Broadband: Additional Stakeholder Input Could Inform FCC Actions to Promote Competition
Released: 2017-09-19T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: FCC has a role in promoting competition in the market for broadband, which provides consumers with high-speed Internet through fixed service at home and mobile service through devices such as smartphones. FCC data indicate that about 90 percent of Americans had access to fixed service as of December 2015, but that less than half had more than one choice for such service. As of that time, FCC reported that multiple providers offered mobile broadband coverage to most Americans. Mobile service increasingly allows access to Internet content that was previously accessed primarily through fixed service.

GAO was asked to examine factors affecting broadband competition. This report covers (1) selected experts' and stakeholders' views on factors affecting broadband competition and (2) how FCC promotes broadband competition and examines consumers' experience with it. GAO analyzed FCC data as of December 2015; reviewed relevant statutes and FCC documentation; interviewed FCC officials and 23 stakeholders selected to include various types of broadband providers and associations representing industry and consumers; and convened a meeting of 19 experts from academia, industry, and consumer groups with assistance from the National Academy of Sciences.

section_title: What GAO Found
paragraphs: Selected experts and stakeholders told GAO that infrastructure costs and other factors can limit broadband deployment and the extent of broadband competition. Factors these individuals identified included providers' costs to deploy antennas, install wires or cables, and obtain permits to access existing infrastructure. Such infrastructure includes utility poles needed for deploying wired components of broadband networks. These costs can limit competition, particularly in non-urban and less populated areas, where providers' return on investment can be lower due to fewer potential customers. Experts and stakeholders also identified industry consolidation and increasing similarity of fixed and mobile broadband as factors that are likely to affect broadband competition moving forward.

The Federal Communications Commission (FCC) has undertaken rulemakings, spectrum auctions, and merger reviews to help promote competition, but lacks information on how well these actions promote competition. Despite such actions, about half of Americans have access to only one fixed provider (see figure). FCC has a process for seeking stakeholders' and others' input on broadband-related topics and annually reporting on these views, but does not solicit such input on its actions to promote competition. Such input could help FCC determine if any changes are needed to its actions to support competition relative to current and emerging factors in the broadband market. Further, FCC's annual reports contain some information on consumers' experience with broadband competition, such as the number of provider options. However, these reports do not include stakeholder input on how the number of provider options affects prices and service. Some stakeholders said that competition was important to securing lower prices and better service, while others said competition does not necessarily lead to these benefits because some providers offer the same pricing and service quality everywhere regardless of whether they face competition in a particular location. Regularly seeking stakeholder input on how varying levels of broadband deployment affect price and service quality, could help FCC to better focus its efforts to secure lower prices and higher service quality service for consumers.

section_title: What GAO Recommends
paragraphs: FCC should annually solicit and report on stakeholder input regarding (1) its actions to promote broadband competition and (2) how varying levels of broadband deployment affect prices and service quality. FCC concurred with GAO's recommendations.

section_title: Letter
paragraphs: Broadband provides high-speed Internet service, which can improve  communications and drive economic growth and innovation. In recent  years, technological advances in broadband have allowed more  Americans to use mobile service providers to access video and other  data-heavy content that was previously accessed primarily through fixed  service providers, such as cable companies. In the 2016 Broadband  Progress Report, the Federal Communications Commission (FCC)  recognized that fixed and mobile broadband can provide similar  functionalities in certain circumstances, including some video access. As  of December 2015, FCC data indicated that about 90 percent of the U.S.  population had access to fixed broadband, but that only about 40 percent  of the population had more than one choice for fixed service. As of  December 2015, FCC reported that almost all of the population was  covered by the mobile industry’s standard for broadband—Long Term  Evolution (LTE)—and that nearly 90 percent of the population lived in  areas with LTE coverage by at least four mobile providers.

In 1996, the Telecommunications Act amended the Communications Act  (hereafter the “Act”) with a stated purpose of securing lower prices and  higher-quality services for consumers and encouraging the rapid  deployment of new telecommunications technologies through FCC action  to promote competition and reduce regulation. Specifically, the Act  requires FCC to annually assess whether advanced telecommunications  capability—a term that encompasses “broadband”—is being deployed to  all Americans in a reasonable and timely fashion. Further, the Act  requires FCC to promote competition and remove barriers to  infrastructure investment where FCC’s assessment concludes that  deployment of advanced telecommunications capability is not reasonable  and timely.

We have previously reported on FCC efforts related to broadband  service. In 2014, we examined FCC efforts to increase broadband  deployment in unserved areas and identified challenges to doing this,  such as low returns on investment for broadband providers in those  areas. In 2015, we reviewed federal efforts to encourage consumers to  adopt broadband service and recommended that FCC revise its strategic  plan to more clearly state if broadband adoption is a priority, and if so,  what outcomes FCC intends to achieve. In 2015, we also reviewed  FCC’s efforts to inform consumers about how to obtain information on the  performance of their broadband service and recommended that FCC  evaluate its performance with these efforts.

You asked us to provide information on the state of competition in  broadband and federal efforts related to broadband competition. This  report covers (1) views of selected experts and stakeholders on the  factors currently affecting broadband competition and factors that may  affect it in the future and (2) the actions FCC has taken to promote  broadband competition and assess the effectiveness of its actions, as  well as to examine consumers’ experience with broadband competition.

To address these objectives, we analyzed FCC data on broadband  deployment as of December 2015; reviewed relevant statutes, literature,  and FCC documentation, including regulations; interviewed FCC officials  and stakeholders from 23 entities, including broadband providers,  associations representing providers and utilities, financial services firms,  and consumer advocacy groups; and convened a meeting of 19 experts  from academia, industry, and consumer groups. We selected  stakeholders based on a review of relevant broadband industry literature  and stakeholders’ recommendations. We selected broadband providers to  include companies that offer broadband via a variety of methods, such as  satellite, fiber-optic cable, and coaxial cable, among others. We  identified experts and convened a meeting of these experts with  assistance from the National Academy of Sciences. The meeting was  held in February 2017 for one-and-a-half days of discussion on topics  related to broadband competition. The meeting was recorded and  transcribed to ensure that we accurately captured the experts’  statements. We analyzed the transcripts to identify key statements the  experts made regarding factors that currently affect broadband  competition or that may do so in the future.

