Spurring Broadband Deployment: Standards and Incentives

Today I want to attempt to lay out a high-level framework for how our national broadband plan could spur broadband deployment on an ongoing basis.

It starts with the idea of establishing broadband standards. These standards will be the metrics by which we can determine if a community is fully served, if its users have access to enough bandwidth at an affordable enough price to do what they want/need to do.

These standards will have to be multi-faceted so they can address the needs of different types of facilities and users. They will have to evolve over time to meet growing demands. And they will also have to factor in the status of competition in a community.

To have an example to work with, let's say the standard to determine if a residential community is fully served is if they have access to at least two providers offering at least 10Mbps total bandwidth, with this standard increasing 50% every year. (I personally hope we can set more aspirational standards than this, but it gives us a start.)

Tied to these standards then will be a classic carrot-and-stick offering.

If a provider is offering speeds at the standard level or higher, then they get access to government incentives. For example, we could have a sliding scale of tax breaks based on the speed and price of the bandwidth providers offer. At the top level of highest speed at the lowest cost we could even get rid of federal taxes all together on revenue generated by selling this bandwidth.

On the flip side, if a community doesn't meet the standards for being fully served, then it becomes eligible for government subsidies to spur deployment. These would include everything from federal guarantees, to low interest loans, to grants. These subsidies would be available to anyone ready, willing, and able to build out their community's communications infrastructure.

These subsidies would also be another incentive to incumbent providers as if they bring their networks up to standards they'd be able to avoid the threat of government-subsidized competition.

We could then layer on another trigger whereby a community could be considered fully served if there's only a single provider, but that provider's delivering high enough bandwidth at a low enough cost even in the absence of facilities-based competition.

Special consideration in this framework should be given to high capacity, low cost open networks that allow multiple service providers to compete over the same infrastructure. In particular in rural areas where grant funding is needed to make the business case work for a single network to be built, those recipients of federal grants should be required to build open networks so that rural users can still realize the benefits of competition.

Of course, for this framework to have any teeth it'll need to have some level of capital available to provide federal subsidies. As it stands right now Congress has been sending signals that there's no new money coming for broadband. But let's think outside the box a little bit.

Universal Service Fund reform is a topic that's heating up. But so far most of the chatter has been about minor changes, like simply shifting USF from telephone to broadband. I'd like to suggest that instead we take this as an opportunity to create a new funding stream to support this framework to spur deployment.

The changes I suggest are relatively simple.

First we change the contribution structure. A flat 5% tax on all communications services, including mobile phone and ideally TV too. With a roughly $300 billion total communications market in the US annually, that frees up about $15 billion a year.

Before anyone starts screaming about this being a new tax, let's put this in practical terms. If a family has a $100 a month total communications bill, they'll only have to pay $5 a month into this new USF. If a family has a $300 a month bill, they're only paying $15 a month. These are not unreasonable numbers for any family to handle even in these hard economic times, especially when many are already paying a few bucks a month into the old USF.

Second, we take $7 billion a year and apply it to supporting a gradual transition of the old USF from telephone to broadband. This will allow existing recipients a few years to get their act together and start serving their customers with broadband if they want to keep receiving their government subsidy.

Third, we take the rest of the money and make it available as subsidies through the framework above. Some of this money would be put to grants to fund middle mile buildouts and to make the business case work for serving the most remote areas. Some of this money would go into a federal guarantee program that will make it easier for smaller providers to raise funds in the capital markets. And some will be provided in the form of direct government loans in situations where providers can't raise their own funds with the government guarantee.

The final step is that we make this a time-limited program, let's say five years as that should be enough time to solve a lot of our availability issues and it's these next five years that are the most crucial for setting the table for our digital economy for the next hundred years.

To put a finer point on what this proposal could enable, if we were to apply as little as $2 billion a year from the new USF fund to giving out government guarantees and loans, we could leverage that budget authority at least ten times, freeing up $20 billion a year in capital for deployment. Over five years that's $100 billion. Then if we gave the rest of the $6 billion a year out as grants, that would mean we'd have $130 billion over five years to build out our country's next generation broadband infrastructure.

But even better is that we might not have to spend any of it. By including incentives as well as these subsidies as threats, we're likely to see a wave of new investment by incumbent providers to bring and keep their networks up to standards.

By taking this standards-based approach to offering incentives and subsidies, combined with a new look at USF reform, we can put in place a framework that will get our country on the path towards a much bigger future through broadband.