This is the genius of cyberspace!
Vigdor Schreibman
[[ Brad Cox: Since Mr. Schreibman is so free with his editorial comments regarding the articles he redistributes. I thought it appropriate to take the same liberty with his. Apologies to John Browning on behalf of both of us.
No, I'm not even going to try to do this politely. This guy really gets my goat. I like his politics even less than his manners, and I can't find enough understanding of history to merit rational response.
Where was this guy when Russia followed these principles into the ground? Campaigning for Bill Clinton, no doubt. ]]
Sadly, they won't.
Universal service turns on its head the usual way of setting prices. Instead of starting from costs, universal service starts from a calculation of how much a customer should ideally have to pay - "affordability," in the legislative jargon. The goal is to maximize social benefit - rather than profit. If the cost of a service is higher than its "affordable" price, then the deficit is made up by charging higher prices on some other, less worthy service. So when the US Congress recently decided to provide a service for deaf telephone users that would translate speech into type on a terminal, and vice versa, it opted neither to charge the deaf for the service nor to raise taxes to pay for it. Instead lawmakers tacked the cost of the service onto the price of long-distance telephone service. When AT&T was a monopoly, such accounting jiggery-pokery was relatively easy to administer. So long as the network as a whole made a profit, the prices of individual services could be set wherever AT&T and its regulators thought best. But today things are different.
Universal service was made a guiding principle of American telecom regulation in 1934. While the spirit of universal service - the idea that everybody should be able to speak as freely in the ether as they do in the air - is noble, its substance has grown woefully dated. In 1934, legislators assumed that telecommunications was a monopoly; today it is (or rather, should be) a competitive business. In 1934, only one kind of service was delivered, through one kind of telephone (the plain, black kind); today voice, video, and data are carried over wires, fiber optics, and airwaves. And in 1934, technology required that all of the intelligence needed to run the network was held in the switches at the network's core; today that intelligence is fast migrating to computers on the network's periphery - and many of those computers are owned by customers rather than service providers.
For these reasons and more, a return to the traditions of universal service - to services defined by government mandate, often made cheap by cross-subsidy - may bring back more of the past than even its staunchest supporters would like: equality, yes, but also fewer choices, fewer and bigger companies, and fewer opportunities for innovation. It could, in fact, derail the entire information economy.
This leaves politicians in a bind. The fact is, legislators have included universal-service regulation in every bill promoting the information superhighway. (See box, page 155.) Unfortunately, universal service is profoundly incompatible with another major item on politicians' reform agenda: the introduction of competition into telecom markets. In trying to mix the two there is a risk that reformers will inadvertently capture the worst of both worlds: anemic markets regulated more for the benefit of entrenched business interests than that of the general public.
But to bury it nonetheless.
New technologies and new networks require a shift toward regulation based not on universal service but on open access. The distinction is subtle, but crucial. Mandating universal service requires regulators to decide what services people should have and what prices they should pay. Regulation focused on open access, on the other hand, protects people's abilities to decide for themselves.
Open access regulation is not deregulation. On the contrary, it requires the government to intervene vigorously - particularly to ensure that small, new competitors get to use the existing telecom infrastructure on the same terms as the entrenched (soon-to-be former) monopolies that built it. This is both more difficult and more politically thankless than throwing subsidies at popular services. To see why it is necessary, start by looking at the regulatory options for networks from a politician's point of view. Then examine today's regulatory machinery to see why universal service and competition don't mix.
Congress prefers to fudge the choice. All of the telecom-reform legislation surfacing in 1994 contains a mixture of subsidies, service regulation, and competition. The same combination will probably recur in any future legislation, because each satisfies different and opposing interest groups. Subsidies and service regulations satisfy public-interest groups who believe big companies are too self-interested and ignorant to fulfill the promise of networks without strong leadership from a visionary government. Competition satisfies big companies who, on the contrary, argue that they will satisfy everybody's greatest networking fantasy as soon as they are released from meddlesome, restrictive government regulation.
Unfortunately, competition and subsidized, regulated network services are profoundly incompatible, and universal service stands at the heart of the contradictions.
