BroadbandinAmerica­2ndEditionWhereItIsandWhereItIsGoing

(AccordingtoBroadbandServiceProviders)

AnUpdateofthe2009ReportOriginallyPreparedfor

theStaffoftheFCC’sOmnibusBroadbandInitiative

By

RobertC.Atkinson,IvyE.SchultzTravisKorte,TimothyKrompinger

May,2011

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Acknowledgements

TheresearcheffortthatwentintothisreportwasundertakentwoCITIinterns.TheresearchwasstartedinJune,2010by:

TravisKorte(UniversityofCalifornia,BerkleyBA,2010),andTimothyKrompinger(UniversityofConnecticut,BA,2011.

Inaddition,othermembersofCITI’sstaffandanumberofCITIfriendsandaffiliatescontributedtheirexperienceandexpertisebyreviewingandcritiquingdrafts.

Wewouldalsoliketothankthemanyorganizationsthatrespondedtoourrequestsforbroadbanddataandinformationandthoseindividualswhoverifiedtheirorganization’sdatapresentedintheAppendixofthisreport.

CITI,asaninstitution,doesnotauthororpublisharticlesorreports.Therefore,we,astheauthors,areresponsibleforthecontentofthisreport.

Robert C. Atkinson Ivy E. Schultz

RobertC.AtkinsonDirectorofPolicyResearch

IvyE.SchultzManagerofResearchAssistants

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TableofContentsSection1:ListingofAllPubliclyAnnouncedBroadbandPlans ........................................... 151.1BroadbandByTechnology................................................................................................... 181.2TimelineforBroadbandPlans ............................................................................................. 361.3PenetrationandCoverageFootprint................................................................................... 361.5ExpectedBroadbandPerformance/Quality ........................................................................ 431.6ARPU(AverageRevenueperUser) ..................................................................................... 46PricingAppendix ....................................................................................................................... 49

Section2:ComparisonofAllPubliclyAnnouncedPlans ............................................................... 52Section3:FutureProjections ........................................................................................................ 653.1AnnouncedButUncompletedBroadbandPlans................................................................. 653.2BroadbandSatellitePlans ................................................................................................... 683.4.1BroadbandAvailability ..................................................................................................... 693.4.2BroadbandAdoption ........................................................................................................ 713.4.3BroadbandUsagebyCustomers ..................................................................................... 743.4.5ForecastingBroadbandCapitalExpenditures .................................................................. 76

Section4:GuestEssayContributions............................................................................................ 85

Appendix:ListingofAllPubliclyAnnouncedBroadbandPlans .......................................................... A1‐A43

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ListofFiguresFigure1:TypesofBroadbandServices ......................................................................................... 18Figure2:FTTHConnectionsinmillionsasofMarch30,2010....................................................... 19Figure3:USFTTHSubscribers....................................................................................................... 21Figure4:TelcoFiberHomesPassedandPercentofHouseholds.................................................. 22Figure5:DSLSubscribers .............................................................................................................. 23Figure6:TelecomBroadbandAdds(DSLLoss) ............................................................................. 24Figure7:RuralTelcos:DSLPenetrationofTotalAccessLines(1Q08‐4Q09E)............................. 24Figure8:HomesPassedbyCableCompanies ............................................................................... 26Figure9:MSOsBroadbandSubscriptionPenetrationofHomesPassed ...................................... 26Figure10:CableDOCSIS3.0Roll‐out ............................................................................................ 27Figure11:ExpectedDownstreamSpeedsof3Gand4GWirelessBroadband(Mbps) ................. 28Figure12:MajorInternetBackboneRoutesintheU.S.(>250Gbps) ........................................... 32Figure13:20HighestCapacityU.S.DomesticInternetRoutes.2007–2009(Gbps) ..................... 33Figure14:InternetPenetrationForecast...................................................................................... 37Figure15:GrowthinOnlineHouseholds ...................................................................................... 38Figure16:BroadbandSubscribersandGrowth ............................................................................ 38Figure17:HouseholdswithDial‐UpService ................................................................................ 39Figure18:AT&TandVerizonWirelessCapex,2009‐2010 ............................................................ 40Figure19:BroadbandCapexbytype,3QandYTD2010............................................................... 41Figure20:CapexasaPercentageofSales2008‐2010 .................................................................. 41Figure21:WeightedAverageCableBroadbandARPU ................................................................. 47Figure22:BroadbandPriceGrowth.............................................................................................. 51Figure23:WirelineBroadbandAvailabilityandAdoption(inpercentageofU.S.households).... 69Figure24:BroadbandSubscriberGrowth .................................................................................... 72Figure25:ResidentialHouseholdPenetration.............................................................................. 73Figure26:BroadbandWirelessBuilds........................................................................................... 73Figure27:NorthAmericanConsumerInternetTraffic(Petabits/month)..................................... 74Figure28:EstimatedU.S.ConsumerInternetUse........................................................................ 75Figure29:TypicalSpeeds(inMbps)thatInternetActivitiesandIPTVWillRequirein2013 ........ 76Figure30:IndustrySectors'BroadbandCapex ............................................................................. 80Figure31:TotalCapexandTotalBroadbandCapex ..................................................................... 81Figure32:TotalAverageWirelessARPUComposition ................................................................. 84

ListofTables

Table1:SpeedsforFTTN/FTTHHouseholds ................................................................................. 21Table2:20HighestCapacityU.S.DomesticInternetRoutes.2007–2009(Gbps) ........................ 32Table3:AggregateCapEx2009‐$56.1B...................................................................................... 39Table4:TotalCapitalExpendituresofLargestCompanies($billions) ......................................... 40Table5:RBOCWiredBroadbandCapex($billion)........................................................................ 42Table6:AverageDownloadSpeedsofISPs(TopTen) .................................................................. 44Table7:AverageUploadSpeedofISPs(TopTen)......................................................................... 44Table8:TypicalWirelessBroadbandPricingplans ....................................................................... 49Table9:BroadbandPricingChanges(DSL).................................................................................... 50Table10:MajorBroadbandDeployments:PerformanceAgainstAnnouncedCompletionDates53Table11:Uncompletedbroadbandplans ..................................................................................... 65Table12:USInternetAccessbyTypeofService........................................................................... 71

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

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ProjectBackgroundThisisthesecondeditionof“BroadbandinAmerica:WhereItisandWhereItIsGoing”.ItisanupdateandexpansionontheoriginalreportthatwassubmittedtotheFederalCommunicationsCommission(FCC)inNovember2009aspartoftheFCC’sdevelopmentofaNationalBroadbandPlan(NBP).

ThefirstthreesectionsofthissecondeditionaregeneralupdatesofthefactualdatasubmittedtotheFCCapproximatelyinlate2009.Thefourthsectionisentirelynew:itcomprisesanalysisandcommentarybyafewleadingbroadbandexpertswhoprovidetheirinsightsintosomeoftheissuesassociatedwithBroadbandinAmerica.

• TheFirstEdition

Inmid‐2009,thestaffoftheFCC’sOmnibusBroadbandInitiative(alsoknownastheNationalBroadbandPlanTaskForce)askedtheColumbiaInstituteforTele‐Information(CITI)toconductanindependentanalysisofpubliclyannouncedbroadbandnetworkdeployments(bothnewandupgradednetworks)ofcompaniesintheUnitedStates,forthepurposeofinformingtheFCC’seffortsindevelopingitsNationalBroadbandPlan.OnAugust6,theFCCannouncedthatCITIhad

agreedtoundertaketheanalysisproject.1

TwomembersofCITI’smanagementstaff,BobAtkinsonandIvySchultz,undertookthe2009project.TheyworkedindependentlyoftheFCCandconductedtheprojectwithCITI’sresearchresourcesandwithoutanyprojectfundingfromtheFCCoranyotherorganization.Asaresult,theseprojectarrangementsensuredtheindependenceandintegrityoftheworkproduct.

AsrequestedbytheFCC,theprojectencompassedacomprehensiveexaminationandanalysisofcompanies’announcementsandsimilarpublicinformation,industryanalysts’reports,andotherrelevantdatasourcedtothebroadbandserviceproviderstomeasureandassessbroadbandplans.AlsoattheFCC’srequest,thereportincludedanassessmentofwherebroadbanddeploymentswillbein3–5yearsandacomparisonofresultswithpreviouslyreleasedplansthatareinprogressorcomplete.Toavoidduplicationandtofocustheresultingreportonwhatbroadbandserviceprovidersweredoingandplanning,theprojectpurposefullydidnotincludedataandotherinformationalreadygatheredandpublishedbytheFCC.

TheresearchforthisprojectfocusedonthethreespecificareasrequestedbytheFCC,eachofwhichisaddressedasasectionintheFirstandSecondReports:

1FCCPressRelease,http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC‐292598A1.pdf.

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Section1:ListingofAllPubliclyAnnouncedBroadbandPlans,sortedboth(1)bycompanyand(2)bytechnology(e.g.DSL,cable,fiber(FTTx),fixedwireless,wireless,satellite),withadescriptionofrelevantdetailssuchas(1)generaldetailsoftheplan,includingcompany,technology,andtimeline,(2)expectedcapitaloutlaysandoperatingexpenditures,(3)expecteddeployment/coveragefootprint,(4)expectedbroadbandperformanceandquality,and(5)expectedARPUs(AverageRevenuePerUser).

Section2:ComparisonofAllPubliclyAnnouncedBroadbandPlans,basedupontheListingofAllPubliclyAvailableBroadbandPlans.Thislooksbackwardstowhatwasannouncedatthetimetheplanwasestablishedandthencomparestheannouncementwiththeoutcomesofcompletedplansandthecurrentstatusforthoseplansstillinprogress.

Section3:FutureProjection:Thisisananalysisofwherethepubliclyannouncedbroadbandplansthatareyettobecommencedorstillinprogresswillbein3‐5years,includingLTE,WiMAX,DOCSIS3.0,backbone,etc.Thisincludesasummaryofanalystcapitalexpenditureforecastsanda“lessonslearned”component.

Section4:Essays&Analyses(onlyinSecondReport)byfiveleadingbroadbandexpertsbasedontheirpresentationsataMarch18conferenceorganizedbyCITIandGeorgetownUniversity’sCommunicationCultureandTechnologyProgramtocommemoratethefirstanniversaryoftheNationalBroadbandPlan.2

AfterreceivingtheFirstReport,theFCCreleaseditforpubliccommentandreceivedanumberofcommentsfromvariouscompaniesandtradeassociationsinvolvedintheNationalBroadbandProceeding.MostofthecommentsendorsedtheReportandnonetookissuewiththemethodologyoranalysis.TheCITIauthorspresentedtheReportatapublicmeetingheldattheFCConDecember10,2009.ThepresentationwasrecordedandisavailableontheFCCwebsiteathttp://www.broadband.gov/ws_deployment_research.htmlandtheCITIwebsiteathttp://www4.gsb.columbia.edu/citi/research/current.

GeneralResearchMethodology

ThisSecondReportfollowsthesamegeneralmethodologyusedintheFirstReport.CITIresearchersworkedindependentlyoftheFCCandconductedtheprojectwithCITI’sresearchresourcesandwithoutanyprojectfundingfromtheFCCoranyotherorganization.Asaresult,theprojectarrangementscontinuetoensuretheindependenceandintegrityoftheworkproduct.

2See:http://www4.gsb.columbia.edu/citi/events/NBP2011fortheconferencepresentationsandvideo.

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SincetheFCC’soriginalrequestwasforareviewofthestateofbroadbandinAmericabasedonwhatthebroadbandserviceprovidershavepubliclyannounced,researchersassignedtothisprojectagaincollecteddataprimarilyfrom:1)serviceproviders’publicreportsandstatements;2)reportsbyinvestmentanalystsandresearchfirms(whicharegenerallybasedoninformationobtaineddirectlyfromtheserviceprovidersthemselves);3)newsreportsdirectlyquotingtheserviceproviders;and,4)informationcompiledbyindustrytradeassociationsdirectlyfromtheirmembercompanies.Consequently,wedidnotdevelopindependentdataorevaluatethevalidityofthedatareportedbytheserviceprovidersand,toavoidrepetitionandduplication,wedidnotuseacademic,governmentorotherstudiesregardingthestateofbroadbandthatareavailabletotheFCCandtheCommission’sstaff.

Relyingoninformationprovidedasdirectlyaspossiblebytheserviceprovidershasitsownlimitations.Eachserviceproviderhasanaturalinclinationandincentivetopresentinformationaboutitselfinawaythatitregardsasmostbeneficialtoitsinterests.Forcompetitiveandotherbusinessreasonsandtocomplywithsecuritieslawsregardingdisclosureofmaterialinformation,publiclytradedbroadbandserviceprovidersarecarefulaboutreleasingdetailedinformationabouttheircurrentperformanceandfutureplansregardingbroadbanddeploymentsandfinancialresults.Smallprivatecompaniesaresimilarlyreticenttoprovidedetailedinformationabouttheirfutureplans,eventotheirtradeassociations.

Thepublicandanyonewithrelevantinformationareinvitedtosubmitadditionalinformationanddatatoadedicatedemailaddress:CITI‐broadband@gsb.columbia.edu.

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ExecutiveSummary

OneprincipalconclusiondrawnfromtheFirstReportwasthatby2013‐4,broadbandservice

providersexpectedtobeabletoserveabout95%3ofU.S.homeswithatleastalowspeedof

wiredbroadbandserviceandtheyexpectedtooffertoabout90%ofhomesadvertisedspeeds

of50mbpsdownstream.4Serviceprovidersexpectedtoprovidemanyhomeswithaccessto

thesehigherspeedsby2011‐2012.5Anotherconclusionwasthatwirelessbroadbandservice

providersexpectedtoofferwirelessinternetaccessatadvertisedspeedsrangingupto12mbpsdownstream(butmorelikely5mbpsorlessduetocapacitysharing)toabout94%ofthepopulationby2013.TheFirstReportalsoconcludedthat,inadditiontoseveralwirelessbroadbandchoices,themajorityofAmericanhomeswillhavethechoiceoftwowiredbroadbandservices.Upstreamspeedsforwiredandwirelessserviceswillgenerallybesignificantlylowerthandownstream.TheupdatedinformationincludedinthisSecondReportcontinuestosupportalloftheseexpectations.

AnotherprincipalconclusiondrawnintheFirstReportwasthatasignificantnumberofU.S.

homes,perhapsfivetotenmillion(whichrepresent4.5to9percentofhouseholds)6,willhave

significantlyinferiorchoicesinbroadband:mostofthesehomeswillhavewirelessorwiredservicebroadbandavailableonlyatspeedssubstantiallylowerthanthespeedsavailabletotherestofthecountry.Someofthesehomeswillhavenochoiceexceptsatellitebroadband,whichhassomeperformanceattributesthatmakeitlesssatisfactoryformanyapplicationsthanaterrestrialbroadbandservice.Onceagain,theseconclusionsremainvalid.

TheFirstReportalsoconcludedthatadoptionofbroadbandservicewillcontinuetolagsubstantiallybehindtheavailabilityofbroadbandfortheforeseeablefuture.Lastyear,investmentanalystsforecastthatabout69%ofhouseholdswillsubscribetowiredbroadband

by2015,andthat53%ofthepopulationwillsubscribetowirelessbroadbandservicesby2013.7TheupdatedforecastincludedinthisSecondReporthasnotsignificantlychanged,althoughmanyanalystsnotethatcurrentbroadbandgrowthhasbeenslowerthaninrecentyears.

Withrespecttoadoptionrates,analystforecastsandserviceproviderexpectationsincludedintheFirstReportdidnottakeintoaccounttheeffectofvariousbroadbandstimulusprogramsoranychangesingovernmentpoliciesthatmayaffectdeploymentoradoption.Ayearlater,thisis

3SeeSection3,p.65.4SeeSection3,p.65.5SeeSection3,p.65.6SeeSection3,p.65.7SeeSection3,p.65.

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stillthecasesincethevariousbroadbandstimulusprogramsarestillintheirinfancy.Forecastsalsodonotexpectsubstantialpricereductionsthatmightstimulategreateradoptionofbroadbandbyprice‐sensitivecustomers.

Broadbandcoverage

WirelineCoverage:Ifjustthetwolargesttelephonecompanies(AT&TandVerizon)achievetheirstatedgoalsforwirelinebroadbanddeployment,atleast50millionhomeswillbeabletoreceiveadvertisedspeedsof10megabitspersecondormoredownstreamwithinthenexttwoyears.Othertelephonecompanieswillbeprovidingsimilarofferingsintheirserviceareas.Specifically,industryresearchersestimatedthatfibertothehome(FTTH)wasavailabletoabout15.2millionhomes(homespassed)inMarch2009,18.2millioninMarch2010(anincreaseof20percent),and21millioninMarch2011(anincreaseof14.6percent).8In2009,thelargestproviderofFTTHservice,Verizon,announcedthatitwouldcompleteitsFTTHdeploymentandbecapableofserving17millionlocationsby2010.9Anumberofothersmallercompanies,includingsmallruraltelephonecompanies,willbecoveringadditionalhomeswithFTTH.Inmid2010,VerizonannouncedthatthedownloadspeedofitsDSLbroadbandservicewoulddouble.10Theotherlargetelephonecompany,AT&T,announceditwouldofferDSLfromfiber‐fedcabinets(fibertotheneighborhood:FTTN‐DSL)to30millionhomesby2011.11AT&Tcurrentlyoffersadvertisedspeedsofupto18megabitsperseconddownstream12(althoughtheactualspeedcanbemuchlower),withincreasespossiblewithpairbonding.

Thecableindustryistheothermajorproviderofwirelinebroadbandservice.Cablebroadbandiscurrentlyavailableto92%ofhouseholdsaccordingtoaresearchfirmthattracksthecableindustry.13Thispercentagehasnotchangedfrom2009to2010.CablebroadbandisbeingupgradedtotheDOCSIS3.0standard14andisbecomingwidelyavailableatadvertisedspeedsashighas50mbpsdownstream(withonefirmadvertising101megabitspeeds).15Sincecablebroadbandcapacityissharedamonggroupsofcustomers,theactualspeedutilizedbyanyonecustomermaybesubstantiallylowerthantheadvertised“upto”speed.Comcast,thelargestcablecompanyaddressingnearlyhalftheUnitedStates,expectedin2009tocovernearlyallits

8RVAMarketResearchandConsulting,“NorthAmericanFTTHStatus–March31,2011”http://s.ftthcouncil.org/files/rva_ftth_status_april_2011_final_final_0.pdf9SeeSection3:UncompletedBroadbandPlans,p.65.10Verizon,“NewCopper‐BasedBroadbandTierMoreThanDoublesExistingMaximumDownloadSpeedsforConsumersandSmallBusinesses”August,2010.11SeeSection3:UncompletedBroadbandPlans,p.65.12SeeSection1:1.1Technology,p.21.13SeeSection1:1.3ExpectedDeployment/CoverageFootprint,p.36.14DOCSISisastandarddevelopedbyCableLabsandstandsfor“DataOverCableServiceInterfaceSpecification”15SeeSection1:1.1Technology,p.18.

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50.6millionhomespassed16by2010anditislikelytoachievethisgoal,basedonrecentstatements.OneanalystbelievesDOCSIS3.0willbeavailableby2013to“nearlyall”17thehomescoveredtodaybycablemodemservices.18Thatwouldbeabout92%of112millionhouseholds,or103millionhomes.

WirelessCoverage:AnumberofwirelessbroadbandserviceprovidersexpecttodeployLongTermEvolution(LTE)andWiMAXtechnologies(so‐calledfourthgenerationor“4G”wirelessservices)between2010and2013and,ifsuccessful,bringmulti‐megabitsspeedstoamajorityofU.S.homesandpopulation.19Thewirelessservicesoffersharedbandwidth,sothespeedsobtainedbyuserswillbedependentonactualtrafficloadsateachcell‐site,andinparticularonhowmanyusersaresimultaneouslyusingbandwidth‐intensiveapplications,suchaswatchingvideoonwirelessInternetconnections.Asoneexample,by2013VerizonexpectsthatLTEwillprovidesubscriberswith5to12mbpsdownloadsinadeploymentplannedtoreachallofitscoveredpopulation(attheendof2008,Verizon’snetworkcovered288millionpeople20or94%oftheU.S.population).21Otherwirelesscompaniescoverasmallershareofthepopulation.EntrepreneurialandindependentWirelessInternetServiceProviders(WISPs)provideWiMAX‐typeservicestoatleast2millioncustomers22inruralareas,includingmanyareasnotcoveredbythenationalwirelesscompanies.

SatelliteCoverage:Satellitebroadbandisavailableatalmostanylocationinthecountrythathasanunimpededline‐of‐sighttothesouthernskyandthereforecanprovidebroadbandservicetothemostremoteanddifficult‐to‐servelocations.However,thecurrentsatelliteserviceshaverelativelylowspeedsandlatencyproblems,andcostmorethanterrestrialbroadbandservices.Twonewsatelliteswithgreatercapacityareexpectedtobecomeoperationalbeginningin2011,withtheoperatorsannouncingthateachsatellitewillbecapableofproviding2‐10mbps23service.Transmissionratesmayaverage5megabitsperseconddownstreamby2011,24butthebandwidthavailabletoeachuserwillvaryinverselywiththeactualtrafficloadasoverallbandwidthissharedamongallusers.

16SeeAppendixA.17SeeSection1:1.3ExpectedDeployment/CoverageFootprint,p.36.18SeeSection1:1.3ExpectedDeployment/CoverageFootprint,p.36.19SeeSection3,p.66.20VerizonCommunications,“2008AnnualReport,”VerizonCommunicationsInc.,2009,at9.21SeeSection1:1.1Technology,p.18.22SeeSection1:1.1Technology,p.29.23SeeSection3:3.3StatusofBroadbandSatellitePlans,p.68.24SeeSection3:3.3StatusofBroadbandSatellitePlans,p.68.

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BroadbandTransmissionRates

FasterWirelineTransmissionRates:MostU.S.homeswillbeservedbyadvertised“upto50megabitpersecond”speedoptionswithinthenextfewyearsfromatleastonesupplier,ascableisexpectedtocovernearlyitsentirefootprint(92%ofhouseholds)withDOCSIS3.025andtelcosexpandFTTHserviceswhichhavevirtuallyunlimitedspeedcapabilityalthoughcurrentlyofferedspeedsareinthe“upto”50mbpsrange.SlowerDSL‐fiberhybrids,called“fibertothenode,”currentlyareadvertisedasproviding“upto24mbps26”downstreambyAT&T.DSLbonding,nowincommercialdeployment,isintendedtodoubleDSLspeeds.Includinghybridfiber‐DSL(FTTN‐DSL)andbondedDSL,sixtytoseventymillionhomeswillhaveachoiceofprovidersforadvertisedspeedsof10megabitsdownstreamorhigher.“Phantompair”technologyandotherdevelopmentsmayfurtherextendthelifeofDSL‐typetechnology.27

FasterWirelessSpeeds:VerizonindicatesthatitsLTEdeploymentwillbecapableofdeliveringpracticalspeedsof4to12mbps.However,wirelessbandwidthisshared,anduntilthenetworksaretestedundersubstantialloaditisnotclearwhetherspeedsabove5mbpscanbeobtainedregularlybymorethanafewsubscribersatthesametime.28Thedemandforwireless

broadbandbandwidthhasbeengrowingrapidly29andgrowthisexpectedtocontinue,

especiallyifwirelessbroadbandisusedforvideoovertheInternet.Futurepricingarrangementsforwirelessbroadbandarelikelytogreatlyaffecthowmuchvideotrafficandotherbandwidth‐intensiveapplicationsarecarriedonthewirelessbroadbandnetworks.

