Is broadband stimulus really needed?

Proponents say government funding of broadband build out will help the US stay relevant in this online world, and ultimately benefit small business and translate into jobs.  Critics say the private sector is doing just fine, thank you, and that the monies could be put to better use.

The Experts
Stephen Alexander
Stephen Alexander

Chief Technology Officer and Senior Vice President, Products and Technology, at Ciena says broadband plays such a critical role in everything from education to health care and public safety, that stimulus funding is an investment that will pay dividends for years. View debate

Andrew Moylan
Andrew Moylan

Vice President of Government Affairs at the National Taxpayers Union asks what is there to stimulate given the FCC estimates that 95% of Americans already have access to broadband service. View debate

Stephen Alexander

The life-blood of an information economy

The American Recovery and Reinvestment Act of 2009 (ARRA) set aside $7.2 billion to bolster construction and use of broadband Internet access throughout the United States. The Act’s intent was to create short term economic activity and establish infrastructure that would encourage further economic development. Because broadband plays such a critical role in supporting and enhancing education, healthcare, and public safety, ARRA and broadband stimulus projects like it are fundamental investments in the American economy that will return dividends for years.

Before asking whether or not more stimulus is needed, we first need to stress the value of broadband access. Value is not constrained to data rate, but rather is about the applications high-quality broadband supports, such as rapid access to healthcare records, distance learning, electronic commerce, or peta-scale science. The list is endless and spans every type of user imaginable. The value of quality broadband is foundational to a modern economy.

The Organization for Economic Co-operation and Development (OECD) completes an annual ranking of broadband adoption in the world’s major industrial economies. In 2009, the U.S. was ranked 15th based on speed, number of subscribers per household and price. The U.S. has slid from a top position since 2000, not because the speed available to consumers has decreased, but rather because competitive offerings have not kept pace with changing application needs and technical capability.

OECD contends that countries such as Korea, Iceland, Sweden and Canada have risen to top rankings because of government incentives. We have seen other nations adopt national broadband initiatives as a tool to increase their global competitiveness. As state-of-the-art broadband changed from 56kbps dial-up to faster DSL, cable or optical speeds, other economies continued to upgrade their broadband infrastructure. The U.S. has not kept pace.

RELATED: Broadband stimulus overlapped existing service

Details from the National Telecommunications and Information Administration’s annual Exploring the Digital Nation – Computer and Internet Use at Home report for 2010 highlights additional regional disparities within the U.S. with households with broadband connections going from 70% penetration in urban areas to 57% in rural.

The Federal Communications Commission’s broadband plan set out to address this, with a goal of delivering 100Mbps access to 100 million users by 2020. This so-called 1002 goal is based on reasonable assumptions of historical technology changes and application uptake over the past 10 to15 years. Making 100Mbps service available to a third of the population will result in better access to information and, in turn, allow for a widely-distributed information workforce that contributes to the broader economy.

By design, ARRA includes incentives for adoption by community anchors such as educational institutions, healthcare facilities, public safety departments, libraries and local governments. This allows more of the public to benefit from the availability of broadband enabled applications.

Early in 2012, ARRA-funded broadband projects were well underway across the country with many examples of community anchor involvement. Internet2 has launched a national 100Gbps backbone project called the U.S. Unified Community Anchor Network (US UCAN) with the intent of offering exceptionally powerful high speed service to community anchors such as educational and research institutions. DC-CAN is a Washington D.C. area network that will bring affordable broadband services to over 250 healthcare, educational, public safety, and other institutions in underserved areas of the district. It also creates a high speed middle mile network for last mile service providers to deliver affordable broadband access to residents and businesses in underserved areas. 

Similarly, in a very different and rural part of the country, Navaho Tribal Utility Authority (NTUA) is constructing fiber and wireless infrastructure to bring broadband service to roughly 100,000 people spread over a vast area in the southwest. Each of these projects touches unique needs and users that impact the economy in different ways.

The Rural Electrification Act of 1936 serves as a precedent for today’s ARRA funded broadband projects -- giving a large portion of Americans improved access to information, through higher performance access technologies and at a reasonable cost.  By 1936, electricity was ubiquitous in urban centers but uncommon in rural areas. Technologies for power distribution made it difficult and expensive to deliver service and utility companies had little reason to invest in expanding their service area.

Through the REA, technologies were developed and infrastructure constructed that made power universally available, resulting in better agricultural efficiency and contributing back to the U.S. economy to this day.

The landscape is similar today; projects such as US UCAN, DC-CAN and NTUA are examples where government investment today will result in technological improvement, infrastructure construction and long-term benefit.

