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American Enterprise Institute’s Shallow Formula for Broadband Nirvana

AEI: If you bought broadband service, that means you like your service and don’t need or want anything better.

The American Enterprise Institute wants the FCC to judge to quality of America’s broadband based on what customers are able to buy today and how much they are willing to pay to get it.

Section 706 of the Telecommunications Act of 1996 requires the FCC to report to Congress whether broadband “is being deployed to all Americans in a reasonable and timely fashion.” As part of that process, the FCC must determine if Americans are getting internet connections capable of providing “advanced telecommunications capability.”

If the FCC reports to Congress that the country’s biggest telecom companies are letting their customers down with inadequate service or no service at all, that can create conditions for the FCC to step in and start insisting on more competition and oversight as well as setting benchmarks for providers to meet. If the report shows that broadband service is adequately provided, the FCC need not regulate, and in some cases such a finding will fuel calls to further deregulate the industry by getting rid of “unnecessary regulation.”

Not surprisingly, findings since 2001 have varied depending on which political party holds the majority on the Commission. Under President George W. Bush, the FCC consistently found broadband service was being adequately deployed to Americans. The FCC also set the bar pretty low on broadband speed, claiming anything at or above 4/1Mbps service constituted “broadband.” That definition comfortably accommodated DSL service from the phone companies.

Wheeler – Argued for better broadband and more competition.

During the Obama Administration, the FCC set the bar higher. With dissent from the Republican minority, the FCC raised the minimum speed that could be defined as broadband to 25/3Mbps, immediately excluding most DSL and wireless connections. In 2015, former FCC Chairman Thomas Wheeler specifically excluded satellite and wireless connections from that formula, despite objections from FCC Commissioner Ajit Pai. Particularly under Wheeler’s watch, the Democratic majority frequently complained about inadequate broadband and competition, and used Section 706 as its authority to override state laws in North Carolina and Tennessee that placed onerous restrictions on municipal broadband networks. Wheeler felt such laws were anti-competitive, but the courts ruled the FCC exceeded its authority and overturned his pre-emption orders.

Under the Trump Administration, FCC Chairman Ajit Pai seems to be headed down a similar path taken during the Bush Administration, which was optimistic about the state of broadband service and, as a result, applied a lot less pressure on the telecommunications industry.

Chairman Pai is seeking to overturn current Net Neutrality regulations and seems ready to support efforts to undermine the broadband speed standard established by his predecessor. That would allow mobile/wireless companies to offer 10/1Mbps speed and have it qualify as broadband service. Even better, ISPs — wired or wireless — would be considered “competitive” in many cases, even if only one provider offered service in the area.

Pai’s proposal was met with serious objections from Democratic Commissioner Mignon Clyburn who claimed even the current 25/3Mbps standard no longer met the definition of “advanced telecommunications capability.”

“The statute defines advanced telecommunications capability as broadband that is capable of ‘originat[ing] and receiv[ing] high-quality voice, data, graphics, and video telecommunications. High-definition video conferencing is squarely within the rubric of ‘originating and receiving high-quality… video telecommunications,’ yet the 25/3Mbps standard we propose would not even allow for a single stream of 1080p video conferencing, much less 4K video conferencing. This does not even consider that multiple devices are likely utilizing a single fixed connection, or the multiple uses of a mobile device.”

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Pai: Wants broadband providers and the competitive marketplace to determine whether broadband is good enough.

AEI dismissed the entire debate, claiming the only people who will respond to the FCC’s request for comments on the subject will be “pundits, special interests, and companies with skin in the game.”

Instead, AEI proposes the FCC rely on watching customers navigate their broadband options — a monopoly for some, duopoly for many others — and only address problems if something unusual emerges. AEI’s test is to see if “a location or demographic is inexplicably different and purchases less than would be expected.”

If something odd does happen in a particular area, AEI argues there could only be two reasons for that:

  • Barriers to competition;
  • Outdated government regulations and policies standing in the way of progress.

Missing from AEI’s list of possibilities is the presence of an abusive monopoly provider, a comfortable duopoly among two providers with no interest from a third competitor to enter the market, or an area served by two lackluster providers that won’t invest in their networks.

AEI’s test depends entirely on gathering data about what internet services are available for sale in any particular area now and then study who is buying what. But this does not measure customer satisfaction or consider whether those speed tiers and prices are adequate.

Under AEI’s test, “if a geographic area does not have broadband, the FCC could use the results of its customer study to determine what customers in the area would likely find valuable. Then, the FCC could do a cost-benefit study and an economic feasibility study — and conduct a reverse auction if a subsidy is potentially needed — to determine what, if any, financial incentive might be appropriate for the area.”

In other words, the same think tank that has been on record for decades opposing government subsidies to private companies now wants to offer telecom companies government funding to build what would become largely unregulated privately-owned broadband networks that would run with little or no oversight.

