Why Giving Billions in Subsidies to Big Telecom Won’t Get Us Better Service

In the American internet access world, public assets are privatized all the time. Sometimes this happens when private companies are handed direct payments in the form of subsidies: public money, amounting to at least $5 billion a year, which is showered on companies to incentivize them to provide access in places where they feel it is too expensive to build. Sometimes this happens when companies are handed low-cost or no-cost access rights to infrastructure by state legislatures. And sometimes it happens in the form of broad public/private partnerships for “smart city” services.

But the federal government doesn’t set high enough standards for the quality and price of the services the public subsidizes—and we’re certainly no good at requiring competition. (Federal government support for fiber running to schools and libraries was supposed to be one of the bright spots in this murky story, but even there the Trump administration has been wavering and slow-rolling the process.) We’ll take anything that seems to fill the gaps left by the private market. In particular, we’ll throw poorer and rural people under the bus, relegating them to subpar services.

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For example, later this month, the Federal Communications Commission will launch a first-of-its-kind “reverse auction,” allowing companies to apply to bid for $2 billion in subsidies for providing internet access in unserved parts of America. But the companies can win these subsidies with promises of subpar service—just 10 Mbps downloads, the minimum speeds considered adequate. That’s just a sliver of the subsidy pie. Billions in federal subsidies, aimed at cajoling private companies to serve “high cost” rural areas, often go to the same giant companies that dominate internet access in America—like AT&T and CenturyLink, which took in $400 million and $500 million, respectively, in 2015 alone. Meanwhile, FCC chairman Ajit Pai is making moves to revise the commission’s Lifeline program, which subsidizes communications subscriptions for low-income families. The new rules will require that recipients sign with companies that own their own towers and lines, like T-Mobile and Verizon, instead of the smaller resellers that tailor their offerings to match the subsidy funds. These changes will, in the words of FCC commissioner Mignon Clyburn, leave the program’s 12.5 million recipients “without a carrier to turn to,” but they’ll direct more money into big telecom’s pockets.

How did we get here? America, alone among developed nations, never thought of basic telecommunications services as a public service, to be built and controlled by the government. Instead, we have traditionally relied on private companies to serve all Americans at a reasonable cost. In the past, in order to keep the price of local telephone services low and to ensure that everyone in rural areas had communications service, the federal government imposed fees on long-distance telephone service, to subsidize service for low-income and rural customers. Now, following an astounding wave of consolidation and deregulation, we have the worst of both worlds: mostly unregulated private monopolists, selling expensive, mostly second-class data services to the rich and looking to the state to pay them to provide internet access services to everyone else.

Chairman Pai seems to have one theme when it comes to subsidies: Treat giant companies well, and hope that they’ll do Americans a favor by selling them some form of service. From the perspective of the shareholders of AT&T, Verizon, CenturyLink, Comcast, and Spectrum—the Big Five telecommunications companies that dominate internet access in America—this makes perfect sense. Costly infrastructure investment that drives up the companies’ debt levels is irrational.

The trouble is that all Americans, whether they live in rural and poorer areas or not, need and deserve persistent, inexpensive, world-class data services in order to thrive. But we, the public, are not requiring that these services exist for everyone. Instead, we’re handing out subsidies that often serve the interests of huge companies.

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