



The text of Senator Rubio's Keynote can be found here.

In addition, the YouTube video below features FSF President Randolph May's conversation with FCC Commissioner Ajit Pai at FSF's Fifth Annual Telecom Policy Conference.

FCC Preserves the Path for Future Spectrum Auctions

On March 20, Chairman Julius Genachowski sent a letter notifying NTIA that the FCC "plans to commence the auction of licenses in the 1695-1710 MHz band and the 1755-1780 MHz band as early as September 2014." The Chairman's letter also expresses that the FCC's will perhaps pair that band with the 2155-2180 MHz band. This is a positive step forward in the FCC's ongoing effort to prepare additional spectrum for commercial use on both a licensed and unlicensed basis.

As the Chairman's letter explains, the Jobs Act requires the Commission to notify NTIA at least 18 months prior to the commencement of any auction of eligible frequencies. Congress also gave the FCC until February 2015 to auction the 1695-1710 and 2155-2180 MIHz bands. Wrote the Chairman: "we include the 1755-1780 MHz band in this notice to preserve the possibility of auctioning it with the 2155-2180 MHz band."

The Chairman's letter acknowledged an NTIA advisory committee's proposal for repurposing some of the spectrum at issue from federal government use to shared governmental and commercial use. But that proposal is not set in stone. Accordingly, spectrum policymakers should make all possible efforts to prefer licensing of spectrum on an exclusive basis over commercial sharing arrangements with government agencies.

Applauding Chairman Genachowski's letter, Commissioner Ajit Pai drove this point home in a public statement: "I continue to believe that we should aim to clear and reallocate the 1755–1780 MHz band rather than forcing federal users and commercial operators to undertake the complicated, untested task of spectrum sharing."

In a Perspectives from FSF Scholars paper from earlier this month, I acknowledged the importance of making unlicensed spectrum available for suitable bands. But at the same time, I concluded that licensing spectrum for exclusive commercial use is far better than spectrum sharing arrangements between governmental and commercial users:

Putting repurposed spectrum to its highest commercial use calls for heavy investment by carriers in next-generation wireless broadband networks. The certainty and incentives required for such multi-billion dollar investments are best supplied by spectrum licenses for exclusive use. Arrangements for the private sector and government agencies to share spectrum might be a useful transition tool. But proposals for such sharing now appear prevalent enough that, if adopted, they would undermine the goal of the current undertaking to repurpose spectrum.

Smartphone and Tablet Trends Spotlighted in Report on Wireless

comScore's "Mobile Future in Focus 2013" is a compact distillation of recent breakthroughs in wireless technologies and emerging wireless consumer behavior patterns. 

Insights into the growth and usage patters of smartphone and tablet device market segments are especially critical to understanding what's happening in the wireless market. As comScore's report points out, in 2012 smartphone adoption surged nearly 30%, to 120 million-plus consumers. Meanwhile, "tablets emerged as one of the fastest devices in history to reach nearly 50 million owners." In so doing, tablets "already achieved a level of adoption in three years that it took smartphones nearly a decade to reach." 

The report also offers informative overviews of mobile operating systems (OS) adoption, mobile applications usage trends, and multi-platform media consumption by consumers. Some implications of these dramatic changes are sketched in the conclusion. 

In all, "Mobile Future in Focus 2013" is a worthy read on the dynamic wireless market and what it may hold for tomorrow.

Completing the Transition to a Digital World

With the Free State Foundation's March 21st Fifth Annual Telecom Policy Conference just days away now, naturally I've been doing a lot of thinking about the conference and its theme – "Completing the Transition to a Digital World: How to Finish the Job and Why It Matters." 

I acknowledge that, in many ways, there is significant overlap between this year's theme and that of the two preceding conferences. The Third Annual Conference theme was, "Broadband Policy: One Year After the National Broadband Plan," and the Fourth Annual Conference's was, "The Internet World: Will It Remain Free From Public Utility Regulation?" 

