Federal Communications Commission member Michael O'Rielly is not a fan of calls to increase federal spending on broadband subsidies, arguing that the approach has "serious potential drawbacks."

O'Rielly, a Republican, posted a blog yesterday adding his thoughts to a debate "over whether there should be an expansive infrastructure spending and policy bill" with broadband-related infrastructure provisions. O'Rielly argued that broadband deployment in the United States is already very good considering the country's low population density, with at least 90 percent of residents having access to 25Mbps download speeds. (Former FCC Chairman Tom Wheeler had a less rosy view of US broadband, criticizing the lack of competition at high speeds.)

"According to the OECD’s latest statistics, South Korea’s fixed broadband penetration subscriptions per 100 inhabitants was ranked fifth compared to the US ranking of seventeenth, but Korea’s population density in 2015 was 519 per square kilometer compared to our 35," O'Rielly wrote. "Thus, artificial comparisons to other nations of different sizes and terrains doesn’t serve much value without understanding the contextual situations we face as a nation."

Senate Democrats recently proposed $20 billion in broadband funding as part of a $1 trillion infrastructure proposal, and Republican lawmakers have reportedly been open to the idea of including broadband in infrastructure spending.

O'Rielly acknowledged that "consumers in some areas in America do not have sufficient broadband." He also praised the efficiency of the FCC's own Connect America Fund (also known as the universal service high-cost program), which draws from surcharges on Americans' phone bills to pay for rural Internet service. That program's reverse auction format has resulted in a "relatively cost-efficient" distribution mechanism, he wrote. But he argued that additional spending for other broadband programs could cause harm, "especially if it is done in a haphazard way."

"While sound telecom policy provisions that promote infrastructure buildout could make sense, I would argue that policymakers should be leery of new communications infrastructure spending, as the last thing consumers or businesses need is an encore of the market distortions caused by the last Federal government economic stimulus efforts," O'Rielly wrote. "For the sake of efficiency and soundness, if new government money has to be included for broadband, it should be done in a way that does not harm competition in the marketplace, prevents bureaucrats from picking winners and losers, is technology agnostic, distributes resources in an effective and efficient manner, and does not undermine the FCC’s universal service high-cost program."

Subsidy pitfalls

O'Rielly listed five potential pitfalls of federal broadband spending:

Harms to private sector: O'Rielly argued that Obama Administration funding for fiber construction gave money to some providers but not others, thus "distort[ing] the ability of non-recipients to operate, pay off debt, raise capital, and satisfy consumer interest."

Over-paying and over-subsidization: O'Rielly said the FCC's high-cost program "is designed to limit any subsidy provided to broadband companies to only what is absolutely needed to promote access," while other grant programs and loan subsidies "do not induce any competitive pressure," causing the federal government to overpay for broadband.

Lack of coordination: After the 2009 federal stimulus, there wasn't enough coordination between the FCC and Departments of Commerce and Agriculture, which made it hard to prevent duplication of programs, he said.

Bureaucrats picking winners and losers: "Application-based programs use highly-questionable selective criteria (e.g., points system) combined with human intervention to determine what projects to fund," allowing broadband programs to be "monopolized by the well-connected," he wrote.

Technology discrimination: While many broadband programs prioritize fiber deployments over other technologies, O'Rielly called this a "myopic view" that ignores the potential of fixed wireless and satellite. "Dragging fiber to the top of every mountain may not make any sense in terms of cost, time to build, safety of installers and long term survivability against the surrounding elements," he wrote.

O'Rielly also criticized the FCC's use of a 25Mbps download standard, saying that slower speeds are acceptable for many and that "focusing on artificial speeds diverts attention and resources from establishing service to those lacking any broadband service." He concluded by saying that if Congress decides to boost broadband spending, lawmakers should add the money to the FCC's existing high-cost program instead of making new programs that might be inefficient.

"Instead of reinventing the wheel, if—and that's a big if—additional Federal broadband spending is deemed important and appropriate, I would argue that such funding should be directed into the Commission’s existing high-cost subsidy program," O'Rielly wrote. "Because the program is oversubscribed within the current budget there is room to inject funding without causing dramatic changes or jeopardizing its operation... In short, increasing the allocation with other resources would allow greater broadband expansion in a timely and more cost efficient manner, and with less influence peddling."

O'Rielly and Chairman Ajit Pai, also a Republican, ascended from the minority to the majority of the commission after the election of President Donald Trump. Pai said that one of his top priorities will be closing the "digital divide" by bringing broadband to all Americans. This is in keeping with the FCC's statutory responsibilities, as the commission is charged with deploying broadband "to all Americans in a reasonable and timely fashion."

One of the FCC's first acts under Republican leadership provided up to $170 million from the Connect America Fund to New York to support a state program that will boost deployment in unserved rural areas. This did not require additional spending because the money was already in the fund, but O'Rielly dissented in part, saying that the FCC did not receive sufficient assurances that New York won't "overpay for deployment in some areas... leaving other areas without service."