Best Practices in Broadband Development: Lessons from Canada, Japan, Korea and the United States A Presentation at the 32 nd Annual Telecommunications Policy Research Conference Hosted by The National Center for Technology & Law, George Mason University School of Law Arlington, Virginia October 1-3, 2004 Rob Frieden, Professor of Telecommunications Penn State University web:

ICT Development: What’s Not to Like? Universal access to Information and Communications technologies helps “prime the pump” for economic and social development. Even developing nations allocate scarce hard currency to ICT development. Universal service funding promotes national security, rural development and the comparative advantages of a knowledge-based society. The Digital Divide raises the stakes and the need for universal service funding.

U.S. Universal Service Policies: What’s Not to Like—Plenty!! The universal service mission as structured will never achieve its goals despite $5 billion in annual funding. The USF mechanism benefits politicians and carriers first and consumers last. Subsidy mechanisms distort market forces and the USF mechanism provides unnecessary benefits to some people while imposing excessive burdens on others. Should monthly “lifeline” POTS cost less than a case of beer, or 2 packs of cigarettes? USF emphasizes access to carrier service discounts with little analysis of retail prices and with little regard for promoting computer/digital literacy and broadband access. The USF mechanism creates an unwieldy bureaucracy and process, but one that some can exploit and game.

Applicants post requests for services to SLD web site using Form Applicants wait 28 days while service providers submit bids to applicants. Applicants sign contracts on or after Allowable Contract Date (29 th calendar day after 470 is posted). Applicants submit 471 to request discounts to SLD during 471 window. SLD’s PIA Team reviews every application and calls applicants for verifications. SLD mails applicant and service provider a BEAR approval letter. Applicants submit 486 to SLD for each funding request to “turn-on funding” and certify CIPA compliance, normally by Oct. 28 Copy also is mailed to service providers listed on 471. SLD mails applicants and service providers funding commitment letters (FCDL) that indicate approval/denial of requests. If applicant disagrees with a funding decision, they appeal to the SLD or FCC within 60 days of date on FCDL. Reimbursement Method Applicants pay bills in full and submit Form 472 BEAR quarterly, semi-annually, or annually to SLD. Discounted Bills Applicants begin receiving discounted bills. SLD mails applicants 470 Receipt Notification Letter. SLD mails applicants Receipt Acknowledgement Letter for each 471 received. Applicants submit Form 500 to release any unused funds. SLD mails applicant and service provider a 486 approval letter. E-rate Flowchart Source: Michigan Dept of Educaton, ov/mde/0,1607, _ ,00.html

Failed ICT Development in the U.S. In 2002 the ITU ranked the U.S. 11 th in broadband penetration; in 2003 the OECD ranked the U.S. 10 th. In 2002 the ITU ranked the U.S. 11 th in broadband penetration; in 2003 the OECD ranked the U.S. 10 th. Nations as diverse as Canada, Korea and Belgium exceed the U.S. Nations as diverse as Canada, Korea and Belgium exceed the U.S. According to the ITU in 2002 Japanese consumers paid 9 cents per 100 kbps of broadband access compared to $3.53 in the U.S. According to the ITU in 2002 Japanese consumers paid 9 cents per 100 kbps of broadband access compared to $3.53 in the U.S. Favorable geography and demographics do not fully explain the comparatively poor performance. Favorable geography and demographics do not fully explain the comparatively poor performance. Perhaps the USG could have spent the $5 billion better. Perhaps the USG could have spent the $5 billion better.

Best Practices in ICT Development— Government Roles Successful ICT development requires a government role as incubator, steward, partial underwriter and anchor tenant without being central manager. Successful ICT development requires a government role as incubator, steward, partial underwriter and anchor tenant without being central manager. Government develops a vision and executes a multi-faceted strategy to achieve articulated goals. Government develops a vision and executes a multi-faceted strategy to achieve articulated goals. Government partially funds specific projects, but emphasizes private enterprise and facilities-based competition. Government partially funds specific projects, but emphasizes private enterprise and facilities-based competition. Funding reaches a variety of different grant seekers and supports digital literacy and not simply installation of equipment. Funding reaches a variety of different grant seekers and supports digital literacy and not simply installation of equipment. Creates incentives for investment and disincentives for litigation and other delay tactics. Creates incentives for investment and disincentives for litigation and other delay tactics. Initial government services offered via ICT include healthcare, education, access to information and licensing. Initial government services offered via ICT include healthcare, education, access to information and licensing. Government revises and reforms safeguards to promote trust, security, privacy and consumer protection in ICT services, especially e-commerce. Government revises and reforms safeguards to promote trust, security, privacy and consumer protection in ICT services, especially e-commerce.