With respect to experts and stakeholders, because we asked for their  opinions and did not conduct a survey in which every expert and  stakeholder could provide a response as to whether a certain issue was  relevant for them, we do not enumerate responses in the report. Instead,  we analyzed the responses and reported on common themes that arose  from our expert meeting and stakeholder interviews. A list of the experts  and questions discussed at our meeting of experts can be found in  appendix I.

To examine FCC’s efforts to promote broadband competition, we also  reviewed federal standards for internal control, which provide a  framework for improving accountability in achieving an entity’s mission.  Further details about our scope and methodology can be found in  appendix II.

We conducted this performance audit from June 2016 to September 2017  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The term “broadband” commonly refers to Internet access that is high  speed and provides an “always-on” connection, so users do not have to  reestablish a connection each time they access the Internet. Broadband  service may be “fixed”—that is, providing service to a single location, such as a customer’s home—or “mobile,” that is, providing service  wherever a customer has access to a mobile wireless network, including  while on the move, through a mobile device, such as a smartphone.  Broadband providers such as cable companies (e.g., Comcast) and  telecommunications companies (e.g., AT&T) sell broadband services to  individual consumers. Broadband provides Internet connectivity at various  speeds. In 2016, the FCC reported that fixed services typically provide  greater speeds than mobile services. In 2015, FCC set a benchmark  speed of 25 megabits per second (Mbps) download and 3 Mbps upload— ”25 Mbps/3 Mbps”—for fixed service to be considered as providing  Americans with access to advanced telecommunications capability, but  FCC has not set a similar benchmark for mobile broadband. We use  FCC’s benchmark speed of 25 Mbps/3 Mbps for purposes of identifying  whether a fixed Internet service provides broadband. We identify a mobile  service as broadband if it uses the LTE standard, an industry standard  that is part of the fourth generation of wireless telecommunications  technology, which is currently in common use. At present, some mobile  service providers are testing the fifth generation (5G) of wireless  technology.

Broadband providers extensively deploy and maintain infrastructure for  fixed and mobile broadband. Fixed service generally requires that wires  or cables be installed from infrastructure close to the consumer’s location.  This process can require attachment to utility poles or installation beneath  roadways. Fixed service can also be provided by non-wired means, such  as via satellites. This infrastructure connects to service providers’  linkages with the Internet. The process of gaining access to such  infrastructure or installing wires or cable can require permits from local or  other government entities or utility companies. Figure 1 illustrates several  different types of fixed services through which consumers can access  broadband.

Mobile service requires the installation of antennas that provide service to  consumers within a coverage area and may require the construction of a  tower on which to place the antenna. To install antennas, providers must  obtain permits from government entities with jurisdiction over an  antenna’s location or permission from public utilities to deploy antennas  on utility poles. Like fixed service providers, mobile service providers  must extensively deploy wires or cables to connect their antennas to the  Internet—the final connection with the consumer from the antenna is  wireless. A key difference between mobile and fixed service is that mobile  service provides connectivity to consumers wherever they are covered by  service, including while on the move, while fixed service provides  connectivity to consumers in a static location, such as a home. Mobile  service also requires radio frequency spectrum (spectrum), which mobile  service providers use to transmit data.

FCC regulates interstate and international communications, including  broadband service. It is directed by five commissioners, including one  who serves as chairman. FCC is tasked with developing and enforcing  regulations; reviewing transactions, such as mergers involving  telecommunications companies; licensing spectrum to commercial users,  such as broadband providers; and issuing reports on topics related to  broadband. FCC’s regulatory authority covers a variety of issues that can  affect broadband deployment, such as rates that certain utilities can  charge broadband providers for access to utility poles. When FCC  develops regulations or issues certain reports, it solicits comments and  input from the public, which can include stakeholders, such as broadband  providers, consumer advocates, and industry experts. FCC reviews  mergers and other transactions that involve the transfer of FCC licenses,  such as for commercial use of spectrum. Before a company may assign  an FCC license to another company or acquire a company that is already  holding a license, FCC is required to approve of the merger or other  transaction. FCC is responsible for licensing spectrum for commercial  use, which it does through auctions in which prospective users can bid for  the rights to spectrum licenses.

FCC collects data and issues reports on several topics related to  broadband service. Twice a year, it collects data on broadband  subscription, deployment, and service quality. It collects data from  providers on deployment of fixed broadband in census blocks and data on  mobile broadband coverage in discrete geographic areas. These data  provide information regarding the number of fixed and mobile broadband  providers reporting that service is deployed in at least a part of any given  census block. These data also provide information regarding speed, such  as the highest upload and download speeds of fixed broadband services  that a service provider advertises in a census block. FCC also collects  some fixed broadband price data as part of its annual Urban Rate  Survey. FCC issues reports on broadband-related topics, including its  annual Broadband Progress reports, Mobile Wireless Competition  reports, and Measuring Broadband America reports.

