Public Interest Comment on the Connect America Fund

Public Interest Comment on the Connect America Fund

Public Interest Comment
Jerry Brito, Jerry Ellig | Apr 15, 2011

INTRODUCTION1

The Regulatory Studies Program (RSP) of the Mercatus Center at George Mason University is dedicated to advancing knowledge of the impact of regulation on society. As part of its mission, RSP conducts careful and independent analyses employing contemporary economic scholarship to assess rulemaking proposals from the perspective of the public interest. Thus, this comment in response to the Federal Communications Commission’s (the commission or FCC) Notice of Proposed Rulemaking (NPRM)2 does not represent the views of any particular affected party or special interest group, but is designed to assist the FCC as it seeks to develop the most effective and economical way to bring broadband service to unserved areas.

The commission has offered a sweeping proposal to reform the $4.3 billion high-cost universal service program to eliminate inefficiencies, reform intercarrier compensation to eliminate inefficiencies, use the savings to subsidize broadband in high-cost areas, award subsidies via competitive bidding, and adopt outcome-oriented performance measures for the high-cost universal service program. A series of comments by Mercatus Center scholars in this and related proceedings have outlined the case for reform and offered numerous specific suggestions.3

We have conducted extensive analysis of the effects of universal service and intercarrier compensation regulations on price, availability, and consumer welfare.4 We submitted a series of comments proposing outcome-based performance measures for the FCC’s universal service programs.5

Rather than repeat here the analysis and recommendations in all of those previous filings, we focus on two specific issues in the current NPRM that would have a significant impact on the efficiency and effectiveness of the proposed Connect America Fund. Those issues are (1) the definition of broadband and (2) performance measures the commission would use to assess the program’s results.

The commission asks if the proposed definition of broadband as four Mbps download and one Mbps upload is appropriate for the Connect America Fund. It is not. Those speeds are not essential for education, public health, or public safety; the available evidence shows that essential functions in all three areas are accomplished with much slower speeds. A substantial majority of residential consumers do not subscribe to a service providing a four Mbps/one Mbps speed; 768 kbps download is the only speed the evidence unambiguously shows a substantial majority of residential consumers purchase. Finally, the four Mbps download/oneMbps upload definition is inconsistent with the public interest, because it would result in a universal service fund (USF) contribution burden on consumers much higher than necessary to satisfy the previous two criteria.

To assess the program’s future performance, the commission considers measuring deployment, subscribership, and rate comparability. These are intermediate outcomes well worth measuring. But measuring and reporting these numbers is not enough. Accurate assessment of the program’s actual effects on these intermediate outcomes requires that the commission compare observed outcomes against a relevant counterfactual estimate of what would have occurred in the absence of the subsidies. And accurate assessment of the program’s effect on ultimate outcomes—improved social, educational, and economic opportunities in high-cost areas—requires that the commission evaluate how subscribership affects those ultimate outcomes.

The commission also proposes to measure the USF contribution burden per household and seeks comment on an appropriate efficiency measure for the contribution burden. Since the contribution burden is a revenue-raising mechanism, the appropriate efficiency measure is the economic measure of "deadweight loss": the value sacrificed by society because the USF contributions reduce subscribership and/or use of telecommunications services.

Finally, the commission proposes to review the performance measures annually and take corrective action if the program fails to achieve its goals. We agree that regular review and use of performance information in decisions is essential. However, the GPRA Modernization Act of 20106 will likely require quarterly rather than annual reviews of performance measures for the Connect America Fund.

ENDNOTES

1. Prepared by Jerry Brito and Jerry Ellig, senior research fellows, Mercatus Center at George Mason University. This comment is one in a series of Public Interest Comments from the Mercatus Center’s Regulatory Studies Program and does not represent an official position of George Mason University.

2. Federal Communications Commission, Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, WC Docket 10-90 (released February 9, 2011). (Hereinafter “NPRM”)

3. Jerry Ellig, Public Interest Comment on the Connect America Fund, WC Docket 10-90 (July 9, 2010), available at http://mercatus.org/publication/public-interest-comment-connect-america-fund.

4. Jerry Ellig, Public Interest Comment on Intercarrier Compensation and Universal Service, WC Docket No. 05-337 et al. (November 26, 2008), available at http://www.mercatus.org/uploadedFiles/Mercatus/Publications/PDF_PIC_2008%2011%20Intercarrier%20and%20Universal%20Service%20reform%20Comment%20-%20Elli... Jerry Ellig, Public Interest Ex Parte Comment on Intercarrier Compensation and Universal Service, CC Docket No. 01-92 et. al, available at http://www.mercatus.org/uploadedFiles/Mercatus/Publications/PICPDF_Intercarrier%20ExParte%20Comment_Ellig.pdf; Andrew Perraut and Jerry Ellig, Public Interest Comment on High Cost Universal Service Support, WC Docket No. 05-337 et al. (March 27, 2008), available at http://www.mercatus.org/uploadedFiles/Mercatus/Publications/High%20Cost%20Universal%20Service%20Support.pdf; Andrew Perraut and Jerry Ellig, Notice of Ex Parte Communication, Universal Service Contribution Methodology, WC Docket 06-122 (November 2, 2007), available at http://www.mercatus.org/uploadedFiles/Mercatus/Publications/20071105_USF_Ex_Parte_Oct_2007.pdf; Jerry Ellig, Public Interest Comment on Unified Intercarrier Compensation, May 23, 2005, http://mercatus.org/uploadedFiles/Mercatus/Publications/PDF_PIC_2008%2011%20Intercarrier%20and%20Universal%20Service%20reform%20Comment%20-%20Ellig.pdf; Jerry Ellig, Intercarrier Compensation and Consumer Welfare, 2005 U. of Il. J. of Law, Tech., and Pol'y 97 (2005), available a http://mercatus.org/sites/default/files/publication/MC_RSP_RPTJIntercarrierComp_060303.pdf; Jerry Ellig and Joseph Rotondi, Outcomes and Alternatives for Universal Telecommunications Services: A Case Study of Texas, 12 Texas Review OF Law & Politics 1 (2007), available at http://mercatus.org/sites/default/files/publication/20080114_Ellig-Rotondi.pdf.

5. Maurice McTigue and Jerry Ellig, Public Interest Comment on Performance Measures for Universal Service Programs, FCC Docket 05-195 (October 17, 2005), available at http://mercatus.org/sites/default/files/publication/MC_RSP_ExPartePIC2006-02FCCPerfMeasures_060126.pdf; Maurice McTigue and Jerry Ellig, Notice of Ex Parte Communication, FCC Docket 05-195 (January 26, 2006), available at http://ecfsdocs.fcc.gov/filings/2011/04/15/6016376061.html; Maurice McTigue and Jerry Ellig, Public Interest Reply Comment on Comprehensive Review of the Universal Service Fund Management and Oversight, FCC Docket No. 05-195 (December 15, 2008), available at http://mercatus.org/sites/default/files/publication/Ellig_Comprehensive%20Review%20of%20the%20Universal%20Service%20Fund%20Management%20and%20Oversight_PIC.pdf.

6. GPRA Modernization Act of 2010, Pub. L. No. 111-352, 124 Stat. 3866 (2011). The GPRA Modernization Act amends the Government Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285 (1993).

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