So, getting the right policies in place for broadband networks and the Internet has been the principal focus for the last few years, and even before. And rightly so. But with this year's theme – the emphasis is on "Completing " – I hope to invoke a greater sense of urgency as to why the U. S. needs to finish the job. 

Almost three years ago to the day, the FCC's National Broadband Plan was released.  It recognized that requiring incumbents to maintain two networks – the legacy analog networks that were built for POTS [Plain Old Telephone Service] and new digital broadband networks – "siphon[s] investments away from new networks and services." Thus, the Plan recommended that the Commission initiate a proceeding to "ensure that legacy regulations and services did not become a drag on the transition to a modern and efficient use of resources." Accordingly, the Commission needed to "start considering the necessary elements of this transition in parallel with efforts to accelerate broadband adoption and deployment." [The Plan's Executive Director, Blair Levin, now a Fellow at the Aspen Institute's Communications and Society Program, will deliver closing remarks at this Thursday's conference.] 

Last November, AT&T filed a petition with the Commission asking the agency to launch a proceeding "to facilitate the 'telephone' industry's continued transition from legacy transmission platforms and services to new services based fully on the Internet Protocol ('IP')."  The Commission has done so, comments and reply comments have been submitted, and today the agency is holding a "Technology Transitions" workshop. 

This is all well and good, even commendable. And I don't want to be a scold. But truth be told: The Commission still is behind the times, still beset by a twentieth-century regulatory mindset. 

There must be a greater sense of urgency for reform. 

After all, as I have pointed out before, it was in December 2000 when then-FCC Commissioner Michael Powell (subsequently FCC Chairman and now President of the National Cable & Telecommunications Association) delivered his stirring call to action regarding what he called "The Great Digital Broadband Migration."  Mr. Powell articulated the challenges facing policymakers in light of the "the great technological migration" from narrowband to broadband, from analog to digital, that already had begun: the need to focus on innovation incentives; to implement deregulation of competitive markets; to rationalize the regulatory structure to account for the "bit is a bit" phenomenon; and to improve regulatory procedures to make agency decision-making more efficient. 

And, in the context of urging the Commission to reform its regulatory process, Mr. Powell bluntly declared: "Our bureaucratic process is too slow to respond to the challenges of Internet time." In my judgment, this has not changed in the ensuing dozen years." [I bet Michael Powell agrees with me. But, if not, he will be participating at this Thursday's conference, and he can say so.] 

There must be a greater sense of urgency for reform. 

As most of you know, Senator Marco Rubio is delivering a keynote address, in which he is expected to focus on his telecommunications priorities, including Internet policy and governance and spectrum policy issues. And I will conduct an informal, wide-ranging conversation with FCC Commissioner Ajit Pai. [Note this program change: Due to an unavoidable scheduling conflict, Senator Rubio now will be speaking at 1:00 PM, during the lunch session, and my conversation with Commissioner Pai will begin at 9:00 AM, immediately after my welcome and introduction at 8:50 AM. The agenda with the revised schedule is here.] 

In addition to the keynote sessions with Senator Rubio and Commissioner Pai, and Blair Levin's closing remarks, there will be three panels of prominent experts in which all of today's important communications policy topics will be discussed. I'm sure the panelists will be delving into the details of topics ranging from the IP-Transition to net neutrality, from program carriage requirements to retransmission consent disputes, from program access mandates to special access controversies, from data caps to spectrum caps, from USF reverse auctions to spectrum forward auctions, and much more. I'm confident that, however much you already know, or think you know, you'll learn a lot more. I always do. 

But amidst all of the nitty-gritty policy details that will be addressed, I hope you will think along with me about how the discussion relates to the bigger picture – how the conversation fits into the overall theme of "Completing the Transition to a Digital World," and into the frame of the larger, fundamental questions still confronting policymakers who too often are still hobbled with an analog-era mindset. 

