In an earlier post I described the BTOP Comprehensive Community Infrastructure (CCI) program as a “very good investment of public funds.” My reasons were twofold, the first one being that it expanded the availability of high-speed connectivity in underserved areas, including more than 42,000 miles of new and 24,000 miles of upgraded fiber infrastructure. The second was that research by ASR Analytics suggests that the CCI program accomplished this expansion in a way that addresses both forms of economic harm claimed by advocates on both sides of the special access regulation debate. As a result, I suggested “that the federal government consider expanding its CCI investment in geographic areas that the FCC’s special access data collection project indicates still face a lack of competitive options and an abundance of excess-profit-extracting prices in the special access market.”
In five related posts, I considered a number of issues and perspectives that inform this policy suggestion, including the following:
- the challenge of addressing two dueling forms of economic harm associated with special access: 1) the underinvestment discussed in a paper by Economists Inc. principal Hal Singer and; 2) the harms associated with excess-profit-extracting prices considered in a paper by Consumer Federation of America Director of Research Mark Cooper;
- the public policy relevance of Modern Monetary Theory (MMT), which explains that the federal government has a lot more flexibility than commonly believed to fund resource-mobilizing and infrastructure-strengthening investments, even if this investment increases the federal deficit/debt;
- Brett Frischmann’s demand-side analysis of Internet access as an infrastructure resource supporting diverse and expansive—albeit difficult to predict, quantify and internally monetize—social value, and how the realization of that value is best supported via a non-discriminatory access regime;
- the ownership framework developed by Marjorie Kelly, which identifies key characteristics that distinguish “generative” from “extractive” ownership, and how this framework applies to the telecom sector, with particular focus on AT&T as an example of extractive ownership;
- the application of Kelly’s framework to the last mile access market, including research questions worthy of further study in this politically-charged area.
In this post I’m going to:
- review how BTOP’s middle mile fiber projects are examples of publicly-funded generative infrastructure that can help address the economic harms claimed by both Singer and Cooper, and encourage the variety of direct and indirect social benefits considered in ASR Analytics’ BTOP evaluation study;
- sketch the outlines of a research project that can: 1) update and expand upon the ASR study of the social value of BTOP fiber deployments and; 2) help guide public policy related to the special access market and, in particular, the potential role of public investment in bringing fiber connectivity to underserved areas.
I’ll start with an excerpt from an earlier post:
According to Table 7 on pg. 15 of ASR’s final report, the total amount (including both federal grants and matching funds) budgeted for 109 CCI projects was $3.9 billion. The table also indicates that, at the time the study was done, these projects had connected 21,240 CAIs, at a budgeted cost of $184,141 per CAI. Assuming federal grants paid for 80% of this total cost, the average federal grant amount per CAI would be in the neighborhood of $147,300.
Table 13 on pg. 34 of the report shows the changes in subscription speeds and pricing experienced by the 86 CAI locations providing this information to ASR. The table shows very large increases in speed and, depending on the category of CAI, dramatic 94-96% average reductions in per-Mbps pricing. Table 14 on pg. 36 uses these reported changes in speed and price to extrapolate CAI cost savings from switching to CCI-provided fiber connections. Averaged across all CAI categories, the per-CAI annual savings amounted to $236,151.
This means that, in just one year, the average CAI saved 28% more in operating costs ($236,151) than the total capital cost ($184,141) required to connect it to a CCI fiber network, and 60% more than the federal government’s share of that investment ($147,300). Based only on these direct social costs and benefits, I’d consider this a good investment of public funds.
But these direct cost savings to CAIs were not the only impacts of the federally supported BTOP fiber deployment program that were considered by ASR. It also estimated economic benefits driven by increased broadband availability in areas newly reached by the BTOP fiber networks. Using matched pair county-level analysis, ASR found that CCI-impacted counties achieved broadband penetration two percentage points higher than control counties. Based on this, ASR derived estimates of economic benefits of the $3.9 billion in CCI network investments using a number of widely accepted economic impact models. These impacts included:
- In terms of GDP, ASR estimated that “BTOP infrastructure spending could be expected to yield $5.7 to $21.0 billion in increased output annually using results from Czernich et al. (2011) and LECG Ltd. (2009) as the bases for extrapolation, respectively.”
- In terms of employment, ASR estimated that “the additional broadband infrastructure provided by BTOP could be expected to create more than 22,000 long-term jobs and generate $1.1 billion in additional household income each year based on a model developed by Kolko (2010), and 6,900 long-term jobs per year for at least five years, and a $328 million increase in household income for each year of increased employment, based on the work of Gillett et al. (2006).
- Based on an Allen Consulting Group finding that the value of broadband Internet access to the average American household is about 3.4% of average household income, ASR estimated the value of broadband to new subscribers of in CCI-impacted areas to be $2.6 billion per year.
These findings of the ASR Analytics study suggest that:
- The total capital cost (including 80% covered by a federal grant, plus matching funds), for constructing open-access fiber networks in underserved areas can be more than offset by just the first year of direct cost savings for Community Anchor Institutions connected to the network.
- The indirect economic benefits of such public investments, including increases in GDP, jobs and household income are also likely to exceed the cost of construction within the first year of operation.