AEI’s willingness to let “customers express their opinions through their purchases” is hardly an adequate replacement for current broadband policies designed to keep the U.S. competitive with the rest of the world and ensure adequate service and competition. As any cable subscriber knows, you can subscribe to Comcast or Charter/Spectrum and still loathe your options and want something better. AEI doesn’t appear interested in seeing you get those options, much less preserve what little oversight, consumer protection, and broadband benchmarks we have now. Neither does current FCC Chairman Ajit Pai.

Bloomberg Editorial Calls Broadband a Necessity of Modern Life; A Public Utility

A business news service that has traditionally supported private, free-market business interests has called on the government to declare broadband essential for navigating daily life and to get more involved in assuring every American has access to it.

The editorial board of Bloomberg News published an extraordinary opinion piece this morning urging government involvement and oversight to resolve the rural broadband gap once and for all.

It is often said that internet service, like electricity or water, should be treated (and regulated) more like a public utility. Without wading into the contentious and long-running debate about that, it’s easy enough to point out that the government can do more, at the margins, to help bring better internet service to places where the market hasn’t. Fast internet service is to the 21st century what a telephone line was to the 20th: essential to navigating daily life.

The editors point out that 39% of rural America — 23 million people — still lack suitable internet access despite years of speeches from politicians, targeted or restricted-use public funding, government grants, and public-private “partnerships.”

Bloomberg rightly calls out the biggest impediment to rural broadband expansion — funding for last-mile infrastructure projects that actually deliver broadband service to unserved homes and businesses, not just public institutions or exclusive office parks. Because private phone companies (and to a lesser degree cable operators) either do not want the funding to come with strings attached or seek taxpayer funds to transfer the cost of rural investment away from shareholders and on to the government, the results have been patchy service and scandals.

Some companies, like Verizon, have shown almost no interest in government subsidies to further expand DSL service into its most rural territories. Others, like Frontier Communications, are aggressively seeking funding to defray the cost of wiring rural areas and, alleges one government oversight report, discovered a ‘revenue opportunity’ for itself along the way.

A report by the U.S. Commerce Department’s Office of Inspector General alleged Frontier has become an expert on gaming the system with padded invoices that overcharged a federal grant program $4.7 million dollars. Company employees reportedly even boasted about their ability to creatively ripoff taxpayers:

The scathing, 31-page report declared the payments “unreasonable” and “unallowable.” Meanwhile, Frontier saw the tacked-on charges as a “revenue opportunity,” according to an internal company email cited in the report. Frontier employees referred to the extra fees as “markups” and “profit.”

Bloomberg’s editors think the FCC should keep rural broadband expansion funding simple and avoid favoring one technology over another. Various grant programs have failed in the past because they are exceptionally specific about the kinds of technologies that qualify for funding, set unreasonable deadlines, improperly vet the financial capabilities of applicants, and attract some applicants that tailor-write applications to fit funding opportunities instead of creating sustainable and meaningful projects that can remain solvent and operating after the grant funding ends.

The different approach advocated by Bloomberg calls on the government to set goals and benchmarks and avoid micromanaging how applicants achieve them. For example, Bloomberg supports the FCC’s 25Mbps minimum definition of broadband, but could care less how providers deliver that speed to rural consumers — via satellite, cable, or something else. It also thinks the current grant system favors incumbent rural phone companies and that has not benefited consumers. Bloomberg’s editors believe startups can bring innovative solutions to rural broadband problems that rural phone companies may not have the ability or flexibility to deliver themselves.

Some comments on the piece believe Bloomberg can find its “win-win” solution to the problem by targeting funding on rural, member-owned energy and telephone co-ops, instead of investor-owned utilities like Frontier, CenturyLink, and Windstream.

“The same entities that were responsible for bringing power to rural areas would be the perfect vehicle for stringing internet cable to those same customers,” wrote one commenter. “Namely, the rural electric co-ops who continue to serve this vital need.”

Frontier Fires West Virginia’s Senate President After He Refused to Block Pro-Competition Bill

Frontier is the dominant phone company in West Virginia.

Frontier Communications terminated the employment of West Virginia Senate president Mitch Carmichael just weeks after he refused to kill a pro-competitive state broadband expansion bill the company fiercely opposed.

Carmichael (R-Jackson), worked for Frontier for six years, most recently as a sales executive. Shortly after voting in favor of a bill making it easier for public broadband co-ops to deliver better broadband service in West Virginia, he was suddenly given two weeks notice his employment was being terminated.

Frontier refused to comment about its sudden decision to eliminate Carmichael’s job, but there is speculation the company was unhappy with Carmichael’s unwillingness to act on their behalf in the state legislature. Carmichael told the Charleston Gazette his dismissal came as a complete surprise, and he was not aware of any other layoffs in recent weeks.

“This was not something I wanted at all,” Carmichael told the newspaper. “They had a bad year, from a legislative perspective. They severed ties from me. 

Carmichael also noted Frontier was insistent on getting him to sign a nondisclosure agreement that would forbid him from talking about his job being terminated. He claims he refused to sign it.

