In March 2021, the Biden Administration unveiled its infrastructure plan, known as the American Jobs Act. An important part of the plan is technology, and a focus point is improving the nation's broadband network. A panel of experts joins us to discuss the plan and its implications.
- Prof. Christopher Yoo, University of Pennsylvania Law School
- Tony Clark, Senior Advisor, Wilkinson Barker Knauer LLP
- Kate O’Connor, Chief Counsel, Subcommittee on Communications and Technology, House Committee on Energy and Commerce
- Moderator: Hon. David Redl, Founder and CEO, Salt Point Strategies LLC and Senior Fellow, Silicon Flatirons
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As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.
Dean Reuter: Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group Teleforum calls, become a Federalist Society member today at fedsoc.org.
Nicholas Marr: Welcome, everyone, to The Federalist Society's Zoom webinar event. This event is titled Infrastructure, Broadband, and the New Administration. It's May 25, 2021. I'm Nick Marr, Assistant Director of Practice Groups here at The Federalist Society.
As always, please note that expressions of opinion on today's call are those of our experts.
Also, to our audience tuning in, if you'd like to ask questions, please submit them via Chat, and our Moderator will pick them up throughout the program and at the end of the program. So keep the Chatbox open and submit your questions through there.
I'll just introduce our Moderator this afternoon, and then we'll get started. We're very pleased to be joined this afternoon by Mr. David Redl. David is the founder and CEO of Salt Point Strategies, LLC. He's a Senior Fellow at Silicon Flatirons, and he's formerly of the NTIA. So with that, thanks very much for being with us, David. The floor is yours.
Hon. David Redl: And perhaps, most importantly — thanks, Nick — a member of The Federalist Society's Telecom Executive Committees. So I'm happy to be here, and thanks to The Federalist Society for hosting this Teleforum. I'm pleased to be joined by three very distinguished guests who will be able to speak about infrastructure and what's happening currently with both the plan from the Administration and, of course, what's going on in Congress. I will go in the order that they are on my screen, and my apologies if they're not in your order. They'll have to wave to you.
First up on my screen is Tony Clark, who is a Senior Advisor at Wilkinson, Barker, Knauer, LLP. Tony has had a storied career as a utility regulator in addition to the work he's done since leaving that space.
We have Kate O'Connor, who is the Chief Counsel with the House Committee on Energy and Commerce, Subcommittee on Communications and Technology. She works for the minority staff under Cathy McMorris Rodgers in the House and previously was at NTIA and worked for Senator Dan Sullivan before that.
And lastly, we have Professor Chris Yoo from the University of Pennsylvania Law School. It's a good school. It's no Penn State, as I always tell him whenever we're on panels together, which is my alma mater. But, you know, it's an okay school [Laughter].
With that being said, I'm cognizant that we only have an hour, and so I'm going to jump right into it and say the President's plan for infrastructure spending has been out for some time now. I'd like to establish where we all are on this bill so, what's your good, what's your bad, and what's your ugly with this proposal? Tony, if you can start, that'd be fantastic.
Tony Clark: Sure, David, thanks. And thanks to FedSoc for the invitation to be with -- here today. So as I think about the good, at least — emphasizing the positive — I think one of the good things is that there's absolutely a focus on broadband and on broadband investment. And that brings, I think, greater, sort of, public consciousness to the importance of these broadband networks and what it means for the economy and safety of citizens around the country. And that's certainly been brought home during the pandemic -- the importance of these sort of networks.
So to the degree that there could be efforts brought forward to expand these networks and to get them out to areas that today don't have that level of service, I think that all falls in the good. I think the recognition, it seems like, that certain competitive forces like auctions and things like that can be utilized to make efficient decisions about how money is dispersed. That, I think, goes into the category of good. So all of those things about allocation, I think, sort of tip their hand towards there may be some positive things moving forward here.
Beyond allocation, I would have a concern -- I don't know if this falls in sort of bad or ugly, but -- like, sort of red flags that we should be watching out for -- there have been indications that there -- that some of these allocations may be made with things like built-in preferences for certain sorts of business models like municipally owned networks or specifically non-profit entities. I'm not sure that -- or that there may be, sort of, carve asides and set asides in the money for maybe somewhat arbitrary symmetrical standards that have to be met, which might mean that you have lots of areas that have pretty good broadband capability already getting funding at the expense of areas that maybe really do need funding to bring them up to kind of that next level of even sort of acceptable levels of broadband. So I think some things like that would cause me more concerns.
There may be a place for some of these alternative business models that I talked about, like non-profits, but sometimes that arises out of very specific historical context. I mean, I look at my home state of North Dakota -- a lot of investment from rural telephone cooperatives, non-profit cooperatives, and that's been good for the state of North Dakota, but saying that that always has to be the preferential model everywhere around the country might be an incorrect assumption. So those are a few high-level thoughts.
I guess, just personally, this isn't anything that has much to do with the specific policy preferences but just from my own standpoint as a kind of penny-pinching old Midwestern fiscal conservative, seeing a lot of money, it seems like, just sort of sloshing around the system does cause me concern at just kind of a policy level. But if the decision is going to be made to spend that money, I want it to be done in the most efficient way possible and in a way that puts the resources where they're needed most.
Hon. David Redl: Sounds great. Well, and your note that you are a Midwesterner is as good a transition as I could possibly come up with. And from that, I'll move to Illini, Kate O'Connor and ask you the same question, Kate, sort of what's the good, the bad, and the ugly with what's been proposed thus far in the President's plan?
Kate O'Connor: Thanks, David. And, yes, I am a Midwesterner, which you could probably tell after five seconds of me talking [Laughter], but I appreciate that. I would agree with everything that Tony said.
