Ask Me Anything! with Carol Mattey, Former Deputy Chief of the FCC's Wireline Bureau

Drew Clark: Good afternoon. Welcome to the Broadband Community's Ask Me Anything. I'm Drew Clark, and I am here with Carol Mattey, and we're gonna talk about Universal Service today. Carol is one of the foremost experts on Universal Service in the United States. If you haven't checked it out, see the brief profile I had the chance to do of Carol in the community recapping high points of her career. The kind of, the quick bottom line is that she, as is now the founding member and principal of Maddie Consulting, a DC-based firm that advises broadband providers and others in telecom policy with a particular focus on government funding programs. But before that, and probably the most notable claim to fame is that she was the deputy chief of the Federal Communications Commission's Wireline Competition Bureau from 2010 to early 2017 and led a lot of initiatives to reform and revamp the Universal Service Programs to focus more on broadband. Carol, welcome and thank you for being with us here.

Carol Mattey: It's great to be here, thanks for asking me.

Drew: So Carol, let's just I review in super brief summary your career from being a lawyer to entering government service for, as it turns out, the National Telecommunications and Information Administration, 1989 till about 1994, I believe. And that was around the time lots and lots of things were going on. The Cable Act had been passed. There was rumblings and preparations for the Telecom Act of 1996. And you joined the FCC right at the time that kind of things were hitting the fan. And of course, the person who brought you there was Blair Levin, who was our guest in the Ask Many Things series just two weeks ago or so. So just talk a little bit about that early career in government. Did you like know you wanted to be in government? And so the telecom thing just found you or did you kind of seek that particular area out a little more specifically?

Carol: It's funny you ask that. First of all, I never intended to be a lawyer in the first place. I was actually interested in government. That was what I was looking forward to. I ended up going to law school and then started at a law firm. And it was actually at the law firm that after a period of time, they asked me to join the communications group. And like they say, the rest is history. But I was at the law firm. I never intended to stay at the law firm. My goal was always to get into government. And I was fortunate enough to be able to get a job at NTIA working with people that I knew and then was there as things were really heating up, with sort of the development of policies about what we now call the Internet. And then, NTI at the time was working on developing the administration's position on legislation that ultimately was passed in '96, the Telcom Act of 96. And as you said, I moved over to the FCC in 94, expecting that once the Telcom Act eventually, became law, that was gonna be, the FCC was gonna have a ton of interesting work to do. And that's what I did.

Drew: Now. Those who are not from the United States kind of always wonder, well, wait, who's in charge of telecommunications in the United States? Is it this agency? You answer, please.

Carol: Technically... Yeah. NTIA is the executive branch agency that advises the administration on telecommunications and information policy. The FCC is an independent regulatory agency. So it's not directly under the executive branch. So as part of the executive branch, one of the things NTI does on any major telecom policy, it basically solicits input from other governmental agencies. It could be Department of State, Homeland Security, Justice, whatever. And actually one of the things that I didn't even mention to you when we talked earlier, I worked on a big privacy initiative. When I was at NTIA and we were trying to think about how privacy policy should develop across the entire, federal government. And, as getting into telecom... When I was at NTIA, I did media, I did spectrum, I did telecom. And then when I went to the FCC, that's when I really dug deep into telecom in particular.

Drew: All right. So the question was, who's in charge of telecom? And I think the answer I got is NTIA.

Carol: NTIA. It's NTIA. Yes.

Drew: But is that past the smell test? I mean, FCC is kind of where so much... Normally, normally. Like I grant you that the BEAD has changed the dynamics, but before BEAD, wasn't FCC the real game in town?

Carol: Yes, I will completely agree with that. The FCC is the regulator. So the FCC is the entity that develops rules that telecom firms have to comply with. The FCC is the one that, implements a variety of laws that Congress passes. I think the way to maybe describe it is, from an org chart, NTIA is over here, and it's in an advisory role, like NTIA will send comments or letters to the FCC, suggesting that the FCC do something, but at the end of the day, the FCC can do it or not. And I'll use an example, NTIA has weighed in on the, pending proposal at the FCC to change the definition of broadband. NTIA is saying, we think you should do this. But at the end of the day, it's the five commissioners at the FCC that are gonna decide what the definition of broadband is for the FCC's purposes. It's hard to say who's in charge. I mean, the FCC has a huge impact on the ecosystem. No doubt of it.

Drew: Well, and we're not even particularly focused on spectrum policy, which kind of presents new wrinkles of its own because NTIA is in charge of that federal use of spectrum, but FCC. But we will talk about spectrum in a way because of auctions, right? But I'm getting ahead of myself. So let's go back to 1994 and moving over to the FCC. And ironically, that is one year after the passage of the Balanced Budget Act of 1993, which, of course, gave the FCC the authority, to auction off spectrum, creating a very interesting dynamic that we'll talk more and more about today about spectrum auctions. But again, let's go back to you and your career. So your first round at the FCC, you kind of got into the universal service weeds...

