Startup Priorities in the President’s Budget Request

On Tuesday, President Obama sent his final budget request to Congress and it amounted to a whopping $4.1 trillion. In reality, the President’s budget request is typically little more than legally mandated political theater. It’s an opportunity for Democrats and Republicans to rally their bases and duke it out over fiscal strategy and funding priorities. This year’s budget request will likely go largely unfulfilled by the Republican-led Congress. In fact, it was declared “dead on arrival” by Republican lawmakers, and, in an unprecedented move, House and Senate Budget Committee leadership have elected to forgo hearings on the request entirely.

Still, if nothing more than a wish list, the President’s budget lays the groundwork for future policies and, this year in particular, represents a roadmap for the next Administration to espouse or eschew. There are a number of proposals in the President’s request worth highlighting—policies and programs that, if championed by Congress, would support innovation and entrepreneurship.

Investing in Tomorrow’s Workforce

One of the startup community’s most persistent challenges is accessing a pipeline of skilled talent in order to both help startups grow and create news ones. While the Obama Administration has been an unwavering champion of immigration reform to bolster the country’s pool of high-skilled workers, immigration represents only part of the solution (and unfortunately, neither high-skilled immigration reform nor comprehensive reform appears to be going anywhere for the time being). The other piece is ensuring that we are training tomorrow’s entrepreneurs and tech workers here in America.

The President’s budget request includes $4 billion for improved computer science education through its recently announced Computer Science for All initiative. The funding would support states’ efforts to expand CS programming and focuses largely on training teachers and expanding access to quality instructional materials. The Administration has also called on local leaders, educators, and the tech industry to get involved in expanding CS education.

The budget also proposes creating two new funds: a $75 million American Technical Training Fund, which would provide competitive grants to support evidence-based, tuition-free job training programs in high-demand fields, and a $2 billion Apprenticeship Fund, which would build on the Administration’s successful American Apprenticeship Initiative strategy and aim to spur new innovations in apprenticeship.

Finally, the budget proposes creating more than 50 new “Talent Hot Spots” that would “prioritize a sector and make a commitment to recruit and train the workforce to help local businesses grow and thrive, attract more jobs from overseas, and fuel the talent needs of entrepreneurs.” The Administration estimates that this program could create a pipeline of more than half a million skilled workers in just five years, talent that could feed entrepreneurial growth.

Expanding Broadband Access

Earlier this year, the Federal Communications Commission reported that there are still 34 million Americans (or about 10 percent of the country) who lack access to broadband at sufficient speeds. Startups depend on a healthy and competitive broadband market, and it is essential that federal policies encourage connectivity. The President’s budget request includes continued investments in existing federal programs that support the expansion of high-speed broadband to all Americans. Additionally, the budget request calls for future spectrum auctioning, which will allow for more internet service providers to participate in the mobile broadband market.

Promoting Innovation

Federal investments in research and development can help spur innovation in the private sector and the creation of new companies. The President’s budget includes $152 billion in funding for research and development, an increase over last year’s request. Much of this investment is targeted for innovative technologies such as Big Data services, supercomputing, robotics, and nanotechnology. The budget also includes $4 billion for autonomous vehicle R&D, representing an unprecedented level of investment by the federal government in this new market and a huge win for proponents of this growing technology.

Making the Tax Code Work for Startups

Finally, the budget request includes a number of proposals that would streamline and improve tax benefits for startups and entrepreneurs. The President proposes simplifying the existing Research and Experimentation (R&E) tax credit. Last year, the R&E credit was modified to allow small companies to claim it against payroll taxes, instead of income taxes. This made it available to startups, many of which could not claim the credit previously due to a lack of taxable revenue. Still, the process of applying for the credit remains complex and difficult to navigate for startups. The President’s budget proposes simplifying the credit’s formula, making it easier for startups to take advantage of.

The Administration also proposes quadrupling the amount of startup expenses (things like legal fees, office supplies, or recruiting costs) that entrepreneurs can deduct from their federal income taxes, increasing the deduction from $5,000 to $20,000. This will make it less costly to start a business and allow innovators to put more money back into their startup more quickly.

Looking Forward

The frustrating truth is that most of the President’s budget proposal won’t receive Congressional consideration. However, we hope that future policymakers can coalesce around some of the proposals outlined above, which represent reasonable policies that would encourage the growth of startups that drive our economic success and are responsible for all net new job growth in the United States. Finding common ground in today’s political climate is difficult, but it is essential to ensuring that America remains a place where the ideas of the future can grow and thrive.

Startup News Digest: 11/13/2015

Our weekly take on some of the biggest stories in startup and tech policy.

