E-Commerce Companies Should Pay For Rural Broadband

The Wall Street Journal ran a story recently about how promises of broadband aren’t being fulfilled in rural areas, with details how New York State showered hundreds of millions of dollars on telecom companies with decidedly mixed results.

The Journal story came about a week after the Washington Post ran a story about how the novel corona virus is causing a “new urgency” for rural Internet access, in this case in rural Virginia, as people try to cope in their work and school without good Internet connections. The New York Times ran its story on rural broadband in May. There are such stories being covered in outlets great and small all over the country.

They all tell the same story: Under the best of circumstances, trying to work remotely is hard and trying to go to school is harder. But if your internet connection is slow or if you don’t have access at all, you are just screwed. Depending on whose numbers you use, the number of people out of broadband luck can range from 21 million (the FCC’s number) to more than 160 million (Microsoft’s number), with as many as 9 million students having trouble with remote learning.

Having identified the problem is one thing. Proposing some changes to solve it is quite another. The problem is that most of those quoted in the articles want to do the same old thing, just more of it.

If the Covid crisis has shown us anything in the tech world, it’s that a new approach is needed to make sure people get and stay connected. That means a new start on the policy front, and a new approach to paying for the connections.

The policy part should be built around new laws and regulations at the Federal and state levels that enforce universal service in the digital age. Once upon a time, when state regulators set rates for telephone service, telephone companies could be “persuaded” to offer services in an area they didn’t want to serve as a concession for something else. That lever needs to be brought back as part of a comprehensive overhaul that gives federal, state, and local authorities the tools to act in the public interest and ensure connections.

Paying for the program also needs a redo. Legislation and campaign proposals these days are built on the shaky foundation of the FCC’s existing programs.

The pool of money set up by Congress in 1996 to support rural connections is shrinking, while the demand for money is growing as Internet connections through optical fiber are expensive to install. Even now, experts are warning that the universal service fund could dry up because the fund is built around how people used the telephone for long-distance, international and local calls.

In 2018, telephone companies collected almost $8.5 billion, with half of that going to places with high costs to build networks and the rest to schools and libraries and to support low-income customers. The fund, administered by a company set up by the Federal Communications Commission (FCC) has dispersed about $8 billion per year for the past 10 years.

To get the money, companies are supposed to build out their networks. And yet, sometimes they take the hundreds of millions of dollars, don’t build their networks on schedule, and still are eligible to apply for more money.

Most of the companies receiving the money are small, serving rural areas. Yet behemoths like AT&T and Verizon contribute to the program on one hand, and also get support funding on the other. AT&T collected $1.8 billion between 2016 and 2018, the most of any company. Smaller, financially fragile companies like CenturyLink and Frontier also get hundreds of millions of dollars. The latter two got themselves into serious debt, Frontier by buying service areas being sold off by AT&T and Verizon and CenturyLink for buying other telecom companies. The Mississippi Public Service Commission claims AT&T falsified data about its broadband coverage and wants an FCC investigation.

And that isn’t the only source of funding. The government provides hundreds of millions in loans for companies to build their networks through the Agriculture Department. By one estimate, the government has spent $22 billion between 2013 and 2018 to connect rural areas with fiber.

The Internet wasn’t around when the Universal Service Fund was set up. That’s why it’s time for a big, structural change: The companies which benefit from the Internet should pay for connecting those who need to be connected and subsidize those who need help staying online.

The Internet is an interactive network that is now drives commerce. The telephone network did none of that. In order for universal service to thrive in an Internet age, those benefitting from the Internet, those who have reaped great wealth from the Internet, should be required to contribute to bringing everyone online.

By some estimates, it could cost $80 billion to connect rural areas. Those companies, and many like them, have the money to finance the job, even if you look at revenue from selling to consumers and not services to other businesses.

In three months of this year ending Sept. 26, Apple took in $14.5 billion — that’s billion — for selling services like iTunes, App Store sales and the rest, basically anything that’s not a computer or phone.

Facebook’s revenue in the third quarter this year was $21.4 billion. Amazon hit $59.4 billion in consumer sales (for North America only), while Google (Alphabet) during the second quarter of this year collected $46 billion in revenue, which included $37 billion from advertising.

Of course, these companies aren’t the only ones selling directly online to consumers, but they are among the largest and provide some good examples of companies that wouldn’t exist without the Internet reaping big money as a result. You can add in Walmart, Target, and a host of others.

Here’s the framework I imagine. Congress would first have to pass legislation establishing the program and assigning an agency to implement it and setting up a formal process for determining where connections are needed that brings in officials at the state and local levels, who are now not part of the picture.

Internet companies would report their online-related earnings to a Federal agency. It could be to the Federal Communications Commission, the Agriculture Department (which houses rural telecom programs), the Commerce Department’s National Telecommunications and Information Administration (NTIA) or a new entity. The amount of money companies would have to contribute would depend on the amount of their revenue. Perhaps the Internet companies could get some tax benefit for their contributions.

At the same time, the designated agency, working with state and local governments, would list all of the areas that most need the high-speed fiber connections to the Internet. Small, rural telephone companies that normally couldn’t afford to build such networks would be first in line for grants. The companies would submit a plan, with benchmarks, and be responsible for meeting those benchmarks. Otherwise, the money would stop and they would have to repay what they have been given. They would also have to put up some of their own funds.

Today’s support programs could be altered to eliminate the part that subsidizes network construction, leaving more money for subsidizing low-income consumers, as well as libraries, schools and rural health centers as the current law allows.

Having worked around Washington for most of my career, I know nothing is easy. Amazon, Facebook and the rest would bring out their big lobbying guns to make sure a program like this would never see the light of day. If the program were enacted, they would fight the regulations that would have to be written to carry out the law. But it’s a fight worth having.

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Communications consultant, recovering journalist

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