Carol: Not immediately. Not immediately.

Drew: Not immediately. Okay, so tell me about that.

Carol: No, no, no, I spent... Yeah, I started in '94. The '96 Act passed and I was the Deputy Division Chief and then the Division Chief of the division that was implementing the local competition provisions of the Act. And so I worked on, I worked on local number portability. I worked on the remand of the unbundling rules. And most importantly, I spent three years of my life working on bell entry into long distance. The old 271 process, which you have to be of a certain age to even remember that. I joked, I spent three years of my life figuring out how to let the local telephone companies into the long distance business. And then they all bought each other and it all became moot. But in any event, so I didn't actually start universal service until 2000. And then I became deputy bureau chief of the, what now is known as the Wireline bureau. And that's when I joke, I got the first Bell Company Verizon into long distance and my reward is they gave me universal service.

Drew: The gift that keeps on giving, right? All right. So, local number portability, a highlight, you told me. But this was the first stint and you kind of ended up in universal service. So, why'd you leave? What was it that prompted you when Deloitte came and said, hey, come lead our telecom practice.

Carol: Well, I had been at the FCC about 10 years, and I was getting restless. I'm a little burned out. I wanted to do something different, and so it just sort of was at a moment when I was sort of receptive to the idea of going on and doing something different.

Drew: All right. Well, what did you learn from that something different that helped you when you ended up going right back there?

Carol: Well, I was at Deloitte for four years doing consulting and I learned a lot. I learned, I had been thinking before I left the FCC that, FCC was sort of the center of the world and regulation was really important. And I learned in the private sector, that's not how businesses think about regulation. I learned about how hard it is for businesses to comply with ambiguous regulations. I mean, there were situations where people would ask me what to do about a particular regulation, and I would read the regulation, like even things that I had worked on and like were done under my watch. And I'd read it, and then I'd say to myself, I don't know.

Drew: We missed this one. [laughter]

Carol: How do you do that? And so I got a much, much deeper appreciation for what it means to operationalize regulation and what... How companies actually think about regulation and compliance and how difficult it can be in certain circumstances. And, I learned a lot about what, how companies gather information, how they store information, things that we just always thought, oh, yeah, of course, they can just push a button and blah, out spit some little piece of information. I learned how in the real world that's more difficult. And I, it was it was an interesting experience. I'm glad I did it. Very much glad I did it. But in my heart, I was always a government policy wonk. Like, that's my first love. So I went back.

Drew: All right. So you went back. So Barack Obama and Joe Biden are elected in 2008. And you got a call from Blair Levin. Tell us about that call and tell us about what that meant for the Universal Service Fund work you would do for another, eight or more years.

Carol: Sure. So after the election, I reached out to several people I knew on the transition team. Blair was one of them. And I reached out to a couple other people saying, I'm really interested in coming back to the FCC. And then, a couple months went by, they hadn't actually, put the new chair of the FCC, Jenna Kowski, hadn't been confirmed yet, but at a certain point in time. Blair called me up and said, how soon can you get here? And it was the quickest hiring process I've ever been through in my life. Literally, it like it was two weeks. And because normally, when you go into government, it takes months and months to go through all the paperwork. But Blair basically was putting together a team with a lot of outside people. I was I guess you would call me a boomerang or whatever, coming back, but Blair pulled in people from a variety of different sectors and consulting firms and other interesting jobs that that team sort of came in as a special project and we were all there on a one year appointment to come up with the national broadband plan, which was mandated, which law was, the law that passed in 2008.

Drew: Yeah. The Recovery Act, The American Recovery and Reinvestment Act.

Carol: The Recovery Act, I remember the name of it. And it was really liberating because it was the first time we kind of had a permission to think outside of the box and think about if you were drawing on a clean slate, how should things be set up? Because when you go into government, there's so many policies and regulations and they've been there forever. And it's sort of, you're making incremental changes. And this was really like an opportunity to take a step back and think, well, if you were doing this all over, how would you structure things? What makes sense? What doesn't make sense? What should you do differently? And so, it was really fun to have the ability to think of more transformational changes.

Drew: Well, that's a perfect segue to our core topic of today, the Universal Service Fund. And so I want to, let's describe it kind of past, like pre-national broadband plan, and then like present in the sense of what did the national broadband plan specifically do? And then future, meaning what you ended up doing as a result of that. And so I'll start us off by just saying, my understanding is there's these four buckets of money, the high cost fund, the E-rate fund for schools and libraries, the Lifeline program, which of course was phones, but now is phones and broadband, more like a kind of a voucher, if you will. We can debate that or whether that's a fair characterization. And then the rural health care fund. Those four were the buckets that constitute the Universal Service Fund in this time period. So what did the broadband plan do about that and say to those points?

