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Senate weighs tax credits for broadband providers

A bill is introduced in the Senate that would offer high-speed Internet providers a tax credit if the companies enter rural markets with broadband service.

    WASHINGTON--If long distances and sparse population bases are keeping rural areas from receiving high-speed Internet choices, then maybe a federal tax credit to broadband providers would offer the right incentive.

    That's the thinking of one-third of the U.S. Senate, anyway. Senator John Rockefeller, a Democrat from the rural state of West Virginia, introduced a bill this week that would offer high-speed Internet providers a tax credit of 10 percent to 20 percent if the companies entered rural markets with broadband service. The bill is one attempt to close the so-called digital divide.

    Rockefeller introduced almost the same bill last March, although that bill only offered credits of up to 15 percent and never got a hearing on Capitol Hill. This time, Rockefeller has rounded up 32 co-sponsors, 10 of them Republicans.

    To qualify for a rural tax credit, a broadband provider would have to serve an area more than 10 miles from a town with a population of 25,000 or more and a county with a population density of less than 500 people per square mile. The bill defines broadband service as anything offering speeds of 10mbps (megabits per second).

    In urban areas "they are tearing up the streets to install fiber optics" for DSL and to perform cable upgrades, Rockefeller said. But "in rural areas, access to broadband communications is harder to come by."

    Rockefeller's bill promises a 10 percent tax credit each year for five years to providers offering "current generation broadband" to residents and businesses in both rural and underserved urban areas. Current generation broadband transmits voice and has a download rate of 1.5mbps and an upload rate of 0.5mbps.

    The bill proposes a 20 percent tax credit per year for five years to providers investing in "next-generation broadband" for residential customers. That service also transmits voice, with an upload and download time of 10Mbps.

    It's not clear how much incentive these credits would provide, as many broadband providers are struggling financially despite the high demand for their products, and expanding into rural markets would be capital-intensive even with the tax credit.

    There are several hurdles to launching broadband in rural areas, the largest of them being geography. DSL providers, for example, cannot offer service more than 3 miles from a phone company's central office, confining the service largely to urban areas. Many cable facilities in rural areas are antiquated, and the cost of upgrading them to two-way broadband service has proven daunting.

    The Federal Communications Commission has expressed concern about the slower spread of broadband to rural areas and has conducted inquiries into the matter. The Association for Local Telecommunications Services (ALTS), which includes in its membership several broadband service providers, admitted in a filing with the FCC recently that growth in rural areas has been slower.

    ALTS then noted, however, that "every state in the nation now benefits from the entry of at least one competitor into the local telecommunications market. This includes some of the most rural states, such as Alaska, Montana and West Virginia." ALTS was an early backer of Rockefeller's legislation.

    Digital broadcast satellite providers offer high-speed Internet services in rural areas, and Sprint and WorldCom are preparing to offer service using something called fixed wireless, which is a ground-based service involving a small reception dish attached to a consumer's home.

    "We have an excellent fixed wireless strategy," WorldCom Chief Operating Officer Ron Beaumont told analysts last week. "We're in trials now, and soon we'll be supporting (high-speed) Internet access, with voice coming in time."

    Rockefeller's bill has been referred to the Senate Finance Committee, with no hearing scheduled as yet.