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Analysis of the US Broadband Stimulus Package

In January 2009 the US Congress began considering the American Recovery and Reinvestment Bill 2009 aimed at kick-starting an economy in deep recession. The package, passed into law on 17 February, comprised $787 billion of mainly tax cuts, unemployment benefits and spending in education, health care, infrastructure and energy.

Included in the fiscal stimulus package was a relatively modest $7.2 billion for broadband and wireless in unserved and underserved areas, of which approximately two-thirds is to be administered by the National Telecommunications and Information Administration (NTIA) and approximately one-third by the Rural Utilities Service (RUS).

Generally the package was welcomed, not least of all because it attested to President Obama’s intention to improve America’s broadband sector. It also puts broadband on the national political agenda, an essential event in order to start creating awareness about the poor state of broadband affairs in the country.

Hence by early 2009 the industry’s call for a national broadband policy appeared closer to being answered. However, the Bill remained silent on key elements of the package such as the definition of broadband or the extent to which any of the funds would be targeted to fibre-networks. Indeed, when further details of the RUS Broadband Initiatives Program (BIP) and the NTIA Broadband Technology Opportunities Program (BTOP)) were announced in July, it was very disappointing to see that the broadband stimulus package requires nothing more than 768 kilobits per second (kb/s) downstream and 200 kb/s upstream.

This outdated measure of “broadband” has two regressive effects on the potential of the package. The first is that it is used as the measure of whether a community is unserved or underserved. Thus communities with at least 50% of residents having access to these snail-pace speeds will not be regarded as underserved. Moreover, these measures are based on advertised not actual speeds. Thus the widespread practice of advertising the highest possible bursts available close to an exchange has the effect of disqualify many genuinely underserved communities from funding eligibility. The second effect is that the level of service which a funding recipient must provide is, before it is even deployed, at the dismal end of a plausible broadband definition.

On the more positive side—because of certain other aspects of the rules—there are indications that much of the BIP & BTOP money may go to fibre deployments, and this would provide higher speed services, despite the low requirements. With the government paying for most of the build the carriers hopefully will in general choose fibre (for landlines) and more than 3Mb/s for wireless. The real exception would be in poor areas. The extremely low speed the policies have prescribed is a way of ensuring that there will be very few broadband solutions where this is not achievable, thus avoiding the politics of picking technology winners.

Nevertheless uncertainty about the broadband package reigns and the risk is that if the programs are not properly implemented they will merely exacerbate the digital divide in the USA. AT&T and Verizon already offer FttH services in some of the more affluent suburbs, and they are currently extending these services, guaranteeing a progressive increase in the quality of broadband services provided to these markets; however, for the foreseeable future there is little hope of seeing such speeds beyond the major cities.

For instance, it is unclear why the stimulus package is not contained within a single infrastructure project. Splitting the funds between two agencies, one for rural projects and one for projects anywhere, creates potential gaps and overlaps. The plan also places artificial breaks between last mile, middle mile, public computing and innovative programs. This makes the production of integrated programs, which the Department of Commerce says it wants to see implemented, very difficult.

In addition, there are problems inherent in the cost-effectiveness for the BTOP local loop projects being based on the ratio of the total cost of the project to households passed. Lots of cities with urban density will benefit from such a criterion, not so the majority of underserved areas.

Furthermore the available funds are oddly constructed. The BIPers have made all of their $2.4B available, in parcels of $1.2B for last mile projects—remote or non-remote areas. Middle mile projects are allotted $0.8B. The BTOPers set aside $1.6B in this round out of their $4.3B. $1.2B goes to infrastructure but only $50M to public computer centers and $150M to sustainable broadband adoption in this round. It is also anticipated that because RUS approval processes traditionally rely heavily on the experience of fund recipients, scope for new entry will be limited because existing RUS fund recipients, mainly rural telcos, will be at a distinct advantage over new entrants.

Then there are the State-level processes, in which all projects have to be vetted for prioritization. Different States might have different rules, which have yet to be published. In addition, some States will also put in their own submission which will further splinter the project and render it even more complicated.

But the bad news doesn’t end there. To prove that a community is unserved or underserved, the applicant must collect census block level data. The documentation of underserved areas by census block is totally inadequate and is going to cause endless discussions and delays. It is also likely to play into the hands of the incumbents who tend to be the only ones who maintain such data. As has been recognized by the FCC, unserved and underserved definitions require more study and a deep knowledge of census blocks, last calculated in 2000. So this requirement will most probably disappear in the too-hard-basket and the result of this will be some stabbing-in-the-dark decisions.

There is also a strange condition of funding where, after an organization has jumped through all the stage 1 and 2 hoops, the BIPpers and BTOPers will post their planned awards so the masses can object to funding if there is already service in the area awarded. This creates real potential for bad outcomes and merits reconsideration.

These and other aspects of the package raise very serious concerns. With poorly framed parameters and criteria, one can merely hope that the process of grant allocation may result in some willing, forward-thinking providers offering a better service for the funding they receive. This might happen in the upper end of the target areas but those communities further down the list might be stuck for a decade or longer with what can only be described as one of the worst broadband services available anywhere in the developed world.

In conclusion, the package misses the opportunity to treat broadband as a serious infrastructure stimulus investment that can assist the country to use the digital economy as a spearhead in the recovery period. The complexity is a feast for lawyers and the process is open for pork barreling; in the end very little of the money allocated will result in regional and rural broadband improvements. This also ensures that the incumbents will stay firmly in the saddle and that there won’t be any serious innovations or trans-sector projects such as e-health and tele-education. For this to happen it may be best to regard the broadband stimulus package as a lost cause and instead to focus on the FCC’s sixth broadband inquiry and on its development of a comprehensive National Broadband Plan by February 2010.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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