Thomas Hazlett

Included in the bipartisan infrastructure bill is $65 billion for broadband deployment. Most of that, $42 billion, is slotted for subsidies to rural communications networks, promising to conquer the digital divide. This is doubtful. The government has already expended at least $200 billion (in 2021 dollars) on the Universal Service Fund established by the 1996 Telecommunications Act. Most of the money was meant to extend networks that serve rural areas, but some was also allocated to schools and libraries, healthcare facilities and low-income mobile phone users.

It was the biggest corporate merger in history, and it stunned the markets. On Jan. 10, 2000, America Online, the world’s largest internet service provider, bid $183 billion for Time Warner, the world’s largest content provider. But the merger tanked. Time Warner cast off AOL in 2009. Verizon acquired AOL in 2015 for $4.4 billion, less than 1% of its 2000 value, adjusted for the S&P 500 index. AT&T bought Time Warner in 2018 for 20% of the adjusted price AOL paid in 2000. The merger’s failure is often attributed to executive mismanagement and clashing corporate cultures.

[Commentary] E-Rate is almost the perfect Washington DC program. It hits the hot buttons of education, technology, and good jobs at good wages in one shot and spreads federal monies to vendors and consultants in every corner of the country. And no politician has ever been defeated for public office by touting improved Internet connections at local schools. But in a large study of students in North Carolina, two colleagues and I recently found that the actual benefits for students—the kids the program is supposed to help—are about zero. In fact, our research found that the E-Rate program marginally hurt student performance rather than helped it.

To investigate the impact of E-Rate and to focus on the current example proffered by the President, my colleagues (Ben Schwall of Clemson and Scott Wallsten of the Technology Policy Institute) and I studied how broadband subsidies in North Carolina related to learning. Gathering data on all public high schools in the state from 2000-2013, including how much E-Rate funding was sent to schools, we investigated how SAT scores in math and verbal reasoning changed with increased Internet subsidies. Holding other school and socio-demographic factors constant, the changes were small but the finding was statistically significant. Except the relationship was negative. In other words, the more E-Rate funding a school received, the worse its students performed.

[Thomas Hazlett is H.H. Macaulay Endowed Professor of Economics at Clemson University, where he also directs the Information Economy Project. He formerly served as Chief Economist of the Federal Communications Commission.]

[Commentary] The White House is touting its plan to upgrade Internet connections to schools, and the Federal Communications Commission -- nominally, an independent regulatory agency -- has announced a $2 billion “down payment” using cash from “reserve funds.” Why, one might ask, does the Federal Communications Commission have bigger reserves than a Fortune 500 corporation? The FCC has over a billion dollars, growing fast and burning a hole in its pocket, due to recent “reforms” of the scandal-plagued high-cost portion of the Universal Service Fund (USF).

The program is supposed to extend phone service to outlying areas via the “High Cost Fund,” recently renamed the “Connect America Fund.” Rather than let the program wither, the FCC continued to collect USF taxes, diverting them to a slush fund. In 2012, $560 million poured into it; in 2013 it collected $700 million more. Stunning as it may sound, the money comes largely from low-income telephone users who pay a hefty 16.4 percent tax to make long-distance phone calls the old-fashioned (pre-Skype) way.

“E-Rate” is now called “ConnectEd.” Proponents of increased spending have not presented a shred of evidence that additional spending on the program is worth the cost, and act as if dreamy stories about “ultra broadband” and “technology in the classroom” justify the mission. Yet, while the asserted results are illusory, the costs are real, and the tax that funds it falls disproportionately on low-income consumers. It’s a “soak the poor” scheme that has no justification in law or policy.
[Hazlett is H.H. Macaulay Endowed Professor of Economics at Clemson University. Wallsten is vice president for Research and senior fellow at the Technology Policy Institute and senior fellow at the Georgetown University Center for Business and Public Policy]