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Wednesday, 10 March 2010 22:51 |
 Mignon Clyburn gave the keynote at the FCC/Newseum praising the plan's National Digital Literacy Corps. Well and good, she said the next day, but nothing affects the poor more than the price. In a D.C. bombshell, Clyburn tore into the carriers for sabotaging U.S. broadband with higher prices. Comcast, AT&T, and Verizon have just announced $500M in broadband price increases. The cost of providing broadband continues to fall. Wall Street pegs margins at 80%. But the cablecos and telcos are mostly competing on how quickly they can raise prices, and wireless will never be more than a partial substitute.
“I learned that another major broadband provider is raising its rates for its lowest tiers of broadband service." Clyburn writes. "This news came on the heels of plans unveiled by other major providers throughout the country to increase prices as well." Clyburn is outraged. “If our push to increase broadband adoption - including through Lifeline subsidies - merely results in higher prices for the lowest-income consumers, programs like the National Digital Literacy Corps will be for naught.”
The solution isn't easy, because the cost advantages of scale probably will prevent any strong competitor emerging. Economists don't have answers for what to do when competition is weak other than some exercise of government power, but traditional regulation is no panacea. Hard decisions are needed, however, unless the U.S. is comfortable with an overpriced and occasionally inferior Internet.
Until Ms. Clyburn wrote this:
STATEMENT OF COMMISSIONER MIGNON CLYBURN REGARDING BROADBAND AFFORDABILITY AND COMPETITION
"Yesterday I had the honor of presenting one of the recommendations in the upcoming National Broadband Plan aimed at encouraging some of the 93 million Americans who do not currently have broadband at home to get on-line. In particular, I previewed the Plan's recommendation that we create a National Digital Literacy Corps in order to help individuals who are unfamiliar with or intimidated by the on-line world develop the skills they need to be comfortable on-line and to take full advantage of all it has to offer.
"The same day we announced these important recommendations designed to usher more Americans into the digital age, however, I learned that another major broadband provider is raising its rates for its lowest tiers of broadband service. This news came on the heels of plans unveiled by other major providers throughout the country to increase prices as well.
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Tuesday, 02 March 2010 20:21 |
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I didn't believe it until I ran the numbers, but 20% of annual USF/ICC spending is enough to reach easily half of the 35M or so homes - about 100M people - don't take broadband in the U.S. Personally, I think the money is better spent on the poor, especially given that almost everyone believes 50-90% of ICC/USF is wasted except those collecting the cash.
The trick is not to over-subsidize. About $15/month provides a normal profit (?40% EBITDA) to the carriers, because the marginal cost of broadband is generally $8/month. That figure is from leading Wall Street analyst Craig Moffett, presumably direct from internal numbers at the big cablecos, confirmed by my own research. Telcos accustomed to huge subsidies will scream, as will their captive Congressmen, but it's the right thing to do. Each family enrolled would pay say $7/month.
Here's the numbers for 3 to 10 megabit service for most of the poor in America. The difference in bandwidth cost between "back of the bus" speeds and real service is well under $1 (large carrier).
$8: The marginal cost/month of broadband in 85+% of U.S., essentially all large carriers. I come to a figure of $5-12/month by by adding up the cost of bandwidth, customer support, modems, and the other main inputs required to add a customer to an existing network. Moffett's $8 is about right for the large carriers serving 90% of the U.S. Since the networks are already in place – no one is building a new network in most of the U.S. – the $8 marginal cost is the right one in this context. Higher numbers either assume a new network buildout, are the last 5% of rural homes, or simply errors. I hope Rob Curtis gets this one right, because it will inform $billions in future spending.
$15 A reasonable price for the government to pay when buying millions of lines for lifeline service. That provides the companies with a reasonable profit, perhaps 40% EBITDA. It's ridiculous to pay retail for millions of lines. We know $15 is reasonable because both Verizon and AT&T charged $15 price for basic broadband until recently and always said they were profitable.
