U.S. Needs More Than 350 MHz of Additional Licensed Spectrum

On June 24, Coleman Bazelon and Guilia McHenry of The Brattle Group released a new study prepared for CTIA – The Wireless Association. The study is entitled: “Substantial Licensed Spectrum Deficit (2015-2019): Updating the FCC’s Mobile Data Demand Projections.”

Here is the study’s conclusion as presented up front by Mr. Bazelon and Ms. McHenry:

“Five years ago the Federal Communications Commission projected a licensed spectrum deficit of almost 300 MHz by 2014. Using the FCC’s own formula and approach, we update that forecast and find that by 2019, the U.S. will need more than 350 additional MHz of licensed spectrum to support projected commercial mobile wireless demand. Accordingly, over the next five years the United States (U.S.) must increase its existing supply of licensed broadband spectrum by over 50 percent.

This analysis relies on current projections that demand for wireless broadband capacity, even after accounting for offload to unlicensed services, will increase by six-fold by 2019. Our predictions suggest that just under half of this new demand can be met by increased deployment of cell sites and improved technology, particularly a heavier reliance on 4G and LTE Advanced technologies. In the past six years, wireless operators have invested over $160 billion and, even with additional spectrum, a similar financial commitment will be necessary to enhance and expand networks to help meet significantly higher data volumes.

After accounting for this increased investment by carriers in network technology and infrastructure, we estimate that by 2019 net data demand will increase more than three-fold over 2014 levels. This remaining increase in demand will need to be met by additional licensed spectrum allocations. Importantly, if demand increases faster than expected, if technology deployments lag, or if cell site deployment slows, even more licensed spectrum will be needed. Finally, even if over 350 MHz is repurposed to mobile broadband in the next five years, that spectrum will not address the even greater demand that we expect in 2020 and beyond.”

There is no doubt that making available adequate spectrum to accommodate the increasing demand for wireless services is crucial to the nation’s social and economic well-being. This new study by Mr. Bazelon and Ms. McHenry makes an important contribution in documenting the need for 350 MHz of additional spectrum by 2019 to support projected demand.

For many years, FSF scholars have addressed the need for additional licensed spectrum for wireless services. In the coming days and weeks, we will have more to say about the new study and ways to address the increasing demand for licensed spectrum.

U.S. Senate Should Emulate Florida's Wireless Tax Cuts

On June 15^th, Florida’s House and Senate passed legislation which would save the state’s taxpayers $430 million. Included in these tax cuts is a $100 million annual Communication Service Tax reduction on wireless services.

Although this legislation does not cut wireless taxes as much as Governor Rick Scott’s proposal outlined (see here), it is certainly a positive step for Florida wireless consumers, who currently pay the 4^th highest wireless tax rate in the country. Effective July 1^st, Florida residents will see their wireless tax rates decrease by 1.73 percentage points. This may seem small but considering that 56 percent of all poor American adults had only wireless Internet service as of December 2013, this will substantially benefit low-income Florida residents.

As I posted in a blog back in April 2015, the United States Congress should emulate Florida’s approach on wireless taxation. The House of Representatives did so last week when it passed the Permanent Internet Tax Freedom Act (H.R. 235), which bans state and local taxes on Internet access. Now, the Senate should quickly pass its version of the bill, the Internet Tax Freedom Forever Act (S. 431). Permanently banning taxes on Internet access would help keep the Internet affordable to the poorest Americans and would lead to additional market-driven innovation, content, and economic growth.  

Airbnb's David Hantman Discusses Competition in the Lodging Market

The Federal Trade Commission (FTC) hosted a stimulating workshop on the “sharing economy” on Tuesday, June 9, 2015. The workshop offered a variety of perspectives from regulators, academics, and industry executives on the sharing economy’s emerging and innovative business models.

I found the third panel particularly interesting because its participants included industry executives associated with emerging sharing applications and incumbent business models. Specifically, the back-and-forth conversation between David Hantman, Head of Global Public Policy for Airbnb, and Vanessa Sinders, Senior Vice President and Head of Government Affairs for the American Hotel and Lodging Association, was very informative.