Carol: Well, the focus of my work was on the high cost program. And I wrote the chapter on deployment in the National Broadband Plan, whichever chapter that was. And, historically, the high cost program. Like historically going way back in time, it had been accomplished through sort of inter-carrier compensation payments between the long distance companies and the local telcos. And certain measures had been done, around the '96 Act to make certain things more explicit, make the subsidies more explicit. The FCC developed the very first cost model that was used to determine the amount of money that would go to the big telcos. Well, the small telcos stayed on a traditional system where basically they got compensated based on their actual expenditures. It's called rate of return. But it was all about voice service. And think of it as just like buckets of money going out the door. The company's obligation was to provide voice service. And meanwhile, the world was changing. And over time, companies were upgrading, particularly the small telcos were starting to upgrade their networks. So that, putting in more fiber, shortening loop lengths and so forth to be able to provide DSL, whatever.

Carol: To provide internet access, I'd say the big companies less so. But so the main point of what we proposed in the plan was that you need to reform this whole system. You need to make an accountable, you need to have specific performance obligations. You should be supporting broadband. In other words, there should be a broadband performance obligation. We shouldn't keep giving these companies money. And all we expect them to do is voice service. We should expect them to, offer broadband services and there should be accountability and reporting. And those big picture were the recommendations. And we recommended that this go through a multistage process and create Connect America Fund. And and one of the recommendations of the broadband plan was that the FCC should consider using auctions to award funding. And so big picture, that was what was addressed in that part of the plan. I mean, there were other recommendations about the other programs like E-rate, things to do to make E-rate more focused on broadband, things to do to make Lifeline, more focused on broadband. But I spent the bulk of my time working on the high-cost recommendations.

Drew: All right. You use the A word, auctions. So auctions. Now, I think it's helpful just as an analytical tool to highlight the difference between an auction and a reverse auction. Okay. So I'm gonna take 30 seconds on this. An auction is when a bidder is trying to get a lot of other people to pay the most money for a given thing. And so the goal of an auction is to get the most money or I should say raise the money by raising the price as high as you possibly can. So in a spectrum auction, the FCC has this thing, this good, and they're trying to get all these other people out there to pay as much as possible, to bid up the price and give the government more money. A reverse auction, by contrast. Is when the buyer has something they want. Namely, the federal government is the buyer. They want broadband deployed. And so there's a bunch of little sellers out there, and they're gonna be bidding, but they're bidding the price down. That is to say, how low will they go.

Carol: Can I interrupt, I actually think of it backwards. You say the government is the buyer. I almost think of the bidders as the buyers.

Drew: Why? Why do you think the bidders are the buyers?

Carol: The government is selling a revenue stream. The buyers want to buy the revenue stream. And the government's goal is to make the revenue stream as low as possible. Whereas, obviously, the buyer wants the revenue stream to be as big as possible. I mean, maybe it's semantics. It doesn't matter. I didn't mean to interrupt.

Drew: Well, I just, it is called a reverse auction. And I just think that it's sometimes useful to say this, but...

Carol: You're absolutely right. The point of a reverse auction is price goes down.

Drew: So, auctions, I have not heard many criticisms of spectrum auctions. I've heard a lot of criticisms the fact that the FCC doesn't have the authority right now to auction spectrum because of a dispute with the Department of Defense. But most people, Larry Levin, who's on this discussion, I mean, you know, a lot of people extol, and me too, extol the virtues of spectrum auctions because it's an efficient way to allocate resources. Now, you're saying that the National Broadband Plan brought this concept of auction to this high cost universal service fund. So, talk a little bit about that. Where did that idea come from? And is it a good idea in concept, Carol?

Carol: Well, I will say the Broadband Plan was not the very, very first place that that idea was raised. I think there were academic papers from various entities prior to the Broadband Plan. I think of it as economists view auctions as a tool to allocate a scarce resource. And I recall that there had been several economic papers proposing to use auctions. And I believe, if I remember correctly, that it might have been done on a very limited scale in a small number of countries, never in the US, but it had been done abroad in limited circumstances. So it wasn't like I'm not taking credit for making up the idea. We worked on proposing and amplifying the idea. So it really stemmed, the idea emanates from the notion of what's the best way to allocate a scarce resource. And the notion of an auction is rather than assuming you know what the price is, you want bidders to reveal the price that they're willing to accept. So in a reverse auction, you know, the theory is the bidder will, you know, the price is going down in each round. And if the bidder is willing to accept the obligation in exchange for that price, they'll stay in the bidding. And if the price gets too low, they drop out.

Carol: Now, that's how it's all supposed to work In theory, we can get into sort of some of the difficulties in reality of sort of what happens. I mean, one thing that happens in auctions in both directions, both just ordinary auctions sometimes...

Drew: And reverse actions.

