In a surprise move, the Vice President Joe Biden announced that he would be pushing for a $7 billion broadband plan to help rural Americans. Critics argue that this is a gross misallocation of taxpayer funds and will not solve the problem.
In rural West Virginia, a cell tower.
Image courtesy of Getty Images/iStockphoto
The $1 trillion “infrastructure plan” proposed by the Biden administration has sparked debate, but few can deny that America is in need of repair. President Biden’s assertion that “America ranks 13th in the world in infrastructure” struck a chord.
Broadband deployment subsidies are included in the bipartisan agreement. Mr. Biden requested a sum of $100 billion. In the “Infrastructure 1” package, Republicans and Democrats reached an agreement of $65 billion. The vast majority of this, $42 billion, is earmarked for subsidies to rural communications networks, with the goal of closing the “digital divide.”
This is very unlikely. The government has already spent at least $200 billion (in 2021 money) on the 1996 Telecommunications Act’s “universal service fund.” The majority of the funds were given to rural-area networks, although some went to schools and libraries, health-care institutions, and low-income mobile phone customers.
This funding had a little effect on network infrastructure. The Federal Communications Commission discovered in 2011 that 19 million individuals, residing in seven million homes, were unable to get cutting-edge internet connectivity. According to Mr. Biden, ten years hence, despite additional $50 billion in subsidies for high-cost networks, the number of people living in underserved regions may be as high as 30 million.
Another large round of carrier subsidies is unlikely to finish broadband infrastructure. Despite repeated warnings from the Government Accountability Office that the system requires much stronger supervision, the government has operated with a shocking lack of accountability. Sandwich Isles Communications got more than $13,000 per house per year to provide old-fashioned landline phone service to a tiny community in Hawaii, according to a 2006 survey. At the time, economists regarded any wireline service costing more than $1,000 per year to be too costly, owing to the availability of lower-cost satellite alternatives. The extravagant spending continued, financed by a regressive phone tax that disproportionately impacted low-income families.
The FCC didn’t notice the ridiculousness until 2015, when the Sandwich Isles owner was convicted of six felony charges of fraud for inflating expenditures by the Internal Revenue Service There were never more than 3,659 clients serviced by the business.
The program exposes shockingly little monitoring of the massive cash flows, which included reimbursements for management massages, $1.3 million for a private home in California, and tuition at private schools for the boss’s children. According to FCC statistics, or 90 percent according to the administration’s, the overwhelming majority of internet operations get no subsidies while providing fixed broadband connectivity to 96 percent of U.S. homes, with 4G/5G wireless and satellite covering nearly all of the remainder.
The carriers who do get paid don’t seem to extend their networks much, and their customers would be serviced even if they didn’t get paid. In a study published in 2000, economists Greg Rosston and Bradley Wimmer calculated that completely removing subsidies (and the taxes that fund them) would decrease telephone coverage by no more than 0.3 percent. With today’s broadband competition—with cable, mobile networks, and satellites added to the mix—the effect may be much less.
Economists recommended a major change and it was implemented. In 2011, the Obama administration chose to distribute certain broadband subsidies via auctions, in the hopes of driving down prices and expanding the number of places serviced. Savings averaged 70% in 2018, the first major test of competitive bidding. The government’s reluctance to prescribe the technology utilized was a driving force behind these savings. Viasat, a satellite operator, was the largest winner in the 2018 auction, agreeing to provide internet access to 190,000 addresses (almost a third of the total financed) in return for government outlays of less than 10% of the FCC’s usual formula.
Despite this lesson, most government subsidies are still allocated using the cost-plus approach, with businesses getting more money when their overhead is implausibly high. The majority of the money is spent on administrative expenses. “FCC Should Take Additional Action to Manage Fraud Risks in Its Program to Support Broadband Service in High-Cost Areas,” according to a 2019 GAO report.
Mr. Hazlett is an economics professor at Clemson University and Chapman University. In 1991-92, he was the FCC’s senior economist.
“We’ve got three things to accomplish,” Joe Biden said of Wonderland. “The debt limit, the continuing resolution, and the two bills are all on the table. If we accomplish that, the nation will be in excellent condition.” Images courtesy of Disney/Getty Images/Everett Collection Mark Kelly’s composite
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