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Dismantling Digital Deregulation: Toward a National Broadband Strategy

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Dismantling Digital Deregulation: Toward a National Broadband Strategy DISMANTLING DIGITAL DEREGULATION: TOWARD A NATIONAL BROADBAND STRATEGY By S. Derek Turner DISMANTLING DIGITAL DEREGULATION: TOWARD A NATIONAL BROADBAND STRATEGY TABLE OF CONTENTS THE REVOLUTION WILL NOT BE STREAMED 5 Abandoning the Commitment to Competition 7 The FCC’s Premature Deregulation 9 Making Up for Lost Time: A National Broadband Plan 10 DEFINING AMERICA’S BROADBAND PROBLEM 14 The American Decline 15 The U.S. Duopoly Fails to Deliver 19 The Digital Divide Persists as Broadband Becomes an Essential Service 23 Why Some States Are Falling Behind in Broadband Adoption 25 America’s Broadband Failures Are the Result of Policy Failures 27 AMERICA’S BROADBAND PROBLEM: COMPETITION 28 The Computer Inquiries and Competition Policy 30 From Computer II to the 1996 Telecom Act 32 Implementing and Undermining the 1996 Telecom Act 33 The Rest of the World Takes a Different Path 37 Cable TV and the Beginning of the End of Broadband Competition 39 The FCC Kills the Commitment to Competition 42 Platform Competition: Always Right Around the Corner 47 The FCC’s Blindness to Abuses of Market Power 52 FCC Endorses Monopoly Power in the Middle-Mile and Special Access Markets 55 The FCC’s Premature Deregulation of the High-Capacity Broadband Market 59 AMERICA’S BROADBAND PROBLEM: OPENNESS 62 Nondiscrimination and Content Control 63 The FCC Abandons Openness 65 The Early Network Neutrality Debate 68 The Evolution of the Network Neutrality Debate 71 The Case Against Comcast 73 Net Neutrality and the Need for a Fifth Principle 75 Dealing with Managed Services 77 Getting Back to Basics: Preserving the Open Internet Should Be a Top Priority 79 www.freepress.net 2 DISMANTLING DIGITAL DEREGULATION: TOWARD A NATIONAL BROADBAND STRATEGY AMERICA’S BROADBAND PROBLEM: ACCESS 81 Universal Service Policy at a Crossroads 83 Defining Universal Service: History and Rationale 84 1934 to 1996: Monopolies and Cross-Subsidies 84 Universal Service and the Telecommunications Act of 1996 86 Competition and Universal Service: Congress Moves to Explicit Subsidies 87 Implementing the 1996 Act 88 Current Status of Universal Service and Impetus for Reform 90 Universal Service and Broadband 91 Leaping Forward: A New Approach to Universal Service 92 The High Cost Fund 93 The Current Distribution of High Cost Funds 95 Modernizing the High Cost Fund for Broadband 101 Distributing the Broadband Deployment High Cost Fund 103 The Role of Mobile Wireless Telephony 105 The FCC Must Not Place USF Contribution Burdens on Residential Broadband Connections 106 Lifeline/Link Up for Broadband: What Is the Likely Impact? 106 Ending the Stalemate at the Commission 109 TOWARD A NATIONAL BROADBAND POLICY: 111 SOLVING AMERICA’S BROADBAND PROBLEM 111 Policies For Success: Developing a National Broadband Plan 113 Getting the Act Back on Track: Protecting the Internet as an Open Platform for Innovation 11 4 Getting the Act Back on Track: Achieving Universal Service 11 6 Getting the Act Back on Track: Developing a Meaningful Competition Standard 11 7 Getting the Act Back on Track: Properly Classifying Broadband 11 8 Getting the Act Back on Track: Using Section 706 to Promote Competition 11 9 Getting the Act Back on Track: Promoting Platform Competition 120 Conclusion 122 www.freepress.net 3 DISMANTLING DIGITAL DEREGULATION: TOWARD A NATIONAL BROADBAND STRATEGY FIGURES Figure 1: The Decline in U.S. Broadband Penetration 16 Figure 2: Leaders in Absolute Growth in Broadband Penetration 17 Figure 3: Price, Speed and Value of Broadband Connections 18 Figure 4: Broadband Penetration vs. Price 19 Figure 5: Top U.S. Broadband Providers 20 Figure 6: U.S. Broadband Market Duopoly 21 Figure 7: U.S. Broadband Speeds 22 Figure 8: U.S. Residential Broadband Speeds 23 Figure 9: Economic Digital Divide 24 Figure 10: Racial/Ethnic Digital Divide 24 Figure 11: Geographic Digital Divide 25 Figure 12: Household Broadband Adoption vs. Median Income 25 Figure 13: Household Broadband Adoption vs. Poverty 26 Figure 14: Household Broadband Adoption vs. Percent of Rural Population 26 Figure 15: The Best and Worst U.S. States in Broadband Adoption 27 Figure 16: Broadband Penetration and Open Access Policy 38 Figure 17: Broadband Price and Open Access Policy 38 Figure 18: Broadband Value and Open Access Policy 39 Figure 19: Earthlink on Time Warner Cable 45 Figure 20: The Decline of Earthlink and Covad 46 Figure 21: The Duopoly U.S. Broadband Market 48 Figure 22: No Indication of Mobile Broadband Supplanting Fixed Broadband 49 Figure 23: The Slow Performance of 3G Mobile Broadband 49 Figure 24: Percent of End-User Premises Without Broadband Deployment 49 Figure 25: Current Top U.S. States without Broadband Deployment 50 Figure 26: Top U.S. States without DSL Deployment in June 2005 50 Figure 27: DSL Adoption and Wholesale