FCC’s data, as of December 2015, indicate that about 39 percent of the  population resides in a census block where two or more fixed broadband  providers report that service is deployed at 25 Mbps / 3 Mbps or higher  speeds in at least part of the census block (see fig. 2). Its data, as of  December 2015, indicate that approximately 99 percent of the population  has LTE coverage from at least two mobile broadband providers and that  approximately 89 percent have LTE coverage from at least four such  providers (see fig. 3).

section_title: Selected Experts and Stakeholders Said Costs Can Limit Broadband Competition and Cited Industry Consolidation and Similarity of Fixed and Mobile Service as Emerging Factors
subsections: section_title: Experts and Stakeholders Identified High Costs of Infrastructure, Spectrum, and Video Content as Limiting Competition
paragraphs: Experts and stakeholders told us that access and associated costs  related to infrastructure, spectrum, and video content are barriers to entry  in the broadband market. As discussed later, some of these barriers exist  in areas where FCC has taken actions, such as infrastructure access and  spectrum licensing.
subsections: section_title: Infrastructure
paragraphs: Experts and stakeholders we spoke to told us that the costs of deploying  broadband infrastructure are barriers to entry for any potential new  entrant. These costs can vary by area. For instance, an expert from a  broadband provider said that the cost of deploying infrastructure is a more  significant barrier to entry in rural areas than in urban areas. Rural areas  tend to have conditions such as low population-density or difficult terrain  that can increase a provider’s cost of deploying and maintaining  broadband networks. For example, mountains in some rural areas may  physically block mobile providers’ signals from reaching consumers.  Furthermore, in rural areas, the cost of deploying broadband  infrastructure is higher on a per-subscriber basis because rural areas  have fewer potential subscribers from whom providers can recoup  expenses than urban areas. According to a representative from a  broadband association, in an urban area, a fixed provider can run cable to  an apartment complex that may house hundreds of consumers, whereas  in some rural areas, the population is too low to support a single fixed  provider given the need for these providers to install wires or cables to  each consumer’s property. Consequently, there is often a higher level of  competition among fixed service providers in urban areas and  progressively less competition away from these areas. Figure 4 of the  Dallas-Fort Worth, Texas urban area illustrates an example of more  service providers in an urban center and fewer providers as distance from  the urban center increases.

Experts and stakeholders also told us that regulations and rules regarding  permitting, pole attachments, and rights-of-way are barriers to deploying  broadband infrastructure. For example, a broadband provider told us  providers must obtain permits from utilities, municipalities, and other  government officials before they can install antennas and other necessary  equipment. An expert from a broadband provider noted that the  processes for acquiring these permits are sometimes tailored for smaller  deployments of infrastructure. This can favor existing broadband  providers that are making relatively small additions to their network, but  can create delays for a new provider since establishing a network  requires a larger scale deployment of infrastructure. An expert from a  broadband association added that fees associated with these permits can  be costly.

Aside from fees, regulations associated with permitting processes can  result in delays, which also increase costs for potential market entrants.  For example, an expert from a broadband provider described how getting  access to poles for the installation of broadband infrastructure can take 2  to 3 months due to state regulations specifying the amount of time that  existing companies have to make room on the poles for new providers.  This expert explained that these delays become more significant when  building out fixed connections to consumers’ homes due to the large  number of poles—sometimes thousands per week—that service  providers must access to effectively deploy their infrastructure. While  costs and delays can arise, a representative of a utility association noted  that installing wires or cables under a road can decrease that road’s  lifespan, leading to increased costs for the municipality. Further, this  representative told us that wires or cables can sometimes run through a  municipality without providing that community with service, ultimately  leading to increased costs for the municipality without any offsetting  benefits.

section_title: Spectrum
paragraphs: Mobile providers rely on spectrum to transmit broadband service through  the air, but according to an economist, acquiring spectrum licenses can  be very expensive. Furthermore, spectrum is a finite resource. According  to a representative of a consumer advocacy organization, much of the  most valuable spectrum is already licensed to existing broadband service  providers. Some of this spectrum is also used by the federal government.  The representative also said spectrum at lower frequencies is valuable  because lower frequencies are able to travel greater distances. This  allows companies that hold licenses to lower frequency spectrum bands  to use fewer antennas (high-frequency spectrum bands require more  antennas, as discussed later). According to a representative of an  association for mobile broadband providers, because much of this low  frequency spectrum is already licensed, potential competitors may be at a  disadvantage since there is little such spectrum left for them to license.

An expert in mobile technology told us that greater sharing of spectrum  already assigned to commercial and government users may reduce the  extent to which spectrum is a barrier to entry and facilitate more  competition. For example, this expert told us that sharing such spectrum  can help potential entrants to the broadband market by allowing them to  lease spectrum from these existing users at a lower cost than purchasing  it through an FCC auction. As discussed later, FCC has taken some  actions to facilitate spectrum sharing, including addressing some  regulatory barriers, and to provide additional spectrum for the provision of  wireless service.

section_title: Video Content
paragraphs: In the fixed broadband market, experts and stakeholders identified the  ability to offer video content from television networks as an often  important factor in determining a service provider’s ability to be a viable  competitor. Many broadband providers are also television providers,  offering packages with multiple television networks for paid subscription.  These broadband providers “bundle” their broadband service with their  television service. An economics and antitrust expert told us that the  practice of bundling such video content with broadband service confers a  competitive advantage and that it is generally more expensive for  consumers to purchase those services separately. A representative from  a broadband provider added that customers often expect video content  service in addition to broadband service.

Acquiring video content from television networks can be expensive for  smaller broadband providers. Television networks charge providers fees  for delivering their content to consumers. According to the economics and  antitrust expert, a provider with more subscribers has more bargaining  ability and can therefore negotiate lower fees for programming. A  representative of a broadband provider association noted that this  negotiating pattern favors larger incumbent providers that have larger  subscriber bases. The relatively higher programming fees for any  potential smaller or new competitor are, therefore, a barrier to entry to the  broadband market. The economics and antitrust expert added, however,  that in the future consumers may drop television service subscriptions  due to the increasing availability of video content on the Internet, such as  through services like Netflix.

section_title: Experts and Stakeholders See Industry Consolidation and Growing Similarity of Fixed and Mobile Services as Increasingly Affecting Competition
paragraphs: The experts and stakeholders we spoke to told us that there has been  consolidation in the broadband industry marked by several horizontal and  vertical mergers in recent years, and some experts expect more in the  years ahead. Figure 5 below illustrates a horizontal and a vertical merger.  A horizontal merger represents the consolidation of two companies that  offer the same services, such as the merger of two providers of cable- based broadband. A horizontal merger may reduce competition in a  market because the merger is the union of two prior competitors, resulting  in a decrease in the number of competitors in a market. Such mergers are  reviewed by FCC for potential effects on consumers, as discussed later.