Improvedsatellitebroadbanddatarates:Satellites,liketerrestrialwirelesssystems,sharetheavailablebandwidthcoveredbyeachspotbeamsothespeedobtainedbyauserwilldependonthesimultaneoususageofotherusers.ViaSatexpectstooffersharedspeedsof2to10megabitsstartingin2011.30

Upstreamspeeds:Mostconsumerbroadbandservicesareasymmetrical,withdownstream

speedssignificantlyfasterthanupstreamspeeds.31FTTHofferingscurrentlyprovideadvertised

upstreamspeedsofaround20mbps,32althoughfiberhasthecapacityformuchhigherspeeds.

25SeeSection1:1.3ExpectedDeployment/CoverageFootprint,p.36.26SeeSection1:1.1Technology,p.21.27SeeSection1:1.1Technology,andAlcatelLucent,p.22.28SeeSection1:1.1Technology,p.29.29AT&T’smobiledatatraffichasincreasednearly50timesinthepastthreeyears,presumablylargelyduetotheiPhone.M.Meekeretal.,“Economy+InternetTrends,”MorganStanley,2009,at57,http://www.morganstanley.com/institutional/techresearch/pdfs/MS_Economy_Internet_Trends_102009_FINAL.pdf.30SeeSection2:ComparisonofAllPubliclyAnnouncedBroadbandPlans,p.52.31SeeAppendixA.32SeeAppendixA:Verizon.

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DOCSIS3.0upstreamisonlyincommercialtrialsintheUnitedStates.UntilupstreamDOCSIS3.0

isfullydeployed,upstreamcablespeedswillbeintherangeof768Kbpsto5mbps.33

Broadbandadoption

In2009,approximately63%ofU.S.homesutilizedawirelinebroadbandserviceandin2010thefigurewasapproximately65%.Thisfigureisexpectedtoincreaseslowlytoabout69%by2014,

implyingmarketsaturation,atleastatcurrentpricinglevels.34In2009,investmentanalysts

estimatedthat31%ofAmericansovertheageof14currentlyusedwirelessbroadband(broadbanddoesnotincludeShortMessageService“texting”).In2010,thisfigureincreasedto38%anditisexpectedtoincreasesteadilywithanalystsexpectingwirelessbroadbandadoptiontopass50%by2013.

Manyhouseholdsandindividualswillsubscribetobothwirelineandwirelessbroadbandservices,justastheysubscribetofixedandmobilevoicetelephoneservices.Andjustassomeindividualshave“cutthecord”andrelyexclusivelyonamobiletelephoneforvoiceservices,somefamiliesandindividualsmaychoosetogowireless‐onlyforbroadband,35particularlyiftheyarenotusingbroadbandforvideoorvideo‐intensiveapplicationsthatrequirethehigherspeedsgenerallyobtainableonlyfromwiredservices.

Thegovernment’svariousbroadbandstimulusplansmayinfluencetheseadoptionforecaststhroughincreaseddeploymentofbroadbandtounservedareasandencouragingincreasedadoptionofbroadbandservices.However,theresultsoftheseprogramsarenotyetobservable.

Backbones

Backbonebandwidthtrafficvolumeandcapacitywillgrowroughlyatthesamepace,withaleadingnetworkequipmentfirmforecastinggrowthinNorthAmericanIPtrafficof39%(CAGR)from2009to2013.36Forthesameperiod,capacityisforecasttoincreasebyapproximately44%onmajorroutessothatmajorroutebackbonecapacityshouldkeepupwithdemandand

33Seefootnote42.34Sinceacomputerisaprerequisitetoutilizingawiredbroadbandservice,itmightbemoreaccuratetomeasureadoptionasapercentageofcomputer‐equippedhouseholdsratherthanallhouseholds.Asoneinvestmentanalystnoted,“Weestimatethereare67MbroadbandsubscribersintheU.S.,representing60%ofoccupiedhouseholdsand~70%ofPChomes.Givenbroadbandavailabilityinroughly90%ofhomes,normallydistributingPChomesacrossbroadbandavailablehomesputsrealpenetrationatalmost80%.”UBSInvestmentResearch,“SortingThroughtheDigitalTransition,”UBSAG,2009,at5.35SeeSection3:CuttingtheCord,p.65.36SeeSection1:StatusofInternetBackbone,p.13.

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significantproblemsofbackbonecongestiononmajorroutesarenotexpected.However,localizedcongestionmayoccuronlowercapacityroutesincludingconnectionstocelltowersthatexperiencerapidwirelessbroadbandgrowth.

Capitalspending

Serviceprovidersrarelybreakbroadbandoutoftheiroverallcapitalspendingfiguresforalltheirserviceofferingssoitisdifficulttoisolatebroadband‐specificcapitalexpenditures.37Indeed,muchoftheserviceproviders’capitalisinvestedinmulti‐purpose(or“converged”)digitalnetworksthatcarryvoice,data(includingbroadband)andtelevisionservicessimultaneously.Therefore,determiningwhatconstitutes“broadband”capitaloftenrequiresanallocation,whichisinherentlysubjectivetosomedegree.

In2009,marketresearchersandinvestmentanalystsestimatedthatasmuchastwo‐thirdsofcurrentinvestmentsarebeingmadetoprovideandexpandwiredandwirelessbroadband,38andtheproportionallocatedtobroadbandhasbeengrowingoverthepastfewyears.Thistrendisexpectedtocontinueoverthenextfiveyears.

Overall,totalindustrycapitalexpendituresforallserviceswereabout$64billionfor2009(thepredictionintheFirstReportwasabout$60billion)andanalystsexpectthatnumbertobedownslightlyat$62billionfor2010andtothendecreaseinthenextfewyearsintothemid‐$50billionrangeannuallyasthemajornewbasicinfrastructuredeploymentscometoanendandcapitalisdevotedmoretoupgradesandexpandingthecapacityofthedeployedsystemsratherthanentirelynewdeployments.39

Withrespecttobroadband,theFirstReportforecastthattotalbroadbandcapexwouldbe$30billionin2009.ThisSecondReportestimatesthattheactualcapexin2009was$31.3billion,adeclineof$3billionfrom2008.Lookingforward,thisupdateforecaststhatthecapitalinvestmentsinbroadbandinfrastructurewillremainflatatapproximately$33billionperyearforthenextfewyears.Atthesametime,asnotedabove,totalcapexinallthesectors(Telco,Cable,Wireless,Satellite,TowersandWISP)isexpectedtodeclinefrom$64billionin2010to$56billionin2012.

37Suchabreakoutwouldalsobesubjecttoallocationofcapitalamongtypesofservicesforjointlyusedfacilities,suchasbackofficesystemsandbackbonetransportfacilitiesthatcarryconventionaltelephone,wireless,broadbandandvideotraffic.38SeeSection1:1.4ExpectedCapitalOutlays/OperatingExpenditures,p.3939SeeSection3:TotalCapitalExpendituresfor3LargestTelcosand7MajorCableCompanies.

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Section1:ListingofAllPubliclyAnnouncedBroadbandPlans

Asafirststep,theFCCaskedforalistofallpubliclyannouncedbroadbandplans,

“…sortedboth(1)bycompanyandby(2)technology(e.g.DSL,cable,fiber(FTTx),fixedwireless,wireless,satellite),withadescriptionofrelevantdetails,suchas(1)generaldetailsoftheplan,includingcompany,technology,andtimeline,(2)expectedcapitaloutlaysandoperatingexpenditures,(3)expecteddeployment/coveragefootprint,(4)expectedbroadbandperformanceandquality,and(5)expectedARPUs.”

Tofindthedetailsofbroadbandplansforpubliclytradedcompanies,ourresearchersexaminedcompanies’investorrelationswebsites,includingtheirAnnualReportsfrom2004‐2010,lookedatquarterlyreportsandearningscalltranscriptsforthefirsttwoquartersof2010,searchedforinvestmentanalysts’reportsusingtheThomsonOnedatabase,andfinally,usedgeneralwebsearchestoobtainadditionalinformation.

Obtaininginformationaboutprivatelyheldcompanieswasmoredifficult.Sincemanyofthenon‐publiccompaniesaresmallcable,telephoneandwirelessInternetserviceprovider(WISP)companiesthattendtoservethemoreruralpartsofthecountry,informationwasscarcestforthe“unserved”and“underserved”populations.Toobtaininformationaboutprivatecompaniesordivisionsofpubliccompanies,ourresearchersreviewedcompanywebsites,contactedrelevanttradeassociations,andperformedgeneralwebsearches.Aggregatedinformationaboutsmallercompanieswasobtainedfromreportsandsurveysbycable,wireless,andtelephonecompanytradeassociations.

Oncethepreliminaryinformationwascompiled,company‐specificinformationwassenttothesubjectcompanyaskingforverificationoftheinformationgatheredtothatpoint.Responseswerereceivedfromsomecompaniesandadjustmentsweremadebasedonacompany’ssuggestionafterconfirmingtheaccuracyoftheadditionalinformation.

Thecompletedatabaseisavailableonline.40TheAppendixtothisSecondReportcontainscompany‐by‐companyinformationextractedfromtheonlinedatabasefor33companies(therewere29companyprofilesintheFirstReport)withpubliclyannouncedbroadbandplans.Theinformationwassortedbycompanyandbytechnology,wherepossible.Asalways,wewelcomefurtherupdatesandadditionalinformationfromanycompanyinvolvedintheprovisionofbroadbandservicesandwillupdatethedatabaseaccordingly.41

40Seehttp://www4.gsb.columbia.edu/citi/research/current41Updatedandadditionalinformationshouldbesentto:CITI‐broadband@gsb.columbia.edu.

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ThedetailsofthedatabasecanbeseenintheAppendix,whichlistsinformation,includingdetailsofcurrentbroadbanddeployments,forthefollowing:

Company Page Company PageAT&T A‐2 MediaCom A‐23CableOne A‐6 MetroPCS A‐24Cablevision A‐7 OpenRange A‐25CenturyLink A‐8 Qwest A‐26Charter A‐9 RCN A‐27CincinnatiBell A‐10 SprintNextel A‐28Clearwire A‐11 T‐Mobile A‐31Comcast A‐13 TimeWarnerCable A‐32Cox A‐14 Verizon A‐33EchoStarCorp A‐15 ViaSat A‐37Fairpoint A‐16 WildBlue A‐38Frontier A‐17 Windstream A‐39Gilat A‐18 WISPIndustry A‐40Hughes A‐19 OPATSCO A‐41Insight A‐20 AmericanCableAssoc. A‐42Knology A‐21 NTCA A‐43LeapWireless A‐22

Toreiterate,theFCCaskedustofocusourresearchontheinformationprovidedbythebroadbandserviceproviders.ThefollowingnarrativebroadlysummarizestheinformationinthedatabasewithrespecttosixcategoriesspecifiedbytheFCC:

1)Technology,

2)TimelineforDeployment,ExpectedDeployments,

3)CoverageFootprintandPenetration,

4)ExpectedCapitalOutlays/Operatingexpenditures,

5)ExpectedBroadbandPerformanceandQuality,

6)ExpectedARPUs.

What’sNew:

ToupdatetheFirstReport,CITIresearchassistantsfollowedthesamemethodology(describedabove)usedtopreparetheoriginalReportaddingupdatesformergedcompaniesand,forthe

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firsttime,includingplansfortowercompaniessincesuchcompaniesclearlyprovideacrucialpartofthewirelessinfrastructure.

Detailsdescribingthe2009‐2010changesarenotedineachsubsectionofthisreport.Insummary:

• SincethereleaseoftheoriginalReportinNovember2009,therehasbeenevolutionarygrowthinthenewerbroadbandtechnologies,includingFTTH,DOCSIS3.0,and4Gwirelessservices.Boththetelcosandcablecompanieshavebeengainingsubscriberswiththeirhigherspeedofferingsandwirelessbroadbandisgrowingbrisklywiththeintroductionof4Gwirelessclearlyonthehorizon.Bycontrast,thenumberofsubscribersutilizingthemorematureandsomewhatobsolescentDSLtechnologyhasbeendeclining.

• In2010,cableandwirelessbroadbandprovidersincreasedtheircapexspending,whilewirelinetelcobroadbandprovidersdecreasedtheircapexspending.Thenetresultisthattotalbroadbandcapitalexpenditureshavebeendecreasingandthedownwardtrendisexpectedtocontinue.

• Averagerevenueperuser(ARPU)forbroadbandservicesisincreasinglydifficulttocalculatesincemanybroadbandservicesarepurchasedaspartofadiscountedbundleofvoice,video,andevenwirelessservice.ForthebroadbandARPUsthatareavailable,thetrendhasbeenslightlyupward,astheresultofpriceincreasesofabout2%annually.

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1.1BroadbandByTechnology

TheAppendixcanbesortedtoshowthewireline,cable,wireless,andsatellitebroadbandprovidersaswellaswirelesstowercompanies.ThefollowingsectionbrieflysummarizestheinformationcontainedintheAppendixandtheonlinedatabaseintermsofthesesub‐categories.

WiredBroadband

Asthisdiagramshows,thereareanumberofdifferentwaystoprovidebroadbandservicesover“wired”facilities:

Figure 1: Types of Broadband Services

Source:ForresterResearch,TheShiftfromBroadbandtoWideband,updatedJune12,200942

42D.Williams,“TheShiftFromBroadbandToWideband,”ForresterResearchInc,2009,http://www.forrester.com/Research/Document/0,7211,53419,00.html.

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Wireline–Fiber

Mosttelephonecompaniesutilizefiberopticsforasignificantportionoftheirdistributionnetworks.Mostusefibertothenodeorneighborhood(FTTN)43andafewutilizefibertothehome(FTTH).44

Itishasbeenestimatedthat,asofMarch30,2011,therewere20.9millionhomespassedbyFTTHtechnologyinNorthAmerica,97%ofwhichareintheUnitedStates,comparedto18.25millionatthesamedatein2010(a14.6percentincrease).Withinthis20.9million,thereare7.1million“homesconnected,”orreceivingserviceoveraFTTHconnection.

ThenextgraphillustratesthedistributionoftheseFTTHconnectionsandtheyear‐to‐yeargrowth.WhilethemajorityofFTTHconnections(approximately5.2million)areprovidedbyRBOC’s(AT&T,Qwest,andVerizon),Verizonhasthelargestportionbyfarofthese“homesconnected”.Therearealso770otherserviceproviders(anincreaseof20comparedtotheprioryear)thatdeliveredFTTHservicetoapproximately1.9millionhomes45.

Figure 2: FTTH Connections in millions as of March 30, 2011

Source:RVAMarketResearchandConsulting,March31,2011.

43AlsoreferredtoasFibertotheNeighborhood.44AlsoreferredtoasFibertothePremises(FTTP).45RVAmarketresearchandconsulting,“NorthAmericanFTTHStatus‐March31,2011”.http://s.ftthcouncil.org/files/rva_ftth_status_april_2011_final_final_0.pdf

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Whilethemajorityofnon‐RBOCFTTHserviceisprovidedbyotherlocalexchangetelephonecompanies(ILECs),FTTHisalsoprovidedbyfacilities‐basedCLECs,realestatedevelopers,andmunicipalities.Astheresearchfirmnoted,

“VerizonandTier3ILECs(generallysmall,singleindependentlocalexchangecarriers)haveactuallypenetratedarelativelyhighpercentoftheircustomerbase.Theseproviders–whowemaycallaggressiveILECs‐coverroughlyonethirdoftheUSpopulation”46

Perhapsmostsurprisingisthecommitmentofsomesmall,usuallyrural,telephonecompaniestofiberdeployment.Theresearchfirmexplainedthat

“Driversfortheruralindependenttelcos[todeployFTTH]includeagingcopperlinesinneedofreplacement,theopportunitytodelivervideogivenamorerobustplatform,andapioneeringtradition.Insomecases,theseprovidershavealsobeenaidedbyloansandsubsidiessuchasruralbroadbandloanprogramsanduniversalservicefunds.”47

Inadditiontothe“Tier3”telephonecompanies,municipalities(particularlythoseinruralareas)havedeployedFTTHsystems,whichare“…usuallyundertakenafterprivateserviceprovidershavedeclinedtoupgradetheirnetworksorbuildsuchsystems.”48TheFirstReportreported57publicFTTHsystemsintheU.S.,mostlyinsmallruraltowns.Thereisno2010updateforthistotal.49DistributionoffibersubscribersamongRBOCsandnon‐RBOCprovidersaregiveninthefollowinggraph.

46RVAmarketresearchandconsulting,“NorthAmericanFTTHStatus‐March31,2011”.http://s.ftthcouncil.org/files/rva_ftth_status_april_2011_final_final_0.pdf47Ibid.48D.St.John,“MunicipalFibertotheHomeDeployments:NextGenerationBroadbandasaMunicipalUtility,”FTTHCouncil,2009,at1,http://www.baller.com/pdfs/MuniFiberNetsOct09.pdf.49Forthelistofthe57municipalities,seeibidat5.

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Figure 3: US FTTH Subscribers, Connections by Provider Type

Source:RVAMarketResearchandConsulting,“NorthAmericanFTTHStatus‐March31,2011.”

CurrentlyofferedandadvertisedspeedsvaryamongFTTH/FTTN‐DSLproviderswithVerizonleadingthewayat50Mbpsdownstream.WhileFTTHcurrentlyprovidesupstreamspeedsofupto20mbps,50fiberhastheabilitytoprovidemuchhigherspeeds.AnoverviewoftopRBOCspeedsandpredicted“marketedhouseholds”isgiveninthenextchart.

Table 1: Speeds for FTTN/FTTH Households

Source:AdaptedfromBofAMerrillLynchGlobalResearch,TelecomServices/CableMay24,2010

AT&T’sU‐VerseandVerizon’sFiOScurrentlycoverapproximately35%ofUShouseholdsandplantoreach40%attheendoftheirdeploymentschedule.

50SeeAppendixA:Verizon.

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

Source:BernsteinResearch,USTelecommunicationsandUSCable,October18,2010

Wireline–DSL

DSLutilizesthetraditionalcoppertelephonewirestodeliverabroadbandsignaltocustomers’homes.BecauseDSLbroadbandtransmissionratesareinverselyrelatedtothelengthofthecopperwires(amongotherfactors),formanyyearstelephonecompanieshavebeendeployingfiberopticstoanelectronicnodeinaneighborhoodandconnectingtorelativelyshortdistancecopperwiresatthatpoint.So,inmanycases,DSLserviceisprovidedbyahybridfibertotheneighborhood‐copperarchitecture(FTTN‐DSL).

ThespeedofDSLhasalsoincreased,particularlyoverrelativelyshortdistances,suchasfromaneighborhoodfibernode.51Forexample,VDSL2usedwithFTTNcansupportspeedsinthe20‐50Mbpsrange.52However,analystshavesuggestedthat,“(By2012)DSLwilllikelytrulybeakinto

51Lucent‐AlcatelandBellLabsrecentlyannounced“PhantomPair”technologythatmayboostDLSspeeds,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=en52LightReading,“Report:VeryHighSpeedDSL(VDSL2)coulddrivecopperhigherlongterm,”ResourceInvestor,2009,http://www.resourceinvestor.com/News/2009/7/Pages/Report‐Very‐High‐Speed‐DSL‐VDSL2‐could‐drive‐copper‐higher‐long‐term.aspx.

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currentdial‐upofferingswhencomparedtoDOCSIS3.0Speeds”.53Nevertheless,AT&TannouncedthatitplanstostretchthelimitoftheirFTTN‐DSLnetworkwithtrialsof80MbpsDSLservicebeginninginthesummerof2010.Thetrial,ifsuccessful,couldleadtoaretailofferingin2011.SuchanofferingwouldfarexceedAT&T'scurrenttopadvertisedspeedof24Mbps.ThenewtopspeedwouldstilltrailtopcableDOCSIS3.0speeds,however,ascableoperatorsareincreasinglytoutingtopspeedsof100+Mbps”54Whilemostlocalexchangetelephonecompanies,includingthesmallestandmostrural,offerDSLserviceintheirserviceareas,onlythelargerpubliclytradedcompanieshavemadewhatcanbecharacterizedas“announcements”abouttheirDSLplans.ThesecompaniesincludeAT&T,CenturyLink(CenturyTel/Embarq),CincinnatiBell,Qwest,Verizon,andWindstreamCommunications.BecauseDSLgenerallyofferslowerspeedsthanbroadbandservicesofferedbycompetingcablecompaniesor,inthecaseofVerizon’sFTTH“FiOS”service,asillustratedinthefollowinggraphthenumberofDSLsubscribersisdecliningascustomersswitchtothehigherspeedofferings:

Figure 5: DSL Subscribers

Source:InvestmentanalystdataprovidedtoCITI

OverallDSLbroadbandadditionshavebeennegativesincethesecondquarterof2009.Tocompensateandcompetewithcable,telephonecompanieshavebeensteadilyconvertingpureDSLservicestohybridFTTN‐DSLbypushingfiberclosertocustomers’premisesaswellasbydeployingadditionalFTTH.

53MerrillLynch,TelecomServices/CableTVReport,May24,201054Ibid

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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,DSLbroadbandcontinuestogrowinareasservedbythenon‐RBOCtelephonecompanies,whicharegenerallymoreruralinnature.ThisisbecausefiberdeploymentsarerelativelyexpensiveonaperhouseholdbasisinruralareasandsuchareasarelesssubjecttocompetitionfromcableDOCSIS3.0service.

Figure 7: Rural Telcos: DSL Penetration of Total Access Lines (1Q08 - 4Q09E)

Source:BankofAmericaMerrillLynch,3Q09Telecomresultspreviewandmodelbook‐Duck&Cover,Oct.14,2009at22.

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In2009,oneinvestmentanalystsuggestedthatbroadbandpenetrationasapercentageoftotalsubscriberswashigher(30.5%)forruraltelephonecompaniescomparedtotheRBOCs(27.7%forVerizon,AT&TandQwest55)becauseruralcarriersgenerallyfacelowercablepenetrationandalesscompetitiveenvironmentthanthemajortelephonecompanies.Theanalystalsopointedout,however,thattheruralcarriersmayhavelessgrowthpotentialthanthemoreurbancarriersbecauseoflowerpersonalcomputerpenetrationinruralhomes.

ThesmallesttelephonecompaniesrepresentedbytheNationalTelephoneCooperativeAssociation(NTCA)alsohaveahighpenetrationofbroadbandlinesintheirruralareas.LastyearNCTAreportedthat:

“...oursurveyresultsshowedthatrespondentswereofferingbroadbandserviceinexcessof768kbpsto83%oftheircustomers.Applyingthatnumbertoourestimateof3.5millionaccesslinesgive2.9millionbroadbandlinesservedbyNTCAmembercompanies.”56

NTCAhasnotprovidedupdatednumbersforaccesslinesorbroadbandlinesfor2010.

Wireline‐Cable:Cabletelevisioncompanieshavebeensignificantprovidersofbroadbandinternetaccessservicesformanyyearsandcurrentlyprovideinternetaccesstoanestimated39%ofhouseholds(versus31%fortelcobroadband).57Cablepenetrationnumbershaveincreasedbytwopercentfrom2009to2010.

