The BIF Offers a Good First Step for Broadband, but the Devil Will Be in the Details - International Center for Law & Economics
Focus Areas:    Broadband | Innovation | Telecom

The BIF Offers a Good First Step for Broadband, but the Devil Will Be in the Details

Truth on the Market View Original

Capping months of inter-chamber legislative wrangling, President Joe Biden on Nov. 15 signed the $1 trillion Infrastructure Investment and Jobs Act (also known as the bipartisan infrastructure framework, or BIF), which sets aside $65 billion of federal funding for broadband projects. While there is much to praise about the package’s focus on broadband deployment and adoption, whether that money will be well-spent  depends substantially on how the law is implemented and whether the National Telecommunications and Information Administration (NTIA) adopts adequate safeguards to avoid waste, fraud, and abuse.

The primary aim of the bill’s broadband provisions is to connect the truly unconnected—what the bill refers to as the “unserved” (those lacking a connection of at least 25/3 Mbps) and “underserved” (lacking a connection of at least 100/20 Mbps). In seeking to realize this goal, it’s important to bear in mind that dynamic analysis demonstrates that the broadband market is overwhelmingly healthy, even in locales with relatively few market participants. According to the Federal Communications Commission’s (FCC) latest Broadband Progress Report, approximately 5% of U.S. consumers have no options for at least 25/3 Mbps broadband, and slightly more than 8% have no options for at least 100/10 Mbps).

Reaching the truly unserved portions of the country will require targeting subsidies toward areas that are currently uneconomic to reach. Without properly targeted subsidies, there is a risk of dampening incentives for private investment and slowing broadband buildout. These tradeoffs must be considered. As we wrote previously in our Broadband Principles issue brief:

  • To move forward successfully on broadband infrastructure spending, Congress must take seriously the roles of both the government and the private sector in reaching the unserved.
  • Current U.S. broadband infrastructure is robust, as demonstrated by the way it met the unprecedented surge in demand for bandwidth during the recent COVID-19 pandemic.
  • To the extent it is necessary at all, public investment in broadband infrastructure should focus on providing Internet access to those who don’t have it, rather than subsidizing competition in areas that already do.
  • Highly prescriptive mandates—like requiring a particular technology or requiring symmetrical speeds— will be costly and likely to skew infrastructure spending away from those in unserved areas.
  • There may be very limited cases where municipal broadband is an effective and efficient solution to a complete absence of broadband infrastructure, but policymakers must narrowly tailor any such proposals to avoid displacing private investment or undermining competition.
  • Consumer-directed subsidies should incentivize broadband buildout and, where necessary, guarantee the availability of minimum levels of service reasonably comparable to those in competitive markets.
  • Firms that take government funding should be subject to reasonable obligations. Competitive markets should be subject to lighter-touch obligations.

The Good

The BIF’s broadband provisions ended up in a largely positive place, at least as written. There are two primary ways it seeks to achieve its goals of promoting adoption and deploying broadband to unserved/underserved areas. First, it makes permanent the Emergency Broadband Benefit program that had been created to provide temporary aid to households who struggled to afford Internet service during the COVID-19 pandemic, though it does lower the monthly user subsidy from $50 to $30. The renamed Affordable Connectivity Program can be used to pay for broadband on its own, or as part of a bundle of other services (e.g., a package that includes telephone, texting, and the rental fee on equipment).

Relatedly, the bill also subsidizes the cost of equipment by extending a one-time reimbursement of up to $100 to broadband providers when a consumer takes advantage of the provider’s discounted sale of connected devices, such as laptops, desktops, or tablet computers capable of Wi-Fi and video conferencing.

The decision to make the emergency broadband benefit a permanent program broadly comports with recommendations we have made to employ user subsidies (such as connectivity vouchers) to encourage broadband adoption.

The second and arguably more important of the bill’s broadband provisions is its creation of the $42 billion Broadband Equity, Access and Deployment (BEAD) Program. Under the direction of the NTIA, BEAD will direct grants to state governments to help the states expand access to and use of high-speed broadband.

