Our weekly take on some of the biggest stories in startup and tech policy. In this week's digest: stock options legislation, set-top box delay, new broadband adoption data, free rides to the polls, and the EU's copyright directive.
Engine is looking for startups, entrepreneurs, and the organizations that support them to sign our letter telling Congress that startups care about broadband competition. Startups, businesses, and other institutions often need significantly more internet bandwidth than consumers use at home, so they rely on what are known as “business data services” (BDS) to deliver high-speed, high-capacity connectivity. Unfortunately, the BDS market is dominated by a few broadband gatekeepers that distort the market and jack up prices for startups and other customers. But that could change soon: the Federal Communications Commission (FCC) is in the process of a rulemaking that will introduce competition and lower prices in the BDS market.
We’ve lamented again and again that the current patent system just isn’t working for innovators. There’s been lots of talk about ways to curb abusive patent litigation tactics, but efforts to push legislative solutions through Congress have stalled for the time being. Still, there are creative ways to combat troll tactics in the short-term. This week, Engine announced a partnership with the Electronic Frontier Foundation to Reclaim Invention. The initiative aims to address one of the unexpected sources of troll behavior: American universities. Did you know that universities often license or sell their inventions to patent trolls?
By June 2012, President Barack Obama and his Republican rival Mitt Romney had already received over $11 million in donations from tech industry workers. But these employees—“long a reliable source of presidential donations”—haven’t been as generous with the 2016 nominees. Hillary Clinton and Donald Trump have only received a combined $3.5 million from tech workers so far. And Trump is faring much worse than Clinton, having pulled in a mere $128,000 from 238 tech donors so far. That’s less than 6 percent of what Romney had raised from tech by this point in the race.
As the Republican National Convention kicked off this Monday, the GOP also released the final draft of their party’s platform. The platform, which was written with input from the party’s base sourced via www.platform.gop, included generous mentions of issues important to the startup community.
Startups across the U.S. use stock options to attract and incentivize top talent. But as we’ve written before, the current tax code makes it difficult for employees to exercise those options requiring employees to pay taxes on their options even when there’s no public market to sell them to cover the tax burden. On Tuesday, Senators Dean Heller (R-NV) and Mark Warner (D-VA) and Representative Erik Paulsen (R-MN) introduced a bill aimed at remedying this.
The incredible growth in mobile internet use over the past few years is nothing short of staggering. There are now around 6.4 billion internet connected devices worldwide, and that number is increasing by 5.5 million every single day. Some predictions suggest that we could reach over 20 billion connected devices by 2020, prompting a boom in the startups that will build the gadgets and services powering the coming Internet of Things (IoT). But such optimistic estimates assume that we’ll have the infrastructure to support billions of these connected devices.
Meaningful broadband access and affordability are essential to a vibrant entrepreneurial ecosystem. Startups rely on broadband to connect with users, develop innovative products and services, and run their daily operations. Access to quality broadband can also save startups an average of $16,000 per year, which is a significant amount for a company trying to get off the ground.
Startups across the country are building the next generation of Internet applications, connected devices, and innovative services—all of which rely on access to unlicensed spectrum. This week, Engine joined a diverse coalition of 23 organizations and companies in urging President Barack Obama to ensure that enough unlicensed spectrum is made available to meet growing demand.
As the world becomes increasingly mobile, it is essential that U.S. policymakers devise a strategy to meet the growing demand for wireless connectivity. Yesterday, the Senate Commerce Committee passed the MOBILE NOW Act, which aims to free up additional spectrum for commercial use and improve mobile infrastructure. The bill represents a significant step towards transforming our mobile future and encouraging technological innovation. The full Senate should take up and pass the bill at the earliest opportunity.
Google Fiber announced this week that it is adding both San Francisco, CA and Huntsville, AL to the growing list of cities where it provides gigabit service. This is great news for startups and aspiring entrepreneurs in the two cities, who will have improved access to ultra high-speed service (100x faster than most current broadband providers) and increased competition among providers. But this week’s announcements are especially noteworthy because Google Fiber will be deviating from its typical build out approach with these two new expansions.
Our weekly take on some of the biggest stories in startup and tech policy.
Apple, Encryption, and the Future of Digital Security. This week’s federal court order that would require Apple to unlock an iPhone linked to last year’s San Bernardino attack has catapulted the debate over privacy, security, and encryption into the headlines of nearly every major news outlet in the U.S. and beyond. Evan takes a look at the ramifications of this case for startups and the tech industry, highlighting the complexity of the situation: “though the FBI’s request is tailored to investigating a specific terrorist activity, it will ultimately weaken security standards and may lead to serious vulnerabilities that will put countless consumers at risk.” Read the full post here.
