Will Maryland be the Tesla or the Solyndra of the BEAD Program?

Benton Institute for Broadband & Society

Monday, April 17, 2023

Digital Beat

Will Maryland be the Tesla or the Solyndra of the BEAD Program?

Maryland Department of Housing and Community Development's Office of Statewide Broadband

Broadband Equity Access and Deployment (BEAD) and Digital Equity Conference 2023

(Remarks as prepared for delivery)

Blair Levin
       Blair Levin

I want to start by putting what is happening here today in a historic perspective.

Then I’ll discuss some of the dangers lurking ahead, with the hope that Maryland will navigate through them and, as I will explain, be the Tesla and not the Solyndra of the BEAD program.

As a starting point, I do not know how history will look at our time overall.

But I do know this.

History always renders a powerful and positive verdict for any group that understands that there are some things that cannot be allowed to divide a nation. And then acts to close that divide.

Lincoln understood this when he asked whether “a nation can long endure half slave and half free.” And history has honored his subsequent Emancipation Proclamation and the passage of the 13th, 14th and 15th Amendments designed to address that rift.

FDR understood this when he said, “I see one-third of a nation ill-housed, ill-clad, ill-nourished.” And history has—for the most part but as we will see, not entirely--honored his efforts, such as through Social Security, to address that gulf.

I don’t want claim that the achieving universal broadband connectivity has the same moral imperative as ending slavery or drastically reducing poverty. But it is no small thing. And sometimes things that are not front-page news, overtime have enormous impacts.

Something Roosevelt did to address the one-third of America that was ill-housed was to create the Federal Housing Authority that made it easier for Americans to obtain mortgages. Unfortunately, the Authority restricted such lending in African-American neighborhoods. The impact has been devastating and long lasting. 

It is one of the most significant reasons that the average wealth of an African American family of a college graduate is less than the average wealth of a white family headed by a high-school graduate. As the Washington Post reported, “Since housing equity makes up about two-thirds of median household wealth, excluding black Americans from establishing equity during a time of unprecedented rises in home values locked in and exacerbated wealth disparities.”

Let’s project forward.

Wealth creation in this century’s global information economy will require digital access and skills.

So, just as restricting home ownership in the 1930’s still causes negative reverberations for us today, so too, if restrictions on digital access and utilization, whatever their cause, were allowed to continue, it will weaken our economy and society for decades to come.

This has been clear at least since 2010 when the National Broadband Plan found that “The cost of this digital exclusion is large and growing.”

As the Plan further noted “For individuals, the cost manifests itself in the form of lost opportunities. As more aspects of daily life move online and offline alternatives disappear, the range of choices available to people without broadband narrows. Digital exclusion compounds inequities for historically marginalized groups…. Digital exclusion imposes inefficiencies on our society as one-third of Americans carry out tasks by means that take more time, effort, and resources than if they had used broadband…. Like the costs of poverty, it is difficult to quantify the costs of digital inequality. It is certain, however, that people will not experience the promised benefits of broadband—increased earning potential, enhanced connections with friends and family, improved health, and a superior education—without a connection.”

What the Plan understood in 2010 became crystal clear to everyone in March 2020. Suddenly everyone could see how what once was considered a luxury had become a necessity. For example, a government study found that the number of Medicare telehealth visits increased 63-fold in 2020, from approximately 840,000 in 2019 to nearly 52.7 million in 2020.

That was not due to a change in technology.

The same study found “evidence of disparities by race/ethnicity and for rural populations.” Just a guess. No one here needed a study to arrive at that conclusion.

And that story about healthcare increasingly being provided online was also true for education, job training, civic engagement, and many other essential functions.

Covid was a much better evangelist for the importance of universal broadband than the Executive Director of the National Broadband Plan.

I could argue that the more than tenfold increase in broadband download speeds, from about 5 Mbps in 2010 to more than 80 Mbps in 2020 was the unheralded savior of the economy and society in the most difficult months of the pandemic

But it did not save it for everyone.

Tens of millions of Americans could not access the lifeline that broadband provided during Covid.

That is the divide that at this moment, we must address.

While Covid exacerbated and spotlighted that divide, that divide exists beyond Covid and still threatens our economy and society.

Congress put this understanding into law when, in the 2021 infrastructure bill, it wrote that “a broadband connection and digital literacy are increasingly critical to how individuals participate in the society, economy, and civic institutions of the United States; and access health care and essential services, obtain education, and build careers.”

And it provided funds to build networks everywhere and to assure that all could afford the service.

It is one thing, and a necessary thing, to understand the divide and commit resources to address it.

It is another, however, to effectively execution in solving the problem.

And that is what we are doing here.

Congress decided that instead of putting the decision-making power and the financial resources into a federal agency, it would tackle the national digital divide by putting those tools in the hands of the states.

Here is an easy prediction. Some states will do it well. Some states will fail.

It is a sad feature of human nature and news coverage that the adage—if it bleeds, it leads—applies to public policy as well.

