The bill reinstates a telecom tax that will provide a $300 million fund intended to be used to improve rural broadband. The California press believes that the fund will largely go to AT&T and Frontier, which both lobbied hard for the bill. My reading of the bill is that the incumbent carriers have first shot at the funding and anybody else only gets it when they don’t take it. In practical terms, assuming those two companies take the funding, almost none of this money would be made available to anybody who wants to build something faster in unserved areas.
We know that state funding done the right way can be a tremendous boon to broadband expansion. Consider, for example, the Minnesota DEED grants that have coaxed dozens of telecom providers to expand fiber networks deep into unserved and underserved areas of the state. It’s commonly understood that it can be hard to justify bringing fiber to rural areas, but some grant funding can be an effective tool to attract private money to fund the rest.
We also understand today that there are huge economic benefits for areas that have good broadband. The farmers in Minnesota that benefit from the grant program there are going to have a competitive advantage over farmers elsewhere that have little or no broadband. I’ve been looking at the IOT and other fiber-based technologies on the horizon for farming that are going to vastly increase productivity.
We also know that having good broadband benefits the small communities in rural America as well. These communities have been experiencing brain drain and economic flight as people are forced to go to metropolitan areas to find work. But broadband opens up work-at-home opportunities that ought to make it possible for families to thrive in rural America.
This move by California is a poor decision on many levels. First, it funnels money to the incumbent providers to make tiny tweaks to the existing networks so that existing broadband is just a little better. The new 10/1 Mbps broadband definition is also nothing more than a legislative definition of broadband and has no relevance in the real world. Many homes need more broadband than that, and as household broadband demand grows, a 10/1 Mbps connection will become inadequate for every home.
Another reason this is a bad idea is that the incumbents there are already making improvements to increase broadband to the 10/1 Mbps level. AT&T took $361.4 million of FCC CAF II funding that is to be used to upgrade broadband to 141,500 homes in California. That works out to $2,554 per home passed. Frontier took another $36.6 million, or $2,853 per home passed to improve broadband to 12,800 homes. That federal money requires that speeds increase to the 10/1 Mbps speed. This state funding will be an additive to those large federal amounts that these two companies have already received from the government.
AT&T has also already said that it plans to meet its CAF II obligations by upgrading rural cellular speeds. Frontier is mostly going to improve DSL on ancient copper and also is now looking at using point-to-point wireless technology to meet the CAF II obligations.
I don’t know how much it’s going to cost these companies to upgrade their rural customers to 10/1 Mbps. But the federal funding might be enough to pay for all of it. Adding the state funding means it’s likely that these two companies will make an immediate profit from upgrading rural customers to barely adequate broadband speeds. As we’ve seen many times in the past, this bill is good evidence that the big companies get value out of their lobbying efforts. The losers in all of this are the homes that won’t get anything faster than CAF II broadband. This $300M could have been used as matching grants to bring much faster broadband to many of these homes.