President Biden, early in last night’s joint address to Congress, highlighted his pledge to improve America’s broadband. His administration’s American Jobs Plan, he said, will connect “every American with high-speed Internet, including 35 percent of the rural America that still doesn’t have it. This is going to help our kids and our businesses succeed in the 21st-century economy.” Sounds good, right? Unfortunately, the proposal appears aimed to transform what is a dynamic and innovative sector to something much more like an old-fashioned and stagnant utility.
Access to the Internet is essential to our daily lives, and there are tremendous benefits to society if everyone can assume everyone else is online. Today, the United States is connected by a system of private competition that develops and deploys rapidly evolving broadband technology. This competitive system has worked remarkably well — at least in areas with the population density required to justify risking private investment in the large, fixed-cost assets. But about a quarter of rural Americans do not have access to decent broadband, simply because the expected revenues from providing infrastructure do not exceed expected costs.
Therefore, government needs to play a role. But the fundamental question is whether it should supplement or replace private networks. The Biden administration’s proposal unfortunately leans toward the latter.
Structuring any broadband-subsidy program requires several choices. How slow do existing networks have to be before we subsidize new ones? How much are we willing to spend to reach what percentage of unserved homes? The sketch provided by the administration indicates a maximalist response, proposing to spend $100 billion to connect 100 percent of the country to “future proof” broadband. Another critical question: What type of ownership model do we want to promote? The Biden proposal makes that clear, proposing to prioritize support for government-owned networks.
The administration sells its plan on the promise of future-proof networks. Who wouldn’t want a future-proof network, especially if it can be paid for by simply increasing the national debt? But what advocates really mean by future-proof networks are fiber optic-based networks. Sure, fiber is the latest and greatest broadband technology, offering tremendous speeds. But unlike existing networks (those originally built for telephones and cable television and since repurposed for pretty darn good broadband), fiber requires all new infrastructure, which is expensive to install. In many areas, only providers who don’t care about covering their costs, e.g., municipal governments, will take on that burden.
Unless the subsidy well is bottomless, requiring fiber builds means more money spent on fewer networks. This likely means leaving many places that truly need subsidies with no broadband at all. Setting unreasonably high expectations for broadband performance means about 58 percent of the country could be eligible for subsidies, rather than focusing on the approximately 6 percent that have no broadband at all.
Perhaps the most direct attack on the competitive system for broadband from the Biden proposal is the explicit call to prioritize funds for municipal and nonprofit operators. Progressive activists have long pushed for local-government-owned broadband monopolies instead of lightly regulated private competition. Biden’s plan would make areas now served by both AT&T and Comcast, for example, with pretty good broadband speeds at reasonable prices, eligible for a federal grant for the local government to build an entirely new, gold-plated broadband network. What could possibly go wrong?
The exact design of a subsidy program is debatable, and one can at least appreciate the political appeal of Biden’s policy — why make incremental or cost-effective improvements when we can afford the best? Why leave even a single household unconnected if we can achieve 100 percent coverage, whatever the cost? Existing broadband companies aren’t very popular; why not direct the money to local governments and power utilities?
Policy should certainly aim to close the rural-broadband gap once and for all. And municipal broadband can help fill gaps in sparsely populated towns overlooked by today’s providers. But taken together, the Biden plan would likely see billions in subsidies radically transform the broadband industry, building subsidized, government or utility-run networks to compete with or, in many cases, replace private providers.
The utility model promoted by the proposal is a surefire way to stunt innovation. Municipal networks do not invest in research and development, they do not contribute to standards setting, and they raise the barriers to entry for dynamic new entrants. If we undermine incentives to come up with a better technology, the proclamation from utility-broadband promoters — that today’s best broadband technology is “future-proof” — may well be true, simply because nothing better will be developed. Our broadband networks will start to perform the way our roads do: cracked and crowded.
The Biden proposal is not the only way to reduce the digital-broadband divide. A better program, such as the one the Information Technology and Innovation Foundation (where I work) proposed, could effectively pick up where the private sector leaves off, filling in the areas that are unprofitable but not enormously costly. A well-targeted program that awards subsidies for whatever technology can cost-effectively provide robust speeds to the vast majority of the country combines private-sector dynamism with government solutions to market failures.
Such a program also shouldn’t provide 100 percent coverage, however nice that sounds. A goal of connecting 98 or 99 percent of the country is much more reasonable considering the cost curve of connecting the most-remote households. New satellite services such as Starlink provided by SpaceX provide a high-performance backstop to those far-flung mountain cabins.
Moreover, the focus of such a program should be on reaching truly unserved areas before considering any speed upgrades. The economic literature is quite clear: The biggest gain from broadband is from getting the most users online, even if at relatively modest speeds, not from bumping up someone’s broadband speed from 25 to 100 megabits per second.
Such an approach would nicely complement the private sector, allowing the engine of innovation and investment to continue, but also provide a backstop in those areas where market forces alone are insufficient. A more targeted program would also cost significantly less — likely less than half as much as the $100 billion proposed.
The choice is not between markets and governments. Rather, government can and should support and build on our current successful, private-sector-led broadband model to finally fill these gaps.