Understanding What The Broadband Stimulus Does, and What It Doesn't Try To do.

Not unsurprisingly, we have considerable debate on the merits of the broadband stimulus package, even leaving aside the network neutrality provisions. They range from this NYT article suggesting that building out in rural is a waste and won’t create jobs to Yochai Benkler’s more optimistic piece to my own previous enthusiastic support (here and here). Along the way, we find plenty of folks with a “yes, but –” because it does not address urban builds or competition or network neutrality or other issues in a way they consider satisfactory, and this weakness, from their perspective, makes the whole bill a worthless boondoggle and a multi-billion gift to the incumbents to boot.

I find the claims of those pushing tax credits or opposing the network neutrality conditions that grants will not create any jobs or result in any new broadband uptake, and that conditions on grants will prevent anyone from building these systems, simply not credible. I can only conclude those pushing this line either don’t get outside Washington DC and New York City much or have their own agendas. Otherwise, they should check out my friend Wally Bowen at MAIN and how he and projects like him are creating jobs for network operators and bringing economic opportunity for their communities. But even setting aside such extremes, it should come as no surprise that we see a variety of opinions on what the broadband stimulus does or should do because:

1) We have a set of complex problems;

2) Everyone has a different perspective on the nature of the problem(s).

This makes assessing the cost/benefit difficult, and makes getting the prospect of any consensus of opinion phenomenally unlikely. What constitutes proof for me that this bill (even after the Senate changes) looks to do a lot of good and is therefore worth the cost won’t persuade others who disagree with me on the fundamental nature of what we need to fix.

In the hope of persuading folks, however, I lay out my arguments below on why I think the broadband stimulus is well designed to handle one piece of the very difficult puzzle of deploying a ubiquitous nationwide broadband system that all citizens will use so they can partake of the rich opportunity for civic engagement, economic development, educational opportunities, and new services such as telemedicine (even if they don’t realize they need this yet). Along the way, the stimulus bill gives another nudge (but hardly solves) the question of how to keep the internet open to innovation and “as diverse as human thought.”

The Overall Design of the Stimulus Bill

The stimulus bill is designed with two goals. One is the classic “Keynsian pump priming” of pumping money into the economy to get past a “freeze” in the flow of capital and the creation of wealth. This is the piece most folks focus on, and is the source of endless debate on whether this dumps in enough money fast enough to have impact.

But the other goal is actually about transforming the fundamentals of the economy so that job creation and economic growth remain sustainable. Historically, this was the far more important part of the New Deal than creation of jobs through things like the Civilian Conservation Corps. These “New Deal” stimulus projects included rural electrification projects such the Bonneville Power Association (which made industrial giants such as Boeing possible with cheap power), various federal insurance programs, agricultural education and reform, Social Security, and a whole list of stuff we pretty much take for granted under the rubric of “safety net.”

And here we get our first decision split. If you believe that “the fundamentals of the economy are sound” and we just need to spend ourselves past the current problem with capital flow, then all this other “New Deal stuff” that goes into fundamental infrastructure change — like broadband spending or “smart grid” or health IT — is just “pork” and does no good. But if you believe (as I do) that we have some serious issues in our underlying economic structure and that our future prosperity depends on creating some significant new infrastructure, then you recognize these longer-term projects as the only way to keep us from sliding back to recession or worse as soon as the money spigot closes.

The Obama stimulus package tries to steer a middle ground between the short term stimulus we need to stave off a depression-like disaster using classic “pump priming” techniques of creating more jobs in the short term, while simultaneously building for long-term sustainability. This follows Roosevelt’s New Deal strategy much more closely (and more effectively, IMO) than the proposals from the talking heads who think we need to spend all the money right away. To use a modern analogy, it’s the difference between a sustained release version of a drug and the version that gives you the entire dose at once. My feeling is we need the sustained release version, because just dumping in all the money at once will cause a classic “spike and crash” like a diabetic drinking a milk shake.

