Opportunity Cost

The High Price of Waiting

As an undergraduate at Vanderbilt University, I studied to be a scientist. My major was physics and astronomy, but I was required to take a certain number of electives in non-science areas. I chose philosophy and economics, which turned out to be very good choices.

Philosophy—studying Kant’s “Critique of Pure Reason,” for example—taught me a lot about critical thinking. Economics, which the professor defined as “the study of the allocation of scarce resources,” proved invaluable when I abandoned academia for business and became an entrepreneur.

One thing I took away from economics class was an understanding of “opportunity cost.” When you make a business decision, there is always an opportunity cost. You make one choice but may lose other opportunities.

A clear example of opportunity cost is the United States Government programs offering support for broadband. According to the Government Accountability Office (GAO), in the five years between 2015 and 2020, the U.S. Government had 133 programs under 15 federal agencies covering broadband construction, affordability, and digital skills training, totaling $44 billion. And that’s before the pandemic and the $65 billion Broadband Equity Access and Deployment (BEAD) program.

“The U.S. broadband efforts are not guided by a national strategy with clear roles, goals, objectives, and performance measures,” states the GAO’s Broadband: National Strategy Needed to Guide Federal Efforts to Reduce Digital Divide (GAO-22-104611) report. “Without such a strategy, federal broadband efforts will not be fully coordinated, and thereby continue to risk overlap and duplication of effort.”

As with many federal funding programs, many of those 133 programs targeted special interests or had unique conditions that must be met to qualify for funds. And much of that $44 billion went unspent or was awarded, then cancelled or clawed back.

To its credit, BEAD tried to create a strategy that would help unserved and underserved areas get broadband connectivity. But, like most, or likely all, of those 133 earlier programs, BEAD had fatal flaws.

It was four years ago, in November 2021, that the Infrastructure Investment and Jobs Act (IIJA) established BEAD, but to date, not a single user has been connected. In fact, no project has even been started. In my opinion, the biggest flaw with BEAD was creating a program to connect people who needed broadband right now that had so many time-consuming steps to follow that it could not connect anyone for years, if ever.

Then BEAD favored a technology (fiber) that requires long planning and construction times instead of technologies that could get people connected with adequate service almost immediately (and at a much lower cost). The preference for fiber caused average connection costs to be incredibly expensive. The original awards had costs per connection as high as $75,000, connecting users on the tundra whose only neighbors were wolves and polar bears. And in those places, most people who needed internet were already using satellite service.

What’s the opportunity cost? Someone else will get the business, or potential subscribers have signed up for satellite or wireless services and find it works for them.

Most service providers had no interest in connecting the unserved or underserved areas targeted by BEAD because of the economics. These areas will always be expensive to build and not produce sufficient revenue for an acceptable ROI, unless they are subsidized by urban users or government programs like BEAD.

But doing nothing for the long waiting period for BEAD subsidies has encouraged hundreds of local broadband programs to do it themselves. Then, when (or if) BEAD funding materializes, the areas will no longer be interested or even eligible. In fact, analyses of the original BEAD eligible areas show that many are no longer available for this reason.

Another opportunity cost for those waiting for BEAD funding is the higher cost of building networks when (or if) BEAD money ever becomes available. During the waiting time, inflation has been very high, raising costs, and interest rates are very much higher, making project financing much more expensive.

And finally, with the change in administration and the focus on cutting government expenditures, along with changes in the focus of what constitutes broadband, how much BEAD funding will ever become available?

Perhaps the real question here should be: Why didn’t this get done a decade earlier? That’s opportunity cost.

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