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West Virginia's Smart Subsidy Law
Thursday, 08 May 2008 00:00
If enforced: minimal subsidy, only where needed
West Virginia just passed a law to offer carriers 40% installation grants for broadband where subsidies actually are needed but not ridiculously expensive. If West Virginia doesn't get bamboozled by the carriers and their enablers, they will quickly get to 97% coverage at a meg or more. The total cost should be less than $10M.

Not throwing money where it isn't needed sounds logical, but virtually every proposal like this spends most of the money where carriers can be profitable without a grant.  The cost will be a fraction of what the state currently expects to spend expect.  I'm strongly in favor of universal service, but believe the best way to deliver it is to cut out giveaways to companies that don't need them.

It's generally easy to figure out if a subsidy makes sense. I'm working on a more detailed writeup, but generally any group of 20-30 homes within 16,000 feet of fiber is profitable DSL territory. 12 Port DSLAMs the size of a book go almost anywhere and pay for themselves in less than a year.  In most of the developed world, small clusters like that are already covered. Britain is around 99% even in the Scottish islands, and France over 95%. Both Verizon and SBC in 2000 said places like that would be covered. West Virginia is particularly poorly served, because Verizon decided to sell their West Virginia lines and stopped installing DSL equipment several years ago.

No subsidy if:
  • The home can already get reasonable broadband service from another company. That logical rule cuts the funding for Verizon West Virginia in half or more, because many of the places they don't currently serve have cable modems available. Why subsidize a second carrier, except to repay a political debt?
  • If the customer can be connected profitably without a subsidy. That's the mistake in most U.S. proposals. They give money to any build, thereby rewarding those carriers who waited in the hope of collecting from the government. DSL and cable equipment is now so cheap you can serve many more.
  • The cost is truly prohibitive. Use satellite or wireless instead. A small carrier group proposed spending $30,000/home to extend broadband to some places. That's ridiculous. 1-3% of the U.S. can't be reached economically except by satellite. Improve the satellite capabilities sensibly instead of ripping off the public purse.  There are too many people without homes in the richest country on earth.

Subsidies need to be spent on the most affordable solution, not on a costplus basis. Homes 15,000 to 25,000 feet from fiber can be served with a $200 repeater, easily installed, as hundreds of rural telcos prove.  40% of the cost of the repeater + installation is about $150 and would cover the majority of homes which can't get service today. There are also inexpensive upgrades for many remote terminals.

Similar small sums would allow the handful of analog cable systems to go digital (3% of the U.S.) or cover other inexpensive “best practices” operators have developed around the world. For example, most lines between 15,000 and 20,000 feet actually can be offered 1 megabit. The standard was designed to cover almost everyone within 18,000 feet, and ADSL2 advances upon that five years ago. BT tested all their lines years ago, and discovered bringing in the tester dramatically increases coverage. Connect Kentucky found fixed wireless could fill some of the remaining gaps, although West Virginia is pretty hilly.

A strong argument can be made that no subsidy, broadband or voice, should go to obsolete copper networks. Higher quality networks - fiber or perhaps DOCSIS 3.0 - costs much less to operate and offer the customer more.  Time to bring the 21st Century everywhere.