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Major Carriers Shun Broadband Stimulus
Funds Would Come With Tighter Rules

By Cecilia Kang
Washington Post Staff Writer
Friday, August 14, 2009

The Obama administration made a national priority of spreading high-speed Internet access to every American home and offered stimulus money to help companies pay for it, but the biggest network operators are staying away from the program.

As the Aug. 20 deadline nears to apply for $4.7 billion in broadband grants, AT&T, Verizon and Comcast are unlikely to go for the stimulus money, sources close to the companies said.

Their reasons are varied. All three say they are flush with cash, enough to upgrade and expand their broadband networks on their own. Some say taking money could draw unwanted scrutiny of business practices and compensation, as seen with automakers and banks that have taken government bailouts. And privately, some companies are griping about conditions attached to the money, including a net-neutrality rule that they say would prevent them from managing traffic on their networks in the way they want.

"We are concerned that some new mandates seem to go well beyond current laws and [Federal Communications Commission] rules, and may lead to the kind of continuing uncertainty and delay that is antithetical to the president's primary goals of economic stimulus and job creation," said Walter B. McCormick Jr., president of USTelecom, a trade group that represents telecoms including AT&T and Verizon.

Yet those firms might be the best positioned to achieve the goal of spreading Internet access to underserved areas, some experts say.

"If you want to get broadband out, you have to do it with [those] who brought you to the dance in the first place, and in this case it is the incumbent cable and telephone carriers who have 85 percent of lines in the country," said Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington tech policy think tank. "This is not basket weaving. This is really complex and intensive technical stuff that takes a fair amount of sophistication and scale to be able to do right and to continue to upgrade."

Obama has pushed for universal access to broadband since his presidential campaign, saying it would underpin the country's economic future. The stimulus funds target homes and businesses in the hinterlands that have largely been overlooked by broadband providers because of the hefty costs to lay down fiber-optic and other broadband pipes to small communities.

At the same time, the government has promised more scrutiny of industry practices that seem to limit consumer access to services, such as Comcast blocking the peer-to-peer file sharing service BitTorrent in 2007 and Apple's recent decision to block Google's voice service and the free Internet calling service Skype on the iPhone.

Those efforts have alarmed the major carriers. Specifically, some of the biggest firms fear that a clause in the stimulus plan that says recipients of the grants cannot "favor any lawful Internet applications and content over others" -- the concept known as net neutrality -- could lead to more rules down the road.

This condition goes beyond guidelines at the FCC that have been criticized by consumer advocacy groups as too vague. Carriers have pushed to keep current rules in place and see the condition on the stimulus grants as a potential precursor for additional rules at the FCC on how carriers can manage content over the Web.

The companies paint dire scenarios where new rules would lead to networks getting clogged with spam and too much video content, slowing down service for all users.

"It's not cost-effective for the big network operators to play in rural [markets] in the first place, and if they take federal money that comes with all these strings attached to it, they are opening themselves up to being regulated even further," said Roger Entner, head of communications research for Nielsen IAG.

McCormick said net-neutrality conditions on the grants are fuzzy and may give network operators pause before investing in long and expensive projects that could end up in a tangle of technical and legal hang-ups over how the firms oversee their networks.

"Clearly, it's causing potential applicants to reflect upon the uncertainties," McCormick said.

Verizon said it decided not to apply before conditions were announced. Comcast, which mainly serves urban and suburban areas, said it would also abstain. AT&T said that it likely would not apply but that it is open to partnership with state and local governments who win the grants.

Corporate officials have also said it would look bad for a company like AT&T or Comcast to come to the government with hat in hand when they are among the few companies in the economy flush with billions of dollars in cash reserves.

One official at a large network operator said on the condition of anonymity that once taken, government funds incite a "mob mentality" that could preclude sponsoring golf tournaments or giving executives bonuses, for fear of political backlash.

Some public advocates and analysts say the carriers never had a compelling reason to seek the grants.

"They weren't going to apply," said Ben Scott, head of policy at public advocacy group Free Press. "They are using this as an opportunity to grandstand against net neutrality."

Rebecca Arbogast, head of tech-policy research at Stifel Nicolaus, notes that the biggest carriers would be less inclined to deploy networks in rural areas because there is not enough demand to justify the ongoing financial investments. She said the companies should have expected stronger net-neutrality conditions because it was mandated by Congress in the stimulus act.

"With a few exceptions, the net-neutrality provisions were not a great departure from what I think was already out there and is consistent with the path that most recognize we were already headed down," Arbogast said.

The Commerce and Agriculture departments, which are handing out a total of $7.2 billion in broadband stimulus grants through 2011, say the plan to bring high-speed Internet to the hinterlands and urban poor can be accomplished without the big carriers. Companies like wireless broadband provider Clearwire and small cable and telecom operators may introduce more competition into the industry by using the funds to build networks that could compete with AT&T, Verizon and Comcast, analysts and government officials say.

"I think if the big carriers want to participate and play by the rules, great. If not, I'm not that concerned," said Mark Seifert, a senior adviser for the National Telecommunications and Information Administration, which is overseeing grants for the Commerce Department.

Seifert said the rules for broadband grants were not written to favor any size or kind of network operator. Further, the $7.2 billion is not intended to complete Obama's goal of spreading broadband to every home; rather, it is a "down payment" on a larger plan being crafted by the FCC, he said.

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