I found significant issues when I reviewed the 45 filings by Puerto Rico Telephone in their request for a subsidy from the Universal Service Fund. I am a reporter, not a lawyer. I have recently reported on the efforts of the broadband plan to provide broadband service to the poor, which appears not to have enough funding to reach even 25% of those eligible; the dramatic cuts in the total of USF/ICC; and the lack of funding to rapidly reach the remaining broadband unserved. When I saw an ex parte filed by Nancy Victory of Wiley Rein that she and former Commissioner Henry Rivera met with Chief of Staff Eddie Lazarus with the intent to get an increase in USF for PRT, I decide to review the record. I intend to write a story about the request later. This filing is about apparent contradictions and omissions in the record I need to research further. Since the issue is already before the Chief of Staff and four commissioners, I realized time might be of the essence so wanted to put this data on the record quickly.

     I discovered:

1) At http://fjallfoss.fcc.gov/ecfs/document/view?id=6518710782 a survey filed by PRT found in 2005 "92.8% of households have either a fixed or a cellular phone." I have included below the methodology of that survey, with a sample size of 1600 households. It appear highly credible. It was actually paid for by Puerto Rico Telephone Co., Inc.("PRT"), which submitted it to the Puerto Rico Telecommunications Regulatory Board. That leaves 7% who did not have a connection, some of whom surely were servable but did no buy the service because of affordability or other reasons. That suggests that only a few percentage of Puerto Rican homes were not servable in 2005.

2) At http://fjallfoss.fcc.gov/ecfs/document/view?id=6520036979, a filing in 2008 by Ben Ross of WIley, Rein stated "Approximately 200,000 households in Puerto Rico have no access to telephone service due to a lack of infrastructure"  According to a separate filing by the same firm, those 200,000 households "represents approximately 14.5 percent of all households on the island (200,000 out of 1.369 million)." http://fjallfoss.fcc.gov/ecfs/document/view?id=6516793127 The figure of unserved homes in 2008 is three to five times the figure in PRT's survey in 2005.

MR. BURSTEIN: Hi. Okay. I've been
16 writing about this stuff at DSL Prime since 1999.
17 I'm a geek, not a wonk.
18 And I'm really glad to see in the
19 audience -- is Stagg -- Stagg is still here, yes?
20 Yes, there's Stagg. Stagg is unlike almost
21 anybody else in authority and in policy. He's a
22 fine trained engineer. And one of the key things
1 that is going wrong with U.S. policy is that there
2 are a pile of brilliant, well-informed,
3 highly-motivated lawyers and policy people, but
4 some of the problems don't get solved by first
5 principle and rules and regulations, but you have
6 to work upwards from the networks.
7 Half the solution to the broadband
8 problem in the U.S. is on either side from me.
9 One or 2 percent of the population is going to
10 cost 10- to 50- or $91,000 to serve with a
11 landline. It's not for me to decide whether
12 that's worthwhile. But it's likely that we're
13 going to have that remnant at the end, and giving
14 them better satellite is a key way to serve those
15 folks.
16 On my right is a cable guy, a small
17 cable guy. It turns out that the most important
18 thing to do with the broadband stimulus money is
19 get the small cable guys to upgrade to data.
20 There are somewhere on the order of 4 million
21 homes in the U.S. that can get cable TV, but not
22 cable data. It would cost less than $400 to
1 upgrade most of them. That's 30 to 50 percent of
2 the actual unserved. For a quarter of the $7.2
3 billion stimulus, you can eliminate 30 or 40
4 percent of the problem. It is ridiculous that the
5 folks in Washington haven't put that together and
6 figured out how to make that work in policy. But
7 I'll leave that to you guys.
8 But before I do, I sat here all day
9 listening to things that half the people on the
10 panel could have written for each other and most
11 of the people in the audience knew. So let me get
12 a sense of what we know is going on.
13 Okay. First question. Will everybody
14 raise their hands who think that by 2010 and 2011,
15 60 percent of the U.S. Will be able to get 50
16 megabits?
17 Anybody who didn't raise their hand
18 should probably not be making policy until you've
19 spent two weeks learning about what's actually
20 going on outside Washington, D.C.
21 DOCSIS 3.0 is a solid 50 megabits.
22 They're going to start the upstream next year.
1 Comcast has now deployed it to 25 million homes or
2 so. With Comcast going to nearly 50 million homes
3 -- Cablevision and others, we are going to have
4 plenty of speed for most of the folks. By 2012 to
5 2013, 90 percent of the U.S. will be able to get
6 50 meg. That's without a penny of stimulus.
7 Second, how many people think that by
8 around 2013, 95 percent of the U.S. will be able to
9 get 4 to 10 megabits?
10 We just sat through a panel where
11 Verizon said they were going to do 92 percent on
12 their own. And the other folks will probably get
13 a few points more. That, among other things,
14 makes it ridiculous to do 7 megabit DSL with any
15 kind of government money or stimulus in any place
16 where they're going to get it wireless.
17 Third, very few people are unserved,
18 other than by satellite, in this country. The
19 real number is somewhere between 4 and 7 percent,
20 by the best available number. You have to start
21 by looking at what -- who these people are and
22 what they are doing, and figure out the best way
1 to get there. Forget technology neutrality. Do
2 pick a winner, if there's one that's going to be
3 $300 of public money instead of $3,000 of public
4 money and is about the same.
5 Because that's my last question to throw
6 out at you guys. How many of you people think
7 that it is practical for 98 to 99 percent of the
8 U.S. to get megabit speeds around 2011?
9 It's an engineer here on the panel. Any
10 competent engineer in communications, the CTO of
11 Comcast or of AT&T, could easily make that happen
12 with the $7.2 billion. When you look at the
13 opportunities that are out there, the number who
14 can be reached with cable, with some wireless
15 towers, and so on, you get from 92 to 95, or 94 --
16 yes, whichever, to 98 percent just fine for less
17 than $7 billion.
18 How to make that happen? I am just
19 about out of time.
20 I do have to say one other thing beside
21 that -- I -- all the presentation is there. I
22 earn my living from DSL Prime, newsletter
1 reporter. I sell ads to a lot of people who make
2 chips and equipment to sell in the industry. I
3 get miscellaneous gigs related to that, of
4 conferences and so on.
5 I did a little bit of consulting on
6 broadband to -- for Montel, who is putting in a
7 proposal. I don't have any interesting financial
8 ties to any of the companies involved. And
9 frankly, I think anybody in policy who doesn't
10 tell you things like that up front is somebody you
11 should think twice about believing.

