Thursday, December 31, 2009

USF reform alone won't achieve universal U.S. broadband

Just as the U.S. Federal Communications Commission set a date for the end of analog broadcast television earlier this year as TV signals went digital, it should also establish a sunset date for the legacy Publicly Switched Telephone Network (PSTN), AT&T asserted in a December 21 filing with the FCC.

The business model for the PSTN -- a proprietary network comprised of central office switches, amplifiers and copper cable plant designed to deliver what's known as plain old telephone service -- POTS -- is in a death spiral as the number of people shutting off their landline voice service in favor of wireless and Voice Over Internet Protocol (VOIP) services has accelerated in recent years, AT&T notes. In the meantime, the telco stated, the FCC should modernize its regulations to ensure an orderly transition from the PSTN to an Internet Protocol (IP) based system, taking full regulatory control and ending state oversight authority originally established for regulating POTS.

However, legacy PSTN/POTS isn't alone in suffering from serious business model problems. So does the IP-based model that is the future of telecommunications. The reason: what AT&T describes as the "enormous" amount of capital necessary to complete the build out of required infrastructure to ensure all Americans have access to IP-based services just as basic telephone service is nearly universal. In its filing, AT&T concedes eight to ten percent of American households lack access to broadband, although another estimate released in October placed the figure higher at 12 percent, including even spotty access in major metropolitan areas.

In order to allow telcos to direct more capital investment to building out broadband infrastructure, AT&T proposes the FCC scrap rules requiring telcos to provide POTS so they can redirect funds to upgraded infrastructure capable of delivering IP-based services. "The legacy PSTN network – which is rapidly hemorrhaging customers and revenue – is now diverting much needed funds from investments in broadband networks," AT&T states in its filing.

AT&T also wants the Universal Service Fund (USF) -- created to subsidize the cost of providing POTS in high cost areas -- retasked to do the same for IP-based services. Doing so would help achieve the Obama administration's goal of broadband access for all Americans, according to AT&T.

But there's a difference between USF subsidies for voice telephone service and IP-based services. Deployment and adoption of basic phone service played out over decades. By contrast, there's a huge reservoir of pent up demand for broadband AT&T and other big telcos assured would be offered to all U.S. households when the Telecommunications Act of 1996 was enacted providing telcos tax breaks and other incentives intended to pave the way for them to universally deploy fiber-delivered telecommunications services by 2006. Didn't happen, obviously.

The FCC and other policymakers should keep this history and differences in demand between POTS and IP-based services in mind. Reforming the USF isn't likely to be the sole solution to remedy market failure for IP-based services. They must also encourage alternative business models such as open access fiber networks owned by local governments and telecom cooperatives through subsidies, low cost loans and tax incentives.

Wednesday, December 16, 2009

FCC draft broadband plan: Incorrect diagnosis, wrong prescription

The U.S. Federal Communications Commission today unveiled the underlying policy principles that will frame the plan it must present to Congress in February to expand advanced telecommunications infrastructure to ensure all Americans have broadband access. The FCC was charged with developing the plan under the American Recovery and Reinvestment Act of 2009 signed into law by President Barack Obama in February.

A basic principle is encouraging competition to "build on the attributes of the American broadband ecosystem." That's something of a head scratcher as Tim Nulty and other experts have accurately pointed out that telecommunications infrastructure is a natural and not market-created monopoly. It's a lack of adequate infrastructure -- and not vendors who want to offer services over it -- that has brought about the large gaps in broadband availability in the United States.

Given that, it's not apparent how encouraging competition will even begin to fulfill the Obama administration's goal of universal broadband access. The problem isn't lack of competitors. It's lack of any providers because their for profit business models simply don't allow them to profitably deploy infrastructure within broadband black holes. No amount of enhanced competition can alter that business reality.

If the FCC accepts that reality, then its final recommendation to Congress in February must by implication call for alternative ownership and business models for last mile -- and some middle mile -- telecom infrastructure.

Tuesday, December 15, 2009

Report recognizes lack of broadband access in "non urban" areas of U.S.

When it comes to discussing advanced telecommunications infrastructure, one of my major peeves is the frequent over generalization of the United States into just two categories -- urban and rural -- as if it were still the early 20th century when electric power or other utilities bypassed entire rural counties and regions before they were built out.

In the case of advanced telecom infrastructure, it's far more granular than that. It can be available on one street or road -- even in the burbs -- but not on the next. Indeed, many visitors find this blog after a search query on the vexing question of why they're stuck on dialup while a nearby neighbor can get wireline broadband.

