The Government Makes the Internet Better
This week, Sprint Chairman Masayoshi Son lambasted the Internet service currently available to U.S. consumers as “horrible” -- way too slow and way too costly. Son said a combined Sprint/T-Mobile could address that – if only regulators would allow the wireless companies to merge. Responding at the American Enterprise Institute, James Glassman didn’t need to be convinced that the merger is a good idea, but would not stand for Son disparaging U.S. broadband – “The truth is that the U.S. mobile broadband system is outstripping the world,” Glassman wrote. He accused Son of being “caught in a Japanese mindset where government supervision and intervention is required to be sure everything turns out the way the state wants it to.”
Could they both be wrong? Could U.S. broadband be pretty good because of, not in spite of the efforts of the government?
Although it did not garner much coverage, an independent, nonpartisan analysis of federal funding for broadband infrastructure and the existence of municipally operated networks finds that both have resulted in improvements in U.S. broadband service.
Since 2008, federal programs have provided over $15 billion in funding to help deploy broadband to areas of the country that still have little or no access. Additionally, some municipal governments have begun to build and operate networks to provide broadband access to their communities. In Federal Broadband Deployment Programs and Small Business, the Government Accountability Office (GAO) responded to a request from Reps Nancy Pelosi (D-CA), Henry Waxman (D-CA) and Anna Eshoo (D-CA) to examine 1) the federal government’s efforts to ensure the availability of broadband services for small businesses, and 2) the effect of selected federally funded and municipal networks on broadband service and small businesses.
GAO reviewed documents and interviewed officials from five federal agencies -- U.S. Department of Agriculture’s Rural Utilities Service (RUS), the Department of Commerce’s National Telecommunications and Information Administration (NTIA) and Economic Development Administration (EDA), the Federal Communications Commission (FCC), and the Small Business Administration’s (SBA) Office of Advocacy -- that support broadband deployment and research on broadband availability. GAO interviewed service providers that received federal funding, municipal network operators, and small businesses in four states, and collected speeds and prices for broadband services in selected communities in these states. The states, communities, and businesses were selected based on the presence and use of a federally funded or municipal network. (1)
Federally funded programs to expand broadband access encompass but do not specifically target small businesses. These programs -- the Broadband Initiatives Program (BIP), Broadband Technologies Opportunities Program, Community Connect Grants, Connect America Fund, Rural Broadband Access Loan and Loan Guarantee Program, and Telecommunications Infrastructure Loan Program -- have eligibility requirements based on the needs of an area, as well as deployment requirements that can maximize the number of businesses served.
GAO found that service providers used federal funding for expansions and upgrades, such as building out to previously unserved areas and replacing old copper lines with fiber optic cable, resulting in faster and more reliable broadband connections. GAO examined broadband services for 14 federally funded and municipal networks (2) and found they tended to have higher speeds than other networks. In 9 of the 14 communities where GAO collected information on broadband speeds and prices, federally funded or municipal networks offered higher top speeds than other networks in the same community and networks in nearby communities. Additionally, prices charged by federally funded and municipal networks were slightly lower than the comparison networks’ prices for similar speeds. Prices for lower to mid-range speed tiers available from federally funded and municipal networks in non-urban areas also compared favorably to prices in urban areas in the same state. However, providers in urban areas were more likely than those in non-urban areas to offer higher speeds
According to small businesses GAO met with, the speed and reliability of their broadband service improved after they began using federally funded or municipal networks. Furthermore, according to small business owners, the improvements to broadband service have helped the businesses improve efficiency and streamline operations. Small businesses that use the services of these networks reported a greater ability to use bandwidth-intensive applications for inventory management, videoconferencing, and teleworking, among other things.
Federal programs have supported improvements to broadband networks through grants and loans for expansions, upgrades, and building of new networks, according to the service providers GAO spoke with. Providers expanded their existing networks by laying new fiber optic lines or using other technologies to make broadband available in areas that were previously unserved or underserved. Here are some examples GAO found:
- Officials from Monroe Telephone Company in Oregon stated that without the federal support they received through BIP, they would not have expanded their network due to the area’s low population density and mountainous terrain. Monroe officials stated that they used the loan of $1.4 million and grant of $4.2 million, both from BIP, to expand broadband access to 1,200 households and small businesses in two counties that previously only had dial-up or satellite service.