Carol: We get carried away with bidding, you know, like if you're, you know, you go to your local elementary school charity auction, and you start bidding on something and you find out you've bid like $300 on something that's worth $50. It's like you get carried away in excitement of the moment, I think the same phenomena goes on in USF auctions as well. Once people start bidding, they kind of get mentally invested in they wanna win. And the price may get lower and economic rationality would say, you should back out at that price. That is your drop dead price. That is your walk away price. And that's what happened with some of the bidders, in my opinion, that are complaining they aren't getting enough money and they need more money. It's like they did not do a very good job going into the auction of understanding what the cost would be to serve the areas. And now they're really having very bad bidders remorse because they kept bidding and price got bid down to a price point that they are now finding out they can't deliver the service that they agreed to deliver.

Drew: So in general, how did this auction component work in both the Connect America Fund and we'll certainly get to the Rural Digital Opportunity Fund as well. But like how did it work? How many reverse auctions have there been, for example, Carol?

Carol: Three. I mean, the first one was the Mobility Fund Phase One auction. I mean, we did this thing called the Rural Broadband Experiments, but that wasn't really an auction. That was just to put that aside. So basically, the Mobility Fund Phase One auction, the Connect America Fund Phase Two auction, and then the RDOF Phase One auction. So it's happened three times. And I think going in, there was always an assumption on the part of people at the FCC that there would not be much interest in serving these expensive rural areas. Like, sort of the, I would say part of what was animating some of the policies was sort of a fear that nobody would actually want to come. You can't have an auction if nobody shows up to bid. And so I think looking back in retrospect, maybe the FCC leaned too far in the direction of making it easy to bid in the auction, wanting to have as many bidders as possible because the more bidders you have in an auction, the more competitive it is. And at least from an economic theory standpoint, it's gonna work more efficiently. But I think what was one of the most surprising things about the auctions was the extent of interest.

Carol: I can tell you personally, I worked with a group of electric cooperatives working with Urbi Utilities. We put together a consortium of eight electric cooperatives that were bidding in the auction and we... Going into the auction, there had been this assumption well, if we get...

Drew: Which one are you talking about right now, Carol? Are you talking about...

Carol: RDOF.

Drew: RDOF. Okay.

Carol: Suffice it to say, we were surprised because you get round by round bidding information. We were surprised after each round to discover there were other bidders in the gigabit tier bidding against us. Multiple entities were bidding at the gigabit tier, and it was a lot more competitive than people realized going in perhaps it would be.

Drew: All right. There's a lot there to unpack. So let's try to go back a second and I do wanna get to RDOF. We will give that its due. But could you just speak to the first two, the Mobility Fund and CAF, right? And what in retrospect, kind of in the periods immediately afterwards, how were they regarded? Successes, failures, what went right or what went wrong? What were the lessons learned in the lead up to this bigger one that's kind of looming over us at the moment?

Carol: It's really hard to remember the Mobility Fund auction. And in all honesty, the Wireless Bureau was more focused on that. USF policy at the FCC is shared between the Wireline Bureau and the Wireless Bureau, and the Mobility Fund auction really was the Wireless Bureau's baby.

Drew: All right, well, CAF, tell us about CAF.

Carol: With CAF, I think this is my perception. I don't know if others agree, but I was on the outside by the time it actually was implemented. I had worked on the auction rules before I left the FCC, rules that were adopted in 2014 and 2016, but the actual auction didn't occur till 2018, which was after I left. So I was on the outside watching it happen. And my perception was that it was viewed generally as a success. There was no major outcry of alarm or like, oh my God, this is a disaster. Various entities won, the FCC went through the authorization process. And I don't have any memories of major criticisms of that. I don't know if there were, I just don't remember them.

Drew: So, okay, so this led to the Rural Digital Opportunity Fund. And you've already alluded to the kind of the consortiums, the bidders, my memory too, and I remember kind of being a little bit in the thick of this in terms of advising clients and others on it is, there were a lot of details to sort out. And it was an ambitious effort to bring a lot of factors together, points for bidding on higher tiers question from the Democrats on the FCC, whether we needed better maps going into it. These were all in play as of course it was being done before October 2020, right? We recognize the political timing of this. But all that said, did you anticipate that RDOF would become like a four-letter word in the lead up to an execution of RDOF the way it has become since? In other words...

Carol: No, no.

Drew: To put it clearly, what went right and what went wrong about the RDOF, Carol?

Carol: Well, the actual implementation details matter. The FCC under then chair Pai clearly was moving along with the objective of getting this auction done or largely done before the election. And the FCC made certain decisions to allow certain entities to qualify to bid in certain tiers. Like, you know, sort of the whole, should Starlink have been permitted to bid in the 100 meg tier? Should fixed wireless entities be permitted to bid in the gigabit tier? And I think in retrospect, one of the issues is there's a difference between saying it's possible to deliver this level of service to one customer as opposed to it's possible to deliver this level of service to all customers. In other words, any entity that is spectrum constrained, you know, fixed wireless or satellite, there's a finite amount of capacity. And yes, it may be technically possible to deliver a gigabit level service to one customer, in one location. That doesn't necessarily mean that that entity could deliver gigabit level service if they won large territories across, 10 states. Do you see the difference between the two? It's like it's the difference between sort of what's theoretically possible in a laboratory environment as opposed to what happens in the real world.