To introduce competition without a complete overhaul of the universal-service funding mechanism would simply bankrupt those providing it. By trying not to disappoint anybody, politicians may yet disappoint everybody.
Now that politicians are bent on creating competition in local telephone service, they propose to put universal service on a new footing. Although the details and exact timing are to be worked out by the FCC, the Congressional consensus is that instead of internal cross-subsidies, from one part of the monopolist's network to another, everybody offering network services should pay into a single fund. The government will take money from this fund to subsidize "essential" services. At the same time, a regulatory task force will examine ways of redefining "essential" services, asking the question of what constitutes an acceptable minimum of service on the new networks. A touch-tone telephone? A digital telephone line? A TCP/IP connection? Or what?
How to monitor the subsidies? Universal-service subsidies are a perennial nightmare for the FCC, which already administers several funds to transfer money from providers of long-distance telephone services, and others, to those providing "essential" services. First, the funds always seem to require more money than expected. The Universal Service Fund - which, confusingly, is only one of several funds to provide the subsidies involved in universal service - transfers money from long-distance telephone companies to local telephone companies that have "high-cost" networks. Originally budgeted at under $400 million a year, the fund has in recent years been growing at about five times the rate of local-telephone costs. Worse, the FCC cannot be confident that the funds are all being put to their intended use. Even with the best of will, it is nearly impossible to say how much of the costs of a single switch are accounted for by subsidized essential services and how much by the other services delivered over its wires - and, as the FCC well knows, big companies have every incentive to exaggerate the costs eligible for subsidy.
What services to mandate? Today, as traditionally, the basic telephone services mandated as "universal" are at the trailing edge of the technology. But as excitement mounts over the world-changing potential of new network technologies, more and more proposals would have government require companies to provide services at the forefront of technology in order to accelerate the pace of change. However well-intentioned, the problems with such proposals are obvious. Nobody really knows what essential "basic" services for an advanced network might be. Gore and other advocates of universal service say they will not allow the creation of have-nots, but they do not define what a have-not might be. Someone without a telephone? (Even with flat-rate "lifeline" services available at $4.18 a month, some 4 percent of Californians don't have telephones.) Someone without a television? Someone without a SLIP connection to the Internet? Worse, to define have-nots, policy makers would also have to define haves, which pushes them into the business of picking technological standards - and, hence, winners. It is one thing for the market to choose Windows and DOS as the most popular technology, and entirely another for the government to mandate it so.
One problem here is that universal-service charges may discriminate against small firms in emerging markets; charges that seem a pittance to a big firm in an established market can break the back of a small firm in a new and emerging market. Given that schools, libraries, hospitals, and homes are all on most people's list of worthy causes meriting special network treatment, pretty much the only pockets left to reach into belong to business.
But overcharging business to subsidize others can create a variety of problems. Higher prices may put network services beyond the reach of some business customers - particularly small businesses, who in theory could reap some of the greatest benefits from the free flow of information created by networks. They might discourage risky, innovative network services for which markets are not yet proven - tilting the balance further in favor of entertainment and other big, well-established markets. And higher prices discourage investment in the networks that businesses are now building for themselves, which, like the Internet, are becoming a key part of information highways.
Why tax the people who are building and using advanced services in favor of the big-company wannabes? For universal service is effectively a subsidy for the status quo - taxing new and innovative services and handing the money to existing providers of existing services. Colleen Boothby, now a telecommunications lawyer with Levine, Lagapa & Block in Washington, DC, but for many years a regulator at the FCC, makes an analogy to that capitalist archetype, the better mousetrap. "If you build a better mousetrap, people beat a path to your door; but what these cross-subsidy regulations do is to force anyone wanting to buy one of the new mousetraps to pay for some old mousetraps too."
Worse still, the introduction of competition to telecom markets thrusts the search for answers to these vexed questions into the realm of special-interest politics. When AT&T was a monopoly, fiddling with rates on individual services - to make the socially desirable ones cheap and others expensive - was a zero-sum game. So long as AT&T made a reasonable total profit at the end of the day, it was not much bothered about the details of individual services. Many of the companies introducing new technologies into competitive markets, however, care very much about individual services because that is all that they do. Internet providers, operators of wireless data networks or cellular telephone services - and their lobbyists - will all argue vehemently, and with honest conviction, that their service is crucial for fulfilling networks' potential to change the world. Brokered compromises to lobbyists' battles are unlikely to prove the best foundation on which to build the future. Indeed, the arguments could make decision-making so slow as to render the universal service system unworkable.
