Earlier this month, on December 17th, the White House announced the distribution of the first round of Recovery Act broadband grant awards. Notably, of the $183 million in broadband grant awards to be awarded by the Department of Commerce (through the NTIA) and the Department of Agriculture (through the RUS), the NTIA awarded over $120 million toward wholesale, "middle mile" infrastructure. A short summary of the NTIA awards, including the "middle mile" projects is available here.
The reason that I highlight the NTIA's decision to devote the bulk of its funds to wholesale infrastructure supply projects is that--as I explained back in April--I truly believe that this approach is the best way to do a job that is extremely difficult to do well. The Recovery Act requires both the NTIA and the RUS to distribute a very large amount of money in a very short period of time. While the Recovery Act does contain policy guidance to the awarding agencies, and some built-in safeguards, such as limiting the federal government to funding, at most, 80 percent of a project's cost (unless the grantee obtains a waiver from the awarding agency), the responsibilities charged to the NTIA and the RUS are still formidable.
The combination of: 1) direct aid (grants, not loans), 2) the sheer amount of that direct aid (a little less than $6.5 billion in "unrestricted" grant funds, and a total of $7.2 billion in total funds), 3) being distributed by government bureaucracies, 4) in a very short time period (by September 30, 2010) makes the job of efficiently distributing the grant money extremely difficult. Adding to the difficulty of efficiently distributing the broadband grants is the fact that the agencies have little objective tools--such as the "broadband map" (my thoughts here) authorized by the Recovery Act, but not required to be completed until after the grant funds are required to be awarded (the map must be completed 2 years after adoption of the Recovery Act--February 17, 2011--though, as noted, the awards must be completed by the end of fiscal year 2010).
In my April post, I argued that Wholesale INfrastructure Supply projects ("WINS") were the best way for the agencies to allocate discretional grants in the allotted time, because allocating grants to wholesale infrastructure providers allows the agencies to transfer the even-more-difficult job of identifying unserved, existing demand to the most efficient prospective suppliers. The attempt at creating my own acronym was, admittedly, weak (like, "wow-that's-weak" weak), and maybe the idea itself was obvious--but even "obvious" good ideas are not always embraced by the government.
This is why I really think the NTIA got it right by allowing itself a lot of discretion to fund "broadband infrastructure projects" (without any more specificity), and then by pushing more funds into wholesale-oriented projects. Multi-party, combination wholesale/retail ("middle mile"/"last mile") projects benefit from the ongoing incentives of the wholesale provider to: 1) stimulate output by seeking out new wholesale customers, as well as 2) monitor its retail partners success in increasing and promoting retail penetration. These projects offer the promise of being easier to "generically" identify and to police on a forward-looking basis than more "unique" projects.
After reading the NTIA Broadband Mapping Notice of Funding Availability ("NOFA"), it's clear that the "treasure map" I was hoping for isn't going to materialize. However, I'm not destroyed, because--relative to my expectations, the NTIA--with one really weird exception, and another, more minor, nit--didn't do so bad at all, especially for having a limited amount of time and no confirmed leader until less than a week prior to the NOFA being released.
OK, to get us all on the same page, Congress told the NTIA to come up with a broadband inventory map when it passed the American Reinvestment and Recovery Act ("Recovery Act") earlier this year. Prior to passage of the Recovery Act, though, Congress also instructed the Commerce Department (NTIA) to collect very similar data, and instructed other federal agencies to collect different, relevant broadband-related data, in the 2008 Broadband Data Improvement Act ("BDIA").
Both laws, essentially, seek the same thing--a static inventory of broadband availability in America. The NOFA requires periodic updates, so "static" isn't an entirely fair characterization, but it's not that far away. "Backward-looking" is probably a more accurate characterization. The ultimate "purpose" of the map can be as obvious (and useful) as just letting policymakers know who still needs access to broadband service. Another good use of the map/data is to provide feedback on whether policies are working. More importantly, though, the mapping data can be even more helpful to broadband penetration and deployment if it helps to eliminate information gaps/inefficiencies that prevent forces of supply and demand from working as they should. A broadband map that helped to facilitate this intermediation function would easily pay for the $350 million allocated for the map.
After diligently not poring over the many ( no doubt, well thought out) Comments submitted Monday to the NTIA in response to its request for comments on its implementation of the Broadband Technology Opportunities Program, and casually perusing the FCC's Notice of Inquiry ("NOI") regarding a "National Broadband Plan", I can now tell you the answer to who gets the $7.2 billion in broadband funds. The winner is . . . the same firms who now take the majority of the USF high cost/low income fund: the rural LECs and their progeny.
How do I know? Because the politics haven't changed, and when big, entrenched interests are at stake, the status quo is the safest course of action. When I say the "winners" are the "rural LECs", I mean no disrespect at all toward the firms that I generically paint with that label; it's just a shorthand way of referring to the firms that are currently subsidized via the USF high cost fund. My only point is that firms respond to incentives, and firms that currently benefit under the status quo will continue to prosper, because it seems unlikely that the regulation-related incentives will even be clarified any time soon, much less changed in a way designed to promote financially-risky broadband deployment. Said differently, for all the questions the FCC asks in its NOI, the key to the success of the broadband stimulus grants (or any other broadband plan) hinges on the one key question that the Commission declined to ask, much less address: the jurisdictional classification of VoIP.
In my previous post, I recommended a "first things first" approach to distributing grant money--arguing that we can't get where we want to go without a map; a broadband treasure map, to be specific. A map, though, is only part of the journey. Before a map is helpful, we need to take inventory of where we are right now. To this end, yesterday, the FCC released a Notice of Inquiry ("NOI") soliciting public comments and asking questions pertaining to the agency's obligation to develop a National Broadband Plan as required under the American Reinvestment and Recovery Act ("ARRA"). An NOI, though, is not exactly the fastest way to collect information. On the other hand, in all fairness, the NOI approach was the prudent way to go for Acting Chairman Copps, given that the Commission's longer-term leadership has not yet arrived at the Commission. Therefore, since the "first things" (in the "first things first" approach) are unlikely to be completed before the ARRA requires the first of the grant money to be distributed, I figured the NTIA and the RUS might be able to use some unsolicited advice on how to get the initial grants distributed quickly and safely.
I say this because whenever I've seen officials from the agencies charged with administering the $7.2 Billion in broadband-related grants under the ARRA, they just look a little stressed. And who could blame them? The ARRA requires them to distribute an unprecedented amount of money in a short period of time, while maximizing the economic development effect of the broadband funds, meeting other goals (e.g., open networks), and, all the while, protecting the taxpayer funds (and their own reputations) from the 3 Deadly Sins of Waste, Fraud, and Abuse. Piece of cake, right?
It's been said that, "[a] movie scene depicting Chuck Norris losing a fight with Bruce Lee was the product of history's most expensive visual effect. When adjusted for inflation, the effect cost more than the Gross National Product of Paraguay." If this is true, and I'm not saying it isn't, history's second most expensive visual effect might be the $350 million broadband map that the NTIA is charged with creating under the ARRA See p. 14. In all the discussions of how to spend the broadband stimulus money, very little attention has been devoted to what is potentially "history's second most expensive visual effect." I'm not saying the broadband map is destined to earn this title, but the NTIA and the FCC owe the broadband map some thoughtful, up-front attention--even before money starts to be distributed--in order to maximize the broadband stimulus grants. However, it's easy for me to say the map deserves some serious attention, but the real question here is how do you make a map produce $350 million in value to American taxpayers?
Jonathan Lee is an attorney with a consulting and legal practice in Washington, D.C., specializing in advising and representing clients on FCC matters.