Carol: And in retrospect, one of the biggest flaws of the RDOF auction was when, you know, it's a two-step application process. First you apply to bid in the auction, then the auction bidding occurs, and then the detailed in-depth application is on the back end after you've already been announced as a winning bidder. In that first step, what I think of as the pre-qualification step, the FCC didn't pre-qualify entities. There was no limit on how big they could bid. So in other words, they said, yeah, you can bid in this tier, you can bid in that tier. And it's the equivalent of, you know, the analogy is like in, if you're, pre-qualifying to buy a house, like the bank is gonna say, you're allowed to buy a house up to, I'm making it up, a million dollars. And then, you know when you go shopping for a house, you can't afford the $2 million house, like you're only gonna get a mortgage for a million dollars. And in the FCC context, they had nothing in place in that first step of the application process that put any constraints on how pervasive a particular entity could bid across the country. So in retrospect, that was a mistake.

Drew: Had the previous ones had CAF?

Carol: No, no.

Drew: It did not put that, it did not allow that liberality. RDOF was the first to allow that.

Carol: No, no, no, no.

Drew: They all had that.

Carol: They all had that. In other words, as part as I was saying earlier about sort of trying to encourage people to bid, there were no constraints on how many states you could bid in or how many locations you could bid for. So that had been the way it was for, like this was the second major auction and nobody thought of changing that rule. And so after the results were announced and it became clear, like Starlink was one of the top 10 bidders and...

Drew: I've just put what you wrote in your blog post in this chat. And that's exactly what I highlighted. When the winning bidders were announced in December, many were surprised. The top winner was a company most people had never heard of, small fixed wireless provider, LTD, followed by Charter and then by Starlink. Right. And so finish, will you please finish this thought.

Carol: Sure. So the point was, I think people were surprised. And then, there was just a lot of whaling and moaning and complaining. And you're right. I mean, auctions then became a dirty word. And then obviously there was the change in administration. The election occurred and then, the current chairwoman was named acting chair, after the inauguration. And keep in mind, she dissented from the auction, the RDOF auction would be in the first place. She was the one who said we shouldn't be doing this until we have better maps. Her mantra is maps before money. So she never was invested in the success of RDOF. Like, it was something that her predecessor did that she inherited. And so, and then of course there were like the examples of the particular locations that were eligible for bidding that, everybody would agree, like, this is ridiculous. Why are we auctioning off like the parking lot of the Los Angeles airport or whatever those examples. I will say those examples are great sound bites for making the whole program sound incredibly poorly executed. But when you look at the actual literal number of locations that were in those census blocks that were shouldn't have been in the auction, it was really trivial.

Carol: It was like less than 1%, less than a half of 1%, something small. But those are the things that the press loves to write about. And so it just gives the whole thing a bad name. And then the whole review process obviously takes a long time because, that's where all the work is done on the back end. Like after the biding...

Drew: The long form, because the short form to make it easy for people to bid kind of led to this expectation that everyone could chime in.

Carol: Once you bid, you were in. And so a lot of people seem to think that the auction winners actually had been authorized to receive this money. And there was sort of shock and outrage, but in reality, it took the FCC over two years to go through all of the long form applications and do the detailed work to sort of kick the tires on the technology plans and so on and so forth and authorize entities after a thorough review. And then as we all know, ultimately the FCC decided, it was not gonna authorize LTD and it was not gonna authorize Starlink. But by then, popular perception was that this whole thing was a disaster. Like not recognizing like the process actually worked in the sense that Starlink and LTD didn't get authorized.

Drew: So that is, of course, the subject of our exchange was RDOF, an example of success or example of failure. Let me just give some kind of breaking news here, scooping myself. I was down Richmond yesterday at the Fiber Broadband Association event and Ajit Pai was there and Gary Bolton asked him this very question. And I'm, I don't know if I'm happy to report he did express a lot of remorse that that program, he said, if I had known now what I knew then I would have done it very differently. And in particular, he said, we definitely would have put a thumb on the scale for fiber, right? Because the way it was written kind of was done so that, you know, Leos low earth orbit satellites and wireless internet service providers kind of seem to have and did have a kind of a equal shot. And he expressed a much stronger commitment yesterday to fiber.

Drew: Okay, so let's just talk about that as a closeout, because I wanna talk about in some ways, Carol, we're coming back to this conversation right now, because the Biden administration clearly put their thumb on the scale in BEAD for fiber. And now that we're getting to this point where states are beginning to, all right, I got to spend this, we're hearing more and more kind of complaints. Well, why aren't we doing LEO? Why aren't we doing more with fixed wireless here? What are some of your thoughts about this technology point as we kind of move into discussion of Bead?

