Pallone’s Folly Will Make Broadband Worse
Congress continues to struggle with the toolkit for improving broadband access. The problem only has two pieces, but every proposal we’ve seen this year has combined them perversely.
Assuming the House and Senate are full of people of good faith, we seem to be dealing with with a body that lacks understanding. How else can be explain the apparent compulsion to solve today’s broadband problems by creating nightmares in the near future?
Broadband access has two parts: the first is removing barriers to broadband use by the poor and unconnected, and the second is promoting the creation of high quality networks in more places. The two problems are distinct, so they require different solutions.
An amendment proposed by Chairman Pallone to the budget reconciliation makes a mess of broadband access. It proposes a $400 subsidy to government owned networks (GON) for each new user they sign up, but no comparable subsidies for cop-ops and commercial networks or for low income families currently connected.
Pallone injects cash into struggling GONs, putting them in a position to cut prices or improve coverage as they see fit, but only through 2028.
Sec. 135111. Credit for operations and maintenance costs of government-owned broadband.
This provision creates a 30% tax credit for State, local, and tribal governments for the operations and maintenance costs of government owned broadband systems. To be eligible for the credit the broadband service must provide a download speed of at least 25 Mbps and an upload speed of at least 3 Mbps. Expenses taken into account for purposes of this credit are capped at $400 per newly subscribed household living within a low-income community. This credit phases down to 26% in 2027, 24% in 2028, and expires at the beginning of 2029.
This would only help GONs that finance upgrades with profits from operations as its effects are limited to short-term stimulus. It would probably encourage GONs to step up their outreach game, but there aren’t enough GONs to make a difference.
Improving Participation Can Start Right Away
Broadband coverage and broadband participation are distinct issues. Everyone in the US has access to more than one broadband network today thanks to the multiple types of networks in use: geosynchronous satellite networks ViaSat and HughesNet; Low Earth Orbit satellite constellations such as Starlink, OneWeb (scheduled for 2022), and Project Kuiper (2018); 4G/5G networks; proprietary fixed wireless networks; and wired broadband services using cable modem, xDSL, and various forms of fiber.
Each of these broadband technologies has its downsides: high latency for geosynchronous; limited coverage from LEO; low speeds from older versions of xDSL; and high construction costs for fiber. But they all share two things in common: they’re available today and they’re better than nothing.
If Congress can reject Pallone’s Folly it can dedicate funds to connect all Americans who want to be connected to some form of broadband today. Doing so will prepare those whose current options are limited to satellite and xDSL for better performing networks as they come online in the next five years.
Walk and Chew Gum
Decoupling low income user subsidies from network quality subsidies enables the administrators of these two subsidy programs to make rational choices. The user subsidy programs need to deal with forever issues, but the network quality subsidies must be attuned to current technologies, a list that changes over time.
Decoupling users from networks allows consumers to enjoy the benefits of competition, while tangling users and networks creates unaccountable monopolies with no incentives to improve network quality over time. We don’t like monopoly broadband, do we?
The mechanism that has been found to work best for broadband in underserved and unserved areas is the reverse auction administered by the FCC. Monopoly networks provided by local government are sometimes adequate and other times unsustainable.
Expand the Subsidy or Eliminate It Altogether
Pallone’s Folly is politically motivated red meat for community broadband activists. It is not a constructive contribution to digital inclusion or network quality improvement.
According to GON advocate ISLR, there could be as many as 600 GONs in the US as well as 330 co-ops that aren’t eligible for Pallone subsidies. 600 sounds like a lot until we recognize that there are close to 40,000 cities, counties, and townships in the US. The Pallone subsidy only reaches 1.5% of US political jurisdictions.
Contrary to the perception that broadband is the province of either scrappy cities or mammoth corporations, rural America is served by a patchwork of co-ops, small companies specializing in rural broadband, and disruptive innovators like SpaceX. Pushing Americans away from the companies that currently serve rural areas into the hands of government units with no demonstrated interest or expertise in providing broadband is not the way to go.
Do it Right, Do it Once
The 98.5% of local governments who do not provide broadband today have made a rational choice. Congress should respect local knowledge.
There are plenty of legitimate suppliers who have demonstrated the ability to provide broadband and the need for more subsidies. Rather than trying to create a whole new market for broadband is, at best, a very long term project with a twenty year timeline.
The need for broadband access can be satisfied in a matter of months by spending money where it can do the most good: on end user inclusion programs and subsidies for today’s networks. The long term need for better and better broadband exists as well, but it lives on a completely different timeline.
Please Congress, disentangle the issues and deal with them on separate tracks. Market forces have created world-class broadband in most of the US already and we don’t want to kill it.
Rural markets respond to subsidies, and digital inclusion programs deserve more support; these things are well known. The logic behind Pallone’s Folly is so weak it would make an Ivermectin addict blush.