geert on Wed, 4 Aug 2004 18:31:48 +0200 (CEST)

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<nettime> Andy Oram: Getting U.S. Universal Service to Work

(Hi, I added U.S. in the title because Andy is referring to the USA, not
to the 'universe' or this planet in particular. Universal access mean
access within the border of one nation. /geert)

From: Andy Oram <>

Getting Universal Service to Work

   The notion of universal service in communications has great staying
   power. Although the term "universal service" itself has fallen into
   disfavor--I'll explore why in just a minute--the commitment to the
   concept remains high, even in our troubled economic and political
   times. Just try going to the [85]Thomas legislative information site
   and do a search for bills containing the word "broadband." Most of
   these bills are striving for some form of universal service, such as
   high-speed Internet in rural areas.

   But a parallel political universe in universal service has also
   arisen. A number of researchers in recent years, mostly on the
   political right, have critiqued the long-standing ideal of providing
   everybody with communications.

     * In the 1990s, Milton Mueller published a series of papers,
       followed by the book Universal Service: Competition,
       Interconnection and Monopoly in the Making of the American
       Telephone System, that presented a bold claim--and an economic
       analysis to back it up--that the universal service policies
       undertaken by the phone company from the very start did nothing to
       improve actual phone system coverage.

     * A [86]policy analysis for the Cato Institute by Lawrence Gasman
       argues that the problems in providing phone coverage have been
       exaggerated, and that the policies intended to create universal
       service have been counterproductive because they prop up outmoded

     * Economist Hal Varian has also stated that geographic subsidies
       should not be created toward the goal of universal service,
       because the availability of communications should be treated like
       the many other factors people use in choosing where to live and
       work. No one gets a parking garage subsidy from the government for
       choosing to live in a major city, so Varian asks why they should
       get a communications subsidy for choosing to live in an isolated
       rural area.

     * Most damaging of all, perhaps, are [87]reports of fraud and abuse
       in the one explicit universal service program mandated by law in
       the United States, the E-rate program for schools and libraries.
       (The law also provided funds for rural health clinics, but that
       was spun off into a separate program.)

   These critiques offer serious food for thought and a chance to
   re-engineer programs toward what's most effective. That the spirit in
   which they are offered is in no sense constructive does not reduce
   their importance. It would be easy to argue that the attacks are part
   of an ideological, corporation-friendly campaign to paint everything
   governments try to do for their citizens as bureaucratic, wasteful,
   and pointless. But approached with open eyes, the critiques can lead
   us closer to universal service.

   FCC Chair Michael Powell, consistent with his free-market views, has
   cast aspersions on the universal service ideal, most famously with his
   joking complaint about suffering from a "Mercedes divide." But in
   other comments, he's suggested that there's value in policies aimed at
   getting advanced communications to people who lag behind.

   The key lesson from surveying the available history is this: universal
   service programs that enforce a narrow strategy, and that distort
   economic realities to favor that strategy, do indeed risk the kinds of
   failures claimed by political opponents of universal service. Such
   programs can reward the wrong things and set up an environment ripe
   for abuse and waste.

   On the other hand, flexible strategies that reward creative thinking
   and keep everyone's focus on the prize can be surprisingly effective.
   Let's look at the principles of universal service and at some recent
   efforts to find out what should continue and what should be discarded.

In defense of the universal service principle

   Transit systems are routinely subsidized in countries around the
   world--and the United States is no exception. While the Federal,
   state, and local governments pour most of their transit billions into
   automobile traffic (with airlines getting handouts too since the
   September 11 attacks), there is also substantial funding for buses and
   train lines. Governments clearly see a social good in transportation.

   And the reasons for the importance of transportation go quite deep.
   Mobility is key to the modern employment market. People who can travel
   easily can find work in new places and still keep in touch with their
   families. Businesses benefit from transportation too: they can open
   offices in other cities and keep in close touch with suppliers and

   None of these actors could budget for the entire infrastructure of
   modern transportation and factor it into their career or business
   plans. Government support for a robust universal transportation system
   enables economic diversity and social unity.

   Note that universal transportation doesn't try to be rigidly
   egalitarian. No one says that traveling from the remote Alps of
   Northern Italy to Rome should be as easy as going from Milan to Rome.
   Geographic and demographic differences help drive policy.

