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Cable, internet companies stand to gain from broadband funding in infrastructure bill

The $1 trillion infrastructure bill moving through the Senate this week stands to be a windfall for cable and fiber-optic internet companies, with $65 billion allocated to improve internet access for poor and isolated communities.

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The plan, which must still be reconciled with a House version, would help home internet providers such as AT&T Inc. and Charter Communications Inc. by providing $40 billion in grants that states can dole out to operators that expand their networks to households that lack high-speed service.

AT&T plans to self-fund its fiber-optic network expansion to cover millions of new locations in the coming years. Its chief executive, John Stankey, has said government support in other areas would be “icing on the cake.” Charter Chief Executive Tom Rutledge has said the cable company can expand its network efficiently with help from government subsidies.

The bill would also extend an emergency fund set up earlier this year to cover broadband service for low-income Americans. Those users could eventually become full-paying customers.

The latest version of the bill hammered out Sunday came as a relief to some in the telecom industry who opposed measures being considered in previous iterations, including mandated higher internet speed requirements and incentives for companies looking to compete with existing cable and telephone operators.

There are still some provisions that broadband providers will likely chafe at, including proposed rules that force them to plainly disclose the service levels and prices they offer, said Blair Levin, a market analyst at New Street Research.

Another provision withholds funding from carriers that suffer long network outages.

“There’s a bunch of stuff in the legislation that industry doesn’t like,” said Mr. Levin, who was executive director of former President Barack Obama’s National Broadband Plan. “But from an investor perspective, those things aren’t really going to shake revenues and margins.”

Reporting and reliability requirements aren’t likely to dent the bottom lines of broadband companies that already deal with armies of regulators, he added.

Broadband providers dodged another bullet when the Senate bill adopted a threshold of 100 megabits per second for broadband downloads with 20 Mbps uploads for new grants. Consumer advocates had pushed the government to require higher speeds as a precondition for funding, but many cable networks aren’t designed to fit faster uploads.

The new broadband standard means companies that offer service over coaxial cables as well as fiber-optic lines can benefit from federal funding. The standard also allows newer companies like Space Exploration Technologies Corp., better known as SpaceX, to compete for grants for their internet-beaming satellite constellations.

Consumer advocates have meanwhile complained that the legislation avoided mandating more aggressive measures to expand internet access. The grants stop short of supporting government-owned networks that could compete with cable companies, for instance.

“I don’t see anything in here that will change the structure of the market to create real competition,” said Christopher Mitchell, director of the community broadband networks program at the Institute for Local Self-Reliance.

Mr. Mitchell welcomed the bill’s provision to distribute grants through state offices, however, instead of through the Federal Communications Commission or another U.S. agency. The FCC has said that past grant programs left many Americans behind because of flawed maps.

“The states know a little bit better, and frankly the localities know really well where the gaps are,” he said.

The rules for broadband service were among the most contested elements of the bill over the past few days, according to lobbyists following the talks.

Market observers say the coronavirus pandemic has reframed the debate about broadband funding by showing how many Americans need internet access to work and study. Republicans and Democrats were both poised to spend tens of billions of dollars to expand internet access as early as this spring.

They quibbled instead over the size and scope of the programs.

“Within a few weeks of the Covid shutdown, everyone realized we really do need networks everywhere,” Mr. Levin said.

Two recent economic studies show that expanding high-quality internet access could have significant economic benefits, particularly for low-income households.

The first study, published by the Aspen Economic Strategy Group, found that universal high-speed internet service would raise labor productivity by 1.1%. Using results of a survey they designed and administered beginning in May 2020, the authors estimate that about 47.4% of full paid workdays were at home during the pandemic, up from 4.8% before the pandemic.

The lack of universal high-speed internet during the pandemic resulted in a 3% drop in labor productivity, which implies a 2% decline in economic output, according to study authors Jose Maria Barrero of the Instituto Tecnológico Autónomo de México, Nicholas Bloom of Stanford University and Steven Davis of the University of Chicago.

“We undertook this massive social experiment in working from home,” Mr. Davis said. “What we learned from that will feed into working arrangements after the pandemic is over.”

The second study, by George Zuo, who recently received his doctorate in economics from the University of Maryland, finds that cheaper access to the internet in low-income neighborhoods makes people more likely to be employed.

Mr. Zuo studied a program by Comcast Corp. , the country’s largest internet service provider, which offers discounted broadband subscriptions to low-income families.

“We are becoming more of a digital economy,” Mr. Zuo said. “Even among people who are lower-skilled workers, [reliable internet] is still very relevant.” Wall Street Journal

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