Brent Skorup and Michael Kotrous: Modernize High-Cost Support with Rural Broadband Vouchers

Remote work and learning during the pandemic compelled some lawmakers to get creative in expanding broadband availability. In Delaware and Alabama, state officials earmarked parts of their CARES Act funding to create broadband vouchers—monthly service rebates—for households with school-age children.

It’s an established way of expanding telecommunications access. For years, the FCC has disbursed monthly discounts to millions of low-income households through the “Lifeline” program. Voucher programs also have the potential to expand broadband availability and competition in underserved rural areas.

The idea of rural broadband vouchers has circulated for years in U.S. telecom policy. In a Mercatus Center policy brief, we illustrate what a future program could look like. The FCC’s current rural High-Cost programs disburse around $4.6 billion annually to providers in rural areas. However, several problems exist with the current structure.

The existing rural subprograms—at least 11 are active today—have complex eligibility requirements that exclude many providers like rural cable companies, cellular operators, and WISPs. Further, regulators are forced to walk a policy tightrope that gets more difficult every year. Excessive payments, inaccurate broadband maps, and undermining rural providers’ tenuous finances by subsidizing “overbuilding” are longstanding problems with the current programs.

Rural vouchers have many advantages over the current patchwork. We estimate that at current funding levels, the FCC could give a monthly coupon to every rural household in the United States. Some states are costlier to serve than others, and we find that households in the five most-rural states could be eligible for a monthly rebate of $45: Alaska, Montana, Kansas, and the Dakotas. Those in the five least-rural states (such as New Jersey and Rhode Island) could receive $5 in monthly rebates.

Advantages of vouchers over more complex funding mechanisms

A key advantage of consumer vouchers is that they reduce the complexity of funding mechanisms. Current High-Cost programs rely on economic cost models that create huge disparities among and within states and on maps of existing telecom services that do not comprehensively identify unserved locations. A recent study from the Phoenix Center suggests that overstatements of service availability are most acute in rural Census blocks, limiting the FCC’s ability to target support to where it is most needed.

In addition, current High-Cost programs are aimed at rural areas that have zero or one provider. This focus creates inherent, well-known problems: Subsidies disbursed to a monopolist will often have little effect on the deployment of a product, instead covering excessive overhead or simply increasing profits. Meanwhile, in areas where the FCC’s maps are inaccurate and fail to record an existing provider, the agency sometimes winds up subsidizing a different, cream-skimming competitor. This undermines the finances of providers—like WISPs—which already manage to serve the highest-cost households.

With a voucher, households simply choose the internet service that works best for them—whether it’s from a rural cable company, WISP, phone company, satellite company, or their cellular provider. There’s no subsidizing of monopolists and no risk of anticompetitive overbuilding.

Further, a voucher program would also de-escalate the growing controversy in many states about whether to subsidize municipal networks and electric co-ops. Municipal and electric co-op providers would be treated no differently than any private provider—all must compete for consumers’ voucher dollars, not regulators’ subsidies.

A common objection to vouchers is that they can’t induce buildout to unserved areas. We think that problem is exaggerated but can also be mitigated. For one, unserved areas represent a damning indictment of the long-running current programs. The United Kingdom established a rural voucher program a few years back, and it is government policy there that households in rural areas should pool their vouchers together. That reliable stream of revenue induces providers to build out to new areas, including with fiber optics in some cases.

The current problems with U.S. rural broadband policy—imprecise mapping, overbuilding, and wasteful payments—continue to worsen as the number of unserved households shrinks. Congress and the FCC should consider broadband vouchers as an alternative way to encourage competition for subscribers in rural areas while protecting public money.

Brent Skorup is a senior research fellow at the Mercatus Center at George Mason University, member of the FCC’s Broadband Deployment Advisory Committee, and a former member of the Arkansas broadband task force. Michael Kotrous is a program manager at Mercatus. They are the co-authors of the recent policy paper, “Narrowing the Rural Digital Divide with Consumer Vouchers.” This piece is exclusive to Broadband Breakfast.

Broadband Breakfast accepts commentary from informed observers of the broadband scene. Please send pieces to commentary@breakfast.media. The views expressed in Expert Opinion pieces do not necessarily reflect the views of Broadband Breakfast and Breakfast Media LLC.