Despite tens of billions of dollars of federal subsidies for rural communications networks, rural broadband connectivity remains a vexing problem. While the numbers show improvement from prior years, the most recent broadband report from the Federal Communications Commission (FCC) found that 39 percent of the rural population (23.4 million Americans), compared to just 4 percent of the urban population, lacked access to what the FCC regards as basic fixed broadband service — 25 megabits per second.
To be fair, in the past few years the FCC has taken a number of positive steps to meet the congressional mandate of universal access. But the FCC’s efforts have a structural flaw. For various historical reasons, the agency has taken a one-size-fits-all approach to universal service, providing ongoing funding even in areas that only need a capital investment to deploy a broadband-capable network. One of the outcomes of funding in relatively small, annual amounts is that it can take years before carriers recoup their capital investments. Thus, carriers that can earn a greater return on investment in urban areas will take an incremental approach in rural areas, slowing next-generation deployments. Another outcome of this approach is that it creates an incentive for broadband providers to make decisions based on what they believe the government will fund, rather than on what consumers want.
As a starting point, Congress should consider setting aside some portion of the Trump administration’s proposed $1 trillion infrastructure plan, say $20 billion, for a one-time rural broadband acceleration fund that is expressly designed to make the FCC’s universal service program more efficient. Under this option, a rural area currently without a network capable of meeting the FCC’s benchmark would be eligible for funding. The FCC would set an opening per-location amount for how much it would be willing to pay a carrier in one-time support to deploy a next generation network providing enough bandwidth to meet the upper bounds of future expected demand (for example, a symmetric 100 Mbps) within a set time frame. An express condition of the support would be that the FCC will not provide any ongoing funding in the future. If companies recognized this is their best chance to finance a “future-proof” solution, the aggregate of funds sought by the carriers would likely be substantially in excess of the available targeted fund. If this is the case, then the FCC would run a reverse auction, with firms bidding to receive a lower per-location amount in each round until the amount reached the available targeted fund.
As always, any successful program requires attention to details, many of which will have to be worked out through Congress, the states, and local governments, as well as agencies like the FCC. Whatever the details, however, the infrastructure proposals present a once-in-a-generation opportunity to assure that access to advanced telecommunications and information services is available in all regions, as Congress directed, while saving taxpayers billions in the long run. We should make sure this opportunity does not go to waste.
Blair Levin is a nonresident senior fellow with the Brookings Institution, and Carol Mattey is principal of Mattey Consulting LLC. The complete version of this article appears on the Brookings website at this link.
This article appears in the May issue of Real Assets Advisers. For more information on this magazine or to sign up for a trial subscription, click here.