(cont. in part 2
Politicians love to give it lip service, but universal service is a 1930s solution to a 21st century problem. The problem is an excess (not shortage) of bandwidth, and the solution is called Open Access.
This is the story of the noblest idea in the history of technology: universal telecommunications service. Universal service brought America into the information age. It put telephones into every American home (well, about 94 percent of them) and wove telephone lines through the fabric of American life. It set the Andrews Sisters to singing "Pennsylvania 6-5000," provided a generation of teenagers with their own private space to create their own private culture, and set Prince Albert free from the can. Today, when telephone, television, and printing press are poised to merge into something new, digital, and as-yet-undreamt-of, it is tempting to hark back to the original ideas of universal service. The hope is that these ideas will help to weave new networking technology into American life as seamlessly as the telephone.Making the world safe for technology
Led by Vice President Al "Information Highway" Gore, politicians have spent much of 1994 painting a rosy picture for the American public of how new networks would transform education, health, democracy, and life as we know it. The public is enthralled. Although only about 15 percent have even the minimum requirement for network participation - a computer with a modem - everybody seems to want to get wired. Politicians now have three options to satisfy the expectations they have created:Expand network subsidies
As much as politicians would like to claim credit for building the Internet, today's networks receive relatively little federal money. The Internet gets about US$11 million a year to subsidize long-distance data-transmission capacity run by the National Science Foundation (the NSFNet). The Commerce Department is offering $26 million this fiscal year for experiments in community-oriented networking. The High Performance Computing Act provides subsidies for the development of new network technologies. But all are peanuts compared to the federal billions spent on the object of Gore's favorite metaphor: highways.Mandate service
With a bit of tweaking, the regulatory machinery created to require universal service for basic telephone service could be used to require cable and telephone companies to offer advanced services - digital lines, Internet connections, videophones, and the like - at rates regulated to guarantee their affordability for both rich and poor (at subsidized rates, of course). Various groups, notably the Electronic Frontier Foundation in its Open Platform initiative, propose in one way or another to use the government's regulatory power to push the pace of network change.Promote competition
In long-distance telephone services, competition managed to boost the quality and variety of services even as it reduced prices. Most politicians and regulators are now convinced that it can do the same in local telephone service, cable television, and emerging new network services. So reformers are trying to set the stage to enable it to do so, by removing restrictions that prevent regulated local-telephone and cable-television companies from competing with firms in unregulated markets, and vice versa.Give me TCP/IP or give me death
Universal-service obligations are a burden for the local telephone companies who now bear them, but they are also the bedrock of their monopolies. The introduction of competition blows apart this system of cross-subsidies. Competitors nab the overcharged customers, leaving the ex-monopoly with those customers on whom it cannot make a profit. Kaboom: the network collapses onto the heads of those who have no other service or provider to turn to. Since the break-up of AT&T in 1984, and the beginnings of competition in long-distance markets, the threat of just such a service meltdown has been local-telephone monopolists' most effective lobbying weapon against competition.Four simple questions bedevil the proposed universal-service fund
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Who gets subsidized? Today's recipients are mostly the poor - in California, low-income customers can get "lifeline" telephone service at $4.18 a month - and residents of rural communities, who get telephone service at the same rates as urban householders. Not surprisingly, though, there is no shortage of candidates thought to be deserving of a subsidy or two should politicians decide to broaden the scope of the fund. Hospitals, for example, rank alongside schools and libraries on many people's (including Al Gore's) list of causes deserving cut-rate network access. Yet a study by the consulting firm Arthur D. Little estimates that as health care providers change their practices to make more intelligent use of the capabilities of advanced networks, the eventual savings will total as much as $36 billion a year. Surely hospitals do not really need a subsidy to inspire them to save themselves money.
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