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Gregory Rosston

While Universal Service Reforms Show Promise, Politics Clouds Fund’s Future

in Broadband's Impact by

ASPEN, Colorado, August 19, 2015 – In spite of several positive efforts to reform the complex and dated rules that govern the Federal Communication Commission’s universal service fund, key decisions surrounding the $8 billion annual fund remain ineluctably political.

That was the message shared by panelists, including a commissioner at the FCC, speaking at a session on Tuesday at the Technology Policy Institute’s annual forum here.

For example, the panelists — which also include two economists, a cable industry lobbyist and the former director of the National Broadband Plan — applauded efforts to bring greater economic efficiency to telecom network construction through a system known as a “reverse auction.”

They also supported efforts to promote broadband adoption by providing income-based vouchers for the purpose of internet services.

But decisions about the allocation of funds within the USF — and the key question of how the fund is to be paid for — remain political hot potatoes.

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Moderator Scott Wallsten of the Technology Policy Institute, with panelists Mignon Clyburn, James Assey, Blair Levin, Gregory Rosston, and Bradley Wimmer.

“The electorate will decide the right size” of the USF, said Blair Levin, former director of the FCC broadband plan, referring to the 2016 presidential vote. Levin is currently executive director of Gig.U and a senior fellow at the Brookings Institution.

“Let’s put aside, for now, the question of the budget” and whether fees should be levied on internet connections to pay for the USF, said Levin. Putting that issue aside would allow the FCC to design the best policy, irrespective of how large the fund ultimately will be.

Over the past five years, each of the four main components of the universal service fund have undergone an overhaul. First was the “high-cost fund,” the largest component of the USF, which became the Connect America Fund and the Mobility Fund.

These changes include the implementation of a “reverse auction,” in which the FCC promises to support rural broadband providers based on the bidder who offers to provide broadband at the lowest cost.

The other three components of the USF are the eRate for schools and libraries — changed last year by FCC decisions in July and December – plus the health care and telemedicine fund, and the Lifeline program for low-income connectivity.

Much of Tuesday’s panel discussion, titled “”Universal Service: Towards Broadband, Efficiency and Equity,” revolved around the Lifeline program, which is currently being reviewed and potential modified by the agency.

Too frequently, commentators speak of “lifeline and universal service. Lifeline is universal service. It is one leg in a four-legged stool,” said Commissioner Mignon Clyburn, who is spearheading efforts to enhance the current Lifeline program.

Until the changes over the past five years, universal service monies could not be used directly on expenditures for broadband. That remains the case with Lifeline; although FCC Chairman Tom Wheeler has proposed changing that.

Two economists participating on the panel said that Lifeline has become an income-redistributing effort instead of a program ensuring greater access for low-income individuals.

“A lot of the money from the Lifeline program goes to households that would subscribe to telephone service even if there were no subsidy,” said Bradley Wimmer, an economics professor at the University of Nevada at Las Vegas.

Clyburn pushed back on that point.

Speaking about low-income individuals, she said that “people want to communicate, and they will make sacrifices to do so. Should they make the tradeoffs they are making to be able to communicate?”

Additionally, Clyburn said, 44 percent of those who are low-income end up having their smart phones disconnected because of economic hardships.

However, all of the panelists supported efforts to use vouchers to move the Lifeline program in a direction of allowing low-income consumers greater communications choices.

The four of USF programs are funded by a 17 percent fee on telephone communications, a number that is adjusted for cell phone users. Currently, broadband connections are not subject to the fee, but that might change.

When Congress put legislation in place to limit taxes and fees on internet connections in the 1990s, demand for such services were not “inelastic.” That economics term refers to goods, like automobile fuel, that consumers tend to purchase irrespective of how the price changes.

“Now, they are relatively inelastically demanded,” said Gregory Rosston, deputy director of the Stanford Institute for Economic Policy Research. That means that, over the past two decades, consumers have come to regard broadband as more of a necessity.

