Verizon donated $100 million to schools. That’s just 7.5 hours of revenue.

February 7

(Jewel Samad/AFP/Getty Images)

This week, President Obama announced the latest in his plan to bring high-speed Internet to 99 percent of the nation's schools. The Federal Communications Commission said it would increase investments in educational broadband by $1 billion a year, effectively doubling what it spends now. And on Tuesday, three of the nation's biggest telecom companies — Verizon, Sprint and AT&T — each announced a $100 million commitment to provide free wireless data or other in-kind donations for up to four years.

But while the corporate charity will make a big difference to some students, policy experts say it won't be enough to fill the yawning gap between educators' needs and what the government can reasonably accomplish on its own.

To be a student or library user without Internet access is pretty much unthinkable these days. Yet that's precisely the problem facing many of the country's educational facilities. Their biggest complaint about broadband? Adequate service is unaffordable, according to a 2010 government study. Forty-four percent say their existing connections can't keep up. The high cost of better plans, meanwhile, keeps 39 percent from upgrading; 27 percent say they lack the money to install high-speed cables.

In other words, there's a dire need for cheaper service and infrastructure — and it's going unmet, even as the Internet providers who can do the most to remedy the situation rake in billions of dollars in profit every year. Yes, they're businesses, and their duty is to shareholders. But what we now take for granted as an ironclad corporate norm favoring shareholder dividends is a fairly recent phenomenon; it was less than a century ago that communications companies like AT&T operated on a belief in public service. Today's broadband providers should aspire to that.

A billion for broadband

"[The private-sector contributions] focus on a lot of exciting things — like devices, and helping teachers with broadband connectivity," said Danielle Kehl, a policy analyst at the New America Foundation's Open Technology Institute. "But it's not going toward the E-Rate infrastructure itself, and that's one of the critical pieces."

E-Rate is the governmental program that helps disburse telecom subsidies — including the aforementioned $1 billion — for schools and libraries. Demand for that federal money has historically topped $5 billion annually, according to the International Society of Technology in Education. While E-Rate will now have more to spend on educational broadband, it does little to change the underlying economics that make bandwidth so expensive in the first place.

In fact, the White House's effort asks almost nothing of the companies that provide the infrastructure and service. Aside from the one-time donation announced Wednesday that amounts to a fraction of their annual income, these businesses will continue making profits on this effort as though they were charging educators at full market rates.

How can that be? To describe it, it helps to understand how E-Rate generally works. First, eligible schools and libraries that want discounted Internet announce they're looking for a provider. Second, carriers will submit competitive bids in hopes of a deal, said Edward McFadden, a Verizon spokesman. Once school or library officials settle on an offer and its application has made its way through the E-Rate system, the FCC will agree to shoulder a portion of the cost.

There's a cap on how much carriers can charge; they're not allowed to quote a price that's more expensive than what comparable entities in the area pay. But because the public subsidy is paid to the Internet service provider (ISP), the company still gets every penny of its desired rate. Suppose the FCC pays 20 percent of the price, and the library pays 80 percent -- no matter what the distribution, the carrier always gets 100 percent of what it asked for.

There's nothing inherently unfair about this system. In theory, competition among carriers should help drive costs down. In many areas, though, educators are extremely limited in their choices. Here's how many parts of the United States are covered by at least one broadband provider.


Areas with at least one wireline broadband provider. (broadbandmap.gov)

Looks pretty good, right? But how many parts of the country are served by at least two broadband providers?


Areas with at least two wireline broadband providers. (broadbandmap.gov)

You see where this is headed: If a community is served by only one broadband company, that company exercises a tremendous amount of control over prices. That's how, as the American Library Association's Marijke Visser said, one Idaho library could pay $100 a month for Internet when the same service might cost another library in a rural area $1,000 a month.

"Our libraries tell us that all the time," Visser said.

Making the Internet affordable

In fairness, building infrastructure is expensive, particularly in rural areas. It doesn't always make good business sense for a company to lay down fiber someplace. So some have devised other ways of lowering the cost of bandwidth. Education Superhighway, a San Francisco-based nonprofit, proposes grouping underserved school districts together in ways that make it more economical for businesses to invest in local infrastructure. Cities, schools and universities in New Jersey already negotiate as a coalition known as NJEdge to enhance buying power.

Policy analysts are also calling for better transparency. What little data exists on the cost of broadband for schools and libraries isn't well tracked, which makes it hard to establish a case for better (and cheaper) service, said Kehl. There's currently no easy way to compare across institutions, either. More information would put more power in the hands of educators.

But these are mostly workarounds — non-structural changes that don't alter the basic incentives of incumbent carriers. To really shake things up, you'd need an entity like Google Fiber, which is widely credited with accelerating AT&T's fiber optic plan for Austin. Various cities are attempting to build their own high-speed broadband networks as well, which in some cases has inspired the fury of cable companies fearful of competition.

Driving down the price of installation and service will likely require more efforts like those, according to industry watchers.

In an ideal world, companies would be responsive to more than market pressures. Like the AT&T of the 1910s, today's carriers would be bound by a spirit of public service that encouraged them to discount educational broadband without anyone having to say so. That spirit exists today in at least some measure; $100 million is not nothing to a school or library running on dial-up speeds (yes, they exist).

(FCC)
(FCC)

The need for lower prices

Telecom companies also provide millions in grants, devices and wireless service to low-income and underprivileged students. Sprint says it gives $24 million a year to thousands of K-12 schools nationwide, and its Project Connect program uses money from recycled phones to pay for educational benefits. Meanwhile, Verizon's philanthropic arm, the Verizon Foundation, says it's given away more than $400 million since 2005.

Let's face it, though -- $400 million is practically nothing when the biggest telecom companies pull in hundreds of billions of dollars every year in revenue. Some back-of-the-napkin math reveals that Verizon will make back, in profits, Wednesday's $100 million pledge in approximately three days. If you're going by operating revenue instead of income, Verizon hauls in $100 million every 7.5 hours.

If providers say they want to connect educators to better Internet, and the educators say the providers' high rates are their biggest hurdle, then a more meaningful solution would simply be to reduce the rates. It's not like the carriers can't afford it. Never mind the gifts of new tablets and phones — although not literally; they're important, but they also tie you into the carrier's network when the free data ride expires.

A more substantial commitment would be to offer service to schools and libraries at a fraction of the market price. Carriers that already do should make that rate public. Better yet, aggressively build high-speed fiber optic lines to underserved areas knowing that it's uneconomical, but going for it anyway.

There's a place for the FCC here, too. The commission is exploring ways to change how federal monies under E-Rate are disbursed. Perhaps instead of asking schools to bargain with Internet providers directly (and in many cases at a disadvantage), the government could take a more active role negotiating more affordable rates on behalf of institutions. Covering a portion of what schools and libraries have already agreed to pay glosses over the government's tremendous bargaining power and delegates it as a spigot for guaranteed revenues.

Yes, companies owe it to their shareholders to make a respectable return. But the shareholders also happen to include parents, students and educators themselves. Even investors who aren't directly connected to schools and libraries today have arguably benefited in the past from an educational and community system that put them in a position to gamble with their money. To serve that system is to serve the shareholders (not to mention those of the future, too).

I don't expect carriers to embrace this idea overnight. But I hope they surprise me.

Brian Fung covers technology for The Washington Post.
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