Funding a million computers

I’m looking for some loose change. About $100M per year.

A friend asked me what I thought of Obama’s announced plan to free up 500MHz of spectrum, invest in 4G for rural areas, and build out nationwide public safety network. He wrote

Spectrum auctions as public policy tools – deficit reduction and public safety. I always get kind of uneasy when government does this multi-purpose policy stuff. Theoretically, they could hit a homerun and get it all right, but do you really have confidence that they will?

The plan to harvest broadcast spectrum to make more available for fixed and wireless communications is great. You have to stop and consider how wasteful it is for so much spectrum to be reserved for the exclusive use of a minority of TV viewers still accessing over-the-air signals. So we should all endorse the potential for improved utilization of the resource.

But I question: Why is this being tied to other programs, such as rural service expansion? Are there other cost programs that are tied to revenue generators? If the spectrum auction doesn’t generate the target levels, will rural expansion be killed, or will it compete with all other government programs? How do you set up sustainable funding?

In some ways,  the asset sale is being transformed into another durable program, although the government doesn’t own the asset – some lucky winner is chosen to whom we hand over our cash. In a sense, it represents an asset swap, as contrasted with the way some governments using the sale of assets to balance current account deficits. [Apparently, in its zeal to carefully manage the zillions of dollars of our taxes, the government has cut back on hiring a financial advisor to teach the difference between capital and expense, between asset sales and recurring revenues.]

It doesn’t strike me as a way that I would spend my money; I don’t plan to use money from sales of assets to pay current expenses until retirement time.

Let me say that in general, I don’t like rural expansion programs from the government. It means picking winners and subsidizing broadband based on geography, rather than an economic needs test. I have shown in earlier posts that we have huge numbers of people in cities who need help with affordability of internet access services as much as, if not more than, middle or upper class rural dwellers – many of whom have access to alternatives.

If some rural and remote dwellers can’t afford to pay what the service needs to be priced at, then isn’t a targeted, needs-based subsidy a better approach, dealing with the broader issue of digital affordability (devices and services)?

Let’s face it, rural infrastructure subsidies are politically appealing because they lead to three distinct photo opportunities for each hand-out: the initial cheque; the construction ground breaking; and finally, the initial service activation. And let’s not forget the reminders that will go into election campaign material from the incumbent.

On the other hand, targetting affordability sprinkles a little bit of money all over the place. There is no great photo opportunity. We have to fix this.

We’re going to auction spectrum in Canada in the next year for a couple important frequency bands. Based on the AWS auction of a few years ago, we could again be looking at raising billions of dollars from the sale of these assets. I’d like to propose a way to use those funds in a meaningful way. Go ahead and take the money raised and apply it to our mortgage – the national debt.

But retiring that amount of debt frees up some interest payment relief – current account savings – in the order of $100 M per year. That would fund a sustainable program to put technology into the hands of economically disadvantaged Canadians. That amount of money each year should fund about a third of my Million Computers, meaning that such a program on a continuous basis should allow for maintenance and technology renewal every 3 years or so.

Taking the cash from the sale of an asset and setting up an endowment is a reasonable approach to money management. Further, it is an indirect and competitively neutral way of returning a kind of stimulus to the communications and technology sector that is funding the spectrum auction, helping to grow the market for services and technology.

Will the proceeds from the next spectrum auction create a sustaining legacy to drive a more digitally connected country?