Communications

Broadband Bill Disappoints Nearly Everyone


The initial stab by the U.S. government to promote high-speed Internet access has something to disappoint nearly everyone.

Most communications companies and consumer advocacy groups say the $6 billion in broadband stimulus measures contained in the House Democrats' $825 billion economic recovery package are a good first step. But they warn that the money won't be nearly sufficient to meet incoming President Barack Obama's objective of providing affordable high-speed Internet access to all U.S. households.

"I was incredibly impressed how quickly the House moved," says Shirley Bloomfield, senior vice-president for federal relations at Qwest Communications (Q), a Denver-based communications provider that serves 14 Western states. "They've got some good concepts. But $6 billion is not going to get you to ubiquitous broadband."

Job-Creation Effectiveness Questioned

Communications providers and various advocacy groups have pegged the cost of creating universal broadband in the tens of billions of dollars. A December 2008 report by the Free Press, an organization devoted to reforming the media, estimated that a broadband infrastructure development program would cost $44 billion over three years. Similarly, the Information Technology & Innovation Foundation (ITIF), a Washington (D.C.) think tank, projected that providing Internet service to much of the unserved territories in the U.S. would cost about $12 billion. "It's definitely not enough money," says Robert Atkinson, founder of the ITIF.

Moreover, some communications providers warn that the package as designed in the House bill may get bogged down by too much government bureaucracy, and fail to create jobs quickly—a key objective of the federal stimulus. Under the House Democrats' plan, approximately $3 billion in broadband stimulus would be administered by the Rural Utilities Service of the Agriculture Dept., while another $3 billion in grants would be awarded by the National Telecommunications & Information Administration, a small bureau of the Commerce Dept.

One big issue is that the House bill is focused on using grants, loans, and loan guarantees, but it doesn't use tax incentives at all. Grants would likely take many months to be distributed, whereas some companies say they could act much more quickly if they knew they could receive tax credits for their investments. "With grants it is eight months of bureaucracy before any money gets to its destination," says an official for a large communications provider. "If you are looking for a quick stimulus hit, tax credits would be better."

Just What Is "Open Access"?

Another issue of concern under the House bill is that there are a lot of rules and approaches that still need to be defined by the Federal Communications Commission, which oversees everything from telecom policy to broadcasting standards. Obama's pick for FCC chairman, Julius Genachowski, has just been nominated and won't take his seat for weeks, if not months. The negotiation over rules will have to come after that and could delay the spending for many months.

The most contentious issue will likely revolve around the definition of "open access." Recipients of the grants are required to operate their networks on an "open access" basis. That term is not defined in the House bill, which instead says the FCC will have the authority to set the requirement. If open access is interpreted to mean what tech insiders call "network neutrality," or barring carriers from discriminating or slowing content from particular Internet companies, that may not be a significant issue, says ITIF's Atkinson.

However, some organizations such as Public Knowledge are hopeful that open access will mean that network builders—such as Verizon Communications (VZ), AT&T (T), Time Warner Cable (TWC), and Comcast (CMCSA)—must allow rivals to use their networks at wholesale prices. "They haven't defined open network yet but we define it the old way," says Art Brodsky, communications director of Public Knowledge. "You would be required to lease space over these networks the way we used to do."

If this is the case, ITIF's Atkinson warns that many broadband providers would not participate in the program. "You'll effectively have a boycott," he says. "You'll see very, very few takers."

Another complaint is the speed requirement in the House bill. The proposal says that "advanced" broadband will be defined as service of 45 megabits per second or higher, while "basic" broadband will be considered 5 Mbps. Atkinson points out that if companies try to build networks capable of 45-Mbps service in rural areas, the $6 billion is not going to go very far. "I think the House bill made a big, big mistake by picking the 45 [Mbps] number," says Atkinson.

A Boon for Rural Broadband

About the only groups that are totally happy with the bill are advocates of rural broadband. One such organization is ConnectedNation, a nonprofit that seeks to encourage build-out of broadband networks in rural areas. "We're still in the process of reviewing, but overall we're very pleased with the details," says Brian Mefford, the group's chief executive.

One key provision in the package, he says, is funding for the Broadband Data Improvement Act, a bill signed into law by President Bush that provides grants to help states map their broadband infrastructure in detail, a key step in the process of addressing service needs. The bill, when passed, contained no provision for funding. But the House stimulus package calls for funding it to the tune of $350 million.

"It looks like the vast majority of the funding is targeted at rural areas because the language is focused on grants and incentives in unserved and underserved areas, and in most cases that's going to point to rural areas," says Mefford.

Despite the criticism, policymakers aren't panicking. They know that this is just a first step. House members will still negotiate with the Senate, where some of the more contentious issues may be resolved. For example, the Senate version may include tax incentives for broadband and more money for the universal broadband effort.

Moreover, even if Congress doesn't get everything right, there may be other opportunities to promote broadband investment. "This is a very limited and focused piece of legislation," says Brodsky. "It doesn't preclude a more comprehensive look at the issue. And it doesn't include regular government spending."

Ante is the computers department editor for BusinessWeek. Hesseldahl is a reporter for BusinessWeek.com.


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