Federal Broadband Infrastructure Spending: Potential Pitfalls

Much discussion in Washington, D.C. and elsewhere is occurring over whether there should be an expansive infrastructure spending and policy bill.  For those in the communications space, this has spurred interest in inserting broadband-related infrastructure provisions within such a legislative vehicle.[1]  While sound telecom policy provisions that promote infrastructure buildout could make sense, I would argue that policymakers should be leery of new communications infrastructure spending, as the last thing consumers or businesses need is an encore of the market distortions caused by the last Federal government economic stimulus efforts.  For the sake of efficiency and soundness, if new government money has to be included for broadband, it should be done in a way that does not harm competition in the marketplace, prevents bureaucrats from picking winners and losers, is technology agnostic, distributes resources in an effective and efficient manner, and does not undermine the FCC’s universal service high-cost program.

It only seems appropriate to start by recognizing the positive state of U.S. broadband.  While some disparage the progress that has been made, the fact is that broadband is widely available in most parts of America, certainly at a level to meet the actual demands of users.  As the FCC’s own reporting showed using 2015 data, ninety percent of Americans have broadband access at speeds of 25 Mbps or better, and it has only improved since then.[2]  That doesn’t mean we should rest on our laurels, but it does mean that we should salute the work already done by private broadband companies and address any barriers preventing more extensive deployments, including reducing regulatory burdens.  It also means that we should redouble our efforts to build out to areas without service or lacking sufficient service today through market-based mechanisms.  Sadly, I have visited parts of America that are without any option for broadband service.  Getting to work on the FCC’s Remote Areas Fund, as I have called for over the past three years, would be a step in the right direction. 

Our current broadband successes also mean that we should discard old arguments that are not based on reality or serve as a distraction to our true mission.  For instance, continuing to debate the status of U.S. broadband compared to other nations, especially based on misleading rankings like those of the OECD,[3] is inappropriate.  Simply examining our nation’s vast geography should remind everyone of the difficulty of serving all populated parts.  America isn’t some peninsula or archipelago with a saturation or population density of 100s per square inch.

In all seriousness, while a portion of America’s entrepreneurial and individualistic spirit comes from the vast open land available, especially in the west, this makes broadband deployment to all corners more challenging.  According to the OECD’s latest statistics, South Korea’s fixed broadband penetration subscriptions per 100 inhabitants was ranked fifth compared to the U.S. ranking of seventeenth,[4] but Korea’s population density in 2015 was 519 per square kilometer compared to our 35.[5]  Thus, artificial comparisons to other nations of different sizes and terrains doesn’t serve much value without understanding the contextual situations we face as a nation. 

Moreover, broadband measurements have been based on contrived FCC definitions and unproductive thresholds.  It simply isn’t true that every user within a city, town, village, or hamlet must have or demands broadband at a certain speed, such as downloads of 25/50/100 Mbps.  Examining closely the assumptions used by the Commission to establish its benchmark of “acceptable” broadband highlights its detachment from reality and its intention to use the benchmark for political and regulatory purposes.  More importantly, focusing on artificial speeds diverts attention and resources from establishing service to those lacking any broadband service.  The outcry for things like ultra-high speed service in certain areas means longer waits for those who have no access or still rely on dialup service, as providers rush to serve the denser and more profitable areas that seek upgrades to this level.  Today, ultra-fast residential service is a novelty and good for marketing, but the tiny percentage of people using it cannot drive our policy decisions.  Instead, we should strive to ensure that broadband of a realistic speed and quality is available for as many as possible, knowing it will be far exceeded in most circumstances.

Fundamentally, our broadband policy has been and should continue to be based on private sector companies continuing to build out their networks to meet consumer needs.  Unlike government entities, the private sector has the technical knowhow and experience to build and operate complex communications systems.  The surest way to continue the current trajectory of progress is to remove barriers to entry for new technologies or deployment.  As I have testified before Congress previously, some states, localities and Tribal governments are making it more difficult to deploy broadband throughout our nation.  Evidence and experience shows that a number of these entities are imposing extensive and costly process reviews or trying to extract huge payments from communications companies for the “right” to serve their residents.  I am hopeful the Commission will continue its work to strike these down. 

