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"Net Stimulus: Building Broadband Bridges..." - by Bret Swanson - 03.31.09

"Net Stimulus: Building Broadband Bridges..." - by Bret Swanson - 03.31.09

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Published by Bret Swanson
The U.S. government announced $7.2 billion in grants and loans to build broadband networks to unserved and underserved areas. The program should lean on local knowledge to accomplish the task.

The U.S. government announced $7.2 billion in grants and loans to build broadband networks to unserved and underserved areas. The program should lean on local knowledge to accomplish the task.

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Published by: Bret Swanson on Jun 17, 2009
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March 31, 2009
Net Stimulus: Building Broadband Bridges . . . But ToWhere?
______________________
The new “American Recovery and Reinvestment Act” provides $7.2 billion in broadband loans and grants. Of thissum, $2.5 billion goes to the Rural Utility Service of the Agriculture Department, which has administered previousbroadband funds over the past decade. The Commerce Department
ʼ
s National Telecommunications and InformationAdministration will now distribute an additional $4.7 billion to help “unserved” and “underserved” geographies.Some question whether these grants, loans, and loan guarantees are the most effective way to boost broadbandinvestment. The somewhat slothful andinefficient history of the RUS broadbandprogram is not encouraging. Americancommunications companies alreadyinvest more than $60 billion per year inthe U.S. The $7.2 billion is thus a drop inthe bucket.Nevertheless, if the money is going to bespent, it makes sense to spend it inthose places where private capital trulyhas the toughest time economically justifying the investment. Furthermore,what would be the logic of buildingduplicate or triplicate networks whensome areas go without broadbandentirely? The analogy is clear. If thegovernment is going to spend money on new roads or bridges, should it build a third bridge immediately next to twoexisting bridges that already well serve the geography? Or should it build in a place desperately in need of its firstbridge?In 2004, I prepared an internal critique of the existing RUS Broadband Program. It was clear the RUS did not havethe manpower to evaluate the hundreds of applications then arriving in its offices. There was extreme variability in theapplicants
ʼ
business plans, technology choices, managements, geographies, and financial structures. RUS foundevaluating even one application difficult, let alone wading through hundreds, and comparing and contrastingcompeting claims. Moreover, RUS, which had never lost a penny in its longstanding rural telecom program, worriedthat in the newer, riskier, more competitive world of broadband, its perfect record could be compromised. (One of itsearliest awardees went bust because its business plan depended on the then-extant federal line-sharing regulationsdesigned to help CLECs.)RUS founditself confronted with a number of dilemmas. Should it make loans and grants to the most rural of areas –the “unserved” – but with questionable investment prospects? Or should it reward an applicant targeting a moredensely populated area, already served by at least one broadband competitor, yet still offering possibly betterinvestment returns? Should it support a large number of inexpensive wireless projects that could reach moreconsumers but with slower data speeds? Or should it fund just a few expensive fiber-optic projects that could reach asmaller number of consumers with very high speeds?Another historical analogy may be useful: In the late-1990s and early 2000s, the U.S. mandated six mobile phonecarriers in each market. The idea was that more service providers is always better. “Competition” keeps prices lowand encourages good customer service. But in the name of “competition,” we diluted capital spending. Six or morewireless carriers spent tens of billions of dollars building duplicative networks in the same high-value geographies.This slowed the roll-out of faster 3G networks and shrunk the total geographic area covered by wireless service. TheU.S. fell behind Europe and Asia in mobile coverage and speeds. As wireless carriers consolidated after the telecom
ENTROPY ECONOMICS
> TECHNOLOGY NOTE <
______________________________________________________________________________________________________________________GLOBAL INNOVATION + TECHNOLOGY RESEARCH
ENTROPY ECONOMICS LLC > 156 S. FIRST STREET > ZIONSVILLE, INDIANA 46077 USA > 317.663.0509 > ENTROPYECONOMICS.COM
Total U.S. Broadband Lines
020,000,00040,000,00060,000,00080,000,000100,000,000120,000,000140,000,000Dec.1999Dec.2000Dec.2001Dec.2002Dec.2003Dec.2004Dec.2005Dec.2006Dec.2007

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