BroadbandinAmerica2ndEdition

WhereItIsandWhereItIsGoing (AccordingtoBroadbandServiceProviders)

AnUpdateofthe2009ReportOriginallyPreparedfor theStaffofthe FCCsOmnibusBroadbandInitiative By RobertC.Atkinson,IvyE.Schultz TravisKorte,TimothyKrompinger May,2011

Acknowledgements
TheresearcheffortthatwentintothisreportwasundertakentwoCITIinterns.Theresearchwas startedinJune,2010by: TravisKorte(UniversityofCalifornia,BerkleyBA,2010),andTimothyKrompinger(Universityof Connecticut,BA,2011. Inaddition,othermembersofCITIsstaffandanumberofCITIfriendsandaffiliatescontributed theirexperienceandexpertisebyreviewingandcritiquingdrafts. Wewouldalsoliketothankthemanyorganizationsthatrespondedtoourrequestsfor broadbanddataandinformationandthoseindividualswhoverifiedtheirorganizationsdata presentedintheAppendixofthisreport. CITI,asaninstitution,doesnotauthororpublisharticlesorreports.Therefore,we,asthe authors,areresponsibleforthecontentofthisreport.

Robert C. Atkinson
RobertC.Atkinson DirectorofPolicyResearch

Ivy E. Schultz
IvyE.Schultz ManagerofResearchAssistants

TableofContents
Section1:ListingofAllPubliclyAnnouncedBroadbandPlans ........................................... 15 1.1BroadbandByTechnology................................................................................................... 18 1.2TimelineforBroadbandPlans ............................................................................................. 36 1.3PenetrationandCoverageFootprint................................................................................... 36 1.5ExpectedBroadbandPerformance/Quality ........................................................................ 43 1.6ARPU(AverageRevenueperUser) ..................................................................................... 46 PricingAppendix ....................................................................................................................... 49 Section2:ComparisonofAllPubliclyAnnouncedPlans ............................................................... 52 Section3:FutureProjections ........................................................................................................ 65 3.1AnnouncedButUncompletedBroadbandPlans................................................................. 65 3.2BroadbandSatellitePlans ................................................................................................... 68 3.4.1BroadbandAvailability ..................................................................................................... 69 3.4.2BroadbandAdoption ........................................................................................................ 71 3.4.3BroadbandUsagebyCustomers ..................................................................................... 74 3.4.5ForecastingBroadbandCapitalExpenditures .................................................................. 76 Section4:GuestEssayContributions............................................................................................ 85 Appendix:ListingofAllPubliclyAnnouncedBroadbandPlans .......................................................... A1A43

Figure1:TypesofBroadbandServices ......................................................................................... 18 Figure2:FTTHConnectionsinmillionsasofMarch30,2010....................................................... 19 Figure3:USFTTHSubscribers....................................................................................................... 21 Figure4:TelcoFiberHomesPassedandPercentofHouseholds.................................................. 22 Figure5:DSLSubscribers .............................................................................................................. 23 Figure6:TelecomBroadbandAdds(DSLLoss) ............................................................................. 24 Figure7:RuralTelcos:DSLPenetrationofTotalAccessLines(1Q084Q09E)............................. 24 Figure8:HomesPassedbyCableCompanies ............................................................................... 26 Figure9:MSOsBroadbandSubscriptionPenetrationofHomesPassed ...................................... 26 Figure10:CableDOCSIS3.0Rollout ............................................................................................ 27 Figure11:ExpectedDownstreamSpeedsof3Gand4GWirelessBroadband(Mbps) ................. 28 Figure12:MajorInternetBackboneRoutesintheU.S.(>250Gbps) ........................................... 32 Figure13:20HighestCapacityU.S.DomesticInternetRoutes.20072009(Gbps) ..................... 33 Figure14:InternetPenetrationForecast...................................................................................... 37 Figure15:GrowthinOnlineHouseholds ...................................................................................... 38 Figure16:BroadbandSubscribersandGrowth ............................................................................ 38 Figure17:HouseholdswithDialUpService ................................................................................ 39 Figure18:AT&TandVerizonWirelessCapex,20092010 ............................................................ 40 Figure19:BroadbandCapexbytype,3QandYTD2010............................................................... 41 Figure20:CapexasaPercentageofSales20082010 .................................................................. 41 Figure21:WeightedAverageCableBroadbandARPU ................................................................. 47 Figure22:BroadbandPriceGrowth.............................................................................................. 51 Figure23:WirelineBroadbandAvailabilityandAdoption(inpercentageofU.S.households).... 69 Figure24:BroadbandSubscriberGrowth .................................................................................... 72 Figure25:ResidentialHouseholdPenetration.............................................................................. 73 Figure26:BroadbandWirelessBuilds........................................................................................... 73 Figure27:NorthAmericanConsumerInternetTraffic(Petabits/month)..................................... 74 Figure28:EstimatedU.S.ConsumerInternetUse........................................................................ 75 Figure29:TypicalSpeeds(inMbps)thatInternetActivitiesandIPTVWillRequirein2013 ........ 76 Figure30:IndustrySectors'BroadbandCapex ............................................................................. 80 Figure31:TotalCapexandTotalBroadbandCapex ..................................................................... 81 Figure32:TotalAverageWirelessARPUComposition ................................................................. 84

ListofFigures

ListofTables
Table1:SpeedsforFTTN/FTTHHouseholds ................................................................................. 21 Table2:20HighestCapacityU.S.DomesticInternetRoutes.20072009(Gbps) ........................ 32 Table3:AggregateCapEx2009$56.1B...................................................................................... 39 Table4:TotalCapitalExpendituresofLargestCompanies($billions) ......................................... 40 Table5:RBOCWiredBroadbandCapex($billion)........................................................................ 42 Table6:AverageDownloadSpeedsofISPs(TopTen) .................................................................. 44 Table7:AverageUploadSpeedofISPs(TopTen)......................................................................... 44 Table8:TypicalWirelessBroadbandPricingplans ....................................................................... 49 Table9:BroadbandPricingChanges(DSL).................................................................................... 50 Table10:MajorBroadbandDeployments:PerformanceAgainstAnnouncedCompletionDates 53 Table11:Uncompletedbroadbandplans ..................................................................................... 65 Table12:USInternetAccessbyTypeofService........................................................................... 71 4

Table13:TotalCapitalExpendituresforMajorServiceProviders($billion)................................ 76 Table14:RBOCWiredBroadbandCapex($billion)...................................................................... 78 Table15:TotalCapexandBroadbandCapexbySector................................................................ 79 Table16:WirelessBroadbandDataARPU .................................................................................... 83

ProjectBackground
ThisisthesecondeditionofBroadbandinAmerica:WhereItisandWhereItIsGoing.Itisan updateandexpansionontheoriginalreportthatwassubmittedtotheFederalCommunications Commission(FCC)inNovember2009aspartoftheFCCsdevelopmentofaNationalBroadband Plan(NBP). Thefirstthreesectionsofthissecondeditionaregeneralupdatesofthefactualdatasubmitted totheFCCapproximatelyinlate2009.Thefourthsectionisentirelynew:itcomprisesanalysis andcommentarybyafewleadingbroadbandexpertswhoprovidetheirinsightsintosomeof theissuesassociatedwithBroadbandinAmerica. TheFirstEdition

Inmid2009,thestaffoftheFCCsOmnibusBroadbandInitiative(alsoknownastheNational BroadbandPlanTaskForce)askedtheColumbiaInstituteforTeleInformation(CITI)toconduct anindependentanalysisofpubliclyannouncedbroadbandnetworkdeployments(bothnewand upgradednetworks)ofcompaniesintheUnitedStates,forthepurposeofinformingtheFCCs effortsindevelopingitsNationalBroadbandPlan.OnAugust6,theFCCannouncedthatCITIhad 1 agreedtoundertaketheanalysisproject. TwomembersofCITIsmanagementstaff,BobAtkinsonandIvySchultz,undertookthe2009 project.TheyworkedindependentlyoftheFCCandconductedtheprojectwithCITIsresearch resourcesandwithoutanyprojectfundingfromtheFCCoranyotherorganization.Asaresult, theseprojectarrangementsensuredtheindependenceandintegrityoftheworkproduct. AsrequestedbytheFCC,theprojectencompassedacomprehensiveexaminationandanalysis ofcompaniesannouncementsandsimilarpublicinformation,industryanalystsreports,and otherrelevantdatasourcedtothebroadbandserviceproviderstomeasureandassess broadbandplans.AlsoattheFCCsrequest,thereportincludedanassessmentofwhere broadbanddeploymentswillbein35yearsandacomparisonofresultswithpreviously releasedplansthatareinprogressorcomplete.Toavoidduplicationandtofocustheresulting reportonwhatbroadbandserviceprovidersweredoingandplanning,theprojectpurposefully didnotincludedataandotherinformationalreadygatheredandpublishedbytheFCC. TheresearchforthisprojectfocusedonthethreespecificareasrequestedbytheFCC,eachof whichisaddressedasasectionintheFirstandSecondReports:
1

FCCPressRelease,http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC292598A1.pdf.

Section1:ListingofAllPubliclyAnnouncedBroadbandPlans,sortedboth(1)by companyand(2)bytechnology(e.g.DSL,cable,fiber(FTTx),fixedwireless,wireless, satellite),withadescriptionofrelevantdetailssuchas(1)generaldetailsoftheplan, includingcompany,technology,andtimeline,(2)expectedcapitaloutlaysandoperating expenditures,(3)expecteddeployment/coveragefootprint,(4)expectedbroadband performanceandquality,and(5)expectedARPUs(AverageRevenuePerUser). Section2:ComparisonofAllPubliclyAnnouncedBroadbandPlans,baseduponthe ListingofAllPubliclyAvailableBroadbandPlans.Thislooksbackwardstowhatwas announcedatthetimetheplanwasestablishedandthencomparestheannouncement withtheoutcomesofcompletedplansandthecurrentstatusforthoseplansstillin progress. Section3:FutureProjection:Thisisananalysisofwherethepubliclyannounced broadbandplansthatareyettobecommencedorstillinprogresswillbein35years, includingLTE,WiMAX,DOCSIS3.0,backbone,etc.Thisincludesasummaryofanalyst capitalexpenditureforecastsandalessonslearnedcomponent. Section4:Essays&Analyses(onlyinSecondReport)byfiveleadingbroadbandexperts basedontheirpresentationsataMarch18conferenceorganizedbyCITIand GeorgetownUniversitysCommunicationCultureandTechnologyProgramto commemoratethefirstanniversaryoftheNationalBroadbandPlan.2 AfterreceivingtheFirstReport,theFCCreleaseditforpubliccommentandreceiveda numberofcommentsfromvariouscompaniesandtradeassociationsinvolvedinthe NationalBroadbandProceeding.MostofthecommentsendorsedtheReportandnonetook issuewiththemethodologyoranalysis.TheCITIauthorspresentedtheReportatapublic meetingheldattheFCConDecember10,2009.Thepresentationwasrecordedandis availableontheFCCwebsiteathttp://www.broadband.gov/ws_deployment_research.html andtheCITIwebsiteathttp://www4.gsb.columbia.edu/citi/research/current.

GeneralResearchMethodology
ThisSecondReportfollowsthesamegeneralmethodologyusedintheFirstReport.CITI researchersworkedindependentlyoftheFCCandconductedtheprojectwithCITIsresearch resourcesandwithoutanyprojectfundingfromtheFCCoranyotherorganization.Asaresult, theprojectarrangementscontinuetoensuretheindependenceandintegrityofthework product.
2

See:http://www4.gsb.columbia.edu/citi/events/NBP2011fortheconferencepresentationsandvideo.

SincetheFCCsoriginalrequestwasforareviewofthestateofbroadbandinAmericabasedon whatthebroadbandserviceprovidershavepubliclyannounced,researchersassignedtothis projectagaincollecteddataprimarilyfrom:1)serviceproviderspublicreportsandstatements; 2)reportsbyinvestmentanalystsandresearchfirms(whicharegenerallybasedoninformation obtaineddirectlyfromtheserviceprovidersthemselves);3)newsreportsdirectlyquotingthe serviceproviders;and,4)informationcompiledbyindustrytradeassociationsdirectlyfromtheir membercompanies.Consequently,wedidnotdevelopindependentdataorevaluatethe validityofthedatareportedbytheserviceprovidersand,toavoidrepetitionandduplication, wedidnotuseacademic,governmentorotherstudiesregardingthestateofbroadbandthat areavailabletotheFCCandtheCommissionsstaff. Relyingoninformationprovidedasdirectlyaspossiblebytheserviceprovidershasitsown limitations.Eachserviceproviderhasanaturalinclinationandincentivetopresentinformation aboutitselfinawaythatitregardsasmostbeneficialtoitsinterests.Forcompetitiveandother businessreasonsandtocomplywithsecuritieslawsregardingdisclosureofmaterial information,publiclytradedbroadbandserviceprovidersarecarefulaboutreleasingdetailed informationabouttheircurrentperformanceandfutureplansregardingbroadband deploymentsandfinancialresults.Smallprivatecompaniesaresimilarlyreticenttoprovide detailedinformationabouttheirfutureplans,eventotheirtradeassociations. Thepublicandanyonewithrelevantinformationareinvitedtosubmitadditionalinformation anddatatoadedicatedemailaddress:CITIbroadband@gsb.columbia.edu.

ExecutiveSummary
OneprincipalconclusiondrawnfromtheFirstReportwasthatby20134,broadbandservice 3 providersexpectedtobeabletoserveabout95% ofU.S.homeswithatleastalowspeedof wiredbroadbandserviceandtheyexpectedtooffertoabout90%ofhomesadvertisedspeeds 4 of50mbpsdownstream. Serviceprovidersexpectedtoprovidemanyhomeswithaccessto thesehigherspeedsby20112012. Anotherconclusionwasthatwirelessbroadbandservice providersexpectedtoofferwirelessinternetaccessatadvertisedspeedsrangingupto12mbps downstream(butmorelikely5mbpsorlessduetocapacitysharing)toabout94%ofthe populationby2013.TheFirstReportalsoconcludedthat,inadditiontoseveralwireless broadbandchoices,themajorityofAmericanhomeswillhavethechoiceoftwowired broadbandservices.Upstreamspeedsforwiredandwirelessserviceswillgenerallybe significantlylowerthandownstream.TheupdatedinformationincludedinthisSecondReport continuestosupportalloftheseexpectations. AnotherprincipalconclusiondrawnintheFirstReportwasthatasignificantnumberofU.S. 6 homes,perhapsfivetotenmillion(whichrepresent4.5to9percentofhouseholds) ,willhave significantlyinferiorchoicesinbroadband:mostofthesehomeswillhavewirelessorwired servicebroadbandavailableonlyatspeedssubstantiallylowerthanthespeedsavailabletothe restofthecountry.Someofthesehomeswillhavenochoiceexceptsatellitebroadband,which hassomeperformanceattributesthatmakeitlesssatisfactoryformanyapplicationsthana terrestrialbroadbandservice.Onceagain,theseconclusionsremainvalid. TheFirstReportalsoconcludedthatadoptionofbroadbandservicewillcontinuetolag substantiallybehindtheavailabilityofbroadbandfortheforeseeablefuture.Lastyear, investmentanalystsforecastthatabout69%ofhouseholdswillsubscribetowiredbroadband 7 by2015,andthat53%ofthepopulationwillsubscribetowirelessbroadbandservicesby2013. TheupdatedforecastincludedinthisSecondReporthasnotsignificantlychanged,although manyanalystsnotethatcurrentbroadbandgrowthhasbeenslowerthaninrecentyears. Withrespecttoadoptionrates,analystforecastsandserviceproviderexpectationsincludedin theFirstReportdidnottakeintoaccounttheeffectofvariousbroadbandstimulusprogramsor anychangesingovernmentpoliciesthatmayaffectdeploymentoradoption.Ayearlater,thisis
3 4

SeeSection3,p.65. SeeSection3,p.65. 5 SeeSection3,p.65. 6 SeeSection3,p.65. 7 SeeSection3,p.65.

stillthecasesincethevariousbroadbandstimulusprogramsarestillintheirinfancy.Forecasts alsodonotexpectsubstantialpricereductionsthatmightstimulategreateradoptionof broadbandbypricesensitivecustomers.

Broadbandcoverage
WirelineCoverage:Ifjustthetwolargesttelephonecompanies(AT&TandVerizon)achieve theirstatedgoalsforwirelinebroadbanddeployment,atleast50millionhomeswillbeableto receiveadvertisedspeedsof10megabitspersecondormoredownstreamwithinthenexttwo years.Othertelephonecompanieswillbeprovidingsimilarofferingsintheirserviceareas. Specifically,industryresearchersestimatedthatfibertothehome(FTTH)wasavailabletoabout 15.2millionhomes(homespassed)inMarch2009,18.2millioninMarch2010(anincreaseof20 percent),and21millioninMarch2011(anincreaseof14.6percent).8In2009,thelargest providerofFTTHservice,Verizon,announcedthatitwouldcompleteitsFTTHdeploymentand becapableofserving17millionlocationsby2010.9Anumberofothersmallercompanies, includingsmallruraltelephonecompanies,willbecoveringadditionalhomeswithFTTH.Inmid 2010,VerizonannouncedthatthedownloadspeedofitsDSLbroadbandservicewoulddouble.10 Theotherlargetelephonecompany,AT&T,announceditwouldofferDSLfromfiberfed cabinets(fibertotheneighborhood:FTTNDSL)to30millionhomesby2011.11AT&Tcurrently offersadvertisedspeedsofupto18megabitsperseconddownstream12(althoughtheactual speedcanbemuchlower),withincreasespossiblewithpairbonding. Thecableindustryistheothermajorproviderofwirelinebroadbandservice.Cablebroadband iscurrentlyavailableto92%ofhouseholdsaccordingtoaresearchfirmthattracksthecable industry.13Thispercentagehasnotchangedfrom2009to2010.Cablebroadbandisbeing upgradedtotheDOCSIS3.0standard14andisbecomingwidelyavailableatadvertisedspeedsas highas50mbpsdownstream(withonefirmadvertising101megabitspeeds).15Sincecable broadbandcapacityissharedamonggroupsofcustomers,theactualspeedutilizedbyanyone customermaybesubstantiallylowerthantheadvertiseduptospeed.Comcast,thelargest cablecompanyaddressingnearlyhalftheUnitedStates,expectedin2009tocovernearlyallits
8

RVAMarketResearchandConsulting,NorthAmericanFTTHStatusMarch31,2011 http://s.ftthcouncil.org/files/rva_ftth_status_april_2011_final_final_0.pdf 9 SeeSection3:UncompletedBroadbandPlans,p.65. 10 Verizon,NewCopperBasedBroadbandTierMoreThanDoublesExistingMaximumDownloadSpeeds forConsumersandSmallBusinessesAugust,2010. 11 SeeSection3:UncompletedBroadbandPlans,p.65. 12 SeeSection1:1.1Technology,p.21. 13 SeeSection1:1.3ExpectedDeployment/CoverageFootprint,p.36. 14 DOCSISisastandarddevelopedbyCableLabsandstandsforDataOverCableServiceInterface Specification 15 SeeSection1:1.1Technology,p.18.

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50.6millionhomespassed16by2010anditislikelytoachievethisgoal,basedonrecent statements.OneanalystbelievesDOCSIS3.0willbeavailableby2013tonearlyall17the homescoveredtodaybycablemodemservices.18Thatwouldbeabout92%of112million households,or103millionhomes. WirelessCoverage:AnumberofwirelessbroadbandserviceprovidersexpecttodeployLong TermEvolution(LTE)andWiMAXtechnologies(socalledfourthgenerationor4Gwireless services)between2010and2013and,ifsuccessful,bringmultimegabitsspeedstoamajorityof U.S.homesandpopulation.19Thewirelessservicesoffersharedbandwidth,sothespeeds obtainedbyuserswillbedependentonactualtrafficloadsateachcellsite,andinparticularon howmanyusersaresimultaneouslyusingbandwidthintensiveapplications,suchaswatching videoonwirelessInternetconnections.Asoneexample,by2013VerizonexpectsthatLTEwill providesubscriberswith5to12mbpsdownloadsinadeploymentplannedtoreachallofits coveredpopulation(attheendof2008,Verizonsnetworkcovered288millionpeople20or94% oftheU.S.population).21Otherwirelesscompaniescoverasmallershareofthepopulation. EntrepreneurialandindependentWirelessInternetServiceProviders(WISPs)provideWiMAX typeservicestoatleast2millioncustomers22inruralareas,includingmanyareasnotcovered bythenationalwirelesscompanies. SatelliteCoverage:Satellitebroadbandisavailableatalmostanylocationinthecountrythat hasanunimpededlineofsighttothesouthernskyandthereforecanprovidebroadband servicetothemostremoteanddifficulttoservelocations.However,thecurrentsatellite serviceshaverelativelylowspeedsandlatencyproblems,andcostmorethanterrestrial broadbandservices.Twonewsatelliteswithgreatercapacityareexpectedtobecome operationalbeginningin2011,withtheoperatorsannouncingthateachsatellitewillbecapable ofproviding210mbps23service.Transmissionratesmayaverage5megabitspersecond downstreamby2011,24butthebandwidthavailabletoeachuserwillvaryinverselywiththe actualtrafficloadasoverallbandwidthissharedamongallusers.

16 17

SeeAppendixA. SeeSection1:1.3ExpectedDeployment/CoverageFootprint,p.36. 18 SeeSection1:1.3ExpectedDeployment/CoverageFootprint,p.36. 19 SeeSection3,p.66. 20 VerizonCommunications,2008AnnualReport,VerizonCommunicationsInc.,2009,at9. 21 SeeSection1:1.1Technology,p.18. 22 SeeSection1:1.1Technology,p.29. 23 SeeSection3:3.3StatusofBroadbandSatellitePlans,p.68. 24 SeeSection3:3.3StatusofBroadbandSatellitePlans,p.68.

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BroadbandTransmissionRates
FasterWirelineTransmissionRates:MostU.S.homeswillbeservedbyadvertisedupto50 megabitpersecondspeedoptionswithinthenextfewyearsfromatleastonesupplier,as cableisexpectedtocovernearlyitsentirefootprint(92%ofhouseholds)withDOCSIS3.025and telcosexpandFTTHserviceswhichhavevirtuallyunlimitedspeedcapabilityalthoughcurrently offeredspeedsareintheupto50mbpsrange.SlowerDSLfiberhybrids,calledfibertothe node,currentlyareadvertisedasprovidingupto24mbps26downstreambyAT&T.DSL bonding,nowincommercialdeployment,isintendedtodoubleDSLspeeds.Includinghybrid fiberDSL(FTTNDSL)andbondedDSL,sixtytoseventymillionhomeswillhaveachoiceof providersforadvertisedspeedsof10megabitsdownstreamorhigher.Phantompair technologyandotherdevelopmentsmayfurtherextendthelifeofDSLtypetechnology.27 FasterWirelessSpeeds:VerizonindicatesthatitsLTEdeploymentwillbecapableofdelivering practicalspeedsof4to12mbps.However,wirelessbandwidthisshared,anduntilthenetworks aretestedundersubstantialloaditisnotclearwhetherspeedsabove5mbpscanbeobtained regularlybymorethanafewsubscribersatthesametime.28Thedemandforwireless 29 broadbandbandwidthhasbeengrowingrapidly andgrowthisexpectedtocontinue, especiallyifwirelessbroadbandisusedforvideoovertheInternet.Futurepricingarrangements forwirelessbroadbandarelikelytogreatlyaffecthowmuchvideotrafficandotherbandwidth intensiveapplicationsarecarriedonthewirelessbroadbandnetworks. Improvedsatellitebroadbanddatarates:Satellites,liketerrestrialwirelesssystems,sharethe availablebandwidthcoveredbyeachspotbeamsothespeedobtainedbyauserwilldependon thesimultaneoususageofotherusers.ViaSatexpectstooffersharedspeedsof2to10 megabitsstartingin2011.30 Upstreamspeeds:Mostconsumerbroadbandservicesareasymmetrical,withdownstream 31 speedssignificantlyfasterthanupstreamspeeds. FTTHofferingscurrentlyprovideadvertised upstreamspeedsofaround20mbps, althoughfiberhasthecapacityformuchhigherspeeds.
25 26

32

SeeSection1:1.3ExpectedDeployment/CoverageFootprint,p.36. SeeSection1:1.1Technology,p.21. 27 SeeSection1:1.1Technology,andAlcatelLucent,p.22. 28 SeeSection1:1.1Technology,p.29. 29 AT&Tsmobiledatatraffichasincreasednearly50timesinthepastthreeyears,presumablylargelydue totheiPhone.M.Meekeretal.,Economy+InternetTrends,MorganStanley,2009,at57, http://www.morganstanley.com/institutional/techresearch/pdfs/MS_Economy_Internet_Trends_102009 _FINAL.pdf. 30 SeeSection2:ComparisonofAllPubliclyAnnouncedBroadbandPlans,p.52. 31 SeeAppendixA. 32 SeeAppendixA:Verizon.

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DOCSIS3.0upstreamisonlyincommercialtrialsintheUnitedStates.UntilupstreamDOCSIS3.0 33 isfullydeployed,upstreamcablespeedswillbeintherangeof768Kbpsto5mbps.

Broadbandadoption
In2009,approximately63%ofU.S.homesutilizedawirelinebroadbandserviceandin2010the figurewasapproximately65%.Thisfigureisexpectedtoincreaseslowlytoabout69%by2014, 34 implyingmarketsaturation,atleastatcurrentpricinglevels. In2009,investmentanalysts estimatedthat31%ofAmericansovertheageof14currentlyusedwirelessbroadband (broadbanddoesnotincludeShortMessageServicetexting).In2010,thisfigureincreasedto 38%anditisexpectedtoincreasesteadilywithanalystsexpectingwirelessbroadbandadoption topass50%by2013. Manyhouseholdsandindividualswillsubscribetobothwirelineandwirelessbroadband services,justastheysubscribetofixedandmobilevoicetelephoneservices.Andjustassome individualshavecutthecordandrelyexclusivelyonamobiletelephoneforvoiceservices, somefamiliesandindividualsmaychoosetogowirelessonlyforbroadband,35particularlyif theyarenotusingbroadbandforvideoorvideointensiveapplicationsthatrequirethehigher speedsgenerallyobtainableonlyfromwiredservices. Thegovernmentsvariousbroadbandstimulusplansmayinfluencetheseadoptionforecasts throughincreaseddeploymentofbroadbandtounservedareasandencouragingincreased adoptionofbroadbandservices.However,theresultsoftheseprogramsarenotyet observable.

Backbones
Backbonebandwidthtrafficvolumeandcapacitywillgrowroughlyatthesamepace,witha leadingnetworkequipmentfirmforecastinggrowthinNorthAmericanIPtrafficof39%(CAGR) from2009to2013.36Forthesameperiod,capacityisforecasttoincreasebyapproximately44% onmajorroutessothatmajorroutebackbonecapacityshouldkeepupwithdemandand
33 34

Seefootnote42. Sinceacomputerisaprerequisitetoutilizingawiredbroadbandservice,itmightbemoreaccurateto measureadoptionasapercentageofcomputerequippedhouseholdsratherthanallhouseholds.Asone investmentanalystnoted,Weestimatethereare67MbroadbandsubscribersintheU.S.,representing 60%ofoccupiedhouseholdsand~70%ofPChomes.Givenbroadbandavailabilityinroughly90%of homes,normallydistributingPChomesacrossbroadbandavailablehomesputsrealpenetrationatalmost 80%.UBSInvestmentResearch,SortingThroughtheDigitalTransition,UBSAG,2009,at5. 35 SeeSection3:CuttingtheCord,p.65. 36 SeeSection1:StatusofInternetBackbone,p.13.

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significantproblemsofbackbonecongestiononmajorroutesarenotexpected.However, localizedcongestionmayoccuronlowercapacityroutesincludingconnectionstocelltowers thatexperiencerapidwirelessbroadbandgrowth.

Capitalspending
Serviceprovidersrarelybreakbroadbandoutoftheiroverallcapitalspendingfiguresforalltheir serviceofferingssoitisdifficulttoisolatebroadbandspecificcapitalexpenditures.37Indeed, muchoftheserviceproviderscapitalisinvestedinmultipurpose(orconverged)digital networksthatcarryvoice,data(includingbroadband)andtelevisionservicessimultaneously. Therefore,determiningwhatconstitutesbroadbandcapitaloftenrequiresanallocation, whichisinherentlysubjectivetosomedegree. In2009,marketresearchersandinvestmentanalystsestimatedthatasmuchastwothirdsof currentinvestmentsarebeingmadetoprovideandexpandwiredandwirelessbroadband,38 andtheproportionallocatedtobroadbandhasbeengrowingoverthepastfewyears.This trendisexpectedtocontinueoverthenextfiveyears. Overall,totalindustrycapitalexpendituresforallserviceswereabout$64billionfor2009(the predictionintheFirstReportwasabout$60billion)andanalystsexpectthatnumbertobe downslightlyat$62billionfor2010andtothendecreaseinthenextfewyearsintothemid$50 billionrangeannuallyasthemajornewbasicinfrastructuredeploymentscometoanendand capitalisdevotedmoretoupgradesandexpandingthecapacityofthedeployedsystemsrather thanentirelynewdeployments.39 Withrespecttobroadband,theFirstReportforecastthattotalbroadbandcapexwouldbe$30 billionin2009.ThisSecondReportestimatesthattheactualcapexin2009was$31.3billion,a declineof$3billionfrom2008.Lookingforward,thisupdateforecaststhatthecapital investmentsinbroadbandinfrastructurewillremainflatatapproximately$33billionperyear forthenextfewyears.Atthesametime,asnotedabove,totalcapexinallthesectors(Telco, Cable,Wireless,Satellite,TowersandWISP)isexpectedtodeclinefrom$64billionin2010to $56billionin2012.

37

Suchabreakoutwouldalsobesubjecttoallocationofcapitalamongtypesofservicesforjointlyused facilities,suchasbackofficesystemsandbackbonetransportfacilitiesthatcarryconventionaltelephone, wireless,broadbandandvideotraffic. 38 SeeSection1:1.4ExpectedCapitalOutlays/OperatingExpenditures,p.39 39 SeeSection3:TotalCapitalExpendituresfor3LargestTelcosand7MajorCableCompanies.

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Section1:ListingofAllPubliclyAnnouncedBroadbandPlans
Asafirststep,theFCCaskedforalistofallpubliclyannouncedbroadbandplans, sortedboth(1)bycompanyandby(2)technology(e.g.DSL,cable,fiber(FTTx),fixed wireless,wireless,satellite),withadescriptionofrelevantdetails,suchas(1)generaldetails oftheplan,includingcompany,technology,andtimeline,(2)expectedcapitaloutlaysand operatingexpenditures,(3)expecteddeployment/coveragefootprint,(4)expected broadbandperformanceandquality,and(5)expectedARPUs. Tofindthedetailsofbroadbandplansforpubliclytradedcompanies,ourresearchersexamined companiesinvestorrelationswebsites,includingtheirAnnualReportsfrom20042010,looked atquarterlyreportsandearningscalltranscriptsforthefirsttwoquartersof2010,searchedfor investmentanalystsreportsusingtheThomsonOnedatabase,andfinally,usedgeneralweb searchestoobtainadditionalinformation. Obtaininginformationaboutprivatelyheldcompanieswasmoredifficult.Sincemanyofthe nonpubliccompaniesaresmallcable,telephoneandwirelessInternetserviceprovider(WISP) companiesthattendtoservethemoreruralpartsofthecountry,informationwasscarcestfor theunservedandunderservedpopulations.Toobtaininformationaboutprivatecompanies ordivisionsofpubliccompanies,ourresearchersreviewedcompanywebsites,contacted relevanttradeassociations,andperformedgeneralwebsearches.Aggregatedinformation aboutsmallercompanieswasobtainedfromreportsandsurveysbycable,wireless,and telephonecompanytradeassociations. Oncethepreliminaryinformationwascompiled,companyspecificinformationwassenttothe subjectcompanyaskingforverificationoftheinformationgatheredtothatpoint.Responses werereceivedfromsomecompaniesandadjustmentsweremadebasedonacompanys suggestionafterconfirmingtheaccuracyoftheadditionalinformation. Thecompletedatabaseisavailableonline.40TheAppendixtothisSecondReportcontains companybycompanyinformationextractedfromtheonlinedatabasefor33companies(there were29companyprofilesintheFirstReport)withpubliclyannouncedbroadbandplans.The informationwassortedbycompanyandbytechnology,wherepossible.Asalways,wewelcome furtherupdatesandadditionalinformationfromanycompanyinvolvedintheprovisionof broadbandservicesandwillupdatethedatabaseaccordingly.41
40 41

Seehttp://www4.gsb.columbia.edu/citi/research/current Updatedandadditionalinformationshouldbesentto:CITIbroadband@gsb.columbia.edu.

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ThedetailsofthedatabasecanbeseenintheAppendix,whichlistsinformation,including detailsofcurrentbroadbanddeployments,forthefollowing:

Company AT&T CableOne Cablevision CenturyLink Charter CincinnatiBell Clearwire Comcast Cox EchoStarCorp Fairpoint Frontier Gilat Hughes Insight Knology LeapWireless

Page A2 A6 A7 A8 A9 A10 A11 A13 A14 A15 A16 A17 A18 A19 A20 A21 A22

Company MediaCom MetroPCS OpenRange Qwest RCN SprintNextel TMobile TimeWarnerCable Verizon ViaSat WildBlue Windstream WISPIndustry OPATSCO AmericanCableAssoc. NTCA

Page A23 A24 A25 A26 A27 A28 A31 A32 A33 A37 A38 A39 A40 A41 A42 A43

Toreiterate,theFCCaskedustofocusourresearchontheinformationprovidedbythe broadbandserviceproviders.Thefollowingnarrativebroadlysummarizestheinformationin thedatabasewithrespecttosixcategoriesspecifiedbytheFCC: 1)Technology, 2)TimelineforDeployment,ExpectedDeployments, 3)CoverageFootprintandPenetration, 4)ExpectedCapitalOutlays/Operatingexpenditures, 5)ExpectedBroadbandPerformanceandQuality, 6)ExpectedARPUs. WhatsNew: ToupdatetheFirstReport,CITIresearchassistantsfollowedthesamemethodology(described above)usedtopreparetheoriginalReportaddingupdatesformergedcompaniesand,forthe 16

firsttime,includingplansfortowercompaniessincesuchcompaniesclearlyprovideacrucial partofthewirelessinfrastructure. Detailsdescribingthe20092010changesarenotedineachsubsectionofthisreport.In summary: SincethereleaseoftheoriginalReportinNovember2009,therehasbeenevolutionary growthinthenewerbroadbandtechnologies,includingFTTH,DOCSIS3.0,and4G wirelessservices.Boththetelcosandcablecompanieshavebeengainingsubscribers withtheirhigherspeedofferingsandwirelessbroadbandisgrowingbrisklywiththe introductionof4Gwirelessclearlyonthehorizon.Bycontrast,thenumberof subscribersutilizingthemorematureandsomewhatobsolescentDSLtechnologyhas beendeclining. In2010,cableandwirelessbroadbandprovidersincreasedtheircapexspending,while wirelinetelcobroadbandprovidersdecreasedtheircapexspending.Thenetresultis thattotalbroadbandcapitalexpenditureshavebeendecreasingandthedownward trendisexpectedtocontinue. Averagerevenueperuser(ARPU)forbroadbandservicesisincreasinglydifficultto calculatesincemanybroadbandservicesarepurchasedaspartofadiscountedbundle ofvoice,video,andevenwirelessservice.ForthebroadbandARPUsthatareavailable, thetrendhasbeenslightlyupward,astheresultofpriceincreasesofabout2% annually.

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1.1BroadbandByTechnology
TheAppendixcanbesortedtoshowthewireline,cable,wireless,andsatellitebroadband providersaswellaswirelesstowercompanies.Thefollowingsectionbrieflysummarizesthe informationcontainedintheAppendixandtheonlinedatabaseintermsofthesesub categories. WiredBroadband Asthisdiagramshows,thereareanumberofdifferentwaystoprovidebroadbandservicesover wiredfacilities: Figure 1: Types of Broadband Services

Source:ForresterResearch,TheShiftfromBroadbandtoWideband,updatedJune12,200942

42

D.Williams,TheShiftFromBroadbandToWideband,ForresterResearchInc,2009, http://www.forrester.com/Research/Document/0,7211,53419,00.html.

18

 WirelineFiber Mosttelephonecompaniesutilizefiberopticsforasignificantportionoftheirdistribution networks.Mostusefibertothenodeorneighborhood(FTTN)43andafewutilizefibertothe home(FTTH).44 Itishasbeenestimatedthat,asofMarch30,2011,therewere20.9millionhomespassedby FTTHtechnologyinNorthAmerica,97%ofwhichareintheUnitedStates,comparedto18.25 millionatthesamedatein2010(a14.6percentincrease).Withinthis20.9million,thereare7.1 millionhomesconnected,orreceivingserviceoveraFTTHconnection. ThenextgraphillustratesthedistributionoftheseFTTHconnectionsandtheyeartoyear growth.WhilethemajorityofFTTHconnections(approximately5.2million)areprovidedby RBOCs(AT&T,Qwest,andVerizon),Verizonhasthelargestportionbyfarofthesehomes connected.Therearealso770otherserviceproviders(anincreaseof20comparedtotheprior year)thatdeliveredFTTHservicetoapproximately1.9millionhomes45. Figure 2: FTTH Connections in millions as of March 30, 2011

Source:RVAMarketResearchandConsulting,March31,2011.

43 44

AlsoreferredtoasFibertotheNeighborhood. AlsoreferredtoasFibertothePremises(FTTP). 45 RVAmarketresearchandconsulting,NorthAmericanFTTHStatusMarch31,2011. http://s.ftthcouncil.org/files/rva_ftth_status_april_2011_final_final_0.pdf

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WhilethemajorityofnonRBOCFTTHserviceisprovidedbyotherlocalexchangetelephone companies(ILECs),FTTHisalsoprovidedbyfacilitiesbasedCLECs,realestatedevelopers,and municipalities.Astheresearchfirmnoted, VerizonandTier3ILECs(generallysmall,singleindependentlocalexchangecarriers) haveactuallypenetratedarelativelyhighpercentoftheircustomerbase.These providerswhowemaycallaggressiveILECscoverroughlyonethirdoftheUS population46 Perhapsmostsurprisingisthecommitmentofsomesmall,usuallyrural,telephonecompanies tofiberdeployment.Theresearchfirmexplainedthat Driversfortheruralindependenttelcos[todeployFTTH]includeagingcopperlinesin needofreplacement,theopportunitytodelivervideogivenamorerobustplatform, andapioneeringtradition.Insomecases,theseprovidershavealsobeenaidedbyloans andsubsidiessuchasruralbroadbandloanprogramsanduniversalservicefunds.47 InadditiontotheTier3telephonecompanies,municipalities(particularlythoseinruralareas) havedeployedFTTHsystems,whichareusuallyundertakenafterprivateserviceproviders havedeclinedtoupgradetheirnetworksorbuildsuchsystems.48TheFirstReportreported57 publicFTTHsystemsintheU.S.,mostlyinsmallruraltowns.Thereisno2010updateforthis total.49DistributionoffibersubscribersamongRBOCsandnonRBOCprovidersaregiveninthe followinggraph.

46

RVAmarketresearchandconsulting,NorthAmericanFTTHStatusMarch31,2011. http://s.ftthcouncil.org/files/rva_ftth_status_april_2011_final_final_0.pdf 47 Ibid. 48 D.St.John,MunicipalFibertotheHomeDeployments:NextGenerationBroadbandasaMunicipal Utility,FTTHCouncil,2009,at1,http://www.baller.com/pdfs/MuniFiberNetsOct09.pdf. 49 Forthelistofthe57municipalities,seeibidat5.

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Figure 3: US FTTH Subscribers, Connections by Provider Type

Source:RVAMarketResearchandConsulting,NorthAmericanFTTHStatusMarch31,2011.

CurrentlyofferedandadvertisedspeedsvaryamongFTTH/FTTNDSLproviderswithVerizon leadingthewayat50Mbpsdownstream.WhileFTTHcurrentlyprovidesupstreamspeedsofup to20mbps,50fiberhastheabilitytoprovidemuchhigherspeeds.AnoverviewoftopRBOC speedsandpredictedmarketedhouseholdsisgiveninthenextchart.

Table 1: Speeds for FTTN/FTTH Households

Source:AdaptedfromBofAMerrillLynchGlobalResearch,TelecomServices/CableMay24, 2010

AT&TsUVerseandVerizonsFiOScurrentlycoverapproximately35%ofUShouseholdsand plantoreach40%attheendoftheirdeploymentschedule.
50

SeeAppendixA:Verizon.

21

Figure 4: Largest Telco Fiber Homes Passed and Percent of Households

Source:BernsteinResearch,USTelecommunicationsandUSCable,October18,2010

WirelineDSL DSLutilizesthetraditionalcoppertelephonewirestodeliverabroadbandsignaltocustomers homes.BecauseDSLbroadbandtransmissionratesareinverselyrelatedtothelengthofthe copperwires(amongotherfactors),formanyyearstelephonecompanieshavebeendeploying fiberopticstoanelectronicnodeinaneighborhoodandconnectingtorelativelyshortdistance copperwiresatthatpoint.So,inmanycases,DSLserviceisprovidedbyahybridfibertothe neighborhoodcopperarchitecture(FTTNDSL). ThespeedofDSLhasalsoincreased,particularlyoverrelativelyshortdistances,suchasfroma neighborhoodfibernode.51Forexample,VDSL2usedwithFTTNcansupportspeedsinthe2050 Mbpsrange.52However,analystshavesuggestedthat,(By2012)DSLwilllikelytrulybeakinto
51

LucentAlcatelandBellLabsrecentlyannouncedPhantomPairtechnologythatmayboostDLS speeds,althoughtherearenoplansfordeployment.Seehttp://www.alcatel lucent.com/wps/portal/newsreleases/detail?LMSG_CABINET=Docs_and_Resource_Ctr&LMSG_CONTENT _FILE=News_Releases_2010/News_Article_002043.xml&lu_lang_code=en 52 LightReading,Report:VeryHighSpeedDSL(VDSL2)coulddrivecopperhigherlongterm,Resource Investor,2009,http://www.resourceinvestor.com/News/2009/7/Pages/ReportVeryHighSpeedDSL VDSL2coulddrivecopperhigherlongterm.aspx.

22

currentdialupofferingswhencomparedtoDOCSIS3.0Speeds.53Nevertheless,AT&T announcedthatitplanstostretchthelimitoftheirFTTNDSLnetworkwithtrialsof80MbpsDSL servicebeginninginthesummerof2010.Thetrial,ifsuccessful,couldleadtoaretailofferingin 2011.SuchanofferingwouldfarexceedAT&T'scurrenttopadvertisedspeedof24Mbps.The newtopspeedwouldstilltrailtopcableDOCSIS3.0speeds,however,ascableoperatorsare increasinglytoutingtopspeedsof100+Mbps54 Whilemostlocalexchangetelephonecompanies,includingthesmallestandmostrural,offer DSLserviceintheirserviceareas,onlythelargerpubliclytradedcompanieshavemadewhatcan becharacterizedasannouncementsabouttheirDSLplans.ThesecompaniesincludeAT&T, CenturyLink(CenturyTel/Embarq),CincinnatiBell,Qwest,Verizon,andWindstream Communications. BecauseDSLgenerallyofferslowerspeedsthanbroadbandservicesofferedbycompetingcable companiesor,inthecaseofVerizonsFTTHFiOSservice,asillustratedinthefollowinggraph thenumberofDSLsubscribersisdecliningascustomersswitchtothehigherspeedofferings:
Figure 5: DSL Subscribers

Source:InvestmentanalystdataprovidedtoCITI

OverallDSLbroadbandadditionshavebeennegativesincethesecondquarterof2009.To compensateandcompetewithcable,telephonecompanieshavebeensteadilyconvertingpure DSLservicestohybridFTTNDSLbypushingfiberclosertocustomerspremisesaswellasby deployingadditionalFTTH.

53 54

MerrillLynch,TelecomServices/CableTVReport,May24,2010 Ibid

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Figure 6: Telecom Broadband Adds (DSL Loss)

Source:MorganStanleyResearch,USCable,Satellite,Telecom1Q11Outlook,April19,2011 (CompaniesincludeAT&T,Verizon,Qwest,Frontier,TDS,Windstream,CenturyLink,andCincinnatiBell)

However,DSLbroadbandcontinuestogrowinareasservedbythenonRBOCtelephone companies,whicharegenerallymoreruralinnature.Thisisbecausefiberdeploymentsare relativelyexpensiveonaperhouseholdbasisinruralareasandsuchareasarelesssubjectto competitionfromcableDOCSIS3.0service. Figure 7: Rural Telcos: DSL Penetration of Total Access Lines (1Q08 - 4Q09E)

Source:BankofAmericaMerrillLynch,3Q09TelecomresultspreviewandmodelbookDuck&Cover, Oct.14,2009at22.

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In2009,oneinvestmentanalystsuggestedthatbroadbandpenetrationasapercentageoftotal subscriberswashigher(30.5%)forruraltelephonecompaniescomparedtotheRBOCs(27.7% forVerizon,AT&TandQwest55)becauseruralcarriersgenerallyfacelowercablepenetration andalesscompetitiveenvironmentthanthemajortelephonecompanies.Theanalystalso pointedout,however,thattheruralcarriersmayhavelessgrowthpotentialthanthemore urbancarriersbecauseoflowerpersonalcomputerpenetrationinruralhomes. ThesmallesttelephonecompaniesrepresentedbytheNationalTelephoneCooperative Association(NTCA)alsohaveahighpenetrationofbroadbandlinesintheirruralareas.Lastyear NCTAreportedthat: ...oursurveyresultsshowedthatrespondentswereofferingbroadbandserviceinexcessof 768kbpsto83%oftheircustomers.Applyingthatnumbertoourestimateof3.5million 56 accesslinesgive2.9millionbroadbandlinesservedbyNTCAmembercompanies. NTCAhasnotprovidedupdatednumbersforaccesslinesorbroadbandlinesfor2010. WirelineCable:Cabletelevisioncompanieshavebeensignificantprovidersofbroadband internetaccessservicesformanyyearsandcurrentlyprovideinternetaccesstoanestimated 39%ofhouseholds(versus31%fortelcobroadband).57Cablepenetrationnumbershave increasedbytwopercentfrom2009to2010. Cablebroadbandgenerallyusesahybridfibercoaxarchitecture:fiberopticsbringscable servicestoaneighborhoodnodeatwhichpointconnectionsaremadetocoaxialcablesthat servethecustomerspremises.IncontrasttotelephonecompaniesFTTHandFTTN,clustersof hybridfibercoaxuserssharethecapacityofeachnodesoactualspeedsvarydependingonthe simultaneoususebyothersservedbythesamenode.58Mostcablebroadbandsystemsare currentlycapableofprovidingdownloadspeedsofatleast10mbps.59 ThefivelargestcableMultipleSystemOperators(MSOs)accountforasubstantialnumberof homespassedandcansupplybroadbandservicetonearlyallofthesehomes,asexpressedin thefollowinggraph:

55 56

MorganStanleyResearch,TelecomServices,MorganStanley,2009,at42. DataprovidedfromNTCAtoCITI,2009.NTCAalsonotedthatthemarginoferrorcouldpotentiallybe fairlylarge. 57 J.Armstrongetal.,Americas:CommunicationsServices,TheGoldmanSachsGroupInc,2009at15.; GoldmanSachsResearch,USServicesReview(1Q10),May2010at17. 58 D.Williams,TheShiftfromBroadbandtoWideband,ForresterResearchInc,2009, http://www.forrester.com/Research/Document/0,7211,53419,00.html. 59 Ibid.

