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FCC Panel Recommends Taxing Websites and Giving the Proceeds to Big Telecom Companies

The telecom industry wants a new tax on broadband services to pay for rural broadband expansion.

Nearly two years after FCC Chairman Ajit Pai announced the formation of a new federal advisory committee on broadband development, the telecom industry-stacked panel has recommended implementing a new tax on websites and online subscription services like Netflix, Hulu, and Amazon Prime Video and turning over the proceeds to many of the same companies dominating the Committee.

The proposal is part of a large set of recommendations from the Broadband Deployment Advisory Committee (BDAC) designed to promote and streamline broadband expansion, especially in rural areas. If adopted by the states, the new tax would create a large broadband deployment fund that could be accessed by telecommunications companies like AT&T and Comcast to expand service without having to pay back the funds or give up part ownership of the taxpayer-funded expansion.

What caught many by surprise was the sweeping impact the new tax could have on the internet economy, because online businesses, streaming services, and even many website owners could be subject to the tax, if enacted:

Entities that financially benefit from access to a broadband system located in the state, including advertising providers, shall contribute to the Broadband Deployment Fund.

A comprehensive piece by Jon Brodkin on Ars Technica points out defining the meaning of “entities” and “advertising providers” will be crucial to determine who will have to pay the tax and who won’t:

Article 11 of the BDAC’s model state code would create a Rural Broadband Deployment Assistance Fund, paid for by contributions from broadband providers and “Broadband Dependent Services.”

The definition of “Broadband Dependent Services” is where things get interesting. An earlier version of that definition—available in this document—reads as follows:

“Broadband Dependent Service” means a subscription-based retail service for which consumers pay a one time or recurring fee which requires the capabilities of the Broadband Service which the consumer has purchased and shall also include entities that financially benefit from access to a broadband system located in the state, including advertising providers.

The BDAC met on December 7 and pared that definition back a bit to exclude “entities that financially benefit from access to a broadband system.” Video is available here; the discussion on the definition starts around 2:04:45.

BDAC Chair Elizabeth Bowles, who also runs an Arkansas-based wireless Internet service provider called Aristotle, expressed concern that the original version of the definition “was including every small business in America,” potentially forcing them all to pay the new tax.

Nurse

AT&T has been one of the strongest advocates for the new tax, and argued it should be as expansive as possible.

“It basically is everybody [that should be taxed] because this is a societal objective,” said Chris Nurse, assistant vice president for state legislative and regulatory affairs at AT&T. “Universal service is a societal objective. We want to spread that $20 or $30 billion burden more broadly so the tax is low on everybody.”

Google Fiber policy chief John Burchett objected, claiming under AT&T’s vision, everyone who has an internet connection would be taxed. In his view, AT&T’s proposal was “absurd.”

As the debate raged on, it became clear AT&T was once again looking for a way to be compensated by companies like Amazon and Facebook — using its ‘pipes’ without contributing towards the cost of the network.

“Who are we cutting out and who are we leaving in?” Nurse asked. “Today it’s basically the telephone companies [who pay] and not Google and not Amazon and not Facebook, right? And they’re gigantic beneficiaries from the broadband ecosystem. Should they contribute or not? Someone has to pay.”

Burchett

In the end, the BDAC settled on adopting a compromise over what broadband entities will be subject to the new tax:

“Broadband Dependent Service” means a subscription-based retail service for which consumers pay a one time or recurring fee, and shall also include advertising-supported services which requires the capabilities of the Broadband Service which the consumer has purchased.

This compromise definition primarily targets the new tax on streaming video services — the ones AT&T itself competes with. But it will also cover any websites sponsored with online advertising — like Facebook and Google, ISPs, subscription services delivered over the internet, as well as AT&T’s broadband competitors.

The proposal also seeks to guarantee that rural residents be granted access to affordable broadband, but the industry-dominated Committee chose to define “affordable” as the cost of internet access in urban areas, which some would argue isn’t affordable at all.

