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National Broadband Plan crafter Blair Levin: ‘USF pays small telcos to be inefficient’

Joan Engebretson, Connected Planet

In the paper, Levin emphasizes the importance of getting broadband to the seven million U.S. homes that currently cannot access it and explains why he believes Universal Service reforms proposed in the National Broadband Plan can achieve that goal without new funding. Levin also suggests a few new ideas for boosting broadband adoption that weren’t in the National Broadband Plan.

Prior to heading up the National Broadband Plan team, Levin was an analyst with several financial firms, including Stifel Nicolaus and Legg Mason. He also served as Chief of Staff to former FCC Chairman Reed Hundt between 1993 and 1997.

Levin gave one of his first interviews since joining the Aspen Institute to Connected Planet this week.


Connected Planet: Your new paper goes over some of the same recommendations made in the National Broadband Plan but also adds some new ideas. These include creating a $100 million fund to stimulate competition to improve the use of broadband for economic development and creating another $100 million fund to stimulate adoption efforts. What would you like to say about your new recommendations – why they’re needed and why you believe they’ll be successful?

Levin: What I emphasize more in the paper is the spirit of experimentation. The plan itself is focused on the principles of how to make sure the tools of the information age are available to everyone and how to apply [those tools]. That’s different from the current view, which is how to funnel a lot of money to wireline companies.

From society’s point of view, it’s really important to get the tools everywhere. And the 90 million people who haven’t adopted broadband are a very significant cost of digital exclusion as well.

One of the things we learned from the race to the top program of the Department of Education was that if you create competition to achieve very clear measurable results, you organize people to do those tasks. [The new proposals do not require] large amounts of money. But it’s very important to get people organized to those tasks.


Connected Planet: Some elements of the National Broadband Plan are unpopular with rural telcos. As I see it, they have three big complaints and I thought I’d take those one by one and ask you to address them.

One of these is the 4 Mb/s minimum target for broadband service. You argue that to set this target any higher would cause the program to require additional funds. But if the target date for having broadband available to 99% of the population is 10 years from now, won’t 4 Mb/s be too little by then?

Levin: If so you have to adjust [the target]. But if you look at today’s uses, 4 Mb/s seems to give you access to news and health information. That’s true on the residential side, not on the institutional side. We don’t want hospitals to be limited but in the home we can see that that’s the number.

I’ll be happy to debate this with anybody any time anywhere if they answer three questions. What should the speed be? What will it cost? And how will we pay for it?

There’s a huge amount of value going from 500 kb/s to 4 Mb/s. But going from 4 Mb/s to 100 Mb/s? As of now we don’t see it. And when you look at the added cost, it’s harder to see it.


Connected Planet: Another element of the plan that concerns small telcos is the plan to eliminate rate of return regulation. The small telcos say the rate of return system is essential to their being able to get loans and that the argument that ROR is a vestige of the old monopoly system that is inappropriate in today’s market is incorrect because many of them still have no competition. What do you say to those arguments?

Levin: For the government to guarantee a rate of return to a market entity is putting its thumb very heavily on the scale. What this results in is we’re paying entities to be inefficient. If you have rate of return regulation, you have an incentive to spend money as much as possible.

This is a business in which economies of scale matter a lot and we’re essentially paying people not to have economies of scale. We’re often paying for upgrades in areas that have broadband and at the same time we’re not paying anything to unserved areas.


Connected Planet: You are quite keen on the idea of a reverse auction for awarding funding under a new broadband Universal Service program. But small telcos question whether this is an appropriate method for awarding funds.

Levin: We should fund the least expensive projects first. We should do that through a reverse auction and see how that works. Any methodology has a problem. [The question is] which methodology minimizes problems and maximizes gains. The reverse auction has a lot of benefits. Critics fail to realize the existing system has a lot of inefficiencies. If you’re paying $17,000 per line to fund a line to a second home, we have a problem and we should recognize that problem.

I was [involved in implementing] wireless auctions in 1994. We took a gamble and the theory won a Nobel prize. We did simultaneous auctions. It worked, we made changes and we constantly improved on it.

Connected Planet: The majority of small telcos already have deployed broadband service at rates of at least 4 Mb/s but the National Broadband Plan seems to recognize that some of these carriers may need ongoing support. What isn’t clear is how these carriers will be impacted by the plan to award funding based on a reverse auction. Do you envision the possibility that a wireless competitor might offer to deploy 4 Mb/s service at a lower level of support than an incumbent carrier that already has deployed a fiber-to-the-home network and if so what happens? Does the incumbent go out of business and the FTTH network get shut down?

Levin: That’s a great question. I don’t know the answer. We tried to [determine the dollars needed for ongoing support] but couldn’t pin it down. Some people at the FCC are working on that.

We have to examine our priorities. We have to make un-served [areas] the Number One priority. As you make the transition, one of the guiding principles was that there would be no flash cuts. We need a data-driven analysis to address situations like that.

[Small telcos] essentially are saying, “Because you were irrational in funding us to do network upgrades that were non-economic, you have to forever be irrational and continue to do it.” I don’t buy that logic.


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