Cablebroadbandgenerallyusesahybridfiber‐coaxarchitecture:fiberopticsbringscableservicestoaneighborhoodnodeatwhichpointconnectionsaremadetocoaxialcablesthatservethecustomers’premises.Incontrasttotelephonecompanies’FTTHandFTTN,clustersofhybridfiber‐coaxuserssharethecapacityofeachnodesoactualspeedsvarydependingonthesimultaneoususebyothersservedbythesamenode.58Mostcablebroadbandsystemsarecurrentlycapableofprovidingdownloadspeedsofatleast10mbps.59

ThefivelargestcableMultipleSystemOperators(MSOs)accountforasubstantialnumberofhomespassedandcansupplybroadbandservicetonearlyallofthesehomes,asexpressedinthefollowinggraph:

55MorganStanleyResearch,“TelecomServices,”MorganStanley,2009,at42.56DataprovidedfromNTCAtoCITI,2009.NTCAalsonotedthat“themarginoferrorcouldpotentiallybefairlylarge.”57J.Armstrongetal.,“Americas:CommunicationsServices,”TheGoldmanSachsGroupInc,2009at15.;GoldmanSachsResearch,USServicesReview(1Q10),May2010at17.58D.Williams,“TheShiftfromBroadbandtoWideband,”ForresterResearchInc,2009,http://www.forrester.com/Research/Document/0,7211,53419,00.html.59Ibid.

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Figure 8: Homes Passed by Cable Companies

Source:CompanyAnnualReports,QuarterlyEarningsReports,AnalystReports

Thefollowingchartdescribesthepercentageofthehomespassedwhichactuallytookbroadbandservicesfromthetenlargestcablecompaniesin2009and2010:

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

Sources:Companies’2009annualreports,companies’firstandsecondquarter2010reports,analystreports(notallcompanieshavelistedupdatedinformation)

CablecompaniesarecurrentlyatvariousstagesintheprocessofupgradingfromDOCSIS2.0or1.1totheDOCSIS3.0protocolsthatprovidesubstantiallyhigherbroadbandspeedsbutDOCSIS3.0isnowwidelyavailable:

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Figure 10: Cable DOCSIS 3.0 Roll-out

Source:BofAMerrillLynchGlobalResearch,TelecomServices/CableMay24,2010

Havingdonethefiberbuild‐outstocustomers’neighborhoodsoverthepast10‐15yearstofacilitatethedistributionofdigitaltelevisionprograms,upgradingtotheDOCSIS3.0broadbandstandardisarelativelyquickandinexpensivetaskforcablecompaniescomparedtothetelcos'currentinfrastructuredeploymentsofFTTHorFTTN.Forexample,CharterhasindicatedthatthecostofupgradingitsnetworktoDOCSIS3.0(includingthecablemodemterminationsystemandroutinggearinitsnetworkbutnotnewcablemodemsatcustomerpremises)willbeabout$8to$10percustomer.”60Aninvestmentanalystestimatedin2009thatthecostofDOCSIS3.0upgradeis$15perhomepassed.61ThetotalamounttodeployDOCSIS3.0toahome,includingthemodematthecustomer’spremises,hasbeenestimatedatarangeof$70to$100.62

Thespeedsresultingfromthe3.0upgradeareasubstantialimprovementoverpreviousDOCSISplatforms.63DOCSIS3.0isadvertisedatspeedsashighas50megabitsdownstreamandeven100+megabitsinspecificmarkets.64Mostupstreamspeedsoncablesystemsareintherangeof768Kbpsto5mbps65Cablecompanies’DOCSIS3.0upstreamdeploymentschedulesarenotyetset,withU.S.commercialdeploymentsbeginningin2010.Forexample,Comcastistrialinga120mbpsDOCSIS3.0upstreamthatwillbesharedamongusers(soeachuserwilllikelyobtainsignificantlylowerspeeds),66CableLabs67hasstatedthatatsometimeinthefutureitwillnot

60D.Williams,“TheShiftFromBroadbandToWideband,”ForresterResearchInc,2009,http://www.forrester.com/Research/Document/0,7211,53419,00.html.61S.FlanneryandB.Swinburne,“U.S.Cable,Satellite,Telecom3Q09/’09/’10Outlook,”MorganStanleyResearch,2009,at22.62S.Higginbotham,“DOCSIS3.0:ComingSoontoaCablecoNearYou,”TheGigaOMNetwork,2009,http://gigaom.com/2009/04/30/docsis‐30‐coming‐soon‐to‐an‐isp‐near‐you/.63CableLab’sDOCSISPrimerdescribesthefeaturesofthevariousiterationsoftheDOCSIS.See,http://www.cablelabs.com/cablemodem/primer/64AccordingtoCableLabs,“Channelbondingprovidescableoperatorswithaflexiblewaytosignificantlyincreasespeedstocustomers,withcompliantdevicessupportinguptoatleast160Mbpsinthedownstreamand120Mbpsintheupstream.”http://www.cablelabs.com/cablemodem/primer/65Ibid.66D.Williams,“TheShiftFromBroadbandToWideband,”ForresterResearchInc,2009,http://www.forrester.com/Research/Document/0,7211,53419,00.html.

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certifycablemodemterminationsystems(CMTS)ascompliantwithDOCSIS3.0withoutupstreambonding.However,itiscertifyingdownstream‐onlysystemsatthistime.68

InadditiontothelargeMSOcablecompanies,manysmaller,usuallyrural,cablecompaniesaredeployingbroadband.TheAmericanCableAssociation(ACA),whichrepresentsover900small,independentcablecompanies,reportedthat803ofitsmembershavedeployed“someformofhigh‐speedinternetservice.”69TheACAdidnotreportontypesorspeedsofservicesornumbersofhomespassedorcustomerssubscribingtobroadband.A2009ACAsurveyfoundthatfouradditionalcompanieshadplanstodeployhigh‐speedInternetservicewithinayearand36companieshadnoplanstodeployhigh‐speedInternetservice.Duringatelephoneinterview,anexpertonthecableindustry’sbroadbandcoverageestimatedthatthesmallruraltelephonecompaniesarecapableofprovidingbroadbandserviceto75%ofthehomestheycollectivelypass.70

Wireless:Arangeofwirelessbroadbandtechnologiesiscurrentlyinusebythevariouscellulartelephonecompanies.Secondgeneration(2Gand2.5G)digitaltechnologywasthefirsttosupportInternetaccessandthatsecondgenerationisbeingrapidlysupplantedbythirdgeneration(3G)wirelessevenasdeploymentof4Ghasbegun.

Thenextchartindicatestheexpectedaveragedownstreamspeedsforthevarious3Gand4Gtechnologies.

Figure 11: Expected Downstream Speeds of 3G and 4G Wireless Broadband (Mbps)

Source:BofAMerrillLynchGlobalResearchestimates,companyfilingsandpresentations.Speedsarebasedoncompanycommentaryandmarketingmaterialandmaydifferfromuserexperiences,whichare

67CableTelevisionLaboratories,Inc.isanon‐profitresearchanddevelopmentconsortiumthatspecifiestheDOCSISstandards.68CableLabs,“CableLabs®AnnouncesTieredTestProgramforDOCSIS®3.0,”CableTelevisionLaboratoriesInc.,2009,http://www.cablelabs.com/news/newsletter/SPECS/AprilMay_2007/index.html.69DataprovidedbyAmericanCableAssociationtoCITI,2009.70InterviewwithSNLKagan,Oct,7,2009.

3G

4G

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impactedbynumberofusers,distancefromcellsite,andtopographyamongotherfactors.Theoreticalspeedsarehigher.AdaptedFrom:BankofAmericaMerrillLynch,4GFootrace–Carriersrefinedeploymentplans,Sept.30,2009at6.

Anumberoffourthgenerationwirelessbroadbandtechnologiesareinvariousstagesofdeployment,planningandtesting.MajorwirelesscompaniesthathavemadebroadbandannouncementsincludeAT&TWireless,Cablevision,CenturyLink(themergedCenturyTel/Embarq),CincinnatiBell,Clearwire,Comcast,CoxCommunications,FrontierCommunications,LightSquared,MetroPCS,Sprint,T‐MobileandVerizon.

Asexplainedinthesourcenoteforthegraphabove,wirelessbandwidthisshared,anduntilthenetworksaretestedundersubstantialloaditisnotclearwhetherspeedsabove5megabitscanbeobtainedconsistentlybymorethanafewsubscribersatthesametime.Asoneanalystobserved,“4Gwirelessnetworksofferamajorstep‐functioninwirelessbroadbandcapabilities–3Gtodaytypically0.5‐1.5mbps–WiMAXtoinitiallydeliver2‐4mbps–LTElikelytodeliver3‐6mbps”.71Othersaremoreoptimistic,suggestingthat4Gwirelesssystemswillprovidedownloadspeedsinthe4–12mbpsrange,aslongassystemsaren’toverloadedwithtoomanysubscribersusingbandwidth‐intensiveapplications.72

WiMAX4Giscurrentlybeingdeployed,includingbySprint,ClearwireandOpenRange.HundredsofsmallerWirelessInternetServiceProviders(WISPs)havedeployedwireless(mostlyWiMAX)Internetserviceinruralareasanditisexpectedthattheywillcontinuethedeployments.However,manyoftheseWISPcompaniesaresmallprivateventuresandtendtobesecretiveabouttheirdeploymentplans.73The350membersoftheWISPAssociation—farfromthetotalnumberofWISPs—providefixedbroadbandwirelessservicestoover2millionlocations.74

NotallWISPsaresmall,independent,localbusinesses.OpenRangeiseffectivelyanationalWISPfundedinpartbya$267millionBroadbandAccessLoanfromtheDepartmentofAgricultureand$100millionofprivateinvestment.ItplanstouseWiMAXtoinitiallyserve6millionpeople

71S.FlanneryandB.Swinburne,“U.S.Cable,Satellite,Telecom3Q09/’09/’10Outlook,”MorganStanleyResearch,2009at1772Verizonreportsarangeofdownloadspeedsfrom8‐12mbps,andClearwire’sWiMaxwillofferupto6mbps.See:K.Brown,“Verizon:LTEspeedwillbe8–12mbps,”OneTouchIntelligenceLLC,2009,http://www.onetrak.com/Uploads/scott/WIRELESSTRAK%20‐%20July%202009.pdf.Seealso,MorganStanley,TelecomServices,April19,2011,at7:“Verizonhasnotedthatitisseeing4G/LTEspeedsconsistentlyaround10Mbps…”73AnassociationofWISPshaspublishedamapanddirectorywhichindicateswheresomeWISPsarecurrentlyofferingservices.See:WISP,“WelcometoWISPDirectory,”wispdirectory.com,http://www.wispdirectory.com/index.php?option=com_mtree&task=viewlink&link_id=300&Itemid=53.74FilingofWISPAinFCCGNDocket09‐51,2009,at1‐2.

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in546communitiesin17states75andisofferingitsfirstserviceswitha$38.95permonthbroadbandservice.76

LongTermEvolutionor“LTE”isthe4GtechnologyadoptedbyVerizonandAT&T,whichtogetherserve56.3%ofthemarket.77Verizoniscurrentlyontargettocover200millionPOPsbytheendof2011andprovidefullnationalcoverageby201378andAT&TreportedthatitisontrackwithupdatingtheirnetworktoLTE.OthercompaniesincludingCoxandMetroPCSarealsoplanningtouseLTEtechnologyfortheir4Gservices.

HSPA+isa3Gupgradewiththepotentialtodeliver“4Glikespeeds.”T‐MobileismarketingHSPA+asa4Gnetworkandplanedtocover100majormetropolitanareas‐‐185millionpeople‐‐withHSPA+byyear‐end2010.79AT&ThasalsobegundeployingHSPA+asa“steppingstone”fortheirfullupgradetoLTEin2011.80Thetechnologyhasbeenusedtohelpmaketheconversionfromoriginal3Gnetworksto4Gnetworksasmootherprocess.

Satellite‐BroadbandservicestoresidencesandsmallbusinessesviacommunicationssatellitesareofferedbyEchoStar,Gilat,Hughes,LightSquared,ViaSat,andWildBlue.81ThemostattractiveattributeofsatellitebroadbandisthatitisavailableinalmostanylocationintheUnitedStatesthathaselectricalpowerandaline‐of‐sighttothesouthernskywheresatellitesare“parked”ingeostationaryorbitsovertheequator.However,thelatencycausedbythetimerequiredsendingasignaltothesatellitesandbackmeansthatsatellitesarelesssatisfactorythanterrestrialbroadbandservicesforlatency‐sensitiveapplicationssuchasvoicetelephony,interactivegaming,andonlinevideoapplications.

Satellitebroadbandisalsomoreexpensivethanterrestrialbroadbandservices:inadditiontopayingamonthlysubscriptionchargethatcanbetwicethecostoftypicalterrestrialservices,theusermustalsopurchaseasatellite“dish”atpricesthatrangefrom$149.95to$299.99.

75OpenRangeCommunications,“OpenRangeCommunicationsSecures$374MilliontoDeployWirelessBroadbandServicesto546RuralCommunities,”OpenRangeCommunications,2009,http://www.openrangecomm.com/pr/pr_022009.html.76OpenRangeCommunications,“PerfectPackage–HighSpeedInternet,DigitalPhone,andE‐Mail,”OpenRangeCommunications,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._Mobile_Subscriber_Market_Share>78DeutscheBank,CTIAWireless2011:Day1MeetingsSummary,March23,2011at2.79Fiecewirless,June15,2020“T‐mobileexpandsHSPA+to25markets,willcallit‘4G’”<http://www.fiercewireless.com/story/t‐mobile‐expands‐hspa‐25‐markets‐will‐call‐it‐4g/2010‐06‐15>80Ibid.81WildBluehasbeenacquiredbyViaSat.

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Anewgenerationoftwo‐wayHighThroughput(HT)satellitesisbeingbuiltforlaunchbeginninginearly2012.Thesenewspotbeamsatelliteswillhave100gbpsofcapacity,whichis18‐25timesthecapacityofsatellitesthatwerelaunchedafewyearsago.82

Backbone:Anessentialcomponentofbroadbandservices,whetherwiredorwireless,aretheso‐calledbackbonenetworksthatareeffectivelythecore“superhighways”oftheInternet.Backbonesaretypicallymultipleopticalfibersbundledintocableswiththecapacityofeachfibermeasuredbyopticalcarrieror“OC”.AnOC‐3lineiscapableoftransmitting155mbpswhileanOC‐48cantransmit2.48gbps.StateofthearttechnologytodayisOC‐768or40gbpsperfiberwith100gpbsonthevergeofgeneraldeployment.

MajorbackbonecapacityprovidersintheU.S.includeAT&T,Cogent,GlobalCrossing,Level3,Sprint,andVerizon.83XOHoldings,ZayoGroup,andTWtelecomshouldalsobeconsideredaslargecontributorsofbackbonecapacity.

CiscoSystems84andTeleGeography85estimatethattheU.S.Internetbackbonewillgrowatabout40%peryear.TheUniversityofMinnesota’sMINTSestimatesahighergrowthrateof50%‐60%.86Inadditiontogrowingvolumesfromwirelinebroadbandcustomers,wirelesstrafficisalsogrowingrapidlyandisexpectedtodramaticallyincreasewhen4Gnetworksaredeployed.

Asthefollowingchartillustrates,backboneconnectionswithhugecapacitiesareneededbetweenmajorcitieswherethepopulationdensityishighandbusinessactivityisstrong.

82F.Valle,“SatelliteBroadbandRevolution:HowTheLatestKa‐BandSystemsWillChangeTheRulesOfTheIndustry.AnInterpretationoftheTechnologicalTrajectory,”SpringerScience+BusinessMedia,2009,http://www.springerlink.com/content/x0x51281h3520202/fulltext.pdf.

83TeleGeographyResearch,“GlobalInternetGeographyUnitedStates,“PriMetricaInc.,2009,http://www.telegeography.com/ee/dm/gig2010/42148.php.84CiscoSystems,“CiscoVisualNetworkingIndex:ForecastandMethodology2008‐2013,”CiscoSystemsInc,2009,http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11‐481360_ns827_Networking_Solutions_White_Paper.html.85TeleGeographyResearch,“GlobalInternetGeographyUnitedStates,“PriMetricaInc.,2009,http://www.telegeography.com/ee/dm/gig2010/42148.php.86AndrewOdlyzko,“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.grewatacompoundannualgrowthrate(CAGR)of38%duringtheperiodfrom2002to2009,withsomeroutesgrowingasmuchas90%.87Thereisnoreasontodoubtthatgrowthwillcontinueand,withtheincreaseofvideoandotherbandwidth‐intensiveapplications,thegrowthrateofcapacityusedcouldincrease.Dataconcerningthehighestcapacitybackboneroutesindicatesthatthesecriticalrouteshavesufficientcapacityatpresent:thefollowingtableindicatesthataveragetrafficandpeaktrafficvolumesonmajorroutesarebelowtheamountofavailablebandwidth:

Table 2: 20 Highest Capacity U.S. Domestic Internet Routes. 2007–2009 (Gbps) 2007 2008 2009

Band‐width

AverageTraffic

PeakTraffic

Band‐width

AverageTraffic

PeakTraffic

Band‐width

AverageTraffic

PeakTraffic

5,650 1,525 2,182 8,608 2,227 3,308 11,767 3,039 4,393Source:TeleGeographyResearch,2009

Asillustratedbelow,intheaggregate,peaktraffic(in2009)was37%oftotalavailablebandwidthonthe20highestcapacityU.S.routes,implyingsufficientgrowthcapacityinthenearterm.

87TeleGeographyResearch,“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. 2007–2009 (Gbps)

Adaptedfrom:TeleGeographyResearch,2009

Furthermore,from2007‐2009,accordingtotheresearchfirm,availablebackbonebandwidthgrewataCAGRof44%,slightlyexceedingthegrowthrateoftraffic(41%)andpeaktraffic(42%).Assummarizedbelow,areviewoftheupgradeanddeploymentplansofvariousbackboneoperatorsindicatesthatadditionalbackbonecapacitywillbebroughton‐lineduringthenextfewyears.

AT&TfinishedabackbonenetworkupgradetoOC‐768in2008.Thatimpliesatransmissionspeedof40gbpsin80,000milesofitsnetworkinfrastructure.Thecompanyistestingdatatransmissionsatratesof100gbps,whichwillbethenextstageofnetworkupgrade.88

GlobalCrossingoperatesapproximately18,000milesoffiberopticInternetbackboneinNorthAmerica(includingCanada).Itprovidestransferspeedsbetween2.5and10gbps.89Thecompanysaysthatitplanstoinvestmostofitscapitalexpenditureintotheextensionand

88AT&TMediaRelations,“AT&TCompletesNext‐GenerationIP/MPLSBackboneNetwork,World'sLargestDeploymentof40‐GigabitConnectivity‐CompanyResearchersContinuetoDriveFutureNetworkEvolutionwithRecord‐Setting17Terabit‐Per‐SecondCapacityTest,“AT&TInc.,2008,http://www.att.com/gen/press‐room?pid=4800&cdvn=news&newsarticleid=26230.89GlobalCrossing,“AnnualReport2008,”GlobalCrossing,2009,http://files.shareholder.com/downloads/GLBC/735860427x0x286672/6EDF05BF‐0783‐4433‐B21C‐5D97DFDD1F85/GLBC_2008_AR.pdfat21.

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upgradeofitsexistingnetwork.90Thecapitalexpendituresin2008weremainlydrivenbyacquisitionsofothercompanies($192million).91

Level3invested$155millionintonetworkupgradesinthefirsthalfof2009.92Thecompanyplanstofocusitscapitalexpenditureonnewequipmentinthefuture.RecentupgradesanddeploymentsweremadeinNewYork,Seattle,andTennessee.93Thecompanyoperates27,000routemilesofcablewithitsnewestdeploymentsoperatingat40gbps.94

QwestisoneofthelargestbackboneoperatorsaswellasoneofthelargestregionaltelephonecompaniesprovidingtelephoneserviceinmuchoftheWestotherthanCalifornia.ItsbackbonereachesacrosstheU.S.andisavailableinalmosteverystate.Currentlyitsbackboneoperatesattransmissionratesof40gbpsbutthespeedwillbeupgradedto100gbpsduring2009and2010.95

Verizoncurrentlyoperatesitsbackboneat40gbpsandisplanningtoupgradeto100gbpsbeginningin2009.96

XOiscurrentlyoperatingabackbonenetworkof18,000milesoperatingat10gbps.97Itiscurrentlyundertakingmanyenhancementprojectsincludingadeploymentof1.6terabits‐capablesystemsonselectedinter‐cityroutes.98Recentinvestmentinnetworkupgradesandnewdeploymentstotaled$450million.99

Fromthebackbonedevelopmentsdescribedabove,itwouldbereasonabletoconcludethattheinternetbackboneintheU.S.isexpandingatapacethatshouldkeepupwithexpecteddemandoverthenextfewyears,providedthatthereisnohugeandunexpectedincreaseinusage

90GlobalCrossing,“AnnualReport2008,”GlobalCrossing,2009,http://files.shareholder.com/downloads/GLBC/735860427x0x286672/6EDF05BF‐0783‐4433‐B21C‐5D97DFDD1F85/GLBC_2008_AR.pdfat.24.91Ibid.92Level3CommunicationsPublicRelations,“QuarterlyReport,”Level3CommunicationsLLC.,2009,http://files.shareholder.com/downloads/LVLT/740502237x0xS1104659‐09‐48275/794323/filing.pdfat26.93Level3CommunicationsPublicRelations,“Level3ExpandsOperationsinUpstateNewYork,”Level3CommunicationsLLC.,2009,http://www.level3.com/index.cfm?pageID=491&PR=772.94Level3CommunicationsPublicRelations,“OurNetwork,”Level3CommunicationsLLC.,2009,http://www.level3.com/index.cfm?pageID=242.95C.A.Tyler,“QwestPositionsitsNationalNetworkforFastest‐AvailableEthernetTechnology,”QwestCommunicationsInternationalInc.,2009,http://news.qwest.com/QwestNetworkEnhancements.96VerizonInvestorRelations,“GlobalNetwork,”VerizonCommunicationsInc.,2009,http://www.verizonbusiness.com/about/network.97XOCommunications,“NetworkDetails,”XOCommunications,2009http://www.xo.com/about/network/Pages/details.aspx.98XOCommunications,“AnnualReport(2008),”XOCommunications,2009,http://www.xo.com/SiteCollectionDocuments/about‐xo/investor‐relations/Annual_Reports/XO_2008_10K.pdfat3.99XOCommunications,“AboutXOOverview,”XOCommunications,2009http://www.xo.com/about/Pages/overview.aspx.

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patterns.With78%ofbackbonetrafficconsistingofpeer‐to‐peerconnectionsandvideostreaming,100increasingvideotrafficshouldnotbeanunanticipateddevelopment.

Wirelesstrafficisalsolikelytoplaceincreaseddemandonthebackbones.Forexample,AT&Thasreportedexplosivegrowth(nearly5,000%inthepast3years)initswirelessdatatraffic,presumablyduetotheiPhone,101andwirelesscarriershaveaskedforbidstoprovidefiberopticconnectionsto7,500of17,000cellsitesinQwest’soperatingarea.102Ontheotherhand,wirelesstrafficwillbeatleastpartlyasubstituteforwiredtrafficratherthanbeingcompletelyadditive.