#VetsWhoTech on Veterans Week: The passage of Veteran’s Day offered a moment for the tech community recognize the enormous contributions of our service men and women, the lessons we can learn from them, and the plain fact that veterans are very much a part of the tech and startup workforce. We’ve highlighted some of their stories and unique career paths in a booklet that profiles seven successful veterans in the technology industry. Yet, as these stories underscore, the current offerings covered by veterans benefits are woefully outdated. In an oped, Engine Executive Director Julie Samuels called on Congress to fix the challenges facing veterans looking to transition into the tech industry: "Trained as leaders and decision makers in complex situations, many veterans have the fundamentals to quickly learn or adapt problem-solving skills as an entrepreneur launching a startup or an engineer at a tech company.” It’s time policymakers address the limitations of veterans benefits in a changing economy.

Congress' Copyright Listening Tour. Since the spring of 2013, when the Register of Copyrights called for Congress to write “Next Great Copyright Act,” the House Judiciary Committee has held more than 20 fact-finding events to solicit opinions from a variety of stakeholders about what reforms they should pursue. This lengthy “listening tour” took a swing through California this week with stops in Silicon Valley and Los Angeles. The Northern California roundtable featured participants from all segments of the tech sector, from startups and larger tech companies to investors, academics, and advocacy organizations. The conversation was refreshingly in-depth throughout, including a series of exchanges between the Representatives and panelists about the need for fixes to copyright’s statutory damages regime. While participants were generally supportive of the DMCA, they also highlighted the need to address the growing problem of false takedown notices, which disproportionately hurt small companies.

Court Rules ITC Can’t Block Overseas Data Flow. The US Court of Appeals ruled in ClearCorrect v. ITC this week that the International Trade Commission (ITC) does not have the authority to block the electronic transmission of digital data from overseas. The ITC has typically had authority to block the importation of solely material, patent-infringing devices - and the Court confirmed this. This is an important decision because, as Charles Duan of Public Knowledge states, it “helps to ensure that Internet users have unfettered access to the free flow of information that has proved so useful for innovation and free expression.” The entertainment industry, however, is disappointed in the ruling which they hoped would have authorized the ITC prevent the import of pirated movies, books, and other digital goods.

Gig Economy Politics Makes Strange Bedfellows.  Tuesday saw the emergence of an unlikely alliance between gig economy giants and labor groups. In a letter addressed to regulators, the coalition of 37 startups, VCs, labor advocates, and thought leaders called for “a stable and flexible safety net for all types of work […] regardless of employment classification.” The letter presented more of a framework than clear, concrete solutions to the current worker classification conundrum. But the group did highlight the need for easier and more expansive access to the sorts of benefits that are traditionally enjoyed by full-time employees. Notably absent from the letter was Uber, which is embroiled in its own legal battles around this issue.

Clay Shirky on Online Education. In a compelling essay on Medium, Clay Shirky writes that the digital revolution in higher education isn't the future, it is already happening. Millions of undergraduates enroll in online courses every semester and have now for several years. Shirky points out this shift towards online learning is less a pedagogical change than an organizational one that is serving a far wider population of college students than the public conversation about higher-ed tends to focus on. Online education offerings are not only more affordable than traditional college courses, they also meet "a demand for more flexibility by students who have to manage the increasingly complicated triangle of work, family, and school."

Immigration Arguments Making Headlines. A handful of immigration issues made headlines this week. A federal appeals court ruled against the Obama administration's Deferred Action for Parents of Americans (DAPA) plans and Republican presidential candidates sparred over one another's positions on amnesty. Nonetheless, few candidates are discussing proposals to reform or expand the nation's high-skilled immigration system, where problems also persist. This week, The New York Times reported on the particular challenges small companies face in the competition for limited H-1B visas. Large outsourcing companies have flooded the system with requests in recent years and in 2014, just 20 employers acquired 40 percent of the available visas. In other vias news, the Department of Homeland Security is considering amending its Operational Practical Training program to extend the length of time foreign students in STEM fields can remain in the U.S. The agency is accepting comments on this proposed change until Nov. 18.

More Spectrum, Please. Did you know that by the end of this decade, over 50 billion “things” will connect wirelessly - from your thermostat to your car to your fitness tracker? Or that in the same time period, mobile data traffic is projected to increase seven-fold? What about the fact that the federal government controls the vast majority of spectrum, the invisible airwaves that enable these wireless products and services? In the second post in our Broadband Solutions Series, we take a look at why making more government spectrum available for commercial use is essential to improving competition and unleashing the next wave of mobile innovation.  

Broadband Solutions Series: More Spectrum, Please

This is post #2 in Engine’s broadband solutions series where we explore telecommunications policies that encourage entrepreneurial activity. For post #1, click here.

In recent months, Congress has doubled down on efforts to make more wireless spectrum available for commercial use. Committees in both chambers have held hearings, members have introduced bills, the recently passed budget included a spectrum provision, and just last week, the Senate Commerce Committee floated draft legislation that would pay federal agencies to give up their airwaves.

But before we delve too deeply into recent activities, let’s take a step back. The average person likely isn’t worrying about the impending “spectrum crunch.” In fact, most people probably couldn’t even explain what spectrum is. But spectrum—the invisible waves that carry the data for wireless products and services—is essential to our increasingly mobile world.

