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Strategies to Maximize the Impact of State BTOP Awards

The Business Technology Opportunity Program awards have now been made. Most states have received awards for a combination of Comprehensive Community Infrastructure, Public Computing Center and Sustainable Broadband Initiative grants.

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The Business Technology Opportunity Program awards have now been made. Most states have received awards for a combination of Comprehensive Community Infrastructure (CCI), Public Computing Center (PCC) and Sustainable Broadband Initiative (SBA) grants.

In addition, many lead state agencies received supplemental funding from the National Telecommunications and Information Administration for the continuation of data gathering and mapping, and the coordination of state broadband network development and adoption plans. There are ways in which the various work programs funded by BTOP can be coordinated to achieve maximum local benefits. Let’s explore the possibilities.

First, SBA projects, oriented to the promotion and advancement of local internet education and training for both area and vertical markets, can provide training content for PCCs and for the stimulation of demand by user groups for the broadband connectivity provided by the CCIs.

Second, local broadband networks should be used to support comprehensive and functional community, educational and economic development planning, with vertical market adoption strategies as well as historic TOP programs to maximize the number of subscribers to the CCI networks and the value of the practical broadband applications and services available over the Internet.

Third, an effort should be made by BTOP winners to document and share their experiences so that other groups throughout the state can benefit from the BTOP awards even though they were not funded by BTOP but could be funded in the future by other state and federal programs.

All states have received funding from NTIA for data gathering and mapping and to support other state initiatives and to advance the broadband promotion, deployment and adoption strategies in the state. In addition to the completion of their data-gathering and mapping efforts, states have proposed to use these supplemental NTIA funds to promote broadband and Internet use by: veterans, small businesses, county and city broadband adoption plans, healthcare, education, research, pilot projects and the ongoing administrative support for the development of the state’s broadband plan.

Promote Vertical Markets and User Groups in Area Broadband Markets
While BTOP grants have provided capital for the engineering and construction of broadband networks, the long term sustainability of the networks requires the maximum use of the networks by user groups, including stimulating the demand for network services whether voice, video or data. There are a host of potential users of broadband services in all of the areas served by BTOP networks.

These user groups include anchor institutions like local government, healthcare facilities, K-12 schools, universities and community colleges, government-assisted housing projects and Broadband Internet Service Providers that provide “last mile” connections to the ultimate residential and business consumers.

To maximize the demand for these network services, all of the intermediaries need to explain to their customers through persuasive presentations that a broadband subscription is a sensible and practical investment. The financial benefits of the BTOP grant are finite. The ultimate consumers need to determine that the practical benefits of broadband services are understood and worth paying for. Networks have to develop intermediaries and ultimate consumers in numbers and for amounts sufficient to assure the long-term financial feasibility of the network. The long term success of each network will depend upon the abilities of the networks to create and sustain local cultures of Internet use based on the successful user experience of customers.

As an example, in 2005 Connect Kentucky initiated the development of functional area broadband use by promoting local county-based broadband adoption strategies. Connect Kentucky collected broadband uses by county in nine functional areas: (1) business; (2) K-12; (3) healthcare; (4) libraries; (5) higher education; (6) community-based organizations; (7) government; (8) tourism, recreation and parks; and (9) agriculture.

Connect Kentucky then organized county broadband development teams to gather experiences from their own counties to share with other counties throughout the state so that one successful experience in one county could be adapted to other situations throughout the state.

The newly created Partnership for a Connected Illinois is also using local e-teams to promote broadband in towns, cities, counties and regions. The goal is to maximize broadband use in conceptual spreadsheet “cells,” which reflect the intersection of geographical “columns” and “rows” of users representing vertical markets and applications.

Connecting Broadband Deployment with Regional Comprehensive Planning for Community and Economic Development, Education and Building Human Capital
Historically, urban and regional planners have used the physical infrastructure of sewer, water, roads and transit intersections as supporting foundations for city or county economic development plans. Increasingly, cities and counties are using broadband investments as justification for business recruitment and retention efforts. In large part, this was the justification for the development of municipal broadband networks in the past ten years.

