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Representative terms from entire chapter:
advanced access
Page 18
3
Cutting the Gordian Knot: Providing the American Public with
Advanced Universal Access in a Fully Competitive Marketplace at the
Lowest Possible Cost
Allan J. Arlow
Telecommunications Consultant, Annapolis, Md.
Background
The Advanced Universal Access
Dilemma
A common vision is shared among both the business community and
the federal political establishment as to what the broad
characteristics of the national information infrastructure (NII)
should be. Both the Democratic Administration1 and the Republican Congress2 share the view with the private
sector that the NII must be built by private business in a
competitive marketplace, rather than directed and regulated by
government. Moreover, it should be a "network of networks,"
consisting of interconnected but competing systems, not just
constructed but also operated in accordance with the competitive
market model.
Yet neither the Congress nor the Administration is content with
laissez-faire, purely market-driven deployment. A sense of national
urgency, not only to ensure our ability to compete with other
nations in the global economy, but also to help address major
domestic concerns, has prompted other, not easily reconcilable
goals. The first is to have the advanced infrastructure deployed as
widely and rapidly as possible, with particular emphasis on early
access by education and health care providers and users.3 There is also the second, broader
social concern about preventing the potential disparity between
"information haves" and "information have-nots" for critical
advanced access to the NII at reasonable and affordable rates. The
current Senate proposal is to provide subsidies to designated
carriers of last resort—a continuation of the existing
narrowband mechanisms and an extension of those mechanisms into the
realm of new and as yet unknown services.4
This public vision of the NII is not just internally
inconsistent. It relies on a foreknowledge of the events that will
define future technology deployment. Yet the actual composition of
the anticipated advanced physical architecture and technology that
will link schools, hospitals, government, businesses, and
residences and will ultimately constitute the NII is unknown today.
Although it is a given that advances in technology should benefit
certain broad areas of our society, such as education and health
care, there is no consensus as to what specific applications will
be most valuable to the economy and the social fabric of the
country.
The Magnitude of Current Basic Service
Subsidies and Proposed Broadband Service Subsidies Under Current
Operating Arrangements
The dimensions of the problem are well documented. The
nationwide local exchange carrier (LEC) collection of revenues from
customers and interconnecting carriers in 1992 exceeded $91.5
billion. Subsidy level estimates from various sources range from $4
billion to $20 billion.5 In a study
of data from Tier 1 LECs which discussed only the averaging effects
within individual LECs (excluding the complex subsidy flows among
large and small LECs and interexchange carriers), costs for
providing service to rural customers exceeded rural revenues by 35
percent—$5 billion—or more than $19.00 per line per
month.6
Page 19
A national policy to create a fully capable broadband network
universally available in rural areas and provided by regulated
carriers using traditional costing methods would require far
greater subsidies: total loop and non-loop costs per line in rural
areas would range from $154 to $168 per month per line, depending
upon whether deployment completion was targeted for a 10- or
20-year period. Since rural telephony per line revenues average
approximately $54 per month, customer revenues or subsidies would
have to bridge a $100 per month gap. These estimates exclude the
incremental cost of any customer premises equipment that would be
necessary.7 The regional bell
companies and several of the largest cable multiple system
operators are seeking or have entered into agreements with set-top
box manufacturers, such as Digital and Scientific-Atlanta, to
develop proprietary consumer premises equipment with an eye toward
bringing the cost down to well below $1,000 per unit.8 Even if the nation chose to afford
it, providing subsidies under a business-as-usual model would
effectively prevent competitive entry and keep costs high. Since
there is currently no two-way universal broadband network in place,
there is no rationale for selecting and subsidizing one potential
provider over another.
This paper does not propose to chart a hybrid middle ground
between regulation and competition. It also neither evaluates
existing and proposed narrowband transition plans nor offers any
new transition mechanisms to end the current subsidy scheme for
those universally available services. What this paper offers
instead is a mechanism to provide universal two-way broadband
service to high-cost areas in an industry- and technology- neutral
way, through the use of a fully competitive marketplace, and at the
lowest possible cost.