Spectrum enables everything from mobile phones and wi-fi networks to wearable devices and garage door openers. Demand for these products and services is increasing exponentially. In the U.S., 97 percent of households now have a mobile phone and Ericsson estimates that mobile data traffic will increase more than seven-fold by 2020. The Internet of Things is expected to grow to 50 billion connected "things" by 2020, creating $19 trillion in economic value during that same time period.

All of this growth relies on access to spectrum. And as it currently stands, we are going to need a lot more spectrum to meet this increasing demand and ensure that a number of competitive players can thrive in the mobile marketplace. There’s just one small issue—spectrum is a finite resource, the vast majority of which is held (and often underutilized) by the government.

It is estimated that federal agencies hold between 60 and 70 percent of the spectrum best suited for broadband technologies. In an effort to free up some of this spectrum for commercial use, the National Broadband Plan, published in 2010, called for 500 MHz of spectrum to be made available by 2020. While some progress has been made towards this goal—the AWS-3 auction in March, an agreement in April to allow sharing between the Department of Defense and commercial operations in the 3.5 GHz “innovation band,” and next year’s broadcast incentive auction—there is still a long way to go. By some estimates, the U.S. will need an additional 350 MHz by 2020 to satisfy commercial needs.

If we don’t meet growing demand, consumers and businesses will suffer. When spectrum is limited, phone bills increase, data caps become more stringent, and innovation is hampered. But when spectrum is plentiful, more players can participate in the market and there are improved opportunities for technological innovation.

That’s why Congress should create a comprehensive plan that ensures spectrum needs are met over the coming decades. A strong plan would include a balanced mix of both clearing and sharing, and make available both licensed and unlicensed spectrum. In October, Congress passed a budget that included provisions to require 30 MHz of federal spectrum to be freed up for auction by 2024.  While this is a step in the right direction, it is certainly not enough for the long term.

Fortunately, the Senate Commerce Committee has floated draft legislation, the MOBILE NOW Act, that would flesh out and expand on the budget provisions. The bill requires the government to relinquish a larger amount of spectrum (50 Mhz) over a shorter time period (the spectrum would have to be auctioned by 2020). Additionally, the bill would incentivize agency participation by promising agencies up to 25% of any auction proceeds.

It is our hope that even in today’s partisan climate, adopting a plan to free up federal spectrum for innovation is something that both sides of the aisle can unite behind. High tech startups—particularly those that develop mobile applications—depend on customers being able to access their products via mobile devices and networks quickly and affordably. And spectrum has enabled innovative applications and products like Wi-Fi, Bluetooth, and connected devices to flourish. Finally, increased spectrum and the higher quality service it facilitates allow wireless broadband providers to more effectively compete with their wired counterparts, improving competition in the overall broadband market.

American leadership in the wireless space and the health of our broadband ecosystem depend on a reliable supply of commercial spectrum. Congress should redouble its efforts to provide sufficient access to this fundamental input to mobile innovation.

Engine Broadband Deep Dive: Policies to Promote Broadband Competition

We all know how it feels to have a terrible internet connection, or worse, no connection at all. We’ve experienced the intense frustration of “no service.” The agony of waiting for a video to buffer or a web page to load. The disappointment of paying an outrageous sum for crappy service.

In September—the same week that President’s Broadband Opportunity Council (“the Council”) published a report that included 36 actions that federal agencies will take to better facilitate broadband deployment across the nation—Akamai published its “State of the Internet” report, ranking the U.S. 20th worldwide in terms of broadband connectivity.

While the proximity in timing is pure coincidence, the release of Akamai’s report highlights why it is so important that the government take steps to expand broadband access. The U.S. has a broadband problem. Everywhere you look there is a new data point highlighting deficiencies in the market. Almost 55 million Americans still lack access to advanced broadband and more than 25% of American households do not subscribe to broadband at home.

Beyond this lack of access, there is also a lack of competition.  As the Council notes in their report, “nearly 40% of American households either do not have the option of purchasing a wired 10 Mbps connection or they must buy it from a single provider.” The state of competition in the mobile market is similarly disappointing, with just two dominant wireless companies controlling nearly 75% of the low-band spectrum in the country—the type of spectrum most valuable for mobile Internet use.

This is problematic, since competition is what makes access more meaningful. Competition brings lower prices, higher speeds, and more incentives for companies to build out better networks. Startups depend on this sort of a healthy and competitive broadband market. We’ve elaborated on why competition matters to startups in previous posts, but in short, improved access and competition mean more customers, lower operating costs, and an enhanced ecosystem for innovation.

So what can government actually do to solve this problem?

The Council’s September report and resulting cost-neutral actions represent a step in the right direction. For example, a number of agencies plan to expand existing program support to cover broadband projects, allowing for increased funding for entities building out broadband in un- or under-served areas. Additionally, the report recommends extending the Department of Transportation’s “dig-once” policy to other agencies’ infrastructure projects. Dig-once policies encourage the laying of one tube, through which any provider can later route their fiber or cables. The Federal Highway Administration has reported that these policies can reduce broadband deployment costs by as much as 90%.

