Broadband: The Next Stimulus Disaster

In its announcement of the broadband stimulus rules Wednesday, the U.S. government has defined broadband as 768 kilobits per second (kb/s) downstream, 200 kb/s upstream, signaling that any company applying for federal stimulus funds only has to meet the broadband standards of 1995.

By comparison, most cable modems connect at 6 Mb/s (almost 8 times as fast), with service reaching 10 Mb/s in some areas. Fiber-to-the-home connections transmit between 50 and 100 Mb/s.

That said, 768 kb/s is an improvement over the 200 Kb/s definition the FCC had been using until now, but there’s no question advocates of government broadband, who envisioned taxpayer-funded fiber to every home, are disappointed. The government says the low speed was set to encourage wireless development. But even now, wireless broadband is pushing speeds twice that.

But given the network neutrality rules the National Telecommunications and Information Administration (NTIA) and the Department of Agriculture will require, perhaps the low bar was intended to get someone—anyone—to apply for the grants. The major phone, cable and wireless carriers have already said the rules will keep them from applying. The network neutrality rules would prevent any grant winner from optimizing its network for specific Web applications, especially video. It also could bar a wireless winner from entering an exclusive deal with a handset manufacturer, such as what AT&T and Sprint have done with Apple and Palm, respectively. In laymen’s terms, it means stimulus winners will have problems streaming YouTube and won’t be able to sell any BlackBerry model that’s less than one year old.

These stipulations automatically place any stimulus recipient at a competitive disadvantage. With the stimulus timetable calling for the first round of grants to be issued Nov. 7, and all stimulus money to awarded by September 2010, the pressure on to get cash out the door. That means, on top of everything else, a rushed application process. Under the current terms, it’s all but guaranteed that the broadband stimulus will end up funding a lot of money-losing projects that will struggle to survive once the subsidy stops. In the scheme of things, the broadband portion represents barely one percent of the total stimulus. But $7.2 billion wasted is still $7.2 billion wasted.