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Figure 8: Homes Passed by Cable Companies

Source:CompanyAnnualReports,QuarterlyEarningsReports,AnalystReports

Thefollowingchartdescribesthepercentageofthehomespassedwhichactuallytook broadbandservicesfromthetenlargestcablecompaniesin2009and2010: Figure 9: MSOs Broadband Subscription Penetration of Homes Passed (most current numbers, 2009, 1Q, 2Q 2010)

Sources:Companies2009annualreports,companiesfirstandsecondquarter2010reports,analyst reports(notallcompanieshavelistedupdatedinformation) CablecompaniesarecurrentlyatvariousstagesintheprocessofupgradingfromDOCSIS2.0or

1.1totheDOCSIS3.0protocolsthatprovidesubstantiallyhigherbroadbandspeedsbutDOCSIS 3.0isnowwidelyavailable: 26

Figure 10: Cable DOCSIS 3.0 Roll-out

Source:BofAMerrillLynchGlobalResearch,TelecomServices/CableMay24,2010

Havingdonethefiberbuildoutstocustomersneighborhoodsoverthepast1015yearsto facilitatethedistributionofdigitaltelevisionprograms,upgradingtotheDOCSIS3.0broadband standardisarelativelyquickandinexpensivetaskforcablecompaniescomparedtothetelcos' currentinfrastructuredeploymentsofFTTHorFTTN.Forexample,Charterhasindicatedthat thecostofupgradingitsnetworktoDOCSIS3.0(includingthecablemodemterminationsystem androutinggearinitsnetworkbutnotnewcablemodemsatcustomerpremises)willbeabout $8to$10percustomer.60Aninvestmentanalystestimatedin2009thatthecostofDOCSIS3.0 upgradeis$15perhomepassed.61ThetotalamounttodeployDOCSIS3.0toahome,including themodematthecustomerspremises,hasbeenestimatedatarangeof$70to$100.62 Thespeedsresultingfromthe3.0upgradeareasubstantialimprovementoverpreviousDOCSIS platforms.63DOCSIS3.0isadvertisedatspeedsashighas50megabitsdownstreamandeven 100+megabitsinspecificmarkets.64Mostupstreamspeedsoncablesystemsareintherangeof 768Kbpsto5mbps65CablecompaniesDOCSIS3.0upstreamdeploymentschedulesarenotyet set,withU.S.commercialdeploymentsbeginningin2010.Forexample,Comcastistrialinga 120mbpsDOCSIS3.0upstreamthatwillbesharedamongusers(soeachuserwilllikelyobtain 67 significantlylowerspeeds),66CableLabs hasstatedthatatsometimeinthefutureitwillnot
60

D.Williams,TheShiftFromBroadbandToWideband,ForresterResearchInc,2009, http://www.forrester.com/Research/Document/0,7211,53419,00.html. 61 S.FlanneryandB.Swinburne,U.S.Cable,Satellite,Telecom3Q09/09/10Outlook,MorganStanley Research,2009,at22. 62 S.Higginbotham,DOCSIS3.0:ComingSoontoaCablecoNearYou,TheGigaOMNetwork,2009, http://gigaom.com/2009/04/30/docsis30comingsoontoanispnearyou/. 63 CableLabsDOCSISPrimerdescribesthefeaturesofthevariousiterationsoftheDOCSIS.See, http://www.cablelabs.com/cablemodem/primer/ 64 AccordingtoCableLabs,Channelbondingprovidescableoperatorswithaflexiblewaytosignificantly increasespeedstocustomers,withcompliantdevicessupportinguptoatleast160Mbpsinthe downstreamand120Mbpsintheupstream.http://www.cablelabs.com/cablemodem/primer/ 65 Ibid. 66 D.Williams,TheShiftFromBroadbandToWideband,ForresterResearchInc,2009, http://www.forrester.com/Research/Document/0,7211,53419,00.html.

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certifycablemodemterminationsystems(CMTS)ascompliantwithDOCSIS3.0without upstreambonding.However,itiscertifyingdownstreamonlysystemsatthistime.68 InadditiontothelargeMSOcablecompanies,manysmaller,usuallyrural,cablecompaniesare deployingbroadband.TheAmericanCableAssociation(ACA),whichrepresentsover900small, independentcablecompanies,reportedthat803ofitsmembershavedeployedsomeformof highspeedinternetservice.69TheACAdidnotreportontypesorspeedsofservicesor numbersofhomespassedorcustomerssubscribingtobroadband.A2009ACAsurveyfound thatfouradditionalcompanieshadplanstodeployhighspeedInternetservicewithinayear and36companieshadnoplanstodeployhighspeedInternetservice.Duringatelephone interview,anexpertonthecableindustrysbroadbandcoverageestimatedthatthesmallrural telephonecompaniesarecapableofprovidingbroadbandserviceto75%ofthehomesthey collectivelypass.70 Wireless:Arangeofwirelessbroadbandtechnologiesiscurrentlyinusebythevariouscellular telephonecompanies.Secondgeneration(2Gand2.5G)digitaltechnologywasthefirstto supportInternetaccessandthatsecondgenerationisbeingrapidlysupplantedbythird generation(3G)wirelessevenasdeploymentof4Ghasbegun. Thenextchartindicatestheexpectedaveragedownstreamspeedsforthevarious3Gand4G technologies. Figure 11: Expected Downstream Speeds of 3G and 4G Wireless Broadband (Mbps)

3G

4G

Source:BofAMerrillLynchGlobalResearchestimates,companyfilingsandpresentations.Speedsare basedoncompanycommentaryandmarketingmaterialandmaydifferfromuserexperiences,whichare

67

CableTelevisionLaboratories,Inc.isanonprofitresearchanddevelopmentconsortiumthatspecifies theDOCSISstandards. 68 CableLabs,CableLabsAnnouncesTieredTestProgramforDOCSIS3.0,CableTelevisionLaboratories Inc.,2009,http://www.cablelabs.com/news/newsletter/SPECS/AprilMay_2007/index.html. 69 DataprovidedbyAmericanCableAssociationtoCITI,2009. 70 InterviewwithSNLKagan,Oct,7,2009.

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impactedbynumberofusers,distancefromcellsite,andtopographyamongotherfactors.Theoretical speedsarehigher. AdaptedFrom:BankofAmericaMerrillLynch,4GFootraceCarriersrefinedeploymentplans,Sept.30, 2009at6.

Anumberoffourthgenerationwirelessbroadbandtechnologiesareinvariousstagesof deployment,planningandtesting.Majorwirelesscompaniesthathavemadebroadband announcementsincludeAT&TWireless,Cablevision,CenturyLink(themerged CenturyTel/Embarq),CincinnatiBell,Clearwire,Comcast,CoxCommunications,Frontier Communications,LightSquared,MetroPCS,Sprint,TMobileandVerizon. Asexplainedinthesourcenoteforthegraphabove,wirelessbandwidthisshared,anduntilthe networksaretestedundersubstantialloaditisnotclearwhetherspeedsabove5megabitscan beobtainedconsistentlybymorethanafewsubscribersatthesametime.Asoneanalyst observed,4Gwirelessnetworksofferamajorstepfunctioninwirelessbroadbandcapabilities 3Gtodaytypically0.51.5mbpsWiMAXtoinitiallydeliver24mbpsLTElikelytodeliver3 6mbps.71Othersaremoreoptimistic,suggestingthat4Gwirelesssystemswillprovide downloadspeedsinthe412mbpsrange,aslongassystemsarentoverloadedwithtoomany subscribersusingbandwidthintensiveapplications.72 WiMAX4Giscurrentlybeingdeployed,includingbySprint,ClearwireandOpenRange. HundredsofsmallerWirelessInternetServiceProviders(WISPs)havedeployedwireless(mostly WiMAX)Internetserviceinruralareasanditisexpectedthattheywillcontinuethe deployments.However,manyoftheseWISPcompaniesaresmallprivateventuresandtendto besecretiveabouttheirdeploymentplans.73The350membersoftheWISPAssociationfar fromthetotalnumberofWISPsprovidefixedbroadbandwirelessservicestoover2million locations.74 NotallWISPsaresmall,independent,localbusinesses.OpenRangeiseffectivelyanationalWISP fundedinpartbya$267millionBroadbandAccessLoanfromtheDepartmentofAgriculture and$100millionofprivateinvestment.ItplanstouseWiMAXtoinitiallyserve6millionpeople

71

S.FlanneryandB.Swinburne,U.S.Cable,Satellite,Telecom3Q09/09/10Outlook,MorganStanley Research,2009at17 72 Verizonreportsarangeofdownloadspeedsfrom812mbps,andClearwiresWiMaxwillofferupto 6mbps.See:K.Brown,Verizon:LTEspeedwillbe812mbps,OneTouchIntelligenceLLC,2009, http://www.onetrak.com/Uploads/scott/WIRELESSTRAK%20%20July%202009.pdf. Seealso,MorganStanley,TelecomServices,April19,2011,at7:Verizonhasnotedthatitisseeing 4G/LTEspeedsconsistentlyaround10Mbps 73 AnassociationofWISPshaspublishedamapanddirectorywhichindicateswheresomeWISPsare currentlyofferingservices.See:WISP,WelcometoWISPDirectory,wispdirectory.com, http://www.wispdirectory.com/index.php?option=com_mtree&task=viewlink&link_id=300&Itemid=53. 74 FilingofWISPAinFCCGNDocket0951,2009,at12.

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in546communitiesin17states75andisofferingitsfirstserviceswitha$38.95permonth broadbandservice.76 LongTermEvolutionorLTEisthe4GtechnologyadoptedbyVerizonandAT&T,which togetherserve56.3%ofthemarket.77Verizoniscurrentlyontargettocover200millionPOPsby theendof2011andprovidefullnationalcoverageby201378andAT&Treportedthatitison trackwithupdatingtheirnetworktoLTE.OthercompaniesincludingCoxandMetroPCSarealso planningtouseLTEtechnologyfortheir4Gservices. HSPA+isa3Gupgradewiththepotentialtodeliver4Glikespeeds.TMobileismarketing HSPA+asa4Gnetworkandplanedtocover100majormetropolitanareas185millionpeople withHSPA+byyearend2010.79AT&ThasalsobegundeployingHSPA+asasteppingstonefor theirfullupgradetoLTEin2011.80Thetechnologyhasbeenusedtohelpmaketheconversion fromoriginal3Gnetworksto4Gnetworksasmootherprocess. SatelliteBroadbandservicestoresidencesandsmallbusinessesviacommunicationssatellites areofferedbyEchoStar,Gilat,Hughes,LightSquared,ViaSat,andWildBlue.81Themostattractive attributeofsatellitebroadbandisthatitisavailableinalmostanylocationintheUnitedStates thathaselectricalpowerandalineofsighttothesouthernskywheresatellitesareparkedin geostationaryorbitsovertheequator.However,thelatencycausedbythetimerequired sendingasignaltothesatellitesandbackmeansthatsatellitesarelesssatisfactorythan terrestrialbroadbandservicesforlatencysensitiveapplicationssuchasvoicetelephony, interactivegaming,andonlinevideoapplications. Satellitebroadbandisalsomoreexpensivethanterrestrialbroadbandservices:inadditionto payingamonthlysubscriptionchargethatcanbetwicethecostoftypicalterrestrialservices, theusermustalsopurchaseasatellitedishatpricesthatrangefrom$149.95to$299.99.

75

OpenRangeCommunications,OpenRangeCommunicationsSecures$374MilliontoDeployWireless BroadbandServicesto546RuralCommunities,OpenRangeCommunications,2009, http://www.openrangecomm.com/pr/pr_022009.html. 76 OpenRangeCommunications,PerfectPackageHighSpeedInternet,DigitalPhone,andEMail,Open RangeCommunications,2009,http://www.openrangecomm.com/packages.html. 77 ComScoreReportsMarch2010U.S.MobileSubscriberMarketShare,May6,2010< http://comscore.com/Press_Events/Press_Releases/2010/5/comScore_Reports_March_2010_U.S._Mobil e_Subscriber_Market_Share> 78 DeutscheBank,CTIAWireless2011:Day1MeetingsSummary,March23,2011at2. 79 Fiecewirless,June15,2020TmobileexpandsHSPA+to25markets,willcallit4G< http://www.fiercewireless.com/story/tmobileexpandshspa25marketswillcallit4g/20100615> 80 Ibid. 81 WildBluehasbeenacquiredbyViaSat.

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AnewgenerationoftwowayHighThroughput(HT)satellitesisbeingbuiltforlaunchbeginning inearly2012.Thesenewspotbeamsatelliteswillhave100gbpsofcapacity,whichis1825 timesthecapacityofsatellitesthatwerelaunchedafewyearsago.82 Backbone:Anessentialcomponentofbroadbandservices,whetherwiredorwireless,arethe socalledbackbonenetworksthatareeffectivelythecoresuperhighwaysoftheInternet. Backbonesaretypicallymultipleopticalfibersbundledintocableswiththecapacityofeach fibermeasuredbyopticalcarrierorOC.AnOC3lineiscapableoftransmitting155mbps whileanOC48cantransmit2.48gbps.StateofthearttechnologytodayisOC768or40gbps perfiberwith100gpbsonthevergeofgeneraldeployment. MajorbackbonecapacityprovidersintheU.S.includeAT&T,Cogent,GlobalCrossing,Level3, Sprint,andVerizon.83XOHoldings,ZayoGroup,andTWtelecomshouldalsobeconsideredas largecontributorsofbackbonecapacity. CiscoSystems84andTeleGeography85estimatethattheU.S.Internetbackbonewillgrowat about40%peryear.TheUniversityofMinnesotasMINTSestimatesahighergrowthrateof 50%60%.86Inadditiontogrowingvolumesfromwirelinebroadbandcustomers,wirelesstraffic isalsogrowingrapidlyandisexpectedtodramaticallyincreasewhen4Gnetworksaredeployed. Asthefollowingchartillustrates,backboneconnectionswithhugecapacitiesareneeded betweenmajorcitieswherethepopulationdensityishighandbusinessactivityisstrong.

82

F.Valle,SatelliteBroadbandRevolution:HowTheLatestKaBandSystemsWillChangeTheRulesOf TheIndustry.AnInterpretationoftheTechnologicalTrajectory,SpringerScience+BusinessMedia, 2009,http://www.springerlink.com/content/x0x51281h3520202/fulltext.pdf. 83 TeleGeographyResearch,GlobalInternetGeographyUnitedStates,PriMetricaInc.,2009, http://www.telegeography.com/ee/dm/gig2010/42148.php. 84 CiscoSystems,CiscoVisualNetworkingIndex:ForecastandMethodology20082013,CiscoSystems Inc,2009, http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11 481360_ns827_Networking_Solutions_White_Paper.html. 85 TeleGeographyResearch,GlobalInternetGeographyUnitedStates,PriMetricaInc.,2009, http://www.telegeography.com/ee/dm/gig2010/42148.php. 86 AndrewOdlyzko,MinnesotaInternetTrafficStudies(MINTS),UniversityofMinnesota,2007, http://www.dtc.umn.edu/mints/home.php.

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Figure 12: Major Internet Backbone Routes in the U.S. (>250 Gbps)

Source:TeleGeographyResearch,2009

Thebandwidthusedinthelargest30intercityconnectionsintheU.S.grewatacompound annualgrowthrate(CAGR)of38%duringtheperiodfrom2002to2009,withsomeroutes growingasmuchas90%.87Thereisnoreasontodoubtthatgrowthwillcontinueand,withthe increaseofvideoandotherbandwidthintensiveapplications,thegrowthrateofcapacityused couldincrease.Dataconcerningthehighestcapacitybackboneroutesindicatesthatthese criticalrouteshavesufficientcapacityatpresent:thefollowingtableindicatesthataverage trafficandpeaktrafficvolumesonmajorroutesarebelowtheamountofavailablebandwidth: Table 2: 20 Highest Capacity U.S. Domestic Internet Routes. 20072009 (Gbps) 2007 2008 2009 Band Average Peak Band Average Peak Band Average width Traffic Traffic width Traffic Traffic width Traffic 5,650 1,525 2,182 8,608 2,227 3,308 11,767 3,039
Source:TeleGeographyResearch,2009

Peak Traffic 4,393

Asillustratedbelow,intheaggregate,peaktraffic(in2009)was37%oftotalavailable bandwidthonthe20highestcapacityU.S.routes,implyingsufficientgrowthcapacityinthenear term.

87

TeleGeographyResearch,GlobalInternetGeographyUnitedStates,PriMetricaInc.,2009, http://www.telegeography.com/ee/dm/gig2010/42148.php.

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Figure 13: 20 Highest Capacity U.S. Domestic Internet Routes. 20072009 (Gbps)

Adaptedfrom:TeleGeographyResearch,2009 Furthermore,from20072009,accordingtotheresearchfirm,availablebackbonebandwidth grewataCAGRof44%,slightlyexceedingthegrowthrateoftraffic(41%)andpeaktraffic(42%). Assummarizedbelow,areviewoftheupgradeanddeploymentplansofvariousbackbone operatorsindicatesthatadditionalbackbonecapacitywillbebroughtonlineduringthenext fewyears. AT&TfinishedabackbonenetworkupgradetoOC768in2008.Thatimpliesatransmission speedof40gbpsin80,000milesofitsnetworkinfrastructure.Thecompanyistestingdata transmissionsatratesof100gbps,whichwillbethenextstageofnetworkupgrade.88 GlobalCrossingoperatesapproximately18,000milesoffiberopticInternetbackboneinNorth America(includingCanada).Itprovidestransferspeedsbetween2.5and10gbps.89The companysaysthatitplanstoinvestmostofitscapitalexpenditureintotheextensionand

88

AT&TMediaRelations,AT&TCompletesNextGenerationIP/MPLSBackboneNetwork,World'sLargest Deploymentof40GigabitConnectivityCompanyResearchersContinuetoDriveFutureNetwork EvolutionwithRecordSetting17TerabitPerSecondCapacityTest,AT&TInc.,2008, http://www.att.com/gen/pressroom?pid=4800&cdvn=news&newsarticleid=26230. 89 GlobalCrossing,AnnualReport2008,GlobalCrossing,2009, http://files.shareholder.com/downloads/GLBC/735860427x0x286672/6EDF05BF07834433B21C 5D97DFDD1F85/GLBC_2008_AR.pdfat21.

33

upgradeofitsexistingnetwork.90Thecapitalexpendituresin2008weremainlydrivenby acquisitionsofothercompanies($192million).91 Level3invested$155millionintonetworkupgradesinthefirsthalfof2009.92Thecompany planstofocusitscapitalexpenditureonnewequipmentinthefuture.Recentupgradesand deploymentsweremadeinNewYork,Seattle,andTennessee.93Thecompanyoperates 27,000routemilesofcablewithitsnewestdeploymentsoperatingat40gbps.94 Qwestisoneofthelargestbackboneoperatorsaswellasoneofthelargestregionaltelephone companiesprovidingtelephoneserviceinmuchoftheWestotherthanCalifornia.Its backbonereachesacrosstheU.S.andisavailableinalmosteverystate.Currentlyits backboneoperatesattransmissionratesof40gbpsbutthespeedwillbeupgradedto100 gbpsduring2009and2010.95 Verizoncurrentlyoperatesitsbackboneat40gbpsandisplanningtoupgradeto100gbps beginningin2009.96 XOiscurrentlyoperatingabackbonenetworkof18,000milesoperatingat10gbps.97Itis currentlyundertakingmanyenhancementprojectsincludingadeploymentof1.6terabits capablesystemsonselectedintercityroutes.98Recentinvestmentinnetworkupgradesand newdeploymentstotaled$450million.99 Fromthebackbonedevelopmentsdescribedabove,itwouldbereasonabletoconcludethatthe internetbackboneintheU.S.isexpandingatapacethatshouldkeepupwithexpecteddemand overthenextfewyears,providedthatthereisnohugeandunexpectedincreaseinusage
90

GlobalCrossing,AnnualReport2008,GlobalCrossing,2009, http://files.shareholder.com/downloads/GLBC/735860427x0x286672/6EDF05BF07834433B21C 5D97DFDD1F85/GLBC_2008_AR.pdfat.24. 91 Ibid. 92 Level3CommunicationsPublicRelations,QuarterlyReport,Level3CommunicationsLLC.,2009, http://files.shareholder.com/downloads/LVLT/740502237x0xS11046590948275/794323/filing.pdfat26. 93 Level3CommunicationsPublicRelations,Level3ExpandsOperationsinUpstateNewYork,Level3 CommunicationsLLC.,2009,http://www.level3.com/index.cfm?pageID=491&PR=772. 94 Level3CommunicationsPublicRelations,OurNetwork,Level3CommunicationsLLC.,2009, http://www.level3.com/index.cfm?pageID=242. 95 C.A.Tyler,QwestPositionsitsNationalNetworkforFastestAvailableEthernetTechnology,Qwest CommunicationsInternationalInc.,2009,http://news.qwest.com/QwestNetworkEnhancements. 96 VerizonInvestorRelations,GlobalNetwork,VerizonCommunicationsInc.,2009, http://www.verizonbusiness.com/about/network. 97 XOCommunications,NetworkDetails,XOCommunications,2009 http://www.xo.com/about/network/Pages/details.aspx. 98 XOCommunications,AnnualReport(2008),XOCommunications,2009, http://www.xo.com/SiteCollectionDocuments/aboutxo/investor relations/Annual_Reports/XO_2008_10K.pdfat3. 99 XOCommunications,AboutXOOverview,XOCommunications,2009 http://www.xo.com/about/Pages/overview.aspx.

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patterns.With78%ofbackbonetrafficconsistingofpeertopeerconnectionsandvideo streaming,100increasingvideotrafficshouldnotbeanunanticipateddevelopment. Wirelesstrafficisalsolikelytoplaceincreaseddemandonthebackbones.Forexample,AT&T hasreportedexplosivegrowth(nearly5,000%inthepast3years)initswirelessdatatraffic, presumablyduetotheiPhone,101andwirelesscarriershaveaskedforbidstoprovidefiberoptic connectionsto7,500of17,000cellsitesinQwestsoperatingarea.102Ontheotherhand, wirelesstrafficwillbeatleastpartlyasubstituteforwiredtrafficratherthanbeingcompletely additive. Asupgradingbackbonefacilitiesrequires618months,103thebackboneprovidersshouldbeable toreactreasonablyquicklytoaccommodateunexpecteddemand. Towers:AdiscussionoftowerswasnotincludedintheoriginalFirstReportbut,because towersareanessentialpartofthetelecommunicationsinfrastructure,thatoversightisbeing correctedinthisSecondReport. Towercompaniesprovideessentialelementsofinfrastructureneededtodeliverwireless broadbandsignalsthroughouttheUnitedStates:towersanddistributedantennasystems(DAS). Towersarethelargestructures(includingrooftops)uponwhichwirelessserviceproviders installtheirtransmitter/receiverequipment.DASarecollectionsofsmallantennasspreadover alimitedgeographicareaandareconnected,usuallybyfiber,toacentrallocation,usuallya basestation104 Accordingtoananalyst,[DAS]isusedtofillingapswherethebigcellsmaynotreach,butgoing forwarditwillprobablyreplacealotofbigcellsinalotofsituationswheretheyneedhigh capacity.105Therefore,althoughdistributedantennasystemshaveusuallybeenusedtosolve specificcoverageproblems,DASarebecomingmorecentralto4Gnetworkdeploymentplans. TowercompaniessuchasAmericanTower,CrownCastleInternational,andSBACommunication Co.haveestablishedbothtowerandDASinfrastructurelinesofbusiness.However,thereare
100

SeethefirstchartinthisSection3.Seealso,G.Kim,WirelessisKeyforBroadbandAccessDemand andSupply,TechnologyMarketingCorporation,2009,http://4g wirelessevolution.tmcnet.com/wimax/topics/wimax/articles/55281wirelesskeybroadbandaccess demandsupply.htm. 101 MorganStanleyResearch,Economy+InternetTrends,MorganStanley,2009, http://www.morganstanley.com/institutional/techresearch/pdfs/MS_Economy_Internet_Trends_102009 _FINAL.pdfat57. 102 S.Carew,RptUpdate2Interview:Qwest2010capexflat,fiberasbiggerpa,Reuters,2009, http://www.reuters.com/article/technologymediatelco SP/idUSN2046085120091021?pageNumber=2&virtualBrandChannel=11604. 103 K.Papagiannaki,N.Taftetal.,LongTermForecastingofInternetBackboneTraffic,IEEETransactions onneuralnetworks,2005,http://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber=01510713. 104 Distributedantennasystems:FromnichetonecessityMarch4th2010, FierceWirelesshttp://www.fiercewireless.com/story/distributedantennasystemsnichenecessity/2010 0304#ixzz0vm5VUXSL 105 IbidAllenNogee,analystatInStat

35

alsocompanieswhoconstructonlyDASsystemssuchasExteNetSystemsInc.,NextGNetworks andNewPathNetworks.106

1.2TimelineforBroadbandPlans
Forcompetitivereasonsandtoavoidcomplicationswithsecuritieslawsdealingwithdisclosures ofmaterialinformation,mostbroadbandservicecompaniesarereticentaboutreleasingdetails ofthetimingoftheirfuturebroadbanddeploymentplans.Whereinvestmentanalystshave madeforecastsforthemajorcompaniesdeploymentplans(sincethisisamatterofgreat interesttoinvestors),thecompaniesthemselveshavenotverifiedtheanalystsforecasts.Tothe extentcompaniesdomakeannouncements,theplanstypicallydonotextendpast2012,and mostlyonlycoverthenextyear. Knowndetailsofpublicplans,timelines,andexpectedcoveragearesummarizedinthefollowing discussiononExpectedDeployment,whichhasbeenupdatedfor2010inSection2ofthis Report.TheAppendixandthediscussionofanalystprojectionsinSection3ofthisReportalso provideinsightsintodeploymenttimelines.

1.3PenetrationandCoverageFootprint
Investmentanalystsandotherresearchfirmsestimatecurrent(yearend2010)wireline broadbandpenetrationatapproximately70%ofallU.S.households,with31%bytelephone companiesand39%bycablecompanies.107Asthefollowingchartillustrates,anestimated19% ofU.S.householdsdonotaccesstheInternetatalland12%accesstheInternetwithdialup telephoneservice.(Itisworthnotingthatsomeofthehouseholdsthatarenotaccessingthe InternetdonothavetheessentialprerequisiteforusingtheInternet:apersonalcomputer. Accordingtoanalysts,PenetrationofconsumerInternetaccessintotal(includingdialup)is estimatedat~87%ofPCHouseholds108).
106

Ford,Tracy,DASNetworksgaintractionamongcarriers,RCRWirelessNews,October2009, http://www.rcrwireless.com/ARTICLE/20091028/WIRELESS_NETWORKS/910289999/dasnetworksgain tractionamongcarriers 107 LeichtmanResearchGroup,Under650,000addbroadbandinthesecondquarterof2009,Leichtman ResearchGroupInc,2009,at2,http://www.leichtmanresearch.com/press/081709release.pdf. Leichtmanestimates69,902,289totalbroadbandsubscribersatendof2Q2009,whichisroughly60% ofU.S.households. 108 BofAMerrillLynchGlobalResearch,TelecomServices/Cable,May24,2010

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Figure 14: Internet Penetration Forecast

Source:GoldmanSachs,1Q2010USCommunicationServiceReview,May2010

SincetheFirstReport,wirelinebroadbandpenetrationofallhouseholdshasincreasedby4%. Thenumberofnoninternethouseholds,however,hasonlydecreasedby1%.Thisimpliesmore ofashiftofInternetusersfromdialuptobroadbandhighspeedInternetaccessthan householdsaccessingInternetserviceforthefirsttime. Asoneanalystobserved,Internetpenetrationisnowenteringthelaterstagesofadoption, wherethegrowthcurveflattensoutastheincrementalholdoutsubscriberisharderto add.109SomeanalystsexpectoverallpenetrationofUSInternethouseholdswillincreaseby about1%peryear,assupportedbythepreviousgraph,drivenlargelybygainsinthe penetrationofpersonalcomputers.110 Thematurationofthebroadbandmarket,asevidencedbytheslowingannualgrowthintotal Internethouseholds,canbeobservedasfarbackas2004:
109 110

BofAMerrillLynchGlobalResearch,TelecomServices/Cable,May24,2010 MorganStanleyResearch,Cable/Satellite:AfterYearsofDeflation,BroadbandPricingSettoRise October20,2009.

37

Figure 15: Growth in Online Households

Source:MorganStanleyResearch,IndustryViewCable/Satellite,October20,2009

Whilethenumberofcableandfibersubscriptionsisgrowing,overallsubscribergrowthis rapidlydeclining,asshownbelow. Figure 16: Broadband Subscribers and Growth

Source:BernsteinResearch,USTelecommunicationsandUSCable,October18,2010

Thedialupmarketisquicklydissipatingasseeninthefollowinggraph.

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Figure 17: Households with Dial-Up Service

Source:MorganStanleyResearch,IndustryViewCable/Satellite,October20,2009

1.4CapitalExpenditures
OverallCapex
In2009,thetelecommunicationsserviceproviders,includingtelephone,wirelessandcable companiesinvestedabout$56.2billion,downabout$6billionfromtheprioryear.111The followingtableillustratesthebreakdownofthistotalamongsixindustrysectors: Table 3: Aggregate CapEx 2009 - $56.2 B $Billion RBOCWireline 21.7 OtherTelcoWireline 1.1 CableMSOs 11.9 CLECs 1.1 TowerCompanies 0.65 Wireless 19.8 Total 56.2 Percent 38.6% 2% 21% 2% 1.2% 31.6% 100%

Source:AverageofanalystdataprovidedtoCITI,withadjustmentsasdescribedinthe accompanyingtext.Telco:AT&T(excludingwireless),Verizon(excludingwireless),Qwest; Cable:Comcast,TimeWarner,Cox,Cablevision,Charter,Mediacom,andInsight;Wireless: AT&T,Verizon,Sprint,TMobile.

Sincelastyear,cableandwireless(includingtelcowireless)companieshaveincreasedcapex, whiletraditionaltelephoneoperations(bothRBOCandothertelco)havedecreasedcapex.In 2010,totalcompanycapitalexpendituresforthemajortelcos,majorcablecompanies,and majorwirelesscompanies,ofwhichbroadbandcapitalisonlyapart,areasfollows:

111

SeeCapex20062015.Source:DatareportedbycompaniesandanalystestimatesprovidedtoCITI.

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Table 4: Total Capital Expenditures of Largest Companies ($ billions)

Telco Cable Wireless Total 2009 22,502 11,892 19,765 54,159 2010 21,230 11,509 23,328 55,067

Source:SeeTable15:TotalCapexandBroadbandCapexbySector

(Sincethesefiguresareforthemajorpubliccompaniescoveredbyinvestmentanalysts,they needtobeincreasedby618%,dependingonthesector,toaccountforthesmallercompanies notincludedintheanalystscoverage.SeeSection3ofthisreport.) Telco:In2009,telcocompaniescoveredbyanalystshadtotalcapitalexpendituresofabout$22 billion.In2010,thewirelinecapitalexpendituresareforecasttobeabout$21billion,a reductionofabout$1.2billion. Cable:Coveredcablecompanieshadtotalcapitalexpendituresof$11.9billionin2009.The figureisforecasttodecreaseslightlytoabout$11.5billionfor2010.112 Wireless:Wirelesscompaniesspent$19.7billionin2009andareforecasttospend$23.3billion in2010.Thesetotalsdonotincludespectrumlicensefees.AT&TandVerizonaloneare expectedtospend$16.4billionin2010.Clearwirespent$2.7onits4Gnetworkin2010.113 Figure 18: AT&T and Verizon Wireless Capex, 2009-2010

Source:MorganStanleyResearch,November11,2010at12.

112

SeeReviewofPubliclyAnnouncedBroadbandPlansSection2;seealsoAppendix1:ListingofAll PubliclyAnnouncedBroadbandPlans 113 WirelessWeek,ClearwireDefiesSkeptics,PlansHeftyCapexin2009 http://www.wirelessweek.com/News/2009/03/ClearwireDefiesSkeptics,PlansHeftyCapExin2009/

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Inthe3rdQuarter,aswiththerestof2010,wirelesscapexspending,whichalmostentirely drivenbybroadband,hasclearlyoutstrippedspendingonothertypesofbroadbandservices. In2010,wirelessspendingincreased23%,whilewirelinedecreased10%.114 Figure19:BroadbandCapexbytype,3QandYTD2010

Source:MorganStanleyResearch,November11,2010at12.

From2008tothethirdquarterof2010,cablecapexasapercentageofsalesdecreased.Asone analystnoted,Thedecadelongdigitizationofthephysicalplantisfinallycomingtoaclose. Andthegenerationlongsettopboxduopolyisstartingtoshowsomecracks.115 Figure 20: Capex as a Percentage of Sales 2008-2010

Source:BernsteinResearch,November11,2010at3.

114

MorganStanleyResearch,TelecomServices:3Q10TakeawaysMetricsShowImprovement;Wireless Capex Climbs,November2010. 115 BernsteinResearch,QuickTakeU.S.Cable:Cisco'sPainIsCable'sGain...theReadAcrossforCable Capex,Bernstein,November2010.

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BroadbandCapex
Howmuchofthistotalcapitalinvestmentgoestowardsbroadband?Sincemuchofthecapexis forgeneralpurposedigitalnetworksthatcancarryvoice,dataandvideo,theanswerislargely basedonallocatingthecapitalamongavarietyofservices.One2009estimatewasthat: ApproximatelytwothirdsofAT&T's2009investmentwillextendandenhancethe company'swirelessandwiredbroadbandnetworkstoprovidemorecoverage,speed andcapacity.116 Itisclearthatthemajortelephonecompanieshaveshiftedwirelinecapitalfromtheirlegacy telephonenetworkstowiredbroadband,withbroadbandcapexexpectedtoreachnearly60% oftotalwirelinecapexin2011. Table 5: RBOC Wired Broadband Capex ($ billion) Network 2006 2007 2008 Legacy Broadband Total %broadband 16.3 7.2 23.5 30.6% 15.2 10.7 25.9 41.3% 13.0 11.9 24.9 47.8% 2009E 10.5 11.5 22.0 52.3% 2010E 10.5 12.5 23.0 54.3% 2011E 10.0 14.0 24.0 58.3%

Adaptedfrom:SkylineMarketingGroup,CapexReport:2008AnnualReport,atExhibit14andtextat18, 20,23.

TheAppendixincludesinformationonbroadbandrelatedcapitalexpenditures,updatedfor 2010.Thefollowingareexamplesbytechnology: Fiber:AT&Texpectsfullyearcapitalinvestmentinthe$18billionto$19billionrangefor 2010.Capitalexpendituresinthewirelinesegmentrepresented64.3%ofthecompanyscapital expenditures,asthecompanycompletesitsdelayeddeploymentofUVersefiberto30million livingunitsbytheendof2011.117AnalystdataprovidedtoCITIprojectedVerizonswireline capitalspendingtobearound$7.5billion2010;thiswouldsupporttheexpansionofFiOSfiber to70%ofthecompanyswirelinefootprint.

116

AT&T,AT&TtoInvestMoreThan$17Billionin2009toDriveEconomicGrowth,AT&TInc.,2009, http://www.att.com/gen/pressroom?pid=4800&cdvn=news&newsarticleid=26597.AT&Tsestimateof twothirdsisconsistentwiththeobservationofamarketresearchfirmthatbroadbandremainsthe primarycapexdriverfor200809because, Wirelineandwirelesscarriersalikearesteppinguptheirnetworkinvestmentstomakehigh speedInternetconnections,andassociatedtripleplaybundles,availabletoagreaterportionof theircustomers. Thefirmaddedthat,therehasbeenapronouncedshiftincapextowardsnew,broadbandplatforms, andawayfromnarrowbandsystems.SkylineMarketingGroup,CapExReport2008AnnualReportat1. 117 AT&T2009AnnualReport,Form10K

42

Cable:Comcasts2010totalcapitalexpenditureswerelowerinbothabsolutedollarsandasa percentageofrevenuecomparedwith2009s$5.1billionexpenditures.118TimeWarner Cablestotalcapitalexpendituresfor2009were$3.2billion,supportingthecompanys expansionofDOCSIS3.0cable.119 Wireless:Verizonspent$8billionin2010toexpandandmaintainitswirelessnetwork.120 Clearwire,initseffortstocover120millionPOPsbytheendof2010,expectstospendbetween $2.8billionand$3.2billionintotalcash.121TwothirdsofAT&Tsaforementioned$18to$19 billionofcapitalspendingwillgotobroadbandandwireless,withanalystsestimatingatotalof 7.7to8billioninwirelesscapexforthefullyear.122 Satellite:SatellitecommunicationcompaniessuchasViaSatInc.(ViaSat1)andHughes Communications,Inc.(Jupiter)areplanningtolaunchnewsatellitesin2011(ViaSat1)and2012 (Jupiter),respectively.Satelliteconstruction,launchandinsurancecancostupwardsof$400 millionpersatellite.123 Tower:AmericanTowerexpectstospend$515to$605milliononcapitalexpendituresin 2010.124SBACommunicationsexpectstoincurdiscretionarycashcapitalexpendituresof$190 millionto$210million.125

1.5ExpectedBroadbandPerformance/Quality
Mostbroadbandserviceprovidersdescribetheirbroadbandperformanceintermsofupstream anddownstreamspeed.Speedclaims,however,aredifficulttoverifyandcompanieshave differentnumbersintermsofadvertised,actual,throughput,andaveragespeeds.Generally,a consumersactualspeedislikelytovary,particularlyoncableandwirelesssystemswhere capacityisshared,andinmostcasesissubstantiallylessthantheadvertiseduptospeed.The advertisedandtheoreticalspeedcapabilitiesofthevarioustechnologieshavebeenbroadly describedinthepreviousdiscussionofeachtechnology.Completecompanyspeedinformation maybefoundintheAppendix.
118

ComcastQ22010EarningsCallTranscript,http://seekingalpha.com/article/217044comcast corporationq22010earningscalltranscript?source=thestreet 119 http://www.timewarnercable.com/MediaLibrary/1/1/about/pressrelease/twc_4Q09_earnings_announ cement.pdf 120 GoldmanSachs.TheQuarterinpictures,1Q2010USCommunicationServicesReview 121 ClearwireQ12010EarningsCall,http://seekingalpha.com/article/203243clearwireq12010earnings calltranscript 122 BankofAmerica,1Q10telecomandcablescorecards 123 P.B.Selding,ViaSattoBuyWildBluefor$568Million,SpaceNews,2009, http://www.spacenews.com/archive/archive08/kabandside_0114.html. 124 AmericanTower,Form10Q,Q12010,http://phx.corporateir.net/phoenix.zhtml?c=98586&p=irol SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOT MxMjUtMTAtMTExMDUyL3htbA%3d%3d 125 SBACommunicationsCorporationForm10Q,Q12010, http://www.sec.gov/Archives/edgar/data/1034054/000119312510112092/d10q.htm

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Overall,downstreambroadbandspeedsonaverageintheUSareat9.98Mbpswithupstream speedsatanaverageof2.18Mbps.126Thetopaveragebroadbandspeedsactuallyexperienced intheresidentialU.S.arelistedasfollows: AverageUSDownloadSpeeds: Table 6: Average Download Speeds of ISPs (Top Ten)

TopISPs

Average Speedtests
25.62Mbps 22.52Mbps 16.76Mbps 16.10Mbps 14.99Mbps

TotalIP Addresses
12,016 13,214 33,206 6,919,468 48,636

1 2 3 4 5

Westnet Psinet IowaNetworkServices ComcastCable Midcontinent Communications CharterCommunications InsightCommunications Company CoxCommunications TimeWarnerRoadRunner OptimumOnline

6 7

14.86Mbps 14.14Mbps

1,748,148 219,955

8 9 10

13.96Mbps 13.57Mbps 13.36Mbps

1,727,342 4,337,530 193,786

Table 7: Average Upload Speed of ISPs (Top Ten)

TopISPs

Average Speedtests
19.73Mbps 13.98Mbps 11.43Mbps 8.65Mbps 6.53Mbps 6.19Mbps

TotalIP Addresses
12,016 13,214 33,206 25,555 23,930 4,118,703

1 2 3 4 5 6

Westnet Psinet IowaNetworkServices SurewestBroadband AT&TServices VerizonInternetServices

126

NetIndex,July28,2010<http://www.netindex.com/upload/2,1/UnitedStates/>

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7 8 9 10

TWTelecomHoldings ApogeeTelecom CoxCommunications CbeyondCommunications

5.98Mbps 4.39Mbps 3.57Mbps 3.55Mbps

14,749 13,831 1,727,342 32,213

Source:Adaptedfrom,Ookla.http://www.netindex.com/download/2,1/UnitedStates/

Cable:SpeedsbeingdeliveredbyDOCSIS3.0arecurrentlyreachingashighas100+Mbpsand even200Mbpsbysomecompanies.127Speedsvary,however,throughoutthecablemarketwith someprovidersdeliveringtopspeedsaslowas20Mbpsandmanydeliveringaround50Mbps. Upstreamspeedsarestillsignificantlylowerwithmostpeakingaround1012Mbps.Seethe Appendixformoredetail. Telco:FTTHandFTTNDSLprovidersaredeliveringspeedstokeepupwithcablesDOCSIS3.0 rollout.AT&TUverseisplanningtocoverits120Uversemarketswith24Mbpsdownstream and3Mbpsupstream,128whileVerizonifoffering50Mbpsdownstream/20Mbpsupstreamwith FiOS.129Smallertelephonecompaniesofferawiderangeofspeeds,fromverylowtospeeds thatmatchorexceedthoseofthelargetelcosandcablecompanies.Forinstance,Rural Telephone/NexTech,inKansas,willuseacombinationoffiberandWiMAXtechnologyto 23,000householdsthatiscapableofdelivering100Mbpsspeeds.130NITCO,asmallIndiana Telephonecompany,saidit"willbeworkingdiligentlytoutilizethelatestversionsofDSL,fiber, andWiMaxtechnologiestoachieveandexceedtheseuploadanddownloadspeed standards."131 Satellite:Downloadspeedsaretypicallyfivetosixtimesfasterthansatelliteuploadspeedsand currentlyrangefrom512kbpsto1.5mbpsdownstreamand100kbps300kbpsupstream.132 Overcominglatencyandsignallossduetoprecipitationhavebeenmajorperformanceand qualityobstaclesforsatelliteproviders.Geostationarysatellitecommunicationsexperience
127

Fiercewireless,ComcastNearsNationalDOCSIS3.0RolloutFebruary22,2010.< http://www.fiercetelecom.com/story/comcastnearsnationaldocsis30rollout/20100222> 128 AT&Textends24MbpsbroadbandservicetoentirecustomerbaseFierceTelecom,March30,2010 <http://www.fiercetelecom.com/story/textends24mbpsbroadbandserviceentirecustomer base/20100330#ixzz0v53DVItJ> Subscribe:http://www.fiercetelecom.com/signup?sourceform=ViralTyntFierceTelecomFierceTelecom 129 VerizonInvestorRelations,2008AnnualReport,VerizonCommunicationsInc.,2009, http://investor.verizon.com/financial/annual/2008/downloads/08_vz_ar.pdfat9. 130 RuralTelephone/NexTechSelectsOccamNetworksasBroadbandAccessSupplierin$101Million BroadbandStimulusProjectFierceWirelesshttp://www.fiercewireless.com/pressreleases/rural telephonenextechselectsoccamnetworksbroadbandaccesssupplier101million#ixzz0v5FPALRW 131 NITCOtoAchieveFederalGovernment'sNationalBroadbandMandateWithin1Year,3YearsEarlier ThanRequiredDeadlineFierceTelecomMay26, 2010.http://www.fiercetelecom.com/press_releases/nitcoachievefederalgovernmentsnational broadbandmandatewithin1year3yearsea#ixzz0v5QEpzkO

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latencyduetothelongdistancesthesignalmusttraveltogeostationaryorbitandbacktoearth. Thetotalsignaldelay,includinglatencyintheconnectingterrestrialnetworks,canbeasmuch as500900millisecondsormore,makingsomeapplicationsunusable(interactivegaming)or difficult(twowayvoiceorvideoconferenceconversation).However,latencyistypicallynot noticedbytheuserduringbasicInternetuse(webbrowsing,Email).

1.6ARPU(AverageRevenueperUser)
TheAppendixnotesARPUacrossvariousproviders.Thosefiguresaresummarizedbymarket segmentbelow.Asrepresentativesfrommajorwirelessprovidershavestated,ARPUis becominganincreasinglyinaccuratemetricfortheirbusiness.133Thegrowingpoolofuserswho ownmultipleconnecteddevicesisnotrepresentedinametrictraditionallyusedforvoice service,andcompaniessuchasVerizonhavestoppedprovidingARPUforsomesegments.134 AnalystshaveproposedRHP(RevenueperHomesPassed)forcableandLifetimeRevenueper NetAddasmoreeffectivemetrics,andweprovideARPUhereprimarilytoillustratethe informationmostmajorcompaniescurrentlyreport.135 Telco:NeitherAT&TsUVersenorVerizonsFiOSfiberserviceshasreportedARPUbeyondthe overallfiguresprovidedbythecompanies. Cable:ForbroadbandserviceovercablenetworkstheaverageARPUisapproximately$42.5. Thereisverylittlevariationinthisfigureamongcablecompanies,withTimeWarnerCable, ComcastandCharterallreleasingsimilarfigures.CableARPUhastrendedupwardsoverthepast twoyears,asseenbelow.

133 134

http://www.lightreading.com/blog.asp?blog_sectionid=958&doc_id=193340 http://www.martinsuter.net/blog/2010/03/ofchurnarpuandthevalueofanetadd.html;Seealso, Appendix 135 Moffet,Craig,etal.,BernsteinResearch,Feb16,2010,TheLongView:BeyondVideo...Takingthe MeasureoftheBroadbandCentricCableMSO.

46

Figure 21: Weighted Average Cable Broadband ARPU

Source:BernsteinResearch,USTelecommunicationsandUSCable,October18,2010.Includes Comcast,TimeWarnerCable,Cablevision,andCharterCommunications.

Wireless:AccordingtoanalystestimatesandCITIdata,theaveragewirelessdataARPUinQ1 2010was$14.46,rangingfromTMobiles$10.20toAT&TandVerizoninthemid$16s.The averagetotalwirelessrevenue(voiceanddata)permonthperuserwas$45.30,withAT&Tthe highestof$50.15andMetroPCSatthelowendwith$39.83. WeestimatethatthesmallerruralindependentWISPsgenerateanARPUofapproximately$30 permonth.Thisestimatewasderivedthroughacombinationoftelephoneinterviewswithtwo WISPsin2009,pricingavailableonthewebsitesofafewotherWISPs,andacalculationbased uponthereportedmarginofonesuchprovider,whichtendedtosupportourother assumptions. Inadditiontoamonthlysubscriptionprice,somewirelessbroadbandpricingplanssometimes includeausagelimitorcapwhich,ifexceeded,leadstoadditionalusagecharges. 47

Bundles:Itisworthnotingthatmanybroadbandservicesaresoldinbundlesalongwithvoice andtelevision(thesocalledTriplePlay).Examplesofbundlesareillustratedinthefollowing PricingAppendix.

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PricingAppendix
Table 8: Typical Wireless Broadband Pricing plans Clearwire Comcast Verizon (CLWR network) Advertised 4GWiMAX 4GWiMAX 3G Service 36mbps 36mbps National (local) (local) (CDMA) 1.4Mbps 1.4Mbps 0.61.4 (National) (National) Mbps BasicPlan $40/month 4Glocal,no cap $40/month Unlimited Use ~$40/month (bundled price)4G Local,nocap $39.99/ mo Includes 250MB ~$55/mo $59.99/ (bundled mo price) Includes 4G/3GNat,no 5GB cap AT&T 3G National (GSM) 0.71.7 Mbps $35/mo Includes 200MB $60/mo Includes 5GB Sprint 3G National (CDMA) 4GSelect Cities0.6 1.4Mbps TMobile 3GNational (GSM) 0.71.7 Mbps

$29.99/mo includes 200Mbps $59.99 Includes 5GB

Advanced Plan

$59.99 Unlimited 4G 5GB,3G

Source:Companydata,MorganStanleyResearchestimates,CableandSatelliteLedbyBroadband&in linewithThesis,PricingTrendsImproving,April20,2010

Comparedtowirelessbroadbandpricingplansin2009,mostpricesincreasedin2010across basicandadvancedserviceplanswithoutmuchchangeinadvertisedspeeds.Forbasicplans, bothClearwireandComcastraisedmonthlyrates,whileVerizonstayedthesameandAT&T droppeditsrateby$5.Thesituationwassimilarinadvancedplans,withClearwireandComcast raisingrates.Theremainingtelcosallkepttheiradvancedplanspricedatthesamerate.

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Table 9: Broadband Pricing Changes (DSL)

Voice (Bundled Local+LD) Company Offering Q/Q Comments DSL Q/Q Comments Satellite Video Q/Q Comments Sequential MRC moved up to $63.99 with $24 bill credit and $5 instant bundle discount. $50 AT&T reward card offered Choice Extra or higher package Triple Play

AT&T

Entry Level

Almost unchanged at $25

Comparable Speed Basic unlimited local services back to 4Q09 levels ($17.45)

Almost unchanged at $25

BLS

Entry Level Comparable Speed

VZ

Entry Level Comparable Speed Double bundle discount down ~17% Double bundle discount down ~17% MRC move up to $19.99 (Q409 levels). No more $50 Qwest Visa Prepaid Card. Effective MRC moved down ($11.66 vs $12.5) on $100 Visa prepaid card. New price $29.99 reflects $24 bill credits for 12 months and $5 discount

Qwest

Entry Level

Comparable Speed

Source:BankofAmericaMerrillLynch,BattlefortheBundle,July20,2010at8.

AT&TmadelittletonochangeinitsDSLpricesoverthesecondquarter,whileVerizonraiseditsentry levelbroadbandpriceto$20,upfrom$18inthefirstquarterof2010.Onaverage,theBellcompanies loweredtheirbundledpricingby5.6%yearoveryearfor2010.136 Analystsreportsarecoveringbundledpricesmorethanpricesforbroadband,video,andtelephone separately,perhapsreflectingcompaniespushtosellmultipleproductstocustomers.Forchanges

136

BankofAmericaMerrillLynch,BattlefortheBundle,July20,2010at8.

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duetobroadband,oneanalystnotedthathewasaddinga2%pricingincreasetotheresidential broadbandmodelin2010.

Figure 22: Broadband Price Growth

Source:MorganStanleyResearch,USCable,Satellite,Telecom1Q10Outlook,April20,2010at10.

