Last week, I tried my hand at writing a satirical post, supporting Dr. Anna Marie Kovacs' excellent study for the Internet Innovation Alliance. I had "so-so" success, and--with what's been going on in Washington for the past few weeks--I can't blame anyone that mistakenly interpreted my post as a serious endorsement of government-imposed inefficient investment in order to prop up the economy. Dr. Kovacs' study deserved better, and if you'd like to see better, please read this excellent discussion of the study by Richard Bennett.
Among the if-you-didn't-know-better-you'd-swear-it-was-made-up news from last week, a group of Republican House members--after imposing a minimum of $160 million per day in costs to U.S. taxpayers (not counting long term credit cost affects) from shutting down the government for what Sen. John McCain described as a "fool's errand" based on an inability to understand how the government works--sent a letter to the FCC complaining about a program [Lifeline] that they contend "continues to symbolize everything that is wrong with Washington."
Did you get it? Republican House members shut down the government--at a minimum cost of $160 million a day--because they failed to understand that the U.S. system of government requires the majority of both houses of Congress, and the approval of the President, to not only enact a law, but also to repeal a law--in this case "Obamacare." Then, these same lovable rapscallions send a letter to the FCC (where no one is working at the time) to protest the "Obamaphone" program--because that program represents "everything that is wrong with Washington." Pot-Kettle-Black much, gang?
One of the many, subtly-hilarious parts of the movie "Willy Wonka and the Chocolate Factory" is when Willy, played by Gene Wilder, offers a nauseous parent a "rainbow drop" candy which will allow her to "spit in 7 different colors." "Violet Beauregard", a gum-chewing, bossy little girl offers the unsolicited comment (while digging her finger up one nostril) "spitting is a dirty habit." Willy looks at Violet, and responds, "I know a worse one." Here, take a look for yourselves.
In this vignette, the woman getting sick is the low-income consumer, Acting Chair Clyburn is like Willy Wonka, and the House Republicans are like Violet--we'll just call her "Marsha"
Aside from the fact that these Republican House members seem to erroneously believe that every law the President is charged with enforcing must be cited with the prefix "Obama", i.e., Obama-Constitution, Obama-Bill of Rights, etc., they are clearly taking aim at any government program that could even arguably threaten them for the crown of "biggest waste of taxpayer money." Nonetheless, even the broken clock is right twice a day, so let's consider the basis for their ill-timed concerns.
In addition to a steady cascade of (mostly-unsubstantiated) negative publicity, the FCC recently imposed notices of apparent liability (NALs) against 5 Lifeline providers for approximately $14 million for submitting inaccurate and duplicative requests for reimbursement. It should be noted, though, that the FCC is not alleging that the providers in question defrauded the Fund by this amount. However, we should take away the understanding that the FCC is very serious about making sure that carriers submit accurate reimbursement requests.
The amount of the alleged overpayments by the Lifeline Fund to the carriers is relatively small, compared to the amount of "fines and penalties"--which are punishment for the violations that led to the overpayments. In total, the 5 carriers received $73,250 in overpayments, resulting from duplicative claims for reimbursement from a total of 2,753 customers (out of over 19 million enrolled in Lifeline).
So, to be clear, these Republican House members are not outside their rights to raise questions about the Lifeline program and its administration. They were, however, outside their rights to assume their conclusion--that the Lifeline program is not worth, or not possible to repair--before they even asked their questions. Nonetheless, even if they weren't right about their conclusions or even most of their questions, they do seem to exhibit ever so slightly more intuition about how markets work than the Commission.
And, while this ever so slight recognition of market incentives isn't in itself going to change the direction of the Lifeline program, it is a start to figuring out how the Commission is--if it ever is--going to get the Lifeline program firmly on the road to reform that it started over 2 years ago, that will eventually include databases to check inter-company duplicates and to be able to perform eligibility verification online as additions to its arsenal of best practices to protect program integrity. So, be sure and check in next week to part 2 of this "very special" Telecomsense series, to hear me expound on something I am very familiar with.