Despite best efforts to date, consumers in some areas in America do not have sufficient broadband.  In these areas where there is no business case to provide broadband, the law provides the Commission with the responsibility and the duty to take remedial action.  To facilitate this obligation, the Commission operates subsidy programs by which providers are given financial resources obtained via fees from consumers as an incentive to serve less profitable areas.  The Commission’s extensive work has created relatively cost-efficient distribution mechanisms, including reverse auctions, based on the best data available and taking into account appropriate factors to ensure that the subsidies are provided only where, when and at the level actually needed.  While not perfect by any stretch, the Commission’s universal service high-cost program defensibly allocates resources in a relatively well-reasoned and rational way.  At the current time, the Commission distributes approximately $4.5 billion annually for these purposes, and projects in the pipeline will dramatically improve overall broadband access in harder to reach areas in the coming months and years ahead.  Moreover, the FCC’s high-cost program is oversubscribed compared to its budget, which is appropriately tied to how much we can extract from consumers, meaning that there is room to add additional funding that would lead to further deployment gains. 

The good work being done by the private sector and the Commission has not prevented some from advocating for expending additional Federal dollars for broadband, hopefully by providing additional resources to private companies to expand their reach and enter new territories (and not funding government networks).  While seemingly helpful, there are serious potential drawbacks to this action, especially if it is done in a haphazard way.  Here are just a few of the major issues and problems:

Harms to Private Sector – In countless meetings over the last three years, I have heard about the harmful effects of the Obama Administration’s economic stimulus legislation, especially the Broadband Technology Opportunities Program and Broadband Initiatives Program (BTOP & BIP).  While supporters point to miles of fiber laid or anchor institutions connected, they fail to mention what this funding did to the competitors in the immediate and surrounding areas.  When one provider received special funding, it distorted the ability of non-recipients to operate, pay off debt, raise capital, and satisfy consumer interest.  In other words, artificially propping up select companies impacted the ability of others to compete, including growing their networks to unserved or underserved areas, and that doesn’t even include a critique of where grants were provided to overbuild existing providers.  With areas completely unserved or in need of upgrades, it makes little sense to direct federal dollars to fund competition.    

Overpaying and Over Subsidization – At its core, the Commission’s high-cost program is designed to limit any subsidy provided to broadband companies to only what is absolutely needed to promote access.  The institution of reverse auctions uses market forces to get providers to compete – thereby driving down the subsidy costs – for particular areas.  On the contrary, grant programs or loan subsidies do not induce any competitive pressure.  This means the Federal government overpays for broadband deployment in these scenarios. 

Lack of Coordination – Experience from the 2009 stimulus showed that insufficient coordination was done with the FCC by the Departments of Commerce and Agriculture as they created and operated their programs.  That means that, as bureaucrats were preparing to distribute multi-billions of dollars, they had little to no understanding of the prior and future commitments made by the Commission or how their programs would fit together with the Commission’s data intensive high-cost program.  In the end, the Commission was left to piece together the remnants of what was done by the other agencies in order to prevent duplication and address those areas still in need. 

Bureaucrats Picking Winners & Losers – Application-based programs use highly-questionable selective criteria (e.g., points system) combined with human intervention to determine what projects to fund.  This allows non-efficient factors to influence the outcome and cultivates an environment for political gamesmanship.  At a time when so much focus is on reducing undue or improper involvement by D.C. lobbyists and politicians, shouldn’t there be equal concern that any new broadband programs aren’t monopolized by the well-connected? 

Technology Discrimination – The Commission has spent the last 18 months ensuring that its program does not discriminate against any technology able to serve consumers. Unfortunately, many broadband programs are designed to be fiber first or fiber only and provide preferences to ensure other technologies do not win any funding or serve any consumers.  This myopic view ignores the development of other technology capabilities and allowances for terrain. Dragging fiber to the top of every mountain may not make any sense in terms of cost, time to build, safety of installers and long term survivability against the surrounding elements.  Alternatively, fixed wireless broadband or satellite may be the most appropriate solution.

Instead of reinventing the wheel, if – and that's a big if – additional Federal broadband spending is deemed important and appropriate, I would argue that such funding should be directed into the Commission’s existing high-cost subsidy program. Because the program is oversubscribed within the current budget there is room to inject funding without causing dramatic changes or jeopardizing its operation.  In addition, the high-cost program can be extended quickly with existing agency personnel, resources and oversight, whereas creating new programs within other agencies would require rebuilding that infrastructure and accountability, adding time and expense.  In short, increasing the allocation with other resources would allow greater broadband expansion in a timely and more cost efficient manner, and with less influence peddling.