February 5, 2009 / 9:03 PM / 11 years ago

US wireless, Internet companies vying for stimulus

WASHINGTON, Feb 5 (Reuters) - Wireless and Internet service companies are looking to cash in as U.S. lawmakers hash out a $900 billion stimulus plan aimed at jump-starting the souring economy.

Nearly $10 billion in federal grants and loans and $100 million in tax credits could be spent extending high-speed Internet access to rural areas and poor neighborhoods, a goal outlined by President Barack Obama during his campaign.

Public interest groups say it is laudable the government is trying to help the poor while creating jobs but that a poorly implemented program could smack of corporate welfare.

“Even though we support tax credits, we don’t want them to ‘incentivize’ investments that would have taken place otherwise,” said Derek Turner, research director at the public interest group Free Press.

“We won’t be creating new jobs and we’ll just be paying for current investment.”

In determining which companies benefit most from the stimulus incentives, much will depend on interpretations of words like “open access,” “underserved” and “unserved.”

The language in the stimulus bill is vague in some cases and fails to define key terms.

For example, the House of Representatives version of the stimulus gives the Federal Communications Commission the power to define “openness”: the idea that Internet providers should not discriminate based on the size of the content — say movie downloads versus email — or applications as it routes traffic.

Internet service providers like Verizon ardently oppose this, saying it will discourage investment.

But public interest groups and content providers like Google Inc (GOOG.O) say it is essential for innovation to flourish on the Internet.

“The commission will have to open rulemakings on these issues and we expect they will be contentious and difficult,” Medley Advisors analyst Jessica Zufolo said in an investor note this week.


Big providers like AT&T Inc and Verizon Communications (VZ.N) prefer tax credits rather than grants and loans, while the smaller rural carriers favor direct grants, in large part because they are more likely to have liabilities.

Many Wall Street analysts say smaller, mid-sized and rural-focused carriers are most likely to benefit from the incentives, as the dollars would be too small to pack much punch for giants with tens of billions in revenues.

The Rural Cellular Association, with members including United States Cellular Corp (USM.N) and Cellular South, is pushing for provisions to prevent the big carriers from dominating the process.

“The tax credits are of no use to smaller carriers,” said Eric Peterson, a spokesman for the trade group, which says its members serve about 25 million Americans. “Tax credits would not provide instant capital and thereby be stimulative in terms of the administration and the Congress’s objectives.”

The Independent Telephone and Telecommunications Alliance, which represents mid-sized carriers including CenturyTel Inc.(CTL.N) and Embarq Corp EQ.N and Windstream Corp WIN.N, wrote to key lawmakers this week to push grants and a focus on subsidizing access to unserved areas, currently unprofitable to the companies.

“The reason our folks are at 90 percent deployment and not 100 percent is that is where the numbers stop working,” said Curt Stamp, president of the group.

The tax credits proposed — currently 10 to 20 percent of investments, depending on connection speeds — are not big enough “to move the needle” on investment, Stamp said.

The Wireless Communications Association International, which represents giants like AT&T but also smaller companies like privately held Xanadoo, wants flexibility in accounting for net operating losses.

The group’s president, Fred Campbell, said, “The reason it’s relevant is it’s harder to raise money in a very volatile stock market, especially when you have a sudden stock drop.” (Reporting by Kim Dixon; Editing by Gary Hill)

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