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Ensuring the Universal Service Fund Connect American Fund Meets The True Needs of the United States

Ensuring the Universal Service Fund Connect American Fund Meets The True Needs of the United States

An important goal of the FCC in its Universal Service Fund (USF) rulemakings is the make available to underserved portions of the country access to advanced communications services.  While a significant amount of the funding available for this purpose is being distributed as part of its Connect America Fund Phase I (CAF I) auction, for areas where there is no taker, this will be handled in its Connect America Fund Phase II (CAF II) auction. Earlier this year, the FCC adopted its CAF II bidding weighting order,[1] which gave a significant bidding advantage to lower latency, higher-speed services, without regard to time to deploy or other factors which also have a role to play in broadband deployments. The FCC has a limited budget for the CAF II auction.  Accordingly, if the FCC is not able to award the bid to the service that has the lower cost and adds penalties based on subjective criteria, the monies available for deployment may support more expensive services.  This would result in less consumers being able to be receive broadband services because of the limited monies available.

When the FCC adopted its weighting criteria it did so with no empirical evidence.  Since the CAF II weighting order was released, Technology Policy Institute released an empirical study that is highly relevant to the above-referenced proceeding.[2]  The paper discusses the results of the authors’ empirical research on the relative value that consumers place on speed, bandwidth, and latency in purchasing broadband services.  The study’s results bear directly on the factors that the Commission proposes to weigh in the Connect America Fund (“CAF”) Phase II competitive bidding process.

The paper demonstrates that:

  • Consumers are willing to pay an increment of less than $10 per month for low-latency performance typical of wired broadband products as compared to the latency levels typical of satellite broadband.
  • The incremental value that consumers place on broadband speed begins to drop precipitously above 50 Mpbs, and is negligible above 100 Mpbs. 
  • Household valuation of increased data caps is not significant as caps increase from 300 GB to 1000 GB (although consumers place a significant premium on unlimited service).  This empirical information thus demonstrates that the Commission adopted incorrect weights in the CAF Weighting Order by providing too great a bidding advantage to high-speed, high-capacity, low-latency services.[3] The paper shows that the steep penalties that the CAF Weighting Order imposes on higher-latency services, and the great benefit it gives services in the Gigabit tier, do not reflect the actual values that consumers place on these characteristics.  In fact, consumers value other characteristics, such as time to deploy, as well, e.g., a consumer may prefer a 50Mbps service beginning in 2018 to a 250 Mbps service that she needs to wait until 2023 to receive.

Adjusting the bid weights to the more reasonable levels suggested by Hughes will not affect the work that the Commission has done to date on the auction procedures or software or otherwise delay the auction.  More importantly, such an adjustment will mean that an increased number of consumers across the United States will benefit from the CAF II funding and be able to receive the broadband services they value.

 

[1] Connect America Fund, ETC Annual Reports and Certifications, Report and Order and Order on Reconsideration, 32 FCC Rcd 1624 (2017) (“CAF Weighting Order”). 

[2] Yu-Hsin Liu, Jeffrey Prince, and Scott Wallsten, “Distinguishing Bandwidth and Latency in Households’ Willingness-to-Pay for Broadband Internet Speed,” Technology Policy Institute (Aug. 2017), available at https://techpolicyinstitute.org/wp-content/uploads/2017/08/Distinguishing-Bandwidth-and-Latency-in-Households-Willingness-to-Pay-for.pdf.  Hughes was not involved in commissioning or funding this paper or the related research./ 

[3] Connect America Fund, ETC Annual Reports and Certifications, Report and Order and Order on Reconsideration, 32 FCC Rcd 1624 (2017) (“CAF Weighting Order”).