Asupgradingbackbonefacilitiesrequires6‐18months,103thebackboneprovidersshouldbeabletoreactreasonablyquicklytoaccommodateunexpecteddemand.

Towers:Adiscussionof“towers”wasnotincludedintheoriginalFirstReportbut,becausetowersareanessentialpartofthetelecommunicationsinfrastructure,thatoversightisbeingcorrectedinthisSecondReport.

TowercompaniesprovideessentialelementsofinfrastructureneededtodeliverwirelessbroadbandsignalsthroughouttheUnitedStates:towersanddistributedantennasystems(DAS).Towersarethelargestructures(includingroof‐tops)uponwhichwirelessserviceprovidersinstalltheirtransmitter/receiverequipment.DASarecollectionsofsmallantennasspreadoveralimitedgeographicareaandareconnected,usuallybyfiber,toacentrallocation,usuallyabasestation”104

Accordingtoananalyst,“[DAS]isusedtofillingapswherethebigcellsmaynotreach,butgoingforwarditwillprobablyreplacealotofbigcellsinalotofsituationswheretheyneedhighcapacity.”105Therefore,althoughdistributedantennasystemshaveusuallybeenusedtosolvespecificcoverageproblems,DASarebecomingmorecentralto4Gnetworkdeploymentplans.

TowercompaniessuchasAmericanTower,CrownCastleInternational,andSBACommunicationCo.haveestablishedbothtowerandDASinfrastructurelinesofbusiness.However,thereare

100SeethefirstchartinthisSection3.Seealso,G.Kim,“WirelessisKeyforBroadbandAccessDemandandSupply,”TechnologyMarketingCorporation,2009,http://4g‐wirelessevolution.tmcnet.com/wimax/topics/wimax/articles/55281‐wireless‐key‐broadband‐access‐demand‐supply.htm.101MorganStanleyResearch,“Economy+InternetTrends,”MorganStanley,2009,http://www.morganstanley.com/institutional/techresearch/pdfs/MS_Economy_Internet_Trends_102009_FINAL.pdfat57.102S.Carew,“Rpt‐Update2‐Interview:Qwest2010capexflat,fiberasbiggerpa,”Reuters,2009,http://www.reuters.com/article/technology‐media‐telco‐SP/idUSN2046085120091021?pageNumber=2&virtualBrandChannel=11604.103K.Papagiannaki,N.Taftetal.,“Long‐TermForecastingofInternetBackboneTraffic,”IEEETransactionsonneuralnetworks,2005,http://ieeexplore.ieee.org/stamp/stamp.jsp?arnumber=01510713.104“Distributedantennasystems:Fromnichetonecessity”March4th2010,FierceWirelesshttp://www.fiercewireless.com/story/distributed‐antenna‐systems‐niche‐necessity/2010‐03‐04#ixzz0vm5VUXSL105IbidAllenNogee,analystatIn‐Stat

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alsocompanieswhoconstructonlyDASsystemssuchasExteNetSystemsInc.,NextGNetworksandNewPathNetworks.106

1.2TimelineforBroadbandPlans

Forcompetitivereasonsandtoavoidcomplicationswithsecuritieslawsdealingwithdisclosuresofmaterialinformation,mostbroadbandservicecompaniesarereticentaboutreleasingdetailsofthetimingoftheirfuturebroadbanddeploymentplans.Whereinvestmentanalystshavemadeforecastsforthemajorcompanies’deploymentplans(sincethisisamatterofgreatinteresttoinvestors),thecompaniesthemselveshavenotverifiedtheanalysts’forecasts.Totheextentcompaniesdomakeannouncements,theplanstypicallydonotextendpast2012,andmostlyonlycoverthenextyear.

Knowndetailsofpublicplans,timelines,andexpectedcoveragearesummarizedinthefollowingdiscussionon“ExpectedDeployment,”whichhasbeenupdatedfor2010inSection2ofthisReport.TheAppendixandthediscussionofanalystprojectionsinSection3ofthisReportalsoprovideinsightsintodeploymenttimelines.

1.3PenetrationandCoverageFootprint

Investmentanalystsandotherresearchfirmsestimatecurrent(year‐end2010)wirelinebroadbandpenetrationatapproximately70%ofallU.S.households,with31%bytelephonecompaniesand39%bycablecompanies.107Asthefollowingchartillustrates,anestimated19%ofU.S.householdsdonotaccesstheInternetatalland12%accesstheInternetwithdial‐uptelephoneservice.(ItisworthnotingthatsomeofthehouseholdsthatarenotaccessingtheInternetdonothavetheessentialprerequisiteforusingtheInternet:apersonalcomputer.Accordingtoanalysts,“PenetrationofconsumerInternetaccessintotal(includingdial‐up)isestimatedat~87%ofPCHouseholds”108).

106Ford,Tracy,“DASNetworksgaintractionamongcarriers,”RCRWirelessNews,October2009,http://www.rcrwireless.com/ARTICLE/20091028/WIRELESS_NETWORKS/910289999/das‐networks‐gain‐traction‐among‐carriers107LeichtmanResearchGroup,“Under650,000addbroadbandinthesecondquarterof2009,”LeichtmanResearchGroupInc,2009,at2,http://www.leichtmanresearch.com/press/081709release.pdf.Leichtmanestimates69,902,289totalbroadbandsubscribersatendof2Q2009,whichisroughly60%ofU.S.households.

108BofAMerrillLynchGlobalResearch,TelecomServices/Cable,May24,2010

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Figure 14: Internet Penetration Forecast

Source:GoldmanSachs,“1Q2010USCommunicationServiceReview,”May2010

SincetheFirstReport,wirelinebroadbandpenetrationofallhouseholdshasincreasedby4%.Thenumberofnon‐internethouseholds,however,hasonlydecreasedby1%.ThisimpliesmoreofashiftofInternetusersfromdial‐uptobroadbandhigh‐speedInternetaccessthanhouseholdsaccessingInternetserviceforthefirsttime.

Asoneanalystobserved,“Internetpenetrationisnowenteringthelaterstagesofadoption,wherethegrowthcurveflattensoutastheincremental‘hold‐out’subscriberishardertoadd.”109SomeanalystsexpectoverallpenetrationofUSInternethouseholdswillincreasebyabout1%peryear,assupportedbythepreviousgraph,drivenlargelybygainsinthepenetrationofpersonalcomputers.110Thematurationofthebroadbandmarket,asevidencedbytheslowingannualgrowthintotalInternethouseholds,canbeobservedasfarbackas2004:

109BofAMerrillLynchGlobalResearch,TelecomServices/Cable,May24,2010110MorganStanleyResearch,“Cable/Satellite:AfterYearsofDeflation,BroadbandPricingSettoRise”October20,2009.

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Figure 15: Growth in Online Households

Source:MorganStanleyResearch,IndustryViewCable/Satellite,October20,2009

Whilethenumberofcableandfibersubscriptionsisgrowing,overallsubscribergrowthisrapidlydeclining,asshownbelow.

Figure 16: Broadband Subscribers and Growth

Source:BernsteinResearch,USTelecommunicationsandUSCable,October18,2010Thedial‐upmarketisquicklydissipatingasseeninthefollowinggraph.

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Figure 17: Households with Dial-Up Service

Source:MorganStanleyResearch,IndustryViewCable/Satellite,October20,2009

1.4CapitalExpenditures

OverallCapex

In2009,thetelecommunicationsserviceproviders,includingtelephone,wirelessandcablecompaniesinvestedabout$56.2billion,downabout$6billionfromtheprioryear.111Thefollowingtableillustratesthebreakdownofthistotalamongsixindustrysectors:

Table 3: Aggregate CapEx 2009 - $56.2 B $Billion Percent

RBOCWireline 21.7 38.6%

OtherTelcoWireline 1.1 2%

CableMSOs 11.9 21%

CLECs 1.1 2%

TowerCompanies 0.65 1.2%

Wireless 19.8 31.6%

Total 56.2 100%Source:AverageofanalystdataprovidedtoCITI,withadjustmentsasdescribedintheaccompanyingtext.Telco:AT&T(excludingwireless),Verizon(excludingwireless),Qwest;Cable:Comcast,TimeWarner,Cox,Cablevision,Charter,Mediacom,andInsight;Wireless:AT&T,Verizon,Sprint,T‐Mobile.

Sincelastyear,cableandwireless(includingtelcowireless)companieshaveincreasedcapex,whiletraditionaltelephoneoperations(bothRBOCandothertelco)havedecreasedcapex.In2010,totalcompanycapitalexpendituresforthemajortelcos,majorcablecompanies,andmajorwirelesscompanies,ofwhichbroadbandcapitalisonlyapart,areasfollows:

111See“Capex2006‐2015”.Source:DatareportedbycompaniesandanalystestimatesprovidedtoCITI.

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

Source:SeeTable15:TotalCapexandBroadbandCapexbySector

(Sincethesefiguresareforthemajorpubliccompaniescoveredbyinvestmentanalysts,theyneedtobeincreasedby6‐18%,dependingonthesector,toaccountforthesmallercompaniesnotincludedintheanalysts’coverage.SeeSection3ofthisreport.)

Telco:In2009,telcocompaniescoveredbyanalystshadtotalcapitalexpendituresofabout$22billion.In2010,thewirelinecapitalexpendituresareforecasttobeabout$21billion,areductionofabout$1.2billion.

Cable:Coveredcablecompanieshadtotalcapitalexpendituresof$11.9billionin2009.Thefigureisforecasttodecreaseslightlytoabout$11.5billionfor2010.112

Wireless:Wirelesscompaniesspent$19.7billionin2009andareforecasttospend$23.3billionin2010.Thesetotalsdonotincludespectrumlicensefees.AT&TandVerizonaloneareexpectedtospend$16.4billionin2010.Clearwirespent$2.7onits4Gnetworkin2010.113

Figure 18: AT&T and Verizon Wireless Capex, 2009-2010

Source:MorganStanleyResearch,November11,2010at12.

112See“ReviewofPubliclyAnnouncedBroadbandPlans”Section2;seealso“Appendix1:ListingofAllPubliclyAnnouncedBroadbandPlans”113WirelessWeek,“ClearwireDefiesSkeptics,PlansHeftyCapexin2009”http://www.wirelessweek.com/News/2009/03/Clearwire‐Defies‐Skeptics,‐Plans‐Hefty‐CapEx‐in‐2009/

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

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Inthe3rdQuarter,aswiththerestof2010,wirelesscapexspending,whichalmostentirelydrivenby”broadband”,hasclearlyoutstrippedspendingonothertypesofbroadbandservices.In2010,wirelessspendingincreased23%,whilewirelinedecreased10%.114

Figure19:BroadbandCapexbytype,3QandYTD2010

Source:MorganStanleyResearch,November11,2010at12.

From2008tothethirdquarterof2010,cablecapexasapercentageofsalesdecreased.Asoneanalystnoted,“Thedecade‐longdigitizationofthephysicalplantisfinallycomingtoaclose.Andthegeneration‐longsettopboxduopolyisstartingtoshowsomecracks.”115Figure 20: Capex as a Percentage of Sales 2008-2010

Source:BernsteinResearch,November11,2010at3.

114MorganStanleyResearch,“TelecomServices:3Q10Takeaways–MetricsShowImprovement;WirelessCapexClimbs,”November2010.115BernsteinResearch,“QuickTake‐U.S.Cable:Cisco'sPainIsCable'sGain...theReadAcrossforCableCapex,”Bernstein,November2010.

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BroadbandCapex

Howmuchofthistotalcapitalinvestmentgoestowardsbroadband?Sincemuchofthecapexisforgeneral‐purposedigitalnetworksthatcancarryvoice,dataandvideo,theanswerislargelybasedonallocatingthecapitalamongavarietyofservices.One2009estimatewasthat:

“Approximatelytwo‐thirdsofAT&T's2009investmentwillextendandenhancethecompany'swirelessandwiredbroadbandnetworkstoprovidemorecoverage,speedandcapacity.”116

Itisclearthatthemajortelephonecompanieshaveshiftedwirelinecapitalfromtheir“legacy”telephonenetworkstowiredbroadband,withbroadbandcapexexpectedtoreachnearly60%oftotalwirelinecapexin2011.

Table 5: RBOC Wired Broadband Capex ($ billion) Network 2006 2007 2008 2009E 2010E 2011E

Legacy 16.3 15.2 13.0 10.5 10.5 10.0

Broadband 7.2 10.7 11.9 11.5 12.5 14.0

Total 23.5 25.9 24.9 22.0 23.0 24.0

%broadband 30.6% 41.3% 47.8% 52.3% 54.3% 58.3%

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

TheAppendixincludesinformationonbroadband‐relatedcapitalexpenditures,updatedfor2010.Thefollowingareexamplesbytechnology:

Fiber:AT&Texpects“fullyearcapitalinvestmentinthe$18billionto$19billionrange”for2010.Capitalexpendituresinthewirelinesegmentrepresented64.3%ofthecompany’scapitalexpenditures,asthecompanycompletesitsdelayeddeploymentofU‐Versefiberto30millionlivingunitsbytheendof2011.117AnalystdataprovidedtoCITIprojectedVerizon’swirelinecapitalspendingtobearound$7.5billion2010;thiswouldsupporttheexpansionofFiOSfiberto70%ofthecompany’swirelinefootprint.

116AT&T,“AT&TtoInvestMoreThan$17Billionin2009toDriveEconomicGrowth,”AT&TInc.,2009,http://www.att.com/gen/press‐room?pid=4800&cdvn=news&newsarticleid=26597.AT&T’sestimateoftwo‐thirdsisconsistentwiththeobservationofamarketresearchfirmthat“broadbandremainstheprimarycapexdriver”for2008‐09because,

“WirelineandwirelesscarriersalikearesteppinguptheirnetworkinvestmentstomakehighspeedInternetconnections,andassociatedtriple‐playbundles,availabletoagreaterportionoftheircustomers.”

Thefirmaddedthat,“…therehasbeenapronouncedshiftincapextowardsnew,broadbandplatforms,andawayfromnarrowbandsystems.”SkylineMarketingGroup,CapExReport–2008AnnualReportat1.117AT&T2009AnnualReport,Form10‐K

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Cable:Comcast’s2010totalcapitalexpenditureswerelowerin“bothabsolutedollarsandasapercentageofrevenue”comparedwith2009’s$5.1billionexpenditures.118TimeWarnerCable’stotalcapitalexpendituresfor2009were$3.2billion,supportingthecompany’sexpansionofDOCSIS3.0cable.119

Wireless:Verizonspent$8billionin2010toexpandandmaintainitswirelessnetwork.120Clearwire,initseffortstocover120millionPOPsbytheendof2010,expectstospendbetween$2.8billionand$3.2billion“intotalcash”.121Two‐thirdsofAT&T’saforementioned“$18to$19billion”ofcapitalspendingwillgotobroadbandandwireless,withanalystsestimatingatotalof7.7to8billioninwirelesscapexforthefullyear.122

Satellite:SatellitecommunicationcompaniessuchasViaSatInc.(ViaSat‐1)andHughesCommunications,Inc.(Jupiter)areplanningtolaunchnewsatellitesin2011(ViaSat‐1)and2012(Jupiter),respectively.Satelliteconstruction,launchandinsurancecancostupwardsof$400millionpersatellite.123

Tower:AmericanTowerexpectstospend$515to$605milliononcapitalexpendituresin2010.124SBACommunicationsexpectstoincurdiscretionarycashcapitalexpendituresof$190millionto$210million.125

1.5ExpectedBroadbandPerformance/Quality

Mostbroadbandserviceprovidersdescribetheirbroadbandperformanceintermsofupstreamanddownstreamspeed.Speedclaims,however,aredifficulttoverifyandcompanieshavedifferentnumbersintermsofadvertised,actual,throughput,andaveragespeeds.Generally,aconsumer’s“actualspeed”islikelytovary,particularlyoncableandwirelesssystemswherecapacityisshared,andinmostcasesissubstantiallylessthantheadvertised“upto”speed.Theadvertisedandtheoreticalspeedcapabilitiesofthevarioustechnologieshavebeenbroadlydescribedinthepreviousdiscussionofeachtechnology.CompletecompanyspeedinformationmaybefoundintheAppendix.

118ComcastQ22010EarningsCallTranscript,http://seekingalpha.com/article/217044‐comcast‐corporation‐q2‐2010‐earnings‐call‐transcript?source=thestreet119http://www.timewarnercable.com/MediaLibrary/1/1/about/pressrelease/twc_4Q09_earnings_announcement.pdf120GoldmanSachs.“TheQuarterinpictures,1Q2010USCommunicationServicesReview”121ClearwireQ12010EarningsCall,http://seekingalpha.com/article/203243‐clearwire‐q1‐2010‐earnings‐call‐transcript122BankofAmerica,“1Q10telecomandcablescorecards”123P.B.Selding,“ViaSattoBuyWildBluefor$568Million,”SpaceNews,2009,http://www.spacenews.com/archive/archive08/kabandside_0114.html.124AmericanTower,Form10‐Q,Q12010,http://phx.corporate‐ir.net/phoenix.zhtml?c=98586&p=irol‐SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOTMxMjUtMTAtMTExMDUyL3htbA%3d%3d125SBACommunicationsCorporationForm10‐Q,Q12010,http://www.sec.gov/Archives/edgar/data/1034054/000119312510112092/d10q.htm

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Overall,downstreambroadbandspeedsonaverageintheUSareat9.98Mbpswithupstreamspeedsatanaverageof2.18Mbps.126ThetopaveragebroadbandspeedsactuallyexperiencedintheresidentialU.S.arelistedasfollows:

AverageUSDownloadSpeeds:

Table 6: Average Download Speeds of ISPs (Top Ten) TopISP’s Average

SpeedtestsTotalIP

Addresses

1 Westnet 25.62Mbps 12,016

2 Psinet 22.52Mbps 13,214

3 IowaNetworkServices 16.76Mbps 33,206

4 ComcastCable 16.10Mbps 6,919,468

5 MidcontinentCommunications

14.99Mbps 48,636

6 CharterCommunications 14.86Mbps 1,748,148

7 InsightCommunicationsCompany

14.14Mbps 219,955

8 CoxCommunications 13.96Mbps 1,727,342

9 TimeWarnerRoadRunner 13.57Mbps 4,337,530

10 OptimumOnline 13.36Mbps 193,786

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

SpeedtestsTotalIP

Addresses

1 Westnet 19.73Mbps 12,016

2 Psinet 13.98Mbps 13,214

3 IowaNetworkServices 11.43Mbps 33,206

4 SurewestBroadband 8.65Mbps 25,555

5 AT&TServices 6.53Mbps 23,930

6 VerizonInternetServices 6.19Mbps 4,118,703

126NetIndex,July28,2010<http://www.netindex.com/upload/2,1/United‐States/>

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7 TWTelecomHoldings 5.98Mbps 14,749

8 ApogeeTelecom 4.39Mbps 13,831

9 CoxCommunications 3.57Mbps 1,727,342

10 CbeyondCommunications 3.55Mbps 32,213

Source:Adaptedfrom,Ookla.http://www.netindex.com/download/2,1/United‐States/

Cable:SpeedsbeingdeliveredbyDOCSIS3.0arecurrentlyreachingashighas100+Mbpsandeven200Mbpsbysomecompanies.127Speedsvary,however,throughoutthecablemarketwithsomeprovidersdeliveringtopspeedsaslowas20Mbpsandmanydeliveringaround50Mbps.Upstreamspeedsarestillsignificantlylowerwithmostpeakingaround10‐12Mbps.SeetheAppendixformoredetail.

Telco:FTTHandFTTN‐DSLprovidersaredeliveringspeedstokeepupwithcable’sDOCSIS3.0rollout.AT&TU‐verseisplanningtocoverits120U‐versemarketswith24Mbpsdownstreamand3Mbpsupstream,128whileVerizonifoffering50Mbpsdownstream/20MbpsupstreamwithFiOS.129Smallertelephonecompaniesofferawiderangeofspeeds,fromverylowtospeedsthatmatchorexceedthoseofthelargetelcosandcablecompanies.Forinstance,RuralTelephone/Nex‐Tech,inKansas,willuseacombinationoffiberandWiMAXtechnologyto23,000householdsthatiscapableofdelivering100Mbpsspeeds.130NITCO,asmallIndianaTelephonecompany,saidit"willbeworkingdiligentlytoutilizethelatestversionsofDSL,fiber,andWiMaxtechnologiestoachieveandexceedtheseuploadanddownloadspeedstandards."131

Satellite:Downloadspeedsaretypicallyfivetosixtimesfasterthansatelliteuploadspeedsandcurrentlyrangefrom512kbpsto1.5mbpsdownstreamand100kbps–300kbpsupstream.132Overcominglatencyandsignallossduetoprecipitationhavebeenmajorperformanceandqualityobstaclesforsatelliteproviders.Geostationarysatellitecommunicationsexperience

127Fiercewireless,“ComcastNearsNationalDOCSIS3.0Rollout”February22,2010.<http://www.fiercetelecom.com/story/comcast‐nears‐national‐docsis‐3‐0‐rollout/2010‐02‐22>128“AT&Textends24Mbpsbroadbandservicetoentirecustomerbase”‐FierceTelecom,March30,2010<http://www.fiercetelecom.com/story/t‐extends‐24‐mbps‐broadband‐service‐entire‐customer‐base/2010‐03‐30#ixzz0v53DVItJ>Subscribe:http://www.fiercetelecom.com/signup?sourceform=Viral‐Tynt‐FierceTelecom‐FierceTelecom129VerizonInvestorRelations,“2008AnnualReport,”VerizonCommunicationsInc.,2009,http://investor.verizon.com/financial/annual/2008/downloads/08_vz_ar.pdfat9.130RuralTelephone/Nex‐TechSelectsOccamNetworksasBroadbandAccessSupplierin$101MillionBroadbandStimulusProject‐FierceWirelesshttp://www.fiercewireless.com/press‐releases/rural‐telephone‐nex‐tech‐selects‐occam‐networks‐broadband‐access‐supplier‐101‐million#ixzz0v5FPALRW131NITCOtoAchieveFederalGovernment'sNationalBroadbandMandateWithin1Year,3YearsEarlierThanRequiredDeadline‐FierceTelecomMay26,2010.http://www.fiercetelecom.com/press_releases/nitco‐achieve‐federal‐governments‐national‐broadband‐mandate‐within‐1‐year‐3‐years‐ea#ixzz0v5QEpzkO

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latencyduetothelongdistancesthesignalmusttraveltogeostationaryorbitandbacktoearth.Thetotalsignaldelay,includinglatencyintheconnectingterrestrialnetworks,canbeasmuchas500‐900millisecondsormore,makingsomeapplicationsunusable(interactivegaming)ordifficult(two‐wayvoiceorvideoconferenceconversation).However,latencyistypicallynotnoticedbytheuserduringbasicInternetuse(webbrowsing,E‐mail).

1.6ARPU(AverageRevenueperUser)

TheAppendixnotesARPUacrossvariousproviders.Thosefiguresaresummarizedbymarketsegmentbelow.Asrepresentativesfrommajorwirelessprovidershavestated,ARPUisbecominganincreasinglyinaccuratemetricfortheirbusiness.133Thegrowingpoolofuserswhoownmultipleconnecteddevicesisnotrepresentedinametrictraditionallyusedforvoiceservice,andcompaniessuchasVerizonhavestoppedprovidingARPUforsomesegments.134AnalystshaveproposedRHP(RevenueperHomesPassed)forcableandLifetimeRevenueperNetAddasmoreeffectivemetrics,andweprovideARPUhereprimarilytoillustratetheinformationmostmajorcompaniescurrentlyreport.135

Telco:NeitherAT&T’sU‐VersenorVerizon’sFiOSfiberserviceshasreportedARPUbeyondtheoverallfiguresprovidedbythecompanies.

