Will new broadband money penalize the early birds?

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The Federal Communications Commission expects today to spell out a plan to make more money available for rural high-speed access to the Internet. But not everybody you might expect to be happy about this is, as it turns out.

For many years, we’ve all been paying a “universal service fund” fee on our phone bills. That money has gone into a pot to deliver phone service to rural and hard-to-reach areas. The theory is that the nation needs a universal telecommunications system to tie it together, even parts where it’s too expensive for the market to go.

Now, however, the FCC wants to put that money into broadband. Chairman Julius Genachowski said in a speech Monday that the 21st Century is making the Internet the main telecommunications tie for the nation and the world. (Marketplace Tech Report broadcast a good explainer this morning on the FCC’s rationale.)

Kevin Beyer, who directs two rural phone cooperatives in rural western Minnesota, couldn’t agree more, but he thinks he and his customers will be losers when the FCC gets where it is going. He gets 60 percent of his revenue from the universal service fund and inter-carrier compensation. His co-ops, Farmers Mutual and Federated, have been among the early adapters and have laid fiber optic cable to deliver high-speed Internet to the towns in his service areas. Even though he runs phone companies, most of his Internet customers get fiber service, not DSL service.

As a result, he’s afraid the FCC will pull money away from him as his diminishes rural phone service subsidies and he thinks he won’t get it back as the FCC puts that money into broadband.

“We’re going to be losers,” he told me Monday. “It’s to what extent that we don’t know.”

And the winners? In Beyer’s mind, the winners will be the Qwests and Frontiers of the world that serve rural areas but haven’t been quick to lay fiber to increase Internet speeds. They’ll be able to argue to the federal government that they should get money to build higher speed connections in those areas.

Qwest isn’t saying much about the proposal other than to agree that the universal service fund should be reformed.

But Beyer has a point, says Harold Feld, legal director for Public Knowledge, a digital public interest group in Washington, D.C. If the FCC maintains a relatively low bar for what it considers high-speed Internet access, then indeed a rural area with fiber may not qualify for funding. But if there is limited money to go around, then the FCC needs to put that money where it helps the most people.

“As we rethink the fund, we have to deal with these tradeoffs,” Feld said this morning.

The FCC isn’t likely to issue a lot of details today but is expected to set a direction for where it intends to go, Feld said.

  • Ugh, the thought of Qwest and Frontier getting more taxpayer money to build their slow networks backed by poor customer service is very disappointing.

    To the extent subsidies are necessary, they should go to networks that are structurally accountable the communities they serve, not vacuum companies like Qwest and Frontier that suck money out of the community while delivering a poor product people have to take due to lack of options.

    It is long past time we stop using federal taxes to subsidize profitable companies. These networks should be run by coops, nonprofits, and local governments to remain accountable to citizens.

  • Bill Coleman

    Some say that it is just as likely that these funds will go to wireless companies that can deliver the FCC rural goal of 4 Mbps, permanently leaving rural residents behind in broadband capabilities