Ms. Sinders argued that Airbnb should abide by the same set of rules and regulations that hotels abide by. She said that without these regulations there is a possibility that Airbnb consumers could experience unsafe and/or unhealthy conditions. She claimed that hotel consumers have a consistent expectation about what they will experience when they walk into their rooms while Airbnb users do not. But Mr. Hantman stressed that the reputation feedback mechanism within Airbnb’s application has created transparency and accountability for every transaction, which enables trust between the hosts and the guests. He also mentioned that Airbnb has a $1 million insurance policy that protects users in case any unforeseeable incidents arise.

Among her concerns, Ms. Sinders stated that many hosts are using Airbnb as a business enterprise and renting out entire apartment buildings. She said: “If it looks like a hotel and acts like a hotel, it should be treated like a hotel.” But Mr. Hantman agreed with her that the hosts who use the Airbnb platform to essentially run a hotel operation should be required to get business licenses just like hotels. He stated, however, that the overwhelming majority of Airbnb hosts only share their homes a couple times a year, and many do it in order to make ends meet. Mr. Hantman said these are the people that the Airbnb online platform targets as hosts.

Interestingly, Mr. Hantman declared that, in his view, he and Ms. Sinders are actually in agreement on most things, even though Ms. Sinders refuses to acknowledge it. They both do not want consumers to experience unsafe or unhealthy conditions, and they both think hosts who rent out their spaces in the same fashion as a traditional hotel should obtain a license.

In response to Ms. Sinders’ claim that Airbnb listings are “illegal hotels,” Mr. Hantman reported that Airbnb has tried on many occasions to pay lodging taxes in New York (where it has received a substantial pushback from Attorney General Eric Schneiderman), but, curiously perhaps, the lobbying efforts of the American Hotel and Lodging Association, thus far, have helped prevent Airbnb from doing so.

In an FSF blog from October 2014, Randolph May and I analyzed the New York Attorney General Eric Schneiderman’s report in which he characterized Airbnb listings as “illegal hotels.” We argued that, aside from disputable legal characterizations, all the data in the report shows that these so-called “illegal hotels” benefit consumers and New York’s economy. If they were not meeting the demands of consumers, then Airbnb’s economic activity in New York would not be increasing annually.

As Mr. Hantman stated at the FTC’s workshop, if the lack of tax payments was the only reason for questions about the legality of Airbnb listings in many cities, then these concerns would have been worked out because Airbnb is willing to comply. Instead, lobbying pressure from the hotel industry to local governments (presumably based on fear of competition) has resulted in legal or regulatory threats to Airbnb listings in many cities around the world.

As Randolph May and I stated in our July 2014 Perspectives from FSF Scholars entitled “The Sharing Economy: A Positive Shared Vision for the Future:”

If the laws or regulations applicable to the existing incumbent businesses no longer make sense today, they should be changed. It always harms consumers when public policymakers attempt to “level the playing field” by subjecting entities to regulatory restrictions that are not needed. The proper way to respond to “level the playing field” claims is to remove unnecessary regulations wherever they apply, not to expand them to new entities.

In Mr. Hantman’s concluding remarks, he stressed that he is optimistic that mutually satisfactory agreements will be reached in the cities where Airbnb’s compliance with legal requirements is called into question so that it can continue to serve consumers. He said Airbnb wants to work with local governments around the world to provide them with anonymized data so they can monitor the activity that is occurring in their jurisdictions, while also protecting the privacy of Airbnb users.

This was just one of the many informative topics discussed at the FTC’s workshop on the sharing economy. I anticipate posting a blog in coming days about the key takeaways from the discussions at the workshop.

Designating Designated Entities for Reform

The Federal Communications Commission needs to designate the so-called “Designated Entities” program for meaningful reform.

