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Digital Divide

Get ready for the golden age of corporate welfare in telecom

The US government is preparing to release tens of billions of dollars in subsidies into the telecom industry in the coming years. That spending will be on top of the billions it has already doled out to fund construction of new networks in rural areas and make existing networks more affordable for low-income Americans.

Companies like AT&T and Charter Communications have made plain their desire to go after money from NTIA's $42 billion Broadband, Equity, Access, and Deployment (BEAD) program. This raises the notion of taxpayer money going to some of the biggest companies in the US, which could create the potential for massive corporate welfare.

'An opportunity for growth'

"I would expect that AT&T is going to be an active participant in that [government funding] process," AT&T CEO John Stankey said at a September event, though he noted that the funding might only provide half the money needed to build new fiber networks into rural areas of the US. Operators like AT&T – or investors – would have to provide the rest.

"We're committed to being part of the solution for rural broadband," Charter CFO Jessica Fischer said at a recent investor event. She also acknowledged that government funding in most cases won't cover the full cost of constructing telecom connections in rural areas.

However, Fischer said, "we think that we can build a lot of those [fiber] passings and make a return on them ... In the long term, that will be – that will drive good growth for the company."

Charter's CEO Tom Rutledge agreed. "That's an opportunity of growth for us," he said in discussing government subsidies at a separate investor event.

Big and bigger

In fact, according to the financial analysts at New Street Research, "there is now activity in the states that suggests the incumbents are the major beneficiaries of funding." They pointed to recent state-level funding projects that have favored some of the country's biggest telecom companies, such as $51 million for Charter in Ohio and $22 million for AT&T in Louisiana and Indiana.

"We see no evidence that the non-traditional providers ... are gaining any material traction with the states," they added.

(Source: Pixabay)
(Source: Pixabay)

The phrase "corporate welfare" first popped up in the 1960s and has often been applied to government subsidies considered excessive, unwarranted, wasteful or otherwise inefficient. Several officials and executives in the US telecom industry believe it's a phrase worth discussing again.

"We ought to be asking the hard questions about corporate welfare," said Harold Feld, a top official with public interest firm Public Knowledge and a frequent speaker in the US Capitol. He said that the BEAD program, which may begin distributing state-level funding next year, needs to be carefully managed to avoid inefficiencies and waste. For example, regulators will need to keep close tabs on companies that receive funding from the program to make sure they follow through on their commitments.

"On the other hand, we shouldn't be writing this off as a boondoggle just yet," Feld said.

Others expressed similar viewpoints.

"The larger operators are well positioned to take advantage of some of these opportunities," said Claude Aiken, an executive with fixed wireless Internet provider Nextlink and the former head of the Wireless Internet Service Provider Association (WISPA) trade group. Nextlink has received hundreds of millions of dollars in government subsidies through previous funding programs like CAF II and the Rural Digital Opportunity Fund (RDOF).

Aiken said he's worried that the extensive requirements surrounding the NTIA's BEAD program could effectively exclude everyone but the biggest telecom providers. He said companies hoping to get money from BEAD must file detailed plans for how they plan to handle labor, climate change and financing issues related to their network buildouts – a tall order for companies with just a handful of employees.

But Aiken stopped short of putting the situation under the umbrella of "corporate welfare."

Accountability, reliability and bribery

"Is it corporate welfare? I think you could say, 'Yes'," said Christopher Mitchell, director of the Community Broadband Networks Initiative with the Institute for Local Self-Reliance (ILSR) in Minneapolis. He said most BEAD funding will likely go to big telecom companies.

"I think that's a major failure," Mitchell added. "I think we're setting up the next generation of problems."

Mitchell explained that building telecom networks in rural areas is just a first step. Those networks then must be suitably maintained and made available to residents at affordable prices. For example, fiber networks can sometimes be more difficult to maintain than older copper networks.

"There's a lot of other problems that will creep up around reliability and affordability that will be tomorrow's headaches," he said.

Analyst Doug Dawson, with CCG Consulting, has voiced similar concerns. "Perhaps the biggest fear about big telcos building rural fiber networks is that we'll see a repeat of the past," he wrote recently. "They will build the new network as funded. But if the telcos don't hire enough technicians or cut corners on maintenance, the fiber networks will deteriorate over time."

Indeed, a recent report from The Markup found that AT&T and other big telecom companies routinely provided slow services in low-income areas immediately adjacent to areas with higher incomes, where they provided faster services.

"Any suggestion that we discriminate in providing Internet access is blatantly wrong," AT&T spokesperson Jim Greer told the publication, noting that AT&T provides inexpensive services to low-income Americans through the Affordable Connectivity Program (ACP). That program is designed to provide telecom services at lower prices via federal subsidies.

But that's not the only potential example of big telecom's malfeasance. For example, AT&T recently agreed to pay a $23 million fine after funneling $22,500 in payments to a powerful Illinois lawmaker, in order to influence telecom legislation in the state.

Public-private partnerships

For their part, Mitchell and the ILSR promote community broadband. Mitchell argued that it offers a better model for bringing critical broadband connections to rural areas. He pointed out that electric co-ops have successfully used the model to bring power to virtually every corner of the country.

As noted by a recent Bloomberg article, AT&T believes it may have found a hybrid approach to the community broadband model via its latest public-private partnerships. CEO Stankey believes in the approach strongly enough that he recently took AT&T's private jet from the company's headquarters in Dallas to attend the groundbreaking of a $39 million network expansion project in Evansville, Indiana.

According to Bloomberg, Evansville may be a showcase for how AT&T might work with local governments.

"You have to have a relationship," Stankey told the publication. "The county commissioners have been very enthusiastic, and with our investment commitment combined with public funding, we have a model I think we can take to many more communities."

Bloomberg also reported that AT&T will soon announce a bigger plan to build fiber networks outside its traditional wireline footprint. Already the operator has tested the effort with expansion into a suburb of Phoenix.

On its webpage promoting public-private partnerships, AT&T argues that it specializes in "quality, reliable and secure networks," using a union-friendly workforce alongside funding for community centers and telecom services for low-income Americans.

Left unsaid on the webpage was the fact that local governments also wouldn't have to take on the challenge of managing their own networks under a public-private agreement with AT&T.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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