Regulatory agencies have a shaky track record when it comes to addressing the Internet. Although the Federal Communications Commission has had little luck in attempting to impose regulation, it has become a major driving force behind the deployment of broadband internet access in rural and low-income areas. Having achieved near-universal telephone access through the development of its Universal Service Fund, the Commission recently shifted its focus to promoting broadband service. Although this realignment has been warmly welcomed by the public interest community, the FCC still faces two major challenges: how to secure funding from new sources despite shortfalls in statutory authority, and how precisely to define the term “broadband.” The Commission’s decisions on both these fronts will significantly determine the future of internet access in America.
In order to discuss the FCC’s role in developing rural broadband access, it’s important to understand the mechanisms the Commission established in the late 1990s to promote universal telephone service, as well as how the Commission plans to repurpose those mechanisms to support broadband initiatives.
In 1996, Congress updated the Communications Act of 1934 to (belatedly) reflect the advent of cable television and the breakup of telephone monopolies. In doing so, it set forth a goal of universal access to telephone service, identifying four key areas of focus: low-income communities, rural healthcare providers, schools and libraries, and communities where geographic conditions made installation costs impracticably high.
In order to fix the market failures in these areas, Congress created the Universal Service Fund (USF) as a mechanism to incentivize telecommunications companies to lay down physical telephone lines in underserved areas. The USF was a pool of money from which the FCC held “reverse auctions” where telephone companies would compete for contracts to lay down phone lines in targeted areas. The USF was funded entirely by “fees” (i.e. taxes) on all telecommunications companies which offered interstate services. (These categories were later expanded to include international calling and Voice over Internet Protocol, or VoIP, services.) Importantly, companies’ contributions were calculated as a percentage of revenue gained only from the qualifying services.
The USF was both massive and successful. Between 1998 and 2010, the FCC distributed (through the arm of its Universal Service Administrative Company) over $100 billion to fund telephony development in target areas. By July 2011, 95.6% of households in the United States subscribed to telephone service.
In 2011, the FCC announced that it would phase out the USF and replace it with the new Connect America Fund (CAF) by 2018. Rather than providing for phone service, the CAF will be used to fund broadband deployment in areas similar to those provided for under the USF.
The CAF, while a welcome development, leaves two lingering questions: who will pay into the fund, and how will the FCC define “broadband”?
The obvious answer to the former question seems to be internet service providers. However, the DC Circuit held in Comcast v. FCC, 600 F.3d 642 (2010), that the FCC does not have the power to regulate ISPs as a “broadcast service” (also known as a Title II service). In fact, ISPs remain entirely unclassified within the regulatory framework of the Telecommunications Act. As such, ISPs who do not also operate phone services do not currently pay into the USF, and will not have to pay into the CAF, barring a major structural overhaul. With the decline of traditional telephony and its replacement by electronic communication, it seems inevitable that the CAF will face a major funding crisis without the contribution of ISPs.
One solution would be to formally classify internet service providers as Title II services. However, this would subject all internet service providers to FCC rulemaking, including the specter of Net Neutrality. (Another solution proposed by some public interest groups, such as Public Knowledge, suggests classifying text messaging as a taxable Title II service as a kind of funding stopgap.)
Perhaps more immediately, the FCC has provided only vague guidelines outlining their definition of “broadband.” The benchmarks are set almost exclusively in download speeds, and do not reflect metrics such as latency, upload speed, or data caps. As a result, many providers of “satellite broadband” – which typically entails Draconian data caps measured per week, rather than per month – would be eligible for CAF funding. The push for rural broadband is in large part driven by its potential utility in health care, educational, and small-business settings; funding service plagued by low data caps and poor functional performance runs directly counter to the core values of the CAF.
Although the transition from the USF to CAF reflects an admirable and much-needed refocusing of telecomm and technology policy, many issues remain before it can truly function as intended.
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