How ‘Buy American’ Could Ruin Broadband Stimulus Plans

Analysts Say Strict Enforcement Would Only Hurt U.S. Vendors

Should the government require broadband buildouts funded by economic stimulus grants to use only goods produced in the United States? Is such a stipulation even realistic in a global economy in which tech companies have offshored much of their manufacturing for decades? Those are the questions facing the National Telecommunications and Information Administration, the agency tasked with allocating about $4 billion in grants to further broadband’s reach in the United States as part of the 2009 American Reinvestment and Recovery Act.

The bill contains a “Buy American” clause that, if enforced by NTIA, would exclude most America-based vendors from helping cities, states, nonprofits and other entities install new infrastructure for high-speed Internet and data access. And if U.S. giants that manufacture many components overseas, such as Motorola Inc. (MOT), Cisco Systems Inc. (CSCO) and Alcatel-Lucent (ALU), can’t participate, who can?

Grant recipients could look to such businesses as Zhone Technologies (ZHNE) that do make their products in the United States. But such companies are few and far between.

Recently, the federal Office of Management and Budget said the paragraph in the “Buy American” rider applies just to public buildings and public works built by government agencies receiving grants. Therefore, some analysts say, low-cost Chinese vendors such as Huawei and ZTE Corp. could be well-positioned to take advantage of the situation. That’s because the term “public works” is not well-defined; cities using broadband funds might have to adhere to made-in-America labels but a rural service provider expanding to connect communities might not. Thus, that service provider could, if NTIA doesn’t clarify, resort to buying from the cheapest-priced vendors, which could be those headquartered overseas.

“I have noticed, in just the last few months, a change among North American telecom operators,” said one telecom expert who requested anonymity. “Huawei is being invited to bid on contracts because they’re cheaper.”

So then, if Huawei started reaping the benefits of stimulus-related projects, one avenue to creating American jobs – building new networks and adding headcount to American vendors – would be defeated.

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