Cable:ForbroadbandserviceovercablenetworkstheaverageARPUisapproximately$42.5.Thereisverylittlevariationinthisfigureamongcablecompanies,withTimeWarnerCable,ComcastandCharterallreleasingsimilarfigures.CableARPUhastrendedupwardsoverthepasttwoyears,asseenbelow.

133http://www.lightreading.com/blog.asp?blog_sectionid=958&doc_id=193340134http://www.martinsuter.net/blog/2010/03/of‐churn‐arpu‐and‐the‐value‐of‐a‐net‐add.html;Seealso,Appendix135Moffet,Craig,etal.,BernsteinResearch,Feb16,2010,“TheLongView:BeyondVideo...TakingtheMeasureoftheBroadband‐CentricCableMSO.”

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Figure 21: Weighted Average Cable Broadband ARPU

Source:BernsteinResearch,USTelecommunicationsandUSCable,October18,2010.IncludesComcast,TimeWarnerCable,Cablevision,andCharterCommunications.

Wireless:AccordingtoanalystestimatesandCITIdata,theaveragewirelessdataARPUinQ12010was$14.46,rangingfromT‐Mobile’s$10.20toAT&TandVerizoninthemid‐$16s.Theaveragetotalwirelessrevenue(voiceanddata)permonthperuserwas$45.30,withAT&Tthehighestof$50.15andMetroPCSatthelowendwith$39.83.

WeestimatethatthesmallerruralindependentWISPsgenerateanARPUofapproximately$30permonth.ThisestimatewasderivedthroughacombinationoftelephoneinterviewswithtwoWISPsin2009,pricingavailableonthewebsitesofafewotherWISPs,andacalculationbaseduponthereportedmarginofonesuchprovider,whichtendedtosupportourotherassumptions.

Inadditiontoamonthlysubscriptionprice,somewirelessbroadbandpricingplanssometimesincludeausagelimitor“cap”which,ifexceeded,leadstoadditionalusagecharges.

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Bundles:Itisworthnotingthatmanybroadbandservicesaresoldin“bundles”alongwithvoiceandtelevision(theso‐called“TriplePlay”).ExamplesofbundlesareillustratedinthefollowingPricingAppendix.

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PricingAppendix

Table 8: Typical Wireless Broadband Pricing plans Clearwire Comcast

(CLWRnetwork)

Verizon AT&T Sprint T‐Mobile

AdvertisedService

4GWiMAX3‐6mbps(local)1.4Mbps(National)

4GWiMAX3‐6mbps(local)1.4Mbps(National)

3GNational(CDMA)0.6‐1.4Mbps

3GNational(GSM)0.7‐1.7Mbps

3GNational(CDMA)4GSelectCities0.6‐1.4Mbps

3GNational(GSM)0.7‐1.7Mbps

BasicPlan $40/month4Glocal,nocap

~$40/month(bundledprice)4GLocal,nocap

$39.99/moIncludes250MB

$35/moIncludes200MB

$29.99/moincludes200Mbps

AdvancedPlan

$40/monthUnlimitedUse

~$55/mo(bundledprice)4G/3GNat,nocap

$59.99/moIncludes5GB

$60/moIncludes5GB

$59.99Unlimited4G5GB,3G

$59.99Includes5GB

Source:Companydata,MorganStanleyResearchestimates,“CableandSatelliteLedbyBroadband&inlinewithThesis,PricingTrendsImproving,”April20,2010

Comparedtowirelessbroadbandpricingplansin2009,mostpricesincreasedin2010acrossbasicandadvancedserviceplanswithoutmuchchangeinadvertisedspeeds.Forbasicplans,bothClearwireandComcastraisedmonthlyrates,whileVerizonstayedthesameandAT&Tdroppeditsrateby$5.Thesituationwassimilarinadvancedplans,withClearwireandComcastraisingrates.Theremainingtelcosallkepttheiradvancedplanspricedatthesamerate.

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Table 9: Broadband Pricing Changes (DSL)

Voice (Bundled

Local+LD) DSL Satellite Video

Triple Play

Company Offering Q/Q Comments Q/Q Comments Q/Q Comments

AT&T Entry Level Almost unchanged at $25

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

Comparable Speed

  Almost unchanged at $25

BLS Entry Level

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

Comparable Speed

VZ Entry Level

Comparable Speed

Double bundle discount down ~17%

Double bundle discount down ~17%

Qwest Entry Level

MRC move up to $19.99 (Q409 levels). No more $50 Qwest Visa Prepaid Card.

New price $29.99 reflects $24 bill credits for 12 months and $5 discount

Comparable Speed

Effective MRC moved down ($11.66 vs $12.5) on $100 Visa prepaid card.

Source:BankofAmericaMerrillLynch,BattlefortheBundle,July20,2010at8.

AT&TmadelittletonochangeinitsDSLpricesoverthesecondquarter,whileVerizonraiseditsentry‐levelbroadbandpriceto$20,upfrom$18inthefirstquarterof2010.Onaverage,theBellcompaniesloweredtheirbundledpricingby5.6%yearoveryearfor2010.136

Analysts’reportsarecoveringbundledpricesmorethanpricesforbroadband,video,andtelephoneseparately,perhapsreflectingcompanies’pushtosellmultipleproductstocustomers.Forchanges

136BankofAmericaMerrillLynch,BattlefortheBundle,July20,2010at8.

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duetobroadband,oneanalystnotedthathewasaddinga2%pricingincreasetotheresidentialbroadbandmodelin2010.

Figure 22: Broadband Price Growth

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

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Section2:ComparisonofAllPubliclyAnnouncedPlansofNetworkEnhancement

AfterthepreparationtheListofAnnouncedBroadbandPlans(nowtheAppendix),theFCCaskedfortheFirstReporttoinclude,

“…adocumentthatcompareswhatwasprojectedatthetimeofaplantowhathasresultedtodateforeachofthepubliclyannouncedbroadbandplansacrosstheidentifiedvariables.Thisshouldlookbackwardsatwhatwassaidatthetimetheplanwasestablishedtobecomparedagainsttheoutcomesofcompletedplansandthecurrentstatusforthoseplansstillinprogress.”

Topreparetherequesteddocument,CITIresearchersexaminedeachoftheannouncedplansproject‐by‐projecttoestablishthefirsttimethateachprojectwasannouncedandthetime(s)thattheoriginalannouncementwasmodifiedorupdated.Theythencheckedforinformationaboutthestatusofeachannouncement,particularlyaboutcompletionorthedegreeofprogressifstillincomplete.TheysearchedforinformationinthesamemannerasdescribedinSection1,whichwasbycheckingcompanies’websites,investmentanalystandconsultantreportsandbyconductingsearchesontheThomsonOnedatabaseandtheinternet.Theresearchersalsousednewspublicationsasasourcefordevelopmentsonbroadbanddeploymentannouncements.Whilethismethodologymayprovidesomeinsightsaboutthecredibilityofcompanies’deploymentannouncementsandameansforjudgingtheprobabilityofon‐timecompletionofsimilarprojects,thetypeofprojectisprobablythechieffactorinpredictingifitislikelytobecompletedontimeornot.Thisshouldn’tbeasurprisingconclusion:small,easyprojectsareobviouslymorelikelythandifficult,complexonestobecompletedasinitiallyscheduled.Thus,forexample,thecableindustry’supgradefromDOCSIS2.0toDOCSIS3.0isnotamajorphysicalconstructionproject,doesnotrequiresubstantialdeploymentofnewcablesandthevariablesaffectingthedeploymentaremuchmorecontrollablebythecablecompany.Incontrast,deploymentofentirelynewinfrastructuresislargelyanoutsideconstructionproject,heavilydependentondiggingtrenchesforconduits,stringingcableonpoles,orerectingtowers(forwirelesssystems),tasksthatareinturndependentongovernmentpermits,topography,weatherandalltheuncertaintiesassociatedwithconstructionprograms.Broadly,thereviewofthevariousbroadbandprojectannouncementsindicatesthatprojectsthatwerepredominantlyan“upgrade”weregenerallycompletedonorevenaheadoftheannounceddate,whileprojectspredominantlyofanewconstructioncharactertendedtolagbehindthecompletiondatespredictedwhentheprojectwasannounced.

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What’sNew:CITIresearchassistantsexaminedannouncementsfromthesecondhalfof2009throughmid‐2010toupdatethecompanies’progressonbroadbanddeployment.Thepastyearsawnotablechangesandnewannouncementsforthedeploymentplansofmanybroadbandproviders.WirelessdeploymentsofHSPA7.2,WiMAX,andLTEwerethemostprominentincompanyannouncements.Theendof2009broughtLTEannouncementsfromAT&T,Verizon,andMetroPCS.Sprint/Clearwireannouncedthelaunchoftheir4GWiMAXservice,andT‐Mobileannouncedplanstoupgradeits3GnetworktoHSPA21+.LightSquaredannounceditsplanstocover92%oftheUSwithLTEwirelessbroadbandby2015.Inadditiontothis,thecompanywillalsooffernationwidewirelesssatelliteservice.137Cablecompanieswerealsoactive,withComcast,Knology,andMediacomannouncingnewgoalsforDOCSIS3.0deployments.Detailsoftheplansandtheirprogresscanbeseeninthefigureandtextbelow.Table 10: Major Broadband Deployments: Performance Against Announced Completion Dates

Source:ReportAppendix

137LightSquared,Inc,AboutLightsquared,http://www.lightsquared.com/pdf/LightSquared_Backgrounder.pdf

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Thefocusoftheanalysisistounderstandwhethertelecommunicationcompaniesaregenerallyabletomeetthegoalsoutlinedintheirownstatements,ornot.Thereviewfocusedonthetimeframebeginningin2004‐05basedonthejudgmentthatthoseyearsmarked“thebeginningofmodernera”ofbroadbandintermsofindustrystructure:theinternet“bubbleandbust”hadpassedandtheAT&T‐SBCandMCI‐Verizonmergersandconsolidationinthecableindustryhadlargelybeencompleted.Thoseyearsalsomarkthebeginningofwirelesscompaniesassignificantprovidersof“broadbanddata”service.

YearlyDeploymentAnnouncements

2004Verizonannouncedattheendof2003thatitplannedtobeginimplementationofitsnewFiOSfibertothehomenetworkin2004andpassonemillionhomesbyyearend.Thecompanypredictedthatby2005itcouldincreasethatnumbertothreemillion.138In2005Verizonreportedthattheyreachedthatnumber.139Atthebeginningof2004Verizonalsoannouncedthatitwouldimplementwirelessbroadbandaccessintwo‐thirdsofitsnetwork,coveringabout75millionpeoplebytheendoftheyear.140ByDecember2004,Verizon’s3Gservicewasavailableto75millionpeopleincluding20majorcitiesintheUS.141142CenturyLink(CenturyTel,priortotherecentmergerwithEmbarqinJuly2009)143attheendof2004saiditwouldinvestheavilyinitsIPcapabilities,announcinga$350minvestmentforthefollowingyear.144Itsurpassedthatamount,investing$415min2005and$314min2006.145Sprintinits2004annualreportannouncedthatitwouldrolloutEV‐DOwireless3Gtechnologyinthesubsequenttwoyears,146withcoverageofmajormetropolitanareasintheUSbytheend

138http://investor.verizon.com/news/view.aspx?NewsID=469139VerizonPressRelease,“VerizonCommunicationsReportsStrong4Q2005Results,DrivenbyContinuedGrowthinWirelessandBroadband”,Verizon,2006,http://investor.verizon.com/news/view.aspx?NewsID=718140VerizonPressRelease,“VerizonWirelessMakesStridesWithPlannedBroadbandAccess3GNetworkExpansion”,Verizon,2004,http://investor.verizon.com/news/view.aspx?NewsID=498141BenCharny,“Sprintbegins$3billionmarchto3G”,CNETNews,2004,http://news.cnet.com/Sprint‐begins‐3‐billion‐march‐to‐3G/2100‐1039_3‐5480249.html?tag=lia;rcol142http://www.manifest‐tech.com/ce_wireless/wireless_vcast.htm143http://gigaom.com/2009/07/01/embarq‐and‐centurytel‐merge‐become‐centurylink/144http://media.corporate‐ir.net/media_files/irol/11/112635/annreports/04_annual_report.pdf145Verizon,“AnnualReview2006”,Verizon,2006,p.4,http://library.corporate‐ir.net/library/11/112/112635/items/239821/CTLAnnualReview2006.pdf146AnnualReport2004

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of2005.147Inits2005annualreportSprintconfirmedcapitalexpendituresofnearly$1billionforEV‐DOdeployment.148ThecoverageinSeptember2006was69citiesintheUSincludingmajormetropolitanareas,mostofwhichwerenotpubliclyannouncedbySprintbefore.149WildBlueCommunicationsInc.announcedinApril2004150thatitssatellitebroadbandInternetservicewouldrolloutinJuneof2005.Thiswasthesecondtimetheymadethisannouncement:itwasoriginallymadein2001andservicewassupposedtohavebeenavailablebymid‐2002.151Variousissuescausedthemtodelaytheservice,particularlythelossoffundingwhichwasinfluencedbytheattacksonSeptember11,2001152aswellasdefectsontheWildBlue‐1satellite153.InJune2005WildBlueunveileditssatellitebroadbandInternetservicethreeyearslate1542005HughesCommunicationsInc.announcedinDecember2005thattheSPACEWAY‐3satellitewouldbelaunchedinearly2007155andbereadyforserviceinearly2008.156Thesatellitewaslaunchedinmid‐2007andbecameoperationalonApril8,2008.ThedelaywasduetoanunrelatedlaunchfailureofanothersatellitethatforcedHughestofindanalternatelaunchservice.

147AmySchiska‐Lombard(Sprint),“SprintBeginsOfferingEV‐DO‐ReadySprintPCSConnectionCard(TM)bySierraWirelesstoBusinessCustomers”,Sprint,2005,http://newsreleases.sprint.com/phoenix.zhtml?c=127149&p=irol‐newsArticle_newsroom&ID=681282&highlight=148AnnualReport2005149EVDOForums,“SprintEVDORevACoverageSightings”,EVDO‐Forums.com,2006,http://www.evdoforums.com/thread3234.html150WildBlue.cc,WildBlueReadyToRollOutItsSatelliteInternetServiceInJune,http://www.wildblue.cc/wildbluenews.html,April25,2004151WildBlue.cc,WildBlueSecuresLowCost,FixedPriceContractsForCustomerPremisesEquipment,http://www.wildblue.cc/2001pr.html,July16,2001152WildBlueHistory,http://satjournal.tcom.ohiou.edu/issue13/pdf/David_Brown_WildBlue.pdf,November2007153DslReports,“WildBlueYonder”,dslreports.com,2004,http://www.dslreports.com/shownews/58219154Paul,Weiss,Rifkind,Wharton&GarrisonLLP,AgainstWildBlueDebut,ISCeParticipantsDebateFutureofSatelliteBroadband,,http://www.paulweiss.com/files/Publication/a4182527‐a24f‐4827‐9e73‐0c4403ded807/Presentation/PublicationAttachment/4490c85f‐7055‐4250‐b5a9‐34eaa04bde01/6‐3‐05.pdf,,June3,2005155SpaceDaily.com,SeaLaunchAwardedSpaceway3ContractByHughesNetworkSystems,http://www.spacedaily.com/reports/Sea_Launch_Awarded_Spaceway_3_Contract_By_Hughes_Network_Systems.html,December12,2005156Bbwexchange.com,HughesInitiatesSPACEWAY3SatellitewithFirstCommercialOn‐boardSatelliteBroadbandWirelessInternetTrafficSwitchingandRouting,http://www.bbwexchange.com/pubs/2008/04/08/page1405‐1664513.asp,April8,2008

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Knologyannouncedthatitwouldinvest$7.5mtoupgradeitscablesystemsinFloridatosupportbroadbandservices.157In2006thecompanyhadcapitalexpendituresfornewdeploymentandenhancementsofequipmentofmorethan$12.5m.158T‐MobileannouncedinMay2005thatitwouldrollout3Gnetworksinthesecondhalfon2006andserveitsfirstcustomersin2007.159T‐Mobileplannedtocontinuetherolloutin2008andhavetherolloutcompletedby2009.160Thecompany’sactualrolloutof3GonlybeganinMay2008,whichwasatleast5monthsbehindthescheduledyear‐end2007.161AccordingtoT‐Mobile’slatestannouncement,theplantohavefull3Gdeploymentbytheendof2009iscurrentlyontrack.162LeapWirelessannouncedinSeptember2005thatitplannedtoimplementEV‐DO3Gtechnologyin2006investingabout$475m.163Inthe2006annualreportitconfirmedtheroll‐outofthistechnologywithacompletiongoalof2007.164Inthecompany’sannualreportfor2008,itindicatedthattherolloutwasnotentirelycompleted.165InJune2009thecompanysuccessfullycompletedthe3Grolloutthroughouttheirentireservicearea.1662006AT&TannouncedinJune2006thatitplannedtoreach19millionhouseholdswithitsU‐VerseFTTN‐DSLsystembytheyear2008.167Bytheendof2007thecompanyreduceditsgoalto18

157Knology,“AnnualReport2005”,Knology,2005,p.26,http://phx.corporate‐ir.net/phoenix.zhtml?c=130221&p=irol‐sec158Knology,“AnnualReport2006”,Knology,2005,p.,http://phx.corporate‐ir.net/phoenix.zhtml?c=130221&p=irol‐sec159Joel,“T‐Mobile3G:NotUntil2007”,Gizmodo.com,2005,http://gizmodo.com/105518/t+mobile‐3g‐not‐until‐2007160Mobile‐Commons,“T‐MobileUSA3GNetwork,USA”,mobile‐commons.com,2006,http://www.mobilecomms‐technology.com/projects/tmobileusa/161OmMalik,“Finally,T‐MobileLaunchesaU.S.3GNetwork”,TheGigaOMNetwork,2008,http://gigaom.com/2008/05/05/t‐mobile‐launches‐us‐3g‐network/162RonenHalevy,“T‐MobileForgesAheadWith3GRollout–StillNo3GBlackBerry…”,BerryReview,2009,http://moconews.net/article/419‐t‐mobile‐usa‐rolls‐out‐super‐fast‐3g‐in‐parts‐of‐philadelphia/163KristinAtkins–LeadMediaRelations,“LeapUnveilsMobileDataStrategyforCricketandJumpMobileatCTIAWirelessI.T.&Entertainment”,LeapWireless,2005,http://phx.corporate‐ir.net/phoenix.zhtml?c=191722&p=irol‐newsArticle&ID=760669&highlight=164LeapWireless,“AnnualReport2006”,LeapWireless,2007,p.29,http://investor.leapwireless.com/phoenix.zhtml?c=95536&p=irol‐sec165LeapWireless,“AnnualReport2008”,LeapWireless,2009,p.4,http://investor.leapwireless.com/phoenix.zhtml?c=95536&p=irol‐sec166GregLund‐MediaRelations,“SecondQuarterResults”,LeapWireless,2009,http://phx.corporate‐ir.net/External.File?item=UGFyZW50SUQ9MTI1MjV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1167AT&TPressRelease,“Company'sExtensiveDSLNetworkExpandedtoReach95PercentofState”,AT&T,2006,http://www.att.com/gen/press‐room?pid=4800&cdvn=news&newsarticleid=22361

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millionhomespassedbytheendof2008.168InJanuary2009thecompanysaidthat17millionhouseholdswerepassed,169indicatingthatAT&Twasbehindtherevisedtargetbyatleast1millionhouseholds.CincinnatiBellannouncedinits2006annualreportthatitwouldinvestabout$30millionin2007tobuildupits3Gwirelessnetworkandtohave3Gserviceoperationalin2008.170Thecompanyspent$11millionin2007,maintainingthedateforoperationallaunchas2008.CincinnatiBellplannedtospendanadditional$19millionin2008tocompletetheproject.171Theactualspendingonthe3Gnetworkin2008was$16m.172The3Gwirelessnetworkwasdeployedinthefourthquarterof2008.173ApparentlyCincinnatiBellmanagedtolaunchthe3Goverlaywithintheirschedule.Knologystatedinits2006annualreportthatitexpectedtoinvest$30.4millionin2007,ofwhich$7.3millionwouldbefornewdeploymentsandenhancementsofinfrastructure.174Investmentcameinbelow,as$28.8millionwasspentofwhich$9.1millionwasplantextensionsandenhancements.175Verizonannouncedinearly2006thatitwouldhave3‐4millionpremisespassedbytheFiOSfiberopticservicebytheendofthatyear.176Italsoannouncedthatitwouldhave18millionpremisespassedwithfiberbytheendof2010.177Inthesecondquarterof2009Verizon’sfiberopticsystemspassed13.4millionhomes,178meaningthatthecompanywillhavetopass

168PeterD.Shapiro,“AT&TU‐versebytheNumbers”,CableFAXMagazine,2007,http://www.cable360.net/cablefaxmag/business/competition/telcos/26065.html169DSLReports,“AT&TSlowsU‐VerseBuildOut”,dslreports.com,2009,http://www.dslreports.com/shownews/ATT‐Slows‐UVerse‐Build‐Out‐100539170CincinnatiBell,“AnnualReport2006”,CincinnatiBell,2007,p.115,http://library.corporate‐ir.net/library/11/111/111332/items/246974/2006AnnualReport.pdf171CincinnatiBell,“AnnualReport2007”,CincinnatiBell,2008,p.86,http://library.corporate‐ir.net/library/11/111/111332/items/294111/CincinnatiBellNPS10KWrap1.pdf172CincinnatiBell,“AnnualReport2008”,CincinnatiBell,2009,p.5,http://library.corporate‐ir.net/library/11/111/111332/items/294111/CincinnatiBellNPS10KWrap1.pdf173CincinnatiBell,“AnnualReport2008”,CincinnatiBell,2009,p.3,http://library.corporate‐ir.net/library/11/111/111332/items/294111/CincinnatiBellNPS10KWrap1.pdf174Knology,“AnnualReport2005”,KnologyInc,2006,p.52,http://phx.corporate‐ir.net/phoenix.zhtml?c=130221&p=irol‐sec175Knology,“AnnualReport2006”,KnologyInc,2007,p.52,http://phx.corporate‐ir.net/phoenix.zhtml?c=130221&p=irol‐sec176VerizonPressRelease,“VerizonViceChairmanSaysFastMCIIntegration”,Verizon,2006,http://investor.verizon.com/news/view.aspx?NewsID=726177Verizon,“VerizonProvidesNewFinancialandOperationalDetailsonitsFiberNetworkasDeploymentGainsMomentum”,Verizon,2006,http://investor.verizon.com/news/view.aspx?NewsID=773178SeekingAlpha,“VerizonCommunicationsInc.Q22009EarningsCallTranscript”,seekingalpha.com,2009,http://seekingalpha.com/article/151577‐verizon‐communications‐inc‐q2‐2009‐earnings‐call‐transcript?page=‐1