Although the legislation authorizing the FCC to conduct spectrum auctions promotes allocation of spectrum for the highest and best use, it also permits the FCC to give preferences, in the form of “bidding credits,” to Designated Entities in order to promote participation by small businesses in the auctions. Not surprisingly, the FCC has struggled over the years, with limited success, to implement the “small business” program in a way that avoids abusive conduct. I say, “not surprisingly,” because it is not easy to devise a complicated regulatory regime – one that, by design, promises special preferences and large financial rewards to particular “designated entities” – in a way that does not invite abuses and unjust enrichment.

And in the case of spectrum auctions, while certain parties taking advantage of their favored designation may be unjustly enriched, taxpayers are unjustly harmed by the same measure. In the most recent controversy surrounding the program, it appears that substantial, non-controlling interests from large bidders raise concerns about the integrity of the program, particularly when joint bidding is involved.

In many respects, the recent AWS-3 auction, which garnered nearly $45 billion in revenues (reduced by about $3.3 billion because of DE bidding credits), was a success. However, whatever success the auction enjoyed has been somewhat called into question by the joint bidding of Dish and two small DEs, Northstar, and SNR Wireless. It turns out Dish has a non-controlling 85 percent ownership interest in the DEs. All three firms together accounted for about $10.3 billion in winning bids. Although large bidders have had substantial, non-controlling interests in DEs in the past, the type of joint bidding arrangement used in the AWS-3 auction apparently is unprecedented.

FCC Commissioners Pai and O'Rielly have expressed concerns regarding the operation of the DE program, including in the context of the AWS-3 auction. Commissioner Clyburn also has expressed concern, albeit more mildly. And Chairman Wheeler, to his credit, ordered the staff to take a close look at the program and issued a detailed Public Notice seeking comment.

Based on an economic analysis of the auction bidding, Verizon has suggested that Dish, Northstar, and SNR Wireless engaged in anti-competitive, collusive bidding. A coalition of mobile companies, including AT&T and a number of small companies, propose to reform the DE program by eliminating joint bids by a bidder with significant ownership interests in other joint bidders seeking to utilize DE bidding credits. The coalition proposes to preserve DE credits for genuine small businesses as well as rural telephone companies. It suggests that its reform proposal would preserve the DE program’s original intent, without giving unfair advantages to multi-billion dollar bidders.

Dish, of course, argues that it, Northstar, and SNR complied with the existing rules, including bidding disclosure requirements. Dish argues that its participation increased auction receipts, financing for small companies, and the diversity of bidders.

Whether or not Dish, Northstar, and SNR complied with the existing bidding rules is not irrelevant, of course. But, for me, it is not the main point, which is that spectrum auctions, to the maximum extent possible, should be conducted on an unencumbered, free market basis, without special dispensations and preferences. This will ensure that spectrum is put to the highest and best use, maximizing consumer welfare. In the bargain, it will maximize auction revenues to the benefit of the nation’s taxpayers.

The DE program, obviously a special carve-out to the unencumbered auction principle, is meant to help small businesses, rural telephone companies, and businesses owned by minority groups gain access to spectrum. Unfortunately, however, the DE program has not been very successful in achieving its objectives, however valid they may be. And in the past the program has arguably produced skewed bidding results. Moreover, the majority of small business bidders, excluding companies associated with rural telephone companies, end up selling their spectrum to the highest bidders, rather than building out networks. On top of all this, DE auction awardees often are mired in post-auction litigation for long periods, resulting in network build-out delays that otherwise might not have occurred.

All this said, the FCC is right to designate the Designated Entities program for meaningful reform to curb abuses. When abusive conduct occurs that is inconsistent with the underlying public policy purposes of the DE program, it undermines the integrity of particular auction results. Perhaps more importantly, abuses also undermine public confidence in the Commission’s ability to carry out its duties effectively and efficiently.

House Passed the Permanent Internet Tax Freedom Act

On Tuesday June 9^th, the House of Representatives voted to pass the Permanent Internet Tax Freedom Act (H.R. 235), which would permanently ban state and local taxes on Internet access. (See this blog.)

Now, it is up to the Senate to pass its version of the bill, the Internet Tax Freedom Forever Act (S. 431). The House passed the Permanent Internet Tax Freedom Act last summer when the temporary ban on Internet access taxes was about to expire but the Senate failed to pass its bill. Hopefully with the help of some new Senators, this summer’s Congressional session will be different.

