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Ryan Knutson: John Powell is from a small town in rural Oklahoma, where for a long time, there’s been a really terrible internet connection.
John Powell: It’s incredibly slow, about three megabits is about the highest we’ll ever get. You really can’t do anything reliably on the internet at that speed. You can’t do anything with a high resolution. You certainly can’t stream anything. It’s just incredibly frustrating.
Ryan Knutson: Slow internet means you can’t do lots of things that most people take for granted, like watch Game of Thrones or binge Netflix. But it’s also more important stuff, like you can’t work remotely.
John Powell: It’s impossible. There’s no hope of working from home. Honestly, you could just throw that out. I couldn’t ask someone to employ me and expect me to have a decent connection, because I’m not going to have it. So really the only choice is to leave.
Ryan Knutson: John, who’s in his late 20s, eventually decided to move away from his hometown and now lives in Arkansas, in a city that does have high speed internet.
Our colleague, Ryan Tracy says that situations like this are playing out all across the country as high speed internet has become an absolute necessity for modern life.
Ryan Tracy: You could imagine 10 years ago, someone making the argument, “Well, you don’t really need high speed internet. It’s kind of a luxury.” That’s not really an argument that is being made anymore. People view this as a utility. Imagine if your electricity just browned out a couple times a day and you didn’t know when it would be and how maddening that would be because you’ve come to rely on it so much. It’s the same deal when you’ve got an internet connection that is not reliable.
Ryan Knutson: The US government has been trying to solve this problem for a long time. And in 2020, it launched a new program to bring high speed internet to thousands of rural communities just like John’s. But that program has gotten off to an uneven start and millions of Americans are still without high speed internet.
Welcome to The Journal, our show about money, business, and power. I’m Ryan Knutson. It’s Wednesday, July 13th.
Coming up on the show, why rural Americans keep waiting for fast internet.
Many rural areas don’t have high speed internet because for most internet providers the economics just don’t add up.
Ryan Tracy: They don’t see dollar signs when they’re thinking about the number of customers they could be adding to their bottom line. A lot of these rural places are costly to reach. The concentration of customers per square mile in the middle of a rural state is completely different from a city.
Ryan Knutson: The US government has been trying for decades to fill in this gap.
President Cinton: It will provide better medical care. It will create jobs. And I call on the Congress to pass legislation to establish that information super highway this year.
President Obama: You know what it feels like when you don’t have a good internet connection. Everything’s buffering. You’re trying to download a video. You got that little circle thing that goes around and around.
President Trump: Extend broadband access to every American. No matter where you are, you will have access very quickly.
Ryan Knutson: Since the 1990s, the Federal Communications Commission, or the FCC, has been working on the digital divide between cities and rural communities by offering to pay big telecom companies to expand connections into more rural areas. But those programs haven’t always worked out super well.
Ryan Tracy: The reviews are mixed on those. Certainly there were billions of dollars spent. There were some networks built, but you’re nowhere near the level of service that people take for granted in the city. And that’s the point. It shouldn’t matter where you live. This is something that you need.
Ryan Knutson: By 2020, the FCC wanted to try a new approach to this problem.
Ryan Tracy: The FCC was feeling like, “We’re making some progress with this strategy, but we need competition. We need other entrants to this market.” And the feeling that the FCC had from the previous programs was these older phone companies were doing the bare minimum. They weren’t going the extra mile. And so that was another thing that factored into this desire to get more competition and more players involved.
Ryan Knutson: To inject more competition into the process, the FCC started what it called the Rural Digital Opportunity Fund. And to give out the money, it decided to run a major auction and allow companies to submit bids for a piece of the FCC’s money.
Ryan Tracy: The Rural Digital Opportunity Fund was developed under the Trump FCC, the chairman Ajit Pai at the time.
Ajit Pai: This is the biggest step we’ve taken to close the digital divide. This ambitious program will devote over $20 billion to connecting rural America.
Ryan Knutson: To do this, the FCC set up an auction that allowed companies to bid on areas of the country where they were willing to build high speed internet. And the companies that were willing to build internet the cheapest, would get the money.
Ryan Tracy: The FCC had done things like this before, but never at this scale. And it was a reverse auction. So what that means is the lowest bidder in any given part of the country wins. So the FCC will say something like, “In this part of say, Oklahoma, who will build this project for $100 ?” And maybe a few companies say yes. “What about $90? What about $80? What about 70?” And it keeps going down and down until one company is left and that company is the one that gets to have the federal money and now has an obligation to build out to the people in that area.
Ryan Knutson: The auction drew lots of interest from hundreds of companies and the top dollar winner with $1.3 billion of federal money was this unexpected little known company called LTD Broadband.
Ryan Tracy: And me and a number of other people who cover this stuff said, “Who? Wait a second. That’s a lot of money for a company I’ve never heard of before.”
Ryan Knutson: LTD Broadband is a small company with about 200 employees. It’s based out of Las Vegas.
Ryan Tracy: They do a lot of business in the Midwest. Primarily it is wireless service so there’s a tower near your house that you can connect to via radio signal to get your internet. They’re not a nationwide company, but they’re not a teeny tiny company operating in sort of the corner of one state either. They’re kind of small to midsize company.
Ryan Knutson: But LTD Broadband was promising the FCC that it would take on a project much bigger than anything it had done before, building high speed internet to more than 800,000 people.
