Efficacy, Timing of Broadband Stimulus at Issue for Experts, Economists

WASHINGTON, February 11, 2009 – The economic stimulus legislation entered conference negotiations Tuesday afternoon after the Senate voted 63-37 to approve its version of the massive bill.

But as lawmakers from both the House and Senate met to reconcile differences between the two chambers bills, the broadband stimulus provisions were the subject of fierce criticism by a panel of economists at the American Enterprise Institute.

The broadband package that comes out of conference will probably undergo “lots of changes” before it reaches the President’s desk, said the Brookings Institution’s Robert Crandall. And the provisions may not even be necessary, he said. Crandall cited a Pew study showing that while 55 percent of Americans have broadband service, the other 45 percent chooses not to subscribe to such services.

The technology that would be deployed by the stimulus funds, a combination of tax credits and grants, might be obsolete in a rapidly changing environment, Crandall said. In particular, Crandall was skeptical of the program’s goal of expanding access to rural areas – a practice he compared to the longstanding policy of subsidizing rural telephone service.

There is “almost no economic analysis” on whether such universal service programs work, he said, citing a Stanford University study  that found higher costs for phone service in rural areas that received subsidies compared to urban business services. The results of getting more rural users on board would probably amount only to “marginal effects,” he said.

Crandall suggested that tax credits would better allow the market to determine where more broadband is needed while still encouraging build-out. “I see little reason to provide targeted subsidies for broadband services,” he said.

While broadband’s role in the economy is undisputed, New York University professor Michael Katz said it had no place in the stimulus package. Broadband deployment’s long lead time makes it inappropriate for an emergency measure, he said. “It’s a mistake [broadband] is being thrown into the bill and rushed through with no time to think about it.”

Katz noted that many companies are already building out their broadband infrastructure and questioned both the subsidies and tax credits. We shouldn’t pay companies to do what they were doing anyway, he said, adding that he doubted broadband would have any “immediate” stimulus effect of was even an appropriate stimulus measure. “There a lot higher social value programs we could be doing. This is more about lining pockets of rural telcos and rural landowners, and this sure as hell isn’t stimulus.”

But rushing legislation through Congress is nothing new, said former Clinton adviser Robert Shapiro, who referenced the USA PATRIOT Act as an example. “There is nothing peculiar to this,” he said.

But the stimulus is the “last instrument we have,” since government choices may be more influential for the market when the market is afraid to make any choices on its own, Shapiro said.

Shapiro acknowledged the stimulus programs were not something that would be appropriate in a normal downturn, or one in “the absence of a crisis.” But he was afraid that measures passed as emergency stimulus grants would quickly become permanent programs that would only benefit incumbent carriers.

But the idea of more broadband deployment is a good one, said Public Knowledge founder Gigi Sohn. Sohn hoped that the stimulus programs would help make broadband service more affordable to consumers who currently don’t see the value in it for the price. That 45 percent of Americans don’t have broadband service is a “national shame,” she said.

The stimulus programs probably not become a permanent policy, she said. But Sohn strongly advocated some kind of action to increase broadband adoption for all Americans. “We should have a policy so we’re not 15th in the world.”