fedgazette

Letters to the Editor

Letter to the editor regarding the May 2007 fedgazette on telecommunications.

Published July 1, 2007  |  July 2007 issue

To the Editor:

Thank you for the informative telecommunications articles in the May 2007 fedgazette. The articles are right to suggest that it is time to look closely at our subsidies for rural telephone and at the issue of broadband penetration in rural communities. I hope that as you and the Ninth District researchers study these issues in the future, you will consider these points:

The author gave insufficient attention to the reform potential of a voucher program that is not means-tested. Instead of subsidizing high-cost companies, we would direct subsidies to high-cost customers through vouchers. Even nominally rural telephone companies have customers who are relatively close to the central office or head-end and are, consequently, cheaper to serve than customers at the end of a 10-mile loop. Using a means-test for all subsidies does not adequately reflect the fact that very high maintenance costs are real for some customers. Our pricing of telecommunications and other services should not drive more residents to relocate to regional centers or metropolitan areas. A voucher program would work to the advantage of the most efficient provider and would not favor a particular technology.

Reform of the universal service fund could also be linked to the deployment of new technologies, including very high speed or "ultra" broadband. Your writer did not discuss the fact that telecommunications companies of all kinds are switching to Internet protocol as the technology of choice for voice, video and data. The reason is that it lowers costs. IP switches are cheaper, benefiting to some degree from Moore's law. A high-cost customer subsidy could come in two flavors, basic and broadband, with the latter available to companies that have deployed fiber lines to the customer premises.

Contrary to the author's assertion that "home broadband is a private service that mostly benefits individual users, not society at large," there are real economic benefits to extending broadband networks to as many customers as possible. "Network effects" increase the value of a network to an existing customer when a new customer joins. See the Wikipedia (which itself profits from network effects) entry on the subject. Moreover, network providers and commentators have been slow to recognize users as producers of value in a Web 2.0 world, not just consumers. It is important that rural networks be very high speed in both directions so that rural producers of information can increase the competition for provision of services over the Web, reducing costs and adding value for everyone else.

Steve Kelley
Center for Science, Technology and Public Policy
Humphrey Institute of Public Affairs University of Minnesota

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