The draft proposal has been criticized by many stakeholders, including the National Rural Electric Cooperative Association, representing electric cooperatives. The group implied the new proposal was just the latest attempt to get the telecom industry’s wish list enacted.

“Instead of focusing on solutions for unserved and underserved rural communities, many of the recommendations focus on issues specific to urban areas where broadband is already available,” said NRECA CEO Jim Matheson. “Ignoring the precedent of federal law and laws in 20 states, the state model code would treat co-op poles like those belonging to large investor-owned utilities. The state model code would also cap pole attachment rates in state statute, effectively making those rates permanent. This code, in effect, increases regulatory burdens while giving co-ops less time and less money to comply with those regulations.”

The National Multifamily Housing Council also objected to another proposal approved in the draft.

“Article 8 of the MSC grants broadband providers the unilateral right to install facilities in all multifamily residential and other commercial buildings and mandate construction of broadband facilities at the property owner’s expense without regard to the rights and concerns of the owner,” the organization claimed. “NMHC/NAA and its real estate industry partners argued that Article 8 of the MSC is riddled with many practical and legal problems. Among the most serious issues with the MSC is that it interferes with private property rights, disrupts negotiations and existing contracts between property owners and communications service providers and will lead to costly regulation and litigation at the state level without any assurance of actually spurring broadband deployment.”

AT&T would be among the biggest beneficiaries of the tax fund, already receiving $428 million annually from another rural broadband fund to expand wireless internet access in rural areas. If Nurse’s predictions are correct, the tax could collect $20-30 billion, far more than has ever been spent on rural broadband before.

Liccardo

Critics also contend the BDAC’s industry-friendly proposals are predictable for a Committee created by FCC Chairman Ajit Pai and well-stacked with telecom industry executives and lobbyists. The former head of the BDAC was arrested by the FBI on fraud charges, and San Jose Mayor Sam Liccardo quit the Committee in January, writing, “the industry-heavy makeup of BDAC will simply relegate the body to being a vehicle for advancing the interests of the telecommunications industry over those of the public” in his letter of resignation.

Whatever the BDAC ultimately decides, the final proposal has a long road to travel before becoming law. Each state can choose to adopt the proposal, part of it, or none of it. In the end, it is just a “model code” for states to consider. But it will be part of the argument made by the telecom industry that laws must be streamlined to prevent delays in deploying service, and that those benefiting from broadband should cover more of the costs to provide it.

Ironically, the person most likely to be embarrassed by the model code could be FCC Chairman Ajit Pai, who has almost universally rejected new taxes and fees on broadband services. But his approval is not required to advance the argument and the model code to the states, where the telecom industry’s lobbyists are waiting to begin advocating the passage of new state laws enacting its recommendations.

Wireless Companies Bid $336 Million and Counting for 28 GHz 5G/Small Cell Spectrum

Forty companies, including hedge funds, phone companies, and wireless carriers have collectively bid $336,265,480 so far for about 2,500 28 GHz licenses (out of 3,072 available) that will be a part of the buildout of 5G millimeter wave wireless service.

The FCC is currently auctioning off spectrum in the 27.5–28.35 GHz (28 GHz) band — a very large chunk of frequencies which can offer bidders the opportunity to launch a wide bandwidth cellular data service capable of very fast internet speed. But because the frequencies involved are line-of-sight, the winning bidders will have to invest in large networks of small cell antennas that will be required to reach customers.

Citigroup analysts reviewing the auction results so far told clients they suspect there are “two outsized bidders” winning many of the available licenses, including Verizon. This is not a surprise, considering Verizon already has significant spectrum holdings in the 28 GHz band. Verizon’s current 5G service relies on this millimeter wave spectrum, but is available so far only in a handful of markets. The identity of the second major bidder remains a mystery. The spectrum licenses getting no bids are mostly in rural areas with low population density.