The temporary ban is set to expire on October 1, 2015.  Therefore, I urge the Senate to pass the Internet Tax Freedom Forever Act as soon as possible so all Americans can access an affordable Internet. 

House Scheduled to Vote on the Permanent Internet Tax Freedom Act

This week the House of Representatives is scheduled to vote on the Permanent Internet Tax Act (HR 235), which would ban state and local taxes on Internet access.

The current ban on Internet access taxes has been extended many times since it originated in 1998 (and is set to expire once again on October 1, 2015). But if this legislation passes, the ban would become permanent and discriminatory taxes on e-commerce would also be prohibited, according to this article in The Hill.

It is very important for consumers and Internet Service Providers that the House pass this legislation. Taxes imposed on any good or service raise the price, resulting in a decrease in the quantity demanded from consumers. Whether taxes are shifted on consumers or businesses, the elasticity of demand and supply allows for both sides of the market to inherit the burden, ultimately leading to less economic activity and growth.

Taxes on Internet access would be particularly regressive because it is often the poorest people that do not connect to the Internet. A tax on Internet access could push the price of broadband beyond many of the poorest consumers’ willingness to pay.  Even if a person had not adopted broadband service prior to the tax being levied, the increase in price would make that person less likely to adopt. Raising the price of an Internet access would be counterproductive to the many government programs that aim to connect America’s poorest individuals.

I commend Judiciary Committee Chairman Bob Goodlatte for introducing the Permanent Internet Tax Freedom Act and I urge the House to pass it.

Dealing Effectively With Effective Competition

Over the past couple of years, I have had far fewer opportunities to commend the Tom Wheeler-led FCC than I had hoped for – and this has been a disappointment. So, I don’t want to miss an opportunity to give credit where credit is due. I am happy to applaud Chairman Wheeler, along with Commissioners Pai and O’Rielly, for adopting an order on June 2 that presumes cable operators are subject to “effective competition.” As a result of establishing this rebuttable presumption, each local franchising authority (LFA) will be prohibited from regulating basic cable rates unless the franchising authority demonstrates the cable system is not subject to effective competition.

Truth be told, this action should not be controversial. But Commissioners Clyburn and Rosenworcel dissented, in part, because the regulatory relief, such as it was, extended to all cable operators, rather than to small operators only.

In dissenting, Commissioners Clyburn and Rosenworcel exhibited the difficulty many regulators have, even in the face of a competitive marketplace, in just “Letting Go” – as the late, world-renown regulatory economist Alfred Kahn put it in the title of one of his books. Fred Kahn, a proud Democrat, was President Jimmy Carter’s Civil Aeronautics Board Chairman, until he succeeded, working principally with Senator Edward Kennedy, in getting Congress to disband the New Deal-era agency that set airline rates and controlled route entry and exit. I am proud Fred was a member of the Free State Foundation’s Board of Academic Advisors. By the way, the subtitle of Fred’s Letting Go book, which is critical of regulators’ disposition to cling to legacy regulations in the face of marketplace competition, is instructive: “Temptation of the kleptocrats and the political economy of regulatory disingenuousness.”

I certainly don’t wish to accuse anyone of being a kleptocrat, or of being disingenuous. And I’m sure Fred conjured up the subtitle with that usual playful twinkle in his eye. But I do think Commissioners Clyburn and Rosenworcel were wrong to dissent.

The indisputable reality is that the video marketplace has changed dramatically since the 1992 Cable Act established a regulatory regime allowing local franchise authorities to regulate basic cable service rates. But under the 1992 Act, LFAs may regulate rates only if the Commission finds the cable operator is not subject to effective competition. As the Commission explains in its June 2 order:

In 1993, when the Commission implemented the statute’s Effective Competition provisions, the existence of Effective Competition was the exception rather than the rule.  Incumbent cable operators had captured approximately 95 percent of MVPD subscribers. In the vast majority of franchise areas only a single cable operator provided service and those operators had “substantial market power at the local distribution level.” DBS service had not yet entered the market, and local exchange carriers (“LECs”), such as Verizon and AT&T, had not yet entered the MVPD business in any significant way. Against this backdrop, the Commission adopted a presumption that cable systems are not subject to Effective Competition…. 