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Section2:ComparisonofAllPubliclyAnnouncedPlans ofNetworkEnhancement

AfterthepreparationtheListofAnnouncedBroadbandPlans(nowtheAppendix),theFCC askedfortheFirstReporttoinclude, adocumentthatcompareswhatwasprojectedatthetimeofaplantowhathas resultedtodateforeachofthepubliclyannouncedbroadbandplansacrossthe identifiedvariables.Thisshouldlookbackwardsatwhatwassaidatthetimetheplan wasestablishedtobecomparedagainsttheoutcomesofcompletedplansandthe currentstatusforthoseplansstillinprogress. Topreparetherequesteddocument,CITIresearchersexaminedeachoftheannouncedplans projectbyprojecttoestablishthefirsttimethateachprojectwasannouncedandthetime(s) thattheoriginalannouncementwasmodifiedorupdated.Theythencheckedforinformation aboutthestatusofeachannouncement,particularlyaboutcompletionorthedegreeof progressifstillincomplete.Theysearchedforinformationinthesamemannerasdescribedin Section1,whichwasbycheckingcompanieswebsites,investmentanalystandconsultant reportsandbyconductingsearchesontheThomsonOnedatabaseandtheinternet.The researchersalsousednewspublicationsasasourcefordevelopmentsonbroadband deploymentannouncements. Whilethismethodologymayprovidesomeinsightsaboutthecredibilityofcompanies deploymentannouncementsandameansforjudgingtheprobabilityofontimecompletionof similarprojects,thetypeofprojectisprobablythechieffactorinpredictingifitislikelytobe completedontimeornot.Thisshouldntbeasurprisingconclusion:small,easyprojectsare obviouslymorelikelythandifficult,complexonestobecompletedasinitiallyscheduled. Thus,forexample,thecableindustrysupgradefromDOCSIS2.0toDOCSIS3.0isnotamajor physicalconstructionproject,doesnotrequiresubstantialdeploymentofnewcablesandthe variablesaffectingthedeploymentaremuchmorecontrollablebythecablecompany.In contrast,deploymentofentirelynewinfrastructuresislargelyanoutsideconstructionproject, heavilydependentondiggingtrenchesforconduits,stringingcableonpoles,orerectingtowers (forwirelesssystems),tasksthatareinturndependentongovernmentpermits,topography, weatherandalltheuncertaintiesassociatedwithconstructionprograms. Broadly,thereviewofthevariousbroadbandprojectannouncementsindicatesthatprojects thatwerepredominantlyanupgradeweregenerallycompletedonorevenaheadofthe announceddate,whileprojectspredominantlyofanewconstructioncharactertendedtolag behindthecompletiondatespredictedwhentheprojectwasannounced. 52

 WhatsNew: CITIresearchassistantsexaminedannouncementsfromthesecondhalfof2009throughmid 2010toupdatethecompaniesprogressonbroadbanddeployment.Thepastyearsawnotable changesandnewannouncementsforthedeploymentplansofmanybroadbandproviders. WirelessdeploymentsofHSPA7.2,WiMAX,andLTEwerethemostprominentincompany announcements.Theendof2009broughtLTEannouncementsfromAT&T,Verizon,andMetro PCS.Sprint/Clearwireannouncedthelaunchoftheir4GWiMAXservice,andTMobile announcedplanstoupgradeits3GnetworktoHSPA21+.LightSquaredannounceditsplansto cover92%oftheUSwithLTEwirelessbroadbandby2015.Inadditiontothis,thecompanywill alsooffernationwidewirelesssatelliteservice.137Cablecompanieswerealsoactive,with Comcast,Knology,andMediacomannouncingnewgoalsforDOCSIS3.0deployments.Detailsof theplansandtheirprogresscanbeseeninthefigureandtextbelow. Table 10: Major Broadband Deployments: Performance Against Announced Completion Dates

Source:ReportAppendix

137

LightSquared,Inc,AboutLightsquared, http://www.lightsquared.com/pdf/LightSquared_Backgrounder.pdf

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Thefocusoftheanalysisistounderstandwhethertelecommunicationcompaniesaregenerally abletomeetthegoalsoutlinedintheirownstatements,ornot.Thereviewfocusedonthe timeframebeginningin200405basedonthejudgmentthatthoseyearsmarkedthebeginning ofmoderneraofbroadbandintermsofindustrystructure:theinternetbubbleandbusthad passedandtheAT&TSBCandMCIVerizonmergersandconsolidationinthecableindustryhad largelybeencompleted.Thoseyearsalsomarkthebeginningofwirelesscompaniesas significantprovidersofbroadbanddataservice.

YearlyDeploymentAnnouncements
2004 Verizonannouncedattheendof2003thatitplannedtobeginimplementationofitsnewFiOS fibertothehomenetworkin2004andpassonemillionhomesbyyearend.Thecompany predictedthatby2005itcouldincreasethatnumbertothreemillion.138In2005Verizon reportedthattheyreachedthatnumber.139 Atthebeginningof2004Verizonalsoannouncedthatitwouldimplementwirelessbroadband accessintwothirdsofitsnetwork,coveringabout75millionpeoplebytheendoftheyear.140 ByDecember2004,Verizons3Gservicewasavailableto75millionpeopleincluding20major citiesintheUS.141142 CenturyLink(CenturyTel,priortotherecentmergerwithEmbarqinJuly2009)143attheendof 2004saiditwouldinvestheavilyinitsIPcapabilities,announcinga$350minvestmentforthe followingyear.144Itsurpassedthatamount,investing$415min2005and$314min2006.145 Sprintinits2004annualreportannouncedthatitwouldrolloutEVDOwireless3Gtechnology inthesubsequenttwoyears,146withcoverageofmajormetropolitanareasintheUSbytheend
138 139

http://investor.verizon.com/news/view.aspx?NewsID=469 VerizonPressRelease,VerizonCommunicationsReportsStrong4Q2005Results,DrivenbyContinued GrowthinWirelessandBroadband,Verizon,2006, http://investor.verizon.com/news/view.aspx?NewsID=718 140 VerizonPressRelease,VerizonWirelessMakesStridesWithPlannedBroadbandAccess3GNetwork Expansion,Verizon,2004,http://investor.verizon.com/news/view.aspx?NewsID=498 141 BenCharny,Sprintbegins$3billionmarchto3G,CNETNews,2004,http://news.cnet.com/Sprint begins3billionmarchto3G/21001039_35480249.html?tag=lia;rcol 142 http://www.manifesttech.com/ce_wireless/wireless_vcast.htm 143 http://gigaom.com/2009/07/01/embarqandcenturytelmergebecomecenturylink/ 144 http://media.corporateir.net/media_files/irol/11/112635/annreports/04_annual_report.pdf 145 Verizon,AnnualReview2006,Verizon,2006,p.4,http://library.corporate ir.net/library/11/112/112635/items/239821/CTLAnnualReview2006.pdf 146 AnnualReport2004

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of2005.147Inits2005annualreportSprintconfirmedcapitalexpendituresofnearly$1billion forEVDOdeployment.148ThecoverageinSeptember2006was69citiesintheUSincluding majormetropolitanareas,mostofwhichwerenotpubliclyannouncedbySprintbefore.149 WildBlueCommunicationsInc.announcedinApril2004150thatitssatellitebroadbandInternet servicewouldrolloutinJuneof2005.Thiswasthesecondtimetheymadethisannouncement: itwasoriginallymadein2001andservicewassupposedtohavebeenavailablebymid2002.151 Variousissuescausedthemtodelaytheservice,particularlythelossoffundingwhichwas influencedbytheattacksonSeptember11,2001152aswellasdefectsontheWildBlue1 satellite153.InJune2005WildBlueunveileditssatellitebroadbandInternetservicethreeyears late154 2005 HughesCommunicationsInc.announcedinDecember2005thattheSPACEWAY3satellite wouldbelaunchedinearly2007155andbereadyforserviceinearly2008.156Thesatellitewas launchedinmid2007andbecameoperationalonApril8,2008.Thedelaywasduetoan unrelatedlaunchfailureofanothersatellitethatforcedHughestofindanalternatelaunch service.

147

AmySchiskaLombard(Sprint),SprintBeginsOfferingEVDOReadySprintPCSConnectionCard(TM) bySierraWirelesstoBusinessCustomers,Sprint,2005, http://newsreleases.sprint.com/phoenix.zhtml?c=127149&p=irol newsArticle_newsroom&ID=681282&highlight= 148 AnnualReport2005 149 EVDOForums,SprintEVDORevACoverageSightings,EVDOForums.com,2006, http://www.evdoforums.com/thread3234.html 150 WildBlue.cc,WildBlueReadyToRollOutItsSatelliteInternetServiceInJune, http://www.wildblue.cc/wildbluenews.html,April25,2004 151 WildBlue.cc,WildBlueSecuresLowCost,FixedPriceContractsForCustomerPremisesEquipment, http://www.wildblue.cc/2001pr.html,July16,2001 152 WildBlueHistory,http://satjournal.tcom.ohiou.edu/issue13/pdf/David_Brown_WildBlue.pdf, November2007 153 DslReports,WildBlueYonder,dslreports.com,2004,http://www.dslreports.com/shownews/58219 154 Paul,Weiss,Rifkind,Wharton&GarrisonLLP,AgainstWildBlueDebut,ISCeParticipantsDebateFuture ofSatelliteBroadband,,http://www.paulweiss.com/files/Publication/a4182527a24f48279e73 0c4403ded807/Presentation/PublicationAttachment/4490c85f70554250b5a934eaa04bde01/63 05.pdf,,June3,2005 155 SpaceDaily.com,SeaLaunchAwardedSpaceway3ContractByHughesNetworkSystems, http://www.spacedaily.com/reports/Sea_Launch_Awarded_Spaceway_3_Contract_By_Hughes_Network _Systems.html,December12,2005 156 Bbwexchange.com,HughesInitiatesSPACEWAY3SatellitewithFirstCommercialOnboardSatellite BroadbandWirelessInternetTrafficSwitchingandRouting, http://www.bbwexchange.com/pubs/2008/04/08/page14051664513.asp,April8,2008

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Knologyannouncedthatitwouldinvest$7.5mtoupgradeitscablesystemsinFloridatosupport broadbandservices.157In2006thecompanyhadcapitalexpendituresfornewdeploymentand enhancementsofequipmentofmorethan$12.5m.158 TMobileannouncedinMay2005thatitwouldrollout3Gnetworksinthesecondhalfon2006 andserveitsfirstcustomersin2007.159TMobileplannedtocontinuetherolloutin2008and havetherolloutcompletedby2009.160Thecompanysactualrolloutof3GonlybeganinMay 2008,whichwasatleast5monthsbehindthescheduledyearend2007.161AccordingtoT Mobileslatestannouncement,theplantohavefull3Gdeploymentbytheendof2009is currentlyontrack.162 LeapWirelessannouncedinSeptember2005thatitplannedtoimplementEVDO3G technologyin2006investingabout$475m.163Inthe2006annualreportitconfirmedtherollout ofthistechnologywithacompletiongoalof2007.164Inthecompanysannualreportfor2008,it indicatedthattherolloutwasnotentirelycompleted.165InJune2009thecompanysuccessfully completedthe3Grolloutthroughouttheirentireservicearea.166 2006 AT&TannouncedinJune2006thatitplannedtoreach19millionhouseholdswithitsUVerse FTTNDSLsystembytheyear2008.167Bytheendof2007thecompanyreduceditsgoalto18

157

Knology,AnnualReport2005,Knology,2005,p.26,http://phx.corporate ir.net/phoenix.zhtml?c=130221&p=irolsec 158 Knology,AnnualReport2006,Knology,2005,p.,http://phx.corporate ir.net/phoenix.zhtml?c=130221&p=irolsec 159 Joel,TMobile3G:NotUntil2007,Gizmodo.com,2005,http://gizmodo.com/105518/t+mobile3g notuntil2007 160 MobileCommons,TMobileUSA3GNetwork,USA,mobilecommons.com,2006, http://www.mobilecommstechnology.com/projects/tmobileusa/ 161 OmMalik,Finally,TMobileLaunchesaU.S.3GNetwork,TheGigaOMNetwork,2008, http://gigaom.com/2008/05/05/tmobilelaunchesus3gnetwork/ 162 RonenHalevy,TMobileForgesAheadWith3GRolloutStillNo3GBlackBerry,BerryReview, 2009,http://moconews.net/article/419tmobileusarollsoutsuperfast3ginpartsofphiladelphia/ 163 KristinAtkinsLeadMediaRelations,LeapUnveilsMobileDataStrategyforCricketandJumpMobile atCTIAWirelessI.T.&Entertainment,LeapWireless,2005,http://phx.corporate ir.net/phoenix.zhtml?c=191722&p=irolnewsArticle&ID=760669&highlight= 164 LeapWireless,AnnualReport2006,LeapWireless,2007,p.29, http://investor.leapwireless.com/phoenix.zhtml?c=95536&p=irolsec 165 LeapWireless,AnnualReport2008,LeapWireless,2009,p.4, http://investor.leapwireless.com/phoenix.zhtml?c=95536&p=irolsec 166 GregLundMediaRelations,SecondQuarterResults,LeapWireless,2009,http://phx.corporate ir.net/External.File?item=UGFyZW50SUQ9MTI1MjV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 167 AT&TPressRelease,Company'sExtensiveDSLNetworkExpandedtoReach95PercentofState, AT&T,2006,http://www.att.com/gen/pressroom?pid=4800&cdvn=news&newsarticleid=22361

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millionhomespassedbytheendof2008.168InJanuary2009thecompanysaidthat17million householdswerepassed,169indicatingthatAT&Twasbehindtherevisedtargetbyatleast1 millionhouseholds. CincinnatiBellannouncedinits2006annualreportthatitwouldinvestabout$30millionin 2007tobuildupits3Gwirelessnetworkandtohave3Gserviceoperationalin2008.170The companyspent$11millionin2007,maintainingthedateforoperationallaunchas2008. CincinnatiBellplannedtospendanadditional$19millionin2008tocompletetheproject.171 Theactualspendingonthe3Gnetworkin2008was$16m.172The3Gwirelessnetworkwas deployedinthefourthquarterof2008.173ApparentlyCincinnatiBellmanagedtolaunchthe3G overlaywithintheirschedule. Knologystatedinits2006annualreportthatitexpectedtoinvest$30.4millionin2007,of which$7.3millionwouldbefornewdeploymentsandenhancementsofinfrastructure.174 Investmentcameinbelow,as$28.8millionwasspentofwhich$9.1millionwasplant extensionsandenhancements.175 Verizonannouncedinearly2006thatitwouldhave34millionpremisespassedbytheFiOS fiberopticservicebytheendofthatyear.176Italsoannouncedthatitwouldhave18million premisespassedwithfiberbytheendof2010.177Inthesecondquarterof2009Verizonsfiber opticsystemspassed13.4millionhomes,178meaningthatthecompanywillhavetopass

168

PeterD.Shapiro,AT&TUversebytheNumbers,CableFAXMagazine,2007, http://www.cable360.net/cablefaxmag/business/competition/telcos/26065.html 169 DSLReports,AT&TSlowsUVerseBuildOut,dslreports.com,2009, http://www.dslreports.com/shownews/ATTSlowsUVerseBuildOut100539 170 CincinnatiBell,AnnualReport2006,CincinnatiBell,2007,p.115,http://library.corporate ir.net/library/11/111/111332/items/246974/2006AnnualReport.pdf 171 CincinnatiBell,AnnualReport2007,CincinnatiBell,2008,p.86,http://library.corporate ir.net/library/11/111/111332/items/294111/CincinnatiBellNPS10KWrap1.pdf 172 CincinnatiBell,AnnualReport2008,CincinnatiBell,2009,p.5,http://library.corporate ir.net/library/11/111/111332/items/294111/CincinnatiBellNPS10KWrap1.pdf 173 CincinnatiBell,AnnualReport2008,CincinnatiBell,2009,p.3,http://library.corporate ir.net/library/11/111/111332/items/294111/CincinnatiBellNPS10KWrap1.pdf 174 Knology,AnnualReport2005,KnologyInc,2006,p.52,http://phx.corporate ir.net/phoenix.zhtml?c=130221&p=irolsec 175 Knology,AnnualReport2006,KnologyInc,2007,p.52,http://phx.corporate ir.net/phoenix.zhtml?c=130221&p=irolsec 176 VerizonPressRelease,VerizonViceChairmanSaysFastMCIIntegration,Verizon,2006, http://investor.verizon.com/news/view.aspx?NewsID=726 177 Verizon,VerizonProvidesNewFinancialandOperationalDetailsonitsFiberNetworkasDeployment GainsMomentum,Verizon,2006,http://investor.verizon.com/news/view.aspx?NewsID=773 178 SeekingAlpha,VerizonCommunicationsInc.Q22009EarningsCallTranscript,seekingalpha.com, 2009,http://seekingalpha.com/article/151577verizoncommunicationsincq22009earningscall transcript?page=1

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another4.6millioninthesubsequent18monthstohittheyearend2010goal.179Verizonhas statedthatitisontrackwiththeannounceddeploymentschedule. 2007 SprintandClearwireannouncedinJuly2007thattheytogetherplannedtocover100million peoplewiththejointuseWiMaxservicebytheendof2008.180(Sprintprovidesits4Gservices overClearwiresnetwork;SprintscoverageisthereforebasedonClearwiresdeployments). Thusfar,thisgoalwasmissedbyatleastoneyear:attheendofthefourthquarter2008Sprint claimedtocover49millionpeople181meaningthatthecompaniescoveragewasabout50% shortoftheiroriginalannouncement.Clearwirealsostatedintheannualreportof2007that theywouldhaveabout530,000customersbytheendofyear2008.Thatgoalwasalsonot reachedasthecompanyreported475,000customersinits2008annualreport. Sprintannouncedinearly2007thatitwouldhaveamajorityofitsfootprintcoveredwithEVDO Rev.Abytheendof2007182Inthe2008annualreport,thecompanysaidthatithadEVDORev. Aemployedin82%oftheirfootprint,meetingthegoal.183 Comcastannouncedin2007thatitwouldhaveDOCSIS3.0deployedin20%ofitsfootprintby theendof2008.184Apparentlyithititstargetin2008. Qwestannouncedintheendof2007thatitwouldhaveafibertothenode(FTTN)deployment in2008.Thecompanyplannedtopassapproximately1.5millionhouseholdsthatyear.185 Accordingtotheirannualreportin2008Qwestexceededtheirgoaloffibertothenode deployment,covering1.9millionpotentialcustomers.186
179

Verizon,FiOSatFive:ContinuingRapidGrowth,LeadershipinTechnologyandInnovation,Verizon, 2009,http://newscenter.verizon.com/pressreleases/verizon/2009/fiosatfivecontinuing.html 180 ClearwirePressRelease,SprintNextelandClearwiretoPartnertoAccelerateandExpandthe DeploymentoftheFirstNationwideMobileBroadbandNetworkUsingWiMAXTechnology,Clearwire, 2007,http://investors.clearwire.com/phoenix.zhtml?c=198722&p=irol newsArticle&ID=1028160&highlight= 181 Reuters,HoustonSprintCustomersEnjoyEnhancedNetworkCoverageandCapacity,BusinessWire, 2009,http://www.reuters.com/article/pressRelease/idUS159956+23Feb2009+BW20090223 182 Sprint,AnnualReport2006,Sprint,2007,p.2, http://investors.sprint.com/phoenix.zhtml?c=127149&p=irolsec 183 Sprint,AnnualReport2007,Sprint,2008,p.3, http://investors.sprint.com/phoenix.zhtml?c=127149&p=irolsec 184 DSLReports,20%ofComcastUsersToSeeDOCSIS3.0in2008,dslreports.com,2007, http://www.dslreports.com/shownews/20ofComcastUsersToSeeDOCSIS30in200889821 185 Qwest,AnnualReport2007,Qwest,2008,p.3, http://ww3.ics.adp.com/streetlink_data/dirq/annual/HTML2/qwest_ar2007_0003.htm 186 Qwest,AnnualReport2008,Qwest,2009,p.3, https://materials.proxyvote.com/Approved/749121/20090316/AR_36466/HTML2/qwest ar2008_0004.htm

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 2008 Cablevisionannouncedinmid2008thatitwouldhave20%ofitsnetworkupgradedtoDOCSIS 3.0bytheendofthatyearandcompletecoveragewouldbereachedbymid2010.187Theplan laidoutabudgetfortheDOCSIS3.0andaWiFirolloutforthethreeyearperiodat$315m.188 (WiFiwouldbeafreeadditionalservicetoCablevisionscablecustomers.)Thebuildoutwas plannedbecompletedby2010.189Attheendof2008Cablevisionclaimedtohave52%ofits footprintcoveredwithDOCSIS3.0190meaningthatitsfirstgoalofdeploymentwas overachieved.Bymid2009theWiFiservicewasdeployedinNewYorksRocklandandOrange Counties,whichrepresentsapproximatelyonethirdofCablevisionsfootprint.191AsofFebruary 2010,theDOCSIS3.0rolloutwascomplete,192andtheWiFideploymentwasannouncedtobe completebyearly2010.193 CharterannouncedinNovember2008thatitwoulddeployDOCSIS3.0onasmallscalewithin threemonths.194AttheendofJanuary2009,itachievedthisgoalbydeployingDOCSIS3.0 serviceinthemetropolitanareaofSt.Louis.195Althoughthescalewassmall,Charterkepttoits originalplan. CoxinMarch2008saidthatitplannedtodeployDOCSIS3.0onasmallscalebytheendofthat year.Thecompanystatedthatitsnetworkswouldbefullyupgradedbytheendof2010.196The companyhaddeployedDOCSIS3.0intheArizonacommunitiesofCarefree,RioVerde, ScottsdaleandPhoenixbyAugust2008.197
187

JeffBaumgartner,CablevisionBeginsWidebandAssault,lightreading.com,2008, http://www.lightreading.com/document.asp?doc_id=160511&site=cdn 188 SeekingAlpha,CablevisionQ22008EarningsCallTranscript,seekingalpha.com,2008, http://seekingalpha.com/article/88345cablevisionq22008earningscalltranscript?page=1 189 TMCnews,Cablevisionplanswirelessbroadbandnetwork,tmcnet.com,2008, http://www.tmcnet.com/usubmit/2008/05/08/3434956.htm 190 MultichannelNews,CablevisionToBlastOut101MbpsInternetService,MultichannelNews,2009, http://www.multichannel.com/article/210164 Cablevision_To_Blast_Out_101_Mbps_Internet_Service.php 191 CablevisionPressRelease,Cablevision'sOptimumWiFiArrivesinRocklandandOrangeCounties, Cablevision,2009,http://www.cablevision.com/about/news/article.jsp?d=072209 192 http://www.lightreading.com/document.asp?doc_id=187600&site=lr_cable 193 MutlichannelNews,CablevisionOptimizesWiFi,GeorgeWinslow,November2010. http://www.multichannel.com/article/459591Cablevision_Optimizes_Wi_Fi.php 194 DSLReports,CharterDOCSIS3.0WithinMonths,dslreports.com,2008, http://www.dslreports.com/shownews/CharterDOCSIS30WithinMonths98946 195 AnitaLamont,CharterLaunchesFastestResidentialInternetService,CharterCommunications,Inc, 2009,http://phx.corporateir.net/phoenix.zhtml?c=112298&p=irol newsArticle&ID=1249700&highlight=Charterlaunches 196 JeffBaumgartner,TeeingUpDocsis3.0,CableDigitalNews,2008, http://www.lightreading.com/document.asp?site=cdn&doc_id=148909&page_number=2 197 CoxPressRelease,CoxExpandsDOCSIS3.0ReachtoArizona,CoxCommunications,2009, http://cox.mediaroom.com/index.php?s=43&item=442

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 KnologyannouncedDOCSIS3.0plansinNovember2008.Itplannedtohave20%ofitsnetworks upgradedtoDOCSIS3.0byyearend2008,50%by2009andfulldeploymentby2010.198In February2009thecompanyannouncedarevised,perhapsmoreaggressiveplan:itplannedto have65%ofthenetworkupgradedbytheendof2009,butapparentlynoneoftheDOCSIS3.0 deploymentoriginallyexpectedtooccurin2008happened.199Henceitisbehinditsoriginal plans,butplanstoincreasethepacesothatitcanreachtheoriginalgoalaheadofschedule. TimeWarnerCableannouncedin2008thatitwoulddeployDOCSIS3.0during2009 selectively.200BytheendofSeptember2009thecompanyhaddeployedthetechnologyinparts ofNewYorkCity.201Intheendof2009TimeWarnerCablereiteratedtheideathatitwould deployinmoremarketsbutitwouldbesurgical.202 ViaSat,Inc.announcedinJanuary2008planstobuildandlaunchViaSat1asitsnextgeneration 100GbpsHighThroughputsatellite203capableofprovidinguserswithdownloadspeedsof2 10Mbpsorperhapsmore.204ViaSatannouncedithadexecutedtheconstructioncontractwith SpaceSystems/LoralonJanuary7,2008.Thesatelliteisexpectedtobelaunchedinearly2011. 2009 AT&Tannouncedinmid2009thatitwouldbegintoupgradeitsnetworktoLTEtowardtheend ofthatyear.205Byyearend2009,itexpectedtodeployabout2,100newcellsitesnationwide206 ItstatedthatitsmigrationtoLTEwasseamlessandcanbeassumedtobeontrack.207
198

JeffBaumgartner,KnologyCallsWidebandPlay,CableDigitalNews,2008, http://www.lightreading.com/blog.asp?blog_sectionid=419&site=cdn&doc_id=168387 199 JeffBaumgartner,KnologyGoesontheOffensive,CableDigitalNews,2009, http://www.lightreading.com/document.asp?site=cdn&doc_id=172415 200 NateAnderson,Nodatacaps,noDOCSIS3.0?TWC'smathdoesn'taddup,ArsTechnica,2009, http://arstechnica.com/techpolicy/news/2009/04/twcwithoutdatacapsinternetupgradesnowin doubt.ars 201 KarlBode,TimeWarnerCable(Finally)LaunchesDOCSIS3.0,DSLReports,2009, http://www.dslreports.com/shownews/TimeWarnerCableFinallyLaunchesDOCSIS30104626 202 SeekingAlpha,TWCQ42009EarningsCallJanuary28,2010http://seekingalpha.com/article/185162 timewarnercableincq42009earningscalltranscript>) 203 Spacemart.com, http://www.spacemart.com/reports/ViaSat_1_To_Transform_North_American_Satellite_Broadband_Mar ket_999.html,January9th,2008 204 ViaSat.com,ViaSat1toTransformNorthAmericanSatelliteBroadbandMarket, http://www.viasat.com/news/viasat1transformnorthamericansatellitebroadbandmarket,January7, 2008 205 AT&TtoDeliver3GMobileBroadbandSpeedBoost,May27,2009,http://www.att.com/gen/press room?pid=4800&cdvn=news&newsarticleid=26835 206 http://www.att.com/gen/pressroom?pid=4800&cdvn=news&newsarticleid=26835 207 http://seekingalpha.com/article/200029atamptincq12010earningscalltranscript

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Comcastannouncedinthebeginningof2009anewgoaloffullDOCSIS3.0deploymentbyyear end2010.Comcasthadalreadydeployedto35%coverageatthebeginningof2009andaimed for65%intheendof2009.208Inmid2009Comcastchangedtheirgoalfrom65%tocloseto80% deploymentofitsfootprintbytheendof2009.209Bytheendof2009Comcasthaddistributed widebandto75%ofitsfootprintmeetingitsgoalandstatedonceagainthatitwouldhavefull deploymentbyearly2010.210 HughesCommunicationannouncedinJune2009thatitplanstolauncha100Gbpsthroughput satelliteJupiterinfirstquarterof2012.211AsofMay2010Hughessignedanorderwith ArianespaceforthelaunchofJupiterinthefirsthalfof2012.212 KnologyannouncedinFebruary2009arevised,perhapsmoreaggressiveplan:itplannedto have65%ofthenetworkupgradedbytheendof2009,butapparentlynoneoftheDOCSIS3.0 deploymentoriginallyexpectedtooccurin2008happened.213Henceitisbehinditsoriginal plans,butplanstoincreasethepacesothatitcanreachtheoriginalgoalaheadofschedule. MediacomindicatedthatitwouldbeinapositiontoofferDOCSIS3.0toapproximately50% oftheirfootprintbytheendof2009.214 MetroPCSannouncedinits2009annualreportthatitwasplanningtorolloutLTEservicesto mostofitscoveredmetropolitanareasbyYE2010.215 Sprint/ClearwireannouncedinMarch2009thatthe4Ggoalwasresettoeight4Gequipped metropolitanareasbytheendof2009andfourmorein2010.Thiswouldbe6080millionPOPs bytheendof2009.216Thetotalcoveredpopulationwassupposedtohavereached120million bytheendof2010accordingtothe2009revisedplan.217Attheendof2009Sprintreported
208

SeekingAlpha,ComcastCorporationQ12009EarningsCallTranscript,seekingalpha.com,2009, http://seekingalpha.com/article/134349comcastcorporationq12009earningscalltranscript?page=1 209 SeekingAlpha,ComcastCorporationQ22009EarningsCallTranscript,seekingalpha.com,2009, http://seekingalpha.com/article/154406comcastcorporationq22009earningscalltranscript 210 ComcastCorporation,CMCSAQ42009EarningsCallTranscript,February3,2010 211 HughesCommunicationsInc.,ConferenceCalltoDiscussLaunchof100GbpsHighThroughput Satellitein2012,June17,2009 212 HughesCommunications,HUGHQ12010EarningsCallTranscriptMay5,2010) 213 JeffBaumgartner,KnologyGoesontheOffensive,CableDigitalNews,2009, http://www.lightreading.com/document.asp?site=cdn&doc_id=172415 214 MediacomCommunicationsCorporation,EarningsCallTranscript,February2009. 215 http://investor.metropcs.com/phoenix.zhtml?c=177745&p=irol SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOT MxMjUtMTAtMDQ0NzgwL3htbA%3d%3d 217 eWeek,ClearwireSetsMoreWiMaxRollouts,eweek.com,2009, http://www.eweek.com/c/a/MobileandWireless/ClearwireSetsMoreWiMaxRollouts/

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having13marketscoveredonits4Gnetworksurpassingitspreviousgoal.218AsofApril2010 Sprinthadalsoexceededitsplanfor2010with364Gmarkets.219Sprints2010goalwastocover 120millionPOPsbyyearend2010.220ClearwireannouncedinAugust2009thatitwouldlaunch itsCLEAR4GWiMAXserviceinSeptemberofthatyear.221AsofQ12010,thecompanyhad launchedinthemarketsexpectedandremainedcommittedtoreachupto120millionPOPs byyearend.222 TMobileUSAannouncedplanstoupgradeits3GnetworktoHSPA21+andhavecoverage nationwideby2010.223ThisgoalwaslaterelaborateduponandasofQ22010thecompany expectedtocoverafootprintof185millionpeoplebyyearend2010.224 VerizonannouncedinDecember2009thatitplannedtoreach100millionPOPsbytheendof 2010in25to30marketsand285millionPOPsbytheendof2013withitsLTErollout.225In early2010itconfirmedthisplanandaddedthatitalsoplannedtohavevirtuallyallofits3G footprintupgradedbytheendof2013.226 2010 Comcastannouncedinthebeginningof2010thatithadreachedover75%ofitsfootprintwith DOCSIS3.0andplanstocompleteitsdeploymentinearly2010.227 CoxreviseditsestimateofDOCSIS3.0deployment,inMay2009,totwothirdscoverageby yearend2010.228Theinitialstatementspredictedfullcoverageby2010.229
218

Bringing4GtoYouPresentation11/30/09,http://phx.corporate ir.net/External.File?item=UGFyZW50SUQ9MjE4MDR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1>) 219 SprintTurnson4GServiceinRichmond,SaltLakeCityandSt.LouisApril2010,< http://investors.sprint.com/phoenix.zhtml?c=127149&p=irolnewsArticle&ID=1441980&highlight=>) 220 Bringing4GtoYouPresentation11/30/09,http://phx.corporate ir.net/External.File?item=UGFyZW50SUQ9MjE4MDR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 221 http://newsroom.clearwire.com/phoenix.zhtml?c=214419&p=irol newsArticle&ID=1315679&highlight= 222 http://seekingalpha.com/article/203243clearwireq12010earningscalltranscript 223 http://www.fiercewireless.com/story/tmobilesraypromisesnationalhspadeploymentmid 2010/20090918 224 http://www.tmobile.com/company/PressReleases_Article.aspx?assetName=Prs_Prs_20100524&title=4G %20Speeds%20From%20TMobile%20Now%20Broadly%20Available%20in%20the%20Northeastern%20U. S.%20and%20Other%20Major%20Cities 225 VerizonatUBSMedia&CommunicationsConference,Dec.08.2009, http://investor.verizon.com/news/20091208/20091208_transcript.pdf 226 Verizon,FirstQuarter2010 http://investor.verizon.com/financial/quarterly/vz/1Q2010/1Q10Bulletin.pdf?t=634122024165837858 227 Comcast,Reportforfirstquarter2010results 228 http://cox.mediaroom.com/index.php?s=43&item=430 229 http://www.justbroadband.org/shownews/Comcast80DOCSIS30CoverageByYearsEnd103824

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HughesCommunicationsInc.signedanorderwithArianespaceforthelaunchofJupiterinthe firsthalfof2012asofMay2010.230 Knologyannouncedinthebeginningof2010thatithadthreemarketsfullyorpartially operationalwithDOCSIS3.0,twomarketswereintheequipmentdeploymentphase,andone marketwouldbeupgradedinthelaterpartoftheyearresultingin65%oftheirfootprinttobe coveredbyyearendfortheirDOCSIS3.0rollout.231Therefore,itdoesnotplantomeetitsinitial goaloffullDOCSIS3.0deploymentby2010,andhavenotmettheirrevisedplanof65% deploymentbyyearend2009.ThisputsKnologyayearbehindschedule. LightSquaredrecentlycloseda$7billionoutsourcingdealwithNokiaSiemensNetworksover eightyears232andplanstocover92%oftheUSwithLTEwirelessbroadbandby2015. LightSquaredwillalsooffernationwidewirelesssatelliteservice.233 MediacomannouncedinMay2010thatDOCSIS3.0wasavailablein25%ofitsfootprintand plannedtohave50%ofitsfootprintor1.4millioncustomerscoveredbythesecondhalfofthe year.234Mediacomisthusbehindonitsinitialdeploymentplan. TimeWarnerCableinJanuary2010announcedthatithadlaunched4G/3Gmobilebroadband inDallas,Hawaii,SanAntonioandpartsoftheCarolinas.235In2010,4Gnetworkcoverageis expectedtoexpandtoadditionalcitiesincludingNewYork,Boston,Washington,D.C.,San FranciscoBayArea,KansasCity,Cincinnati,Cleveland,andLosAngeles.236 Verizondeclaredinearly2010thatitwouldbeextendingitsplanstopass18millionhomeswith FiOSfiberseveralyearspastitsinitial2010yearendobjective.237Verizonwirelessplanstocover 38markets238and285millionPOPsbytheendof2013withitsLTE4Grollout.239240
230 231

HughesCommunications,Q12010EarningsCallTranscriptMay5,2010 KnologyInc.1Q10EarningsConferenceCall,May5,2010.WebCast <http://www.earnings.com/Company.asp?client=cb&coid=130221&ticker=KNOL#>) 232 BankofAmericaMerrillLynch,LightsquaredBecomingTangibleforTowers,October7,2010. 233 LightSquared,Inc,AboutLightsquared, http://www.lightsquared.com/pdf/LightSquared_Backgrounder.pdf 234 MediacomCommunicationsCorporationsEarnings1Q10ConferenceCall,May7,2010 235 TimeWarnerCable,Inc.Q42009EarningsCallJanuary28,2010< http://seekingalpha.com/article/185162timewarnercableincq42009earningscalltranscript> 236 TimeWarnerCable,TimeWarnerCableBusinessClassLaunches4GWirelessDataServiceforMobile Professionals,May28,2010<http://ir.timewarnercable.com/phoenix.zhtml?c=207717&p=irol newsArticle&ID=1419456&highlight=wireless) 237 Verizon,InvestorQuarterlyFirstQuarter2010,< http://investor.verizon.com/financial/quarterly/vz/1Q2010/1Q10Bulletin.pdf?t=634122024165837858) 238 ConnectedPlanet,CTIA:VerizonWirelessexpandsits2010LTEplans,butstillnolaunchdate, October2010,http://connectedplanetonline.com/3g4g/news/verizonwirelessexpands2010LTEplans 1006/ 239 Dec.08.2009VerizonatUBSMedia&CommunicationsConference <http://investor.verizon.com/news/20091208/20091208_transcript.pdf>)

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 ViaSatannouncedinQ12010thatitwasontracktolaunchits100GbpsKabandsatellite, ViaSat1,in1H2011.241

241

http://www.viasat.com/broadbandsatellitenetworks/viasat1

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Section3:FutureProjections

Asathirdelementofitsoriginalrequest,theFCCNationalBroadbandPlanteamaskedfora reviewofsituations wherethepubliclyannouncedbroadbandplansyettobecommencedorstillinprogress willbe35yearsinthefuture,includingLTE,WiMAX,DOCSIS3.0,backbone,etc.Thisshould includeasummaryofanalystprojectionsandalessonslearnedcomponent. ThisportionoftheReportupdatestheinitialresponsetotheFCCsrequestinfivesubsections: 1)areviewofeachcompanysannouncedbutuncompletedbroadbandplans;2)thestatusof internetbackbones;3)thestatusofbroadbandsatellites;4)asummaryofbroadband investmentprojections;and5)someobservationsaboutlessonslearned.

3.1AnnouncedButUncompletedBroadbandPlans
Americasbroadbandinfrastructureisnotyetcomplete:substantialmajordeploymentprojects, eachrequiringsubstantialcapitalinvestment,arecurrentlyunderway,asthefollowingtable illustrates.Nevertheless,theoverallpictureofthebroadbandinfrastructureforthenextfew yearsisquiteclear:mostofthecurrentmultiyearprojectsareexpectedtobecompletedinthe nextyearortwoand,todate,nolongerrangemajordeploymentprojectshavebeen announced.Basically,whatyouseeiswhatyouget. Table 11: Uncompleted broadband plans Company Technology Plan AT&T UVerse: Fiber/DSL Expandtopass30millionlivingunitsby2011.242 Launchedin2009,noadditionalinformation PlanstohaveFiOScoverageinabout70%ofitstelecom footprintsubsequenttotheFrontiertransaction.243Declared inearly2010thatitwouldbeextendingitsplanstopass18 millionhomeswithFiOSfiberseveralyearspastitsinitial2010

CincinnatiBell FTTH Verizon FTTH

242

AT&TPublicRelations,AT&TtoInvestMoreThan$17Billionin2009toDriveEconomicGrowth, AT&TInc.,2009,http://www.att.com/gen/pressroom?pid=4800&cdvn=news&newsarticleid=26597. 243 J.Killian,VerizonatOppenheimerConference,VerizonCommunicationsInc.,2009, http://investor.verizon.com/news/20090811/20090811_transcript.pdf. 244 VerizonInvestorQuarterlyFirstQuarter2010,< http://investor.verizon.com/financial/quarterly/vz/1Q2010/1Q10Bulletin.pdf?t=634122024165837858)

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yearendobjective244 Comcast COX Knology Mediacom TimeWarner Cable Clearwire MetroPCS Sprint DOCSIS3.0 DOCSIS3.0 DOCSIS3.0 DOCSIS3.0 DOCSIS3.0 Wireless CLEAR4G service: WiMAX 4GLTE DualMode 3G/4G Announcedinthebeginningof2010thatithadreachedover 75%ofitsfootprintwithDOCSIS3.0andplanstocompleteits deploymentinearly2010.245 ReviseditsestimateofDOCSIS3.0deployment,inMay2009, totwothirdscoveragebyyearend2010246 65%oftheirfootprinttobecoveredbyyearendfortheir DOCSIS3.0rollout247 AnnouncedinMay2010thatDOCSIS3.0wasavailablein25% ofitsfootprintandplannedtohave50%ofitsfootprintor1.4 millioncustomerscoveredbythesecondhalfoftheyear.248 RemainderofNYCandadditionalDOCSIS3.0marketswillbe in2010.249 2010:80markets,120millionsubscribers;Thecompanyis targeting120mcoveredPOPsbyYE2010.250 PlanningtorolloutLTEservicestomostofitscovered metropolitanareasbyYE2010251 120millionPOPstobereachedby2010yearend252

245

COMCASTREPORTSFIRSTQUARTER2010RESULTS< http://files.shareholder.com/downloads/CMCSA/946629823x0x369471/6e92536a8c1e486aacd4 868e4d70cb2b/Comcast_Q110_Release_4.27.10.pdf> 246 CoxExpandsDOCSIS3.0ReachtoNorthernVirginia UltimateInternetpackageallowsdownload@speedsupto50MbpsPressRelease, <http://cox.mediaroom.com/index.php?s=43&item=430> 247 1Q10KnologyInc.EarningsConferenceCall,May5,2010.WebCast <http://www.earnings.com/Company.asp?client=cb&coid=130221&ticker=KNOL#> 248 MediacomCommunicationsCorporationEarningsConferenceCallMay7,2010< http://www.earnings.com/conferencecallhost.asp?event=3040752&client=cb> 249 K.Bode,StillWaitingOnTimeWarnerCableDOCSIS3.0,dslreports.com,2009, http://www.dslreports.com/shownews/StillWaitingOnTimeWarnerCableDOCSIS30103220. 250 ClearwireMediaRelations,ClearwireTransformsWiFiDeviceswiththeCLEARSpotPersonalHotspot Accessory,ClearwireCorp,2009,http://newsroom.clearwire.com/phoenix.zhtml?c=214419&p=irol newsArticle&ID=1271811&highlight. 251 MetroPCS10Kreport.3/01/10,<http://investor.metropcs.com/phoenix.zhtml?c=177745&p=irol SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOT MxMjUtMTAtMDQ0NzgwL3htbA%3d%3d>

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TMobile

Enhanced3G 4GLTE

AT&T Verizon

4G 4G

Announcedplanstoupgradeits3GnetworktoHSPA21+and havecoveragenationwideby2010.253Thisgoalwaslater elaborateduponandasofQ22010thecompanyexpectedto coverafootprintof185millionpeoplebyyearend.254T MobileUSAestimatesprovidedtoCITIinJuly2010confirmed thisestimatetobeontrack.TMobilealsoplanstoupgradeto anLTEnetworkin23years.Thecompanywillbefinalizingits plansoverthenextyearandisconsideringeitherpartnering withClearwireorLightsquared,orbuildingitsownseparate LTEnetwork.255 2010:beginLTEtrials 2011:expectedcompletionofupgrades;begindeploying LTE.256 AnnouncedinDecember2009thatitplannedtoreach100 millionPOPsbytheendof201038markets257and285million POPsbytheendof2013withitsLTErollout.258 Serve546ruralcommunitiesin17states.Sixmillionpeople shouldbecoveredwhentheprojectisfinished(overfive years).259

OpenRange

4GWiMAX

252

Bringing4GtoYoupresentation11/30/09<http://phx.corporate ir.net/External.File?item=UGFyZW50SUQ9MjE4MDR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1>) 253 Fiercewireless.TmobilesRayPromisesNationalHSPA+deploymentbymid2010September18, 2009.<http://www.fiercewireless.com/story/tmobilesraypromisesnationalhspadeploymentmid 2010/20090918> 254 4GSpeedsFromTMobileNowBroadlyAvailableintheNortheasternU.S.andOtherMajorCities May24,2010 <http://www.tmobile.com/company/PressReleases_Article.aspx?assetName=Prs_Prs_20100524&title=4G %20Speeds%20From%20TMobile%20Now%20Broadly%20Available%20in%20the%20Northeastern%20U. S.%20and%20Other%20Major%20Cities> 255 DeutscheBankGlobalMarketsResearch,TakeawaysfrommeetingsatPCIAandwithTMobileUSA, October2010. 256 AT&TPublicRelations,AT&TSeesSignificantRiseinWiFiHotspotConnectionsduringSecond Quarter,AT&TInc.,2009, http://www.att.com/gen/pressroom?pid=4800&cdvn=news&newsarticleid=26975. 257 ConnectedPlanet,CTIA:VerizonWirelessexpandsits2010LTEplans,butstillnolaunchdate, October2010,http://connectedplanetonline.com/3g4g/news/verizonwirelessexpands2010LTEplans 1006/ 258 Dec.08.2009VerizonatUBSMedia&CommunicationsConference <http://investor.verizon.com/news/20091208/20091208_transcript.pdf>) 259 OpenRange,OpenRangeCommunicationsSecures$374MilliontoDeployWirelessBroadband Servicesto546RuralCommunities,OpenRangeCommunicationsInc.,2009, http://www.openrangecomm.com/markets.html.

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TimeWarner Cable:Road Runner Mobile LightSquared

3G/4G

4G

In2010,4GnetworkcoverageofBusinessClassMobile,is expectedtoexpandtoadditionalcitiesincludingNewYork, Boston,Washington,D.C.,SanFranciscoBayArea,KansasCity, Cincinnati,Cleveland,andLosAngeles260 In2010,LightSquaredcloseda$7billionoutsourcingdealwith NokiaSiemensNetworksover8years261andplanstocover 92%oftheUSwithLTEwirelessbroadbandby2015. LightSquaredwillalsooffernationwidewirelesssatellite service.262

Note:CharterandInsighthaveplanstoexpandDOCSIS3.0service,buthavenotannounceddetails

3.2BroadbandSatellitePlans
ThefutureofconsumersatellitebroadbandInternetwillbedominatedbyanewgenerationof highthroughput(HT)satellitesthatarebeingbuiltforViaSatandHughesCommunications.The companiesexpecttolaunchthesenewsatellitesinthefirstquartersof2011and2012, respectively.Thesenewsatellitesareexpectedtolowerthecostperbitofdeliveringsatellite broadbandservice.263 ViaSatexpectstoofferadvertisedspeedsof210mbps264andhavethecapacitytoserveas manyas2millionhomes265whileHughesissuggestingthatitwillofferadvertisedspeedsinthe 525mbpsrangeandwillpresumablybeabletoserveasimilarnumberofhomes.However,the relativelypoorbroadbandperformanceofthecurrentgenerationofsatellitesmightsuggest thattheexpectationsforthenextgenerationareoptimisticuntilprovenotherwise.

3.3BroadbandInvestmentProjections
Projectionsaboutthefutureofbroadbandcapitalexpendituresrequireassumptionsabout threecriticalfactorsthatdriveinvestment:
260

TimeWarnerCable,Inc.(TWC)Q42009EarningsCallJanuary28,2010< http://seekingalpha.com/article/185162timewarnercableincq42009earningscalltranscript> 261 BankofAmericaMerrillLynch,LightsquaredBecomingTangibleforTowers,October7,2010. 262 LightSquared,Inc,AboutLightsquared, http://www.lightsquared.com/pdf/LightSquared_Backgrounder.pdf 263 HughesCommunications,ConferenceCalltoDiscusstheLaunchof100gbpsHighThroughputSatellite in2012,HughesCommunicationsInc.,2009, http://www.hughes.com/HUGHES/Doc/0/NIJU69S0U56KJ3381689D3KO47/HUGH_Transcript_20090617. pdfat5. 264 ViaSat,DemoofNextGenerationSatelliteBroadbandServicewithHighestSpeedsEveratSatellite, ViaSatInc,2009,http://www.viasat.com/news/demonextgenerationsatellitebroadbandservice highestspeedseversatellite2009. 265 ViaSat,ViaSatConferenceCalltoDiscussViaSat1Contract,ViaSatInc.,2008, http://www.alacrastore.com/alacra/help/sample_ccbn.pdf.

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theextentofwiredandwirelessbroadbandinfrastructuredeploymentandanassessmentof howmuchadditionaldeploymentislikely; 1) thedegreeofbroadbandadoption,intermsofwiredbroadbandhouseholdsand wirelessbroadbandusers,andaforecastofhowmanynewuserswillutilize broadbandservices;and, 2) thegrowthofthebroadbandcapacityutilizedbyeachbroadbanduser. Theinvestmentprojectionswillbediscussedbelow.Itshouldbeclarifiedthatthesefiguresare thoseofinvestmentanalystsinvariousfinancialinstitutions.TheFCCspecificallyrequestedCITI tousecompanydataandWallStreetprojectionsasitssources,andnotgenerateitsowndataor critiquecompanyprojections.