$7 Customer pays (a bargain)
$8 Subsidy/month to get to the $15 total.
< $100 Subsidy per family per year
10,000 families served per million of subsidy. 10,000,000 per $B.
20-30B homes for $3B/year. That's a lot of money to you or me, but less than 20% of the current USF/ICC total.,Verizon or AT&T annual cash flow, etc. To extend this to the last 5-10% requires bringing down ripoff rural backhaul costs via special access.
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Sunday, 28 February 2010 18:16 |
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One principal conclusion that can be drawn from this report is that by 2013‐4, broadband service providers expect to be able to serve about 95%2 of U.S. homes with at least a low speed of wired broadband service and they expect to offer to about 90% of homes advertised speeds of 50 mbps downstream.3 Service providers expect to provide many homes with access to these higher speeds by 2011‐2012.4 Wireless broadband service providers expect to offer wireless access at advertised speeds ranging up to 12 mbps downstream (but more likely 5 mbps or less due to capacity sharing) to about 94% of the population by 2013. In addition to several wireless broadband choices, the majority of American homes will have the choice of two wired broadband services. Upstream speeds for wired and wireless services will generally be significantly lower than downstream.
A second conclusion that can be drawn is that a significant number of U.S. homes, perhaps five to ten million (which represent 4.5 to 9 percent of households)5, will have significantly inferior choices in broadband: most of these homes will have wireless or wired service broadband available only at speeds substantially lower than the speeds available to the rest of the country. Some of these homes will have no choice except satellite broadband, which has some performance attributes that make it less satisfactory for many applications than a terrestrial broadband service.
A third conclusion to be drawn is that adoption of broadband service will continue to lag substantially behind the availability of broadband for the foreseeable future. Investment analysts forecast that about 69% of households will subscribe to wired broadband by 2015, and that 53% of the population will subscribe to wireless broadband services by 2013.6
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Tuesday, 23 February 2010 03:38 |
I believe strongly in open process, so I'm posting this on DSL Prime although it is far too rough to be an article. A leader on the broadband plan asked me "So what would you do/" Working as fast as I could, I brought together some of the possibilities. I've had no specific reply other than "some are in the works, others wrong, and I wish I had enough time to chat."
The most important five things I see are
- bringing down rural backhaul, which has a huge impact on cost to community anchor institutions, local competition, and even wireless for the last 5%. A rebutable presumption of market failure if local bandwidth prices are three times the national average seems worth fighting for. There's a record, an opening proceeding, and Sharon's expert tells me you have clear statutory authority Because only a few percent of the country is involved, the total cost isn't that much and probably less than the office building part of special access.
- getting the real costs studies on USF/ICC and making it all explicit USF (Huge dollars. I bet a tough auditor could find $5B with a few sensible rule changes, good enforcement and sunshine.
- Directly eliminating low-priority/wasteful things in USF. I'd start by going back to your original purpose - internet to classrooms - and phase out the amazing high spending on things like Centrex phones. I'd put everything substantial out for bidding, with no bars on bidders. (Let WISPs serve local schools with 10 and 100 megabit microwave), and allow opt-in to any government (including federal) contract where it saves money. Note that #1 lowering backhaul in rural areas is big for high speed school/library/hospital connections.
- Targeted interventions for high local broadband prices. Verizon charges $20 for basic; Frontier, $42 for similar. All but the smallest have costs within a dollar or three, but some are taking advantage of weak competition. I'd threaten a USF/ICC cut to any carrier above 20,000 lines with DSL prices more than 30% above the national average.
- The four million or so homes with cable TV but not data are by far the cheapest way to provide better rural choices. Bringing down rural backhaul costs #1 is key here, but there are several other opportunities. Letting small cablecos access RUS loans is a good idea. Charter as of last quarter reduced 600K unserved to 500K. They plan to do more, which could give you a nice bit. There are half a million at the other big cablecos they refuse to provide me info on.
