Technology Policy Institute

[Commentary] The Holy Grail in cellular wireless broadband is a perfect substitute for fixed, wireline broadband. It’s already a substitute for some uses, meaning competition analysis should take into account this imperfect competition for policymaking purposes. But the technologies are not yet substitutes for most households. Verizon’s recent (re-)introduction of its unlimited data plan, however, suggests that day may be in sight. While history never provides a perfect analogy, let’s take a step back in time to the days of in-country roaming and long-distance wireless charges. (Like cavemen, we were in the 1990s!)
[Scott Wallsten is President and Senior Fellow at the Technology Policy Institute.]

The rash of fantastical, untrue stories circulating on social media during the 2016 presidential campaign yielded the phrase “fake news” along with attempts to tackle the problem. One possible outcome of this phenomenon is people becoming more skeptical of news in general. On the one hand skepticism is healthy by making people less gullible. On the other hand, certain people exploit the problem by crying “fake news” as a response to any story or argument with which they disagree, potentially decreasing trust in reputable sources.

I find that the higher the share of people in a state who voted for Donald Trump, the more likely they were to search for the phrase “fake news” in Google before the election and the less likely they were to search for it after the election (and vice-versa for the share of Hillary Clinton voters in a state). The results are consistent with Trump voters being more concerned about “fake news” prior to the election and Clinton voters being more concerned about it after the election. One interpretation of these results is that people are more suspicious of news when it is not consistent with their point of view.

[Commentary] After Stage 4 of the incentive auction, broadcasters asked for $10 billion to clear 84 MHz of spectrum—down from $86 billion to clear 126 MHz in Stage 1. Assuming that wireless providers will bid enough to allow the auction to close, FierceWireless noted, “that would bring a disappointing end to an auction that once was predicted to generate $60 billion or more…” Disappointment, however, is all a matter of expectations, and expectations for this auction had become unrealistic by the time it began last year. In reality, spectrum bids in the forward auction have been approximately in line with prices and expectations prior to the 2015 AWS-3 auction, which yielded prices more than twice what analysts had expected.

The lower-than-recently-expected revenues bears little relationship to whether the auction should be called a success. But the long time-frame from proposal to auction creates costs by keeping that spectrum otherwise tied up. It is time for the Federal Communications Commission to consider overlay auctions and other property rights-based options for ensuring spectrum is deployed in ways that create the most benefits.

[Scott Wallsten is an economist with expertise in industrial organization and public policy. He is also a senior fellow at the Georgetown Center for Business and Public Policy.]

This paper lists policies and principles we believe will promote innovation and allow the U.S. to maintain its technological leadership.
Recognize that the Unique Nature of Innovation Requires Global Linkages and Sufficient Investment in Research and Development
1. Enable the free movement of workers, investment capital, and information across borders to help ensure that resources are used efficiently. This will spur technological progress because innovation is a global phenomenon.
2. Maintain U.S. technological leadership by providing sufficient resources for our research institutions, including universities, national laboratories, NIH, NSF, and corporations. Focus public R&D spending on areas the private sector is least likely to fund—fundamental or basic research is more likely to fall into this category than is research aimed at commercialization.
Make Evaluation Fundamental to Proposed Programs
3. Evaluate programs rigorously to determine whether they are achieving their intended objectives in a cost-effective manner. Integrate evaluation criteria and methods into program design. Do not penalize agencies for finding that a program doesn’t work.
Encourage Innovation and Investment in ICT
4. Move away from public utility type regulation of broadband. Use antitrust enforcement based on sound economic analysis to address competition issues in the communications sector.
5. Allow innovative business models, a defining feature of the Internet economy, including ones based on price and non-price differentiation without requiring regulatory approval.
6. Streamline processes for making spectrum available, including by moving it from government to non-government control. Allow flexible uses for all spectrum licenses and continue to make them easier to trade. Develop economics-based criteria for allocating spectrum between licensed and unlicensed.
7. Recognize that 100 percent broadband connectivity is aspirational, but not realistic. Funds intended to boost broadband deployment should be distributed in ways that will generate the largest bang-for-the-buck, such as reverse auctions.
8. Adopt coherent privacy rules based on cost-benefit analysis and apply them consistently across the economy.
Promote Cybersecurity
9. Ensure that incentives are properly aligned for the private sector and government to implement effective cybersecurity procedures.
Ensure that Intellectual Property Rights Increase Innovation and Social Welfare
10. Ensure that intellectual property rights policies promote innovation and creativity and base reforms on sound data and analysis.

[Commentary] President-elect Donald Trump wants $1 trillion to be spent on infrastructure projects, but he doesn’t want the government to be the one spending it. So he is proposing a scheme based on tax credits intended to stimulate private investment.

The projects will then repay the cost of the tax credits through “incremental tax revenues that result from project construction in a design that results in revenue neutrality,” as Peter Navarro explains. He goes on to claim “Two identifiable revenue streams for repayment are critical here: (1) the tax revenues from additional wage income, and (2) the tax revenues from additional contractor profits.” The problem with Navarro’s logic is that he ignores a fundamental part of economics: opportunity costs. First, he assumes the people who work on the project would have been unemployed or for other reasons paying no taxes if not for the Trump plan. To the extent they were already employed and are working on Trump-plan projects instead of something else, then their tax payments are not incremental. Second, he assumes that contractors would be less profitable without the plan. That could be true if they would not have had work or if the plan allows them to charge more than they would have otherwise.

