February 2011

The Universal Service Fund: What Do High-Cost Subsides Subsidize?

Over half of subsidies, or $.59 of every dollar, paid through the High-Cost Universal Service Fund go to general expenses of firms, not to directly providing support to high-cost lines.

This research underscores the inefficiency in the current universal service subsidies program and, in particular, the high-cost fund. Policymakers should use the push to include broadband as part of USF to implement radical reforms. The findings are based on an analysis of data submitted by 1400 recipients of high-cost subsidies from 1998 to 2008.

While Wallsten suggests that the most useful reform would be to focus more on low-income assistance instead of high-cost areas, he offers suggestions on how to make high-cost subsidies more efficient:

  • The program should explicitly consider the use and cost-effectiveness of satellite broadband, especially considering that the soon-to-be-available next generation of satellites will offer download speeds of between 5 and 25 Mbps.
  • The universal service program should be reformed so it does not rely on cost-based, rate-of-return regulation, which eliminates the incentive for firms to operate efficiently and creates incentives to inflate reported costs.
  • To the extent that the Fund will subsidize multiple providers in an area, it should set the subsidy amount to be equal to that necessary for the lowest-cost provider, not to whatever the incumbent already receives.
  • The Federal Communications Commission should consider using auctions to define the level and distribution of subsidies. While auctions would have to be designed to address such issues as what to do in cases where the “provider of last resort”does not win the auction, the worst outcome of a well-designed process would be the status quo.

Is Wireless Really the Answer for Rural Broadband?

A Q&A with Craig Settles.

Asked about the Obama Administration's attention to rural broadband, Settles says, "They are taking it pretty seriously. You have what’s rumored to be about $8 billion as part of the Universal Service Fund and they are trying to shift a large part to broadband on an annual basis. We are talking about per year. That’s a huge amount of money when you look at it in that context. You have to ask what, 'What are we going to get for this?' That segueways into the President establishing a national discussion on broadband and saying here is what is going on. You may as well tie them together. The Universal Service Fund is looked on as how we bridge that gap between the haves and have-nots. It is a good focal point. There are two things that are being tied together because they are related. Trying to reform the one fund to get more people connected. The president is articulating economic development driven by a broadband vision. So you have to figure how to get there."

E-book lending startup pledges piracy vigilance

Consumers who don't read the terms of their online purchasing agreements may not be aware that buying an e-book off Amazon affords them a right to loan out the book to a friend. The contract for Kindle book purchases lets users lend out each book to one user for 14 days.

"That's just not widely known yet," says Catherine MacDonald, owner of BookLending.com. It can also be tough to find another Kindle user who owns the book on your reading list. That's why MacDonald started a site to help match borrowers with lenders, which has grown to 15,000 users since its launched last month. The start was shaky: Amazon stepped in. The company said the service must change its name, so KindleLendingClub became BookLending.com. "We knew we were on the wrong side of that particular discussion," MacDonald said. Amazon has since embraced the offering, according to MacDonald, who makes a commission when consumers buy Amazon books they've accessed through links on her website. MacDonald takes home between 4 to 8 percent of any book they buy, and has made thousands of commissions in the last month, she said.

Rep King doesn't close door on Broadcasters' concerns

The Society of Broadcast Engineers (SBE) is concerned about a provision in House Homeland Security Chairman Pete King's (R-NY) public safety broadband bill that does not offer the displaced broadcasters any replacement spectrum. After hearing BE's concerns, Chairman King said, "As we move forward, we will listen to and work with anyone who has an interest in this important legislation."

Media Ownership Rules Teed Up In Court, Again

On Feb 24, the Media Access Project's Andrew Schwartzman, on behalf of Prometheus Radio Project, will again be arguing the Federal Communications Commission's media ownership rules before the Third Circuit Court of Appeals in Philadelphia.

The court is hearing challenges from A) Prometheus, Consumers Union and others which argue the FCC went too far in 2007 by loosening the ban on newspaper-broadcast cross ownership and B) by broadcasters and newspapers who argue the FCC should have removed the ban altogether and loosened other rules. The FCC is independently reviewing those rules again to see if it needs to make any changes, and had asked the court to hold off on a decision until it could weigh in again, suggesting it could come to a different conclusion from the members of the 2007 FCC, only two of which remained. But the court lifted a years-long stay on enforcement of the 2007 rules last March and got the briefing schedule/oral argument ball rolling. An FCC spokesman said that associate general counsel Jacob Lewis will argue the case. On behalf of the deregulatory side-newspapers and broadcasters-- there will be a series of lawyers arguing various parts of the case, with Virginia Seitz of Sidley & Austin said to be handling much of the heavy lifting. Each side will get a half-hour, with the FCC getting a full hour to defend itself.

Auction Talk Draws TV Spectrum Speculators

Cheap beachfront real estate. That’s how NRJ TV, a fledgling media group, views cellar-dwelling TV stations in major markets.

Betting on an eventual auction of broadcast spectrum by the federal government, NRJ is buying such TV stations on the cheap in the hope of one day sharing in the proceeds of that auction. NRJ last month bought two former Multicultural Television stations — KCNS San Francisco and WFMP Boston — for $15 million and $5 million, respectively. And the company has its eye on as many as a dozen additional stations. WSAH Bridgeport (CT) in the New York market may be next on the list. Like KCNS and WFMP, WSAH is one of five Multicultural stations that were placed in a trust after owner Arthur Liu defaulted on loans. NRJ also was among the bidders for KWHY, the Los Angeles station NBCU sold in January to the Hispanic-owned Meruelo Group for $40 million. Ted Bartley, managing partner of NRJ, doesn't dismiss the idea of spectrum investing, but he does downplay it. “We are buying TV stations — we think at historical lows in some cases,” he said. “We don't know what the outcome will be. We’re trying to buy at a price to operate them efficiently and make money as broadcasters. I think all broadcasters hope for good things [on spectrum], but there’s no certainty,” he says. “We are certainly not speculating on that as the only way to make money.”