But James Assey, executive vice president of the National Cable and Telecommunications Association, countered: “At a time we want to promote broadband, why impose additional costs on broadband bills?”

Although most cable companies have not been eligible for universal service funds, Assey said that could change as FCC updates its traditional rules around the Connect America Fund and Lifeline.

Assay also said that cable companies have been among the most active in promoting connectivity through efforts like Comcast’s Internet Essentials. Initiatives designed to spur greater broadband adoption were required of Comcast, the largest cable provider, as part of conditions attached to approval of its merger with NBC Universal.

Levin said that the debate about the USF suffered from a “penny-wise, pound-foolish” mentality. “How much more efficient would government be if it knew that everyone was online?”

Being able to reconfigure government systems and make them almost-exclusively online could end up saving billions, if not tens of billions of dollars every year, he said.


Broadband Breakfast Club Webinar on Tuesday, December 17, at 11 a.m. ET: ‘Evaluating the Broadband Stimulus Program: Were Funds Well Spent?’

in Broadband's Impact/Events/FCC/NTIA by

WASHINGTON, December 11, 2013 – The Broadband Breakfast Club announced that it will host a free, online webinar on Tuesday, December 17, 2013, at 11 a.m. ET/10 a.m. CT, on “Evaluating the Broadband Stimulus Program: Were Broadband Technology Opportunities Program Funds Well-Spent?”

Authors Gregory Rosston and Scott Wallsten, in a publication for the Technology Policy Institute, have called the broadband stimulus program “A Rural Boondoggle and Missed Opportunity.”

In the paper, the authors conclude that the “NTIA adopted a system that led to awards differing by more than a factor of 100 in terms of expected cost-effectiveness. Had it adopted a more reasonable framework, many more households could have been connected for the same money, or the same number of connections could have been realized for a fraction of the cost.”

In a critique of the study by the Schools, Health and Libraries Broadband Coalition, Executive Director John Windhausen characterized the report as a misunderstanding of BTOP’s purposes. “The program also provided valuable support for public computer centers and promoted broadband adoption in urban, suburban and rural areas. Unlike an ongoing subsidy, BTOP provided a one-time investment in long-lasting broadband infrastructure that previously suffered from an inadequate level of broadband capacity.”

In a session moderated by Drew Clark, Chairman and Publisher of BroadbandBreakfast.com, Rosston, Wallsten and Windhausen will debate the Technology Policy Study in the webinar on December 17. Register today!


Expert Opinion: Technology Policy Institute Study Misunderstands Purpose of Broadband Program

in Education/Expert Opinion/Health/NTIA/Rural Utilities Service by

Schools, Health and Libraries Broadband Coalition Finds Fault  with Study Critiquing Broadband Technology Opportunities Program

WASHINGTON, November 18, 2013 – The Technology Policy Institute issued a report on Thursday criticizing the Broadband Technology Opportunities Program (BTOP).  Unfortunately, the report reflects a misunderstanding of the purpose of that program.

The Technology Policy Institute study of BTOP mischaracterizes the purposes of the Program and fails to recognize the program’s enormous benefit to community anchor institutions across the country.  The authors of the study describe the BTOP program as a “rural subsidy” program.  In fact, the BTOP program is neither “rural” nor a “subsidy.”

While the Broadband Initiatives Program (BIP) administered by the Rural Utility Service (RUS) was focused on connecting rural residential consumers to “last mile” broadband, the principal purpose of the BTOP infrastructure program was to provide high-capacity “Middle Mile” broadband services to schools, libraries, health providers, community colleges, and other anchor institutions all across the country, not just in rural areas.  The BTOP program also provided valuable support for public computer centers and promoted broadband adoption in urban, suburban and rural areas.  Unlike an ongoing subsidy, BTOP provided a one-time investment in long-lasting broadband infrastructure that expands the reach of broadband services across many underserved geographic areas that previously suffered from an inadequate level of broadband capacity.  The National Broadband Plan called for anchor institutions to have 1 Gbps capacity by 2020, and the BTOP program has played an important role in moving us toward that goal.

