The United States is behind many rich—and even not-so-rich—countries in broadband Internet access. The Obama administration aims to expand it.
This essay is part of a package of articles that examines the US stimulus broadly and explores its impact on three sectors in particular: health care, energy, and broadband.
The United States ranks an unflattering 15th in global broadband penetration—behind many of its competitors. The American Recovery and Reinvestment Act (ARRA) will sink $7.2 billion into improving the US broadband infrastructure. In parallel, the Federal Communications Commission is defining a national strategy that could set formal US broadband targets. In the near term, however, the stimulus plan’s goal is clear: improving access among unserved and underserved US communities.
This spending could have complex and powerful effects on the companies that broadband technology touches, including large telephone carriers, cable operators, and wireless providers. It represents a significant part of projected telecom capital spending over the next few years (exhibit)—perhaps as much as 50 percent if the downturn continues to crimp private-sector spending severely. The choice of wireline rather than wireless technologies as the preferred delivery vehicle, for example, will have major competitive implications for service providers. In all likelihood, the impact will spill over to consumer electronics, because wireless access favors handhelds and smart phones, while wireline access drives demand for PCs.
Given this uncertain future, providers should develop what-if scenarios to calibrate possible responses before embarking on final strategies. Smaller providers may be best served by forming consortia to improve their leverage against larger players, to lower costs, and to expand the reach of stimulus grants. Let’s consider a few examples of the strategic complexity ahead.
Large incumbent telephone companies
In an effort to avoid the regulations and oversight, particularly concerning Net neutrality, that the stimulus funding will bring, most large telco incumbents probably won’t apply. They may instead seek indirect benefits—for example, by encouraging applications for grants by public institutions such as libraries and community colleges, which they would support as service providers. That approach lets incumbents leverage their entrenched position while aligning them with the ARRA’s social goals. Still to be resolved is what happens when an incumbent telco’s competitors, such as cable and wireless companies, apply for funding in a region underserved by the incumbent, potentially damaging its economic position.
Large wireless players
Other forces could be at work among large wireless providers, which are eager to roll out next-generation broadband networks in broader commercial markets. To aid those efforts, some wireless companies may seek subsidies to build public-safety networks using new broadband technology, which the ARRA explicitly aims to promote. The technology for these networks, using government-allocated wireless spectrum, is also the foundation for new fourth-generation (4G) commercial wireless networks. Companies that get public-safety funding would therefore in effect be getting an R&D subsidy that may give them an edge in the 4G race against their unfunded competitors.
Local telephone companies will probably win a large share of the funding to build “last-mile” access to consumers, as well as the communications links to the Internet’s backbone. For regulators, the challenge will be to develop an effective metric to gauge the policy’s overall impact and social returns. Would it be better, for instance, to give rural providers grants so that they could offer access to a few customers who now have no broadband service or to use the available funds to improve broadband speeds or subsidize people who can’t afford access? Some competitive cross-currents must also be addressed: for example, will the act finance rural telcos when cable operators already provide broadband services to the same areas?