The Need for a Separate Broadband
Paradigm
As noted above, the current Senate bill, S. 652, calls for an
evolving definition of universal service. The law's effect would be
to pull new broadband services into the subsidized and regulated
carrier-of-last-resort mandatory provisioning scheme as such
technology gained popular acceptance.9 As has already been discovered in
narrowband communications markets supplied by multiple competing
providers, the efficiencies of competition cannot be sustained if
one or more parties' market behavior and obligations are being
mandated by government. In an environment where there is a "network
of networks" that both interconnect and compete with each other,
intra-industry subsidies undermine and distort the marketplace
while providing no direct end user benefit.
Although complaints about pricing and customer service led to
the reregulation of cable television, cable companies are not
monopoly suppliers of broadband services. A residential customer in
search of broadband services has the technical capability to
receive broadcast television, cable, multichannel multipoint
distribution service, low-power satellite, and direct broadcast
satellite signals. Portions of the entertainment and information
that are received via such media are also available from
newspapers, broadcast radio, on-line computer services, video
cassettes, laser disks, computer diskettes, and CD-ROMs. The first
principles of a new broadband paradigm rest on a free market
foundation. Although robust narrowband local exchange competition
will eventually arrive and enable the deregulation of that market,
advanced infrastructure investment must go forward now in a "clean
state" environment, in which government dictates neither the
financial nor technical terms for the offering of new services. A
distinct broadband deployment-friendly and regulation-free
environment, possessing the following characteristics, is
necessary:
•
LEC broadband investments that are neither
subsidized nor regulated. It appears to be a political
certainty that some price and service regulation of local exchange
service will continue far into the future either in rate of return
or price cap form. Given this fact, shareholders, not telephone
ratepayers, should take the risks and rewards of broadband
deployment. Whether in the form of video dial tone or more
vertically integrated arrangements, broadband assets and expenses
should be unregulated, below-the-line allocations or should reside
in separate subsidiaries or affiliates.
•
Unregulated cable system broadband and
telephony offerings.
•
Mandatory interconnection. All providers of
telecommunications services, whether or not they have been
previously regulated, should be required to interconnect with each
other,10 but there should be no
other day-to-day regulatory oversight or standards to which
providers are obliged to adhere.
Page 20
A great deal of capital is currently being invested with the
hope of creating the technologies, products, and services that will
ultimately prove victorious in the marketplace and constitute the
NII. Any participation by government for the purpose of ensuring
universal access to those advanced broadband services by the
general public must, therefore, be technology and service
neutral and must have the smallest possible impact on the
marketplace.11
The Development of the Competitive
Market for Broadband Services
Telephone, cable, computer, software, and telecommunications
equipment vendors have made massive commitments with each other to
upgrade their products and services for a two-way broadband
communications world.12 At the same
time, legal barriers have been struck down in several federal court
cases,13 and many state legislatures
have either granted or are considering granting basic service price
regulation instead of rate-of-return regulation, in return for
lower prices, interconnection with competitors, and advanced
infrastructure investments.14
As with other industries, it will be the combined effect of
individual companies' strategies, and the public's reaction to the
products and services offered pursuant to those strategies, that
will determine how the total market for access to advanced two-way
broadband services will actually develop.15 Obviously, in an unregulated
marketplace, deployment will take place at differing speeds
throughout the country. Different suppliers, only some of whom have
ever been under Federal Communications Commission (FCC)
jurisdiction, may be supplying access to advanced services. Many
businesses in major markets today already have multiple suppliers
of two-way, high-speed narrowband access. However, there is one
certainty: variations in public acceptance of particular means of
access will cause higher or lower rates of market penetration and
differing market shares among competing access suppliers; winners
and losers will emerge, and along with them, certain technologies
will become more ubiquitous and others will fall by the
wayside.
It will be the marketplace winners in this initial deployment
phase that will help define, de facto, the standard for which it
means to have advanced access to the national information
infrastructure and thus become "advanced access interfaces" (AAIs).