The SHLB Coalition is a broad-based coalition of non-profit and for-profit organizations that promote open, affordable, high-capacity broadband for anchor institutions and their communities.  Enhancing the broadband capabilities of community anchor institutions promotes economic growth and enables the most vulnerable segments of our population to be equal participants in the 21st century society and economy.

John Windhausen is Executive Director of the Schools, Health & Libraries Broadband (SHLB) Coalition (pronounced “SHELL-bee Coalition”).


FCC Announces Shakeups in Division Posts

in FCC/People by

WASHINGTON, June 8, 2011 –The Federal Communications Commission announced a flurry of new hiring in some of the agency’s top spots this week with new blood due to take over three of the Commission’s upper-level posts.

Tuesday Rick Kaplan as the new Chief of the Wireless Telecommunications Bureau. On Monday, Robert Naylor was announced as the new Chief Information Officer, and Marius Schwartz as the new Chief Economist in the Office of Strategic Planning & Policy Analysis (OSP).

The recent lineup change by the FCC was announced in three separate press releases in less than 24 hours.

Ruth Milkman, Kaplan’s predecessor, will serve under a new title as Special Counsel to the Chairman for Innovation in Government. Among her responsibilities, Milkman will lead a team to develop proposals for procedural, regulatory and statutory changes to further innovation.

Milkman played a key role in the agency’s spectrum policy development, as well as in the area of auctions.  Kaplan, currently Chief Counsel and Senior Legal Advisor to Chairman Genachowski, played an integral part in the Commission’s policymaking over the last year. Kaplan also worked on the DTV transition.

“It is an exciting and critical time for wireless communications, and I am pleased that Rick accepted this leadership position to continue Ruth Milkman’s excellent work in one of the most important sectors of our economy,” said Genachowski.

Robert Naylor’s new role as the Commission’s Chief Information Officer will provide the vision and leadership necessary for the agency’s cloud-computing modernization efforts, according to FCC Managing Director Steven VanRoekel.

“His work will make our operational expenditures more effective in out years, providing a reliable means of engagement for the consumers and industries we serve,” said VanRoekel.

Schwartz, Professor of Economics at Georgetown University, was hired as the Chief Economist in the Office of Strategic Planning & Policy Analysis for his economic expertise and wide range of telecommunications experience.

Jonathan Baker, who is the outgoing Chief Economist, and Gregory Rosston, Deputy Director of the Stanford Institute for Economic Policy Research, will both serve as Senior Economists for Transactions to work on the Commission’s reviews of the AT&T-T-Mobile and AT&T-Qualcomm transactions.

Chairman Genachowski said, “The Commission has come to rely heavily on the analyses of the Chief Economist and his role in building the agency’s economic capabilities, and I look forward to that continuing under Marius.”

Consumers Willing to Upgrade, but Slow to Embrace Super-Fast Technology

in Broadband Updates/Broadband's Impact by

WASHINGTON, October 5, 2010 – Consumers are willing to pay a large amount to upgrade their internet access speeds from slow to fast, but are more reluctant to upgrade from fast to super-fast, according to a research paper discussed at the Telecommunications Policy Research Conference last week.

Gregory Rosston of Stanford University discussed research addressing the value of consumers’ high speed internet access. Consumers are as greatly interested in reliability as they are in speed, he said. The research also found that experienced users are much more willing to pay for higher speeds while inexperienced users are willing to pay for basic access. Additionally, consumers are willing to pay for high-speed access but demand reliability over a super-fast speed.

A separate panel addressed issues surrounding network neutrality compared policies in the United States, Japan and the European Union. In the United States, there is limited competition with weak governmental authority in enforcing network neutrality principles, and there have been a number of infractions. Japan in contrast has a high level of competition at the service level and the government has put in place some non-binding principles.