How Does The Broadband Stimulus Piece Fit?

Looking at the broadband piece alone, it appears to be designed to address a very narrow problem: how do
you get build out in the high cost (usually rural) areas? And how does it do so in a way that creates the most jobs on the short term? It makes a nod to urban and suburban. And it is being used by the Administration to leverage, NOT SOLVE, the overall issues on how to keep incumbents from messing with “openness.”

Those who observe that this doesn’t do enough for urban or how it doesn’t address the question of convincing people they even need broadband in the first place, ignore how other portions of the bill work in different ways to re-enforce each other. The billions for health IT, digital education reform, and urban renewal and smart grid all act to supplement the build out and uptake issues. People who see no reason to get broadband will do so if it saves them a trip to doctor, for example. Funds “to deliver health IT services” go readily to build urban community wireless systems in poor neighborhoods.

Nor is that a pretty hack to siphon money from a stated purpose to something else. It is real and does the job intended. But — as any good solution should — it solves other problems as well. Designing a multipurpose solution for a messy world and its complicated problems is neither “pork” nor dishonesty, but efficiency and goddamn genius. Anybody who does anything in IT hears incessantly about how breaking things into silos is bad and how the technology can enable solving multiple problems simultaneously. Nice to see that we have an Administration that appears to understand that and wants to set up a system where the parts work synergistically, rather than building in redundancies that actually work against each other.

Further, the administration spokescritters have been pretty up front in their statements that this bill is not designed to deal with the internet competition problem, the “openness” problem (however defined), or be the end all and be all of telecom or even broadband build out/uptake. Granted it is up to individuals whether they believe this or not — which explains why people convinced that this bill is it for broadband development for the foreseeable future are having an utter panic attack on making sure their piece of the pie gets included. But if we ask the bigger question of “does this bill do real good” rather than “does this bill solve my particular problem,” I think the answer is a pretty straightforward yes.

Finally, I confess to pretty low expectations going into this process, when every older and wiser head insisted that these things just give tax-goodies to the incumbents and that trying to get even a nod to openness principles was a waste of effort. So I’m reasonably pleased that what came out was something that does some good and overall furthers certain broader political goals. It doesn’t solve all the problems, however one chooses to define “the problem,” but no bill possibly could solve every problem. The broadband stimulus is designed as an incremental step embedded in a broader transformative bill. Measured against that reasonable expectation, I think it does a damn good job and gets things off to a pretty good start in 2009.

That said, I also recognize all the ways this could still fail even within the framework and expectations I’ve proposed. For example, it remains to be seen whether we will see significant uptake in rural areas where we don’t have good deployment at the moment. As others have noted there is good data out there that shows a lot of people who could get broadband don’t bother — although why is more fractured and thus gives more ambiguity. For example, those who can’t even get access at work don’t have the “I get it at
work” option.

There is also the little problem that if even 50% don’t want broadband, the 50% who do want it can’t get it where it isn’t available. So when we look at “is it worth it to build out broadband to high cost areas,” even if we take the latest PEW survey numbers as immutable, which 50% do we care about — the ones who desperately want access or the ones who don’t see a reason for it today? And, as I noted above, the value proposition is a moving target given what else is in the bill and the general shift of more resources and capabilities to the network. Is it really wise to assume that the 50% of people who told PEW surveyors “no thanks, I don’t see why I need broadband” will continue to think so five years from now? Or should we say “hey, this looks like a solid enough base to support a service if we can get them over the high cost build out hump, even if the other 50% don’t come around?”

In closing, I want to make one point about rural build out and “network effect.” We have, as a country, generally had a policy of trying to keep all of our country attached to certain services on a usable, if not equal, basis. We did this with postal rates, with electricity, and with telephone service. If we expect high-speed access to become more important in the future, then it behooves us to invest in expanding availability now. Because be the time it becomes critical, the unserved areas are cut off and it requires a much more expensive and disruptive change to bring them onto the network — and they suffer a much higher exclusion cost in the interim.

