Ajit Pai: Closing the Digital Divide in Telco

Virtually everything we do in our lives today relies on technology. Yet, between five and six million Americans still don’t have access to high-speed internet. And while that number is startling, it has fallen significantly in the last four years.

In this episode of Deciding Factors, Ajit Pai, former Chairman of the Federal Communications Commission, talks about the role his administration played in decreasing the digital opportunity gap, and the work that’s still to be done. Ajit also speaks about the FCC’s plans for 5G, and changing regulations for media ownership that will help local news teams compete with Big Tech. 

ABOUT AJIT PAI: Ajit Pai served as Chairman of the Federal Communications Commission from January 2017 to January 2021. He was the first Asian-American to serve in this role and was designated for this position by then-President Donald Trump. He previously was a Commissioner at the FCC, nominated by then-President Barack Obama and confirmed unanimously by the U.S. Senate in May 2012. Under Mr. Pai’s leadership, the FCC was one of the most productive and consequential in history, advancing major initiatives on closing the digital divide, extending U.S. leadership in 5G and Wi-Fi, enabling innovation, protecting consumers, and promoting national security and public safety.Earlier in Mr. Pai’s career, he served in various positions of increasing responsibility at the FCC, the U.S. Department of Justice, and the U.S. Senate, among other places. 

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Podcast Transcript

Eric Jaffe: So much of our lives today is dictated by access to the internet. It’s somewhere between five and 6 million Americans still lack what many of us take to be a basic utility. Just a few years ago, however, that number was much larger between 20 and 30 million. My guest today played a key role in closing that gap. Ajit Pai was chairman of the Federal Communications Commission from 2017 to 2021 and led the agency through a consequential period in its history. Listen in as Ajit and I discuss some of his top priorities as FCC chairman, such as closing the digital divide and advancing coverage of 5G and wifi within the U.S. as well as the challenges still ahead for media and telecommunications. Ajit, welcome to Deciding Factors. So great to have you on today.

Ajit Pai: Oh, thank you so much for having me on. It’s a privilege to be with you, Eric.

EJ: So many topics within the world of telecommunications to talk about. I thought we could start with closing the digital divide as it’s known. So many millions of Americans unfortunately don’t have access to the internet and the FCC plays a prominent role in affecting that. Could you start by just giving us an overview of the state of play with respect to this issue? How many Americans have access versus those who don’t? Why does that matter and what role does the FCC play?

AP: Great questions all. Starting with the first, the current estimate is that something between five and 6 million Americans don’t have access to the internet at the FCC’s current definition of broadband, which is 25 megabits per second download speeds. And that is a significant number, it’s gone down over the past several years. When I took office, for example, it was estimated to be between 24 and 30 million. And one of the reasons why that divide matters is that virtually everything we do in our daily lives these days seems to rely on technology. And even for applications that we might not necessarily think about as front of mind. Precision agriculture, for example, the intersection of agriculture and technology, gaming, and other types of things like that all rely on broadband. So we want to make sure as a country I think that every American has access to what I call digital opportunity.

In fact, on my first full day in office, January 24th of 2017, I told the FCC assembled staff, some 1400 plus strong across the country, we have a lot on our plate but there’s no more important priority than closing that digital divide. And well, how do we do that? Well, there are two basic tools in the toolbox that the FCC has. The first is regulatory reforms. The overwhelming majority of work that is done to build and operate and improve broadband networks in this country is done by the private sector. It’s some of the big companies that everyone would know, AT&T, Comcast, Verizon, and Charter. But thousands that people don’t know, the small companies especially that serve rural areas. And so the more onerous the regulatory burden is on these providers, the less likely it is that they will be able and willing to raise capital, hire the work crews, and build the networks of the future.

We instituted some regulatory reforms to make that business case for deployment easier. So some of these reforms are admittedly arcane, making it quicker and cheaper to get access to utility poles, to string fiber lines, making it easier to string fiber under the ground when you’re doing a transportation project, to immediately put the conduit, the pipe under the ground to enable that fiber to be strung. These are the kinds of things that make it a lot better. And the second basic tool in the toolbox for the FCC is what is known as the Universal Service Fund. This is a pot of money that the FCC can distribute as federal subsidies to broadband providers, especially those targeting rural areas to help build and operate these broadband networks. And the flagship program under the USF does exactly that most notably through the Rural Digital Opportunity Fund. The Rural Digital Opportunity Fund is a $20 billion fund that I set up when I was at the FCC to help target those parts of the country that were un-served with broadband.