All the other major wireless operators — AT&T, T-Mobile, and U.S. Cellular — are also bidders. Only Sprint, currently in a merger deal with T-Mobile, is missing. AT&T has not shown much interest in offering its customers millimeter wave 5G service, and T-Mobile is planning to use 5G’s technology upgrade to bolster its existing network with more capacity and speed. Dish Network, which already controls a substantial portfolio of unused spectrum, is also a bidder and could be seeking to stockpile 5G spectrum for a future venture or sales deal with one of the other wireless companies.

The qualified bidders:

8538 Green Street LLC MetaLINK Technologies, Inc.
Arctic Slope Telephone Association Cooperative NEIT Services, LLC
Aries Wireless LLC Nemont Communications, Inc.
AT&T Spectrum Frontiers LLC Northern Valley Communications, LLC
BDCIH Wireless, LLC Nsight Spectrum, LLC
Beyerle, David E Nuvera Communications, Inc.
BroadBand One of the Midwest, Inc Panhandle Telephone Cooperative, Inc.
Cellco Partnership d/b/a Verizon Wireless Pine Belt Cellular, Inc.
Central Broadband 24/28 GHz Consortium Rock Port Telephone Company
Cityfront Wireless LLC SANN Consortium
Cordova Telephone Cooperative, Inc. T-Mobile License LLC
Crestone Wireless L.L.C. TelAlaska Cellular, Inc.
Day Management Corporation Townes 5G, LLC
Frontier Communications Corporation Trace Fiber Networks, LLC
FTC Management Group, Inc. Tradewinds Wireless Holdings, LLC
High Band License Co LLC Union Telephone Company
Horry Telephone Cooperative, Inc. United States Cellular Corporation
Inland Cellular LLC Universal Electrical Contractors
LICT Wireless Broadband Company, LLC Western Independent Networks, Inc
Mark Twain Communications Company Windstream Services, LLC

Bidding starts at $200 per available county, and many rural licenses could be won for precisely that amount, with only one interested bidder offering the minimum bid.

The highest bids are just over $10,000,000 each for two licenses in the Honolulu, Hawaii market. Bids in excess of $2 million are currently on the table in these counties:

California: Kern
Colorado: El Paso
Florida: Volusia
Illinois: Winnebago
Iowa: Linn
Louisiana: East Baton Rouge
Maine: Cumberland
Missouri: Greene
Nebraska: Lancaster
Nevada: Washoe
Oregon: Jackson
Pennsylvania: Lancaster, Berks, York, Lehigh, Luzerne, Northampton, Dauphin
Texas: Cameron, Hidalgo
Wisconsin: Dane

FCC Preparing to Redefine Text Messaging as an Information Service in Gift to Telecom Industry

Pai

FCC Chairman Ajit Pai is leading the charge to define text messaging (SMS, MMS) as an “information service,” allowing phone companies a clear right to censor or block messages they do not like.

On Tuesday, Pai proposed a Declaratory Ruling that would deny a petition from consumer group Public Knowledge asking the FCC to once and for all affirm text messaging as a telecommunications service. The request goes all the way back to a 2007 dispute between NARAL — a reproductive rights group and Verizon Wireless. The wireless carrier blocked a text message campaign from NARAL, claiming it had the right to block “controversial or unsavory” text messages. It was the only wireless company to reject NARAL’s text-message program, which invited consumers to sign up for alerts and other information.

Legal experts told the New York Times private companies like Verizon probably had the legal right to decide which messages to carry, because text messaging was never defined as a “common carrier” service. Verizon Wireless at the time insisted it did not accept text messaging programs from any group “that seeks to promote an agenda or distribute content that, in its discretion, may be seen as controversial or unsavory to any of our users.”

Verizon claimed it was neutral on the subject of abortion, but the topic itself was forbidden to be discussed or raised in text messaging campaigns directed to customers.

That 2007 claim irritated then-NARAL president Nancy Keenan, who claimed Verizon was interfering with free speech and activism.

