Last spring, an earnest debate over the future of our nation’s infrastructure began in Washington, D.C. As the White House and lawmakers on both sides of the aisle entered negotiations over a spending package, Americans were cautiously optimistic that policy makers could strike a deal to shape the size and scope of investments that, if allocated wisely, could help supply workers and industries with the digital tools and skills necessary to remain globally competitive for decades to come. The stakes and the expectations for success are high.
November 10, 2021 Feature
Bold, Not Burdensome, Regulations Can Stimulate Investment in Broadband Infrastructure to Close the Digital Divide
By Joseph P. Tocco
Today, the debate continues, but at least there appears bipartisan consensus on the ideal that every American should have access to reliable, affordable high-speed internet. The disagreement, it seems, is less about the “what” and more about the “how” (and how much). To be sure, the coronavirus pandemic underscored existing inequities and highlighted the challenges posed by our long-standing “digital divide,” the gaps in internet access experienced by rural and urban communities alike. And while this hardship may affect some households more than others, we all miss opportunity when schools, factories, hospitals, farmers, and other key sectors can’t access the technology needed to fully participate in the modern economy.
But make no mistake: we cannot divorce the “what” from the “how.” Whatever regulations policy makers ultimately adopt will impact the private investment capital that powers the vast majority of critical infrastructure underlying the internet today. Whether those regulations have a positive or negative impact on the next generation of capital investment necessary to finance deploying the internet of tomorrow will depend entirely on the foresight and care with which new regulatory frameworks are designed and implemented.
The Foundation for Success: Light-Touch Regulations
To successfully map our future, we should remember our past. Our recent, abrupt pivot to a highly virtual society during the coronavirus pandemic is a good place to start. At the height of the pandemic, U.S. internet traffic reportedly jumped 27 percent.
The crisis-induced surge in demand swamped broadband networks in other countries, but U.S. networks rose to the challenge as download speeds stayed steady (and in some cases increased). This was no accident: decades of bipartisan government policies encouraged the substantial private-sector investment necessary for this result. Even as the country grappled with the negative effects of the pandemic, industry was able to reach an important milestone: $30 billion in network investment in 2020 alone, representing a five-year high and the third straight year of increasing capital expenditure.1 Policy makers weren’t planning for a pandemic when they adopted a light regulatory touch on broadband infrastructure, but that sound policy proved right even in the most unpredictable circumstances.
More broadly, this light-touch regulatory approach demonstrates how public policy can be transformative without being overly burdensome. In the last decade alone, the U.S. broadband industry invested $1.8 trillion in its networks.2 Compared to their more heavily regulated peers in the European Union, U.S. broadband providers invested three times more per household in infrastructure in the last quarter of 2020—approximating $700 more per home, per year.3 The scale and consistency of these kinds of investments have helped distinguish U.S. networks globally across key metrics like speed, security, and ingenuity. And although work to make internet access more affordable is far from finished, the U.S. industry has made steady progress on this front in recent years too. For example, one industry survey found that the price of the most popular tier of broadband service in the U.S. has dropped by 26.2 percent since 2015, while the inflation-adjusted price of the highest-speed broadband service has dropped by 45.7 percent during that same period.4
This Isn’t Just a Federal Question
Innovation doesn’t happen in a vacuum. It requires, among many things, a supportive regulatory environment. And that environment extends beyond the Beltway into states’ capitols and mayors’ offices. In fact, in some respects, state and local governments can have just as significant an impact on infrastructure deployment as the federal government. The deployment of infrastructure necessary for 5G wireless service is a good example.