Similarly, a companion for the Rural Digital Opportunity Fund, which targeted home broadband was the 5G fund. And the 5G fund is a $9 billion program that we set up to ensure that those parts of the country that are unlikely to see 5G service, the next generation of wireless service, would be able to get service through subsidized construction and operation of those wireless networks. Both with respect to home broadband and broadband on the go, the FCC took steps through the Universal Service Fund to ensure that the business case for deployment would be stronger rather than weaker.

EJ: Can you comment on the degree to which Congress should be involved in these matters?

AP: Absolutely. I do think that Congress should be involved and I think it should be involved in a number of different ways. One is of course, through giving the FCC the authority to hold these reverse auctions as they’re called, like the Rural Digital Opportunity Fund. Another one is providing us with subsidies directly, which is something that I’ve encouraged for a while. And I think in the context of President Biden’s infrastructure plan, it would support the allocation of funding directly to the FCC, as opposed to the current system where the Universal Service Fund is funded by consumers through a line item on their bill and the FCC then distributes that money to the private sector. So the program when I came into office used to be that the FCC would cut a check to a rural telephone company and then rely on them to build these broadband networks in these rural areas.

But what I thought was we need to open this up to competition because there are a number of different technologies now that could serve these rural areas. It could be a satellite provider like Space X, for example, it could be a fixed wireless provider, it could be an electric utility as well as rural telephone company.

EJ: I think you mentioned the 5G Fund as well. Maybe we could talk a little bit about 5G. It is the next frontier so to speak with respect to internet connectivity and speed and therefore capabilities. Could you give us an overview of 5G, its capabilities, and why it matters?

AP: Absolutely. 5G is the next generation of wireless connectivity. Most people who have a smartphone today are probably using a 4G LTE connection. And 4G of course, was a dramatic improvement on 3G. And we think that 5G could be just as much of a transformational leap and we think that for a couple of different reasons. For one thing, it would offer speeds that are up to 100 times faster than 4G could offer. It can connect virtually any device, not just smartphones and TVs and other things like that, but appliances, internet of things sensors all sorts of different devices. Basically, anything that can be connected will be connected in the future. And the great thing about 5G networks is that they can adjust to be optimized for the particular device or use case that we’re talking about. We put in place what we call the 5G Fund, which is a $9 billion program to target those parts of the country that are unlikely to see 5G solely through private investment.

That’s a plan that the new FCC will have a chance to implement, but we’ve put the basic structure in place to enable rural Americans disproportionately to benefit from 5G. We also earmarked $1 billion of that to support precision agriculture deployments. I had mentioned earlier how precision agriculture is important. Well, even if there’s not anybody living within a certain square mile, if that square mile is used for agriculture, it’s really important to increase the productivity for environmental sustainability and other things for us to enable those farmers and ranchers to use 5G. I’m very excited to see how that 5G fund develops and hopefully every American will benefit from this wireless innovation in the future.

EJ: Maybe lastly, on this topic. Could you share sort of your outlook for the Biden administration, FCC, what are the major things that we ought to be looking for?

AP: Yeah. I think when it comes to 5G we are all on the same page. I was gratified to hear the Secretary of State recently put out a statement indicating that the United States continues to believe that 5G was a priority, both in terms of deployment and in terms of security. And I think that continuity of message and policy is going to be very, very important in the time to come. Similarly, I think the FCC has indicated that there too, this is a bi-partisan cause.

EJ: I thought maybe you could just give us an overview of kind of what is media ownership, what the rules are, why they matter, and how the FCC is involved in setting those rules?