The role of government in this environment should be to augment the
forces of the marketplace, rather than interfere with them, so as
to bring about the availability of advanced access on a universal
basis. In order for such access to be universal, it will require
legislation enabling the FCC, in partnership with the states, via a
Joint Board, to administer a plan that provides the incentives for
universal deployment at reasonable rates within a competitive
market environment. The mechanisms of that plan, their operation,
and their impact are described below.
Advanced Universal Access Deployment
Plan
Phase 1: FCC-State Joint Board
"Advanced Access Interface (AAI) Recognition Rulemaking
Proceeding"
The marketplace success of various types of advanced network
access interfaces will, as noted above, create a de facto
definition of what it means to be an "information have" in American
society. This definition would become de jure when penetration of
potential AAIs reached a specific level, either set by Congress or
delegated to the FCC or the Joint Board. The plan's purpose is to
prevent the creation of a long-term "have not" community of
sparsely populated or untenably high-cost service areas, while
preserving the operation of the competitive marketplace.
Pending legislation uses an imprecise standard for the
circumstances under which subsidies should be provided for new
services.16 A specific, easily
recognized benchmark is far more desirable, because investment is
augmented by reducing the risk that comes from regulatory
uncertainty. The benchmark could be, for example, that 80 percent
of institutions and businesses and 50 percent of residences in the
top 25 metropolitan service areas have advanced access interfaces
that have, as a minimum, the technical capability sufficient to
simultaneously receive five channels and send one channel of
National Television System Committee quality video (assuming
that
Page 21
this reflects the abilities of the most popular residential
interfaces). It is important that access be viewed in terms of
capabilities and not technologies, in order to ensure that any
subsidies that assist deployment are technology neutral. For
example, requiring a dedicated residential 440-MHz downlink and
6-MHz uplink is not meaningful if advanced access can also be in
the form of a set-top box that couples digital cellular radio
linked to massive regional servers with a half-meter dish of a
co-venturing direct broadcast satellite system. What is most
important is that a particular advanced access interface has
succeeded in the market.
Once this plateau has been reached—i.e., when the level of
market penetration has become sufficient to find that a core group
of "information haves" has evolved—the implementation of the
plan can begin. The first phase of the plan is an "Advanced Access
Interface Recognition Rulemaking Proceeding." In such a proceeding,
the AAIs with a defined minimum market share whose specifications
have by this time been well documented, will be described with
particularity and declared by the FCC-State Joint Board to be
critical to the national interest. Companies, standards groups,
associations, and others may submit their AAIs for recognition,
because it will be these interfaces, and only these, whose
deployment will be eligible for subsidies.17
In order to ensure the availability of access throughout the
country via equipment that individual users may purchase, all of
the accepted interfaces for which subsidies will be made available
must, in return, be open and nonproprietary. Any proprietary rights
in the AAI identified by the rulemaking proceeding become subject
to strict public policy limitations; in that way, no provider of
technology can hold hostage to its licensing fee or product
purchase demands those customers for whom a highly competitive
marketplace is unavailable.18
Phase 2: Joint Board "Inverse Auction"
Proceeding
Once the AAIs have been officially recognized, the Joint Board
undertakes to implement universal access through a proceeding with
the following elements:
•
By public notice the Board divides the country
into geographic market areas, much as the FCC has done for cellular
and personal communication service (PCS) licensing, in which
parties may compete for the right to be the subsidy recipient.
•
If not previously set forth by enabling statute,
national market penetration targets are adopted; for example, AAI
NII access available to 100 percent of institutions by 2005 and to
90 percent of businesses and 80 percent of residences by 2015.
•
If not previously set forth by the enabling
statute, the proceeding would specify the service standards and
administrative procedures that an applicant would be obligated to
meet.
•
In order to ensure the affordability of the
service, the proceeding would also specify the "Top Rate" at which
AAI NII access could be charged.19
•
Rules for parties wishing to participate in the
Inverse Auction would allow any party to apply for as many or as
few markets as it wishes upon showing proof of general
qualifications.
