Governor hamstrings California's broadband subsidy fund, pleases cable, telcos, unions

1 October 2014 by Steve Blum
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With a stroke of Governor Brown’s pen, the cost of building independent broadband infrastructure using money from the California Advanced Services Fund has nearly doubled. Without comment, he signed assembly bill 2272 yesterday.

The new law, which takes effect in January, brings all CASF-subsidised broadband infrastructure projects under so-called prevailing wage rules, which impose union pay scales and work rules – often determined on a statewide basis – regardless of the typical construction costs and practices in a local area. It also specifically puts the massive paperwork burden of proving compliance on the shoulders of Internet service providers – under threat of criminal penalties. And it applies retroactively to existing projects as well as any approved in the future.

Up until this point, it was an open question as to whether a CASF subsidy triggers prevailing wage requirements. The California department of industrial relations had said it does in one particular case, but the appeals process has not yet run its course. As of the new year, though, there will be no doubt.

The door to better broadband closes for many.

AB 2272 is not just a benefit to its trade union sponsors. It’s also a huge gift to the big incumbent telephone and cable companies which bitterly fought the expansion of the CASF program that the governor approved last year. Under the new rules, independent ISPs – those that lack formal certification as regulated telephone companies – can apply for CASF grants and loans. Typically, independent ISPs have significantly lower overhead than big incumbents and often serve remote areas where the cost of living – and construction – is lower.

But not any more. Not if they take CASF money. As a practical matter, AB 2272 more or less doubles labor costs, which account for something like 80% of the total bill for broadband infrastructure projects. Because the rules apply to all the costs – those paid directly by ISPs as well as by CASF – a typical 60% subsidy effectively drops to less than 30%. And the cost of complying with often byzantine prevailing wage regulations – and the criminal risk of getting it wrong – makes CASF funding even less attractive.

It’s a win for construction and telecoms unions, and for AT&T and Comcast and the like – all reliable sources of campaign cash. For everyone else in California, AB 2272 is a huge loss: less competition in the broadband marketplace, leading to fewer jobs, higher monthly bills, and substandard service on decrepit infrastructure.