The right mobile broadband infrastructure could deliver big productivity gains to U.S. farmers as the internet of things lets them analyze data about crops, weather, and soil conditions more effectively. But recent policy initiatives, including a rulemaking proposed by the Federal Communications Commission (FCC 18-42) threaten to quash these gains before they can take root.
The FCC rulemaking would effectively eliminate a federal fund for rural telecommunications carriers whose networks use equipment made by Chinese companies. (Full disclosure: I oversee U.S. regulatory matters for one such Chinese equipment maker, Huawei.) The fund, called Universal Service Fund, is meant to ensure that, “all Americans should have access to communications services.”
Although the rulemaking goes under the pretext of protecting U.S. national security, there is in fact no evidence that our equipment poses any threat, or that U.S. networks would be made safer by banning it. Indeed, many small U.S. carriers cannot afford the comparatively expensive equipment sold by US vendors and rely heavily on equipment such as ours to keep their networks running and their customers – rural schools, hospitals, libraries, and households – connected.
Two million American families earn a living from farming. The U.S. Department of Agriculture predicts that American farm income will fall 6.7% this year to $59.5 billion. That’s a 12-year low and is less than half the income generated in 2013. Clearly, American agriculture needs the productivity boost provided by modern communications networks.
For example, narrowband Internet of Things (NB-IoT) is a low-cost, low-power data connection technology. A sensor worn by a cow sends fertility data to farmers. Early trials suggest farmers can use this data to increase milk yields by up to 50%, or $400 per year, per cow. The U.S. is home to 10 million dairy cows, so the FCC proposal could deprive rural America of up to $4 billion per year. And dairy farming represents just two percent of the total US agricultural industry.
Reap what you sow: building rural networks
Sparsely inhabited rural states like Wyoming, Idaho, and Utah need digital communications infrastructure to connect cows, fields, and farm equipment in a way that lifts productivity. But rural states are generally unprofitable for telecom operators. As a result, city dwellers get fast internet speeds while rural America misses out.
Fortunately, hundreds of small local telecoms have stepped in to provide service. Businesses like Mobile Nation in Kentucky and Tennessee, and Viaero Wireless in Colorado and Kansas, provide a lifeline – but one with a precarious business model. This challenge is what led the FCC to create the universal service fund (USF), which subsidizes the cost of telecommunications equipment for America’s small rural operators.
Telecoms equipment in the U.S. market today costs 20% to 30% more than in regions such as Western Europe because there is little competition. Despite the premium paid by American consumers, U.S. broadband speeds lag those in many other countries. Speedtest, a broadband application, found average mobile speeds in the U.S. are slower than 43 countries around the world.
At the same time, broadband subscriptions in the U.S. are among the world’s most expensive: Americans pay $66.17 a month, twice the rate paid by consumers in Western Europe.
Allan L. Shampine, a senior economist with Compas Lexecon, an economic consulting firm, estimates that keeping Chinese vendors from competing in the US telecommunications market will add $20 billion worth of costs to the US economy between 2017 and 2020. These additional costs will almost certainly increase the market need for subsidies.
The FCC proposal would also mean that rural carriers that had previously relied on equipment from Chinese manufacturers would suddenly face punishingly high costs that none of them need and many would be unable to bear.
Steve K. Berry, president and CEO of the Competitive Carriers Association (CCA), a trade association representing US regional carriers, says of the FCC proposal, “The services provided by the targeted companies are almost always less expensive and can be more reliable than their market competitors.”
We share the FCC’s goal of defending the integrity of U.S. networks. But the Commission’s proposal does nothing to promote national security while imposing a heavy cost burden on small American businesses that provide vital connectivity in an underserved part of America. The proposed FCC rule should be withdrawn.
