A $40 Billion Reverse-Auction Program Could Bridge the Rural Broadband Divide, New ITIF Report Concludes

WASHINGTON—Despite years of effort and tens of billions of dollars in subsidies, nearly one in five rural Americans still don’t have access to broadband Internet service. But a large, one-time injection of capital could bridge that gap if it is well targeted and carefully allocated through a reverse-auction program that leverages economies of scale by encouraging large providers to participate, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.

With official estimates suggesting that an investment of approximately $40 billion could achieve 98 percent coverage with high-speed, easily upgradable networks, ITIF’s report calls on Congress to enact a reverse-auction program to upgrade rural broadband infrastructure, either as part of a broader infrastructure package or on its own.

“It’s time for a new approach to bridging the rural broadband divide,” said Doug Brake, director of broadband and spectrum policy at ITIF, who co-authored the new report. “The longstanding model has been to make large service providers pay into a universal service fund that channels money into subsides for lots of small, inefficient firms that end up making meager, ineffectual investments in rural infrastructure. That is a wildly inefficient way to solve this problem. Lawmakers should change the game with a big, one-time capital expenditure that is administered through a reverse-auction program set up to get larger, more efficient firms involved.”

ITIF’s new report outlines a four-step roadmap for Congress to close the rural broadband gap:

1. Get the maps right. Before a large capital expenditure, it is important to know precisely where and what type of infrastructure is already available. Congress has mandated and allocated funding for new mapping efforts. The Federal Communications Commission just needs to finish implementing the process.
2. Subsidize unserved areas through reverse auctions. While the specific amount will ultimately be decided by the political process, ITIF has concluded based on official estimates that the appropriate expenditure of federal capital to significantly upgrade rural networks would be in the $40 billion range.
3. Allocate funding with appropriate standards. The standards for receiving funding should be technology neutral, with no restrictions or set-asides for particular access technologies. Instead, reverse auctions should do the heavy lifting of deciding the best access technology for any given service area.
4. Set up the program for long-term success. The program should encourage broad participation by eliminating red tape that currently channels subsidies toward small, inefficient providers; it should rely on agency expertise instead of banks to assess bidders’ worthiness; it should require build-out milestones and enforcement mechanisms up-front; and it should allow high-cost rural broadband to be priced higher than urban broadband.

“There is clear bipartisan support for connecting rural areas,” said ITIF Policy Analyst Alexandra Bruer, who co-authored the report. “Policymakers can draw on decades of experience and knowledge gained from various broadband programs across multiple departments and agencies to build a more sustainable model than we have had in the past. The path forward is to encourage cost-effective infrastructure with goals based on reasonable needs and expectations. A program that is set up to encourage broad participation in procurement-style auctions would promote innovation and help to close the rural-urban digital divide for good.”

Read the report.