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another4.6millioninthesubsequent18monthstohittheyearend2010goal.179Verizonhasstatedthatitisontrackwiththeannounceddeploymentschedule.2007SprintandClearwireannouncedinJuly2007thattheytogetherplannedtocover100millionpeoplewiththejoint‐useWiMaxservicebytheendof2008.180(Sprintprovidesits4GservicesoverClearwire’snetwork;Sprint’scoverageisthereforebasedonClearwire’sdeployments).Thusfar,thisgoalwasmissedbyatleastoneyear:attheendofthefourthquarter2008Sprintclaimedtocover49millionpeople181meaningthatthecompanies’coveragewasabout50%shortoftheiroriginalannouncement.Clearwirealsostatedintheannualreportof2007thattheywouldhaveabout530,000customersbytheendofyear2008.Thatgoalwasalsonotreachedasthecompanyreported475,000customersinits2008annualreport.Sprintannouncedinearly2007thatitwouldhaveamajorityofitsfootprintcoveredwithEV‐DORev.Abytheendof2007182Inthe2008annualreport,thecompanysaidthatithadEV‐DORev.Aemployedin82%oftheirfootprint,meetingthegoal.183Comcastannouncedin2007thatitwouldhaveDOCSIS3.0deployedin20%ofitsfootprintbytheendof2008.184Apparentlyithititstargetin2008.Qwestannouncedintheendof2007thatitwouldhaveafiber‐to‐the‐node(FTTN)deploymentin2008.Thecompanyplannedtopassapproximately1.5millionhouseholdsthatyear.185Accordingtotheirannualreportin2008Qwestexceededtheirgoaloffiber‐to‐the‐nodedeployment,covering1.9millionpotentialcustomers.186

179Verizon,“FiOSatFive:ContinuingRapidGrowth,LeadershipinTechnologyandInnovation”,Verizon,2009,http://newscenter.verizon.com/press‐releases/verizon/2009/fios‐at‐five‐continuing.html180ClearwirePressRelease,“SprintNextelandClearwiretoPartnertoAccelerateandExpandtheDeploymentoftheFirstNationwideMobileBroadbandNetworkUsingWiMAXTechnology”,Clearwire,2007,http://investors.clearwire.com/phoenix.zhtml?c=198722&p=irol‐newsArticle&ID=1028160&highlight=181Reuters,“HoustonSprintCustomersEnjoyEnhancedNetworkCoverageandCapacity”,BusinessWire,2009,http://www.reuters.com/article/pressRelease/idUS159956+23‐Feb‐2009+BW20090223182Sprint,“AnnualReport2006”,Sprint,2007,p.2,http://investors.sprint.com/phoenix.zhtml?c=127149&p=irol‐sec183Sprint,“AnnualReport2007”,Sprint,2008,p.3,http://investors.sprint.com/phoenix.zhtml?c=127149&p=irol‐sec184DSLReports,“20%ofComcastUsersToSeeDOCSIS3.0in2008”,dslreports.com,2007,http://www.dslreports.com/shownews/20‐of‐Comcast‐Users‐To‐See‐DOCSIS‐30‐in‐2008‐89821185Qwest,“AnnualReport2007”,Qwest,2008,p.3,http://ww3.ics.adp.com/streetlink_data/dirq/annual/HTML2/qwest_ar2007_0003.htm186Qwest,“AnnualReport2008”,Qwest,2009,p.3,https://materials.proxyvote.com/Approved/749121/20090316/AR_36466/HTML2/qwest‐ar2008_0004.htm

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2008Cablevisionannouncedinmid‐2008thatitwouldhave20%ofitsnetworkupgradedtoDOCSIS3.0bytheendofthatyearandcompletecoveragewouldbereachedbymid‐2010.187TheplanlaidoutabudgetfortheDOCSIS3.0andaWiFirolloutforthethree‐yearperiodat$315m.188(WiFiwouldbeafreeadditionalservicetoCablevision’scablecustomers.)Thebuild‐outwasplannedbecompletedby2010.189Attheendof2008Cablevisionclaimedtohave52%ofitsfootprintcoveredwithDOCSIS3.0190meaningthatitsfirstgoalofdeploymentwasoverachieved.Bymid‐2009theWiFiservicewasdeployedinNewYork’sRocklandandOrangeCounties,whichrepresentsapproximatelyone‐thirdofCablevision’sfootprint.191AsofFebruary2010,theDOCSIS3.0rolloutwascomplete,192andtheWiFideploymentwasannouncedtobecompletebyearly2010.193CharterannouncedinNovember2008thatitwoulddeployDOCSIS3.0onasmallscalewithinthreemonths.194AttheendofJanuary2009,itachievedthisgoalbydeployingDOCSIS3.0serviceinthemetropolitanareaofSt.Louis.195Althoughthescalewassmall,Charterkepttoitsoriginalplan.CoxinMarch2008saidthatitplannedtodeployDOCSIS3.0onasmallscalebytheendofthatyear.Thecompanystatedthatitsnetworkswouldbefullyupgradedbytheendof2010.196ThecompanyhaddeployedDOCSIS3.0intheArizonacommunitiesofCarefree,RioVerde,ScottsdaleandPhoenixbyAugust2008.197

187JeffBaumgartner,“CablevisionBeginsWidebandAssault”,lightreading.com,2008,http://www.lightreading.com/document.asp?doc_id=160511&site=cdn188SeekingAlpha,“CablevisionQ22008EarningsCallTranscript”,seekingalpha.com,2008,http://seekingalpha.com/article/88345‐cablevision‐q2‐2008‐earnings‐call‐transcript?page=‐1189TMCnews,“Cablevisionplanswirelessbroadbandnetwork”,tmcnet.com,2008,http://www.tmcnet.com/usubmit/2008/05/08/3434956.htm190MultichannelNews,“CablevisionToBlastOut101‐MbpsInternetService”,MultichannelNews,2009,http://www.multichannel.com/article/210164‐Cablevision_To_Blast_Out_101_Mbps_Internet_Service.php191CablevisionPressRelease,“Cablevision'sOptimumWiFiArrivesinRocklandandOrangeCounties”,Cablevision,2009,http://www.cablevision.com/about/news/article.jsp?d=072209192http://www.lightreading.com/document.asp?doc_id=187600&site=lr_cable193MutlichannelNews,“CablevisionOptimizesWi‐Fi,”GeorgeWinslow,November2010.http://www.multichannel.com/article/459591‐Cablevision_Optimizes_Wi_Fi.php194DSLReports,“CharterDOCSIS3.0WithinMonths”,dslreports.com,2008,http://www.dslreports.com/shownews/Charter‐DOCSIS‐30‐Within‐Months‐98946195AnitaLamont,“CharterLaunchesFastestResidentialInternetService”,CharterCommunications,Inc,2009,http://phx.corporate‐ir.net/phoenix.zhtml?c=112298&p=irol‐newsArticle&ID=1249700&highlight=Charterlaunches196JeffBaumgartner,”TeeingUpDocsis3.0”,CableDigitalNews,2008,http://www.lightreading.com/document.asp?site=cdn&doc_id=148909&page_number=2197CoxPressRelease,“CoxExpandsDOCSIS3.0ReachtoArizona”,CoxCommunications,2009,http://cox.mediaroom.com/index.php?s=43&item=442

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KnologyannouncedDOCSIS3.0plansinNovember2008.Itplannedtohave20%ofitsnetworksupgradedtoDOCSIS3.0byyear‐end2008,50%by2009andfulldeploymentby2010.198InFebruary2009thecompanyannouncedarevised,perhapsmoreaggressiveplan:itplannedtohave65%ofthenetworkupgradedbytheendof2009,butapparentlynoneoftheDOCSIS3.0deploymentoriginallyexpectedtooccurin2008happened.199Henceitisbehinditsoriginalplans,butplanstoincreasethepacesothatitcanreachtheoriginalgoalaheadofschedule.TimeWarnerCableannouncedin2008thatitwoulddeployDOCSIS3.0during2009selectively.200BytheendofSeptember2009thecompanyhaddeployedthetechnologyinpartsofNewYorkCity.201Intheendof2009TimeWarnerCablereiteratedtheideathatitwoulddeployinmoremarketsbutitwouldbesurgical.202ViaSat,Inc.announcedinJanuary2008planstobuildandlaunchViaSat‐1asitsnextgeneration100GbpsHighThroughputsatellite203capableofprovidinguserswithdownloadspeedsof2‐10Mbpsorperhapsmore.204ViaSatannouncedithadexecutedtheconstructioncontractwithSpaceSystems/LoralonJanuary7,2008.Thesatelliteisexpectedtobelaunchedinearly2011.2009AT&Tannouncedinmid‐2009thatitwouldbegintoupgradeitsnetworktoLTEtowardtheendofthatyear.205Byyear‐end2009,itexpectedtodeployabout2,100newcellsitesnationwide206ItstatedthatitsmigrationtoLTEwas“seamless”andcanbeassumedtobeontrack.207

198JeffBaumgartner,“KnologyCallsWidebandPlay”,CableDigitalNews,2008,http://www.lightreading.com/blog.asp?blog_sectionid=419&site=cdn&doc_id=168387199JeffBaumgartner,“KnologyGoesontheOffensive”,CableDigitalNews,2009,http://www.lightreading.com/document.asp?site=cdn&doc_id=172415200NateAnderson,“Nodatacaps,noDOCSIS3.0?TWC'smathdoesn'taddup”,ArsTechnica,2009,http://arstechnica.com/tech‐policy/news/2009/04/twc‐without‐data‐caps‐internet‐upgrades‐now‐in‐doubt.ars201KarlBode,“TimeWarnerCable(Finally)LaunchesDOCSIS3.0”,DSLReports,2009,http://www.dslreports.com/shownews/Time‐Warner‐Cable‐Finally‐Launches‐DOCSIS‐30‐104626202SeekingAlpha,TWCQ42009EarningsCallJanuary28,2010http://seekingalpha.com/article/185162‐time‐warner‐cable‐inc‐q4‐2009‐earnings‐call‐transcript>)203Spacemart.com,http://www.spacemart.com/reports/ViaSat_1_To_Transform_North_American_Satellite_Broadband_Market_999.html,January9th,2008204ViaSat.com,ViaSat‐1toTransformNorthAmericanSatelliteBroadbandMarket,http://www.viasat.com/news/viasat1‐transform‐north‐american‐satellite‐broadband‐market,January7,2008205“AT&TtoDeliver3GMobileBroadbandSpeedBoost”,May27,2009,http://www.att.com/gen/press‐room?pid=4800&cdvn=news&newsarticleid=26835206http://www.att.com/gen/press‐room?pid=4800&cdvn=news&newsarticleid=26835207http://seekingalpha.com/article/200029‐at‐amp‐t‐inc‐q1‐2010‐earnings‐call‐transcript

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Comcastannouncedinthebeginningof2009anewgoaloffullDOCSIS3.0deploymentbyyear‐end2010.Comcasthadalreadydeployedto35%coverageatthebeginningof2009andaimedfor65%intheendof2009.208Inmid‐2009Comcastchangedtheirgoalfrom65%tocloseto80%deploymentofitsfootprintbytheendof2009.209Bytheendof2009Comcasthaddistributedwidebandto75%ofitsfootprintmeetingitsgoalandstatedonceagainthatitwouldhavefulldeploymentbyearly2010.210HughesCommunicationannouncedinJune2009thatitplanstolauncha100GbpsthroughputsatelliteJupiterinfirstquarterof2012.211AsofMay2010HughessignedanorderwithArianespaceforthelaunchofJupiterinthefirsthalfof2012.212KnologyannouncedinFebruary2009arevised,perhapsmoreaggressiveplan:itplannedtohave65%ofthenetworkupgradedbytheendof2009,butapparentlynoneoftheDOCSIS3.0deploymentoriginallyexpectedtooccurin2008happened.213Henceitisbehinditsoriginalplans,butplanstoincreasethepacesothatitcanreachtheoriginalgoalaheadofschedule.Mediacomindicatedthatitwouldbe“inaposition”toofferDOCSIS3.0toapproximately50%oftheirfootprintbytheendof2009.214MetroPCSannouncedinits2009annualreportthatitwasplanningtorolloutLTEservicesto“most”ofitscoveredmetropolitanareasbyYE2010.215Sprint/ClearwireannouncedinMarch2009thatthe4Ggoalwasresettoeight4Gequippedmetropolitanareasbytheendof2009andfourmorein2010.Thiswouldbe60‐80millionPOPsbytheendof2009.216Thetotalcoveredpopulationwassupposedtohavereached120millionbytheendof2010accordingtothe2009revisedplan.217Attheendof2009Sprintreported

208SeekingAlpha,“ComcastCorporationQ12009EarningsCallTranscript”,seekingalpha.com,2009,http://seekingalpha.com/article/134349‐comcast‐corporation‐q1‐2009‐earnings‐call‐transcript?page=‐1209SeekingAlpha,“ComcastCorporationQ22009EarningsCallTranscript”,seekingalpha.com,2009,http://seekingalpha.com/article/154406‐comcast‐corporation‐q2‐2009‐earnings‐call‐transcript210ComcastCorporation,CMCSAQ42009EarningsCallTranscript,February3,2010211HughesCommunicationsInc.,“ConferenceCalltoDiscussLaunchof100GbpsHighThroughputSatellitein2012,”June17,2009212HughesCommunications,HUGHQ12010EarningsCallTranscriptMay5,2010)213JeffBaumgartner,“KnologyGoesontheOffensive”,CableDigitalNews,2009,http://www.lightreading.com/document.asp?site=cdn&doc_id=172415214MediacomCommunicationsCorporation,EarningsCallTranscript,February2009.215http://investor.metropcs.com/phoenix.zhtml?c=177745&p=irol‐SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOTMxMjUtMTAtMDQ0NzgwL3htbA%3d%3d217eWeek,“ClearwireSetsMoreWiMaxRollouts”,eweek.com,2009,http://www.eweek.com/c/a/Mobile‐and‐Wireless/Clearwire‐Sets‐More‐WiMax‐Rollouts/

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having13marketscoveredonits4Gnetworksurpassingitspreviousgoal.218AsofApril2010Sprinthadalsoexceededitsplanfor2010with364Gmarkets.219Sprint’s2010goalwastocover120millionPOP’sbyyearend2010.220ClearwireannouncedinAugust2009thatitwouldlaunchitsCLEAR4GWiMAXserviceinSeptemberofthatyear.221AsofQ12010,thecompanyhad“launchedinthemarkets…expected”andremained“committedtoreachupto120millionPOPsbyyearend.”222T‐MobileUSAannouncedplanstoupgradeits3GnetworktoHSPA21+andhavecoverage“nationwideby2010.”223ThisgoalwaslaterelaborateduponandasofQ22010thecompanyexpectedtocoverafootprintof185millionpeoplebyyear‐end2010.224VerizonannouncedinDecember2009thatitplannedtoreach100millionPOP’sbytheendof2010in25to30marketsand285millionPOP’sbytheendof2013withitsLTErollout.225Inearly2010itconfirmedthisplanandaddedthatitalsoplannedtohavevirtuallyallofits3Gfootprintupgradedbytheendof2013.2262010Comcastannouncedinthebeginningof2010thatithadreachedover75%ofitsfootprintwithDOCSIS3.0andplanstocompleteitsdeploymentinearly2010.227CoxreviseditsestimateofDOCSIS3.0deployment,inMay2009,totwo‐thirdscoveragebyyear‐end2010.228Theinitialstatementspredictedfullcoverageby2010.229

218“Bringing4GtoYou”Presentation11/30/09,http://phx.corporate‐ir.net/External.File?item=UGFyZW50SUQ9MjE4MDR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1>)219“SprintTurnson4GServiceinRichmond,SaltLakeCityandSt.Louis”April2010,<http://investors.sprint.com/phoenix.zhtml?c=127149&p=irol‐newsArticle&ID=1441980&highlight=>)220“Bringing4GtoYou”Presentation11/30/09,http://phx.corporate‐ir.net/External.File?item=UGFyZW50SUQ9MjE4MDR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1221http://newsroom.clearwire.com/phoenix.zhtml?c=214419&p=irol‐newsArticle&ID=1315679&highlight=222http://seekingalpha.com/article/203243‐clearwire‐q1‐2010‐earnings‐call‐transcript223http://www.fiercewireless.com/story/t‐mobiles‐ray‐promises‐national‐hspa‐deployment‐mid‐2010/2009‐09‐18224http://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%20Cities225VerizonatUBSMedia&CommunicationsConference,Dec.08.2009,http://investor.verizon.com/news/20091208/20091208_transcript.pdf226Verizon,FirstQuarter2010http://investor.verizon.com/financial/quarterly/vz/1Q2010/1Q10Bulletin.pdf?t=634122024165837858227Comcast,Reportforfirstquarter2010results228http://cox.mediaroom.com/index.php?s=43&item=430229http://www.justbroadband.org/shownews/Comcast‐80‐DOCSIS‐30‐Coverage‐By‐Years‐End‐103824

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HughesCommunicationsInc.signedanorderwithArianespaceforthelaunchofJupiterinthefirsthalfof2012asofMay2010.230Knologyannouncedinthebeginningof2010thatithadthreemarketsfullyorpartiallyoperationalwithDOCSIS3.0,twomarketswereintheequipmentdeploymentphase,andonemarketwouldbeupgradedinthelaterpartoftheyearresultingin65%oftheirfootprinttobecoveredbyyear‐endfortheirDOCSIS3.0rollout.231Therefore,itdoesnotplantomeetitsinitialgoaloffullDOCSIS3.0deploymentby2010,andhavenotmettheirrevisedplanof65%deploymentbyyearend2009.ThisputsKnologyayearbehindschedule.LightSquaredrecentlycloseda$7billionoutsourcingdealwithNokiaSiemensNetworksovereightyears232andplanstocover92%oftheUSwithLTEwirelessbroadbandby2015.LightSquaredwillalsooffernationwidewirelesssatelliteservice.233MediacomannouncedinMay2010thatDOCSIS3.0wasavailablein25%ofitsfootprintandplannedtohave50%ofitsfootprintor1.4millioncustomerscoveredbythesecondhalfoftheyear.234Mediacomisthusbehindonitsinitialdeploymentplan.TimeWarnerCableinJanuary2010announcedthatithadlaunched4G/3GmobilebroadbandinDallas,Hawaii,SanAntonioandpartsoftheCarolinas.235In2010,4GnetworkcoverageisexpectedtoexpandtoadditionalcitiesincludingNewYork,Boston,Washington,D.C.,SanFranciscoBayArea,KansasCity,Cincinnati,Cleveland,andLosAngeles.236Verizondeclaredinearly2010thatitwouldbeextendingitsplanstopass18millionhomeswithFiOSfiberseveralyearspastitsinitial2010yearendobjective.237Verizonwirelessplanstocover38markets238and285millionPOP’sbytheendof2013withitsLTE4Grollout.239240

230HughesCommunications,Q12010EarningsCallTranscriptMay5,2010231KnologyInc.1Q10EarningsConferenceCall,May5,2010.“WebCast”<http://www.earnings.com/Company.asp?client=cb&coid=130221&ticker=KNOL#>)232BankofAmericaMerrillLynch,“LightsquaredBecomingTangibleforTowers,”October7,2010.233LightSquared,Inc,AboutLightsquared,http://www.lightsquared.com/pdf/LightSquared_Backgrounder.pdf234MediacomCommunicationsCorporationsEarnings1Q10ConferenceCall,May7,2010235TimeWarnerCable,Inc.Q42009EarningsCallJanuary28,2010<http://seekingalpha.com/article/185162‐time‐warner‐cable‐inc‐q4‐2009‐earnings‐call‐transcript>236TimeWarnerCable,“TimeWarnerCableBusinessClassLaunches4GWirelessDataServiceforMobileProfessionals,”May28,2010<http://ir.timewarnercable.com/phoenix.zhtml?c=207717&p=irol‐newsArticle&ID=1419456&highlight=wireless)237Verizon,InvestorQuarterlyFirstQuarter2010,<http://investor.verizon.com/financial/quarterly/vz/1Q2010/1Q10Bulletin.pdf?t=634122024165837858)238ConnectedPlanet,“CTIA:VerizonWirelessexpandsits2010LTEplans,butstillnolaunchdate,”October2010,http://connectedplanetonline.com/3g4g/news/verizon‐wireless‐expands‐2010‐LTE‐plans‐1006/239Dec.08.2009‐VerizonatUBSMedia&CommunicationsConference<http://investor.verizon.com/news/20091208/20091208_transcript.pdf>)

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ViaSatannouncedinQ12010thatitwasontracktolaunchits100GbpsKa‐bandsatellite,ViaSat‐1,in1H2011.241

241http://www.viasat.com/broadband‐satellite‐networks/viasat‐1

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Section3:FutureProjections

Asathirdelementofitsoriginalrequest,theFCCNationalBroadbandPlanteamaskedforareviewofsituations

“…wherethepubliclyannouncedbroadbandplansyettobecommencedorstillinprogresswillbe3‐5yearsinthefuture,includingLTE,WiMAX,DOCSIS3.0,backbone,etc.Thisshouldincludeasummaryofanalystprojectionsanda‘lessonslearned’component.”

ThisportionoftheReportupdatestheinitialresponsetotheFCC’srequestinfivesubsections:1)areviewofeachcompany’sannouncedbutuncompletedbroadbandplans;2)thestatusofinternet“backbones”;3)thestatusofbroadbandsatellites;4)asummaryofbroadbandinvestmentprojections;and5)someobservationsabout“lessonslearned.”

3.1AnnouncedButUncompletedBroadbandPlans

America’sbroadbandinfrastructureisnotyetcomplete:substantialmajordeploymentprojects,eachrequiringsubstantialcapitalinvestment,arecurrentlyunderway,asthefollowingtableillustrates.Nevertheless,theoverallpictureofthebroadbandinfrastructureforthenextfewyearsisquiteclear:mostofthecurrentmulti‐yearprojectsareexpectedtobecompletedinthenextyearortwoand,todate,nolongerrangemajordeploymentprojectshavebeenannounced.Basically,“whatyouseeiswhatyouget.”