Carol: Well, I have two major points. Personally, I'm very pro-fiber. Like I personally think fiber is the right technology when we're making investments that should be lasting for decades. I think one of the most painful thing for me to look back on is the fact that the FCC took an incremental approach in terms of defining what broadband is and kept barely setting a standard that was like barely, barely acceptable at that moment in time without taking into account you're giving somebody money to build a network that's supposed to be delivering service for decades, like you got to be more forward looking. I also recognize that fiber is very expensive in the more sparsely densely populated areas of the country and given the funding allocation formula for BEAD it just doesn't seem possible for a number of states to get fiber everywhere. I mean, it's just not possible.

Carol: It's like mathematically we can be as pro-fiber as we want, but mathematically there are a number of states that they just don't have enough money to get fiber everywhere. And so on the other side of the coin, I'm very we've got to be allowing states to use other technologies for those areas that are too expensive to serve with fiber. I mean, and so you need multiple technologies, you need fixed wireless, you may need satellite in some locations because they're just everybody thinks BEAD is just this huge amount of money and it's just gonna solve all the world's problems. But the truth of the matter is, it's less money than many have estimated would cost to get fiber everywhere.

Drew: Let's do a kind of a rollback through the many questions we've got since we started and I'll throw in some that came in earlier. Jim McCanty asks, how does the Universal Service Fund differ from the Affordable Connectivity Program? And he asks, pros and cons of USF as a support for affordability, especially for new subscribers. Your thoughts on that, Carol?

Carol: Well, the main difference is the Affordable Connectivity Program was funded through an appropriations by Congress. The Universal Service Fund, a lifeline program, is funded through contributions that are made by service providers that go into the fund that then supports affordability. As a practical matter, the lifeline subsidy is $9.25 whereas the Affordable Connectivity Program subsidy has been 30. And obviously 30 is gonna go a lot farther in terms of making broadband service affordable than $9. So the pros and cons, I mean, obviously what's happened now with the funding on the verge of being exhausted for ACP and Congress not appropriating more funds, that's the major downside of doing anything outside of the USF is that you're subject to the vagaries and the political battles that are going on in Congress in terms of spending policies that go far beyond USF.

Drew: Dan Grossman says a casual read of substantive comments to various FCC dockets shows a lot of pure sophistry and gaslighting. How sensitive is the agency's BS detector?

Carol: [chuckle] Oh, that's a hard one. I mean, I will say in my time at the FCC, some comments you would read and you just say this is they're saying nothing. I always personally liked comments that really were clear and actually provided data because data driven policies are often more successful. But I mean, I think it's funny. Some people write things in comments and they make assertions and then they don't supply any facts to support the assertions. And they just seem to think if you write a sentence on a page, it makes it true.

Drew: Say another word about broadband performance obligations. This is from Jace Wilson. What ways has the FCC or could the FCC be a little more obligatory in its dispensing of money? And for that matter, NTIA, Okay, and the states?

Carol: Well, I mean, the FCC does have a program for recipients of high cost money RDOF, CAF, whatever, you know, they have to do performance testing and they have to report the performance results to the FCC and they have to report where they've deployed service. And if they fail to meet those milestones, they get docked money or they get, well, there are different levels of compliance measures. And the same thing with if your performance fails to meet the testing. So the keep in mind, this was like the first time anybody ever put in place any kind of reporting obligations. My recollection is...

Drew: Did CAF put those in place, you're saying?

Carol: Yeah. Yeah. Yeah. I think. In some respects, I wish there would be a little more transparency about the results of that, because the general public and doesn't really have a sense of what the results being reported to USAC are, and then people sort of assume the worst. And, if there was more transparency on who's deployed, how many locations that would be it would be beneficial for all of us to be able to track whether entities were actually meeting their obligations or not. Right now, it's just a big black box.

Drew: So why can't that be required? I mean, like we're in the middle of this broadband nutrition label the FCC is pushed and advocated for, which is all about transparency. So I'm just maybe there's a little disconnect. Why hasn't the FCC required disclosure of those performances by the people who received USF funds?

Carol: That's a good question. I suspect that it's sort of historically, historically, companies have said that information is confidential, that information is proprietary. I mean there were I remember when we first required companies to report where their service was available which is sort of the predecessor to first in the USF context, which now has become the broadband data collection. But like back in the USF context, like when we first were contemplating that, like there were literally parties that were saying, well, we shouldn't that information shouldn't be public. And it's like we're giving you money to offer broadband service. You cannot keep it a secret that you are are or are not serving this location. You're supposed to be advertising.