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Sunday, 21 February 2010 19:16 |
Mignon Clyburn is staying out of the limelight but providing thoughtful comments. She was particularly cogent at MMTC addressing what really affects broadband costs for poor people. There's a lot of lobbyist's lies circulating in D.C. on this, and she steered the conversation back to important issues. She's now commented on new ex parte rules about what lobbyists and others tell the public , many of which are totally meaningless. "We discussed opinions consistent with our previous filings on the subject" is a typical comment. She now is forceful on the secrecy of most presentations to the FCC and improved disclosure rules. "I am particularly interested in receiving comments on our Notice concerning the Commission’s ex parte rules." My comment on her remarks below is simple: right on. "It is essential that the substance of ex parte presentations are made public in an accessible manner. This is imperative not only for purposes of judicial review, but also to encourage meaningful public participation. If we are serious about increasing transparency – and I believe each of us is – it is critical that we give the public a window into the information we receive. That window must not only illuminate exactly what was covered in those meetings, but must also be opened in a timely fashion."
Some ex partes are very helpful. Dell and Microsoft came in to discuss computer subsidies they are likely to present as part of the plan. They brought with them One Economy and Connected Nation, who they presumably will propose to administer things. One Economy is a non-profit that in New York is supporting good work bringing free wireless toHarlem and the South Bronx; I haven't looked at their projects in depth.
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Wednesday, 03 March 2010 21:44 |
 40,000 people losing their jobs at Verizon know the job impact of broadband can be negative as well as positive. Verizon has the most advanced broadband network in the Western world and is massively cutting staff. The local bookstore that dies when people order from Amazon, the newspapers dying across the country as readers shift to the web, and eventually the schools displaced if on-line education actually grows are further evidence that broadband destroys jobs as well as creates them. Honest academics find a very mixed picture that suggests the net effect is very modest at best. The only honest answer looking at the data is Professor Shane Greenstein's "We don't know the effect of broadband on the economy." (I wish it were otherwise, of course.)
Evidence-based medicine is transforming medical practice and research, undoubtedly savings lives, and I've been working to develop evidence-based policy. Washington is talking "data-driven decisionmaking but that's worthless if the data are corrupt and untested. There are claims being made in D.C. that range from unlikely to almost certainly untrue. Many originate from work paid for by the Bells then picked up and repeated by others who want to believe and won't examine the evidence.
Huge economic and job impact of more broadband
The data show otherwise, no matter how much I or advocates would like to believe this.
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Tuesday, 02 March 2010 18:50 |
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The first constraint: No money
By August, Blair was saying publicly that they needed to look at existing resources. I remember December 2008, the economy was in free fall. The best economists in the world told us they weren't sure it would stop. So they created the stimulus, using essentially all the discretionary money they had for Obama's four years. So there wasn't going to be any way to get much funding in the budget. This meant that anything large, such as fibering America, wasn't on the table. The September slides mentioned a $350B fiber project that the press picked up, but the real possibilities were in the $20-$35B range, and it wasn't clear if even that was possible.
The second constraint: Weak political backing
“The FCC Chairman just does what [AT&T uber-lobbyist] Jim Cicconi tells him to,” one of the most senior D.C. officials told me in a different context. That's exaggerated, of course, but it requires political courage and strong support to challenge the power of the carriers. That hasn't changed since Obama won the election. Century-Embarq and the Time Warner spinoff with a $billion tax break breezed through, and Verizon-Frontier (with another huge tax break) is on target.
Julius has adopted a policy of relying on voluntary cooperation of the carriers to get things done rather than using the authority he has. Except for net neutrality – promised repeatedly in the campaign – he hasn't been willing to make a decision they would strongly oppose. Mike Powell and Kevin Martin made the same mistake for their first three years as Chairman. Both left office bitter because of how little they achieved. High speed Internet in the U.S. is telco and cable both watching each other closely for how high they can raise prices. Verizon and AT&T have raised basic DSL rates 30% recently despite their own costs going down.