So it's heartening to see that this recently issued forecast by The Insight Research Corporation despite its "urban vs. rural" dichotomy gives some degree of recognition that of an estimated 12 million households in the U.S. that lack access to broadband, not all are confined to rural areas. Some are situated in "non urban" areas, i.e. outlying suburbs, exurbs and less densely populated portions of metropolitan regions.

Here's the relevant excerpt:

While the exact number of households that do not have access to broadband service is unknown, even to the government, INSIGHT estimates that at least 12 million rural and non-urban market households do not have access to any broadband service due to the lack of supporting terrestrial infrastructure.
Insight estimates that with a minimum cost of $1,500 per household, it would cost in excess of $18 billion to build out advanced telecom infrastructure to serve them.

Thursday, December 10, 2009

Reducing demand for California state office space through telework

As deficit plagued California continues to grapple with red ink and sells off state owned office buildings to help bring in much needed cash, California Assembly consultant and Auburn, Calif. councilmember Kevin Hanley believes California can reduce the cost of office space to house state workers Monday through Friday.

Here's how, according to Hanley: state managers should shrink the cubicle jungle by allowing state workers to work remotely from home part of the work week. In his Sacramento Bee op-ed piece, Hanley notes the information technology is there. The problem is outdated supervisory technique that relies too much eyeballing workers rather than measuring job performance based on their work product.

I would add that for some California state workers -- particularly those living in outlying areas and who generate the most carbon emissions to get to work -- telecommunications infrastructure also needs updating from early 1990s era dial up to provide robust Internet connectivity options.

California PUC conditionally funds start up cooperative's middle mile project

The California Public Utilities Commission has demonstrated its support of start up telecom cooperatives -- entities this blogger believes play a crucial role in the rapid expansion of advanced telecommunications infrastructure in areas that are not sufficiently profitable for incumbent providers.

In a resolution adopted earlier this week, the CPUC agreed to fund 19 percent of the California Broadband Cooperative's planned open access wholesale middle fiber project along 448 miles of Highway 395 in the Golden State's Eastern Sierra area including the counties of Mono, Inyo, Eastern Kern and San Bernardino. Coop membership is open to local governments, institutions and Internet Service Providers.

The 19 percent funding level is beyond the 10 percent level the CPUC established in July in an effort to utilize its $100 million California Advanced Services Fund (CASF) to leverage $7.2 billion in federal subsidies for broadband telecommunications infrastructure allocated in the American Recovery and Reinvestment Act (ARRA). The CASF funding is contingent on the project being approved for ARRA funding.

In the initial round of ARRA broadband funding that closed in August, the National Telecommunications and Information Administration's (NTIA) Broadband Technology Opportunities Program (BTOP) generally required project grant applicants to put up a 20 percent funding match. In an effort to get more California projects funded, CASF kicked in half the match amount, bringing total project funding up to 90 percent. That left it to applicants to come up with the remaining a 10 percent match.

However, the California Broadband Cooperative noted as a start up nonprofit with no financial history it would find it all but impossible to come up with the 10 percent match for its proposed $101.4 million project under grant and loan subsidies for broadband infrastructure construction under the BTOP and the USDA's Rural Utilities Service (RUS) program.

Kudos to the California PUC for recognizing that alternative, nonprofit business models like cooperatives are needed in the quest to close the digital divide in California and that these entities face unique and substantial start up funding challenges. As the NTIA and USDA draw up new rules governing an upcoming and final round of funding for broadband infrastructure projects early next year, the agencies should keep the California PUC's action in mind.

Tuesday, December 08, 2009

Obama proposes additional funds for broadband infrastructure

President Barack Obama said in a speech today at the Brookings Institution that more federal subsidies are forthcoming for broadband infrastructure as part of a renewed effort to create badly needed jobs. Whatever the amount, it will supplement the $7.2 billion already allocated in the American Recovery and Reinvestment Act Obama signed into law in February.

Here's the relevant excerpt from a transcript of the president's remarks posted on the White House Web site:
Second, we're proposing a boost in investment in the nation's infrastructure beyond what was included in the Recovery Act, to continue modernizing our transportation and communications networks. These are needed public works that engage private sector companies, spurring hiring all across the country.

Already, more than 10,000 of these projects have been funded through the Recovery Act. And by design, Recovery Act work on roads, bridges, water systems, Superfund sites, broadband networks, and clean energy projects will all be ramping up in the months ahead.

