- Broadband subsidy programs haven’t thought enough about how to “maximize total net benefits” for consumers, said TPI’s Scott Wallsten
- Service providers shouldn’t assume consumers always value higher broadband speeds
- Wallsten urged policymakers to consider “time value” to determine if it’s worth deploying technologies other than fiber
BEAD. The Capital Projects Fund. The Universal Service Fund. These are just some of the many different broadband subsidy programs out there. But they’ve mostly thrown key economic principles out the window, argued Scott Wallsten, president and senior fellow at Technology Policy Institute (TPI).
“Here’s the thing: I believe [broadband] policy has largely ignored economics,” he said at Broadband Nation Expo last week. “And a persistent digital divide is partly the result of that.”
Rather than just focusing on the cost of capital or the cost of laying fiber, he said broadband programs should apply economic concepts to “maximize total net benefits” for consumers and also balance trade-offs between supply, different deployment technologies and what consumers want.
The industry tends to do “a lot of hand-waving” about how important broadband is to participate in society. While that’s true, if service providers assume consumers “always value higher quality, no matter what the baseline is, then you can assume just about whatever you want about costs and think you’re doing the best thing,” said Wallsten.
For example, he said a consumer could consider moving from 1 Mbps to 10 Mbps “a huge value” because it gives them more options on what they can do online. But they may not find switching from a 100 Mbps service to gigabit speeds as valuable if they’re not doing as many bandwidth-intensive activities.
However, operators aren’t just focused on increasing their speeds. They’re also thinking about how to make their networks more resilient from natural disasters and other disruptions. And building in resiliency is expensive, Brookings Institution non-resident senior fellow Blair Levin noted in a separate BBNE session.
“It’s expensive and somebody has to pay for that,” said Levin. “And nobody wants to add cost for the consumers.”
One aspect of cost-benefit analysis that’s “glaringly absent” from broadband subsidy programs is reality that “a dollar today is worth more than a dollar tomorrow,” Wallsten added. This concept is commonly known as the “time value” of money. The White House’s Office of Management and Budget (OMB) calculates the future value of money using discount rates, which account for factors like risk, inflation and other considerations that can affect the value of an asset.
“But for some reason, we just don’t do this with our broadband subsidies,” he said. “Even BEAD, which is supposedly now a 10-year program, doesn’t account for that.”
Calculating the time value of broadband funding can affect how we view different technologies and deployment strategies, Wallsten explained. Delivering some level of broadband to unserved areas quickly “may be more valuable than waiting years for a perfect solution.”
Low-earth orbit (LEO) satellites for instance are changing the game not just for competition but for cost-benefit calculations. They “challenge the very notion of high-cost areas,” he said, because the cost to serve is “essentially the same” no matter where you are.
Of course, satellite broadband isn’t without its trade-offs, Walston added. Though it may deploy faster than a traditional wired network, it can’t offer the same speeds fiber does and capacity is more limited.
Another issue existing broadband subsidy programs have is they “constantly pile on constraints,” with Wallsten referring to the Build America, Buy America (BABA) requirements for BEAD as an example. BEAD also has rules on “the kind of workforces states can use.”
Vendors like CommScope noted last week some of the frustrations vendors are facing with the BABA rules. In CommScope’s case, it’s getting requests for bids for BABA products “on a daily basis,” but the NTIA hasn’t published a list of BABA-certified vendors – yet.
“Each one of those [objectives] comes with a cost, making buildouts more expensive and taking us further from the actual objective of the program,” Wallsten concluded.