I think that one of the best things that has come out of this whole exercise is there's clearly bipartisan interest both on the Hill and with the Administration in investing in broadband. So in any sort of infrastructure package that goes forward, I think it's really important that we make the best of this case and sort of pop on that train to actually close the digital divide. A lot of members -- I work for ranking member McMorris Rodgers, as David mentioned, but we also work with all of the Republicans on the Energy and Commerce Committee, and a lot of them represent rural areas. So in every single hearing that we've gone into this year, they talked about the need to actually target these resources to get their constituents broadband.
So back to the Biden proposal -- I think it's great that there's a recognition that this is necessary. I think the amount of money is a little bit -- it's high [Laughter]. And our members have talked about it. In the beginning -- we started at the end of last year -- we introduced the Boosting Broadband Connectivity Agenda with permitting, which is not included whatsoever in the Biden proposal. So our members -- it's great that we're investing in broadband, but there's a lot of policies that we are concerned that won't actually help this money to get where it needs to go.
So I know that one of the things that Tony had mentioned that's included in the Biden proposal is that the proposal for prioritizing 100 symmetrical speeds, I think a lot of our members will talk about how their districts have less than 25/3, which is currently what the FCC considers served. So once you start moving those goalposts, you're just going to continue having to throw money out the door when -- I just saw a study that if we changed it to 100 symmetrical speeds as the new baseline, over 60% of this country would be eligible for these funds that go out the door. So you're really not targeting that money into areas that have no broadband service right now.
Just a little bit on the pricing and affordability piece -- that was something that was also included in the Biden proposal, and there weren't a lot of details about how that would be achieved. I know we've seen some proposals on the Hill about adoption and affordability. One of the things that our members are extremely concerned about is that leading into the potential for rate regulation. I know that there's something to be said about an influx of federal money coming into -- for the initial investment for broadband infrastructure, but that infrastructure will need to be maintained. There are costs associated with upgrading infrastructure. And so once you start dealing with rate regulation, we're now coming in with a heavy-handed mandate that's going to prevent that from happening. So that's certainly a concern that we're keeping an eye out for.
And then the last thing that I'll just mention before we turn it over but -- prioritizing municipal broadband networks -- we actually have -- a member of our committee has a bill that would allow muni broadband networks if there's no more than one other provider in the area to help promote some sort of competition. But there's a lot of concern about the history that municipalities have in offering broadband service.
Representative Curtis, on our committee, was actually a former mayor, I believe, and he did a lot of work to sort of get his community out of the muni broadband business since when he took it over it was failing, and his constituents weren't getting any sort of service. So he has a phenomenal story that talks about the real on-the-ground -- his real on-the-ground experience of dealing with something like that. So that is something that we're certainly keeping an eye on and would be concerned about if it moves forward.
Hon. David Redl: Yeah, former mayor of Provo and veteran of the Utopia Project with all the scars to prove for it. Thanks, Kate, much appreciated. Our last panelist I'd like to get on the record with sort of where they are is Professor Yoo. So, Chris, the floor is yours.
Prof. Christopher Yoo: David, I don't think I ever told you. I actually go by Christopher because my wife is named Chris.
Hon. David Redl: You know, it's funny. I should know better because I go by David and people call me Dave, and I correct them all the time. So I should have asked [Laughter].
Prof. Christopher Yoo: So it's funny. I mean, I -- both Kate and Anthony have -- Tony have pushed some of my buttons. I'm happy to bring it up later, but I'll try to move forward. My favorite one, Kate, is about -- you mention rate regulation. Just as a parenthetical, people who fall in love with this idea, they've forgotten history. If you remember, back in the '80s and '90s, NTIA was doing these little studies -- no one thought rate regulation and common carriage worked very well. And we were trying to find alternatives to that, and it's -- we had this Holman era, it's like that never happened, but stuff that all to one side.
So I agree with both what Kate and Tony are saying about the timely conversation. I think, yes, Tony's right. COVID's given it new life. And what always struck me is in the 2016 campaign, both candidates advocated infrastructure and then for -- we got no political support, got no traction, not even a failed proposal, it just didn't go anywhere. And I think it's really gratifying to see that kind of bipartisan support getting real attention. And at one point with two numbers on the table, interesting -- it seemed like something was going to go through. The question is just at what number. I would say in just the last few days and last week -- maybe less clear now. We'll have to wait and see, and we can all go broke predicting what's going to pass through Congress.
But the thing I like about it is in addition there -- talk about a number that's more than a symbolic number. I mean, the ARA dropped what, 7.8 billion? It's a nice gesture, but that's all that is. No one pretended like that would actually make a material difference to help anybody. I don't know where we're going to land on the numbers, but at least we're not talking about, sort of, demonstration projects, if you will, and we're actually going to try to do something real.
I do think there's a complete lack of realism about the budget, which is they're trying to do one-time expenditures. And I understand from a budget standpoint why you want to do that. But that's assuming that the problem is CAPEX, capital expenditure, and debt service -- that if you just make that all free, it'll operate fine. What you discover, actually, a lot of these projects are so spread out they actually operate in the red. And so the reality is you've made the whole thing free, but if you operate in the red every single year, you're going to fall within debt -- farther and farther into debt when you operate.
The problem they've got in the discourse right now is a one-time investment is not going to solve that fundamental problem and the kinds of technologies -- until they start about people falling in love with particular technologies, some of them just aren't going to work. And so it's interesting to see how that discourse as a sort of lack of realism to understand it.
The ped issues -- I agree with the kinds of things they're talking about, but in terms of uniformity, I do think that people fall in love with a business model or a technology and think there's a one size fits all area -- solution. That's just not going to be the case. It's going to be technologically heterogeneous. It's going to be business model heterogeneous. And when I've done the studies I've done on rural areas, actually, rural areas around villages do decently well, and there's some wireless options in the collar around those. But the hyper rural areas are just a completely different problem, and starting to try to chop that a little bit finer, I think, is helpful.
