The Biden administration’s infrastructure bill is still in flux, but it could potentially provide as much as $65 billion for new broadband infrastructure in the United States to close the digital divide.
And while most Americans see this as a good thing, the incumbent telecommunication providers look at the prospect warily because the billions that could flow for broadband might flow to all kinds of new competitors, or what they like to refer to as “overbuilders.”
In an announcement yesterday, the Biden administration and a bi-partisan group of U.S. senators said their new bill will require funding recipients to offer a low-cost affordable plan and will boost competition in areas where existing providers aren’t delivering adequate service.
Analysts at New Street Research have been busily constructing their financial models and doing their calculations to determine if investors of telecom companies will be helped or hurt by all the new funding that is flooding into their industry.
Policy analyst Blair Levin, writing for New Street Research, said if funding for broadband amounts to $40 billion, that would be “unlikely to be enough for material overbuilding.” He said, “Given investors’ concerns about overbuilding, the most important detail is the amount for deployment.”
Levin told Fierce the threat of overbuilding will happen if the funding amounts approach $70 billion to $80 billion. "At $40 billion, there’s just not a lot of available funds for overbuilding. There will be incremental overbuilding but not intentional overbuilding as a strategy."
Other New Street Research analysts claim that if the administration favors municipalities, co-ops, and other non-profits over incumbents, the total cost and minimum subsidy required to close the digital divide gap would rise substantially.
Incumbents fear overbuilding
Roger Timmerman is the executive director of Utah Telecommunication Open Infrastructure Agency (UTOPIA) Fiber. It’s a group of 11 Utah cities that joined together in 2004 to deploy fiber to the home (FTTH) networks. Timmerman said, “We’re municipal fiber. We’re owned by cities.”
Timmerman said service providers and their lobbyists created the term “overbuilding” to make new competition sound like a bad thing. “You could describe the same thing as a new competitive offering in the area,” he said. “Nobody complains about competition. Everybody would celebrate that. But the industry has deemed that as an ‘overbuild.’”
He said new entrants don’t literally build their infrastructure on top of existing infrastructure. It’s done in parallel.
Timmerman said UTOPIA Fiber has gotten a lot of pushback from incumbent wired service providers over the years. “They don’t want anything to oppose them,” he said. “They feel the most profitable path forward is the status quo.”
To a certain extent he understands where the incumbents are coming from. They’ve made private investments in infrastructure, and they feel it’s unfair for new competitors to be subsidized with taxpayer monies.
The problem is: the incumbents are determined to squeeze every last dollar out of their old and outdated technologies — such as DSL and hybrid fiber coax — leaving a lot of people in the U.S. without high-speed broadband.
“Infrastructure is expensive and lends itself to duopolies or monopolies,” said Timmerman. “The private market is not creating a competitive landscape for consumers. DSL and cable are already at the end of their life. Cable refuses to accept that. DSL has kind of accepted it but is still trying to squeeze every last year out of that infrastructure.”
He said from the service providers’ perspective, it’s just a business decision. Competition is bad for them, and it’s cheaper to fight it than to allow new competitors to take away market share. “I’ve heard as much as $8 million per week is spent in lobbying in the telecom industry,” said Timmerman.
Covid has brought all this tension to the forefront, and the government is stepping in.
But Timmerman says the incumbents will fight the new competition tooth and nail. He’s seen the scenario before. He said all levels of government are recognizing that the people want ubiquitous fast broadband. And legislators are “finally allocating money to fund broadband investment.” But, “from the time it goes from legislation to programs, the incumbents’ lobby goes in and screws it up.”
This time may be different. Not only is the federal government gung-ho about better broadband, but individual states are pursuing their own strategies.
Of California's plan to spend $6 billion for broadband, Levin wrote for New Street: “We think this is the largest investment ever into government owned and operated facilities. While we don’t think there will be a rush of other states to adopt this framework, it bears watching, particularly as states receive more federal funding.”
Using the term created by the incumbents, Timmerman said, “America needs massive overbuild.”