Large businesses require broadband connectivity to compete nationally and internationally in the 21st century economy, typically installed private, proprietary broadband for cost savings and to ensure availability of sufficient capacity. Recently, broadband is increasingly thought to be essential to the cost-effective distribution of government, health care, educational and workforce development services as well. Increasingly, small businesses and start-ups are using the Internet for supply chain management, marketing and sales to grow their businesses and to create local jobs.

Small businesses, both for-profit and nonprofit, need to be online with interactive websites and an understanding of how to use social media marketing to their fullest advantage. PCCs can provide this training, access to hardware and software as well as an understanding of marketing techniques. These PCCs can be located in local libraries, schools or community media centers which also manage local ublic educational and government access channels on cable systems, connectivity that can be used for the cablecasting of outreach and education programs to stimulate broadband adoption.

Community and economic development agencies need to understand the training required by these small and home-based businesses. The training required includes the development of a business strategy and the effective use of websites and social media for marketing and the use of wireless and wireless broadband networks.

Another important contribution would be to coordinate comprehensive broadband network deployment to maximize the contributions of area small businesses to the local economy and jobs. Jobs are not created by governmental mandate or wishful thinking. They are the result of the successful start up, incubation, growth and expansion of businesses competing in an increasingly national and international broadband dominated marketplace.

The TOP program, which was the Department of Commerce/NTIA predecessor grant program to BTOP, funded 650 innovative telecom projects from 1995 to 2005 at an average grant of $750,000. These grants represented venture capital investments in telecom research and development, a substantial and well documented set of applications that should be considered by the local BTOP CCI networks as they develop local economic and community development plans.

All of the extensive TOP project proposals and performance reviews can be accessed at the TOP database at the University of Illinois and managed by Professor Kate Williams. TOP-funded projects in a variety of functional areas from workforce development, to medical and healthcare applications, to government programs, education, entrepreneurship and support for small business. The TOP files represent examples of earlier efforts to use telecom to promote the same type of local community development efforts which were the object of the Connect Kentucky county plans. While the TOP projects were developed prior to the technology and broadband developments of the last five years, they represent innovative, collaborative approaches to the typical community and economic development problems for which broadband networks can provide even more effective solutions.

An Effort Should Be Made to Fully Document the Local BTOP Demonstrations
The BTOP awards represent well thought out project proposals that succeeded in the rigorous national competition. However, the many excellent proposals that failed to receive funding in BTOP Rounds 1 and 2 should be considered for local implementation by local public/private investments by foundations and government programs and private sector investments

Similar to the “unbundled network elements” that were much discussed – but not resolved – in the Illinois Commerce Consideration of the SBC/Ameritech merger in 1998 and 1999, there are many individual initiatives in the implementation of each CCI grant that can be shared with other CCI networks in the state. The experience in complying with Environmental Impact Statements is one example. Others include engineering and construction work, market research, marketing and sales, operations and financial modeling and reporting. The objective would be to “unbundle” proposals to consider their constituent parts that might be of interest and value to others.

The PCC projects can share experiences related to education and training curricula, the effective use of supplemental equipment like Internet-connected white boards, thin clients and cloud computing, initial needs assessments and evaluation procedures and forms. The impact of SBA programs can also be maximized by sharing experiences and results related effectiveness of education training efforts in vertical markets like senior citizens, people with disabilities, skills and job search for low income families, kids not learning at grade level, non-profits and small, start-up businesses

The experiences of SBA programs can be collected from the state and around the country, assessed and disseminated to other parts of the state to vertical markets and user groups with similar interests and needs through the use of online web sites and cable access channels. When completing a successful computer and online training effort, the goal should be to consider how these experiences could be helpful to others.

States Should Facilitate Information Sharing and Replication Efforts
The BTOP Team and the BTOP winners should share with one another through the BTOP databases and website. This process can begin at the two-day workshop for Round 2 BTOP winners in Washington on Nov. 9-10. States should be using a portion of their supplemental NTIA funding to perform similar, but more granular, efforts to collect, analyze and disseminate through websites, webinars and webcasts the BTOP experiences in the individual states. The state recipients of BTOP funds should also promote and support the sharing of information among awardees and other organizations in the state that make up the state broadband network. The goals of the state should be to develop broadband marketing strategies within networks and among vertical markets and user groups that can prepare all segments of local town, city and county economies for success in the international marketplace.

