Wednesday, April 15, 2009 - The Progress & Freedom Foundation Blog

Prioritize Broadband Stimulus Spending

Recently, Ken Ferree and I filed comments with both the NTIA and FCC regarding broadband spending priorities under the American Recovery and Reinvestment Act of 2009 (the Recovery Act). Our overall message was that funds utilized to stimulate broadband deployment should catalyze, rather than replace or deter, private investment in infrastructure. Above all, we suggested that funding should be used to extend service to "unserved" or markedly "underserved" areas and to enable greater adoption of broadband where it is available, but underutilized, rather than supporting a second or third entrant in a market. "Only by carefully targeted funding of sustainable projects that bring the most 'bits per buck per job created' will NTIA and RUS fulfill their mission to aid in the revitalization of the U.S. economy while making progress toward the ultimate goal of enabling broadband access for all."

Our recommended caution in defining what is an "underserved" area was based in large part on the poor track record of the U.S. Department of Agriculture's Rural Utilities Service in administering a far-smaller broadband extension program. Indeed, the USDA Inspector General found that 42% of communities receiving funding under the RUS program were already served by competing providers. We wrote:

For purposes of BTOP, the Recovery Act requires NTIA to consult with the FCC on defining the terms "unserved area," "underserved area," and "broadband." Getting these definitions right will be critical to the success of the broadband stimulus program. Unfortunately, history suggests that the process of awarding broadband development grants and loans based on these categories is fraught with uncertainty, inconsistency, and may involve the occasional misallocation of funds. Indeed, the USDA Inspector General found only a few years ago, the [Department's RUS] broadband expansion program, which mirrors in some respects the broadband stimulus provisions in the Recovery Act, has had serious implementation anomalies. Most importantly, because essential terms such as "unserved area" and "underserved area" were not defined by statute, and funding prioritization decisions within and among eligible areas are largely a matter of discretion, the USDA IG found that RUS loans were made to "affluent suburban communities while other more rural communities remained underserved. . . . " Using RUS funds to support overbuilding, the IG noted, raised three troubling questions: 1) "[c]an the sparsely populated rural areas for which these loans are intended reasonably support multiple broadband service providers," or are the loans being made to systems that are doomed to fail? 2) "What is the government's responsibility if, due to subsidized competition, a preexisting, unsubsidized broadband provider goes out of business?" And 3) as an equitable matter, "why should the government subsidize some providers in a given market and not others?"

These same concerns apply to the Recovery Act broadband stimulus funds, which should not be used to support infrastructure development in affluent non-urban communities or even in undeveloped areas near urban centers, rather than in the less-affluent, rural areas and inner-city neighborhoods that the program was intended to benefit.

Accordingly, we recommended that, consistent with the text and intent of the Recovery Act, broadband stimulus funds should be used first and foremost to support broadband development in unserved and markedly underserved areas of the country (those in which broadband is available only to a small fraction of the residents), and to support the first broadband providers in these areas rather than overbuilding by second or third entrants. Only after funds have been expended to reach unserved areas, markedly geographically underserved areas, and to address adoption problems where broadband is underutilized, should funds be granted to support programs intended to address qualitative shortcomings in existing broadband services.

It now appears that the problems identified in the USDA OIG's 2005 Audit Report were not adequately addressed and continue to this day. Mother Jones reports that a recently released March 2009 USDA OIG Audit Report states the RUS "continues to grant loans to areas that already have broadband service and to communities near major cities," and that "more than 90 percent of the loan applications the agency has approved since the critical report in 2005 went to areas that already had broadband service," leaving the OIG concerned "because the overwhelming majority of communities . . . receiving service through the broadband program already have access to the technology." The OIG's March 2009 Audit Report notes:

We remain concerned with RUS' current direction of the Broadband program, particularly as they receive greater funding under the American Recovery and Reinvestment Act of 2009 (Recovery Act), including its provisions for transparency and accountability. As structured, RUS' Broadband program may not meet the Recovery Act's objective of awarding funds to projects that provide service to the most rural residents that do not have access to broadband service.

We should all be very concerned. A quick look at the numbers contained in Exhibit C, "Listing of the Number of Providers for Approved Loans," reveals that loans to borrowers in seven out of twenty-six states went to providers to extend service to between 16 and 229 communities where there were already three or more broadband providers. These same borrowers also received loans to extend service to between 16 and 220 communities in which there were already two or more broadband providers. In Colorado, for example, one borrower received approximately $267.3 million in loans to extend broadband service to a total of 546 communities. Of these, only 32 communities had zero providers; 65 had one provider; 220 had two providers; and 229 had three or more providers. That is, less than 6 percent of the communities receiving loans were unserved areas--areas having zero providers. Similarly disproportionate funding went to a provider in Illinois who received approximately $127.8 million to extend broadband service to a total of 75 communities. Of those, only 14 had zero providers; 11 had one provider; 16 had two providers; and 34 had three or more providers. Such wasteful and potentially counter-productive expenditures on areas already served by, in most cases, two or more providers are absolutely indefensible.

Given that there is precious little time between the closing of the comment period on April 13, 2009 and the deadline for dispersing the $7.2 billion in Recovery Act funds by September 2010, the only prudent course for both NTIA and RUS is to focus efforts on funding projects that will extend broadband service to completely unserved and markedly underserved areas and to addressing the underutilization of broadband services where already deployed.

posted by Barbara Esbin @ 3:48 PM | Broadband , Communications , Universal Service