The broadband stimulus program administered by the National Telecommunications and Information Administration was an “inefficient income transfer mechanism,” says a new report from the Technology Policy Institute. The report, titled “The Broadband Stimulus: A Rural Boondoggle and Missed Opportunity,” was authored by economists Greg Rosston and Scott Wallsten.
Many of the NTIA-administered projects were “middle mile” projects designed to bring connectivity from fiber backbone networks to community anchor institutions such as schools, hospitals and libraries.
In studying project effectiveness, the report authors ranked projects based on the cost per mile. And as Rosston noted on a Broadband Breakfast webinar yesterday, the per-mile cost of the least cost-effective projects was 100 times higher than the per-mile cost for the most cost-effective projects.
The authors argue in the report that the NTIA’s method for selecting projects “appears to have been largely incoherent” and that the best approach would have been to award funding to the most cost-effective projects – an approach the authors say the FCC used effectively in awarding funding through the recent mobility fund auction.
The authors raise some good points about project cost-effectiveness, although it might have been more appropriate to rank projects based on the number of community anchor institutions connected per dollar.
I suspect any rural residents or advocates who read the report will have difficulty getting through it without grinding their teeth, however, as the authors have a rather anti-rural telco – and to some extent an anti-rural – attitude.
They argue, for example, that “rural subsidies take money from urban customers and give [it] to rural residents and companies serving rural residents,” that “there is little economic rationale for subsidizing rural areas” and that “subsidy money for rural areas ultimately results in either a transfer to rural landowners or rural service providers.”
To illustrate the latter assertion, the authors argue that “if residents value the improved broadband brought by the subsidies or if the subsidies reduced prices, then landowners could charge higher rent for their land without losing tenants. . . As a result the subsidy may have reduced the nominal price of the broadband service, but not the cost of living in the rural area and subscribing to broadband.”
The authors focus heavily on the cost of broadband to subscribers, a view that implies rural residents already have some type of broadband, which many of them don’t. (It’s true that almost everyone can get satellite service but it has some important limitations, including vulnerability to weather — making it an unsuitable solution for rural businesses that need to be able to serve customers, for patients who rely on telehealth resources and for anyone else who needs to rely on connectivity regardless of the weather.)
The report also fails to consider the network effect. As more rural residents are connected, urban-based businesses have that many more people to whom they can sell products. The nation has better educated people who can do the skilled jobs required to maintain or even improve American competitiveness. And the more rural people who can use telehealth options, the lower their cost of medical service will be and the less all Americans will have to pay for medical insurance.
I could go on but I’d like to hear what Telecompetitor’s readers think about Rosston’s and Wallsten’s arguments.