Can a free market solve the digital divide?

Sep 12, 2017

Ajit Pai is the new chairman of the Federal Communications Commission under President Donald Trump. And he's made it a priority to increase the availability of broadband internet access across America. In 2016, an FCC report found that 39 percent of rural America doesn't have access to Internet at speeds that count as broadband.

But the regulations that telecom companies say are preventing them from investing in broadband infrastructure are the ones that also ensure net neutrality. Critics say the trade-off isn't worth it.

Marketplace Tech host Molly Wood spoke to Pai recently at his office in Washington, D.C. He said he wants to use federal subsidies and slash regulations to try to encourage broadband providers to expand their infrastructure. The following is an edited excerpt from their conversation.

Wood: Is it enough to remove barriers and offer tax incentives? Will that get companies to deploy broadband in places where it's not profitable? 

Pai: It's admittedly not easy, and I've seen it for myself. But nonetheless I think it's incumbent upon federal officials, especially here at the FCC, to do everything they can to address the divide. There may be some folks who we just aren't able to reach, but, by God we're going to do our best to reach them nonetheless.

Related Ajit Pai on Congress's role in the net neutrality debate The Source Code: Ajit Pai

Wood: You've talked a lot about the light touch regulatory approach. What happens though if you encounter — I'm thinking of digital redlining or companies who are not building out promised investments like Verizon in New York City — will the touch get any heavier?

Pai: There are two different aspects to the answer to that. No. 1 is that I have focused on digital redlining as an issue —

Wood: We should define what digital redlining is.

Pai: Digital redlining is the notion that within a certain geographic area, a company might have a business case for building out in areas A, B and C. But in area D they simply say, "We're not going to deploy there because we don't see the return on the investment," or for whatever reason. So from a regulatory perspective, we want to make sure that there are no rules standing in the way of them doing that.

Secondly, to the extent that we offer companies federal subsidies for building out in unserved areas, we want to make sure that there is accountability. We have reporting requirements along the way, so that if we give a company a certain amount of money, they have to tell us within a certain period of time what they're doing with that money. We also have accountability benchmarks. So, for example, with respect to fixed broadband, the wires that go into your home, so to speak, we said by the end of 2017, you have to build out to 40 percent in every area. By the end of 2018, 20 percent additional. So that by the time this entire program is done over the next four years, we want to make sure that every possible area is built out within that geographic area. Because otherwise, as you pointed, out we're simply accentuating the divide instead of solving it.

Wood: Right. So it sounds like it's all carrot though. Is there any stick in the toolbox?

Pai: Absolutely. I mean, we can't punish companies to the extent that they don't build out and they don't have federal obligations. But what we do try to do is encourage them as strongly as we can. If they're violating FCC rules, certainly we will go after them for doing that. And in the meantime we're going to try to keep encouraging competition as best we can. Some of these smaller providers too, they're really providing an impetus in the marketplace. A couple of months ago, we approved for the first time a satellite company's application. They want to deploy 720 satellites in low-earth orbit. And they think that would be a really substantial competitor to terrestrial.

Wood: Yeah, that was kind of my next question, as to what extent are you focused on competition? Because I know you've really tried to accelerate rollout, but maybe removed some of the requirements that there be overlap.

Pai: So from my perspective, we're technologically neutral. I could not care less which company it is that wants to deploy. We want all of them to bring their animal spirits, as the economic saying goes, to bear.

Wood: What have been the barriers? Because I think everybody feels like competition is not where it needs to be. It's like, what is it really going to take?

Pai: It's a great frustration, and part of the problem is that we have a very diverse, geographically diverse country. We have some areas which are very sparsely populated. We have other areas which are lower income. We have some which are both, which is extremely challenging. And so to adapt the technologies to those different areas is really difficult. And a lot of cases also, you have overlapping jurisdictions, so you have federal, state and local requirements. I've heard from one startup, for example, that was looking to lay fiber in Detroit that they had to get access to the utility poles, which they found were owned by the city of Detroit. But the federal government didn't have jurisdiction to urge the city of Detroit to give them access on reasonable terms within a reasonable time frame and at a reasonable price. That was a major barrier for them getting into the business. Rural areas too, sometimes, if you're deploying, you might have to cross different land that is held by different owners. Some land might be privately held. Some land, especially out in the West, is federally held. Some 80 percent of land in, I believe, in Nevada and Utah is federally held. And so you have to get permits from the relevant federal agency. How do you know which federal agency holds it? How do you know which person within that agency is authorized to give approval to deploy infrastructure? How do you know that within a reasonable time frame you're going to get approval, because there's no self-imposed deadline? So these are some of the things that we're grappling with, and trying to streamline it. 

Wood: To that question of competition — there are also powerful incumbents with a tendency toward consolidation. And it sounds like more of that consolidation could be in our future. What kind of barriers does that put up?

Pai: I think it imposes barriers that we want to address by encouraging more competitive entry. And so that's why, for example, if you're a satellite company, and you can deploy a nationwide solution using these hundreds of satellites in low-earth orbit, that's an immediate injection of competition in the marketplace. So I think the barriers to entry hopefully will become lower in the time to come. We're certainly trying to do that as best we can and to make sure that no incumbent is able to sit on his or her laurels and simply not try to innovate for the benefit of competition and consumers.

Wood: I feel like there are some on the internet who are worried that you're not the guy, that you would look out for those incumbents maybe more than the low-earth orbit satellite people. Can you tell us now that you're not that guy?

Pai: Well look, I grew up in a small town in rural Kansas on a dirt road outside of a town called Parsons. So I was keenly aware of what it was like to be on the wrong side of the digital divide. And even now when I talk to my parents — I have them FaceTime with my kids — if the connection goes bad, I know it's going to be on my parents side because they don't have the same connectivity. And so that's why I've made it a personal mission to close the digital divide. Precisely because in some cases, these are populations that might not be profitable for the biggest competitors to serve. These are populations that may be just technically or geographically difficult to serve. But nonetheless, they are Americans, too. Every American, I believe, deserves what I call digital opportunity, and it would be very easy to simply regulate from afar and make big pronouncements. We're actually trying to solve these problems, very complex problems, with solutions that are tailored to the task.

Wood: You're my third FCC chairman interview and probably the only one that everybody knows by name. Like you said it is arcane. Nobody totally understands all the rules. And yet your wonky little agency is really getting a ton of attention right now. Not all positive.

Pai: Right.

Wood: What do you think that's about?

Pai: I think it's because technology plays such an important role in American life and I've seen it for myself when I travel around. I try to get out of Washington whenever I can, and in places like Wardensville, West Virginia, they understand the importance of broadband. That reservation in Mission, South Dakota, they understand the importance of broadband. I heard the story of a woman who was found dead clutching her cell phone. She'd tried dialing 911 38 times but her call never went through because they didn't have wireless coverage. And they know that the FCC is singularly positioned as the agency that can solve that.

I've met with low-income Hispanic parents in Los Angeles who told me that for our kids to be able to do their homework they need to have connectivity in school and at home. So I think obviously the FCC can in some ways fall into that alphabet soup in which a lot of these federal agencies are clustered. But I think one of the reasons why we stand out is that we have a really important mission and our mission can dramatically change the lives of the American people.