The Senate may have passed economic stimulus legislation, including $7 billion in broadband subsidies, but with discrepancies between the House and Senate bills waiting to be resolved in conference, many specifics remain unclear—and even some proponents of broadband "stimulus" are skeptical about the current shape of the plan.
By a narrowly partisan vote, the Senate on Tuesday approved a massive $838 billion economic stimulus package, including $7 billion in funds to promote broadband deployment. But with a slew of differences between the House and Senate versions of the legislation remaining to be resolved in a conference committee this week, enormous uncertainty remains about the specifics of the plan—a situation that has many policy experts and advocates combing the details in search of the devil.
The most obvious open question concerns the total size of the broadband subsidy. Earlier drafts of the Senate bill appropriated $9 billion for broadband, of which $2 billion were cut over the weekend as part of a compromise designed to win over enough Republicans and centrist Democrats to overcome a filibuster threat. The House bill allocates $6 billion for the same purpose.
At the tech advocacy group Public Knowledge, however, there's at least as much concern about the rules attached to broadband funding as about the total dollar amount. The nonprofit sounded an alert Tuesday about an amendment introduced by Sen. Dianne Feinstein (D-CA) (though not brought to the floor for consideration), creating a "network management" exception to the "open access" conditions imposed on any government-funded broadband networks. Though the conditions themselves are somewhat vague—the Federal Communications Commission and National Telecommunications and Information Administration would hash out the specifics—network neutrality advocates expect that they would be used to bar various forms of discriminatory routing by ISPs.
Feinstein's amendment, however, would construe the statute to permit "reasonable network management practices such as deterring unlawful activity, including child pornography and copyright infringement." Neutrality proponents fear this would create a loophole that permits ISPs to use deep packet inspection to automatically block copyrighted content—but automatic filters are notoriously hard pressed to distinguish between simple copyright infringement and legally protected fair use. They also pose significant concerns about subscriber privacy.
There are also broader structural questions about the wisdom of including broadband spending in the stimulus package at all, as well as more specific concerns about the focus on subsidizing broadband deployment in rural areas. Economists and policy experts voiced a welter of such concerns at a panel hosted by the conservative American Enterprise Institute on Tuesday afternoon.
The wisdom of stimulating broadband
Robert Crandall, an economist with the centrist Brookings Institution, argued that there was "little reason to provide a specific targeted subsidy for broadband," rather than providing a more general cash infusion and allowing the market to determine which projects were deserving of support. Crandall worries that grants or loans designed to accelerate broadband deployment could end up investing in technologies that may well be superseded a few years hence. Perhaps ironically, Crandall's own research has been the basis for ambitious claims about the job-creating potential of a broadband stimulus—claims Crandall himself now says are a "gross overstatement."
Even if a targeted broadband subsidy were a good idea, Michael Katz, formerly chief economist at the FCC, wants to know: "What's the rush?" Notwithstanding stimulus advocates' emphasis on "shovel-ready" projects, much of the money allocated for broadband—especially funds that come in the form of loans and grants subject to an application and approval process—would likely not be spent for at least a year or two. Under the circumstances, though he agrees that it's "important to send to the market signals that we're doing something," Katz worries that cramming broadband into a rushed stimulus bill will lead to poorly crafted legislation. Taking a bit more time with broadband, he argues, would ensure that the government is not "paying people to do what they'd be doing anyway or even crowding out private investment."
Katz also questions the emphasis in both versions of the stimulus on rural broadband deployment. The House version of the package puts half of the broadband funds under the control of the Department of Agriculture, and an amendment proposed by Sen. Patrick Leahy (D-VT) would create a similar split in the Senate version, which currently puts all the money in the hands of the NTIA. But Katz argues that it's "environmentally hostile" to subsidize the choice to live in those "underserved" rural areas—and perhaps unequitable as well, given that rural residents enjoy far lower housing costs than denizens of highly wired urban areas. (He even offered his own tongue-in-cheek proposal to require rural residents to buy their own broadband service unless it would cost more than the difference between the cost of rural living and that of keeping a flat in Manhattan.)
Moreover, as one attendee noted during the question-and-answer period, if the goal of a national broadband strategy is to improve the United States' rates of broadband penetration, laying costly fiber in sparsely populated areas makes far less sense than promoting adoption in denser urban areas where there's preexisting infrastructure.
Robert Shapiro, formerly a principal economic advisor to Bill Clinton, was more sanguine about the general idea of a temporary broadband stimulus—but took pains to stress that he didn't wish to defend the specifics of the legislation currently under consideration, "because I don't think it's very well designed." Shapiro said his own research had shown that in general, there was no evidence for a systematic market failure in broadband, and argued that the so-called "digital divide" was better cast as a "digital lag" of about five years between those at the top and bottom rungs of the economic ladder. "This is not something one would do in the absence of a crisis," he said, and warned that "there is a real danger of this becoming a permanent program because it is in the economic interest of certain companies."
Apropos of which, Shapiro claimed to have been told that the speed requirements for broadband networks funded under the stimulus package—hailed by proponents of government broadband subsidy—would originally have applied only to FiOS networks, until panicked telecoms complained.
Gigi Sohn of Public Knowledge stressed that the broadband spending should not be seen purely as a short-term form of economic stimulus, but as a means of guaranteeing broad-based democratic participation. To that end, Sohn argued that targeted grants and loans should be preferred to tax credits for broadband providers, which play a significant role in both versions of the bill, since these must be individually approved and monitored—and because tax credits provide little benefit to companies not currently turning a profit. Echoing the other panelists, she worried that without the checks that come with such grants, money would simply flow to incumbent firms to underwrite deployment they'd undertake anyway. If tax credit language proposed by Sen. Jay Rockefeller (D-WV) is incorporated in the final bill, some analysts project that Verizon alone could capture as much as $1 billion of the total broadband stimulus.
As several panelists noted, however, the varied goals of broadband subsidy in the context of a stimulus package often conflict. Short term jobs for workers in the ailing construction sector are created by rural deployment, though that's not the most effective way to get the largest number of people online. Similarly, if the goal is to spend funds in a way that creates a near-term economic boost, then the logical recipients of those funds are incumbent telecoms, who are in the best position to quickly add capacity, rather than newer startups—which would have its own distortionary effects on the broadband market in the longer terms. (Sohn countered by questioning "the obsession with shovel ready," asking: "Don't we want to stimulate this economy over a little longer time horizon than just the next six months or year?"
The perhaps surprising consensus across the political spectrum—among those broadly supportive of the theory behind broadband stimulus and those who remain skeptical—was that the stimulus bill in its current form is at best profoundly imperfect, packed with provisions that do more to advance the interests of specific companies (incumbent providers and rural telcos, primarily) rather than sound broadband policy. And if that's what it looks like now, wait until we see what they do with it in committee.