•
A bid would consist of a response to the following
question: What is the smallest dollar amount (the "Performance
Payment") the bidder will accept to shoulder the
supplier-of-last-resort responsibility for building the
infrastructure to meet the AAI national market penetration target
for the market in question?
•
The party submitting the lowest bid in each market
would be designated the Universal Access Supplier (UAS) for that
market. The UAS would have many of the familiar service standards
requirements now imposed upon common carriers (readiness to serve,
time from request to time of installation, operator services,
blocking rates, E-911, and so on), but they would be voluntarily
assumed a part of the bidding process.20
As was widely noted at the recent auction of PCS spectrum, it is
highly unlikely that strategy and game theory will play a major
role in the bidding process. Some of these strategies may lead to
later problems if not recognized early on. For example, an
applicant who already has a significant market presence and
believes that economies of scale are critical to long-term
profitability may "lowball" a bid to discourage potential
competitors from entering the market altogether. An applicant who
has historically had protection from competition may also be
tempted to lowball if it believes that it can bluff the government
into providing a bailout or relaxing or
Page 22
changing its rules with respect to cross-subsidies, pricing, or
other requirements, as an unmet deadline approaches. As a
consequence, it will be necessary to have penalties for failure to
perform and, perhaps, performance bonds to protect the public from
parties who underbid recklessly and then seek to abandon market
obligations.21
The Post-Award Competitive
Marketplace
The award of UAS status would have little immediate impact on
the marketplace. Unlike radio licenses or exclusive service
territories, no scarce franchises are granted. All parties, UAS and
non-UAS alike, would still be free to compete in deploying the
infrastructure, selling to any customer on a competitive basis.
Only the UAS would be required, upon request, to provide access to
the requesting customer at no more than the Top Rate—an
umbrella price for both its own and competitors' comparable access
offerings—and annually report on its progress toward meeting
the deployment target date. Neither federal nor state agencies
would oversee the day-to-day construction or offering of AAIs,
either by the UAS or other suppliers, until the UAS filed to
receive its Performance Payment. This competitive marketplace
coupled with the UAS Performance Payment incentives would encourage
the most rapid deployment and meet the national deployment schedule
targets.
Although the competitive marketplace debate has centered on
visions of "last mile" competition among local exchange carriers,
cable systems, and interexchange carriers, advances in technology,
auctioning of spectrum, and the lessening of regulation will open
the door to many potential participants, especially consortia using
combinations of diverse technologies. Among possible providers:
•
Direct broadcast satellite systems with broadband
downstream capabilities may find synergies with cellular companies
that will have tremendous excesses of capacity in rural markets.
Using digital radio technologies, the cellular carriers may not
only be able to handle full narrowband transmission demands but
also will have sufficient reserve bandwidth to load-manage two-way
broadband transmissions from business and residential customers as
well.
•
UHF (and even VHF) television spectrum is largely
vacant or underutilized in most rural areas and is sufficient to
enable an entrepreneur to provide low-cost broadband digital access
over wide spaces of sparse population and, with low-power cellular
technology, over more densely inhabited areas.
•
Electric utilities, the "third wire," will be able
to participate in the market much as telephone and cable companies;
since electricity is likely to remain largely a regulated monopoly
service, accounting or separate subsidiary requirements will keep
the unregulated, competitive services free of improper
cross-subsidy.
Distribution of the Performance
Payment and Market Growth Beyond the Initial Deployment Period
At the end of the deployment target period (or prior thereto if
the UAS has met the goal ahead of schedule), the UAS would petition
for its Performance Payment under a "UAS Completion Proceeding."
The distribution mechanism could be administered at either the
state or federal level:
•
At the state level, the Public Service Commission
(PSC) or other authorized body would review the UAS's affidavits of
satisfaction of the access requirement and dispense the Performance
Payment accordingly.
