Satellite Internet providers, once optimistic about their chances of winning at least some of the $7.2 billion set aside for broadband projects in the U.S. economic stimulus package enacted in February, have grown pessimistic as government agencies get closer to selecting individual projects for funding. ViaSat, EchoStar, Hughes Network Systems and others have applied for grants and loans worth a combined $2.2 billion for projects aimed at providing broadband access to rural and other underserved areas.
The broadband funding, a relatively small chunk of the $787 billion put up for grabs in the American Recovery and Reinvestment Act of 2009, is in the hands of two federal agencies: the Department of Commerce, which has $4.7 billion to dish out via the National Telecommunications and Information Administration; and the U.S. Department of Agriculture, whose Rural Utilities Service is administering $2.5 billion. In the wake of the law’s passage early this year, amid the most severe U.S. economic downturn in decades, satellite broadband providers were pointing out the obvious: Satellites are the quickest and most economical means of connecting rural communities, where distances between users are often measured in kilometers.
This still holds true, of course, but the signals the satellite industry is getting from government indicate that the lion’s share of the money will go toward smaller-scale and labor-intensive connectivity projects such as those involving the laying of underground cable. Worse, satellite industry executives are concerned that massive federal investment in competing technologies — for projects that otherwise might not find investors — could have the unintended effect of undermining their business.
Not that any of this has dampened the willingness of satellite firms to invest in this market. Hughes, whose dedicated Spaceway 3 broadband satellite has been on orbit just over two years, is investing $400 million in a higher-throughput satellite that will launch in 2012. ViaSat, which entered the consumer broadband business as the terminal supplier for WildBlue’s service, became frustrated with its partner’s pace in deploying new capacity and ordered its own Ka-band satellite. ViaSat subsequently agreed to acquire WildBlue for $568 million in what some might view as a sizable gamble for a company that has been doing just fine as a terminal and software supplier to U.S. government and commercial customers. Satellite companies have been able to secure financing for these and other projects in the current investment climate because they have the ingredients of a solid business case: demonstrated market demand and an economical solution for meeting that demand.
Short-term job creation was a big rationale for the stimulus bill, and one of the appeals of terrestrial broadband projects is that they put local people to work laying cable and installing routers. Another likely factor in the apparent slant toward terrestrial projects is that much of the funding will be distributed by state governments to boost local economies, whereas satellite services by their nature cover much larger swaths of territory.
But setting aside the fact that satellite broadband creates local jobs as well — somebody has to install the user equipment, for example — stimulus-funded projects should have longer-term strategic goals. In the case of the broadband initiative, those goals are primarily social and economic; bridging the so-called digital divide would expand educational and economic opportunities in the most remote and underdeveloped corners of the country.
The most attractive stimulus projects in a down economy are those that provide tangible, long-term benefits while substantially boosting demand for workers in the near term. A classic example is highway infrastructure improvement, for which $27.5 billion has been set aside in the stimulus package.
When it comes to extending the information superhighway, however, near-term and strategic objectives will in many instances be at cross purposes. In selecting broadband projects for stimulus funding, federal and state agencies should not lose sight of the latter in their pursuit of maximum short-term job creation. More broadly — and more importantly — they must take great care to avoid artificially tilting the competitive playing field in favor of terrestrial technologies in a market that satellite companies are serving today and sticking their financial necks out to better serve in the future.
