Thursday, February 12, 2009

Broadband Provisions in the Senate's Economic Recovery Bill: A Stimulus for The U.S. Telecom Industry

Original Article - TMC.Net

Today the Senate passed the $838 billion “recovery” bill. The $7 billion allocation for broadband is not as large as the $39 billion allocated for Green Energy; however, the broadband stimulus is a huge amount of money compared to any prior government funding for broadband. Just to understand how much bigger, consider that the Department of Agriculture’s Rural Utility Service’s (USDA RUS) total grants and loans for all broadband programs during the Bush Administration (2001-2008) was only $6.2 billion.

The USDA RUS amount included $4.4 billion of “traditional infrastructure loans” for basic telephone plant. The USDA RUS claims that “every telephone line” built with the traditional loans “since 1995” was DSL “capable.” Removing these “traditional loans” from true broadband expenditures results in only $2.1 billion having been spent on rural broadband projects over the past eight years. Thus, in the next year, 26 times more will be spent by the government for broadband funding than was spent during an average year ($260 million per year average) during the last eight years.

The $7 billion Recovery bill broadband amount does not include the additional cost of 10% and 20% in tax credits proposed in the Senate bill for building current and next generation broadband. One bank analyst estimated that the tax credits alone could result in $1.6 billion in savings for Verizon (News - Alert).

Although only time will tell if the spending concept will indeed stimulate the overall economy and help it “recover,” this is certain: the proposed broadband funding and tax credits will stimulate the telecom industry. The Information Technology & Innovation Foundation report surmised that for every $10 billion invested in broadband 497,953 jobs will be created both direct (telecom) and indirect.

Whether the projected job numbers are accurate or not, many new jobs in telecom will be created from the $7 billion. Also, building out broadband to underserved areas will plug those areas into the world’s new communication network. As any mayor of a small town without adequate broadband will report, the lack of broadband prevents new industries and their associated jobs from moving to the underserved town.

A summary of the Senate bill shows where the broadband funding is focused:

* $100 million for distant learning and telemedicine loans and grants
* $200 million (3% of the $7 billion) for public computer center capacity at community colleges and public libraries
* $250 million (3.6%) for grants for innovative programs to “encourage sustainable adoption of broadband service”
* $10 million for the Department of Commerce audit and oversight of the program
* $3.325 billion (50%) for USDA RUS rural grants and loans
* $350 million (5%) for the creation of a “broadband inventory map”
* $210 million (3%) for administrative costs (subtract 10% of each of the amounts above)

Overseeing the $6.65 billion in grants (which excludes the $350 broadband “inventory map,” will be the “Broadband Technology Opportunities Program,” (BTOP) under the Assistant Secretary of Commerce for Communications and Information. The Assistant Secretary "may consult" with the State governments to identify "underserved" areas and determine the allocation of grants to the states. The BTOP must award all funds before the end of 2010 and ensure that the projects are completed within two years of the award.

Who receives the awards? The bill provides that “state or political subdivisions” and other non-governmental entities “in partnership with a State or political subdivision” are eligible for the awards. The applicant must pay for 20% of the project from other sources.

Network neutrality. The recovery act ties funding to “non-discrimination and network interconnection obligations” created by the FCC (News - Alert) and the Assistant Secretary and included as contractual obligations in the grant and loan agreements.

Broadband Tax Credits. The Senate bill, unlike the House bill, includes, on top of the $7 billion in grants and loans, tax credits for companies delivering broadband. There is a 10% tax credit for “qualified broadband expenditures incurred with respect to qualified equipment” for building a network after 2008 which is capable of delivering “current generation broadband.” Current generation broadband provides a user with 5Mb down and 1Mb up for wireline and 3Mb/768k for wireless. If the current generation broadband is made available to “unserved subscribers,” the credit is 20%. There is also a 20% tax credit for delivering “next generation broadband” which is defined as 100Mb down and 20Mb up. A “next generation broadband” qualified subscriber can be “any residential subscriber” that is not necessarily in “a rural area, an underserved area, or an unserved area.” Thus, a company providing fiber to the home (FTTH) to any residential subscriber in any location, even a highly populated, high income suburban area that is capable of providing 100Mb will be entitled to a 20% tax credit .

Rural, Underserved, and Unserved Definitions. The bill defines a “rural area” as a “census tract” that is not within 10 miles of any census designated place containing more than 25,000 people, and is not within a county which has an overall population density of more than 500 people per square mile. An "underserved area" is a census tract located in an empowerment zone or enterprise community, a renewal community, or a low-income community. An "unserved area" is a census tract in which no current generation broadband services are provided.

It is likely that the House and Senate Conference Committee, that will meet in the next few days to find a comprise, will deliver a final bill that is close to the Senate bill. The reason is that the Senate requires three Republicans to vote favor of the bill, while no Republicans are needed for the House to pass the bill. One possible change may be in the tax credit provisions to ensure that more than a few companies are able to receive the 20% tax credit for “next generation broadband.” Lowering the bandwidth requirement or increasing the time to deliver the service can accomplish this goal.

All in all, the bill should help the U.S. deliver broadband to a larger percent of the population and at higher speeds. For the telecom industry, such a large expenditure increase should mean a tremendous boom of telecom jobs, equipment sales, and the rollout of new technologies over the next two years.

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