Broadband, Start Ups and Policy

It’s a risky and costly endeavor to start up your own business. At the same time, of course, those start ups are critical to innovation, economic growth and job creation.

Consider that the Kauffman Foundation has found that young firms were responsible for nearly all the net job creation in the United States between 1980 and 2005, with new firms creating approximately 3 million jobs each year, and 40 million new jobs since 1980.

At the same time, advancements in telecommunications over the past few decades have served as valuable tools for entrepreneurs. A new report co-authored by Internet Innovation Alliance and Small Business & Entrepreneurship Council, titled “Start Up Savings,” looks at 10 key areas where broadband reduces the cost barriers for starting a new business.

Consider the savings in percentage terms between more traditional services and options opened up due to broadband access and service:

• Accounting services – potential savings of 87%

• Printing services – potential savings of 43%

• Telephone services – potential savings of 62%

• Website design services – potential savings of 88%

• Use of mobile apps – potential savings of 10%

• Logo design services – potential savings of 92%

• Home office option – potential savings of 100%

• Incorporation services – potential savings of 75%

• Video conferencing vs. travel – potential savings of 95%

• Online news vs. newspaper subscriptions – potential savings of 100%



Based on very conservative assumptions, in dollar terms, these savings could top $16,000 for a start up enterprise. That’s huge.

Of course, there’s a role here for government in terms of making sure spectrum is available to the marketplace, and allowing that spectrum to be allocated by the market to its most productive purposes.

Indeed, as noted in a recent Reuters report, many key industry players point to a looming spectrum crisis. Glenn Lurie, AT&T's president of emerging enterprise and partnerships, was quoted, “Everybody is going to be talking about the fact that in the U.S. we have a spectrum crisis. That crisis is everywhere and it's a crisis that is hitting everybody.”

In a May 8 report on the CTIA Wireless conference in New Orleans, The Wall Street Journal noted, “Steve Largent, CTIA’s president, said spectrum was crucial for stimulating the American economy, as wireless services have helped create new jobs and innovations. ‘We simply need more spectrum in a marketplace with more consumer demand,’ Mr. Largent said. ‘More spectrum means more opportunity for you.’”

But regulatory uncertainty exists, including government regulators killing the AT&T/T-Mobile USA deal, and questions about how regulators will eventually come down on the Verizon Wireless $3.9 billion deal to buy spectrum from cable companies. That’s not good for investment, innovation and supply.

Bruce Mehlman, co-chairman of the Internet Innovation Alliance and former Assistant Secretary of Commerce for Technology Policy, summed things up nicely: “Broadband is an invaluable tool that allows entrepreneurs to pull America up by her bootstraps. Yet too many communities are still without high-speed Internet or lack robust service; universal broadband deployment must be a top priority for our nation, and this goal is best met through policies that allow the markets to work. Now more than ever we need more spectrum in the hands of those actually serving our entrepreneurs, to ensure robust and reliable Internet service. Policies that allow the markets to deploy these resources to their highest and best use, rather than politicians’ preferences, will lead to a stronger entrepreneurial ecosystem – that means more innovation, more jobs, more cost-savings for consumers and more start-up businesses in the United States.”

In the end, let the market work, so that entrepreneurs and consumers can reap the full rewards that broadband currently provides, and will offer in the future.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

U.S. Needs More Spectrum to Accomodate Explosive Growth in Small Business Apps Use

SBE Council's landmark study, "Saving Time and Money with Mobile Apps: A Small Business 'App'ortunity," continues to receive widespread media coverage. Recent pieces focus on the explosive growth of mobile app usage by small businesses, and how these practical and innovative tools are saving firms time and money while improving productivity.

See the recent articles here:
DIY Apps Save Small Business Time and Money, BusinessWeek
Mobile Apps Fuel Small Businesses, McClatcy/Tribune

The explosive growth in apps (and their rapid adoption by consumers) also demonstrates why the U.S. needs more spectrum to accomodate and encourage this growth. This would start with a sound and common sense approach toward spectrum auctions. Unfortunately, the FCC seems to be doing all it can to mess them up. Similar to what the Administration is doing in other sectors (i.e.: energy), the FCC wants to pick winners and losers. In this case, choosing what companies will be able to participate in the auctions. It wants to "manage the outcome" of the auctions to ensure competition. That means it could exclude the biggest players that actually have the resources to purchase this valuable spectrum. Oh, and they need the spectrum too.

The current FCC is only impeding progress, something it has been doing quite well over the past several years. It has become the single greatest barrier to building out our nation's broadband and wireless infrastructure. The FCC is hamstringing investment, innovation, job growth, U.S. competitiveness, and in the case of spectrum auctions, an inflow of revenue to the federal government. It's time for Congress to start asking questions about what purpose such a government agency serves, particularly if it believes its main job is to micromanage a successful industry whose growth and vibrancy is so critical to the entire U.S. economy.

In regard to spectrum auctions, a bill has been introduced in the House to limit the damage that the FCC can do -- thank goodness. All players should be able to bid on spectrum, and the FCC must not be allowed to discriminate against specific companies. We all know what happens when government picks winners and losers in the marketplace. Time and again, industrial policy has proven itself a failure. The economic stakes are much too high to allow the FCC to pursue and prove (yet again) the failure of such misguided policy.

The FCC is overreaching. It is putting U.S. economic and innovative strength at risk, and Congress must hold it accountable.

