By Patrick Quigley
(posted Wednesday, July 23, 1998)
Last month, the Federal
Communications Commission dialed
in a $1.275 billion subsidy to help
schools, libraries, and rural health
care providers purchase Internet
service. The program, which will help
pay for Internet access and internal
data wiring at the educational and
health facilities, resurrects a two
century old debate in the political
economy: What services should the
federal government subsidize?
Under the rubric of "universal service,"
the feds already require business and urban
phone customers to subsidize rural customers
to the tune of $1.7 billion. Some states
mandate phone discounts for the poor and
make up the difference by boosting other
users' bills. In the name of universal service,
the federal Rural Electrification Administration
spends $33 million subsidizing electric power
for upcountry customers. And since its
inception, the government has subsidized
postal service to rural addresses at the
expense of urban customers.
niversal service's original proponents
maintain these services are so essential to
modern civilization that it would be
unconscionable to allow the market to price
them beyond the reach of the less affluent. In
that spirit, the government currently believes
the Internet--which just a few years ago was
considered a luxury--is now a necessity.
The merits of universal telephone and
postal service aside, there are several strong
arguments against an Internet subsidy:
1) You can live and learn quite handsomely
without access to the Internet.
2) Many of the poorer rural communities that
have applied for the subsidy lack the high
speed phone lines that make the Internet
worthwhile, keeping them Internet have-nots.
3) Where fast rural lines are available, schools
and libraries can scarcely afford textbooks and
periodicals, let alone new computers and
training for Web surfing.
4) However well-meaning the new subsidy,
technology is moving so fast that the old
regulatory apparatus--based on permanent
scarcity and obstacles of distance--don't apply
to the Internet.
If the federal government is serious about
making Internet access affordable to schools
and libraries, it should disconnect this
program.
he Internet "e-rate" subsidies, as they're
known, were authorized under the 1996
Telecommunications Act and are funded with
new taxes on long-distance telephone
companies, the size of each company's
contribution depending on its market share.
AT&T and MCI have protested the tax and
pledged to pass the cost on to consumers:
MCI charges 5 percent on all out of state
long-distance calls, and AT&T charges a flat
rate. The FCC has received 30,000 e-rate
applications and expects to start handing out
funds this summer.
In places like rural Alabama, Mississippi,
Louisiana, New Mexico, and Arizona, where
there are no high speed Internet lines, schools
might be willing to settle for POT (plain old
telephone) connections to the Internet at 56
kps. But few Internet service providers serve
rural America, because the current number of
consumers is too small for them to make
money. For these communities, the FCC's
e-rate department recommends dial-up
services like AOL that offer 800 access at a
pricey 10 cents a minute premium. If you
connect 12 hours a day and six days a week
to the Internet via AOL's 800 line, you'll pay
$22,727.40 a year (assuming an AOL service
rate of $21.95 a month).
library with the maximum allowable
e-rate subsidy of 90 percent would still
find itself paying a monthly Internet bill of
$186. That might not sound like a lot of
money, but it's $186 many strapped local
libraries don't have. And if they did have it,
they'd spend it on periodicals, new books, or
capital improvements. As previously
mentioned, the e-rate discount won't cover
any portion of the hardware bill either, leaving
the local community responsible for PCs,
modems, and training for teachers and
supervisors.
The e-rate plan also mistakenly imagines
that high speed, affordable Internet service
will never reach rural America without
government help. Perhaps the e-raters think
technology is still crawling along as it did
when Theodore Vail cut his monopoly deal.
Instead, the cost of computer gear is falling
precipitously, and affordable bandwidth--the
measure of data transmission--is growing at an
exponential rate. (Click here for a graph that
illustrates the growth in bandwidth.)
he Clifton County, Ariz., public library
illustrates the money and technology woes
of rural institutions. The three libraries in
Clifton (population 8,000) operate five PCs,
one of which is dedicated to public
access--word processing, CD-ROM access,
and the like. Clifton librarians are the only
ones who can access the Internet, and they do
it sparingly, over the libraries' one phone line
to a free Arizona State Library connection.
How much could Clifton's libraries afford to
pay to bring greater Internet access?
"Anything that costs more than 5 cents is
prohibitive," says Head Librarian Rebecca
Oliver. Next year's library budget of less than
$100,000 must cover four staffers' salaries
and other expenses.
Today, nobody disputes the argument
that Vail's telephone monopoly stifled
technological innovation. The first round of
telecommunications deregulation in the '70s
that opened long-distance service to
competition benefited consumers and spurred
innovation. Likewise, since the 1982 court
order that dismantled the AT&T monopoly,
the market has produced new and affordable
technologies that have revolutionized
telephone service. Do we really want to
ghettoize rural Internet service as a welfare
operation when the best telecommunications
policy seems to be to let the market work
instead? Cable and satellite TV didn't require
subsidies to serve rural customers. Why
should the Internet?
lready, technologies are emerging that
reduce Internet access costs and increase
bandwidth for rural users. DirecPC and other
companies now provide Internet access via
satellites that boast download access speeds of
up to seven times that of POT connections.
The cost is $200 for the satellite dish
hardware and $29.95 a month for service.
Several companies, such as @Home and
Time Warner, are marketing high speed
Internet access over cable TV lines, with a
national rollout of the service only a couple of
years away. Currently, cable lines run past 97
percent of U.S. homes, and many small
communities have a cable TV provider in their
central districts where schools and libraries
are. One company has even experimented
with transmitting data signals over common
electric power lines--and at speeds of up to 1
megabit a second, which is 150 percent faster
than even DirecPC. If this technology proves
successful, it would make much of the
telephone-based part of the Internet obsolete
almost overnight.
If the last two decades of deregulation
have proved anything, it is that subsidies are
easier to avoid than they are to repeal. Also,
subsidies reallocate resources that would be
better spent elsewhere. As bandwidth
continues to grow exponentially and the price
of hardware continues to fall, rural schools,
institutions, businesses, and individuals will
become a lucrative market. The e-rate might
look like the answer to rural and poor
America's technology problems, but it isn't.
Good things come to those who wait.
Links
Visit the FCC's 1996 Telecommunications Act
and Universal Service home pages for e-rate
resources that include speeches and reports to
Congress. If you lose patience navigating, try
the State of Wisconsin's Public Library
Development site, which offers both plain and
hypertext versions of the 1996 act. (The
White House offers a summary here.) See this
June 1997 Slate "Gist" for a backgrounder on
telecom reform. And Slate's "Webhead,"
Andrew Shuman, explains bandwidth.