Table 11: Uncompleted broadband plans Company Technology Plan

AT&T U‐Verse:Fiber/DSL

Expandtopass30millionlivingunitsby2011.242

CincinnatiBell FTTH Launchedin2009,noadditionalinformation

Verizon FTTH PlanstohaveFiOScoverageinabout70%ofitstelecomfootprintsubsequenttotheFrontiertransaction.243Declaredinearly2010thatitwouldbeextendingitsplanstopass18millionhomeswithFiOSfiberseveralyearspastitsinitial2010

242AT&TPublicRelations,“AT&TtoInvestMoreThan$17Billionin2009toDriveEconomicGrowth,”AT&TInc.,2009,http://www.att.com/gen/press‐room?pid=4800&cdvn=news&newsarticleid=26597.243J.Killian,“VerizonatOppenheimerConference,”VerizonCommunicationsInc.,2009,http://investor.verizon.com/news/20090811/20090811_transcript.pdf.244Verizon‐InvestorQuarterlyFirstQuarter2010,<http://investor.verizon.com/financial/quarterly/vz/1Q2010/1Q10Bulletin.pdf?t=634122024165837858)

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yearendobjective244

Comcast DOCSIS3.0 Announcedinthebeginningof2010thatithadreachedover75%ofitsfootprintwithDOCSIS3.0andplanstocompleteitsdeploymentinearly2010.245

COX DOCSIS3.0 ReviseditsestimateofDOCSIS3.0deployment,inMay2009,totwo‐thirdscoveragebyyear‐end2010246

Knology DOCSIS3.0 65%oftheirfootprinttobecoveredbyyearendfortheirDOCSIS3.0rollout247

Mediacom DOCSIS3.0 AnnouncedinMay2010thatDOCSIS3.0wasavailablein25%ofitsfootprintandplannedtohave50%ofitsfootprintor1.4millioncustomerscoveredbythesecondhalfoftheyear.248

TimeWarnerCable

DOCSIS3.0 RemainderofNYCandadditionalDOCSIS3.0marketswillbein2010.249

Clearwire

Wireless‐‐CLEAR™4Gservice:WiMAX

2010:80markets,120millionsubscribers;Thecompanyistargeting120mcoveredPOPsbyYE2010.250

MetroPCS

4GLTE PlanningtorolloutLTEservicesto“most”ofitscoveredmetropolitanareasbyYE2010251

Sprint Dual‐Mode3G/4G

120millionPOP’stobereachedby2010yearend252

245COMCASTREPORTSFIRSTQUARTER2010RESULTS<http://files.shareholder.com/downloads/CMCSA/946629823x0x369471/6e92536a‐8c1e‐486a‐acd4‐868e4d70cb2b/Comcast_Q110_Release_4.27.10.pdf>246“CoxExpandsDOCSIS®3.0ReachtoNorthernVirginiaUltimateInternetpackageallowsdownload@speedsupto50Mbps”PressRelease,<http://cox.mediaroom.com/index.php?s=43&item=430>2471Q10KnologyInc.EarningsConferenceCall,May5,2010.“WebCast”<http://www.earnings.com/Company.asp?client=cb&coid=130221&ticker=KNOL#>248MediacomCommunicationsCorporationEarningsConferenceCallMay7,2010<http://www.earnings.com/conferencecallhost.asp?event=3040752&client=cb>249K.Bode,“StillWaitingOnTimeWarnerCableDOCSIS3.0,”dslreports.com,2009,http://www.dslreports.com/shownews/Still‐Waiting‐On‐Time‐Warner‐Cable‐DOCSIS‐30‐103220.250ClearwireMediaRelations,“ClearwireTransformsWi‐FiDeviceswiththeCLEARSpotPersonalHotspotAccessory,”ClearwireCorp,2009,http://newsroom.clearwire.com/phoenix.zhtml?c=214419&p=irol‐newsArticle&ID=1271811&highlight.251MetroPCS10Kreport.3/01/10,<http://investor.metropcs.com/phoenix.zhtml?c=177745&p=irol‐SECText&TEXT=aHR0cDovL2lyLmludC53ZXN0bGF3YnVzaW5lc3MuY29tL2RvY3VtZW50L3YxLzAwMDExOTMxMjUtMTAtMDQ0NzgwL3htbA%3d%3d>

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T‐Mobile Enhanced3G4GLTE

Announcedplanstoupgradeits3GnetworktoHSPA21+andhavecoverage“nationwideby2010.”253ThisgoalwaslaterelaborateduponandasofQ22010thecompanyexpectedtocoverafootprintof185millionpeoplebyyearend.254T‐MobileUSAestimatesprovidedtoCITIinJuly2010confirmedthisestimatetobeontrack.T‐MobilealsoplanstoupgradetoanLTEnetworkin2‐3years.ThecompanywillbefinalizingitsplansoverthenextyearandisconsideringeitherpartneringwithClearwireorLightsquared,orbuildingitsownseparateLTEnetwork.255

AT&T 4G 2010:beginLTEtrials2011:expectedcompletionofupgrades;begindeployingLTE.256

Verizon 4G AnnouncedinDecember2009thatitplannedtoreach100millionPOP’sbytheendof201038markets257and285millionPOP’sbytheendof2013withitsLTErollout.258

OpenRange 4G–WiMAX Serve546ruralcommunitiesin17states.Sixmillionpeopleshouldbecoveredwhentheprojectisfinished(overfiveyears).259

252“Bringing4GtoYou”presentation11/30/09<http://phx.corporate‐ir.net/External.File?item=UGFyZW50SUQ9MjE4MDR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1>)253Fiercewireless.“T‐mobile’sRayPromisesNationalHSPA+deploymentbymid‐2010”September18,2009.<http://www.fiercewireless.com/story/t‐mobiles‐ray‐promises‐national‐hspa‐deployment‐mid‐2010/2009‐09‐18>254“4GSpeedsFromT‐MobileNowBroadlyAvailableintheNortheasternU.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>255DeutscheBankGlobalMarketsResearch,“TakeawaysfrommeetingsatPCIAandwithT‐MobileUSA,”October2010.256AT&TPublicRelations,“AT&TSeesSignificantRiseinWi‐FiHotspotConnectionsduringSecondQuarter”,AT&TInc.,2009,http://www.att.com/gen/pressroom?pid=4800&cdvn=news&newsarticleid=26975.257ConnectedPlanet,“CTIA:VerizonWirelessexpandsits2010LTEplans,butstillnolaunchdate,”October2010,http://connectedplanetonline.com/3g4g/news/verizon‐wireless‐expands‐2010‐LTE‐plans‐1006/258Dec.08.2009‐VerizonatUBSMedia&CommunicationsConference<http://investor.verizon.com/news/20091208/20091208_transcript.pdf>)259OpenRange,“OpenRangeCommunicationsSecures$374MilliontoDeployWirelessBroadbandServicesto546RuralCommunities,”OpenRangeCommunicationsInc.,2009,http://www.openrangecomm.com/markets.html.

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TimeWarnerCable:RoadRunnerMobile

3G/4G In2010,4GnetworkcoverageofBusinessClassMobile,isexpectedtoexpandtoadditionalcitiesincludingNewYork,Boston,Washington,D.C.,SanFranciscoBayArea,KansasCity,Cincinnati,Cleveland,andLosAngeles260

LightSquared

4G In2010,LightSquaredcloseda$7billionoutsourcingdealwithNokiaSiemensNetworksover8years261andplanstocover92%oftheUSwithLTEwirelessbroadbandby2015.LightSquaredwillalsooffernationwidewirelesssatelliteservice.262

Note:CharterandInsighthaveplanstoexpandDOCSIS3.0service,buthavenotannounceddetails

3.2BroadbandSatellitePlans

ThefutureofconsumersatellitebroadbandInternetwillbedominatedbyanewgenerationofhighthroughput(HT)satellitesthatarebeingbuiltforViaSatandHughesCommunications.Thecompaniesexpecttolaunchthesenewsatellitesinthefirstquartersof2011and2012,respectively.Thesenewsatellitesareexpectedtolowerthecostperbitofdeliveringsatellitebroadbandservice.263

ViaSatexpectstoofferadvertisedspeedsof2‐10mbps264andhavethecapacitytoserveasmanyas2millionhomes265whileHughesissuggestingthatitwillofferadvertisedspeedsinthe5‐25mbpsrangeandwillpresumablybeabletoserveasimilarnumberofhomes.However,therelativelypoorbroadbandperformanceofthecurrentgenerationofsatellitesmightsuggestthattheexpectationsforthenextgenerationareoptimisticuntilprovenotherwise.

3.3BroadbandInvestmentProjections

Projectionsaboutthefutureofbroadbandcapitalexpendituresrequireassumptionsaboutthreecriticalfactorsthatdriveinvestment:

260TimeWarnerCable,Inc.(TWC)Q42009EarningsCallJanuary28,2010<http://seekingalpha.com/article/185162‐time‐warner‐cable‐inc‐q4‐2009‐earnings‐call‐transcript>261BankofAmericaMerrillLynch,“LightsquaredBecomingTangibleforTowers,”October7,2010.262LightSquared,Inc,AboutLightsquared,http://www.lightsquared.com/pdf/LightSquared_Backgrounder.pdf263HughesCommunications,“ConferenceCalltoDiscusstheLaunchof100gbpsHighThroughputSatellitein2012,”HughesCommunicationsInc.,2009,http://www.hughes.com/HUGHES/Doc/0/NIJU69S0U56KJ3381689D3KO47/HUGH_Transcript_20090617.pdfat5.264ViaSat,“DemoofNextGenerationSatelliteBroadbandServicewithHighestSpeedsEveratSatellite,”ViaSatInc,2009,http://www.viasat.com/news/demo‐next‐generation‐satellite‐broadband‐service‐highest‐speeds‐ever‐satellite‐2009.265ViaSat,“ViaSatConferenceCalltoDiscussViaSat‐1Contract,”ViaSatInc.,2008,http://www.alacrastore.com/alacra/help/sample_ccbn.pdf.

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theextentofwiredandwirelessbroadbandinfrastructuredeploymentandanassessmentofhowmuchadditionaldeploymentislikely;

1) thedegreeofbroadbandadoption,intermsofwiredbroadbandhouseholdsandwirelessbroadbandusers,andaforecastofhowmanynewuserswillutilizebroadbandservices;and,

2) thegrowthofthebroadbandcapacityutilizedbyeachbroadbanduser.

Theinvestmentprojectionswillbediscussedbelow.Itshouldbeclarifiedthatthesefiguresarethoseofinvestmentanalystsinvariousfinancialinstitutions.TheFCCspecificallyrequestedCITItousecompanydataandWallStreetprojectionsasitssources,andnotgenerateitsowndataorcritiquecompanyprojections.

3.4.1 BroadbandAvailability

“Availability”isameasureofthedeploymentofbroadbandinfrastructure:increasingtheavailabilityofbroadbandservicesrequiresthecapex‐intensivedeploymentofadditionalphysicalinfrastructure.Thedataindicatesthatmost(butnotall)ofthebroadbandinfrastructurehasbeendeployedingeographicmarketswhereitiseconomicallyrationalforservicesupplierstodoso,implyingthattherewillberelativelylittlefutureinvestmentininfrastructure.

Thechartbelowaveragestheexpectationsofanumberofinvestmentanalysts’forecastsandindicatesthattheanalystsexpectthatwiredbroadbandinternetaccessavailabilitywillplateauandreachabout95%ofhomesintheUnitedStatesby2015whilemorethan69%ofhouseholdswillsubscribeby2015.

Figure 23: Wireline Broadband Availability and Adoption (percentage of U.S. households)

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Source:AverageofanalystdataprovidedtoCITI266

Industryresearchersestimatethatfibertothehome(FTTH)wasavailabletoabout17millionhomes(homespassed)inmid2009.267VerizonannouncedthatitwilldeployFTTHsystemscapableofserving17millionlocationsby2010.268Anumberofothersmallercompanies,includingsmallruraltelephonecompanies,willbecoveringadditionalhomeswithFTTH.AT&ThasannounceditwillofferDSLfromfiber‐fedcabinets(fibertotheneighborhood:FTTN‐DSL)to30millionhomesby2011.269AT&Tcurrentlyoffersadvertisedspeedsofupto24megabitsperseconddownstream270(althoughtheactualspeedcanbemuchlower),withincreasespossibleasbondingallowsdoublingtotalspeedsonDSL.Therefore,ifjustthesetwolargesttelecomcompanies’achievetheirgoals,atleast50millionhomeswillbeabletoreceiveadvertisedspeedsof10megabitspersecondormoredownstreamwithinthenexttwoyears.Othertelecomcompanieswillbeprovidingadditionalsimilarofferingsintheirserviceareas.

Broadbandserviceiscurrentlyavailablefromcablecompaniesto92%ofhouseholdsaccordingtoaresearchfirmthattracksthecableindustry.271CablebroadbandisbeingupgradedtotheDOCSIS3.0standard272andisbecomingwidelyavailableatadvertisedspeedsashighas50mbpsdownstream(withonefirmadvertising101megabitspeeds).273Comcast,thelargestcablecompanyaddressingnearlyhalftheUnitedStates,expectstocovernearlyallits50.6millionhomespassed274bytheendof2010.OneanalystbelievesDOCSIS3.0willbeavailableby2013to“nearlyall”275thehomescoveredtodaybycablemodemservices.276Thatwouldbeabout92%of112millionhouseholds,or103millionhomes.

AnumberofwirelessbroadbandserviceprovidersexpecttodeployLongTermEvolution(LTE)andWiMAXtechnologies(so‐called“4G”wirelessservices)between2010and2013and,ifsuccessful,bringmulti‐megabitsspeedstoamajorityofU.S.homesandpopulation.277Thewirelessservicesoffersharedbandwidth,sothespeedsobtainedbyuserswillbedependentonactualtrafficloadsateachcell‐site,andinparticularonhowmanyusersaresimultaneously

266ThenumberofU.S.HouseholdsisbasedonthemostcurrentdatafromtheU.S.CensusBureau.In2007,therewere112,377,977households.See:U.S.CensusBureau,America’sFamiliesandLivingArrangements:2007,September2009.Thenumberofhouseholdsfrom2007wasgrownatarateofapproximately1.00949%.TheCAGRisanaverageofanalystforecastsprovidedtoCITI.267M.C.Render,“NorthAmericanFTTH/FTTPStatus,”RVALLC,2009,at2.http://www.ftthcouncil.org/sites/default/files/RVAFTTHPreso092809forrelease.pdf.268SeeBroadbandinAmerica,Section3:UncompletedBroadbandPlans.269SeeBroadbandinAmerica,Section3:UncompletedBroadbandPlans.270SeeBroadbandinAmerica,Section1:1.1Technology,p.21.271SeeBroadbandinAmerica,Section1:1.3ExpectedDeployment/CoverageFootprint272DOCSISisastandarddevelopedbyCableLabsandstandsfor“DataOverCableServiceInterfaceSpecification”273SeeBroadbandinAmerica,Section1:1.1Technology,p.30274SeeBroadbandinAmerica,AppendixA.275SeeBroadbandinAmerica,Section1:1.3ExpectedDeployment/CoverageFootprint,p.36276SeeBroadbandinAmerica,Section1:1.3ExpectedDeployment/CoverageFootprint,p.25277SeeBroadbandinAmerica,Section3,p.66.

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usingbandwidth‐intensiveapplications,suchaswatchingvideoonwirelessInternetconnections.Asoneexample,by2013VerizonexpectsthatLTEwillprovidesubscriberswith5to12mbpsdownloadsinadeploymentplannedtoreachallofitscoveredpopulation(attheendof2008,Verizon’snetworkcovered288millionpeople278or94%oftheU.S.population).279Otherwirelesscompaniescoverasmallershareofthepopulation.EntrepreneurialandindependentWirelessInternetServiceProviders(WISPs)provideWiMAX‐typeservicestoatleast2millioncustomers280inruralareas,includingmanyareasnotcoveredbythenationalwirelesscompanies.

Table 12: US Internet Access by Type of Service

Source:MorganStanleyResearch,IndustryViewCable/Satellite,October20,2009

Inaddition,thegraphsuggeststhatwirelinepenetrationwillcontinuetoflattenin2010andbeyond,whilewirelessbroadbandbeginstoexperiencegrowth.Thegraphalsoforecastaverylimitednumberof“wirelessonly”broadbandhouseholds,implyingthatwirelessbroadbandisacomplementtowirelinebroadbandandnotareplacement,presumablybecausewirelinespeedsareexpectedtogreatlyexceedwirelessspeeds.

3.4.2.BroadbandAdoption

“Adoption”measurestherateatwhichcustomersactuallyutilizetheavailablebroadbandinfrastructure.Increasingtheadoptionratealsogenerallyrequiressomeadditionalcapitalinvestment,rangingfromphysicallyextendingalinetothecustomer’spremises(acapital

278VerizonCommunications,“2008AnnualReport,”VerizonCommunicationsInc.,2009,at9.279SeeBroadbandinAmerica,Section1:1.1Technology,p.30.280SeeBroadbandinAmerica,Section1:1.1Technology,p.29.

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intensivefunction)toaddingarelativelylowcostelectronicdevicetoanexistinglineatthecustomer’spremises.

Datashowsthatthemarketforbroadbandservices(particularlywiredservice)islargelysaturated,implyingrelativelymodestfuturecapitalexpenditureassociatedwithinitialadoption.Arecentforecastofwiredbroadbandgrowthpredictsthatgrowthwilldropaslowas2.2%inCablesubscribersandlessthan1%inTelcosubscribersby2012.

Figure 24: Broadband Subscriber Growth

AdaptedfromUBSInvestmentResearchTelecommunications“CableLikelytoExtendLeadinBroadband”May3,2010

Residentialbroadbandpenetration(adoption),includingwireless,isexpectedtoreachroughly66%by2016,asillustratedinthefollowinggraph.

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Figure 25: Residential Household Penetration

Source:AnalystdataprovidedtoCITI

However,becausewirelessbroadbandiscurrentlymuchloweronthegrowthcurvethanwiredbroadband,analystsexpectmuchstrongergrowthforwirelessbroadbandandconsequentlymuchhighercapitalinvestmentoverthenextfiveyears,withcontinuedstrongadoptionof3Gwirelessbroadbandservicesandafastinitialramp‐upof4Gasitbecomesavailable.However,itisworthnotingthatthesewirelessforecastspredictatraditional“S”curve,withthegrowthflatteningin5‐6years.

Figure 26: Broadband Wireless Builds

Source:MorganStanley“Cable/Satellite:AfterYearsofDeflation,BroadbandPricingSettoRise”October20,2009

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3.4.3BroadbandUsagebyCustomers

Additionalcapitalinvestmentisneededtoaccommodategrowingvolumesoftrafficgeneratedoverbroadbandservices.Whilesomeoftheadditionaltrafficisafunctionofnewbroadbandusers,theweakgrowthinadditionalsubscribers(particularlywiredservices)impliesthatmuchofthevolumegrowthiscomingfromincreasedusagebycurrentcustomers.Thus,howconsumerswillusebroadbandservicesandhowmuchcapacitytheywillconsumeareimportantfactorsinforecastingbroadbandcapitalexpendituresbyserviceproviders.

Asthefollowinggraphillustrates,themostrapidgrowthinbroadbandusageisexpectedinthreevideo‐relatedcategories:1)InternetvideotoPC;2)filesharing;and3)internetvideotoTV.

Figure 27: North American Consumer Internet Traffic (Petabits/month)

Source: CiscoVisualNetworkingIndex;MorganStanleyResearchestimates.Note:DataisforNorthAmerica,limitedtonon‐mobileconsumerusageAdaptedfromMorganStanleyResearch,U.S.Cable,Satellite,Telecom3Q09Outlook,Oct.21,2009at17.

Atamoregranularlevel,withrelativelystablenumbersofcustomerstheseincreasesinoverallinternetusagetranslateintorapidlygrowingpersubscribervolumes,asillustratedbythisgraph:

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Figure 28: Estimated U.S. Consumer Internet Use

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

With“video”beingaprimarydriverofvolumeincreases,itisworthnotingthatdifferentvideoapplicationshavesubstantiallydifferentrequirements.Asthefollowinggraphdemonstrates,televisionandotherreal‐timevideoapplicationswillrequirethehighesttransmissionratesinthefuture.Whiletheremaybeimprovementsincompressioncodecsoverthenextyears,analystsassumethatthetypicalspeedusedforstandarddefinitiontelevision(SDTV)willbe2mbpsperstreamin2013whilehighdefinitiontelevision(HDTV)willrequirebetween9and19mbpswith12mbpstypical.Morestandardinternetactivities,includingnon‐realtimevideo,peer‐to‐peerfilesharing,handlinge‐mailattachmentsorpublishingphotostosocialnetworks,donotrequireaparticularhighspeedlevelbutbenefitfromever‐higherspeeds.281

281I.Fogg,“HomeBroadbandBandwidthRequirements”,ForresterResearch,2008,http://www.forrester.com/rb/Research/home_broadband_bandwidth_requirements/q/id/52075/t/2?action=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

Thefollowingtableisbasedontheforecastsofleadinginvestmentanalystswithrespecttooverallcapexfortheleadingtelecom,cable,andwirelesscompanies(andassuch,theyrepresentlessthan100%offuturecapitalexpendituresinthesectors):

Table 13: Total Capital Expenditures for Major Service Providers ($ billion)

2009 2010 2011E 2012E 2013E 2014E 2015E Cable 11,892 11,509 10,951 11,113 11,141 11,112 11,160 Telco 22,502 21,230 18,611 16,778 15,182 13,642 12,284 Wireless 19,765 22,328 22,952 23,570 24,254 24,595 24,870 Total 54,159 55,067 52,514 51,460 50,577 49,349 48,314

Source:AverageofanalystdataprovidedtoCITI,Telcos:AT&T(excludingwireless),Verizon(excludingwireless),Qwest;CableMSOs:Comcast,TimeWarner,Cox,Cablevision,Charter,Mediacom,andInsight;Wireless:AT&T,Verizon,Sprint,T‐Mobile,Metro‐PCS,Leap.Note:Investmentanalystsprovideforecastsfortelcoandwirelessupto2011.Beyondthatyear,thecapexfortelcoandwirelesscompanieswasestimatedusingaveragedgrowthrates.282

282Aweightedaverageisused,giving60%weighttothelastyear’sgrowthrate,and20%weighttoeachofthetwoearlieryears’growthrates.

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Thisdatapredictsasharpdecreaseintotalcapitalexpendituresfrom2008to2011andsmallerdeclinesinthefollowingyears.Thesteepestdeclineisfortelcos,andasmallerdeclineforcableandwirelesscompanies.After2012,theinvestmentanalystsassumethatcapexwillremainrelativelyconstant.Theanalysts’forecastsofveryslowlydeclining(relativelyflat)capexafter2011couldbetoogenerousforanumberofreasons.Forexample,ifthemajornewinfrastructureprogramsfortelcosandcablecompaniesarelargelycompletedbytheendof2011andtherearenosimilarprogramsthereafter,theremightbeanevensharperdeclineratherthanarelativelyflatforecast.283

ThereissupportfortheideathatimprovementsinDSLtechnologywillkeeppacewithcustomerdemandforfastertransmissionspeedsintheneartomediumterm,meaningthattelcoscurrentlyutilizingahybridofFTTNwithDSLwillnotbeforcedtoabandonthisarchitectureforafull‐fiberFTTHwithintheforecasthorizon.RecentdevelopmentshaveextendedthelifeofthisFTTN‐DSLarchitectureandpushedbackthetimewhenoperatorswouldneedtoreplacethecoppertwistedpairswithfiberopticstoeachcustomer’spremises.First,thesteepandsteadylossesofbasictelephonelinecustomershavemademoretwistedpairsavailableforDSLservices.Second,newtechnologiesthatallow“bonding”ofthetwistedpairspermitmuchhighertransmissionspeeds,perhapsashighas50mbps.Inrecenttestoftechnologycalled“DSLPhantomMode,”Alcatel‐LucentandBellLabsdemonstrateddownstreamtransmissionspeedsof300Mbpsoverdistancesofupto400meters.284ThesedevelopmentsmaychangetheenvironmentforDSLprovidersandreducetheiroverallcapexrequirements.