In contrast to 1992, as the Commission points out, today satellite video service is ubiquitous and satellite providers “have captured almost 34 percent of multichannel video programming distributor (MVPD) subscribers.” As my colleague Seth Cooper and I stated in Free State Foundation reply comments urging the Commission to adopt the pro-consumer deregulatory presumption it now has adopted:

The Commission’s rules for imposing cable rate regulations are premised on early 1990s suppositions about cable operators’ so-called “bottlenecks.” Those premises do not correspond to today’s reality. Consumers now enjoy the benefits of vibrant video competition, with choices including two nationwide DBS providers, so-called “telco” entrants in the video market, and myriad online and wireless video delivery options. 

In light of these marketplace changes, which are further detailed in the Commission’s order, the majority concludes that, in adopting the rebuttable presumption, the agency was updating its rules “for the first time in over 20 years, to reflect the current MVPD marketplace, reduce the regulatory burdens on all cable operators, especially cable operators, especially small operators, and more efficiently allocate the Commission’s resources.”

Considering the competition that has existed in the video marketplace for many years, the Commission could have – and should have – taken this deregulatory step long ago. In responding to Commissioner Clyburn’s and Commissioner Rosenworcel’s argument that the STELAR legislation only directs the FCC to streamline the regulatory process for small cable operators, the Commission majority responds, correctly, that STELAR nevertheless does not restrict the Commission’s authority to extend relief to all cable operators. More importantly, the Commission majority explains that the agency possesses – and always has possessed – authority under the Cable Act to adopt the deregulatory presumption.

At least since April 2011, when I published “A Modest Proposal for FCC Regulatory Reform,” I have been urging the Commission to employ deregulatory presumptions to provide swifter and surer relief from burdensome regulations that no longer make sense. The Commission has a sound basis for adopting such evidentiary presumptions regarding marketplace competitiveness on a broader scale. Despite the usual protests from competitors (such as the National Association of Broadcasters in the “effective competition” proceeding) and those organizations that generally oppose all regulatory relief measures, employing deregulatory presumptions is both pro-competition and pro-consumer.

Well, that’s an argument I can – and will – carry on another day. For now, I’ll just content myself with commending Chairman Wheeler and Commissioners Pai and O’Rielly for a job well done.

Why Were the U.S. and Canada AWS-3 Auction Results So Different? The Bidder Preferences

By Gregory J. Vogt, Visiting Fellow

As the FCC considers whether it should change its rules applicable to the 600 MHz incentive auction, it is useful to reflect on other governments’ experience. When Canada’s recent AWS-3 spectrum auction contained set-asides for a subset of bidders, it produced results far lower than the U.S.’s AWS-3 auction. This comparison should give U.S. policy makers pause as well-heeled wireless broadband providers with nationwide footprints in the U.S. continue to pursue ever-increasing, bidder preferences in the 600 MHz auction.

The incentive auction is designed to permit broadcasters voluntarily to give up over-the-air broadcast spectrum in the “reverse” portion of the auction in exchange for part of the proceeds in the “forward” portion of the auction among mobile broadband providers. That auction is currently scheduled for 2016. The FCC already decided to create “reserve spectrum” (up to 30 MHz) available only to bidders with less than about a third of below-1 GHz spectrum in a geographic market. These now-favored bidders – or you could say “non-bidders” in previous auctions in which, for their own reasons, they chose not to bid – are urging the FCC to increase this preference and “guarantee” such a block in all geographic markets.

I’ve said before, here and here, that no bidding preferences would be more consistent with the intent of the incentive auction: to encourage a maximum number of broadcasters to participate. If broadcasters doubt they will receive significant amounts for their spectrum, they are less likely to participate. Past U.S. auction results have appeared to produce lower auction receipts when significant bidder restrictions were applicable. Receipts from foreign auctions that have favored certain bidders have not fared well in the past either. I’ve noted those factors here.