- Officials at Paul Bunyan Telephone Cooperative in Minnesota stated that the RUS loan they received enabled them to expand their broadband service years earlier than otherwise would have been possible.
- Intermountain Cable in eastern Kentucky used a Community Connect grant to expand its broadband network to Hurley, Virginia. According to officials at Intermountain Cable, Hurley previously only had satellite broadband service.
- SandyNet, a municipal broadband provider in Sandy, Oregon, used BIP funding to build fiber optic lines, allowing SandyNet to expand its wireless service further into rural areas.
- In northwest Minnesota, Garden Valley Telephone Company used a RUS Telecommunications Infrastructure loan to upgrade the copper lines in the rural areas it serves with fiber optic lines, which provide a faster and more reliable connection. For homes and small businesses in these areas, speeds have gone from approximately 1 Mbps download to a top advertised speed of 30 Mbps. In other areas it serves, Garden Valley used portions of the loan to make smaller scale improvements, changing some of the hardware attached to existing copper lines to increase speeds.
- The North Georgia Network used a $33 million BTOP grant to build a 260-mile fiber optic network that provided broadband to businesses and residences.
- MiNet, a municipal network operated by the cities of Monmouth and Independence, Oregon, used city funds and a loan from the state of Oregon to build a fiber optic network that provides download speeds of up to 1 Gbps.
The GAO highlighted two municipal broadband efforts:
- City of Windom, Minnesota, and Windomnet: In 2002, a referendum passed in the City of Windom, Minnesota, authorized construction of a fiber broadband network to be operated by Windomnet, the municipally owned cable operator. At the time, there was one other broadband provider serving Windom. Construction of Windomnet’s 35-mile fiber network around the city was completed in 2005. The network was funded by revenue bonds worth $9.4 million and additional credit of $1 million. Windomnet offers fiber-to-the-home service to the entire community of residents and businesses. As of 2013, Windomnet had over 1,800 subscribers, including about 200 business subscribers, most of them small businesses. Windomnet offers download speeds ranging from 1.5 Mbps to 1 gigabit per second (Gbps).
- Chattanooga’s Gigabit Network: The municipally operated electricity provider in Chattanooga, Tennessee, used its federally funded smart grid to provide fiber-to-the-home broadband service. Coupled with $290 million in bonds the Electric Power Board (EPB) received a Department of Energy Recovery Act grant to improve its electricity infrastructure by building a smart grid with fiber to the home. A smart grid is a network that uses information technology to deliver electricity efficiently, reliably, and securely. In planning to build the electricity smart grid, EPB realized that with additional investment it could use the smart grid fiber to provide broadband service as well. As a result, all homes and businesses in the 600 square miles served by EPB now have fiber connections to monitor electricity, and each business and home can now receive broadband service up to 1 Gbps across this same fiber network. According to some small businesses, this has resulted in a number of small startups and small business incubators in Chattanooga, drawn by the high speed network, the low cost to operate a small business, and a culture that supports entrepreneurs.
Speeds and Prices
The GAO also aimed to assess the potential effect of federal funding or municipal support on broadband availability and collected information on speeds and prices offered by federally funded and municipal networks in 14 non-urban communities (subsequently referred to as “funded” communities.) (3) The GAO compared this information with speeds and prices offered by other service providers in those same communities and service providers in 14 similar non-urban communities (subsequently referred to as “comparison” communities) without federally funded or municipal networks. The GAO found that more service providers in funded communities offered service at higher speed ranges than providers in comparison communities. Twice as many funded communities as comparison communities have a provider that offers speeds of 51 Mbps or higher.
The GAO also compared the highest speed offered by service providers. The analysis found that federally funded and municipal networks most often had the highest advertised top speed when compared with top speeds offered by non-federally funded and non-municipal networks in the same community, and networks in nearby comparison communities. In 9 of the 14 sets of communities included in this analysis, federally funded or municipal networks had the highest advertised top speeds. For example, a federally funded network in a community in northeast Georgia advertised a top download speed of 100 Mbps, while the highest speed advertised by other providers in the same community and in the nearby comparison community was 40 Mbps. In the five other cases, networks in non-federally funded communities offered speeds that were equal to or higher than speeds available in funded communities.