However, there is still more that Congress, the FCC (which was not included in the Council because of its status as an independent agency), and specific states or localities can be doing to improve the broadband ecosystem.

Over the next few weeks, we will be highlighting a number of policy actions that could be taken to improve competition in the broadband market and better encourage entrepreneurial activity. We will look at everything from special access services to federal spectrum to municipal broadband and much more, so stay tuned!

Statement on FCC "Lock Up" Investigation

Engine welcomes the Federal Communications Commission’s (FCC) announcement today that it plans to review the business practices of a number of dominant broadband companies that “lock up” demand in the high-capacity broadband market.

Startups depend on a healthy and competitive broadband ecosystem. Improved access and competition mean more customers, lower operating costs, and an enhanced ecosystem for innovation. Currently, the market for high-capacity broadband services is dominated by a few monopoly-like carriers who use their power to engage in anticompetitive “lock up” agreements that distort the market, jack up prices for all users, and restrain buildout by competitors. These anticompetitive practices represent a hidden tax on all startups—money that would be better spent hiring new employees, improving products, and driving growth.

The FCC’s decision to investigate these practices represents an important step towards a more competitive broadband market that encourages economic growth, innovation, and improved access for all.

Startup News Digest 10/2/15

Our weekly take on some of the biggest stories in startup and tech policy.

Rise of the Rest Tour. Engine spent the week traveling with Steve Case on the Rise of the Rest road trip to celebrate entrepreneurship, in all its forms, across America. Check out our posts on our visits to Baltimore, Philadelphia, and Buffalo.

#Visagate2015. An unexpected, last-minute policy change by the Department of State blindsided thousands of highly skilled immigrants seeking green cards, leaving them ineligible to apply and frustrated by yet another delay in the unreasonably tedious application process towards permanent residence. So frustrated, in fact, that a number of them have sued the State Department. This is not the first time immigrants have had their green card hopes dashed by an agency about-face—there was a similar fiasco in July 2007.  And as Emma writes, this represents “yet another indication of how our broken immigration system is plaguing the entrepreneurial ecosystem.”

A Fireside Chat with CTO Megan Smith. On Thursday night, U.S. Chief Technology Officer Megan Smith sat down with Khan Academy founder Salman Khan at the Nourse Theater in San Francisco to talk about the intersection of technology and public policy. As a former Google executive and the founder of her own media company, Megan Smith has a unique understanding of how bringing TQ (or “technology intelligence,” as she has termed it) to the public sector can help build a better government. She touched on a number of issues, including the importance of connectivity, STEM education and even prison reform. We took special note when she called on the audience to work together to improve diversity in tech. “We should be bringing our neighbors’ kids to work,” she said, arguing that diversity should be in the top three priorities at a company, rather than the top 20.

Bringing the ‘Techies’ to Congress. CTO Megan Smith also touched on the need for the “techies in Silicon Valley” to do a “tour of duty” in the government. A new initiative led by the Open Technology Institute hopes to facilitate just that. Beginning in 2016, the Congressional Innovation Fellowship program will place technologists in Hill offices to help “inject greater technical expertise into the policymaking process.” This program represents just another way in which the federal government is trying to bridge the gap with tech and prove that policymakers can be innovators too.

T-Mobile Plans to Buy Enough Spectrum to Cover Entire U.S. T-Mobile CFO Braxton Carter reiterated some good news on Thursday—the company is aiming to purchase enough spectrum in next year’s incentive auction to cover the the entire U.S. We’ve talked before about why competition in the wireless market matters to startups, and we even wrote a letter to the FCC earlier this year advocating for safeguards that would improve the ability of competitive bidders like T-Mobile to play in this historic auction. With Sprint’s announcement last weekend that it plans to sit out the upcoming auction, we are thrilled that T-Mobile is still planning for robust participation.

The Federal Government Wants in on Crowdsourcing. In an op-ed published in Wired earlier this week, Senator Chris Coons (D-DE) revealed the Crowdsourcing and Citizen Science Act, which would give federal agencies the explicit authority to use crowdsourcing. According to Coons, the federal government is not prohibited from collaborating with the public to solve problems, but a lack of explicit authorization deters many agencies from taking full advantage of this option. He notes that “many of our nation’s challenging problems and questions can most effectively be solved and answered with the public’s help if they are given the chance.” We couldn’t agree more, and are happy to see legislation that would encourage these sorts of creative and inclusive approaches to policymaking.

Michael Petricone has “the best job in DC.” A Morning Consult write-up gave Engine Board Member and CEA’s SVP of Government Affairs, Michael Petricone, some much deserved recognition for his efforts to get Washington and tech companies on the same page. It’s a tough job, but somebody’s got to do it! And nobody tells tech’s story better than Michael.