Vertical mergers—mergers that involve companies in a buyer-seller  relationship, such as broadband and televisions providers (buyers) and  television networks (sellers)—can also affect competition. An expert in  antitrust litigation said that vertical mergers have the potential to limit  competition if new services acquired by a broadband provider can affect  the business of its competitors. For example, a fixed broadband and  television provider that acquires a television network important to its rival  competitors may increase the costs that those competitors pay for that  network’s content. FCC cited this as a concern in the proposed merger  between Comcast, a television and broadband provider, and  NBCUniversal, a television network and video content producer. An  expert from a consumer advocacy group told us he expects more future  vertical mergers between broadband and television providers and video  content producers because video content is an expensive input for  broadband and television providers.

According to experts and stakeholders we spoke to, fixed and mobile  broadband services are not fully substitutable for one another, but may be  in the future. An expert from a broadband association noted that these  services are becoming increasingly similar to one another and that this  similarity is likely to become more pronounced. Competition may increase  in such a scenario because increasing similarity could result in the two  services becoming substitutes, and therefore lead to fixed providers  facing competitive pressure from mobile providers. A number of factors  demonstrate the similarity between fixed and mobile services, for  example:  Increasingly similar infrastructure: Industry experts said that the  infrastructure for the 5G wireless network in higher-frequency  spectrum bands will require high-density deployments of small  antennas because 5G will use spectrum that transmits data over  shorter distances than existing mobile technology. Consequently,  such 5G networks will rely on an extensive installation of fiber-optic  cables to provide high speed Internet connections to these antennas  that service relatively small coverage areas. According to an  economist with expertise in the broadband industry, this reliance on  building out fiber-optic cables is similar to fixed broadband  infrastructure deployment in that it relies heavily on the installation of  wires or cables. This same economist noted that this might result in  less competition because some mobile companies may be unable to  keep up with the costs required to install and maintain additional wires  or cables and other infrastructure necessary for some 5G service.  Just as mobile broadband providers are deploying infrastructure that  is similar in some respects to fixed providers, an expert from a  broadband infrastructure association said that fixed providers are  deploying infrastructure similarly to mobile providers. For example,  one fixed broadband provider told us it is building out Wi-Fi hotspots— areas that allow its customers to remotely connect their devices to the  Internet through Wi-Fi—with the goal of providing subscribers  connectivity away from home while they remain in range of those  hotspots.

Increasingly similar speed: Experts and stakeholders said that, if  providers successfully deploy it, 5G is likely to provide customers with  speeds comparable to those typically received via fixed broadband.  However, a broadband industry expert noted that consumers’ demand  for speed may continue to grow, particularly due to technologies that  require fast Internet speeds such as higher video resolutions and  virtual reality. Further, an industry expert told us that mobile providers’  future speed increases will likely be surpassed by fixed providers’  future speed increases. Under such a scenario, improvements in fixed  providers’ speeds could possibly limit the degree to which mobile  speeds become comparable to those provided by fixed service.

Increasingly similar video content: According to an industry expert,  media transmitted via the Internet, such as Netflix, is becoming more  popular with consumers. According to a separate expert from a  broadband provider association, mobile broadband providers are  increasingly looking to offer unlimited data service plans, which could  make mobile providers more competitive with fixed providers.  According to an industry stakeholder, while subscribers have been  able to stream video on their mobile devices, streaming video typically  counts against a subscriber’s monthly data allowance. This  stakeholder noted that generally subscribers to fixed broadband  service do not have such monthly data allowances. Recently,  however, national mobile broadband providers have begun offering  subscribers unlimited video content that would not count against their  monthly allowance. One industry expert told us that unlimited plans  may make mobile service more substitutable with fixed service. The  expert said that these unlimited plans, however, do not offer the same  level of video resolution available on fixed connections, making the  service more appropriate for smaller mobile devices than larger  televisions.

section_title: FCC Has Undertaken Rulemakings and Other Actions to Promote Competition but Lacks Information on Their Effectiveness and Competition’s Effect on Consumers
subsections: section_title: FCC Has Used Rulemakings, Spectrum Auctions, and Merger Reviews to Promote Competition but Lacks Information on the Effectiveness of These Actions
paragraphs: FCC has used its rulemaking process and other actions to develop  regulations and rules intended to reduce costs and delays associated with  deploying broadband infrastructure, for example:  In 2014, FCC issued new regulations that, among other things, aimed  to quicken environmental and historic reviews related to deployment  of wireless infrastructure and clarify FCC’s timelines for states and  municipalities to complete review of wireless applications. In 2016,  to further support those new regulations, the agency entered into an  agreement with the National Conference of State Historic  Preservation Officers and the Advisory Council on Historic  Preservation to exclude some types of small wireless infrastructure  from certain historic review processes.

In 2015, FCC revised its regulations to address a disparity in the rates  that utilities could charge telecommunications carriers versus cable  providers for attaching their equipment to poles. According to FCC,  keeping pole attachment rates low and consistent through these  revised rules would support broadband deployment and competition.

In March 2017, FCC established a Broadband Deployment Advisory  Committee to identify regulatory barriers to infrastructure investment  and make recommendations to the commission on how to reduce or  remove such barriers in order to accelerate broadband deployment.

In April 2017, FCC sought public input on rules to: (1) accelerate  broadband deployment by removing barriers to wireline infrastructure  investment at the federal, state, and local level; (2) speed the  transition from copper and other older infrastructure to fiber-optic  cables and other infrastructure that supports broadband; and (3)  reform FCC regulations that increased costs and slowed broadband  deployment.

In April 2017, FCC also sought comment on additional ways to  expedite wireless facility deployment, including expediting state and  local processing of wireless facilities siting applications and potential  modifications to the processes for historic preservation and  environmental reviews of such applications.