The newspaper calls Carmichael Frontier’s most powerful ally in the state legislature. As Senate president, Carmichael was instrumental in killing a 2016 bill that would have launched a statewide municipal broadband network that Frontier never wanted to see get off the ground. Carmichael argued the competing network would have discouraged Frontier from investing in or expanding its own network, largely acquired from Verizon Communications in 2010. The bill died in the House of Delegates.

Carmichael

But as West Virginians continue to endure poor quality DSL service from Frontier and the company continues to experience financial pressures from its declining stock price and increasing investor discontent, it seemed unlikely Frontier would embark on dramatic new spending to boost internet speeds. This year, legislators proposed allowing up to 20 families or businesses to form nonprofit co-ops to offer internet service where Frontier and other providers have failed to expand service. The bill also permits up to three cities or counties to join forces and jointly construct new public broadband networks.

Frontier’s lobbyists loathed the bill, worrying about the prospects of facing new competition. The company devoted significant attention to block the bill in the legislature, but was apparently surprised when Carmichael refused to repeat his 2016 objections and recused himself from debate on the bill, and later voted for it. A short time later, his job was gone.

Whether Frontier assumed Carmichael’s primary loyalty should lay with the company and not the public that elected him to office isn’t known. Ironically, Carmichael tried to leave Frontier last summer after accepting a job with Frontier rival Citynet. Frontier offered a lucrative pay increase to convince Carmichael to change his mind. Ultimately, Carmichael returned to Frontier days later last August after he said the company begged him to stay.

Carmichael makes it clear he wasn’t in office just to represent Frontier’s political and corporate interests.

“The one thing I’m not going to do here as Senate president is advance special interests,” Carmichael told the newspaper. “It was obvious the body [Legislature] wanted that bill, and I wasn’t going to stand in the way of it.”

New Report Attacking Municipal Broadband Thin on Facts, Heavy on Hypocrisy

When the multibillion dollar telecom industry wants to push its narrative about telecom public policy, it employs an army of secretly funded astroturf groups, corporate-backed “policy institutes,” professional lobbyists, and ex-regulators and politicians that help move their agenda forward.

One of the latest methods to win influence is finding researchers willing to produce scholarly reports offering “independent” analyses of regulatory policies or telecom company business practices. It has now become a cottage industry, with the same select few authors regularly writing papers that align perfectly with the interests of cable and telephone companies that sponsor the groups, think tanks, or schools that employ them.

The blurred line between academic independence and “research-for-hire” has become increasingly indefensible at the nation’s think tanks, where politically motivated individuals and corporate donors funnel millions in funding with the expectation the think tank, its leadership and researchers will fall in line with the political views of the donor and act accordingly. When they don’t, the checks stop coming or a donor-led coup d’état similar to what happened in April at the Heritage Foundation can follow.

The idea that a think tank represents an independent body of researchers tackling random issues of the day without bias is quaint and often a thing of the past. These days, some think tanks and policy institutes dependent on corporate and big donor contributions are little more than willing corporate tools in policy and regulatory debates. Last month, this reached a new level of absurdity with the announcement that the MGM Resorts — a Las Vegas casino, was starting its own policy institute co-chaired by retired Sen. Harry Reid and former House Speaker John Boehner. Neither will be working for free. The stated purpose of the MGM think tank is to “concentrate on comprehensive, authentic and relevant national and international policy issues that impact the travel, tourism, hospitality and gaming industries and the global communities in which they operate.”

In short, it’s another way for the casino industry to lobby while operating under a veneer of independence at the University of Nevada, Las Vegas.

If a researcher cannot find work at a policy institute or think tank, they can always produce research papers under the auspices of a university or business school that welcomes corporate funding. These institutions assume they are protecting their credibility and reputation with claims of a firewall between industry money and research, yet too often the reports that result from this arrangement are embarrassingly industry-aligned. Questions of conflict of interest are also increasingly common when a researcher turns up at hearings to deliver ostensibly independent testimony on issues like regulation or their views about multi-billion dollar mergers and acquisitions that are in perfect alignment with the companies that donate to that researcher’s employer.

Yoo

Researchers like Christopher Yoo at the University of Pennsylvania Law School in Philadelphia bristle at the notion corporate dollars play any role in his research or findings, despite the fact he was accused of a major conflict of interest testifying strongly in favor of Comcast’s attempted merger with Time Warner Cable in 2014. Yoo defended the Comcast deal at every turn, telling Congress the merger would have little impact on consumer prices or competition, despite the fact ample antitrust concerns ultimately torpedoed the deal.

Yoo avoided disclosing the fact he had ties to Comcast’s chief lobbyist David Cohen, who sat five seats to his right at the hearing. Cohen served as chairman of the board of trustees at the University of Pennsylvania and Comcast is an extremely generous financial donor of the university — two obvious conflicts of interest that observers expressed shock were not disclosed in advance. Yoo focused instead on delivering testimony we characterized back in 2014 as “a nod in Cohen’s direction with an affirming, ‘whatever he said.'”