“Fifth Generation,” or 5G, wireless services are the next great communications frontier, promising unprecedented speed and capabilities. Hospitals, for example, will have the ability to support remote patient-monitoring devices, enabling better, faster, and more responsive patient care.5 Access to telemedicine and virtual visits in near real time, in high-quality video, with top doctors is more important than ever. And this growing demand isn’t limited to telemedicine. Remote learning is on the rise too,6 and here 5G networks can support educational applications for more immersive, flexible options for parents and children to access new educational opportunities well into the future.7
In recent years, however, some permitting entities have slowed deployment of 5G service by impeding construction of small cell towers (“small cells”) necessary to widely deploy 5G service. Thankfully, recognizing the promise of 5G,the Federal Communications Commission (FCC) stepped in and issued its “Small Cell Order” in September 2018 to make it easier to deploy 5G facilities and services.8 Most of the Small Cell Order provisions were recently upheld by the Ninth Circuit.9 Importantly, the Ninth Circuit affirmed the FCC’s authority to set commonsense rules that curb anticompetitive practices and promote greater regulatory parity and investment in local telecommunications markets. This change was essential for helping to lay the foundation for future networks and future economy. Indeed, operational cell sites have increased over 35 percent over the past five years—and in just two years since the FCC’s siting reforms entered into effect, more cell sites have been sited than in the previous seven years combined.10
Still, local challenges persist. They range from ordinances that restrict infrastructure to certain parts of the city to demands for up-front payment of excessive installation fees (sometimes based on a cut of the provider’s local revenue). The result is that valuable time and resources that might otherwise be spent on innovation are now sunk on unnecessary compliance costs—or, worse, litigation. Today, most of that litigation consists of federal court actions against local permitting entities challenging their regulatory overreach under the Telecommunications Act sections 253 and 332, the FCC Order, and the Ninth Circuit decision.11
While the most immediate task is simply getting more Americans online, permanently closing the digital divide requires creating new opportunities for consumers to access cutting-edge technologies and services. To that end, the FCC may take a fresh look at the regulations that sought to expedite the processing of local permits for the placement of 5G infrastructure. Meanwhile, state and local governments can adopt a more proactive approach to streamline citing regulations and adopt policies that make it easier to deploy the broadband infrastructure necessary to serve their constituents.
In the end, continuing policies at all levels of government that promote, rather than restrict, additional private investment in the multiple networks and technologies needed to connect unserved and underserved communities across the country will only hasten closing the divide.
Regulatory Uncertainty Stymies Capital Investment
While the FCC’s 5G focus has helped to streamline local regulations in a way that spurs capital investment, competition, and innovation, its ever-shifting stance on net neutrality has had the opposite effect.
Despite widespread agreement on the basic principles of net neutrality—no blocking, no throttling, and no paid prioritization—and public commitments from large internet service providers to abide by them, no single set of net neutrality rules has endured from one recent administration to the next. The central issue undergirding the routine partisan swings concerns whether broadband service should be classified under Title II or Title I of the Communications Act. Providers of Title II services are subject to onerous, 1930s-era utility-style regulations; Title I service providers, on the other hand, are subject to the kind of light-touch regulation that supercharges investment.
For nearly two decades, the pro-investment regulatory regime prevailed, driving the investment and innovation that created the internet as we know it today. That changed in 2015 when the FCC imposed new rules reclassifying broadband under Title II. In 2018, the pendulum swung back when the FCC rescinded the 2015 classification, making broadband a Title I service yet again. The D.C. Circuit largely upheld the 2018 decision, ruling that “substantial evidence” backstopped the FCC’s reasoning that Title I regulation would promote investment and that the FCC was not wrong when it reasoned that existing, less burdensome means of regulation would safeguard consumers.12 Today, there is speculation that the current FCC may yet again reverse course and reimpose the heavy-handed 2015 regulations, or something akin to them. This dizzying frequency of rule changes makes it difficult for companies to plan for the capital investments necessary to extend and enhance connectivity and promote innovation in the marketplace for communication services.
Indeed, the investment figures recorded over the most recent series of regulatory swiveling show an unfortunate, but predictable, outcome: private companies lacked the stable regulatory footing needed to make sustained investment viable. According to data published by USTelecom regarding aggregate annual capital investment by broadband providers from 1996 through 2018, industry capital investment grew each year since the last recession and peaked in 2014 at $78 billion.13 But after the FCC imposed Title II regulation on broadband in 2015, annual industry CapEx fell by half a billion dollars, and fell yet again by $2.7 billion in 2016.14 Investment normalized only after the FCC signaled in December 2017 its intention to repeal the Title II classification: the trend toward declining spending reversed, and investment grew by $2.1 billion in 2017, and by $3.1 billion in 2018.15
The debate over net neutrality isn’t limited to Washington. After the 2015 rules were repealed, several state legislatures introduced or passed laws regulating broadband access under heavy-handed, Title II-like regulations. For example, California’s new “net neutrality” law prohibits wireless companies from providing certain data features to consumers free of charge. Denying customers freebies is bad enough, but because the internet is inherently interstate, the real-world effect of this law is actual impairment of wireless providers’ ability to offer free data services to customers in states beyond California. The U.S. District Court for the Eastern District of California’s decision denying a motion for preliminary injunction exacerbates this problem and effectively incentivizes other states to follow California’s lead and impose 1930s-era utility-style regulation on broadband.16 As the data prove, swapping a federal mandate for a balkanized patchwork of state-level mandates will only chill the private capital investment necessary to help close the digital divide.
