How will the states spend billions of dollars on broadband in 2022?

State governments are preparing to solicit grants, review applications, score proposals, distribute funds, and ultimately, evaluate outcomes from projects funded by the billions of dollars in recent broadband infrastructure bills. (Table 1 from Brian Whitacre’s contribution is reproduced below) How will state officials spend these funds? Will they have better or worse outcomes than broadband infrastructure grant programs in the past?

Lessons from BTOP

One benchmark for comparison from prior broadband stimulus bills is the Broadband Technology Opportunities Program (BTOP) of the Recovery Act of 2009. Over half of the $4.7 billion for broadband grants were distributed to state governments and university systems for middle mile projects. The federal government chose to award those funds using an application process that did not include competitive bidding mechanisms, but involved quantitative and qualitative scoring criteria.

How did they do? Was the money well spent? How much broadband did the stimulus money buy? In an empirical study of the BTOP program, I measured outcomes and compared them with counterfactual scenarios. First, I collected data from the proposal documents and grant reports on a subsection of the BTOP program, specifically the $3.6 billion middle mile program. Then, I went about comparing proposals with actual buildout results.

I found that many projects that had higher costs were selected rather than the low-cost projects. The Recovery Act statute mandated that grants be distributed to each of the fifty states, similar in kind to the current language in the infrastructure bill that would send at least $100 million to each state. Rather than sending federal funds to the least connected areas or the most cost-effective areas to connect citizens, some of the more connected states with urban populations received dollars that could have been used to connect more rural households.

I also observed that competitive methods could have resulted in better outcomes from the $3.6 billion. Reverse auctions, or competitive bidding, could have resulted in nearly double the number of connected schools compared to the number of schools actually connected. In fact, in my estimation, the grant review process used by the National Telecommunications and Information Administration (NTIA) barely did any better than simple random selection of projects. Even though the NTIA stated that they used criteria to select competitive projects, actual buildout results did not appear to be particularly cost-effective.

If the NTIA used auction mechanisms as those in the Universal Service Fund, more connections may have been purchased, whether described as buildings connected or fiber miles installed.

The Importance of Competitive Bidding

State officials should aim to get the biggest “bang for the buck” from the broadband funds they will distribute from the Covid relief bills. The best way to do this is to use competitive bidding and processes that ensure that service providers and state governments can benchmark and compare prices. In a bid process, internet service providers tell state governments what level of subsidies they would need to provide different types of service in specific areas. Because the providers compete with each other for broadband funding, governments can compare prices and choose cost effective bids.

Some policymakers are wary of competitive bidding, saying that auctions are too complex and take too long to set up. However, state and local governments actually use competitive bidding in procurement auctions every day, and they have become widely accepted as a more efficient mechanism than other mechanisms, such as grant review.

State governments, in fact, are often mandated to use reverse auctions for large and complex projects via procurement offices: The government specifies the product or service it needs in a request-for-proposals, including minimum acceptable quality, and vendors submit their bids.

Citizens should expect public officials to compare prices among suppliers who compete for infrastructure funds because it is the best way to ensure that the process of selecting projects is well-defined, fair, and yields the best product. The alternative would be a system of over-priced payments to companies that may be family or friends of a politician or procurement officer and chosen for reasons other than the ability to deliver a quality product at a good price. Well-defined competitive bidding can help ensure that these funds are not distributed with lax or undefined standards, goals, or accountability.

That these broadband funds are one-time helicopter drops from Washington should not deter the states from applying the same procurement discipline as in their own budgeting and appropriations. Getting more bang for the buck is imperative in this COVID-19 environment where students and households can’t afford to wait for the government to get its act together to fulfill its aims of narrowing the digital divide.

Not only is competitive bidding the most common way governments already procure goods and services, administrators already have experience with comparing prices for broadband service.

Policy Goals and Price Competition

Tradeoffs will always be made on how to distribute broadband funds. State officials will need to decide whether to focus spending on urban or rural areas, or to poorer or wealthier places. The explicit goal of broadband stimulus is to fulfill the goals of connecting Americans to high-speed broadband, but the difficulty is in the details of implementation, especially when dealing with such large capital outlays.

The methods by which these funds are distributed have important consequences for achieving these goals. The margin of error is not trivial; how state governments decide to structure the process of distribution can result in waste of billions of dollars if not done correctly. The size and scope of the emergency funding to the states and $65 billion in the infrastructure bill places an unusually large responsibility on the broadband offices of state governments in the coming years. A few decisions can result in more bang for the buck or waste on the order of billions of dollars of poorly distributed funds.

Fortunately, in distributing $48.2 billion of the $65 billion in the IIJA, the NTIA will require states to submit broadband plans and will formulate its own criteria to assess whether states are designing their distribution mechanisms in ways that are cost-effective and competitive. Expecting the states to use best practices such as competitive bidding does not mean that policymakers relinquish all control over the outcome. To the contrary, policymakers set the auction rules that determine what, exactly, ISPs are bidding to provide, as well as the geographic areas available for bidding. The FCC, for example, weighs bids according to what type of service providers propose to offer and in specific geographic areas.

Broadband Maps to Identify Unserved Areas

Policymakers should not underestimate their ability to promote competition among vendors and suppliers who seek procurement contracts with federal emergency broadband funds and infrastructure funds. It’s not too much to ask government to apply well-understood and commonly-used methods to decide where to build out broadband networks.

IAside from competitive bidding, state policymakers will be better equipped to promote competition among suppliers if they have an accurate picture of broadband availability in their state. Broadband maps that show unserved and underserved areas should have updated and accurate data to serve this purpose. At a minimum, state broadband maps should include data layers of unserved areas as identified in the Rural Deployment Opportunity Fund (RDOF) auction at the FCC. This data is the best starting point for states to know where unserved households are located. Through a challenge process, the RDOF dataset has been validated by incumbents and new entrants who have reviewed the accuracy of the served areas.

While many state governments have set up broadband maps, some with state-specific datasets, these maps may still lack the analytical tools to answer the quantitative questions asked by policymakers. At Technology Policy Institute (TPI), we have launched a report for states called the TPI State of Broadband report based off of the TPI Broadband Map with the analytical tools and data layers to help policymakers make informed decisions. Our broadband map includes a composite index called the Broadband Connectivity Index (BCI) that incorporates several inputs into an assessment of an area’s level of connectivity. This BCI has been designed by our PhD economists to combine data on deployment and adoption with other measurements of the digital divide.

With so many billions of dollars being spent on broadband infrastructure, state officials should make sure that enough funding is allocated to the analysis and analytics of identifying areas and selecting projects based on competitive bids. The states have a tremendous opportunity to make capital investments and the consequences of poor selection mechanisms would be waste at a large scale.

Conclusion

Whether the process is called “reverse auctions” or competitive bids, market mechanisms have been shown to deliver the biggest bang for the buck in public procurement. The method states use to distribute funds is important because it can make a big difference on how much infrastructure is efficiently built using the stimulus funds. Half or more of the funds could be wasted if state governments are not careful to award projects to vendors and suppliers who compete to build broadband to narrow the digital divide. It’s not rocket science to connect America with broadband, especially with large infusions of spending coming from Washington, D.C. in 2022.

CGO scholars and fellows frequently comment on a variety of topics for the popular press. The views expressed therein are those of the authors and do not necessarily reflect the views of the Center for Growth and Opportunity or the views of Utah State University.

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