Technology for Mortals

Five months ago, Saul Hansell of the New York Times took Verizon behind the woodshed for being the corporate equivalent of the village idiot.  Verizon, according to Hansell’s source Craig Moffett, was giving consumers a Maserati for the price of a Volkswagen because Verizon’s new FiOS service was based on super expensive Fiber To The Home (FTTH) technology.  Yesterday, Mr. Hansell took Verizon behind the woodshed again because Verizon might stand to benefit the most from the broadband stimulus tax credits for deploying the most FTTH.  But given the fact that Verizon has been such a good corporate citizen by being the only large telecom operator to risk huge amounts of capital to deploy fiber to the home, would it not stand to reason that Verizon deservedly gets a proportional benefit from tax credits designed to spur this kind of behavior?

One of Saul Hansell’s assertions is that Verizon could get $1.6 billion over next two years for doing nothing different than Verizon had already planned to do.  This of course assumes that Verizon was not going to scale back their FTTH plans as a prudent response to the economic crisis where consumers are tightening their belts on spending.  It also assumes that Verizon wouldn’t increase their level of investments as a response to the tax credits.

Another gripe raised in Hansell’s piece is that tax credits apply to next generation broadband deployment for any residential subscriber and not just unserved, low-income and rural areas.  But is Mr. Hansell seriously suggesting that we should only incentivize next generation broadband for unserved, low-income and rural areas? The bulk of the broadband market does not fall into these three categories so if we want the biggest increase in broadband investments and therefore the most amount of economic stimulus and jobs, we cannot just focus on these three areas.

Most people don’t know the magnitude of risk that Verizon took to deploy FTTH despite early opposition from Verizon share holders.  Because of Verizon, the United States has some of the most FTTH deployment to detached single family homes which are very expensive to wire compared to dense multi dwelling units in countries like France, Korea, and Japan.  Verizon has had to invest more than $3,700 per subscriber (assuming 25% uptake) to give people the fastest and highest capacity broadband and television service in the nation.  Roughly half of the money spent by Verizon went directly to the hard working men and women that installed fiber to over 10 million homes.  Even the money spent on equipment and material put someone to work designing, manufacturing, marketing, and selling that equipment.

Despite all the criticism, the beauty of tax credits is the multiplier effect where one dollar of tax breaks can easily spur five dollars of private investment.  In ITIF’s January 2009 paper “The Digital Road To Recovery“, we estimated that a one year $10 billion investment in broadband networks will support approximately 498,000 new or retained jobs in the United States.  In this economic storm where workers are getting laid off left and right, stimulating labor intensive broadband projects sounds just like what the doctor ordered.  More broadband investments lead to more telecom jobs and more manufacturing jobs or at the very least it means fewer layoffs.  This translates to lower unemployment which not only means fewer unemployment checks paid out by the government, but ultimately more tax revenues from more workers which means the government and society gets a good return on investment.