The 2009 Recovery Act enabled a loan of $465 million to a fledgling company in the electric car market called Tesla. It now has a market cap of nearly $600 billion.

Actually, before the CEO diverted his attention to Twitter, Tesla was worth over a trillion. But even at $600 billion, you’ll see my point.

The Recovery Act also enabled a loan of $535 million to a solar energy company called Solyndra. The company failed and defaulted on the loan.

When people think about the Recovery Act, it is Solyndra—not Tesla—they remember.

There’s no point in whining about how media over indexes for failure over success.

The point for today is this: everyone here must recognize the reality that there will be a state that becomes the Solyndra of the Congressional mandate to close the digital divide.

And it is our job here to act in ways so that Maryland is not that state.

What can we do to make sure that Maryland is the Tesla—the success story--and not the Solyndra of this effort?

I am happy to say that Maryland is off to an excellent start.

For one thing, according to data I have seen, Maryland is the second best positioned state—just behind Rhode Island—to have enough funding to connect all unserved and underserved locations to fiber.

For another, it has a head start in funding broadband deployment projects. Since Maryland created the state broadband office in 2017, it has invested more than $270 million into broadband infrastructure and programs.

Third, as you’ve seen in the morning sessions, you are lucky to have a skilled broadband expert, Rick Gordon, heading up the effort.  And he has assembled a great team.

There are, however, also pitfalls ahead.

One is that changes in the market can cause the economic models you are using to be outdated before the job is done.

The equity research shop I advise just did a big Fiber to the Future Conference and one of the key themes was rising network deployment costs.

Part of it is labor, part of is supply chain related but the bottom line is that costs of fiber deployment rose in the last year by 20%.

Further, there is an enormous asymmetry between what those seeking the government funds know about the details of the costs and what the government knows.

So, as Maryland and all the states design their competitive grant programs based on their estimates of what it will cost to deploy and serve all the unserved and underserved areas, they face a big challenge in building the right models and adjusting as the facts change to accurately reflect market realities.

Second, Maryland must thread the needle between assuring the deployments happen while also making sure there are competitive forces that keep costs down and service quality up.

For example, the federal government requires the grantees to provide a match of funds, as well as a letter of credit.

This is a reasonable requirement, as it is always important to make sure everyone has skin in the game.

But there is uncertainty about the requirements.

And if interpreted in some ways, it will be difficult for some smaller players, who may be focused on harder to serve markets, to qualify, reducing competition across the state, and thereby increasing the costs to reach every unserved and underserved location.

Further, such requirements could, if not calibrated correctly, add costs without adding benefits to the program.

Third, there is a similar need to thread the needle in drawing the maps of unserved and underserved areas for the potential grantees to bid on.

Draw them too large and the state may limit who will bid, driving up the cost.

Draw them too small and the state may attract no bidders for some areas, leaving some unconnected.

Fourth, there is no magic bullet for solving the inclusion problem.

Digital inclusion is a tough ground game.

It requires lots of one-on-one outreach.

It requires something we might think of as trusted virology.

In the broadband space things often go viral without an element of trust; a TikTok video can capture the attention of millions without anyone knowing what’s behind it.

But the communities with low levels of adoption need to see others they trust adopting.

That is hard and painstaking work.

Fifth, there are concerns about permitting.

America has an unfortunate track record of public projects taking longer and being more expensive than in other countries.

Permitting is a problem and for that reason I am glad to see the House Commerce Committee holding a hearing on the topic this week.

However, I am not optimistic that the hearing will result in progress.

Not only is this Congress seemingly incapable of actually passing meaningful legislation, it seems more interested in sound bites than solutions.

Debates about permitting too often fall into the trap of blaming bureaucrats—easy to do and generally inaccurate—and seldom look at the underlying causes.

These include problematic incentives for local capacity building, use of outdated technology—a problem throughout all levels of government--bad data and maps, and inadequate communications and cooperation among the many government jurisdictions usually involved in approving the projects.

If the upcoming hearing looks at those issues, we could make progress.

If it just blames local government officials, we won’t.

The sixth pitfall, and perhaps the most important, is that there will only be one bite at the apple.

This is not a once in a generation program.

It is a “once” program.

If it succeeds, there will be no need for another.

If it fails, there will be no support for another.

But as will any new program, there will be mistakes.

There will need to be adjustments.

Indeed, while Maryland is blessed with a broadband office with much greater expertise than other states, every state broadband office is essentially a start-up.

Start-ups make mistakes.

Maryland will have to act adroitly, knowing that it must be honest about the mistakes and the need for course corrections, but also knowing that there is only one chance to get it right.

Those pitfalls are not Maryland’s fault, but they are realities that the state must address—and I think can address—to accomplish the goal of universal connectivity.

I am also sad to say there are policies that are out of your hands that may have devastating consequences on the program.

One relates to the Buy America provisions being applied to projects funded by the Infrastructure Act.

