BEAD’s Bidding for Broadband: Why Williamson’s 1976 Analysis Still Matters

A problem inherent to the Broadband, Equity, Access, and Deployment Program and any similar infrastructure subsidy program: Winners’ incentive to come back to the government later to ask for more subsidies and the inability to credibly claim they won’t. The post-award incentive to return to the trough does not have an easy solution. Consider, for example, the almost inevitable cost overruns on other large infrastructure projects that taxpayers invariably cover. While eliminating this problem is likely impossible, understanding may help National Telecommunications and Information Administration and the states design their bidding processes to reduce the problem. Nearly 50 years ago, Nobel prize winner Oliver Williamson wrote a seminal paper on the problems involved in soliciting bids for monopoly service in the context of early cable TV franchises. His key point was that the winner becomes a monopolist with strong incentives to renegotiate terms or seek additional government support after winning the contract, particularly if initial bid commitments prove unsustainable. Because providers can optimize across the BEAD subsidy, expected Universal Service Fund (USF) payments, and expected consumer revenues, they may submit unrealistically low bids while planning to seek future USF support, exactly the kind of post-award renegotiation that concerned Williamson. We already see evidence of this problem. Nobody has yet figured out a bulletproof solution to Williamson’s post-award renegotiation problem, even in theory. It’s not reasonable to expect NTIA or the states to figure out a solution now. States can reduce the reasons a winner might come back later and the federal government can try to make it more difficult to violate promises. But the solution to the problem BEAD aims to solve—broadband access—will come from competition.