MOBILE NOW Act. The battle between Democrats and Republicans over a Supreme Court nominee will not thwart Senate Commerce Committee plans to move the MOBILE NOW Act this year. The bipartisan bill, which was introduced last week by committee leaders, Sens. John Thune (R-SD) and Bill Nelson (D-FL), aims to free up additional spectrum for commercial use and improve mobile infrastructure. “I see no reason that any nomination would affect consideration of the bill,” said a staffer for Sen. Thune. While this statement should be taken with a grain of salt (things haven’t exactly been moving quickly in Congress lately, even absent the escalating clash over Justice Scalia’s replacement), it is positive news for the startup community, which supports the bill. More broadly, the Chairman’s reaction signals that lawmakers aren’t ready to give up on 2016 quite yet. We’re hopeful…
Evaluating Startup Accelerators. Startup accelerators are on the rise: today over 170 accelerators support thousands of startups throughout the country. But are they effective? The results are inconclusive, explains researcher Ian Hathaway in a report for Brookings. The top accelerators do help early-stage companies hit key milestones at an accelerated rate. And those top programs even count some unicorns among their alumni. But not all accelerators are created equal. "Much research needs to be done to better understand the effectiveness of these programs and the broader impact they have on startup communities," writes Hathway, "particularly as national and regional authorities look to them as tools for economic growth."
Unlocking the Set-Top Box. In a move aimed at promoting innovation and consumer choice, the FCC voted on Thursday to propose rules that could increase competition in the set-top box market. Did you know that pay-TV subscribers spend an average of $231 per year to rent set-top boxes from their cable provider—something that arguably could be purchased outright from a third-party for much cheaper? The problem is that there are very few meaningful alternatives on the market. The FCC’s proposal aims to change this by establishing an open platform that would allow any set-top box to work on any cable network. So a startup could develop a new set-top box that allows consumers to watch live TV, binge on Netflix, and watch reruns of their favorite shows all on that one device that they paid for once. "Let's have the cable company say, 'You want to pay me for my interface, because it does all of these things nobody else does,' rather than, 'You must pay me,' " FCC Chairman Wheeler said. "We're just trying to get to that basic American concept of competition."
Casting Doubt on Bootcamp Placement Rates. In 2015, coding bootcamps graduated over 16 thousand students with newly minted, on-demand skills. That's a 138 percent increase from the previous year and enrollment rates continue to rise. These accelerated learning programs have become an increasingly popular pathway to tech jobs, or at least so they say: many bootcamps boast job placement rates above 90 percent. However, after a closer examination of those claims, the International Business Times is skeptical of these alluring figures: "Those claims are largely un-audited by third parties and based on differing standards." As the government explores offering federal student loans to cover these new programs, this news should be taken as "more evidence that giving these schools access to federal Title IV dollars is premature and will likely lead to waste and abuse," writes an education policy analyst at New America in a follow-up post. But even that conclusion seems hasty. Instead of interpreting these inconsistencies as harbingers of abuse and exploitation, policymakers should recognize more work needs to be done in order to develop reasonable standards and promote transparency as this market matures.
NYC University Welcomes Immigrant Entrepreneurs. The City University of New York is the latest academic institution welcoming immigrant entrepreneurs to campus. In a new program called IN2NYC, 80 foreign entrepreneurs will be selected to advise professors and students at the school while working to build their own startups. And they'll do this on H1-B visas sponsored by the university. While H1-B visas are capped at 65,000, leaving companies with foreign employees to compete in an annual lottery, academic institutions are exempt from that cap. The program will begin accepting applications from entrepreneurs this spring and begin in late fall.
Principles for Europe’s Digital Ambitions. Have you visited our new Medium publication yet? We’ve been exploring Europe’s efforts to remove regulatory barriers and better integrate the U.S. and EU digital economies through its Digital Single Market (DSM) strategy. Check out perspectives on the issue from the Internet Association, Re:Create, the Application Developers Alliance, the Information Technology Industry Council, and the Computer and Communications Industry Association, and check back for posts from more stakeholders over the coming weeks!
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.
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.
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.
This post is one in a series of reports on significant issues for startups in 2015. In the past year, the startup community’s voice helped drive notable debates in tech and entrepreneurship policy, but many of the tech world’s policy goals in 2015, such as immigration and patent reform, remain unfulfilled. Check back for more year-end updates and continue to watch this space in 2016 as we follow policy issues affecting the startup community.
by Emma Peck and Evan Engstrom
The net neutrality debate that dominated the tech policy conversation in 2014 was once again the top telecom issue in 2015, peaking at the end of February with the Federal Communications Commission’s (FCC) passage of its new Open Internet Order, which contained the strongest non-discrimination rules ever put in place to protect the Internet economy in the U.S. The telecom excitement didn’t end there, as policymakers and courts dealt with a huge number of issues related to promoting telecom competition, limiting ISP discrimination, and building out the next generation of telecommunications services. In short, the momentum in 2014 carried over into 2015 in a big way, and looking ahead, 2016 is poised to be yet another landmark year in telecom policy.
