The following remarks were delivered by Jonathan Spalter, President and CEO, USTelecom before the Moss Adams Telecommunications Management Conference on August 14, 2018.
Thank you, Chad. Great agenda you’ve set up for the next two days. I hope to do it justice with my time this morning. It’s good to see colleagues from several of our member companies here with us today—BBT, GVTC and Pioneer. I would especially like to give a shout out to Robert Hunt, of GVTC, who served with distinction as Chair of the Board at USTelecom. Great to see you Robert.
It is also great to be back in Texas – my third trip here as CEO at USTelecom. My first trip was to visit with GVTC in New Braunfels. And just a couple of weeks back, I went west to Alpine to visit with member companies Big Bend, and Southwest Texas Communications in Rock Springs.
It’s really an exciting time to be in the broadband-fueled business of technology.
- Driverless cars are now the stuff of science NON-fiction.
- Every “thing” around us is becoming super-intuitive with AI and super cool with AR and VR.
- And, at the heart of all this progress are the companies assembled here today…broadband providers that pull fiber, climb poles and invest hundreds of billions of dollars, so that the United States of America can continue to be the global leader in the information age.
I was asked when I first got the invitation to join you to offer an interactive question. I’ll share the one I use at every opportunity I can:
Apples to apples...adjusted for inflation…who made the biggest investment?
- The federal government to build our interstate highway system?
- Uncle Sam to put a man on the moon?
- Or your companies—and other broadband providers—to build out our nation’s digital infrastructure?
If you answered broadband providers, you are correct—although really only partly. The full correct answer is that broadband providers outspent the U.S. government on both of these projects—COMBINED.
When it comes to having sound, consistent and constructive policies aimed at keeping our nation at the top—leading the global information economy—this is one of the most important and least understood component parts of the United States extraordinary technological edge.
USTelecom EXISTS to change that. We exist to bring everyone together—large, mid, small…global, national, regional…urban, rural—to shout this truth from the mountaintops and insist that our nation’s policies support the American people’s and the U.S. economy’s clear and compelling interest in strong, state-of-the-art, agile, resilient and secure broadband networks
You will spend most of the next two days having important conversations about innovation—in business models, in technology—and how it can drive the next chapter of your companies’ success. I’ve been asked to spend the next hour talking about how innovation in U.S. broadband policyhas never been more essential to the road ahead for your businesses, for our nation’s economy and for our global leadership position among some very intense competition and emerging threats.
Recognizing the Consumer POV: A Converging World
This is certainly a time when the actions of our government are having a material impact on the valuation of companies and the overall health of the economy.
We also see in our own personal menageries of technology that profound changes are underway as the result of increasingly direct competition across platforms.
Indeed, after the closing bell of the last trading day in September, the markets will officially acknowledge this new reality. That’s when the Global Industry Classification Standard is set to undergo the biggest change in the framework’s 20-year history…uniting in one new “communications” category the leading investors in our connected economy—broadband providers—and many top stocks across a converging media, entertainment and digital landscape.
Here’s what the categories currently look like—from a market cap perspective.
The proposed changes will smooth this out a bit…rebalancing and recognizing that virtually every company today could be called a “technology company,” so there’s a need to be a bit more precise to pair like with like in a tech-centric world.
Here’s what the reshuffling will look like.
Companies led by Google, Netflix and Facebook will depart the “information technology” bracket. Disney, Comcast, DISH and others will leave “consumer discretionary.” And, the remaining three companies in “telecommunications”—AT&T, Verizon and CenturyLink—will join their true market rivals in this new “communications” segment.
It makes sense. Finally, the U.S. economy will have one investment category that unites what has clearly become a single ecosystem. Consumers were the first to see it. In a world where Google sells broadband service, AT&T owns Game of Thrones, nearly half of Americans get their news from Facebook—both real and fake and—competition among these companies is heated, complex and increasingly direct.
With its new communications line-up, Wall Street is following Main Street. The case we are making in Washington—standing together as USTelecom—is that it’s time for Washington to do the same. We needa modern U.S. innovation policy that acknowledges what our companies and our customers experience every day—that companies across the internet have long burst through the neat regulatory silos of a bygone era, and helps levels the uneven, illogical – and wholly unfair – policy playing field that for over two decades had its thumb on the scales against our companies, our communities, our customers.
I am glad to say, at long last, we are today headed in the right direction.
