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Put Stimulus In Private Hands

The so-called stimulus bill passed in February contains more than $7 billion to encourage broadband infrastructure development and increase demand. The stated intent is to help “unserved” and “underserved” areas in the country to bridge the digital divide.

However, neither of these terms is defined in the legislation and this ambiguity is sure to arouse contention between members of Congress who represent urban and rural districts as they scramble to secure a piece of the pie.

So where should the money go? With recent evidence as our guide, the broadband stimulus money should stay far away from municipal broadband projects that have run afoul of the classic complications that occur when governments dabble in the marketplace.

In 2007, a Wi-Fi project in Philadelphia ran 30% over budget, causing corporate partner EarthLink to abandon the project and rethink its business model. Chicago’s attempt at wireless broadband was undermined by private-sector technological advances that outpaced the city’s efforts. This resulted in the cost of online access dropping so dramatically that the public venture was no longer viable.

The most important feature of Internet access for consumers is not price, but quality and signal reliability, an aspect of the business that municipal projects remain incapable of mastering. Large cities are often unable to afford and manage the sheer number of nodes that are required to keep signal strength high, while small cities are not cognizant of the technological constraints of networks.

Portland, Ore., has canceled its Wi-Fi project after the city failed to achieve its own benchmark of 90% coverage within 500 feet of an access point. It achieved only 50%, with estimates of the city’s ability to reach that target at “one in a billion.”

Odd, private Internet service providers have proved quite adept at getting the technology to “work properly.” Lompoc, Calif., has had similar trouble maintaining a product that attracts customers. It has been plagued by poor reception — a problem indicative of the municipal inexperience with the technological market. The city’s wireless services administrator, Richard Gracy, said he “hadn’t realized how important the back-end elements were to the whole picture.”

Ideally, broadband services should be provided by the market without government interference or subsidy. However, given that $7 billion worth of massive government intrusion is now a reality, the money should be targeted to encourage private Internet service in unserved rural communities that do not have a private-sector provider.

A secondary priority should be underserved areas. Grants should be awarded to companies to encourage increased participation on the demand side of the equation, which could make these projects financially sustainable. However, this should not occur through the same style public-private partnerships that have produced disastrous results over the past decade.