Several corporate players in the media and communications industries have come together to agree on a set of rules governing net neutrality. it is important to note however that the nation’s largest internet service provider is the government-supported NTT. There have not yet been any network neutrality infractions. The European Union is unique in that it has strong competition amongst ISPs, a high level of government authority over the telecommunications sector and there have been infractions. The infractions however were privately resolved without the intervention of the government. The researchers concluded that competition prevents infractions but competition is unable to determine the necessary level of competition.

A broadband investment panel looked at how investment will proceed now that increasing capacity costs more than earlier investments. Broadband investment is a long and expensive process that appears to be declining. Verizon has announced that it will slow down its FIOS deployment. A paper by Bob Atkinson, Eli Noam, and Ivy Schultz from Columbia University shows that future investment will most likely be in wireless technologies due to their beneficial cost-to-coverage ratio.

Universal Service Fund Should Focus on the Low-Income, Agree Broadband Experts

in Broadband's Impact/Universal Service by

WASHINGTON, July 21, 2009 – A panel of broadband experts agreed Monday that the Universal Service Fund should direct more of its funding to low-income areas and away from exclusively focusing on rural high-cost areas, where funds are not being spent efficiently.

The experts spoke during a panel discussion sponsored by the Technology Policy Institute, a market-oriented think tank on technology issues.

The term universal service, said Jonathan Nuechterlein, a partner at Wilmer Hale law firm, has two different meanings.

One meaning has to do with funding for broadband in high-cost areas where deployment is expensive, regardless of the residents’ income, and the other has to do with funding for low-income areas.

“Funding broadband,” said Nuechterlein, “is expensive” and is going to “increase the burden on the companies that end up subsidizing it.” One way to ensure that this money is spent efficiently is to “narrow the scope” by only funding broadband in “genuinely unserved areas,” he said.

The whole “cluster of issues” dealing with universal service legislation, said Nuechterlein, “is tied with inter-carrier compensation.”

Traditionally, small rural carriers depended on carrier-to-carrier networks to fund their expenditures, but because there are now ways to avoid public access charges, the whole system is “rapidly eroding,” he said.

Gregory Rosston, deputy director of the Stanford Institute for Economic Policy Research compared universal broadband service to apple pie. Although everyone wants it, said Rosston, “it’s not free,” which is why it’s important to balance the benefits of broadband deployment against the costs.

Rosston questioned the efficiency of bringing broadband access to the “last five or 10 percent of households” which are “very difficult to serve,” and at which point the costs might out way the benefits.

One problem with high-cost funding is that it is funded by the taxes of broadband subscribers across the U.S. “For every two people you get to subscribe in a rural area, one person in an urban area drops off,” he said.

Broadband adoption, said Rosston, cannot simply be left to the market, where industries try to find what consumers want and provide it. Broadband is unique from other types of products because many times “people don’t realize the full value of subscribing,” he said.

Rosston specifically recommended providing vouchers to low-income people who “would not otherwise subscribe” and link-up programs which are “very effective at getting people connected.”

The “bottom line” is that it is necessary to determine what the costs are, how to connect people, and how to get industries to compete to win customers, he said.

F.J. Pollack, chief information officer of Tracfone Wireless, said that his industry is unique because it focuses on serving the unserved and pays out of its own pocket for the universal service fees.

Tracfone Wireless actually gives away free cell phones and minutes to low-income families, he said.

Many of the people Tracfone Wireless serves, said Pollack, are on food stamps and Medicaid, 93 percent of them do not have internet access at home, and 86 percent would like to be connected to broadband, but cannot afford it either because they can’t afford a computer or can’t afford to get connected.

Of those who couldn’t afford a computer, 64 percent said they couldn’t afford to get connected unless provided with a free computer. Of those would couldn’t afford to get their computer connected, 44 percent said the service would have to be free, and almost all of them said the cost could be no more than $20, he said.

On the issue of funding for high-cost areas, Pollack emphasized the inefficiency of how money is spent, referring to it as a “cost plus” program. High-cost funding has increased in states such as Alaska, Kansas, and Nebraska, yet “this fund really does not reform, no matter who pays for it,” he said.

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