Policy is Driving Capex Recovery
The two-year decline in private capital investment in U.S. broadband infrastructure from 2014 to 2016 appears to be in the rearview mirror. According to USTelecom’s preliminary analysis, U.S. broadband companies (wireline, wireless and cable) invested between $72 and $74 billion in network infrastructure in 2017, an increase of at least $1.5 billion.
Many factors affect these figures—from the overall health of the economy to intense and rising competition. But as someone who closely watches and works with these companies, it is clear substantial credit is due to a return to a more fair, modern and commonsense policy direction at the FCC and the FTC, which oversees the rest of the internet ecosystem, and to the resilience of our industry, and our advocacy, standing tall and standing together.
It is no coincidence that the recent broadband capex slowdown coincided with the previous FCC abruptly shifting course down a sharply more regulatory path. Equally true, this capex recovery coincides with a return to consistent, modern policies that seek to create more parity across the internet ecosystem—ensuring company investments will be treated fairlyand consumers will be protected consistentlywherever they go online.
Among the key recent and restorative steps:
- Recognition that the world and technologies have changed and many outdated rules undercut rather than advance the public interest in pro-investment policies.
- Signals that the federal government aims to be a strong partner in connecting high-cost rural areas, most recently evidenced by the recent launch of the CAF II auction.
- Upholding the net neutrality principles all our companies have supported -- without 1930’s-era utility regulation—and an insistence that these principles be applied consistently across the internet and not solely on ISPs.
These are footholds. And our team at USTelecom has been working hard and working tough to keep up this pace of progress, and I am very proud we have been able to put some real wins on the boards for your companies:
Just in the last few weeks alone, we’ve pushed ahead to secure an order from the FCC to make the crazy lopsided pole attachments rates fairer, to end the one-sided joint use agreements and give us back some leverage in our rate negotiations with IOUs.
Once over the finish line, this policy pivot alone will return tens, perhaps millions of dollars to our balance sheets, and bring some balance to the policy landscape out there, putting some much-needed wind in the sails for more investment and more broadband deployment for more Americans.
But we can’t stop now. There is a lot of work still to do. For example, California appears poised to turn back the clock and reinstate heavy, backward looking, internet regulations, jeopardizing the state’s status as the crown jewel of the global innovation economy. And the state has already taken troubling steps on privacy regulations.
But a return to sound federal policy—for rural America, for consumers, for head-to-head competition on a level playing field—is helping revive investment in ever stronger, faster and more innovative networks for communities across our nation.
So how do we maintain—or even accelerate—this momentum? We reach toward the center…the bipartisan—really nonpartisan—principles that have guided American innovation to such great heights from the earliest days of honk-and-screech dial-up service.
If you are able to set aside divisive politics for a moment and look objectively at the state of play…from the edge to the core…consumers to innovators—our interests are aligning around key principles and common goals. I believe that unity can be rebuilt around five pillars.
Pillar One: Connect Everyone
Pillar one is universal connectivity. The good news for our world: For the first time this year, a majority of the planet will be connected. The disappointing news: Here in the strongest economy on earth, three and a half million American households risk being left behind.
Rural communities have the most to gain from high-speed connectivity. The final frontier of remote, unserved America includes places like the hundreds of off-the-grid communities in the remote bush of Alaska that are accessible only by boat or snow mobile…where populations are so sparse that the business case breaks down for network investment and deployment.
Like water and electricity, broadband is essential to every American. Yet unlike these utilities, as we established at the top of my remarks, U.S. broadband infrastructure has been financed almost entirely by the private sector.
As you see here, from a recent report USTelecom released with NTCA, this private-led investment model works well in reasonably populous areas.
But significant barriers arise as economies of scale dissipate.
Simply put, when the substantial costs of laying fiber must be spread across a vast geographic area and a dwindling number of customers, the private sector can’t go it alone.
This leaves everyone who wants to see truly universal connectivity in this country with three choices: Cost-prohibitive prices, abandoning that goal or uniting the public and private sector to finish the job. The last choice is the only acceptable path forward.
Numerous federal programs already exist and can be enhanced to accelerate rural connectivity, chief among them the Connect America Fund. But the problem still isn’t solved. I believe we missed an opportunity in the recent infrastructure conversations on Capitol Hill.
