updated 2/19/2009 5:35:57 PM ET 2009-02-19T22:35:57

With the first concerted federal program to subsidize high-speed Internet services in rural areas, the new economic stimulus package will create some jobs and could get hundreds of thousands of households online.

Yet there's some question whether the economy would be more energized by spending that money on other things.

Because Internet access is already widespread and still being expanded even in a shrinking economy, injecting more money for broadband could simply equate to giving more coffee to someone who's already downed three cups.

"From the rural Vermont that we see, broadband is happening, happening fast," said Michel Guite, president of Vermont Telephone Co., which is based in Springfield.

The company, which serves 21,000 lines, is able to borrow from commercial lenders when it needs to invest in expanding Internet services, Guite said Thursday at a conference organized by the Columbia Institute for Tele-Information.

Although he wouldn't decline cheaper loans from the government, Guite said Congress could help his company better by cutting red tape, particularly when it comes to freeing up spectrum for wireless services.

The stimulus bill provides $7.2 billion for grants, loans and loan guarantees, primarily for areas that lack broadband or are "underserved," though the term is not defined. Some of that money is set aside to expand Internet access at public centers like community colleges and public libraries.

One reason the money won't likely have much impact is its small size: less than 1 percent of the overall stimulus package, and substantially less per citizen than some countries, like Ireland and Sweden, have spent on improving their networks.

The Obama administration is looking at creating a more comprehensive plan to get the whole country covered by broadband, technology adviser Alec Ross told The Washington Post this week, but it's not yet clear if that would mean more subsidies.

A possible point of comparison is phone service for rural areas, which has long been subsidized through a program that has critics, too. A study by Robert Crandall of the Brookings Institution said that the program produces customer savings of about $2 per month for $20 in monthly subsidies. But he conceded that when phone service was being built out, subsidies may have helped.

Larry Sarjeant, vice president of legislative affairs at Qwest Communications International Inc., said the Denver-based phone company could use $3 billion to expand Internet access to 2 million households and small businesses in 14 Western states, many of them thinly populated.

Because Qwest is unlikely to get that large a share of the funds, and the number of households that sign up for service will be smaller still, the net effect would be at most a few hundred thousand new Internet subscribers. Qwest added 236,000 broadband subscribers on its own last year.

In 2007 and 2008, the Pew Internet and American Life Project asked households that lacked broadband why they haven't signed up. Lack of availability was ranked fourth, given by 14 percent. Most answered that they didn't need the Internet, that it was too expensive or too hard to use. Many people who don't use the Internet simply don't have computers.

About 95 percent of households can already get broadband, according to the National Cable & Telecommunications Association. But the industry hasn't been very forthcoming in saying exactly where it's available, and that's part of what the stimulus package wants to address — it has allocated $350 million to mapping U.S. broadband access.

There are signs that the money will do at least some good to rural areas.

A study of 3,000 people in Michigan, Texas and Kentucky found those in areas that received broadband Internet grants from the federal Rural Utilities Service quickly signed up for service, matching the penetration rates in cities. That happened where network investment was coupled with community programs aimed at convincing people about the benefits of Internet access.

Home broadband users were more likely to start businesses or take classes online, and less likely to move away, the researchers at Michigan State University found.

Those positive effects are hard to value.

Raul Katz, a Columbia Business School professor, estimates that the broadband plan will create 128,000 jobs over four years, because it will put installers and equipment makers to work, and those people will then spend the money they make. He's much less certain how many jobs the Internet access itself will create. It could be as many as 273,000 or closer to zero.

Spending the money on traditional infrastructure projects would create slightly more direct jobs: 152,000, according to Katz. That's because more of the money would stay in the United States, as most telecom equipment is assembled in Asia.

Robert Atkinson, president of Information Technology and Innovation Foundation, a nonpartisan think tank, believes it's unfair to hold the broadband part of the stimulus plan to a higher standard than other investments.

"We know for sure that it will create jobs," he said. Everyone is going to have Internet access at some point, and the stimulus is "an amazing opportunity" to get five or 10 years ahead on that, he added.

So who benefits on the company side? Qwest chief executive Ed Mueller told investors and analysts last week that there would be "some upside" for the company in the stimulus, but that $7 billion would be spread pretty thin over the country.

Blair Levin, managing director and analyst at brokerage Stifel Nicolaus, believes smaller phone companies will benefit more than larger, but the money won't make a major difference.

"I don't think it will affect the competitive dynamic much," he said.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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