A Blueprint for Big Broadband www.educause.edu/ir/library/pdf/EPO0801.pdf John Windhausen, Jr. President, Telepoly Consulting [e-mail]

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A Blueprint for Big Broadbandwww.educause.edu/
ir/library/pdf/EPO0801.pdf John Windhausen,
Jr.President, Telepoly Consultingjwindhausen_at_tel
epoly.com
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Several Studies Show Internet Usage Exploding

• Nemertes Research
• In sum, we believe that the environment
  necessary for a Moores-law increase in
  application utilization exists today.
• 3 Megs to 384 Megs in 10 years (Moores Law)
• Jupiter Research
• Average households will need 5772 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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SUPPLYU.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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U.S. Broadband International RankBroadband
subscribers per population

• 1999 3d 2003 15th
• 2000 5th 2004 18th
• 2001 7th 2005 19th
• 2002 11th 2006 20th
• Source ITU ICT Eye.

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International Comparison Speed and
Price(Source ITIF)
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A Market-based Approach AloneDoes 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 UpSome Examples

• California grant programs, access to
  rights-of-way, tax 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 UpMore Examples

• New York initiating competitive rural broadband
  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

• Japans 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 Govt 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, tele-work, 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 2,660.0 B
TOTAL FEDERAL DEFICIT - 2006 248.2 B (9.3)
Transportation 70.2 B (2.6 )
Health 63.9 B (2.4)
Community Development 54.5 B (2.0)
Science, Space and Technology 23.6 B (0.9)
Proposed Federal Spending on Big Broadband 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-C
  omcast-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
  todays 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