And then, one last thing, one thing that people were talking about adding [inaudible 14:07], competitors publically supported competitors to improve service is a -- really brings a question to me about how we target limited resources in a time of need. We're talking about the difference between, what I would say, unserved neighborhoods versus underserved neighborhoods. If we're trying to improve the experience of underserved neighborhoods, you're going to hear a lot of unserved people saying, "I wish I had an under-serviced problem." That's a high-class problem to them.
And I could see a very strong case in a world of very limited resources. We should put every penny of this into unserved neighborhoods. And that isn't to say that everyone's getting the best service we'd like, but in terms of really improving the fate of the welfare of American citizens, the people who have nothing right now are in jeopardy of being completely left out. And just having a very rational discourse about how to target these findings in a way that's going to help people the most, I think, is not something that's very large, but it really needs to be there.
Hon. David Redl: So let's be clear, there's a lot that the three of you put on the table to unpack here. So I'm going to take them in the order that I feel like taking them. I think one of the things we heard raised — sort of pretty consistently — is the challenge of CAPEX versus OPEX. And this is not a new discussion in telecom policy.
Tony, if I could, your time as a commissioner on the Public Service Commission in North Dakota and in your service at NARUC -- guessing you spent a pretty fair amount of time in the debate over CAPEX and OPEX in the Universal Service Fund. Are there lessons we should be learning from '96 to present that are applicable here?
Tony Clark: Yeah, I think so. And so much of my time was -- it was sort of in the -- it was a lot of the old POTS days — plain old telephone service — and into the transition to broadband but on a state commission before some of the more modern iterations of the Universal Service Fund came about. But there are lessons to be learned, and I think that the CAPEX/OPEX issue is a big one.
We may get to a point after a lot of the CAPEX issues are dealt with that we're really more into an operating expense environment, and the ongoing support that may be required will have to be reflected in that. But I think all of the things that we've learned about USF along the way in terms of dealing with the cost structure of networking industries in areas of the country that may not support one network, let alone two, all come to apply.
Some of the lessons learned that the FCC has had to deal with over the years with waste, fraud, and abuse, and thinking about that in terms of how you account for that. And then how you hold carriers responsible for the money that they receive and ensure that they're meeting the conditions of the program as it's set out, I think, will all come into play.
Hon. David Redl: Christopher, if I can come back to you real briefly on that. Tony brought up the OPEX question -- it ties in a little bit with what you talked about in terms of disparate treatment. How do you feel -- better than how do you feel -- just ask the question directly -- does this exacerbate the urban-rural divide when it comes to broadband? Because the operating expenses are so much higher in rural areas, and so are the capital expenditures, for that matter.
Prof. Christopher Yoo: Well, I think it does. There's no question that -- density doesn't lie. If you build an infrastructure that only serves one customer versus 1,000 customers, it's going to -- you're going to have to recover the fixed cost from that one customer. And there's just no getting around that. It's a reality that Tony's had to face in North Dakota, and you see that play out differently in different parts of North Dakota — I'm sure — because there's some places you can actually do different things.
And I think one of the realities is to take a very technologically diverse attitude. So, for example, I think fixed wireless is an underappreciated asset, which is -- the reality is spectrum is very crowded in some areas, but in rural areas, it's actually relatively plentiful. There's a lot more options out there. It creates different sort of challenges, but it's actually much cheaper in terms of delivering services.
And the other reality is, the broadband plans I've seen around the world — including the regional one done 20 years ago in the U.S. — the last 1% is probably being served by satellite. And that's not because satellite doesn't have a lag, and it's everything we want it to be. It's because that last 1% is going to be so expensive to serve that, in fact, what we may need to do is to change that.
Now, we're also seeing a huge innovation in these low Earth orbit satellites, and it may be changing how this works. But I'm thinking outside the box, and being much more flexible about -- we organize these ideas -- opens up some really wonderful possibilities. I'm working on a paper right now that looks at fixed wireless in -- not the hyper rural areas but in the rural areas around little villages. The economics on an OPEX standpoint for them are very promising. They tend to be very cash flow positive. They used to be low-key prevention capital funding. VCs are now begging them to take their money, and they're saying, sorry, we don't need it. We're generating enough cash that we can finance our own investments.
But the difference is they also tend to be community-sized. It's not like someone's rolling out nationally. They tend to have ties to local businesses. If there's a model that requires a deep fusion between the local community and that -- that's a really promising thing that we need to study, and a lot of people will say, oh, but that's not really broadband. Well, you know what? If that's going to make it feasible in a way that's not shedding [inaudible 00:19:55] every year -- and what I'm told is there is a growth path where you can start at 10/1 to 25/3 to 100/10 through that technology -- it's something we should definitely explore because that's a much more promising solution than digging trenches in places that are just never going to generate enough customers to support that kind of cost.
Hon. David Redl: Kate, you raised similar concerns in your, sort of, opening good, bad, ugly remarks about letting the perfect be the enemy of the good here with the 100 symmetrical. How is the committee, and your members, looking at ways to ensure that we don't just find ourselves — as Commissioner O'Rielly put it when he testified before your committee earlier this year — cutting the line because we've created so many areas that currently are what the Biden team would consider underserved, but would be unserved under the new definition?
Kate O'Connor: Yeah, no -- and I think that both of the other panelists raised great points. Our members have been harping on the fact that we need to get our maps completed, or at least reasonably -- in an area that they're reasonably accurate and can be useable. I think that there really is a preference.
We were actually kind of attacked at a hearing by the other side about, well, why don't you want -- of course, don’t you want fiber for your constituents? That's what's best for your constituents. And all of our members are like, absolutely. We would love fiber for our constituents, but it's not economical, and they still have not been served. So why would we focus on just fiber when we can actually get them service that they can do remote learning, do telemedicine. We shouldn't be focusing these resources on one technology that really might not make sense for different parts of the country.