Traditional media owners start to dominate online

A study into how the profile of the web’s most-visited sites have changed since 2004 highlights the increasing concentration of ‘Media’ and ‘Information & Reference’ brands in the Top 50 sites.

In January 2004, nine media companies featured in the UK’s 50 most-popular brands online. This has risen to almost a third (16) last month, thanks to more time being spent on sites for TV broadcasters ITV, Channel 4 and Sky, and national newspapers owned by Associated, Guardian News & Media, News International and the Telegraph Media Group. The BBC commandeers two entries, one for its general news and TV business and one for its commercial BBC Worldwide operation. Meanwhile, there are also strong showings for Reed Business Information and Hachette Filipacchi UK, the magazine owner of Sugar (online) Red, Psychologies and Elle currently being sold to US giant Hearst. It appears that as the web matures, the content specialists of the offline world are starting to shine online too. It follows increased investment by media companies in time and resources to their digital operations. James Smythe, general manager at UKOM, said: "Over the last seven years, we have seen media owners significantly rise in our Top 50 rankings. Clearly they own the very best content and people are responding to that. With hindsight, I'm sure a few media owners probably wish they had charged for their content from the beginning."

FTC Asks Court to Shut Down Text Messaging Spammer

The Federal Trade Commission asked a federal judge to shut down an operation that allegedly blasted consumers with millions of illegal spam text messages, including many messages that deceptively advertised a mortgage modification website called “Loanmod-gov.net.”

The FTC is asking the court to freeze the defendant’s assets. According to the FTC complaint, the defendant behind the operation, Phillip A. Flora, sent millions of text messages, pitching loan modification assistance, debt relief, and other services. In one 40-day period, Flora sent more than 5.5 million spam text messages, a “mind boggling” rate of about 85 per minute, every minute of every day, according to additional court documents filed by the agency. The FTC alleges that consumers lose money as a result of Flora’s spam text messaging because many of them get stuck paying fees to their mobile carriers to receive the unwanted text messages. The text messages told consumers to respond to the message or visit one of the operation’s websites. One of the sites, loanmod-gov.net, used a web address that appeared to be a government web address, claimed to provide “Official Home Loan Modification and Audit Assistance Information,” and displayed a photo of an American flag. According to the FTC’s complaint, Flora collects information from consumers who respond to the text messages – even those asking him to stop sending messages. He then sells their contact information to marketers claiming they are “debt settlement leads.” The FTC charges that Flora violated the FTC Act by sending unsolicited commercial text messages to consumers, and by misrepresenting that he was affiliated with a government agency. In addition, the FTC charges that he advertised his text message blasting services by sending consumers e-mail spam that violated the CAN-SPAM Act – a law that sets the rules for commercial email. The FTC alleges that his e-mail spam failed to include a way for consumers to “opt-out” of future messages and failed to include the physical mailing address of the sender, as required by the law.

Feds appealing warrantless wiretapping court defeat

The Obama Administration is appealing the first and likely only lawsuit resulting in a ruling against the secret National Security Agency warrantless surveillance program adopted in the wake of the 2001 terror attacks.

US District Judge Vaughn Walker in December awarded $20,400 each to two American lawyers illegally wiretapped by the George W. Bush administration, and granted their counsel $2.5 million for the costs litigating the case for more than four years. Although Judge Walker had called it “unlawful surveillance,” he went soft on the government because the authorities, he said, believed they were protecting the country in the aftermath of the worst terrorist attack on US soil. Judge Walker did not declare the administration’s so-called Terrorist Surveillance Program unconstitutional, and he declined to issue punitive damages to punish the government for wiretapping in the country without warrants. Instead, the judge granted the two spied-upon lawyers for the now-defunct Al-Haramain Islamic Foundation charity $100 a day for each of the 204 days their telephone calls were wiretapped beginning February 2004, an amount they sought. In addition, they requested about $200,000 each in punitive damages, and the same amount to be awarded to the charity—all of which was denied. The government lodged what is known as a notice of appeal with the judge’s court Feb 18. The government has about three months to file its opening brief with the San Francisco-based 9th US Circuit Court of Appeals.

IPI News Innovation Contest: International Press Institute and Google announce 2.7 Million Dollar Grant

The International Press Institute (IPI) announced that it has been awarded $2.7 million by Google, to sponsor the ‘IPI News Innovation Contest’, a project aimed at advancing the future of digital news by funding new ways to inform communities in Europe, Middle East and Africa.

The IPI News Innovation Contest aims to encourage breakthrough ideas with the potential to create lasting impact. Grants will be awarded to non-profit and profit organizations working on digital, including mobile, open-source technology created by journalists and/or for journalists and distributed in the public interest.

All projects should fit into three categories: News Platform, Sustainability and Training.

  • The group News Platform includes all applications that embrace new ways of ensuring the reliability of news and information sources by journalists, thereby providing regular citizens with access to trustworthy information, which is crucial for democracy.
  • Under Sustainability are those proposals related to new economic models such as new revenue streams and/or cost optimization, supporting the existence of news and media outlets.
  • Training attracts projects that show continued investment in journalism excellence by training digital journalists.