The cost to connect the unconnected

And the weird stuff that happened in RDOF

With the Biden infrastructure debate in full swing, the cost to connect the rest of the unserved with broadband has taken center stage. The last version of the Accessible Affordable Internet for All Act proposes $80 billion in subsidies through reverse auctions to close the Homework Gap once and for all.

What existing data do we have on the situation?

Well, the $80 billion number comes from a landmark 2017 FCC study by Paul de Sa which says it will take that much to close the digital divide, which was 14% at the time. Because the hardest to connect areas are the most expensive, he estimates that you could close the first 12 percent with $40 billion, and it would take the other $40 billion to close the final 2 percent.

My understanding is the cost model used for this study is not public information. However, the FCC released “reserve prices” for the Rural Digital Opportunity Fund auction. The FCC would be unwilling to subsidize deployment to a given area above this set reserve price. While the $9.2 billion committed and the $16 billion budget get the most attention in RDOF, if you add up the reserve prices from all the eligible areas, it would take $26.5 billion to serve them, assuming they weren’t bid down at all from their reserve prices.

The curve of the reserve prices takes a similar shape to de Sa’s curve. 4.4% of Americans live in wholly unserved Census blocks that were eligible for the RDOF auction. If this model is right and it takes $26.5 billion to close the rest of the Homework Gap, you can cover 3/4 of it with half the money. That hardest to reach 1% of all locations nationally — the last 1/4 of the completely unserved, require the other half the money—$13 billion.

Some examples of these high cost areas are $1.98 million for gigabit service in 75 locations in the desert in Gila County, AZ (040070007001), $25,500 for SpaceX to connect 1 location in Piggot, Arkansas, and $25,500 for a gigabit offering to connect 1 location outside Post, Texas (481699501005).

These charts order the 60,000+ block groups that were included in RDOF because they contain wholly unserved Census blocks. We don’t know what blocks are partially served, but estimates suggest it adds 3.3pp to the unserved number — from 4.4% to 7.7%. These blocks will be on the left side of this curve as the least expensive — there’s already broadband in the Census block!

One interesting thing that happened in RDOF is that in these hardest to reach areas that require the biggest subsidy, Gigabit offerings won more. In the highest cost 10% eligible block groups (according to FCC reserve prices) , 75% or more of the eligible block groups are being won by Gigabit offerings. There’s no differentiation in the data between wireless offerings claiming gigabit service and wired offerings, so we don’t know whether the winner is planning to deploy fixed wireless.

Another noticeable thing in this chart is the <1% of block groups that didn’t get funded are the least expensive to serve. That’s because there isn’t much money on the table, and also because these are areas that are generally well served already and probably have data problems making them look unserved. Random examples include $290 for a single commercial location in Pensacola, $1,670 for 4 commercial locations near the airport in Memphis (471570081201) and $15,300 for 38 locations in a mostly commercial area in Titusville, PA (420391111003).

Here’s why this is important: in 2017 the FCC estimated we needed $80b to deploy FTTP to the 14% of locations that lacked broadband access. The number of unserved has shrunk dramatically — by about half — since then. Because of the pandemic, low interest rates, and recession, there is bipartisan agreement that we should spend billions to close this gap, once and for all. The GOP would put in $65 billion. The Biden administration suggests $80 billion. We can’t possibly spend that much using reverse auctions where providers bid each other to the basement. Instead, we should use the purchasing power of this investment to dramatically and fundamentally reshape the broadband market through open access, locally owned networks that add competition, lower prices, and give residents excellent broadband for decades to come.