Broadband boondoggle?

Will America's broadband stimulus package bring more people online, or just line the pockets of the operators and equipment companies, asks E&T.

The US economic stimulus package provides $7.2bn to spend on delivering broadband connections to rural and other 'unserved and under-served' markets. Will it boost America's fortunes by encouraging people to join the networked economy, or be little more than a bonanza for equipment makers and operators?

The 2009 American Recovery and Reinvestment Act (ARRA), makes two federal agencies responsible for doling out the cash: the National Telecom-munications and Information Administration (NTIA) within the Department of Commerce; and the Rural Utilities Services (RUS) within the Department of Agriculture. The NTIA gets $4.5bn under the Broadband Technology Opportunities Programme. RUS gets the rest. The money will be provided as grants and loans. Grants will be worth 80 per cent of a project's value with the bidder responsible for the rest. Even though ARRA became law on 17 February, not a single cent has yet been allocated and it will be August or September before any bids are approved.

Broadband bureaucracy

Channelling the money through two departments raises inevitable concerns about bureaucy, infighting and confusion. Meanwhile, President Obama's administration has launched a second broadband initiative that is likely to overlap with the stimulus projects. The first phase of this second project, which will run until February 2010, will map high-speed Internet access in the US - even as the stimulus package is trying to redraw that map. The second phase is meant to provide the foundations for a comprehensive national broadband strategy.

President Reagan put it well when he said: "The nine most terrifying words in the English language are, 'I'm from the government and I'm here to help'." The scope for confusion here is unlimited.

Yet so far, the US communications industry has refrained from throwing brickbats at either agency. And there are few signs of anyone trying to get their excuses in first - quite the reverse. In the last two weeks, the NTIA and RUS responded to one of the network operators' main concerns in ARRA, a requirement to 'buy American', by instituting a waiver. The federal government accepted that in today's communications market, you cannot limit your technology suppliers.

"All the signs are that the two agencies are working together very well. I'd have to give them a lot of credit for how they have coordinated so far," says Danielle Coffey, vice president for government affairs at the US Telecommunications Industry Association. "But until it [the money] is actually doled out you never know for certain."

Some inconsistencies are emerging. "You can't apply twice for the same thing, taking it to both NTIA and RUS," she says. "That looks straightforward, but there are cases where perhaps it is better to take one part of a much bigger project to one agency, and another part to the other one. So what happens then if NTIA says, 'Yes', and RUS says, 'No'? Or vice versa. That's not clear."

Some projects that major telcos have planned, but which would need adjustment if stimulus money meant they could be extended to cover a previously excluded area, are in limbo. And there are suspicions that companies are postponing work that should already be underway in the hope of gaining subsidies.

There are other areas of the economic criteria that are unclear. Is the money mainly for projects that otherwise would not be built at all, or that had a low priority, or that were going ahead but could be speeded up by the stimulus? The projects that will qualify are supposed to be in 'under-served' areas, to use the official jargon. But this could just as readily include urban areas where the broadband infrastructure remains 'unbuilt' or those where penetration is low because of, say, a lack of competition. Any of those interpretations could apply, based on recent Senate testimony from Julius Genachowski, President Obama's nominee as chair of the Federal Communications Commission.

Return on investment

Meanwhile, there are questions over the kind of 'return' the government expects.

According to the Information Technology & Innovation Foundation (ITIF), a Washington think-tank, well-directed spending on broadband would produce a substantial 'network multiplier'. The Foundation believes that connected homes and businesses are likely to buy new hardware (more powerful PCs, home networking hubs, etc), and that a more widespread broadband network would deliver greater efficiencies in business, create hundreds of thousands of jobs and enable innovation. But, according to ITIF's founder and president Robert Atkinson, much depends on whether, and to what degree, the priority is economic as opposed to providing broadband as a 'utility' or a 'human right'.

"The greater the number of people you reach with the money then, crudely, the greater the number [who will take up broadband], with all the benefits that has economically. And you can still make those choices for a rural programme," he says, noting that Brookings Institution research estimates that every percentage point increase in US broadband penetration lifts employment by 0.2 per cent to 0.3 per cent - about 300,000 jobs.

"But you need to make the right technology choices. You could take this money and say, 'We are going to give one million homes superfast, state-of-the-art broadband,' or that 'We are going to get 3Mbit/s across six million homes.'

"This is a once-in-a-lifetime opportunity and we need to get it right - and that is about reaching the sweet spot of the largest number of people with a viable broadband speed to encourage the greatest amount of both short-term and long-term innovation in the economy."

It's also important to reach the right kind of people. The widely respected Pew Internet & American Life project has been tracking not only US broadband penetration but also 'intentions to connect' for some time.

Its most recent report says that 50 per cent of people without a broadband connection do not see its relevance. Another 19 per cent say it is too expensive, and 13 per cent object on grounds of usability. Only 17 per cent of those surveyed were not connecting because of availability.

America could spend a lot of money and find that much of the economic benefit actually came from the construction work. However, the rural population does have an appetite for broadband, with 46 per cent of homes connected as of last month against 38 per cent a year ago. And uptake is growing more quickly in rural areas, at 22.6 per cent year on year, compared to 14.2 per cent in urban and suburban areas.

The TIA's Coffey says that operators can use the willingness of local authorities to partner on a construction project as an indicator of whether 'if we build it, they will come'. If local authorities are keen to get involved, their communities also tend to want to get connected.

There are also tensions between the range of bidders looking to tap into the ARRA money and who might best fit the ultimate objective. Wired infrastructure providers can offer DSL, cable and - increasingly - fibre-to-the-home. However, broadband wireless technologies including 3G, 4G, LTE and - most promisingly, in a rural context - WiMax are also now part of the equation.

"If part of this is about making broadband available as quickly as possible, to get the follow-on economic benefits, then wireless is almost certainly quickest to build and market," says Chris Guttman-McCabe, vice president of regulatory affairs for the Cellular TIA (CTI), the wireless operators' main association.

Wi-Max to get stimulus boost?

The early roll-outs of WiMax have been in high-density urban markets, such as the cities of Baltimore and Atlanta. The fact that it is seen as a serious component of a stimulus package originally meant to reach under-served markets shows again how many decisions still need to be taken.

Finally, though, a reality check. While $7.2bn may do a lot for broadband in communities that are being overlooked, it is only a relatively small part of the overall picture.

According to the most recent TIA economic forecast, landline infrastructure spending in the US will still reach $29bn this year, even though the telecommunications market is set to shrink by 3.1 per cent, the first decline since the Association started issuing data. Broadband revenues will also continue to rise as will the number of subscribers.

"Only in DC could you get people saying that $7.2bn isn't that much money," says CTIA's Guttman-McCabe. "It is a considerable sum. But broadband and the public's appetite for it does seem to be holding up well in spite of the wider economy, so purely private sector investment is also going ahead, and at a much higher rate than what we are seeing from the stimulus."

Indeed, while the numbers show that spending on wireline infrastructure will decline this year and next, investments in the backbone continue to increase. If spending on last-mile connections slows, it is worth remembering that US broadband penetration now stands at more than 60 per cent - there are, quite simply, fewer homes to connect.

The application process for stimulus funds began on 1 July, when a joint NTIA-RUS Notice of Funds Availability was released. Its core priorities include projects that give end users a choice of service provider, promise to reach the "highest proportion of rural residents" that are currently without broadband, and which can start now if approved. The terms are broad and neither agency wanted to discuss detail. But if the stimulus package is going to have an immediate impact on both America's economy and its uptake of broadband, there will have to be answers in a matter of weeks.

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