The Flaw in Obama's Wireless Plan

The residents of Ten Sleep, Wyo., know the meaning of rural. They didn't have phone service until the 1950s, when Tri-County Telephone Assn., a municipal cooperative, used federal subsidies to string copper wire to every home. In 2005 the co-op upgraded to fiber-optic cable, giving the town's 300 residents Internet access at 20 megabits per second. For the technically unfamiliar, Chris Davidson, Tri-County Telephone's general manager, describes this as "smoking fast."

Even President Barack Obama is impressed. On Feb. 10 he rolled out a national wireless plan, pointing to Ten Sleep as an example of what he wants to replicate nationally: Because of the town's high-speed fiber network, one company has been able to hire locals to teach English to Asians by video chat over the network. Obama hopes his plan will result in more such economic development by providing 98 percent of Americans with access to high-speed wireless Internet. "Ten Sleep," Obama mused. "I love the name of that town."

His plan, however, isn't likely to create more Ten Sleep success stories. It will direct $5 billion to the Federal Communications Commission's Universal Service Fund, the source of subsidies that Ten Sleep and other places tapped to build plain old telephone service. The money will help the FCC shift the fund's focus toward Internet access. The commission has released drafts for public comment that suggest the service will provide a minimum speed of 4 Mbps in hard-to-reach areas, most likely over a wireless connection. Using Davidson's measure, this is one-fifth of "smoking fast" and an even smaller fraction of fiber's potential. "Wireless wouldn't have helped us," says Rachel Casteel, a spokeswoman for Eleutian, the Ten Sleep company Obama cited.

The call centers and data-storage facilities that companies have placed in other small towns like Lebanon, Va., and The Dalles, Ore., demand the speed and capacity that only a fiber-optic backbone can provide. Davidson says he is encouraged by the fund's shift to Internet access but is unimpressed by the slower speeds. "People in rural America," he says, "need just as much speed as someone who's in town."

In the last century, electrification presented the same challenges. Large power companies saw little profit in rural counties. Many areas created municipal co-ops, with the mission of providing electricity or phone service while covering costs. It's not an accident that it took the Tri-County co-op, located in nearby Basin, to bring high-speed access to Ten Sleep. This is how fiber arrived in The Dalles and Lebanon as well.

But municipal co-ops are not part of the President's plan. In four states they are banned outright from entering the broadband business; in 14 others they are discouraged through regulation. Telecommunications companies maintain that municipal broadband is an unfair government intrusion into their markets. In its broadband plan last year the FCC suggested federal legislation to preempt such bans. So far there has been no action on that front.

Obama proposes to pay for his wireless plan—which includes money for research and a mobile network for emergency responders—by asking broadcasters to relinquish spectrum for government auction. The wireless carriers have been pressing for this, but nothing in the Obama plan encourages them to provide rural America with anything more than the minimum speed proposed for the Universal Service Fund overhaul. The President's beloved Ten Sleep does provide a model for rural broadband. It just isn't the one he's pursuing.

The bottom line: To harness broadband Internet for job creation and economic growth, Obama should stress fiber networks over wireless broadband.

    Before it's here, it's on the Bloomberg Terminal.