How NTIA Dismantled the Public Interest Provisions of the Broadband Stimulus Package

After winning the election, the Obama Administration announced that broadband networks would be a priority. True to its word, the stimulus package included $7.2 billion to expand networks throughout the United States. A key question was how that money would be spent: Would the public interest prevail, or would we continue having a handful of private companies maximizing profits at the expense of communities?

Creating the Broadband Stimulus Language

The debate began in Congress as the House and Senate drafted broadband plans as part of the American Recovery and Reinvestment Act The House language on eligibility for stimulus grants made little distinction between global, private entities and local public or non-profit entities.

the term `eligible entity' means--

(A) a provider of wireless voice service, advanced wireless broadband service, basic broadband service, or advanced broadband service, including a satellite carrier that provides any such service; (B) a State or unit of local government, or agency or instrumentality thereof, that is or intends to be a provider of any such service; and (C) any other entity, including construction companies, tower companies, backhaul companies, or other service providers, that the NTIA authorizes by rule to participate in the programs under this section, if such other entity is required to provide access to the supported infrastructure on a neutral, reasonable basis to maximize use;

The Senate language clearly preferred non-profit or public ownership.

To be eligible for a grant under the program an applicant shall—

(A) be a State or political subdivision thereof, a nonprofit foundation, corporation, institution or association, Indian tribe, Native Hawaiian organization, or other non-governmental entity in partnership with a State or political subdivision thereof, Indian tribe, or Native Hawaiian organization if the Assistant Secretary determines the partnership consistent with the purposes this section

The final language, adopted by the Conference Committee and passed by both houses in February was a compromise. It favored a public or non-profit corporation but allowed a private company to be eligible only if the Assistant Secretary of the Department of Commerce found that to be in the public interest. In the final law an eligible entity could be:

(A) a State or political subdivision thereof, the District of Columbia, a territory or possession of the United States, an Indian tribe (as defined in section 4 of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450(b)) or native Hawaiian organization; (B) a nonprofit—

(i) foundation, (ii) corporation, (iii) institution, or (iv) association; or

(C) any other entity, including a broadband service or infrastructure provider, that the Assistant Secretary finds by rule to be in the public interest. In establishing such rule, the Assistant Secretary shall to the extent practicable promote the purposes of this section in a technologically neutral manner ;(Section 6001(e)(1))

Defining the Broadband Stimulus Rules

On July 2, 2009, the National Telecommunications & Information Administration (NTIA) released the rules for the broadband stimulus program (called the Broadband Technology Opportunities Program or BTOP).¹ While a plain reading of the statute language suggests that NTIA should decide on an individual basis whether a private profit making entity is in the public interest, NTIA instead a priori declared all private companies in the public interest. It simply acted as though the House legislation had prevailed over the Senate. NTIA justified itself by declaring that the Congress intended to “invite a diverse group of applicants to participate.”² NTIA thereby accomplishes a sleight-of-hand tactic– declaring that it is complying with the original intent of some in Congress rather than complying with the text actually passed by Congress. If Congress had intended all entities to be eligible on an equal footing, it would have adopted the House eligibility language. Congress explicitly did not do this. Rather, it chose a higher bar for private companies. They had to be judged in the public interest. The NTIA ruling did not explain what it meant by “public interest” (see addendum below for a discussion on what the public interest is not). Nor did it indicate that it would declare ineligible those companies that have violated the public trust previously. Instead, it put global companies driven to maximize profits on a level footing with public and non-profit corporations chartered to maximize benefits to the community.

How The Rules Favor Existing Companies

Making private companies and public, non-profit entities equal in their ability to apply for stimulus funds actually privileges existing large telecommunications firms because they have the resources to push their way to the front of the line – especially with all the paperwork required of applicants. The declaration that existing telecommunications companies are in the public interest is only one of the ways the NTIA has structured the BTOP to favor existing private providers. Another is the speed definition NTIA has chosen in its broadband definition. NTIA chose minimum “broadband” speeds reminiscent of those from more than a decade ago rather than the modern speeds common across the networks of our international peers. The minimum download speed of 768kbps and upload of 200kbps is pitiful.³ Moreover, adding insult to injury, the anemic baseline speed is based on advertised rates rather than actual rates, perversely encouraging network owners to overstate their capabilities. This baseline speed is used as part of a calculus to determine if a community is served, “unserved,” or “underserved.” If fewer than 10% of residents have access to networks that advertise speeds greater than the baseline speed, that area is declared “unserved.” Underserved is a little more complicated in that it must meet one or more of the following criteria:

1. No more than 50% have access to broadband as defined above
2. No provider advertises broadband of at least 3Mbps in the area [at any price – a rather significant loophole]
3. No more than 40% subscribe to broadband

Only unserved and underserved areas need apply for broadband stimulus grants. Interestingly, though a new network must offer prices at affordable rates as a condition for stimulus funding, a community may be denied money to build a network even if the existing provider is offering services at unreasonable rates. To prove that a community is un(der)served, an applicant must collect census-block level data. Such data is expensive to collect and generally only maintained by incumbent providers. Further, most states that have invested in official broadband maps only have county level data because private providers have refused to divulge more granular data, even when working with the industry-backed Connected Nation organization. If an applicant is able to collect that data, NTIA will “verify” that data by asking the existing providers if they want to challenge the application by demonstrating that they have advertised broadband within the defined network footprint. Yes, you’ve read that correctly. The incumbent provider gets a veto over applications. There is no discussion by NTIA of how it will handle abuse of this system or verify challenges. In the meantime, I would not be surprised to see an increase of dishonest advertisements for broadband in rural areas. We already see many fallacious advertisements for DSL that note “where available” to get around the fact that the connections are often slower than advertised based on the distance from the home to the central office. Though many will argue that we should prioritize networks for those totally lacking access, this is a poor plan to achieve that goal. NTIA has charted a path to bring the slowest networks to people who live in areas that are the most uneconomical to reach. Rather than doing it right the first time (i.e. a strategy that starts with modern speeds and identifies an upgrade path moving forward), NTIA’s path will likely expand 1998-era networks, certainly requiring future appropriations to bring residents to networks with contemporary speeds. A better way to build useful networks in these areas is to combine rural communities with areas of higher density. That would improve the economics by allowing some areas to subsidize others rather than encouraging the current system where private companies get the high density, richer geographies and the public sector is left trying to build low density, rural networks. NTIA’s rules take an unsustainable approach to building networks in the most rural areas. The NTIA rules are good for cable companies because nearly every cable network already provides the marginally-faster-than-dialup speeds required to make that community ineligible for BTOP funds. And telcos should be happy because they can prevent competition by running advertisements that overstate their network capabilities. If they want to apply for funds, the approaching-nonexistent speed requirement encourages them to use their deteriorating copper networks rather than invest in the higher capacity fiber lines that are necessary to ensure the U.S. does not continue falling behind our international peers in broadband access. It is hard to come away from reading NTIA’s rules without a sense that they were written to avoid encouraging any competition in broadband networks. There is one small ray of sunshine. Congress explicitly required grantees to abide by a number of FCC policies, particularly the non-discrimination rule that prevents your Internet Service Provider from charging you more to access some sites than others (or privileging speeds to some sites at the expense of others) – something companies like AT&T have stated their desire to do. If this decision were left to NTIA, it would probably have declined to require it at the risk of lowering the pool of candidates who want public money to build networks.

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After I wrote this, I saw that a number of other groups have sent a letter to NTIA asking for reconsideration of many of the rules I discuss above [pdf].

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Addendum on the Public Interest For an excellent exploration of how some companies act against the public interest, see Free Press' Reply Comments to the FCC regarding the National Broadband Plan [pdf]. In particular, pages 26-29 where Free Press examines Verizon's practice of dumping rural customers onto smaller companies who then go bankrupt. Additionally, on page 30, Free Press reveals that

In 2008, AT&T used 70 percent of their free cash flow on dividends to shareholders. AT&T is currently “the highest dividend yielding DOW company.” Verizon is not far behind. Furthermore, the four largest broadband providers all increased their dividends since the economic crisis began. In other words, despite soaring revenues and high demand, providers are spending large sums on shareholders, rather than investments that benefit both shareholders and customers in the long-term.

For a more humorous take on how these companies fail the public, I recommend "AT&T Is A Big, Steaming Heap Of Failure." Offering public money to these companies is not in the public interest.