What’s In The Broadband Component Of The Infrastructure Bill

The Senate passed the Infrastructure Investment and Jobs Act and awaits passage in the House.  Here’s an overview of the broadband portion of the $1 trillion package.

What’s in the $65 billion broadband package

·      $42.45 billion to states and territories to focus on unserved and underserved areas of the country. At least $100 million is reserved for each of the 50 states. It is important that this money remain technologically neutral, going to the technology that states and local leaders choose as appropriate for their communities. An earlier version of the bill had discriminatory provisions which would have privileged government networks over private ones, an anti-competitive action.

·      From an economics and digital rights perspective, the closer the money is to the end user, the better. As such, the bill wisely provides a $14.2 billion subsidy directly to qualified low-income users. This is an extension an FCC Covid-19 program now permanent as the Affordable Connectivity Fund, which provides a $30 discount on service for qualifying households and can be used for the consumer’s choice of plan. This will offer an important opportunity to study consumer choice. Many broadband advocates assert that consumers must have the highest speed to use broadband, but data shows that people chose lower speeds that is sufficient for their needs. Speed requirements are some of the dumbest parts of federal policy because it suggests that bureaucrats know better than end users.

·      The bill includes $2.75 billion for the Digital Equity Act, programs to stimulate adoption like digital literacy for seniors. 

·      $2 billion for United States Department of Agriculture rural broadband programs.

·      $2 billion for Tribal broadband.

·      $1 billion for middle-mile connections to build a high-speed backbone for communities, businesses, and anchor institutions

·      $600 million for tax exempt Private Activity Bonds (PABs).

Who voted for it?

The overall Senate bill passed 69-30. It’s not surprising that all who voted against it were Republican. It may be that other elements of the bill, notably transportation projects at whopping $312 billion, continue to fund many failing government entities like public transit which should be privatized. It’s telling that the best scoring infrastructure on the quadrennial American Society of Civil Engineers (ASCE) is privately-owned freight rail.

Nineteen Republicans voted for the bill. Notably they represent more rural, less populous states which stand to benefit from the broadband components. The passage of the bill reflects herculean efforts of Senator Rob Portman (R-OH) and his larger bipartisan group of 9 senators. Portman observed, “It’s not exactly the bill any senator in the chamber would have drafted because it represents a true bipartisan effort. Each side made concessions to find that common ground.”

Bright spot in the bill: FCC Report on the future of the Universal Service Fund (USF)

Before authorizing more public money for broadband, it is worth studying how well the ongoing subsidies are working. Over the last decade, some $80 billion has been disbursed through existing programs from the USF, USDA, Broadband Technologies Opportunities Fund etc.  Wisely the current bill requires the Federal Communications Commission (FCC) to study the viability of USF and how to reform it. Policymakers have known for years that the program is unsustainable. As FCC Commissioner Brendan Carr observes, “…we continue to rely on that shrinking base of revenues from the telephone network to fund the broadband network. This is like taxing horseshoes to pay for highways.”

Indeed with the US accounting for literally one-third of the world’s digital economy, there is sufficient cash flow to bring the internet to rural America. However prevailing policy perverts the market. The heaviest network users pay almost zero for last and middle mile infrastructure costs. This is the result of a policy norm which has protected America’s biggest and most profitable internet platform companies from participating in the provision of infrastructure.

An in-depth study of the traffic patterns on four small rural broadband providers show that just five video streaming entertainment providers—Netflix, YouTube, Amazon Prime, Disney+/Hulu and Microsoft Xbox, collectively the “Big Streamers”—drive 75 percent of downstream network traffic. The rural broadband providers charge an average of $50 per month for a standard broadband subscription, a price that is essentially 40 percent less than five years ago because of increases in broadband speed, capacity, and competition from wireless providers. On top of broadband, most users pay $25 per month to the Big Streamers to access their video entertainment services. For every dollar earned by the Big Streamers, the rural broadband providers must invest $0.48 in equipment to deliver this specific video streaming entertainment traffic. Big Streamer video entertainment traffic is associated with 90 percent of the net new network operating cost. The rest of the internet, including essential services for health, work, education, e-commerce, government, and public safety take up less than 25 percent of network capacity and only 10 percent of the cost.

There would be no need for broadband subsidies if the Big Streamers actually paid for their use of others’ networks. 

How to pay for the $1 trillion project

The White House suggests 5G auction proceeds as one way to fund the infrastructure bill. Indeed the recent 5G auction for scant 280 MHz in the C-band earned more than $90 billion, an FCC record and an amount greater than the entire proposed broadband subsidy of $65 billion. Policymakers should be more ambitious to hold spectrum auctions, but that implicates national security concerns from the Department of Defense (DoD), the sacred cow of spectrum policy which grazes on two-thirds of America’s radio waves. In fact defense advocates secured commitments to limit future auctions such that the Congressional Budget Office slashed the bill’s savings score by $40 billion. 

The proposed infrastructure bill spend pales in comparison to $8 trillion in post 9/11 wars. In any event, all infrastructure could be funded through the marketplace rather than deficit spending and taxation, but that would change the status quo for Big Tech and the Pentagon.

Originally published in Forbes.