These larger, fundamental questions include: 

•   Will Internet service providers in the digital broadband world remain free from the legacy, public utility-style regulations that characterized narrowband service providers in the analog world, or will today's digital broadband services be subjected to public utility-style regulation, through the imposition of net neutrality mandates or otherwise? 

•                Or, the same question, put more directly in a frame posited by Susan Crawford in her new book, "Captive Audience": Will today's digital cable operators and other broadband operators be regulated under a "utility model" – her words – in the very same manner as twentieth century electric utilities and nineteenth century railroads? 

•                Or, the same question, put in a slightly different frame in light of a report issued just last week by a French government advisory panel recommending that net neutrality regulations be applied not only to Internet service providers but also to search engines and social networks: Will net neutrality regulations in this country inevitably be extended to reach dominant search engines and social networks, especially in light of the fact that many of the pro-regulatory forces in this country look favorably upon European regulatory models?  

•                In today's competitive broadband marketplace environment fostered by digital technologies, when consumers have an abundance of news, information, and entertainment choices, will cable, telephone, and satellite video providers, finally enjoy the same First Amendment free speech rights as the print media, or will they continue to be treated as second class citizens for First Amendment purposes?

•                 In an environment in which spectrum constraints, fueled by ongoing exponential growth in wireless broadband usage for video and other high-bandwidth applications, are widely acknowledged, will the Commission adopt more free market-oriented spectrum policies characterized by flexible use, unencumbered auctions, and facilitation of secondary market transactions, or will the agency retain traditional command-and-control rules designed to micro-manage markets?

The way in which policymakers answer these fundamental questions – and all the questions subsumed under them – will impact, for better or worse, all American consumers and the nation's social and economic well-being. At the Free State Foundation, we firmly believe the answers to the questions properly are to be found in a commitment to free market-oriented, property rights-protective, and First Amendment-friendly principles. Whatever your own beliefs, however, I am confident you will find the sessions at FSF's Fifth Annual Telecom Conference not merely interesting and informative, but stimulating and lively.    

I hope to see you on Thursday. The current agenda is here. Again, please note that my conversation with Commissioner Pai will begin at 9:00 AM and Senator Rubio will deliver his keynote address at 1:00 PM. 

Registration is complimentary, but you absolutely must register to attend. If you haven't already, you may register here. 

BTW, the Twitter handle for the conference is: #FSFconf 

FCC Opts for Delay over Deregulation in Forbearance Process

The FCC's forbearance process has sadly proven more prone to delaying action than deregulatory action. Too often the FCC takes too long to rule on forbearance petitions. This reluctance to forbear from enforcing legacy voice regulations becomes less and less justifiable as the broadband era progresses and as the free market offers consumers more and more product and service choices.  

Orders issued by the FCC in February on forbearance petitions by USTelecom and CenturyLink are the latest reminders of the regrettable near breakdown of the regulatory forbearance process. Both proceedings have been beset by delays. In both instances the FCC has consumed its year-long statutory shot clock for ruling and then granted itself 90-day extensions.

The 1996 Telecom Act obligates the FCC to deregulate whenever circumstances satisfy Section 10's forbearance criterion. That is, the FCC must forbear from applying any telecommunications law or regulation if it determines that enforcement is not necessary to ensure that charges are just and reasonable nor necessary to protect consumers, and if it determines that forbearance is consistent with the public interest.

Congress attempted to add teeth to Section 10 by including a shot clock. If the FCC fails to respond to a forbearance petition within one year's time, or fifteen months if the agency grants itself a three month extension, the petition "shall be deemed granted" by operation of law.

But as I explained in my Perspectives from FSF Scholars paper, "Delaying Deregulation: Forbearance at the FCC," rulings on petitions are too frequently rendered after the end of the one-year shot clock, and at or near the end of the 90-day extension. Such delays are strongly suggestive of the agency's general aversion to the exercise of its forbearance obligation. Now consider two new cases in point.

