New Study: 5G Will Help Close Digital Divide

A new study titled "Improving Rural Broadband Access: The Impact of Broadband Access and Proposed Investment in 5G Networks in South Dakota" finds that investment in 5G wireless infrastructure will be critical to advancing South Dakota's economic growth and promoting safety and quality of life in rural areas. This study was conducted by a research team from Old Dominion University and the University of South Dakota and underwritten by T-Mobile. 

As I stated in a March 2018 Perspectives from FSF Scholars titled "Reaching Rural America: Free Market Solutions for Promoting Broadband Deployment," 5G wireless technology will deliver speeds 10 to 100 times faster than 4G, making mobile broadband a viable option for a residential connection, particularly in rural areas where wireline deployment is not cost-efficient. That being said, the deployment of 5G technology will help close the gap of the digital divide by creating robust broadband access for rural Americans.

The 28 GHz Auction Closes Successfully

The FCC's 24 GHz auction closed today with bids that exceeded more than $700 million. There were winning bids on at least 96% of the 3,072 licenses.

I've never tried to predict the outcome of auctions beforehand or handicap the outcome, preferring to let the market "speak" for itself. That's what auctions do.

So, as the 28 GHz auction closes, I'll limit my reaction to a few words. There are always those who, no matter the result, wish to characterize the auction du jour as somehow disappointing or some sort of failure but that seems difficult to do in this instance.

Foremost, the auction will result in U.S. wireless providers gaining access to needed high-band spectrum. This high-band spectrum will be an important component of the deployment of 5G infrastructure, including often overlooked backhaul support. In this sense, without more, the 28 GHz auction has been successful.

Second, the auction du jour critics often choose to ignore, in offering up comparative figures from one previous auction or another, that the bidding results will reflect the technical characteristics of the particular spectrum bands at auction. In other words, high-band spectrum like the 28 GHz band almost certainly will lead to different results than low-band spectrum, say, the 600 MHz frequencies. For one thing, high-band frequencies do not allow transmissions to travel as far as low-band ones. Of course, factors like this affect the value of the spectrum.

Finally, for what it's worth, the revenues ultimately realized from the 28 GHz auction appear to be within the range of the pundits' pre-auction predictions regarding the likely results.

In sum, when the auctioneer's gavel brought the 28 GHz auction to a close, from where I sit it looked to be a success. Now it's time to prepare for the next one.  

Randolph May Calls for the FCC to Adopt Rebuttable Presumptions

On January 21, 2018, The Regulatory Review published Free State Foundation President Randolph May's opinion piece titled "Adopting Rebuttable Presumptions at the FCC."  

Given the increasingly competitive communications marketplace and ongoing technological dynamism facilitating development of new service offerings, Randolph May calls for the Federal Communications Commission to adopt rebuttable evidentiary presumptions that tilt towards the non-enforcement and repeal or modification of obsolete regulations. This fairly modest process reform would be consistent with Sections 10 and 11 of the Telecommunications Act of 1996.

Please see my essay, "Adopting Rebuttable Presumptions at the FCC," in @TheRegReview : https://t.co/9MZFLzBkep Thanks to @TheRegReview! @YaleJREG @StatePolicy @FedSoc @RegStudies @mikeofcc @AjitPaiFCC @BrendanCarrFCC @acusgov @ProfDanielLyons @GusHurwitz

— Free State Foundation (@FSFthinktank) January 21, 2019

Senator Rubio Introduced New Privacy Bill

On January 16, 2019, Senator Marco Rubio (R-FL) introduced the "American Data Dissemination (ADD) Act." This legislation would require the Federal Trade Commission (FTC) to submit recommendations for privacy requirements to Congress using the Privacy Act of 1974 as a framework. 

The bill also would require the FTC to submit to the appropriate committees of Congress proposed regulations to impose privacy rules on "covered providers," which include Internet service providers and edge providers. Within two years of the bill's passage, if Congress does not enact a law based on the FTC's recommendations, the legislation would give the FTC the authority to promulgate a final privacy rule.

In 2018, Free State Foundation scholars submitted two sets of privacy-related comments to federal agencies: 

• "The Intersection between Privacy, Big Data, and Competition," Submitted to the FTC, August 20, 2018.

• "Developing the Administration's Approach to Consumer Privacy," Submitted to NTIA, November 9, 2018.

T-Mobile Executives Repeatedly Stay at Trump International Hotel in DC

On January 16, 2019, the Washington Post published a story reporting that T-Mobile CEO John Legere and other eight company executives have repeatedly stayed at the Trump International Hotel in Washington, DC after T-Mobile announced its $26 billion merger with Sprint in April 2018. The story raises questions about if the hotel visits are an attempt to influence public policy considering that the merger requires approval from the Department of Justice and the Federal Communications Commission.

Free State Foundation President Randolph May tweeted his reaction to the story:

I've long argued that the "public interest" doctrine under which the @FCC reviews proposed mergers has been abused because of its vagueness. But I've never imagined it to be so indeterminate as to encompass @FCC considering which hotels applicants' CEOs stayed in! Wow! @b_fung pic.twitter.com/tbPPEn0vLT

— Free State Foundation (@FSFthinktank) January 17, 2019

FCC Report Spotlights States' Wrongful Use of 911 Taxes

Some $285 million in 911 taxes charged to voice service consumers were improperly diverted to non-911 purposes by states in 2017. That's nearly 10% of 911 taxes. Those findings were in the FCC's 10th Annual Report on State 911 Taxes. Diversions of state 911 taxes are contrary to law and undermine the integrity of 911 tax policy. Consumers are harmed by the dishonest, extra charges, and 911 services stand to lose needed funds. 

To the FCC's credit, its report indicates states will face closer scrutiny in the future for diverting 911 taxes. Congress, the Commission, and state officials ought to consider new measures to combat states' misuse of 911 taxes and ensure compliance with the law.

The NET 911 Act of 2018 requires the FCC to annually report to Congress on state collection and distribution of 911 and enhanced 911 (E911) fees and charges. The Act was intended to "ensure efficiency, transparency, and accountability" when it comes to 911 taxes. It requires that the Commission's reports include findings on amounts of 911-related revenues spent by states for purposes other than 911-related services. To prepare its reports, the Commission sends the governors of each state questionnaires regarding 911 tax collections for each calendar year. The 10th Report observed: "All jurisdictions provided written responses to the questionnaire, but not all jurisdictions responded to every question and some jurisdictions provided incomplete responses to questions." 

In all, states collected over $2.9 billion in 911 taxes in 2017. Key findings on diversions of state 911 tax revenues are contained in the 10th Report's paragraph 27:

Based on the data we have received, we find that six states and the U.S. Virgin Islands diverted or transferred fees in calendar year 2017… Montana self-identified in its responses to the questionnaire that it used collected funds, at least in part, for non-911 related purposes. Five states [New Jersey, New York, Nevada, Rhode Island, West Virginia] and the U.S. Virgin Islands did not self-identify as diverting funds, but the Bureau has determined based on review of the information provided that these jurisdictions in fact diverted funds for non-911 related purposes within the meaning of the NET 911 Act. The jurisdictions… diverted an aggregate amount of $284,968,912.66, or 9.70% of all 911/E911 funds reported to have been collected by all responding states and jurisdictions in 2017. 

The report identified the amount of 911 taxes improperly diverted to non-911 purposes by each state. The three most notorious states were New York (over $170.8 million), New Jersey (nearly $94.2 million), and Rhode Island (almost  $11.4 million). A statement by Commissioner Michael O'Rielly rightly called out those three "repeat offenders." Moreover, the Commission's finding of nearly $285 million in diverted 911 taxes in 2017 was more than double its 2016 finding of $129 million in diverted tax dollars. 

Diversion of state 911 taxes poses a serious rule of law problem. As the 10th Report points out: "Section 6(f)(1) of the NET 911 Act requires that obligation or expenditure of 911/E911 fees or surcharges be 'in support of 9-1-1 and enhanced 9-1-1 services, or enhancements of such services.'" It goes without saying that when states impose taxes on consumers – on their citizens – for specified purposes, they should spend collected revenues only on those specified purposes. Indeed, voice service providers alleged to have improperly collected taxes from their subscribers have faced multi-state class-action lawsuits. Penalties for violating state consumer protection acts can include treble damage awards plus steep attorney fee awards. We should be no less tolerant of state governments improperly collecting taxes. States' diversions of 911 tax revenues may undermine public confidence in the integrity of 911 taxation, and in the integrity of tax laws generally. 

Additionally, unaccountable 911 taxation wrongfully hits consumers of voice services. According to the 10th Report, the average 911 fees in 2017 totaled $1.04 per line per month for wireline, $0.97 per line per month for wireless, and $0.99 per line per month for VoIP. Also: "the average prepaid wireless percentage of retail transaction 911 fee [was] 2.12%." As indicated above, 911 tax charges totaled over $2.9 billion in 2017. Voice consumers – including wireless consumers – are already subject to high taxes and fee charges by multiple governments. Such taxes include: state and local sales taxes, federal USF surcharges, state USF surcharges, industry-specific state taxes, and state 911 taxes. Indeed, a Tax Foundation estimate pegged total wireless consumer taxes at $16.1 billion for 2018, amounting to 19.1% of consumers' wireless bills. That estimate likely lowballs the amount of 911 taxes that consumers were actually charged in 2018. 

When it comes to affordability of voice and broadband services, wireless taxes hit lower-income consumers who are wireless-only especially hard. So it's especially important to curb excessive and improperly charged taxes on wireless services. FSF President Randolph May previously urged the FCC to act to prevent state 911 taxes from being assessed against low-income subscribers to no-charge Lifeline wireless service:

Putting aside the legal question, … it seems to me a matter of common sense – or sound policy, if you prefer – that the FCC should not allow states to impose taxes or fees on no-charge Lifeline service that the FCC has sanctioned by rule for the purpose of promoting access to communications services for those who otherwise cannot afford service.

In the past, a few states wrongly have either imposed 911 (and other) taxes on Lifeline services or considered doing so.

Similarly, it is sound policy for Congress, the FCC, and state officialsto ensure that 911 taxes are properly assessed and distributed. Otherwise, wireless consumers will be wrongly financially burdened and discouraged from accessing wireless communications services. And 911 services will be deprived of funds.   

The 10th Report indicated the Commission will more closely scrutinize future state responses to questionnaires on 911 taxes. Going forward, the Commission will presume revenues are being diverted to non-911 purposes unless states make more complete responses. The Commission also should follow through on report warnings that states diverting 911 tax revenues may be ineligible for upcoming matching federal grants awards from funds raised through spectrum auctions. Congress, the FCC, and state officials should consider further ways to spotlight 911 tax diversions and incentivize compliance with the Act. Certainly, governors and state legislators should direct relevant state and local government officials to provide complete and accurate answers to FCC questionnaires on 911 taxation.

If states are going to charge consumers a dollar per line each month for 911, then every tax dollar collected should go to 911-related services. It's unlawful and unfair to consumers if 911 taxes are diverted to anything else. And 911 services stand to suffer.

Additionally, low income recipients should not be assessed 911 taxes on Lifeline service. That's counterproductive and inconsistent with Lifeline's purpose. 

Representative Eshoo's New Bill Would Slow 5G Deployment

On January 15, 2019, Representative Anna Eshoo (D-CA) introduced the "Accelerating Wireless Broadband Development by Empowering Local Communities Act of 2019" (H.R. 530), which would overturn FCC rules that preempt local government regulations on the deployment of 5G infrastructure.

As I illustrated in a September 2018 infographic, the FCC's Wireless Infrastructure Order facilitated 5G deployment by reducing unnecessary regulatory barriers and limiting unjustified fees imposed by local governments. One study by CMA Strategy found that the FCC’s Order will increase broadband infrastructure investment by $2.4 billion and deploy next-generation access to an additional 1.8 million homes and business, of which 97% will be concentrated in rural and suburban areas.

By overturning the FCC's Order, Representative Eshoo's bill would enable local governments to levy excessive fees and lengthy regulatory processes on broadband providers, slowing the deployment of 5G technology and delaying the creation of 5G’s massive economic benefits.

Maryland Should Reduce Regulations and Fees That Inhibit Broadband Deployment

On January 2, 2018, I published a blog suggesting that Maryland Governor Larry Hogan should reestablish the Regulatory Reform Commission and should specify as one of its tasks identifying unnecessary taxes and fees. More specifically, the Commission and the Maryland General Assembly, which convenes this week for its 2019 legislative session, should focus on reducing regulatory and tax burdens that stifle broadband deployment and slow the delivery of next-generation wireless services. According to two recent reports, Maryland has one of the most burdensome regulatory processes with regard to broadband deployment and some of the highest wireless tax rates in the country.

A new report by the R Street Institute ranks Maryland 45^th out of 50 in terms of how conducive its laws are to broadband deployment. Importantly, Maryland presently does not require localities to adopt "shot clocks" to ensure timeliness for the processing of applications or to employ hard caps on fees pertaining to accessing public rights-of-ways, acquiring construction permits, or installing pole or collocation attachments. For example, the fees localities charge for public rights-of-way access are not required to be non-discriminatory or based on an estimation of costs, meaning local governments can charge whatever they want and can charge different prices to different providers despite granting the same level of access. Whether a wireless or wireline provider of broadband access, building and upgrading a network requires a significant number of permits from the local government. Without shot clocks and without hard caps on fees, the regulatory costs imposed by impediments associated with the local government approval process slows broadband deployment.

Deploying communications networks includes heavy capital investments from broadband providers. If fees are excessively high, it will discourage competition from small providers who cannot afford access. Also, if the regulatory costs differ significantly among jurisdictions, it could discourage providers from upgrading networks in certain localities. Although there is high demand in a relatively densely-populated, wealthy state like Maryland, the margin between profit and loss is very small in the dynamically competitive broadband market.

In May 2015, Governor Hogan signed House Bill 541, which required the Public Service Commission to convene a workgroup to study attachments to utility poles in Maryland. The workgroup found in a January 2016 study that the “terms and conditions for pole attachments are adequate” and the “rates charged to pole attachers are reasonable.” But with the emergence of the 5G revolution, small cell deployment in a populated locality will require hundreds if not thousands more pole attachments than 4G, meaning the existing terms and conditions likely are outdated. With 5G deployment, wireless providers will deploy small cells on already existing buildings or utility poles, a practice called “collocation.” Without shot clocks for the review of collocation applications and without hard caps on the fees localities can charge, the regulatory uncertainty will slow 5G investment in Maryland. In 2018, Maryland policymakers introduced small cell legislation to minimize these regulatory barriers and streamline 5G deployment, but the Senate and House bills failed to pass.

If Maryland wants to continue to be considered a prime location for innovative businesses, it should adopt rules that give guidance to local governments regarding streamlining the application and approval processes and charging cost-based fees that properly compensate the local governments without slowing 5G deployment.

Moreover, according to a recent report by the Tax Foundation, Maryland, at an average rate of 13.89%, has the 15^th highest combined state and local wireless tax rate in the United States. This means its wireless tax rate is 2.31 times the size of its general sales tax of 6%, which is the 9^th highest disparity multiple in the U.S.

Of course, some localities impose higher tax rates than others. In Baltimore, residents pay an effective tax rate of about 25% for wireless services. At the end of 2017, over 68% of all poor adults had wireless-only voice service and nearly 24% of Baltimore’s population falls below the poverty level. Additionally, more and more consumers are substituting mobile wireless broadband for fixed broadband. And while this trend is occurring across all demographics, it is particularly prevalent among low-income and minority consumers. About 31% of U.S. adults making less than $30,000 a year are wireless-only with regard to broadband service. And 35% of Hispanic adults and 24% of black adults also are wireless-only. Maryland’s relatively high wireless tax rates unnecessarily raise the price of wireless services and harm all consumers, but they disproportionately harm low-income and minority consumers.

The Regulatory Reform Commission’s December 2015 report recommended streamlining application review processes, reducing fees and payment frequency, and expanding minority and disadvantaged business opportunities. These recommendations have not been implemented yet with regard to the taxation and regulation of broadband and wireless communication services.

As stated in last week's blog, Governor Hogan’s regulatory reform efforts have improved Maryland’s business climate and its overall fiscal condition. To continue this progress, Governor Hogan should reestablish the Regulatory Reform Commission and task it with identifying more regulations, taxes, and fees that discourage economic activity. The communications and broadband marketplace would be a good place to start.

Copyright Industries Contributed Significantly to the U.S. Economy in 2017

U.S. Copyright Industries
Infogram

Governor Hogan Should Reestablish the Regulatory Reform Commission

At the beginning of each year, for the past three years, Free State Foundation President Randolph May and I have published a Perspectives from FSF Scholars addressing the meaningful progress made by Governor Larry Hogan’s Regulatory Reform Commission (RRC). In December 2017, the RRC published its final report identifying 844 outdated or unnecessary regulations over its three-year term, which Governor Hogan ultimately eliminated or altered in some way. Now that Governor Hogan has been reelected for a second term, he should reestablish the Commission with the goal of achieving further regulatory reform over the next four years.

In January 2016, Randolph May and I commended Governor Hogan for creating the RRC, and we suggested ways Maryland could reform its regulatory process. Specifically, we proposed that Maryland consolidate its twenty departments into just eight. We also suggested creating a “sunset” date for all new regulations. This would require that regulations expire after a certain period of time if they are not affirmatively readopted by the sunset date.

In January 2017, we applauded the RRC for identifying 187 regulations that it found “redundant, unreasonable, unnecessary, unduly burdensome or obsolete.” We also recommended that Maryland adopt a central office within the executive branch to review regulations before they are promulgated to determine whether the projected benefits outweigh the costs – similar to the Office of the Information and Regulatory Affairs (OIRA) at the federal level. The office certainly doesn't need to be large, but it should be led by an economist with expertise in cost-benefit analysis.

In January 2018, we highlighted the RRC’s final report, which recommended 657 changes to outdated or unnecessary regulations that Governor Hogan ultimately accepted. And we took the opportunity to repeat some of our earlier proposals for process reform in Maryland.

Governor Hogan made a worthy effort during his first term to eliminate unnecessary or outdated regulations as part of his effort to stimulate Maryland's economy and improve its business climate. As I noted in an October 2018 blog, Governor Hogan’s tax and regulatory reform had a positive impact on Maryland’s overall fiscal condition. And according to some studies, Maryland’s business climate has improved over the past several years relative to other states. (See here and here.)

Although the Regulatory Reform Commission did a good job identifying nearly 850 regulations that were outdated or unnecessary and Governor Hogan wisely accepted the Commission’s recommendations, there certainly are areas where Maryland can further improve, like reducing occupational licensing requirements. Now that Governor Hogan will be returning to Maryland’s gubernatorial seat for another four years, he should reestablish the Regulatory Reform Commission and direct the Commission to continue its work searching for unnecessary and costly regulations to eliminate or modify.

The RRC also should be tasked with identifying unnecessary taxes and fees that stifle competitive entry and artificially raise prices for consumers. Given the positive impact that broadband and wireless services have on Maryland’s economy, the RRC particularly should focus on eliminating or reducing excessively high taxes and fees that slow broadband deployment and harm consumers.

In a forthcoming blog, I will discuss how Maryland’s burdensome regulations and fees stifle broadband deployment and how its exorbitantly high wireless tax rates negatively impact consumers.