In response to a pandemic that is trapping many indoors and upending the way we do business and how our children are learning, Congress is scrambling to fund programs that close the country’s remaining digital divides, especially those in rural America.
In April, Reps. Rob Wittman (R-Va.) and Bill Johnson (R-Ohio) introduced the Serving Rural America Act, which would authorize $500 million over five years for a pilot grant program overseen by the Federal Communications Commission (FCC).
In May, Senator Ed Markey (D-Mass.) introduced legislation that would require the FCC to update the original National Broadband Plan. Reps. Fred Upton (R-MI) and James E. Clyburn (D-SC) announced the “Rural Broadband Acceleration Act,” bipartisan legislation that directs the FCC to fund shovel-ready, high-speed Internet projects.
And just this week, the House of Representatives approved $100 billion worth of broadband funding as part of a $1.5 trillion infrastructure bill, with $80 billion in fiscal year 2021 for the FCC to fund high-speed broadband projects in unserved and underserved areas. According to Jon Brodkin, the FCC would be “required to distribute the money through a competitive bidding process, similar to how its current programs work.”
(The House legislation also provides funds for low-income broadband users. Because user-based subsidies are a different tool than the provider-based funding considered here, and because of word constraints, I will evaluate those proposals in a separate piece. Promise.)
The flurry of legislation suggests there is an emerging bi-partisan recognition that the urban-rural divide requires immediate attention in the face of a pandemic, market forces alone cannot be counted on, but that market-oriented solutions such as competitive auctions can be used to solve the problem.
The Depth of the Rural-Urban Divide
The gap in high-speed broadband availability between rural and non-rural areas is significant. In rural areas (defined by Census as areas outside of densely settled urbanized areas and their immediate surroundings), only 70 percent of households had access to broadband connections at 25 megabits per second (Mbps) download—considered “high-speed” just five years ago—compared to 98 percent of non-rural households, per industry trade association USTelecom. The gap is even larger at higher speeds: Fifty one percent of rural households had access at 1,000 Mbps down (“gigabit” speeds), compared to 94 percent of non-rural households.
The benefits to broadband have been demonstrated empirically by economists. A 2016 study by the Council of Economic Advisers highlights research showing that using online job search leads to better labor market outcomes, including faster re-employment for unemployed individuals. Households that lack access to broadband are denied those benefits.
To design a funding package that expands high speed broadband to areas where it does not currently exist, and to do so at the lowest expense and in the quickest timeframe possible, it is helpful to understand a bit about two recent federal programs designed to expand broadband availability: The Rural Digital Opportunity Fund (“RDOF”) and Broadband Technology Opportunities Program (“BTOP”). While the former provides a template to be emulated and expanded, the latter offers some pitfalls to be avoided.
Lessons from the Rural Digital Opportunity Fund (“RDOF”)
RDOF is a project designed to distribute $20.4 billion in support of deploying broadband to rural homes and businesses over ten years. The program, financed via the Universal Service Fund, uses a “reverse auction” to distribute money to broadband providers, which as the name suggests, means that providers bid to serve an area for the lowest subsidy possible. Economists tend to support reverse auctions because the most efficient carriers with the lowest costs end up getting funded. The RDOF auction rules will give preference to providers that commit to wiring an area with faster service or lower latency (to support videoconferencing)—for example, 100 Mbps will be given more preference than 25 Mbps commitments, and one gigabit speeds will be given even more preference.
The first phase of the RDOF auction, to be conducted by the FCC, is set for October 2020. It will target census blocks that are wholly unserved at 25 Mbps down and will disburse $16 billion (or 78 percent) of the allocated funds. RDOF support recipients will be required to offer standalone voice service and offer voice and broadband services at rates that are reasonably comparable to rates offered in urban areas.
The RDOF program will be modeled after the Connect America Fund Phase II auction conducted in 2018. That auction yielded 103 winning bidders, with the 10-year support amount totaling $1.5 billion and covering over 700,000 locations with fixed broadband in 45 states. Given the success of its predecessor auction, and given the support among economists in using a market-based mechanism to allocate funds, RDOF can serve as a template for expanding broadband subsidies.
To complement the funding mechanism, policymakers must develop a comprehensive broadband map showing precisely where broadband service is not available. In March, Congress passed the Broadband DATA Act, which requires the FCC to update its maps, but this project has not yet been funded.
Lessons from the Broadband Technology Opportunities Program (“BTOP”)
BTOP was a grant program that also sought to bridge the digital divide. The program was administered by the National Telecommunications and Information Administration (NTIA), and was funded, unlike RDOF, by the American Recovery and Reinvestment Act of 2009. The program invested nearly $4 billion in roughly 230 projects to increase broadband access and adoption around the country.
Rather than use a competitive auction, however, more than 1,800 providers submitted applications for awards, in what an economist might call a “beauty pageant.” While it is true that auctions might favor larger providers with greater means, the alternative permits political patronage; and if smaller providers were deemed a worthy policy objective, the auction could assist smaller companies with bidding credits.
For example, in Dawsonville, NTIA awarded a $33 million grant to the North Georgia Network, a coalition of county economic development agencies, a state university, and two electric co-ops to build a 1,100-mile fiber optic network across 12 counties. Another recipient of BTOP funds, SDN Communications, a partnership of 27 independent telephone companies, used its $21 million grant to add 400 miles to its network in South Dakota, to connect nearly 310 new anchor institutions as well as providing faster connections to more than 220 anchors that had already been on the network.
Several economists and agencies have reviewed the efficacy of the BTOP program. The Office of Inspector General surveyed BTOP grantees in 2016. The survey found that of the 51 grantees studied, two thirds received a performance-improvement plan or corrective-action plan from NTIA, and one quarter did not have a sustainable business plan beyond the grant term. In a study published in Government Information Quarterly, LaRose et al. (2014) concluded that BTOP awards “advance[d] a national broadband development agenda,” but noted that “projects focusing on minority populations may have received less emphasis in the BTOP awards than that announced in the stated goals of the program.”
Other economists are less charitable. Using an econometric model that controls for state-specific trends in adoption and award placement, Janice Hauge and James Prieger (2015) found that BTOP spending did not significantly increase broadband adoption. Using a difference-in-difference model, Beard et al. (2020) found no positive effect on home broadband adoption from programs funded by BTOP.
Seizing on Success, Avoiding Pitfalls
As estimated by the FCC in 2017, bringing 25 Mbps “fiber-to-the-premises broadband and/or cable service” to 100 percent of U.S. locations would cost $80 billion; because the cost curve is not linear, 98 percent coverage would cost half as much or $40 billion. Thus, the $20 billion RDOF program is about $60 billion short of what is needed for ubiquitous coverage (not counting the $1.5 billion funding from the Connect America Fund Phase II), and $20 billion short of covering 98 percent of U.S. locations.
The RDOF process is the best, nearest-in-time chance to inject funds into the hands of providers capable of closing the rural-urban digital divide. We should quickly allocate additional funds to enable broadband providers to compete for the privilege and the obligation to more quickly build out higher speeds to unserved and underserved areas. And we also should avoid politicized allocations of funds that don’t have a proven track record of boosting broadband adoption.
Now more than ever access to broadband, just as access to water or electricity or education, is essential to thriving in America. While policymakers can’t force anyone to subscribe, everyone should have the option of doing so.