Will The Stimulus Kill Smart Ideas for Rural Broadband?

The Wall Street Journal yesterday reported on efforts of Tim Nulty, a former World Bank and Senate economist and 35-year veteran of the telecom industry, to bring fiber-based broadband to a rural section of Vermont using an innovative business model that combines private sector dollars and a non-profit grassroots effort.

Yours truly is quoted, but my comment had more to do with concerns whether the $7.2 billion set aside for rural broadband would be poured into money-losing, non-competitive municipal broadband initiatives that have already gobbled up millions of taxpayer dollars.

Yet what’s happening in Vermont is just as disconcerting, and raises questions whether the federal government’s broadband stimulus will simply short-circuit innovative, market-based financing. While Nulty’s plan could be considered a form of municipal broadband, it was among the few that sought to structure a project around private investment and avoiding taxpayer risk.

(If you lack a Journal subscription, Nulty and his rural broadband plan are also covered here.)

According to the Journal, a group of Vermont towns with a combined population of 55,000 partnered with ValleyNet Inc., a local nonprofit group, which in turn hired Nulty to manage the project. Nulty, who set up a high-speed network for Burlington, Vt., that went live in 2006, to manage the project.

Mr. Nulty’s plan is to string 1,400 miles of fiber-optic lines across telephone poles and into people’s homes to provide a combo of ultra high-speed Web access, phone and cable TV service. The project is to be financed through a capital lease, with the towns raising money from investors to build the network, and then leasing it back from them over 23 years. It is as “shovel-ready” as they come, Mr. Nulty says, and will create hundreds of construction and customer service jobs.

A fiscal conservative, he says he would prefer federal loan guarantees, which would reduce the risk of private investors without necessarily resulting in any cost to taxpayers in the long run. But a proposal by Sen. Patrick Leahy, a Vermont Democrat, that would have directed loan guarantees to projects like Mr. Nulty’s was shot down in the congressional stimulus negotiations. Now Mr. Nulty says he will request a direct cash grant instead.

Note that now that Congress and the Obama administration have decided to federalize local broadband initiatives through the stimulus, it won’t let Nulty do the job his way. Nulty can say bye-bye to private investment and hello to Uncle Sam, who, as his new benefactor, is sure to have some great ideas about how Nulty should manage his network (neutrally of course!), how service should be priced and how his friends and neighbors should be served. Nulty, for his part, will be expected to take the advice and be damn grateful for it.

Those who provide the money get the control. What’s unfortunate was that Nulty and ValleyNet may have been on their way to proving the slow rollout of rural broadband was not due to market failure, just an adequate business model. I worry when projects like this, which were attracting the private sector money (and would have again once past the liquidity crisis), get picked off by the government’s lumbering fiscal policy. I fear it’s another way this ill-thought pile of pork called the stimulus will do little but generate more debt and less wealth.