Get ready for the golden age of corporate welfare in telecom

The US government is preparing to release tens of billions of dollars in subsidies into the telecom industry in the coming years. That spending will be on top of the billions it has already doled out to fund construction of new networks in rural areas and make existing networks more affordable for low-income Americans.

Companies like AT&T and Charter Communications have made plain their desire to go after money from NTIA’s $42 billion Broadband, Equity, Access, and Deployment (BEAD) program. This raises the notion of taxpayer money going to some of the biggest companies in the US, which could create the potential for massive corporate welfare.

‘An opportunity for growth’

“I would expect that AT&T is going to be an active participant in that [government funding] process,” AT&T CEO John Stankey said at a September event, though he noted that the funding might only provide half the money needed to build new fiber networks into rural areas of the US. Operators like AT&T – or investors – would have to provide the rest.

“We’re committed to being part of the solution for rural broadband,” Charter CFO Jessica Fischer said at a recent investor event. She also acknowledged that government funding in most cases won’t cover the full cost of constructing telecom connections in rural areas.

However, Fischer said, “we think that we can build a lot of those [fiber] passings and make a return on them … In the long term, that will be – that will drive good growth for the company.”

Charter’s CEO Tom Rutledge agreed. “That’s an opportunity of growth for us,” he said in discussing government subsidies at a separate investor event.

Big and bigger

In fact, according to the financial analysts at New Street Research, “there is now activity in the states that suggests the incumbents are the major beneficiaries of funding.” They pointed to recent state-level funding projects that have favored some of the country’s biggest telecom companies, such as $51 million for Charter in Ohio and $22 million for AT&T in Louisiana and Indiana.

“We see no evidence that the non-traditional providers … are gaining any material traction with the states,” they added.

The phrase “corporate welfare” first popped up in the 1960s and has often been applied to government subsidies considered excessive, unwarranted, wasteful or otherwise inefficient. Several officials and executives in the US telecom industry believe it’s a phrase worth discussing again.

“We ought to be asking the hard questions about corporate welfare,” said Harold Feld, a top official with public interest firm Public Knowledge and a frequent speaker in the US Capitol. He said that the BEAD program, which may begin distributing state-level funding next year, needs to be carefully managed to avoid inefficiencies and waste. For example, regulators will need to keep close tabs on companies that receive funding from the program to make sure they follow through on their commitments.

“On the other hand, we shouldn’t be writing this off as a boondoggle just yet,” Feld said.

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