Right-Sized Regulations Will Make Broadband Work for More Americans
So, how can policy makers effectively overcome the three key challenges to greater digital equity and inclusion: broadband affordability, accessibility, and adoption? As we’ve seen, private capital is eager to meet consumer demand if the conditions for investment are welcoming and backed by sensible regulation. Regulatory certainty (or at least predictability) is a key input in any long-term resource-allocation decision, and even more so with a capital-intensive enterprise like broadband infrastructure. Combined with regulatory certainty, congressional measures to address online availability and affordability issues will ensure that broadband is more widely accessible to all Americans.
The coronavirus pandemic spurred numerous important, but temporary, efforts to connect more Americans. At the outset of the crisis, over 800 voice and broadband service providers stepped up to ensure connectivity through the FCC’s “Keep Americans Connected Pledge,” a commitment to prevent consumers’ service disruptions due to unpaid bills or late fees resulting from any economic hardship incurred during the pandemic. Two coronavirus federal relief packages followed, which included (limited) funding for broadband infrastructure and support for essential e-learning and telehealth services. On top of these measures, last year many providers introduced or expanded low-priced broadband plans, giving 70 percent of Americans access to low-priced internet at upload/download speeds of 25/3 Mbps and giving 30 percent access to the higher 100/25 Mbps speed threshold. AT&T, for example, offers eligible customers internet service at $10/month or less, with maximum speeds determined by location—up to 25 Mpbs. Thanks to gains in the number of low-priced plans offered by private-sector providers, consumers in all 50 states now have at least some form of access to affordable broadband.
Unfortunately, approximately 28 million U.S. households still do not use the internet from home. While several factors impact a household’s online access—ranging from low levels of digital literacy to privacy and security concerns—surveys have found that among the most common factors are the lack of available service offerings in their area and concerns with service affordability. Students, rural residents, and people of color are most at risk of being left out and left behind in our increasingly digital economy. An estimated 17 million children across urban and rural areas lack high-speed broadband. For rural Americans, the number of those without adequate broadband access is one in five. These numbers underscore that the need for connectivity is too great to rely on temporary measures.
Similarly, achieving lasting gains to close the digital divide requires fundamentally rethinking our federal broadband subsidy programs, which in their current form cannot meet growing connectivity needs. The first step is to identify areas where broadband is not readily available. Congress set that task in motion by passing and funding the Broadband DATA Act late last year. Once complete, this effort will create a comprehensive national broadband availability map that can be used to effectively target subsidy dollars to close remaining availability gaps.
In addition to knowing where broadband service is unavailable, federal subsidy programs must be modernized too. The FCC’s Lifeline program, for example, needs revamping to meet its goal of helping more low-income Americans access the internet. Participation is lagging; it’s estimated that only 27 percent of the over 33 million eligible households today have enrolled.17 Why? Perhaps it’s the thicket of regulations and administrative hassles placed upon participating ISPs and their customers. Consumers will not be eager to sign up when their choice in service offerings is limited to a niche market with few competitive offerings. Service providers are similarly discouraged from participating in a program that turns them into “middlemen” responsible for overseeing and administering federal dollars on behalf of the government and Lifeline beneficiaries. A modern Lifeline program, however, can help expand internet access by eliminating unnecessary bureaucratic hurdles and aligning participation incentives for ISPs to meet consumer demand.
Fortunately, Lifeline reform is relatively simple. First, shifting Lifeline’s focus from phone to broadband connectivity would put the fund’s limited resources where it can have the greatest impact. Second, delivering Lifeline funds electronically and directly to consumers, rather than to providers, will allow participating households greater choice, privacy, and dignity—much in the same way that the U.S. Department of Agriculture’s SNAP card functions as a debit card, replacing food stamps. When providers are not expected to act as middlemen, program participation is likely to increase.