A chill went through the FCC building when Cicconi trotted out 70 Democratic Congressman to question net neutrality. AT&T has a robust network and net neutrality is a minor issue for them; if they can persuade 70 Dems (and all Republicans) to go against the public interest on that, imagine what they might do if the plan required something more significant, like lower broadband prices for more than a token.
The third constraint: Thou shalt not
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Sunday, 28 February 2010 17:16 |
I asked the chairman for any data that refutes:
- 100 squared is no more than we'd get without the plan (Cable's building anyway)
- The incremental wired homes passed should be 2% +- 2%
- There may or may not be 1-3% more homes reached with new cell towers, etc. but no specifics so far
- Affordability: no reason to believe the plan will significantly bring down prices.
- Affordability for the poor: Except for a small fraction reached by "lifeline" and computer subsidies, I see little real improvement. Lifeline is probably back of the bus slow, although I have no firm information. With connections - as well as ongoing company price increases - the average price to the poorest third of families may well go up, even net of lifeline. I certainly don't see a large fall.
- Take rate, wireline. If affordability is not improved, I see nothing else in sight with solid evidence it significantly increases take rate. (All the "demand side" analysis is interesting, but nothing is shown to do anything about it.)
- Take rate, wireless, 90% is less than I would guess from ordinary cellphone usage and the likelihood that nearly all cellphones by 2020 will have IP built in.
From which I would draw the conclusion that the plan does so little to increase broadband that the promised benefits will not be realized because of the plan
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To which I want to add, based on my analysis over the weekend, that the plan apparently continues to subsidize many carriers beyond the 11% rate of return that Michael Copps and Jonathan Adelstein could have achieved in 2008. I recognize some of that is undecided, which to me is even more reason to bring the possible high rates of return to the table. |
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Sunday, 21 February 2010 23:53 |
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The last 2-5%: Obama promised to bring broadband to all Americans, a good thing. There are about 5% of homes that can only get satellite, and these have been a prime focus for Stagg Newman, Rob Curtis, and Jim Stegeman. Early on, they (and the broadband stimulus people) discovered very few of them were in towns or areas of even a few hundred homes, natural for a new build of broadband. Most are 6 her, 20 there, and sometimes 3 on an island. there's no public information about what the plan will propose. I'd guess 1% or so will be offered the new 5-10 megabit satellite service. Where cable TV but not broadband is available, that's a cheap upgrade especially if the plan solves the backhaul ripoffs (below). Wireless will play a large role, although I don't know whether they will clear the 100 MHz or more of spectrum that would be ideal in rural areas for broadband. Look for a thoughtful move, probably tied into USF funding.
Open set top boxes: Verizon has been talking about this since 2003 but done nothing, and D.C. hasn't even been thinking about it. Put a gigE connection and a decent browser on the set top, and suddenly I can watch everything over the net. Add a USB port for expanison and ideally Linux like the Sony Playstation and the possibilities are remarkable. Cable quietly has been demonstrated that the program protection can be downloaded and done in software. That's an important breakthru, promised for many tears as part of Tru2way, etc, that should allow people to buy/build their own set top with capabilities far beyond what the company includes. Cable isn't very resistant, because customers buying their own set tops saves them a great deal of capex.
"Extending outage reporting to broadband service providers:" Good for reliability and requiring reporting identifies problems and possibly persuades teh companies to reduce them.
Ending the huge backhaul ripoffs. Bandwidth costs $5-15/megabit in most of the developed world, but rural carriers often report paying $100 & $200 even when fiber is in place and the cost of delivering that bandwidth is only a little higher than in cities. By one of the broadband plan, this is as much as 1/3rd of the problem for extreme rural carriers. The impact varies widely. For some it's the most important problem; others are lucky enough to be near a major switch point, have an efficient state coop, etc. It turns out overbuilding the existing fiber isn't the solution, because it would be brutally expensive and in most of the extreme rural areas there are so few customers even covering the opex would be tough.