The Broadband Stimulus: A Good Step Forward In A Messy World

So I think, given all these factors, the broadband stimulus package does a lot of good. We live in a messy world, and I therefore expect messy and imperfect solutions that will require continued policy fixes and investment. Mind, that offers me and other policy hackers a measure of job security. But I have not seen a heck of a lot of success with more straightforward approaches. Real economic change — including stimulus — means a lot of hard work over time that no magic bullet legislation will cure.

King Canute once demonstrated to his flatters the limits of his royal power by showing them a royal decree could not hold back the tide. A few centuries later, a whole lot of Dutch farmers showed that where a royal decree might fail, the investment of a committed group of citizens could succeed by building dikes and polders. We should not look to the broadband stimulus bill to solve all our broadband problems, but only for what it claims to be — a stimulus to help us build our own digital future.

Stay tuned . . . .

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11 Comments

  1. Don Samuielson says:

    I think this is a reasoned and balanced explanation of the current situation. The focus now should turn to making the program work as well – or better, and certainly faster – than the DOC TOP program did. By the way the TOP demonstration projects related to innovation in telecom ought to be made available to all of the public and private interests promoting local broadband networks and operations. This article is well worth reading, thinking about and discussing.

  2. Rita R. Stull says:

    Good article — check my blog at http://www.fiberroad.blogsp… for my response to the NY Times article. Also, check my website, select first item–21st Century Broadband, to view a PP outline of a proposed new infrastructure management policy that would reduce costs for fiber-to-the-premeise by 70% if deployed in nationally mandated conduits in public right of way. The costs for FTTP in conduit: $10,000/rural mile, $30,000 per/urban mile.
    http://www.teledimensionspu

  3. JohnMc says:

    Harold, some of your arguments are reasonable. But given that your assessment still dodges the big one — take rates which is the core problem. It does not matter that there is 50% who WOULD want it, even as Mr. Stull suggests at $10k per mile. It cannot make economic sense to spend $60-100k for a maximum take rate of 22 people of which you will only get half of them. When you get out to places like rural Iowa, Nebraska, and Wyoming that is what is reality. That becomes a telecom equivalent of a ‘Bridge to Nowhere’. Those logistical situations are best solved with wireless, not fiber.

    My second observation is pricing. Sadly telecom costs per household should be going down as a retrospective of the total cost of plant decreases over time. But it is not. That is, in areas currently served by the incumbents in dense take rates. So how do you manage the cost for a rural installation? Short of direct subsidy you can’t. The price will be prohibitive as cable. The higher the cost, the lower the take rate, the higher the cost becomes yet again.

    I would recommend a different approach. Bust up the Verizon-AT&T monopoly. Immediately halt any effort by AT&T buy up displaced AllTel properties. Get some competition back in the telecom space. No it won’t solve all the problems either. But as it stands right now Verizon is positioned to be the largest recipient of any telecom stimulus package hand outs. They are more than happy to sit on their haunches and rake in the Cargo Cult manna from heaven.

  4. JohnMc says:

    One other comment if I may. Lest someone think I am a fiber/cable hater, I am not. But at the cost structures that the legacy providers are billing I am.

    Case in point is Lafayette, LA. Not exactly a back water city. But its not LA or NYC either. Yet they have a municipal fiber system — <a href=”http://www.fiberforthefutur…“>lusFiber.</a> Anybody in the city can fiber service. Ready for the shocker? $29/month for 10mb/10mb, $58 for 50mb/50mb. Siting here in Dallas I am charged $48/mo for .768mb/15mb. Rumor is TWC is getting ready to institute caps here as well. Something wrong with this picture.

