NCTA: Broadband Subsidies Are Wasting Millions

BIP investments promote overbuilding

By John Eggerton -- Broadcasting & Cable, 4/13/2011 12:27:27 PM

The Agriculture Department's broadband subsidy program wastes millions of dollars to overbuild existing service and, if it is symptomatic of a larger infirmity, could mean it would cost $87.2 billion to reach every unserved household in the country, rather than the FCC's estimated $23.5 billion.
 
That is according to a just-released case study of three Broadband Initiatives Program (BIP) investments commissioned by the National Cable & Telecommunications Association.
 
The $2.5 billion BIP grant/loan program is administered by the Rural Utilities Service and is part of the American Recovery and Reinvestment Act's $7 billion in broadband stimulus funding. The National Telecommunications & Information Administration oversees the rest of the broadband stimulus money, all in grants.
 
NCTA has long expressed concerns that the programs promote overbuilding rather than targeting unserved areas. According to the study, at least in the cases studies, "millions of dollars in grants and loans have been made in areas where a significant majority of households already have broadband coverage," and that "the costs per incremental home passed are therefore far higher than existing evidence suggests should be necessary."
 
The study found that over the three projects analyzed, more than 85 percent of households were already served by existing providers and in one, more than 98% were served by at least one other provider.
 
Defenders of the program argue that grantees need to be able to provide service in the more lucrative served areas to afford sustainable service to the target unserved areas--sustainability is one of the requirements of the one-time grants and loans. But the NCTA study points to the cost-ineffectiveness of the government spending what amounts to $349,000 per incremental home passed if mobile broadband is counted, and over $30,000 if it isn't.
 
The programs studies were $101.2 million in western Kansas; $66.4 million in Lake and St. Louis counties in northeastern Minnesota; and $64.1 million for a portion of Gallatin County in southwest Montana, according to NCTA.

The study was conducted by Jeffrey Eisenach and Kevin Caves of Navigant Economics of Washington.
 
An RUS spokesperson had not returned a request for comment at press time.