The positioning of local economies for success in the 21st century international marketplace – as well as the short term emphasis on jobs – was one of the two principles that were foremost in the creation of the federal stimulus programs. The goal of BTOP was not simply to fund worthy projects. It was to integrate the use of broadband into the basic fabric of our local communities and economies so that America is best prepared to compete internationally for the rest of the 21st Century.

Don S. Samuelson can be reached at [email protected]

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Expert Opinion

Matthew Johnson: Digital Divide Solution is Right Here with Lifeline. Why is No One Paying Attention?

Broadband Breakfast Staff

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The author of this Expert Opinion in Matthew Johnson, co-founder and co-CEO of TruConnect

Over the past year, COVID-19 has upended lives and livelihoods and revealed the troubling breadth and scope of the digital divide. Despite the positive turn the pandemic is taking, millions remain unemployed and struggle to pay rent and put food on the table. They cannot afford basic broadband to apply for jobs, participate in telemedicine, and complete schoolwork and are consequently trapped in a Catch-22 situation where the lack of internet keeps them locked in their current economic state.

The good news is that a solution already exists. Back in the mid-1980s, the Reagan administration conceived the federal Lifeline program to bring subsidized phones into every household. Since then, the program has evolved to include mobile and broadband services.

Today, 33.5 million low-income Americans are eligible for subsidized – even free – cell phones and internet access courtesy of Lifeline. The problem is that almost 80 percent are not getting them. Why?

Fundamental Lack of Awareness

Over the past four decades, the Federal Communications Commission and Congress have slowly chipped away at Lifeline’s budget, regurgitating the now-common “waste, fraud, and abuse” refrain. Most of those concerns from over five years ago have been remedied; however, the program continues to be overly politicized.

The result is that government agencies at state and federal levels have dedicated scant resources to educate the public about this lifesaving benefit – and COVID-19 has exposed the ramifications of that neglect in the form of abysmal enrollment numbers at a time when they should be record-breaking.

According to our data, Lifeline enrollment is particularly egregious in predominantly non-urban states such as Wyoming, Montana, Nebraska, North Dakota, and New Hampshire. This is not surprising considering that the U.S. has invested very little in rural internet infrastructure over the past two decades.

What is alarming is that states with the best enrollment numbers do not fare much better. Oklahoma – the state that boasts the highest Lifeline sign-ups – barely breaks 40 percent, and the next best three states – Louisiana, Alaska, and Maryland – hover at only 30 percent registration.

Compounding the situation, overzealous and opaque advertising rules by Big Tech entities like Google block eligible Lifeline service providers from reaching low-income users. Meant to protect vulnerable Americans, these ad policies, while well-intentioned, actually further exclude and alienate them from participating in programs designed to rescue them from their economic situations.

Costs to Low-Income Americans

According to a 2019 Pew Research Center study, 80 percent of low-income Americans cannot afford smartphones, computers, and home broadband services together. Nearly half do not have home internet or a computer, and roughly 30 percent do not own a smartphone. When faced with a choice, many opt for mobile devices because it allows them to seek employment, connect virtually with healthcare providers, research government services – like Lifeline, ironically enough – and engage in remote learning.

On the subject of Zoom schooling, the pandemic has laid bare another facet of the digital divide: the homework gap. Nearly 50 million students were forced to go online when the country went under lockdown a year ago. Approximately 20 percent lack home internet and are, thus, unable to consistently complete homework assignments. Many find themselves piggybacking off free WIFI from fast food joints and school footsteps, and approximately 45 percent entirely rely on cellphones to attend classes and complete assignments.

We should not be putting our children in danger amid a public health crisis, especially when the remedy is an already existing program that allows them to use free mobile devices as hotspots that connects devices to the internet from the comfort and safety of home.

Opportunity to Correct the Course

First and foremost, the government at every level needs to go where those who need help most are: churches and grocery stores as well as trusted community centers like libraries, housing authorities, and schools. They must also take advantage of in-person sign-up events to cross-promote Lifeline alongside other benefits such as SNAP and Medicaid.