Startup News Digest 9/25/15

Our weekly take on some of the biggest stories in startup and tech policy:

Startups Defend Net Neutrality Order. The FCC is facing ongoing litigation in the DC Circuit Court of Appeals over the net neutrality rules it passed earlier this year, and on Monday, the court received briefs from a variety of companies and organizations supporting the FCC’s rules. Engine filed a brief along with a group of innovative startups that included Dwolla, Fandor, Foursquare, General Assembly, GitHub, Imgur, Keen IO, Mapbox, and Shapeways. We argue that the FCC’s decision to reclassify broadband as a telecommunications service was necessary to preserve the continued growth of the startup sector, which has in turn driven consumer demand for broadband and incentivized companies to invest in their networks. The court will hear oral arguments in the case on December 4 and will likely render its decision sometime next year.

SEC To Finalize Crowdfunding Rules. Sources at the Securities and Exchange Commission have told Politico the agency is likely to finalize long-awaited crowdfunding rules in late October or early November. SEC rulemaking will put Title III of the JOBS Act into effect, which could radically expand capital access for startups—though the statute does contain some burdensome requirements for companies. While the startup community will be excited to see any action from the SEC in light of an extended delay, we need to ensure that whatever regulatory regime the SEC adopts is well-calibrated and accessible to the small, emerging companies that could most benefit from new sources of capital.

Bush Campaigns Against Open Internet. Most of the Republican candidates in the 2016 presidential race have come to realize that an overwhelming majority of the public supports net neutrality rules (including 81% of Republicans) and have refrained from loudly criticising the FCC’s Open Internet Order. But this week, Former Governor Jeb Bush expressed his opposition to net neutrality (a policy he onced called “one of the craziest ideas [he’s] ever heard”), arguing that preventing ISPs from abusing their gatekeeper power does nothing to enhance consumer welfare. Bush’s comments run counter to both the FCC and the conservative DC Circuit Court of Appeals, which have recognized that net neutrality rules and foster the growth of the edge providers and promotes investment in broadband networks, resulting in better and more affordable service for consumers. It’s a reminder that startups, consumers, and everyone else who benefits from the open Internet should keep a close eye on this presidential race. 

Administration Taking Steps to Promote High-Speed Broadband Access. On Monday, the Broadband Opportunity Council published its first report, which includes 36 actions that federal agencies will take to encourage broadband deployment.  These actions require no new funding, “but existing sources of funding are being opened up and barriers to deployment are being brought down.”  Of particular note is that the White House refers to broadband as a “core utility,” like electricity or water. We tend to agree - broadband is no longer a luxury. Connectivity is core to innovation and the ability of startups to reach customers and scale, and we are pleased to see the Administration taking these steps to bring access to underserved populations and areas of the country.  

White House Considers Encryption. Thanks to some leaked documents from the White House, it’s rumored that President Obama may come out in opposition to a law that would require firms be able to unlock their customer’s encrypted smartphones and applications. Up to this point, law enforcement has argued the need for backdoors to encryption to ensure national security and safety. This sort of advocacy from the White House would help repair global trust in the US government, countering the narrative in Europe that the US is trying to expand its surveillance activities. Meanwhile, the American Civil Liberties Union (ACLU) and other privacy advocates continue to push the importance of US government’s use of encryption to promote both personal privacy and national security.

“Facebook giveth and Facebook taketh away.”  The Wall Street Journal reported this week that dozens of startups have “shut down, been acquired or overhauled their business” as a result of Facebook’s new policies limiting outsider access to some of its users’ date. Facebook’s rules, which went into place in May, restrict what data can be used by third parties like startups, academics, politicians or organizations.  Other social media giants like LinkedIn and Twitter have enacted similar policies, signaling to the startup world that if you are building a product or service that relies on data from social media sites, that data may not always be available...

ECJ Advisor Deals Blow to U.S. Tech Companies.  In other data related news, a European Court of Justice (ECJ) advisor issued an opinion this week that the “safe harbour” agreement allowing for data transfers between the EU and the U.S. is “invalid” due to growing concerns around U.S. surveillance practices.  While the lawyer’s opinion is not legally binding, if cemented by a formal ruling it would create a headache for U.S. tech companies who could face data localization requirements in any EU countries.

Women Tech Leaders. Fortune profiles some of the powerful female talent Google has been able to attract at the executive level, including Ruth Porat, a recent addition who has led the transition from Google to Alphabet. Many of these executives after building their experience at Google have left to grow smaller tech companies. Meanwhile, Mary Lou Jepsen of Facebook has a different take: she sees many senior women leaving because they feel isolated by the tech industry.

Why Broadband Competition Matters to Startups

Last week, at the annual U.S. Conference of Mayors meeting in San Francisco, Minority Leader Nancy Pelosi identified the two policy issues she most wanted the mayors in attendance to focus on: sequestration and spectrum. As Pelosi noted, issues surrounding sequestration will hopefully get sorted out relatively quickly, but adjusting our national broadband infrastructure to maximise innovation and economic growth is a far more difficult task.