3.4.1 BroadbandAvailability
Availabilityisameasureofthedeploymentofbroadbandinfrastructure:increasingthe availabilityofbroadbandservicesrequiresthecapexintensivedeploymentofadditional physicalinfrastructure.Thedataindicatesthatmost(butnotall)ofthebroadband infrastructurehasbeendeployedingeographicmarketswhereitiseconomicallyrationalfor servicesupplierstodoso,implyingthattherewillberelativelylittlefutureinvestmentin infrastructure. Thechartbelowaveragestheexpectationsofanumberofinvestmentanalystsforecastsand indicatesthattheanalystsexpectthatwiredbroadbandinternetaccessavailabilitywillplateau andreachabout95%ofhomesintheUnitedStatesby2015whilemorethan69%ofhouseholds willsubscribeby2015. Figure 23: Wireline Broadband Availability and Adoption (percentage of U.S. households)

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Source:AverageofanalystdataprovidedtoCITI

266

Industryresearchersestimatethatfibertothehome(FTTH)wasavailabletoabout17million homes(homespassed)inmid2009.267VerizonannouncedthatitwilldeployFTTHsystems capableofserving17millionlocationsby2010.268Anumberofothersmallercompanies, includingsmallruraltelephonecompanies,willbecoveringadditionalhomeswithFTTH.AT&T hasannounceditwillofferDSLfromfiberfedcabinets(fibertotheneighborhood:FTTNDSL)to 30millionhomesby2011.269AT&Tcurrentlyoffersadvertisedspeedsofupto24megabitsper seconddownstream270(althoughtheactualspeedcanbemuchlower),withincreasespossible asbondingallowsdoublingtotalspeedsonDSL.Therefore,ifjustthesetwolargesttelecom companiesachievetheirgoals,atleast50millionhomeswillbeabletoreceiveadvertised speedsof10megabitspersecondormoredownstreamwithinthenexttwoyears.Other telecomcompanieswillbeprovidingadditionalsimilarofferingsintheirserviceareas. Broadbandserviceiscurrentlyavailablefromcablecompaniesto92%ofhouseholdsaccording toaresearchfirmthattracksthecableindustry.271Cablebroadbandisbeingupgradedtothe DOCSIS3.0standard272andisbecomingwidelyavailableatadvertisedspeedsashighas50 mbpsdownstream(withonefirmadvertising101megabitspeeds).273Comcast,thelargestcable companyaddressingnearlyhalftheUnitedStates,expectstocovernearlyallits50.6million homespassed274bytheendof2010.OneanalystbelievesDOCSIS3.0willbeavailableby2013 tonearlyall275thehomescoveredtodaybycablemodemservices.276Thatwouldbeabout 92%of112millionhouseholds,or103millionhomes. AnumberofwirelessbroadbandserviceprovidersexpecttodeployLongTermEvolution(LTE) andWiMAXtechnologies(socalled4Gwirelessservices)between2010and2013and,if successful,bringmultimegabitsspeedstoamajorityofU.S.homesandpopulation.277The wirelessservicesoffersharedbandwidth,sothespeedsobtainedbyuserswillbedependenton actualtrafficloadsateachcellsite,andinparticularonhowmanyusersaresimultaneously
266

ThenumberofU.S.HouseholdsisbasedonthemostcurrentdatafromtheU.S.CensusBureau.In 2007,therewere112,377,977households.See:U.S.CensusBureau,AmericasFamiliesandLiving Arrangements:2007,September2009.Thenumberofhouseholdsfrom2007wasgrownatarateof approximately1.00949%.TheCAGRisanaverageofanalystforecastsprovidedtoCITI. 267 M.C.Render,NorthAmericanFTTH/FTTPStatus,RVALLC,2009,at2. http://www.ftthcouncil.org/sites/default/files/RVAFTTHPreso092809forrelease.pdf. 268 SeeBroadbandinAmerica,Section3:UncompletedBroadbandPlans. 269 SeeBroadbandinAmerica,Section3:UncompletedBroadbandPlans. 270 SeeBroadbandinAmerica,Section1:1.1Technology,p.21. 271 SeeBroadbandinAmerica,Section1:1.3ExpectedDeployment/CoverageFootprint 272 DOCSISisastandarddevelopedbyCableLabsandstandsforDataOverCableServiceInterface Specification 273 SeeBroadbandinAmerica,Section1:1.1Technology,p.30 274 SeeBroadbandinAmerica,AppendixA. 275 SeeBroadbandinAmerica,Section1:1.3ExpectedDeployment/CoverageFootprint,p.36 276 SeeBroadbandinAmerica,Section1:1.3ExpectedDeployment/CoverageFootprint,p.25 277 SeeBroadbandinAmerica,Section3,p.66.

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usingbandwidthintensiveapplications,suchaswatchingvideoonwirelessInternet connections.Asoneexample,by2013VerizonexpectsthatLTEwillprovidesubscriberswith5 to12mbpsdownloadsinadeploymentplannedtoreachallofitscoveredpopulation(atthe endof2008,Verizonsnetworkcovered288millionpeople278or94%oftheU.S.population).279 Otherwirelesscompaniescoverasmallershareofthepopulation.Entrepreneurialand independentWirelessInternetServiceProviders(WISPs)provideWiMAXtypeservicestoat least2millioncustomers280inruralareas,includingmanyareasnotcoveredbythenational wirelesscompanies.

Table 12: US Internet Access by Type of Service

Source:MorganStanleyResearch,IndustryViewCable/Satellite,October20,2009

Inaddition,thegraphsuggeststhatwirelinepenetrationwillcontinuetoflattenin2010and beyond,whilewirelessbroadbandbeginstoexperiencegrowth.Thegraphalsoforecastavery limitednumberofwirelessonlybroadbandhouseholds,implyingthatwirelessbroadbandisa complementtowirelinebroadbandandnotareplacement,presumablybecausewirelinespeeds areexpectedtogreatlyexceedwirelessspeeds.

3.4.2.BroadbandAdoption
Adoptionmeasurestherateatwhichcustomersactuallyutilizetheavailablebroadband infrastructure.Increasingtheadoptionratealsogenerallyrequiressomeadditionalcapital investment,rangingfromphysicallyextendingalinetothecustomerspremises(acapital
278 279

VerizonCommunications,2008AnnualReport,VerizonCommunicationsInc.,2009,at9. SeeBroadbandinAmerica,Section1:1.1Technology,p.30. 280 SeeBroadbandinAmerica,Section1:1.1Technology,p.29.

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intensivefunction)toaddingarelativelylowcostelectronicdevicetoanexistinglineatthe customerspremises. Datashowsthatthemarketforbroadbandservices(particularlywiredservice)islargely saturated,implyingrelativelymodestfuturecapitalexpenditureassociatedwithinitialadoption. Arecentforecastofwiredbroadbandgrowthpredictsthatgrowthwilldropaslowas2.2%in Cablesubscribersandlessthan1%inTelcosubscribersby2012. Figure 24: Broadband Subscriber Growth

AdaptedfromUBSInvestmentResearchTelecommunicationsCableLikelytoExtendLeadinBroadband May3,2010

Residentialbroadbandpenetration(adoption),includingwireless,isexpectedtoreachroughly 66%by2016,asillustratedinthefollowinggraph.

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Figure 25: Residential Household Penetration

Source:AnalystdataprovidedtoCITI However,becausewirelessbroadbandiscurrentlymuchloweronthegrowthcurvethanwired broadband,analystsexpectmuchstrongergrowthforwirelessbroadbandandconsequently muchhighercapitalinvestmentoverthenextfiveyears,withcontinuedstrongadoptionof3G wirelessbroadbandservicesandafastinitialrampupof4Gasitbecomesavailable.However, itisworthnotingthatthesewirelessforecastspredictatraditionalScurve,withthegrowth flatteningin56years. Figure 26: Broadband Wireless Builds

Source:MorganStanleyCable/Satellite:AfterYearsofDeflation,BroadbandPricingSettoRiseOctober 20,2009

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3.4.3BroadbandUsagebyCustomers
Additionalcapitalinvestmentisneededtoaccommodategrowingvolumesoftrafficgenerated overbroadbandservices.Whilesomeoftheadditionaltrafficisafunctionofnewbroadband users,theweakgrowthinadditionalsubscribers(particularlywiredservices)impliesthatmuch ofthevolumegrowthiscomingfromincreasedusagebycurrentcustomers.Thus,how consumerswillusebroadbandservicesandhowmuchcapacitytheywillconsumeareimportant factorsinforecastingbroadbandcapitalexpendituresbyserviceproviders. Asthefollowinggraphillustrates,themostrapidgrowthinbroadbandusageisexpectedin threevideorelatedcategories:1)InternetvideotoPC;2)filesharing;and3)internetvideoto TV. Figure 27: North American Consumer Internet Traffic (Petabits/month)

Source: CiscoVisualNetworkingIndex;MorganStanleyResearchestimates.Note:DataisforNorth America,limitedtononmobileconsumerusage AdaptedfromMorganStanleyResearch,U.S.Cable,Satellite,Telecom3Q09Outlook,Oct.21,2009at17.

Atamoregranularlevel,withrelativelystablenumbersofcustomerstheseincreasesinoverall internetusagetranslateintorapidlygrowingpersubscribervolumes,asillustratedbythisgraph:

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Figure 28: Estimated U.S. Consumer Internet Use

AdaptedfromMorganStanleyResearch,U.S.Cable,Satellite,Telecom3Q09Outlook,Oct. 21,2009at17.

Withvideobeingaprimarydriverofvolumeincreases,itisworthnotingthatdifferentvideo applicationshavesubstantiallydifferentrequirements.Asthefollowinggraphdemonstrates, televisionandotherrealtimevideoapplicationswillrequirethehighesttransmissionratesin thefuture.Whiletheremaybeimprovementsincompressioncodecsoverthenextyears, analystsassumethatthetypicalspeedusedforstandarddefinitiontelevision(SDTV)willbe2 mbpsperstreamin2013whilehighdefinitiontelevision(HDTV)willrequirebetween9and19 mbpswith12mbpstypical.Morestandardinternetactivities,includingnonrealtimevideo, peertopeerfilesharing,handlingemailattachmentsorpublishingphotostosocialnetworks, donotrequireaparticularhighspeedlevelbutbenefitfromeverhigherspeeds.281

281

I.Fogg,HomeBroadbandBandwidthRequirements,ForresterResearch,2008, http://www.forrester.com/rb/Research/home_broadband_bandwidth_requirements/q/id/52075/t/2?act ion=5at2.

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Figure 29: Typical Speeds (in Mbps) that Internet Activities and IPTV Will Require in 2013

AdaptedfromForresterResearch,HomeBroadbandBandwidthRequirements,Sept.9,2008at2.

3.4.5ForecastingBroadbandCapitalExpenditures
Thefollowingtableisbasedontheforecastsofleadinginvestmentanalystswithrespectto overallcapexfortheleadingtelecom,cable,andwirelesscompanies(andassuch,they representlessthan100%offuturecapitalexpendituresinthesectors): Table 13: Total Capital Expenditures for Major Service Providers ($ billion)
Cable Telco Wireless 2009 11,892 22,502 19,765 2010 11,509 21,230 22,328 2011E 10,951 18,611 22,952 2012E 11,113 16,778 23,570 2013E 11,141 15,182 24,254 2014E 11,112 13,642 24,595 2015E 11,160 12,284 24,870

54,159 Total 55,067 52,514 51,460 50,577 49,349 48,314 Source:AverageofanalystdataprovidedtoCITI,Telcos:AT&T(excludingwireless),Verizon(excluding wireless),Qwest;CableMSOs:Comcast,TimeWarner,Cox,Cablevision,Charter,Mediacom,andInsight; Wireless:AT&T,Verizon,Sprint,TMobile,MetroPCS,Leap. Note:Investmentanalystsprovideforecastsfortelcoandwirelessupto2011.Beyondthatyear,the capexfortelcoandwirelesscompanieswasestimatedusingaveragedgrowthrates.282
282

Aweightedaverageisused,giving60%weighttothelastyearsgrowthrate,and20%weighttoeach ofthetwoearlieryearsgrowthrates.

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Thisdatapredictsasharpdecreaseintotalcapitalexpendituresfrom2008to2011andsmaller declinesinthefollowingyears.Thesteepestdeclineisfortelcos,andasmallerdeclineforcable andwirelesscompanies.After2012,theinvestmentanalystsassumethatcapexwillremain relativelyconstant.Theanalystsforecastsofveryslowlydeclining(relativelyflat)capexafter 2011couldbetoogenerousforanumberofreasons.Forexample,ifthemajornew infrastructureprogramsfortelcosandcablecompaniesarelargelycompletedbytheendof 2011andtherearenosimilarprogramsthereafter,theremightbeanevensharperdecline ratherthanarelativelyflatforecast.283 ThereissupportfortheideathatimprovementsinDSLtechnologywillkeeppacewithcustomer demandforfastertransmissionspeedsintheneartomediumterm,meaningthattelcos currentlyutilizingahybridofFTTNwithDSLwillnotbeforcedtoabandonthisarchitecturefora fullfiberFTTHwithintheforecasthorizon.Recentdevelopmentshaveextendedthelifeofthis FTTNDSLarchitectureandpushedbackthetimewhenoperatorswouldneedtoreplacethe coppertwistedpairswithfiberopticstoeachcustomerspremises.First,thesteepandsteady lossesofbasictelephonelinecustomershavemademoretwistedpairsavailableforDSL services.Second,newtechnologiesthatallowbondingofthetwistedpairspermitmuch highertransmissionspeeds,perhapsashighas50mbps.InrecenttestoftechnologycalledDSL PhantomMode,AlcatelLucentandBellLabsdemonstrateddownstreamtransmissionspeeds of300Mbpsoverdistancesofupto400meters.284Thesedevelopmentsmaychangethe environmentforDSLprovidersandreducetheiroverallcapexrequirements.

DerivingBroadbandCapex
Howmuchofserviceproviderstotalcapitalwillgotowardsbroadband?AT&Testimatedthat approximatelytwothirdsofAT&T's2009investmentwillextendandenhancethecompany's wirelessandwiredbroadbandnetworkstoprovidemorecoverage,speedandcapacity.285 Sinceaveryhighproportionofwirelesscapexisforbroadband(e.g.3Gand4Gdeployments), AT&Tscommentisbroadlyconsistentwiththefollowingtablewhichillustrateshowthemajor
283

Therefore,analystsassumptionsfortelcoandcablecompaniescapitalexpendituresintheoutyears (20122015)maybeoverstated. 284 TelecomNews,DSLPhantomModelLabtestmaximizesthevalueofexistingcoppernetworksby pushingtheenvelopeonDSLcapacity,April21,2010http://vartips.com/telecomequipment/alcatel lucent/dslphantommodelabtestmaximizesthevalueofexistingcoppernetworksbypushingthe envelopeondslcapacity1174.html 285 AT&T,AT&TtoInvestMoreThan$17Billionin2009toDriveEconomicGrowth,AT&TInc.,2009, http://www.att.com/gen/pressroom?pid=4800&cdvn=news&newsarticleid=26597.AT&Tsestimateof twothirdsisconsistentwiththeobservationofamarketresearchfirmthatbroadbandremainsthe primarycapexdriverfor200809because, Wirelineandwirelesscarriersalikearesteppinguptheirnetworkinvestmentstomake highspeedInternetconnections,andassociatedtripleplaybundles,availabletoagreaterportion oftheircustomers. Thefirmaddedthat,therehasbeenapronouncedshiftincapextowardsnew,broadbandplatforms, andawayfromnarrowbandsystems.SkylineMarketingGroup,CapExReport2008AnnualReportat1.

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telephonecompaniesareshiftingwirelinecapitalfromtheirlegacytelephonenetworksto wiredbroadband,withbroadbandcapexexpectedtoreachnearly60%oftotalwirelinecapexin 2011.

Table 14: RBOC Wired Broadband Capex ($ billion) Network 2006 2007 2008 Legacy Broadband Total %broadband 16.3 7.2 23.5 30.6% 15.2 10.7 25.9 41.3% 13.0 11.9 24.9 47.8%

2009E 10.5 11.5 22.0 52.3%

2010E 10.5 12.5 23.0 54.3%

2011E 10.0 14.0 24.0 58.3%

Adaptedfrom:SkylineMarketingGroup,CapexReport:2008AnnualReport,atExhibit14andtextat18, 20,23.

Serviceprovidersrarelybreakouttheircapexbetweenbroadbandandothercategoriesof services.Therefore,abroadbandcapexforecastmustbederivedfromtotalcapitalexpenditure forecasts.ToobtainanestimatefortheUSbroadbandinvestment,severaladjustmentsare required. First,theanalystscapexnumbershavetobeadjustedupwardbecausetheydonotincludeall oftheindustrybutonlythemajorpubliccompanies,typicallyaccountingforabout8090%ofa sector.286Second,acertainportionofindustrytotalcapexhastobeallocatedtobroadband. Theseadjustmentsaredescribedinthefootnotesinthefollowingchart. TheFirstReportdidnotestimatethecapitalexpendituresforTowersortheCLECbackbone sectors.Thisupdatedoesincludetheseestimates.Therefore,toprovidetheabilitytocompare thedatainthetworeports,thefollowingtableclearlyidentifiesthecategoriesnotincludedin theFirstReportandprovidesasubtotalthatiscomparabletotheearlierreport.

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Fortelcosandwirelesscompaniesweusedthecompaniesshareofmarketbysubscriberandforcable companies,weusedthesharebyrevenue.Thelargetelcos(AT&T,VerizonandQwest)accountedfor 81.4%ofsubscribers,sothetotalcapexwasincreasedby18.6%toaccountforthesmallertelcoscapital. Similarly,the82.4%aggregateshareforthesevencablecompanies(Comcast,TimeWarner,Cox, Cablevision,Charter,Mediacom,andInsight)resultedina17.6%increasetoaccountforsmallcable companiesinvestments.Forwireless,thefourwirelessproviders(AT&T,Verizon,SprintandTMobile) andtheir94.3%shareresultedina5.7%adjustmentforsmallcompanies.See:EliM.Noam,Media OwnershipandConcentrationinAmerica,at72,236,247,2009.

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Table 15: Total Capex and Broadband Capex by Sector

Source:AverageofanalystdataprovidedtoCITI,withadjustmentsasdescribedintheaccompanyingtext.Telco: AT&T(excludingwireless),Verizon(excludingwireless),Qwest;Cable:Comcast,TimeWarner,Cox,Cablevision, Charter,Mediacom,andInsight;Wireless:AT&T,Verizon,Sprint,TMobileFornotesonTable15seefootnote287.

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*Fortelcosandwirelesscompaniesweusedthecompaniesshareofmarketbysubscriberandfor cablecompanies,weusedthesharebyrevenue.Thelargetelcos(AT&T,VerizonandQwest)accounted for81.4%ofsubscribers,sothetotalcapexwasincreasedby18.6%toaccountforthesmallertelcos capital.Similarly,the82.4%aggregateshareforthesevencablecompanies(Comcast,TimeWarner,Cox, Cablevision,Charter,Mediacom,andInsight)resultedina17.6%increasetoaccountforsmallcable companiesinvestments.Forwireless,thefourwirelessproviders(AT&T,Verizon,SprintandTMobile) andtheir94.3%shareresultedina5.7%adjustmentforsmallcompanies.See:EliM.Noam,Media OwnershipandConcentrationinAmerica,at72,236,247,2009.

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 Thefollowinggraphisbasedontheanalystsforecasts,asadjusted,fromTable 15reflectingthe industryinvestmentrationaledescribedabove. Figure30:IndustrySectors'BroadbandCapex(millions)

Source:AverageofanalystdataprovidedtoCITI,Telco:AT&T(excludingwireless),Verizon(excluding wireless),Qwest;Cable:Comcast,TimeWarner,Cox,Cablevision,Charter,Mediacom,andInsight; Wireless:AT&T,Verizon,Sprint,TMobile.

**BasedoncoststoupgradethenetworkstoDOCSIS3.0in2009at$100costperhomepassed,which includesthecostofDOCSIS3.0cablemodems,estimatebyPike&Fisher.SeetheGigaOMNetwork: http://gigaom.com/2009/04/30/docsis30comingsoontoanispnearyou/ Broadbandcablecapexhasbeenloweredto25%andthento20%toreflectreasonablebottomline numbersaswebelievethattheinvestmentanalystsoverallcapexprojectednumbersmaybetoohigh,as explainedinthetext ***Theallocationofwirelessbroadbandcapexisestimatedat60%in2009.ThisisbasedonAT&Ts statementabout2/3ofinvestmentsgoingtobroadband.Theincreaseinsubsequentyearsassumesthat 4Ginvestmentisforbroadband. ****Thisestimateisbasedon$570,000persystem,whichtheaveragedollarvalueofthegrantsfromthe DepartmentofAgriculturesRUS2008CommunityConnectBroadbandGrantsforwirelessinternet serviceproviders.Thenumberofnewsystemsisassumedtobe10%ofthe350WISPAmembers, increased10%peryear.

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Thenextgraphillustratesthetotalindustryandtotalbroadbandinvestment,basedonthetotals inTable15. Figure 31: Total Capex and Total Broadband Capex (millions)

Source:AverageofanalystdataprovidedtoCITI,andestimates.Telco:AT&T(excludingwireless),Verizon (excludingwireless),Qwest;Cable:Comcast,TimeWarner,Cox,Cablevision,Charter,Mediacom,and Insight;Wireless:AT&T,Verizon,Sprint,TMobile,Leap,MetroPCS.

Towers
Investmentsbyindependentcompaniesthatleasespaceontowersforserviceproviders wirelessserviceradiosarelogicallypartoftheoverallinvestmentinthewirelessinfrastructure. Theinitial2009reporttotheFCCdidnotspecificallyincludeananalysisofthetower companiesortheircapitalinvestment.Thegrowthintowercompaniesreflectsthestrong growthindemandforwirelessservices.Whiledemandfordataisgrowingfastest,minutesof useisalsoincreasingduetogrowthinsubscribersandunlimitedplans,andinwireless substitution.288 Analystsexpectwirelessdatademandstobenefittowers.Oneobservedthat: Theincreasednetworktrafficbenefitsthetowers,and3Gand4Gdeployment representsadditionalupside,requiringmoreequipmentonthetowersandgreatercell
288

MorganStanleyResearch,TelecomServices1QTracker,May27,2010at56.

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sitedensity.Webelievethatthemainsourcesofgrowthin2010willbetherisingdata demandsdrivenbyClearwireWiMAXbuild,AT&TandVerizon3Gexpansion,and VerizonsLTEbuild. Asdemandformobilecontentgrowsalongsidecontinuedsmartphonepenetration,we expectwirelesscarriersingeneraltocontinueaddingcapacity(cellsitesthatrequire towers)tosupportincreasedusage,networkupgrades,andimprovedcoverage.289 Astheabovecommentsillustrate,mostifnotallofthenewtowersareneededto accommodatewirelessbroadbandservicessoitisthereforeappropriatetoallocatemost68 70%oftowercapextowirelessbroadband. ARPUandPricingTrends AveragerevenuePerUser(ARPU)andpricingtrendsarerelevanttotwoissues:theabilityofthe serviceproviderstofinanceadditionalcapitalinvestmentfromcurrentoperationsandthe degreeofcompetition(atleastpricecompetition)whichisrelevanttoadeterminationabout whethercapexfromcurrentoperationsislikelytobesustainable.Ifserviceprovidersneedto raiseadditionalcapitalfromexternalsources,ARPUandpricingtrendsarefactorswhich investorsstudycloselysothatthetrendsinthesefactorsaffectthecostandavailabilityofcapex fromexternalsources.HigherpricesandhigherARPUsarethereforepositivefactorsfor capital,eitherinternalorexternal,eventhoughsuchtrendsmightbeconsiderednegativefor consumers. Asanoverallmeasureofbroadbandrevenue,ARPUcontinuestobecomealessusefulmeasure because,asthepercentageofuserswhopurchasebundledservicesincreases,itbecomes increasinglydifficulttodeterminewhatportionoftheoverallrevenueofservicesisattributable tobroadbandandwhatportionisattributabletootherservices. Bothtelecomsandcableprovidershavecontinuedtoaddbroadbandusers,butasmarket penetrationreachessaturation,competitionfornewusersisfierceandmostoftentakesthe formofcustomersshiftingfromoneserviceprovidertoanotherratherthannewusersentering themarket. Priceincreaseshavealsoreenteredthecablebroadbandmarketandoneinvestmentanalyst anticipates2%annualincreasesinoverallARPUleadingtoanoverallARPUgrowthof45%in thenextfewyears.290IntheDSLmarket,onlyQwestincreasedpricesacrossitslineoffering, resultinginanoverallincreaseinDSLpricingof16%Q/QasQwestraisedprices68%Q/Q.291
289

BankofAmericaMerrillLynch,2Q10Wrap:InlineQandguidanceraised;maintainBuy,July302009 at1. 290 MorganStanleyResearch,Cable/SatelliteledbyBroadbandandinlinewiththesispricingtrends improvingMorganStanley,2010,at8. 291 BankofAmericaMerrillLynchBattlefortheBundle,BankofAmericaMerrillLynch,2010at5.

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 WirelessBroadbandARPU Asmanyanalystspredictedlastyear,wirelessARPUincreasedin2010.Manyexpectthistrend tocontinueascompaniesaddusagecapsortieredpricingplanstotheirserviceplans.Data alreadyrepresentsmorethan30%oftotalwirelessARPU(seeFigurebelow)anddemandfrom smartphonepenetrationisexpectedtoincrease.

Table 16: Wireless Broadband Data ARPU

AnalystsexpectwirelessbroadbandARPUtoincrease,onesaying,weareraisinglongterm broadbandARPUgrowthfromflatto+2%perannumbeginningin2011.292 ThepercentageofwirelessARPUattributabletowirelessbroadbandhasbeenincreasing steadily,andforthefourlargewirelesscompanieswas32.42%oftotalARPUinthefirstquarter of2010,upfrom26.7%inthesameperiodin2009.

292

MorganStanleyResearch,Cable/SatelliteLedbyBroadband&InLinewithThesis,PricingTrends Improving,MorganStanley,April2010at8.

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 Figure 32: Total Average Wireless ARPU Composition

Source:Companydata,MorganStanleyResearch,TelecomServices,May27,2010at40

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Section4:GuestEssayContributions

Forthesecondeditionofthisreport,weaskedourcolleagueswhoarepolicymakers, academics,andpractitionersfortheirreactionstoandideasaboutbroadbandin America.Thecontributorsareactiveinthevariousfieldsinwhichtheywork,andthe topicsoftheessaysvaryaswell.TheessaysrangeinscopefromexaminingtheNational BroadbandplantomeasuringtheeconomicimpactofbroadbandinruralAmerica.The authorsalsohadthechancetopresentanddebatetheirviewsduringTheNational BroadbandPlanOneYearLaterconference,hostedbytheColumbiaInstituteforTele InformationandGeorgetownsCommunication,Culture,andTechnologyprogramin March,2011.Wearegratefulfortheircontributionstothisreport.

Section4TableofContents
BlairLevin:TheTwoIdeasBehindtheNationalBroadbandPlan ................................................. 86 EliNoam:LetThemEatWireless .................................................................................................. 98 RaulKatz:EconomicImpactofWirelessBroadbandInRuralAmerica ....................................... 109 D.LindaGarciaandTarkanRosenberg:OrganizingtoPromoteBroadband:MatchingStructureto BroadbandPolicyGoals*............................................................................................................. 144 BruceLincoln:AdvancingCommunityBroadband:SocialEnterpriseSolutionstotheProblemof theBroadbandDigitalDivide ...................................................................................................... 164

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TheTwoIdeasBehindtheNationalBroadbandPlan BlairLevin293
AspenInstitute,CommunicationsandSocietyProgram Duringthelast24months,theNationalBroadbandPlancatalyzedmanydiscussionsaboutthe futureofbroadbandinAmericaandthePlansroleinshapingthatfuture.Thesediscussions haveoftenbeenproductive,buttoasurprisingextent,theconversationsdemonstrateda misunderstandingoftwocriticalquestions:whyhaveaplan,andwhatistheanimatingvisionof thePlan?Thepurposeofthisessayistoanswerthosequestionsinthehopethoseanswerswill leadtomorethoughtfulconversationsaboutthehowourcountryshouldapproachthe challengesandopportunitiesthatthenewcommonsofcollaborationthebroadband ecosystempresents. First,whyhaveaplan?Properlyunderstood,theplanwasanagendasetting,targetclarifying device.Theplanwasaprocesswhoseendpointwastolayoutparticularlyforthe stakeholdersanagendaforaction.Further,itdetailspolicytargetstoaimforinthesenseof policiestoadoptoraimat,inthesenseofpoliciestoshootatandproposebetteralternatives. Aclearagenda,withspecificpolicytargets,setsthestageforabetterpolicydebate. Itdoesnotguaranteegreatpolicy.Butitincreasestheoddsthepolicywillbefair,mitigate unforeseenconsequences,notcontradictotherpoliciesandachieveitsintendedpurposes. Everysuccessfulenterpriseoperatespursuanttoaplan.Itchangesconstantly,asmarkets change.Internalforcesoftenchallengeassumptionsandsuggestnewwaystoclimbthe mountain.Butthereisalwaysaplan,ananimatingvision,asetofgoalsandtacticsthatdrive theenterpriseupward. Everysuccessfulenterpriseknows:planbeatsnoplan. Withoutit,wearelikethoseinasailingracewhosay,accordingtomyPlancolleagueErikGarr werelost,butweremakinggreattime.Governmentotherthanthemilitaryinawar settingonlyoccasionallyoperatespursuanttoaplan.Fewgovernmentagenciessetouta
293

BlairLevinisaSeniorFellowattheAspenInstituteandwastheExecutiveDirectoroftheOmnibus BroadbandInitiativeattheFCC

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longtermagenda,andsignalapolicyframeworklongbeforeafinaldecision.Thisis unfortunate,asoperatingpursuanttoaplanincreasesthelikelihoodanentitycanachieveits purpose. NothingIhavejustsaidshouldbecontroversial.Itisnonethelessnotablebecauseformuchtalk thatgovernmentshouldberunmorelikeabusiness,itisrarethatforcesaligntoempoweran agencytodosoatthefundamentallevelbyactuallydevelopingaplan. Somehavecomplainedthattheagendasettingoftheplanwastoonarrow,buttheyreachthat conclusionbyignoringmostoftheagenda,whichincluded: Transforminganoutdated$9billionuniversalservicefund,including repurposingbillionsthatarecurrentlybeingspentonnonprioritypublic purposesandrefocusingfundsonunservedareas; Getting100millionAmericanswhohaveaccessbuthavenotadoptedon broadband; RestructuringbillionsofdollarsofintercarriercompensationwhoseDNA reflectstheworldofvoiceminutesandcauseshugeinefficiencies; Acceleratingdeploymentbyremovingbarrierstotheefficientuseofpoles, rightsofways,conduits,andotheressentialinputs; Transformingpublicsafetybybringing911,emergencyalerts,andapublic safetynetworkoutofthevoiceandintothedatarichera; Transformingeducationbyremovingregulationsthatmakeitdifficulttomove educationtothemoreeffective,assessable,accountableandpersonaldigital platform; Transformingmedicinebyremovingregulationsthatmakeitdifficulttotake advantageofelectronichealthrecordsandadatarichenvironment; TransformingenergytoasmartgridbyenablingeveryAmericantouse broadbandtotrackandmanagetheirrealtimeenergyconsumption;and Creatingafoundationforanupgradetogigabitconnectivitybycreatinga networkofcommunityanchorinstitutionsaggregatingdemandtodrive increasedspeeds. Thislistisnotexhaustive.Theplanalsohasrecommendationsforusingbroadbandtoimprove governmentperformance,civicengagement,jobtraining,andeconomicdevelopment. Ineacharea,weproposedactions.Ineacharea,therehasbeenaction.Ifthisisnotabigthing intheeyesofthePlanscritics,theproblemisnotwiththeagenda,butwiththeirvision. Butthemoreimportantcontroversiesrelatetothesecondquestion:whatistheanimating visionoftheplan?BeforeIprovideouranswer,letmeprovidesomecontext. Many,includingthePresident,speakofourcountryfacingaSputnikmoment;amomentin whichwecollectivelyrecognizeothercountrieshaveabilitieswebothlackandneed.Itisnot isolatedtoasingledatapoint;newdataoninternationalleadershipinavarietyofcategories 87

fromgreenenergyproductiontostudentsmathandsciencescoreshavecausedcallsfor correctingourdeficiencies.ArecentTimeMagazinecoverhighlightedthequestionofwhether ournationisindecline. Howeverdescribed,thechallengeisgreat.AdozenyearsagothegreatbusinessvisionaryPeter Druckeridentifiedakeyelementofthatchallenge:Themostimportantcontribution managementneedstomakeinthe21stcenturyistoincreasetheproductivityofknowledge workers.HethenpredictedItison(theproductivityofknowledgework)thatthefuture prosperityandindeedthefuturesurvivalofdevelopedeconomieswillincreasinglydepend. Druckerunderstoodknowledgeworkastheprimarydriveroftheeconomyandcivicsocietyin thiscentury. Insuchaworld,thecoretaskisknowledgeexchange.Knowledgeexchangeisfundamentalto wedo.Wegatherinformation,analyzeit,actonit,andthenthroughafeedbackloop, continuallyrevisecoursesofaction. Threerevolutionsinthelasttwodecadeshavetransformedknowledgeexchange: Thedatarevolutioncollectingandprovidingtrillionsofdatapoints previouslyunavailable; Thecomputingrevolutionanalyzingthatdata,makingtasksthatwould haveseemedlikefindingofaneedleinagalaxyofhaystacksascommonas locatingthemooninthenightsky,and Thecommunicationsrevolutionallowingustotransferdataandanalysis anywhere,anytime,toanyoneatspeedsandcostsunimaginablewhenI firstarrivedattheCommissionin1994. Thisknowledgeexchangerevolutionisnotanisolatedhightechphenomenon.Itaffectsevery sectoroftheeconomy.Itisvitaltoeveryconstructionproject,fromhighrisestohouses,and essentialforeveryfarmeronatractor. ItshowWalMartbecamethelargestretailer,howthelargestmanufacturingprocessinthe countryBoeingsdevelopmentoftheDreamlinerisbeingcoordinatedacrossmanycountries beforethefinalassemblyinEverett,Washington. Whileknowledgeexchangetakesmanydifferentforms,itinevitablysharesacommonplatform. Itisthebroadbandecosystem;thecombinationofnetworks,devices,applications,and,above all,peoplewhoknowhowtouseit. Wevetalkedforyearsaboutbroadbandcausingaconvergenceofvoice,videoanddata markets;howoncesolepurposetelephones,televisionsandcomputersaremorphinginto

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devicescapableofcarryinganykindoftraffic.Farmoreimportant,however,ishowthat convergencehascreatedacommonsofcollaboration. StevenJohnsonsbookWhereGoodIdeasComeFrom:TheNaturalHistoryofInnovation illustratesthatthroughouthistory,innovationhasbeenacollaborativeart,notasoloscience. Thus,themostpowerfultechnologyinthisbroadbandecosystemisnotinprocessors,disk drivesorfiber;itisthecollaborativebrainpowerofitsusers. Thiscommonsofcollaborationisthefoundation,notjustforoureconomy,butforhowwe engageeachothertocreateourcivicsociety.Keydemocraticfunctionsdependonvibrant knowledgeexchange.ItishowourvoluntaryassociationsasTocquevillenoted,therootsof ourdemocraticcultureassessourneeds,howwefindoutwhatpublicofficialsaredoing,and howweholdthemaccountable. Forthefirsttimeinhistory,thefoundationforastrongeconomyandastrongsocietydepend onthesametechnologyplatform.ThebankeronWallStreet,theteacherinEastL.A.,thehead ofanonprofitinCleveland,themayorofSanAntonio,alldependonbroadbandtolearnfrom others,toexplaintoothers,andmostimportantlytotogetherimprovehowtheydowhatthey do. Asbroadbandisthecommoncollaborativeplatformforboththeeconomyandourcivicsociety, weneedtohaveabroadbandecosystemthatfacilitatesknowledgeexchangeinwaysthatare constantlymorerobust,moreeffectiveandfaster.TomeetDruckerschallengeofincreasing productivityamongknowledgeworkers,ournationrequiresthatabroadbandecosystemthat facilitatesknowledgeexchangeinwaysthatareconstantlymorerobustandeffective. Sobehinditall,thecoreideaoftheNationalBroadbandPlan:highperformanceknowledge exchange. Inonesentence,theplanwasaboutassuringthatAmericahasabroadbandecosystemthat enableshighperformanceknowledgeexchange. Havingsuchanecosystemdoesnotassuresuccess.Nothavingit,however,guaranteesfailure. Withoutit,thereisnopossibilityofleadingincleanenergy,improvingeducation,orof respondingeffectivelytointernationalcompetition. Thisunderstandingledourplanningefforttoaninsightthatunderlayeverythingintheplan:as highperformanceknowledgeexchangeconstitutestablestakesforwinningthefuture,weneed abroadbandecosystemthatisubiquitous,diverseandconstantlyimproving.

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Tomovetowardthisvision,theplanhadtofocusonmorethanjustnetworksbecauseitisthe interactionofnetworks,devices,applications,andthepeoplewhousethemthatfacilitatehigh performanceknowledgeexchange.Theecosystemhastobeubiquitoussoallcanbenefitandall areincludedintheworkofoureconomyandsociety. Theecosystemalsohadtobediverseineachofitsparts.Weneedmultiple,interconnected networks,afullspectrumofapplications,allmannerofdevices,andallmannerofpersonsusing it.Itisthatdiversitythatdrivestheinnovationweneedthatleadstothefourthelement; constantimprovement.Improvementsineachelementshoulddriveimprovementsinthe othersinaconstant,virtuousfeedbackloop:betterapplicationsdrivingmoreusagedriving upgradednetworksdrivingmorepowerfuldevicescapableofbetterapplicationsandever onward;aboveall,continuallyimprovingactualuse. Governmentisnottheprimaryproviderofanypartofthisecosystem.Itmust,however,assure itsrulesdrive,anddonotsuppress,improvementsinthisecosystem.Further,itmustrethink howitdeliversessentialpublicservicesinlightofnewopportunitiescreatedbythisecosystem. Itmaysurprisesomebutthisapproachisdeeplyatoddswithprevailinggovernmentpolicies. Theideathatdominatescurrentbroadbandpolicyisthattheprimarymetrictowhichourpolicy shouldaspireistomaximizethespeedofthewirelinenetworktoourmostruralofresidents. ThisideaishurtingAmerica.Wemustendit.It'swronginalmosteveryrespect. Thereisnoprimarymetric. Quickthoughtexperiment.Whichwouldweprefer?Greathammersbutnonailsorblueprint? Greatnailsbutnohammerorblueprint?Greatblueprintbutnohammerornails? Answer:withoutall,disaster.Howwoulditprofitustohavehighspeedsifourdevicesareslow, ourapplicationsuselessandourusersilliterate? Tothosewhothinkbetternetworksaretheonlydriverofperformance,considerhowthe iPhonechangedourmobileecosystem.Becausethemobiledevicemarketisdiverseand competitive,Applewasabletoenterandcatalyzeanexplosionofuseandinnovation,and,not coincidentally,anacceleratednetworkupgrade.AstheiPhonesimpactdemonstrates,the tellingmeasureistheimprovementthroughoutthesystem,notanysinglemetric. Whichleadstothesecondproblem;thekneejerkfocusonspeed.Speedisaninput;what mattersisoutput.Thedatashowedthatwhileweneedtoincreasespeedsinsomeareas,the biggestuntappedpromisehasmoretodowithapplications;particularlynewwaysofdelivering education,healthcare,publicsafety,jobtrainingandothercriticalpublicservices. 90

 Somecriticsoftheplanhavecomplainedthatwepoohpoohedspeed.Ifindthisargument fatuous.Weunderstoodspeedasanimportantinputbutaswithanyinput,theincremental valuedoesnotriseinalinearfashion.Goingfromnarrowbandtobroadbandwascriticalbut thatdoesnotmeanthesameincreaseinspeedwillagainproducethesameincreaseinvalue,or becommiseratewiththeincrementalcost.Moreover,whilespeedisanimportantinput,itis nottheonlyone,andwhatwecaremostaboutistheoutputhighperformanceknowledge exchange. Athirderrorisfocusingprimarilyonwirelineservices.Wirelineisimportantbutmobile, wirelessserviceswillbeeverybitasimportant.Intermsofeconomicgrowthinthenext decade,itmaybemoreimportant. Wirelesstodayisahorizonindustry,anindustrythatpointstohowretail,manufacturing, agriculture,transportation,healthcare,education,andeveryothersegmentofoureconomy canimprovetheirperformance. OneofthepointsofJohnsonsbookisthatgreatinnovationscomefromtheconfluenceof differentriversofthoughtandtechnologyformingamorepowerfulriver. Hedescribesthisastheadjacentpossible.Hesuggeststhehistoryoflifeandhumanculture, then,canbetoldasthestoryofagradualbutrelentlessprobingoftheadjacentpossible,each newinnovationopeningupnewpathstoexplore.HedescribesNASAengineersattackingthe crisisingettingtheendangeredApollo13astronautshomebyputtingeverythingtheastronauts hadaccesstoonatable.Manyitemswerenotusuallyconsideredpartsthatcouldwork together.Butthepresenceofallpartsinspiredinnovationsthatsavedtheday.Johnsonwrites thetricktohavinggoodideasisnottositaroundingloriousisolationandtrytothinkbig thoughts.Thetrickistogetmorepartsonthetable.HalVarianofGooglemakesasimilar pointwhenhetalksabouttheimportanceofcombinatorialinnovation. Mobileisenteringitseraoftheadjacentpossible,thecombinatorialinnovation,asupgraded speedsmeetemergingdevelopmentsinnanotechnology,locationawarenessapplications,and machinetomachinecommunications.Butblindedbyourtraditionalthinking,somedontsee wirelessasanessentialunderpinningofoureconomicfuture,andareslowtograspthe potentialdangeroflackofspectrum. Injustafewyears,insufficientspectrumcouldleadtohighpricesandbadservice,costingour economybillions.Theplanidentifiedtheurgentneedtoactandcreatedaninnovativebut simplesolutionthathasbipartisansupport:allowexistingspectrumlicenseholdersto participateinanauction,enablingmarketforcestofreeupnewspectrum. 91

Lostinthecurrentdebateovermanycomplicatedspectrumandpublicsafetyissuesisasimple truth:thattheconstantreevaluationofhowtoallocateresources,whethertheyarefinancial, humanorpoliticalcapital,isessentialtoawellfunctioningenterpriseorsociety.Spectrummay bethemostsignificantassetcontrolledbygovernmentyetourcurrentsystemdoesnothave anyeffectivewaytoreallocatespectrumbasedonchangingtechnologies,marketsand consumerpreferences.ThePlansproposaladdressesthatgapinawaythatwillbeimportant notjustforthenextfewyearsbutfordecadestocome. Astorural,itsimportanttoconnectallofit.Butruralshouldnotbe,asiteffectivelyistoday, themajorfocusofourpolicyeffort.Thesamewithresidential;indeedmostofuniversalservice todayisandhasbeendevotedtoservingtheresidentialruralmarket. Considerhowwewouldprioritizeuniversalservicefundstoassureaubiquitous,diverse, constantlyimprovingecosystem.Thenconsiderhowweactuallyspendittoday. Atthebeginningofthedecadewespentaboutthesameonlastmileruralconnectionsaswe didonconnectingpublicinstitutions,suchasschools,librariesandruralhealthclinics.Inthe lastdecade,wirelesshasgreatlyincreaseditsabilitytooverbroadband,whichshouldresultin loweringthecostofdeploymentoflastmileconnectivitytoruralhomes.Andtheopportunity toimproveservicesinschools,librariesandruralhealthcareshouldhasincreasedwithlive video,thoughthatopportunityrequireshigherbandwidth.Fromastrategicperspectivewe shouldbespendingmoreoninstitutionsandlessonhomes.Butwehavekeptinstitutionsat thesamedollarlevelwhiletheamountwespentonlastmileconnectivitytoruralhomeshas massivelyincreased. Thisresultisanaturalconsequenceoflettingourpolicybedictatednotbystrategicanalysisbut bytheinterestsofthosewhobenefitmostfromthecurrentthinking.Anexampleofthewrong waytothinkabouttheproblemwasarecentopedbytheheadoftheIowaTelecom AssociationattackingthereformsproposedinthePlan.Itwasextremelywellwrittenand wronginalmosteveryway. Itattackstheplanasantiruralwhentheplanisthefirstefforttogetbroadbandtoallrural America.Partoftheproblemtodayisaruralruraldividecausedbyourcurrentsystem.We subsidizesomeruralcarriersenoughtobuildaMaserati,requirethemonlytoproducea MercedeswithenoughofasubsidysotheyonlyhavetochargeforaCorolla.Forotherrural carriers,wetelltheirsubscriberstowalk.Theauthorssolution,notsurprisingly,ismore governmentsubsidiesforhisclientsandnothingtosolvetheproblemofunservedruralareas. Butthemostdangerouspartoftheeditorialwasthis.AfternotingthatthePlansetsagoalofat least100millionAmericahomeshavingaccesstonetworkscapableofdelivering100Mbs,he

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wrote,(i)tishardtobelieve,buttheFCCdoesnotbelieveallIowansshouldhaveaccesstothe sametypeofbroadbandspeeds. Thisisalovelysoundingideaandarecipefordisaster.Itignoresthatitisthemarket,notthe government,whichsetsthespeedmostAmericansreceive.Itignoresitwouldrequiretaxingall currentsubscribersabout$30amonth,causingtensofmillionstohavetodroptheirservice, hardlytheresultwewantfromauniversalservicesystem. Itignoresthat,basedonaplethoraofdataonactualconsumertrends,getting4Gwirelessto ruralishigherpriorityforconsumersthanawirelineupgrade.Anditdefiescommonsenseto thinkthatpeoplewhoseworkisoutdoorsandmobiledontcareabouttheservicetheycanget ontheirtractor. Mostimportant,itignoresarobust,constantlyimprovingbroadbandservice,aserviceessential toalltheeconomicenginesofthiscentury,requiressomesectorstohavespeedsfarhigherthan theyhavetoday,andhigherthanitwouldevermakesenseforthegovernmenttosubsidizeto others. Forexample,ifourresearchinstitutionscertainlyacriticalassetforrespondingtothisSputnik momentaretoremainthebestintheworld,theyneedworldleadingconnectivity.Sotoo, ourleadingmedicalcenters,andotherinstitutions,publicandprivate,whicharekeytoour internationalcompetitiveness. Weneedabroadbandplanthatservesastrategyofeconomicgrowth,notabumperstripthat servesembeddedinterests. Whiletheargumentsoftheruraltelephonecompanieshavesignificantlogicalandeconomic flaws,theyhavemanysupporterswhohaveofferedupwaystodrivenewcapitalintorural areas.Iamallforwaysincreasedcapitalinvestmentbutwhenweexaminetheproposals,they sufferfromthesameunwillingnesstoconsiderincrementalcostsandincrementalbenefits. AcommoncriticismisthatthePlanweerredbynotadoptingtaxchangestostimulatefiber buildouts.Letsputasidethatrealistically,theyhavenochance;theyaretaxexpendituresand weareinaneraofcuttingbudgets.Ifwehadproposedthemwewouldhavebeenlaughedat, butnotjustbecausetheyarenonstarters:theyarebadideas. First,taxcreditsareinthiscaseaveryinefficientwaytousepublicpowers.Duringthe transitionandtheplan,welookedatseveralsuchproposals.Iinitiallythoughtthemworthybut theeconomists,demonstratedtheywouldeffectivelypayforthingsthatwouldhavebeendone anywayor,likerateofreturnregulation,causenoneconomicinvestments.Ithinkwehavehad

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enoughofrulesthathavethepublic$17,000alineperyearperhouseandseenoneedto createanewincentiveforsuchspending. Second,itputstheheavyhandofthegovernmentonthescaleofcompetition.Asastudyby CITIshowed,wehavewirelinecompetitionforover90%ofthehomes. Butafibertaxcrediteffectivelyonlyhelpsonesideinthatcompetition.Further,asVerizonhas alreadybuiltsignificantfiber,itonlyhelpsasubset.Whyshouldgovernmentpolicyfavorthe capitalexpendituresofWindstreambutnotCharter? Whyshouldgovernmentdecidethatonekindoftechnologysolutiondeservesataxbreakbut analternativethatperformsthesamefunctiondoesnot?Ifweonlyhadasingleproviderfor thelionsshareofthepopulationasothercountrieshavesuchapolicymightmakesense. Butwherecompetitiveforcesaredrivingupgrades,shouldntwewantthatprocesstoplayout? Third,andmostprofound,weshouldwantthecapitalallocationdecisionsofcompetitive playerstoreflectmarkets.ThatAT&TandVerizonaremovingtheircapitalexpendituresto mobilereflectsthechoicesofconsumers,whoincreasinglywanttotakeadvantageofwhat smartphonesandtabletscandoanddonotyetseethevalueofmovingtheirexpendituresto payingmoreforfasterwirelineservice. TaxcreditsinthiscontexthavetheeffectofthegovernmenttellingtheCEOsofAT&Tand Verizon,dontlistentotheconsumers.We,thegovernment,knowbetteraboutwhatisinthe consumerinterestandwewantyoutospendyourcapitalonmorewirelineandlesswireless now. Thatisaprofoundlybadidea.Asistheidea,alsoofferedascriticismofthePlan,thatweshould haveproposedmoreofftaxexpenditureswhichstillrequireAmericanseverywheretopay moreforbenefitsthatarehighlyunlikelytobecommensuratewiththecosttodrivefiberto areaswherethecostperhomecannotbejustified. Thatsuchdeeplyflawedargumentshaveanylegsisunfortunate,butfrankly,theprocessby whichthepubliclearnedofthePlanbearssomeoftheblame.DuringtherolloutofthePlan, onespeechtheonethatsetforththatgoalof100Mbpsto100millionhomesattracteda greatdealofattention.Ididnthaveaproblemwiththegoal.AsthePlanexplains,goalsarean importantwayofsettinganorthstaronourcompass. Thatspeechgarneredsomuchattention,however,iteffectivelydefinedtheplanforthemass audience.Ononelevel,itwasagreatsuccess;butthatshorttermsuccesshasprovencostly overthelongterm.