When the media called him out on the subject, Yoo downplayed any connection or conflict.

“The views of any other person in the university administration do not have any impact on my academic views or any public statements I make,” Yoo told the Washington Post. He added the Center for Technology, Innovation, and Competition that he founded was only “a tiny little bit” funded by the cable industry. We’ll fact check that claim shortly.

Like Harry Reid and John Boehner, Christopher Yoo does not work for free. Despite his claims that as a tenured professor, his academic freedom is protected, Mr. Yoo’s recent written work has been so closely aligned with the interests of the nation’s cable and phone companies, he comes alarmingly close to being an academic version of a corporate sock puppet.

Yoo is hardly the only researcher that has an amazing record of producing studies that coincidentally line up in perfect unison with the public policy interests of giant cable companies. Daniel Lyons of Boston College Law School prodigiously writes papers defending the cable industry’s practice of data caps. He’s been hard at work since 2012 trying to convince anyone that would listen that data caps are good for consumers, competition, and innovation. Like Yoo, Lyons was also a big supporter of Comcast’s attempted purchase of Time Warner Cable, “spontaneously” and “independently” penning long letters to the editor to newspapers all around the country defending the deal.

So what causes researchers to suddenly decide to write about some topics but not others? Random chance or money?

Last month, Yoo unveiled his latest paper, “Municipal Fiber in the United States: An Empirical Assessment of Financial Performance,” co-authored by Timothy Pfenninger.

Yoo claimed in his executive summary that the “current emphasis on infrastructure projects in the United States has intensified the debate over municipal broadband.” That’s news to us. In fact, the high water mark of the municipal broadband debate occurred in the last administration when FCC Chairman Thomas Wheeler sought to nullify corporate ghostwritten municipal broadband bans passed by several state legislatures.

Yoo decided he would be a “helper” for cities contemplating repeating the success of EPB, the municipal power company in Chattanooga, Tenn., that built a successful public gigabit fiber to the home broadband network for the city and nearby communities. The “widespread news coverage” of EPB that Yoo wrote about, without mentioning it was almost exclusively positive, has apparently inspired a number of other communities to contemplate repeating Chattanooga’s success story.

In what we like to call Yoo’s “Fear, Uncertainty and Doubt” opening, he warns “city leaders who turn to existing municipal fiber analyses for guidance will discover that these studies limit their focus to the supposed success stories instead of systematically analyzing these systems’ financial performance.”

So instead of those studies, Yoo offers his own, which he claims “fills the information gap” by creating a whole new systematic analysis, using Yoo’s own hand-crafted criteria, to judge the success or failure of municipal broadband.

He doesn’t waste any time hinting municipal broadband is a bad idea, puts cities at risk for defaults, bond rating reductions, and taxpayer bailouts. In fact, Yoo characterized municipal broadband as a mere distraction from more important priorities he claims communities have. And besides, there is evidence showing “little current need for [the] high broadband speeds” that community broadband networks offer that incumbent cable and phone companies won’t.

Yoo’s take is like bringing a boyfriend home to your parents who claim they support and love you no matter who you date but then spend the next two hours telling you why he’s all wrong for you.

Follow the Money

We thought it would be useful to look into Yoo’s claims and conclusions more carefully. As always, we focused on two things: fact-checking the evidence and following the money.

It took very little time to turn up more red flags than one would find at a May Day parade in Red Square.

Academics with conflicts of interest or uncomfortably close ties to the telecom industry and the reports they peddle often escape scrutiny, because their research can intimidate journalists unprepared to challenge their premise, research, or conclusions without a substantial investment of time and fact-checking. But as we’ve learned over the years, there are very clear warning signs when more investigation is necessary.

We’re not alone. This week National Public Radio updated its Ethics Handbook with “a cautionary tip sheet about relying on the work product of think tanks.

It is “our job to know about ‘experts’ conflicts of interest” and share that information with our audience (or not use experts whose conflicts are problematic).  As we’ve said, it’s not optional. Click here for related reading from JournalistsResource.org. It includes “some questions journalists should ask when researching think tanks.” Among them:

  • “Look at the think tank’s annual report. Who is on staff? On the board or advisory council? Search for these people. They have power over the think tank’s agenda; do they have conflicts of interest? Use OpenSecrets’ lobby search, a project of the nonpartisan Center for Responsive Politics, to see if any of these individuals are registered lobbyists and for whom.
  • “Does the organization focus on one issue alone? If so, look carefully at its funding.
  • “Does the organization clearly identify its political leanings or its neutrality?
  • “Does the annual report list donors and amounts? Are large donors anonymous? If the answer to the second question is yes, you should be concerned that big donors may be trying to hide their influence.
  • “Does it have a conflict of interest policy?”