•
If a federal proceeding is the policy route of
choice, the FCC could review the UAS's affidavits of satisfaction
of the access requirement. The PSC of the state in which the UAS
market is located would be the designated intervenor in the
Performance Payment approval process.22
In either case, the subsidy would be simple to administer and
should provide incentives for the desired behavior. Drawing rights
could be made available to each state PSC or to the FCC by the
Treasury for the amount of subsidies maturing in markets within
their jurisdiction during each year. Since the state PSC or the
Page 23
FCC could withhold certification and thereby delay the
Performance Payment, the UAS would have an incentive to make the
strongest case and be responsive to customer complaints and
government inquiries. However, in order to be sure that the
subsidies are directed to the purposes for which they were
originally bid, neither the state PSC nor the FCC should be
permitted to use the proceeding as an opportunity to negotiate quid
pro quo forgiveness of missed targets in return for lower prices or
regulatory oversight of operations, and so on.
The resulting high market penetration of advanced access would
probably also reflect a competitive marketplace. Ideally, it should
render unnecessary both continuing subsidy of remaining and growth
infrastructure investment and subsidies for reasonably priced
access. Nevertheless, although these mechanisms will have enabled
the initial deployment of advanced access, there may be some
markets where there is a continuing need to assure the availability
of service out into the future or to allow for circumstances where
competition may not be adequate to ensure affordable rates. If such
circumstances were to occur, the state PSC could petition the FCC
to provide for subsequent rounds of UAS bidding for a designated
market in time blocks, i.e., bidding to be the provider of AAI
access at no more than the Top Rate to all requesting parties on a
last-resort basis for a designated number of years.
Funding the Performance Payment
There is already an abundance of proposals on how and from whom
subsidies for narrowband universal service should be collected.23 For those required to participate in
providing the subsidy, the issue is not only the participation
itself, but also the annual amount and open-ended duration of the
subsidy. This plan addresses those issues and limits their ability
to disrupt both the marketplace and the participants' efforts at
business planning.
The first principle with respect to imposing any subsidy should
be to spread the burden as broadly and fairly as possible across
market participants. This is especially true in this instance
because there will be a variety of communications technologies and
varying levels of distribution of computing power (i.e., some
systems of access may rely on large regional servers connecting to
comparatively simple consumer premises equipment, while others may
have set-top boxes whose capabilities rival those of today's
workstations). Excise taxes on the value of shipments of computers
and peripherals, telecommunications equipment, and satellite ground
and mobile equipment, along with taxes on LEC, cellular, IXC, and
CATV service revenues, will provide that base.
Ordinarily, subsidies distort markets because transfer payments
flow from the pockets of companies designated efficient and
profitable into the pockets of the designated inefficient and
needy. This plan neither designates nor offers preferences to any
potential provider.24 Consequently,
these proposed subsidies would flow only to parties providing
access via interfaces that have already proven themselves
successful in the marketplace. As a result, the distortion of
transfer payments is minimized; the funds will flow back to the
same industry participants who contributed to the fund and,
potentially, in roughly similar proportion, preserving market
efficiency as well as equity.
The second principle with respect to imposing a support burden
is that it be predictably measured and finite. Under this plan, the
national liability and maturity date for each and every market will
be known well in advance of the time that any payment comes due,
because the bidding and selection will occur years before the
Performance Payment will be distributed. The process can be further
fine-tuned by holding auctions on a staggered basis, using an
accurate cross section of markets rather than the largest markets
first. Such a procedure would enable the establishment of an
approximate market price for each type of service area as the
process went forward. The industry tax could then be set in a
manner that would ensure proper levels of funding.
Political Considerations
The collection of new taxes is always politically unpopular, but
the fact that these funds would be collected from a discreet group
and segregated and ultimately paid out to members of that same
class of taxpayers, while simultaneously benefiting the general
public in every congressional district, should alleviate much of
the concern about government involvement. Since there is no
day-to-day administration of a high-cost
Page 24
service fund or other regulatory oversight of the potential
recipients, there is no need for an independent entity to handle
the funds in order to avoid a debate on the application of
federalist principles. Opposition would also likely come from
independent telephone companies, who have been both recipients of
subsidies and protected from competition within their own service
territories in the provision of narrowband services. Yet they will
be positioned better than almost any other competitor to take on
the role of UAS and will likely be the low bidders in their local
markets; they are also likely to form partnership or consortia with
other independent companies and bid successfully for the regional
market.