Everyone said the right thing, but we didn’t see enough concrete funding for digital infrastructure. And we need to ensure that ANY new broadband funding mechanism is managed in efficient and coordinated ways across government to avoid duplication or overbuilding by any competitor.
It is certainly within our capabilities to achieve a truly connected nation. What’s left is a question of collective will. Can we see more commitment from federal programs…and can we, too, see other companies who have built extraordinary wealth off these connections – and your investments and hard work – perhaps contribute in concrete ways to the collective cause, as well? A few weeks ago, our Board of Directors and Leadership Committee gathered near Seattle, Washington for our annual strategy retreat. We spent time with some of the amazing innovators, product teams. and engineers at Facebook and learned about some of their broadband infrastructure initiatives. They are doing some good stuff. One of our hosts at Facebook told me the company paid a broadband provider to pull 500 miles of fiber to reach some rural communities in Uganda. Well, if Uganda, why not Utah? I met an executive at Uber who told me they are piloting a project to work with local broadband companies in Chile to connect some of their most remote villages. If South America, why not South Dakota or South Carolina or South Mountain or South Point right here in Texas?
We have a lot of work still to do to close the digital divide right here in the U.S. of A, and it is time for us to ask some important questions about how other parts of our Internet ecosystem can work with us in this effort.
I also think there is growing appetite and collective will to boost consumer confidence in how the internet ecosystem handles critical issues.
Pillar Two: Consistent Online Safeguards
Whether the issue is online privacy or neutrality, the too often unspoken reality in these policy debates is that the companies making headlines for privacy mis-steps or blocking content aren’t the ISPs. Just witness the back-and-forth between Google and Amazon blocking the sale of each other’s products, services and content on their respective platforms.
Yet the rules that have been batted down so far on both fronts—to much public hand-wringing—were rejected precisely because they let all these other companies off the hook.
For example, one might assume the net neutrality debate is between those who support this central principle of a connected and free society and those who don’t. But no one disputes the merits of this central tenet of an open and democratic society. The actual disagreement comes down to regulatory arbitrage: Some of the most powerful NEW companies in our information economy…insist the only way to ensure “real” net neutrality is by reinstating rules first written in the 1930s…in other words—rules that would not apply to them.
It should no longer be acceptable to write rules either in Washington or in any state that omit the most powerful and valuable—at least in terms of market cap—players of the digital age.
Only a modern act of Congress can ensure consumers have consistent protections across the entire internet—whether they visit Verizon or Google, Comcast or Amazon. It is the plainly obvious thing to do if we really want to uphold neutrality…protect consumers…and from the perspective of investment and finance—ensure a level playing field that gives investors in our economy confidence their capital will be fairly treated.
On privacy, too, consumer confidence in the digital economy would be shored up by an effort to put into statute one high standard that consumers can count on no matter where they go online.
Modern, even-handed policies will allow us to organize our innovation economy in a way that better ensures the whole ecosystem can thrive, grow and be dynamic—by delivering uniform expectations for all companies and equally consistent protections for consumers.
If we don’t step up and get this right, then others will fill the void. The Wall Street Journal recently crowned the EU antitrust chief "the de facto global regulator for the U.S. tech giants” for her record-setting fines.
All of this reinforces what should be self-evident: Consumers and the companies serving them deserve consistent, clear, enforceable online protections.
This leads to the third pillar: The internet deserves one national policy framework.
Pillar Three: U.S. Innovation Policy Must Be a National Framework
On data privacy, on an open internet, on a framework for innovation, it's all the same. If we don’t lead on policy…we risk our leadership on innovation.
The regulatory ping pong in Washington for the past eight years...the Europeans stepping up...states now stepping in...all are evidence of what happens when Washington—particularly in this case, Congress—abdicates and equivocates. It’s no way to run half the economy.
For most of the past two-plus decades, the operating system of U.S. innovation policy has been non-partisan and infused with American optimism. Our policymakers believed in and sought to encourage all that was possible. So, they exercised restraint…and gave this promethean innovation room to expand and evolve—rapidly transforming our economy and way of life.
In restoring internet freedom, Chairman Pai restored the guiding principles of three successive administrations...Bill Clinton...George W. Bush...and, let’s not forget, the first six years of the Obama administration. In doing so, Chairman Pai restored the original algorithm that gave rise to the open internet, which has always been central to American consumers online experience.