AP: The FCC has had on the books for over 40 years, since 1975, a number of regulations preemptively determining what types of market structures are allowed when it comes to the media space. So for example, since 1975, the FCC prohibited a newspaper and a broadcast station, either TV or radio, from having common ownership of what we call the newspaper and broadcast cross-ownership. Similarly, it restricted the number of television stations that any one company could own in a particular market and it had similar rules with respect to the radio. Fast-forward over the years, of course, are dramatic changes in the production and distribution of news, cable news networks of course. And now with the rise of the internet, we see a dramatic increase in the sources of competition. And that’s led to the FCC considering over 20 years and across Democratic and Republican administrations, should those ownership restrictions that were first adopted in 1975, be changed?

Now Congress opened the door to the FCC making this type of inquiry in the 1996 Telecommunications Act. And in that act, it included a section called 202 H. And 202 H essentially says, “FCC take a look at the media marketplace at the moment in time you’re in, every four years and determine which of the media ownership restrictions that you have should be revised or repealed in light of new developments.” So starting in 2002, the FCC did that and it originally recommended getting rid of the newspaper/broadcast cross-ownership ban, relaxing a few other restrictions. Well, the court of appeals in the third circuit back in 2004, 2005 rejected the FCC’s initial attempt to revise or remove those regulations. And ever since then the subsequent 17 or so years, this issue kept bouncing back and forth between the FCC and the third circuit court of appeals.

So when I came into office in 2017, I told my team let’s take a fresh look at where the media ownership regulation should go. And what we determined was in 2017, there were more sources of competition than ever and it doesn’t make sense for a newspaper and a radio station in [inaudible 00:10:58], Iowa, to be restricted from merging when at the same time, there are huge entities that are in the media space that are only growing bigger. And so let’s get rid of that newspaper/broadcast cross-ownership ban based on the evidence we have in the record. Once again, the third circuit court of appeals in 2019 rejected the FCC’s decision.

But this time the FCC and the U.S. Department of Justice asked the Supreme Court to take a look at this question. Number one, to affirm the FCC’s authority to make this decision. And number two, to affirm the decision itself, to say that it was a correct decision based on the facts. And about a month ago, the Supreme Court in a nine zero opinion held that the FCC did have plenary authority to determine whether to revise its media ownership restrictions. And it said with respect to our particular decision in 2017, that this decision was “reasonable and reasonably explained.” And that was a vindication of the FCC’s authority here because the worst thing that could happen in the media marketplace is for these regulations to stay in place even though the marketplace that they assumed had long since faded into the past. And then at a time when people can listen to a podcast like this or Spotify or Pandora, all these different modes of competition it doesn’t make sense for the FCC to consider competition as only coming from broadcast radio and TV or from newspapers.

Anyway, there are doors open now I think to further adjustment of those rules in light of current situations. And I hope they’ll take advantage of that.

EJ: How do you think the position that your FCC took will impact the way that Americans consume the news?

AP: I think it’s going to be tremendously beneficial to consumers of news and the reason is that it allows local broadcasters, TV, and radio, and local newspapers to finally have a chance to compete without one or some cases both hands tied behind their back. So right now what we see is quite often the rise of people getting their news from non-traditional sources, Facebook posts or things that go on Twitter. And not necessarily the things that go through the standard journalistic process that local broadcasters, newspapers would use. And one of the arguments we’ve heard from a lot of local journalists… I’ve visited dozens of them across the country during my time is that we are the ones who are covering the local city council proceeding. We’re the ones covering the local high school football games or all the other things that are happening at the school board.

Nobody else is doing that yet the FCC is artificially restricting our ability to collaborate with our would-be counterparts at the local newspaper so we can more efficiently collect that news and distribute it over multiple platforms. And as a result, we’ve seen a huge number of newspapers go under. I mean, a number of them have shuttered altogether, some of them have gone online-only, some of them aren’t dailies anymore and that’s the worst thing in the world. The same thing’s happening on the broadcast TV side, especially in smaller markets where advertising revenues have shrunk. If they’re not able to engage in pro-competitive combinations many of them are going to start turning in their licenses to the FCC and go dark. So I do understand the concern that there might be a company that could potentially have in any competitive role in the particular marketplace but to me the question is you can regulate for that in terms of antitrust and competition law, but for the FCC to preemptively say for every market from New York to some tiny market in Idaho, this is the optimal market structure for all time and we won’t allow any deviations is a pretty blunt instrument. And it seems to make sense, right. Because if you have cross-ownership, both the radio station and the newspaper don’t have to have different overhead in terms of sales teams and offices and all the rest. They can pour more resources into actually reporting the news.