Best Practices in ICT Development— Non-Government Roles Entrepreneurial and development hot beds such as Silicon Valley show that the U.S. ventures can successfully incubate ICT. Entrepreneurial and development hot beds such as Silicon Valley show that the U.S. ventures can successfully incubate ICT. Academia and commercial ventures can collaborate and exploit favorable and transparent rules of the game, i.e., a meritocracy that rewards talent and ability coupled with laws and regulations that support access to capital, research and development, risk taking and even failure. Academia and commercial ventures can collaborate and exploit favorable and transparent rules of the game, i.e., a meritocracy that rewards talent and ability coupled with laws and regulations that support access to capital, research and development, risk taking and even failure. A critical mass occurs when a talented work force and entrepreneurial risk takers gravitate to the same region that openly welcomes innovation. A critical mass occurs when a talented work force and entrepreneurial risk takers gravitate to the same region that openly welcomes innovation. ICT development requires a specialized business infrastructure serviced by consultants, lawyers, venture capitalists and executive recruiters. ICT development requires a specialized business infrastructure serviced by consultants, lawyers, venture capitalists and executive recruiters. Despite traffic congestion, high costs and a relentless pace hot beds provide a high quality of life. Despite traffic congestion, high costs and a relentless pace hot beds provide a high quality of life.

The Disconnects in Promoting Universal Service and ICT Instead of promoting pure and applied research and development in solving access issues, universal service funding flows to only a small set of stakeholders who received “tied aid,” i.e., funds tied to purchasing a narrow set of existing services primarily from incumbents. Instead of promoting pure and applied research and development in solving access issues, universal service funding flows to only a small set of stakeholders who received “tied aid,” i.e., funds tied to purchasing a narrow set of existing services primarily from incumbents. Instead of promoting ease of access to venture capital, e.g., through tax credits, the USF comes from compulsory subsidies that sure look and feel like a tax. Instead of promoting ease of access to venture capital, e.g., through tax credits, the USF comes from compulsory subsidies that sure look and feel like a tax. Instead of promoting a fair and transparent business environment, the USF rewards skill in working the e-rate system and the existing incumbent carrier voice network. Instead of promoting a fair and transparent business environment, the USF rewards skill in working the e-rate system and the existing incumbent carrier voice network. Instead of funding digital literacy the USF underwrites the purchase of equipment and services. Instead of funding digital literacy the USF underwrites the purchase of equipment and services. Broadband emphasized for e-rate beneficiaries only. Broadband emphasized for e-rate beneficiaries only.

Learning from Other Nations Promoting near term availability of nearly ubiquitous broadband infrastructure does not require “heavy handed” “command and control” centralized management by the federal government. Promoting near term availability of nearly ubiquitous broadband infrastructure does not require “heavy handed” “command and control” centralized management by the federal government. It requires a cohesive “top-down” vision coupled with “bottom-up” community champion projects that aggregate supply of services and demand for them. It requires a cohesive “top-down” vision coupled with “bottom-up” community champion projects that aggregate supply of services and demand for them. It denies laggards exclusive universal service territories and allows “eligible” replacements to offer new and better technological options, e.g., wireless. It denies laggards exclusive universal service territories and allows “eligible” replacements to offer new and better technological options, e.g., wireless. It does not allow incumbents to leverage possible future investment in broadband with even more regulatory forbearance. It does not allow incumbents to leverage possible future investment in broadband with even more regulatory forbearance. It coordinates many possible funding strategies including direct underwriting, loans, favorable tax treatment, financial support for research, development and technology demonstration projects (as was done with NSFnet). It coordinates many possible funding strategies including direct underwriting, loans, favorable tax treatment, financial support for research, development and technology demonstration projects (as was done with NSFnet). It trains people to become suppliers and consumers of ICT-mediated services. It trains people to become suppliers and consumers of ICT-mediated services.

Conclusions USF and ICT development policies generate unintended and sometimes adverse outcomes, e.g., below cost, unmetered POTS in the U.S. blunts migration to broadband while high, metered POTS elsewhere expedites migration. USF and ICT development policies generate unintended and sometimes adverse outcomes, e.g., below cost, unmetered POTS in the U.S. blunts migration to broadband while high, metered POTS elsewhere expedites migration. Many nations did a better job than the U.S. in crafting a new telecommunications law and in implementing it; Canada, Japan and Korea managed to achieve unbundled local loop access while basic access and cost issues remain a legal and regulatory quagmire in the U.S. Many nations did a better job than the U.S. in crafting a new telecommunications law and in implementing it; Canada, Japan and Korea managed to achieve unbundled local loop access while basic access and cost issues remain a legal and regulatory quagmire in the U.S. In the U.S. stakeholders get several due process bites of the apple leading to litigation, delay and opportunities to conserve capital/postpone risktaking. In the U.S. stakeholders get several due process bites of the apple leading to litigation, delay and opportunities to conserve capital/postpone risktaking. Nations achieving comparatively greater success in ICT development than the U.S. demonstrate the effective and catalytic role of government. Nations achieving comparatively greater success in ICT development than the U.S. demonstrate the effective and catalytic role of government. Nations cannot simply throw money at the problem and declare victory. Nations cannot simply throw money at the problem and declare victory. Uncertainty in mission and policy leads to delay, lost productivity and competition in the courtroom instead of the marketplace. Uncertainty in mission and policy leads to delay, lost productivity and competition in the courtroom instead of the marketplace.