In most markets in the country, consumers and businesses have access to only one or two wired Internet access providers. The situation isn’t much better in the fast-growing mobile Internet space, where the two dominant wireless companies, AT&T and Verizon, control nearly 75% of the low-band spectrum in the country—the type of spectrum most valuable for mobile Internet use. Given this concentration of key resources in the hands of a few companies, it is no surprise that the U.S. recently ranked 26th out of 29 countries in terms of wireless broadband speed.

As Leader Pelosi noted, in a country where “only 37 percent of our nation’s schools [have] enough broadband for digital learning,” increasing broadband access and affordability would help grow the economy by training a generation of entrepreneurs with the technical skills needed to thrive in the digital world. But, improving wireless broadband speed, price, and coverage through greater competition would grow the economy in myriad other ways, perhaps most profoundly through its impact on the startup sector.

We at Engine are fond of reminding policymakers that startups are responsible for virtually all new net job growth in America, and in light of this reality, policies that help increase startup activity are policies that create jobs. Simply put, actions that increase competition in broadband markets—like expanding the spectrum reserve in the upcoming low-band spectrum incentive auction—will go a long way towards spurring startup activity and the economy more generally. That’s because better competition in mobile broadband helps startups in a number of key ways:

1) A bigger customer base. At any pitch meeting, one of the first questions an entrepreneur will get from potential investors is about the size of the company’s addressable market. That is, how many consumers will your business reach? The bigger the market, the higher the company’s potential value. Citizens that are either not online at all or do not have access to broadband of adequate speed or capacity are citizens not participating in the startup economy.

According to the FCC’s Seventeenth Mobile Wireless Report, in 2014, 0.3 percent of the U.S. population “lived in census blocks that received no mobile wireless broadband coverage.” That may seem like a small percentage of the population, but it amounts to approximately one million people without any mobile wireless access. Amongst people with access to some mobile broadband coverage, a huge percentage of the population is dramatically underserved. A recent Pew study found that seven percent of the public—or more than 22 million people—have no home broadband service and have a limited number of ways to get access beyond their cell phone. Considering how poorly U.S. mobile broadband fares in terms of speed, data availability, and affordability, many if not all of these citizens likely cannot use any of the amazing technologies and services that startups provide. Giving these folks access to better, cheaper mobile broadband will greatly expand startups’ addressable market and consequently boost startup activity. And, increasing competition amongst mobile broadband providers is really the only feasible method of improving broadband penetration.

2) Lower costs for startups. The archetypal image of the startup as one or two scrappy inventors in a garage isn’t all that far from the truth for most companies. While there are a few outliers that find substantial funding early in their life cycles, most startups have to get by with minimal funding as they develop their core business. Failing to raise adequate seed funding to launch an enterprise is one of the most common pitfalls for entrepreneurs. Since every dollar counts, lowering the amount of money it takes for entrepreneurs to start businesses directly results in more startup activity. And, according to a report from the Internet Innovation Alliance, access to quality broadband can save startups an average of more than $16,000 annually—a significant number for startups trying to get off the ground. Making mobile broadband more efficient and affordable will further help drive down costs for startups and in turn improve competition in the startup sector.

3) New technologies. It’s impossible to predict precisely how the innovators that drive our startup sector will harness the power of faster broadband technologies like gigabit WiFi, but it’s a guarantee that they will find ways to generate entirely new companies and services that take advantage of whatever broadband resources are available to them. This innovation represents the real economic growth potential from increased mobile broadband competition. Just look at the value of startup products and services riding on unlicensed spectrum technologies like Bluetooth and WiFi, which are estimated to add $222 billion to the U.S. economy each year. If startups had access to ubiquitous, ultra-high speed mobile broadband, the value of the technologies and services they could create would be staggering.

The importance to the startup economy of advanced broadband infrastructure is hard to overstate, and yet opportunities to promote the type of competition necessary to spur faster and cheaper networks are in short supply. The upcoming FCC low-band spectrum incentive auction represents one such opportunity. Failure to take adequate steps to promote competition through auction safeguards will put at risk the untapped economic potential of future generations of startups and the millions of jobs they could create.

Statement on Termination of Comcast Merger Agreement

 

In response to Comcast's announcement that it had terminated it's merger agreement with Time Warner Cable, Engine Policy Director Evan Engstrom issued the following statement:

"This is a major victory for the future of the Internet, and for the startups and families that depend on high-speed broadband access to work and study and innovate. The proposed merger would have given Comcast monopoly control over Internet access for a huge swath of the country, effectively removing any incentives to increase speeds, lower costs, or expand coverage. The death of the merger is a step towards broadband policies that favor competition over conglomeration. If Comcast wants to expand in the future, it will need to do so by competing with its rivals, rather than simply buying them. Engine is proud to have worked with so many great organizations to prevent the merger, and in the months ahead we will continue to fight for policies that expand broadband access and make the U.S. even more competitive in a global economy."