Stakeholders we spoke to told us that FCC’s rulemakings and other  actions to reduce infrastructure costs and delays are helpful in supporting  broadband deployment and, thus, competition. For example,  representatives of an industry association told us that FCC’s 2016  agreement with the National Conference of State Historic Preservation  Officers and the Advisory Council on Historic Preservation will reduce  costs and time frames associated with deploying wireless infrastructure  and subsequently promote greater competition. Representatives of  another industry association added that FCC’s rules to keep pole  attachments rates low and consistent would help reduce costs and  uncertainties that providers experience when deploying wires or cable on  utility poles.

Other stakeholders told us they believe additional FCC efforts are needed  to address barriers to deploying broadband service. For example,  representatives of a company that provides mobile broadband service  noted that FCC’s efforts to streamline access to utility poles were a step  in the right direction but that additional efforts were needed, including  steps to require timely access to utility poles for providers to deploy  infrastructure for broadband service. In April 2017, the agency proposed  additional changes to its pole attachment rules in two proceedings that  may address some stakeholder concerns, including steps to require utility  companies to provide more timely access to utility poles. Among other  things, FCC proposed actions to speed broadband provider access to  utility poles and establish a 180-day period for FCC resolution of pole  access complaints by providers. The agency also sought comment on  improving state and local infrastructure reviews, such as zoning requests,  and how the FCC’s rules and procedures for complying with the National  Historic Preservation Act and National Environmental Policy Act can be  modified to minimize costs and delays.

FCC has auctioned spectrum and taken other actions to facilitate wider  access to spectrum, for example:  In 2015, FCC adopted a new bidding preference for rural telephone  companies to help them to acquire spectrum.

In 2015, FCC also adopted new rules to facilitate greater spectrum  sharing, including removing barriers to commercial use of some  spectrum that was previously reserved for federal use.

In 2016, FCC adopted its “Spectrum Frontiers” proposal in which FCC  has started to identify and make available new spectrum capable of  supporting advances in 5G technologies.

From 2016 to 2017, FCC also conducted its first “incentive auction”  designed to repurpose spectrum currently used for broadcast  television for use in providing mobile broadband. Among other  things, the auction allowed broadcast TV providers to give up  spectrum in return for payment and, in doing so, allowed broadband  providers to use this spectrum for broadband service.

Industry stakeholders told us that FCC’s actions to facilitate spectrum  access were helpful to increasing competition in the broadband market.  For example, representatives of a fixed broadband provider association  noted that FCC’s Spectrum Frontiers initiative freed up spectrum that  could enable a fixed provider to deploy mobile service and thus compete  with existing mobile broadband providers. Representatives of an industry  association for mobile providers added that FCC had helped smaller  companies compete for spectrum by setting smaller geographic license  sizes in some spectrum auctions. The representatives said that this has  allowed smaller companies to more effectively compete against larger  companies because it can be difficult for smaller companies to compete  for spectrum licenses when such licenses cover larger geographic areas.  Representatives of a consumer advocacy group added, however, that  FCC’s efforts have not been effective at helping smaller companies  compete for access to spectrum because, according to these  representatives, it can still be too costly for some companies to acquire  spectrum, regardless of the agency’s efforts.

As discussed, FCC is required to review mergers and other transactions  between telecommunications companies. In doing so, FCC is required to  determine whether the proposed transaction, such as a merger between  two companies, would serve the public interest, convenience, and  necessity, and preserve and promote competition. According to FCC  officials, the agency examines not only whether competition would be  harmed by a transaction but also whether it would be enhanced. FCC  may approve such a transaction outright or with conditions. For example,  in 2015, it reviewed and approved a transfer of licenses between AT&T, a  telecommunications company, and DIRECTV, a satellite-based television  provider. In reviewing and approving the proposed transfer, FCC required  the new combined company to build out fiber-optic cables for broadband  to 12.5 million locations to help offset what the agency determined would  be reduced competition as a consequence of the merger.

Representatives of an industry association told us that FCC’s transaction  review process has helped competition by restricting transactions among  large companies that would make it more difficult for smaller broadband  providers to compete. Representatives from a consumer advocacy group  similarly noted that the agency’s transaction review process has  supported competition by keeping large broadband providers from  merging and, thus, reducing the number of options for consumers.  However, as previously discussed, some experts and stakeholders told  us they believe that more industry mergers may be inevitable given the  high costs, such as for video content.

Although FCC has taken a number of actions to promote broadband  competition, it has not assessed how well these actions have been  working toward that end. FCC officials told us that the agency’s actions,  including regulations, spectrum auctions, and merger reviews were either  ongoing or too recent for FCC to be able to fully evaluate for their effect  on competition. Further, FCC officials noted that evaluating the  effectiveness of its actions on competition can be difficult because it often  takes several years before such actions can have a measurable effect,  and that during that time, factors beyond the agency’s influence can affect  competition, such as changes in consumer demand for broadband.  Stakeholders’ views varied regarding the effectiveness of FCC’s actions  to promote competition. For example, some stakeholders said that FCC  had taken helpful steps to address barriers providers face in deploying  broadband infrastructure, while others noted that additional efforts were  needed. A broadband provider added that FCC needed to do more to  help ensure that its actions were keeping pace with the quickly evolving  market. Further, as indicated by FCC’s broadband data, competition does  not exist in all areas. As discussed above, about half of Americans have  access to only one fixed broadband provider, and although most  Americans have access to multiple choices for mobile broadband service,  FCC and experts acknowledge that fixed and mobile service are not fully  substitutable for one another.

