The folks at the Pew Research Center's Internet & American Life Project came out with another installment of their "Home Broadband" survey yesterday. This one, Home Broadband 2010, finds that "adoption of broadband Internet access slowed dramatically over the last year." "Most demographic groups experienced flat-to-modest broadband adoption growth over the last year," it reports, although there was 22% growth in broadband adoption by African-Americans. But the takeaway from the survey that is getting the most attention is the finding that:

By a 53%-41% margin, Americans say they do not believe that the spread of affordable broadband should be a major government priority. Contrary to what some might suspect, non-internet users are less likely than current users to say the government should place a high priority on the spread of high-speed connections.

This has a number of Washington tech policy pundits scratching their heads since it seems to cut against the conventional wisdom. Cecilia Kang of The Washington Post penned a story about this today ("Support for Broadband Loses Speed as Nationwide Growth Slows") and was kind enough to call me for comment about what might be going on here.

I suggested that there might be a number of reasons that respondents downplayed the importance of government actions to spur broadband diffusion, including that: (1) many folks are quite content with the Internet service they get today; (2) others might get their online fix at work or other places and not feel the need for it at home; and (3) some may not care two bits (excuse the pun) about broadband at all. More generally, I noted that, with all the other issues out there to consider, broadband policy just isn't that important to most folks in the larger scheme of things. As I told Kang, "Let's face it, when the average family of four is sitting around the dinner table, to the extent they talk about U.S. politics, broadband is not on the list of topics."

Praise the Lord and pass the ammunition.

So goes the FCC's stacked "706 Report" on broadband this week, which said that Americans aren't getting broadband in a "reasonable and timely basis," the first negative conclusion since the report's inception.

Using the standard developed in the National Broadband Plan (NBP) - which recommends "that every household in America have access to affordable broadband service offering actual download (i.e., to the customer) speeds of at least 4 Mbps and actual upload (i.e., from the customer) speeds of at least 1 Mbps" - the Commission determined that by this benchmark "broadband remains unavailable to approximately 14 to 24 million Americans." (Not that 14 - 24 million Americans don't have high-speed access, as has erroneously been reported.)

The FCC is building its war chest so that it can justify Lilliputian Internet regulation of network providers. Through a number of recent proceedings, statements and reports - e.g., the Open Internet NPRM, Cellular Competition Report, and "Third Way" NOI - the 706 Report traffics in the same meme: network providers just aren't doing their job, so they must be coerced or shamed into proper "compliance."

Not uncharacteristically, The Free Press heralded the new, rather dour (and now redundant) broadband assessment. Said the lugubrious, special interest lobbyists - "Now that the FCC has taken the first step of acknowledging America's broadband problem, we hope that it will advance policies to reverse this decline though the promotion of real competition and true consumer choice."

Just the other day, leaders from the House and Senate said they planned on updating the Communications Act. Maybe they've finally started listening to us - we proposed doing this back in 2005, with PFF's Digital Age Communications Act (DACA). Or, perhaps the FCC's so-called "Third Way" doesn't look like the "no-brainer" that the agency spun in its press releases. Well, whatever their intentions may be, it certainly couldn't arrive at a better time.

The framing is all important, of course. Art Brodsky of Public Knowledge (ostensibly one of the groups "writing" the next Act) says Americans shouldn't worry about the FCC's "Third Way." In his view - "The government is not taking over the Internet. What the government is doing is engaging in traditional consumer protection, traditional regulation of a telecommunications service that will get people to the Internet." PK seems happy with this model - whether done at the FCC, or at Congress' hands.

Hmmm...Getting people to the Internet? Traditional, simple stuff. Sort of like strolling to the store, or peddling to the park. Or, like in childhood, making a call from tin cans and string - which is what'll result if PK and their ilk have their way.

Just when it was starting to look like it was "All Broadband, All the Time" at the Federal Communications Commission, a ray of light burst through: an FCC investigation begun into fraudulent billings of the Telecommunications Relay Fund has resulted in indictments brought by the U.S. Department of Justice. Broadcasting & Cable reports that DOJ has charged twenty-six people for allegedly bilking the fund out of $60 million in bogus calls.

Last year at about this time, I wrote a short piece about the results of an FCC Office of the Inspector General semi-annual report on the FCC's administration of various universal support funds, including the TRS fund. All telephone consumers pay into the Telecommunications Relay Service (TRS) fund via assessments on their phone bills. In 2008, these TRS fees totaled about $540 million. The TRS fund has growth exponentially in recent years, largely on the basis of the manner in which it supports video relay services. The FCC's rules permit reimbursements for the video service that can totally hundreds of dollars per hour, so accurate billing of minutes of use are particularly important.

Among the many problems identified by the OIG internal reporting, cost standards and cost controls appear to have gone missing from the TRS Fund program.

