June 7, 2021
By Bronwyn Howell
As America gears up for President Joe Biden’s (trimmed down) $65 billion plan to connect every American to affordable high-speed internet, almost inevitably the focus turns to rolling out infrastructure — notably, terrestrial fiber — into unserved (or underserved), predominantly rural communities. (The goal is to give these communities access to internet connections capable of supporting the average modern internet existence.) Also — almost inevitably — minds turn to the vehicle traditionally used to close these access gaps: handing out subsidies to the network operator(s) offering to build out infrastructure to the funder’s specifications at lowest subsidy cost.
It is difficult to deny that building out infrastructure in localities where none exists is a positive move toward equalizing opportunities for citizens. There is also something almost mystical in the mantra that more (and better) broadband infrastructure is indelibly associated with economic growth and more jobs, despite the fact that the studies citing large and positive benefits almost all come from the early days of broadband deployment, when the easiest productivity pickings were on the table. (Although now we are almost surely at the flattest part of the diminishing returns curve as connection rates inch closer to 100 percent of the addressable population.)
Yet the focus on building more infrastructure glosses over the reality that the number of urban households without an internet connection — despite some of the world’s best infrastructure passing their doors — exceeds the number of unconnected rural households by a ratio of nearly three to one (13.6 million versus 4.6 million). Addressing this urban access divide will not be achieved by the usual means of subsidizing operators to connect the unconnected — even when the subsidized network is owned by a municipality or other nonprofit entity. Rather, these networks cost at least as much as private networks to deploy. And when all connections are subsidized via lower prices, most of the funding benefit goes to households not facing economic disadvantages that would have purchased a connection anyway, even at the unsubsidized price.
Ultimately, if the barriers to household connection are economic, then the logical solution is to fund the household, not the network operator. After all, this is the solution applied for other essential goods and services. The Supplemental Nutrition Assistance Program, for example, funds families, not supermarkets. Likewise, Medicare and Medicaid entitlements attach to individuals, not care providers.
The benefits of such an arrangement include that when choice exists, consumers get to exercise it. When it comes to broadband, for example, an urban consumer can choose between competing networks and plans as best suits their needs. Hence, a beneficiary preferring a mobile connection is not compelled to sign on to a fixed-line plan to access the subsidy. And to the extent that demand, subsidy, and other income allow, the beneficiary can opt for two low-end plans (one fixed and one mobile) rather than the subsidized high-end fixed plan.
Moreover, that such subsidies are technology- and network-operator agnostic supports network competition — which is becoming more relevant as new technologies such as low-orbit satellite and mobile become more cost-effective and prevalent. They can also be applied in rural areas where only one network exists, enabling more efficient targeting of subsidies to the households that really need them as well as revealing the true cost of connections in the unsubsidized prices.
The concept of funding beneficiaries rather than network providers is not new. In response to the pandemic, the federal government implemented a temporary program to subsidize low-income households until six months after the pandemic ends, or until the set-aside funding of $3.2 billion runs out — whichever comes first. What is now offered is the chance to make these sorts of subsidies permanent features of welfare plans rather than one-off opportunities to make step changes in infrastructure availability.
Because broadband connectivity is an ongoing expense, it is not sufficient to close only the infrastructure divide; the financial divide must be closed too. As with access to food and health care funds, broadband access for low-income households must be properly, securely, and sustainably funded over time and not reliant on one-off, ad-hoc interventions to suit other political and fiscal needs.