And in terms of the cost — and just back to your original question about the CAPEX/OPEX — my boss -- my current boss -- in eastern Washington, there was a project that was funded under BTOP-- and now to fund middle mile infrastructure. And now it's so cost prohibitive that the carriers that want to serve the local areas that have built out really cannot access it. It is so expensive for them to maintain that network that these carriers have no access to it. They can't pay for the -- for utilizing what was built using federal funding.
So I think at a very basic level, if we're really going to put in this massive infusion of money, it really needs to be targeted to the areas that are unserved, that currently lack 25/3, and it should all be -- all the agencies that have this money, since there's money going out, apparently, through all difference agencies, at least in the proposal -- need to be basing their information off of the same data. So I think that's our number one requirement in terms of getting people served.
Hon. David Redl: Well, it sounds like both that and some of the things that Christopher has said -- and Tony -- all three of you have said are familiar themes and that they are some lessons learned from Aura. I think a lot of people have been drawing some comparisons to BTOP and BIP and how that money was spent in the early '10s -- I think we can refer to it as the early '10s at this point -- out of those programs. Are there other lessons that we should have learned from Aura that should be applied here, other than please have a map before you put money out in the field? Christopher, you're laughing at my joke, but, you know, it was several billion dollars we threw out the door. So I'd be curious if you could take the lead on answering that one.
Prof. Christopher Yoo: Well, especially because of the financial crisis we're in, the point was actually just to spend the money [Laughter]. And so that's like -- instead of ready, aim, fire, it's fire, aim, ready. It's just sort of all backward. And we knew it, and you saw them pull the funding for evaluation after the fact because they knew that it wasn't well directed. The kind of follow-up that you expect to see -- that we should do -- retrospective things to learn from our mistakes, I think, is critical.
What's also interesting is, what Kate's getting at, is really focusing on truly unserved areas. We've gotten, in universal service reform, better at finding out a lot -- creating good processes to allow other providers who don't want to compete with a subsidized service who are providing services -- that's not unserved. We're here. We're doing it. And to give them a fair chance to look and see if they want to do that, and to me, that's a win. If a commercial provider is interested in serving an area, then we can redirect those funds to other areas -- that's a good thing, not a bad thing, and it's a smart use of our money that's kind of floating below the level.
We can also -- a big problem with Aura -- a lot of people took plans that they were going to fund privately already, just dusted them off and submitted them, and just got more money for it. To find the really chronically underserved areas and target the money to the places that really aren't going to get it, I think, is huge. And I do think that the political football that this -- you're talking about 100 meg symmetrical -- is really there, which is -- bottom line, there was an era where symmetrical -- like, 20 years ago -- looked like it was going to be the pure to pure era.
And since then, it just hasn't been the case, but some people have fallen in love with this idea, and they point out, yeah, we download files and mostly just set these URLs -- these website addresses up. And it's good for consumers to be symmetrical. Well, in a COVID world, we're doing video conferencing where I have to send lots of video backup. If you look at the data, it's still what, 16 to 1 downstream versus upstream. And what strikes me is in this debate, we've lost that evidence-based policymaking focus, which people forget that yeah, we can do symmetrical, but you would really be hurting U.S. consumers and making their service more -- worse service at higher cost to serve someone's ideological pre-commitment because they've fallen in love with a certain business model or a certain technology.
And I'm perfectly willing to say -- someone taught me once, what data could I show you that would change your mind? And if you showed me data that in a covered world, we needed symmetrical service, I'd be willing to have that conversation that we need to re-engineer it, and there's ways we can do that. On the flip side, if in the absence of serious arguments to understand what we really need now is going to create benefits, we risk doing it all over again and spending a lot of money getting our bang for our buck.
Hon. David Redl: Christopher, to your point -- and I've said this with others on calls -- before I do these events where we're going to talk about symmetricality, I pull the data from my home firewall just to get an idea of exactly how unbalanced my use is. And admittedly, I'm not your average user, but with my spouse and I both working from home, constantly on Zoom or Teams or the platform of your choosing, and my and my son's video game systems both pulling down an obscene amount of update data, the ratio in our house is still around 10 to 1, down to up. So I completely agree with you on that front. It is a bit strange. Tony, you had mentioned built-in preferences. I think the symmetricality is one of them. Are there others that you think bear sort of a teasing out here besides the symmetricality?
Tony Clark: Yeah, and sure -- and there's -- and I guess this gets to the -- your broader question about lessons learned from past programs and things like BTOP. I mean, another example of one of these what I would call artificial constraints that can be built into the system, whether it's symmetricality or Gulf, everything has to be a gigabyte, or things like that would be things like one project per state requirements. The idea of set asides and carve outs and, as I said, artificial constraints that can sometimes work the system and ensure that otherwise truly needed projects may not get the funding that they need.
In terms of other lessons learned from past programs, it seems like, as I indicated before, the lesson about trying to employ aspects of competitive bidding is something that seems to have taken root. And I think that that's a good thing as opposed to a pure kind of grant administration-based program, which is, I think -- especially with a program that is this size and could potentially be this large, would seem to be problematic. It caused challenges with agencies that weren't used to administering grants when the program was that much smaller. So that's probably an issue. Oversight, as I mentioned before, is always something that is top of mind, and there are probably some lessons learned with regard to oversight and figuring out ways to recover funds for non-compliance and that.
One other lesson that may not have sunk in yet, but is one that's worth paying attention to is, in past programs, there have been attempts to, say, impose non-discrimination or interconnection requirements -- kind of back door mechanisms to impose some of those things that wouldn't otherwise be imposed as a condition of acceptance of the money. And there was at least some evidence that that may have chilled interest in some of those investments by infrastructure owners. It sounds like that there may be a run taken at that again, and that is, I think, something that folks who are crafting this will need to take into consideration.