Building on the ASR Analytics evaluation study
As noted above, ASR’s BTOP evaluation study used matched pair analysis of CCI-impacted counties to compare their growth in broadband availability to that of counties that were comparable on key control variables. ASR used NTIA availability data for multiple time periods to measure and compare these changes in availability (for more details see Appendix D of the ASR final BTOP evaluation report).
As discussed above, ASR found that, on average, the increase in broadband availability for CCI-impacted counties was two percentage points higher than in control counties, using the then-current broadband speed threshold of 3Mbps downstream service. ASR then used this differential to estimate and extrapolate economic impact variables (e.g., GDP, job growth, income) using the broadband impact models referenced above.
In light of ASR’s well-documented research and its promising though preliminary findings, an effort to update and expand on the strong foundation it and NTIA have built strikes me as timely, especially with special access policy questions getting focused attention from the FCC. More specifically, what I’d propose is to:
1. Use updated FCC availability data to explore how the matched-county broadband availability differential has evolved over a longer period of time.
2. Examine this broadband availability differential using speed thresholds higher than the 3 Mbps downstream level used by ASR, including the FCC’s current threshold of 25 Mbps downstream and 3 Mbps upstream.
3. For counties for which data is available, add to the matched pair comparison an analysis of broadband adoption data derived from the Census Bureau’s American Community Survey (ACS). Beginning with 2013 data, this data is being released annually for geographies with populations greater than 65,000, and should be available for virtually all counties on a blended five-year basis starting in 2017.
4. Examine and compare actual county-level economic indicators (e.g., County Business Patterns and other datasets available from the Census Bureau and other sources) for the matched pair counties. The goal here would be to explore the extent to which the economic impacts predicted by the models used by ASR actually occurred and/or whether there were other impacts suggested by these economic indicators.
5. Where notably large variations are found among the matched pair differentials in broadband availability and/or penetration, and/or in actual economic impact variables, explore potential reasons for these differentials based on qualitative and/or quantitative analysis of CCI projects and CCI-impacted counties exhibiting these large variations. The goal here would be to extract additional insights and lessons learned regarding how CCI networks can best deliver social value, as well as the contextual factors impacting how effective different approaches are in achieving that value.
Factors to be considered in #5 might include the ownership and management models employed by CCI grant recipients, the specific approach they take to providing “open access” to their fiber networks, as well as other policies and strategies they employ in relation to wholesale and last mile providers, CAIs, local community development programs, and local economic, demographic and institutional factors.
To help expand service within unserved and underserved areas…[e]ach of the grantees in the evaluation study sample implemented at least one strategy, and in many cases a combination of strategies, to ensure open access to the BTOP-funded network by third-party service providers. For example, the research and education network and the healthcare network in Arkansas established a partnership to deploy new and upgraded fiber and colocation facilities. Merit Network in Michigan offered indefeasible right-of-use agreements to private third- party service providers. MassTech fostered competition by helping CAIs compare services and prices offered by third-party providers that use the BTOP-funded network.
Similarly, different CCI grantees adopted different usage and pricing policies to support positive impacts of their network investments. For example, as described on pages 3-4 of its case study of Merit Network, a Michigan-based CCI grantee owned by member institutions of higher learning, ASR explained that:
The Merit network connects institutions of higher learning and facilitates collaboration by allowing them to freely connect to other institutions on the network, or access on-net services at speeds up to 1 Gbps. This allows institutions to collaborate on research, and to cut costs by sharing services, including hosting. Merit provides some content over this network as well, including Internet2. These services give faculty, staff, and students fast and reliable access to educational and research opportunities…The free on-net services provide incentive for CAIs to create wide area networks (WAN) using Merit fiber…[and] cost-savings [and greater efficiency] for any CAI organization with multiple locations.
Merit is an example of the Research and Education Network (REN) category of CCI grantee. Owned by member universities, it exhibits a range of generative characteristics, including support for training, collaboration and feedback among its user community, including:
[Regular] opportunities for Members to learn from each other and share best practices in the networking arena. Forums include the Michigan Information Technology Executive (MITE) Forum, Merit Joint Technical Staff (MJTS), Networking Summit, Bring Your Own Device (BYOD) Summit, and the Merit Member Conference (MMC).
The Merit Advisory Council (MAC) has a direct voice to our Board of Directors and leadership through which feedback and recommendations are provided.
The Merit Services Innovation Group enables Members to provide suggestions and feedback regarding current and future services.
Merit facilitates collaboration between Members and regularly contributes staff and resources to educational and research activities.
Professional Learning events are tailored to the needs of our Members and are offered at reduced cost.
One starting point for considering the impacts of differential policies, structures, strategies and programs among CCI grantees would be a careful review of the dozen CCI case studies conducted by ASR. Another would be using the expanded matched pair county analysis described above to identify differences in the availability, penetration and economic impact variables across CCI projects.
In my view, a research project along these general lines would: 1) help maximize the ongoing value provided by existing CCI projects; 2) provide valuable guidance for consideration of future programs designed to build on the success of and lessons learned from the BTOP program and; 3) shed light on policy debates and options related to special access and perhaps other communication and infrastructure policy issues.