   All the arguments for government-funded transit apply even more
   strongly to communications, because it's so much easier to move
   photons than people and because the uses to which communications can
   be put are so much more varied than transportation.

   Access to communications has impacts that no one can budget for in
   advance. As recent examples, look at the life-style changes wrought by
   the Web and by cell phones. Universal access (or more accurately,
   near-universal access, where the percentage of population using the
   system reaches a tipping point) has even greater social effects than
   the sum of individual accesses.

   Universal service is not a luxury, as Chairman Powell indicated with
   his "Mercedes divide" wisecrack. In an age where people deal daily
   with large, impersonal institutions (government agencies, insurance
   companies, multinational retailers)--an age of global trade and
   development, where money and goods travel around the world, and people
   of all economic classes do as well--an age where people seek new
   vendors and services more and more frequently, and where information
   mutates so incessantly that no durable medium can keep up to
   date--universal service is becoming a necessity.

Private enterprise and public entrepreneurism

   A substantial body of research indicates that private enterprise is
   inherently efficient. The people who wrote that research appear to
   work at think tanks, however, not private enterprises.

   Anyone who has worked in a private enterprise knows what really goes
   on there. In any enterprise of more than a few dozen people,
   bureaucratic barriers and pockets of unproductivity crop up and stay
   around for long periods of time. A bumbling but politically astute
   manager can hire incompetent staff and maintain a whole department of
   dead weight, dragging down the efforts of others. Companies are
   irrational entities: they refuse to acknowledge errors promptly and
   pour good money after bad.

   In short, all the failings attributed to government happen in private
   enterprises too. These failings are a fixture of human nature and
   organizational dynamics.

   Grossly inefficient companies do get shoved out of the market
   eventually by more efficient ones; in that way private enterprise has
   an advantage over government in terms of efficiency. But such
   processes take decades and just restart the cycle, because each new
   company obeys the same laws of human nature and organizational

   Technological innovation may be speeding up the cycle, but if
   businesses were truly efficient, rises in labor productivity would
   come much closer to the technological and social changes that drive

   Certain independent variables sometimes render government services
   more expensive than private services. Most significantly, government
   tends to pay good wages and benefits, a humane approach to the
   workforce that private industry could learn from. Governments also
   create numerous regulations, such as those regarding procurement, that
   may get in the way of fast action, but that also has something to
   teach private industry about honest financial dealings.

   Innovation, dynamism, and creativity can be found in governments. Some
   governments present excellent models of entrepreneurial activity in
   the form of communications services structured as public utilities, a
   trend I documented several years ago in my article [88]Echo of the TVA
   Comes Over Municipal Data Networks.

The Example of Municipal Networks

   The press has recently had a field day covering the trend (which has
   been ripening for a long time) toward outsourcing services from
   developed to underdeveloped countries. But few writers point out that
   the whole phenomenon depends on the availability of high-speed
   communications. What lessons can developed countries learn from this?
   A tiny American municipality such as [89]Glasgow, KY cannot be blamed
   for wanting the same economic opportunities as remote call centers in
   India or the Philippines. Thus the movement for municipal networks.

   Municipal networks show that government agencies can be efficient,
   entrepreneurial, and innovative. The goal of such networks are to
   provide every citizen in a town or city with the option to join a
   high-speed network. The range of solutions is vast.

   Some networks are pure fiber; most are a mixture of fiber and copper;
   many of the new ones involve wireless too. The Wireless MAN or WiMAX
   standards (based on IEEE 802.16) will probably make wireless even more
   of a factor. Municipal wireless hotspots were [90]praised by a very
   highly placed government official this past June.

   A stray thought: people seem to be willing to pay for WiFi equipment
   but not for WiFi service. Perhaps, then, a value-added tax could be
   levied on wireless equipment in order to fund universal wireless

   Some networks offer Internet access on top of raw network
   connectivity; most are limited to offering connectivity and open up
   the network to bids from competing Internet service providers. This
   promotes competition far more than the oligarpolic provisions of the
   1996 Telecommunications Act; it creates an environment where
   entrepreneurial small businesses have a chance.

   Telephone companies fear municipal networks. On the surface their
   anxiety appears misplaced, because the two types of systems are not in
   competition. Most towns started municipal networks only after trying
   and failing to get bids for private cable or high-speed fiber
   networks. The private companies flatly refused, submitted ridiculously
   unaffordable bids, or failed to provide acceptable service. Most
   municipal networks, in short, began as acts of desperation.

