Government Broadband Deployment Report Card: F

To say that the Internet has grown over the past 15 years is an understatement.  According to Internet World Stats, there were 16 million users in 1995 compared to 1.9 billion users in June, 2010, an increase of 11,775 percent.  In addition, the Internet is much faster as a result of the deployment of broadband, and its uses have also expanded exponentially.

Broadband access, which is generally defined as Internet access with a high data rate, as compared to using a modem, is almost considered a “right” by some government officials.

TheAmerican Recovery and Reinvestment Act, or “Stimulus Bill,”included $7.2 billion in broadband investment money.  This was the Obama administration’s effort to make sure that every household had access to broadband Internet service.

The funding was divided into two pots of money: $4.7 billion for the National Telecommunications Information Administration (NTIA) to issue grants under a new Broadband Technology Opportunities Program and $2.5 billion for broadband deployment through the Rural Utilities Service (RUS).

NTIA’s prior experience in broadband grants consisted of the Technology Opportunities Program, which spent $233 million from 1994-2004 until it was terminated.  That is only 5 percent of the amount now being provided to NTIA, which has to spend it all by September 30, 2010.

The Department of Commerce Office of Inspector General examined NTIA’s $1 billion Public Safety Interoperable Communications (PSIC) program, which had a three-year funding time frame.  The OIG found that the PSIC grantees are unlikely to finish their projects on time; the release of funds was delayed by six to 12 months as state spending plans also had to be considered; and the environmental impact studies, while necessary, further delayed the awarding of projects.

The RUS Broadband Access Program was established by Congress as part of the 2002 Farm Bill.  Its primary goal is to provide loans to help bring Internet broadband service to unserved rural communities, which are generally defined as communities with populations of less than 20,000.

According to a February 12, 2009 Washington Post article about the RUS broadband program, “Since it began 6 years ago, $1.8 billion in loans have been distributed.  Of the 68 projects funded, 21 are nearly complete and about half have not begun.  An Agriculture spokesman could not confirm whether the rural utilities service program has completed any projects.”  On top of this lack of progress, the broadband access program faces management and agenda problems, which are evident given the more than $30 million in broadband loans that have gone into default.

The first problem with the agenda is that the broadband program has lost its focus on serving rural America.  According to a September 2005 audit by the U.S. Department of Agriculture’s (USDA) inspector general, “RUS has not exclusively served those rural communities most requiring Federal assistance to obtain access to broadband technologies. 

Because RUS’ definition of ‘rural area’ is too broad to distinguish usefully between suburban and rural communities, the agency has issued over $103.4 million in grants and loans (nearly 12 percent of $895 million in total program funds) to communities near metropolitan areas… Though the law does not explicitly forbid issuing loans to communities with preexisting service, we question whether the Broadband Loan Program should be providing funds for competition in many of the communities served, while other communities go entirely without service.”

Second, instead of allowing the free market to flourish, the RUS has been subsidizing private companies to provide broadband in neighborhoods that already have service.  The IG report noted “one of the more highly publicized cases, [where] RUS issued loans to a company providing broadband access to affluent suburban communities a few miles outside of Houston, Texas…the subdivisions’ proximity to urban areas also made broadband services available to them through means other than the pilot loan program….We concluded that, in this case, the Government’s loan was not being used to extend service to rural areas that would not otherwise receive access to broadband, but instead to subsidize a company that would have provided the same service without the loan.”

An August, 2010 report by the Government Accountability Office (GAO) noted that there has been lax oversight with the broadband money.  According to GAO, “ To meet the Recovery Act’s September 30, 2010, deadline for obligating broadband funds, NTIA and RUS must award approximately $4.8 billion—or more than twice the amount they awarded during the first round—in less time than they had for the first round. As the end of the Recovery Act’s obligation deadline draws near, the agencies may face increased pressure to approve awards. NTIA and RUS also lack detailed data on the availability of broadband service throughout the country, making it difficult to determine whether a proposed service area is unserved or underserved, as defined in the program funding notices.

The GAO added that “To address these challenges, NTIA and RUS have streamlined their application review processes by, for example, eliminating joint reviews and reducing the number of steps in the due-diligence review process, and NTIA began using Census tract data to verify the presence of service.”

The GAO report confirmed CAGW’s fears that the program was susceptible to problems such as slipping deadlines and a chaotic award system.   Any decisions on how to make the Internet a better tool should be left in the hands of private industry rather than the government.

– David Williams