On the bright side, BEAD does appear to be designed to connect the country’s truly unserved regions—which, as noted above, account for about 8% of the nation’s households. The law explicitly requires prioritizing unserved areas before underserved areas. Even where the text references underserved areas as an additional priority, it does so in a way that won’t necessarily distort private investment.  The bill also creates preferences for projects in persistent and high-poverty areas. Thus, the targeted areas are very likely to fall on the “have-not” side of the digital divide.

On its face, the subsidy and grant approach taken in the bill is, all things considered, commendable. As we note in our broadband report, care must be taken to avoid interventions that distort private investment incentives, particularly in a successful industry like broadband. The goal, after all, is more broadband deployment. If policy interventions only replicate private options (usually at higher cost) or, worse, drive private providers from a market, broadband deployment will be slowed or reversed. The approach taken in this bill attempts to line up private incentives with regulatory goals.

As we discuss below, however, the devil is in the details. In particular, BEAD’s structure could theoretically allow enough discretion in execution that a large amount of waste, fraud, and abuse could end up frustrating the program’s goals.

The Bad

While the bill largely keeps the right focus of building out broadband in unserved areas, there are reasons to question some of its preferences and solutions. For instance, the state subgrant process puts for-profit and government-run broadband solutions on an equal playing field for the purposes of receiving funds, even though the two types of entities exist in very different institutional environments with very different incentives.

There is also a requirement that projects provide broadband of at least 100/20 Mbps speed, even though the bill defines “unserved”as lacking at least 25/3 Mbps. While this is not terribly objectionable, the preference for 100/20 could have downstream effects on the hardest-to-connect areas. It may only be economically feasible to connect some very remote areas with a 25/3 Mbps connection. Requiring higher speeds in such areas may, despite the best intentions, slow deployment and push providers to prioritize areas that are relatively easier to connect.

For comparison, the FCC’s Connect America Fund and Rural Digital Opportunity Fund programs do place greater weight in bidding for providers that can deploy higher-speed connections. But in areas where a lower speed tier is cost-justified, a provider can still bid and win. This sort of approach would have been preferable in the infrastructure bill.

But the bill’s largest infirmity is not in its terms or aims, but in the potential for mischief in its implementation. In particular, the BEAD grant program lacks the safeguards that have traditionally been applied to this sort of funding at the FCC.

Typically, an aid program of this sort would be administered by the FCC under rulemaking bound by the Administrative Procedure Act (APA). As cumbersome as that process may sometimes be, APA rulemaking provides a high degree of transparency that results in fairly reliable public accountability. BEAD, by contrast, eschews this process, and instead permits NTIA to work directly with governors and other relevant state officials to dole out the money.  The funds will almost certainly be distributed more quickly, but with significantly less accountability and oversight.

A large amount of the implementation detail will be driven at the state level. By definition, this will make it more difficult to monitor how well the program’s aims are being met. It also creates a process with far more opportunities for highly interested parties to lobby state officials to direct funding to their individual pet projects. None of this is to say that BEAD funding will necessarily be misdirected, but NTIA will need to be very careful in how it proceeds.

Conclusion: The Opportunity

Although the BIF’s broadband funds are slated to be distributed next year, we may soon be able to see whether there are warning signs that the legitimate goal of broadband deployment is being derailed for political favoritism. BEAD initially grants a flat $100 million to each state; it is only additional monies over that initial amount that need to be sought through the grant program. Thus, it is highly likely that some states will begin to enact legislation and related regulations in the coming year based on that guaranteed money. This early regulatory and legislative activity could provide insight into the pitfalls the full BEAD grantmaking program will face.

The larger point, however, is that the program needs safeguards. Where Congress declined to adopt them, NTIA would do well to implement them. Obviously, this will be something short of full APA rulemaking, but the NTIA will need to make accountability and reliability a top priority to ensure that the digital divide is substantially closed.