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FCC Announces Connect America Fund Awards

August 2, 2012

In our report, “The Hidden Problems with Government-Owned Networks,” Dr. Joseph P. Fuhr offers alternatives for municipalities considering costly government-owned broadband networks (GONs). Fuhr writes, “If market conditions exist where there is no financial incentive for a private firm to enter, it does not necessarily mean that the only answer to an unserved market is a GON.” Instead, Fuhr says, localities could offer private companies subsidies to encourage them to invest in their area and help bridge final mile costs.

Last week the Federal Communications Commission announced it would begin awarding these sort of incentives through its Connect America Fund, an initiative that will subsidize the cost of broadband infrastructure in rural areas. Since the announcement, local news stories have highlighted how these sort of subsidies will help communities in Illinois, North Carolina, South Dakota, Virginia and Wisconsin. According to the FCC, the Fund will help bring broadband to an additional 400,000 Americans over the next three years and 19 million additional Americans by 2020.

Subsidies, of course, still require a taxpayer expense (the Connect America Fund is expected to cost $115 million), but unlike government-owned networks, they are one time upfront costs versus GONs which often have an ongoing taxpayer subsidy.

Furthermore, subsidies to private networks ensure these dollars go to individuals, groups and companies with the experience necessary to successfully operate a broadband network. As we have noted many times before, GONs fail because government administrators know little about what they’re getting into or how to operate these systems once they are up and running. Like Monticello, Minn. they sometimes underestimate the number of subscribers they will have. Or, like Marietta, Ga., they fail to understand how much money will be necessary to update technology. If they are like Chattanooga, Tenn., they wing it when trying to accurately price their service. All of these miscalculations result in added risk to taxpayers. Those risks are greatly reduced when taxpayer funds go to private broadband operators.

As long as the private sector providers chosen to partner with Connect America have a proven record of quality and profitability, taxpayers can be confident this is $115 million well spent.