Fight brews over how to build a better Internet

The stimulus bill has $6 billion to expand broadband access. But who can do it soonest vs. best?

America, where the Internet was invented, has fallen behind many European and East Asian countries in Internet speed, cost, and reach.

Roughly 10 percent of US households have no access to a high-speed, or broadband, data connection. Barely 3 percent have fiber-optic connections capable of delivering high-speed data that future industries are expected to rely on. While countries like Sweden are wiring themselves up with the next-generation Internet, the US is making do with a network roughly on par with Iceland.

So a $6 billion effort to upgrade America’s Internet – part of the stimulus package Congress is trying to pass – would seem a political slam-dunk. The US stimulates its economy right away with projects that would pay dividends well into the 21st century.

Unfortunately, it’s not that simple. Stakeholders are at odds over whether it’s more important to quickly stimulate or wisely invest, to get the most speed from federal bucks – or the most bang.

That tension, inherent throughout the $825 billion stimulus package, is especially acute in broadband development. Congress is sympathetic to reformers who see this as a chance to inject more competition into the market, even if that means relying less on big companies that could quickly lay new fiber-optic cable.

“The goals of getting the most broadband built in 2009 and early 2010 are in conflict with the goals of layering up the process with a number of reform proposals,” says Rob Atkinson, president of the Information Technology and Innovation Foundation (ITIF).

Few dispute the importance of upgrading America’s Internet. Slow connection speeds are delaying advances in everything from remote video-conferencing to telemedicine to technologies and new industries not yet invented.

There’s also consensus that broadband investment brings jobs. Put $5 billion into broadband expansion and 100,000 new jobs in telecom and information technology materialize within a year of the money being spent, according to the Communications Workers of America (CWA), using data from the Department of Commerce. Once built, the economic gifts keep coming: Every percentage point increase in broadband penetration raises employment 0.2 to 0.3 percent, according to the Brookings Institution.

Who should get the money?

The key question is how to do it.

If Congress wants speed, it should turn to the big players. Large telephone and cable companies, which employ most CWA members, could move quickly with tax incentives, particularly to upgrade the speeds of existing networks.

“You need big projects, and you need to leverage private capital,” says Debbie Goldman, the CWA’s telecommunications policy director. She says she fears the money would go to small entities that don’t have the resources to operate the network.

Indeed, Congress appears to be taking a slower, more considered approach. Under the current House bill, all the spending will be allocated through project grants rather than tax credits that large companies favor. The CWA and others contend that the grant system won’t get going for another year whereas tax credits would jump-start projects immediately.

But nonprofit groups, small businesses, and municipalities that provide Internet service in underserved areas need grants for the upfront costs of laying fiber-optic cable.

Public-interest groups are cheering the House approach since it could open the nation’s networks up to competition from these smaller groups. It also signals lawmakers’ willingness to focus money on bringing broadband to new places.

“Giving tax breaks to these big carriers to build out into these areas where their business models don’t work – it’s not a good long-term investment for them or for us, the taxpayers,” says Wally Bowen, who runs a nonprofit community Internet service in Asheville, N.C. Besides, he says, big companies don’t have shovel-ready projects in areas like his.

Small, local entities may also do a better job running a network and helping customers since their engineers are local, not in distant call centers in India, he adds.

When Mr. Bowen first began offering dial-up Internet more than a decade ago, it saved Spring Creek, an isolated valley in the North Carolina mountains. Residents sold goods worldwide via eBay and took advantage of other online business opportunities. And telecommuting brought new residents to the area.

A stimulus with strings

The broadband stimulus package requires that networks built with grant money meet minimum speed thresholds and allow open access – that is, let other providers use the lines.

“The underlying principles of the recovery package are that it goes very quickly in the short-term but it also is an investment in the long term to be built upon,” says Rep. Anna Eshoo (D) of California. She calls the bill a “down payment,” with initial investments structured to ensure there’s no “disconnect with the future.”

Such provisions are anathema to large companies. They don’t want other companies piggybacking on their lines and the mandated speeds are too high to justify commercially, says Ms. Goldman of the CWA. Most companies won’t even bid under these rules, she adds.

In Bowen’s region of western North Carolina alone, though, a handful of scrappy nonprofits and cooperatives have $26 million in shovel-ready broadband projects. Such backlogs among smaller groups suggest some projects could happen quickly without big companies.

“There are lots of folks out there who are ready to make investments that have been constrained by lack of capital and those folks are people who are ready to go right now,” says Drew Clark, editor of BroadbandCensus.com, an online industry journal. Grants and tax incentives are just “different ways of rewarding different types of investment.”

There’s no reason the US shouldn’t do both, argues Atkinson of the ITIF. The two funding mechanisms come from different government coffers, so legislators wouldn’t have to cut into grants to add tax incentives.

Six billion dollars is too small, says Atkinson. “We’d have to invest $30 billion to get to the same level [of broadband penetration] as the Swedes.”