The Shorenstein Center on Media, Politics, and Public Policy is even more frank in its warning to journalists who rely on think tanks and industry-based research:

[…] Entrenched conflicts of interest across the political spectrum, and pandering to donors, often raise questions about their independence and integrity. A few years ago, think tanks were seen as places for wonky scholars and former officials to bang out solutions to critical policy problems. But today, as the Boston Globe has written, many “are pursuing fiercely partisan agendas and are funded by undisclosed corporations, wealthy individuals, or both.”

Something smells funny.

Unsurprisingly, Yoo’s research was immediately distributed and promoted by a range of groups critical of public broadband to build what they believe to be an authoritative record against municipal broadband initiatives. In effect, ‘it isn’t just us saying public broadband is a bad idea, look at this ”independent” research.’

But exactly how independent is the research produced by Mr. Yoo and his Center for Technology, Innovation and Competition (CTIC)? Unfortunately, Yoo does not follow the common practice of disclosing the funding sources for his research and report. If it was funded through the Center, that should be disclosed. If a corporate donor provided funding or a stipend, that should be disclosed. If part or all of Mr. Yoo’s compensation comes from a bank account replenished in part or whole by an outside company, that should be disclosed. If he wrote the report in this spare time for fun, that should be disclosed as well.

Since Mr. Yoo doesn’t talk about the money, we will.

The CTIC’s website spends some time predicting the obvious conflicts of interest questions raised by its extensive corporate donor base.

“The Center for Technology, Innovation & Competition (CTIC) receives financial support from corporations, foundations, and other organizations that is vital to our continued growth and success,” the website states, which means without that support, there probably would be no CTIC.

Which corporations donate money is important to consider. If a substantial amount of a researcher’s funding comes from telecom companies that are either on record opposing public broadband, or would be forced to compete with a municipal broadband provider, that would represent a very clear conflict of interest.

CTIC attempts to inoculate itself from accusations it has that inherent conflict of interest with this statement on its website:

“CTIC does not accept financial support that limits our ability to conduct independent research. This allows us to produce scholarship that is free from outside influence and consistent with Penn’s ethics and values. All corporate donors agree to provide funding free from restrictions and promised results or deliverables.”

But that is not adequate enough to protect readers from researcher bias introduced by the donor funding that CTIC admits is “vital” to their existence. Consider the example of the tobacco industry, one of the first to leverage researchers willing to write papers created to distort, downplay, or confuse the debate about the safety of tobacco products. There was no need for a tobacco company to limit researcher independence or demand a certain result. That allowed researchers to claim editorial independence, but they also understood that if their reports did not meet the expectations of the tobacco company that paid for them, they would never be made public and that researcher would never be used again.

A corporate donor is unlikely to continue funding an organization that issues reports it disagrees with or worse, publicly bolsters its competitors or criticizes its public policy agenda. Had Yoo concluded municipal broadband was an ideal solution for the rural broadband, internet speed, and competition problems in this country would AT&T, CTIA, Comcast, Charter/Time Warner Cable, NCTA and Verizon still send them checks?

While considering the veracity of Mr. Yoo’s research and conclusions, do you believe CTIC’s donors would be pleased or unhappy about the report? Here is the list of companies and groups that help keep the lights on at CTIC:

  • American Tower (owns cellular and broadcast transmission towers)
  • AT&T
  • Broadband for America (funded by the cable/telco industry)
  • Cellular Operators Association of India
  • Comcast-NBC Universal
  • CTIA (the cellular industry’s top lobbying trade association)
  • Facebook
  • Google
  • GSMA (Mobile industry trade association)
  • ICANN
  • Information Technology Industry Council
  • Intel
  • Internet Society
  • Microsoft
  • National Science Foundation
  • NCTA (cable industry’s top lobbying group)
  • New York Bar Foundation
  • Qualcomm
  • Time Warner Cable (now Charter Communications)
  • Verizon
  • Walt Disney Co.

It’s clear there are few friends of municipal broadband donating to the CTIC while we count about eight likely opponents.

Even the way Mr. Yoo introduced his municipal broadband report at a Wharton Business School “broadband breakfast discussion” opened the door to more questions. To suggest the panel was stacked against public broadband would be an understatement.

In addition to Mr. Yoo, the former mayor of Philadelphia and governor of Pennsylvania Ed Rendell — who was hired by Comcast-NBC Universal less than two months after coming out in strong support of the merger of Comcast and NBC-Universal, was tasked with keynote remarks. Joining both on the discussion panel was Frank Louthan, a Wall Street analyst for Raymond James who regularly covers big cable and telco companies for investors and wouldn’t appreciate giving the bad news to clients about municipal broadband’s profit-killing competition and Douglas Holtz-Eakin, president of the corporate dark money-backed American Action Forum who seemed enamored of all-things Comcast. In 2014, Holtz-Eakin went out of his way to write a long piece urging regulators to approve the Comcast-Time Warner Cable acquisition as soon as possible.

Anyone who wanted to hear a positive view of municipal broadband would have had to eat breakfast somewhere else.

