A Business Case for Unserved Areas - Broadband Enterprise Zones

Broadband rollout is going well in areas where demand and market forces sufficiently incentivize private network companies, and federal actions must not devalue or weaken incentives for private investment. But there obviously remains the problem of areas where, for reasons of geography, population density, or other issues, a business case for deploying broadband is a challenge.


At the same time the policy tool box provides several options for how to encourage greater supply of broadband beyond government mandates or government provision of broadband. One possible federal program to incentivize broadband rollout to unserved areas is to designate them as “broadband enterprise zones.” Within broadband enterprise zones, broadband providers would receive preferential federal tax credits which might not only be used to offset taxes within the zone, but which might also be used to offset some of the provider’s other tax obligations in other jurisdictions.


A further feature of broadband enterprise zones might be vouchers issued to households within the zone that could be used to pay for charges related to installation and initial service hookup for households. Federal subsidies which are thus carefully targeted to encourage adoption, and which are paid directly to consumers, are the most efficient way to deploy federal funds while incurring the least risk of dependency and gaming of the system.


Within broadband enterprise zones, regulation would be minimal in order to hasten the rollout of networks in these areas. Rules would be neutral regarding which technologies may be used. In a given area, a wireless technology might be more appropriate than a wired technology. Any provider that can supply an acceptable level of bandwidth to enable VoIP, data and video services, or other applications would qualify to provide service within the broadband enterprise zone.


It should be noted that attaching special regulations, network management requirements and other obligations to services within broadband enterprise zones would serve as a disincentive, and would defeat the whole purpose of the broadband enterprise zone. Such discriminatory regulations should be resisted. Further, because broadband enterprise zones would be a federal program, the federal government would preempt states and localities from charging discriminatory fees and taxes within the zone, and would also preclude states from placing additional reporting or management requirements within the zone.


The tax credits, vouchers, and other incentive programs within broadband enterprise zones would phase-out over a period of five (5) years, so that networks are not built simply for the purpose of subsidy. At the end of five years, network providers must have achieved a sustainable level of paying customers for whom to maintain the network profitably. Under no circumstances would permanent or long-term government tax breaks or subsidies be envisioned within broadband enterprise zones.


The Institute for Policy Innovation (IPI) has proposed broadband enterprise zones as a market-friendly and economically efficient means of incentivizing broadband rollout to areas where market forces have proven to be insufficient up through the present time. Outside of broadband enterprise zones, there may still be a role for tax credits to incentivize the rollout of service to unserved areas. However, neither broadband enterprise zones, tax credits or subsidies should be available in areas where existing private infrastructure investments have already been made and thus where broadband service is already available. To do so would be to devalue the existing infrastructure investment and unfairly bias competition in favor of the new entrant and against the incumbent.



7 votes
Idea No. 187