Did LTD have experience in taking on a project at this scale?
Ryan Tracy: Well, they certainly had experience providing internet through wireless towers. What was very different about their auction bids was they were promising to build fiber to the home. So that’s a different technology. That’s a different service. And certainly, no, Ryan, they did not have experience at this scale. Nothing close to it.
Ryan Knutson: The result of LTD’s ambitious high speed internet plan? That’s in a minute.
LTD won bids to provide high speed internet to rural communities in 15 states. But in order to actually get that money from the federal government, LTD had to show that it could actually do what it said it could do.
Ryan Tracy: Now they’ve got to put up. Now they’ve got to show the FCC that they can really do this. So that involves technical things like explaining to the FCC in detail the technology they’re using, how they’re going to construct it, the contractors, all that kind of thing.
Ryan Knutson: LTD also had to get local certifications.
Ryan Tracy: So they won the auction in 15 states. They had to get a certification from each of those states saying, “I’m licensed. I’m certified to provide telecom service in this state.”
Ryan Knutson: But LTD decided to wait to file for those certifications and put in its paperwork at the last minute. And the reason it waited is because even though it won the auctions, LTD was worried about competitors trying to get in the way.
Ryan Tracy: They waited to file their applications. Because in a lot of places where LTD won the auction, there was another company that didn’t win. And that means that company wasn’t getting any federal money, unless they could derail LTD, and then they might have a chance in some future round of funding. And so there were, and there are, companies lobbying against states certifying LTD.
Ryan Knutson: Hmm. So they thought if we put in the application at the last minute there, what, won’t be time for other companies to object to it?
Ryan Tracy: Yeah. Or there would be minimal time. That was part of their strategy. LTD’s CEO says it was advised on that strategy by an outside lawyer who the company’s no longer working with.
Ryan Knutson: LTD told our colleague Ryan that the company thought putting these applications in at the last minute wouldn’t be a big deal, but it turns out it was.
Ryan Tracy: So in the view of LTD, that should have been easy. That should have been routine. It ended up very much not being routine. They ran into a lot of questions from state regulators who are looking at this situation and saying, “Can this company really do what they’re proposing to do?” The skepticism that had been bubbling about this company really started to manifest itself once they started filing these state applications.
Ryan Knutson: The state certifications needed to be submitted to the FCC by a certain date, but LTD needed more time.
Ryan Tracy: Well, they asked the FCC for more time in eight of the 15 states where they needed to get these certifications. And they promised the FCC that these documents would be forthcoming, but, “We don’t have them yet. We need more time.” And they filed a petition that was public with the FCC to do that.
Ryan Knutson: But the FCC wasn’t having it. Ultimately the agency rejected LTD’s request for more time in six states.
Ryan Tracy: The FCC said, “Nope, you don’t have the certifications. That means you’re not getting the money.” And it rejected LTD’s deadline extension request.
Ryan Knutson: The FCC declined to discuss the details of LTD’s application. And while FCC officials did say the auction process could be improved, they pointed out that lots of other winning bidders besides LTD are moving forward with internet projects.
As for LTD, it’s appealing three of the six rejections, and the money that had been allocated for LTD won’t be redistributed to other companies. In the meantime, some 275,000 people who live in those rejected states are still waiting on their high speed internet connections.
Ryan Tracy: And that meant these areas aren’t going to get internet from LTD, basically, that the money wasn’t going to flow and these networks aren’t going to get built. Unfortunately it means they’re stuck with the internet service that they have right now. And that’s that kind of crappy service that we were talking about initially.
Ryan Knutson: And in the other nine states where LTD is supposed to provide service, its application is still under FCC review, more than a year and a half after the auction.
What has LTD said about all this?
Ryan Tracy: Well, LTD says they’re ready to go. They say they’re able to build this project that they’ve promised and that the fastest way to help these people that we’ve been talking about is to give the money to LTD. And according to them they will follow through if they’re given the opportunity to do so.
The CEO used the phrase, “This is a death sentence for a parking ticket.” These are small issues that are being made into big issues in his view because these state officials simply don’t want to let LTD do this. And state officials obviously dispute that.
Ryan Knutson: In the meantime, rural communities across the country will continue to struggle without high speed connections.
Ryan Tracy: One thing we know is that when a community has broadband, it’s more economically competitive than if it weren’t. So if you’re trying to get a small business or a large business to locate in your town and that company looks at the area and says, “Well, can I get employees to move here? Will they want to live here?” And if there’s not good internet service, that’s potentially a problem. We also have this trend happening after the pandemic where people are working remotely in more rural places. And if you want to attract those kind of tax paying residents to your town, you better have good internet.
Ryan Knutson: So the FCC has spent years and billions of dollars trying to get high speed internet to rural areas. And it’s still not built out everywhere across the country and there’s still these hurdles. Is this a solvable problem? I mean, will we get to the point where everybody and every building and every household in America has reliable high speed internet?
Ryan Tracy: Yes. I think it’s absolutely possible to do that, because we do it with electricity. And the technologies are different, but they’re similar enough that it seems feasible. The question is how much is that going to cost and how long will that take? And a lot of that depends on how these government programs are designed and how they’re executed.
Ryan Knutson: That’s all for today, Wednesday, July 13th. The Journal is a co-production of Gimlet and The Wall Street Journal. Additional reporting in this episode by Anthony DeBarros.
Thanks for listening. See you tomorrow.