REMARKS OF FCC COMMISSIONER AJIT PAI AT THE INTERNATIONAL INSTITUTE OF COMMUNICATIONS TELECOMMUNICATIONS AND MEDIA FORUM
MAY 27, 2015
I want to thank the International Institute of Communications for organizingtoday's forum. The IIC affords regulators around the world an opportunity to exchange ideas and discuss current trendsin the communications sector. However separated by distance or language we may be, the IIC serves an important function by bringing us together. It is fitting too that this event focuses on markets in Latin America, since some have nicknamed Miami the “Capital of Latin America.” (Luckily for me, it is also the homeof excellent fritas, pastelitos de guayaba, and caipirinhas, but that's something I'll have to explore after this conference with any of you who are interested.) In all seriousness, today's topic—spurring broadband investment and deployment—is critical. That's because broadband meansopportunities for innovation, job creation, and economic growth. I've personally spoken with numerous entrepreneursin the United Stateswho've told methat without the Internet, they'd have no business. Just yesterday, at Venture Hive, a startup hub for tech innovators here in Miami, I met the founder of Waleteros, acompany that targets the millions of Hispanics in the U.S. who don't have bank accounts, and thus feel they have no choice but to rely on expensive check-cashing outlets. Waleteros developed an app that enables a customer to take a picture of a check with his cellphone and have the money deposited onto a prepaid MasterCardwithin minutes. For all this to work, wireless broadband connectivity is essential. I've seen this abroad as well. For example, last yearin Cartagena, Colombia, I met with a group of startup companies at ViveLabs. One young entrepreneurwasusing GPS and cellular technologiesto track fishermenand help them bring their products to market quickly and efficiently. Another was building a mobile app thathelpeddelivery companies keep track of their shipments. Yet another was creating an app thatwould allow people to easily access the menus of nearby restaurants. Each of these businesses wasdifferent, but the lessonwas the same: Broadband is both a liberator and anequalizer. Whether in Brasilia or Brampton, broadband gives every personwith an idea and passion the chance to succeedand pursue their dreams. There are thousands of stories like these across the Americas. And the key to ensuring that there are many more is broadband infrastructure—and lots of it. Demand for faster, better, and less expensive broadband is only increasing. This is especially true in Latin America. By 2018, for example, Latin America is expected to see Internet traffic grow over 200% compared to 2013 levels. Mobile data traffic in the region will increase at an even faster clip, growing tenfoldover the five-year period ending in 2019. To meet this surging demand, the private sector will have to take the risks to invest in and deploy broadband networks. And for the private sector to do this, regulators mustadopt policies that welcome that investment and minimize the costs of deployment. For years, the United States did exactly that. Most importantly, we removedregulatory barriers to infrastructure investment and createda free market for spectrum. Those policies—not government regulation—led to massive investments in networksand brought about the broadband revolution we've seen here.
Unfortunately, however, the Federal Communications Commissionhas recently put oursuccess at risk. There's been a dramatic shift towards heavy-handed regulation of the Internet—one thathas created tremendous uncertainty and is already resultingin broadband providers cutting back on investments.
I. Promoting Investment and Deployment But before discussing thatrecent shift in policy, I'd like to describe our nation's longstanding commitment to light-touch regulation. This produced unparalleled innovation throughout our entire Internet ecosystem, from the core of our networks to providers at the edge. Removing Barriers to Infrastructure Investment.—Until this year, the core of the U.S. government's strategy for promoting broadband deployment was removingregulatory barriers to infrastructure investment. I'd like to highlight two examples in particular. First, in the 1990s, American policymakers forgeda historic political consensus that the Internet should remain unfettered by government regulation. Instead of micromanaging broadband networks, the U.S. government back then—including the Federal Communications Commissionfor almost two decades thereafter—focused its efforts on maximizing incentives for the private sector to deploy broadband. Instead of telling broadband operators where to invest, how much to invest, what technologies to use, or how to run their networks, we let market forces guide these decisions. Regulators made a conscious choice not to apply to the Internet the outdated regulations crafted for telephone monopolies. After all, rules designed to regulate a monopolywill inevitably push the market toward a monopoly. Instead, our policy was a modern, deregulatory one that gave the private sector flexibility to innovate. Second, we embraced convergence and took steps to encourage it. This led to facilities-based providers from previously distinct niches entering the broadband market and competing against each other. How did we do this? We removed regulatory barriers when we found them. For example, we made it easier for cable television providers to get into the voice business by preventing states from regulating Voice over Internet Protocol as theydid traditional telephone service. On the video front, the FCC stopped local governments fromunreasonably refusing to award competitors, such as telephone companies,video franchises. Many state governments helped as wellby adopting statewide video franchising laws, which made it easier for new players to enter the market. And for wireless, wecreated a “shot clock” thatstreamlined the approval process for constructing towers, adding antennas, and deployingother physical infrastructure so that mobile companies could bring 4G LTE broadband to the public. The shot clocksays that municipalities have 90 days to act on applications to add an antenna to a site and 150 days to act on other siting requests. Together, these decisions accelerated the deployment of high-speed broadband. That's because companies allowed to use their networks to offer additional products have a greater incentive to expand and upgrade those networks. And this gives consumersenormous benefits in the forms of more choice and better services. Creating a Free Market for Spectrum.