The worked (sic) performed . . . found that TRS providers' processes for accumulating and reporting minutes of services provided and related costs were not always adequate. This resulted in some TRS providers being paid for unallowable minutes of service from the TRS Fund. The audit work also concluded that methodologies used by TRS providers for accumulating and reporting minutes of services provided and related costs were not uniform. The increased risk that unreasonable, unallowable, unnecessary and inaccurate costs were considered in the rate used to reimburse providers from the TRS fund. These risks could result in rapid cost growth and require higher funding rates. (emphasis added)

My translation of this finding was that the TRS rate base was "at risk" of containing unreasonable, unallowable, unnecessary and inaccurate costs due to irregular and inadequate controls. That is, waste, fraud and abuse may have added to the tremendous growth of the TRS Fund over the last ten years, but one couldn't be sure because recipient internal controls are lacking.

The OIG report had revealed that the seven providers who were the subject of the performance audits received 15 percent of TRS payments made between 2006 and 2007, and that an eighth failed to provide enough cost and billing information to allow completion of its audit. Thus, a small sub-set of providers may account for a large percentage of the cost increases and at least one of them was either uncooperative or incapable of supplying the requested information to the auditors.

Second, the OIG report singled out one specific form of TRS as likely to have been overpaid: video relay services. It appears that the current compensable hourly rate for VRS is $376.11 (out of a maximum of $404.17). Yet the median rate of pay for a VRS interpreter is only $17.79 per hour, leaving "approximately $385.32 or more of gross margin per reportable hour to cover the other costs associated with the provision of VRS telecommunication services. The other cost associated with VRS discussed in the OIG report is broadband service. Significantly, the report states that "the hourly margin, when compared with the costs of broadband services, suggests that the FCC needs to look much more closely into the allowable expenses and the capital costs that underlie the cost projections that VRS providers submit to the FCC in setting the rates that VRS providers receive per allowable minute of reported service." Wow! That is $385 or more of "gross margin" for a service whose hourly ASL interpreter rates are less than $18! That's quite a business to be in.

It was therefore especially heartening to read that the that the FCC had launched the investigation after receiving evidence of fraud. FCC Chief of Staff Edward Lazarus said the event was "both a tragedy and an opportunity." As a result, Lazarus said the FCC has increased scrutiny of records, resulting in withholding payment on some 2 million minutes worth of submitted calls, plans to put stricter controls on the program's administrator, and plans to undertake to a comprehensive review of the program.

This is a very encouraging development and it should be commended. My colleague Adam Thierer worries that the FCC is reconstituting itself as the "Federal Cloud Commission," and I share his concern. But news of the TRS fund investigation also indicates that behind the scenes, the really important work of the FCC -- the day-to-day carrying out of its explicitly delegated authorities under the Communications Act -- has not been sidelined by National Broadband Plan activity, and that repair of some of the FCC's broken processes is underway. That is real forward progress.

Barbara Esbin recently spoke at the Wireless U. Communications Policy Seminar on a panel on financing wireless broadband. Barbara's remarks specifically addressed the National Broadband Plan and the role of state governments.

In addition to presenting sensible suggestions for policymakers, including creating incentives to spur deployment and redirecting universal service funds, Barbara offered a bit of perspective on the issue of broadband deployment:

As important access to broadband Internet service is, if the choice comes down to clean water, Medicaid benefits, or bandwidth, I submit that limited government financial resources might be best directed first to clean water and health care.

This is particularly true of state or local efforts to finance a second, third or fourth provider of high speed Internet service, or to go into the bandwidth business itself. Government spending on broadband infrastructure should be directed primarily to those areas where market forces are unlikely, due to high costs and low prospect for returns, to extend network infrastructure without government assistance.

Her prepared remarks can be found here.

Recently, Ken Ferree and I filed comments with both the NTIA and FCC regarding broadband spending priorities under the American Recovery and Reinvestment Act of 2009 (the Recovery Act). Our overall message was that funds utilized to stimulate broadband deployment should catalyze, rather than replace or deter, private investment in infrastructure. Above all, we suggested that funding should be used to extend service to "unserved" or markedly "underserved" areas and to enable greater adoption of broadband where it is available, but underutilized, rather than supporting a second or third entrant in a market. "Only by carefully targeted funding of sustainable projects that bring the most 'bits per buck per job created' will NTIA and RUS fulfill their mission to aid in the revitalization of the U.S. economy while making progress toward the ultimate goal of enabling broadband access for all."