While challenges may exist to a full evaluation of the effect of FCC’s  actions in promoting competition, the agency has other ways through  which it could obtain input on its actions and assess how well they are  working. Specifically, FCC regularly solicits input from stakeholders and  others on a variety of issues, such as how to benchmark speed, to inform  its annual broadband progress reports. FCC has sought input for these  reports from stakeholders on actions it should consider taking moving  forward to promote broadband competition, but it has not sought such  input on how well its actions are working to promote broadband  competition. Having additional input on the effectiveness of the agency’s  actions could help FCC better understand whether its range of  approaches are successful in promoting competition, as well as whether  those actions remain relevant in the face of emerging factors that could  affect competition. Factors that we previously discussed, including  industry consolidation and the development of 5G technologies, have the  potential to significantly change the broadband market and thus have  implications for competition. For example, an expert from a broadband  provider told us that 5G technology may be too costly for some providers  to remain competitive, leading to a potential reduction in the number of  mobile broadband providers.

Federal standards for internal control, which provide a framework for  identifying and addressing major performance and management  challenges facing agencies, stress the importance of obtaining  information from external sources that may have a significant effect on an  agency achieving its goals. Without input from stakeholders and others  affected by these actions, FCC may be missing key information to help it  determine if any changes are needed in its approach for promoting  competition.

section_title: FCC Assesses Some Indicators of Consumers’ Broadband Service Experience but Lacks Information on How Competition Affects Service Price and Quality
paragraphs: FCC has reported that competition can help consumers get lower prices  and higher service quality from their broadband providers; however, the  agency has not identified an approach to regularly examine how  competition affects broadband prices and service quality. A stated  purpose of the Telecommunications Act, which amends the  Communications Act of 1934, is securing lower prices and higher quality  services for consumers and encouraging the rapid deployment of new  telecommunications technologies through FCC action to promote  competition and reduce regulation. Specifically, the Act requires FCC to  annually assess whether advanced telecommunications capability—a  term that, as discussed, encompasses broadband—is being deployed to  all Americans in a reasonable and timely fashion. In 2011, FCC  considered collecting broadband price and service quality data from  providers as part of its biannual collection of data on broadband  deployment but decided against doing so. According to FCC officials,  the agency did not pursue collection of these data given the response to  its inquiry, including providers’ concerns about the burden to submitting  such data. For example, representatives of an association for broadband  providers stated that broadband price data are highly variable because of  promotion pricing, such as temporary lower introductory rates, and that  clearly identifying the price of broadband is challenging when a consumer  is paying for a bundled package with video content or other services.

FCC collects data and issues reports on broadband deployment, which  can help FCC and congressional decision-makers understand where  consumers have broadband service and how many service providers they  have to choose from, among other metrics related to consumers’  experience with broadband. For example, FCC collects broadband  deployment and subscription data from certain broadband providers. FCC  publishes some of this and other information in its annual Broadband  Progress Report, providing some information on the extent of fixed  broadband deployment and speeds in given areas of the country. This  report shows that the number of broadband providers varies considerably  depending on where a consumer is located, with urban areas generally  having more provider options than rural areas. FCC also analyzes  subscription data on Internet access mainly for fixed service in its Internet  Access Services reports. For mobile broadband, the agency annually  reports industry and financial data in its Mobile Wireless Competition  Reports, including assessments of deployment, subscribership, and price  metrics. Further, FCC collects actual speed data and annually  compares fixed providers’ speed data with their advertised speeds in its  Measuring Broadband America reports. FCC collects some fixed  broadband price data as well through a survey of urban broadband  service providers.

FCC’s data and reports, as discussed, provide information on the extent  of broadband deployment and other indicators of consumer experience  with broadband service, but these data and reports do not show how  broadband prices and service quality vary based on the number of  choices that consumers have for broadband service. FCC officials told us  that it is difficult to assess the effect of competition on broadband price  and service quality without data showing prices and service quality  indicators by the number of providers in a given area. Stakeholders we  spoke to did not have consistent views about whether having more or  fewer providers serving selected markets had effects on price and service  quality in all markets. For example, representatives of a broadband  provider noted that when it entered a market in which there was  previously only one broadband provider, the other provider lowered its  prices and offered higher quality service to customers. In contrast, some  stakeholders noted that competition in a market does not necessarily  mean that consumers will pay lower prices or have higher quality service.  For example, representatives of one broadband provider told us that  some providers use national or regional pricing and service plans and that  it may not be practical to change these plans in areas with more or less competitors. Further, an industry expert told us that the high cost of  deploying fixed broadband infrastructure may prevent a provider from  offering lower prices or improving its service when faced with competition  because the provider has to recoup its initial investment.

As discussed earlier, experts and stakeholders noted the potential for  further industry consolidation and increasing similarity of fixed and  mobiles services. While some experts and stakeholders noted that the  increasing similarity of fixed and mobile services could lead to more  competition because fixed and mobile providers would compete with one  another, others told us that these developments could also lead to fewer  choices for consumers and, possibly, higher prices and less pressure to  improve service quality. For example, as discussed, industry  consolidation could lead to fewer broadband choices for consumers.  Further, representatives of a consumer advocacy group noted that the  costs of deploying 5G technology may lead to either consolidation or the  exit of some existing mobile providers, which the expert added could lead  to higher prices due to the smaller number of providers that remain in the  market.

As noted earlier, federal standards for internal control stress the  importance of obtaining information from external sources that may have  a significant impact on an agency achieving its goals. While additional  data collection may not be a viable approach, given challenges such as  isolating prices for broadband from prices for other services in a bundled  package, FCC has alternative methods of information collection that could  help it regularly examine the effects of competition on price and service  quality for consumers. Specifically, FCC seeks comments from  stakeholders and others on a number of topics to inform its annual  broadband progress reports. FCC reviews and includes reference to  these comments in its annual reports. However, the agency has not  sought comments for these reports on how the number of broadband  providers affects the prices and service quality that consumers  experience with broadband service. Such information could inform FCC’s  actions to promote competition in an effort to secure lower prices and  higher quality broadband services for consumers.