Ciena is the network specialist, collaborating with customers worldwide to unlock the strategic potential of their networks and fundamentally change the way they compete. With focused innovation, Ciena brings together the reliability and capacity of optical networking with the flexibility and economics of Ethernet, unified by a software suite that delivers the industry’s leading network automation.

Andrew Moylan

Broadband doesn't need gov's “stimulus”

The federal government need not “stimulate” markets which are expanding dramatically on their own. In recent years, we have witnessed an amazing proliferation of access to broadband Internet, all achieved without the heavy hand of government’s guidance. While gaps in service remain, the exorbitant costs associated with filling them counsel for restraint, not ever-greater subsidies.

If broadband access were not widespread, this might be a more interesting discussion. But it is widespread, and incredibly so. According to projections based on a 5,000-person survey conducted by the Federal Communications Commission (FCC) in its 2010 National Broadband Plan, 200 million Americans have land-line broadband service. Little more than a decade prior, that number was just 8 million.

But building from scratch to a market where two of every three Americans has adopted broadband services in ten years only tells one part of the story. An equally important metric is access.  Here, the results of the FCC survey are even more staggering. Though not everyone subscribes, 95% of people have land-line broadband service available to them, and fully 98% have access to 3G wireless broadband service through mobile phone networks.

If access is this pervasive, what are we stimulating? These statistics seem to suggest that the most important thing we could do to boost adoption rates would be to make Americans richer and broadband services cheaper – both of which could be better achieved through careful tax and regulatory reform that fosters greater economic growth than through another stimulus plan.

Even Americans who live in remote areas outside the reach of most land-based services can choose from several satellite providers that offer speeds of 1Mbps (18 times faster than dial-up) for $60 to $70 per month. That’s not hyper-fast broadband speed, but it is perhaps a wiser choice than spending as much as the FCC estimates it would cost to build 4Mbps networks to reach these remote folks: a gulp-inducing $24 billion.

Economist Jerry Ellig of the Mercatus Center at George Mason University illustrates just how costly it could be to do things the FCC’s way: “That $24 billion ‘funding gap’ also deserves comment. That’s the amount of subsidy the [2010 National Broadband] plan estimates will be required to make 4 Mbps broadband available to all Americans. If you read the plan carefully, you will also find that a whopping $14 billion of that is required to bring broadband to the highest-cost two-tenths of one percent of American housing units - 250,000 homes (see page 138 of the National Broadband Plan). That works out to $56,000 per housing unit!”

RELATED: Broadband stimulus brings WiMAX to rural U.S.

Incredibly, $56,000 would be enough to buy satellite Internet service for each of those rural households for the next 66 years.

 Broadband stimulus is an incredibly attractive concept to some, but the fact of the matter is that broadband expansion has been humming along without it and several subsidy schemes carry with them real risks for taxpayers. For example, millions of dollars from the 2009 economic “stimulus” bill have been devoted to so-called “overbuilds,” where a government-owned network is built in an area already served by several private competitors. These wasteful ventures do very little, if anything, to expand access and serve primarily to squander taxpayer dollars on creating a retail business run by inexperienced bureaucrats.

In fact, the 2009 stimulus law’s Broadband Technology Opportunities Program (BTOP) and Broadband Initiatives Program (BIP) have come under serious scrutiny from watchdogs inside and outside of government. Although the stimulus’ funding for BTOP and BIP grants and loans (amounting to more than $7 billion) expired at the end of September 2010, questions persist about how that funding is being used for projects still underway.(See Republicans questions broadband stimulus plan.)

At a Congressional hearing in early 2011, Mark Goldstein with Congress’s Government Accountability Office noted that, “Even with steps taken to address project oversight, risks to the success of the broadband programs remain.” Last year, the House passed legislation authored by Rep. Charlie Bass (R-NH) to protect taxpayers by terminating poorly performing or wasteful broadband projects and ensuring the return of those funds to the Treasury. Unfortunately, the Senate has yet to follow suit, which only serves as another chapter in this cautionary tale.

Politicians may not get to star in any of their ribbon-cutting ceremonies, but private wireless, satellite, telephone, and cable companies have succeeded in spreading high-speed Internet access to nearly every American. All this happened largely absent substantial government involvement through planning, subsidies, or predatory taxes and regulations. 

Rather than insisting on driving us down the road to prosperity in a taxpayer-funded vehicle with a poor driver, government officials should instead focus on making that road smooth and free of obstacles for private providers. New attempts at broadband stimulus promise to make that path more difficult, not less.

The 362,000-member National Taxpayers Union (ntu.org), is a nonprofit, nonpartisan citizen group founded in 1969 to work for lower taxes, smaller government, and economic freedom at all levels.

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