Our recommended caution in defining what is an "underserved" area was based in large part on the poor track record of the U.S. Department of Agriculture's Rural Utilities Service in administering a far-smaller broadband extension program. Indeed, the USDA Inspector General found that 42% of communities receiving funding under the RUS program were already served by competing providers. We wrote:

For purposes of BTOP, the Recovery Act requires NTIA to consult with the FCC on defining the terms "unserved area," "underserved area," and "broadband." Getting these definitions right will be critical to the success of the broadband stimulus program. Unfortunately, history suggests that the process of awarding broadband development grants and loans based on these categories is fraught with uncertainty, inconsistency, and may involve the occasional misallocation of funds. Indeed, the USDA Inspector General found only a few years ago, the [Department's RUS] broadband expansion program, which mirrors in some respects the broadband stimulus provisions in the Recovery Act, has had serious implementation anomalies. Most importantly, because essential terms such as "unserved area" and "underserved area" were not defined by statute, and funding prioritization decisions within and among eligible areas are largely a matter of discretion, the USDA IG found that RUS loans were made to "affluent suburban communities while other more rural communities remained underserved. . . . " Using RUS funds to support overbuilding, the IG noted, raised three troubling questions: 1) "[c]an the sparsely populated rural areas for which these loans are intended reasonably support multiple broadband service providers," or are the loans being made to systems that are doomed to fail? 2) "What is the government's responsibility if, due to subsidized competition, a preexisting, unsubsidized broadband provider goes out of business?" And 3) as an equitable matter, "why should the government subsidize some providers in a given market and not others?"

I wrote recently about the dangers lurking in the House version of the "broadband Stimulus" bill. Critically, the House bill fails to define essential terms in the proposed grant program, leaving award decisions largely to the discretion of the administrating agency; by "discretion" I mean political whim.

The Senate version of the bill does little better. The Senate, it appears, would like the administrating agency to consult with state officials in determining those areas that are eligible to receive funding under the program, thus adding yet another layer of potential political horse trading.

Odder still, the Senate version would limit eligibility to receive broadband stimulus funds to state and local governments, non-profits, and public-private partnerships. Huh? Is this about pushing broadband to rural, underserved communities, or is it about bailing out bankrupt, mismanaged states? If the former, the eligibility restrictions in the bill necessarily undermine the potential success of the program. A person who has fallen overboard cares not who responds, so long as someone gets a life-preserver to them quickly. Why would the ship's captain order in advance that only certain crew members may assist drowning passengers?

To maximize the practical impact of broadband stimulus, the program should be technologically-neutral and applicant-agnostic. That is, decisions should be made based on who can best and fastest deliver high-speed services to those in need, not based on arbitrary criteria reflecting only the subjective preferences of the Senate.

I'll be the first to concede that large spending bills inevitably entail some level of waste. The current proposed Stimulus Bill is no exception; to point that out would be unworthy of much ink. At some point, however, one would expect that Congress would pause before plowing several billion dollars into a program modeled on one that already is failing badly. Yet this is precisely what is promised by the broadband section of the current bill.

As it is written, the Stimulus Bill creates a system for broadband expansion modeled largely on the Department of Agriculture's Rural Utilities Service ("RUS ") program. The RUS, program, however, has utterly failed to increase broadband outreach in areas that lack broadband access - and not for lack of funding. To the contrary, as the USDA Inspector General reported a few years ago, the RUS broadband program has been badly structured and managed from the outset.

The Stimulus Bill passed by the House of Representatives gives every sign that Congress has not learned from the mistakes of the past. The Stimulus Bill, for example, like the RUS program before it, does not define essential terms such as "unserved area" or "underserved area." Nor does it therefore detail how funding prioritization decisions are to be made regarding grant applications within and among eligible areas.

This very same shortcoming caused the RUS program to go astray. As the USDA IG explained, the lack of definitional precision in the RUS program was used "to justify funding loans to affluent suburban communities while other more rural communities remained underserved." Indeed, the IG went on to find that 42% of communities receiving funding under the RUS program already were served by competing providers.

Such funding, the IG, wrote, raised three troubling questions: 1) "[c]an the sparsely populated rural areas for which these loans are intended reasonably support multiple broadband service providers," or are the loans being made to systems that are doomed to fail? 2) "What is the government's responsibility if, due to subsidized competition, a preexisting, unsubsidized broadband provider goes out of business?" And 3) as an equitable matter, "why should the government subsidize some providers in a given market and not others?"

All good questions indeed, and questions that might just as easily be asked of the drafters of the Stimulus Bill if the proposed new grants are used to support infrastructure development in affluent non-urban communities, or even in undeveloped areas nearby urban centers, rather than broadband buildout in the less-affluent, rural areas that the program purportedly is intended to aid.

Whatever we may think of the underlying rationale for rural broadband grants - or Keynesian stimulus as a general economic theory for that matter - can we not all at least agree that Congress should ensure that funds devoted to support rural broadband buildout in fact are spent to benefit actual rural communities?

