Telecom companies reject stimulus money

The Obama administration made it a national priority to spread high-speed Internet access to every American home and it offered stimulus money to help companies pay for it, but the biggest network operators are staying away from the program.

With today the deadline to apply for $4.7 billion in broadband grants, AT&T;, Verizon and Comcast won't be going for the stimulus money, sources close to the companies said.

Their reasons are varied. All three say they have enough cash to upgrade and expand their broadband networks on their own. Some say the grant money could draw unwanted scrutiny of their business practices and compensation programs, as seen with automakers and banks that got government bailouts.

And privately, some complain about the conditions attached to the money, including a net-neutrality rule they say would prevent them from managing traffic on their networks in the way they want.

"We are concerned that some new mandates seem to go well beyond current laws and FCC rules, and may lead to the kind of continuing uncertainty and delay that is antithetical to the president's primary goals of economic stimulus and job creation," said Walter McCormick, president of USTelecom, a trade group that represents companies including AT&T; and Verizon.

Yet those firms might be the best positioned to bring new networks to underserved areas, some telecom policy experts say.

"If you want to get broadband out, you have to do it with who brought you to the dance in the first place, and in this case it is the incumbent cable and telephony carriers who have 85% of lines in the country," said Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington tech policy think tank. "This is not basket weaving. This is really complex and intensive technical stuff that takes a fair amount of sophistication and scale to be able to do right and to continue to upgrade."

President Obama has pushed for open and universal access to broadband since his election campaign, saying it will underpin the country's economic future. The stimulus funds target rural homes and businesses that have largely been overlooked by broadband providers because of the high cost of laying down fiber and other broadband conduits to small communities.

At the same time, the government has promised more scrutiny of industry practices that might limit people's access to services, such as Comcast's blocking of online video provider BitTorrent last year and Apple's decision this summer not to run Google's voice service or free Internet calling service Skype on the iPhone.

That has alarmed the major carriers. Some of them fear that a clause in the stimulus plan that says recipients of the grants cannot "favor any lawful Internet applications and content over others" -- the concept known as net neutrality -- could lead to more rules down the road.

This condition goes beyond guidelines at the Federal Communications Commission that have been criticized by consumer advocacy groups as too vague. Carriers have pushed to keep the current rules in place, and they see the condition on the stimulus grants as a potential precursor to additional rules at the FCC on how carriers can manage content over the Web.

The companies paint dire scenarios in which new rules would lead to networks being clogged with spam and video content, slowing service for all.

"It's not cost-effective for the big network operators to play in rural [markets] in the first place, and if they take federal money that comes with all these strings attached to it, they are opening themselves up to being regulated even further," said Roger Entner, head of communications research at Nielsen IAG.

McCormick said the net-neutrality conditions on the grants are fuzzy and might give network operators pause about investing in expensive projects that could end up in a tangle of technical and legal hang-ups over how the firms operate.

Verizon said its officials had decided not to apply before the conditions were announced. Comcast, which serves mainly urban and suburban areas, said it also won't apply. AT&T; said it probably won't apply but is open to partnerships with state and local governments that win the grants.

Corporate officials have also said it would look bad for firms like AT&T; and Comcast to take money when they are among the few companies in the economy with billions of dollars in cash reserves.

An official with a large network operator, speaking on condition of anonymity, said that once a company takes government money, there's a "mob mentality" that makes the firm afraid even to sponsor a golf tournament or give executives bonuses because there could be political backlash.

Some public advocates and analysts say the carriers never had a compelling reason to seek the stimulus grants.

"They weren't going to apply," said Ben Scott, head of policy at public advocacy group Free Press. "They are using this as opportunity to grandstand against net neutrality."

Rebecca Arbogast, head of tech policy research at Stifel, Nicolaus & Co., said the biggest carriers would be less inclined to create rural networks because there isn't enough demand to justify the costs. She said the companies should have expected stronger net-neutrality conditions because they were mandated by Congress in the stimulus act.

"With a few exceptions, the net-neutrality provisions were not a great departure from what I think was already out there and is consistent with the path that most recognize we were already headed down," Arbogast said.

The Commerce and Agriculture departments, which are handing out a total of $7.2 billion in broadband stimulus grants through 2011, say the plan to bring high-speed Internet to rural America and the urban poor can be done without the big carriers.

Companies like wireless broadband provider Clearwire and small cable and telecom operators may introduce more competition into the industry by using the funds to build new networks that could compete for customers from AT&T;, Verizon and Comcast, analysts and government officials say.


Kang writes for the Washington Post.

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