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CHAPTER V - Investment in Access and Inclusion

A large portion of the proposal on investment aims at inclusion and seeks to target areas that need better connectivity. One idea built on FCC Chairman Ajit Pai’s Gigabit Opportunity Zone proposal. The specifics of Chairman Pai’s proposal, whose broad goals are to create incentives for broadband deployment and encourage local government to streamline regulations that may inhibit broadband deployment, are as follows:

  • To be eligible to become a Gigabit Opportunity Zone (GOZ) an area’s median income could be up to but no more than 75% of the national median income;
  • State and local lawmakers must adopt policies (e.g., regarding access to rights-of-ways and utility poles) that are friendly to broadband deployment;
  • Significant tax incentives would be provided to spur private investment in gigabit capacity networks, and;
  • Tax credits in an amount that offsets the employer’s share of payroll taxes would be provided to entrepreneurs who create jobs in these zones.

The group sought to build on the ideas underlying the Chairman’s proposal by recommending:

  • Pilot programs whereby communities commit to a plan to improve broadband deployment;
  • Demand-side initiatives to increase broadband adoption in targeted areas to 80%.

The pilot program proposal, as Julia Johnson described it, revolves around the federal government funding five pilot projects (in cities) per year over a period of three years. This comes to a total of 15 pilot projects. Funding levels would be $500 million per year (or $1.5 billion over the three-year life of the initiative). Applicants would be cities, but the notion is that cities assemble a community-wide coalition to submit the application, a coalition that would include entrepreneurs, internet service providers, local non-profits and educational institutions.

Applicants must submit a three-year plan that aims to:

  • Extend broadband build-out with an identified internet service provider (ISP) or other provider. The provider must commit to obtaining 80% of community subscribers at the end of three years.
  • Improve the digital readiness of the community by identifying community partners or educational institutions to provide digital literacy and tech job skills training for existing residents so that residents benefit from the investment and increased opportunity.
  • Attract new businesses, or expand existing local businesses, via tax credits or other incentives on the condition that businesses agree to provide or fund job skills training, internships and employment targets for community residents.

A key underpinning of the idea is to catalyze collaboration across different parts of the city. Applicants should bring together a wide range of the community, from entrepreneurs to established businesses to community groups. There should be a focus on outreach to minority and women-owned businesses, economically disadvantaged businesses, as well as disabled and veteran owned firms. Part of the expectation is that the entities involved in the application will provide services to city residents digitally and with a plan to engage populations that may have reluctance in embracing these services. City governments, for instance, have an interest in encouraging people to communicate and transact with them online, so do many financial institutions who would likely be important parts of the coalition that develops the application. Finally, the application should include a plan to remove local barriers to deploying new infrastructure by modernizing local permitting rules to leverage private investment.

Applicants must also build into their plans ways to change community outcomes, like rates of employment or educational attainment, not just build new or faster networks. The goal is not only to attract new investment to an area, but also to ensure that the existing community benefits from the expansion. The community as a whole should have the potential for improved digital skills and high home broadband adoption rates. These skills are intended to translate into greater economic opportunity and higher incomes for all segments of the community.

Stimulating Demand for Broadband. The other part of the picture is stimulating demand in target areas for broadband service and its uses. Lack of broadband adoption at home follows expected patterns whereby lower-income Americans are far less likely to subscribe to broadband at home than more well-off ones. Just more than half (53%) of households whose annual incomes are $30,000 or less have broadband at home; for homes whose annual incomes exceed $75,000, some 93% have broadband. In particularly poor neighborhoods in some U.S. cities, broadband adoption rates fall below one-half of households. To narrow these gaps, the federal government should, as part of a national infrastructure plan, establish a fund that addresses broadband affordability for targeted neighborhoods, facilitate access to devices for online connectivity, and provide resources for digital skills and information literacy training. The funds could go to “model digital communities” that have removed barriers to deployment of broadband infrastructure.

