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Spending Limited Broadband Resources Wisely

Spending Limited Broadband Resources Wisely

Yesterday, NCTA released a new economic analysis [see news release and full study] of a few broadband stimulus projects funded by Department of Agriculture’s Rural Utilities Service (RUS).  The study’s key finding: the program’s funding of duplicative broadband networks has resulted in an extremely high cost to reach a small number of unserved households and is not a cost-effective means of achieving universal broadband availability (a goal that NCTA strongly supports). In response to the study – which was prepared by economists Jeffrey Eisenach and Kevin Caves of Navigant Economics – RUS said: “The projects highlighted in the NCTA study are in rural areas that lacked sufficient broadband for rural economic development, as required by the statute," the spokesman said. "All were carefully vetted on the ground by RUS field staff, received strong support from the local community, and will vastly increase broadband capacity in their communities.” The RUS is correct in that some small sections of the three case studies lack sufficient broadband access, but when looking at the overall project area, the vast majority of consumers in those areas were already being served.  So instead of using limited government resources to extend broadband to unserved homes, these projects allow for the construction of duplicative networks.  The Navigant study simply demonstrates that the cost of building duplicative networks means that the small number of unserved homes that will be reached comes at an extremely high – and clearly inefficient – cost. The funding of duplicative networks is also at odds with the prudent strategy that the FCC is implementing in its reform of the universal service system.  As we have noted before, both the National Broadband Plan and the Commission’s February 2011 USF/ICC NPRM recognized that the key to a successful broadband subsidy program is targeting scarce funding to those areas that do not have broadband.  Such an approach achieves the benefits of extending broadband to new areas without the negative consequences of subsidized overbuilding that were identified in the study. Specifics of the Study The economic analysis released yesterday shows that the RUS’ history of funding duplicative service has continued under its Broadband Initiatives Program (BIP) despite findings by the Department of Agriculture’s Inspector General and the Government Accountability Office that such projects are not cost effective. The study examined three large BIP subsidy awards which total $231.7 million, or about seven percent of the total BIP $3.5 billion combined loan and grant program, and found:
  • Of the three projects analyzed, more than 85 percent of households were already passed by existing broadband providers, and in one project area, more than 98 percent of households were already passed by at least one provider.
  • The estimated cost per incremental home passed will be $30,104 if existing coverage by mobile broadband providers is ignored, and $349,234 if mobile broadband coverage is taken into account.
  • The RUS funding approach was at odds with the National Broadband Plan recommendations; the approach used would massively increase the cost of extending broadband to all unserved homes.