Karen Kerrigan, President & CEO

Picking Auction Winners and Losers

Politicians and their appointees often exhibit unique talents for manipulating language to mislead. That was, in part, the case when Federal Communications Commission (FCC) Chairman Julius Genachowski spoke to the Consumer Electronics Show on January 13 on the topic of incentive spectrum auction legislation.

Genachowski identified the issue adequately: "If we don't authorize incentive auctions and make much more spectrum available for mobile broadband, we are going to get swamped by an ocean of demand and risk our competitive advantage in the race to lead the world in mobile innovation... And future innovators will be incentivized to launch their businesses in countries that beat us in the race for the best wireless infrastructure. The price of that will be measured in lost jobs, investment, and innovation. That's why the incentive auction concept needs to become law now."

So far, so good. After all, the idea behind these incentive auctions is that current licensees could, if they chose, give up their current license rights for a share of the auction proceeds, while the FCC would be able to auction spectrum it currently controls along with this spectrum held by private entities so as to increase the potential efficiency of spectrum usage. Consumers, including small business owners and their employees, investment, innovation and the economy would benefit.

However, Genachowski does not like the fact that the bipartisan legislation moving in Congress would allow any firms meeting technical, financial and character qualifications required to hold a license to participate in these auctions. That's an odd position for the FCC, especially if the commission truly is interested in the most efficient allocation of spectrum. But apparently Chairman Genachowski is interested in having the FCC free to pick the winners and losers when it comes to spectrum allocation.

But rather than simply making its case in a straightforward manner, Genachowski actually tries to dress up such political controls as being pro-market. For example, he said, "Why would it be a mistake to tie the agency's hands? This is an incredibly fast-moving space, and any policy that pre-judges or predicts the future runs a great risk of unintended and unfortunate consequences.

We don't know what the world will look like when the FCC adopts auction rules... We know how hard it is to change a law. In this dynamic space, locking restrictions into a statute would be a real mistake. And the consequences of a mistake are greater than in the past. We've never had more global competition, and the race to lead the world in mobile innovation is particularly intense. The costs of tying our hands could be devastating in the fast-moving and competitive global economy."

But the legislation does not tie the hands of the FCC. Instead, it merely protects against politics overruling economics by allowing all qualified competitors to compete in the auctions.

Genachowski even refers to a letter from various economists: "In endorsing incentive auctions, 112 leading economists from across the ideological spectrum wrote: ‘Giving the FCC the authority to implement incentive auctions with flexibility to design appropriate rules would increase social welfare.' That's economist-speak for more innovation, more economic growth, and more improvements in our quality of life."

But that statement does not refer to giving the FCC unfettered power to include and exclude certain firms from auctions. After all, that same letter clearly declared: "The United States has a long tradition of relying on private market transactions to guide resources to their highest value uses. Voluntary transactions in free markets ensure that trades happen only when the buyer and seller both benefit."

The incentive spectrum auction legislation merely seeks to allow qualified firms to participate in auctions, and prevent the FCC from excluding such entities due to non-economic, political preferences.

In the end, letting the market work through a free and open auction will ensure the most efficient allocation of spectrum, as ultimately dictated by consumers, not government appointees.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Kerrigan Urges Rapid Action on Spectrum Legislation

SBE Council President & CEO Karen Kerrigan issued the following statement regarding a House subcommittee's passage of spectrum legislation. Kerrigan noted its importance to investment, innovation, job creation and the competitiveness of U.S. entrepreneurs:

"Advancing spectrum legislation that authorizes voluntary incentive auctions is a no-brainer when it comes to addressing America's looming spectrum crunch. There is broad consensus that bringing more spectrum to market is a win for the economy as it will lead to deficit reduction, job creation, and investment in wireless technologies. It is also a win for America's small business owners and entrepreneurs as investment will spur innovation - leading to the new products and services that will be critical to their competitiveness and cost-cutting strategies. The House Subcommittee on Communications and Technology took a step in the right direction. Now it is time for the House Energy and Commerce Committee to maintain the positive policy momentum and quickly take action."

The auction will also provide needed revenues for the federal government to help stem the deficit.

Kerrigan in The Hill: Why Not Proceed to Spectrum Auctions?...An idea we all agree on

If you have not heard, Washington lawmakers are in the middle of trying to find a solution to the country's fiscal crisis. Options for finding new revenues and cutting spending remain divisive. Of course, simplification of the tax code should be pursued as it is an important step towards addressing our fiscal (and economic) challenges. Lowering tax rates, broadening the base and eliminating various credits and deductions will help generate new revenues, and support long-term economic growth. However, that option, although prudent and needed, will continue to take time.

There is another option for generating revenue that can be pursued immediately, and where both Republicans and Democrats agree: making more spectrum available for the booming wireless market to help spur investment and lower the deficit without raising taxes.

In a July 27 Oped in The Hill, SBE Council President & CEO Karen Kerrigan wrote that these auctions are needed to increase wireless capacity, and will help generate revenues to pay down the deficit.

She wrote: "Congress and the Federal Communications Commission (FCC) are working on proposals to implement incentive auctions which would repurpose some of the spectrum used by broadcasters to help alleviate the spectrum crunch and to support wireless broadband deployment, applications and services. An open auction of spectrum could generate $40 billion or more to the U.S. Treasury, which could and should be directed towards deficit reduction."

Indeed, many more bipartisan ideas and initiatives exist, Congress simply needs the political will and focus to pursue them. While spectrum auctions will help generate revenues, they are also necessary to keep up with the explosive demand in wireless usage. Staying ahead of demand will also help to sustain innovation and investment in this important sector.

SBE Council Staff