   But now municipal networks are proving their value and viability. So
   the telcos pull strings and get state legislatures to pass laws
   prohibiting the networks, or putting in place restrictions to make it
   difficult for such networks to start up.

   The Telecom Act says that "any entity" must be allowed to compete in
   the communications marketplace. This would seem on the face of it to
   protect municipal networks. But the Supreme Court recently upheld the
   state laws by declaring that "any entity" refers only to private

   Thus, the court accepts the telco's view of citizens as helpless
   consumers who must simply wait for a telco to offer them services
   under conditions chosen by the telco. And perhaps the court has judged
   Congress's intent rightly. The Telecom Act is widely understood to be
   a boondoggle for large communications companies; new competitors
   barely have a chance. (It's worth noting, though, that not all courts
   have swallowed the telco line.)

   And as the telcos go, so do the anti-regulators. While the laws
   prohibiting municipal networks are an explicitly burdensome form of
   regulation, they have never been criticized by the supposedly
   anti-regulatory crowd.

   The Cato Institute has not taken a stand on municipal networks. But it
   has complained that [91]cable companies are effectively underregulated
   monopolies and that [92]municipalities regulate content and other
   aspects of cable franchises beyond the minimal considerations of
   public safety. These arguments are an indictment of the current,
   obsolete cable system. With a broadband network of video-width
   capability, there would be no need for picking and choosing cable

   The city and town employees I've talked to in my research of municipal
   networks seem just as thoughtful, just as resourceful, and just as
   rich in vision as innovators in the private arena. These employees put
   their talents to the benefit of their citizens rather than to making a
   profit, which does not mean they're superior to private firms but
   simply that they can carry out projects that private firms don't want
   to risk or can't justify economically.

   Municipal networks are not a total solution to universal service.
   There are still rural residents too far from a Point of Presence to
   benefit from those solutions; other cutting-edge options such as
   satellite Internet may bridge the gap for them. The digital divide is
   also exacerbated by the widespread need for more education and
   hardware. Finally, in many areas, private solutions serve most
   people's needs, so government may do best by keeping its hands off.

   Thus, it is not only the actual histories of municipal networks, but
   the general lessons we can draw from the impetus behind them, that
   illuminate the path forward.

The Problems of the School/Library Fund

   The E-Rate has provided the latest cautionary tale in the history of
   government subsidies for communications development. But as I pointed
   out in an article titled [93]An Expanding Universe for a Universal
   Service Program, the universal service fund is far bigger than its
   failures. Tens of thousands of institutions have received Internet
   access thanks to the fund.

   Critics of government efforts call for the abolition of the fund,
   citing mismanagement as their reason. Using the same logic, one could
   call for the abolition of stock markets worldwide, on the basis of the
   destructive criminality of Enron, WorldCom, Parmalot, and other
   companies that dwarfs the abuses of the universal service fund.

   Nonetheless, we can learn a lot by seeing what went wrong with the
   E-Rate. I analyze the failings as follows.

     * The FCC built assumptions based on existing, widespread models
       into its regulations, and thus required that new installations be
       "more of the same"; this benefited incumbent companies.

     * In particular, regulations prevented the use of funds for the
       purchase of external lines or wireless equipment, which would have
       been a low-cost, long-term solution for many schools and

     * Schools and libraries were not given practical goals, but simply
       instructed to spend as much of other people's money as they could.
       In other words, their goal was to spend the available money on
       easily obtainable equipment, not necessarily to make the best
       possible use of the money. They had no encouragement to be

     * The law provided only telecom equipment and networking services.
       It did not consider other useful things one could ask for to
       achieve Internet access. Such as computers, for instance. Or
       trained teachers and staff.

   The second point deserves a bit more attention, because its causes and
   effects are complicated.

   The FCC, of course, did not explicitly say, "We will pervert the
   E-Rate to funnel money into incumbent phone companies and to deny the
   schools and libraries control over their own networks." Instead, the
   FCC imposed a complex and arbitrary set of technical regulations that
   led to these results.

   According to Dave Hughes, owner of [94]Old Colorado City
   Communications and a long-term master of community networking using
   wireless Internet, FCC regulations permitted money to be spent on
   leasing lines and services, and on equipment used on an institution's
   own right of way. Funds could not be used to purchase equipment whose
   range crossed a right of way, such as a public street or a piece of
   somebody else's property.

