The Policy Goal is Inclusion, Not Infrastructure

Today, the Reason Foundation publishes my study examining the universal broadband service policies, their administrative problems and potential ways to foster a system that can be successful at extending broadband penetration, not just to areas without the physical connections, but to portions of the population who lag general broadband adoption trends.

The digital divide is largely a social problem. Policy, however, tend to approach it as an infrastructure problem.

Numerous government programs, run by several cabinet-level agencies, are geared for the funding of telecommunications infrastructure and applications in high-cost areas. The Federal Universal Service Fund (FUSF), which in 2005 paid out $6.8 billion, may be the best-known. There is also the Department of Agriculture’s Rural Broadband program, which lent $1.22 billion in its first five years of existence, and the USDA’s umbrella Rural Utilities Services program, which in 2007 had $500 million banked for broadband grants and loans.

Then there are programs run by the Departments of Commerce, Health and Human Services, Homeland Security, and even some federal-state partnerships. There’s no dearth of programs or funding, either in the form of grants or low-interest loans. And don’t forget the $7.2 billion allocated to broadband expansion in the 2009 economic stimulus bill, which centers on funding infrastructure.

But is penetration low because of market failure, or because of government programs themselves? In fact, when considering the number of government programs that address rural universal service, and the amount of money the government allocates to the problem, why is rural broadband penetration, going by research from the Pew Internet and American Life Project, still only at 38 percent?

The real question, then, is how well they are being administered.

Although conventional wisdom suggests subsidies are the only way to close the digital divide, there have been some signs that digital inclusion solutions can run in sync with market mechanisms. Private capital for broadband is flowing into rural areas. Zayo Group (formerly Zayo Bandwidth), based in Louisville, Colorado, and launched in November 2006, has begun offering high-bandwidth connections to second- and third-tier cities through its acquisition of a series of regional fiber networks. With $225 million in venture capital funding, Zayo is strategically positioning itself to cover areas not well-served today.

States also are rethinking their approach to broadband by shifting their focus to development of services and applications while reaching out to the private sector for funding and partnerships.

Herein lie the seeds of a new universal-service policy built around the unique nature of broadband to offer various degrees of value to different individuals. While the goal remains to bring inexpensive broadband connectivity to as many people as possible, a more enlightened approach shifts away from large infrastructure projects to making the benefits of broadband relevant to all classes of potential users.

In my report, I suggest that the best way to accomplish this is to promote universal-service policies that:

* Engage all segments of the broadband industry;

* Create climates conducive to investment;

* Reduce or eliminate central infrastructure planning at the federal level; and

* Energize leadership and expertise at the state and local levels.

For example, although nominally under the Federal Communications Commission, the FUSF is administered by a board of directors that mainly reflects the funds net recipients–rural phone companies, education and state utility agencies. Its governance reflects but one part of what has become a very broad telecommunications industry with diverse segments, all with a stake in universal service and with different ideas as to how the requirement can be met. The board needs representatives from wireless carriers, Internet service providers (ISPs), cable companies, Internet software and applications developers, and venture capital firms that do a predominant amount of investment in telecom-related start-ups. It is imperative that the federal government’s largest organization devoted to universal service reflect the diversity of stakeholders in the U.S. telecommunications industry.

From there, FUSF reform could get away from its regime of corporation-to-corporation transfers and examine new concepts that can reduce costs yet address needs more effectively. These include reverse auctions and vouchers.

One of the better elements of the broadband stimulus it that it sets aside funds specifically to measure rural service penetration in a better way. The plan is for a more precise state-by-state study to locate rural areas where broadband is not available, where it is, and where there is more than one provider. This information will replace the broader yet misleading measurements of broadband availability by zip code. Yet the stimulus also puts the cart before the horse, calling for all funds to be allocated before data from any study can point to the real problems.

Broadband planning and development may in fact best be driven by focused efforts at the state and local levels. There, it already has been learned that large-scale infrastructure initiatives rarely work and that the key to creating digital inclusiveness is a willingness to work in concert with communities to develop broadband applications that appeal to low-income users who might otherwise believe the Internet offers little value to their lifestyle.

The e-NC Authority and ConnectKentucky, state authorities in North Carolina and Kentucky, are trailblazers in creating broadband-development strategies that leverage the commercial sector, nonprofits, enterprise users, and state and federal funding mechanisms to engineer broadband growth.

Both authorities drilled down to the county level to assess infrastructure requirements. The authorities also used geographic information systems to correlate information about socioeconomic status, educational systems and health-care facilities with geographic availability of high-speed Internet access. This information can be used to develop more effective programs and recommendations suited to specific county and community needs.

Both states saw industry as a partner, not a competitor. Both authorities get money from state and federal sources, but they also were wise enough to understand that there was more to broadband infrastructure than fiber-optic cables. They reached out to companies, enterprises and associations across the industry supply chain.

The problem of universal broadband service will not be solved by redirecting subsidies into greater quantities of infrastructure. The digital divide represents the gap between those who appreciate the benefits of broadband and those who don’t. That gap can be closed through education, applications development and targeted community programs that provide everything from wireless hotspots to PCs and computer training for low-income people.

Reliance on market mechanisms poses nowhere near the risk to rural consumers that regulators and rural telcos believe. On the contrary, today it’s only the transport portion of the network, especially in rural areas, that’s regulated and subsidized. Considering what this industry, when left unregulated and driven only by its need to attract willing investors, has accomplished in delivering the benefits of personal technology and networking to a wide range of Americans of all means, it is time to extend the same freedom to the service-provider sector.