section_title: Conclusions
paragraphs: The broadband industry is subject to ongoing and emerging  developments that may include industry consolidation and increasing  similarity of fixed and mobile service options. FCC provides a wealth of  information on broadband, including annual reports that describe the state  of the broadband market and present opportunities for FCC to solicit  feedback on its actions from stakeholders and others in the public.  Despite FCC’s efforts, about half of Americans have access to only one  fixed broadband provider. While most Americans have several choices for  a mobile broadband provider, fixed and mobile service do not provide the  same experience. Moving forward, FCC could take steps to better  understand how well its actions to promote broadband competition are  working. In particular, by using its established process for soliciting public  input as part of its annual reporting on the broadband market, FCC could  gain useful insight on whether its actions are working as anticipated or, if  not, how they might be corrected. Further, while FCC collects a variety of  data related to broadband and reports on a variety of issues related to  consumers’ broadband experience, it does not examine how broadband  competition affects the prices and service quality that consumers  experience. FCC’s past experience demonstrates that additional  collection of these data may not be viable. As noted, however, FCC has  an established process for seeking public input that could help the agency  better understand the effect of competition on broadband prices and  service quality. Such information could help FCC and other decision  makers better prioritize and focus FCC’s various efforts to promote  broadband competition to secure lower prices and higher quality service  for consumers in a rapidly evolving market.

section_title: Recommendations
paragraphs: We are making the following two recommendations to the Chairman of  the FCC:

As part of its annual reporting on the broadband market, FCC should  solicit and report on the views of stakeholders and others on how well  FCC’s actions promote broadband competition. (Recommendation 1)

As part of its annual reporting on the broadband market, FCC should  solicit and report on the views of stakeholders and others on how  varying levels of broadband deployment affect broadband prices and  service quality. (Recommendation 2)

section_title: Agency Comments
paragraphs: We provided a draft of this report to FCC for review and comment. FCC  concurred with our recommendations and provided technical comments,  which we incorporated, as appropriate. FCC’s comments are reprinted in  appendix III.

We are sending copies of this report to the appropriate congressional  committees and the Chairman of the FCC. In addition, the report is  available at no charge on GAO’s website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix IV.

section_title: Appendix I: List of Experts and Discussion Questions
subsections: section_title: Meeting of Experts Participants
paragraphs: Jonathan Adelstein, Wireless Infrastructure Association

Phillip Berenbroick, Public Knowledge

Richard Clarke, AT&T

Gerald Faulhaber, the University of Pennsylvania

George Ford, the Phoenix Center for Advanced Legal and Economic

Shane Greenstein, Harvard Business School

Russell Hanser, Wilkinson Barker Knauer (moderator)

section_title: Discussion Questions
paragraphs: How should “competition” in the broadband market be defined and  measured?

What is known about the extent of competition in the residential  broadband market today?

How have consumers been affected by the current level of  competition in the fixed broadband market?

How have consumers been affected by the current level of  competition in the mobile broadband market?

How has the content market been affected by the current level of  competition in broadband?

How are broadband providers affected by competition?

What factors most hinder competition in broadband markets?

What factors attract competitors to a broadband market?

Which factors can government most affect? Which can government  least affect?

How can industry support competitive broadband markets?

How is the state of competition in the broadband market likely to  change in the next 5 years?

What will be the likely effects of these changes on the broadband  market?

What is the appropriate role, if any, for the Federal Communications  Commission (FCC) with regard to broadband competition?

What should be FCC’s top priorities with regard to broadband  competition from your perspective?

section_title: Appendix II: Objectives, Scope, and Methodology
paragraphs: This report covers (1) selected experts’ and stakeholders’ views on the  factors currently affecting broadband competition and the factors that may  affect it in the future and (2) the actions FCC has taken to promote  broadband competition and assess the effectiveness of its actions, as  well as to examine consumers’ experience with broadband competition.

To obtain expert and stakeholder views on factors that affect competition  in broadband, we convened a meeting of 19 experts and interviewed 23  stakeholders. Our meeting of experts was held at the National Academy  of Sciences (NAS) in February 2017 over one-and-a half days. Staff from  NAS assisted us in identifying experts for the meeting. To identify the  experts appropriate for this meeting, NAS relied on staff experience and  professional judgment drawn from its Board on Science, Technology, and  Economic Policy. Experts were selected by us with the goal of ensuring  that a broad spectrum of views was represented from multiple broadband- related areas, such as those of broadband providers, academia, and  consumer and industry groups. The range of the experts’ knowledge  included both fixed and mobile broadband services.

The meeting was moderated by one individual who guided the other 18  experts though a series of 14 questions that served as the basis for  discussion. We developed these questions for the meeting of experts in  consultation with NAS staff. This meeting of experts was planned and  convened with the assistance of NAS to better ensure that a breadth of  expertise was brought to bear in the meeting’s preparation; however, all  final decisions regarding its substance and expert participation were our  responsibility. The meeting was recorded and transcribed to ensure that  we accurately captured the experts’ statements, and we analyzed the  transcripts to identify the experts’ key statements regarding factors that  affect competition in the broadband market or that may do so in the  future. Specifically, we developed categories for expert statements and  then coded key portions of the transcript into those categories based on  the consensus of multiple analysts.

We selected the 23 stakeholders that we interviewed based on our prior  telecommunications work, other broadband competition literature, and  recommendations from stakeholders we interviewed. We selected  broadband providers to include companies that offer broadband via a  variety of methods, such as satellite, fiber-optic cables, and coaxial cable,  among others. We interviewed these stakeholders about their knowledge  of factors affecting broadband competition. Stakeholders were from: 8  broadband providers, 7 associations representing broadband providers  and utilities, 4 financial services firms, and 4 consumer advocacy groups.

With respect to experts and stakeholders, because we asked for their  opinions and did not conduct a survey in which every expert and  stakeholder could provide a response as to whether a certain issue was  relevant for them, we do not enumerate responses in the report. Instead,  we analyzed the responses and reported on common themes that arose  from our expert meeting and stakeholder interviews. Because we  selected a non-generalizable sample of stakeholders and experts to  discuss factors that affect broadband competition, the information cannot  be used to make inferences about a population.