In the context of the pilot programs described above, this demand-stimulation notion could be part of the plan communities submit as part of their application for funding. This would bring community anchor institutions into the community-wide coalition for improving broadband infrastructure and adoption. Anchor institutions could provide digital skills and information literacy training and serve as “demand aggregators” to help distribute vouchers to those eligible for them that would defray the cost of service.

Participants deliberated over which agency would have jurisdiction over this proposed program. Chairman Pai’s GOZ program argues that any new funding for broadband infrastructure should be managed by the FCC, not the National Telecommunications and Information Administration (NTIA) in the Commerce Department. Larry Irving, a former NTIA Administrator, said that having the FCC manage a grant program could present problems. First, it would put the FCC in the position of giving grants to companies that it regulates. Second, it is unclear whether the FCC has the capacity and expertise to manage a grant program. Finally, based on his experience, it is helpful to have a Cabinet official who can advocate for a grant program in, for instance, budget discussions. The head of a regulatory agency is not in a position to do that.

Investment in Rural America. Rural America is also in need of investment connectivity. Such areas garner special attention because the quality of networks in parts of rural America suffers in comparison to networks in more densely populated areas. Home broadband adoption rates also lag the national average in many rural areas.

In considering ways to improve rural broadband infrastructure, conference participants debated about whether there is truly a “rural broadband crisis.” Wireless provides coverage to nearly every corner of the continental United States at speeds sufficient to carry out online tasks, argued Reed Hundt. There was, however, disagreement about this proposition. One participant said that 4G wireless speeds may not be fast enough for use cases in education or health care—although Hundt responded that he thought 4G would suffice for those uses. Arun Palakurthy pointed out that software developers create applications aimed at the 90% of American households who have wireline broadband speeds that will always exceed wireless. Grace Koh of the White House National Economic Council added that wireless speeds are not likely to be sufficient for economic development in rural communities. Roslyn Layton pointed out that advances in network speeds significantly outpace consumer adoption and that there is a difference between the political desire for ubiquitous fast networks (of which there is abundance) and the economics of ubiquitous buildout (for which there is a scarcity of funds).

As to the means for allocating funds, participants settled on the reverse auction as the proper mechanism for investment. This method is in its early stages of use at the FCC, with the Commission having announced in September 2017 that it would devote $198 million over the next 10 years to auction to eligible carriers in geographic regions that meet certain criteria.i Rather than support the financial ability of carriers to build networks in areas expensive to serve through financial models regulators create or price-cap regulation, a reverse auction allocates dollars from the Connect America Fund by asking qualified carriers to bid on serving certain areas. With enough carriers bidding on particular locations, a low-cost bid emerges that covers buildout of the network at a cost determined by the market, not the government.

Participants noted successful reverse auctions require careful thinking on the rules that structure them. The rules on who can participate are crucial, as Rebecca Arbogast pointed out. Enough carriers must be eligible to ensure that robust bidding can make the auction mechanism work. It is also important that public funds be devoted to fund network deployment, not operating costs for carriers managing the networks.

Finally, participants noted that an important underpinning for their proposal is improving data collection about broadband. A strong recommendation was to gather accurate data on topography, middle-mile infrastructure and its proximity to unserved areas, and places (preferably at the neighborhood level) where home broadband is low. Additionally, as the FCC’s Wayne Leighton said, the government would benefit from having the same knowledge base on the industry as the private sector. Many participants said research firms that typically have Wall Street clients have excellent data, and that this should be shared with government officials where appropriate.


i Those eligible to participate in the reverse auction are price-cap carriers that have declined model-based financial support, extremely high-cost census blocks (with exclusions in some states), and other census blocks removed from model-based support. To remain eligible, a census block must not have service from an unsubsidized carrier or price-cap carrier that offers at least 10 Mbps down and 1 Mbps up service. See: https://www.fcc.gov/connect-america-fund-phase-ii-auction.

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