Loan Guarantees: A Fourth Option for Spurring Broadband Deployment

So there's endless talk about how to spur broadband deployment as part of the economic stimulus package. But it all seems to focus on the three standard mechanisms for doing so--tax incentives, direct government loans, and grants--without considering a fourth option: loan guarantees.

First off let me say that in no way am I against tax incentives, loans, or grants.

In fact, I wholeheartedly support tax incentives if that'll lead to faster, cheaper, more widely available broadband, but they're really only impactful for those entities that already have tax burdens to reduce.

And I absolutely see how in some circumstances there can be a need for direct government loans and grants, but both tend to take a long time to approve, require the government to take on all the risk, and especially in the case of grants can sometimes lead to boondoggles where people are spending government money simply because its there to be spent.

But we should also be seriously considering loan guarantees as not only an alternative to these more traditional mechanisms but also as a way to create a fast track for government approval.

Here's how we've laid out how they'll work so far in the Rural Fiber Fund: if you have a market-ready rural full fiber project within 60 days you can get a partial loan guarantee of 80% of the losses up to 60% of the total loan that must be used within 120 days of approval. (Admittedly, we're still finalizing these numbers so they may change.)

What these guarantees do is dramatically reduce the risk of a full fiber project, which is essential to loosening up private capital to invest in these networks as they're still perceived as being very risky projects, especially in rural areas. By lowering the risk we're able to make more (and hopefully all market-ready) projects viable while also lowering the interest rates projects that are already viable have to pay.

But there are also a number of other notable benefits:

- So long as we keep it flexible, just about everyone can benefit. The only entities it might not are those that are already highly leveraged, but even then by allowing things like the guarantees to apply to public money we create many possibilities for public/private partnerships to leverage the strengths of both private and public entities.

- It will enable us to create a fast lane for government support. Rather than doing all the vetting itself, government can instead rely on private capital markets and the communities themselves to decide which projects are viable. The goal of the RFF is to allow all market-ready projects (those with committed communities, a proven management team, and verifiable capital) to get approval quickly.

- These guarantees don't require immediate government outlay. In fact, if we're lucky government will never have to pay out any of these guarantees as all the networks could succeed.

- They deliver huge bang for the buck. First off because they're only partial guarantees that means $1 billion in guarantees will create $2 billion in investment. And even better, because they're guarantees rather than grants government only has to budget for a percentage of that $1 billion. So millions in guarantees can translate into billions in investment. And that's not counting all the benefits and growth that'll come out of having these networks!

- And partial guarantees like this work especially well for full fiber deployment. Why? Because so long as the applicant is competent and actually builds a working network, then that network should retain at least half the value of that loan even if the overall business model doesn't hold up. So by guaranteeing 80% of 60% of a loan, we dramatically reduce the risk.

All in all, I can't imagine a better way to leverage government involvement to spur full fiber deployment than these partial loan guarantees. Although I could be wrong, so if you disagree then add a comment and say so!

Our country's at a point where we need to all come together to find new solutions to old problems. We can't afford to have any great minds sitting on the sidelines during these policy-making decisions. Their ramifications are of too much importance.

Which is why later today we're going to be putting up the latest draft of the RFF policy paper online for public review and comment. I look forward to everyone contributing!