Drew: Carol I have the battle scars on this one. I filed the Freedom of Information Act lawsuit to reveal Form 477 data and the FCC and all of the industry came in as intervenors against us. So we have traveled a long way. I'm happy to report that there's not that same absurdity argument. But I think like let's get specific on this. And I'd love to in the future follow up on that. Let's keep going with some good questions here. And keep in mind, let's make sure we talk about what all of this means for the BEAD program and the states and what lessons they can learn. So let's get a few more questions. Philip Makers, who's been on Ask Many Things, he kind of makes this point here. I'm not sure I agree with that, but he says force majeure, dramatic cost increases could not have been predicted at the time of the RDOF auctions. And he says you don't address that issue. So, Carol, what do you say to that?

Carol: I think I agree with you, Drew. I think that let's just say my clients are ahead of schedule on deploying their networks. They did in-depth feasibility studies before they bid in the auction. They had the discipline to know when to drop out of the auction on particular census block groups when the price got too low. And they are not hampered by the force majeure events that you are alluding to. So I think it's a mistake to believe that the whole industry has suddenly become crippled by inflation because that is not true. My clients had the foresight to get their supply chain and their orders lined up as they were getting ready to bid and they had the supplies coming down the road and they jumped out of the gate right away. So that's how I feel.

Drew: All right. Well, so we both dumped on Phil's question on this, but he's got a really good one.

Carol: Nothing personal, Phil.

Drew: Oh, yeah, yeah. Well, and he says he makes this point that reverse auction bids are similar to a grant program match. If an ISP applies for a grant and offers a 60% match, that is conceptually similar to a 70% reduced price in the reverse auction. Discuss.

Carol: Yeah, well, I mean, well, it the difference is for an auction, everybody was bidding against a reserve price, which was based on a cost model, which was a theoretical cost model. In a grant program parties are supposed to be requesting an amount of money based on an engineering study that has costed out what it's gonna cost to deliver. And in a grant program, most of them, as I understand it, like you have to like you don't get paid until you submit receipts like it's a reimbursement based thing. So you're dealing with actual costs as opposed to theoretical costs. So, yeah, in a grant program where there's a match that's no different than an auction in a situation where you would accept an amount of money that is less than what you think it's gonna cost and you're implicitly saying, I'm gonna advance my private capital to meet part of the cost of this project and I'm gonna get the RDOF money to meet the other part of the cost.

Drew: If RDOF had fixed this issue of maybe technology, maybe a little bit less technology neutrality, perhaps, right, you know, or if there were not this kind of big gap between the short form and the long form, what other lessons are there from the RDOF experience that are applicable as states are crafting their effectively their volume two proposals, how they're going to spend the money, what should they take from that and what kinds of things from reverse auctions, RDOF style things should still be used in spite of the kind of black eye?

Carol: Well, I think one thing immediately comes to mind the RDOF really brought into sharp focus how critical it is to qualify your bidders. And in the case of the states, how critical it is to do a thorough and I emphasize thorough review of the technical and financial qualifications of your applicants. And it's a little bit murky to me when I read some of the initial proposals, like some states seem to have like a pre-qualification phase, but it's a little bit murky to me. It's not clear how all of the states are gonna do it. Are they gonna do it on the front end or the back end? And the reason why it makes a difference is if you do it on the back end, you may pick one entity that scores more points on paper. But then when you get to the back end and you actually do the in-depth review, you might find out maybe it doesn't all hold water. And but if you're gonna do it on the front end, you've got to have the resources to do that.

Carol: And honestly, I just can't imagine how all the states are gonna be able to do this. You know, this is many state offices are relatively small and relatively newly staffed. And it's like there was a team of people at the FCC that were working on this. And I think some of this and obviously a lot of states have put out RFPs to hire contractors, but they're gonna need really well-qualified people, whether they're employees, state employees or contractors that are really gonna be able to do that in depth thing. Second thing for the initial performance and the final proposals is that states really need to be thinking now about it's the goal of this is not to award the grant. The goal of this is to get broadband out there to the communities.

Carol: And if the states think that they I'm not saying any state does think this, right now, everybody's focused on the application process, the challenge process, the scoring of the grant applications. And people aren't really focused on what exactly is gonna be the performance monitoring after the award to actually make sure that the whoever is selected actually completes the build and offers the service and continues to offer the service over time, long after the money has been paid out. I think that's something that states really need to be thinking about because you don't want a situation where they award the money, the grantee does a network build, and then I'm just making it up five years from now they go bankrupt.

Drew: Walk us through a couple of these takeaway lessons from that Medium Post lessons learns from RDOF that states should take into account. You said BEAD should enhance the business plan, not BEAD the business plan. Could you elaborate on that? And maybe the other three or points you've got.