—Shiftingaway from physical infrastructure, I would like to turn to spectrum, the invisible infrastructure that is critical to the success of wireless broadband. Over the years, our spectrum policies have enabled this country to become the world's leader in mobile broadband. First, we adopted what we call a flexible use policy. Instead of deciding that a particular spectrum band can only be used with a specific type of wireless technology, we left that choiceto the private sector, which has a much better sense of consumer demand. This has enabled networks to evolve with technology without the need for government sign-off at each step. Second, the U.S.pioneered the use of competitive auctions to distribute spectrum licenses. This market mechanism helps ensure that spectrum is putto its highest value use. And it's one that has 3
generated significant revenues for the U.S. Treasury along the way. FCC auctions of commercial wireless spectrum have raised over $91 billion. Our experience with auctions, which now spans about two decades, offers valuable insights. For example, auctions are more successful when they are kept simple, transparent, technically sound, and market-driven. That means setting clear rules in advance and sticking with them. That means not placing onerous conditions on particular spectrum. That means not limiting eligibility or restricting participation. And that meansoffering, whenever possible,paired spectrum that is internationally harmonized for mobile use. These are the best ways to promote network construction, to raise money, and to ensure consumers experience the benefits of innovative new services. In short, the government should establish a level playing field when it comes to auction rules rather than trying to micromanage who wins and who loses. Third, the U.S. has encouraged a robust secondary market in spectrum. The FCC aims to review transactions that would result in the transfer of spectrum from one company to another within 180 days. And smaller transactions are generally processed more quickly than that. This is a good thing. By providing procedural certainty, the FCC has enabled spectrum to flow more freely to its highest value use. We have found that these secondary market policies have encouraged the efficient use of spectrumand reduced transaction costs. Indeed, there have been thousands of secondary-market transactions involving mobile broadband licenses over the past several years.
II. The Broadband Market in the United States Collectively, these policies—removing regulatory barriers to infrastructure investment and creating a free market for spectrum—have drivenmassive investments into the U.S. broadband market. In fact, the private sector spent $1.3 trillion over the past 15 years to deploy broadband infrastructure in the U.S. That is money that went into laying fiber, upgrading cable systems, launching satellites, building towers, and deploying spectrum. A few international comparisonshelp put these expenditures in context. In2013, for example, the wireless sector invested over 40% more in the U.S. than it did in all of Latin America. U.S. wireless providers havealso invested twice as much per person as counterparts in Europe ($110 perperson compared to $55). And the story is the same on the wireline side, with U.S. providers investing more than twice those in Europe ($562 per household versus $244). Whoreaped the rewards of all this investment? U.S. consumers. When it comes to wireless, 97% of Americanshave access to three or more providers. 4G LTE covers 86% of Americans. Today there are more wireless connections than there are people in the United States. And when it comes to wireline, the percentage of Americans with broadband at home has increased more than tenfoldover the past fifteen years while prices have dropped precipitously. Fiber deploymentshave quadrupled over the last decade, including serious competitive threats like Google Fiber. All told, there are 4,462Internet service providersin this country. Once again, international comparisonsareinstructive. When it comes to mobile broadband, 30% of U.S. consumers subscribeto4G LTE, while that figure is only 1% in Latin America and 10% in Europe. Average mobile speeds in the U.S. are about 50% faster than those in Latin Americaand 30% faster than they are in Western Europe. Turning to wired broadband, 82% of Americansand 48% of rural Americans have access to 25 Mbps broadband speeds,butthose figures are only 54% and 12% in Europe. And in the U.S., broadband providers deploy fiber to the premises about twice as often as they do in Europe(23% versus 12%). What is more, facilities-based, intermodal competition in the U.S. is thriving. Almost every segmentof the communications industry has been competing to offer newer, faster, and better broadband service. The era of convergence has proven once and for all that the broadband market is not a natural monopoly. It is not a space where only one company or one type of facilities-based provider can succeed. Far from it. In the U.S., telephone, cable, mobile, satellite, fixed wireless, and otherInternet service providerscompete vigorously against each other. Consumers, online entrepreneurs, and many othersare better for it.