“No company should be allowed to censor the message we want to send to people who have asked us to send it to them,” Ms. Keenan told the newspaper in 2007. “Regardless of people’s political views, Verizon customers should decide what action to take on their phones. Why does Verizon get to make that choice for them?”

Pai says giving companies like Verizon the permanent right to manage the kinds of text messages allowed on their networks is a good way to stop texting spam.

“The spam rate for text messages is estimated at 2.8%, compared to a rate of over 50% for email. That’s not by accident,” Pai claimed. “Today’s wireless messaging providers apply filtering to prevent large volumes of unwanted messages from ever reaching your phone.”

Pai claimed that the effort underway to classify text messaging as a telecommunications service was anti-consumer and would open customers up to a lot more unwanted messages.

“This may not seem like a big deal, but such a classification would dramatically curb the ability of wireless providers to use robotext-blocking, anti-spoofing, and other anti-spam features,” Pai said in a blog post on Medium.

Feld

“It wouldn’t be the holiday season without Chairman Pai giving a great big gift basket to corporate special interests at the expense of American consumers,” said Harold Feld, senior vice president at Public Knowledge. “Chairman Pai proposes to grant the wireless industry’s request to classify text messages as Title I ‘information services,’ stripping away vital consumer protections. Worse, Chairman Pai’s action would give carriers unlimited freedom to censor any speech they consider ‘controversial,’ as Verizon did in 2007 when it blocked NARAL and prompted the Public Knowledge 2007 Petition.”

Feld claims Pai is only telling half the story.

“As the FCC made clear in 2016 (over then-Commissioner Pai’s dissent), text messages and robocalls are both ‘calls’ under the anti-robocall statute, and this Title II designation does not prevent filtering or other technological means to block unwanted robocalls or spam texts,” Feld said. “Indeed, Chairman Pai undermines his own argument by pointing out that email, which has always been an information service, has a 50 percent spam rate whereas text messaging, which the FCC treats as a ‘phone call,’ has a 2.5 percent spam rate.”

The FCC plans to vote on the matter, and is likely to adopt Pai’s proposal, at a meeting on Dec. 12.

Windstream’s “Aspirational” Broadband: DSL Customers Not Getting Advertised Speed

An unhappy customer in Georgia.

Victor Brown, like many residential customers in rural northeastern Ohio, has one option for internet access — Windstream, an independent phone company that typically serves areas larger companies like AT&T, Verizon, and CenturyLink forgot. For 17 years, his internet speed has been absolutely consistent, and slow.

“It’s 1.2 Mbps day or night, no more and no less, and for that they are charging me $58 a month,” Brown told Stop the Cap! “In that time, there has never been an upgrade, a real commitment to improve service, or anything except repetitive sales calls and mailers offering to upgrade me to a faster speed level Windstream cannot actually deliver.”

Windsteam has told its investors that it expects to offer 60% of its customers at least 25 Mbps service by the end of 2018. In fact, Brown has already been offered that for nearly a year, but the service is not actually available.

“They will switch you to 25 Mbps today, with the higher bill to boot, but you won’t actually get any better speed than you have right now,” Brown said. “I know because we tried.”

Brown and several of his neighbors all attempted to upgrade to the higher-speed service advertised. Windstream accepted their orders, charged them more, and delivered exactly the same 1.2 Mbps service they have always had.

“It took a service technician coming out to make it clear to us there was no way we would ever get faster speed because there was too much copper wiring between their office and our homes,” Brown said. “The technician felt for us, and about half of his service calls were disappointing customers like us.”

Brown explained the Windstream technician candidly told him that the company’s head office is behind the speed upgrades, but does not actually have a clear understanding of the state of the local network. Marketing then sells customers on better service Windstream’s network is not capable of providing.

“They need to spend money to replace some copper with fiber but there is no money for that,” Brown said. “The most the technician could suggest was installing a bonded DSL connection that would use two different phone lines and deliver 2.4 Mbps. That would come at a price, however.”