EJ: What is your outlook for the local television and radio broadcast market in the upcoming, call it three to five years?

AP: It’s a very challenging environment and will only become more so in the time to come. And I do worry that over the next three to five years in particular, some of the trends we’ve seen develop over the past few years will continue. Continuing diminution in advertising revenue is a real factor. I remember visiting with some Louisiana broadcasters, for example, and I was asking them, “Oh, what is your revenue look like over the past two years?” And they said, “Well, it’s very hard to compete because when we sit down and we go to some of our anchor customers in this regard.” For example, the local car dealerships, the dealership will tell them, “Well, why should we invest in a broadcast spot that will essentially blanket everybody in the market but won’t target those people who are most likely to buy a car. Whereas I can essentially do a deal with Google where I can target exactly those people who’ve done a Google search for a car in the last 30 days.”

So for a lot of these local broadcasters, they’re no longer competing with each other. They’re really competing with these tech platforms for revenue streams. And I don’t know how that’s going to be reversed. But one way they could reverse it, is through a reform the FCC instituted again in 2017, and that is through the embracing of the ATSE 3.0 standard or the Next Gen TV Standard. Essentially this is marrying the best of broadcasting, that one too many architectures with what is called the internet protocol or IP. And this will allow broadcasters to not just deliver broadcast content to your TV, but also to your smartphone or connected device. And it could be more targeted to the particular area where you’re in. So you can imagine if there was a hurricane or a tornado coming through your neighborhood and it wasn’t going to affect other neighborhoods, broadcasters could target more particularized public safety information to that area.

That could also go to advertising. You could be more targeted in your advertising. So that’s one-way broadcasters could compete in the next couple of years. But make no mistake about it, this is a really challenging time for the broadcast business.

EJ: Lastly, do you have any specific advice for the new acting commissioner of the FCC?

AP: Good question. It’s a very challenging job and it requires your 24 seven attention. And it’s not easy, to say the least, especially at times like this when the political environment generally is a very difficult one. And so my advice to her or to any of my successors would be to have the confidence of your convictions, figure out what it is you want to do, and then be diligent and courageous in your execution of it. Don’t get weighed down by some of the noise when you see a bad article in the press or a group of senators might send you a hostile letter or you get bad feedback elsewhere. Stay convinced that what you’re doing is the right thing to do if you believe that’s the right thing to do. And the other thing I would say is more internal, the FCC staff is comprised of over 1400 public servants who are the most dedicated experts that I have ever seen.

My advice would be to leverage the expertise and the dedication of those terrific public servants and the dividends will be substantial if you do. Oh, and I guess the last piece of advice I would have is to try to unplug, try to focus on something having nothing whatsoever to do with the FCC. For me, for example, I used to bike into the office pre-pandemic of course, and during those 40 minutes in and 40 minutes back, I would listen to podcasts and I would learn about everything from blockchain to Roman history. Just something completely disconnected so you could kind of liberate your mind and just decompress from the rigors of the day. It’s a very challenging job anyway and the last thing you want during your commute, or anytime you’re off the clock so to speak is to be weighed down by some of those concerns.

EJ: Ajit thank you so much for joining us today. This was a fantastic and fascinating conversation. We really appreciate you coming on.

AP: Thanks so much for having me.

EJ: That was Ajit Pai former chairman of the Federal Communications Commission. I appreciated Ajit’s ability to walk us through a variety of complex technical topics in a way that was accessible and easy to understand. For instance, Ajit talks about the digital divide in the United States and what the FCC is doing to bring high-speed internet access to the millions of Americans who lack it. He also explained how the FCC’s role in regulating media ownership could have a real-world impact on how Americans consume news. That brings us to the end of today’s episode. We hope you’ll join us next time for another in-depth interview with one of GLG’s network members. Feel free to leave us a review on Apple Podcast, we’d love to hear from you. Or email us at decidingfactorsatglgroup.com if you have feedback or ideas for future show topics. For Deciding Factors and GLG, I’m Eric Jaffe. Thanks for listening.