In addition to the FCC’s net neutrality order, the startup community saw big wins with the termination of the Comcast-Time Warner Cable merger and the FCC’s decision to undo anti-competitive broadband laws in Tennessee and North Carolina. We weighed in on debates around next year’s incentive auction and continued to push for increased unlicensed spectrum allocation. Lastly, we articulated our hope to see legislation move next year that would open up more federal airwaves for commercial use.
After more than a year of campaigning, the tech community won one of its biggest policy victories ever with the FCC’s decision to reclassify broadband as a telecommunications service in order to pass the strongest net neutrality rules this country has ever seen. Net neutrality advocates had little time to rest, however, as the rules immediately came under fire in Congress and in the courts. Republicans used their control of both houses of Congress to push legislative tricks meant to undermine the FCC’s work, including riders to various unrelated appropriations bills that would have blocked the FCC from using any funding to enforce the new Open Internet Order. While the net neutrality community effectively neutralized those threats, a legal challenge to the net neutrality rules is still playing out in the courts. Filed by a consortium of ISPs immediately after the FCC’s February vote, the lawsuit argues that the FCC overstepped its statutory authority in reclassifying broadband under Title II and that—despite more than 4 million public comments—the FCC did not provide adequate notice of the regulatory changes it made. An appellate court heard oral arguments in the case in December and is expected to issue a ruling early next year. Whatever the outcome, the Supreme Court is likely to weigh in, ensuring that the net neutrality debate will continue in 2016 and beyond.
In another high-profile legal battle, the FCC is fighting to uphold its authority to preempt state laws that inhibit municipal broadband build-out. At the same February meeting where the historic Open Internet vote took place, the FCC acted to improve broadband access and competition by undoing anti-competitive broadband laws in Tennessee and North Carolina that prevented local communities from providing Internet access for their citizens. But those states have pushed back against the FCC’s decision in a lawsuit that will continue to play out into 2016. The outcome may impact the FCC’s broader authority to encourage broadband deployment, and we are tracking.
The startup community won another victory in April when Comcast’s plan to merge with Time Warner Cable (TWC) collapsed under regulatory pressure. 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 same enthusiasm that drove the effort to pass strong net neutrality rules helped convince regulators at the FCC and in the states to take a hard look at whether allowing this type of consolidation in the market for Internet access would end up doing irreversible harm to the nation’s high-speed broadband market. Recognizing that promoting competition between ISPs is the only way to help put the U.S. back on par with international peers in terms of broadband affordability and quality, the FCC hinted that it would block the merger, prompting Comcast to walk away from the deal. While the merger’s demise meant that ISP competition didn’t deteriorate further, there is still a long way to go before there is adequate competition in broadband markets.
Broadcasters, potential bidders, and regulators spent 2015 gearing up for next year’s spectrum incentive auction. With enormous sums of money at stake (an auction of less valuable spectrum brought in more than $40 billion in 2014), stakeholders have been aggressively lobbying for favorable auction rules over the past few years, and this spring saw a particularly heated debate around the size of the auction’s spectrum reserve. As competition is so important for startup growth, the startup community weighed in on the importance of establishing auction rules that promote competition. While we didn’t win the fight for a larger reserve, next year’s auction still has the potential to re-shape competition in the mobile broadband market. We’ll be watching when March rolls around.
Licensed frequencies weren’t the only airwaves getting attention this year. 2015 saw an explosion in the “Internet of Things” and continued growth in the use of Wi-Fi, attracting the attention of policymakers and underscoring the importance of access to unlicensed spectrum. In November, Engine supported legislation introduced by Sen. Schatz that would ensure that unlicensed spectrum is central to any future spectrum strategy. We hope to see that bill or something similar move next year, possibly with a larger spectrum package (more on that below).
The AWS-3 spectrum auction ended in January, netting almost $45 billion and demonstrating that there is still a critical need (and willingness to pay high dollar) for spectrum. In an effort to free up more of this valuable resource, members in both the House and Senate introduced bills that would incentivize the federal government to give up its inefficiently used spectrum. While neither bill was able to move before year’s end, there is hope that a larger spectrum package that includes these provisions, as well as a number of broadband deployment provisions, will be taken up sometime in the new year.
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.