The Barack Obama US stimulus package includes a $10 billion investment in the provision of broadband for Americans, based loosely on three ideas, to get broadband to areas which don’t have any, to increase speeds in existing broadband networks and to get more homes to take the service.
This is a telecom and cable operator’s dream ticket to rampage through the US community upgrading lines using government money, in the sure knowledge that no rival will ever be able to afford the requisite spend to bring the same level of service to the same community ‘ unless they also use the same Barack bailout fund at the same time.
While the precise conditions in terms of employment levels, future retained employees, service pricing and how the process of applying for the funds will work, are not yet set in concrete ‘ some of the richest businesses in America, which are perhaps also feeling the smallest impact from the recession, are set to engage in a land grab for the remaining unconnected US homes.
The reason for this $10 billion in government money, part of the $825 billion package to get the US up and working in the face of the recession, is ostensibly because capex by telecom and cable companies in the US is expected to drop by 10% or more in 2009.
The target are the 10 million homes which are not within reach of an affordable broadband service and any homes which are still getting less than 3 Mbps in their broadband – and the way the new government wants to get them there is to offer tax breaks on providing faster broadband, accompanied by a system of direct grants. The services can be set up with either wired or terrestrial wireless.
This is all revealed in a paper from the Information Technology and Innovation Foundation (ITIF) a think tank to come up with ideas on how to bring advanced technology to the US. It is widely viewed as the document that will form the basis for Obama policy on the subject.
ITIF wants a process of incremental tax credits. It suggests a 20% tax break to build networks which offer 20 Mbps and 40% for investments supporting speeds of at least 50 Mbps.
There is a danger that the urgency with which Obama needs to act, could end up providing little more than bribes to the big carriers, for AT&T to carry on building out Project Lightspeed, the infrastructure behind its U-Verse IPTV push, at the same speed as prior to the recession; for Verizon to carry on building out FiOS in the same way; and for the cable companies to rapidly deploy DOCSIS 3.0. The same funds might be used for the wireless operations of AT&T and Verizon, building out HSDPA and EV-DO rev3 into communities only currently served by smaller cellcos, which have not invested in the latest data technologies.
There is always a downside to government interventionist money, and Obama cannot be fussy here, he needs to create jobs and fast, in order to right his economy, but the likelihood is that the companies most able to fill in the forms and apply for that money are likely to be the existing US giants.
So while he and other politicians perhaps imagine they will be empowering local incumbent telcos who currently support outlying communities, what may end up happening is that where the Bush administration left off openly supporting big business, the Obama administration may inadvertently find that its new urgent needs force it down the same path.
The devil is in the detail and we can’t speculate on that right now as it’s still being ironed out. If local telcos get their act together and deploy upgraded broadband plant, it will make them more competitive with the major RBOCs, but at the same time make them better takeover targets. The same applies to local rural cellular operations. But that is far preferable to a scenario where AT&T take on-board government money to invade the turf of these smaller businesses.
Operations like Clearwire provide the best investment opportunities for this money, in that after its build out is complete, it will provide competition to the RBOCS and therefore afford some price protection to rural broadband users.
There will no doubt be some brand new grand schemes thought up by the ‘free broadband for the world’ brigade, to be funded entirely from this policy change, and perhaps we will see the same old tired scenarios that we saw when municipalities imagined they were going to offer free wi-fi to wide ranging communities. Free services rarely attract serious business people so hopefully the new administration won’t be fooled into going down that route.
In fact Obama’s packages are best in the hands of big business, but unlike the last administration, should be offered in an open handed manner to everyone that is prepared to get behind the spirit of the investment, rather than attempt to get around that spirit.
The ITIF reckons that this money can create up to 500,000 jobs, which needs a big stretch of the imagination to believe. The logic is explained in the ITIF paper and relies on the idea that the up front investment would create 64,000 direct jobs made up of frontline technicians hired to install broadband, plus additional back-office staff. This takes up about 45% of 50% of the cost of deployment, and the rest is spent on fiber optic cable, routers, servers, switches, and related computer equipment, which in turn creates jobs, estimated at 166,000, of what the ITIF calls indirect and induced jobs, taking the total to around 230,000. These people then all spend their new hard earned wages, and that more than doubles the number upstream in the economy. This last calculation comes from accepted economic models of employment creation, so let’s just assume that’s more or less accurate.
If Obama pulls this off he is a genius, but most importantly he is already making a name for himself as a pro-active President, and action, any action, is better than sitting around bemoaning the state of affairs, and the effect of half a million people, earning pay packets which they know will last out the recession, and spending it without fear of going bust, may also have a multiplier effect on the overall US economy.
But the outcome for the broadband economies will rely almost entirely on how shrewd negotiators are, and how they carve up the various parcels of broadband upgrades and police the spending, so that we don’t all shrug in a year’s time and ask, as was asked over spending in say Iraq, ‘Where did all the money go?’ and ‘how come it didn’t create any jobs.’