In addition to upgrading programs like Lifeline, policy makers can also simultaneously provide sustainable funding mechanisms. The Universal Service Fund (USF), which supports federal broadband programs, is broken; it operates as a tax on voice telephone service providers, and the contribution factors have skyrocketed to unprecedented and unsustainable levels in recent years. In lieu of taxing an ever-shrinking base of traditional interstate voice services (how many of us make a “long-distance” call anymore?), direct congressional appropriations to meet the growing broadband affordability needs can give businesses the regulatory certainty that they need to make smart, forward-looking investments in our digital infrastructure. Congress could also consider additional measures to reform our USF system, such as expanding the base of who pays into the USF to include large internet platform companies or allocating a portion of wireless spectrum auction proceeds for the USF.
Congress has several viable options to help low-income Americans get online—options that are consistent with the light-touch regulatory approach that has proven to stimulate infrastructure investment.
A Sound Regulatory Approach Can Deliver Broadband for All
American ingenuity is intertwined with our ability to connect every American. As they have done for decades, federal, state, and local regulators should maintain a light-touch regulatory approach that sustains continued private investment in broadband network deployment and upgrades, rather than imposing unnecessary and onerous regulations on internet service providers that make greater private-sector investment less sustainable. We have a blueprint for success. We should follow it.
Endnotes
1. Press Release, CTIA, U.S. Wireless Investment Hits Five Year High, CTIA Annual Survey Finds (July 27, 2021), https://www.ctia.org/news/u-s-wireless-investment-hits-five-year-high-ctia-annual-survey-finds.
2. Our Members Connect: Communities, USTelecom, https://www.ustelecom.org/#cta (last visited August 30, 2021).
3. Brian Weiss, No Contest: U.S. Leads Europe in Broadband Deployment, Adoption, Investment and Competition, USTelecom (Apr. 21, 2021), https://www.ustelecom.org/no-contest-u-s-leads-europe-in-broadband-deployment-adoption-investment-and-competition.
4. Arthur Menko, USTelecom, 2021 Broadband Pricing Index (2021), https://ustelecom.org/wp-content/uploads/2021/05/2021-Broadband-Pricing-Index-Report.pdf.
5. Adam Oldenburg, How Is 5G Changing Healthcare Delivery?, HealthTech (Feb. 18, 2020), https://healthtechmagazine.net/article/2020/02/what-expect-5g-healthcare.
6. Natasha Singer, Online Schools Are Here to Stay, Even After the Pandemic, N.Y. Times (Apr. 14, 2021), https://www.nytimes.com/2021/04/11/technology/remote-learning-online-school.html.
7. Larry Bernstein, How 5G Will Advance Educational Technology on Campus, EdTech (Jan. 16, 2020), https://edtechmagazine.com/higher/article/2020/01/how-5g-will-advance-educational-technology-campus.
8. Declaratory Ruling and Third Report & Order, In re Accelerating Wireless Deployment by Removing Barriers to Infrastructure Investment, Docket Nos. 17-79, 17-84 (FCC Sept. 2018), https://docs.fcc.gov/public/attachments/FCC-18-133A1.pdf.
9. City of Portland v. FCC, 969 F.3d 1020 (9th Cir. 2020).
10. Press Release, supra note 1.
11. See, e.g., New Cingular Wireless v. City of Pittsburgh, No. 2:21-cv-00443-CCW (W.D. Pa. filed Apr. 6, 2021) (challenging fees in excess of FCC Small Cell Order); GTE Mobile Net v. City of Los Altos No. 5:20-cv-00386-EJD (N.D. Cal. filed Jan. 17, 2020) (challenging as preempted the city’s prohibition on wireless facilities closer than 500 feet to a school).
12. Mozilla v. FCC, 940 F.3d 1 (D.C. Cir. 2019). Specifically, the court upheld FCC reasoning that (1) transparency rules would discourage broadband providers from engaging in harmful practices, (2) competition would constrain anticompetitive conduct, and (3) existing antitrust and consumer protection laws would safeguard consumers.
13. Patrick Brogan, Court’s Net Neutrality Ruling Rejects Attack on Broadband Investment, USTelecom (Oct. 11, 2019), https://www.ustelecom.org/courts-net-neutrality-ruling-rejects-attack-on-broadband-investment.
14. Id.
15. Id.
16. ACA Connects v. Becerra, No. 2:18-cv-02684 (E.D. Cal. 2018), appeal docketed, No. 0:21-cv-15430 (9th Cir. Mar. 11, 2021).
17. Program Data, USAC, https://www.usac.org/lifeline/resources/program-data/#:~:text=Lifeline%20Participation%20%20%20State%20%20%20January,%20%2024%25%20%2049%20more%20rows%20 (last visited Aug. 31, 2021).