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Itmuddiedthewatersfortheuniversalservicedebate.Asnotedabove,ruralrepresentatives constantlyarguethatifurbanareashave100Mbps,theyareentitledtoexactlythesame, whateverthecost. ThespeechfocusedattentiononthehortatorypartofthePlantheaspirationratherthanthe moreimportantcallsforaction,diminishingtherealpowerofthePlan. Further,itfocusedonthemarketsegmentforwhichgovernmentactionisleastlikelyatleast intheneartermtoberequired.Overthenextseveralyearsexistingmarketforcesaredriving upgradesinthemassmarketforbothwirelineandwireless. Incontrast,governmentneedstoactintheunservedendbothdeploymentandadoption andthehighend,bystimulatinggigabitcommunitiesandaidingkeypublicanchorinstitutions. Thegovernmentneedstoactthroughoutthemarkettoimprovethewayitdeliversessential publicservices,suchaseducation,publicsafety,jobtrainingandhealthcarebytaking advantageofbroadbandecosystem.Thesuccessofthespeech,however,hidfromviewthe primarytargetsforaction. Butthemostproblematicelementwashowitplayedintotheconventionalwisdomthatthe planshouldbeaboutthenetworkspeedtohomes,ratherthantheadmittedly,hardertodigest butmoreimportantgoal:improvingAmericabyusingbroadbandtoempowerhighperformance knowledgeexchange.Itdidntdothehardbutessentialworkofchangingthewaywelookat theproblem. AnotherPeterDruckerinsightisrelevanthere:Thedangerintimesofturbulenceisnotthe turbulence.Itistoactwithyesterdayslogic. Farmoreimportantthanahortatorygoalregardingnetworkspeedisthepracticalrealitythat todayspoliciesarebasedonyesterdayslogicandyesterdaysrealities,lockingusintolow performanceknowledgeexchange. Consistentwithyesterdayslogic,ouremergencyalertsystemrunsonalowperformance knowledgeexchangeplatformmostAmericansspendmostoftheirtimedisconnectedfrom thebroadcastsysteminsteadofthehighperformanceknowledgeexchangeplatformmost Americansareconnectedto24/7themobilecommunicationsnetworks. Consistentwithyesterdayslogic,our911systemisbasedonvoice,notdata. Todayslogicshouldallowustoseethatinsteadofforcingalltoofferuniform,lowperformance knowledgeexchangevoicecalls,weoughttounleashcompetitiontoofferhighperformance

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911upgradesthatenablesendingvideos,texts,thehealthrecordandbloodtypeofthevictim totheambulance,apeertopeerneighborhoodcallforhelpforfunctionslikeCPR. Consistentwithyesterdayslogic,wedelivereducationalmaterialsthroughalowperformance technologydeveloped5centuriesagotextbooksinsteadofhighperformanceeBooks,which areeasiertoupdate,assess,improve,whichprovidestudentsfarmorediverseanddynamic modesoflearninginwaysthatworkbestfortheindividualstudents,allatacheaperprice. Icouldcitesimilarexampleswithhealthcare,energy,jobtrainingandmanyothers.Inshort, ourpublicarenaisstillusingthelogicofthepast;theeraoflowperformanceknowledge exchange. Butthereishope. Intheplanwesetoutanagendaforsuchactionsandtodaythatagendaiscentraltoevery majorproceedingtheFCCisnowundertaking.Theplandefinedthespectrumagendafor CongressionalandWhiteHouseactivityinawayunparalleledforanFCCdocument.Theplans agendaisreflectedinthetechnologyplansofnumerousagencies,includingtheDepartmentsof EducationandHealthandHumanServicesandthenewConsumerFinanceAgency.Ithas stimulatedanumberoflocalgovernmentandnonprofitactivities. Iftheplanisunderstood,asitshouldbe,asanagendasetting,targetclarifyingdevice,thenthat recordofsettinganagendaandclarifyingtargetsisonetobecelebrated,notberated. AsnotedinJohnsonsbook,innovationiscollaborativeandcollaborativeeffortswithmany agencieshasleadtoagreaterpushforhighperformanceknowledgeexchangeinhealthcare, education,andotherareas,withmembersofourteamofourteamnowplayingkeyrolesinthe agencywithdirectmissionresponsibility. ThenationsCTO,AneeshChopra,andtheheadofNTIA,LarryStrickling,aremakingsurethat thegreatrecommendationsareimplementedandthemerelygoodareimprovedand implemented.Theyunderstandtheimportanceofhighperformanceknowledgeexchangeto thecountryandthepathweneedtotraveltogetthere. Wecanbepleasedbutweallknowwehavealongwaytogo.Nothingwillbedonepreciselyas weenvisioned,notshouldit.Aswewroteintheplan,theplanisinbetaandalwayswillbe. HighPerformanceKnowledgeExchangeisnotachievedinasingleevent;itisaprocessthatis everongoing.ThePlandidnotstartorendthatprocess.ButIhope,anditappears,thePlan acceleratedit. 96

Whichprovesaveryimportantpointworthrepeating:planbeatsnoplan.

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LetThemEatWireless

EliNoam294 ColumbiaBusinessSchool April2011

LastMarch,theFederalCommunicationsCommissioninWashington,withsomefanfare, presenteditsNationalBroadbandPlan(NBP).Ayearlaterandwellovertwoyearsintothenew Administration,itisworthlookingattheprogressinpromotinganinfrastructurethatcandidate Obamahaddeclaredessential. IwroteayearagointheFinancialTimes295thatwhiletheplanwasexcellentinits comprehensivenessanddirection,itwassignificantlyhobbledbyamajorrestrictionadismal budgetrealitywhichpreventstheAdministrationfromprovidingfundstoaprojectwhichit declaredtobeaprimenationalinitiative.WithinsuchconstraintstheNBPmanagedto maneuvercreatively.Butthat'snotthesameasdetermininghowthenationshouldproceedif itsnottryingtodoitonthecheap. Ialsolikedtheopenmindednessoftheplan,whichwasdescribedbyitsauthorsasabeta versionreadyforimprovements.Theyshouldbeencouragedtomaintainsuchaperspective. Theplanisanationalassetbutitisnotdoctrine.Inthespiritofconstructivedialogue,Iwill addressonemajorissue,thecentralrolethatwirelessupgradeplaysintheNBP. WhathashappenedintheyearsincetheNBPwasunveiled?Thegoodnewsisthatin2010, homeswithfiberpassing(orclosenearby)increasedbyabout9.5million,andcablesfast DOCSIS3.0becameavailableto25millionadditionalhouseholds.Butlittleofthatwasdueto theplanortostimulusmoneys.Actually,intheprecedingyear,2009,thoseupgradeshadbeen stillhigher,9.8millionfortelecomand30millionforcable.AsCITIsstudyofprojected investmentshows296theyareexpectedtodeclinein2011andbeyondastheupgradeand deploymentprogramsarenearingcompletion.Basically,theplansgoalsonbottomline
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EliNoamistheDirectoroftheColumbiaInstituteforTeleInformationandaprofessoratColumbia BusinessSchool 295 Noam,Eli,PayingfortheAmericanNationalBroadbandInternetPlanFinancialTimes,April5,2010. http://www.ft.com/intl/cms/s/0/89f0b14240e311df94c200144feabdc0.html 296 SeeAtkinsonandSchultzBroadbandinAmerica, http://www.broadband.gov/docs/Broadband_in_America.pdf

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connectivityseemtobemetbyregularmarketforces.Thetaskaheadismoreaboutunserved areas,astheNBPrecognized. Theplansbottomlinegoal,proclaimedbytheFCCChairman100millionhouseholdswithan internetconnectivityof100megabitspersecondby2020wasanuncomfortablebumper stickerfortheNBPsauthorswhosetargetsweremorecomplex.Butsomebottomlineis inevitablyneededtomeasureprogress,andusingsuchayardstickthe100squaretargetwas hardlyambitious.Asmentioned,giventherateatwhichprivatecableandtelecomcompanies arepushingahead,thegoalwouldbeachievedanywaywithoutgovernmentsupport(though notasequallydistributed).Othercountriesaremoreambitious.Korea,whichalreadytodayhas analmostuniversalserviceatthelevelof100Mbps,announcedatargetof1gigabitpersecond toeveryhousehold.Japanaimstoreacha100%fiberpenetrationin2011,upfrom50%in 2009.Australiaiscreatinganationalfibertotheneighborhoodfor93%ofthepopulationat100 Mbps,withlastmileupgradesforgigabitconnectivitytofollowwithdemand. AdvocatesoftheNBPdownplaytheimportanceofbitthroughputrates(speed)andstress insteadprogressintheapplicationsandpenetrationsofbroadbandconnectivity.Ofcourse, thereisadiminishingreturnforconnectivityspeed.Buthasitbeenestablishedthattodays speedinmetropolitanareasistheoptimumforthefuture?Theenvironmentishighlydynamic. Applicationsandperformanceareintertwinedinachickenandeggscenario.Whenalargeuser baseofhighspeedusersemerges,applicationscatchup,andviceversa. Justashorttimeagohardlyanyonewatchedvideoovertheinternet.Mostinternetvideo venturescollapsedbecausetheirspeedrequirementswereaheadoftheuserbase.Today,that problemhasdeclinedconsiderablyandthereisroomforYouTube,Hulu,andNetflix.Netflixhas overtakenComcastasthenumberonevideosubscriberserviceinthecountry.Millionsof peopleaccesstheirvideoentertainmentonline.Trytotakeitawayandexpectarebellion.Tryto denyittosomepeopleandexpectarevolt.Yesterdaysvisionbecomestodayscommonplace, andtomorrowsentitlement. Theleadingedgeofanelectronicinfrastructureisessentialforeconomicprogress,justasthe concernforthetrailingedgeisimportantforsocialdevelopment.Applicationsareofcourse important,buthistoricallygovernmentshavebeenmoresuccessfulininfrastructurewithits hugeexternalitiesroads,airports,transmissionlinesthaninapplicationsbuses,airlines, refrigeration. Andnow,themoderatespeedgoalintermsofpushingtheleadingedgeofinfrastructureof thenationalplanhasbeenfurtherloweredbyashiftofemphasis,fromnolessthanPresident BarackObama.InrecentspeechesPresidentObamahasselectedthewirelesspartoftheNBP forspecialemphasis.ThebroadbandprioritiesoftheAdministrationarenowpubliclyfocused

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ontheemergingnewfourthgenerationofwirelessmobileandfixedphonesanddevices,also knownas4G. Theideaistoliberate500Megahertzofspectrum,toauctionitofftoprovidersof4G presumablymobiletelecomcompanies,thusmorethandoublingtheirspectrumandtouse theproceedstocreatebroadbandconnectivityforunservedareasandpeople. Letslookattheelementsofthisprogram.Willithappen?Willitdothejobofspreadingenough broadband?Andwhatarethealternatives? Willthewirelessbasedapproachwork? Wherewouldthenewspectrumcomefrom?First,fromseveralexistingallocationsand governmentalusers,thoughwhetherthiswillactuallymaterializeisagoodquestion,because eachoftheseuseshasitsfierceadvocates.Intheplan,perhapswisely,thereisnoattempttogo afterbigslicesofgovernmentspectrum,evenwhereitislargelytechnologicallysuperseded, suchasdomesticradaroutsideofperimeterdefenses.297Asecondpartofthenewspectrumfor mobilecommunicationswouldcomefromothermobileuses,especiallythoseforsatellites, whichhavetanked. MostoftheremainingspectrumwouldcomefromexistingTVbroadcasters,whowould voluntarilygiveupallorsomeoftheirovertheairspectruminreturnforthecarrotofan unspecifiedsliceoftheauctionrevenuesandthestickofunspecifiedspectrumuserfees.These auctionswouldraiseanestimated28billiondollars. Butwillthishappen?Unlessfinanciallyimperiled,mostbroadcastershavenointentionto voluntarilysurrenderwhattheyhavecometoconsidertheirspectrumpatrimony,orbepushed toyetanotherband,especiallyiftheresultistofacilitatetheentryofcompetingvideo platformsandviewingoptions.Maybetheywillgiveupasliceoftheirspectrum,sincewith digitalmulticastingtheymightneedlessspectrumtostayinthesinglechannelbusiness.But, thebroadcastersmostlikelytotrytosellorleasetheirspectrumarethoseofruralTVstations withlowaudiencesandperhapshighdebt.Butinthoseareasspectrumisnotscarce.In contrast,intheurbanareaswhere4Gusewouldrequirealotofspectrum,broadcastersareless likelytosell. Broadcastersstillservicedirectlyabout15%ofAmericanhouseholds(andmanymoreover cable),andaretheprimarywayinwhichcandidatesforCongressreachtheirconstituents.Thus Congresswillnoteasilyapproveaninvoluntarydisplacementofbroadcastersunlesstheirrural constituentsbenefitsubstantiallytomakeupforlossofpartoftheirfreeTV.
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 Giventheinevitablelegislativeandlegalroadblocks,theprocessofshiftingspectrumfromTV broadcastingtotelecomwilltakemuchtimeandpoliticalcapital.Intheend,itislikelythat muchlessspectrumwillbeavailableforauctioningthanenvisioned,andhencelessmoney wouldbegeneratedbytheauctionthanhopedfor.Furthermore,inanycalculationofnet proceedsoneneedstosubtractthepayoffstobroadcastersfortheirspectrum,thecostof clearingotherspectrumbandsfortheirrelocation,thetaxdeductibilityandamortizationofthe spectrumlicensesbytheirnewholders,aswellastherequirementtosupportpoorTVviewers whentheyareforcedtomovetheirTVsetstoanotherband,andtocableandsatellite subscriptionTV. Andofthesespeculativeauctionrevenues,onlyapartwouldactuallygotobroadband infrastructureaonetime$5billionforrural4G.Virtuallynothingwouldgotowardsfiber upgrade,ortocablebasedinfrastructure,ortoanupgradedtraditionalcopperbasedDSL.$9.6 billionwouldgotocutthefederaldeficit.(Thisraisesanotherquestion,thoughnotoneof communicationspolicy:shouldthenationsellofflongtermassetsinordertofundcurrent consumption?)Anadditional$10.7billionwouldgotowardsapublicsafetynetwork,ofwhich aboutonethirdwouldpayoffthepublicsafetyuserstovacatetheirspectrumfor4Guse.Only thatthirdcouldbecountedtowardsbroadband.Inotherwords,amajorstrugglewith broadcastersinthenameofbroadbandinternetwillresultingeneratingonly$8.2billion towardsinfrastructure,allofitfor4Gwireless. Thesecondquestiontoaddressiswhetherthemobilewirelessapproachwilldothejobof creatingbroadbandforruralAmerica.Andhere,too,Iamsupportivebutskepticalwhetherthis isenough. Basically,theperformanceof4Gasabroadbandplatformismodestandwillbesoon insufficient.Myconclusionisnotbasedonlackofknowledgeaboutthewirelessmedium. Havingbeenalongtimewirelessenthusiastasalicensedradioamateur,AdvancedClass,Ive operatedmobileradiotransmittersandreceiversbeforemobilewirelessbecameaconsumer product.JustamongmyregularFinancialTimescolumnstherearehalfadozenfavorable columnsonthetopiccelebratingtheprogressofwirelessintheUS298advocatingmore

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Noam,Eli,ThereassertionofAmericainICT,FinancialTimes,June19,2010, http://www.ft.com/intl/cms/s/0/4a4531787b3311df893500144feabdc0.html#axzz1OtCaO3q3

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governmentspectrumforcivilianusage299openingupunderutilizedspectrum300acceleratingthe moveawayfromanalogbroadcasting;301andidentifyingthesuperiorityofmobilebasedTV.302 Movingmorespectrumtomobileandfixedwirelessusersisalaudablegoalanddeserving support.Butitishardlyanationalbroadbandpush.Itsforemostamobileenhancement.Its maincontributionwouldbetoimprovethecoverageforeverysmartphoneuserinthecountry tohigherdataspeeds,tomakebroadbandubiquitousgeographically,andtocreatecompetitive alternativestotheexistingcabletelcoduopoly.Theseareimportantaccomplishments.But theydonotsolvetheruralbroadbandproblem. 4Gwirelesswouldreachrealisticallyspeedsofonlyabout3Mbpsignoreallofthoseupto speedprojectionsinthepressthataregeneratedbycorporatePRmachinesoncealotof peopleusedataintensiveapplicationsandsharethespectrum.Thisisonlyafractionofthe speedofwirelinespeeds.Incomparison,fibersupportstoday150Mbps,andcaneasilybe upgradedtogigabitspeedsasdemandemerges.CablesDOCSIS3.0modemservicerunsatover 50Mbpsandcanreadilyreach200.EvenDSL,usingslightlyimprovedtelephonenetworks,can reachinnewerversionsover20Mbps.Inotherwords,fiberandcableare50100timesasfast, andDSLisabout7timesasfast,andtheyhaveadecentheadroomtoexpandspeed. Therearemanypeoplewhodonotconceiveoftheneedformorespeedthan4Gwillprovide whenitreachesruralAmerica.Thisisshortsighted.First,thereisthesimplematterof convenience.Ifittakesoneminutetodownloadamovieovercableorfiber,itwouldtake wireless,ataspeedthatisslowerbyafactorof100,onehourand40minutes.Thatisalotof time. Second,ifmillionsofpeopleweretostreammoviesoverwireless,thenetworkswouldcometo acrawl.Unlessonewouldaddhugeamountsofspectrumunavailableoraverylarge numberofcellsitesexpensiveandenvironmentallyunsound.Letsdoasimplebackofthe envelopecalculation.Supposewesucceedinallocatingto4Gnewspectrumtotaling300 Megahertz.Eachcellsitecoulduseonesixthofthesefrequencieswithoutinterferingwithits neighbors.Furthermore,duples(2way)communicationswouldhalvethechannelineach direction.Thiswouldtranslateusingatranslationof2bitspersecondpereachhertztoa2
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Noam,Eli,Curbinairdelaysforfree,FinancialTimes,December17,2007. http://www.ft.com/cms/s/0/1f124c7eacd811dcb51b0000779fd2ac.html#axzz1OtCaO3q3 300 Noam,Eli,Thefourthwayforspectrum,FinancialTimes,May29,2003. http://www.elinoam.com/eli/fourth_spectrum.pdf 301 Noam,Eli,Theothertransition:Analogswitchoff,FinancialTimes,January16,2009. http://www.elinoam.com/eli/the_other_transition.pdf 302 Noam,Eli,Comingsoon:mobile,immersive,interactiveentertainment,FinancialTimes,July17, 2009.http://www.ft.com/intl/cms/s/0/00ab099c730111dead9800144feabdc0.html

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waypipeof50Megabitspersecond.Therefore,anytimethatmorethan10peopletrytouse thecellsiteatthesametime,theaveragespeeds(combininguploadsanddownloads)would dropbelow5Mbps(50Mbpsdividedby10.)And,ofcourse,morethan10peoplewouldusethe cellsiteifitistheonlyormainconnectivitytotheinternet.Theonlywaytocounteractthis wouldbebyconstructingalargenumberofadditionalcellsites,sothatthenumberofpops (people)persitewoulddrop.Buteveniftherewouldbeacellsiteforeachsingleuser(lessthan apop)thespeed,bytheabovecalculation,wouldbeonly50Mbps.Thisisnotamatterof betterengineering,itsphysics.Engineeringmightimprovespectrumefficiencyandother elementsabit,buttheheadroomisnothuge. Third,applicationswillcontinuetorapidlygrowintheirneedsforspeed.Letsdoanotherback oftheenvelopecalculation.AnHDqualityTVhas1080horizontallinesand1920verticallines, i.e.2millionpixels,3primarycolorsarerequiredforeachpixelat8bits/color,and60frames persecondistheTVstandard.ThismeansthatsuchHDTVrequires3Gbpsofspeed,plussome foraudio.Ahouseholdwillrealisticallyrequireasecondandthirdchannelforother simultaneoususessuchasTVwatching,games,orchannelsurfingbyothermembersofthe household,orbymultitaskers.Thiswouldmeanatransmissionspeedrequirementofabout10 Gbps.(Compressionreducesthis,ofcourse,maybebyafactoraof100,andonewillreducethe framerateto30.Thiswouldbringdowntherequiredbitrateto50Mbps,butattheexpenseof qualityandlatency.Latencyisimportantformultiplayergames.)Butthehighernumberof10 Gbpsisthebenchmark. Andthisisnottheendforspeedrequirements.Noneoftheaboveisextravagant.WithTV screensbecomingflatter,bigger,andcheaper,thepixeldensitywillhavetogrowjustto maintainsharpness.ThenextgenerationofTVresolution4Khasabout8.5millionpixels. Thereare3colorsperpixel,andtheywillrequireanincreaseto16bitscolor.Theframerate willremainat60framespersecond,andmorelikely72ormore.Thisaddsupto44Gigabitsper second.Tocreatethreedimensionalityrequiresadoubling.2wayinteractivitydoublesthis again.Superioraudiosucha5.1or7.1willalsorequiremorebandwidth.Addingallthisup, backoftheenvelopestyle,resultsinatransmissionrequirementofabout200Gigabitsper second.ThreesuchchannelsperhouseholdswouldbringittooveronehalfofaTerabit.(And thisdoesnotevenincludeafutureTVofimmersion,whichwouldwraparoundtheviewerand requiretentimesasmuch.).Thisisabout200,000asmuchasthespeedof4Gundernormal utilization,andevenmoreif4Gisheavilyutilizedandthussloweddown! Obviously,allofthesenumberswillbesqueezedbycompressionandothertechniques.Butthis isthereferencepointfromwhichengineeringmustartfullywhittlebitsawaytofitthenarrower channel.Evenifwecompressandreducebandwidthbyafactorof1000,itwouldstillrequire 600Mbpsperhousehold,200timesfasterthan4G.

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Yes,itwilltaketimeforsuchTVtoemerge.Fromtodaysperspectiveitmightnotseemtomeet animminentconsumerdemand.Butthatswhatpeoplealsosaidwhencolorsupplantedblack andwhite,orwhen1080linesofHDdoubledthe525linesofNTSC,orwhenDVDsreplaced VCRs,orwhencableTVintroduced12channelsinsteadofthefourorfiveovertheairsignals. Usersgetusedtohigherqualityandquantityalmostimmediatelyandtheynevergoback. Thepointisthatweshouldnotunderestimatethecontinuedpushtowardssuperiorvideo quality.TheNBP,too,mentionsthattransmissionspeedsofbroadbandhavebeenrisingatthe rateof20%peryear.Thisisagoodreminderthatweshouldnotfashionnationalpolicyon assumptionsofastaticTVbutfutureproofitinstead.Andweshouldnotexpectruralareasto sitbyholdingtheirlittle4Glaptopscreenswhiletheirmetropolitanbrethrenenjoy2way,3D, 4K,5.1sound,6footscreentelevision. Thereareotherdimensions,too.First,costtousers.Becauseoftherelativescarcityof spectrum,mobile4Gbroadbandservicewouldbemoreexpensivethanwirelineservices,asa waytomatchdemandwithsupply.Satellitebasedbroadbandinternet,eveninitsforthcoming nextgeneration,isstillmoreexpensive.Andtherewillbenosavingsinhardware.Itshardto imaginethatruralpeoplewoulddotheirtaxesortypetheirresumesonasmartphone,sothey wouldstillrequireacomputerortabletdeviceformeaningfuluses. Second,costtotaxpayers.Fromataxpayersperspective,a4Gwirelesscoveragewouldalsobe moreexpensivethanDSLforlargepartsofthecountry.ThisisshownbytheFCCitselfinitsmap depictedbelow.Ascanbeseen,forthewesternandnortheasternpartsofthecountry,closing thebroadbandgapbymeansofDSLwouldbecheaperthanwith4G.303 Third,restrictivnessonusers.Theinherentlimitationsofwirelesscommunicationsmeanthat theirusewouldbemorerestrictedandmanagedbythenetworkoperatortokeepdataflowing. Inotherwords,theopennessoftheinternet,protectedthroughrulesofnetneutralitywhich arealsoaprioritytotheObamaAdministration,wouldbehardertosustaininthemorelimited wireless4Genvironment. Wouldruralareasacceptforlongthe4Gmobilecommunicationsastheirbroadbandplatform atalowerspeed,higherprice,andwithlessopenness?Atfirst,itwouldofcoursebean improvementforthosewhocurrentlyhavenobroadbandaccessatall,andprovidecompetitive alternativestoothers.Thiswouldbewelcomedwithopenarms.Butsoon,therealityofa
303

TheFCCmapprobablyignoresthepotentialoffixed4Ginruralareas,whichcouldprovidehigher speedsatalowercostthanDSL,andareoftenoperatedbyindependentcompanies,socalledWISPs. Theyoftenuselicensefreebandsinlowdensityareaswherespectrumismoreplentiful,thusnot requiringthecostlyrelocationsofexistingusers.

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secondgradequalityofconnectivitywillsinkin.Itwillleadtoalternativemarketbasedor politicalsolutionstoupgradetheserviceleveltomatchthatofmetropolitanareas,i.e.,to wireline.Thus,4Gwirelessisonlyatemporarysubstitute. 4Gastheplatformforbroadbandconnectivitymightgetabitfasterwithtechnology,butabsent ahugeextraallocationofspectrumorvastarrayofcellsitesunlikely,costly,and environmentallycontroversialthewirelinetechnologieswillleavewirelessinthedust.Its basicphysics. Andasmetropolitanareasacquirewiredconnectivityspeedsofhundredsorthousandsof megabitpersecond,ruralareaswillnotremainsatisfiedwithwireless4Gspeedsthatarea hundredtimesslower,anymorethantheirgrandparentsstayedwithpartylinephone connections.Andwhyshouldthey?Itsbasicpolitics. Already,mostruralhouseholdsarenotdependentonwirelessforbroadband.Amajorityof suchresidentsarealreadypassedbycableTVwhichenablesmuchfasterspeeds,andstillmore ruralhouseholdsalsohaveaphoneconnection.Intime,thesewirelineconnectionswillbe upgradedandreachmostruralhouseholds.Thisdoesnotrequireagreenfieldsconstruction. EventheFCCsownmapshowsthatupgradetoDSLwouldbecheaperthan4Gwirelessfor muchofthelowdensityregionsintheWestandNortheast.Thisleavesoutonlythoserelatively fewhomesthatarenotconnectedtoanycommunicationsnetwork,yetwhohaveelectric power.Theirproblemcanbedealtwithbyfixedwireless,providedbyentrepreneurialWISPs, withoutsuchatinytailwaggingtherestofthecountry. Wearefrequentlytoldthatthegovernmentshouldnotandwillnotpickplatforms.Butthe NBPsemphasisonfundingandclearingthespectrumfor4Gisexactlythat.Enhancedmobility isimportant.Butitcannotbedescribedasaplatformneutralityforbroadband. Whythennotmovethenationalefforttofiber(withpossibletailsofcoaxorfixedwireless), whichisfutureproof,incontrasttowireless?TheproblemisthattheFederalbudgetdeficit doesnotpermitthefundingofanationalfiberorruralnetworkupgradeinitiative.Thisleaves thegovernmentwiththefallbacktouseanoffbudgetcurrencyspectrumallocationsto advanceitsgoals,anditshapesitspreferencetothewirelessplatform. Butiffiberandothernetworkupgradesaretobepursued,astheyshouldbe,weshouldjointly andconstructivelybrainstormabouthowthoseinvestmentscouldbegenerated,ratherthan putallpubliceggsinthe4Gbasket. Beforewedoso,letsgetsomesenseofthefundingmagnituderequired. Canweaffordawirelinenetworkupgrade?Theplansadvocatespresentnumbersthatareso hugeastoserveasdealbreakers,about$320billionofincrementalgovernmentalsupport.This 105

number,whosederivationisnotexplainedorcouldnotbefoundintheNBPreportorits technicalpapers304,isbasedona100%penetration,whichisunrealistic.Thelastfewpercent accountformuchofthecost.EvenPresidentObamaspokeofa98%wirelesspenetration. Second,anygovernmentsubsidywouldnothavetocovertheentireinvestmentcost,onlypart ofit.Yetbyotherestimates,thenecessarysubsidytosubsidizefiberacrossthecountry,ismuch lower.DaveBurstein,editorofDSLPrime,estimates$14billion,basedonextrapolatingVerizon FiOS's$650perhomepassedto80%ofthecountry,andsubtractinghomesalreadyreachedby fiber.Fromthisshouldalsobesubtractedthenumeroushouseholdswhichalreadyarereached bycablemodemservice,andthosehouseholdsforwhompremiumDSLprovidesahighspeed option.Evenifwemultiplythelowerfigurenumberbythreeitwouldmeanthatanextensionof broadbandservicebyacombinationoffiber,cablecoax,andDSLisnotwildlyoutofreach, especiallywhensuchupgradeisspreadoutoverseveralyears. Thisdoesnotreplacethewirelessapproachbutaddsastrongwirelinealternativedimension. Themostconstructiveapproachhereneeded,givenbudgetrealities,istocreativelygenerate offbudgetstrategies,beyondtheauctionsofbroadbandspectrumandnotexcludingit.Justas broadcastauctions,thesestrategiesaresecondbestoptionsconstrainedbyrealities,justas thefinancingthroughbroadcastauctionsare.Choicesarealwaysimperfect.Optionsinclude: 1.Taxincentives,throughinvestmentcreditsorforincremental highspeednetworkupgradesinlowlowdensityareas,andforcertainhardwareupgradesby lowincomeendusers.Taxincentivesarenotideal,butcomparedtowhat?Directgovernment moneyinfusionisntlikely.Thestimulusfundingisgone.Andfundingthroughspectrum transferswillnotbesufficient. 2.Regulatoryincentives,suchasencouragementforcable,telecoms,andotherinfrastructure providerstosharethefiberinlowdensityareasandthusreducetheircost.Thiswouldhaveto besubjecttoopennessrequirementsandconsumerprotections. 3.CreationofaFederalofftaxfundingmechanism.Thisalreadyexiststhroughtheuniversal servicefundforruraltelecom,whichisbeingtransformedintoawiderconnectionmechanism forAmericanbroadband.ThatisoneofthemostpositiveinitiativesoftheNBP.Itis,ineffect,an internaltaxingmechanismfortelecomandsoonforbroadband,paidthroughalevyon communicationsbills.However,theamountsraisedtodayforhighcostareasisabout$4.5 billion,ofwhichmaybeathirdwouldgotobroadbandupgrades,whichisnotenough. Expandingthismechanismwouldbethemostrealisticsourceoffunding,anditmightfindthe
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FCCOmnibusBroadbandInitiative.TechnicalPapers:Chapter3. http://download.broadband.gov/plan/thebroadbandavailabilitygapobitechnicalpaperno1chapter 3calculatingtheinvestmentgap.pdfLastaccessedMay2,2011

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approvalevenofantitaxRepublicansbecauseitisproruralandnotformallyatax.Butitmust alsobetargetedcloselytolowdensityareas,andnotbesprinkledasabenefittoallruraltelcos. 4.Localcostsharing.Thereshouldbeamuchstrongerroleandresponsibilityforstatesand municipalitiestosupporttheinfrastructureintheirstatesfollowingtheirownpriorities.They couldworkwithprivatecompanies,andusetaxfreemunicipalbondstosupporttheseprojects. Theycouldsupportthebuildingofcelltowersontheirlandandofbackhaulfromthosetowers, andsharethemamongproviders,whichwouldalsomakeenvironmentalsense.Thisshouldbe promotedbyFederalmatchingcontributions,usingthebroadbandfundmentionedabove. 5.Addspectrum,beyondtheproposedreallocation.Institutea"useitorloseit"spectrum policy,andreclaimunusedspectrumandreallocateittounlicensedusers,withauserfee payabletoexistinglicensees.305 Thiswouldincludegovernmentalspectrum,whichtheNBPtreatsgingerly.Andgivelicensees flexibilityinwhattheycandowiththespectrum.(Aquasieconomicargumentisfrequently madeisthatauctioningoffbroadcastspectrumwillturnsuchspectrumtoitsbestuse,closing thevaluegap.Well,onewouldexpectsuchagap.Ifoneputsonetypeofusagemobile communicationwhichhasanunregulatedpricingandsubscriptionmodelagainstanother typeofusagefreeTVthatisprohibitedfrompaymodels,ofcoursethefirstplatformwins.) Providingmorespectrumfor4Gisalaudablegoalandshouldbediscussedonitsownmerits. Butsuchatransferfromoneindustrytoanothershouldnotbesoldpoliticallyasaprorural policywhenthatextraspectrumismostlyimportanttometroareas.Itisnotamajorbroadband initiativeifonly$58billionareallocatedtothatpurpose,underthebestofcircumstance.It shouldnotbeusedasadeficitreductionpolicy,whenwesellscarceassetstofundcurrent consumption,andwherethenetcontributiontothebudgetwillbeprobablymuchlowerthan hopedfor.AnditshouldnotbeexpectedtosolveruralAmericasbroadbandneedswhenthe actualservicegradewillbesignificantlyinferior,andwherewirelinealternativesareavailable. Thus,wirelessasastrategytospreadbroadbandisashorttermstrategy.Ifwewanttoaddress thefuturewemustalsoaddressplatformswithmuchgreaterspeeds.Letsstarttodoso withoutdelay,andwithoutdefensiveness.Muchworkneedstobedone.Thereisnodoubtin mymindthatwithin20yearsvirtuallyallAmericanhouseholdswillusebandwidthwellabove 200Mbps.Muchofitwillbeprovidedonacommercialbasis,butsomewillhavetobe generatedbyavarietyofpublicpolicies.In20yearstherewillbefiberconnectivityprettymuch whereverthereiscoppertoday,usingthesamerightsofway,utilitypoles,andducts.And
305

http://www.citi.columbia.edu/elinoam/articles/SPECTRM1.htm

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peoplewillthenwonderhow20yearsearlierwethoughtthat3Mpbswouldbeenough.Justas wewondertodayhowourparentsorgrandparentsgotalongon3or4TVchannels.

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EconomicImpactofWirelessBroadbandInRuralAmerica

ByRaulL.Katz(*)
ABSTRACT

This study, utilizing federal and state level statistics and relying on econometric analysis, estimates the economic impact that full deployment of rural wireless broadband would have on rural America. This investment will result in the creation and/or retention of 117,000 jobs in the nineteen states that have the lowest broadband availability and penetration in the United States. Jobs will be primarily concentrated in the wholesale trade, health and financial services sectors. Of the total 117,000 jobs, approximately 38,500 will be new jobs created as a result of the economic boost provided by wireless broadband in rural areas. The remaining 78,500 jobs will be saved as a result of the combination of economic growth and increased capabilities resulting from the ability to gain access to broadband services.

________________________________ ________________________________ __
(*) Dr. Raul Katz is Adjunct Professor in the Division of Finance and Economics at Columbia Business School, and Director of Business Strategy Research at the Columbia Institute for TeleInformation. He was assisted by Javier Avila and Giacomo Meille, research analysts at the Columbia Institute for Tele-Information

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ThisstudywasfundedbytheRuralCellularAssociation.Theauthorissolelyresponsiblefortheviews expressedinthisstudy.

INTRODUCTION: ThebroadbandsupplygapinruralAmericaissignificant.Ofthe7,035,613housingunitsthatare eitherunservedorunderservedbybroadbandhighlightedintheNationalBroadbandPlan,a largeportionislocatedinwhatthecensusbureauclassifiesasruralcounties.Thebroadband mapestimatesthat4,326,299householdsthatdonothaveaccessorcanonlypurchaseservice withadownloadspeedthatislessthan4Mbpsarelocatedinruralcounties306.Thisisnosurprise since,asexpected,thebroadbanddeploymentplansofnationalcarriersdonotincludeintheir prioritiestheconstructionofeitherfixedormobilebroadbandfacilitiesinthesegeographies becausetheirlowercustomerdensityand/orlowsocioeconomicpopulationdonotresultin attractiveeconomicsofnetworkdeployment.

Obviously,supplygapdoesnotequatetobroadbandpenetrationinthesensethatevenunder universalcoverageconditionsitwouldbeexpectedthatanumberofthesehouseholdswould notbesubscribingtobroadbandservicesimplyduetoissuesrelatedtoaffordabilityand educationalfactors307.Nevertheless,unlessthesecommunitiesarenotgiventheopportunityto connecttotheInternettheywillremainpermanentlymarginalized. ItisinthiscontextthattheNationalBroadbandPlanidentifiedasanationalprioritythe deploymentofbroadbandtechnologytoaddresstheunservedandunderservedcommunities. Inparticular,thePlanemphasizedthatwirelessbroadband,morespecificallytheservices offeredwithinthe700MHzfrequencyband,wasoneoftheprimarytechnologiessuitedto addressthesegaps.InadditiontothegoalsoutlinedintheNationalBroadbandPlan,oneofthe basicobjectivesoftheBroadbandTechnologyOpportunitiesProgram(BTOP),astimulus programincludedintheAmericanRecoveryandReinvestmentAct,istopromotedeploymentof broadbandfacilitiescoveringwhataretodayunservedorunderservedcommunities.

Theobjectiveofthisstudyistoevaluatetheemploymentimpactthatresultfromwireless broadbanddeploymentinruralAmerica308.First,itreviewsevidencefromotherstudies
306 307

RuralcountiesdenotedbyUSDAruralurbancontinuumcodes4andup. SeeHorrigan(2009). 308 InapriorstudyofbroadbandemploymenteffectsintheUnitedStates,thisauthorcouldnotreacha preciseestimationoftheimpactofpositiveexternalities(seeKatzandSuter,2009)

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regardingtheeconomicimpactthatbroadbandhasonruralenvironments.Second,itfocuseson Kentucky,astatewithalargeruralpopulation(whichhasgeneratedadisaggregateddatasetof broadbandpenetrationanddeployment),andanalyzestheeconomicimpactthatbroadband hashadinthepast.Withthisevidenceinhand,weprojectthepotentialeconomicimpactof deployingbroadbandintheunservedandunderservedareasofKentucky,andextendthe resultsto19stateswiththelowestbroadbandpenetrationinthenation. RESEARCHEVIDENCEOFTHEECONOMICIMPACTOFBROADBAND: Theeconomicimpactofbroadbandcomprisesfourtypesofeffects(seefigure1). Figure1.Broadbandeconomicimpact Thefirsteffectresultsfromtheconstructionofbroadbandnetworks.Likeanyinfrastructure project,thedeploymentofbroadbandnetworkscreatesjobsandactsovertheeconomyina waythatisencapsulatedbymultipliersmeasuringtheinterrelationshipbetweenindustrial sectors.Thesecondeffectresultsfromcalculatedgainsand"spillover"externalities,(suchas networkeffectsandinnovation),whichimpactbothenterprisesandconsumers.Forenterprises, theadoptionofbroadbandwithinfirmsleadstoamultifactorproductivitygain,whichinturn contributestogrowthofGDP.Ontheotherhand,residentialadoptionhasamultipliereffect thatincreasesrealhouseholdincome.BeyondthesedirectbenefitswhichcontributetoGDP growth,residentialusersreceiveabenefittotheirconsumersurplus,whichisdefinedasthe differencebetweenwhattheywouldbewillingtopayforbroadbandserviceanditsprice. WhilethislastparameterisnotcapturedintheGDPstatistics,itcanbequitelarge.Consumers maybewillingtopaysubstantiallyabovethemarketpriceforbenefitssuchasenhancedaccess toinformation,entertainmentandpublicservices.

Broadbandresearchthatshowshardevidenceofaneconomicimpactfallsintothreecategories:

Contributionofbroadbanddeploymenttoemploymentandoutput ("countercyclicaleffect"):Crandalletal.(2003),Katzetal.(2008),Atkinsonetal. (2009),Liebenauetal.(2009)Katzetal.(2009),andKatzetal.(2010) 111

ImpactonGDPgrowthandemployment("externalities"):Crandalletal(2007), Czernichetal.(2009),ThompsonandGarbacz(2009),Koutroumpis(2009), Qiangetal.(2009),Gillettetal.(2006),Shideleretal,(2007) Creationofconsumersurplus:CrandallandJackson(2003);LeeandLee(2006); GreensteinandMcDevitt(2009);Greenstein&McDevitt(2010)

Inparticular,theimpactofbroadbandonruraleconomiescomprisesseveraleffectsthatare specifictothegeographicarea.Onaggregate,theimpactofbroadbandonstateswitha predominantlyruralgeographyissignificant.Forexample,inarecentlypublishedsurveyof 30,000householdsand70,000businessesinNorthCarolina,theStrategicNetworksGroup (2010)foundthat:

18%ofnewjobswerecreatedondirectaccountofbroadbandinternet" (Thisincluded28%ofjobscreatedatsmallfirms(<20employees)) 54%ofbusinessessaidtheycouldnotoperatewithoutbroadband 45%ofNorthCarolinasbroadbandhouseholdsareeitherrunninga businessfromtheirhome(31%)orplanningtorun(14%)oneinthenext12 months 65%ofhouseholdsuse(42%)orplantouse(21%)broadbandtosellthings online 85%percentofestablishmentssaidthatbroadbandwasessentialtotheir business

However,whiletheaggregateimpactappearstobesignificant,itisimportanttodifferentiate broadbandimpactwithinthreedistinctregions:metropolitanareas,ruralenvironmentsthatare adjacenttometropolitanareas("ruralperipheries")andremoteruralareas.Eachoftheseareas hasgeographicandeconomicspecificitiesthatconditiontheeconomiccontributionof broadband.Infact,researchsuggeststhatduetothespillovereffectsofmetroareasonrural peripheries,(e.g.,laborarbitragecosts,transportationandwarehousing,etc.),theeconomic impactofbroadbandonthelatterregionissignificant.Ontheotherhand,thespecificfeatures ofruraleconomies(e.g.,heavyagriculturalsectoremphasiswithparticularproduction functions),maylimitandcauseanextendedtimelagfortheimpactofbroadbandinnonmetro adjacentareas.

Broadbandeconomicimpactinremoteruralperipheries:

Ruralperipheries,definedasthegeographiessurroundingmetropolitanareas,aresubjecttoa specificsetofinterrelationshipwithurbancenters.Forexample,theeaseofaccesstolabor poolswithsomecostdifferentialsfacilitatestherecruitmentofemployeesresidentinthe periphery.Similarly,lowerrealestatecostsresultsintherelocationofcertainfacilitiesand functionstoadjacentruralareas.Inthiscontext,broadband,inawaysimilartotransportation infrastructure,actsasanenablerofthespatialspillover,allowingtheruralperipheriesto benefitfromtheeconomicgrowthofmetropolitancenters.Priorresearchhasidentifiedthe multipleeconomiceffectsthatbroadbandresultsin:

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Firmrelocationwithconsequentimpactonemploymentandpayroll Growthinthenumberofestablishmentsthatbenefitfromlowerrealestate costswhileservingthelargemetropolitanmarkets Facilitationoftelecommutingwithconsequentreductionintransportationcosts andlessquantifiableincreaseofconsumersurplus

Theresearchliteraturehaspointedoutthedirectrelationshipexistingbetweeneconomic impactofbroadbandandproximitytourbanconcentrations.Reasonscouldrangefromsupply side(e.g.economicsofdeploymentfavorearlyentryofcompetitiveproviders)todemandside (e.g.sectoralcompositionoftheeconomyemphasizingindustrieswithhightransactioncosts).

IntheirevaluationoftheUSDABroadbandLoanProgram,KandilovandRenkow(2010)found thatthecommunitiesclosesttourbancentersbenefitedsubstantiallyfromloansforbroadband deployment309.Inparticular,theydeterminedthatthebroadbandeconomicimpactin metropolitancountiesishigherthaninthoseruralcountieslyingintheperipheryof metropolitanareas.Nevertheless,broadbanddeploymentappearstoimpactemploymentand, minimally,thenumberofestablishmentsinruralcounties.Whyisbroadbandhavingsome, albeitattenuated,positiveeffectinruralcountiesadjacenttometropolitanareas?Theanalysis theauthorsperformbyindustryindicatesthatthestrongestpositivecontributionofbroadband toemploymentandpayrollliesinthetransportationandwarehousingsector.Thiswould confirmthetrendthatmetroadjacentruralcountiesbenefitfromrelocationoffirmstothe peripheryenabledbybroadbandandrelatedinfrastructure.

AsimilarfindingwasreachedbyBurtonandHicks(2005)intheirstudyoftheCentral Appalachianregion,accordingtowhichnewbusinessesareunlikelytolocateinareaswithout broadband.Thestudyconcludesthat,whilebroadbandisnotasignificantindicatoroffirm productivityingeneral,forfirmsofthesameage,productivityincreases1417%iflocatedina broadbandarea.Assuch,thereisatendencyforproductivefirmstolocateinplaceswith broadband.ThisfindingisalsosupportedbyastudyoftheimpactofIowasMunicipal TelecommunicationsNetwork(2003)ontherelativesuccessofthepreviouslybedroom communityCedarFalls,IAovertheneighboringcommunityofWaterloo310:

Shideleretal.(2007)alsofoundthatbroadbanddeploymenthadastatisticallysignificant positiveimpactonoverallemploymentinKentucky,accountingforbetween0.14%and5.32%of overallemploymentgrowthduringtheobservedperiod.Italsofoundthatadditionalbroadband deploymentwasmosteffectiveatstimulatingemploymentgrowthinlocalesthatalreadyhadan

309

Theauthorsmentionthat,accordingtoaprogramaudit,itwasfoundthatbetween2005and2008, broadbandloanswereextendedto148communitieswithin30milesforcitieswithpopulationsgreater than200,000. 310 Asanote,neitheroftheareascanreallybeconsideredrural;CedarFallshadapopulationof36,000 andWaterloohadapopulationof69,000,makingthemmuchmoresmallcityorsuburban.

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averagebroadbandsaturationinsteadofareaswithsparsedeploymentorhighsaturation, suggestingincreasingemploymentreturnstodeploymentinunderserved(likelyrural)areas.On anindustrybyindustrybasis,Shideleretal.(2007)foundbroadbandtobethemaindriverof increasingemploymentintheinformationsector(25.27%to87.07%ofgrowth),the administrative,support,wastemanagement,andremediationservicesector(23.74%to 84.56%ofgrowth)andtheconstructionsector(0.62to21.76%ofgrowth)311. However,otherstudiescastsomedoubtonShideleretal.supbeatpicture.Shideleretal.noted broadbanddeploymentwastheprimarydriverofemploymentinonlytwoareas:the informationsector,andtheadministrative,support,wastemanagement,andremediation sector.Fortheinformationsector,thestudypointedtothenecessityofbroadbandtoIT companiesandtheincreasedpossibilityoftelecommutingasthelikelymechanismsbywhich broadbandsupportedemploymentgrowth.Intheadministrative,support,wastemanagement, andremediation,theypointtotelecommutingandpromulgationofcallcentersinruralareas wherebusinessinputs,includinglabor,becomeaffordablewhenbroadbandinfrastructureis available.However,althoughtheincreasedpossibilitytotelecommuteiscommontoboth sectorsandiscitedasamajorreasonforemploymentgrowth,Song(2006)foundinitsstudyof broadbandimpactinIowanostatisticallysignificanteconomicbenefittotelecommutingasa wholebesidestheconsumersurplusofbeingabletoworkfromhome312.Inotherwords, telecommutingcannotyetbeprovedtocreatejobsorincreaseGDP.

Ontheotherhand,regardingtheargumentthatupgradedbroadbandinfrastructuremaymake itcosteffectiveforITcompaniestodomorebusinessandincreaseemployment,andforcall centeroperationstobeexpandedgivengenerallylowerexpensesinruralareasoncebroadband isinstalled,GreensteinandMcDevitt(2010)arguethatgrowthinemploymentinbusinesses enabledbybroadbandmayjustaseasilybecannibalismofjobsfromelsewhereinthestateor

311

Thisisunsurprisingfortheinformationsector,andtheauthorspointtobothtechnologycompanies requiringbroadbandtooperateandtheincreasedabilitytotelecommuteasreasonsbroadbandimproved employmentinthesectors.Theauthorsrationalizebroadbandhelpedgrowthintheadministrative, support,wastemanagement,andremediationservicesectorduetotelecommutingandbecausethat sectorincludesthecallcenterbusiness,whichrequiresbroadbandinfrastructuretooperateandhasbeen expandinginruralKentucky.Theauthorsbelievethatgrowthinconstructionemploymentattributedto broadbandwasmainlyasecondaryeffectfromdemandforconstructionbroughtaboutbyincreased growthinothersectorsaffectedbyimprovedbroadbandaccess.Broadbanddeploymentimproved (thoughwasnottheprimarydriverof)employmentintherealestate,rentalandleasing,arts, entertainmentandrecreation,andotherservicessegments.Accommodationsandfoodservices werenegativelyimpactedbyincreasingbroadbandpenetration,theauthorsargue,becauseofthe reducedneedfortravelagenciesandthesubstitutionofbroadbandenabledtechnologyforotherwise lowwagelabor.Broadbandseffectonothersectorswaseitherneutral,notstatisticallysignificant,or couldnotbegeneralizedduetotoosmallasamplesize. 312 Song(2006)statesthataftercontrollingforendogeneity,returnstoruralITadoptionarenot significant,implyingthatthegainsfromtelecommutingaremorelikelytocomefrompeoplemovingto ruralareasinsteadofenablingexistingruralresidentstotelecommute.

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inthecountryinsteadofthecreationoftrulynewruraljobs.Thisargumentwasalsoraisedby thisauthorinhisanalysisofpotentialimpactoftheBroadbandTechnologyOpportunity Program(KatzandSuter,2009).Inthecaseofcallcentersinparticular,itiseasytoimaginea netlossscenariowhereurban,higherpayingjobsarecannibalizedbylowerpayingruraljobs madepossiblebygovernmentsponsoreddeploymentofruralbroadband.Whileobviously difficulttoquantifyeitherway,thelogicofcannibalismcutsagainsttheeconomicpotentialof broadbanddeploymentonboththesectorandaggregatelevel,raisingsomedoubtsaboutthe optimisticconclusionsofShideleretal.(2007).However,ithasalsobeenindicatedthatjob creationinruralareascouldtakeplacenotasaresultofurbandecline,butdrivenbyrelocation ofenterprisesfromoverseasbacktotheUnitedStates313.