Carol: Sure. And this may seem counterintuitive, but I do believe the most successful companies are the ones that could make a build work without subsidies. It would entail a longer payback time. As opposed to those that construct a business model that presumes a level of subsidy, and it would never pencil out without the subsidies. I mean, I think government like if government subsidy becomes your sole means of providing service, what happens when the subsidy goes away, like in the BEAD context, BEAD is compensating people for CapEx. Once you build a network, that doesn't mean you have no costs anymore. You have ongoing operating costs like you've got to have a sustainable business plan so that you can continue to offer service at an affordable rate after you've built the network.

Carol: And some rural areas need ongoing support. Like it's a myth to think, oh, if we just build it, everything's gonna be okay and we're done. I mean, yes, some parts of the country, all they need is a boost from BEAD The network will get built and the density is sufficient that whoever wins that BEAD grant, they'll be able to have a sustainable business model going forward. But there are other areas of the country where the density is really, really low that will need ongoing support. And that's something that we all need to think about.

Drew: All right, does that did that cover some of the other points that states need to do due diligence.

Carol: Remind me what I say in the blog.

Drew: You said states should do their due diligence on applicants. You've kind of repeated that here. The best predictor of future performance is past performance. What does that mean? Does that mean that, new entrants not apply?

Carol: No, I won't say I'm not saying you have to have been in the business for 20 years. And I will say as I said, I worked with a consortium of electric cooperatives and one of them had been a successful bidder in the CAF phase two auction, but the rest of them had not started broadband at all. So from that perspective, they were the newest of new entrants. But they were subsidiaries of electric companies that had been in business since the 1930s. So whether it's a parent company or something, you've got to have some assurance that the entity understands sort of the complexity of the business, how to operate it like, you know. I think the problem with universal service in general and any government program is that people see the dollar signs and then you get, I'm just gonna be pejorative, you know, you get the fly by nights, the people that have grand visions and no solid experience in what they're doing. And you need to have some assurance that whoever is getting this money to do something actually knows how to do it. And the best proof of that is if they've done it before in some context.

Carol: I'm not saying you have to have done it for 20 years, but you either have to have done it yourself or be working with a team that has done it themselves in another context from the managerial capacity. So because then you know that the team knows how to anticipate things and will think through all of the moving piece parts and can get the project done.

Drew: All right. I got three rapid fire questions to close this out here. One from Jeff Smith is, can you anticipate any shortcomings, Carol, of the BEAD rollout?

Carol: Well, I could talk for hours about that. I'm trying to think...

Drew: Thirty seconds or less.

Carol: The shortcoming, I would say, is that a lot of people don't recognize how long this is gonna take. And people have been waiting with bated breath thinking this is gonna happen tomorrow. And in many states, it's not gonna be tomorrow. It's gonna be next year.

Drew: All right. Joshua Williams asks, what are your thoughts on pushing for policy changes or new funding methods that acknowledge broadband access as a social determinant of health to justify health care funds, including Medicaid for broadband subsidies? What do you think of that, Carol?

Carol: Well, that's a really complicated question to answer in 30 seconds, I will say and I know Blair has said this like the cost savings to the federal government of having ubiquitous broadband in the field of telehealth and other other government policies. It's like a no brainer. And then one of the problems with the way we've got set setting things up is sort of like you don't have HHS underwriting part of the cost of broadband because it would actually save them so much money in terms of telehealth and Medicare.: So I wish there was a macro way the government could look at all of this and sort of Subsidized things, not just through a one time program like BEAD or the ongoing USF.

Drew: Fernando Rodriguez asks a question about the build America by America rules. Do you have any thoughts or concerns about that at this stage, or do you think those issues have gotten sorted out effectively last year?

Carol: My sense is it's been sorted out effectively. I mean, a number of firms have, sort of risen to the occasion and said they're bringing stuff back to the US and it seems as though it will work out okay. So I'm not hearing major concerns. I could be wrong. And I will caveat by saying I'm not deep in the weeds on that one.

Drew: All right, well, the final question for today, and we want to make sure everyone knows we'll be back again in two weeks time. We'll have Kim McKinley of Utopia Fiber as our guest on Ask Me Anything. Carol, if you were a time traveler and could go back to the start of your career in broadband, what would you do differently or what would you want people to know I'm from the future and you need to do this differently.

Carol: That's a tough one. Well, I'm thinking when I started down this road in 2010, if you well, actually going back, like I feel like I've been working on broadband policy in some respects since the early '90s, and it's kind of depressing, actually, like the fact that we've been working on this for like two plus decades. I wish if you told me it would be two years, two decades and we'd still be in this boat, I would have been immensely depressed and probably would have gone into a different line of work. [laughter]

Drew: So it's gonna be hard.

Carol: Maybe I would have said, hang in there. Eventually you'll get there.

Drew: Well, it's been great to spend this time with you and to talk about so many topics and yet also, I think, rather thoroughly on this one topic. Carol Mattey, thanks for spending this time with us. We'll see you all in two weeks time.

Carol: Thank you.

Drew: Take care, everyone.

Carol: Bye, everyone.