Importantly, agencies should work hand-in-hand with a spectrum of Lifeline stakeholders – from philanthropies and nonprofits to healthcare providers, social workers, and internet service providers – to deliver clear and straightforward information about the federal program.

Finally, agencies should send eligible participants periodic email notifications with information about Lifeline accompanied by links to local service providers. As government entities, they can bypass the Big Tech ad policies that hinder Lifeline providers from spreading the word about the program.

For far too long, the chasm dividing the internet haves and have-nots has widened to the point of absurdity. Right now, we have a golden opportunity – and an already existing antidote – to bridge the digital divide. Let’s finally take it.

Matthew Johnson is a co-founder, board member, and co-CEO of TruConnect, the fourth largest wireless Lifeline company in the United States. He is also a member of Young Presidents Organization and a two time finalist for E&Y’s Entrepreneur of the Year.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to [email protected]. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

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Expert Opinion

Christopher Mitchell: Electric Grid Disaster in Texas Leads to Broadband Open Access Soul Searching

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The author of this Expert Opinion is Chris Mitchell, director of the Community Broadband Networks Initiative at Institute for Local Self-Reliance

The disaster in Texas resulting from an electric grid that was deliberately left exposed and likely to fail in rare cold weather events has received a lot of dramatic coverage, as well it should given the loss of life and damage to so many homes and businesses.

It also raised some questions in my mind regarding competition and designing markets that will be discussed below. Texas was a leader in allowing different electricity firms to compete in selling electricity over the same electric grid, an arrangement that has some similarities to open access broadband approaches.

In digging into that recent electricity history, I made another interesting and relevant finding that I discuss first as part of the background to understand the lessons from Texas. In 20 years of competing models between, on the one hand, municipal and cooperative structures to deliver electricity and, on the other hand, a largely deregulated and competitive market, the munis and co-ops delivered lower prices to ratepayers.

Electricity deregulation, Texas style

More than 20 years ago, Texas largely deregulated electricity markets. Residents still have a monopoly in charge of the physical wire delivering electricity to the home, but they could choose among various electricity providers that would effectively use the wire and charge different amounts, differentiating themselves via a variety of factors, including how the electricty was produced.

However, some areas continued to have monopoly electricity providers, including two of the largest public power providers in the nation, San Antonio’s CPS and Austin Energy, among others as well as several rural electric cooperatives.

For 20 years, Texas has conducted an informal test between unregulated market competition and local providers that are democratically accountable to their customers. The Wall Street Journal is the latest of many over the years to study the numbers and dispassionately annoint the munis and cooperatives the winners.

None of this was supposed to happen under deregulation. Backers of competition in the electricity-supply business promised it would lower prices for consumers who could shop around for the best deals, just as they do for cellphone service. The system would be an improvement over monopoly utilities, which have little incentive to innovate and provide better service to customers, supporters of deregulation said….

From 2004 through 2019, the annual rate for electricity from Texas’s traditional utilities was 8% lower, on average, than the nationwide average rate, while the rates of retail providers averaged 13% higher than the nationwide rate, according to the Journal’s analysis.

The findings are similar to a 2015 report from the Texas Coalition for Affordable Power, covered by the Texas Tribune:

But from 2002 to 2013, the average household in deregulated areas paid a total of about $4,800 more than residents of cities — like Austin and San Antonio — served by just one municipal utility, or those served by electric cooperatives, the analysis said.

Not just a question of price

This isn’t the first time we at ILSR’s Community Broadband Networks team have looked at electricity. Given that many of the arguments against municipal broadband are identical to arguments against public power more than 100 years ago, we like to look at the 100+ years of empirical evidence that local governments can handle these responsibilities.

Many studies looking at prices and reliability have found public power to be at least as good as the big investor-owned utilities, and often better. Back in 2011, I wrote about Connecticut Light and Power compared to Norwich, Connecticut after a storm demonstrated the benefits of community ownership.

Norwich had far fewer customers lose power, and they regained service more quickly than the investor-owned utility. It led to the New York Times digging into the two companies’ budgets to seek answers.

