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As was to be expected, criticism of the broadband stimulus programs now includes the city of San Francisco, which says the rules on what an “underserved” area is prevent the city from applying for funds to serve some low-income areas.

 

Christopher Vein, chief information officer of the city of San Francisco says the city has prepared, but will not submit, an application for funds under the National Telecommunications and Information Administration Broadband Technology Opportunities Program.

 

The National Telecommunications and Information Administration, which is overseeing the program, defines underserved as one where at least half of all households lack broadband, or where fewer than 40 percent of households subscribe to broadband, or a place where no service provider advertises broadband speeds of at least 3 megabits per second.

 

Presumably that means some parts of the city would qualify even if the city as a whole does not qualify. But such definitional issues always are part of government programs such as the Rural Utilities Service, which bars funds to communications carriers serving rural areas if those carriers also serve metro areas in a state.

 

There likely are better, and worse ways, to structure the eligibility rules. But no set of government rules can account for all real-world conditions, without inviting significant waste and fraud, in part because a more-granular set of rules would require interpretation of data that either does not exist, or cannot be conveniently analyzed.

 

Also, no set of government rules concerning communications seems to preven arbitrage and gaming of the system. Those of you who have used some "free conferencing" systems know that you dial a phone number in the Midwest, but other than that, the call is free.

 

So how do the providers make money? Arbitrage. Rural revenue settlement rules allow service providers in those rural areas to charge other carriers enough money to terminate long-distance calls that the providers can afford to give away the conferencing services and live off the termination payments.

 

That wasn't really the purpose of the rules. But it illustrates the fact that in a business representing so much money, there is high incentive to find loopholes and take advantage of them.

 

Right now, the eligibility rules for both “unserved” and “underserved” have been criticized as preventing projects that “should” qualify. Those objections seem fair enough. The ever-present problem is that no set of rules, no matter how good, will prevent all arbitrage, all gaming, all waste or fraud.

 

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