On February 28, the FCC finally released an order on USTelecom's forbearance petition involving 17 categories of legacy voice service regulations. USTelecom filed its petition on February 12, 2012. The FCC sat on the petition for a year's time and granted itself an extension on February 2, 2013. The February 28 order, however, was limited to granting relief from only two-and-a-half regulatory provisions, including its § 64.1 traffic damage claim rules. According to the order: "Adopted in 1936 by an order of the Commission’s Telegraph Division, section 64.1 was originally intended to address issues with claims against telegraph carriers arising from errors in, or delayed delivery or non-delivery of, messages and money orders. Today, telegraph service is obsolete." That is, it took over a year's time to grant forbearance relief regarding some very old regulations where no party raised any specific objections. In any event, USTelecom's petition remains pending regarding several remaining regulations.

And on February 22, the FCC issued an order granting itself a 90-day extension to consider a CenturyLink's petition. CenturyLink seeks forbearance relief from enforcement of legacy regulations with respect to its enterprise broadband services. Its petition was filed with the FCC back on February 23, 2012. In prior blog posts, FSF President Randolph May and I have written about the strong case to be made for granting CenturyLink's forbearance petition regarding broadband enterprise services.

Unfortunately, lack of timely action on both USTelecom's petition and CenturyLink's petition are part of a repeating pattern of FCC delay and resistance to forbearance relief. For evidence of this pattern, consider the following dozen-plus instances from recent years. In every instance below the FCC used up its entire one-year shot clock in considering forbearance petitions and used nearly all 90 days of its self-granted extensions:

• SBC Title II IP-Platform Order (2005) – denying forbearance from Title II regulations as applied to IP Platform Services (petition filed: Feb. 5, 2004; order released: May 5, 2005)
  
  
• Qwest Omaha Order (2005) – granting in part and denying in part forbearance from certain section 251 and other obligations in the Omaha, Nebraska Metropolitan Statistical Area (MSA) (petition filed: Jun. 21, 2004; order adopted: Sept 16, 2005; order released: Dec. 2, 2005)
  
  
• Verizon Computer Inquiry Petition (2005-6) – taking no agency action, the Commission issued a news release announcing that the petition had been granted by operation of law regarding requested relief from Title II requirements or Computer Inquiry rules (petition filed: Dec. 20, 2005 ; deemed granted: Mar. 20, 2007)
  
  
• Verizon 6 MSA Order (2007) - denying forbearance from dominant carrier, Computer III, and UNE regulations in 6 MSAs (petitions filed: Sept. 6, 2006; order released: Dec. 5, 2007)
  
  
• ACS UNE Order (2007) - granting certain conditional forbearance from unbundling obligations in wire centers in the Anchorage, Alaska study area (petition filed: Sept. 30, 2005; order adopted: Dec. 28, 2006; order released: January 30, 2007)
  
  
• ACS Dominance Order (2007) - granting in part, subject to conditions, certain forbearance from dominant carrier regulation in Anchorage, Alaska (petition filed: May 22, 2006; order released: Aug. 20, 2007)
  
  
• AT&T/BellSouth Computer Inquiry Order (2007) – granting forbearance from Title II requirements or Computer Inquiry rules (petition filed: Jul. 13, 2006; order released: Oct. 12, 2007)
  
  
• Embarq Computer Inquiry Order (2007) - granting forbearance from Title II requirements or Computer Inquiry rules (petition filed: Jul 26. 26, 2006; order released: Oct. 24, 2007)
  
  
• Qwest Terry Order (2008) - granting certain forbearance from dominant carrier and UNE obligations in the Terry, Montana exchange (petition filed: Jan. 22, 2007; order released: Apr. 21, 2008)
  
  
• Qwest 4 Order (2008) - denying forbearance from dominant carrier, Computer III, and UNE regulations in 4 MSAs (petitions filed: Apr. 27, 2007; order released: Jul. 25, 2008)
  
