ruralThe 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.

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6 thoughts on “Report Attacks Broadband Stimulus Award Process

  1. As a application reviewer, it was obvious this program was going to be a failure when the first question on the application after name and contact information was what congressional districts would be impacted by the project.

    1. interesting mapping project is to overlay awards with congressional districts – explains it all
      at least middle mile projects got some actual osp facilities as opposed to some of the sustainability awards that were just payoffs

  2. the broadband stim program is a bust, not because of what these economists say, but because of broken gov’t bureaucracy

  3. Networks are about centralization. Value is captured mostly at the core. This is antithetical to what most consider as good or balanced or democratic or universal access policy. Actually it can be made to accomplish both. Let's take BTOP. What if instead the govt had held a "competition" between competing private interests to develop a national layer 1 model anywhere outside the top 200 markets? The only conditions would be that it would be necessarily open, no last mile (only first and mid mile) and a minimum of $100m had to be invested in every state.

    The financial model would have looked like this: zero interest 30 year $4bn govt loan + $x bn private debt and minimum 20% of the total being equity. So the "x" would have been what the private interests would have bid on or provided. Likely outcome would have been $10-15bn capital raised and would have allowed this provider to build laterals to all the major cell towers and rural community cores and dropped the cost of backhaul by 90% nearly everywhere as regional and trans-national pricing would enable this. Price and demand elasticity would have been swift and enormous in the last mile (fixed and mobile).

    What the report highlights is the failure of policy and regulatory and business model balkanization and the inability of BTOPs to go after the primary source of demand in rural markets, namely the smartphone. On a scale of 1 to 10 the overall impact of the $4bn is minus 3 since taxpayers didn't even get a positive ROI.

    I believe the authors of this report mostly miss the concept of the smartphone and the network effect point raised above.

  4. The program was intended to support otherwise inefficient business models. The free market had long ago determined that the projects would not be self sustaining, thus the government intervention. To come back around and say "Gee Whiz, those were expensive builds" is simply silly. To quote a Far Side: Said the alligator in the witness box…"Of course I killed him in cold blood….I'm a reptile…duh".

  5. Terrible program all the way around. Don't even get me started. I could write for an hour straight about the unintended consequences of specific projects, right down at the local level. Sure, the program sounds so altruistic in its goals, but when projects subsidized by free taxpayer money end up competing against networks that are already in place, local economies in smaller rural areas are hurt as people loose jobs. How do you compete against a largely free, or even half-free network build? It's terrible, and nobody wants to hear about that reality now that the photo ops and project announcements are done. The selection process was flawed and they were obviously under intense pressure to get money out the door, even when some of these project would construct networks right over the top of others.

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