Chairman Ajit Pai recently said during an interview in Buffalo that he supported what he called Gigabit Opportunity Zones as a way to get fiber built to poor neighborhoods in downtown areas of cities like Buffalo. Buffalo differs from most other large east coast cities in that they didn’t get Verizon FiOS because the telephone company in the city was formerly an independent company, Rochester Telephone, that today is part of Frontier.
The idea of Gigabit Opportunity Zones comes from a bill that was introduced in the last Congress in November of 2019 by Georgia Representative Doug Collins. The bill is H.R. 5082 – the Gigabit Opportunity Act.
The bill would mimic many of the provisions of the Opportunity Zones that were created in the Tax Cuts ad Jobs Act of 2017. That law intended to spur infrastructure investment in low-income Census blocks. The original tax change allowed investors to gain two major tax benefits from investing in qualified infrastructure. They could defer or erase existing capital gains by investing capital gain profits into qualified projects for at least ten years. Investors would also see no capital gains from profits made on an opportunity zone investment.
The proposed broadband bill has similar, but different benefits. First, governors would have to
nominate areas in their state that would be eligible for the gigabit tax breaks. Such areas would have to
- Face obstacles to economic development due to a lack of geographic broadband coverage or speed;
- Are the focus of mutually reinforcing state, local, or private economic development initiatives;
- Are poised for economic growth that requires access to high speed broadband for commercial purposes; and
- Represent the areas of a state where such service would result in the highest return on investment.
Just like with the existing opportunity zone rules, an investor could defer or eliminate existing capital gains by bringing capital gains proceeds to a new qualified project. Even better than the existing opportunity zones investing, the new project could expense the cost of building the fiber network in the first year, thus realizing a huge capital loss in the first year (which is a great way to wipe out capital gains).
It doesn’t look like the bill has moved forward since introduction beyond being referred to the Subcommittee on Communications and Technology. The purpose of the blog is not to say anything negative about the bill. It would be great if something like this would help spur building fiber to urban neighborhoods that might otherwise never see fiber. It does seem to me that the provisions that a qualified investment must result in the highest return on investment makes it likely that this would benefit the richest neighborhoods rather than the poorest. But those kinds of details get worked out during the legislative process.
What I found a bit disturbing is that this bill was brought up in response to the question of what the FCC could do for cities like Buffalo. The Chairman offered the following responses to the question:
- He said the FCC had expanded the opportunity for people to qualify for the Lifeline program. From what I can see, this FCC has done the exact opposite and would like nothing better than to eliminate this part of the Universal Service Fund.
- He mentioned E-Rate programs to bring better broadband to schools and libraries. The FCC did make it a bit easier for schools to turn that broadband outward to the parking lots during the pandemic, but otherwise this FCC hasn’t improved the E-Rate program.
- Chairman Pai said he had asked Congress for the authority to provide hotspots to poor urban neighborhoods, but that Congress hasn’t given him that authority. This highlights that the FCC gave away their authority over broadband and now has no authority to do things like promote hotspots.
- He mentioned the RDOF grant process as one that is bringing broadband to those that need it, without mentioning that the ‘R’ in RDOF stands for rural – none of that money is going to Buffalo.
- He mentioned regulatory reform. By that, he is sticking with his story that deregulating the big ISPs will result in more investment in places like Buffalo. From what I can see, none of the big ISPs have responded to ‘light-touch’ regulation by building fiber to poor neighborhoods.
- Finally, he cited the Gigabit Opportunity Zone legislation. That’s a stalled piece of legislation that might bring benefits, but which has nothing to do with the FCC.
The Chairman’s response should have been that the FCC is not seriously looking at solving the digital divides in cities. The FCC has done its best to write itself out of the broadband picture. The FCC still must administer the Universal Service Fund because it has no choice. The FCC Chairman is sticking to the pure fiction that the big ISPs will solve the broadband problems of the world in response to being deregulated. But in reality, the FCC is doing almost nothing for urban broadband and has no intentions of doing so.