Late last week, the National Telecommunications & Information Association and the Department of Agriculture’s Rural Utilities Service announced the rules for doling out the second round of broadband stimulus funding – totaling $4.8 billion. The Notices of Funds Availability (NoFA) contain significantly different rules from the first round funding restrictions.

As many trade publications have noted, the new NoFAs make it much easier to qualify for funding. However, while the agencies argue that the new rules make it easier to target specific priority areas, the more likely scenario will see government funds being used to subsidize competition with existing providers.

Previous rules that would require applicants to provide service in underserved and unserved areas, have been seriously relaxed in the second round. In some cases, the un/underserved requirement was changed, in others it was outright eliminated. NTIA, for instance, has gone from having an un/underserved requirement, to simply making that a factor in scoring – thus allowing grants to be issued in urban areas or areas with existing providers to subsidize competitors to existing businesses.

Closing Time At The Pub

To make a point, I often find it’s easier to draw analogy. Let’s say the pool of broadband providers are patrons in a bar, and NTIA and RUS are a single guy. They’ve spent all night waiting for the perfect woman to arrive, but she hasn’t wandered into the place. It’s now getting close to closing time, and they’re looking for a last call hook up.

Now granted, the NTIA and RUS have a Congressional (and Presidential) mandate to spend the $7 billion dollars originally allocated for broadband stimulus. The guy at the bar has a baser drive propelling him. But they have the same basic problem.

By lowering their standards to include served and urban areas, NTIA/RUS have conceded that there simply aren’t that many places where broadband is unavailable, and few companies wanting to invest in them.

RUS, under the first round, had required grant prospects to a) serve remote areas and b) take a 50/50 grant/loan combo. By changing the grant/loan split to 75/25, RUS recognizes that providing broadband is terribly expensive and there simply aren’t a lot of people willing to make that kind of investment. By also reducing the remote area requirement, they have taken away the incentive to target areas where those funds are needed, and allowed them to be applied in areas where they’re not.

As another example that demonstrates these lax rules and underwriting of competition, the NTIA explanation of its “Comprehensive Community Infrastructure” effort will underwrite upgrades to existing service. The scoring criteria for the CCI plan includes a factor that accounts for public-private partnerships, but doesn’t require them where available.

As an example of why that’s a bad idea from a free market perspective, let’s look at one scenario. Telco X provides a connection of 5 Mbits to a community hospital, but they offer a service up to 100 Mbits, which the hospital has not taken up. Rather than partnering with the existing ISP, the city submits a grant application to contract for it’s own provision of service at the same speed. Because there is no requirement to partner with the telco, the government has just put the taxpayer on the hook for a service the private sector could have provided.

Is This A Good Use Of Taxpayer Funds?

Broadband is important to our daily lives. Getting America connected should be a top priority to be sure. However, using government funds to compete with private business undermines the market. As many have argued, the best use of public funds is to reach areas where private companies, due to cost, are simply unwilling to go. Changing the grant/loan split was move in the right direction as it put more money into directly building in these areas. Taking away the requirement that those areas be served negated that wise move.

The question we should be asking now is simple. If government couldn’t find applicants willing to serve the areas that need broadband, is it a good use of taxpayer dollars to simply give them away?

Given the exceptional cost of the economic stimulus, and the staggering deficits we’re now running, it would make more sense to put $4.8 billion back into the nation’s coffers. The net cost of $4.8 billion is the equivalent of $16 being contributed by every man, woman and child in the US. It may not be much, but adds up when combined with the mortgage restructuring funds that have gone unspent, the bailout dollars that may never be recovered, and the out of control spending in Washington.  The government should do the fiscally responsible thing and not spend the money.

I would ask that Congress rescind the order to spend that $4.8 billion dollars if it means the government will tip the playing field by underwriting competitors. Apply the money to the deficit/debt, or simply throw a giant party. At least that way we all have a chance to go home with the last call hookup.