Although this plan envisions a major role for state agencies,
the overall operation of the proposal will preempt state
jurisdiction over the day-to-day local activities, such as pricing,
service standards, and so on, traditionally regulated at the state
level. There is already, however, a recognition within many states,
as noted above, that new services will be offered in a competitive,
market-driven environment, where regulation does not need to be
substituted for competition. With respect to the UAS itself, the
state will be able, at its option, to participate in or control key
aspects of the approval process. Finally, it should be noted that
the plan, which will enable more rapid deployment of
infrastructure, will by its operation not only improve the quality
of life within the jurisdiction, but also increase commerce for
both CPE and ancillary services, thereby increasing local and state
sales and income tax receipts.
Conclusion
The ideal of relying solely on unfettered competition among
multiple suppliers of broadband access to reach a goal of
affordable, universally available advanced services carries with
risk of failure that policymakers within the United States are
unwilling to take. At the same time there is a realization that
neither regulation nor managed competition are viable long-term
options. The proposals set forth in this paper offer one possible
avenue to achieve advanced universal access in a fully competitive
environment with the least economic and social costs and minimal
regulation.
Notes
1. Information Infrastructure Task Force
(IITF). 1993. The National Information Infrastructure: Agenda
for Action. IITF, U.S. Department of Commerce, Washington,
D.C., September 15.
2. S. 652, Telecommunications Competition
and Deregulation Act of 1995, 104th Congress, 1st Session, Report
No. 104-23, Sec. 4–5, p. 3.
3. Ibid. at Sec. 103(d), pp.
304–310.
4. Ibid.
5. Weinhaus, Carol, and the
Telecommunications Industries Analysis Project Work Group (Weinhaus
et al.). 1994. Getting from Here to There: Transitions for
Restructuring Subsidies, p. 16.
6. Weinhaus et al. 1994. Redefining
Universal Service: The Cost of Mandating the Deployment of New
Technology in Rural Areas, pp. 8–9.
7. Ibid. at p. 12.
8. Telecommunications Reports.
1995. "Ameritech to Deploy Scientific-Atlanta Technology," 61(8),
February 27, p. 7; and "RFP Aims to Lower Set-Top Box Manufacturing
Costs," 61(9), March 6, p. 27.
9. S. 652, Report No. 104-23, Sec. 103(d),
pp. 39–40.
10. This is arguably not new regulation.
Indeed, if there were no prior history of telecommunications
regulation, it might well be argued that new legislation to ensure
such interconnection would not be necessary. Application of Sec. 3
of the Clayton Act might reasonably be interpreted to prevent
telecommunications service suppliers from denying other service
providers access to its customers. See Datagate v. Hewlett-Packard,
914 F.2d 864 (9th Cir. 1991); XETA Inc. v. ATEX Inc., 852 F.2d 1280
(D.C. Cir. 1988); and Digidyne Corp. v. Data General Corp., 734
F.2d 1336 (9th Cir. 1984).
11. This paper does not discuss programs
to fund or provide broadband services to those individuals or
institutions determined to be in need of special subsidies. Rather,
it is limited to the issue of how best to make access to advanced
broadband services universally available to the general public.
Nevertheless, certain principles that further the overall goal of
advanced universal access do apply: in a competitively neutral
marketplace, public support, whether targeted recipients are poor
individuals or distressed education, health, and public
institutions, must provide the recipients
Page 25
with the flexibility to obtain services from competing vendors
rather than require last-resort carriers to offer services at
noncompensatory rates. Armed with the ability to select services
from among several vendors, the needy will make choices that will
reflect the efficiencies of the marketplace.
12. A recent example is PacTel's $150
million head-end and set-top box purchase agreement as part of an
interactive video network. See Wall Street Journal. 1994.
