Broadband Grants -- A Worry

by publius

On Tuesday, the Commerce Department held an introductory public meeting about the new broadband grants.  The different agencies with responsibility were on hand asking for public comments – the FCC, NTIA, and RUS (Rural Utilities Service).  So here’s mine – don’t let the broadband grants become a wasteful subsidy for national wireless carriers.

Here’s my fear – and it stems from the administration of the Universal Service Fund (USF).  The USF is a subsidy to construct and maintain networks in “high cost” areas such as rural regions where population density wouldn’t otherwise justify construction.  It shows up as a byline on your monthly phone bill (just look - it's in there).  In short, it makes irrational network construction rational.  Rural people get phone lines, which both provides a public service to them, and creates network effects by adding more people to the network.

Sounds good in theory, right?  That’s not always how it works in practice, though, because the concept of “high cost areas” can be abused.  One source of abuse is wireless carriers who use USF subsidies to build and upgrade their networks along interstate highways that pass through more rural areas. 

The way it works is that someone like Verizon Wireless will request $[X] amount of money to serve “high cost” areas.  They will then turn around and use that money to construct towers along major interstates (called "freeways" in Texas... strange) that happen to run through rural areas.  These companies don’t have to actually add service in rural towns – they basically just get federal money to subsidize their national networks.*  Better networks are good and all, but that's not what the USF is for.

It’s easy to see how the same thing could happen with the broadband grants.  Big carriers like AT&T and Verizon Wireless (who are very well-connected in DC) could apply for grants with the promise to construct broadband in “underserved” or “unserved” regions.  In reality though, they might just turn around and upgrade their interstate highway service in rural areas to 3G (i.e., make their wireless broadband networks faster).   That would add jobs, but it would do nothing to help people in truly underserved areas get better broadband access.

So that’s something to keep an eye on as the grant process moves forward.

*(Disclaimer – In a past life, my firm represented rural phone companies who fought against these subsidies.  If it helps, they get too much USF money too).

Comments

[d'd'd'dave]

"The USF is a subsidy to construct and maintain networks in “high cost” areas such as rural regions where population density wouldn’t otherwise justify construction. "

and

"Better networks are good and all, but that's not what the USF is for."

Huh?

Are you suggesting there should be a subjective rule "build it where you ordinarily wouldn't" rather than an objective rule "build it within these physical boundaries"?

[Gary Farber]

d'd'd'dave, are you suggesting that the U.S. should, or ever should have, subsidize[d] rural mail delivery, where the market made it unprofitable?

[Slartibartfast]

Rural Utilities Service

Wait...you mean it's not Rodents of Unusual Size?

[watchinginwonder]

Correct me if I'm wrong, but eons ago when the concept of the USF was introduced, it was to be a surcharge on the providers of telecom services within high density service areas so that providers in rural markets could make those same services available to its customers at a reasonable price. (Think the explosion of dial-up internet services and the birth of AOL.)

Instead, the providers quickly got permission to pass this fee along directly to the consumer and began pocketing the increases in rates local urban PUC's approved for the recapture. So rather than uban providers subsidizing rural providers, its consumers subsidizing providers.

[d'd'd'dave]

Gary
//d'd'd'dave, are you suggesting that the U.S. should, or ever should have, subsidize[d] rural mail delivery, where the market made it unprofitable?//

I didn't suggest anything. I asked a question.

[d'd'd'dave]

wonderingwhatheswatching

//its consumers subsidizing providers.//

Isn't that the nature of all business enterprises?

[tgirsch]

A "freeway" isn't necessarily an interstate highway -- it can be any multi-lane, limited-access divided highway which doesn't charge a toll. (As opposed to a "tollway" which has occasional toll booths, or a "turnpike," where you get a ticket when you enter and pay the total toll when you leave...)

[/guy not from Texas who calls it a freeway]

[Jon Kay]

What publius said. Why bother, if it got the taxpayer nothing the first time? Of course, another problem is that, of course, grants go to the companies with the best lobbyists, NOT those with best service (lookin at YOU, AT&T).

And, I went to low-density broadband conference here in Austin a few years ago, and was utterly, completely stonkered. Here in Texas, vast proportions of the huge, mostly-rural state were in fact already covered, and the proportions were rising quickly. That completely contradicted my assumptions going in, which were that digging ditches is way, way, expensive, and having read about tons of federal $$ going to rural electrification.

The deal is that wireless broadband, which had been having trouble in the cities against established wired ground networks, gets competitive in the sticks. SEe the mind-bending cost of digging ditches, above, plus you have fewer people toamortize costs. So, to my astonishment, the market's doing way better than the gummint at get broadband to most of the people.

Yeah, the rules should at least be rewritten, but then we'll have imposed big telcos on those poor rural customers, oh, boy; I'm pretty conflicted on this.