Access Policy 51 Figure 28: The Slow Death of CLECs 52 Figure 29: Special Access Runaway Rate of Returns 57 Figure 30: Top 10 Study Areas with Highest Special Access Rate of Returns 58 Figure 31: A Broken Regulatory System: Runaway Rate of Returns 58 Figure 32: Recoverable Interstate Investment and Returns 59 Figure 33: The Current USF Support Model 89 Figure 34: USF Disbursements by Program 90 Figure 35: Percentage of USF by Program 90 Figure 36: USF Contribution Base vs. Contribution Factor 91 Figure 37: High Cost Fund Disbursements 94 Figure 38: High-Cost Support: ILECs vs. CLECs 95 Figure 39: High Cost Fund Support by Program and Study Area Type 96 Figure 40: Per Line Monthly High Cost Fund Support by Program 97 Figure 41: Per Line Monthly High Cost Fund Support By Program and Study Area Type 97 Figure 42: Per Line Monthly High Cost Fund Support by Cost - All Carriers 99 Figure 43: Per Line Monthly High Cost Fund Support By Cost and Study Area Type 100 Figure 44: Current Participation in the Lifeline Program 107 Figure 45: Adoption of Internet by Low-Income Households 107 Figure 46: Potential Cost and Impact of a Broadband Lifeline Program 109 www.freepress.net 4 DISMANTLING DIGITAL DEREGULATION: TOWARD A NATIONAL BROADBAND STRATEGY CHAPTER 1 THE REVOLUTION WILL NOT BE STREAMED www.freepress.net 5 DISMANTLING DIGITAL DEREGULATION: TOWARD A NATIONAL BROADBAND STRATEGY INTRODUCTION: THE PROMISE OF THE INTERNET On a cold February morning 13 years ago, President Bill Clinton made history by signing the Telecommunications Act of 1996 into law. It was the first signing at the Library of Congress and the first to be streamed live over the Internet.1 This symbolism was intended to capture the legislation’s promise of bringing the information revolution to the doorstep of every American. As President Clinton signed a bill he described as “truly revolutionary” and that would “protect consumers against monopolies,” he spoke of the future the law would bring. “Soon, working parents will be able to check up on their children in class via computer,” he said. “On a rainy Saturday night, you’ll be able to order up every movie ever produced or every symphony ever created in a minute’s time.”2 Americans are still waiting on the promise of this digital revolution. The story of how this digital promise was broken is a tale of typical Washington politics. Before the ink was even dry on the 1996 Act, the powerful media and telecommunications giants and their army of overpaid lobbyists went straight to work obstructing and undermining the competition the new law was intended to create. By the dawn of the 21st century, what they could not get overturned in the courts was gladly undone by a new FCC staffed and led by the same lobbyists. Instead of “protection against monopolies,” consumers have been left with high prices, few choices and a duopoly of cable and phone companies. Instead of “every American child” being connected, today we have more than 20 million school-age kids without home Internet connections. And instead of every American being able to order up a movie in “a minute’s time,” today less than 5 percent of Americans have a home Internet connection capable of downloading a movie in less than 30 minutes.3 Worst of all, the promise of the Internet as a democracy-enhancing, free-flowing communications conduit is now in serious jeopardy.4 But this story actually begins long before the 1996 Act came into being. It begins nearly half a century ago, during a time when the network computing industry was in its infancy and the nation’s communications market was still a government-sanctioned monopoly. In the 1960s, the Federal Communications Commission began to craft a regulatory structure that would allow the Internet to grow and thrive as an open and competitive communications platform. The FCC established a bold series of safeguards through the so-called Computer Inquiries that would protect competition on the Internet from the monopoly whims of the phone companies that owned and controlled the Internet’s infrastructure. This regulatory structure was remarkably 1 See Mike Mills, “Ushering in a New Age in Communications; Clinton Signs ‘Revolutionary’ Bill into Law at a Ceremony Packed with Symbolism,” Washington Post, Feb. 9, 1996. 2 See “Remarks by the President in Signing Ceremony for the Telecommunications Act Conference Report,” The White House Of- fice of the Press Secretary, Feb. 8, 1996. 3 See infra Figure 8, explaining that only 4 percent of U.S. households subscribe to broadband connections with advertised speeds above 10 megabits per second. 4 At the 1996 Act’s signing ceremony, President Clinton said: “It is fitting that we mark this moment here in the Library of Con- gress. It is Thomas Jefferson’s building. ... He understood that democracy depends upon the free flow of information. … Today, the information revolution is spreading light, the light Jefferson spoke about, all across our land and all across the world.
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