''Scientific-Atlanta Inc.—Concern Is Awarded Contract to Equip
PacTel's Network," April 24, p. B4. Yet even this appears modest by
current standards; cf. Ameritech's $700 million in contract
commitments to Scientific-Atlanta, note 8, supra. A great deal of
publicity has surrounded announcements by regional Bell operating
companies on the formation of programming consortia (Bell Atlanta,
PacTel, and NYNEX; Ameritech, BellSouth, SBC Communications, and
Walt Disney), as well as speculation with regard to US West's
future intentions regarding its investment in Time Warner.
13. C&P Telephone Co. of Virginia et
al. v. U.S. et al., 42 F.3d 181 (4th Cir. 1994); NYNEX v. U.S.,
1994 WL 779761 (Me.); US West v. U.S., 48F.3d 1092 (9th Cir.
1994).
14. States where bills were introduced in
1995, and which currently appear to be under active consideration,
include Colorado (HB 1335), Texas (HB 2128), and Tennessee (rival
bills SB 891 and 827, HB 695 and 721). The Wyoming
Telecommunications Act of 1995 (HB 176) was signed into law in
March, and Georgia's Telecommunications and Competition Development
Act of 1995 (SB 137) became law in April. In North Carolina, as of
this writing, HB 161 awaits the governor's signature.
15. Telecommunications Reports.
1995. "Competitors and Allies: Cable TV Companies, Telcos,
Broadcasters Jointly Will Create New Markets," 61(14), April 10,
pp. 16–20.
16. S. 652, Report No. 104-23, Sec.
103(d), p. 40.
17. First in the market, especially in new
technology, does not guarantee dominance, or even success (e.g.,
8-track cassettes, Commodore computers, Atari and Magnavox video
game systems, Bowmar calculators) even if the technology is
superior (Betamax, digital audiotape). Commercial success is a
reflection of market acceptance and manufacturing efficiency and
yields a reduction in incremental risk per unit manufactured. If
the public is required to subsidize the initial buildout of
long-term infrastructure, there must be a high level of confidence
that the access interfaces installed under subsidy will have a long
useful life and that individuals who purchase equipment and later
relocate or need to access nonlocal information sources will not
find their investments rendered worthless.
18. Any proprietor is free not to
participate in the proceeding so that there is no state taking of
intellectual property.
19. It would be reasonable to expect that
the rate would be in the top quartile of rates charged nationally,
i.e., still affordable by definition, but not a windfall rate when
compared to those paid by the majority of customers nationwide.
20. In calculating its bid, the applicant
would, of course, factor in such items as the costs of meeting the
service standards obligations, the Top Rate, current and projected
levels of competitive deployment in the market, demographics,
terrain, and so on. The development of competitive markets will
provide vast historical data on costs, price elasticity of demand,
and the like. Obviously, within that price-demand elasticity curve,
the higher the Top Rate, the lower the Performance Payment
necessary to attract the successful bidder.
21. The UAS could be required to post a
performance bond at least 5 years prior to the target date. If it
advises the FCC that it is abandoning its UAS status, qualified but
previously unsuccessful bidders in the market may then rebid for
the right to be the UAS. The Treasury would collect on the bond to
the extent that the second bid series produced a result that was
higher than the original UAS's bid plus a penalty and
administrative premium.
22. In multistate markets, PSCs would
designate members to sit on a panel that would serve as the sole
intervenor.
23. See Weinhaus et al., supra, Getting
from Here to There: Transitions for Restructuring Subsidies,
1994, for a review of the most commonly discussed alternatives.
Although based on recent prices paid for PCS spectrum, an auction
of unused UHF and VHF spectrum could well provide all of the funds
necessary to finance advanced universal access; for the purposes of
this paper, it is assumed that the funds must be raised from market
participants.
24. This is particularly important if, by
operation of the program, a UAS receives what could be considered a
windfall profit: if the market develops more rapidly and
efficiently than anticipated and the performance targets are met
with little or no investment that is less than fully compensatory,
the UAS would receive the Performance Payment merely for having
been "on call."