When I lived in California, I used to take my kids to the parks of the former Alameda naval air station. It was originally the western terminal point of the transcontinental railroad. That railroad transformed our economy in the 19th century. Broadband has done the same today—placing California (and our nation) at the global epicenter of so much tech dynamism.
If we had regulated broadband networks—or the railroad system before it—on a 50-state basis. We wouldn't have either as we know it today. Nothing could be more counter to the collective cause than everyone—no matter how well meaning—writing their own set of rules for how the global internet should operate in their neck of the woods.
Pillar Four: Lock Arms for The Nation's Cybersecurity
Nowhere are the true risks of this separate-and-unequal approach more readily apparent than with cybersecurity…our fourth pillar.
It’s been seven years since the Department of Defense declared cyberspace an "operational domain" that U.S. forces will be trained to defend. Headlines virtually every day remind us how mission-critical this theater of warfare has become.
The bad guys don’t play by the rules. We have zero shot at keeping pace with such a formidable threat if we don’t stand together…both across the internet ecosystem and the public and private sectors. It requires a whole new and nimble paradigm.
Fortunately, we’re building that today. With USTelecom’s leadership, today, we have brought together global IT companies Akamai, Ericsson, IBM, Intel, Oracle, Cisco, Samsung and SAP to unite with broadband providers who are members of USTelecom, to form the Council to Secure the Digital Economy.
Our work is highly operational...from developing a global guide to anti-botnet practices…to mobilizing more effective incident response mechanisms to safeguard the economy in the event of a major cyberattack. We also are working together through USTelecom to bring together our many smaller companies—who have far more limited resources to wage the war against our cyber enemies – and just as daunting a task keeping their networks secure. I invite all of you to participate in this work.
Pillar Five: Ask the Big Questions About U.S. Policies
Other threats loom, and we need to be smart about the next steps we take.
This leads to the fifth and final pillar…back where we started our conversation today: Like the Wall Street recategorization, our policies need to close the gap between outmoded regulatory constructs and the modern, connected world.
It's been 22 years since the Telecommunications Act of 1996 was passed, ushering in a new era of internet innovation and American leadership in tech. As a result, we have a regulatory structure that’s in fighting form for the 1990s…not so much 2018…let alone 2025. Meanwhile the internet–and the consumers guiding its evolution—have long left these constructs behind.
It's time to think big and different about our innovation policy and to insist that Congress step up to the plate.
And, it’s essential to note that small- and mid-size companies are hardly immune from the winds of change that leading global media, communications and entertainment companies are both fanning and responding to; they have to live, thrive and compete in this same world of shifting and rising consumer expectations. And, while we are proud of the essential advocacy work we do on behalf of the entire industry—so companies of all sizes are able to compete on a level playing field—we also take great pride in making the most as the one organization—where everyone comes together—and we work hard to create peer-to-peer learning and business opportunities—so everyone can hear from one another—what are you doing, how are you adapting, where are you finding success, what lessons have you learned?
If the first two-plus decades of the digital era tell us anything, it's that it takes innovation and vision throughout the ecosystem to change the world. I believe we are still in beta when it comes to the prospects for what we can collectively achieve.
But it requires respect, good faith and a spirit of collaboration. The notion, for example, that broadband companies are "just pipes” diminishes our ambitions for the whole ecosystem.
We started out talking about $1.6 trillion in private investment. Yet there remains a real disconnect. When I tell people I work for the companies that make the internet possible, their thoughts go to the FAANG corporations—Facebook, Amazon, Apple, Netflix, Google.
So, it’s an important moment to reintroduce our industry, our companies and their deep roots in the communities they serve. I see USTelecom like a special operations unit—protecting, defending and advancing the interests of broadband—loudly where we need to, subtly and with precise strikes where it makes the most strategic sense.
We need to be clear about our value to this nation—and the importance of government being a constructive partner to our work—creating jobs and economic opportunities…making possible advances in health care, education and beyond.
That is what attracted me to this job…and convinced me to pack up my family and move from the conservative bastion of Berkeley, CA to the nation’s capital last year. I am proud to be broadband’s champion in Washington. Like all of you here at Moss Adams, I was excited and honored to have the opportunity to work with the companies—large and small—making all of this progress possible.
The innovations you are exploring over the next two days will help advance the momentum. I hope my look at the technology and policy challenges and opportunities ahead as well as an overview of USTelecom’s work on the policy front is additive to your program.