Policy Documents

Evaluating the Cost-Effectiveness of RUS Broadband Subsidies: Three Case Studies

Jeffrey A. Eisenach and Kevin W. Caves –

Executive Summary
The American Recovery and Reinvestment Act (ARRA) appropriated $7.2 billion to subsidize broadband deployment, including $2.5 billion to the Rural Utilities Service (RUS). Priorinvestigations have shown that RUS’ broadband subsidy programs were not cost effective, and often funded duplicative coverage in areas already served by existing providers.

In this study, we analyze three large projects subsidized by the ARRA-created Broadband Initiatives Program (BIP). These projects received a total of $231.7 million in Federal support (including subsidized loans as well as grants), or about seven percent of total RUS’ subsidy obligations. The evidence indicates that RUS’ history of funding duplicative service has continued under BIP, and that the current program is not a cost-effective means of achieving universal broadband availability. Specifically, we find that:

  • RUS defined eligibility for the BIP program so as to permit subsidies to areas in which very high proportions of households were already served by multiple existing broadband providers.
  • More than 85 percent of households in the three project areas are already passed by existing cable broadband, DSL, and/or fixed wireless broadband providers. In one of the project areas, more than 98 percent of households are already passed by at least one of these modalities.
  • In part because a large proportion of project funds are being used to provide duplicative service, the cost per incremental (unserved) household passed is extremely high. When existing mobile wireless broadband coverage is taken into account, the $231.7 million in RUS funding across the three projects will provide service to just 452 households that currently lack broadband service.
  • Based on the expected cost to taxpayers of the program (i.e., the cost of the grants, plus the net cost of the subsidized loans), we estimate the cost per incremental home passed at $30,104 if existing coverage by mobile broadband providers is ignored, and $349,234 if mobile broadband coverage is taken into account.
  • The RUS approach of funding duplicative coverage is directly at odds with the approach recommended by the National Broadband Plan. According to the FCC’s Omnibus Broadband Initiative, the cost of making broadband available to every currently unserved household in the U.S. is approximately $23.5 billion, so long as duplicative service is not funded. Funding duplicative service (as RUS has done under BIP) increases the cost of a nationwide buildout by $63.7 billion, to $87.2 billion.

    Based on these findings, we conclude that the RUS Broadband Initiatives Program, as currently structured, is not a cost-effective means of extending broadband coverage to unserved households.