Hon. David Redl: Kate, as you read the proposal as we've seen, do you see -- obviously Tony brought up the non-discrimination issue, and you've brought up rate regulation -- are there other, sort of, bright policies that have been dividing lines between the two sides of the political spectrum that you see being a challenge in this bill?
Kate O'Connor: Yeah, I think -- at least from our side, our permitting reforms have been -- will probably be a massive challenge. I know we're getting a little bit off of the Biden proposal, but I think that if we're going to be putting this kind of money towards broadband deployment, we really need to update our regulations about the process they have to go through and the amount of time and cost that it really takes to deploy this broadband infrastructure, and update that and remove some of those barriers. A lot of those are outdated. I think that there are just deep political ties and concern about doing -- rolling back a lot of those old regulations. But that's something that our members have been super focused on.
The other thing that I just want to put out when it comes to rate regulation, we just had a hearing on broadband equity. And there was a lot of -- rate regulation came up a ton, the concept, and we -- a lot of our members brought up data, but I actually looked this up before this panel too -- I pulled it up -- but in the past five years the cost of the highest speed offerings have dropped by 37%, but speeds have increased by at least 27%. That is all from -- at least primarily, from private investment.
And I feel like when we're talking about this amount of money investing in this from the federal government's perspective, we really need to take a look at all of the work that the private companies are really doing. And it's better for Americans. It's good for consumers. If we need to invest to get to areas that are not currently served, that's fine, but we shouldn't be doing that at the expense of these private companies — punishing them with all these additional regulations — just trying to get to those unserved areas right now.
Hon. David Redl: Members of the audience, you're free to ask questions in the Q and A bubble down at the bottom of your screen. We already have one, and I'm going to throw this out to the group. Jeffrey Wood asks how the panelists view the Biden proposal when compared to other efforts in the 20th Century to deploy massive infrastructure, whether it's rural extrication or any other of the ways that we have expanded infrastructure -- the interstate highway program. Do you see similarities, differences? Do you compare them favorably, unfavorably? Christopher, if I could, start with you?
Prof. Christopher Yoo: So I would say that rural rectification of public funding is not always the right solution. Tony mentioned co-ops. Co-ops are an important player. They serve important roles. Is everything in the U.S. a co-op? No. The interesting question is finding out the much more complicated and nuanced question, about when are different solutions the right answers?
And so what I would say is in certain areas we could be considering these, and we rely on them for communications, but on a much more fundamental level, electric distribution technology has not changed in a century and doesn't require ongoing re-investment, demand is very stable, the products commodity you don't -- it doesn't vary. It's a really simple thing to manage in this way.
I actually wrote a brief -- it's interesting you compare that to telecom, and what's often overlooked is we always think of us having the -- being the only country in the world that had a private telephone system. What's overlooked is the U.S. government actually -- the Post Office took over the telephone system for one year during World War I, at a time where every other postal service ran it. The question is, why did they give it back? And I'll say it this way. It was at a time where we were shifting from switchboards to mechanical switches, and there was a big question about which technology was going to win.
And basically, it was going to put the government in the position of having to do risk capital. Governments don't do risk capital well. It's like take your chances. If you hit big, you have these great returns, but if you lose, you're out 100% of your investment -- past performances but future results. When you're talking about water — or roads is a great example — we've barely progressed since the Roman times. I mean, these things just don't change very much. And we can actually have a pretty good handle on how to do this -- water, natural gas -- fully amortized distribution that works, very stable commodities, and all this.
When you think about things like 5G -- when we're talking about, not a consumer-oriented business model but rather a business-oriented business model, where connected cars are going to need one thing, and smart cities are going to be another thing, and we have to reconfigure it on the fly, and they're going to have to pay for what they use. It's such a radically different world that we thought about in terms of basic broadband. And we have a tendency to focus just on the residential users because consumers are relatively uniform, and in a lot of these hyper rural areas is a combination of commercial use and business use.
You find a ranch that doesn't really need connectivity except for the two weeks when they're having their cattle auction when they need tons. And you leverage that to aggregate that demand with something else, and all of a sudden, you've got this little cell where you've built out your residential service for the rest of the year -- the 50 other weeks where it's not doing that. And we're finding solutions like that that are a lot more complicated that look nothing like rural electrification.
I have to throw out one little thing. Tony, you hit one of my hot buttons. I hate the gig discourse. When you talk to people about alternative technologies and say, well, I can't get a gig, and you have to explain, but no one needs a gig. If you look at the people who provide it, it's for marketing purposes. The take rate on gig services is minuscule because in a world where -- what we're doing now is what, 12 meg, 8 meg, times however many people in your house? Maybe you get to 50, in a big world 100 -- the idea you get to 10 times that just doesn't happen. And so having a rational discourse around this about what the right solution is -- because if we insist on a gig, it makes everything more expensive and means fewer people get served, and that doesn't help.
Hon. David Redl: Admittedly, I have symmetrical gigabit service at my house that I'm using right now. And while I will freely admit I do thoroughly enjoy it when I'm downloading Call of Duty updates, I rarely hit peak usage.
Tony, I'm going to pivot over to you. I probably should have started with you given that you were a Commissioner FERC, which I omitted when we started this, and certainly know a little bit about electrical utilities. The question was also asked about whether or not we should have this debate about utility status. Does that even matter? Should we be having that debate? So what are your thoughts?
Tony Clark: Yeah, so I've had a lot of experience on the telecom side, especially earlier in my career, but the last ten have been spent primarily in energy. And I often think about the parallels and divergences between the telecom industry and the electric industry. And there certainly are some similarities, to be sure, especially as you talk about network industries and as you get into more rural areas that may only support a certain investment when you talk about the -- kind of, the wires portion of the electricity industry. But there are huge differences too.
