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How the Stimulus Package Fails Rural Broadband

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The Senate today passed its version of the economic stimulus plan, which allocates $7 billion for broadband grants and offers tax credits for certain types of deployments in rural areas. The next step is for the Senate and House to reconcile their respective versions of the bills with an eye toward passing the stimulus before the end of the month.

However, in interviews with two different types of rural ISPs — each of which serve a constituency that the broadband portion of these bills are trying to address — both expressed uncertainty over how much the stimulus package will do for rural broadband.

Om interviewed Keith Galitz, of Canby Telephone, a 105-year old telephone cooperative in Canby, Ore., who expressed doubts that his cooperative would be able to take advantage of the proposed grants in part because he doesn’t have staff with grant-writing expertise. He also said there’s more about the process he’d need to learn, as for example there’s currently some doubt over which agency would administer the grants.

But Canby Telecom is not waiting for grants. Galitz estimates he will spend $3 million to lay fiber in the core residential neighborhood of Canby to reach some 8,000-10,000 residents. The ISP has about 8,000 customers and just over 10,000 lines. He thinks $1 million of grant money would allow him to provide fiber to the town’s central business district. With annual revenue of about $14 million a year, Galitz emphasizes that fiber is a big investment for his tiny ISP.

Rather than lay fiber, Brett Glass, owner of a wireless ISP in Laramie, Wyo., has more specific issues with the stimulus package. He argues that with populations spread out as far and wide and they are, wireless is the only way to economically provide broadband. However, wireless ISPs, especially ones like his, which operate in unlicensed spectrum, will be harmed by aspects of the legislation.

Glass criticizes the network neutrality language in the bills, claiming that allowing unfettered use of high bandwidth applications on his network causes other customers to have slow or dropped connections. He does sell a service for those wanting to use P2P networks, but needs to plan for such usage in the network because it’s shared among so many people. He also needs to charge those users more for the backhaul to the web, which he buys from other carriers.

His other issue is a little bit more arcane, and has to do with who will administer broadband grants. One of the proposed agencies is the Department of Agriculture Rural Utilities Service, which could seek to administer them under a program that doesn’t offer grants to sole proprietorships. Glass says he can’t afford to pay the fees and take the tax hit that would come with incorporation, leaving him unable to take advantage of those funds.

Rural providers seem concerned that large carriers and cable companies will be able to take advantage of this legislation, while leaving independent rural providers out in the cold. That would be a shame.

With additional reporting from Om Malik.

17 Responses to “How the Stimulus Package Fails Rural Broadband”

  1. I'm not telling my name

    Zelimir: I am on satellite internet, because i am in a small town in NH and can’t get actual broadband. unlike the commercials say, is barely faster than dial up, and if you download too much in a day, they shut it off for 24 hours.

  2. Brett Glass

    By the way, in response to an earlier comment: Incorporating a business costs far more than just the fee to incorporate. Many states impose large franchise and excise taxes on corporations — even LLCs and “S” corporations. And the bookkeeping and accounting burden is substantial. Sole proprietorships are the majority of American businesses, and in rural areas are the most likely ones to step up to the plate to provide broadband. They certainly should not be cut out of the stimulus arbitrarily.

  3. Brett Glass

    Since I spoke to Stacey about rural broadband, another concern has arisen regarding the stimulus package. This might be worth a followup article, but for the moment I’ll post the details here in the comments.

    The Senate version of the bill offers generous tax credits for rollout of broadband to unserved areas. But it specifically does not allow tax credits if I or another wireless ISP wants to use microwave transmission to bring broadband into a rural town or city. On page 569, it says:

    INTO ACCOUNT.—Except as provided in sub-
    paragraph (C) or (D), equipment shall be taken
    into account under subparagraph (A) only to
    the extent it—

    (iv) extends from a transmission/re-
    ceive antenna (including such antenna)
    which transmits and receives signals to or
    from multiple subscribers, to a trans-
    mission/receive antenna (including such
    antenna) on the outside of the unit, build-
    ing, dwelling, or office owned or leased by
    a subscriber in the case of a satellite car-
    rier or other wireless carrier, unless such
    other wireless carrier is also a tele-
    communications carrier.

    In other words, if a wireless ISP is not a “telecommunications carrier” — a phone company — it can’t get a tax credit when it brings broadband INTO a city or town. It can get a credit only for the “last mile” — distributing service WITHIN a city. This provision (which was inserted due to lobbying by Verizon) was obviously designed to protect the telephone companies’ monopoly on inter-city service. It really would hurt efforts to increase broadband coverage in rural areas.

  4. It’s sad that this kind of thing ultimately comes down to bipartisan haggling just to make a point. The stimulus will pass eventually, just pared down to make both sides happy. Well, I guess that’s democracy at its finest :)

  5. “Glass says he can’t afford to pay the fees and take the tax hit that would come with incorporation, leaving him unable to take advantage of those funds.”

    He can’t afford $500 to put together an S-Corp which is taxed no differently from a SP? I don’t understand this.

  6. BTW, the company with $14m in revenue to 8000 customers is how it should work.

    80/20 rule: 20% of customers are business paying 80% of the costs.

    1600 businesses @ $583/month “T1-style”
    6400 consumers @ $37/month “DSL-style”

    Score one for us anti-net-neutrality supporters, too.

  7. Great reporting, folks. Best article yet.

    Government can only solve these issues with less regulation and fewer subsidies, not more of either or both.

    Get out of the danged way and let entrepreneurs provide it. People in the boonies will pay if you give them a taste. Heck, in my old suburban town we had 3 wireless providers competing, offering free limited bandwidth. They’re doing fine, but the town had to “allow” them in.

    I don’t see the expense being as large as people think it is. I’d invest in private bond issues if they were available, but our financial industry regulators makeit a headache to raise $1m in bonds. I’d put up 6 figures of my own money if such investments were available.

    Imagine a bond paying 12% back. Madoffs of the world would be toast, and real entrepreneurs could compete again with do-nothing Nasdaq-listed bloatarations.