Levin: Broadband USF Support Wouldn’t Come from New Fund

SAN FRANCISCO -- The FCC is making “the hard decision” with the National Broadband Plan to shift universal service money toward broadband from current “less productive” uses, instead of creating a new fund at consumers’ expense as the industry would prefer, said Blair Levin, who runs the commission’s staff work on the plan. Most of the lines that don’t support broadband belong to AT&T, Qwest and Verizon, and under the high-cost USF system, “they have no incentive to upgrade,” he said late Wednesday at a Goldman Sachs conference.

USF is bound up with intercarrier compensation, which “causes massive distortions throughout the system,” Levin said. The plan will offer early steps and a path toward overhauling the system, but it “won’t cross every t and dot every i,” he said. The revamps will take several years, Levin said. “You just don’t do flash cuts” on systems that are so ingrained and trying would prompt a backlash that would ensure defeat.

Levin said he and colleagues working on the plan understand the need to rally wide industry support. “It doesn’t make sense to propose an idea that nobody really likes,” he said. “It’s not an easy thing” to sell, and it will take a “combination of tactics.” Levin said that “fear and greed goes a long way” as motivation, but they need to be appealed to properly. The plan staff was recruited mainly from consultants such as McKinsey, Bain and the Boston Consulting Group and from private-equity firms and largely for analytical rather than political talents, he said.

Conversations with broadcasters about switching TV spectrum to wireless broadband have been peculiar, Levin said. Sometimes they've been the financial discussions he said he'd expect, but much of the time “it was a very weird kind of conversation,” like an existential college interaction, Levin said. He recounted that the CEO of a public company said “it’s not about the money” -- what bothered him was that the idea suggested “we're not important,” Levin said. Broadcasters are “not making that much money off of the use of the spectrum,” compared with revenue from cable and satellite, and mobile broadcast revenue “doesn’t seem to be a big thing in the future relative to the spectrum values.

The FCC has laid the groundwork for the idea that “even if you don’t feel” broadcasters “deserve the money” to be proposed as compensation for spectrum, “you should pay them the money,” Levin said. He added, in answer to a question about getting congressional action that would be needed to carry out the spectrum shift, “We've been able to get people to look at the long-term economic growth implications, not, ‘Did somebody maybe get some money that maybe they shouldn’t have?'” It’s “difficult to get lots of things through” Congress with the “climate in Washington,” but spectrum isn’t a partisan matter, Levin said.

The plan in general will seek to encourage private spending for needed facilities, rather than proposing government outlays, Levin said. Those developing the plan are, by nature and because of the economic situation, “frugal about how we think about federal dollars. … Fundamentally, we're trying to do it with as little money as possible -- I should say ‘new money.'”

The plan would be “revenue-neutral” in that proposed spectrum sales would raise more money than the FCC will propose in federal spending, he said. But the spectrum proceeds go into Treasury general funds, and what Congress will do with them is an open question, Levin said. “We've spent time talking to folks, but there are a lot of different variables there.” Wherever possible, the plan will propose actions that don’t need congressional approval, he said.

“Satellite is an obvious solution” for reaching those unserved by wired broadband, but strict capacity limitations complicate matters, Levin said: Devoting the capacity to the unserved makes it unavailable as a competitive lever in relation to cable and the telcos. The costs of offering broadband “jump up extraordinarily” for the 5 percent of the population that lack availability, and the hardest 0.5 percent of the total to reach account for a great proportion of that, he said.

Work on the plan involves strategies for the high end of the user market and the middle, in addition to those outside it, Levin said. The goal that Chairman Genachowski has set to make 100 Mbps access available to 100 million Americans by 2020 is meant to create a “critical mass of the highest-bandwidth users” and so stimulate continuing development of advanced applications, he said. Google’s announced fiber testbed and efforts by Cisco to extend fiber to neighborhoods, presumably the subject of an announcement scheduled for March 9, are welcome developments in this connection, Levin said. “We absolutely had some conversations” with Google before the company made its project public, and the FCC will make announcements about encouraging private activity along these lines, he said without elaborating.

At the same time, government policy should help make broadband more affordable and more widely available, Levin said. There are more set-top boxes than PCs in homes, and the coming mixture of conventional TV programming with online video can spur Internet adoption and use, he said. But the set-top market isn’t competitive, and it needs to be open and innovative to advance broadband, Levin said.

Many Americans who have lagged in getting on broadband are older people and those with low incomes, and many of them have significant contact with government agencies, Levin said. The plan will seek to make use of the relationships by getting those agencies to help create conditions for increased adoption, such as by promoting digital literacy and changing how they themselves work, he said.

The plan’s recommendations under the “national purposes” goals of the authorizing legislation may have a more profound effect on the country than the telecom suggestions, Levin said. The FCC has been ordered to look at how broadband can advance health care, education, energy efficiency and a range of economic and business purposes, he said. “It’s a really extraordinary mandate for an agency like the FCC. I'm not sure any agency has ever had a mandate like it.” Work on the plan has involved studying government requirements -- from licensing to medical-reimbursement rules -- that stand in the way of using broadband for these purposes, Levin said.