CPUC Commissioner Proposes Denying Comcast Merger

On Friday, Commissioner Michael Florio of the California Public Utilities Commission issued a proposed decision rejecting Comcast’s attempted merger with Time Warner Cable—an important step towards blocking further consolidation in the broadband market. Commissioner Florio’s decision is particularly significant, as the CPUC was close to voting on an alternate proposed decision approving the merger with minimal conditions. That Commissioner Florio felt compelled to write a decision rejecting the merger speaks to how problematic it would be for California’s broadband future.

In his proposed decision, Florio writes: “There are a number of concerns about post-merger scenarios, ranging from possible to the probable or certain, that lead us to conclude that this transaction is not in the public interest. These include (but are not limited to) the potential lowering of quality of service and customer service standards to a lower common denominator, an increasing monoculture in the fixed broadband market in California, concerns about privacy, less competition in the special access market, and—most importantly—less competition in the broadband market, both the retail segment of that market and the segment that allows edge or content providers to reach retail subscribers.”

Commissioner Florio expresses specific concerns about the impact of the potential merger on California’s broadband market and it’s larger tech economy. He writes: “Were the post-merger Comcast to exploit its bottleneck position between its retail subscribers and edge providers, as it has shown the inclination to do, it would likely make broadband less attractive to a mass audience, make the investment in and provision of online services (VoIP competitors) and content (Netflix, Amazon, etc) less attractive to edge providers, and dampen the ‘virtuous cycle’ of innovation, investment, and broadband deployment.”

The proposed decision also addresses the economic harm that occurs when edge providers have fewer pathways to reach customers: “In more concrete terms, the proposed merger between Comcast and Time Warner reduces the possibilities for content providers to reach the California broadband market. Many of these content providers are located in California, and a reduction in their ability to reach their intended markets would likely to have a negative impact on the California economy. Such a negative effect on the economy is, itself, likely to discourage the deployment of broadband.”

These concerns echo many of the points raised by Engine and other organizations that support the growth of startups and entrepreneurship. As the decision explains, a post-merger Comcast would be the sole provider of 25 Mbps speed Internet access for 78% of California census blocks and would face only one competitor in the remaining areas. Putting such vast control over broadband connectivity in the hands of one company—particularly one voted the “worst company in America”—would diminish Comcast’s incentives to invest in expanding and improving its broadband infrastructure. The consolidation of mega-ISPs in a market already starved for competitive offerings will only make it less and less likely that California and the U.S more generally will catch up to international peers in terms of Internet speed and affordability. The next generation of innovative startups that depend on high-speed, low-cost Internet access to attract customers and develop innovative services will face a much more difficult competitive landscape if Comcast is allowed to swallow up all potential competitors.

Commissioner Florio concludes that the proposed merger would cause myriad competitive harms that cannot be mitigated through conditions, and therefore, the merger is antithetical to the public interest. “In sum, we find that placing conditions on the merger, even assuming that those conditions could address all of the potential harms associated with the merger, is unlikely to succeed in doing so. And based on our review, it is not clear that any conditions, however well designed, well intended, well enforced and fully implemented, could mitigate the harms associated with the merger.”

This proposed decision is big news, and not just for residents on California. Since much of the merger’s value to Comcast lies in acquiring Time Warner’s California customers, a CPUC rejection would likely kill the merger nationwide. But while Commissioner Florio’s proposal offers hope, it does not by itself spell the end of the Comcast merger. The full CPUC still has to vote, which could happen as early as May 21.

Anyone concerned about our nation’s broadband infrastructure needs to make their voices heard. The CPUC will be accepting comments on the proposed merger until April 30. If you believe that America’s broadband future is too important to be left in Comcast’s hands, send your comments to the CPUC Public Advisor at public.advisor@cpuc.ca.gov and encourage them to reject a merger that would pose an incalculable risk to innovators everywhere.

FCC Chairman Takes Steps to Undo Anti-Community Broadband Laws

Even though a favorable net neutrality ruling from the FCC appears imminent, the vibrancy of the Internet economy remains at risk so long as it’s tethered to a few, powerful oligopoly Internet Service Providers. These ISPs have tacitly divvied up geographic markets across the country, blocking competition and offering far lower speeds and higher costs to both consumers and businesses than those in peer nations. Due to aggressive ISP lobbying, nearly 20 states have laws on the books that prevent municipalities from providing broadband networks. ISPs sought these rules to prevent competition for broadband customers. Though net neutrality grabbed most of the telecom policy headlines over the past year, the FCC and the White House have both signalled an interest in overruling these anti-competitive bans on community broadband. Today, FCC Chairman Tom Wheeler decided to take action, circulating a draft decision that would preempt such laws in North Carolina and Tennessee.

We’re heartened by the FCC’s recognition that laws like these provide no public benefit and only serve to protect local cable monopolies. A lack of competition in broadband markets is one of the key reasons the U.S. ranks so poorly in global Internet affordability and speed. With the FCC having recently modified its definition of broadband to reflect the changing needs of a globally connected society, it is no surprise that the FCC would use all the tools at its disposal to promote broadband competition in order to bring U.S. speeds up to global standards.