To identify and examine the actions FCC has taken to promote  broadband competition, we reviewed statutes and regulations pertaining  to FCC’s role with regard to broadband and federal standards for internal  control, which provides a framework for improving accountability in  achieving an entity’s mission, and interviewed FCC officials about  actions taken by FCC to promote competition. We reviewed FCC  documentation on actions it has taken to promote competition, including  orders, notices of proposed rulemaking, and FCC comments on proposed  mergers. We interviewed FCC officials about these actions and how FCC  assesses their effectiveness. Further, we asked stakeholders, as  identified above, about the effectiveness of FCC’s actions to promote  broadband competition. We also reviewed information that FCC collects  and reports on related to consumer experience with broadband, including  its twice yearly collection of broadband deployment data from broadband  providers, as described below, the 2016 Broadband Progress Report,  19th Mobile Wireless Competition Report, and other reports.

We assessed broadband deployment using FCC’s fixed and mobile  broadband deployment data collected through its Form 477, which  broadband providers complete and submit to FCC. We used FCC’s fixed  speed benchmark for advanced telecommunications capability of 25  megabits per second (Mbps) download and 3 Mbps upload to classify  fixed services as broadband, and Long Term Evolution (LTE) coverage  to classify the mobile service as broadband because LTE is used by the  mobile industry to identify service as broadband.The data we used  presented broadband deployment as of December 2015, the most recent  period for which both fixed and mobile data are available. These data  include, among other types of information, the names of fixed and mobile  providers, the census blocks in which fixed providers offer service,  geographic areas covered by mobile providers, whether the fixed service  is for residential consumers, the maximum advertised download and  upload bandwidth offered by fixed providers, and the type of technology  offered by mobile providers. We combined FCC’s data with 2010 U.S.  Decennial Census of Population data to determine approximate numbers  of U.S. residential consumers who received fixed and mobile broadband  service in a given census block and the number of different companies  that offer service in those blocks. A census block is the smallest  geographic unit used by the Census Bureau for the collection of data;  census blocks have an average population of about 28 persons.

We interviewed FCC officials and reviewed relevant documentation to  determine the appropriateness and reliability of these data for the  purpose of summarizing the deployment of broadband service. To assess  the reliability of 2010 census data, we reviewed census documentation.  Based on this information, we concluded that these data were reliable for  the purpose of creating summary statistics and illustrations of broadband  availability by number of U.S. residents. We acknowledge that FCC’s  broadband data collected as part of FCC’s Form 477 overstate fixed  broadband availability by counting an entire census block as served by  providers who serve some, but not necessarily all, of that block. This  limitation could be particularly problematic in areas with large census  blocks. Despite this limitation, we believe these data represent the best  snapshot of fixed broadband availability. Regarding FCC’s Form 477  mobile broadband data, we acknowledge that service quality can vary  depending on weather and other interference, as well as the amount of  demand being placed on a mobile network at any given time. Despite this  limitation, we believe these data provide the best snapshot of mobile  broadband availability.

We conducted this performance audit from June 2016 to September 2017  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

section_title: Appendix III: Comments from the Federal Communications Commission

section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Andrew Huddleston (Assistant  Director), James Leonard (Analyst-in-Charge), Melissa Bodeau, Kristen  Farole, Camilo Flores, Terence Lam, John Mingus, Malika Rice, Sean  Standley, and Walter Vance made key contributions to this report.


Question-summary annotations: questions: question: How successful has the FCC been in promoting competition?
answer: The Federal Communications Commission (FCC) has undertaken rulemakings, spectrum auctions, and merger reviews to help promote competition, but lacks information on how well these actions promote competition. Despite such actions, about half of Americans have access to only one fixed provider (see figure).

question: How could FCC seeking input on its actions to promote competition help?
answer: FCC has a process for seeking stakeholders' and others' input on broadband-related topics and annually reporting on these views, but does not solicit such input on its actions to promote competition. Such input could help FCC determine if any changes are needed to its actions to support competition relative to current and emerging factors in the broadband market.

question: What is contained within the FCC's annual reports?
answer: Further, FCC's annual reports contain some information on consumers' experience with broadband competition, such as the number of provider options. However, these reports do not include stakeholder input on how the number of provider options affects prices and service.

question: What views do stakeholders hold regarding competition?
answer: Some stakeholders said that competition was important to securing lower prices and better service, while others said competition does not necessarily lead to these benefits because some providers offer the same pricing and service quality everywhere regardless of whether they face competition in a particular location.

question: What benefits can the FCC gain by listening to stakeholder input?
answer: Regularly seeking stakeholder input on how varying levels of broadband deployment affect price and service quality, could help FCC to better focus its efforts to secure lower prices and higher service quality service for consumers.

questions: question: What is FCC's role in the market?
answer: FCC has a role in promoting competition in the market for broadband, which provides consumers with high-speed Internet through fixed service at home and mobile service through devices such as smartphones.

question: What does FCC's data indicate?
answer: FCC data indicate that about 90 percent of Americans had access to fixed service as of December 2015, but that less than half had more than one choice for such service.

question: What did providers offer to most Americans?
answer: As of that time, FCC reported that multiple providers offered mobile broadband coverage to most Americans.
child_questions: question: What are benefits of mobile coverage?
answer: Mobile service increasingly allows access to Internet content that was previously accessed primarily through fixed service.

questions: question: What was GAO asked to do?
answer: GAO was asked to examine factors affecting broadband competition.
child_questions: question: How did GAO go about investigating the factors affecting broadband competition?
answer: GAO analyzed FCC data as of December 2015; reviewed relevant statutes and FCC documentation; interviewed FCC officials and 23 stakeholders selected to include various types of broadband providers and associations representing industry and consumers; and convened a meeting of 19 experts from academia, industry, and consumer groups with assistance from the National Academy of Sciences.

question: What does the report cover?
answer: This report covers (1) selected experts' and stakeholders' views on factors affecting broadband competition and (2) how FCC promotes broadband competition and examines consumers' experience with it.