===============

MR. DILLNER: Dave, you wanted to
14 respond.
15 MR. BURSTEIN: Yeah, there's something
16 important here. It's easy to figure out what's
17 going on. Bandwidth costs between about 5 and 15
18 bucks a megabit. There is an obvious monopoly or
19 oligopoly -- massive take off some but not all
20 rural areas, because there's very little -- the
21 fiber is already in place. We have loads of
22 fiber. The cost of running more bandwidth over
1 that fiber is very small. So it's just a market
2 -- there's a clear market structure problem. It
3 turns out to be more important in many places to
4 get the bandwidth costs down than to subsidize for
5 density, so we know that.
6 The reason I wanted to come in here: Is
7 there two ways to do this that are practical? One
8 way is to throw somewhere in the order of $20- to
9 $30 billion to overbuilding the fiber that we
10 already have in place that has more than enough
11 capacity except in a few offshore islands in
12 Alaska, which is the current plan in the Stimulus.
13 It's throwing a billion dollars, it gets almost
14 nowhere in the cost of building fiber.
15 Or, say we really do have a market
16 failure problem. That if it's more than 30 bucks
17 or so a megabit in the rural areas, the government
18 should do the special access.
19 All of which is in the record, all of
20 which could happen in a few weeks or a few months,
21 and would do more for rural broadband than the $7
22 billion in the Stimulus because it turns out
1 that's the problem, the way it's going to be
2 spent, or almost anything else on the table.
3 So, the middle mile is a real problem.
4 You can throw a pile of government money at it
5 somehow. You can turn around and say it really is
6 a monopoly, and that's what we have regulation
7 for. Which is right or wrong? You can decide
8 that. But spending $20 billion to duplicate fiber
9 is a hard one to justify.

And Marc Cooper followed up

MR. COOPER: One point on this question
5 of -- we have to look at it. I think the special
6 -- and Dave Burstein mentioned it -- the evidence
7 in the special access case, I think, is crystal
8 clear. It's been sitting there for years.
9 You can look at excess profits and see
10 it. You can see a rate of return on investment
11 that's through the roof. There are standard
12 measures of market power. They exist. Brett has
13 given you the, sort of, the underbelly of that,
14 when you call up and you can't get a price quoted
15 to you because you're a captive. So that -- and
16 Dave Burstein's message needs to be clearer.
17 SPEAKER: I'm sorry.
18 MR. COOPER: The special access docket
19 is done, right in order, and fixed the market

20 failure. Now, George may disagree, but he
21 apparently hasn't read the docket. But you've
22 heard everyone here talk about that problem in
1 that docket. And so the answer is clear: It's
2 done; you've got the record; fix it. And that
3 would be one of your first steps in addition to
4 declaring broadband a universal service, which
5 will cause all kinds of other proceedings. But
6 Dave needed to be clearer. You've got the
7 evidence; you can write the order.

