Government’s $7 Billion Broadband Waste

Published August 5, 2011

The debate over raising the debt ceiling has captured the national imagination. One wonders, however, if increased light shed on massive, expensive, and needless government programs would favorably tilt the argument toward spending cuts rather than raising taxes.

To wit: $7 billion of taxpayer dollars unnecessarily spent on duplicative broadband buildout as part of the 2009 stimulus package. This is unnecessary, as a vast majority of the population already boasts at least one Internet provider choice, and it places government in the undesirable role of competing with private enterprise.

Allow me to set up an analogy: Your kid opens a lemonade stand on the street where you live. Your neighbor’s kid opens another stand across the street. So far, you think, competition is good and will teach your child valuable business and economic lessons. Perhaps the two operations will merge, engage in a price war, or coexist as a peaceful duopoly.

This cute little scenario is upset when your kid’s high-school-aged babysitter hangs her cherry-pink lemonade shingle, razzle-dazzling passersby with her Katy Perry-inspired summer wardrobe. “It’s not fair!” cries your kid. “Son,” you reply, wiping away a cherry-pink mustache and the hint of a dreamy smile, “life’s not fair. Either you get over it and raise your game, or abandon it completely.” Your kid subsequently makes you proud by offering not only lemonade but baked goods as well. Profitability resumes, for the time being.

Until Government Enterprises opens its Lemonade, Fresh Fruit and Baked Goods Emporium one block over. It seems some bureaucrats sensed a need to stimulate the economy with more cookies and hot-weather beverages in your neck of the woods. Your kid and his precocious Lolita rival throw up their hands in surrender when the weight of government largesse is brought to bear with cut-rate pricing and expanded menu options.

Likewise, the $7 billion in stimulus funds allocated to expand rural broadband coverage in the United States went to areas already served by at least one other provider, according to a study released this week by Navigant Economics, a Washington DC-based research institute.

Navigant economists Jeff Eisenach and Kevin Caves researched three broadband stimulus projects, which together received $231 million in taxpayer dollars. What they discovered is telling: In its rush to provide broadband to every nook and cranny of the U.S. landscape, the government performed unnecessary and overlapping Internet infrastructure buildout that even the Federal Communications Commission confesses amounts to three-times the cost of what it should have required to expand broadband to unserved rural areas.

The Great Stimulus Boondoggle of 2009 brought broadband to three projects examined by Navigant. Northwest Kansas, for example, received $101.2 million for buildout covering a 4,247 square mile area; northeastern Minnesota received $66.4 million to cover 2,765 square miles; and $64.1 million was spent on broadband buildout for just 154 square miles in southwest Montana.

Eisenach and Caves conclude that the $231 million resulted in expanding coverage to a mere 452 households. For those readers who wouldn’t bat an eye at such an abstract analysis, allow me to do the math: This equates to $512,000 for every household newly Internet enabled.

And what about the broadband providers who already serviced all but those 452 lonely households? Odds are, their response is similar to the hypothetical kids running the lemonade stands – Government Enterprises has undercut their pricing and effectively has sent them packing to unsubsidized (for the time being, at least) pastures in order to make a buck.

So what does this say to entrepreneurs who are willing to stick out their necks to exercise their talents, ingenuity, and big ideas? “Forget it, kids, the government will take care of it themselves.” Hardly an encouraging response.

But that’s what happens when you raise taxes to fund a government that unfairly competes with the private sector.

Bruce Edward Walker ([email protected]) is managing editor of The Heartland Institute’s Infotech & Telecom News.