Discussion
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Hume Vance March 11, 2009
There has been a mixed reaction to the Joint Public Meeting held yesterday at the Department of Commerce. Saul Hansell at the New York Times worries that lobbyists are lining up to siphon off program funds in unaccountable ways. This apprehension adds to fears expressed elsewhere that the programs are too large, and the timelines for the disbursement of funds are too short for there to be any chance of the development of a coherent and effective course of action.
I am more sanguine about the prospects. My understanding of the legislative history is that many knowledgeable and smart people gave considerable attention to the question of how much funding could be usefully absorbed over the next two to three years, over and above investments already planned or anticipated by various operators. The final size of the funding reflects considered opinions of experts within the agencies and among interested parties in industry and elsewhere.
There is always the risk that enormous programs like the broadband programs will fail. It is true both that many crucial posts in the agencies are as of yet unfilled. It is also true that many fundamental questions about how to run the programs remain unresolved. However, the presenters yesterday made many points forcefully about several fundamental principles.
- The programs will preferentially fund more advanced technologies that offer faster access speeds.
- Proposals will be scored on efficiency: "biggest bang for the buck."
- The agencies encourage coordination with goals of other parts of the ARRA, especially including transportation
- The agencies interpret a big part of their mandate as to start disbursing funds very quickly
I will comment next on what I see the implications are of these principles.
The men and women who spoke were obviously seasoned professionals. Yes, the tasks are daunting. However, the presenters appeared to fully understand the magnitude of the task ahead, and to be acting responsibly to move the planning forward as expeditiously and at the same time as carefully and comprehensively as possible.
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Hume Vance March 8, 2009
Much of the stimulus is aimed at infrastructure build-out to provide the possibility of broadband connection where little or none exists today. Dave Burstein argues for example that it is therefore preferential to use stimulus money for infrastructure build-out than to subsidize equipment purchases for end-users.
The presumption is that end-user equipment is produced outside the US. This is for the most part true, but it’s misleading to draw the conclusion that this means Americans don’t participate in the production and distribution of such equipment. The phenomenon of the ‘smiley curve’ that describes the profitability of various stages of design, production and marketing of electronic products, suggests that it is a mistake to assume that importation of electronic products benefits foreign workers, and not US workers.
James Fallows describes in the July, 2007 Atlantic how US companies benefit from many products manufactured in China. US intellectual property goes into the front end (design, including chips, form factors, etc.) and the back end (marketing and distribution) of these products. Both of these activities garner relatively high margins; the low margin business is the actual manufacturing that occurs in the middle of this process, hence the smiley face.
http://www.theatlantic.com/doc/200707/shenzhen/7
Current broadband penetration is on the order of 55% of households. The portion of households passed by broadband service is much higher; cable passes over 90%, and DSL about 80%. (See for example
http://www.ntia.doc.gov/reports/2008/NetworkedNationBroadbandinAmerica2007.pdf).
These figures suggest that a program to facilitate access to broadband among currently unconnected households could do so very effectively and inexpensively by subsidizing equipment and/or service to these households.
That is, the goal of the BTOP program is to find “…the most effective and efficient mechanisms for ensuring broadband access by all people of the United States,” as stated in the description of the national broadband plan that the NTIA is charged with developing. If the meaning of “broadband access” includes the concept not just of the physical possibility of connection but also of affordability, then it may be that a way to reach many households is through equipment and/or service subsidies as mentioned above.
No doubt there are regions that will benefit from broadband infrastructure build-out. In other regions, broadband rates should possibly be increased beyond what the Telcos and MSOs are planning to provide. Possibly a high minimum connection rate should be established. In other countries like South Korea and Japan, for example, current residential offerings are in the range of 100Mbps. And there’s no question that build-out of infrastructure employs large numbers of Americans. But it seems to me that equipment and service subsidies should also be included prominently in the discussion of how best to meet the goals of the ARRA.
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