FCC Colgan Story

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FCC Chairman Tom Wheeler wants to improve Wi-Fi in schools, but the move would likely raise your cell phone bill. Why? And are you cool with that?

First the "why." 

Years ago, the US Congress created the Federal Universal Service Agency to promote communications access to under-served areas, particularly poor and rural school districts. The agency was expected to meet a need that the private market ignored because those affected by the problem couldn't afford to pay private-market rates.

The way it works?

The FUSA administers a federal fund called the federal universal service fund. The FCC mandates that all telecommunications carriers contribute to it quarterly at a contribution rate set by the FUSA. The rate goes up and down based on (1) the balance of the fund and (2) the budget demands of ongoing and proposed communications access projects. To decide how big of a check to write to FUSA, carriers apply the contribution rate to their previous quarter's sum ticket revenue, or roughly the total of all of their customers' bills. It's effectively a tax that carriers must pay.

But consumers pay the bill. Although carriers—not consumers—are required to pay the bill, carriers are free to decide whether to pass the bill on to their customers. Carriers invariably pass this bill on. So as FUSA adjusts what carriers must pay, consumers end up paying more or less.

Now the "Are you cool with that?"

You might have strong convictions—for or against—on the government's role in ensuring general equality of opportunity (whatever that means). Or you might be more neutral.

But even so, we might find more consensus on the specific topic of equality of education. The average person is probably more passionate about protecting and equipping children than about ensuring equality of opportunity in general, because human nature is to protect our young.

Insofar as this were the case, we might agree that improving internet access in under-served schools is a public good, something definitely worth doing. Then the waiter brings the check, and we're suddenly confronted with the question of who should pay for this public good, this progress toward equality of education. Goodbye, consensus. The number one point of contention in marriage breakups is money, and the same is probably true in politics (and cell phone bills, as I've learned since founding CellBreaker.com).

This is the classic positive externality problem:
  1. We agree that something is a public good, that it's worth doing or, at least, something we would benefit from. It could be education, or it could be a public park.
  2. We consider how the benefits would be distributed.
  3. We compare that with how the costs would be distributed.
  4. Then we decide that the private market should not be in the business of producing public goods.
  5. Why? Because the costs of producing the public good would be fully paid by the public good creator, while the benefits would be shared by all users of the public good.
This is why governments are in the business of producing public goods, and the private market is not.

So funding better Wi-Fi in schools under this proposal would likely cost you more money. How much? Wheeler expects that FUSA would have to spend an extra $1.5 billion every year to improve the target schools. Wheeler estimates this would raise every consumer's cell phone bill $1.90 per year.

Are you cool with that?