The Biden administration thrust the issue of rural broadband into the spotlight when it released the $2 trillion “American Jobs Plan,” which seeks to upgrade America’s physical and digital infrastructure. Included in the White House’s plan is a provision spending $100 billion to ensure “100 percent high-speed broadband coverage.” Although the administration has not published the details of its spending proposals, a large sum of this money will likely be provided as subsidies to broadband providers. While the administration’s goals are laudable, past experience shows that subsidies are less effective than competition in expanding broadband access. More recent developments also suggest broadband access could be greatly expanded without wasting taxpayers’ money.
Before providing another $100 billion in subsidies, the administration should review previous subsidy programs and the extent to which they have been successful in improving broadband connectivity. Citing poor profit-making incentives in rural America, telecommunications companies and ISPs have long sought federal financial support. In response, the U.S. government has provided substantial subsidies to broadband providers. Since 1995, the Federal Communication Commission’s (FCC) Connect America Fund (CAF) has provided $84 billion in assistance to ISPs and telecommunications companies serving rural areas. Likewise, the Department of Agriculture has also provided $7 billion in loans and grants for internet providers, while the National Telecommunications Agency has provided another $4 billion.
Notwithstanding the scale of these subsidies, they have been largely ineffective at stimulating investments to improve broadband quality. Successive studies suggest that “Universal Service subsidies have had little to no effect on rural penetration.” Likewise, despite receiving CAF subsidies, telecommunications companies “have mostly avoided upgrading their copper networks to fiber, except in areas where they face competition from cable companies.” Such experience suggests that direct subsidies are unlikely to improve American internet infrastructure substantially unless broadband providers face increased competition.
Due to growing competition and technological innovations, Americans’ access to the internet will likely improve without substantial intervention from the Biden administration. According to the FCC, the number of Americans without high-speed internet — defined as 25 megabytes per second — decreased from 26.3 to 21.3 million between the end of 2016 and 2017. Universal internet access will grow significantly due to increasing competition. First, telecommunications companies are steadily expanding internet coverage and becoming an alternative to broadband internet providers. As a condition of its merger with T-Mobile, Sprint committed to making its service available to 99 percent of Americans within the next six years. The competition from Sprint, AT&T, and Verizon will become more intense as they offer 5G internet and substantially increase broadband speed. Second, SpaceX and Amazon are launching satellite-based internet services — Starlink and Kuiper, respectively — which will expand high-speed internet access to rural areas out of reach for existing ISPs. Competition from these companies will act as an incentive for existing internet providers to install high-speed fiber networks instead of relying on slower copper– and DSL-based internet services. Instead of providing wasteful subsidies to these well-endowed companies, the administration only needs to ensure a level-playing field for competition amongst these companies.
Compared to the lack of internet connectivity, affordability remains a more significant challenge for ensuring broadband access. Compared to subsidies to broadband providers, this strategy will be more effective in improving internet access in the short run. However, the FCC has already authorized up to $50 in monthly credit for internet subscriptions to millions of low-income Americans. However, this policy hardly qualifies as a long-term strategy — as subsidizing internet subscriptions is expensive, and internet providers remain free to increase subscription prices.
Read the full article at Real Clear Policy.