Yoo’s “Evidence”

For the benefit of readers and local officials that want a more detailed refutation of Mr. Yoo’s study and his findings on the granular level, we point you to Community Broadband Networks’ excellent report debunking the obviously biased findings from Mr. Yoo, who appears to be working on behalf of some of America’s largest telecom companies. Mr. Yoo will claim those companies did not sponsor the study, but we remind readers that without the extensive donor support of Yoo’s group from the telecom industry, there would likely be no study.

But we found several red flags to share as well.

Red Flag #1: Changing the metrics.

Mr. Yoo hand-selects the metrics by which municipal network success or failure can be determined… by him. He relies on Net Present Value, a particularly complicated and not always accurate measurement of a network’s prospects for success or failure. Clearly, every municipal network will face some challenges. Many are in areas deemed unprofitable to serve by the commercial telecom industry. But then, municipal broadband is all about solving the problem of broadband accessibility that other ISPs won’t. These public networks don’t exist to make shareholders and executives rich, nor do they have to allocate money to pay shareholder dividends. Even commercial ISPs have their hands out looking for subsidies to wire rural areas they would otherwise never serve. There is more to the story of municipal broadband than profit and loss.

Red Flag #2: Financing concrete.

Mr. Yoo’s predictions that some networks may never pay off their debts or will take dozens of years or more doing so assumes almost nothing changes for those networks in the near or distant future. Broadband networks are constantly evolving, as are potential revenue sources. Imagine a cable company having to exclusively rely on cable TV revenue to pay down their debt. Then remember the day cable operators discovered they could use a portion of their existing network to sell something called “broadband” service for another $30 a month. Ancillary revenue from the introduction of innovative new products and services is precisely how the cable industry successfully boosted subscriber revenue even in mature markets where adding new customers was challenging. They followed the time-tested principle of selling more things to the customers they already have.

But then Mr. Yoo agreed with this concept himself… when he was talking about the some of the same telecom companies that write his group checks. Municipal networks are somehow… different, however:

The development of the Internet has greatly increased the value of the services that can be provided by last-mile networks. The rollout of convergent technologies, such as Internet telephony and packet video, will break down the barriers that previously limited the revenues generated by any particular transmission technology. Cable is already able to provide voice through its coaxial network, and it is just a matter of time before telephone companies are able to provide video. Application-based distinctions between transmission media will completely collapse once all applications become packetized.

He also downplays the tool of refinancing. Altice turns that concept into a weekend hobby. This European cable conglomerate’s business plan leverages debt like no other cable operator. It manages that debt by regularly repackaging and refinancing debt at lower rates as it also works to pay it down. These same options are available to municipal providers.

Red Flag #3: Municipal broadband is too expensive, or is it?

There are massive start-up costs to build broadband networks, costs that might put a community’s finances at risk, Yoo’s report concludes. That leaves the obvious impression communities should avoid going there. But that wasn’t the attitude he had in 2006, when network costs were even higher than they are today.

“The economics of the last mile have changed radically in recent years,” Yoo said. “The fixed costs of establishing last-mile networks have dropped through the floor. Switching equipment that used to take up an entire building can now be housed in a box roughly the size of a personal computer. Copper wires have been replaced by a series of innovations, including terrestrial microwave, satellites, and fiber optics, which have greatly reduced the costs of transmission.”

When he is talking about municipal broadband, he seems to tell an entirely different story. Why might that be?

Red Flag #4: Yoo misrepresents the problem.

Mr. Yoo has reflexively defended his donor base for several years across a myriad of broadband public policy issues — data caps/zero rating, Net Neutrality, mergers and acquisitions, network costs, and more. The hypocrisy emerges when his entirely different standards for municipal broadband become clear.

The toll from “personal turmoil and distraction” Yoo worries about with municipal broadband projects ignores the real problem — the lack of suitable broadband in a community with no solution in sight. Just ask families that drive their kids to a fast food restaurant to borrow a Wi-Fi connection to complete homework assignments, or the difficulty getting broadband in a neighborhood bypassed by DSL or cable. If a community defines broadband as an essential utility, it provides it even if it doesn’t turn a profit. Public infrastructure projects are not unusual. The amount of money spent by an industry worried about losing its duopoly or monopoly profits to oppose such projects could have been spent on improving and expanding service.

If a local community wants a municipal solution, it is Mr. Yoo’s donors that create most of the turmoil by ghostwriting municipal broadband bans into state law and filing groundless stall tactic lawsuits designed to protect their markets or run up costs.

Red Flag #5: There is “little current need” for high broadband speed (unless Comcast offers it).

One of the best clues that Mr. Yoo’s research isn’t as “independent” as he implies is the fact his conclusions seem to change depending on whether he is referring to a corporate ISP or a municipal provider. For example, Yoo’s study downplays the importance of gigabit fiber speeds. In one highlighted statement, Yoo declares, “The U.S. take-up rate of gigabit service remains very low, and media outlets report that consumers are questioning if gigabit service is really necessary.”