  
• Verizon New England and Rhode Island Petitions (2008-9) – closing proceeding involving requested relief from dominant carrier, Computer III, and UNE regulations in two MSAs following Verizon's withdrawal of petitions a few days before the end of the Commission's extension period (petitions filed: Feb. 14, 2008; petitions withdrawn: May 12, 2009)
  
  
• Qwest Phoenix MSA Order (2010) – denying forbearance from dominant carrier, Computer III, and UNE regulations (petition filed: Mar. 24, 2009; order released: Jun. 22, 2010)
  
  
• NCTA Section 652 Order (2012) – granting, in part, forbearance from Section 652 requirements (petition filed: Jun. 21, 2011; order released: Sept. 17, 2012)

These examples demonstrate how the Congressionally-imposed shot clock for ensuring prompt deregulatory action has been turned on its head and is now a license to delay action. Many of the orders above were subject to serious legal challenges, and in some cases FCC rulings denying relief were overturned and remanded. Substantial delays have even preceded instances where the FCC finally acceded to forbearance relief.

It shouldn't be this way.

In today's digital environment, innovation and competition in the free market for broadband services are more attuned to consumer welfare than regulations addressed to an older and increasingly obsolete generation of voice services. These dynamic market changes call for more promptness in considering forbearance petitions, at the very least. Also, the FCC purports to be serious about facilitating the transition to next-generation broadband networks and to retiring the legacy public switched telephone network. If it is, then it should be more open to eliminating last-generation rules that are becoming a costly drag on investment and innovation and prone to undermining competition.

USF Surcharge Sees Decrease, But Still Taxes Consumers Too Much

The FCC announced on March 12 that the proposed universal contribution factor for the second quarter of 2013 will be 15.5%. This is a welcome decrease. But seen against the backdrop of the last several years, this de facto tax rate is still too high.

The 15.5% USF surcharge is effectively a tax on consumers of voice services. The USF surcharge is applied to the interstate long distance portion of their bills. The collected surcharges then go to fund USF in all its different programs.

Sometimes USF surcharge rate increases are defended on the grounds that total interstate long distance minutes have decreased and therefore made rate hikes necessary. That defense might carry more weight if sustaining the size of USF or some of its programs were the imperative. But USF is too big. As USAC's Annual Report for 2011 shows, in that year alone the High-Cost fund disbursed $4.03 billion, its low income program disbursed $1.75B, and its schools and libraries program disbursed $2.23B. Combined USF programs thus reallocate some $8 billion annually. And consumers are ultimately left holding the bag by funding it through surcharges.

Prof. Daniel Lyons, a member of FSF's Board of Academic Advisors, presented his ideas on USF reform at FSF's January seminar celebrating the release of Communications Law and Policy in the Digital Age: The Next Five Years.

Transcript and YouTube of FSF Seminar Spotlighting New Book Now Available

On January 23, 2013, the Free State Foundation held a lunch seminar to celebrate the publication of FSF's newest book, Communications Law and Policy in the Digital Age: The Next Five Years. The new book is published by Carolina Academic Press.

Just released is an edited transcript of the seminar discussion, moderated by FSF President Randolph May. The participants, along with their chapter titles, were:

• Seth Cooper, FSF Research Fellow - "Restoring a Minimal Regulatory Environment for a Healthy Wireless Future"
• Ellen Goodman, Professor, Rutgers School of Law - Camden, and Member of FSF's Board of Academic Advisors - "Public Media Policy Reform and Digital Age Realities"
• Christopher Yoo, Professor, University of Pennsylvania Law School, and Member of FSF's Board of Academic Advisors - "Internet Policy Going Forward: Does One Size Still Fit All?"
• Daniel Lyons, Professor, Boston College Law School, and Member of FSF's Board of Academic Advisors - "Reforming the Universal Service Fund for the Digital Age"

A YouTube video of the seminar is also available online: