Price Regulation Is Not the Answer for Broadband

By Randolph May and Joseph Kennedy

 

In a recent blog posting on the Benton Institute’s Digital Beat, Christopher Ali, the Pioneers Chair in Telecommunications at Penn State University, called for consideration of rate regulation for broadband providers. His main argument is that some households still have difficulty paying their Internet bill. That may be true for some in the short-term. However, the best way to ensure lower prices and greater innovation for the most consumers over the long-term remains continued promotion of increased competition with market-determined prices.

There is considerable evidence showing a steady pattern of increasingly faster speeds and lower prices per megabyte per second over the last few years. In other words, on average, consumers are paying less for more broadband capacity. Rate regulation almost certainly would reverse this.

Long periods of telecommunication history in the past were characterized by stagnant prices and low innovation because regulators treated the underlying transmission facilities as fixed assets that could only handle a limited amount of traffic. During this earlier monopolistic era, regulators aimed to guarantee providers a fixed rate of return on their investments and discouraged competition from new technologies.

As Ted Hearn points out in Policyband, Professor Ali does not acknowledge the large number of current market promotions reducing prices. Comcast, for example, is offering 300 Mbps for $40 a month and guaranteeing the price for five years. Mediacom is selling a broadband-mobile bundle, guaranteed for two years. Both are significantly lower than the $78 median monthly bill that Ali cites. It may be that the average user prefers to pay more for more capacity rather than lower fees for less bandwidth. However, federal programs and state universal service subsidies specifically target low-income consumers that may have difficulty paying their bills, along with offerings by individual providers targeting low-income consumers.

Professor Ali also does not mention the growing broadband competition from satellite constellations such as Elon Musk’s Starlink. It and other companies are aggressively targeting new customers with their high-speed broadband offerings, especially those in remote areas where fiber installation is extremely expensive. Price competition from satellites recently helped the National Telecommunications and Information Administration lower the overall cost of its Broadband, Equity, and Access Program by $21 billion. Much of these savings will be poured back into the BEAD program’s efforts to extend broadband to the remaining unserved locations in the country.

As Professor Ali points out, the public debate on price regulation has been more or less settled, at least for now. Over the last several decades, a number of markets thought to be natural monopolies, including those involving freight trains, airlines, electricity transmission, and Ma Bell-era communications facilities have faced fewer regulations and greater competition. Instead of low-risk regulators limiting new sources of competition and innovation, consumers now benefit from new market entrants offering new products and lower prices.

This is certainly not the time to renew efforts at rate regulation as the broadband marketplace becomes ever more competitive. 

Yet Another Call to Get Permitting Reform Done

Believers in the need for permitting reform received another boost on July 29 when two prominent voices co-authored a letter in Route Fifty calling for significant improvements in obtaining the government permits needed to start virtually all infrastructure projects. Brandon Tatum, CEO of the National Governors Association, and Jonathan Spalter, CEO of USTelecom, correctly note that maintaining global technology leadership will require significant investments in many fields. However, much of the current debate has centered around projects to extend broadband coverage to all Americans. Although both Congress and the Administration have made important strides in this issue, it is not clear that their efforts will result in lower costs or significantly faster permits.

The authors do a good job of putting the problem in perspective. They correctly point out that:

America is entering a period of extraordinary infrastructure need — driven by artificial intelligence, advanced manufacturing and data-intensive technologies. The country will need major expansions in electricity generation, transmission capacity, wireless infrastructure, fiber networks and more, simply to remain competitive, let alone to continue to lead the world and ensure future economic opportunities reach everyone. 

In a previous Perspectives from FSF Scholars, I pointed out the extraordinary demands that AI and related technologies will have on information networks. I also made a powerful argument for permit reform to allow contractors to shorten the time and costs of obtaining government approval to use rights-of-way. This is especially important for broadband projects. With the Administration’s Build America initiative and a $42.45 billion Broadband Equity and Access Deployment (BEAD) program, the pressure to complete projects extending broadband coverage to all Americans is likely to increase. Unjustified permitting costs and delays may well adversely affect the success of these projects. Broadband is part of a larger issue in which bureaucratic conservativism and lack of accountability result in long delays. In some cases, a lack of funds and/or expertise may also be part of the problem. Unfortunately, the cost of these delays is often hidden. Congress and the Administration have taken some positive steps: Senate leaders are discussing a broad bipartisan package for permitting. Most of the focus has been on streamlining the National Environmental Policy Act review process. The House of Representatives has passed reforms including the PERMIT Act and the SPEED Act aiming to set enforceable federal permitting timelines and address judicial review delays. In 2018, the FCC promulgated rules for Small Cells that set maximum time limits for deciding permit requests and restrictions on the fees agencies can charge contractors. It also proposed rules to speed both wireless and wireline deployments. Questions remain whether these good faith efforts will result in meaningful progress in obtaining broadband rights-of-way, let alone permission for other forms of infrastructure. The jury is still out on that. Each effort has been opposed by state and local governments arguing that neither the Communications Act nor the Constitution give Congress or the FCC the power to interfere with their permitting requirements. Although the BEAD program offers state and local governments the promise of broadband expansion, it also imposes a significant demand on local resources. Agencies with tight budgets may face a significant increase in workloads. The BEAD program currently contains $21 billion in unallocated funds. It would make sense to use at least some of that money to help agencies streamline their permitting processes. According to the Route Fifty letter, Massachusetts and West Virginia have implemented significant process improvements that could be extended to other jurisdictions. Most of "Build America’s future lies in its own hands. Subjecting projects to unnecessary costs and unreasonable delays frustrates the public will. As Tatum and Spalter say: “let’s build.”

The Growing Realization That AI Needs Modernized High-Capacity Information Networks

It is becoming increasingly difficult to avoid discussions about artificial intelligence (AI). There is a growing consensus that AI broadly defined will have a major impact on virtually every sector of the economy. A growing number of experts believe that the impact will not stop there. Like railroads, electricity, telephones, steam engines, and the Internet, AI’s impact is expected to be large enough to affect the way we live. But, as Free State Foundation scholars have written, this will require massive investment to modernize the nation's information networks and to keep them robust.

Most of the attention on AI is focused on building models that will consume massive amounts of data and compute complex problems that are increasingly beyond the ability of humans to solve. A lesser concern has been the energy and, to a smaller extent, water networks required because of their role as major inputs into data centers and power plants. However, AI will also have a large impact on other networks. One of the most important will be the nation's information networks. 

 

In the past, most of the focus on networks has been on extending broadband to all people, a job that is nearing completion as broadband availability becomes ubiquitous. Over the past year or so an increasing number of leaders and organizations have begun to point out the strong interdependency of AI and the information networks. The result is a growing realization that the U.S. needs to devote an enormous amount of investment to networks that are larger, faster, and more self-aware than the existing infrastructure.

As stated above, there is already wide recognition of the strong linkage between AI and power supplies. For instance, Satya Nadella, CEO of Microsoft, has stated that the problem in the AI industry is not an excess supply of computation power, but rather a lack of power to accommodate all those CPUs. Jensen Huang, NVIDIA's CEO, has stressed that the U.S. is vulnerable because of its deficient energy supply. Finally, a report by the Center for Strategic and International Studies finds that the U.S. electricity sector is struggling to meet growing demand while maintaining low costs, improving system reliance, and reducing emissions.

Recently authoritative voices have expressed some of the same "supply-based" concerns about the information networks. These networks must convey, compute, and control massive amounts of data to massive amounts of computing power and back. Börje Ekholm, President and CEO of Ericsson, explained that “[a]s artificial intelligence (AI) moves beyond data centres into real-world applications like robotics, autonomous systems and extended reality, it depends on high-performance 5G today and 6G tomorrow.” John Saw, T-Mobile's President of Technology and Chief Technology Officer, believes that “6G to us is more than just an ‘XG.’ We think it's the foundation for an AI-native future that distributes intelligence across devices, the edge, and the cloud.” Finally, Ajit Pai, President and CEO of CTIA stated that: “AI without a strong wireless network is like a new car without a road.”

Others share these concerns. An informative report from the Fiber Broadband Association argues that “[t]wo historic trends are unfolding at the same time: the nationwide deployment of fiber broadband infrastructure and the rapid buildout of the infrastructure required to support artificial intelligence, quantum networking, and other emerging applications.” FBA's report says: “AI workloads require high-capacity east-west traffic within and between data centers. They require low-latency pathways between inference platforms and end users. They require resilient interconnection among geographically distributed facilities.” The report argues that the current grid is evolving from a centralized system into a highly distributed network incorporating renewable energy resources, battery storage systems, distributed generation, microgrids, and intelligent controls. Managing this complexity requires real-time visibility and coordination.

A recent CTIA report argues that AI requires networks to move data, coordinate real-time decisions, and interact with the physical world. In turn, wireless networks rely on AI to manage the surging complexity and record traffic driven by AI’s own insatiable data demands:”

[I]t is now clear that AI traffic will strain existing wireless networks before the decade is out with huge new data needs, entirely new traffic patterns, and novel demands on wireless networks to do more than simply carry traffic….

[I]t will also require emerging 6G networks to be AI-native from the ground up with embedded intelligence to dynamically allocate spectrum, anticipate congestion, sense the physical environment, coordinate edge-compute workloads, and secure devices—all at machine speed.

Two final points. To maximize AI’s performance, the most important parts of the networks have to work differently than current networks. They will feature more east-west flows, lower latency, higher uploading speeds, and the ability to operate independently of humans. Second, the networks will have to be closely integrated into those of other industries, including healthcare, transportation, government services, and (of course) electricity.

In fact, building out modernized networks will require both fiber and wireless technology, as well as a lot of other inputs. Success will require massive investments in these modernized networks, most of which will come from the private sector. Given the large economic and security implications, public policy should concentrate on creating favorable conditions for private sector investment and working with allies to develop common standards and protections.

PRESS RELEASE: The Supreme Court Confirms Agency Commissioners May Be Fired at Will

 

Free State Foundation President Randolph May issued the following statement regarding the Supreme Court’s decision today in Trump v. Slaughter:

“The Supreme Court has now confirmed the handwriting on the wall. The president may fire, without cause, members of what were formerly known as ‘independent’ agencies, including FCC commissioners. The Court held, correctly in my view, that this power is dictated by the Constitution’s separation of powers scheme. 

As I have pointed out for years, it is highly likely that, even absent the Slaughter decision overruling Humphrey’s Executor, the president always has possessed the authority to dismiss FCC commissioners at will. This is because the Communications Act, unlike the FTC Act and other statutes, doesn’t contain at provision even purporting to limit the president’s dismissal discretion. Of course, pursuant to the Communications Act, the FCC still needs a quorum to operate, which means three confirmed commissioners."