We had talked about things like rate regulation and why it doesn't make sense in the telecom and in broadband industries. I haven't been a fan of rate regulation as it comes to the electric industry, though, in a lot of ways. There are portions of that where the regulators and policymakers have determined that there are suitable competitive substitutes and where competitions should prevail and regulation shouldn't. But on the whole, it's a much more regulated industry because of the nature of electricity itself, which just so fundamentally differs from broadband.
And Christopher's exactly right, in terms of the sort of competitive dynamism that happens in the tech and technology -- or in telecommunications space. It differs in a lot of ways, so it can sometimes be difficult to -- let me put it this way, you can strain the comparisons between electricity and broadband. And electricity still operates very much as what you think of as a traditional utility, and the broadband world is just very different. There are substitutions available that you don't have in a more closed system like you have in -- in a closed system that has to be in perfect balance between load and demand and within a fraction of seconds at all times. In that way, there's a lot of difference.
In terms of the original question regarding electrification, maybe there's some rural electrification, maybe there's some lessons learned. But that in and of itself was such a different program and has traditionally operated as a different program in terms of how the money flows, the low-interest sort of loan aspect to it, depreciating those assets out over a long life, which is traditionally what happens in the electricity industry, which is a little different than in the telecom industry where the cycles of investment move faster than 30-year depreciation cycles on distribution wires. So some of that may be hard to replicate in this space, and even things like the universal service program has always been different on the telecom side than anything that we saw on the electricity side, which tended to depend on, like I said, more of the loans, and then, where needed, things like LIHEAP programs to help with direct aid to consumers who maybe need help in paying their bills.
Hon. David Redl: Well, we've danced around having had the conversation, and I think Kate touched on it a little bit, so I'm going to go back to Kate first. Ordinarily, when I want to stir the pot on this question, I just say, "Muni, go!" But I'll be a little bit more descriptive.
A lot of people have put out there, and certainly, the Biden plan pretty expressly contemplates the idea of municipal governments at many levels competing directly with private capital. When you look, as a committee, at sort of the holistic piece of the bill where you've got potential for municipal engagement and a redefinition of what constitutes a served area in such a broad stroke, does it give you pause? And if so, is it more important for us to look at the speeds? Or is it more important for us to look at whether or not we allow municipal broadband to compete in the marketplace?
Kate O'Connor: The way that you just phrased that, I would say it probably depends on an area. To say a blanket prohibition on municipal broadband probably does not make sense coming from the federal government because we're not on the ground. We don't know what each individual area needs for the areas that are completely unserved. If there's a municipality that can figure out how to operate a broadband network and connect their constituents at an affordable price, that's great. I will say that we have not seen a lot of examples of them being successful. And there's a ton of data that's been out there.
George Ford -- he actually testified in front of us. He's an economist with The Phoenix Center, and he has written a ton about how muni networks just don't work. I also think that once you start having the government as a competitor in a private industry, you start losing interest from industry players, private companies, that are trying to come in and actually -- kind of to the point of what we were just talking about with the comparison with rural electrification -- they're upgrading their networks. They're competing against other private companies that are constantly investing in their new networks, which is better for consumers. Once you have munis in there, with seemingly endless amounts of money from the federal government -- or a local government, whoever is funding it, but government money -- that's an off investment. It's not something that private companies are going to want to come in and compete. So it's certainly concerning.
I think that especially the fact that we're -- the Biden proposal put forward in the concepts that they would prioritize municipal broadband is extremely concerning. Like I said, I have yet to see it where it's actually been successful. We have a lot of passion on our committee, on our side, against funding muni networks. Some of them are in the position of we shouldn't let them have any money. Others are a little bit more -- at the very least, they shouldn't be prioritized. So I do think that this is a very -- this will be a big sticking point, depending on where the Administration comes down.
Hon. David Redl: Christopher, you have spoken at length about municipal broadband networks in the past. So I'm curious about your take here, specifically with respect to how the Biden plan looks at them.
Prof. Christopher Yoo: So it's interesting, the Biden plan -- Biden was one of the few presidents that didn't have a technology policy as part of his campaign. He did have -- the biggest one was a commitment to muni -- was floating in some sort of rural development plan, but it really wasn't a technology plan. And it's a really interesting space to be in after every major candidate for the last several years has had a technology plan.
As you probably know, in 2017 -- I have a real desire for this to be evidence-based, and there's a real problem where the people don't look at the numbers or they cherry-pick particular projects, depending on the point they're going to make, and I became, in 2017, determined to create an evidence base with it.
So I actually pulled the audit and financial statements for every municipal fiber built in the United States. And what I discovered is the answers in 2017 were terrible. I presented this research at the National League of Cities and the United States Conference of Mayors -- there were audible gasps in the room when I told them what the number -- no drama, nothing -- just explained here's what the numbers say. And the answer is, yeah, there are occasional success stories, but the failing stories are far more common, and when they go bad, they can go really, really bad -- like city crippling bad.
I, just so you know, am in the process of updating that through the current data on a revised data set, and I plan to release the new data sometime later this -- in the next couple of months. It's almost ready to go, but that's just to try to really put the facts on the table to let people make up their minds. Because what happens is a lot of mayors would tell me they would hear this pitch, and it didn't sound -- they weren't convinced, or they were skeptical, or actually just didn't believe it at all, but they didn't really have anything concrete to push back with. And you have different advocates who are really supporting it. It's just an interesting dynamic.
I actually found that just putting real information on the table based on actual cash flows and who had to dump in extra tax money when they said they weren't going to have to, and really putting that in front of mayors, had a really fantastic way of putting the debate on a much more sound and much more constructive basis.
Hon. David Redl: Tony, your turn. You’ve had lots of experience, as we've said. But seeing how municipalities -- again, this is sort of the intersection of your energy work and your telecom work -- that it's much more routine in the energy sector to see municipalities engaged in the owning and operation of an electrical utility. So your take is well worth it.
