Federal Broadband Infrastructure Spending: Potential Pitfalls

The good work being done by the private sector and the Federal Communications Commission has not prevented some from advocating for expending additional Federal dollars for broadband, hopefully by providing additional resources to private companies to expand their reach and enter new territories (and not funding government networks). While seemingly helpful, there are serious potential drawbacks to this action, especially if it is done in a haphazard way. Here are just a few of the major issues and problems:

Harms to Private Sector – In countless meetings over the last three years, I have heard about the harmful effects of the Obama Administration’s economic stimulus legislation, especially the Broadband Technology Opportunities Program and Broadband Initiatives Program (BTOP & BIP). While supporters point to miles of fiber laid or anchor institutions connected, they fail to mention what this funding did to the competitors in the immediate and surrounding areas. When one provider received special funding, it distorted the ability of non-recipients to operate, pay off debt, raise capital, and satisfy consumer interest. In other words, artificially propping up select companies impacted the ability of others to compete, including growing their networks to unserved or underserved areas, and that doesn’t even include a critique of where grants were provided to overbuild existing providers. With areas completely unserved or in need of upgrades, it makes little sense to direct federal dollars to fund competition.
Overpaying and Over Subsidization – At its core, the FCC’s high-cost program is designed to limit any subsidy provided to broadband companies to only what is absolutely needed to promote access. The institution of reverse auctions uses market forces to get providers to compete – thereby driving down the subsidy costs – for particular areas. On the contrary, grant programs or loan subsidies do not induce any competitive pressure. This means the Federal government overpays for broadband deployment in these scenarios.
Lack of Coordination – Experience from the 2009 stimulus showed that insufficient coordination was done with the FCC by the Departments of Commerce and Agriculture as they created and operated their programs. That means that, as bureaucrats were preparing to distribute multi-billions of dollars, they had little to no understanding of the prior and future commitments made by the FCC or how their programs would fit together with the Commission’s data intensive high-cost program. In the end, the FCC was left to piece together the remnants of what was done by the other agencies in order to prevent duplication and address those areas still in need.
Bureaucrats Picking Winners & Losers – Application-based programs use highly-questionable selective criteria (e.g., points system) combined with human intervention to determine what projects to fund. This allows non-efficient factors to influence the outcome and cultivates an environment for political gamesmanship. At a time when so much focus is on reducing undue or improper involvement by DC lobbyists and politicians, shouldn’t there be equal concern that any new broadband programs aren’t monopolized by the well-connected?
Technology Discrimination – The FCC has spent the last 18 months ensuring that its program does not discriminate against any technology able to serve consumers. Unfortunately, many broadband programs are designed to be fiber first or fiber only and provide preferences to ensure other technologies do not win any funding or serve any consumers. This myopic view ignores the development of other technology capabilities and allowances for terrain. Dragging fiber to the top of every mountain may not make any sense in terms of cost, time to build, safety of installers and long term survivability against the surrounding elements. Alternatively, fixed wireless broadband or satellite may be the most appropriate solution.