III. A Risky Reversal of Course Unfortunately, the U.S. government is now puttingour success at risk. First and foremost is the FCC's recent net neutrality decision—a decision to applylast century'spublic-utility laws to today's broadband providers, a decision to regulate everything from the last mile of the network to interconnection near the Internet's core. I disagreed with the FCC'sdecision to reverseour longstanding, successful, and light-touch approach to Internet regulation for several reasons.1 The most important is that it will reduce consumer welfare: It will lead to less investment, less competition, slower speeds, and higher prices. Remember: Broadband networks don't have to be built. Capital doesn't have to be invested. Risks don't have to be taken. The more difficult regulators makethe business case for deployment, the less likely it is that broadband providers big andsmall will invest the billions of dollars needed to connect consumers with online opportunities. Yet that's exactly what theFCC's net neutrality regulations do. They give the FCC power to micromanage virtually every aspect of how broadband providers offer serviceand manage their networks. Uncertainty is the enemy of investment and deployment. And the ruleshave injected tremendous uncertaintyinto the U.S. market. Take the so-called “Internet conduct standard”as an example. It gives the FCC power to review businesses models and prohibit pricing plans that benefit consumers. Everything from zero rating to usage-based pricing might be on the chopping block. And “might” is the key. The vaguelyworded standard gives the FCC a lot of discretion. In fact, the FCC itself has conceded thatwhen it comes to what business practices the Internet conductstandard could regulate, “we don't really know.”2
Another example of uncertainty stemming from the net neutrality order is the “guidance” from the FCC's Enforcement Bureau just last week about the order's new privacy requirements. The guidance says “the Enforcement Bureau intends to focus on whether broadband providers are taking reasonable, good-faith steps to comply with [the law], rather than focusing on technical details.”3 And “the Enforcement Bureau intends that broadband providers should employ effective privacy protections in line with their privacy policies and core tenets of basic privacy protections.”4 What does this mean? What exactly do broadband providers have to do to comply with the law? I am an FCC Commissionerand a lawyer, and I have no idea. Your guess is as good as mine. This “guidance” casts far more shade than sunlight. 5
That's not the certainty investors need when deciding whether to risk massive amounts of capital in a market. That's not whatentrepreneurs look for when deciding whether to innovate. I heard this firsthand when I visited London last month to speak at another IIC event. International investors told me that the regulatory attitude in Washington had made them rethink their strategies and look elsewhere for growth. They thought China, Latin America, and Europe offered better opportunities for investment because none of them were facing the same regulatory headwinds asthe U.S. And complying with these new regulations won'tcome cheap. There are many broadband providers in the U.S. that simply do not have the means or the margins to bear the increased costs that come with net neutrality regulation. You don't need to take my word for it. After the FCC's decision, manysmaller broadband providers statedunder penalty of perjury that they are already cutting back on broadband investments because of the FCC's net neutrality regulations.5 For instance, one small wireless ISP that serves rural customers has said that as a result of the FCC's net neutrality decision, it plans to delay network upgrades that would have upgraded its customers' servicefrom 3 Mbps to 20 Mbps, new tower construction that would have brought service to unserved areas, and capacity upgrades that would reduce congestion for existing customers. The company worries that it may even be forced to “close the business.” This and many more examplesall point to the same conclusion. The FCC's decision to adopt net neutrality regulation is resulting in lessinvestment and reduced deployment. It will inevitably lead to fewer competitors in the broadband market. And it was a completely unnecessary decision. We often forget that within a generation—a blink of history's eye—the Internet has fundamentally transformed how people in the United States(and around the globe)think, speak, watch, listen, learn, read, do business; in short, how they live. Given how quickly and deeply it has progressed, I believe that the Internet is the greatest example of free-market innovation in history. It haslifted quality of life, spirits, incomes, and horizons for people from every background. And it simply wasn't broken, as even the FCC conceded. This is why I have callednet neutrality a solution that won't work to a problem that doesn't exist. And thisis why, in my view, the FCC's regulations arenot a model for the future. They are arelic of the past. Consumers and markets around the world need providers to invest countless dollars, euros, pesos, reals, guaranís, Nuevo Sols, even bolívars in broadband networks. The regulatory approach that works, the approach that led to the highest levels of private sector investment in the world, is the one the FCC pursuedfor the last 15 years—limited regulation that promotesinfrastructure deployment and fostersa free market for spectrum, each of which createscompetition. And competition, not preemptive regulation, is the best guarantor of consumer welfare. Markets have delivered far greater benefits to consumers than heavy-handed regulation ever has. Recent events notwithstanding, I am hopeful that, in time, the U.S. will one day appreciateonce again that it is the private sector, not thegovernment, that creates digital opportunities here and throughout the world. *** Thank you again to the IIC for convening this forum. I look forward to hearing from the other participantsabout the vibrant and emerging communications markets in Latin America.
5Statement of FCC Commissioner Ajit Pai on New Evidence That President Obama's Plan To Regulate The Internet Harms Small Businesses and Rural Broadband Deployment (May 7, 2015), http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0507/DOC-333383A1.pdf.
Pai is stepping very far away from Wheeler's agenda. The FCC is definitely politically split, Pai more the Republican big business friendly, Wheeler the Democrat politico looking to the future. Hopefully GSAT fits somewhere between their ideologies.
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