Obama's Broadband Plan ---

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Bruce Kushnick" <bruce () newnetworks com>
Date: January 9, 2009 2:29:36 AM EST
To: <oia () lists bway net>
Subject: [OIA] Obama's Broadband Plan ---

Placing bets on just how little change will occur, or more to the  
point about how much of our change ends up in the pockets of AT&T and  
Verizon…

http://www.businessweek.com/print/magazine/content/09_03/b4116027365196.htm

Obama's Broadband Plan

Tax breaks for companies that increase Internet speed or create new  
networks are likely to go to existing large players

By Arik Hesseldahl

The Obama Administration has pledged support for universal broadband,  
or making speedy Internet service available to all Americans. But the  
ideas under consideration by the President-elect's transition team are  
likely to fall short of the radical changes some activists have sought.

At the core of the $20 billion to $30 billion effort under discussion  
by Obama's advisers are tax breaks for companies that extend the  
availability of broadband or, in regions where it already exists,  
boost the speed of service, several people involved in the discussions  
tell BusinessWeek. Companies that build broadband networks in areas  
with no service could receive as much as 60% of their investment back  
in tax credits. Companies that increase the speed of existing networks  
could get tax credits of as much as 40%. The tax incentives also could  
be structured to promote high broadband speeds, according to Jeffrey  
Campbell, director of technology and communications policy for network  
equipment maker Cisco Systems (CSCO). For example, some analysts say  
the government could give 20% tax credits for 20-megabit-per-second  
service and 40% credits for 100-megabit service.

As currently conceived, the incentives would be available to any  
company. However, those most likely to benefit would be existing  
broadband providers such as AT&T (T), Verizon Communications (VZ), and  
Comcast (CMCSA), because they have the capital to make investments,  
and it costs less to extend their networks than it does to build new  
ones. The new Administration appears unlikely to push forcefully for  
more competition in broadband, an idea that activist groups such as  
Free Press and Public Knowledge say is essential if the U.S. wants to  
catch up to broadband leaders such as Korea. "Broadband is a natural  
duopoly," counters Robert D. Atkinson, president of the Information  
Technology & Innovation Foundation, a nonpartisan think tank.  
Proposals to create a third competitor to take on the telecom and  
cable companies in most markets, he says, are "misguided."

Bonds in the Offing?

The Obama transition team is still working on the broadband plan, and  
details could change. One issue that has not been resolved is whether  
the federal government will help companies issue bonds to finance  
broadband buildouts. Such a program could help companies such as  
Clearwire (CLWR), a struggling Kirkland (Wash.) startup that wants to  
roll out wireless broadband service across the country. Blair Levin,  
point person for broadband on the transition team, declined to comment  
for this story.

Levin and his team are working on proposals to stimulate demand for  
broadband service. Schools, libraries, and health-care organizations  
could get tax breaks or grants for expanding the range of services  
they offer online. One of Obama's talking points during the  
Presidential campaign was that wider use of digital health records  
could improve the industry's productivity and cut costs.

In addition to the tax credits under discussion, the federal  
government may also provide grants to states for the construction of  
broadband networks in regions that never get coverage. States probably  
would use the money to hire private companies to build networks in  
remote areas. The Agriculture Dept. already has a Rural Development  
Broadband Program, which has connected nearly 600,000 households in 40  
states since 2002.

The broadband push is an important part of the Obama Administration's  
broader stimulus plan because it addresses several goals. Besides  
creating immediate jobs in construction and allowing more people to  
use the Internet, the effort could raise the country's broadband  
standing internationally. Once ranked fourth in the world by the  
Organization for Economic Cooperation & Development, the U.S. has  
fallen to 15th among developed countries in broadband penetration,  
well behind nations such as Denmark, theNetherlands, and Norway.  
"Broadband is the key to America's economic future," says S. Derek  
Turner, research director at Free Press. "Broadband is a great way to  
create thousands of new jobs, but we have to do it in the right way."

Although details of the Obama plan have not been announced, telecom  
and cable companies are in favor of the government's support for  
universal broadband. "It's a worthy goal," says Thomas J. Tauke,  
executive vice-president at Verizon Communications. The existing  
broadband companies say it's crucial that Washington doesn't hurt the  
ongoing investments in Internet infrastructure. Many outfits, for  
example, don't think the government should make direct investments in  
broadband networks that could compete against the telecom and cable  
players' services.

But Turner at Free Press is skeptical that a broadband program relying  
heavily on tax credits is the best approach. The risk, he says, is  
that the country will fail to encourage competition, and the money  
spent will go largely to the telecom and cable companies that already  
dominate the business. "There's no point to doing all this if all  
we're doing is writing the incumbent [players] a blank check," he says.

With Pete Engardio and Peter Elstrom in New York.
Hesseldahl is a reporter for BusinessWeek.com.


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