Server Time Out
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.
Universal 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.
The 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).
A 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 for a graph that illustrates the growth
in bandwidth.)
The Greenlee County, Ariz., public library
illustrates the money and technology woes of rural institutions. The three
libraries in Greenlee (population 8,000) operate five PCs, one of which is
dedicated to public access--word processing, CD-ROM access, and the like.
Greenlee 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 Greenlee'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?
Already, 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.