“The media” in this case is Multichannel News, a cable industry trade publication that has changed its tune about that subject recently and now publishes stories regularly about ISPs across the country moving towards gigabit speeds. In the article noted by Yoo, the story quotes a single CenturyLink executive who claims customers can live with the slower speeds CenturyLink often provides, but also admits his company is working to deploy, wait for it, gigabit-capable networks. As Stop the Cap! has explained to readers for a decade, the companies that always claim consumers don’t need a gigabit are the same ones that do not offer it to a large percentage (or any) of their customers. Yoo fails to explain why so many ISPs are preoccupied with offering fast internet speeds that he declares are unwanted, especially when a municipal provider plans to offer them.

Yoo’s allegiance to the current big cable and phone company provider paradigm is revealed when you scrutinize his reasons why community fiber is unnecessary. Take this example from his report:

“Wireless technologies—such as 5G—and legacy copper technologies—such as G.fast—are also exploring ways to provide gigabit speeds without incurring the cost associated with FTTH.”

“Exploring” is very different from “delivering.” Let’s also not forget he held a very different view when he wasn’t slamming municipal broadband:

“On the one hand, the Bell System created a telephone network that was the envy of the world and pioneered Nobel Prize-winning breakthroughs such as the transistor. On the other hand, it was extremely slow to deploy innovative technologies like DSL.”

It’s also important to note a large percentage of community broadband networks are based on fiber optics while commercial wireless companies like AT&T and Verizon are among the few willing to deploy 5G and incumbent telephone companies show only limited interest in G.fast.

And again, Yoo should take a bit of his own advice on picking or discouraging technology or municipal broadband provider winners and losers:

“At this point, it is impossible to foresee which architecture will ultimately represent the best approach. When it is impossible to tell whether a practice would promote or hinder competition, the accepted policy response is to permit the practice to go forward until actual harm to consumers can be proven. This restraint provides the room for experimentation upon which normal competitive processes depend. It also shows appropriate humility about our ability to predict the technological future.”

Red Flag #6: Innovation is in the eye of the beholder. (Subject to change on a whim).

Yoo also distorts a 2014 New York Times article by focusing on the lack of applications available to take advantage of gigabit speeds. But he ignores the fact that customers and entrepreneurs are delighted that speed is available, and offers the potential of significant innovation including very high quality video and enough bandwidth to power the explosion of connected devices in the home. Every major ISP in the country reports consumers are upgrading to faster internet packages, and some customers remain dissatisfied those speeds are still not fast enough.

Again, Yoo is suspiciously inconsistent. When major ISPs sought permission to develop faster traffic lanes for brand new services, Yoo was one of the biggest supporters of the innovation opportunities of that concept:

He hopes that the FCC’s easing restrictions on broadband providers’ ability to charge different prices for delivering different Internet content could spur innovation by allowing both established companies and startups to offer new online services tailored for the Internet “fast lane” delivery. For instance, Yoo pointed to the differentiation between standard U.S. first class postal service with overnight FedEx mail and noted how new businesses have grown around the overnight delivery option.

Apparently the distinction is that companies like Comcast have to be the mail carrier for that to be any good. If a community does it, that means it is unwanted, unnecessary, and bad.

We could go on and on, but we assume most readers get the point. Fixing facts around a narrative has been a part of the telecom industry’s cynical lobbying for decades. Let’s face facts. Yoo’s donors don’t want the competition and don’t want to be forced to invest in upgrades they should have completed long ago. Yoo’s report is part of the campaign to stop municipal broadband before it gets off the ground.

Where did we learn this? From Yoo himself, who wrote the best way to improve broadband is remove barriers that keep new providers, including municipal ones if he wants to be consistent, from launching service:

“Competition policy thus teaches us that any vertical chain of production will only be as efficient as its least competitive link. The proper focus of broadband policy is to identify the level of production that is the most concentrated and the most protected by entry barriers and to try to make it more competitive.”

“Furthermore, large, established players have more resources and experience with which to influence the regulatory process.”

Those are two things we can agree on.

FCC’s Mike O’Rielly Tells ALEC FCC Should Ban State Laws on Broadband Privacy, Consumer Protection

O’Rielly

Republican FCC Commissioner Mike O’Rielly wants the FCC to prohibit states from attempting an end run around the current majority’s broad-based deregulation of ISPs, likening it to a war of socialist forces vs. free market capitalism.

Speaking at the American Legislative Exchange Council’s Spring Task Force Summit Annual Summit in Charlotte, N.C. on May 5, O’Rielly made it clear he intends to stop states from writing broadband privacy rules to replace those killed by the Republican majority in Congress and also wants to restrict states from enacting new rules impacting Voice over IP and broadband. O’Rielly told the audience he had already spoken to Chairman Ajit Pai about his ideas, potentially giving his agenda a majority vote on the Commission. Currently, the FCC has just three commissioners – Ajit Pai, Mike O’Rielly, and Democrat Mignon Clyburn.

