A Blueprint for Big Broadband
www.educause.edu/ir/library/pdf/EPO0801.pdf
John Windhausen, Jr.
President, Telepoly Consulting
[email protected]
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Several Studies Show
Internet Usage Exploding
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Nemertes Research:
“In sum, we believe that the environment necessary
for a Moore’s-law increase in application utilization
exists today.
3 Megs to 384 Megs in 10 years (Moore’s Law)
Jupiter Research:
“[A]verage households will need 57–72 Mbps of
bandwidth by 2009 and ‘tech savvy’ households would
consume nearly 100 Mbps.
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Demand: Technology Futures Predicts
Need for 100 Mbps in 4-5 Years.
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SUPPLY:
U.S. Investment in Broadband Is Not
Keeping up with Exploding Demand.
Nemertes Research:
 “North America is behind
the rest of the world in
terms of access line
investment.”
 “[Internet] usage could
outstrip network capacity
both in North America and
worldwide as early as 2010.”
Telegeography:
 “Internet traffic
increased by 75 percent
in 2006, while capacity
grew by only 47 percent.”
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Nemertes Research:
The investment gap is in the last mile.
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5
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3
2
1
0
Optical Switching
Core Switching
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Access Capacity ("last
mile")
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U.S. Broadband International Rank:
Broadband subscribers per population
1999:
2000:
2001:
2002:
3d
5th
7th
11th
2003:
2004:
2005:
2006:
15th
18th
19th
20th
Source: ITU ICT “Eye”.
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International Comparison: Speed and Price
(Source: ITIF)
Japan
South Korea
Sweden
France
Australia
United States
0.0
10.0
20.0
30.0
Average Speed
40.0
Price per Month
50.0
60.0
70.0
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A Market-based Approach Alone
Does Not Provide Sufficient Investment Incentives
 Gartner Consulting: “In order for market demand
alone to drive ubiquitous deployment of broadband
service, providers and investors require strong
evidence of demand…. one of the weaknesses of this
logic is the view that broadband is an optional
service.”
 Rob Atkinson, ITIF: “there are significant externalities
from high-speed broadband . . . if left to themselves,
market forces alone will lead to less investment in
broadband than is societally optimal.”
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In contrast to the
U.S. Federal Government, several
American States and most foreign
Governments have adopted specific
broadband policies that include
significant public funding.
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State Governors: Stepping Up
Some Examples:
 California: grant programs, access to rights-of-way, tax
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credits, consumer education.
Georgia: Rural broadband grants (BRIDGE)
Idaho: Matching grant program and tax credits
Kentucky: Rural grant and loan program (KIA);
mapping (ConnectKentucky)
Maine: 0.25% fee on intrastate service to fund rural
broadband and cellular service (ConnectME)
Minnesota: public-private partnership (Get
Broadband!)
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State Governors: Stepping Up
More Examples:
 New York: initiating competitive rural broadband
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grant program, recently awarded 9 new grants.
North Carolina: broadband grant program and
mapping (E-NC)
Ohio: extending the reach of the Broadband Ohio
Network (“middle mile”)
Vermont: issuing moral obligation bonds
Virginia: tobacco settlement money used for regional
broadband networks.
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Other Nations:
Three Primary Broadband Strategies:
Financing
Fear (Competition)
Federal Government
Mandates
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Japan: All 3 Strategies
 Japan’s strategy has evolved from “e-Japan” (2001) to
“u-Japan” (2004).
 Japan government owns 34% of NTT, ordered it to
deploy fiber whether or not it shows a profit.
 Required local loop unbundling at a low price.
 Subsidies, 0%-interest loans, accelerated depreciation,
government-backed loans.
 Subsidies cover one-third the cost of FTTH in rural
areas.
 NTT has invested more than $200 BILLION in optical
fiber.
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The 1996 Telecom Act Has Been a
Great Success: In France!
 Mandated unbundling of local loop in 1999.
 Among lowest broadband prices: $20/mo. for 20 Mbps
(using ADSL2+)
 Unbundling created competitors (Iliad/Free; Neuf
Cegetel)
 December 2007: new rules to encourage fiber to new
buildings.
 France Telecom deploying fiber to Paris and 1 million
households (out of 20 million) by end of 2008
 Iliad and Neuf Cegetel now deploying their own fiber.
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Sweden: Early Adopter
 The first European nation to have a broadband policy
(1999); now close to 100% of homes have BB available.
 Government provided $820 M to stimulate
infrastructure (grants and tax credits) from 2001 to
2007. ($30 Billion if extrapolated to the U.S.)
 Ordered its electric utility to build a backbone
network to all 290 municipalities.
 An additional $500 M is recommended in April 2008
to build fiber to rural areas; Gov’t funding limited to
50% of the cost.
 Open Access model
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Canada:
What Hath Broadband Wrought?
 Adopted a national broadband plan in 2001
 Decided to treat broadband as infrastructure
 Funded 3 separate national programs:
 National Satellite Initiative
 Strategic Infrastructure Fund
 Broadband for Rural and Northern Development (BRAND)
 Canada has been at or near the top of all countries in
broadband since 2001.
 Canada has about the same “urbanicity” as the U.S. and a
smaller economy per capita than the U.S.
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Countries with smaller GDP per capita than
the U.S. have better BB Penetration.
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Countries with more rural population than
the U.S. have better BB Penetration.
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Federal Government Funding of
“Last Mile” BB is a Necessity
The deregulatory policies of the last 10 years have not
worked; U.S. is falling further behind other nations.
