TMCnews Featured Article

December 17, 2009

First Broadband Stimulus Funds Awarded

By Gary Kim, Contributing Editor

The first broadband stimulus grants and loans – about $182 million worth – finally have been awarded. Middle-mile and wireless projects, a computer center and one fiber-to-the home project are among the initial awards, the Associated Press (News - Alert) reported.
Of the first six projects, only two directly address construction of additional access facilities for user homes. Three construct middle-mile regional fiber networks while one builds a library computing center.
The initial disbursements might suggest that faster broadband rather than new broadband is a major emphasis of the National Telecommunications and Information Administration program, while the Rural Utilities Service awards might tend to lean towards new access facilities rather than faster broadband.
A $33.5 million grant was awarded to the North Georgia Network Cooperative for a regional optical fiber network – backhaul – to support connections to the northern Georgia foothills of the Appalachian Mountains. The project will serve an eight-county area with a population of 334,000.
A $25.4 million grant was given to the Biddleford Internet Corp., a partnership between the University of Maine and service providers, to build three fiber-optic rings across rural Maine. The network will pass through more than 100 communities with 110,000 households and will connect 10 University of Maine campuses. Again, backhaul is the emphasis.
A combined grant and loan of $2.4 million was made to the Consolidated Electric Cooperative in north central Ohio to build a 166-mile fiber network that will be used, among other things, to connect 16 electrical substations to support a smart grid project.
Other projects receiving funds include a 4G wireless network to be built by an Alaska Native Corporation in southwestern Alaska, a fiber-to-the-home project in a remote corner of New Hampshire and computer centers for 84 libraries in Arizona.
Some observers seem to have thought the stimulus program would change quite a lot, though recently more have suggested it isn't enough. Both observations miss the point.
Like the rest of the stimulus funding, the awards were only meant to help shore up the economy. They were not meant to alter in any fundamental way the normal capital investment priorities of the firms that actually build most communications infrastructure in the United States.
The major U.S. carriers spend about $50 billion every year on capital investment. No one-time injection of roughly $3.5 billion in one year, followed by $3.5 billion in the subsequent year, was going to make much difference in terms of actual new end user facilities.
It will help rural providers to some extent. But rural providers serve less than 10 percent of all U.S. communications customers, and perhaps half of that, possibly five percent, are customers in very-rural areas where the cost of wired access facilities is highest.
Even a larger program would have been able to affect a small percentage of all U.S. connections. And, as researchers at Insight Research Corp (News - Alert). recently pointed out, the difference between availability of facilities and use of facilities is caused by lots of things other than the availability of broadband access networks.
Lack of perceived relevance, non-ownership of PCs and household income, for example, are what keeps millions of people from buying broadband access service.
It is not the absence of facilities which is the problem. It is the relevance of the service for people who do not use the Internet, do not use computers, cannot afford service, use smartphones for their Internet access or rely on public or work-based access instead of using the Internet at home.
Insight Research President Robert Rosenberg, for example, points out that 30 million U.S. households do not own computers. That means 25 percent of U.S. homes do not have a reason to subscribe to any Internet access service.
About 12.5 million U.S. homes still use dial-up, and the vast majority said they do so, rather than buying broadband, on purpose.
Depending on what assumptions one makes about U.S. housing units--such as how many units there are, how many are occupied, and how many are occupied full time--perhaps 36 percent to 38 percent of U.S. homes actually are not 'in the market' to buy broadband access services.
If every U.S. home that was occupied full time, and owned a computer, used broadband, that would mean 100 percent penetration at about 64 percent of U.S. homes, or about 75.4 milliion homes.
By Insight Research's estimate, there were about 60 million U.S broadband homes in 2008. Given the steady, if not spectacular growth of new broadband connections, it is likely we already have surpassed 80 million homes, and might be up to as many as 86 million U.S. homes buying broadband, by the end of December 2009.
In other words, we already have reached 100 percent penetration of occupied U.S. homes with computers. The other issue is what lower-income households will do. And in many cases, those users seem to be making a rational choice to use mobile broadband from their smartphones instead of buying a fixed broadband connection.
Those homes do not own computers, prefer dial-up, or are not occupied full time, which means there is less value to a permanent broadband connection.
The point is that the broadband stimulus program, which is temporary, is going to do some good, but will not actually result in much additional broadband penetration.
The total broadband stimulus program will spend $7.2 billion for broadband projects, including $4.7 billion to be awarded by the National Telecommunications and Information Administration and $2.5 billion to be awarded by the Rural Utilities Service.
But the likely result is more backhaul and middle-mile projects that enable faster broadband, rather than any significant change in the total number of broadband access connections. It is one thing to build facilities. It is another to convince a household it needs to buy broadband.
For the most part, households that want it, already buy it.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Kelly McGuire