California bill would protect broadband incumbents by raising competitors’ and consumers’ costs

by Steve Blum • , , , ,

The empire strikes back.

Broadband infrastructure construction subsidies would be rolled back in California, if a bill pending in the state assembly is approved. Tomorrow – Wednesday 2 April 2014 – the assembly labor and employment committee will consider assembly bill 2272, introduced by assemblyman Adam Gray (D – Merced), which would bring all work funded by the California Advanced Services Fund (CASF) under the state’s “prevailing wage” law. It would impose union scale wages and work rules on CASF projects – in many cases mandating metropolitan rates and benefits even in remote rural areas.

The proposal would gut the CASF program, which normally pays 60% to 70% of the cost of building broadband infrastructure in under and unserved areas of the state. If it passes and it’s applied retroactively, projects already approved and budgeted could see steep increases in costs. Even if the California Public Utilities Commission stepped in and paid its share of the increase, the balance would still fall on the company building and operating the project. For many, it would mean either walking away from the project or raising the price customers have to pay for service.

Going forward, the bill would slash the effective CASF subsidy, maybe by half or more, and make it less likely that new broadband infrastructure would be built. Say you’re considering building a project in an underserved community, at a non-union cost of $100,000, 80% of which is labor. Under prevailing wage rules your labor costs could double and bring the project total up to $180,000. CASF would cover 60%, leaving you with a $72,000 tab. The net effect is reducing the CASF subsidy to 28%. That’s not enough to bring service to economically depressed areas – the CASF program attracted little interest when the subsidy rate was 40%.

So far, there’s no word on who’s lining up in support of the measure, but it’s a fair guess that incumbent telephone and cable companies, who bitterly fought extending the CASF program last year, will love it. That includes some of the same utilities that are otherwise exempt from California’s prevailing wage rules.