For a more recent example, look north of the border. The Canadian government reported that its March 2015 AWS-3 auction yielded only $2.2 billion. The largest carrier opted out of participation altogether. In stark contrast, the U.S.’s AWS-3 auction ending in January 2015 garnered close to $41.3 billion, net of bidding credits. Granted, there were some significant differences between the band plans in the two respective countries’ auctions, and territorial and market differences exist as well. Nonetheless, the two countries’ results are so strikingly different that they inevitably cast serious doubts on the ability of a “set-aside” to generate sufficient auction receipts.

In fact, the Canadian government specifically intended that a major goal of its AWS-3 auction was to inject more competition in the market, rather than obtaining auction revenues. Thus, it set-aside a block of 30 MHz available only to bidders that were smaller than the “big three,” who currently have roughly a 90 percent market share. All other bidders had to vie for two 10 MHz blocks.

The skewed Canadian auction resulted, according to one assessment, in a cost of about 11 cents per MHz/Pop for the favored bidders, while Telus paid $3.02 per MHz/Pop and BCE paid $2.96 per MHz/Pop (numbers two and three in the market). These anemic auction results for the favored bidders pale in comparison to the results in the U.S. AWS-3 auction, which achieved roughly $2.21 per MHz/Pop on average according to one report.

But the goal for the U.S. incentive auction, to maximize volunteered broadcast spectrum, is very different from Canada’s goal. Although the FCC states that its “reserve spectrum” will not depress auction prices, this claim is doubtful given the lopsided eligibility contemplated in the FCC rules. The intent of the two bidder restrictions is the same: to steer spectrum to favored bidders.

T-Mobile attempts to justify its favored status by alleging that AT&T and Verizon did not pay for their low-band spectrum. AT&T has rebutted that argument when it states that it paid for the vast majority of its spectrum through government auctions and purchases in the after-market. Besides, a government “adjustment” of carrier cost structures artificially by skewing a single auction, like what occurred in Canada, would be an extremely blunt instrument destined for failure. It certainly will not harness market factors to increase competition.

In fact, skewing spectrum auction results does little to reconfigure market shares among competitors, a result that has reportedly been borne out in Canada’s lengthy attempt to change the Canadian market structure. Competition for subscribers is based on a number of consumer-driven factors including price, terms and conditions, coverage, and service quality. Although theoretically, lower costs should achieve lower prices, there is no government requirement that smaller competitors lower their prices based on lowered costs. Smaller competitors in the U.S. often simply pocket the cost savings, pricing very close to what the larger players charge, regardless of their underlying lower relative costs. So a skewed auction might look like a political win (justified as promoting “competition”), while it only results in reduced auction receipts for the government, with no change to the market shares in the industry.

The results of a skewed auction could prove catastrophic for the U.S. incentive auction. If broadcasters believe that the potential outcome of the incentive auction is relatively low, they may well just hang on to their spectrum. In that case, the government, broadcasters, mobile providers, and consumers will all lose. The only winners would be well-financed foreign corporations which see reduced bid prices. This obviously would be bad public policy.

These arguments must be weighed in the context of the Administration’s recent boast that it has made “substantial progress” in allocating 500 MHz of spectrum for mobile broadband use. But it still lists the incentive auction as a potential source of between 42 and 144 MHz. If the top end of this range is to be achieved, which already far exceeds the 80 MHz that FCC sources have previously estimated as the potential yield in this auction, FCC policies must focus more on encouraging broadcaster participation rather than trying, likely unsuccessfully, to “manage” competition.

So comparing the Canadian and U.S. AWS-3 auctions should convince FCC regulators to abandon the skewing effect of its policies for the incentive auction. At the very least, the Commission should not further tip the scales toward its favored bidders.