The GAO found that prices offered by federally funded and municipal networks were slightly lower than prices offered by non-federally funded networks in the same community and networks in comparison communities. For example, for speeds of 4 to 6 Mbps, federally funded and municipally operated networks charged prices that were on average about $11 per month less than non-federally funded networks in the same community and about $20 less per month than networks in comparison communities. The price differences are greater in the 7 to 10 Mbps download range, where federally funded and municipally operated networks’ prices were on average about $30 less per month than non-federally funded networks in the same community and about $35 less per month than networks in comparison communities. There were some cases where federally funded or municipal networks offered substantially lower prices than networks in comparison towns, such as the municipal network in Windom, Minnesota, which offered 10 Mbps download service for approximately $38 a month, while two networks in a comparison town offered the same speed for about $100 to $110 per month.
The GAO also compared broadband speeds and prices in the non-urban funded and comparison communities with the speeds and prices in urban areas. For download speeds below 10 Mbps, average prices in non-urban areas were lower than average prices in urban areas. For speeds of 4 to 6 Mbps, the average price was about $23 less in non-urban areas than in urban areas, and for speeds of 7 to 10 Mbps the average price was about $9 less.
The GAO found that providers in urban areas generally offer higher speeds than those in non-urban areas. Among the locations included in the analysis, providers in all 8 of the urban areas offered download speeds of 100 Mbps or higher, whereas providers in only 7 of the 28 non-urban areas offered download speeds of 100 Mbps or higher. Six of the 7 non-urban areas were funded communities with speeds of 100 Mbps provided by a federally funded or municipal network. However, in one funded community one competitor also offered speeds of 100 Mbps.
According to some providers, these federal and municipal investments have stimulated competition. In some areas that received federal funds or where a municipal network was built, other broadband providers took steps to improve the speed and reliability of their service. Following the construction of a fiber-to-the-home municipal network in Monticello (MN), for example, the two other broadband providers in the area made investments in their infrastructure to improve their broadband speeds. One of these providers stated that all of its networks undergo periodic upgrades to improve service, but upgrade schedules can change in order to stay competitive when there is a new service provider in a particular market.
“GAO’s investigation confirms the success of the Recovery Act’s broadband programs," said Rep. Waxman. “In rural and urban areas across the country, small businesses are benefiting from higher speeds and lower prices thanks to federal investment in this essential infrastructure. Expanding broadband access and quality is critical for American competitiveness in the 21st century global economy. These were public dollars well spent.”
“In the information economy, high speed internet access is essential to creating jobs and unleashing the full potential of our small businesses. Democrats have long recognized this fact, and our 2007 Innovation Agenda pointed the way for communities nationwide. Our investments in our broadband infrastructure have not just delivered quicker, cheaper, more reliable service, they have opened new economic opportunity for businesses and people,” said Leader Pelosi. “Rebuilding America’s infrastructure creates jobs today, and lays the foundation for a stronger, more prosperous tomorrow. Today, GAO has highlighted exciting success stories—that can and must be replicated and expanded across America.”
“This GAO report confirms that when it comes to closing our digital divide, federal investment in broadband deployment has been pivotal to the success of America’s small businesses,” said Rep. Eshoo. “Affordable broadband access allows small businesses to operate more efficiently, retain a talented workforce, and improve services to their customers. Small businesses are the backbone of the American economy, and when they thrive, our economy thrives.”
With the fourth anniversary of the National Broadband Plan upon us, the GAO report offers clear evidence that the government can play a positive role in ensuring high-speed Internet access reaches everyone.
- For the purposes of the GAO report, Federally funded networks are networks that received monetary support from one of the federal programs discussed in the report. These federal programs do not entirely pay for the networks. Municipal networks are eligible to receive federal funding but not all municipal networks discussed in this report received federal funding.
- Dawsonville (GA), Dahlonega (GA), Bingham Lake (MN), Jackson (MN), Monticello (MN), Windom (MN), Red Lake Falls (MN), McIntosh (MN), Two Inlets (MN), Sandy (OR), Gervais (OR), Monroe (OR), Independence (OR), and Chattanooga (TN)
- Of the 14 funded communities in our analysis, 10 were served by 7 networks that received federal funding. The remaining 4 communities were served by 3 municipal networks that did not receive federal funding.