Washington Matters

Rural Broadband Access
To Grow, Slowly But Surely

Rural high-speed Internet service is years away and ultimately will require a combination of new phone taxes and billions of dollars more in federal support. Neither will happen easily or quickly, but it’s the most likely policy route Washington will take as broadband stretches into rural and underserved areas in the next decade.

The first step will be taken by the Federal Communications Commission, which is likely to formally propose broadband taxes in February, arguing that the current Universal Service Fee paid by telephone companies and consumers to provide phone service to rural areas should be expanded and funded at a higher rate to cover construction, development and maintenance of rural broadband services.

A broadband tax proposal will spark a fierce battle. Businesses and consumer groups will fight the prospect of higher phone taxes, and deficit hawks will oppose efforts to add tens of billions to the deficit to finance rural broadband connectivity. In the end, though, some combination of the two is likely in advance of actual deployment of rural broadband, a project that will take a decade.

The FCC, which strongly supports rural broadband expansion won’t specify how much of a tax should be imposed, only that a tax should be the primary vehicle to finance rural broadband. Congress would set a tax rate at a later date after a year or more of hearings and comment at the FCC and in Congress.

The goal of ubiquitous high-speed broadband has bipartisan appeal in Washington and remains an important domestic initiative of the Obama administration. Both parties strongly support closing the digital divide and view it as an economic, educational and social policy plus. The extension of broadband into rural areas, such as to parts of the northern Plains, western mountain states and large swaths of southern Gulf states would help encourage business development and online commerce.

But like many large and ambitious national projects, financing is the challenge. Cost estimates for universal broadband connecting nearly all parts of the country vary widely. Leading telecom industry experts put it in the $200 billion to $300 billion range to cover the cost of all the cable, connections, equipment and servicing. The large telecom companies won’t foot the bill on their own, and a variety of tax incentives to spur them or other investors to take on the challenge are not enough. At the same time, a huge federal injection of money to finance nationwide broadband is simply untenable politically and fiscally at present.

For comparison, the economic stimulus bill earlier this year included $7.2 billion to jump-start rural broadband efforts, but telecom giants like Verizon, Comcast and AT&T wouldn’t touch the funds, not only because they were not enough but also because they would come with a host of regulations.

There is bipartisan draft legislation by Reps. Rick Boucher, D-VA, and Lee Terry, R-NE, to expand the scope of the Universal Service Fund to cover rural broadband development, but the legislation will serve largely as a talking point for now while the industry awaits the FCC proposal early next year.

Odds are that some type of broadband tax will be enacted in two or three years along with a commitment by the president and Congress of more federal support down the road. But there’ll be no injection of $100 billion or more in federal money to finance the bulk of the project. Support for such a large federal injection of funding simply can’t be envisioned for now, not with the high deficit, the health care bill, a possible energy bill, rising entitlement costs and the overseas military commitments that are ongoing.

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