. This can be very narrowly tailored,perhaps with a rebuttable presumption of market failure if local costs are more than three times the national average. Only a few percent of the country would be affected, but these are critical places for extending broadband. This turns out to be politically practical, because the backhaul costs in a few percent of the country are a fraction of the dollars involved in "apecial access" to city office buildings. It can easily be squeezed into that. http://fastnetnews.com/dslprime/42-d/2363-backhaul-3rd-of-the-problem-actually-solvable I don't know if this made the last draft, but it's so clearly true to the planning team it would be a bad mistake if it didn't/
"Ensure survivability of critical infrastructure." In particular, as half the population drops landlines it becomes critical that wireless continues working in emergencies. Most cell sites have severely limited batteries and no generators. CTIA, to their shame, is fighting the FCC in court to prevent sensible requirements. After Katrina, we all know how critical keeping the lines live can be.
"Require participating institutions to meet outcomes-based performance measures" Right on.This will immediately kill most of the "demand stimulus" programs because the results simply haven't been there. I wish it were otherwise, but most accomplish little.
"Address networks’ preparedness to deal with pandemics or incidents of high network stress/overload" To save what's comparatively pennies, many networks simply don't have sufficient reserve capacity. We're seeing that now as modest success selling iPhones is causing major problems for AT&T. They are exaggerrated but real. At least since 2003, SBC/AT&T top tech people have been warning management they are cutting capex too far. Most years, it's actually below depreciation.
All the old time engineers are afraid the cutbacks in reliability the last decade is inviting disaster. "Commercial data networks are not ubiquitous or universally reliable during emergencies" is important.
"Creating a nationwide interoperable broadband wireless public safety network" Carlos Kirjner of the plan did the post-mortem on the communications during 9/11. The belief in New York was that lives were lost because the police and fire departments had trouble communicating. This should be a no-brainer, but hasn't happened. I pay particular attention to the word "nationwide". One of the biggest gaps in broadband coverage is the last 2-3% where there are no cell towers. Erecting towers with backhaul for public safety purposes can also provide broadband wireless for the last few %.
"Improve program efficiency" Between 40% and 90% of the money in ICC/USF is wasted or corporate welfare, depending on whose figures you believe. This has all been under a veil of secrecy at USAC, NECA, and state regulators. I believe that you could save enough to give 10 megabits to all the poor in the U.S. by cutting waste, but I can't get the solid information to be sure |
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Sunday, 14 February 2010 22:36 |
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Congressman Serrano Low Speed Lifeline "Absolutely Unacceptable"
"Is it acceptable that the proposed lifeline broadband program only offer low speeds," I asked Jose Serrano, pointing our the cable and AT&T sponsored plan runs at a tenth the regular speed. "Absolutely not!" the Congressman replied. "Our students need the highest speed possible." NCTA, the cable association, calls their plan "Adoption Plus" or "A+" but it only offers the lowest tier of service, too slow for ordinary TV quality More at http://bit.ly/a4eGXm
The Basics: By 2013, 90% covered 50 meg by land, 95% 5 meg wireless
To me, that means the broadband plan should be about availability for the last 5-10% and focus on affordability for the 90%. From the Columbia CITI study to the FCC, the crucial conclusion.
“By 2013-4, broadband service providers expect to be able to serve about 95%2 of U.S. homes with at least a low speed of wired broadband service and they expect to offer to about 90% of homes advertised speeds of 50 mbps downstream.3 Service providers expect to provide many homes with access to these higher speeds by 2011-2012.4 Wireless broadband service providers expect to offer wireless access at advertised speeds ranging up to 12 mbps downstream (but more likely 5 mbps or less due to capacity sharing) to about 94% of the population by 2013. ... a significant number of U.S. homes, perhaps five to ten million (which represent 4.5 to 9 percent of households)5, will have significantly inferior choices in broadband: most of these homes will have wireless or wired service broadband available only at speeds substantially lower than the speeds available to the rest of the country.
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