Whatever the additional amount agreed to by the president and Congress, there's still a long way to go given the consensus view that the $7.2 billion in the economic stimulus package represents a mere down payment on what the U.S. needs to invest to modernize its outmoded and incomplete telecommunications infrastructure as Blair Levin, the Federal Communications Commission's broadband czar, generally described the amount as the Obama administration prepared to take office one year ago.

Monday, December 07, 2009

Kiplinger predicts U.S. tax to bolster telecom infrastructure

The Kiplinger Letter is predicting the U.S. Federal Communications Commission will propose a tax next year to subsidize private telcos and cable companies' cost to build out broadband to serve all Americans. The American Recovery and Reinvestment Act of 2009 tasked the FCC with providing Congress a plan for universal broadband access by Feb. 17, 2010. Kiplinger Senior Associate Editor Richard Sammon forecasts the tax will be part of the plan.

But at the same time, Sammon says enacting such a tax will prove politically difficult. The take away is the FCC should be considering alternative entities that can roll out advanced telecommunications infrastructure for less money than the big telcos and cable companies that must produce hefty profits and pay fat dividends to satisfy shareholders.

That means turning to the nonprofit sector and specifically local governments and consumer-owned telecom cooperatives. There, taxpayer dollars can go farther and these smaller, more nimble entities can move more rapidly to deploy broadband infrastructure to fill in the areas where the business models of the large telcos and cable companies don't pencil out. Instead of new taxes, policymakers should enact tax breaks to encourage homeowners and small businesses to buy their own last mile fiber connections through cooperative ventures and public/private partnerships.

The need for alternative business models is underscored in a report prepared for the FCC by the Columbia Institute for Tele-Information and released last month.

A key conclusion: a significant number of homes -- 5 to 10 million representing 4.5 to 9 percent of U.S. households -- will continue to have "significantly inferior choices in broadband" between now and 2015. "Most of these homes will have wireless or wired service broadband available only at speeds substantially lower than the speeds available to the rest of the country," the report notes, adding that some homes "will have no choice except satellite broadband, which has some performance attributes that make it less satisfactory for many applications than a terrestrial broadband service."

Thursday, December 03, 2009

FCC puts broadband in proper perspective

The term broadband -- generally used to refer to Internet connectivity beyond first generation dial up access -- is a component of the larger transformation of the telecommunications infrastructure. The legacy Public Switched Telephone Network (PSTN) system that relies on copper cables and central office switches owned by the phone companies is of the pre Internet period. In the post Internet age, the Internet itself is becoming the phone system. Routers take the place of telephone switches and fiber optics supersede copper cable.

The U.S. Federal Communications Commission (FCC) put broadband into its proper perspective in a public notice issued Dec. 1 calling for public comment on this conversion of telecommunications infrastructure from a "circuit switched network to an all-IP (Internet Protocol) network."

The notice describes broadband as "a leading indicator of the major transitions in communications technology and services" and "a growing platform over which the consumer accesses a multitude of services, including voice, data, and video in an integrated way across applications and providers."

The FCC notice shows the agency -- charged under the American Recovery and Reinvestment Act of 2009 with developing recommendations for Congress by next February on how to best achieve universal broadband access -- is thinking beyond broadband and of the larger regulatory scheme in "the spirit of understanding the scope and breadth of the policy issues associated with this transition" and the "appropriate policy framework to facilitate and respond to" this shift.

Wednesday, December 02, 2009

Incumbents v. Illinois over proposed broadband stimulus projects

The telco/cable duopoly has gone to battle stations in Illinois, where according to this report in Crain's Chicago Business it's opposing five dozen applications for federal subsidies for broadband telecommunications infrastructure build out including projects proposed by the state of Illinois, Chicago and Cook County. The subsidies are contained in $7.2 billion allocated in the American Recovery and Reinvestment Act signed into law in February.

According to the story, the incumbents contend the projects would overbuild their proprietary cable plants that already provide adequate broadband access. But the Illinois Department of Central Management Services counters that the proposed project areas must rely on leased circuits costing hundreds of dollars per month (such as 1970s era T-1 lines) that are "too costly to achieve statewide 21st-century information and communication capabilities."

Playing the T-1 card? If the state of Illinois has the facts right, this story sheds light on what might be the incumbent telcos' strategy for challenging proposed broadband stimulus projects: simply contending broadband is available most everywhere in developed areas of the United States since anyone can order up a T-1 or higher bandwidth leased line. That's hardly the case when price is taken into account. If this is the linchpin of the incumbent telcos' strategy to shoot down proposed broadband stimulus projects, it's not likely to go over well and will earn the incumbents even greater enmity.
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