In the State of the Union President Biden, after touting the Infrastructure Bill’s commitment to connect all Americans, said “And when we do these projects, we’re going to Buy American…Tonight, I’m also announcing new standards to require all construction materials used in federal infrastructure projects to be made in America.”

Unfortunately, a small but critical number of network components have no American sourcing.  To produce the necessary supply here would take many years.

The challenge for the President and his Administration is that our country can close the rural digital divide in the next few years, or it can strictly enforce a Buy America mandate.  It cannot do both. 

And for reasons I explain in a blog Brookings will publish this week, I think the priority should be broadband deployment.

I also think the Administration will come to the same conclusion and show some flexibility.

A bigger fear I have is that Congress will fail to refund the Affordable Connectivity Program, known as the ACP, thereby risking the disconnection of about 50 million Americans who currently benefit from the program.

That would constitute the biggest step any country has ever taken to widen, rather than close, the digital divide.

The damage to those 50 million Americans alone is justification for refunding.

In addition, ACP’s expiration will also create problems for the BEAD program we are discussing here.

The consulting group BCG studied the impact of ACP on that program and concluded that ACP reduces the necessary subsidy to deploy networks in rural areas by 25% per household, writing that the $360 per year ACP subsidy “reduces the per-household subsidy required to incentivize ISP investment by $500, generating benefits for the government and increasing the market attractiveness for new entrants and incumbent providers.”

If ACP disappears, the federal dollars will end up funding deployments to significantly fewer unserved and underserved locations.

In normal times, it would not be a big political lift to refund it.

One interesting reason is that it is the most bipartisan program in terms of impact that Congress has ever passed.

Breaking the benefits down by Congressional districts represented by Republicans and Democrats, one finds that in terms of dollars delivered ($2.783B v. $2.960B), enrolled households (9.975M v. 10.590M), and the percent of the district enrolled in the program (11.56% v. 12.45%), the numbers are almost identical.

Polling numbers also suggest bipartisan support with a January poll showing a “strong bipartisan majority of voters (78 percent) support continuing the ACP, including 64 percent of Republicans, 70 percent of Independents, and 95 percent of Democrats.”

Yet, the current budget politics make refunding an uphill battle.

That should cause all of us to be concerned.

Deeply concerned.

Let me close this way.

The National Broadband Plan painted a picture of broadband being “essential to opportunity and citizenship,” and that as a result, the lack of broadband “has the potential to exacerbate inequality.”

Twelve years later, that is the reality we still face.

Except now, we have the tools to change that.

Roosevelt, after describing the one-third of the nation in poverty, went on to say “But it is not in despair that I paint you that picture. I paint it for you in hope—because the nation, seeing and understanding the injustice in it, proposes to paint it out. We are determined to make every American citizen the subject of his country’s interest and concern.”

As discussed above, Roosevelt accomplished many great things, but his Administration did not live up to the vision of making “every American citizen the subject of his or her country’s interest and concern.”

We must not make the same mistake.

And we should not be in despair because you, in this room, are here because you see today’s divide and you propose to paint it out.

Maryland will honor you for that.

History will honor you for that.

Thank you.

Blair Levin oversaw the development of the FCC’s 2010 National Broadband Plan. FCC Chairman Tom Wheeler cited Mr. Levin’s work, noting “no one’s done more to advance broadband expansion and competition through the vision of the National Broadband Plan and Gig.U.” Prior to his work on the National Broadband Plan, Mr. Levin worked as an analyst at Legg Mason and Stifel Nicolaus. Barron’s Magazine noted that in his work, he “has always been on top of developing trends and policy shifts in media and telecommunications … and has proved visionary in getting out in front of many of today’s headline-making events.” From 1993-1997, Levin served as Chief of Staff to FCC Chairman Reed Hundt.  He is currently a policy advisor to New Street Research, an equity research firm, a Non-Resident Fellow at the Brookings Institute Metropolitan Policy Project, and recently completed a Global Broadband Plan for Refugees funded by the World Bank and the United Nations High Commissioner for Refugees.

The Benton Institute for Broadband & Society is a non-profit organization dedicated to ensuring that all people in the U.S. have access to competitive, High-Performance Broadband regardless of where they live or who they are. We believe communication policy - rooted in the values of access, equity, and diversity - has the power to deliver new opportunities and strengthen communities.

© Benton Institute for Broadband & Society 2023. Redistribution of this email publication - both internally and externally - is encouraged if it includes this copyright statement.

For subscribe/unsubscribe info, please email headlinesATbentonDOTorg

Kevin Taglang

Kevin Taglang
Executive Editor, Communications-related Headlines
Benton Institute
for Broadband & Society
1041 Ridge Rd, Unit 214
Wilmette, IL 60091
headlines AT benton DOT org

Share this edition:

Benton Institute for Broadband & Society Benton Institute for Broadband & Society Benton Institute for Broadband & Society

Benton Institute for Broadband & Society

Broadband Delivers Opportunities and Strengthens Communities

By Blair Levin.