In contrast to Connecticut Light and Power, Norwich’s electric unit last year increased operations and maintenance spending by 11 percent, to $2.9 million. Put another way, in 2010 Norwich allocated about $132 a customer to this line item in its accounts. Connecticut Light and Power reported maintenance, unadjusted for deferred expenses, of $96.5 million, or around $78 per client.

We generally see networks that are directly accountable to their customers doing a much better job, not just in price but all-around value.

Lessons for designing markets competitively

The competitive market was supposed to deliver far lower prices to consumers. As several have stated, including ILSR’s very own energy expert, John Farrell, what it mostly did was allow electricity companies to introduce the tricky and opaque billing practices common among the national cable monopolies to what had been a fairly transparent market.

A 2019 Houston Chronicle article, “Analysis: The Murky and Confusing Texas Electricity Market” sheds some light:

But the shopping site became overwhelmed with offerings. Some companies offered more than 30 plans that were hard to distinguish from each other. Several retail electric providers began offering multi-tiered electricity plans with low teaser rates designed to catch the attention of shoppers, only to have those who signed up learn too late that using one kilowatt hour above a certain threshold would send the advertised price soaring by as much as 10 times.

Other companies offered “free nights and weekends” plans that could cost consumers more because of much higher weekday rates. One company offered a $600 bill credit for a two-year plan that would ultimately cost customers twice as much as another plan offered by the same company.

It is worth nothing that Texas was not solely seeking lower prices, but also incentives to encourage customers to shift their electricity use away from peak times, especially in the summer. Some companies have achieved those goals, but reading the investigations suggests that the bulk of energy in the market has been expended trying to fool potential customers with opaque pricing.

What this means is that rather than technical or other useful progress, the main innovation was in the form of legalized fraud or trickiness. Companies often competed in how they could fool people into signing up, though they would pay more. This is one of the biggest complaints people have today about telecommunications bundles that are hard to understand and often change price without adequate warning.

Open access broadband networks

As more municipal networks explore and iterate on open access models, proponents need to consider some of the recent lessons learned from Texas. To date, most ISPs on open access networks are earnest, small local companies with a variety of reasons to enter the business, though maximizing wealth extraction has not been one of them.

To my knowledge, I don’t see these shenanigans on UTOPIA despite it passing 120,000 premises. But what happens when open access networks pass 2 million potential users? Or 10 million?

I hope this issue won’t even arise, in part because I would expect the local ownership of the network to produce more accountability than a state or federal agency. But it wouldn’t hurt to have some rules regarding transparency of pricing or some mechanism to ensure the competition on these networks doesn’t devolve to harmful games.

These cable pricing dynamics aren’t just annoying. They are particularly pernicious for the lowest-income households that don’t have the time, and sometimes the literacy, to spend hours digging into complex pricing. Returning to the case of electricity and the Houston Chronicle’s “Murky” story:

“Too many Texans are still overpaying for power,” said Fred Anders, founder of Texas Power Guide in Houston, a website that helps consumers find the lowest cost plans. “And very likely a disproportionate share of them are people who can least afford to overpay and have less time and awareness to navigate the minefield of gimmicks in the electricity market.”

That story also has the interesting nugget that very few people are actively switching providers, which is supposedly the best way to keep prices low. A fatigue seems to set in rather than the kind of enthusiasm that might be expected from the heartiest fans of markets.

This reality is an important reminder when it comes to internet access: I believe people generally want “competition” when they are frustrated with their provider. I don’t think a survey of the subscribers to EPB in Chattanooga or NextLight in Longmont or US Internet in Minneapolis or Sonic in California would reveal much desire for more local competition because users there are happy to pay a fair rate for reliable and straightforward service.

I don’t think people want to spend their time trying to save another $2/month on internet access by checking in on the deals each week to change providers. If that would be all that open access could offer, I will be disappointed. Of course, it may be that for communities that do not want to offer retail service, offering the possibility of choice will result in better outcomes than if they chose a contract with a single ISP, so there are many factors to consider.

