Monday, November 24, 2008

Obama administration should offer incentives for homeowner-owned fiber over the last mile

The incoming administration of U.S. President-Elect Barack Obama has tagged rebuilding America's aging infrastructure as a key policy objective. That includes its badly outdated last mile telecommunications infrastructure in order to make broadband accessible to more Americans.

Since the primary inadequacy of the telecommunications infrastructure when it comes to supporting broadband-enabled IP services isn't with the long haul and mid-mile portion of the network but rather the so-called "last mile" local access network, the administration should concentrate its efforts on developing incentives to hasten the change out of copper cable to fiber optic cable over this segment.

The administration should pay particular note of a recently issued working paper by the New America Foundation authored by Derek Slater and Tim Wu. The paper, Homes with Tails What If You Could Own Your Internet Connection, recommends state and federal tax credits to create incentives for homeowners to spend a $2,500 to $4,000 to connect their homes to last mile fiber built by existing carriers, neighborhood cooperatives, developers, local governments and private fiber optic vendors.

The authors seem to acknowledge that while there's near universal agreement that fiber over the last mile is essential to the future of America's telecommunications system and the critical role it plays in the nation's economy, there also is a substantial amount of inertia on both the supply and demand sides of the equation that keeps the U.S. stuck behind a technologically obsolete "copper wall" built decades before the Internet was created. The limitations of telcos' circa 1970s and earlier copper cable plants have become painfully obvious to all too many Americans who have vainly attempted for years to subscribe to their telco's DSL (or VDSL)-based services, only to be told it can't reach their homes or the copper cable is too old and degraded to support it or find it can't reliably deliver the throughput they'd like.

Telcos that have to produce quarterly profits are inherently conservative and won't make a long term capital investment in deploying fiber over their entire networks. They argue there's not enough evidence that homeowners will subscribe to fiber-based services at a sufficient "take rate" to justify such a major expenditure unless homes are densely packed cheek to jowl, thus reducing their investment risk. The problem is a lot of Americans don't live in such neighborhoods nor have any desire to do so. And since telcos operate in a duopolistic and often monopolistic market environment, telcos eschew meaningful market research and don't get hard data that might indicate that if they built fiber, customers will sign up for advanced services.

Hence, Slater and Wu posit -- correctly in this blogger's opinion-- that it falls to consumers themselves to break down the copper wall in favor of fiber over the last mile since risk averse telcos will continue to default to the safe status quo whenever possible.

The authors aptly acknowledge that many homeowners might balk at dropping a few thousand bucks to connect their homes to locally owned fiber and that there needs to be a compelling financial argument in addition to bringing their dwellings into the modern telecommunications age. In this regard, they point to a study by RVA & Associates, a market research firm that focuses on fiber networks, estimating that fiber connection increases the value of a home by about $4000. If the Obama administration combined that with a tax break, the proposition becomes even more appealing, particularly along with incentives for mortgage companies and other lenders to extend low interest fiber loans to homeowners. The tax breaks could be partially offset by stimulating economic activity that would bring in additional tax revenues.

Slater and Wu are to be commended for advancing the discussion beyond the true but tired themes of how much the nation is falling behind other developed countries when it comes to broadband and needs a national broadband policy to outlining a strategy to make it happen. It's no longer useful to call for a vague "national broadband policy." Since the U.S. is already years behind where it should be when it comes to broadband telecommunications infrastructure, what's sorely needed an action plan and rapid implementation. The solutions don't have to be perfect when the dreary U.S. broadband status quo is unacceptable and grows increasingly so as time goes on. As business gurus Tom Peters and Robert H. Waterman Jr. advised in their 1982 book In Search of Excellence: Ready, Fire, Aim.

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