In earlier remarks, Pai rejected allowing states to make their own decisions about broadband privacy policies.

“It is both impractical and very harmful for each state to enact differing and conflicting privacy burdens on broadband providers, many of which serve multiple states, if not the entire country,” said Pai. “If necessary, the FCC should be willing to issue the requisite decision to clarify the jurisdictional aspects of this issue.”

FCC action could potentially pre-empt any state laws from at least 10 states that have either passed ISP privacy laws or are planning to.

O’Rielly declared he intends to move broadband regulation away from the agenda favored by the Obama Administration’s FCC chairman Thomas Wheeler and return to hands-off policies allowing cable and phone companies to manage their businesses without government interference. O’Rielly told a cheering audience at the corporate-funded conference that under Chairman Pai’s watch, the FCC will return to “its previous approach to broadband that enabled staggering innovation, creativity, competition, disruption and consumer benefit.”

O’Rielly characterized groups fighting for consumer legislation banning zero rating/data caps, rate regulation, oversight, and consumer protection laws as part of a nefarious “progressive agenda to vanquish capitalism and economic liberty.” Like ALEC, O’Rielly claimed, the FCC has been unfairly attacked by progressive groups that call out both Chairman Pai’s agenda at the FCC and ALEC itself for ghostwritten legislation actually written by large corporate interests and passed for their welfare.

“Like ALEC, the new commission is facing its share of unwarranted and inappropriate criticism,” O’Rielly complained.

O’Rielly’s speech declared war on three hot issues broadband companies and consumers are concerned with: Net Neutrality, community-owned broadband networks, and state regulators seen as meddling with the free market.

  • Net Neutrality: “All of the propaganda in the world cannot paper over the fact that these new burdens were not in response to actual marketplace events but hypothetical concerns dreamed up by radical activists.”
  • Regulation of Voice over IP Phone Service in Minnesota to assure quality of service: “Such inappropriate jurisdictional overreaches by states should be nipped in the bud.”
  • Municipal Broadband: “It would be easy, as some have done, to blindly support any means necessary to get more and faster broadband to people they represent.”

O’Rielly sought a tighter partnership with ALEC to stop consumer groups from enacting new laws that protect an open internet:

“The members of ALEC can serve an important role as the new Commission seeks to restore free market principles to broadband offerings. Many of you know all too well of the pressure on us to buckle and acquiesce to the whims of the misinformed screaming for Net Neutrality. You likely face it at your respective statehouses as you debate the various matters before you. The ‘progressive agenda’ being pushed in so many settings is really an effort to use government as a means to redistribute hard earned assets from one group of people to favored interests. Do not let your voices go unheard as Net Neutrality advocates slowly, but surely, seek to drag the U.S. economy toward socialism.”

On municipal broadband, O’Rielly stretched his premise into a comparison of communities that want to have the ability to build their own networks with past offers of discounted heating oil from former Venezuelan dictator Hugo Chavez, suggesting good deeds on the surface may lead to unintended consequences later on.

Byron is on ALEC’s Communications and Technology Task Force

O’Rielly has also been infuriated with Minnesota’s Public Utilities Commission, which has been sparring with Charter Communications over its cable “digital phone” service in the U.S. District Court in St. Paul.

In March 2013, Charter Fiberlink Companies transferred 100,000 Minnesota customers to “an affiliate, Charter Advanced Services Companies, which provided VoIP phone service that was not certified” by the PUC, the Commerce Department said.

Better known as Spectrum Voice, Charter’s VoIP service had failed to collect any fees to support the state’s Telecommunications Access Minnesota program, which provides equipment for hearing-impaired and blind consumers who use the Minnesota Relay Service. Charter also refused to credit low-income consumers who would otherwise qualify for Lifeline phone service at discounted rates.

If the court determined VoIP was a “telecommunications service,” Minnesota regulators could force Charter to comply with state law. If determined to be an “information service,” federal rules exempting Charter would apply.

The week after O’Rielly delivered his speech a Minnesota federal charge ruled in favor of Charter and against the state regulator.

U.S. District Judge Susan Richard Nelson relied on arcane terminology that lets Charter avoid state regulation:

“The court agrees with Charter Advanced that Spectrum Voice engages in net protocol conversion, and that this feature renders it an ‘information service’ under applicable legal and administrative precedent,” according to the opinion. Although Judge Nelson agreed that “the frank purpose” behind Charter’s customer shuffling was to “limit the reach of state regulation, thereby enhancing Charter’s market competitiveness,” she said the service fit the qualifications of an information service.

“The touchstone of the information services inquiry is whether Spectrum Voice acts on the customer’s information — here a phone call — in such a way as to ‘transform’ that information,” the opinion said.

Regardless of the judge’s decision, O’Rielly wants to prevent a recurrence of state regulator interference in the cable industry’s phone business.

“The commission should have just declared VoIP to be an interstate information service,” O’Rielly told the audience. “Arguably, VoIP is just an application not even subject to FCC jurisdiction much less that of individual states.”

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