People want something that works transparently at a reasonable price. My enthusiasm for open access is very much tied up with the possibility of specialized niche services. Services that we have trouble imagining today because nearly all Americans are locked behind networks owned by corporate monopolies that are not open to innovation. Ammon’s genius is not merely the financial model but the courage to open so much power to users and ISPs. Time will tell if they do anything special with it.

I believe that valuable innovation will come from open platforms, but think the Texas lessons offered a chance to explore why as well as some potential hazards along the way.

Editor’s Note: This piece was authored by Christopher Mitchell, director of the Institute for Local Self Reliance’s Community Broadband Network Initiative. His work focuses on helping communities ensure that the telecommunications networks upon which they depend are accountable to the community. He was honored as one of the 2012 Top 25 in Public Sector Technology by Government Technology, which honors the top “Doers, Drivers, and Dreamers” in the nation each year. Originally published on MuniNetworks.org, this piece is part of a collaborative reporting effort between Broadband Breakfast and the Community Broadband Networks program at ILSR.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to [email protected]. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

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Expert Opinion

Trevor Wagener: State Regulation of Content Moderation Would Create Enormous Legal Costs for Platforms

Broadband Breakfast Staff

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The author of this Expert Opinion is Trevor Wagener, director of research and economics at CCIA

Dozens of bills regulating internet content moderation have been proposed in at least 30 state legislatures, and one in Utah currently sits on the governor’s desk awaiting his veto or signature. If enacted, many of the bills would impose prescriptive state regulations governing internet content moderation practices, with requirements differing significantly from state to state.

Many of the bills would also create private rights of action or state enforcement action powers. This could lead to enormous legal costs for platforms. If several of these bills are enacted into law, the resulting patchwork of regulatory requirements and legal risks could create daunting compliance challenges, astronomical costs, and unpredictable legal liability, which only the largest of platforms might be able to manage.

At present, each American internet platform can choose to moderate user-generated content using a variety of approaches depending on the nature of the platform and the desired user experience. A common approach is to utilize automated content moderation to perform triage on specific categories of prohibited content that can be categorized easily. For some, databases already exist. Human moderators are then used to judge a small fraction of hard-to-categorize content.

Automation is the primary tool in content moderation because of efficiency

Using automation as the primary tool in content moderation is common because of cost-efficiency—for example, Microsoft and Alibaba both offer third-party automated content moderation services for about $0.40 per 1,000 images or posts at scale. This implies an automated content review cost of about $0.0004 per image or post. When a human moderator must review content, by contrast, it takes an average of 150 seconds for them to review a post on even the most efficient platforms.

This work requires skill and judgment: Moderators often must quickly make complex decisions with limited context. Even assuming services could retain personnel to do this challenging work at $15/hour, the cost would be at least $0.625 per reviewed post, or 1,500 times the cost of automated moderation.

Some state bills, including Florida’s H.B. 7013 and Utah’s S.B. 228 require platforms to send a written notice to the user and/or the state government every time a post is moderated. This could require a human moderator for most or all user-generated content in those states, increasing moderation costs by a factor of 1,500. In cases where moderation would affect users from multiple states, the process could require two human moderators’ time, duplicating costs.

Florida’s moderation bill also mandates that users be able to request detailed information about the moderation of their posts, while Utah’s mandates that users be allowed to appeal moderation decisions, have appeals reviewed by a human moderator, and even have that moderator explain their decision to the user.

State bills will exponentially increase the cost of content moderation

Depending on the post, the requests for information, the appeal process, and the specific requirements of each bill, that could take anywhere from 5 minutes to half an hour of a human moderator’s time for each instance. At $15/hour, that would cost between $1.25 to $7.50 on top of the $0.625 for initial review. For each request, the process could cost 3,000 to 18,000 times as much as the present baseline.

Not every moderated post would be appealed. However, with current appeal rates of one in 40 to one in 10, the costs would add up. With content moderation rates ranging from one per 20 users annually on some platforms to almost twice per user annually on others, we can establish a range of incremental compliance costs for a hypothetical startup with 20 million users.