Broadbandeconomicimpactinremoteruralareas314:

Theimpactofbroadbandinremoteruralareascomprisesthecombinationofmultiple countervailingeffects,someimpactingeconomicdevelopmentandothersenhancingconsumer surplus: Relocationofestablishmentstoruralcountiesinspecificindustrysectors, combinedwithemploymentlossesinothersectors(e.g.retaildistribution) Productivitygainsinselectedsectors(e.g.travel,lodgingandentertainment) whichcanresultinemploymentlosses Improvementsinaccesstohealth,education,socialinclusionandentertainment

AstudyofresidentialinternetbehaviorinShippagan,Canada(Selouanietal.,2007)315,reveals thatprimaryimpactofthetechnologyisintheareaofsocialinclusion,withconsequent consumersurplusincrease.AsimilarstudytoShipagganalbeitrelyingoninputoutput matrices316,wasconductedforSouthDundas,aCanadiantownshiplocatedaround150 kilometersawayfromMontrealand120kilometersawayfromOttawa(StrategicNetwork Group,2003).BetweenJune2001andApril2003,thefollowingeconomiceffectscanbedirectly attributedtothedeploymentofafibernetworkinthetown: $25.22millionincreaseinGDPforDundasCountyand$7.87millionincreasefor theProvinceofOntario

313

Anotedcaseinpointistheattractionofcallcentersbacktothiscountry.Virtualcallcentersrelyon ruralpopulationlinkedtoacentrallylocatedsupervisor.TheyhavebecomeincreasinglypopularintheUS duetothequalityofthelaborpoolandeconomicsthatcangetclosetomatchingcallcentersoverseas. 314 Itisimportanttoobservethatalargeportionofresearchonbroadbandimpactinruralisolatedareas hasbeenconductedinCanada.Thisraisestheneedtoemphasizethedevelopmentofresearchinthis realmwithintheUnitedStates. 315 Thecommunityisextremelyrural;itis255kilometersfromthenearestcityofmorethan100,000 (Moncton),andis500kilometersfromQuebecCity. 316 Thedatafortheinputoutputmodelusedinthestudywascollectedfromasurveyofeverybusinessin theDundasarea.

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207personyearsofemploymentforDundasCountyand64fortherestof Ontario $3.5millionincreaseinprovincialtaxrevenuesand$4.5millionincreasein federaltaxrevenues

Additionalfindingssuggestthatthereisacorrelationbetweentheuseofbroadbandtechnology andjobgrowth.Nineteenoutof38(50.0%)businesseswithbroadbandaccesstotheInternet experiencedjobgrowth.Thisnumberincludes24organizationsusingthefibernetwork,13of which(54.2%)experiencedjobgrowth.Whiledatasuggeststhatthereisalinkbetweenjob growthandbroadbandaccess,acausallinkcouldnotbeestablishedduetothelimitednatureof thisstudy,thoughthecorrelationappearstoholdacrossindustrysectorsandorganizationsize.

Tosummarize,theresearchresultsindicateadirectionallypositivecontributionthatbroadband makestoeconomicgrowthandjobcreationinruralareas.Theeffects,sofar,appeartobemost significantintheruralperipheriesofmetropolitanareas,wherebroadbandoperatesasan enablerofspatialspillover,resultinginanexpansionoflabormarkets.However,itisimportant toemphasizethatjobcreationintheruralperipheriesmightresultfromlabordisplacement fromeitherthemetropolitanareasorotherregions.Inaddition,thetechnologyfacilitatesthe redeploymentofindustriestotheruralperipheriestogainaccesstolowerrealestatecosts,and betterlinktotransportationnetworks.Finally,whilestillnotsignificant,theeffectsof telecommutingappeartobeplayingaroleineconomicgrowthoftheruralperipheries.

Withregardstoisolatedruralareas,researchresultsarebeginningtoyieldsomeinsightsonthe economicimpactofbroadband.Asexpected,employment,payroll,andfirmrelocationappear tobelessinfluencedbybroadbandinruralperipheries.However,somecasestudiesindicate thatbroadbandcanfacilitatesomejobcreation,andmoreimportantly,counterruralurban migrationtrendsbyenhancingsocialinclusionthroughcommunicationsandinformation access317.

THEECONOMICCONTRIBUTIONOFBROADBANDINKENTUCKY

ThissectionanalyzestheimpactthatbroadbandhashadontheeconomyofKentucky.Itbegins byreviewingthediffusionofbroadbandtechnologyandrelatedITplatformsinthestate. Followingthis,econometricmodelsestimatingthepastimpactofbroadbandonemployment andothereconomicindicatorsarepresented.Finally,basedonthestatisticalmodels,the impactoffuturebroadbandadoptionisestimated.

317

ifjobtransfersoccurfromthecitytoruralareas,economistsmightarguethatthisisapositivemove bringingsomeequilibriumamonglaborpools.Finally,sociologistswillalsoarguethatjobtransfersfrom metrotoruralareashelptheretentionofemploymentinthelatter,whichpromotesamoreviable developmentpathtoruralenvironmentsthreatenedbymigrationanddepopulation

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ThestateofKentuckyranks44thintheUnitedStatesintermsofGDPpercapita.Thegrowthof Kentucky'sGDPsince2000hasaveraged3.7%,slightlylowerthanthatoftheUnitedStates, 4.1318.In2009,Kentuckyspopulationwas4,314,113319,anditsincomedistribution,as measuredbytheGinicoefficientwas0.464320,whichranked36thamongUSstates.Froma geographicalstandpoint,thestate'seconomicactivityisveryconcentrated.Of120counties,ten accountfor63.45%oftheKentuckysincome(seefigure2).

Figure2.Kentucky:CountyDistributionofStateIncome(2009)
CountyIncomeiscalculatedasthenumberofemployeesmultipliedbyaverageincome Sources:CensusQuarterlyWorkforceIndicators;analysisbytheauthors

In2008,therewere92,587businessestablishments,employing1,570,800residents321.InThe pasteightyears,thenumberofestablishmentshasbeenfairlystable,whilethenumberof employeeshadbeengrowingconsistentlyuntil2008whenitcontractedduetotheeconomic crisis(seefigure3).

318 319

Source:BureauofEconomicAnalysis,USDepartmentofCommerce. Source:2010Census;USCensusBureau,PopulationDivision. 320 TheGinicoefficientisameasureoftheinequalityofadistributionusedtomeasureincomeinequality; avalueof0expressingtotalequalityandavalueof1maximalinequality.Source:2009American CommunitySurvey. 321 Source:USCensusCountyBusinessPatterns

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Figure3.Kentucky:BusinessEstablishmentsandEmployees(19912008)
Sources:USBureauoftheCensus;CountyBusinessPatterns

Accordingtothesestatistics,theaveragenumberofemployeesperestablishmentis20,upfrom 16in1998.In2008,halfofallKentuckyestablishmentsemployedfewerthanfiveemployees, while3%employedmorethan100employees322.

Accordingtothesectordecomposition,professionalservicescomprisethelargestshare(26.9%) ofbusinessestablishments,followedbyretailtrade(17.3%)(seefigure4). Figure4.Kentucky:NumberofestablishmentsbyIndustrySector(2008)

Source:USCensusBureau;CountyBusinessPatterns

322

Source:USCensusBureauCountryBusinessPatterns.(2008)

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 Relativetonationalfigures,Kentuckyhasagreaterconcentrationofretailtradeestablishments (17.3%to14.5%)andalesserconcentrationofprofessionalservicebusinesses(26.9%to30.3 %).Bothsectorsarelikelybeneficiariesofbroadbanddeployment(seeShideleretal.,2007). Sincetheadventoftheeconomiccrisis,Kentuckyhasperformedweakly.GDPgrewby3.2% from20072008andby0.43%from20082009.ThisisslightlybetterthantheUSaverages, whichwere2.6%and1.3%,respectively.UnemploymentinKentuckyhassoared.In2007 averageseasonallyadjustedmonthlyunemploymentwassteadyat5.5%,butthisfiguregrewto 6.6%,10.4%and10.3%inthefollowingyears.Unemploymentbegantogrow(yearoveryear)in Marchof2008,reacheditspeakgrowthrate(77.2%)inMarchof2009,andonlystartedto diminishinMayof2010.However,theunemploymentratehashoveredaround10.0%sinceJuly 2010323.Bankruptcieshavegrownsteadilysince2007.Totalsforthe2007,2008,2009andthe firstthreequartersof2010are17,155,21,468,25,218and19,458,respectively.Duringthefirst quarterof2007therewere4,294butinthethirdquarterof2010theyhadincreasedby46%324. Inthiscontext,itiscriticaltoconsiderallpolicyinitiativeslikelytohaveapositiveimpacton economicgrowthandjobcreation. BroadbanddeploymentinKentucky: AccordingtotheFCC325,thereare1,221,000broadbandlinesinKentucky(seetable1). Table1.Kentucky:BreakdownofBroadbandLines Technology Numberoflines DSL 431,000 FTTx 4,000 Cablemodem 483,000 Satellite Mobilebroadband(WiMax,3G,etc.) 303,000 Total 1,221,000
Source:FCC;OperatorReports

Source:BureauofLaborStatistics.(2010) Source:AmericanBankruptcyInstitute(2010) 325 Source:FCCsreportInternetAccessServices:StatusasofJune30,2009.(2010)
324 323

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Thegrowthofbroadbandlineshasincreasedatanaveragerateof57%overthepasttenyears, reachingapenetrationof20%ofthepopulation,and52%ofhouseholds326(seetable2). Table2.Kentucky:GrowthinBroadbandLinesandHouseholdPenetration(20002009) Total Penetration Household Year Lines Residential Business Population Households perpop. Penetration 1999 23570 2000 32,731 12,443(*) 20,288 4,048,903 1,590,647 0% 1% 2001 67,870 47,060(*) 20,810 4,069,191 1,604,851 1% 3% 2002 99,265 78,890(*) 20,375 4,091,330 1,619,056 2% 5% 2003 243,005 211,719(*) 31,286 4,118,627 1,633,260 5% 13% 2004 360,903 323,532(*) 37,371 4,147,970 1,647,464 8% 20% 2005 319,160 257,204 61,956 4,182,293 1,653,898 6% 16% 2006 774,736 612,529 162,207 4,219,374 1,651,911 15% 37% 2007 1,161,667 843,641 318,026 4,256,278 1,655,767 20% 51% 2008 1,154,000 829,000 325,000 4,287,931 1,686,277 19% 49% 2009 1,221,000 876,000 345,000 4,314,113 1,690,237 20% 52% (*)Includessmallbusinesses
Source:FCC;USCensusBureau,AmericanCommunitySurvey

AccordingtoConnectKentucky,fixedlinebroadbandcurrentlycovers95%ofhouseholds, whichamountsto57%growthinbroadbandavailabilitysince2002.TheFCCestimatesthatthe underservedsupplygapofbroadband(<4Mbps)inKentuckyamountsto266,000households. In2006,56%ofbusinessreportedactivelyusingtheinternettohandlebusinessfunctions,up from36%in2002.Ofthesebusinesses,85%accesstheInternetviabroadband.Thishasrisen from50%in2002.Ofthese,DSLcomprises54%ofbusinessaccesslines,whiletherestare cableorfixedwirelessaccess327.Broadbandadoptionisfairlyhomogeneousacrossindustry sectors.Themostrecententerprisesurvey,(whichwasconductedin2006),showedthat,with theexceptionofHealthCare,mostsectorsreliedonbroadbandforInternetaccess.Accordingto theresearchreviewedabove,theseadoptiontrendsshouldhavehadanimportantimpacton theeconomy.Thiswillbeassessedinthenextsection.
326

ThestudyrecentlypublishedbytheEconomicsandStatisticsAdministrationandNational TelecommunicationsandInformationAdministration(2010)estimatesbroadbandpenetrationat54%. 327 Only4%reliedonsatellitetechnology.

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 EconomicimpactofbroadbandinKentucky: InordertoascertaintheeconomicimpactthatbroadbandhashadinKentuckytwoapproaches wereimplemented:1)apanelregressionthatmeasuredtheimpactofbroadbandavailabilityon countyemploymentandcountymedianincome,and2)acrosssectionalregressionthat measuredtheimpactofbroadbandbyindustrysector.Thefollowingsectionreviews methodologyandresults328. Methodology: Severalstudies(Katzetal.,2010;Katz,2010;Koutroumpis,2009;Gillettetal.,2005) demonstratedthatbroadbandhasalaggedeffectontheeconomy.Thus,thegrowthof unemploymentandincomefromyearttoyeart+1wasmodeledasafunctionofaverage broadbandavailability,(thepercentageofhomespassed),betweenyeart1andyeart.Controls foreachofthefactorsthatdeterminebroadbandavailability(inaccordancewiththeliterature) werealsoincluded.Thesearemedianincome,unemployment,ethnicity,thepercentageof youngpopulation(aged15to25),populationdensityandthegrowthrateinlaborforce.There arealsoothervariablesthatmayaffectbroadbandavailabilitysuchaseducationandthe numberofschoolsinanarea,andthepercentageofacountythatisrural.Theseothervariables wereaccountedforbyincludingfixedeffectsinthemodel(overaperiodoffouryearsitis expectedthattheywillnotchangesignificantly.)Controllingfortheeffectofthevariablesthat influencebroadbandavailabilityremovesselectionbias.Finally,dummyvariableswereincluded tocontrolfortheeconomicrecession.Hence,thespecifiedmodelis: Econt+1/Econt1=+1(Bbt1+Bbt)/2+2Xt WhereEconistheeconomicindicatorofinterestunemploymentorincome,Bbisbroadband availability,Xisthesetofcontrols,andtisfrom20052008.Moreover,notethatwedonot controlformedianincomeinourunemploymentgrowthrateregressionandviceversa(wedo notcontrolforunemploymentinourmedianincomegrowthrateregression.)Thisisbecause thereshouldnotbearelationshipbetweenthesevariables.Preliminaryregressionsconfirmed thattherelationshipwasinsignificant,whilenotsignificantlyalteringanyothercoefficients. Asdiscussedabove,priorresearchsuggeststhattheimpactofbroadbandmaybeareaspecific, (i.e.,itmaydifferforruralandurbancommunities.)Asreviewed,Kandilovetal.(2010) identifiedthreeareasthatexperiencedverydifferenteffects329.Accordingly,ourmodelswere
328 329

Datautilizedandmostregressiontablesareincludedinappendix ThoughtheKandilovetal.(2010)studyisspecifictotheUSDAsBroadbandLoanProgram,wesuspect thattheimpactofbroadbandavailabilitymayactuponsimilarlines.

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testedforthefollowingsubsamples:metrocounties,(ruralurbancontinuumcodes13)330, ruralcountiesadjacenttometrocounties(ruralurbancontinuumcodes4,6and8),andisolated ruralcounties(ruralurbancontinuumcodes5,7and9.) InordertoassesstheimpactofbroadbandonspecificindustrysectorsofKentucky,asimilar methodologytothatofShideleretal.(2007)wasused.Themodelestablishesarelationship betweenthecurrentgrowthrateofemploymentanditslaggedvalues,controllingforvariables thataffecttheeconomicactivityandalsovariablesthatexplaindifferenceswithother observations,(i.e.,othercounties).Theeconometricmodelusedintheestimationsis: Ln(Emplt+1/Emplt1)=+1(Bbt1+Bbt)/2+2Xt Thisequationstatesthattheemploymentgrowthrateisafunctionoftheaveragebroadband penetration,someexplanatoryvariables(X),andanerrorterm,,(whichhasalognormal distribution).Becausethereisnotcountyleveltimeseriesavailableforbroadbandadoption, themodelreliesonacrosssectionalanalysisratherthanadatapanelanalysis.

Results:

Theresultsofthepanelregressionmodelsshowthatbroadbandavailabilityhasastatistically significantpositiveimpactonemploymentandincome.SimilarlytoKandilovetal.sresults regardingbroadbandloansinruralareas,wefindthattheimpactofbroadbandavailabilityis dependentupontheareaofdeployment.Thoughbroadbandavailabilityimpactsruralaswellas metropolitancounties,theeffectisareaspecific(seetable3). Table3.Kentucky:Impactofa1percentincreaseinbroadbandavailabilityonemployment andmedianincome ImpactonMedian Impacton Income Employment MetropolitanCounties 0.0968* 0.0303 RuralCountiesAdjacenttoMetrocounties 0.0704* 0.1953* RuralCountiesIsolatedfromMetroCounties 0.0800*

*Significantat1%level

Ourmodelsshowthattheimpactofbroadbandonmedianincomeisstatisticallysignificantfor eachofthethreetypesofcounties.Theyalsosuggestthatthisimpactisthehighestformetro
330

Seebelowforfurtherinformationonruralurbancontinuumcodes.

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counties,followedbyisolatedruralcounties,andlastlyruralcountiesthatareadjacenttometro counties.Intheregressionformetrocountiesitisestimatedthatthecoefficientofaverage broadbandisabout0.097percentagepoints331(seeTablea.1.inappendix).Thatis,onaverage, increasingbroadbandaverageavailabilitybyonepercentagepointleadstoa0.097percent increaseinmedianincomeoverthefollowingyear.Forexample,ifaveragebroadband availabilitybetween2006and2007wereonepercenthigher,thenonewouldexpectmedian incometogrowanextra0.097percentagepointsbetween2007and2008332.Asnotedabove, theincomeregressions333suggestthattheeffectofbroadbandavailabilityisspecifictometro, (0.0968),adjacentrural,(0.0704),andisolatedruralcounties,(0.0800).Itislikelythatthese relationshipsstemfromacombinationofproductivityandemploymenteffects.Wewillreturn tothispointafterwereviewtheunemploymentregressions.

Ourresultssuggestthatbroadbandavailabilityimpactsincomethemostformetrocounties, thenisolatedcounties,andfinallyadjacentcounties.Asdiscussedabove,thereissolid theoreticalbackingfortheseestimations.However,itisevidentthattheinterplayof unemploymentandproductivityeffectsiscomplex.Forexample,thetheoryofferslittleinthe wayofreasonswhyisolatedcountiesshouldbeimpactedmorethanruralcountiesthatare adjacenttometroareas.However,thesecomplexeffectsmakeitunlikelythateachtypeof countyexperiencesthesameimpactandcoefficient.Moreover,itisverylikelythat metropolitanareasexperiencethehighestincomeeffects. Intheunemploymentregressionsaslightlydifferentmodelwasused,addingadummyvariable tocontrolfortherecessionin2008334(SeeTablesa.4anda.5).Thisapproachwaschosen becausetherecessionaffectedKentuckyunemploymentbeforeitaffectedthestate'smedian income335.Whilethedatashowsthatthegrowthrateofunemploymentchangedmarkedlyfrom 20062005to20072008(theaverageforKentuckycountieschangedfrom.0394to.1694),we didnotobservethesamephenomenonformedianincome,(whichchangedfrom.02755to .0216).Moreover,twoseparatedummyvariableswereusedfor2008and2009because
331 332

Thenumberofobservationsis140. Notehowever,thatincreasingbroadbandavailabilitybyonepercentin2007(andnotalso2006)would onlyresultinanextra0.048percentagepointsbetween2007and2008.Becausewearedealingin averages,ittakestwoyearstoreapthefull0.097effectofincreasingbroadbandavailabilitybyonepoint. 333 Thenumberofobservationfortheadjacentruralregressionis152andfortheisolatedruralregression itis188 334 Again,thenumberofobservationsis140,152,and188formetro,ruraladjacent,andruralisolated respectively. 335 Thereareseveralpossibleexplanationsforwhythismayhavehappened.Forexample,itmaybethat peoplethathaveincomesbelowthemedianlevelshadlessjobsecurity.Thentheunemploymentrate wouldgrowearly,butmedianincomewouldremainunaffecteduntillateron.

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monthlyunemploymentdatashowedthattherecessiondidnotbegintoaffectKentucky countiesuntilhalfwaythrough2008336. Theimpactonunemploymentisonlysignificantforruralcounties337.Theimpacton employmentinmetropolitancountiesisnotstatisticallysignificant.Theinterpretationforthe broadbandcoefficientismuchthesameasabove.Forexample,theregressionsshowthat,on average,increasingbroadbandaverageavailabilitybyonepercentagepointinruralcounties leadstoa0.1953percentdecreaseinunemploymentoverthefollowingyear.Forexample,if averagebroadbandavailabilitybetween2006and2007wereonepercenthigher,thenone wouldexpecttheunemploymentratetoshrinkby.19percentbetween2007and2008. Unliketheincomeregressions,theunemploymentregressionsshowsignificantbroadband effectsonjobcreationsolelyinrural.Thisisareasonableresult.Onecontextwhichprovidesa strongtheoreticalbackingisthemergingoflabormarkets.Inthiscontext,itistobeexpected thatbroadbandwillhavethesmallestimpactonmetrocounties.Thesecountieshavethelions shareofestablishmentsandemploymentopportunitiessoincreasingthesizeofthelabor marketshouldhaveonlymarginalifanypositiveeffects.However,broadbandmayextendlabor marketstoruralareas,e.g.,byenablingtelecommuting.Oftheseruralcounties,theprimary beneficiariesareruralcountiesthatareadjacenttometroareasbecausethelaborforceismore technologicallyskilled(inaccordancewiththeindustriesthatarepresent).Weexpectthat isolatedruralareaswillalsobenefit,butatalowerrate. Theoretically,wealsoexpectthatfirmsintheservicesindustriescanreapgreaterproductivity gainsfrombroadband,(seebelowfortheresultsonsectorspecificbroadbandeffects).Henceit isexpectedthatmetrocounties,whichaccountforthevastmajorityofsuchfirms,will experiencethelargestimpactonincome.Thisindicatesthattheemploymentopportunities createdbybroadbandintheseareasarefarmorelucrativethanthemedianjob.Thoughthe portionofthepopulationthatistechnologicallyskilledintheseareasmaybesmall,itislikely thattheincrementalbenefitsofbroadbandforthispopulationarequitehigh.However,itwas notpossibletoidentifyastatisticallysignificantresultformetrocounties. Turningnowtoassessingtheimpactofbroadbandpenetrationonsectoremployment,itwas foundtobestatisticallysignificantonthegrowthinemploymentinthefinancialservicesand insurance,wholesaletrade,andhealthsectors(seetable4).
336

Webelievethatalternateregressions(notshownhere)validatedourmethodologicalchoices.For example,whenweincludedadummyforthe2008recessionintheincomeregressionsitresulted positive. 337 Themodelsrunforemploymentimpactonruraladjacentandruralisolatedyieldednonsignificant results.

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 Table4.Kentucky:ImpactofBroadbandPenetrationby1%onIndustrialSectorEmployment IndustrySector AllCounties RuralCounties FinancialServicesandInsurance 0.678(**) 0.517(***) Wholesaletrade 0.846(*) 0.836(*) HealthServices 0.126(*) 0.122(**) Construction Notsignificant Notsignificant RetailTrade Notsignificant Notsignificant Accommodation Notsignificant Notsignificant
(*)Significantat1%level (**)Significantat5%level (***)Significantat10%level

Theindustriescomprisinghighertransactioncostsandnetworkbasedbusinessmodelsappear tobenefitmorefrombroadbandpenetration338.Furthermore,asinthemodelspresented above,theimpactofbroadbandinallcounties(comprisingmetroregions)alwaysappearstobe higherthaninruralcounties. Theimpactofbroadbandonthegrowthofthefinancialsectorwashighandsignificant. Accordingtothemodel,anincreaseof1percentagepointinbroadbandpenetration(from5% to6%)wouldyieldanincreaseof0.67%intheemploymentlevelinthefinancialsector339(see tablea.6inappendix).TheimpactofbroadbandontheFinanceandInsurancesectordeclines whenmetrocountiesareexcluded,althoughtheresultsarestillsignificant340(seetablea.7.in appendix).Theimpactofbroadbandonthewholesaledistributionsectorwashighand significant.Accordingtothemodel,anincreaseof1%inbroadbandpenetrationwouldyieldan increaseof0.84%inemploymentlevelinthewholesaledistributionsector341(seetablea.8.in appendix). Thebroadbandimpactremainsstablewhenthemetrocountiesareexcluded.Thechangein impactcoefficientisminimalwiththepriormodel(seetablea.9.inappendix).Inthecaseofthe Healthsector,broadbandhasasmallerimpactincomparisontotheothertwosectorsanalyzed

338 339

Theconclusionsoftheseresultsshouldnotbeextendedtoindustriesthatcouldnotbeenanalyzed. Theothervariablethatwassignificantwasthepercentageofpopulationbetween15and25yearsold. 340 Theothersignificantvariableisthepercentageofthepopulationwithouthighschooleducation. 341 Othersignificantvariablesincludepercapitaincome,populationbetween15and25yearsold, employmentgrowthintheprecedingperiod.Unexpectedresultsincludetheinverseimpactof educationalattainmentinsectoremployment.

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(seetablea.10.inappendix).Theimpactofbroadbandisslightlylowerwhenthesampleis restrictedtoruralcounties,nonethelessthesignificanceremains(seetablea.11inappendix). Theresultsofthesectorimpactmodelsarequiteilluminatingintermsofdeterminingwhich industriesaremostbenefitedbyruralbroadband.Whileeffectsarestatisticallysignificantin finance,wholesaletradeandhealthservices,theimpactislargestinthetradesector,reflecting thevalueofbroadbandasanenablerofrelocationofwarehousesanddistributioncentersto areasoutsidethemetropolitancounties.Furthermore,whileemploymentisalsopositively impactedbybroadbandinfinance,itscontributiondiminishesinruralenvironmentsreflecting thedifficultyoflocatingfinancialbackofficesinruralareas,primarilyduetolimitsinlaborpool availability.Ontheotherhand,thedeclineinimpactofhealthservicesforruralareasisnotthat importantrevealingboththeexistenceofdemandinruralareasandthevalueofbroadbandin enablingtheredeploymentofhealthfacilities. EstimatingtheeconomicimpactoffillingthebroadbandsupplygapinKentucky BasedonthehistoricaleffectofbroadbandonKentucky'scountyemploymentandincome,the impactofbroadbandavailabilityonfutureeconomicgrowthandemploymentisestimated.For thispurpose,itisfirstnecessarytoassumehowbroadbandavailabilitywillevolveovertimeby county.AccordingtotheFCC,asof2010,broadbandwasavailableto86.2%ofhouseholds, rangingfrom17%inElliotCountyto100%inBooneCountyandothers.Thebenefitofclosing thisbroadbandgapbydeployingwirelessbroadband,reaching100%availabilityinallcounties throughoutthestate,iscalculated. Basedontheeffectsanalyzedabove,theincreaseinbroadbandavailabilityto100%willdrive anaugmentationinmedianincomebycountyandcouldhelpreducethegrowthrateof unemploymentbycreatingorpreservingjobs.Accordingtothemodels,anincreasein broadbandavailabilityof1%wouldresultinadecreaseinunemploymentof0.1953%forrural counties.Basedonthesecoefficientsandassumingafulldeploymentin2011342,impactonthe unemploymentratewasestimatedfortheperiod20112014.Itshouldbenotedthatwhilethe modelestimatesthelaggedimpactofbroadbandonunemploymentgrowth,thereisobviously nodataforthesizeofthe2011laborforce.Thus,intheseestimatesthe2010laborforcewas used,whichisaconservativeconstraintsinceitisexpectedthelaborforcetobelargerin2011. Thisresultedin10,235jobscreatedorsavedfromeffectsofbroadbandonbusinessexpansion (seeTable5).
342

Thisassumptionwasmadeforpurposesoftheestimationofeconomicimpact.

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 Table5.Kentucky:ImpactofBroadbandAvailabilityonRuralJobCreation KeyFigures TotalJobsSaved/Created NumberofCountieswith 201114 SupplyGaps CountyType RuralAdjacenttoMetroCounties 4,218 33 Rural,IsolatedfromMetroCounties 6,017 42 TotalRural 10,235 75 ThisestimateisfairlyconsistentwiththestateofKentuckyOccupationalOutlook,which projectsthatthestateeconomywillgenerate63,000jobopeningsperyeargoingforward. Accordingly,basedonthisestimate,13%willbeenabled/facilitatedbythefulfillmentoffull broadbandavailability. Thenumberofjobssaved/createdislimitedbythenaturalunemploymentrate.Wecannot expecttorealizeallthesejobsifpeoplearealreadyemployed.However,asofnowthe unemploymentrateisat10%,wellabovethenaturalrateof45%.Inordertoaccountforthis phenomenon,wealsodonotallowtheimpactofbroadbandonunemploymenttoexceed5%in anyyearforanycounty. Whilethemodelsdonotallowbreakingdownthetotalemploymentnumberbetweenthose jobsthatwillbecreatedversusthosethatwillbepreserved,weutilizedtheprojectionsof Kentucky'sOccupationalOutlookwhichstatethatthestructureofthechangeinemployment forthe20082018periodwouldbenewjobs(32%)andreplacementjobs(68%).Thisstructure appliedtoourmodelhelpsustobreakdownthetotaljobimpactofbroadbandintwo categories:newjobscreatedandjobssaved.Accordingtothis,itisestimatedthatofthe10,235 jobssavedorcreatedinKentucky,3,254willbenewjobsresultingfromneweconomicactivities triggeredbywirelessbroadbanddeploymentinruralcounties.Conversely,6,981jobswillbe savedasaresultofthecombinedimpactofeconomicgrowthandenhancedcapabilitiesthat willbeprovidedtothoseworkersasaresultofwirelessbroadband. Inaddition,accordingtothemodels,anincreaseinbroadbandavailabilityof1%alsodrivesan areaspecificeffectonincome.Inmetrocounties,ruralcountiesadjacenttometrocounties,and isolatedmetrocountiesbroadbandcausesincometogrowby0.0968%,0.0704%,and0.0800%

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respectively.Basedonthesecoefficientsandassumingafulldeploymentin2011343,impacton eachcountymedianincomewasestimatedfor20112013344(seetable6). Table6.Kentucky:ImpactofBroadbandAvailabilityonMedianIncome KeyFigures AverageIncreaseinMedian Numberof Income20112013 Counties CountyType AllCounties $914.56 120 Withsupplygaps $1,097.48 100 MetroCounties $668.97 35 Withsupplygaps $936.57 25 Rural $1,015.69 38 Withsupplygaps $1151.12 33 RuralAdjacenttoMetroCounties $1033.16 47 Withsupplygaps $1189.70 42 Rural,IsolatedfromMetroCounties $1001.57 85 Withsupplygaps $1120.80 75 Anincreaseinbroadbandavailabilityto100%woulddriveanaverageincreaseinmedian incomeof$914.56,whichrepresents2.0%increaseinthemedianincomeofKentucky,$43,765. Thoughmetrocountiesexperienceagreaterimpactperpercentageofbroadbandsupplied, ruralcountiesareexpectedtobenefitmorefromuniversalcoverage.Becausethesupplygapis somuchlargerinruralareas,theaveragegrowthinmedianincomeis$1,015forruralcounties, whereasitisonly$668inmetrocounties.However,thedifferenceismuchsmallerbetween ruralcountiesandmetrocountieswithsupplygaps($1,151to$936).
343 344

Thisassumptionwasmadeforpurposesoftheestimationofeconomicimpact. Notethatsimilarlytolaborforceabove,weusecurrent2010medianincomeforourestimations, thoughtheimpactwillbeon2011medianincome.

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ESTIMATINGTHENATIONALIMPACTINRURALSTATES Theestimationofeconomicimpactonanationalscalewasconductedforthosestatesthat exhibitedthelowestbroadbandavailability.Forpurposesoftheanalysis,stateswith accessibilitylowerthan90%accordingtotheNationalBroadbandPlanwereselected345.The19 statesconsideredfortheanalysisareincludedintable7. Table7.Statesidentifiedassignificantlylaggingbroadbandaccessibility State Percentof Numberof Households Household Population Population unservedor Broadband penetration Penetration underserved lines W.Virginia 26.0% 442,000 748,517 59% 1,819,777 24% Arkansas 25.2% 516,000 1,124,947 46% 2,889,450 18% Mississippi 23.0% 447,000 1,095,026 41% 2,951,996 15% Alaska 20.7% 162,000 236,597 68% 698,473 23% S.Dakota 18.7% 179,000 316,638 57% 812,383 22% Montana 17.3% 212,000 375,287 56% 974,989 22% N.Dakota 16.5% 155,000 279,014 56% 646,844 24% Kentucky 15.7% 876,000 1,694,197 52% 4,314,113 20% N.Mexico 15.1% 389,000 742,104 52% 2,009,671 19% Missouri 13.6% 1,269,000 2,339,684 54% 5,987,580 21% Wyoming 13.5% 122,000 213,571 57% 544,270 22% Oklahoma 13.1% 731,000 1,430,019 51% 3,687,050 20% Louisiana 12.8% 888,000 1,688,027 53% 4,492,076 20% N.Carolina 12.3% 2,172,000 3,646,095 60% 9,380,884 23% Alabama 12.0% 901,000 1,848,051 49% 4,708,708 19% Kansas 11.6% 659,000 1,104,976 60% 2,818,747 23% Virginia 11.2% 1,904,000 2,971,489 64% 7,882,590 24% Tennessee 10.1% 1,248,000 2,447,066 51% 6,296,254 20% Maine 10.0% 330,000 544,855 61% 1,318,301 25% Total 14.1% 13,602,000 24,846,160 55% 64,234,156 21%
Source:USCensusBureau;NationalBroadbandPlan;FCC;analysisbytheauthors

Whileweunderstandthistobeanarbitrarynumber,hisapproachhastheadvantageof consideringonlythosegeographiesthatarefacingmajorinfrastructureaccessshortfalls,asopposedtoa demand(penetration)problem.
345

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Asitcanbeseen,thesestateslagthenationalaveragebroadbandpenetration:while broadbandhasbeenadoptedonaverageby55%ofhouseholds(or21%ofthepopulation)of thesestates,theUSnationalaverageis61%(or23%ofthepopulation).Furthermore,while broadbandisaccessibleonaverageby93.8%ofUShouseholds,inthefourteenlowest availabilitystates,thenumberdropsto85.9%. Basedonthecoefficientsutilizedintheevaluationofthethreestatesstudiedindetailabove, theimpactonemploymentandmedianincomewasestimatedforthe19States(seetable8). Table8.Economicimpactoffullbroadbandaccessibility State Jobscreated/saved Increaseinmedianincome Percounty W.Virginia 4,793 $1,273.61 Arkansas 8,960 $1,529.39 Mississippi 13,077 $1,222.21 Alaska 1,845 $2,427.42 S.Dakota 1,314 $1,525.99 Montana 2,280 $1,217.33 N.Dakota 660 $1,341.89 Kentucky 10,235 $911.09 N.Mexico 3,771 $1,141.53 Missouri 10,016 $1,385.28 Wyoming 996 $853.49 Oklahoma 5,855 $1,075.93 Louisiana 6,237 $954.72 N.Carolina 13,288 $1,073.90 Alabama 7,587 $905.61 Kansas 3,056 $1,484.67 Virginia 10,163 $1,143.15 Tennessee 11,192 $978.80 Maine 1,537 $517.98 Total 116,862 $1,201.11
Source:Analysisbytheauthors

Insummary,bymakingbroadbandaccessibleto100%ofhouseholdsinthestateswithlowest broadbandavailability,116,862jobscouldbecreatedand/orsavedbetween2011and2014. Furthermore,theaveragestatemedianincomecouldincreaseby$1,201.11. WeutilizedtheprojectionsofeachoftheStates'OccupationalOutlookwhichbreakdownnew andreplacementjobstobreaktotalemploymentimpactofbroadbandintwocategories:new 130

jobscreatedasaresultofenhancedbroadbandaccessibilityinruralareasandjobssavedasa resultofthecombinedeffectofeconomicgrowthandbroadbandavailability.Accordingtothis, itisestimatedthatofthe116,862jobssavedorcreatedinthe19Stateswithlowestbroadband accessibility,38,409willbenewjobsresultingfromneweconomicactivitiestriggeredby wirelessbroadbanddeploymentinruralcounties.Conversely,78,453jobswillbesavedasa resultofthecombinedimpactofeconomicgrowthandenhancedcapabilitiesthatwillbe providedtothoseworkersasaresultofwirelessbroadband(seetable9) Table9.EmploymentImpactbrokendownbyNewJobsversusSavedJobs Jobs RatioofJobs State NewJobs SavedJobs created/saved duetogrowth Alabama 7,587 34.08% 2,585 5,002 Alaska 1,845 27.45% 507 1,338 Arkansas 8,960 41.67% 3,733 5,227 Kansas 3,056 36.45% 1,114 1,942 Kentucky 10,235 31.80% 3,254 6,981 Louisiana 6,237 28.40% 1,771 4,466 Maine 1,537 15.73% 242 1,295 Mississippi 13,077 26.23% 3,430 9,647 Missouri 10,016 19.61% 1,964 8,052 Montana 2,280 32.54% 742 1,538 N.Carolina 13,288 41.69% 5,540 7,748 N.Dakota 660 31.18% 206 454 N.Mexico 3,771 32.52% 1,226 2,545 Oklahoma 5,855 31.00% 1,815 4,040 S.Dakota 1,314 41.02% 539 775 Tennessee 11,192 37.42% 4,188 7,004 Virginia 10,163 40.75% 4,141 6,022 W.Virginia 4,793 18.98% 910 3,883 Wyoming 996 50.40% 502 494 Total 116,862 38,409 78,453 . SUMMARYOFFINDINGSANDPOLICYIMPLICATIONS ThecurrentbroadbandsituationinKentuckyindicatesthatthereisstillaportionofthe populationthatiseitherunserved(cannotaccessbroadbandservice)orunderserved(couldgain accesstobroadbandserviceatdownloadspeedsunder4Mbps,whichisstillthestandardfor universalservicedefinedintheNationalBroadbandPlan).Asexpected,alargeportionofthe supplygap(unservedorunderservedhouseholds)isconcentratedinruralareas(8.8%) comparedtothemetropolitancounties(5.2%). 131

 TheanalysisofhistoricaleconomicimpactofbroadbandinKentucky(theonlystatewithrobust statisticaldatasetscollectedbetween2004and2009)indicatesstrongeffectsintermsofjob creationandincreaseofmediancountyincome.Theseeffectswereusedtoestimatethe economicimpactifbroadbandavailabilityweretobeincreasedtoreach100%346.Inorderto estimatethenationalimpactofprovidingfullbroadbandavailabilitythroughwireless technology,theeconomicimpactwasestimatedforthenineteenstateswithlowestbroadband availability.Inthiscase,thetotalnumberofjobstobecreatedinthesestateswouldbe116,862. Inthiscontext,itiscriticaltogeneratethepolicyincentivesthatwillenabletheprivatesectorto investtoreachthistarget.Servicedeploymentinthisbandistheonlychoiceforunservedand underservedhouseholdstogainaccesstobroadbandattheservicespeedstipulatedinthe NationalBroadbandPlan.Inlightofthesepriorities,onecouldassumethatachievingthe desiredcoveragegoalswouldresultfromacombinationoftheinvestmentoftheprivatesector, primarilyruralcarriers,andgovernmentstimulus,suchastheBTOPprogram.However,two obstacleshaveappearedthatdonotallowthisgoaltobeachieved.First,whileruralcarriers haveacquired700MHzspectrumtodeliverbroadbandservices,theyfacethelackof interoperabilityframeworkwithnationalserviceprovidersoperatinginotherbands.This situationhasthepotentialtohamperthedeploymentofwirelessinfrastructureinareas currentlyunservedbybroadband.Second,aportionofthepublicfundsbeingdedicatedto broadbanddeploymentaspartoftheBTOPprogramarebeingassignedtofiberoptics infrastructure,whichismoresuitedeconomicallyandtechnicallytoprovidingserviceinurban andsuburbanenvironments.Giventhissituation,itisfairtoassumethatunlesswirelessservice providersarenotsupportedbytherightinteroperabilityframeworkandsupplyconditions,the privatesectorinvestmentofwirelessbroadbandinruralAmericawillbedelayed.Thenegative impactofthisstateofaffairsintermsofjobcreationandeconomicgrowthcouldbesignificant.
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BecausedataforthepanelregressionwasonlyavailableforKentucky,projectionsforOhioandWest Virginiareliedontheeconometricestimatesfromtheformerstate.ItisconsideredthatKentucky's estimatescanbereliablyappliedtotheothertwostatesduetotherichsetofcontrolsandtheinclusion ofcountyfixedeffects.Theonlyeffectsnotcontrolledforarestatefixedeffects.Therefore,the projectionsassumethat,giventhesetofcontrols,(suchasincome,populationdensity,etc.),rural countiesinOhioandWestVirginiarespondtobroadbandinawaythatissimilartoruralcountiesin Kentucky.Thesameassumptionappliesformetrocountiesinthethreestates.

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BIBLIOGRAPHY Atkinson,R.,Castro,D.andEzell,S.J.(2009).Thedigitalroadtorecovery:astimulusplan tocreatejobs,boostproductivityandrevitalizeAmerica.TheInformationTechnology andInnovationFoundation,Washington,DC. Atkinson,R.C.andSchultz,I.E.(2009).BroadbandinAmerica:whereitisandwhereitis going.NewYork:ColumbiaInstituteforTeleInformation Burton,M.andHicks,M.(2005).TheResidentialandCommercialBenefitsofRural Broadband:EvidencefromCentralAppalachia.CenterforBusinessandEconomic Research,MarshallUniversity,Huntington,WV ConnectKentucky(2009).Settingthepace:AcceleratingBroadbandExpansion:2008 ProgressReport.Frankfort,KY. Crandall,R.,Jackson,C.,&Singer,H.(2003).TheEffectofUbiquitousBroadband AdoptiononInvestment,Jobs,andtheU.S.Economy.WashingtonDC:Criterion Economics. Crandall,R.,Lehr,W.,&Litan,R.(2007).TheEffectsofBroadbandDeploymenton OutputandEmployment:ACrosssectionalAnalysisofU.S.Data.IssuesinEconomic Policy,6. Czernich,N.,Falck,O.,KretschmerT.,&Woessman,L.(2009,December).Broadband infrastructureandeconomicgrowth(CESifoWorkingPaperNo.2861).Retrievedfrom www.ifo.de/DocCIDL/cesifo1_wp2861.pdf EconomicsandStatisticsAdministrationandNationalTelecommunicationsand InformationAdministration(2010).Exploringthedigitalnation:homebroadband internetadoptionintheUnitedStates.Washington,D.C.,November. FederalCommunicationsCommission(2010).Thebroadbandavailabilitygap.OBI TechnicalpaperNo.1.Washington,D.C.,April. Gillett,S.,Lehr,W.,andOsorio,C.,&Sirbu,M.A.(2006).MeasuringBroadband's EconomicImpact.TechnicalReport990713829,NationalTechnicalAssistance, Training,Research,andEvaluationProject. Greenstein,S.&McDevitt,R.(2009).TheBroadbandBonus:AccountingforBroadband Internet'sImpactonU.S.GDP(NBERWorkingPaper14758).Retrievedfrom http://www.nber.org/papers/w14758. Greenstein,S.&McDevitt,R.(2010).BroadbandInternetsImpactonConsumersin SevenCountries,Weiss,R.andvanArk,B.ICTandPerformance: TowardComprehensiveMeasurementandAnalysis,NewYork:TheConferenceBoard(in publication). Horrigan,J.(2009).Homebroadbandadoption2009.PewInternetandAmericanLife Project. Kandilow,I.;Renkow,M.(2010).InfrastructureInvestmentAndRuralEconomic Development:AnEvaluationofUSDAsBroadbandLoanProgram.GrowthandChange, Vol.41No.2(June2010),pp.165191 133

Katz,R.L.,Zenhusern,P.&Suter,S.(2008).Anevaluationofsocioeconomicimpactof afibernetworkinSwitzerland.PolynomicsandTelecomAdvisoryServices,LLC. Katz,R.,L.&Suter,S.(2009a).Estimatingtheeconomicimpactofthebroadband stimulusplan(ColumbiaInstituteforTeleInformationWorkingPaper).Retrievedfrom http://www.elinoam.com/raulkatz/Dr_Raul_Katz__BB_Stimulus_Working_Paper.pdf Katz,R.L.(2009b).TheEconomicandSocialImpactofTelecommunicationsOutput:A TheoreticalFrameworkandEmpiricalEvidenceforSpain,Intereconomics,44(1),4148. Katz,R.L.,Vaterlaus,S.,Zenhusern,P.&Suter,S.(2010a).TheImpactofBroadbandon JobsandtheGermanEconomy.Intereconomics,45(1),2634. Katz,R.L.(2010b).Theimpactofbroadbandontheeconomy:researchtodateand policyissues.DiscussionPaperpresentedattheInternationalTelecommunicationUnion GlobalSymposiumofRegulators2010,heldinDakar,SenegalNovember1012. Retrievedfromhttp://www.itu.int/ITU D/treg/Events/Seminars/GSR/GSR10/documents/GSR10paper1.pdf Kolko,J.(2010).DoesBroadbandBoostLocalEconomicDevelopment?PublicPolicy InstituteofCaliforniaWorkingpaper.Retrievedfrom www.ppic.org/content/pubs/report/R_110JKR.pdf. Kelley,D.(2004).AStudyoftheBroadbandEconomicandCommunityBenefitsofCedar Falls,IowasMunicipalTelecommunicationsNetwork.Black&Beatch Koutroumpis,P.(2009).TheEconomicImpactofBroadbandonGrowth:ASimultaneous Approach.TelecommunicationsPolicy,33,471485. Liebenau,J.,Atkinson,R.D.,Krrberg,P.,Castro,D.&Ezell,S.J.(2009,April29).The UK'sDigitalRoadtoRecovery.Retrievedfrom:http://ssrn.com/abstract=1396687 Qiang,C.Z.,&Rossotto,C.M.(2009).EconomicImpactsofBroadband.InInformation andCommunicationsforDevelopment2009:ExtendingReachandIncreasingImpact, 3550.Washington,DC:WorldBank. Selouani,S.,Hamam,H.(2007).SocialImpactofBroadbandInternet:ACaseStudyinthe ShippaganArea,aRuralZoneinAtlanticCanada,JournalofInformation,Information Technology,andOrganizationsVolume2,2007 Shideler,D.,Badasyan,N.,&Taylor,L.(2007,September2830).Theeconomicimpact ofbroadbanddeploymentinKentucky.RegionalEconomicDevelopmentVolume3, Number22007,FederalReserveBankofSt.Louis Song,M.,Orazem,P.andSingh,R.(2006).BroadbandAccess,Telecommutingandthe UrbanRuralDigitalDivide,IowaStateUniversityDepartmentOfEconomicsWorking Papers#06002 StrategicnetworksGroup(2003).EconomicImpactStudyoftheSouthDundasTownship FiberNetwork.StudypreparedfortheDepartmentofTradeandIndustryintheUnited Kingdom Thompson,H.,&Garbacz,C.(2008).BroadbandImpactsonStateGDP:Directand IndirectImpacts.PaperpresentedattheInternationalTelecommunicationsSociety17th BiennialConference,Canada. 134

USDA,OfficeofInspectorGeneral,SouthwestRegion.2005.Auditreport:Ruralutilities servicebroadbandgrantandloanprograms.AuditReport0906014TE. http://www.usda.gov/oig/webdocs/0960104TE.pdf. USDA.2009.Auditreport:Ruralutilitiesservicebroadbandgrantandloanprograms. AuditReport096018TE.http://www.usda.gov/oig/webdocs/096018TE.pdf.

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APPENDICES Datautilized: Impactofbroadbandavailabilityonemploymentandaverageincome Inthepanelregressionwhichmeasuresimpactofbroadbandonemploymentandincome,the datacoverstheyears2004to2009.Broadbandavailability(20042008)istakenfromthe ConnectKentuckyresidentialsurvey.Medianhouseholdincome,thepercentageofpeopleaged 15to25,thepercentageofpeopleaged65andmore,andthepopulation(20052009)aretaken fromtheESRIBusinessAnalystSourcebookforCountyDemographics.Countrysize,insquare km,isgatheredfromthe2000Census,whilelaborforceandunemploymentdataistakenfrom theBureauofLaborStatistics. RuralcountieswereidentifiedusingtheclassificationsystemoftheDepartmentofAgriculture for2003(RuralUrbanContinuumcode).Thecodesthatdenotenonmetropolitanareas(49) wereusedtoidentifyruralcounties.Theycomprisebothruralcountiesadjacenttometro countiesandisolatedruralcounties. RuralUrbanContinuumCodes Code Description Metrocounties 1 Countiesinmetroareasof1millionpopulationormore 2 Countiesinmetroareasof250,000to1millionpopulation 3 Countiesinmetroareasoffewerthan250,000population Nonmetrocounties 4 Urbanpopulationof20,000ormore,adjacenttoametroarea 5 Urbanpopulationof20,000ormore,notadjacenttoametroarea 6 Urbanpopulationof2,500to19,999,adjacenttoametroarea 7 Urbanpopulationof2,500to19,999,notadjacenttoametroarea 8 Completelyruralorlessthan2,500urbanpopulation,adjacenttoametroarea 9 Completelyruralorlessthan2,500urbanpopulation,notadjacenttoametroarea ThedistributionofKentuckycountiesaccordingtotheRuralUrbanContinuumcodesisas follows: Code Kentucky 1 16 2 10 3 9 4 3 136

5 6 7 8 9 Total

2 22 24 13 21 120

Impactofbroadbandbyindustrysector Forthecrosssectionalanalysisofbroadbandimpactonindustrialsectors,theU.S.Census Bureauscountybusinesspatternsdataseriesfor2004,2005,2006and2007wasused.It providesbothtotalandsectoralemploymentatthetwodigitNorthAmericanIndustrial ClassificationSystem(NAICS)level.Thisdatasetcontainsprivate,nonagricultureproduction employmentdatameasuredannuallyasoftheweekofMarch12. Usingthisdata,employmentgrowthratesfortheperiods200405and200507wereestimated foreachofthetwodigitNAICScodes.Acombinationofzeroemploymentlevelsinrural countiesandsuppresseddataduetoCensusdisclosurerulesledtomissingvaluesinthedata andreducedthenumberofobservationsandcountiesavailableforanalysis.Aftereliminating industrieswiththistypeofproblems,onlysixsectorswereavailableforthestudy:financial servicesandinsurance,wholesaletrade,construction,health,andretailtradeand accommodationsectors. Thefollowingexplanatoryvariableswereincluded.Averagebroadbandadoptionlevelof households,calculatedwithinformationprovidedbyConnectKentucky,wasusedtomeasure broadband.Thepercentagesofpopulationwithoutahighschooldegreeandwithcollege educationwereusedasmeasuresofthesupplyofunskilledandskilledlabor.Thesevariables wereconstructedusinginformationfromtheU.SCensus2000.Tomeasurelaboravailability severalvariableswereincluded:growthinemploymentfor20042005,percentageof populationbetween1525,percentageofpopulation65yearsoldandolderfor2005andthe populationgrowthbetween2005and2007.Ageandpopulationgrowthvariableswereobtained usingtheESRIBusinessAnalystSourcebookforCountyDemographics(2005and2007).Finally, theincomepercapitavariablewasincludedasacontrolvariableforthecharacteristicsofthe county(2005ESRISourcebookforCountyDemographics).

