The Need for Speed: A New Framework for Telecommunications Policy for the 21st Century

Specific Policy Reforms

4 Specific Policy Reforms 37 The types of policies needed to encourage entry among the disparate types of broadband providers are not always the same. Accordingly, we divide our specific policy prescriptions into those that would stimulate investment by fiber operators and those that would stimulate investment by wireless providers. These policies are aimed at promoting competitive entry in markets already served by one wireline provider, typically cable. The chapter ends with our suggestion on how to reform the universal service fund, which is aimed at stimulating entry in the shrinking handful of markets not served by any provider. Enabling More Private Returns from Investing in Fiber Networks The Federal Communications Commission should eliminate restrictions that limit a fiber provider’s ability to maximize its return on investment in broadband infrastructure. Several steps would accomplish this goal. Remove Carrier-of-Last-Resort Obligations on Legacy Networks Policymakers should eliminate the carrier-of-last-resort obligations and other vestiges of a regulatory structure designed for a technology whose time has passed. This type of regulation reflects a top-down approach to networking; it is not just the technology whose time has passed, but also the mind-set behind the technology. In today’s world, voice service is just another application that rides over a broadband pipe. Carrier-of-lastresort obligations made sense in yesterday’s world, but they do not have a place in the broadband world—for example, when a typical user has four distinct pathways to the Internet and thus to making a voice-over-Internet-protocol (VoIP) call. Competitive entry puts telecom regulators in a pickle. Anyone following the recent spat between D.C. taxi drivers and Uber Services—or the decade-old spat between cable operators and telco-based video providers—understands that when regulators can no longer provide monopoly protection to an incumbent, their basis for imposing monopoly-related fees or obligations on the incumbent washes away. Why should I pay you for the privilege of driving a cab in your city, the taxi driver asks, when my competitor is free from such obligations? When it comes to voice services, the regulatory obligation that is now under scrutiny is the duty to provide universal telephone service over the old copper network. Based on the original social compact hatched with AT&T in 1913, that duty falls uniquely (and thus perversely) on the telephone companies. Cable, wireless , and satellite providers are free to provide voice service (or not) over the network of their choosing, and they are free to pick and choose which homes to serve. In contrast, telcos must operate 38 Specific Policy Reforms two networks at once—an outdated, copper-based legacy network that provides service to a shrinking customer base and a modern, IP-based network that supports data, video, and voice applications. If supporting two separate networks imposed trivial costs on the telcos, then consumers would be held harmless. Unfortunately, telcos invest a significant amount of resources in maintaining the legacy network. One study by the Columbia Institute for Tele-Information estimated that nearly half of telcos’ capital expenditures are tied up in this rut.44 Even if telcos could access capital markets for additional capital, that marginal infusion of capital would come at higher interest rates, which would make certain broadband investments projects look less attractive. To understand how onerous these rules are, consider the decision of Google, a recent entrant to the broadband space, not to offer voice service as part of its Google Fiber offering in Kansas City. After studying state and federal regulations for voice services , the vice president of Google Access Services concluded: “We looked at doing that [VoIP]. The cost of actually delivering telephone services is almost nothing. However, in the United States, there are all of these special rules that apply.”45 It makes little sense to have the telcos abide by those same rules when cable operators and wireless providers (typically five in a city) are their direct competitors for voice services. Compared with the original, time-division-multiplexing (TDM) networks, Internet protocol (IP) infrastructure allows an enterprise to realize reduced operational and capital expenditures through the lower cost of equipment and increased ability to mix and match products and services from multiple vendors.46 In particular, IPbased systems can lower costs by —combining the two disparate TDM voice and data networks into one network to handle voice and data as well as video Specific Policy...