Tony Clark: Sure, it -- so municipalities are the -- there are three -- on the energy side, there are sort of three corporate structures for energy ownership: the investor-owned utility model, the cooperative model, and then municipals are the third. There's a significant number of them, but it's smaller than the other two, with private ownership being, by far, the largest in the U.S. in terms of electricity. And then, of course, it's, say, water utilities and wastewater side, which would be the other nature type of utility.
It's actually the predominant method of running those municipalities, but in the energy industry, much like rural telephone cooperatives, rural telecommunications cooperatives, in the electric industry, municipalities and public power tended to arise from a very fact-specific set of a historical context in that particular community with regard to how electrification was happening. And so it filled in gaps that just weren't happening everywhere else, but it was never perceived as the predominant model for having that done. Really, only one full state did it, which was Nebraska. But it seems to me that operating broadband networks and a broadband utility just so fundamentally differs from of those other utilities that it's not particularly relevant experience -- at least, in terms of how to get it down and to get it done right. And that would be the concern for me.
And if I'm a mayor -- I mean, let's set aside the policy questions that Congress might have, and I would agree with Kate that prioritizing municipalities would seem to be tremendously problematic, even if Congress doesn't prohibit it. But if I'm a mayor or city councilman and I look at the list of issues that I have to deal with day to day from the water utility to crime, public safety, roads, bridges, streets, right of way access, things like the education funding in certain jurisdictions, setting up a division to run a broadband company doesn't really feel like it would be in my sweet spot where I would want to spend or risk a lot of public dollars and public trust, especially when there's going to be a significant amount of money flowing into this system available to private investors.
And then secondly, just by their definition, municipalities, and if we're talking municipal governments, cities tend to be easier to serve than rural areas because of population density. So the money should be there, and the availability should be there to build out these networks of targeted right. It just seems like prioritizing municipalities as the vehicle seems like a real mismatch with the talent of local government, which really lies elsewhere.
Hon. David Redl: Well, you raised a good point, and I think one of the things that Kate has brought up is permitting reform and -- when you're dealing with municipal government and the federal government, for that matter. You've got sort of a handful of headaches when it comes to permitting, whether it's -- and some of these have been tackled at the federal level. It's the make-ready cost, it's pole access and pole attachment rates, it's right of way access, it's requirements to pave entire roads in order to put down conduit.
Christopher, if I can pivot to you for a moment. As you look across, sort of, the economics of all of these -- I know you've done papers on these before, but how does the permitting reform piece that Kate brought up fit into the larger infrastructure picture?
Prof. Christopher Yoo: Well, I'd love to. She, actually, dangled it twice, and no one bit, and I felt bad, so I'm going to bite. Before I -- just to riff off what Tony's saying, I love what you just said. Running a telecom company is a full-time job. You're going to look at the marketing side of this. Very few municipal leaders are elected because they're brilliant at creating ad campaigns that will appeal to people to change their provider. It's an incredibly difficult job that people underestimate in ways that I think -- that are pretty funny. And a thing about public ownership, these are extremely well-meaning public servants -- if you look at the historical evidence, does it lead to lower prices -- public ownership or -- generally not.
And this had been one of the things that's been advertised constantly, and it's a famous piece by George Stigler and Claire Friedland, going back that makes those points. But the thing that I love about Kate's pointing to permitting reform is it's almost free. This is not some big-budget thing. And everyone who is deploying 5G tells me it's 6 months to build the network, 24 months to get the permits. And the fact is that pure loss to -- and if unused spectrum is lost to American society, it's overhead costs, it's delays, it's after carrying all these different things -- and we know from Google fiber and the reform they actually -- one of the big changes is cooperation in getting permits done -- everyone got service faster. And it sort of changed the model and ways of negotiations at that level.
I was privileged to be on the broadband -- Ajit Pai's broadband deployment advisory committee. And I have to say at this point, nothing I say is -- all my views are personal, that is not the views of the BDAC. But the standardizing permits, both for one-touch-make-ready, standardizing requests for permits to federal land, so you don't have to fill out a different one for every single agency, central repositories of information -- all this is cheap. This is not a $100 billion tax -- price tag, but makes an enormous difference based on -- just getting a database of the municipal contacts of who you need to reach out to to get access to rights and ways, or to cell tower sites in a central location -- just lowers everyone's costs.
And then facilitating that permitting process, making it faster, I think, is a really underappreciated way that we don't really understand. The nature of competition has changed. We're no longer -- have a phone network, an electric power network, and all these other things that have been built 30 years ago, and we're amortizing them. What we're seeing now is investment. It's not getting prices down. It's building better quality and having people pay money for it -- for the better quality. And what we're seeing is people having to lay new infrastructure.
Even things like pole networks, which were really static, because we're now hanging all this wireless equipment on it, we need them taller, which is a bigger investment, and they're heavier. It's not just hanging a wire on each pole, the dynamics have fundamentally changed in how we're doing it, and no one knows what the right technological and business model bet is. And so we have a lot of people -- third part models where people are building multi-tenant services -- I don't know who's going to win. And that's the beauty of this is people put real money on the table and take their chances.
The one this is lowering the permitting costs is just reducing pure loss that benefits everybody. The only people who might not want it is someone who's not in -- who's in a position where they're not facing a lot of competition that is now open to it. It might happen a little bit faster, but by and large, everyone now -- even the incumbents need new permits, and I found that part of the debate used to be a bit there. It's kind of dropped away. And everyone knows that they need -- the more nimble we get and the faster we get, it's a cheap and easy way that we could actually make service to the U.S. citizens much better, faster.
Hon. David Redl: I'm going to -- I'm cognizant we're coming up on the hour, so I'm going to -- this will be sort of the last question for us to touch on. I think, Tony, you raised a good point in pointing out that most municipalities do not know how to run a telecom company -- that is, at bottom -- a question of knowledge.
