Telecom

Broadband Build-Out: Who Will Run the Show?


Add broadband to the list of controversial provisions of the $900 billion economic stimulus package being debated in Congress. Included in the legislation are plans to spend $8.2 billion on fast Internet connections around the country, but a political row is shaping up over how that money will be spent and by which agency.

The current version of the bill dictates that the sum be administered by the National Telecommunications & Information Administration, the agency principally responsible for advising President Obama on technology policy.

But an amendment to the bill being proposed by Senator Tom Harkin (D-Iowa) and Senator Sherrod Brown (D-Ohio) would split that funding in half, sending $4.1 billion each to the NTIA and the Rural Utilities Service at the Agriculture Dept. "The change is needed to ensure that rural residents are not left behind as critical broadband services are expanded," says a statement from Harkin's office.

Reaching Rural Communities

Harkin and Brown are concerned that, under the auspices of the NTIA, not enough of the stimulus money would be spent on rural communities. The RUS, on the other hand, has a long history of working with rural communities, the legislators argue. "The Rural Utility Service has as its principal focus the needs of rural areas, where all too many households have no or very limited broadband service," Harkin's statement says.

Harkin has a point. Bringing broadband to rural America has proven a difficult economic nut to crack. In areas where population density is low, large telecom providers are reticent to make multimillion-dollar investments in new infrastructure where it's unlikely they can make a profit. This can leave many consumers and small businesses with no option but more expensive satellite broadband services.

Federal law designates the NTIA, part of the Commerce Dept., as the primary agency that advises the President on how to administer the nation's telecommunications grid. However, the NTIA was largely ignored during the Bush years.

RUS: A Checkered Track Record

But critics of the Harkin-Brown plan say the RUS has a checkered history in redressing the lack of broadband access. "That program has not been able to spend its money each year, and the procedures for getting loans and grants are cumbersome and tilted toward incumbent carriers," says Ben Scott, policy director at Free Press, a nonpartisan technology advocacy group. A spokesman for the RUS didn't return a call seeking comment.

To the extent former President George W. Bush addressed broadband policy, he did it through the RUS, part of the Agriculture Dept.'s Rural Development program, a descendant of a 1930s effort to build electrical and telephone infrastructure in rural areas hit hard by the Dust Bowl. The RUS broadband program was created when Bush signed the 2002 Farm Bill into law. Since inception it has funded 85 loans to the tune of nearly $1.7 billion. A 2007 Agriculture Dept. report said broadband projects funded by the loans were serving 582,000 households in 1,263 communities in 40 states.

But a 2007 investigation by The Washington Post found that about half that money went to projects in metropolitan regions or to communities only a short distance from midsize cities. The disclosure followed a scathing 2005 report by the Agriculture Dept.'s Office of the Inspector General, which found that the broadband program had "not maintained its focus on rural communities." The report documented loans intended to build broadband networks in rural areas that went instead to suburbs of large metropolitan areas such as Houston and Pittsburgh, which were found to meet a sliding definition of "rural," but in some cases contained houses that were valued at north of $1 million.

Scott, along with Kyle McSlarrow, president of the National Cable & Telecommunication Assn., sent a letter to Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) urging that the broadband funding be coordinated under the auspices of the NTIA. "By selecting NTIA to coordinate and administer the distribution of grant funds, the bill correctly recognizes the value of this agency's expertise in communications matters and avoids the potential confusion and inconsistencies that might result were the program split among multiple agencies," the letter says.

Harkin staff members say many of the problems found at RUS were solved by legislation enacted in 2008 that included provisions to ease the broadband loan application process and generally reduced hurdles. The agriculture sections of this year's stimulus bill, they say, provide additional flexibility for the agency to move quickly to fund broadband projects. They also say the NTIA has little experience working in rural communities and that it has fumbled the transition to digital TV, showing that it isn't the most efficient agency when administering large programs.

Additionally, the Harkin-Brown amendment gives the Agriculture Secretary authority to shift funds from RUS back to NTIA. That mirrors a provision in the original bill that gives NTIA authority to shift funding to RUS as needed.

How Much Should Go to Rural Build-Out?

The amendment would also change the Senate version of the bill to more closely resemble the version passed in the House of Representatives on Jan. 28, which splits funding—in this case about $6 billion—in half between NTIA and RUS. The current Senate version specifies that NTIA must spend half of the money on rural programs, and it gives NTIA authority to send some of it to RUS when appropriate.

Broadband policy analysts have been scratching their heads about Harkin's move. "I would say the spirit is well-intentioned, but it certainly raises some questions," says Brian Mefford, chief executive of Connected Nation, a nonprofit organization that advocates for broadband build-outs in rural areas. "The Senate version splits the funding once, and if you split it again, then you end up with 75% of it being designated for rural uses in one way or another."

However the money is spent and regardless of which agency oversees the spending, it will likely take a lot longer for any stimulus to make much difference in broadband penetration. A Congressional Budget Office estimate found that, while most of the money in the stimulus package will be spent over 18 months as originally proposed, money for broadband will likely take substantially longer to spend, perhaps as long as seven years. Some 60% of the funds provided for broadband grants and loans would be spent during fiscal years 2009 through 2011, with the remaining 40% being spent in fiscal years 2012 through 2015. In addition, grant recipients will be required to provide 20% of a project's costs from nonfederal sources.

Hesseldahl is a reporter for BusinessWeek.com.


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