By Kim Dixon
WASHINGTON (Reuters) – Large increases in tax credits to extend high-speed Internet to rural and other unserved areas are being proposed as part of the nearly $900-billion stimulus plan winding its way through Congress, according to a document obtained on Friday.
Sen. John Rockefeller, a West Virginia Democrat and chairman of the Senate Commerce Committee, will offer an amendment boosting an earlier proposed tax credit to 30 percent, up from 10 percent, to encourage spending on broadband at current speeds in rural and other unserved areas.
Spending to provide super-fast speed broadband would be eligible for a 40 percent tax credit under the plan, up from an earlier 20 percent.
A Senate aide said the $9 billion in grants for building broadband in the current proposal could be trimmed, as the tax credits are beefed up.
AT&T Inc and Verizon Communications Inc are most likely to gain from the tax credit approach, analysts said. Smaller telecom companies have promoted grants.
“We believe a shift to greater reliance on tax credits would be most helpful to Verizon as well as AT&T and other incumbents with taxable income,” Stifel Nicolaus analyst Rebecca Arbogast wrote in an investor note.
The effort is aimed at fulfilling the dual goal of President Barack Obama and others of expanding access to high-speed Internet, while creating jobs in the process.
The amendment also clarifies language that only spending in rural and unserved areas will be eligible for the incentives. Earlier drafts also included under-served areas.
Public interest groups fear tax incentives not backed up by accountability will fund investment likely to occur anyway.
Backers of Rockefeller’s approach said the new emphasis on areas will with no Internet options whatsoever will help alleviate that risk.
Internet service companies “have pretty much covered every place they’re going to cover,” where they can make money, said Robert Atkinson, president of the Information Technology and Innovation Foundation, a nonpartisan think tank that gets some telecommunications funding. “I don’t see how putting broadband into rural America is a waste.”
Wireless-only companies like Sprint Nextel Corp, satellite companies like DIRECTV Group and rural telephone companies like CenturyTel Inc may also be eligible for the grants and credits.
SPEED, JOBS
Current Internet speeds are defined as 5 megabits per second, while the “next-generation” speeds eligible for the larger tax credits are defined as 100 megabits per second, in the proposal.
Some have complained the 100 megabits per second bar is too high. Verizon Communications is the most obvious recipient of that credit, since its fiber-based FIOS system can handle that speed.