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Tables Tablea.1.Kentucky:BroadbandImpactMedianHouseholdIncomeGrowthRate MetropolitanCounties Variable Coefficient Std.Err. TScore PValue 95%ConfidenceInterval Bb 0.096846 0.015821 6.12 0 0.065446 0.128246 mIncome 6.27E06 1.38E06 4.53 0 9.01E06 3.52E06 pWhite 0.0317 0.008379 3.78 0 0.04833 0.01507 pAge15to25 0.00877 0.004044 2.17 0.032 0.0168 0.00075 pAge65+ 0.005607 0.006434 0.87 0.386 0.00716 0.018377 Density 0.001861 0.000712 2.61 0.01 0.000448 0.003274 LaborForce 0.09664 0.052553 1.84 0.069 0.20095 0.007659 Recession09 0.03199 0.0041 7.8 0 0.04012 0.02385 constant 3.035282 0.795267 3.82 0 1.456898 4.613666 Tablea.2.Kentucky:BroadbandImpactonMedianHouseholdIncomeGrowthRate RuralCountiesAdjacenttoMetroCounties Variable Coefficient Std.Err. TScore PValue 95%ConfidenceInterval Bb 0.070443 0.010996 6.41 0 0.048642 0.092244 mIncome 1.2E05 1.92E06 6.14 0 1.6E05 7.97E06 pWhite 0.01316 0.00677 1.94 0.055 0.02658 0.000262 pAge15to25 0.00861 0.003154 2.73 0.007 0.01486 0.00235 pAge65+ 0.00141 0.006511 0.22 0.829 0.01431 0.011503 Density 0.006206 0.002069 3 0.003 0.002104 0.010307 LaborForce 0.05826 0.049348 1.18 0.24 0.1561 0.039578 Recession09 0.01202 0.003525 3.41 0.001 0.01901 0.00503 constant 1.614729 0.654341 2.47 0.015 0.317435 2.912024 Tablea.3.Kentucky:BroadbandImpactonMedianHouseholdIncomeGrowthRate RuralCountiesIsolatedfromMetroCounties Variable Coefficient Std.Err. TScore PValue 95%ConfidenceInterval Bb 0.080035 0.011564 6.92 0 0.057162 0.102908 mIncome 2.4E05 2.33E06 10.34 0 2.9E05 2E05 pWhite 0.03062 0.00792 3.87 0 0.04629 0.01496 pAge15to25 0.00736 0.003211 2.29 0.023 0.01371 0.00101 pAge65+ 0.00227 0.006054 0.37 0.708 0.0097 0.014244 Density 0.010555 0.003211 3.29 0.001 0.004204 0.016907 LaborForce 0.05583 0.044519 1.25 0.212 0.14388 0.032232 Recession09 0.00614 0.003664 1.67 0.096 0.01338 0.00111 constant 3.382363 0.800888 4.22 0 1.798239 4.966488 138

Tablea.4.Kentucky:BroadbandImpactonUnemploymentGrowthRate MetropolitanCounties Variable Coefficient Std.Err. TScore PValue 95%ConfidenceInterval Bb 0.0303 0.1146 0.26 0.7940 0.1973 0.2575 Unemployment 0.1119 0.0233 4.81 0.0000 0.1581 0.0657 pWhite 0.0215 0.0614 0.35 0.7270 0.1434 0.1003 pAge15to25 0.0371 0.0290 1.28 0.2030 0.0203 0.0946 pAge65+ 0.0007 0.0453 0.01 0.9890 0.0893 0.0906 Density 0.0006 0.0041 0.15 0.8770 0.0087 0.0074 LaborForce 1.2926 0.3954 3.27 0.0010 0.5077 2.0775 Recession09 0.7392 0.0404 18.31 0.0000 0.6590 0.8193 Recession08 0.2370 0.0233 10.19 0.0000 0.1908 0.2832 constant 2.1051 5.6980 0.37 0.7130 9.2054 13.4157 Tablea.5.Kentucky:BroadbandImpactonUnemploymentGrowthRate RuralCounties Variable Coefficient Std.Err. TScore PValue 95%ConfidenceInterval Broadband 0.1953 0.0808 2.42 0.0160 0.3544 0.0363 Unemployment 0.0926 0.0118 7.86 0.0000 0.1158 0.0694 pWhite 0.0056 0.0491 0.12 0.9080 0.0910 0.1023 pAge15to25 0.0319 0.0222 1.44 0.1510 0.0756 0.0118 pAge65+ 0.0814 0.0419 1.94 0.0530 0.1640 0.0012 Density 0.0091 0.0174 0.52 0.6040 0.0434 0.0252 LaborForce 1.3835 0.3201 4.32 0.0000 2.0140 0.7530 Recession09 0.7375 0.0269 27.38 0.0000 0.6845 0.7906 Recession08 0.1526 0.0203 7.52 0.0000 0.1126 0.1926 constant 2.0011 4.7359 0.42 0.6730 7.3269 11.3291 Tablea.6.Kentucky:BroadbandImpactonFinance&InsuranceEmploymentGrowth(20057) AllCounties Variable Coefficient Std.Err. TScore PValue 95%ConfidenceInterval BB_Penetration0507 0.6789 0.2939 2.31 0.024 0.0932 1.2646 Incomepercapita05 0.0019 0.0025 0.74 0.463 0.0069 0.0032 Age15_25 3.7938 1.6475 2.3 0.024 7.0765 0.5111 Age65up 0.5222 1.1855 0.44 0.661 2.8844 1.8400 Employment0405 0.4734 0.5631 0.84 0.403 1.5953 0.6486 HighSchool 0.4558 1.0031 0.45 0.651 2.4546 1.5430 College 0.7516 0.9257 0.81 0.419 1.0929 2.5960 PopulationGrowth 1.3764 1.0661 1.29 0.201 0.7479 3.5007 Constant 78.1400 93.8077 0.83 0.408 108.7760 265.0560

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NumberofObservations F(8,45) Prob>F R2 RootMSE

83 1.29 0.2605 0.1317 25.605

Tablea.7.Kentucky:BroadbandImpactonFinance&InsuranceEmploymentGrowth(20057) RuralCounties Variable Coefficient Std.Err. TScore PValue 95%ConfidenceInterval BB_Penetration0507 0.5172 0.3021 1.71 0.094 0.0913 1.1256 Incomepercapita05 0.0031 0.0022 1.41 0.166 0.0074 0.0013 Age15_25 2.9850 2.0412 1.46 0.151 7.0963 1.1263 Age65up 3.1947 0.9727 3.28 0.002 5.1539 1.2355 Employment0405 0.4356 0.5514 0.79 0.434 1.5461 0.6750 HighSchool 1.4830 0.8319 1.78 0.081 3.1585 0.1925 College 0.2288 1.3765 0.17 0.869 3.0012 2.5436 PopulationGrowth 0.0512 1.2448 0.04 0.967 2.5584 2.4560 Constant 179.9645 77.7988 2.31 0.025 23.2697 336.6592

NumberofObservations F(8,45) Prob>F R2 RootMSE

54 2.29 0.0377 0.2153 17.545

Tablea.8.Kentucky:BroadbandImpactonWholesaleTradeEmploymentGrowth(20057)All Counties Variable Coefficient Std.Err. TScore Pvalue 95%Conf.Interval BB_Penetration0507 0.8460 0.2066 4.090 0.000 0.4328 1.2592 Incomepercapita05 0.0395 0.0089 4.420 0.000 0.0216 0.0573 Age15_25 40.2643 7.0237 5.730 0.000 26.2196 54.3090 Age65up 6.1638 4.4070 1.400 0.167 2.6485 14.9762 Employment0405 3.9565 2.3117 1.710 0.092 8.5791 0.6661 HighSchool 9.7185 3.1161 3.120 0.003 3.4876 15.9495 College 18.4412 3.8614 4.780 0.000 26.1626 10.7198 PopulationGrowth 1.4344 4.0535 0.350 0.725 6.6711 9.5400 Constant 1492.3740 325.7489 4.580 0.000 2143.7500 840.9990

NumberofObservations

70 140

F(8,61) Prob>F R2 RootMSE

8.93 0.0000 0.5395 70.502

Tablea.9.Kentucky:BroadbandImpactonWholesaleTradeEmploymentGrowth(20057) RuralCounties Variable Coefficient Std.Err. TScore Pvalue 95%Conf.Interval BB_Penetration0507 0.8363 0.2444 3.42 0.001 0.3421 1.3306 Incomepercapita05 0.0332 0.0116 2.87 0.007 0.0098 0.0567 Age15_25 43.0622 8.0558 5.35 0.000 26.7678 59.3567 Age65up 0.2356 6.6017 0.04 0.972 13.5888 13.1176 Employment0405 4.8324 2.7257 1.77 0.084 10.3457 0.6809 HighSchool 5.7727 4.4967 1.28 0.207 3.3227 14.8682 College 22.1127 5.1582 4.29 0.000 32.5461 11.6792 PopulationGrowth 7.5727 6.0644 1.25 0.219 19.8391 4.6937 Constant 1135.5810 431.2029 2.63 0.012 2007.7710 263.3904

NumberofObservations F(8,45) Prob>F R2 RootMSE

48 9.38 0.0000 0.658 72.852

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 Tablea.10.Kentucky:BroadbandImpactonHealthEmploymentGrowth(20057) AllCounties Variable Coefficient Std.Err. TScore PValue 95%Conf.Interval BB_Penetration0507 0.1260 0.0427 2.95 0.004 0.0409 0.2110 Incomepercapita05 0.0031 0.0017 1.85 0.068 0.0002 0.0065 Age15_25 4.7554 1.5205 3.13 0.002 1.7305 7.7803 Age65up 0.6802 0.9908 0.69 0.494 1.2908 2.6513 Employment0405 0.7191 0.4313 1.67 0.099 1.5771 0.1389 HighSchool 0.2372 0.5824 0.41 0.685 0.9214 1.3959 College 1.9197 0.8022 2.39 0.019 3.5157 0.3237 PopulationGrowth 0.0179 0.8623 0.02 0.983 1.7334 1.6976 119.7998 61.1014 1.96 0.053 241.35 1.7503 Constant

NumberofObservations F(8,82) Prob>F R2 RootMSE

91 4.10 0.0004 0.2856 18.144

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 Tablea.11.Kentucky:BroadbandImpactonHealthEmploymentGrowth(20057) RuralCounties Variable Coefficient Std.Err. TScore Pvalue 95%Conf.Interval BB_Penetration0507 0.1228 0.0509 2.41 0.02 0.0206 0.2251 Incomepercapita05 0.0006 0.0024 0.26 0.8 0.0055 0.0042 Age15_25 6.4617 1.7706 3.65 0.001 2.9085 10.0148 Age65up 0.0241 1.4481 0.02 0.987 2.9299 2.8817 Employment0405 0.6067 0.48452 1.25 0.216 1.5789 0.3656 HighSchool 1.7665 0.87062 2.03 0.048 3.5136 0.0195 College 3.1649 1.1894 2.66 0.01 5.5517 0.7781 PopulationGrowth 1.8002 1.3589 1.32 0.191 4.5272 0.9267 Constant 24.7846 80.752 0.31 0.76 137.2572 186.8264

NumberofObservations F(8,52) Prob>F R2 RootMSE

61 5.91 0.0000 0.4763 18.736

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 OrganizingtoPromoteBroadband:MatchingStructureto BroadbandPolicyGoals*

D.LindaGarcia347andTarkanRosenberg348 **
1.Introduction InApril2010,theUSCourtofAppealsfortheDistrictofColumbiaruledthattheFederal CommunicationCommission(FCC)hadoversteppeditsauthorityinreprimandingComcastfor havinginterruptedusersofBitTorrentfilesharingservices.Inaunanimousdecision,theCourt ruledthattheFCCsattempttouseTitleIoftheCommunicationsActtoexecuteitspolicy favoringanOpenInternetwasblatantlyillegal.TheconsequencesoftheCourtsdecisionmight seriouslyunderminetheFCCseffortstopromotebroadbandtechnology.AsdescribedbyArt Brodsky,thecommunicationdirectorofPublicKnowledge:349 Itwasaprettystrongopinionasthesethingsgo.Itwascrucialbecauseeverythingthe FCCwantstodowithitsbroadbandstrategyisdependentonquestionablelegal authorityasaresultofthatcourtruling.
347

D.LindaGarciaisaprofessorintheCommunication,Culture,andTechnologyProgramatGeorgetown University 348 TarkanRosenbergisastudentintheCommunication,Culture,andTechnologyProgramat GeorgetownUniversity ThispaperwasoriginallypresentedtotheNewAmericaFoundationConferenceDesigningthe CommunicationActforthe21stCentury,WashingtonDC,September2920,2010. *ThispaperwasoriginallypublishedintheJournalofInformationPolicyVol.1(2011). **Theauthorswouldliketothankthefollowingpeoplefortheirinputs:MarjoryBlumenthal,DavidRibes, MichaelNelson,DavidLightfoot,&RandyBass. 349 ArtBrodsky,NoHoudinisNeeded:FCCShouldTakeDirectWaytoBroadbandAuthority,Public Knowledge,April26,2010,4:41http://www.publicknowledge.org/node/3025,accessedSeptember10, 2010.
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 Thisisnotthefirsttimethatopponentsofcommunicationrelatedpoliciescircumvented substantiveissuesbyframingtheirargumentsinjurisdictionaltermsthatfocusontheFCCs authoritytoact.Oneneedonlyrecall,forexample,thatittookcriticsonlytwoyearsafterthe passageofthe1996TelecomActtochallengetheFCCsroleinimplementingit.Inthisearlier case,theStatescontestedtheFCCsCommonCarrierdocket9698(carrierinterconnection order)incourt,claimingthattheFCClackedtheauthoritytoestablishinterimproxyprices,orto prescribespecificpricingmethodologiesthattheFCCmightuse.AgreeingwiththeStateson jurisdictionalgrounds,theUS8thCircuitCourtofAppealsoverturnedtheFCCinterconnection orderonJuly18,1997.Afewmonthslater,theCourtofAppealsreiterateditspositionwhen theStatesagainbroughtsuitagainsttheFCCthistimeclaimingtheAgencyhadsoughttouse section271oftheCommunicationsActasawayofevadingtheCourtsearlierrulingonthe interconnectionorder.350 Whatmakesthepresentsituationuniqueandinterestingfromapolicyperspective, therefore,isnotjustthattheFederalCommunicationCommissionanditsbehaviorareatissue, butalsoandperhapsmoreimportantlythattheFCChasactuallytakenastandindefending itsauthority.For,overtheyears,theFCChasoftenbeenaccusedofcowtowingtoindustrys interests,andbackingdownwhenpoliticsbecametoointense.351 Beforecastingjudgment,however,wemustrememberthatthechallengesentailedin implementingpolicies,whentheygoagainstindustryinterests,shouldnotbe underestimated.352Oneneedonlyrecall,forexample,theproblemsthatformerFCCChairman ReedHundtfacedwhenheactedtoimplementthe1996TelecomAct.AccordingtoHundt,the ActsfailurewasduenottotheoverzealousnessoftheFCC,butrathertothecontentiousness oftheAmericanlegalculture,andthecomplexitiesoftheUSjudicialsystem.Ashedescribed theproblem:Whenitcomestolegislation,betweenthethoughtandthedeedfallsthe shadowsystem.Theshadow,hesaid,iscastbythemillionsoflawyersinAmerica.353From Hundtsperspective,theFCCneededtohavemore,notless,authorityifitweretosuccessfully
350

MarkRockwell,AStrikeAgainstNewTelephoneCompaniesCourtShootsDownNetworkElement Plan,QuestTelepath,November2,1997;MarkRockwell,JurisdictionalBattleContinuesFCCTries AgainonPricingRules,Telepath,October6,1997,n.684;andStates,FCCInsistRelationshipisStrong DespiteNewLawsuitChallengingFCCsPricingAuthority,TelecommunicationsReports,September22, 1997. 351 SeeD.Garcia,D.Linda.(January,2001).WhenAgenciesareCapturedbyExperts:TheIronyof TelecomReform,LIndustria, 352 See,forinstance,TomBradley,PCWorld,UnveilingtheFCCBroadbandPlan,PCWorldBusiness Center,March15,2010,postedat11:38,accessedSeptember10,2010. 353 AsquotedinDavidBraun,CommunicationCzarHundtBlastsReformFootDragging,TechWebNews, August14,1997.

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implementtheTelecomAct.Curiouslyenough,today,BlairLevin,DirectoroftheOmnibus BroadbandInitiative,hasechoedChairmanHundtssentiments.OndepartingtheFCCafterthe completionoftheplan,Levinactuallyquestionedwhether,givenindustrysleverageandthe recentdecisionsoftheCourt,theBroadbandPlanisevenimplementable.354 Itisallthemoresignificant,then,thatFCCChairmanGenachowskididnotsimplybackdown uponhearingtheCourtsdecision,norinthefaceofindustryprotests.355Intentonpursingan OpenInternetpolicy,hetookadifferenttackonemightsaykillingtwobirdswithonestone. GenachowskinotonlyreassertedtheFCCsauthoritytosetpolicyaslaidoutinthe CommunicationsAct;healsoactedtobringbroadbandwithintheregulatoryframeworkofthe FCCbychangingbroadbandsclassificationfromaninformationservice(type1),whichare exemptfromregulation,356toacommunicationservice(typeII),whicharesubjectto regulation.357Elaboratingonhisapproach,andassertinghisrighttopursueit,Chairman Genachowskidescribedhispolicyasathirdwaythatistosay,anapproachthatentailsonly lightregulation.Asheexplained,theaimisnottoregulatebroadbandpricing,ortorequirethe ownersofbroadbandinfrastructuretosharetheirassets;rather,theintentistoassurethatthe FCChasthelegalauthoritytocarryoutitsobligations,especiallyastheyrelatetobroadband.358 Thissetofevents,whichoriginatedwiththe1996TelecommunicationAct(ifnotbefore)have generatedconsiderableturbulenceinthecommunicationspolicyarena.Thus,evenassome partiesinindustrycallforfurtherconstraintsontheFCC,othersraisequestionsaboutwhether ornotthe1996ActneedstoberevampedtoprovidetheFCCwithgreaterauthority.359The presentsituationisnot,however,inastateofstalemate.Ascomplexityscientiststellus, chaoticsituations,suchastheoneinwhichwefindourselvestoday,canproducemajor
354

MatthewLasar,Theendofanalog:BlairLevinontheNationalBroadbandPlan, http://arstechnica.com/telecom/news/2010/03:SeealsoEdMorrissey,AppealscourtrejectsFCC authorityforNetNeutrality,HotAir,postedApril6,@12:05,accessedSeptember9,2010. 355 KimHart,BigphonecompanieschallengeFCCsrighttoreclassifybroadband,HilliconValley,April 29,2010:postedat5:03pm.http://thehill.com/blogs/hilliconvalley/technology/95213bigphone companieschallengefccsrighttoreclassifybroad,accessedSeptember10,2010. 356 EmmaWoollacott,FCCmovestoassertauthorityoverbroadband,TGDaily,Friday,June18,2010. http://s0.2mdn.net/1833838/tgdaily_hp__toner.html?rfp=http://www.tgdaily.com/businessandlaw features/50263fccmovestoassertauthorityoverbroadband,accessedSeptember9,2010. 357 BroadbandserviceswerederegulatedandreclassifiedasaninformationserviceduringtheReagan Administration.Cable,whichprovidedequivalentservices,wasnotregulated;sotheaimwastoprovide allISPsalevelplayingfield.Thedecisionwasalsoinkeepingwiththederegulatoryclimateoftheday. 358 MargariteReardon,FCCdetailsplantoreassertauthorityoverInternet,Signal Strength,MY6,2010;postedat7:59,accessedSeptember8,2010. 359 TheFCCsAuthorityOverBroadbandAccess:TheHistoryandContextoftheDebate,VIDEO,Media Berkman,May27,2010.

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structuralchanges,intheformofphasetransitions.360Witheverythingupended,thefutureis upforgrabs,providingawindowofopportunitytoovercomethelegacyofthepast,and perhapsevenredesignthenationscommunicationsystemtobettermeettheneedsofthe21st century.Onehopefulsigninthisregardisthat,shortlyafterChairmanGenachowski announcedthathewouldexercisehisbroadbandauthority,thechairmenofmajor Congressionalcommitteesstatedthattheywereinterestedinconsideringthesecontentious issuesinthecontextofarevisedTelecommunicationsAct.361Ontheotherhand,effortsby CongressmanWaxman,ChairmanoftheHouseEnergyandCommerceCommittee,362toput forwardanetneutralitybillwasstalledbytheRepublicansinthehouse,whosubsequentlyhave warnedtheFCCthatitwouldexceeditsauthoritywereittocontinuetopursuenetneutrality onitsown.363Atthesametime,Genachowskihasreaffirmedhiscommitmenttoproceed.364 Hence,whetherornotchangestothe96Actmightbeachievedintodaysnewpolitical environment,andtheformtheymighttake,issubjecttoconsiderablequestion.Nevertheless, inlightoftheintensebargainingandtimerequiredformajorpolicychangestotakeplace,itis worthwhiletoaddresssomepossibilitiesnow. Considerthispaper,then,asathoughtpiecestimulatedbythenotionthatanew TelecommunicationsActmightbeintheoffingatsomepointinthenearfuture.Focusingon theBroadbandPlan,itaskswhatkindsoforganizationalcapacitywillberequiredtoimplement it,andwherethatcapacitymightbestbehoused.Toaddressthisquestion,thepaperproceeds asfollows.First,itexaminestheFCCBroadbandPlanandthekindofgoalsthatitsetsout. Basedonthisdiscussion,sectiontwoarguesthatbroadbandshouldbeconceivedlessasa deploymentproblem(ashastraditionallybeenthecase)andmoreasadiffusionproblem.The nextsectionexaminesthecriteriaforsuccessfuldiffusionefforts,aslaidoutbyEverettRogers. DrawingonRogersscriteria,thefollowingsectionidentifiesthetypesoforganizationalcapacity thatwillberequiredtomeetthesecriteria.SectionfiveexaminesthehistoricalcaseoftheRural ElectrificationAdministration(REA),whichwasdesigned,ineffect,aroundadiffusionmodel.In concluding,thepaperaskswhetheritispossibletobuildsomeofthesuccessfulaspectsofthe REAexperienceintotheorganizationalarrangementssupportingaNationalBroadbandPlan.
360

Seeforonediscussion,MarkBuchanan,SmallWorldsandTheGroundbreakingTheoryofNetworks, NewYork,W.W.Norton&Company. 361 TheFCCsAuthorityOverBroadbandAccess:TheHistoryandContextoftheDebate,MediaBerkman, May27,2010,video 362 ChairmanWaxmansStatementonNetNeutralityProposal. http://www.henrywaxman.house.gov/News/DocumentSingle.aspx?DocumentID=209385 363 Politico.com,Sources:FCCChieftoMoveonNetNeutralityProposal. Sources:%20FCC%20chief%20to%20move%20on%20net%20neutrality%20proposal%20 %20Kim%20Hart%20%20POLITICO.com.webarchive,accessed11/19/10. 364 ToddShields,RepublicansTellFCCtoSetAsidePlanstoSetRulesforWebService,Bloomberg Online.November19,2010,postedat5:37,accessed11/19/10.

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2.TheNationalBroadbandPlan Section706oftheTelecommunicationsActof1996callsontheFederalCommunication Commissiontoencouragethedeploymentofadvancednetworkingcapabilities.Actingonthe beliefthatcompetitionwouldreducecostsandencourageinvestment,theFCCreliedalmost entirelyonthemarkettoachievethisgoal.Hence,itclassifiedInternetservicesasinformation services,aclassificationoverwhichithaslittle,ifany,regulatoryauthority.365Whiletouting theimportanceofbroadbandservices,subsequentadministrationsmaintainedthissame approach366.Contrarytotheexpectationsassociatedwiththispolicy,theUnitedStates continuedtofallbehindothercountriesinprovidinguniversalaccesstobroadbandservicesat affordableprices.367Itnowranks15thamongOECDcountries.368 RespondingtogrowingconcernslestourlagginginfrastructurenegativelyaffectUS competitiveness,theObamaAdministrationtookupthebroadbandtorchaspartofitsstimulus package.InFebruary17,2009,alittlemorethanayearafterObamaassumedoffice,Congress passedtheAmericanRecoveryandReinvestmentActof2009,whichcalledontheFederal CommunicationCommissiontodevelopaNationalBroadbandPlan,orroadmap,forensuring everyAmericanhasaffordableaccesstobroadbandcapability369.Tothisend,theActprovided morethan$7billiontopromoteuniversalbroadbandaccess. MirroringthefractionatednatureoftheUScommunicationpolicyarena,theAmerican RecoveryandReinvestmentActdistributesresponsibilityforpromotingbroadbandacrossa numberoffederalagencies.Thus,NTIAreceivedfundingtodevelopabroadbandinventory map;theFCCiscalledupontodevelopanationalbroadbandplan;NTIA,inconsultationwith theFCC,ischargedwithestablishingagrantsprogramtheBroadbandTechnology Opportunitiesprogram;andRDUPischargedwithissuingloans,loanguarantees,andgrantsto
365

GAO.BroadbandDeploymentPlanShouldIncludePerformanceGoalsandMeasurestoGuideFederal Investment,May2009:144. 366 AstheGAOhascharacterizedthesepolicies:OfficialsatOSTP,FCC,andNTIAduringtheBush Administrationtoldusthatcurrentfederalbroadbandpolicywasmarketbased;OSTPtoldusthatthe BushAdministrationhadimplementedfiscal,technology,andregulatorypoliciesbasedontherecognition thatacompetitivemarketplaceprovidesthebestenvironmentforachievingtheUnitedStates broadbandgoals,andcompetitivemarketsshouldbederegulated;anofficialatFCCcharacterizedFCCs broadbandpolicyinrecentyearsasonethatreducedbarrierstoentry,lessenedregulationofbroadband, andencouragedinvestment;andNTIAtoldusthatfederalbroadbandpoliciesofthepastfewyearsflow fromanearlyspeechmadebyPresidentBushthatemphasizedthedeploymentofbroadband,andthat NTIAhadexecutedtoremoveeconomicdisincentives.Ibid.:14. 367 Ibid. 368 Ibid. 369 CNNNews,Stimulusbillincludes$7.2millionforbroadband,February17,2009,postedat9:40am; Seealso,FCCpressrelease,FCCLaunchesDevelopmentofNationalBroadbandPlan:SeeksPublicInput onPlantoEnsureEveryAmericanhasAccesstoBroadbandCapability,April8,2009.

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increasebroadbandaccessibility.370Ofcourse,notwithstandingthisdivisionoflabor,theAct requirescooperationandcoordinationamongtheagenciesresponsibleforimplementingthe BroadbandPlan.Thus,forexample,theFCCisresponsibleforevaluatingtheprojectsfunded bytheAct.Todoso,itmustrelyonNTIAsdatasettodeterminewhat,exactly,isan underservedarea371. Havingbeenvettedthroughanumberofdifferentvenuesandarenasthroughoutthe country,372theFCCsBroadbandPlanwasfinallyreleasedonMarch16,2010.Itwasan ambitiousplan,embodyingalmost200recommendations.373 TheFCCsNationalBroadbandPlanlaysoutbroadstrategiesandpolicyrecommendationsto CongressonhowtoprovidehighspeedInternetaccesstohomesandcommunitiesacrossthe country.ThePlanidentifiessixmajorgoalsthatincludeprovidingbroadbandaccessto100 millionhomesby2020,placingtheUnitedStatesattheinternationalforefrontofinnovation andspeed;providingeveryAmericanwithaffordableaccessandtheskillsneededtosubscribe; providingaccesstocommunitiestobeutilizedbynonprofitandpublicinstitutions;providinga nationwidepublicsafetynetworktofirstresponders;andprovidingAmericanstheopportunity totraceandmanagetheirenergyconsumptioninrealtime374 Theplanfocusesonthreemajorstrategyareasthatincludeinvestment,adoptionandutilization forpublicservicessuchashealthcareandeducation.Eachsectioncontainsnumerous recommendationstoCongressandotheragencies,suchastheNationalTelecommunications andInformationAdministration(NTIA),whichaimtomeetthevariousgoalsoverthenext decade.Thefirstsection,entitled,InnovationandInvestment,callsontheFCC,theNTIAand CongresstofreeupwirelessspectrumforusebyInternetServiceProviders.Theaimisto encouragewireless/wirelinecompetitionathigherspeeds.ItalsocallsontheBureauofLabor

370 371

GAO,op.cit.:17. GAO,opcit.:22. 372 BroadbandInitiativesProgram,QuarterlyProgramStatusReport,SubmittedtotheCommitteeon Appropriations,UnitedStatesSenateandTheCommitteeonAppropriations,UnitedStatesHouseof Representatives,February17,2010,QuarterlyProgramStatusReport. 373 GrantGross,IDGNews,FCCOfficiallyReleasesNationalBroadbandPlan,PCWorldBusinessCenter, March16,2010,12:30. http://www.pcworld.com/businesscenter/article/191666/fcc_officially_releases_national_broadband_pla n.htm;SeealsoTonyBradley,PCWorld,UnveilingtheFCCNationalBroadbandPlan,PCWorldBusiness Center,March15,2010,postedat11:38. http://www.pcworld.com/businesscenter/article/191534/unveiling_the_fcc_national_broadband_plan.ht ml?loomia_ow=t0:s0:a38:g2:r3:c0.047330:b31935092:z0,accessedSeptember7,2010. 374 NationalBroadbandPlanCh.2,pp.2527

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Statisticstoprovidedetaileddataonbroadbandavailability,penetration,andprices.375The sectionalsolaysoutrecommendationsforloweringinfrastructurecostsandforgovernment investmentinresearchanddevelopmentprojects. ThePlanalsocallsforstrategiesofinclusionandadoption,notingthat100millionAmerican homesarewithoutbroadbandandthatapproximately14millionAmericanslackaccessto broadbandinfrastructure.Whileitemphasizesthatmanylackingaccessmayforegoservice becausetheyseenoneedforitintheirhomes,otherseithercannotaffordservice(or computersforthatmatter)orlacktheskillsneededtoutilizetheserviceseffectively.ThePlan pointstothegrowingdigitalexclusionamongthemostmarginalizedmembersofsociety ethnicandracialminorities,seniorcitizens,thedisabledandthoselivingontriballands.376 Amongafewoftherecommendationslaidouttocombatthisphenomenonareprojects designedtointegratenonsubscribersintothebroadbandecosystem,includingoneproviding fundingtoenableauniversalizationtargetof4Mbpsofdownloadand1Mbpsofupload speedsthehighestintheworld.377Theplanfurthermoreaddressestheneedtoeliminatecost barriers,aswellaslowerdigitalilliteracybylaunchingapublictrainingserviceintheformofa NationalDigitalLiteracyProgram.378 Thethirdandlastmajorsectionoftheplanfocusesonthediffusionlaginthenationspublic servicesector.Thesectionmakesrecommendationsintendedtoallowservicessuchashealth care,education,firstresponders,andgovernmenttobeintegratedintoanecosystemandto developadigitalcultureandmoretransparency.Thissectionseekstoencourage environmentalawarenessandcivicengagementamongcitizensbyintegratingbroadbandinto thesmartgrid,allowinguserstotracttheirenergyconsumptioninrealtimeandcreatinga moretransparentgovernmentbyconnectinggovernmentandcitizensthroughsocialmedia environments.379Thissectionalsocallsforapublicsafetybroadbandresponsenetworkthat wouldallowfirstresponderstosendandreceivevoice,videoandotherdatamoreefficiently, andthepublictoaccessemergencyservicesacrossarangeofcommunicationplatforms.380 Includedinthissectionalsoarecallstocreateincentivesforwidespreadecareadoptionandfor ensuringconnectivityforhealthcareresponselocations,suchasreplacingtheInternetAccess FundwithaHealthCareBroadbandAccessFund,andallocatingmoneystoupgradethe

376 377

Ibid.PartII:129 Ibid.Ch.8:135 378 Ibid.Ch.9:168 379 Ibid.Ch.12andCh.14 380 Ibid.Ch.16:313

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broadbandserviceforhealthcareprovidersoperatingontriballands.381Intheareaof education,theplanlaysoutstrategiestopromoteonlinelearningthatincludethesharingand licensingofdigitaleducationalcontent,reformingstateaccreditationorganizationstoallowfor moreonlinecreditcourses,onlineteachingacrossstateslines,aswellasintegratingdigital literacystandardsintocurricula.382 Thelastchapteroffersupastatementandguidefortheplansimplementation,pointingout thattheplanitselfisexpectedtobeeverchanging.ItrecommendsthattheExecutiveBranch establishaBroadbandStrategyCounciltocoordinatetheplansimplementationandallowthe FCCtoregularlyupdateandpublishtimetablesandstatusreportsonthePlansdevelopment.383 Whilestakeholdershavegenerallyapplaudedtheintentoftheplan,therearemany whoquestionspecificaspectsofit.384Forexample,someinthehightechcommunityandmany othersrepresentingminoritygroupsandcommunitybasedorganizationssaytheplandoesnt gofarenough.385Somemembersoftheindustryarealsoambivalent;theywantmoredetails, fearingthatintheendthePlanmightservetodiscourageinvestment.Broadcasters,in particular,areconcernedlestthespectrummadeavailableforbroadbandwillcomeattheir expense.Atthesametime,manypublicinterestgroupsaredisappointedthattheplandoesnot recommendopenaccessrulesrequiringthebigphoneandcableTVcompaniestoleasetheir networkstorivalssotheymightofferservicesattheirownprices. Amorefundamentalcriticismoftheplan,andthefocusofthispaper,relatestoits underlyingrationale.Muchinkeepingwithpasttelecompolicy,theBroadbandPlanisin essenceatechnologydeploymentstrategy,relyingonindustrytoprovidethemomentumfor adoption,bycompetinganddrivingpricesdownsothatmorepeoplecanaffordInternetaccess. Thevalueofthisapproachisquestionable,however,notonlybecausesimilareffortsinthepast appeartohavefailedtomeettheirobjectives,butalsobecauserecentsurveydatasuggestthat thepresentlimitstousagedonotrepresentsomuchofarealsupplyproblem,butrathera significantdemandproblem.
381 382

Ibid.Ch.10:200 Ibid.Ch.11;244 383 Ibid.Ch.17:333 384 MattRichtelandBrianStelter,F.C.C.QuestionedonItsFarReachPlantoExpandBroadbandAccess, TheNewYorkTimes,March16,2010.broadband/F.C.C.%20Questioned%20on%20Its%20Plan%2;Seealso TomBradley,FCCBroadbandPlanUnderFireFromAllSides,BizFeed,PCWorld,March3,2010. broadband/F.C.C.%20Questioned%20on%20Its%20Plan%2,accessedSeptember2,2010. 385 JoelleTessler,Critics:Broadbandplandoesntgoforenough,MNBC.com,updated3/22/10,7:58pm. broadband/Critics:%20Broadband%20plan%20doesn't%20go%20far%20enough%20 %20Technology%20&%20science%20%20Tech%20and%20gadgets%20%20msnbc.com.webarchive, accessedSeptember2,2010.

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Thus,forexample,accordingtoarecentPEWresearchsurvey386privateInternetconnectivity hasonlyrisenby3%overthelastyear,andofthosesurveyed,53%donotbelievethe governmentshouldinterveneinbroadband,orthattheissueisofparticularimportance.The majorityofthoseunconcernedaboutbroadbandarenonsubscribers,whoarguethatonlythose whoalreadyhaveaccesstohighspeedservicesareconcernedaboutbroadbandexpansion. Anotherrecentsurvey,conductedbyABIResearch,reinforcedthePEWstudy,findingthatat theendof2009,64%ofhouseholdshadbroadband.Thestudybreaksthe35%ofnon subscribersintofourcategories.Thelargestgroup(37.8%)claimstohavenoneedfor broadband,26.3%citealackofaffordability,and18.3%dontownacomputerofanykind. Theremaining3.6%liveinruralorwildernessareaslackinginfrastructuralsupportfor broadband.387 EquallydoubtfulisthePlansexpectationthatgreatertechnologydeploymentwillleadtothe uptakeofinnovativeapproachestoemployingtechnologyforpublicpurposessuchas healthcare,egovernment,education,etc.AsJaniceHaugeandJamesPriegerhavepointedout, therehavebeenfewanalyticalevaluationsoftheimpactofdeploymentstrategieson technologyuptake,muchlessontheinnovativeuseoftechnologytoachievepublicgoals.Thus, thereisnoevidencetoguidepolicymakersaboutthechainofeventsandthereforethepoints wherepolicyinterventionmightmakehaveapositiveimpactthatlinkthedeploymentof Internettechnologiestoinnovativeoutcomesindiversepublicsettings.388Withoutsuch researchanddata,properevaluation,feedbackandrestructuringcannottakeplaceasthe Plan,asitispresentlylaidout,presumes.Underthesecircumstances,thereisarealdangerthat manyoftheresources,allocatedtothebroadbandproblem,insomethingofavacuum,maygo towaste.AsRyanSingelhascharacterizedthesituation: ...Buthowdowemakesurethatthebillionsarentspentcreatingthe21stcentury equivalentofditchestonowhere.Thequestionofhowtospendthatmoneymost effectivelyislargelyunanswerable,sincealmostnooneknowsanythingaboutthe internetsinfrastructureandthosethatdoarentsharingthatinformationwith policymakersorregulators.389

386

JohnHorrigan.2008AdoptionStallsforLowincomeAmericansEvenasManyBroadbandUsersOptfor PremiumServicesthatGiveThemMoreSpeed.Pew/Internet,HomeBroadbandAdoption:Washington DC. 387 LouisE.Frenzel,BroadbandforEveryone,ElectronicDesign,May11,2010,accessedFeb.10,2011, http://electronicdesign.com/article/communications/broadband_for_everyone.aspx. 388 Hauge,JaniceA,andPrieger,NamesE.(2010)DemandSideProgramstoStimulateAdoptionof Broadband:WhatWorks?ReviewofNetworkEconomics:Vol.9:Iss.3,Article4.Availableat http://www.bepress.com/rnevol9/iss3/4DOI10.2202/14469022.1234

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 3.TheNeedforaDiffusionPerspective TheBroadbandPlanlaidoutbytheFCCclearlyrecognizesthatthefullbenefitsofbroadband usageintheUnitedStateswillonlyberealizedwhenbroadbandtechnologyisemployednot onlybyindividualsseekingtheirownparticularends,butalsoandperhapsmoreimportantly bygroupsandsocialorganizationsthataimtousetechnologytoaddressmajorsocialand economicneeds.AshighlightedintheBroadbandPlan,theseoccasionsmightinclude,for exampletechnologiestosupporteducation,healthcare,economicdevelopmentand emergencyservices.Thisisamajorshiftinemphasis,anditrequiresnewwaysofthinking abouttechnologypromotion.Forexample,whenthefocusofapolicyisonindividuals,each actingonhisorherown,itispossibletopursueasupplysidestrategy,whichlookstomarket competitiontoencourageinvestmentandlowerprices,therebyencouraginginnovationand greaterusage.And,aswehaveseen,thishasbeentheprimaryapproachfollowedbytheFCCin thepast.However,ifadvancednetworkingtechnologiesaretooperatetopursuesocialand economicgoals,adeploymentapproachwillnotsuffice.Insuchcases,policymakersmusttake accountnotonlyoftheuser,butalsoofthesocialcontextinwhichthetechnologyisbeing deployed.Inotherwords,policymakerswillneedtocreatetheoptimalconditionsforthe productiveuseofnetworkingtechnologiesandtheirincorporationintoaparticularsocial setting. Tocapturethecriticalvariablesforsuccess,technologydeploymentstrategiesmustbelinkedto diffusionstrategies.Whereastechnologydeploymentreferstothephysicalprovisionof infrastructurefacilities,technologydiffusioncanbedefinedastheprocessbywhich technologiesandtechnicalinnovationsareextendedandadaptedovertimeandspace,and integratedintodaytodaysocialandeconomicactivities.390AsHanneyetal.,havedescribed thisprocesswithrespecttoinformationtechnologies: ...diffusioninvolvesmorethanacquiringcomputerizedequipmentandmicro electronicsbasedproductsandrelatedknowhow.Itinvolvesthedevelopmentof technicalchangegeneratingcapabilitiesandtheadaptationofagiventechnologytoa widerangeofneeds391
389

RyanSingel,EPICENTER,December24,2008;10:28. file:///Users/garciadl/Desktop/broadband/Broadband%20Stimulus%20Plan:%20How%20About%20Some %20Data%20First%3F%20%7C%20Epicenter%C2%A0%7C%20Wired.com.webarchive,accessedSeptember 6,2010. 390 SeeLawrenceA.Brown.1981.InnovationDiffusion:ANewPerspective.NewYork,NY:Methuen.; andEverettRogers,1995.DiffusionofInnovations,fourthedition.FreePress. 391 Hanna,Nagy,Guy,KenandRik,Arnold,1995.TheDiffusionofInformationTechnology:Experienceof IndustrialcountriesandLessonsforDevelopingCountries.WashingtonDC:WorldBank,n.281.

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Ideally,thisprocessisacumulative,iterativeone;oncedeployed,newtechnologiescontinueto evolve,andarereinventedinresponsetochangingneedsandcircumstances.Hence,the coursethatthediffusionprocesstakesisdeterminednotonlybytechnicalandeconomic factors,suchastechnologyadvancesanddecliningcosts,butalsobysocialandinstitutional factors,suchastheavailabilityofmechanismsforinformationlearningandinformation exchange. Notwithstandingthecriticalrelationshipbetweendeploymentanddiffusion,thesetwo strategiesarerarelycombined.Infact,alltoooften,supplydrivendeploymentstrategies focusingalmostexclusivelyontheproblemofaccessworktounderminethevery socioeconomicconditionsthatarerequiredtoencouragewidespreadandsustainableusage.392 Unfortunately,changingcourseanddesigningandimplementingtechnologydiffusionstrategies isespeciallychallengingintodaysderegulated,economicenvironment,inwhichthepolitical andeconomicmodusoperandiistoletmarketstaketheircourse. 4.CriteriaforExecutingaSuccessfulDiffusionStrategy Tofullyappreciatewhatisentailedincarryingoutsuchastrategy,wemustlookmorecloselyat EverettRogerswellknowndiffusionmodel.AccordingtoRogers,diffusionislessamarket processandmoreacommunicationprocess.Tobeexact,diffusionistheprocessbywhich innovationsarecommunicatedthroughcertainchannelsovertimeamongthemembersofthe socialsystem.393Accordingly,policystrategiesdesignedtopromotethegoalsoutlinedinthe FCCBroadbandPlanmustbegroundedinasolidunderstandingofhowthesecommunication processeswork. AccordingtoRogers,innovationsarenotadoptedallatonestroke.Tothecontrary, adoptionisaprocessthattakesplaceovertime,andinthecourseoffivedifferentstages,each ofwhichisaseparate,andunique,socialprocessthatinvolvesactorsinteractingwithothers.In phaseone,forexample,actorslearnfromothersaboutaninnovation,gainingsomeinitial informationaboutwhatitisandhowitworks.Inphasetwo,actorsareeitherpersuadedby othersofthebenefitsoftheinnovationornot,dependingontheattitudesthattheydevelopin thecourseoftheirexperiencingtheinnovation.Thethirdphaseoccurswhenactorsmakea decisionastowhetherornottoacceptorrejecttheinnovation.Phasefour,inRogersmodel, entailsthedecisionbyactorstoimplementaninnovationthatis,toputitintopractice.Inthe finalphase,phasefive,actorswilleitherconfirmorreverseapreviousdecision.394
392

Garcia,D.Linda,andGorenflo,Neil.September1997."BestPracticesforRuralInternetDeployment: TheImplicationsforUniversalServicePolicy."PaperpresentedtotheTelecommunicationsPolicy ResearchConference.Alexandria,Virginia.Seealso,1991.OTA,RuralAmericaAttheCrossroads: NetworkingfortheFuture.WashingtonDC:U.S.GovernmentPrintingOffice. 393 EverettRogers.Opcit.,p.10. 394 Ibid.161.

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 InRogersmodel,anumberoffactorsplayaroleindeterminingwhetherornotthe diffusionofaninnovationeventuallytakesplaceandthespeedatwhichitoccurs.Equally important,thetypeofimpactsthatthesefactorshaveisrelatedtothephaseintheprocesswith whichtheyareassociated.Takecommunicationchannels,forexample.AsRogerspointsout, whereasmassmediachannelsareeffectiveintheinitiallearningphaseoftheprocess,peerto peertiesaremoreimportantinthepersuasionanddecisionmakingphases.Likewise,whereas intheinitialphaseofawareness,contactsamongheteropholousgroups395aremostproductive ingeneratinginformationaboutaninnovation,interactionsamonghomophilousgroupsare moreeffectiveinthelaterphasesofadoptionwhenpeopledevelopmoreemotionallycharged attitudesaboutaninnovation.396 Rogersalsorelatesthesuccessandspeedofthediffusionprocesstotheattributesof innovationsandthosewhoadvocateandusethem.Accordingly,hearguesthatinnovationsare morelikelytobeadoptedtotheextentthattheyhavearelativeadvantage;arecompatiblewith existingnormsandpriorwaysofdoingthings;arenotcomplex;butaretrialableand observable.397Asimportantly,hecategorizespotentialusersaccordingtotheirinnovativeness innovators,earlyadopters,earlymajority,latemajority,andlaggardswitheachcategorybeing associatedwithspecificsocialandeconomicattributes.Thus,accordingtoRogers,early adopterstendtohavehigherstatus,wealth,levelsofeducationalachievement,socialmobility andbemorecosmopolitethanlateradopters.398Similarly,Rogersdescribeschangeagentsas beingmorecosmopoliteandeducatedthentheaveragepotentialuser. Basedonthesecategories,thecriteriaforsuccessfuldiffusioncanbesummarizedasfollows: Theinnovatorsinanygivensocialcontext(orcluster)musthaveaccesstosourcesof informationfromoutsidethatcluster.Thiswillentailactivepromotionbyoutsiders, characterizedbyRogersaschangeagents.399

395

Homophilyisthedegreetowhichpairsofindividualswhocommunicatearesimilar,whereas heterophilyisthedegreetowhichpairsofindividualswhointeractaredifferentincertainattributes. 396 Rogers,op.cit.:169. 397 Rogers,op.cit.:207. 398 Rogers,op.cit.,:269. 399 AsRogersdescribes,Ourintimatefriendsareusuallyfriendsofeachothersformingacloseknitclique. ..Suchaningrownsystemisanextremelypoornetinwhichtocatchnewinformationfromones environment.Muchmoreusefulforgainingsuchinformationaretheindividualsmoredistant(weaker) acquaintances;theyaremorelikelytopossessinformationthattheindividualdoesnotalreadypossess. Rogers,op.cit.:34.