The Entertainment Consumers Association (ECA) is a group that does some good things to mobilize gamers to fight misguided regulation of video games. I greatly appreciate their tireless efforts to fight stereotypes and myths about games and gamers, and to specifically counter the hysteria about video games that we sometimes see in the press, and definitely see in political circles on a regular basis. They're a great ally in the fight for freedom of speech and artistic expression in this field.

That's why I was so sorry to see the ECA launch a new campaign that encourages gamers to petition their congressional leaders and encourage them to regulate the high-tech economy more and waste more taxpayer dollars on inefficient universal service programs and subsidies:

Net Neutrality and Universal Broadband are not only great for America; they allow us to play the games we want at high speeds! ... ECA believes that Universal Broadband and Net Neutrality are vital for the development of the national infrastructure, and believes that this bill is an important opportunity to let Congress know that you agree.

Sorry, but someone at the ECA will have to tell me how Net neutrality regulation will make my online Madden and Tiger Woods Golf experience move faster. If anything, such regulations would slow things down by making it more difficult for carriers and gaming networks to create more effective bandwidth management schemes and pricing plans such that my video game bits can get through faster. Is that called "discrimination"? You better believe it, and it's a great thing. Go ask Microsoft why they signed up Limelight Networks a couple of years ago to help them make the Xbox Live experience more tolerable. Empowering regulators to micromanage this process, by contrast, is just going to quash innovative approaches to the problem and invite more regulation of high-tech markets in general. That won't help gamers in the long run.

Regarding the call for universal service subsidies... I suppose I could see the ECA's logic if those schemes actually worked. But we have 70 years of experience with these pork subsidy programs and they have proven to be an abysmal failure. They are prone to extreme waste, fraud, and abuse and, worse yet, those inefficient subsidies have discouraged competition in rural areas. You're not going to get more entry in the broadband business by subsidizing favored local operators all day long. And subsidizing risky new ventures isn't much better since it just lets bureaucrats roll the dice with our tax dollars. Bad idea.

Finally, there's a more important principle matter at stake here: If you want to hold the line on future government attempts to regulate video games, it's generally not a good idea to come to Congress asking for favors in the form of new regulation or spending. With one hand government giveth; with the other they (eventually) take away.

Some sensible thinking here about broadband pork stimulus plans from Saul Hansell of the New York Times. In his piece on the NYT Bits blog this week, "Does Broadband Need a Stimulus?" he argues that people should stop grumbling about the "relatively small sum" of $6 billion that the new administration has proposed for wiring rural areas and urban centers. Hansell argues:

This also seems to be a rather sound policy choice because, as I look at it, the noise about a broadband gap is hooey. With new cable modem technology becoming available, 19 out of 20 American homes eventually will be able to have Internet service that is faster than any available now anywhere in the world. And that's without one new cable being laid.

That fact hasn't prevented a lot of folks involved in telecommunications policy from calling for a lot of money to be spent on backhoes and cable riggers. For example, the Communications Workers of America and the Telecommunications Industry Association called for $25 billion in subsidies to network providers as well as tax breaks. The Free Press, a group that advocates for media diversity, recommended spending $44 billion, with an emphasis on subsidizing companies to compete with existing cable and phone companies.

Running a new fiber-optic cable to every American home may well increase competition in broadband providers, but it isn't needed to deliver high-speed Internet service. Current cable modems use just one of the more than 100 channels on a typical cable system and can often offer speeds of 16 megabits per second or more. The next generation of modems, using a technology called Docsis 3, allows several of those video channels to be combined to offer what ultimately can be Internet service as fast as 1 gigabit per second -- 10 times faster than is offered in Japan, which generally is regarded as having the fastest broadband infrastructure.

What is most significant about Docsis 3 is that it turns out to be quite inexpensive to upgrade existing cable systems to use it. As a result, Comcast and other cable systems are already deploying the technology rather quickly. In other words, with no government intervention, the country is going to have the infrastructure very soon to provide almost everyone with the fastest possible Internet service.

To be sure, Verizon and, to a much lesser degree, AT&T, are already building out fiber-optic-based networks that compete with the cable companies in broadband, voice and video. Clearwire, a venture that includes Sprint, is building a wireless broadband network.

Certainly, competition often lowers prices and increases choices. But it is hardly clear that the country would get an adequate return from subsidizing what is essentially duplicate capacity.

Amen to all that. Plus, Hansell might have cited the 70 years of experience we have with universal service programs, which have proven to be the very model of waste, fraud, and abuse that many tax-and-spenders claim they now wish to avoid. Moreover, those ineffecient subsidies have discouraged competition in rural areas. If we only subsidized McDonalds in rural area, do you think Burger King, Taco Bell or any other fast-food chain would have ever come to town? But that's basically the way this racket has worked in the telecom world for years.