So I'm going to pivot to digital literacy. Digital literacy is always a controversial topic when we talk about investment in broadband because some folks believe it's necessary for American's to get the most out of broadband infrastructure. Others think it's a waste of money, and it should be spent -- the money for literacy should instead be spent on actual infrastructure. Kate, I'm going to start with you. How are you all looking at this issue from a Congressional Republican perspective?
Kate O'Connor: That's a good question. So we -- if people don't know how to use the internet, then it's probably not worth having. But that's -- it's useless to them, I guess I should say. I think we've been concerned with a lot of the money -- putting money towards -- this amount of money towards digital literacy, especially at the federal level. We're talking about billions of dollars, and sometimes I think about the fact that BTOP -- I think including BTOP and BIC it was $7 billion, total. We're talking now -- I mean, the Administration came out with $100 billion for adoption, literacy, deployment, all of this money -- that's a lot of money to just be throwing around. And so I think we're cautious of spending this type of money when we're investing in deployment on literacy activities at the same level -- or to the extent that we've seen proposed by the Administration or by our majority.
It's just a lot of money. And David, I know you know this because we were there together. But NTIA runs the state broadband leaders network, and we've actually done quite a bit of work with them and had many conversations with some of their leaders on -- as we're going through this infrastructure debate. Because you have a lot of these states that now -- and this is all new in the last, I would say like five years, where states have actual designated points of contact for broadband.
They're actually on the ground talking to people that don't know how to use devices, don't have access, trying to figure out what services -- something like a Comcast internet essential that is out there that's low priced. And so they actually have the knowledge of where the investments need to go, where the teachings need to be, what would be most successful and useful for our member's constituents, frankly. I think that when you start talking about putting billions of dollars towards digital literacy at the federal level, it's a little bit more concerning.
Hon. David Redl: Tony, let's just put it straight at it. Based on what Kate's saying, is digital literacy really a state problem and not a federal problem?
Tony Clark: Well, I think it's much more a state issue from an implementation side. It would seem to me when you're talking about a limited pool of dollars -- there always is some limit to how much can be spent. The priority should be on access and ensuring that people have access sort of on the supply side.
Now, the digital literacy, I guess, is, in a sense, the demand side and creating demand for the product itself. As a personal matter, I start to get worried about putting lots of government money into those sorts of programs, especially at the federal level, because it seems like quantifying what measures success and ensuring that it's being spent in a -- taxpayer money is being spent in a wise way is really tough on that sort of demand pole side of the equation.
The federal government, too, just structurally isn't particularly well designed to carry out that sort of campaign -- it doesn't seem like to me. Maybe there are some opportunities for federal funding for certain pilot programs or to see their -- things that are implemented can be done at the state and local level that help with digital literacy. It would seem to me — if I were a policymaker — that something like that might make some sense and might be a compromise that you could gather around. But putting a lot of money just sort of in the honey pot out in the woods and hoping that it does nice things for digital literacy and demand without some really kind of detailed explanation of how exactly it's going to be spent and how you're going to measure and quantify a success in a program like that, seems to be a little bit problematic.
Hon. David Redl: Okay. Professor Yoo, I think you're going to get the last word. We've got a little under two minutes left. So any last thoughts on this particular issue?
Prof. Christopher Yoo: Well, I understand the concern about spending a lot of money. On the other hand, we've always believed if we build it, they will come. And we found out that's just not true. In fact, there is a -- particularly a residuum of people -- the one-third of 30 -- 23% of people who haven't taken broadband. And there's a great study by some people from FCC and Connected Nation out in Kentucky that said two-thirds of them wouldn't even take it if it were free. And that -- the study's getting a little dated, but there are some obstacles -- there's been a lot of studies that looked at supply-side issues like availability, and cost and demand-sides like literacy and lien and security and the demand-side stuff shows up in the top four, and sometimes at the top of those lists, depending on which study you're looking at.
So I think that a pure supply-side solution risks being an incomplete solution where you build it, and you just wonder, why isn't this working? I understand the concern about expense. It's not clear to end the role of the federal government. It's not clear to me it has to be expensive. So what's interesting to me is we don't actually know what makes for a good digital literacy program. We don't know what the curriculum -- what are the elements? And what struck me is there could be -- we don't have a repository of resources where private cares are very -- have a lot of high powered incentives — which Comcast internet essential has shown — to actually solve this problem because they can turn people who are reluctant customers who have access to service into customers.
And it strikes me that in the same way, the federal government in the education space can show some model curricula -- collecting grounds for information -- there are some low cost, fairly constructive things they can do to at least push this forward and possibly pay for some validation to actually show some people that -- what actually works. And I know -- I've been in some industry-related conversations around the world and different places -- people are really looking to that because if you can show in a community center here's something you can do and here's the results we show and how it's relevant for you -- that's a much more concrete thing than if they run that program -- they'll actually create benefits. And I think that's something that's possibly doable in this space.
Hon. David Redl: Well, Professor Yoo, I appreciate -- we almost got through, and I almost missed being able to check the box on a Field of Dreams quote on an infrastructure panel, so I appreciate your getting that in at the last minute [Laughter]. It is definitely a requirement inside the beltway for an infrastructure conversation.
I see Nick has popped back on because we are at our hour. So I want to take an opportunity before he takes back over to thank the three of you for participating on the panel. This has been great. I really enjoyed it. I think our viewers have enjoyed it as well. And thank you to each of you for agreeing to do this. Nick, back to you.
Nicholas Marr: Thank you, David. Thanks -- just a quick thanks on behalf of The Federalist Society to you, David, for organizing and moderating this great panel. A special thanks to our panelists on giving us your valuable time and expertise on this topic, to our audience for calling in -- your good questions.
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