These compliance costs multiply with the number of distinct state content moderation bills enacted. If users from multiple states engage with a post, that could require duplicative reviews of the same content based on distinctive state requirements. If only two out of fifty states enact such bills, duplicated reviews might be required for 4 percent of moderated posts; if thirty out of fifty states enact such bills, duplicated reviews might be required for 60 percent of moderated posts.

In the low case, where one in 20 users has a post moderated, one in 40 moderations are appealed, each appeal takes about 5 minutes, and only 4 percent of moderations involve duplicated review of content from users from multiple covered states, that adds up to about $0.68 million in aggregate annually, or $0.034 per user annually.

In the high case, where two posts per user are moderated, one in ten moderations are appealed, each appeal takes about half an hour, and 60 percent of moderations involve duplicated review of content from users from multiple covered states, that adds up to $70 million in aggregate annually, or $3.50 per user annually.

Even in the best case, a ‘low-cost’ compliance total could be ruinous

For a startup, even the low-case total compliance cost of about $0.68 million annually could be ruinous. The high-case total cost of $3.50 per user annually would be an enormous financial hit for platforms of all sizes, since leading platforms only have global average revenue per user of about $10 annually. Therefore, a patchwork of state content moderation bills could unwittingly create a significant barrier to entry, discouraging tech startups from operating in certain states. This would reduce competition, inhibit job creation and curtail the range of online services available in those states.

In addition, some state content moderation bills, such as Oklahomas S.B. 383, Iowas S.F. 580, and North Dakotas H.B. 1144, create legal risks for online platforms. Purported failures to follow state-specific content moderation rules could subject platforms to both government enforcement actions or private rights of action. Even in clear-cut cases with all facts in the platform’s favor, litigation could cost $80,000 through a Motion to Dismiss or $150,000 through a Motion for Summary Judgment, in addition to possible statutory and/or punitive damages. This would be on top of compliance costs.

It is difficult to forecast legal costs under a patchwork of distinct state regulations, as they scale with the number of affected users and the number of states with such bills enacted. Some of the bills would grant rights of action to the user posting content, while others would grant rights of action to users prevented from seeing content. Some would grant private rights of action to both. Many create enforcement powers for state governments in addition to private rights of action. In principle, the moderation of a single post with comments from residents of multiple states could result in a number of enforcement actions and private lawsuits greater than the total number of affected users times the number of states they reside in.

Spiraling legal costs associated with even a single post by a user in a covered state

The moderation of a single hypothetical post by a user in one covered state with comments by users in 29 other covered states would result in 30 affected users in 30 jurisdictions. This could mean more than 900 lawsuits, each plausibly costing the platform $80,000 for a Motion to Dismiss. If each were litigated, that would cost the platform at least $72 million for a single content moderation decision even if one assumes the success of every Motion to Dismiss. These legal liabilities would be capable of bankrupting a startup or midsize platform. If even one in a thousand moderated posts were fully litigated, platforms would have to account for this enormous tail risk as a recurring phenomenon, as many platforms moderate thousands of posts per day.

Startups with limited initial capital are reluctant to operate in jurisdictions with higher legal risk. They may not only avoid locating offices and jobs in high-risk states but also bar state residents from using their platforms altogether. Platforms that continue operating or offering services in such states may dramatically curtail content moderation to manage risk, resulting in a dramatic increase in financial scams, lewd content, and all-around abusive and unpleasant content. This would likely reduce use of such platforms, decreasing both consumer welfare and platform revenue.

In addition to deleterious impacts on platforms, users, and competition, a patchwork of state content moderation bills would burden taxpayers with administrative costs, enforcement costs, and possible litigation damages.

Administrative costs for most state content moderation bills would likely be in excess of Utah’s estimate of $90,000 annually for each such state. In addition, enforcement costs would likely surpass Iowa’s estimate of $700,000 annually for each such state. Given constitutional concerns around such bills and potential legal challenges to governments that force private businesses to host content to which they object, each such state could easily find itself paying damages and fees.

Trevor Wagener is the director of research and economics at the Computer & Communications Industry Association.  Wagener previously served as deputy chief economist of the U.S. Department of State. This piece is exclusive to Broadband Breakfast.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to [email protected]. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.

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