Ruth in Cochranton, Penn., is in exactly the same position.

“We are paying for internet speed that we aren’t receiving,” Ruth complained. “It is so slow that we have a hard time getting a short 50 second video to load. Forget watching a YouTube video, it’s not going to happen.”

Over in Lilitz, Penn., Eileen and her neighbors were also dealing with temporary phone lines Windstream installed by dropping both on their lawns and then leaving them unburied for nine months. She cannot get anyone from the company to bury the lines despite seven separate phone calls. Down the street, internet and phone outages can last a week after a strong rainstorm hits the area, and since the weather has turned much colder, hum and crackle on the neighborhood’s phone lines have disrupted phone calls and DSL service. Nobody from Windstream has come to fix the problem.

Windstream tells a very different story to its investors in the form of ‘upgrades by press release’ and cheerful investor conference calls that claim dramatic improvements in service and growth. While cable operators are touting increasing availability of gigabit service, phone companies like Windstream are promising to give a little more than half their customers the minimum definition of broadband service — 25/3 Mbps, by the end of this year. Many of Windstream’s other half get nothing close to those speeds, with 1-3 Mbps common in rural areas.

Wall Street balks at the dollar amounts it would take for Windstream to fully update its network to offer broadband speeds that were common for cable subscribers a decade ago. That kind of network investment would likely drive down the share price, impact shareholder dividends or stock buyback plans, and increase debt. Instead, many phone companies are hoping the federal government will come to the rescue and subsidize rural network improvements through the FCC’s Connect America Fund or government grants. But many of those grants won’t deliver service improvements to existing customers. Instead it will allow rural phone companies to bring broadband to customers who never had it before.

Even the threat of new competition has not inspired many investor-owned phone companies to embark on a spending spree. That competition may eventually come from new wireless broadband services like 5G, but most observers predict that will be years away in the rural communities Windstream traditionally serves. Where Windstream does face competition, it often still loses market share, usually to the local cable company.

“My sister has Comcast and although they are evil as can be, at least their internet speed matches what they sell, and it is shockingly fast in comparison to what DSL has given me for nearly 20 years,” Brown said. “Unfortunately, no cable company is going to wire us up. There are only a few houses on my street.”

Brown believes it is time for the federal government to start insisting that investor-owned phone companies do better.

“We have universal service laws for landlines but not for internet? That does not make sense to me,” Brown tells us. “Isn’t it time for the government to insist that all providers deliver at least 25 Mbps service to their customers? They are not going to do it without someone ordering them to.”

FCC Tells Lobbyists to Just Say What Their Corporate Clients Want

Phillip Dampier November 15, 2018 Public Policy & Gov't No Comments

Stockdale

The Federal Communications Commission wants the scores of lobbyists that visit with agency staffers regularly to get to the point of exactly what they want the FCC to do on behalf of their corporate clients instead of delivering long-winded presentations that often run overtime and cause lobbyists to back up at FCC headquarters.

FCC Bureau Chief Donald Stockdale sent that clear message at a Federal Communications Bar Association event on Wednesday, telling attendees that too many lobbyists are burying the FCC staff in jargon and long, confusing presentations that explain the client’s business but do not clearly state what their client expects of the FCC. He wants lobbyists to plainly state their client’s desired policy goals within the first 2-3 minutes of a meeting with agency staffers.

Stockdale also complained too many lobbyists are overrunning their assigned 30-minute time slots, creating problems for everyone. He noted a recent presentation where a lobbyist spent 30 minutes discussing his corporate client’s business model, but only revealed the true reason he was there — to lobby for policy changes — at the end of the meeting after time ran out.

To assist the FCC in the era of the Trump Administration, the Commission’s staff advised lobbyists to create a simple-to-follow guide showing the FCC exactly what steps should be taken to achieve the corporate client’s policy goal. Currently, many lobbyists only specify a goal and do not include a roadmap showing the Commission how to meet those goals.

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