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Changeagentsmustidentifyappropriateopinionleaderswhoareinfluentialwithinthetarget socialsetting,andwithwhomchangeagentsareonarelativeequalsocialfooting,allowingfor mutualengagementandprovidingabasisfortrustandsupport. Changeagents,andopinionleadersmustworktogethertoacquaintlessenthusiasticusers withthenewtechnology,andtoprovideassistancetotheminusingit.Theuseofthe technologyshouldberelatedtoagroupsspecificgoals,sothatitscompatibilitywiththese goals,anditscomparativeadvantageinachievingthem,canbeclearlydemonstrated.Aswell, learningaboutandapplyingthetechnologytoachievecommongoalsshouldbecarriedoutwith groupparticipation,whichwillnotonlyreinforcecommitmenttothetechnologybutalso provideforaplatformformutualsupport.Sharedusageofatechnologytoachieveacommon purposemayalsoenhancethesocialcapitalrequiredtosuccessfullycarryoutthatpurpose. Provisionmustbemadetoprovidesupportovertimetoallownotonlyforsustainabilitybut alsoforcontinuedinnovationasthetechnologyevolvesincontext.Tothisend,activelinkages needtobemaintainedbetweennationalpolicymakersandthoseoperatinglocally. 5.MeetingtheCriteriaTheOrganizationalCapacityRequired Meetingthecriteriaforpromotingtechnologydeploymentisfarlessdemandingthan meetingthecriteriaforencouragingtechnologydiffusiononereason,perhaps,that deploymentstrategieshavetypicallybeenpreferredoverdiffusionstrategies.Ofparticularnote inthisregardisthedifferenceintheorganizationalcapacityrequired. Withdeploymentstrategies,forexample,muchoftheeffortislefttotheinvisiblehand.Thus, theGovernmentcaninvestininfrastructurefortheInternet,andthenleaveit,firsttothe scientificcommunity,andlatertoindustry,tocarryonfromthere.Similarly,theGovernment canpromoteindividualusagebyenforcingcompetitionlawtoensurelowprices,andby providingincentivesforinvestmentintheformoftaxcredits,etc.Inlikefashion,the Governmentcanprovidefundingtogovernmentlabsfortechnologydevelopment,without becominginvolvedintheinnovationprocessitself. Notsointhecaseofdiffusionstrategies!Asdescribedabove,diffusionisnota straightforwardlinearprocess.Tothecontrary,itishighlycomplex,takingplaceovertimeand instages,eachofwhichisdependentonalltheothers.Eachofthesestageswillrequireitsown policystrategy,distinctresources,andengagementwithdifferentplayers.Ontopofthis,each 156

strategymustbeflexibleenoughtoincorporatefeedbackandallowforadjustmentsalongthe way.Asimportantly,unlikedeploymentstrategies,whichtendtobetopdown,diffusion strategiesrequireongoinginteractionbetweengovernmentchangeagentsandtarget populationssothatlearningbydoingcantakeplaceinbothdirectionsandinnovative practicescanemergeasaresult. Compoundingthesituation,thereisnoonesizefitsalldiffusionstrategy,asisoften thecasewithtechnologydeployment.Oneneedonlyconsiderthatthegovernmentcanemploy taxcredits,forinstance,toencourageinvestmentintechnologyrelatedindustries,regardlessof theindustryinquestion.Similarly,thegovernmentcanfundresearchanddevelopment,with widerangingspillovereffects,asthehistoriesofthecomputerindustryandtheInternetattest. Incontrast,meetingthesocietalgoalsthatareoutlinedintheFCCsBroadbandPlanwillrequire diffusionstrategiesthataretargetednotonlytospecificsectorsofactivities,suchashealth care,education,etc.,butalsotospecificplacesandinstitutionalsettings.Designingsuch strategieswill,therefore,requireexpertisethatextendswellbeyondthetraditionallawand economicsthatistobefoundinmostFederalagenciestoday.Inadditiontotheneedfor knowledgeofspecificsubjectareas,expertiseinthefieldsofsociology,anthropology,political science,andcommunicationwillberequired. Equallychallenging,effortstoenhanceorganizationalcapacitymayverywellbringwith themgreatlyincreasedcosts.Evenassumingthatadequatefundingisavailableintodays depressedeconomy,budgetaryconcernsandtheneedforaccountabilitymightrequirethat governmenttakeontheadditionalburdenofmonitoringprogress,anddevelopingand implementingtoolstoassessoutcomes.Politicalcostsmayalsobegreater,notonlybecause withgreateruncertaintyrisksarehigher,butalsobecauseputtingtogetherthealliancesand resourcesnecessarytocarryoutadiffusionstrategywillgiverisetowinnersandlosers,and hencepotentiallyrequirelargeamountsofpoliticalcapital. TheCaseoftheRuralTelephoneCooperatives&theREA Togetanideaofhowsuchorganizationalcapacitymightbebroughttogether,andcoordinated, topromotebroadbandinfrastructureintheUnitedStates,itisusefultolookatthecaseofthe RuralElectrificationAdministration(REA).Initsheyday,theREAaFederalagencyhousedin theDepartmentofAgriculturepursuedacombineddeployment/diffusionstrategyinaneffort todeliverbothelectricityandtelephonytounservedruralareas.Tothisend,theAgency broughttogetherchangeagents,opinionleadersandlocalcommunitiesinanongoing configuration,whichgeneratedincreasingreturnsaswellasthesocialcapitalsocriticalforrural development.EmployinglocalcapacitytogetherwithFederalsupport,theREAachievedit 157

goalsatminimalcostandinasustainablemannerthatfosteredruraldevelopmentgoals.Given todayschallengesinpromotingbroadband,itistimetorevisitthehistoryoftheREAtosee whatlessonsitaffords. HowdidtheREAachievesuchsuccess?In1894,whentheoriginalBellTelephoneCompany patentsexpired,USruralcommunitiesenteredthetelephonebusiness.Shunnedbyurban basedtelephonecompanies,ruralresidentstookituponthemselvestoprovidetheirownphone service,relyingalmostexclusivelyonlocalcapitalandlabor.Inmanylocalvillages,doctorsand otherlocalprofessionalstooktheinitiative,whereasinmoreremoteareasitwasfarmerswho setupthefirsttelephonelines. Ruralphonecompaniesorganizedthemselvesinawidevarietyofways,dependingontheirlocal resourcesandsituations.Somepurelyprivatecompanies,whichfunctionedasintercom systems,consistedofasingleline,whichwasownedandsharedbyasmallgroupofpeople. Otherswereorganizedonaprofitseekingbasis,takingtheformofprivatelyownedand commercialstockcompanies.Mutualstockcompanies,incontrast,wereownedentirelyby users.Organizedonaninformalbasis,themembersoftheseorganizationspaidaprorated shareofthecapitalexpenditures,maintenance,andimprovementfees.Farmerlineswere typicallysetupaspurelyprivateormutuallyownedsystems.400Thus,forexample,tojointhe LibertyTelephoneCompanyin1910,onehadtopayanupfrontfeeof$25;providea telephone,apole,andsomelabor;aswellaspayaflatannualfeeof$7forservice.401 Ruralphonecompanieswereabletomakedowithsuchlimitedresourcesbecausetheyshared whattheyhadandkepttheirexpensestoaminimum.Localfarmers,forexample,oftenbuilt networksusingtheirownmaterialsandtools.Whennecessary,theypurchasedequipment fromindependentmanufacturersorthroughmailordercataloguesdistributedbysuchfirmsas SearsandRoebuckandMontgomeryWard.Havingbuilttheirownnetworks,thesefarmershad littletroublemaintainingthem.Problemsdidarise,however,whentheyresortedtoverylow qualityequipmentandpoles,whichsometimesincludedbarbedwireandfenceposts.402 Overall,however,themodelwasagreatsuccess.By1920,39percentofallfarmershad obtainedrudimentaryservice,andinsomeMidwesternstatesthenumberoftelephonesper personexceededthatintheEast. Despitetheirinitialsuccessesandtheimportantservicebenefitsthattheyprovided,rural telephonecompanies'fateswereinextricablylinkedtothoseofthecommunitiestheyserved. WithindustrializationandtheonsetoftheGreatDepression,thesecompanieswerenolonger abletosustainthemselves.Manyfailed.Becauseurbanbasedtelephonecompanieswere unwillingtoservethesethin,unprofitablemarkets,serviceinruralcommunitiescontinuedto
400

DaleHatfield.1980.SpeedingTelephoneServicestoRuralAreas:LessonsfromtheExperienceinthe UnitedStats.WashingtonDC.AnnenbergWashingtonPrograminCommunicationStudies,Northwestern University. 401 C.W.Meyer.November16,1912.HowWeBuiltaHomeOwnedFarmersTelephoneLine. 402 RoyA.Atwood.1984.TheTelephoneandItsCulturalmeaninginSouthernIowa.IowaCity,University ofIowa.

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deteriorate.Thus,by1940,only25percentofallfarmresidenciesintheUnitedStateshad workingtelephones.403 ThistrendwasonlyreversedwhentheFederalGovernmentdecidedtoadoptalessmarket oriented,andmorecommunitybased,approachtotelephonedeploymentinruralareas.To promoteruraltelephony,theGovernmentturnedtotheRuralElectrificationAdministration (REA),whichhadalreadyprovensuccessfulinbringingelectricitytoruralareas.Themodel advocatedbytheREAthecooperativewasdesignedtoaddresstheproblemofmarket failuresinruraleconomies. Asinthecaseofthetelephone,ruralresidentshadgreatlylaggedbehindurbanresidentsin accessingelectricity.By1935,lessthan12percentofallAmerica'sfarmswereserved.Private utilitieswereunwillingtoprovideservicebecausedemandseemedlowandthetechnical problemshigh.Atfirst,theFederalGovernmentsoughttoassistandencourageprivateindustry ratherthandisplaceit.Whenindustryfailedtorespond,PresidentRooseveltcreatedtheREA, whichbypassedmunicipalandprivateindustrywithitsowngrassroots,cooperativenetworks404 EventhoughtheREA'sgoalswereambitiousuniversalhighqualityservice,rapiddeployment, andlowratestheagencywassuccessfulinachievingthem.Fewruralcooperativesdefaulted. By1940,3percentofallfarmershadelectricity;by1950,78percentwerereceivingservice;and by1959,96percent(UnitedStatesDepartmentofAgriculture,1989). Ruralelectriccooperativesalsoplayedanimportantroleineconomicdevelopment.Tothisend, theyworkednotonlywithREA,whichthoughitsloanprogramservedtopromote deployment,butalsowiththelocalextensionservices,locatedatnearbylandgrantcollages, whohelpedtopromoteeconomicdevelopmentand,withit,technologydiffusion.Thus,the cooperativesaggressivelyrecruitedandservedindustrial,commercial,andsuburbancustomers, whichhadtheeffectofincreasingthenumberofconsumerseachyear,from5millionin1960to 12millionin1987.Insodoing,theygreatlyfacilitatedthemovementofindustrial,commercial andnonfarmresidencestoruralareas.405 Lookingforanewmissioninthelate1940s,REAwelcomedthetaskofhelpingtodeploy telephonestoruralareas.WithitsauthorityexpandedbyCongress,theREAhelpedtoachieve highquality,stateofthearttelephoneserviceinruralcommunities.Toservewidelyscattered residences,itpioneeredtechnologytoreducethesizeofwire,itscostofinstallation,andits vulnerabilitytolightningandicing.REAborrowersalsoreplacedpartylineswithoneparty

403

UnitedStatesCensus,1949:1.

404

JohnD.GarwoodandW.C.Tuthill.1963.TheRuralElectrificationAdministration:AnEvaluation. WashingtonD.C.:TheAmericanEnterpriseInstitute. 405 UnitedStatesDepartmentofAgriculture.RuralElectrificationAdministration.1989.ABriefHistoryof RuralElectricandTelephonePrograms.WashingtonDC:USDA,REA.

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service.Rateswerestandardizedandcomprehensive"area"coveragewasprovided.Attesting totheprogram'ssuccess,94percentofallfarmswereservedbytelephonesin1990.406 ThecontributionoftheRuralElectrificationAdministrationtoruralAmericawasbynomeans limitedtotechnologydeployment,however.Byeducatingandworkingjointlywithrural telephonecompanies,REAfosteredtechnologytransferwithoutwhichtechnicalsystemscould notbeupgradeand/ormaintained.Inaddition,bychannelingitssupporttolocalproviders, whoreliedasmuchaspossibleonlocalresources,theREAhelpedtoreinforceruraleconomies. Thispolicy,inturn,hadpositivecumulativeeffects.Becausethecooperativesandindependent telephonecompaniesweresociallyembeddedinlocalcommunities,theirmanagersandowners wereabletoquickentheflowofmarketinformationandpassontheirtechnicalskillsand entrepreneurialexpertise.Moreover,incaseswheretelephoneproviderswereorganizedas cooperativeswhichoperatedaccordingtodemocraticrulesofthegametheprocessof managingandadministeringtheprovisionoftelephoneserviceshelpedtobuildthesocial capitalthatcangreatlyfacilitateeconomicdevelopmentinaruralenvironment. REAfulfilledmanyofthegoalsthatwereoriginallyassignedtoit;butanother,andeverlasting, valuehasbeenREAssuccessfultechnologydiffusionmodelforovercomingmarketfailures associatedwithtechnologydeployment.Infact,inonemanneroranother,itisamodelthat policymakersmightreconsidertoday,whendevelopingstrategiestopromotebroadband. PuttingTheHorseBeforetheCart Recentsurveyshavemadeclearthatthedemandforbroadbandisrunningoutofsteam,asall butthosewhoEverettRogerswoulddescribeaslateadoptersandlaggardshavebynow adoptedbroadbandtechnology.DrawingonRogersdiffusionmodel,itwouldappearthat pushingadoptionupthediffusioncurveatthispointrequiresanentirelynewpolicystrategy thatistailoredtothistypeofuserandthisstageoftheprocess.Inparticular,hesitantadopters mustbeconvincedthatthetechnologyinquestionisnotonlycoolbutalsoandmuchmore importantlymeaningfulintheirlives.Convincingtheseskepticalusers,moreover,willnotbe easy.Learningaboutthetechnologythroughmarketinginformationandthemassmediaisnot enough;theseadoptersmustbeconvincedofthebenefitofthesetechnologiesbasedonface tofaceinteractionswith,andsupportfrom,theirtrustedpeers. TheREAexperiencesuggestsonewayoftacklingthisprocess;startwithaproblemsuchas healthcare,andemergencypreparedness(ofwhichtherearemany)andbuildon,andsupport, localactivists,whoarealsotrustedopinionleadersintheircommunities,togenerate broadbandbasedstrategiestodealwiththeseproblems.Localactivistshaveafirsthand knowledgeofthesituationontheground,sotheyfarmorethannationalserviceproviders arelikelytostructuretechnologicalsolutionsthataretailoredtoaspecificcontextandhence makesensetohesitantadopters.Asimportantly,localopinionleadersarelikelytohavethe socialcapitalandnetworkresourcesrequiredtogeneratethetrustneededtobringreluctant
406

Ibid.

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usersonboard.Alocalapproach,suchasthis,alsohastheadvantageofminimizingthe organizationalcapacityrequiredattheFederallevel,abenefitthatisparticularlyrelevantin todayspoliticalenvironment.AsimportantlyastheREAcaseclearlyillustratesitisonlyby utilizinglocalcapacitythatsuchcapacitycangrow,generatingincreasingreturnsaswellasa moregeneralunderstandingofthewaythattechnologycancontributetolocalandnational goals. Todaysnationalbroadbandstrategy,aslaidoutintheBroadbandPlan,isafarcryfromsuchan approach.Targeted,forthemostpart,tothedeploymentsideoftheequation,itlooks primarilytotheavailabilityoftechnology,andtheabilityofuserstoemployit,todrivedemand. Notsurprisingly,therefore,itfocusesoncostbasedstrategiestopromotedemand,while placingtheresponsibilityforpromotingbroadbandtoagenciesthathavetheprime responsibilityfordeterminingtelecommunicationspoliciessuchastheFCCandtheNTIA, notwithstandingthefactthattheseagenciesgiventheresourcesavailabletothemmaybeill equippedtograspthefullrangeofsocialandeconomicimplicationsofthetechnologiesover whichtheyoversee. Tomoveforwardwithadiffusionorientedstrategywillrequirenotonlythinkingoutsideofthe box,butalsoimplementingpolicieswithinanewsetoforganizationalarrangements.Recall thatorganizationsarenotneutral.407Dependingontheirspecificpurposesandthe circumstancesinwhichtheyoperate,organizationsvaryaccordingtotheirresources, organizationalstructures,normativecriteria,operationalprocedures,andhowandtowhom theydistributebenefits408Asimportantly,organizationsarepathdependent.Onceestablished, theybecomelockedintotheirways,takingoncharacteristics,orevenpersonalities,oftheir own.409AsdescribedbyDiMaggioandPowell: Theconstantandrepetitivequalityofmuchorganizedlifeisexplicable,notsimplyby referencetoindividuals,asmaximizingactors,butratherbyaviewthatlocatesthe persistenceofpracticesinboththeirtakenforgrantedqualityandtheirreproductionof structuresthataretosomeextentselfsustaining410

407

HaroldSeidman,Politics,PositionandPower:TheDynamicsofFederalAdministration,NewYork,NY: OxfordUniversityPress. 408 RichardScott,InstitutionsandOrganizations,2ndedition.ThousandOaks,CA:Sage.SeealsoJeffrey PfefferandGeraldSalancik,TheExternalControlofOrganizations:AResourcePerspective,Stanford,CA: StanfordUniversityPress. 409 DouglassNorth,Institutions,InstitutionalChange,andEconomicPerformance.NewYork,NY: CambridgeUniversityPress.SeealsoKarlWeick.SensemakinginOrganizations,ThousandOaks,CA:Sage. 410 PaulDiMaggioandWalterW.Powell.1991.TheIronCageRevisited:InstitutionalIsomorphismand CollectiveRationalityinOrganizationalFields,inWalterW.Powell.andPaulDiMaggio,TheNew InstitutionalisminOrganizationalAnalysis.Chicago,IL:ChicagoUniversityPress.

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HowToProceed? Tomatchorganizationalstructuretobroadbandpolicygoalswillrequiretheestablishmentofan organizationalcapacityspecificallydesignedtopursueaneffectivediffusionstrategy,aslaidout above.Tobetenableintodayspoliticalclimate,suchastrategymustalsoandtothegreatest extentpossiblerequirethelowestpossiblemonetaryincentivesandemployexisting organizationalcapacity.Moreover,givenourgenerallackofunderstandingaboutbroadband anditsdiffusion,anysetofarrangementsshouldpromotelearningbydoingonthepartofusers andpolicymakersalike.Althoughanalyzingavarietyoforganizationaloptionsiswellbeyond thescopethispaper,weidentifyoneapproachthathasstrongpotential.However,onemust keepinmindthatthisideaisspeculativeinsofarasitisbasedontheassumptionthatCongress, indesigningarevisedCommunicationsAct,specificallygrantstheauthoritytoimplementsucha broadbandpolicy. Theproposedideacallsforthecreationofanorganizationcapability,insidetheDepartmentof Commerce,butapartfromtheNationalTelecommunicationandInformationAdministration, allowingittooperatemuchlikeaskunkworkthatistosay,anexperimentalstationwhere learningbydoingcantakeplaceinanongoingfashionandwithrepresentationbyparties involved.AlthoughNTIAhasresponsibilityforadministeringbroadbandgrantsunderthe AmericanRecoveryandReinvestmentActof2009,itsapproachistypicallylinearandtopdown, aswellasdeploymentoriented.Toshiftgears,andtakeontheresponsibilitiesrequiredtocarry outaninteractivediffusionstrategywouldrequiregreatlyreorganizingNTIAandenhancingits capacityandbreadthofknowledgeandexperienceatconsiderableexpense. HousedwithintheDepartmentofCommerce,andseparatefromNTIA,aBroadband ExperimentalStationwouldhavethebenefitofexecutivebranchsupport.However,itwould nothavealegacyfavoringdeploymentgrants.Moreover,incontrasttoNTIA,itcouldbe organizedinanonbureaucraticway,employingmuchliketheRuralElectrification Administrationthefullrangeofparticipantswhoareengagedinbroadbandactivitiesfrom thelocaltothenational.Inkeepingwithadiffusionstrategy,changeagents(whomightbe broadbandproviders,governmentworkers,NGOs,professionals,academics,etc.)wouldbe broughttogetherwithlocalopinionleaderswhoareengagedinsometypeofpublicservices (e.g.healthcare,emergencyservices).Interactingtogether,theymightshareexperiences, gatherdataandfeedback,andworkoutinnovativesolutionstorecognizedproblems.Itisthese solutionsthatmightbetested,adaptedandexpandeduponinaBroadbandExperimental Station. Therearemanybenefitstosuchanapproach.Forexample,aBroadbandExperimentalStation wouldminimizetheneedforadditionalorganizationalcapacityandencouragefeedback, learning,andcontinuedinnovation.Inkeepingwiththeeffortsexperimentalandlearning goals,aswellastodayssignificantfinancialconstraints,programparticipantsmightbeselected throughacompetitiveprocessbasedontheirprojectproposals.Projectswouldbeapproved 162

basednotonlyonapplicantsabilitiestoputtogetheracommittedteamofstakeholdersand strategiesthatincorporateallstagesofthediffusionprocess,butalsoandasimportantlyon thewillingnessofteammemberstobecomepartofanongoingparticipatorylearningprocess. Participantswould,thus,notbeengagedasmembersofapermanentstaff,butratherona flexibleandtemporarybasis,correspondingtothenatureandtimeframesoftheirprojects. Rotatingparticipantswouldbothgeneratenewlearningwhileengaginginaproject,aswellas helptodiffusethesepracticesoncetheirprojectscometocompletion.Alumniofthe BroadbandExperimentalStationmightserveasevaluatorsoffutureprojects,aswellasadvisors tosubsequentparticipants.Overtime,participantsintheseprocesseswouldbelinkedtogether inavirtualcommunityofpractice. TheapproachlaidouthereisinkeepingwiththeBroadbandPlansnotionthattheplanisnot fixed,butratherevolvinginaccordancewithhowsuccessfullyitisbeingimplemented.To assurethatneededreadjustmentstakeplace,theBroadbandPlancallsfortheestablishmentof aBroadbandStrategyCouncilwithintheexecutivebranch,whichwouldreviewbroadband strategiesanddeploymentovertime.Whileitisimportanttohaveexternaloversightanda mechanismforreadjustment,thePlandoesnotgofarenough.Merelymappingdeployment,as iscalledforinthePlan,failstoprovideusefuldataaboutimpactsandthemechanismsbywhich theycomeabout.Apreferredmethodforevaluatingbroadbandstrategymightbetocharge theNationalScienceFoundation,whichhasabroadbaseoftechnicalandsocialscience expertise,withthetaskofsolicitingresearchonthissubject.Theresultsfromsuchresearch couldthenbedirectedtotheStrategyCouncil. Onefinalnoteaboutcostsandbenefitsisinorderhere.Diffusionstrategiesarefarmore complexandnonlinearthandeploymentstrategies.Requiringthecoordinationandcollective actionofmultiplestakeholders,participatorystrategiescanbeveryuncertain.Nonetheless, collectiveactioncanyieldveryhighrewardsbygeneratingsocialcapitalandstimulating increasingreturns.Thus,totheextentthatgovernmentprograms,suchastheoneoutlined above,canprovideadequatethirdpartyincentivestopromoteparticipationandengagementin broadbanddiffusion,thebenefitswilllikelyfarexceedthecosts.

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AdvancingCommunityBroadband:SocialEnterpriseSolutions totheProblemoftheBroadbandDigitalDivide

BruceLincoln411 ColumbiaEngineering
Introduction Wheredowereallystandatthismomentintimeasitrelatestotheachievementofubiquitous broadbanddisseminationintheUnitedStates? TheNationalBroadbandPlanprovidesuswithanambitiousframeworkforanAmerican resurgenceinbroadbandinnovation.$7.2billioninBroadbandStimulusfundinghasbeen committedandthoseprojectsareintheirearlystagesofdevelopment.However,whatabout thoseunderservedandunservedareasthatdidnotreceiveanybroadbandstimulusfunding. Howdowegoaboutsolvingthebroadbanddigitaldivideinthoseareas? AttheCenterforTechnology,InnovationandCommunityEngagement(CTICE)attheFu FoundationSchoolofEngineeringandAppliedScience,ColumbiaUniversitywehavedeveloped asocialenterprisesolutiontotheproblemofthebroadbanddigitaldividecalledAdvancing CommunityBroadband. AdvancingCommunityBroadband AdvancingCommunityBroadbandisajointcollaborationbetweenTheCenterforTechnology, InnovationandCommunityEngagement(CTICE)attheFuFoundationSchoolofEngineeringand AppliedScience,ColumbiaUniversity;PerScholas;theCenterforSocialInclusionandData ConversionLaboratory,Inc. AdvancingCommunityBroadbandisabroadbandtechnologystrategydedicatedtosolvingthe problemsofthebroadbanddigitaldivideinunderservedandunservedcommunitiesthatdidnot receivefundingfromeithertheBTOPortheBIPprograms.Forthepurposesofsubmissionto theBTOPprogram,wedevelopedtwoproposals.SiliconHarlemisdesignedtoaddressthe
411

BruceLincolnisanEntrepreneurinResidenceatColumbiaEngineeringandanaffiliatedscholaratthe ColumbiaInstituteforTeleInformation

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problemsinUpperManhattanandtheSouthBronx.DigitalMississippiisdesignedtoaddress theproblemsthatconfronttheMississippiDelta. AdvancingCommunityBroadbandfocusesinontwogeographicallydistinctcommunities:Upper ManhattanandtheSouthBronxrepresentingoururbancatchmentareaandtheMississippi Deltawhichrepresentsourruralcatchmentarea.Thoughtheseareasaregeographicallydistinct andthusrequiredifferenttechnologicalsolutions,theysharesimilaritieswhenlookedatfrom theperspectiveofculturalandsocioeconomicdemographics. NeedsData:UpperManhattanandtheSouthBronx TheUpperManhattanEmpowermentZoneencompassestheneighborhoodsofCentralHarlem, EastHarlem,WashingtonHeights,andInwood.The2000censusindicatesthatthe approximately336,576peoplewhoresideinUpperManhattanarepredominatelyAfrican American(48.1%)andHispanic(37.4%).ThemedianhouseholdincomeinUpperManhattanis $24,569,comparedwiththeCitysoverallaverageof$34,434,and34.3%ofUpperManhattan residentshaveincomesbelowthepovertyline.TheFurmanCenterreportsthatin2008,before thecurrenteconomiccollapse,averageunemploymentinUpperManhattanwas10.87%, comparedwith7.1%inNewYorkCityasawhole. AlthougheducationalperformanceisincreasingthroughoutNewYorkCitypublicschools,inthe DistrictsthatmakeupUpperManhattan,thepercentageofstudentsperformingatgradelevel inreadingandmathconsistentlylagsbehindotherpartsoftheCity.Furthermore,morethan 35%ofUpperManhattanadults(25yearsoldandover)donothavehighschooldiplomas, comparedwith27.7%ofallNewYorkers. TheSouthBronxiswithinthepoorestCongressionalDistrictinthenation,andencompassesthe poorestneighborhoodintheNewYorkmetropolitanarea.Nearly50%ofthepopulationlives belowthepovertyline,andmorethanhalfofallBronxgovernmenthousingislocatedthere. Accordingtodatafrom20052007,CongressionalDistrict16(coveringmostoftheSouthBronx) wastheonlycongressionaldistrictintheUnitedStatesduringthoseyearswithapovertyrate over40%,andinwhichamajorityofchildrenwerelivingbelowthepovertyline.In2007,the BronxCountychildpovertyrateof38.1%wasthehighestintheNortheast(northoftheOhio RiverandeastofIllinois)and27.1%ofthewholeBronxpopulationwasbelowpovertyin2007, alsothehighestfigureintheNortheast. Accordingtoa2010CommunityDistrictNeedsassessmentissuedbyMayorBloombergandthe DepartmentofCityPlanning,MottHavenandHuntsPointresidentsaresomeofNewYorkCity's leastlikelytohavecompletedhighschoolorequivalencydegrees,whichhasleadtostaggering 165

unemploymentrates.OnaveragetheseresidentsearnsignicantlylessthantherestofNYC.In 2007,55.3%ofallresidentsreceivedsomesortofincomesupport. ComparedtoNYCasawhole,inHuntsPoint/MottHaventhepercentageofadults25yearsand olderwithoutahighschooldiploma(61%vs.32%)andthepercentageoflinguisticallyisolated households(28%vs.12%)aresubstantiallyhigherthanothercityregions.Approximately4.1% completeda2yearor4yearcollegecurriculum. StudiesshowthatincommunitiesofcolorsuchasUpperManhattanandtheSouthBronx, broadbandpenetrationhistoricallyskewstowardsthosewhohavemoreeducationandhigher incomes.However,a2009PewInternetandAmericanLifestudyfoundthatAfrican Americansexperiencedtheirsecondconsecutiveyearofbroadbandadoptiongrowththatwas belowaverage.In2009,46%ofAfricanAmericanshadbroadbandathome.Thiscompareswith 43%in2008.In2007,40%ofAfricanAmericanshadbroadbandathome. NeedsData:TheMississippiDelta DigitalMississippiwillcover51municipalitiesina34countyarea(pleaseseeattachedlistof municipalitiesandcountiesintheservicearea).Censusdataonthepopulationsofthe municipalitiesservedbyDigitalMississippiisnotavailable.However,thetotalpopulation acrosstheimpactedcountiesis1,262,859(U.S.Census,QuickFacts). TheDigitalMississippicountiesareamongthepoorestinapoorstate.Whilethepercentageof Mississippiresidentslivinginpovertyis19.9%,thecorrespondingfigurefortheDigital Mississippicountiesis23%.TheDigitalMississippicountiesalsohaveahigherpercentageof residentsofcolor.AcrossMississippi,39.2%ofresidentsarepeopleofcolor.However,inthe DigitalMississippicountiesthe51.7%ofresidentsarenonWhite.(AnalysisofU.S.CensusData, 2000). Examinationoftrendsinhealthandeducationinsomeoftheimpactedcountiesrevealsboth tremendousneedandstrikingracialdisparities.Forexample,in2007theinfantmortalityrate wasamere6.6per1,000birthsforwhitemothers.Fornonwhites,however,theratewas15.5 per1,000births.InseveraloftheDigitalMississippicounties,however,thedisparitieswere evengreater.Forexample o WarrenYazooCounties: White4.2;NonWhite11.5 o PanolaCoahomaCounties: White6.8;NonWhite15.9 o WashingtonBolivar: White4.8;NonWhite14.8 166

(AmericanHumanDevelopmentProject,MSHumanDevelopmentReport,2009) Moreover,theHealthResourcesServicesAdministration(HRSA)hasdesignatedQuitman, Yazoo,Washington,Tallahatchie,Sunflower,Leflore,CoahomaandBolivarcountiesallof whichwillbeimpactedbytheDigitalMississippiprojectasprimarymedicalcare,health professionalshortagecounties.(MSStateDepartmentofHealth). Similarly,educationaloutcomesinmanyoftheimpactedcountieslagbehindstateaveragesand BlackstudentsinthosecountiesfareworsethantheirWhitecounterparts.Forexample,78.5% ofMississippiresidentshavesecuredatleastahighschooldiploma.However,whilethisistrue of83%ofwhitesstatewide,itistrueofonly70.4%ofAfricanAmericansinthestate.These disparitiesinhighschoolcompletionratesarealsoevidentinmanyofthecountiesthatwillbe impactedbyDigitalMississippi.Forexample o WashingtonBolivarCounties: White31.9%;AfricanAmerican13.1% o LefloreSunflowerCounties: White19.7%;AfricanAmerican8.9% o PanolaCoahomaCounties: White15.3%;AfricanAmerican8.8% o WarrenYazooCounties: White24.1%;AfricanAmerican10.3% (AmericanHumanDevelopmentProject,MSHumanDevelopmentReport,2009) MetroscaleRegionalCyberspaceInitiativesortheMERCIModel AdvancingCommunityBroadbandisdedicatedtobridgingthebroadbandgapintwo communities:UpperManhattanandtheSouthBronxinNewYorkandtheMississippiDelta. AdvancingCommunityBroadbandhasdevelopedamodelthatwebelievecanbeappliedtothe problemsthataffectbothanurbanareaandaruralarea.ThatmodeliscalledtheMERCImodel. MERCistandsforMetroscaleRegionalCyberspaceInitiatives.SiliconHarlemrepresentsour urbanormetroscalecyberspaceintiative.DigitalMississippirepresentsourruralorregional cyberspaceinitiative.Thereasonwecallthemcyberspaceinitiativesisbecausewewantto differentiatetheseprojectsfromtelecommunicationsinitiatives.Ourgoalisnottocompete withtheincumbentprovidersintheprovisionoftelecommunicationsservicesbuttoprovide broadbandasalifecritical,missioncriticalinfrastructurethatisrequiredforparticipationinthe digitaleconomy. SiliconHarlem SiliconHarlemwilldeployanadvanced,communitybasedwirelessbroadbandinternetwork thatwillblankettheUpperManhattanEmpowermentZonefrom116thStreetto168thStreet. TheSiliconHarlemNetworkwilldevelopandruntenteleworkcentersstrategicallylocatedin communityanchorinstitutions.EachteleworkcenterwillusetheSiliconHarlemportaltogive 167

localresidentsorsmallbusinessownersaplacewhere,fornocharge,theywillbeabletodothe following: 1.LearnhowtouseacomputerandtheInternet 2.Gainonlinejobtraining 3.Engageinteleemployment 4.Accessdigitalservicesandproducts SiliconHarlemwillprovideeducation,awareness,training,access,equipment,andsupportto communityanchorinstitutions,supportjobcreation,andaddresstheneedsofvulnerable populations. SiliconHarlemwillsupportjobcreationbyenablinglocalresidentstotakeondataconversion worktheconversionofpaperdocumentsintoopticallystored,digitallyretrievable documentswhichtraditionallyhasbeenfarmedoutoverseas.Toaccomplishthis,Silicon HarlemispartneringwithDataConversionLaboratory,Inc(www.dclab.com)toprovisioneach teleworkcenterasaCenterforExcellenceinDocumentConversion.DataConversionLaboratory wouldcontractwitheachteleworkcentertocompletedataconversionwork. DataConversionLaboratorywillestablishtrainingprogramsandprovidetheirconversion softwareforuseateachteleworkcenter.Participantswillbetrainedforpositionsdependent uponliteracylevel.Thoseindividualswiththelowestreadinglevelsortheleastproficient Englishlanguageskills,willbetrainedasBulkScanners.Thesearefollowedbymoreadvanced positions,asfollows:FirstProofreader,SecondProofreader,SeniorProofreader,JuniorEditor, SeniorEditor.Trainingnormallytakessixmonthsatwhichtimetheteleworkerisimmediately employable.Afterediting,CodersconverttextdocumentsintoHTML,SGML,orXML.In addition,thecompanyemploysManagersandSupervisorsaswellasCustomerServicePersons. TheentrylevelBulkScannerpositionincludesaneducationalbenefit,andastheyimprovetheir readingabilityemployeescanadvancetobecomeProofreaders.Adirectoutcomeofthisworkis thattheemployeesnotonlylearnthevalueofahomecomputerandInternetaccessbutalso cannowaffordsuchnecessitiesbecauseoftheirjob. 168

SiliconHarlemhasfivegoals: 1.Creatingjobs 2.Closingthebroadbandgap 3.Encouragingdemandforbroadband 4.Spreadinghighspeedaccesstoschools,universities,libraries,community centers,jobtrainingcentersandpublicsafetypersonnel 5.JumpstartingtheGreenEconomyinHarlem TimelineofImplementation StageZeroPreliminaryConsortiumOrganization StageOneInfrastructureDeployment StageTwoCreatingtheTeleworkCenters) StageThreeOperationalizingSiliconHarlem StageFourProvidingDistanceEducationandTeleHealthServices StageFiveSustainabilityPeriod SiliconHarlemasamodelisreplicabletoothersettings.Themethodologycouldbeappliedto otherurbansettings,suchasNewark,NewJersey;Philadelphia,Pennsylvania;Baltimore, Maryland;orWashington.D.C.SiliconHarlemcanbeappliedtoruralsettingssuchasIttaBena, MississippiortotheentireDeltaRegion. DigitalMississippi:AProposaltoDeveloptheMississippiOnlineNeighborhoodElectronic Network(MSONENet) DigitalMississippiisastrategictechnologyinitiativewhosegoalistoprovidethemajorityofthe neediestcitizensofMississippiwithaffordablebroadbandbytheyear2015.DigitalMississippi hasfivegoals: 169

1. 2. 3. 4.

Createjobs Closethebroadbandgap Stimulateinvestmentinbroadband Spreadhighspeedaccesstoschools,universities,libraries,communitycenters,job trainingcentersandpublicsafetypersonneland 5. Encouragedemandforbroadband. DigitalMississippiwillcover51municipalitiesina34countyarea(pleaseseeattachedlistof municipalitiesandcountiesintheservicearea)withatotalpopulationacrosstheimpacted countiesof1,262,859(U.S.Census,QuickFacts).Thiscoveragearealackseffectivebroadband accessforthedeliveryofbasicInternetserviceletalonesuchcriticalInformationAgeservicesas eeducation,egovernment,eemploymentandeeconomicdevelopment.Thecostpermilefor thedeploymentofwirelineinfrastructureiscostprohibitivebaseduponpopulationdensityand geographicdistance.However,thecosttodeployahighspeedwirelessbroadbandnetworkis bycomparison,noncostprohibitiveandcanberapidlydeployedandoperationalized. DigitalMississippiproposestodeveloptheMississippiOnlineNeighborhoodElectronic NetworkorMSONENet.DigitalMississippiwillbecarriedoutinasetofstages. InStageOne,thegoalistosolvethelasttenmileandthelastonemileproblemwhichprevents thedisseminationoffibertoresidentsofruralMississippi.UrbanCyberspacewillpartnerwith TelepakNetworkstoutilizetheirfiberopticnetworkasthebackbonefortheproposednetwork, TheMississippiOnlineNeighborhoodElectronicNetworkorMSONENet. InStageTwo,thegoalwillbetocreateteleworkcenters.Teleworkcentersarepublicaccess communitytechnologycenterswhichcanbelocatedinexistingfacilitiessuchasschools, libraries,churches,jobtrainingfacilitiesandcommunitycenters.Ateleworkcenterdoesnot onlygivethelocalcitizenaplacewheresheorhecancomeandlearnhowtouseacomputer andtheInternet,italsoprovidesonlinejobtrainingandemploymentatthedesktopthrougha portal.ForthepurposesofDigitalMississippi,weproposetocreatejobsbythereverse outsourcingofdataconversionworkwhichtraditionallyhasbeenfarmedoutoverseas. InStageThree,thegoalwillbetoextendthereachoftheMississippiOnlineNeighborhood ElectronicNetwork(MSONENet)toincludeothercriticalpublicandmunicipalfacilities,small businesses,communitybasedorganizations,hospitals,firstresponders,civicandcultural institutionsandresidenceswhileprovisioningthenetworkwithlifecriticalservicessuchas distancelearning,telehealthandegovernmentinformation. InStageFour,thegoalistodeliverdistanceeducationandtelehealthservices acrossthenetwork. 170

TheprojectwillbeunderthedirectionofTugalooCollegeinpartnershipwithAlcornState University,JacksonStateUniversity,theJacksonMedicalMall,theDeltaHealthAlliance, MississippiPublicBroadcastingandtheBBKingBlluesMuseumandDeltaEducationalResource Center.FullSpectrumSouthinconjunctionwiththeUrbanCyberspaceCompanyhave organizedaconsortiumoftechnologypartnerswhichincludesTelepakNetworksasthe backboneprovider;CONXXandAlvarionasthewirelessbroadbandsolutionsproviders;Per ScholasastheproviderofITtrainingandlowcosthomecomputers;andDataConversionlabsas theprovideroftheDocumentConversionSpecialisttrainingandtheteleworkemployment opportunities. JobCreationEstimateforDigitalMississippi OverthedurationoftheDigitalMississippibroadbanddevelopmentinitiativeitisestimated thattheactivityoftheprojectwillcreatejobsinanumberofareas. NetworkBuildout Thebuildoutofthenetworkwillbecarriedoutbythreecontractingcompanies: 1. UrbanCyberspace 2. Conxx 3. JandFLabs Eachofthesecompanieshavecommittedtotrainandemployanumberoflocalworkersinthe followingareas: ProjectOfficeAdministrativeAssistants3jobs NetworkInstallers12jobs TeleworkCenterDevelopment PerScholaswilltrain40developerswhowillworkonthedevelopmentofthe 20teleworkcenters. Onceoperational,theteleworkcenterswilltrain25personsper2monthcycleasDocument ConversionSpecialistsinthefollowingareas: BulkScanners ProofReaders Editors QualityAssuranceSpecialists Coders Programmers Managers Salespersons CustomerService 171

Overthecourseofayear,oneteleworkcenterwilltrainandemploy150peopleinthelocaldata conversionindustry.Alltwentyteleworkcenterswillcreate3,000teleworkpositions. CommunityHealthHouses EachteleworkcenterwilldoubleasaCommunityHealthHouse.CommunityHealthHouseswill trainandemployCommunityHealthWorkerswhowillberesponsibleformanagingand administeringonthelocallevelthetelediagnosticservices.EachCommunityHealthHousewill train5workersper2monthcycleforatotalof30workersperyear.Acrossthe20house networkthatwillamountto600newjobsasCommunityHealthWorkers. ITTraining PerScholaswilltrainITprofessionalswhowillrefurbishandservicecomputersaswellasinstall, programandmaintainthehomecomputernetworkswhichwillbedevelopedintheendusers homes.PerScholaswilltrainandemploy100ITProjectmanagers. EducationalAssociates MississippiPublicBroadcastingwilltrainintheuseofitsReadBetweentheLionseducation programs100parentswhowillbeemployedinHeadStartCentersasEducationalAssociates. DigitalMississippiisa$15milliondollarinitiativewithafiveyeartimelinewhichincludesthe twoyeardeploymentandimplementationperiodfollowedbyathreeyearsustainabilityperiod. PilotingSiliconHarlemandDigitalMississippi AdvancingCommunityBroadbandisaninitiativewhoseobjectiveistodevelopaprocedural methodologythatcanbeappliedtothesolutionofthebroadbanddigitaldivideinbothan urban aswellasaruralsetting.Inordertodothis,AdvancingCommunityBroadbandisintheprocess ofdevelopingapilotprojectbaseduponthemotiveelementbehindbothSiliconHarlemand DigitalMississippi:theteleworkcenter. ThepilotprojectwilldevelopaproofofconceptcommunityteleworkcenteratPerScholas trainingfacilitylocatedintheSouthBronx.Theobjectiveofthisprojectistodemonstrateand evaluatetheviabilityoftheteleworkmodelforthepurposeofreplicatingitthroughoutthefive boroughsofNewYorkCityaswellastootherurbancentersandruralareas. 172

 ProjectDescription Thegoalofthisprojectistodevelopaselfsustainingcommunityteleworkcenter.Thepilotsite willbelocatedattheSouthBronxfacilityofthetechnologynonprofit,PerScholas.PerScholas fifteenyearmissionhasbeentoprovideeducation,awareness,training,access,equipment,and supporttocommunityinstitutions,supportjobcreation,andaddresstheneedsofvulnerable localpopulations. PerScholaswillsupportjobcreationbyenablinglocalresidentstotakeondataconversion worktheconversionofpaperdocumentsintoopticallystored,digitallyretrievable documentswhichtraditionallyhasoutsourcedoverseas.PerScholaswillpartnerwithData ConversionLaboratory,Inc.toprovisiontheteleworkcenterasaCenterforExcellencein DocumentConversion.DataConversionLaboratorywouldcontractwiththeteleworkcenterto completedataconversionwork. DataConversionLaboratorywillestablishthetrainingprogramandprovidetheirconversion softwareforuseattheteleworkcenter.Participantswillbetrainedforpositionsdependent uponliteracylevel.Thoseindividualswiththelowestreadinglevelsortheleastproficient Englishlanguageskills,willbetrainedasBulkScanners.Thesearefollowedbymoreadvanced positions,asfollows:FirstProofreader,SecondProofreader,SeniorProofreader,JuniorEditor, SeniorEditor.Trainingnormallytakesfromthreetosixmonthsatwhichtimetheteleworkeris immediatelyemployable.Afterediting,CodersconverttextdocumentsintoHTML,SGML,or XML.Inaddition,thecompanyemploysManagersandSupervisorsaswellasCustomerService Persons. TheentrylevelBulkScannerpositionincludesaneducationalbenefit,andastheyimprovetheir readingabilityemployeescanadvancetobecomeProofreaders.Adirectoutcomeofthisworkis thattheemployeesnotonlylearnthevalueofahomecomputerandInternetaccessbutalso cannowaffordsuchnecessitiesbecauseoftheirjob. SkillsinDemand Whenevaluatingjobcreationprogramsonehastobecognizantofthetypesofjobs beingcreated.Thejobsbeingcreatedinthisprogramarereadilytransferabletothe commercialmarketplace.IndividualswithXMLskillsareingreatdemand. Inadditiontobeingverypertinent,someofthesejobscanbeperformedathome enablingpopulationslikesinglemotherstoworkfromhome. 173

Also,physicallychallengedandwheelchairboundindividualscanbeputtoworkin theprocessaslongastheycanreadacomputerscreenandtype. Training TheconversionofPapertoXMLisamultistepprocess.Thestepsare: 1. ScanningthePaper 2. OCR(OpticalCharacterRecognition)toextractthetext 3. Proofreadingthepagetoensureaccuracy 4. StylingthetextintoMicrosoftWord 5. ConvertingtheWordDocumentstoXML 6. Viewingthedocumentandcorrectinganyerrors 7. FinalQualityCheck Trainingtoperformthemostcomplexconversiontasksiscompletedwithin6 monthswhiletrainingforthesimplertasksiscompletedwithinweeksallowingthe employeetobeproductivealmostimmediately. Also,thedifferenttasksrelatedtodocumentconversionallowsindividualswith variedlevelsofskillandaptitudetobeemployable.Forexample,theScanner doesnothavetobeasskilledastheQualityAssuranceindividualwhoisnotas qualifiedastheConversionSpecialist.Individualswithalllevelsoftalenthavearole inthisproductionprocess. TimelineofImplementation StageZeroOrganizationofProjectAdministrationandPreliminaryProjectDesign DuringStageZero,thecollaboratingorganizationswillinessencebeinpreproductionmode. Thiswillentailtheinitialestablishmentoftheformalworkingrelationshipswhichincludestask assignmentsandidentificationofadministrativerolefunctions. StageOneInfrastructureDeployment DuringStageOne,theshorttermgoalistohavethewideareaandthelocalareanetwork connectivityfortheInternetinstalledandactivatedinPerScholassfacility. StageTwoCreatingtheTeleworkCenter DuringStageTwo,theworkingteleworkcenterwillbecreated.Thecomputersandperipheral deviceswillbeconnectedtothenetworkandprovisionedwiththeappropriatesoftware.The 174

officesandthevariousworkingareaswillbesetupandfurnished.Themilestonewillbethe completionofthedocumentconversioncenterbytheendofDecember. StageThreeOperationalizingtheTeleworkCenter DuringStageThree,thetrainingprogramwillformallybegin.Thefirstcohortoftraineeswillbe comprisedoffifteenpeopledrawnfromPerScholassrecruitmentpool.Theparticipantswillgo throughthefullprogramoftrainingwhichwillresultintheirbeingthefirstclassofdocument conversionspecialists.Whilethetrainingisunderway,thefirstconversioncontractswillbe solicitedfromcorporateclients. StageFourProvidingDistanceEducationandTeleHealthServices DuringStageFour,theparticipantsaspartoftheirexposuretodigitalservices,willbeoffered theopportunitytotakeadvantageofonlineeducationcoursesprovidedbyCUNYandother onlinelearningprovidersaswellastelehealthservicesprovidedbydifferentNewYorkbased healthproviders. StageFiveEvaluationandSustainabilityPeriod DuringStageFive,theobjectivewillbetoconductevaluationsthatwillinformourthinkingasto thedesignoftheprojectandtoourunderstandingofwhatishappeninginrealtime.The ultimatepurposeissothattheprojectcanbemadesustainablebothoperationallyandfiscally Therewillbetwodifferenttypesofevaluationscarriedoutduringtheproject.Therewillbea formativeevaluationoftheprojectandtherewillbeaneconomicanalysisoftheproject. TheformativeevaluationwillbedesignedandcarriedoutbyTheCenterforSocialInclusion. TheeconomicanalysiswillbedesignedandcarriedoutbyDr.RaulKatzoftheColumbia InstituteforTeleInformation. AdvancingCommunityBroadbandasaMeanstoInformtheNationalBroadbandPlan AdvancingCommunityBroadbandhasatwopartstrategydesignedtoinformthe implementationoftheNationalBroadbandPlan.Whatweexplainedaboveiswhereweintend toinfluencetheNBPthroughinnovativeformsofprojectpracticesuchasSiliconHarlemand DigitalMississippi.AdvancingCommunityBroadbandalsoisorganizedtoinformtheNBP throughpolicyinnovation. On December 7th, 2010, we organized a symposium on Capitol Hill entitled, Advancing Community Broadband: Transforming Community Economics Through Broadband. The symposium brought together a nationally recognized and expert group of panelists to discuss 175

the current state of broadband deployment strategies, the opportunities and necessity for communityscaleapproachestomeetthesechallenges.Ourpanelistsfocusedontherolethat communityscale approaches can play in eliminating the digital divide while empowering communities to create new opportunities in the information economy. Meeting the goal of universalbroadbandadoptionandseizingthenewopportunitiesitenableswillrequireabold newapproachtoinfrastructureinvestmentsthatprioritizesequityandrecognizesthepossibility of communityscale solutions within the context of national priorities. The findings from the symposium will be published in the report The Promise and Challenge of Community BroadbandModels:LessonsfromTheNationalSymposiumonCommunityScaleBroadband. Toconclude,AdvancingCommunityBroadbandbelievesweareinaperiodoftimethatisbest characterizedbytheoperatingconceptofwhatwecallanewlocalism.Thisiswhyweare pilotingprojectsbaseduponthecommunityscalemodel.Whetheritisthechurchora cooperative,thedeliveryofcontent,servicesandapplicationsoverbroadbandcanalsoreturna proportionatestreamofrevenuethatgoesbacktothecommunityandisreinvested.Thiswill encouragethekindoflocalinnovationthatwilladdresscommunityspecificissuesbutwhich moresocanbeexpandedincrementallytocreateregionalinnovationeconomiesofscaledriven bybroadbandandthegreeneconomy.

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