The National Telecommunications and Information Administration and National Science Foundation’s request for comments on a broadband research agenda is an important step towards a coherent, data-driven national policy, states Technology Policy Institute President Scott Wallsten in comments filed with the agencies. Research on broadband adoption and programs should focus on what could drive consumer demand among the unconnected, experimentation in programs, and independent evaluation on the effectiveness of current policies. Broadband subsidy programs “have tended to focus on supply, with little regard to how people use the Internet or what will attract them to it,” explains Wallsten.

For example, recent reforms made to the Federal Communications Commission’s Lifeline program failed to acknowledge the results of pilot programs, which suggested subsidies “have little effect on adoption. It is crucial that we understand more about the nature of demand if we are to encourage the remaining non-adopters to join the network.” Agencies must be able to experiment to determine what programs or actions may or may not increase adoption. “Experimentation should extend beyond adoption issues, as well,” explained Wallsten. “Research can also focus on ways of distributing subsidies and grants in ways that yield the most benefits.” Research should also focus on independent evaluation of existing programs and determining ways of building evaluation into new programs. “Evaluation should focus on long-term programs that have not yet received any attention, such as broadband subsidies distributed by the Rural Utilities Service, and others that are now ripe for evaluation, such as the Connect America Fund.”

[Commentary] A fun aspect of this Federal Communications Commission’s modus operandi of announcing new rules and rule changes by op-ed and “fact-sheet” is all the hours one can spend speculating on what the upcoming rule will say. In my case, that mostly involves not having enough information to facilitate useful discussion and epic confusion about how to evaluate proposals that aren’t actually proposals. Recently, for example, I fretted about the potential issues raised by the “standard license” the fact sheet discussed. This week, my confusion regarding the standard license continues, spurred by the fact sheet’s claim that the FCC will be a “regulatory backstop.”

Let’s review the standard license paragraph: "Standard License: The proposed final rules require the development of a standard license governing the process for placing an app on a device or platform. A standard license will give device manufacturers the certainty required to bring innovative products to market. Programmers will have a seat at the table to ensure that content remains protected. The license will not affect the underlying contracts between programmers and pay-TV providers. The FCC will serve as a backstop to ensure that nothing in the standard license will harm the marketplace for competitive devices." What is the FCC backstopping and what does that mean? Perhaps the FCC intends to give itself veto power over the creation of the standard license that is to be designed by some group that remains undefined but for programmers who “will have a seat at the table.” Someday we’ll know what the FCC means to include in a standard license and the back of what, exactly the FCC intends to stop. When that happens some people will breathe a sigh of relief and others will protest loudly. We just don’t know which groups will be doing which yet.

Even though the election is still weeks away, it’s useful to look at one goal that most people share across the political spectrum: closing the digital divide, especially one based on income. Republican Federal Communications Commission (FCC) Commissioner Ajit Pai, for example, recently released his own plan intended to spur broadband infrastructure investment in low-income areas. Given this bipartisan agreement about the goal, it’s time to think seriously about how to get there. As it turns out, we really don’t know the answer yet.

Like any normal good, where demand increases as income rise, wealthier people adopt broadband earlier and are willing (and able) to pay more for higher quality. Unlike many normal goods, as a society we hope that broadband access can help mitigate problems related to income inequality rather than being another symptom of it. The problem is that despite the FCC’s commitment to spending $2.5 billion per year subsidizing broadband for low-income people, we simply do not know how to close this divide. Broadband subscription rates for low-income people have increased rapidly, just as they have for upper-income people, but the gap in broadband adoption across income levels has remained relatively constant.

Scott Wallsten, current Vice President for Research and Senior Fellow, has been named the new President of the Technology Policy Institute. TPI’s current President, Thomas Lenard, will remain with TPI as a Senior Fellow and President Emeritus. Wallsten will assume his role September 1st. Wallsten has been with TPI since its inception. Previously, he was the Economics Director for the Federal Communications Commission’s National Broadband Plan and has been a lecturer in Stanford University’s public policy program, Director of Communications Policy Studies and Senior Fellow at The Progress & Freedom Foundation, a Senior Fellow at the AEI – Brookings Joint Center for Regulatory Studies and a Resident Scholar at the American Enterprise Institute, an economist at The World Bank, a Scholar at the Stanford Institute for Economic Policy Research, and a Staff Economist at the U.S. President’s Council of Economic Advisers. He is also a Senior Fellow at the Georgetown Center for Business and Public Policy. Wallsten holds a PhD in economics from Stanford University.

Australia’s National Broadband Network (NBN) is the largest public sector investment in broadband to replace existing copper infrastructure with fiber. Government decided to build and operate a wholesale network to encourage competition on that retail fixed broadband and achieve faster infrastructure buildout with higher quality and lower retail prices. The NBN aimed to connect 93 percent of Australian households and businesses (13 million premises) to a wholesale fiber-to-the-premises (FTTP) but downgraded to fiber-to-the-node (FTTN) as a result of escalating costs and political change. In further attempts to bring down the cost and adopt a more deliverable strategy, the current administration is considering a gradual sell-off of the NBN network. Six years after its start the overall outcome has not been positive.

This report finds that since NBN implementation coverage and adoption rates have slowed for fixed broadband and mobile broadband growth has remained relatively constant despite increased investment. Australians continue to experience low quality services due to low speeds, higher prices relative to other countries and a slowing rate of price decrease for internet services in the past eight years. Fixed retail market concentration has not changed significantly since the NBN began operation and has slightly increased in the mobile market. Finally, this research suggests that faster mobile connection speeds are changing consumer patters to perceive mobile as a substitute for fixed broadband. The Australian case reveals how state owned broadband might not be the best answer to meet full coverage and competition objectives. The NBN is an example of an intrusive policy subject to political pressures that has resulted in inefficiencies that distort consumer patterns and investment decisions without changing the competitive landscape.