Study finds rural broadband subsidy program wasteful

An analysis of federal broadband stimulus projects awarded by the Department of Agriculture’s Rural Utilities Service (RUS) finds the program’s funding of duplicative broadband networks has resulted in an extremely high cost to reach a small number of unserved households.

The study was commissioned by the National Cable & Telecommunications Association (NCTA) and prepared by Jeffrey Eisenach and Kevin Caves of Navigant Economics in Washington, D.C.

The American Recovery and Reinvestment Act (ARRA) included $7.2 billion to subsidize broadband deployment. Of the total, $4.7 billion went to the National Telecommunications and Information Administration (NTIA) and $2.5 billion to RUS. The NTIA and RUS programs funded by ARRA make up the largest federal subsidies ever provided for broadband construction in the United States.

The study shows that the RUS’ current program is not a cost-effective means of achieving universal broadband availability. Navigant Economics examined three large BIP subsidy awards, totaling $231.7 million, or about 7 percent of the BIP $3.5 billion combined loan and grant program. The subsidy awards, included: $101.2 million in western Kansas; $66.4 million for Lake and St. Louis counties in northeastern Minnesota; and $64.1 million to cover a portion of Gallatin County in southwest Montana.

“Reports by the Department of Agriculture’s Inspector General (AIG) and the Government Accountability Office (GAO) have shown that RUS’ prior broadband subsidy programs have not been cost effective, in part because they have provided duplicative service to areas that were already served by existing providers,” the study says.

Key study findings include:

  • Definitions used by the RUS to determine where grants should be awarded, permitted subsidies to areas already served by multiple wireline and wireless providers.
  • Based on the cost of the direct grants and subsidizing the loans, the study estimates that the cost per incremental home passed will be $30,104 if existing coverage by mobile broadband providers is ignored and $349,234 if mobile broadband coverage is taken into account.
  • The RUS approach of funding duplicative coverage is directly at odds with the National Broadband Plan recommendations.