[Disclosure Note: As I've mentioned previously, AT&T is a client of mine, and they share my views (and those of every other rational observer) on the urgent need for universal service reform--both on the contribution and distribution sides. Unfortunately, for you (the reader), Bob Quinn (of AT&T) already came out with a quick, clever, and succinct statement on the health of the USF earlier in the week when he pronounced that the Fund was in a "death spiral"--meaning that the Fund's precarious status of quickly losing contributors would exacerbate the "per customer" pain caused by the fact that the Fund continues to grow on the distribution side, and so on, and so on . . . . Regretably, for the reader, I dithered with a contribution factor post, and then opted for the relatively repetitious "fact, fact, fact" format. Hang in there, though, it's got a great ending;-)]
Fact: Earlier this week, the FCC announced that the "contribution factor" for the federal Universal Service Fund (a federally-created subsidy pool designed to support telecommunications services to high-cost areas, low-income consumers, schools and libraries, and rural health care facilities), will reach an all-time high of almost 13% for the third quarter. This means that the FCC has authorized telecom providers to add a surcharge to the phone bills of most Americans amounting to about 13% of the interstate telecommunications portion of their wireless or wireline services bill. The surcharge is up from about 10% in the first quarter of this year.
Fact: The Universal Service Fund, in the past year alone, disbursed as much money as the total dollar amount of funds appropriated under the "broadband stimulus" provisions of the American Recovery and Reinvestment Act--about $7.2 billion.
Fact: In a report to Congress earlier this month, the FCC listed the top ten highest per-line USF beneficiaries. It's an interesting read, notable for two facts that seem counterintuitive. First, in all but two cases (where year over year data were available), the highest per line recipients either retained or increased the number of access lines served, while subsidies per line also increased. In other words, the subsidy trends tend to buck commonly-accepted notions of telecommunications being a high fixed-cost, low variable cost industry. Thus, as line counts increase, one would intuitively expect the necessary subsidies per line to decrease, not increase.
Second, the highest per line subsidy recipients were generally located in service territories surrounded by large LECs (maybe "high cost" but "non-rural") that managed to provide service to what would appear to be similarly-situated territories, but at drastically lower per line subsidy contributions.
The report noted that one rural carrier received almost $17,000 per access line in 2008. House Energy and Commerce Committee Ranking Member, Congressman Joe Barton (R-TX) reacted with this statement: "It is unreasonable to expect subscribers to pay more than 11 percent of their long-distance phone bills to subsidize scores of telephone providers in each geographic market, especially when other providers are serving the same markets without a penny of support." Congressman Barton said this before he knew the contribution factor would be well above 11%.
Saul Hansell had a great post on May 8th, that is well worth reading if you are one of the many parties struggling to come up with comments to file on June 8th in the FCC's National Broadband Plan proceeding. In fact, the last paragraph/sentence of the post provides what, with very little (if any) editing, could be the first sentence in a compelling set of comments. Indeed, it is too bad the FCC didn't start its request for suggestions for big plans with such a simple, commonsense, and obvious premise. Mr. Hansell concludes:
To really understand what he is talking about, I strongly encourage reading the post. For too long, telecom industry "insiders"--what you might call the FCC's constituents--have been whistling past the graveyard, assuming that the FCC has all the tools it needs to keep any type of company/industry in business if it really deems that company's services to be in the "public interest." The "tools" of which I am referring are the implicit and explicit subsidies of intercarrier compensation (what companies--telephone, cable, or wireless--pay each other to deliver voice calls to the party being called) and the Universal Service Fund, which all users pay into in order to ensure (theoretically) that all Americans have access to telephone service. Mr. Hansell understatedly characterizes these interrelated mechanisms as "inscrutably complex." They are all that, and a bag of chips.