Message to States: Don't Let High Pole Attachment Rates Become Barriers to Broadband

State and local governments have important policy roles to play in spurring deployment of next-generation broadband to their communities. One important thing that states can do to incentivize broadband growth is prevent unnecessary barriers to investment by keeping pole attachment rates low. For example, as explained below, a bill now pending in the North Carolina legislature dealing with what may seem like the arcane subject of "pole attachment rates," in fact, could adversely impact broadband deployment to the detriment of the states' citizens.

High costs charged to providers for leasing access to utility poles deter broadband deployments and inevitably drive up consumer prices. Local governments or utilities should be able to recover costs of maintaining utility poles. But the rates charged for pole attachments should be as low as reasonably possible. Keying pole attachment rates to the FCC's rate formula offers a sensible way for states to keep rates low while ensuring cost recovery for utility pole owners.

Congress and the FCC have recognized that local monopoly in ownership or control of poles puts utilities in a position to extract monopoly rents through unreasonably high rates. Indeed, the FCC's National Broadband Plan (2010) found that the cost of deploying a broadband network depends significantly on the costs that service providers incur to access poles and other infrastructure.

Section 224 of the federal Communications Act authorizes the FCC to "regulate the rates, terms, and conditions of pole attachments to provide that such rates, terms, and conditions are just and reasonable, and . . . adopt procedures necessary and appropriate to hear and resolve complaints concerning such rates, terms, and conditions." However, states retain broad discretion over pole attachment rates in many instances. Under Section 224's "reverse presumption" provision, states which certify that they regulate pole attachment rates are not preempted by the FCC. Further, Section 224 doesn't apply to utility poles owned by certain entities, like municipalities or cooperatives.

So how can states ensure that pole attachment rates are reasonable, and thereby avoid high rates that deter broadband growth? Setting rate standards can be a complex matter. Fortunately, even where states assume responsibility for setting pole attachment rates, states can consult the FCC's formula as a reliable guide for keeping rates low and reasonable. 

The FCC's formula for determining pole attachment rates for cable operators balances the need to keep rates low with the need to ensure that utility pole owners recover their costs. In 1987, the U.S. Supreme Court affirmed the FCC's formula for setting rates that are just, reasonable, and fully compensatory. For that matter, in 2011 the FCC revised its attachment rate standards for telecommunications providers to generally align with rates for cable providers. Of course, traditional "cable" and "telecommunications" providers now provide broadband Internet services through their upgraded networks. So pole attachment rates have a significant impact on the cost of delivering broadband.

That the FCC's Section 224 pole attachment formula is recognized for setting generally low rates makes a recent proposal to change one state's law troublesome. Now pending in the North Carolina House of Representatives is Senate Bill 88, a bill that was passed by its state's Senate. One of NC Senate Bill 88's so-called "technical changes" would eliminate a provision in North Carolina law requiring that pole attachment rate-setting include consideration of the FCC's Section 224 pole attachment formula. Existing North Carolina law does not mandate the federal formula as such. But it wisely requires the FCC's Section 224 formula to be considered in determining reasonable rates. By proposing to remove that provision from state law, the obvious inference is that NC Senate Bill 88 is intended to produce higher pole attachment rates.

State legislators unused to dealing with a subject like pole attachment rates can be forgiven for not realizing that such a "technical change" could negatively impact broadband deployment and network upgrades for their communities. NC Senate Bill 88 deserves another hard look by state legislators with the impact on broadband deployment in mind.  

Why make broadband networks more costly to deploy and upgrade? Why adversely impact citizen consumers with potentially higher prices by raising infrastructure costs? And why not at least consider an FCC-approved and Supreme Court-affirmed formula in trying to carry out a complex process? Adoption of low pole attachment rates – or at least serious attention paid to Section 224's lower rate standard – best promotes continued expansion of broadband. Accelerating broadband is in the best economic and social interests of every state and local community. This is certainly the case in rural areas where broadband penetration and capabilities stand the most in need of improvement.

States should use the FCC's Section 224 pole attachment formula as a valuable reference point for setting pole attachment rates. By doing so, states can minimize cost barriers to broadband expansion and avoid adverse consequences for their citizens' ability to pay for broadband.