The marketplace will not provide sufficient investment in
broadband facilities because the costs of deploying
broadband are greater than the microeconomic
returns to the companies.
There are significant “macroeconomic” benefits to the
public of broadband infrastructure (health care, telework, education, etc.) that the private sector does not
value.
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“The Coming Exaflood,” Brett Swanson,
Wall St. Journal, Jan. 20, 2007
"Without many tens of billions of dollars
worth of new fiber optic networks,
thousands of new business plans in
communications, medicine, education,
security, remote sensing, computing, the
military and every mundane task that could
soon move to the Internet will be frustrated.
All the innovations on the edge will die."
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Existing Broadband Programs
are Insufficient.
 The Existing Universal Service Fund is not designed
for broadband deployment.
 Broadband funding will compete with other USF Dollars.
 The amount of money being discussed ($300 M) is much too small
– will take over 300 years to wire all homes (assuming $1000 cost per
home).
 The Rural Utility Service (RUS) loan program does not
address “uneconomic” rural areas.
 Most funding is provided through loans that must be re-paid; but
economics of rural areas make it impossible to earn enough to repay
the loan.
 Most applications are denied.
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Key Recommendation:
Create a brand new
Universal Broadband Fund (UBF) to
subsidize the construction of local
broadband connections to every home
and business.
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How Much Investment is Necessary to Pass
Each Home? (Public and Private)
About $100 Billion
 Verizon estimates it costs about $800 to pass each
home with FiOS.
 Tim Nulty says Vermont spends about $250 per home
in the city and $1100 per home in rural areas.
 U.S. has a total of 115M homes; 18M will be passed by
FiOS, leaving 97M homes remaining
 $1000 per home X 97M homes = $97 Billion
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Where Should this Investment Come
From?
 Public/Private Partnership:
 Network Builder/Owner should provide a minimum of
one-third of the cost in each local market ($33 Billion)
 Federal Government = 1/3 ($33 Billion)
 State governments = 1/3 ($33 Billion)
 Grants should be awarded through a competitive bid
market-by-market. Bidders can bid down the amount
of government funding they need.
 Over 4 years, Federal and state governments should
each be prepared to appropriate up to $8 billion per
year (maximum).
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How would the funding be distributed?
 Federal funding administered by the Department of
Commerce.
 Federal funds distributed to each state after the state
raises its 1/3 share of the funding.
 The state then awards the fed/state grant money to the
network builder/owner on a market-by-market basis.
 The network builder/owner can be private sector
(telephone company, cable company) or public entity
(e.g. municipality)
 Network builder must deploy minimum of 100 Mbps,
scalable to 1 Gbps to every home and business.
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Question #1: Does the Federal
Government have the money?
TOTAL FEDERAL BUDGET OUTLAYS – 2006
TOTAL FEDERAL DEFICIT - 2006
Transportation
Health
Community Development
Science, Space and Technology
Proposed Federal Spending on Big Broadband
$ 2,660.0 B
$ 248.2 B (9.3%)
$
70.2 B (2.6 %)
$
63.9 B (2.4%)
$
54.5 B (2.0%)
$
23.6 B (0.9%)
$
8.0 B (0.3%)
If the U.S. can spend $70 Billion/year on
transportation, it can spend $8 Billion on
Broadband infrastructure for 4 years.
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Question #2: Do We Need Fiber?
 Fiber is preferred because its capacity can be upgraded
easily by changing the electronics.
 Fiber is not an interim technology; lasts for decades.
 In Vermont experience, some costs are cheaper in rural
areas (real estate) and take rate is higher.
 In very remote rural areas, wireless may be a
reasonable alternative, but extending fiber as far as
possible will make wireless easier for the last mile.
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Question #3: What about Wi-Max?
 Excitement about the new Clearwire-Sprint-Google-
Comcast-TimeWarner-Brighthouse deal to deploy a
nationwide Wi-Max network, using a wholesale model.
But:
Bernstein Research:
“Sprint's huge
swath of 2.5 GHz spectrum
is ideal for delivering high
bandwidth, but there are
questions about its efficacy
in penetrating walls and
windows.”
CommsDay:
"Australia's first WiMAX
operator has closed its
network, with the CEO
labeling the technology as
a 'disaster' that 'failed
miserably’.”
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Question #4: What will happen to the
Universal Service Fund?
 In the short run, nothing. The USF serves important
goals, and the UBF would supplement, not replace the
USF.
 Small telcos could compete for UBF funding and
would likely win many grants.
 In the long run, the size of the $7 Billion USF should
decline. Fiber is a less costly technology, and the costs
of running a telephone network using fiber should be
smaller than today’s costs, so the amount of USF
subsidy should decline over time.
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Question #5: What Public Interest Obligations
Should be Attached to UBF Funds?
 Affordability: Grant winners should not be permitted
to charge exorbitant rates.
 Net Neutrality: Penalties should be imposed on any
network operator that blocks, degrades or
discriminates against any traffic.
 Unbundling/Wholesale: Each state should decide
whether or not to require unbundling and wholesale
access based on local economics.
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Conclusion: America Needs a National
Broadband Policy with Federal Funding
 The U.S. is falling behind other nations and our own
consumers’ needs for big broadband.
 We cannot simply play catch-up; we must look ahead
(“skate where the puck is going to be”)
 A four-year broadband investment program can solve
our broadband needs for decades because fiber
capacity is scalable upwards
 A nationwide investment in broadband will more than
pay for itself in greater economic growth, improved
education, health care and tax revenue
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