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I didn't believe it until I ran the numbers, but 20% of annual USF/ICC spending is enough to reach easily half of the 35M or so homes - about 100M people - don't take broadband in the U.S. Personally, I think the money is better spent on the poor, especially given that almost everyone believes 50-90% of ICC/USF is wasted except those collecting the cash.

The trick is not to over-subsidize. About $15/month provides a normal profit (?40% EBITDA) to the carriers, because the marginal cost of broadband is generally $8/month. That figure is from leading Wall Street analyst Craig Moffett, presumably direct from internal numbers at the big cablecos, confirmed by my own research. Telcos accustomed to huge subsidies will scream, as will their captive Congressmen, but it's the right thing to do. Each family enrolled would pay say $7/month.

Here's the numbers for 3 to 10 megabit service for most of the poor in America. The difference in bandwidth cost between "back of the bus" speeds and real service is well under $1 (large carrier).

$8: The marginal cost/month of broadband in 85+% of U.S., essentially all large carriers. I come to a figure of $5-12/month by by adding up the cost of bandwidth, customer support, modems, and the other main inputs required to add a customer to an existing network. Moffett's $8 is about right for the large carriers serving 90% of the U.S. Since the networks are already in place – no one is building a new network in most of the U.S. – the $8 marginal cost is the right one in this context. Higher numbers either assume a new network buildout, are the last 5% of rural homes, or simply errors. I hope Rob Curtis gets this one right, because it will inform $billions in future spending.

$15 A reasonable price for the government to pay when buying millions of lines for lifeline service. That provides the companies with a reasonable profit, perhaps 40% EBITDA. It's ridiculous to pay retail for millions of lines. We know $15 is reasonable because both Verizon and AT&T charged $15 price for basic broadband until recently and always said they were profitable.

$7 Customer pays (a bargain)

$8 Subsidy/month to get to the $15 total.

< $100 Subsidy per family per year 

10,000 families served per million of subsidy. 10,000,000 per $B.

20-30B homes for $3B/year. That's a lot of money to you or me, but less than 20% of the current USF/ICC total.,Verizon or AT&T annual cash flow, etc. To extend this to the last 5-10% requires bringing down ripoff rural backhaul costs via special access.

For the record: I've been urging this on everyone in power I can contact, many of whom are DSL Prime readers. Almost everyone at the FCC reads their own email except the Commissioners, so you too can petition them. In the spirit of the ex parte rules, when I make recommendations at the FCC I write them up like this publicly as soon as practical. If you review past issues of DSL Prime, you'll see I've presented at two FCC workshops and often spoken with senior officials.

Why isn't it in the plan already?

"That's not how lifeline works" I hear from someone powerful.We pay much more to the carriers, even when we know the price is very high because competition is weak. "That's not the rules." No one has absolute power to change those rules, not even the Chairman of the FCC or the Presdiant, but my correspondent is senior enough to put a plan like this on the table and possibly get it approved. Chairman Genachowski says getting everyone connected is Obama's highest priority. He can change the rules to make this practical.

"Carriers today are getting enormous margins on broadband" several on wall street have written. Moffett presented an 80% margin figure at the broadband workshops and one respected analyst tells me 90% in a private email. There prices provide a profit typical of U.S. business and most telecoms, but they will fight like hell to charge even more.

"Most wireline carriers will go bust in a few years if we don't increase their subsidies." Folks including Julius Genachowski (I hear second hand) are worried about this and it's often whispered on wall street. AT&T and Verizon will keep landlines going no matter what because landline backhaul is crucial to their mobile network. Income from the networks is far more than enough to pay the ongoing expenses. But Qwest and many others borrowed enormous sums to prop up dividends and buy their own shares and competitors. Iowa Tel, for example, in 2009 had profits of $0.72 but paid a dividend of $1.62.  Frontier had earnings of $0.57 but paid a dividend of $1. Frontier hasn't covered their dividend since at least 2005. They've made up the difference by starving their networks while borrowing heavily. All these companies have lawyers in D.C. demanding higher subsidies, and no regulator wants to deal with a bankrupt carrier.

My take is that helping the poor comes before bailing out speculators in junk bonds, but I often tilt at windmills.

months ago, although I didn't realize just how favorable the numbers would prove out. http://fastnetnews.com/stim/179-s/2188-save-half-on-broadband-subsidies-dont-pay-retail-for-a-million-lines. Free Press made it a prominent part of their proposals lately. That's wasn't enough to rise over the din of the carrier's demanding higher, not lower subsidies.