    Done right a community with the right engagement can do it correctly. Lafayette proves that. But what you are proposing won’t get done right with the likes of Conyers shilling for the RIAA/MPAA and second level people at DOJ coming from the BSA and RIAA. <a href=”http://gizmodo.com/5146966/…“>link.</a>

  5. Harold says:

    JohnMc:

    We agree on a lot here. I don’t imagine this solves every problem or suddenly makes fiber everywhere profitable. You are quite right that deployment will depend on economics, and I agree completely that in areas of low density it will most likely be wireless, not fiber, that does the trick. We need a good mix of technologies that provide service. The stimulus package does try to push both wireless and wireline.

    As for whether it will be “done right,” that depends on whether we as the interested people step up to the plate. Don’t get me wrong — we will see plenty of waste and we will see lots of undeserving projects get money. The question is not whether the system proposed by the stimulus bill can prevent all bad results. The question is whether it is structured in the way that makes the most sense to maximize the chance of delivering good results. Here, I think the answer is yes. The grant programs have significant guidance to the grant administrators and have significant transparency mechanisms so that grant applicants know they are being watched.

    Not everywhere will be Lafayette, or North Lawndale, or Wireless Harlem. But they won’t all be boondoggles either. And I see a lot more Lafayettes coming out of the proposed stimulus than boondoggles — more than enough to justify the program.

  6. JohnMc says:

    Ooops. We both might be wrong, Harold.

    “The compromise Senate economic stimulus bill reduces funding for broadband grants from $9 billion to $7 billion while retaining tax breaks for high-speed Internet deployment in underserved areas,…” — RCR.

    Only $3.6bn for rural. That’s pretty thin, even by my standards.

  7. Harold says:

    Well, it’s a minimum of $3.6bn for rural. It’s not like the rest is earmarked explicitly for urban. And we need to see which version ultimately gets adopted, the Senate or the House.

    Still, it is much better than a poke in the eye with a pointy stick. Even $3.6bn for rural broadband would do a powerful amount of good — especially if invested in wireless technologies (which, like you, I think are the more logical choice for rural).

  8. Craig Settles says:

    For the love of heaven, would people stop claiming my comments in the NY Times are against the broadband investment!! I had a 30-minute interview in which I laid out a strong case for why this investment should create jobs.

    The sentences that were printed in the story were part of my criticism of Congress people putting stipulations and conditions into the bill that prevent the $9 billion from helping communities. Basically, they’re crippling good legislation because they don’t understand the needs of the people Congress says they’re trying to help. But because of how my words were presented, I sound like a critic, when in fact I’ve spent 3 years advocating mightily for broadband in all communities.

    If you want to understand where I stand on this issue, as well as read some strong testimonials to the value of these investments, go here – http://tinyurl.com/dlr6yg. Or read my reports and books – http://www.successful.com/m… Just don’t misstate my position and certainly do not even insinuate that I take money from opponents of community broadband.

  9. Harold says:

    Craig:

    Thank you for engaging on this. I have now edited this piece and posted a separate apology.

  10. bj says:

    Hmm. Craig’s links are broken, and it’s only been 8 days. Why do you suppose that is? Peculiar.

  11. Jon Baker says:

    Harold:

    Wireless is not always the solution for rural areas either. Mountainous areas are not helped by wireless. My parents’ summer place is way up a hill on a small road. They had an antenna that worked OK, but most people in their area went for satellite, particularly the year-round residents.

    The telephone company, which had cable in town, down in the valley, offered to run cable up the small roads for $1k/household, if everyone paid. That didn’t work – it didn’t happen. They did finally put up cable for free, some years later, and then charge an arm and a leg. And you can get cable modem on it. But they still don’t have cell service on the mountain, and never will – the houses are too far apart, and the terrain gets in the way. You can get cell service in town, if you’re on certain providers. Verizon works, T-Mobile doesn’t.

    The city of Oneonta, NY, had cable in the 1970s and probably before. They had a city antenna on top of a nearby mountain, with cable to customers’ homes. Look at it with Google Terrain, you’ll see why it was necessary.

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