Senate rushes rural Internet bill through for Sen. Hoffman, pushing cable over satellite technology

To ensure rural communities don’t miss a pending grant deadline from the federal government, the Alaska Senate rushed a bill through on Monday that increases state spending to rural school districts that buy old-school broadband service from companies like GCI. The next stop is the governor’s desk.

School districts will qualify for higher speed Internet with the state-federal program because the legislation increases reimbursements to buy 100 Mbps per second of speed from providers of fiber-optic internet services. The current program only reimburses for 25 Mbps. The state’s portion of the federal E-Rate program, is nearly $40 million.

The FCC’s E-Rate Program makes telecommunications and information services “more affordable for schools and libraries. With funding from the Universal Service Fund, E-Rate provides discounts for telecommunications, Internet access, and internal connections to eligible schools and libraries,” according to the FCC.

House Bill 193 scraped up the original wording of the failed Senate Bill 140 and repurposed it into a House standalone bill. SB 140 had become a vehicle for the National Education Association to shove massive amounts of education spending into the budget and the education industry tried to bully the spending through by saying rural internet was at risk. SB 140 was ultimately a hot mess that was vetoed by the governor because of the recklessness of the spending contained in it.

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The core legislation in SB 140 — now in the House bill — is important to Sen. Lyman Hoffman of Bethel, who is a paid board member of Bethel Native Corporation, which has in the past gotten contracts for GCI to do the fiber optic work in the region; BNC is the company that is first in line to get the new contracts as well, which puts Hoffman in an ethical compromise, having voted for his own family’s self-interest. He did not recuse himself from voting on the legislation.

Hoffman was the sponsor of SB 140, which was the focus of legislative drama for most of a month. He also carried House Bill 193 in the Senate.

During the vote on Monday, the only senator voting no on final passage was Sen. Mike Shower of Wasilla, who questioned why the state is investing so heavily in fiber technology and is not making sure the program technology neutral.

“To use the terminology of a former president, ‘Let me be clear,’ I support where this is going. There’s no doubt we need the rural internet speeds so we have opportunity for people in rural Alaska. One hundred percent behind it,” Shower said.

He pointed out that the expansion of the grant program to 100 Mbps supports one chosen technology, “before we had other options that might be faster, cheaper, etc. And quite frankly, if you look at this from a kind of a strategic perspective or military perspective, you always want the backup to the backup. I’m not against looking at how we might have layered options, too,” with fiber optic cable and satellite internet redundancies.

“You might even have geosynchronous not just LEO,” Sen. Shower said. “There’s multiple things here that can work.”

Shower’s amendment to ensure technical technology neutrality failed, with only he and Sen. Shelley Hughes voting for it.

Why wouldn’t legislators want to add the technical neutrality amendment? That is the multi-million-dollar question.

In fact, many rural residents are now using Starlink satellite broadband to get the speeds they want, and it comes at a much cheaper price than what is charged by fiber providers.

But Hoffman ignored those alternatives and emphasized how much money would come from the federal government with passage of the bill. He said it was for the children. He also pointed out that the $40 million comes with a match that “if all the schools participate would benefit those communities to the tune of a little more than $350 million.”

The state and federal government, thus, will pay the broadband cost that can be as much as $60,000 a month for some village schools.

The $350 million that would come from HB 193 ($40 million from the state) would add to the approximate $300 million already coming from other federal government universal service funds program (E-rate for school, high-cost residential subsidies, rural health care subsidies etc.) That creates an artificial price floor that ultimately hurts Alaskans’ pocketbook.

This is often what happens when the government gets involved to make things better, rather than let the private sector compete.

It’s the Cobra effect — the economic parable of government’s unintended consequences. In India, when the government wanted to get rid of poisonous cobras, it paid a bounty for them. That incentivized people to breed cobras and then turn them in for money. Some of the cobras escaped and that led to an increase in cobras. The Cobra effect is an incentive that has an unintended and undesirable result opposite the intentions of its designers.

In the case of broadband subsidies, the Cobra effect is that by pouring money into the system, companies are incentive to set the price higher.

The technology battle is evidenced by companies like ASTAC, which provides service to Atqasuk, Nuiqsut, Point Hope, Utqiaġvik, Wainwright, Anaktuvuk Pass, Kaktovik, and Point Lay. ASTAC has been advertising promotions to buy back Starlink equipment if people switch to fiber optic service, which is dramatically higher in the long run than satellite. See the promotion at this link.

“In partnership with Quintillion, ASTAC is now offering to buy back Starlink equipment as you switch to the amazing new plans! Bring us your old Starlink equipment, and we will apply a credit immediately to your account. Sign up today and get $500 INSTANTLY added to your account and clear out the equipment you no longer need,” ASTAC says in its promotion.

There are 23 schools already using space-based internet, said Sen. Shelley Hughes. The cost difference is extraordinary.

Last year, one school in the Lower Yukon School District was paying $44,000 a month for broadband through GCI Terra. This year, Microcom, connected with Starlink satellite service, came in with a bid. GCI lowered the cost from $44,000 to a $25,000 bid, hoping to beat out Microcom.

But Microcom came in with a $2,500 bid — one tenth of the cost of the next lowest bid, and 1/17th of what it cost the school the previous year with GCI.

“We’re all doing our taxes right now, and it’s good to remember that when we talk about federal dollars, those are coming out of out pockets as well. When we’re paying $400 million for internet serving 20,000 students, that’s $20,000 per child per year,” Sen. Hughes said. She pointed to a FCC report released last week that shows the cost of rural school internet in Alaska is an average of $203 per megabit per second, while in Utah, the cost is 29 cents per megabit per second.