Cities like Chattanooga, TN, Danville, VA, and Lafayette, LA are perfect examples of why communities should be given the option to build networks for their citizens. Unwilling to wait for the incumbent ISPs to upgrade their networks, these cities took it upon themselves to provide fiber infrastructure for their communities, drawing startup activity and growing the local economy, in addition to providing a much needed service to residents.

The FCC’s authority to overturn anti-community broadband laws flows from Section 706 of the Telecommunications Act, which gives the Commission authority to promulgate rules to promote the deployment of advanced broadband. Those closely following the net neutrality debate know that Section 706 is insufficient by itself to protect an open Internet, but giving the FCC the authority to prevent ISPs from using their monopoly power and lobbying might to crush potential competitors is still hugely important. The net neutrality bills discussed in Congress last month would have completely negated the Commission’s Section 706 authority, preventing it from overturning anti-community broadband laws. If the proposed legislation’s loophole-ridden net neutrality “protections” weren’t reason enough to oppose the bill, its attempt to protect ISP monopolies by preventing the FCC from addressing anti-competitive muni broadband laws surely is.

The FCC is scheduled to vote on the order at the end of the month, and while the proposal is targeted to only two states, it sends a clear message that the FCC will do what it takes to promote competition in broadband markets. Working to ensure that broadband markets feature multiple competitive providers is a daunting task, but Chairman Wheeler’s plan to preempt anti-competitive state laws banning municipal broadband is a step in the right direction.

Tech in New York - Governor Cuomo’s 2015 Opportunity Agenda

With Engine having recently expanded to New York, we’re paying closer attention than ever to the decisions being made in Albany and their impact on the state’s tech sector. New York is home to one of the largest and most rapidly expanding startup communities in the country, so local and state level policies on investment and regulation have implications for the future of tech in all fifty states. This afternoon, Governor Cuomo laid out his vision for 2015 in a combined State of the State and budget address, along with a 500-page policy book that included additional proposals and details. While the presentation covered a wide range of topics from criminal justice to transportation infrastructure, the Governor did include several initiatives of particular interest to the startup community in both the education and economic development sections of his speech. For example, the Governor discussed his recently announced New NY Broadband Program, which would provide matching funds for internet service providers that invest in high-speed broadband in underserved areas. Access to broadband is essential not just for consumers, but for growing and potential startup communities as well. By using state funds to leverage private investments, this program could go a long way towards supporting innovation around the state. At the same time, the Governor avoided mention of the proposed merger of Comcast and Time Warner Cable, which would do much to undermine efforts to improve broadband access here in New York and around the country. Giving Comcast that kind of monopolistic control over broadband would remove almost any incentive for them to provide the higher internet speeds necessary for startups to thrive, and for us to remain competitive with other countries. Governor Cuomo has previously indicated his concerns about the proposed merger, and the state’s Public Service Commission is currently reviewing the deal to determine if it would benefit or harm New Yorkers. We urge the Governor and the PSC to oppose this deal, and continue to champion high-speed access for all New Yorkers. The Governor also talked about expanding a number of programs that would provide startups with access to capital, technical support, and other incentives. One proposal particularly worth noting is doubling the NY State Innovation Venture Capital Fund from $50 million to $100 million. The Fund is overseen by Empire State Development, and provides two types of investments: small pre-seed stage investments of up to $100,000 to startups associated with universities in state; and investments of up to $5 million in businesses in strategic tech industries. This additional capital, and the private investment it can leverage, could make a big difference for some startups that would otherwise have trouble accessing funding. And the state can do even more to help New York startups access capital. In his campaign policy book released in October, Governor Cuomo declared his support for equity crowdfunding, which provides financing opportunity for businesses that have a hard time attracting traditional venture capital. Crowdfunding has proven to be especially beneficial to women and minority owned startups. And while the real solution is federal authorization of equity crowdfunding, New York could join more than a dozen other states that have already authorizing intrastate crowdfunding. This would not only provide greater opportunities for diverse startups in Queens or Albany or Rochester, it would help build momentum towards federal action. We hope to see more support from the Governor on this subject in the months ahead. The Governor also discussed a package of proposals to improve higher education in ways that would better prepare students for tech jobs and help startups access the talent they need in order to grow. He talked about creating partnerships between community colleges and employers, and rewarding schools who use those partnerships to provide students with real-world job skills. He proposed an Employee Training Incentive Program that would provide tax incentives for companies that provide on-the-job training. And perhaps most exciting, Governor Cuomo proposed changes that would streamline approval of new programs and degrees both at higher education institutions and high-quality proprietary schools. Recognizing that the skills many new employers need change on a yearly or even monthly basis, he said that “it can no longer take two years for a new degree or training program to be approved.” With startups in constant need of new talent, we welcome the Governor’s commitment to providing students in New York relevant skills. And since startups account for all net new job growth in the United States, making sure those jobs go to New Yorkers is good local economic policy. As more decisions around the details and implementation of these proposals get made, we’ll be working to ensure that startups play a meaningful part in the conversation. And we’ll continue looking for other ways policy makers here in New York can support innovation throughout the state.