   First of all, these regulations made wireless networks impossible.
   They're too free and messy for those sorts of regulations, as my
   next-door neighbor found out when I let her know I was jacking in on
   her wireless LAN. A wireless network can extend for miles, which is
   one of its great benefits.

   Second, the regulations discouraged schools from investing in their
   own copper or fiber, a "customer empowered network" of the sort
   developed by [95]Internet2 or [96]CANARIE, which is fairly cheap to
   acquire because of left-over fiber from the dot-com boom, and which
   would provide a lasting infrastructure. Instead, the schools funneled
   their money into services leased from local telephone companies, the
   only expenditures covered by the FCC's interpretation of the E-Rate.
   If Congress decides to take away the subsidy, schools will be left
   with the choice of throwing more funds at the leased lines every year
   or losing their Internet access.

   In fact, schools want their local area networks to extend outside
   their walls. They want to talk to other schools in their districts,
   and Hughes has pushed them to provide access to students and parents
   at their homes in neighborhoods around the schools. Wireless extends
   the power of the E-Rate--but the FCC treated that as a drawback rather
   than an asset.

   In 1996, wireless Internet was still a rather experimental, fringe
   technology. Now it represents an obvious and gaping failure in the FCC
   implementation of the school and library fund. The option of buying
   fiber directly has also become more affordable since the Telecom Act
   was passed, largely because the WorldComs of the world strung too much
   fiber during the dot-com boom and it's no going for fire-sale prices.
   It's not too late to revise the provisions surrounding the E-Rate.

General lessons

   The key lesson of the school and library fund is that government
   action should be structured around results. The E-Rate was oriented
   instead toward equipment. Once the school or library got its money, it
   simply spent through this money until it got as much equipment as
   possible. The process did not deal with the question of whether the
   purchase represented the most effective solution to the problem--in
   fact, it didn't try to define the problem.

   As mentioned, other provisions of the law or its implementation
   reinforced uncreative spending. The excruciatingly spelled-out bidding
   process mirrored the way schools and libraries had previously achieved
   Internet connectivity and therefore led them to order more from their
   current provider (usually a local incumbent Bell company). And the
   "right of way" regulation ruled out the options that would have been
   most cost-effective and powerful for many districts.

   Let's contrast this with the success stories I mentioned for municipal
   networks. Success was achieved because:

     * Municipal employees started with a clear definition of the

     * The problem was very broadly defined, with reasonable parameters
       but no artificial constraints (other than those imposed by

     * The employees were responsible for the budget, and therefore had
       strong incentives to use their creativity to keep costs down.

   A lot of factors go into determining whether it's worth spending a lot
   of government money on a project that runs counter to market values. A
   well-established technology that is likely to remain useful for a long
   time--such as electrical wiring--is a better candidate for universal
   service than a technology this is still subject to disruptive new

   And once the vast majority of a population has something, it might
   make sense to subsidize the remaining few percent that need it. In
   contrast, we should question mass undertakings that try to spread
   something that has only recently caught on.

   Perhaps these considerations can illuminate the discussion around a
   popular bipartisan bill for bringing broadband to rural and
   "underserved" areas, designed by the same senators Olympia Snowe and
   John Rockefeller who proposed the E-Rate in the 1996 Telecom Act.

   There is no question that the bill will, to some extent, throw money
   at large telecommunications providers. Insofar as it encourages the
   extension of old models to new areas, it would just prop up obsolete

   However, the definition of telecommunications in the bill is quite
   broad and includes wireless options. If it leads to new networks,
   and--even better--the entry of new companies, it may be a progressive

   We need much more research into what has worked in communications, and
   more education for others interested in that solution. For instance, a
   non-profit organization called the Center for Civic Networking has
   organized seminars on municipal networks and written guides for IT
   staff and city officials interested in trying them. What we need is a
   community and culture of people devoted to universal service. We
   should not be afraid to cross ideological lines and combine elements
   of different models in the pursuit of access for all.

   [105]Creative Commons License This work is licensed under a
   [106]Creative Commons License.



Andy Oram  O'Reilly Media                     email:
Editor     90 Sherman Street                       voice: 617-499-7479
           Cambridge, MA 02140-3233                  fax: 617-661-1116
Stories at Web site:
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