-----------

MR. BURSTEIN: Let me point out that
8 we're ignoring here the fact that most of that
9 money's being wasted, and an awful lot of it is
10 going out as a higher price. And that is why
11 demand does not stay separate from construction,
12 because the costs are ultimately going to be a
13 function of what and how.
14 Now, let me give you a couple of
15 particulars in there, right now. Verizon was
16 perfectly happy to sell DSL for $15 a few years
17 ago. They're now charging 20-plus. Qwest has
18 gone up to 25. Stagg was telling me before this
19 meeting he thought cable cost less than DSL to
20 provide, but I'm hearing most cable rates are 30
21 and 45.
22 So turning around and not saying we have
ANDERSON COURT REPORTING
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79
1 an obvious market failure that is leading to
2 higher prices when the costs are going down, is
3 ignoring the heart, by people who have come here
4 and said, we want more subsidy.
5 Twelve percent is going to USF; twice as
6 much is going to ICC. There's $20 billion worth
7 of subsidy in the system already, and coming
8 around and saying we solve it by more subsidy has
9 a much better answer. Subsidize what we need. If
10 we need to subsidize poor people, fine. If we
11 need to subsidize rural, fine. But if we don't
12 turn around and start by saying where are the
13 costs, and doing something, we're throwing away
14 public money and we have a $1.8 trillion deficit.
15 Related to which: cost. Most of the
16 proposals that are going to -- that are likely to
17 be funded by RUS and BTOP right now are coming in
18 at two to five times what the same project would
19 cost if the company wasn't getting government
20 money. I don't know that for sure, but I've seen
21 enough of them. And I've seen the process going
22 through where there is no standard cost; there is
ANDERSON COURT REPORTING
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80
1 no simple way of checking whether the costs thrown
2 in -- when Windstream comes in -- oh, I'll give
3 you a real example. When AT&T --
4 MR. SCHUENEMAN: I'll give you a real
5 example, too, Dave. I mean, that's --
6 MR. BURSTEIN: But I don't want to give
7 you a hard time, because I happen to have a real
8 example.
9 SPEAKER: Yeah.
10 MR. BURSTEIN: AT&T says that the
11 project U-verse cost $300 per home fast, that's 25
12 megabit. In California, they just got subsidies
13 approved on the basis of cost between 10- and
14 $22,000 for something that, if they spent more
15 than $1,000 doing it, they're totally incompetent,
16 and AT&T is not incompetent.
17 So what I am saying is, part of what we
18 want to do, if we want to help the poor people, is
19 take these subsidies or the money we have and make
20 sure we don't waste the bloody stuff. So that we
21 can bring down, very quickly, this -- these things
22 on demand are probably going to be almost
ANDERSON COURT REPORTING
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1 worthless because most of the people coming to
2 talk on that are going to talk about how you say
3 great things about broadband, and poor, old, and
4 learning disabled people will find a way to pay
5 $300 or $400 in order to get broadband because
6 it's going to change their life.
7 This is nonsense. The ConnectKentucky
8 data showed that they -- demand stimulus was a
9 negative effect. I don't think anybody anywhere
10 has any data about sustainable broadband that any
11 of these programs giving middle class people money
12 to tell poor people what to do makes a big
13 difference. And we have a heck of a lot of data
14 that it doesn't happen to work; right or wrong,
15 empirical data, but you're also saying get data,
16 it falls down.
17 So that when we do the demand, it turns
18 out that the one thing that makes a big difference
19 is price. And that's not at the top of the D.C.
20 -- because very few people are willing to look the
21 head of Comcast and AT&T in the eye and say,
1 because the guys in France are making -- these
2 belong on the table. That's why I was very glad
3 and appreciate the fact I was allowed to talk to
4 you guys and sorry I talked so much.

MR. BURSTEIN: I could, but I'm talking
18 too much.

MR. BURSTEIN: Best answer on that came
11 from Dave Clark and a whole pile of people who did12 the bringing home the bits survey for the FCC13 around 2002. They pointed out that the technology14 is continually getting better and the minimum you15 should expect and what you should offer should16 move with where the technology is. And at this17 point, it's reasonable to give a megabit or two to18 about 98 percent of the U.S. So I'd put that as a19 minimum. In 2014, you're going to be able to give20 that speed, as Verizon was testifying, to 9521 percent of the U.S., and I would run the minimum22 there.ANDERSON COURT REPORTING706 Duke Street, Suite 100Alexandria, VA 22314Phone (703) 519-7180 Fax (703) 519-71901101 Related to which, wired and wireless are2 different. Wireless and satellite does have some3 capacity constraints. They're often exaggerated4 in neutrality debates, but they're real and you5 have to think of them. Wireline, except for a6 small problem on upstream cable, can give the7 maximum speed of the line to every customer for a8 difference in cost that's less than $1 a month and9 usually closer to 10 cents.10 MR. CURTIS: So laying this back, you11 know, I think the way you would think about12 broadband is it's the bit rate at which some13 extremely high, approaching 100 percent of the14 population, can get that bit rate at a reasonable15 price.16 MR. BURSTEIN: Sounds good to me.

TECHNOLOGY; SBC's Bid for Prodigy Shares Is Making a Big Investor Even Bigger

By SIMON ROMERO

Published: September 25, 2001

Carlos Slim Helú, Latin America's richest man, is about to be made a little richer by SBC Communications.

SBC, one of the nation's largest local telephone companies, offered on Friday night to acquire the 58 percent stake it does not already own in Prodigy Communications, an Internet service provider, for $384 million, or $5.45 a share. That translates to a premium of 54 percent above Prodigy's closing price of $3.54 on Friday. After SBC, Mr. Slim and companies he controls are Prodigy's largest shareholders.

The size of the premium has raised some analysts' eyebrows because Mr. Slim, 61, sits on the board of SBC.