DerivingBroadbandCapex

Howmuchofserviceproviders’totalcapitalwillgotowardsbroadband?AT&Testimatedthat“approximatelytwo‐thirdsofAT&T's2009investmentwillextendandenhancethecompany'swirelessandwiredbroadbandnetworkstoprovidemorecoverage,speedandcapacity.”285

Sinceaveryhighproportionofwirelesscapexisforbroadband(e.g.3Gand4Gdeployments),AT&T’scommentisbroadlyconsistentwiththefollowingtablewhichillustrateshowthemajor

283Therefore,analysts’assumptionsfortelcoandcablecompanies’capitalexpendituresintheoutyears(2012‐2015)maybeoverstated.284TelecomNews,“DSLPhantomModelLabtestmaximizesthevalueofexistingcoppernetworksbypushingtheenvelopeonDSLcapacity,”April21,2010http://vartips.com/telecom‐equipment/alcatel‐lucent/dsl‐phantom‐mode‐lab‐test‐maximizes‐the‐value‐of‐existing‐copper‐networks‐by‐pushing‐the‐envelope‐on‐dsl‐capacity‐1174.html285AT&T,“AT&TtoInvestMoreThan$17Billionin2009toDriveEconomicGrowth,”AT&TInc.,2009,http://www.att.com/gen/press‐room?pid=4800&cdvn=news&newsarticleid=26597.AT&T’sestimateoftwo‐thirdsisconsistentwiththeobservationofamarketresearchfirmthat“broadbandremainstheprimarycapexdriver”for2008‐09because,

“WirelineandwirelesscarriersalikearesteppinguptheirnetworkinvestmentstomakehighspeedInternetconnections,andassociatedtriple‐playbundles,availabletoagreaterportionoftheircustomers.”

Thefirmaddedthat,“…therehasbeenapronouncedshiftincapextowardsnew,broadbandplatforms,andawayfromnarrowbandsystems.”SkylineMarketingGroup,CapExReport–2008AnnualReportat1.

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telephonecompaniesareshiftingwirelinecapitalfromtheir“legacy”telephonenetworkstowiredbroadband,withbroadbandcapexexpectedtoreachnearly60%oftotalwirelinecapexin2011.

Table 14: RBOC Wired Broadband Capex ($ billion) Network 2006 2007 2008 2009E 2010E 2011E

Legacy 16.3 15.2 13.0 10.5 10.5 10.0

Broadband 7.2 10.7 11.9 11.5 12.5 14.0

Total 23.5 25.9 24.9 22.0 23.0 24.0

%broadband 30.6% 41.3% 47.8% 52.3% 54.3% 58.3%

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

Serviceprovidersrarelybreak‐outtheircapexbetweenbroadbandandothercategoriesofservices.Therefore,abroadbandcapexforecastmustbederivedfromtotalcapitalexpenditureforecasts.ToobtainanestimatefortheUSbroadbandinvestment,severaladjustmentsarerequired.

First,theanalysts’capexnumbershavetobeadjustedupwardbecausetheydonotincludealloftheindustrybutonlythemajorpubliccompanies,typicallyaccountingforabout80‐90%ofasector.286Second,acertainportionofindustrytotalcapexhastobeallocatedtobroadband.Theseadjustmentsaredescribedinthefootnotesinthefollowingchart.

TheFirstReportdidnotestimatethecapitalexpendituresforTowersortheCLECbackbonesectors.Thisupdatedoesincludetheseestimates.Therefore,toprovidetheabilitytocomparethedatainthetworeports,thefollowingtableclearlyidentifiesthecategoriesnotincludedintheFirstReportandprovidesasub‐totalthatiscomparabletotheearlierreport.

286Fortelcosandwirelesscompaniesweusedthecompanies’shareofmarketbysubscriberandforcablecompanies,weusedthesharebyrevenue.Thelargetelcos(AT&T,VerizonandQwest)accountedfor81.4%ofsubscribers,sothetotalcapexwasincreasedby18.6%toaccountforthesmallertelcos’capital.Similarly,the82.4%aggregateshareforthesevencablecompanies(Comcast,TimeWarner,Cox,Cablevision,Charter,Mediacom,andInsight)resultedina17.6%increasetoaccountforsmallcablecompanies’investments.Forwireless,thefourwirelessproviders(AT&T,Verizon,SprintandT‐Mobile)andtheir94.3%shareresultedina5.7%adjustmentforsmallcompanies.See:EliM.Noam,MediaOwnershipandConcentrationinAmerica,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,T‐MobileFornotesonTable15seefootnote287.

287*Fortelcosandwirelesscompaniesweusedthecompanies’shareofmarketbysubscriberandforcablecompanies,weusedthesharebyrevenue.Thelargetelcos(AT&T,VerizonandQwest)accountedfor81.4%ofsubscribers,sothetotalcapexwasincreasedby18.6%toaccountforthesmallertelcos’capital.Similarly,the82.4%aggregateshareforthesevencablecompanies(Comcast,TimeWarner,Cox,Cablevision,Charter,Mediacom,andInsight)resultedina17.6%increasetoaccountforsmallcablecompanies’investments.Forwireless,thefourwirelessproviders(AT&T,Verizon,SprintandT‐Mobile)andtheir94.3%shareresultedina5.7%adjustmentforsmallcompanies.See:EliM.Noam,MediaOwnershipandConcentrationinAmerica,at72,236,247,2009.

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Thefollowinggraphisbasedontheanalysts’forecasts,asadjusted,fromTable 15reflectingtheindustryinvestmentrationaledescribedabove.

Figure30:IndustrySectors'BroadbandCapex(millions)

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

**BasedoncoststoupgradethenetworkstoDOCSIS3.0in2009at$100costperhomepassed,whichincludesthecostofDOCSIS3.0cablemodems,estimatebyPike&Fisher.SeetheGigaOMNetwork:http://gigaom.com/2009/04/30/docsis‐30‐coming‐soon‐to‐an‐isp‐near‐you/Broadbandcablecapexhasbeenloweredto25%andthento20%toreflectreasonablebottomlinenumbersaswebelievethattheinvestmentanalysts’overallcapexprojectednumbersmaybetoohigh,asexplainedinthetext***Theallocationofwirelessbroadbandcapexisestimatedat60%in2009.ThisisbasedonAT&T’sstatementabout2/3ofinvestmentsgoingtobroadband.Theincreaseinsubsequentyearsassumesthat4Ginvestmentisfor“broadband.”****Thisestimateisbasedon$570,000persystem,whichtheaveragedollarvalueofthegrantsfromtheDepartmentofAgriculture’sRUS2008CommunityConnectBroadbandGrantsforwirelessinternetserviceproviders.Thenumberofnewsystemsisassumedtobe10%ofthe350WISPAmembers,increased10%peryear.

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Thenextgraphillustratesthetotalindustryandtotalbroadbandinvestment,basedonthetotalsinTable15.

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,andInsight;Wireless:AT&T,Verizon,Sprint,T‐Mobile,Leap,Metro‐PCS.

Towers

Investmentsbyindependentcompaniesthatleasespaceontowersforserviceproviders’wirelessserviceradiosarelogicallypartoftheoverallinvestmentinthewirelessinfrastructure.Theinitial2009reporttotheFCCdidnotspecificallyincludeananalysisofthe“towercompanies”ortheircapitalinvestment.Thegrowthintowercompaniesreflectsthestronggrowthindemandforwirelessservices.Whiledemandfordataisgrowingfastest,minutesofuseisalsoincreasingduetogrowthinsubscribersandunlimitedplans,andinwirelesssubstitution.288

Analystsexpectwirelessdatademandstobenefittowers.Oneobservedthat:

“Theincreasednetworktrafficbenefitsthetowers,and3Gand4Gdeploymentrepresentsadditionalupside,requiringmoreequipmentonthetowersandgreatercell

288MorganStanleyResearch,“TelecomServices1QTracker”,May27,2010at56.

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sitedensity.Webelievethatthemainsourcesofgrowthin2010willbetherisingdatademandsdrivenbyClearwireWiMAXbuild,AT&TandVerizon3Gexpansion,andVerizon’sLTEbuild.”

“Asdemandformobilecontentgrowsalongsidecontinuedsmartphonepenetration,weexpectwirelesscarriersingeneraltocontinueaddingcapacity(cellsitesthatrequiretowers)tosupportincreasedusage,networkupgrades,andimprovedcoverage.”289

Astheabovecommentsillustrate,mostifnotallofthenewtowersareneededtoaccommodatewirelessbroadbandservicessoitisthereforeappropriatetoallocatemost‐‐68‐70%oftowercapextowirelessbroadband.

ARPUandPricingTrends

AveragerevenuePerUser(ARPU)andpricingtrendsarerelevanttotwoissues:theabilityoftheserviceproviderstofinanceadditionalcapitalinvestmentfromcurrentoperationsandthedegreeofcompetition(atleastpricecompetition)whichisrelevanttoadeterminationaboutwhethercapexfromcurrentoperationsislikelytobesustainable.Ifserviceprovidersneedtoraiseadditionalcapitalfromexternalsources,ARPUandpricingtrendsarefactorswhichinvestorsstudycloselysothatthetrendsinthesefactorsaffectthecostandavailabilityofcapexfromexternalsources.HigherpricesandhigherARPUsaretherefore“positive”factorsforcapital,eitherinternalorexternal,eventhoughsuchtrendsmightbeconsidered“negative”forconsumers.Asanoverallmeasureofbroadbandrevenue,ARPUcontinuestobecomealessusefulmeasurebecause,asthepercentageofuserswhopurchasebundledservicesincreases,itbecomesincreasinglydifficulttodeterminewhatportionoftheoverallrevenueofservicesisattributabletobroadbandandwhatportionisattributabletootherservices.

Bothtelecomsandcableprovidershavecontinuedtoaddbroadbandusers,butasmarketpenetrationreachessaturation,competitionfornewusersisfierceandmostoftentakestheformofcustomersshiftingfromoneserviceprovidertoanotherratherthannewusersenteringthemarket.

Priceincreaseshavealsoreenteredthecablebroadbandmarketandoneinvestmentanalystanticipates2%annualincreasesinoverallARPUleadingtoanoverallARPUgrowthof4–5%inthenextfewyears.290IntheDSLmarket,onlyQwestincreasedpricesacrossitslineoffering,resultinginanoverallincreaseinDSLpricingof16%Q/QasQwestraisedprices68%Q/Q.291

289BankofAmericaMerrillLynch,“2Q10Wrap:In‐lineQandguidanceraised;maintainBuy,”July302009at1.290MorganStanleyResearch,“Cable/SatelliteledbyBroadbandandinlinewiththesispricingtrendsimproving”MorganStanley,2010,at8.291BankofAmericaMerrillLynch“BattlefortheBundle,”BankofAmericaMerrillLynch,2010at5.

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WirelessBroadbandARPU

Asmanyanalystspredictedlastyear,wirelessARPUincreasedin2010.Manyexpectthistrendtocontinueascompaniesaddusagecapsortieredpricingplanstotheirserviceplans.Dataalreadyrepresentsmorethan30%oftotalwirelessARPU(seeFigurebelow)anddemandfromsmartphonepenetrationisexpectedtoincrease.

Table 16: Wireless Broadband Data ARPU

AnalystsexpectwirelessbroadbandARPUtoincrease,onesaying,“…weareraisinglong‐termbroadbandARPUgrowthfromflatto+2%perannumbeginningin2011.”292

ThepercentageofwirelessARPUattributabletowirelessbroadbandhasbeenincreasingsteadily,andforthefourlargewirelesscompanieswas32.42%oftotalARPUinthefirstquarterof2010,upfrom26.7%inthesameperiodin2009.

292MorganStanleyResearch,“Cable/SatelliteLedbyBroadband&In‐LinewithThesis,PricingTrendsImproving,”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,andpractitionersfortheirreactionstoandideasaboutbroadbandinAmerica.Thecontributorsareactiveinthevariousfieldsinwhichtheywork,andthetopicsoftheessaysvaryaswell.TheessaysrangeinscopefromexaminingtheNationalBroadbandplantomeasuringtheeconomicimpactofbroadbandinruralAmerica.TheauthorsalsohadthechancetopresentanddebatetheirviewsduringTheNationalBroadbandPlan–OneYearLaterconference,hostedbytheColumbiaInstituteforTele‐InformationandGeorgetown’sCommunication,Culture,andTechnologyprograminMarch,2011.Wearegratefulfortheircontributionstothisreport.

Section4TableofContentsBlairLevin:TheTwoIdeasBehindtheNationalBroadbandPlan ................................................. 86

EliNoam:LetThemEatWireless .................................................................................................. 98

RaulKatz:EconomicImpactofWirelessBroadbandInRuralAmerica ....................................... 109

D.LindaGarciaandTarkanRosenberg:OrganizingtoPromoteBroadband:MatchingStructuretoBroadbandPolicyGoals*............................................................................................................. 144

BruceLincoln:AdvancingCommunityBroadband:SocialEnterpriseSolutionstotheProblemoftheBroadbandDigitalDivide ...................................................................................................... 164

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TheTwoIdeasBehindtheNationalBroadbandPlanBlairLevin293

AspenInstitute,CommunicationsandSocietyProgram

Duringthelast24months,theNationalBroadbandPlancatalyzedmanydiscussionsaboutthefutureofbroadbandinAmericaandthePlan’sroleinshapingthatfuture.Thesediscussionshaveoftenbeenproductive,buttoasurprisingextent,theconversationsdemonstratedamisunderstandingoftwocriticalquestions:whyhaveaplan,andwhatistheanimatingvisionofthePlan?Thepurposeofthisessayistoanswerthosequestionsinthehopethoseanswerswillleadtomorethoughtfulconversationsaboutthehowourcountryshouldapproachthechallengesandopportunitiesthatthenewcommonsofcollaboration—thebroadbandecosystem—presents.First,whyhaveaplan?Properlyunderstood,theplanwasanagendasetting,target‐clarifyingdevice.Theplanwasaprocesswhoseendpointwastolayout—particularlyforthestakeholders—anagendaforaction.Further,itdetailspolicytargetstoaimfor‐‐inthesenseofpoliciestoadopt‐‐oraimat,inthesenseofpoliciestoshootatandproposebetteralternatives.Aclearagenda,withspecificpolicytargets,setsthestageforabetterpolicydebate.Itdoesnotguaranteegreatpolicy.Butitincreasestheoddsthepolicywillbefair,mitigateunforeseenconsequences,notcontradictotherpoliciesandachieveitsintendedpurposes.Everysuccessfulenterpriseoperatespursuanttoaplan.Itchangesconstantly,asmarketschange.Internalforcesoftenchallengeassumptionsandsuggestnewwaystoclimbthemountain.Butthereisalwaysaplan,ananimatingvision,asetofgoalsandtacticsthatdrivetheenterpriseupward.Everysuccessfulenterpriseknows:planbeatsnoplan.Withoutit,wearelikethoseinasailingracewhosay,accordingtomyPlancolleagueErikGarr“we’relost,butwe’remakinggreattime.”Government—otherthanthemilitaryinawarsetting—onlyoccasionallyoperatespursuanttoaplan.Fewgovernmentagenciessetouta

293BlairLevinisaSeniorFellowattheAspenInstituteandwastheExecutiveDirectoroftheOmnibusBroadbandInitiativeattheFCC

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long‐termagenda,andsignalapolicyframeworklongbeforeafinaldecision.Thisisunfortunate,asoperatingpursuanttoaplanincreasesthelikelihoodanentitycanachieveitspurpose.NothingIhavejustsaidshouldbecontroversial.Itisnonethelessnotablebecauseformuchtalkthatgovernmentshouldberunmorelikeabusiness,itisrarethatforcesaligntoempoweranagencytodosoatthefundamentallevelbyactuallydevelopingaplan.Somehavecomplainedthattheagendasettingoftheplanwastoonarrow,buttheyreachthatconclusionbyignoringmostoftheagenda,whichincluded:

• Transforminganoutdated$9billionuniversalservicefund,includingrepurposingbillionsthatarecurrentlybeingspentonnon‐prioritypublicpurposesandrefocusingfundsonunservedareas;

• Getting100millionAmericanswhohaveaccessbuthavenotadoptedonbroadband;

• RestructuringbillionsofdollarsofintercarriercompensationwhoseDNAreflectstheworldofvoiceminutesandcauseshugeinefficiencies;

• Acceleratingdeploymentbyremovingbarrierstotheefficientuseofpoles,rightsofways,conduits,andotheressentialinputs;

• Transformingpublicsafetybybringing911,emergencyalerts,andapublicsafetynetworkoutofthevoiceandintothedata‐richera;

• Transformingeducationbyremovingregulationsthatmakeitdifficulttomoveeducationtothemoreeffective,assessable,accountableandpersonaldigitalplatform;

• Transformingmedicinebyremovingregulationsthatmakeitdifficulttotakeadvantageofelectronichealthrecordsandadata‐richenvironment;

• TransformingenergytoasmartgridbyenablingeveryAmericantousebroadbandtotrackandmanagetheirreal‐timeenergyconsumption;and

• Creatingafoundationforanupgradetogigabitconnectivitybycreatinganetworkofcommunityanchorinstitutionsaggregatingdemandtodriveincreasedspeeds.

Thislistisnotexhaustive.Theplanalsohasrecommendationsforusingbroadbandtoimprovegovernmentperformance,civicengagement,jobtraining,andeconomicdevelopment.Ineacharea,weproposedactions.Ineacharea,therehasbeenaction.IfthisisnotabigthingintheeyesofthePlan’scritics,theproblemisnotwiththeagenda,butwiththeirvision.Butthemoreimportantcontroversiesrelatetothesecondquestion:whatistheanimatingvisionoftheplan?BeforeIprovideouranswer,letmeprovidesomecontext.Many,includingthePresident,speakofourcountryfacingaSputnikmoment;amomentinwhichwecollectivelyrecognizeothercountrieshaveabilitieswebothlackandneed.Itisnotisolatedtoasingledatapoint;newdataoninternationalleadershipinavarietyofcategories

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fromgreenenergyproductiontostudents’mathandsciencescoreshavecausedcallsforcorrectingourdeficiencies.ArecentTimeMagazinecoverhighlightedthequestionofwhetherournationisindecline.Howeverdescribed,thechallengeisgreat.AdozenyearsagothegreatbusinessvisionaryPeterDruckeridentifiedakeyelementofthatchallenge:“Themostimportantcontributionmanagementneedstomakeinthe21stcenturyis…toincreasetheproductivity…ofknowledgeworkers….“Hethenpredicted“Itison(theproductivityofknowledgework)…thatthefutureprosperity‐andindeedthefuturesurvival‐‐ofdevelopedeconomieswillincreasinglydepend.”Druckerunderstoodknowledgeworkastheprimarydriveroftheeconomyandcivicsocietyinthiscentury.Insuchaworld,thecoretaskisknowledgeexchange.Knowledgeexchangeisfundamentaltowedo.Wegatherinformation,analyzeit,actonit,andthenthroughafeedbackloop,continuallyrevisecoursesofaction.Threerevolutionsinthelasttwodecadeshavetransformedknowledgeexchange:

• Thedatarevolution‐‐collectingandprovidingtrillionsofdatapointspreviouslyunavailable;

• Thecomputingrevolution—analyzingthatdata,makingtasksthatwouldhaveseemedlikefindingofaneedleinagalaxyofhaystacksascommonaslocatingthemooninthenightsky,and

• Thecommunicationsrevolution‐‐allowingustotransferdataandanalysisanywhere,anytime,toanyoneatspeedsandcostsunimaginablewhenIfirstarrivedattheCommissionin1994.

Thisknowledgeexchangerevolutionisnotanisolatedhightechphenomenon.Itaffectseverysectoroftheeconomy.Itisvitaltoeveryconstructionproject,fromhigh‐risestohouses,andessentialforeveryfarmeronatractor.It’showWal‐Martbecamethelargestretailer,howthelargestmanufacturingprocessinthecountry—Boeing’sdevelopmentoftheDreamliner—isbeingcoordinatedacrossmanycountriesbeforethefinalassemblyinEverett,Washington.Whileknowledgeexchangetakesmanydifferentforms,itinevitablysharesacommonplatform.Itisthebroadbandecosystem;thecombinationofnetworks,devices,applications,and,aboveall,peoplewhoknowhowtouseit.We’vetalkedforyearsaboutbroadbandcausingaconvergenceofvoice,videoanddatamarkets;howoncesolepurposetelephones,televisionsandcomputersaremorphinginto

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devicescapableofcarryinganykindoftraffic.Farmoreimportant,however,ishowthatconvergencehascreatedacommonsofcollaboration.StevenJohnson’sbook‐‐WhereGoodIdeasComeFrom:TheNaturalHistoryofInnovation—illustratesthatthroughouthistory,innovationhasbeenacollaborativeart,notasoloscience.Thus,themostpowerfultechnologyinthisbroadbandecosystemisnotinprocessors,diskdrivesorfiber;itisthecollaborativebrainpowerofitsusers.Thiscommonsofcollaborationisthefoundation,notjustforoureconomy,butforhowweengageeachothertocreateourcivicsociety.Keydemocraticfunctionsdependonvibrantknowledgeexchange.Itishowourvoluntaryassociations—asTocquevillenoted,therootsofourdemocraticculture—assessourneeds,howwefindoutwhatpublicofficialsaredoing,andhowweholdthemaccountable.Forthefirsttimeinhistory,thefoundationforastrongeconomyandastrongsocietydependonthesametechnologyplatform.ThebankeronWallStreet,theteacherinEastL.A.,theheadofanon‐profitinCleveland,themayorofSanAntonio,alldependonbroadbandtolearnfromothers,toexplaintoothers,andmostimportantlytotogetherimprovehowtheydowhattheydo.Asbroadbandisthecommoncollaborativeplatformforboththeeconomyandourcivicsociety,weneedtohaveabroadbandecosystemthatfacilitatesknowledgeexchangeinwaysthatareconstantlymorerobust,moreeffectiveandfaster.TomeetDrucker’schallengeofincreasingproductivityamongknowledgeworkers,ournationrequiresthatabroadbandecosystemthatfacilitatesknowledgeexchangeinwaysthatareconstantlymorerobustandeffective.Sobehinditall,thecoreideaoftheNationalBroadbandPlan:highperformanceknowledgeexchange.Inonesentence,theplanwasaboutassuringthatAmericahasabroadbandecosystemthatenableshighperformanceknowledgeexchange.Havingsuchanecosystemdoesnotassuresuccess.Nothavingit,however,guaranteesfailure.Withoutit,thereisnopossibilityofleadingincleanenergy,improvingeducation,orofrespondingeffectivelytointernationalcompetition.Thisunderstandingledourplanningefforttoaninsightthatunderlayeverythingintheplan:ashighperformanceknowledgeexchangeconstitutestablestakesforwinningthefuture,weneedabroadbandecosystemthatisubiquitous,diverseandconstantlyimproving.

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Tomovetowardthisvision,theplanhadtofocusonmorethanjustnetworksbecauseitistheinteractionofnetworks,devices,applications,andthepeoplewhousethemthatfacilitatehighperformanceknowledgeexchange.Theecosystemhastobeubiquitoussoallcanbenefitandallareincludedintheworkofoureconomyandsociety.Theecosystemalsohadtobediverseineachofitsparts.Weneedmultiple,interconnectednetworks,afullspectrumofapplications,allmannerofdevices,andallmannerofpersonsusingit.Itisthatdiversitythatdrivestheinnovationweneedthatleadstothefourthelement;constantimprovement.Improvementsineachelementshoulddriveimprovementsintheothersinaconstant,virtuousfeedbackloop:betterapplicationsdrivingmoreusagedrivingupgradednetworksdrivingmorepowerfuldevicescapableofbetterapplicationsandeveronward;aboveall,continuallyimprovingactualuse.Governmentisnottheprimaryproviderofanypartofthisecosystem.Itmust,however,assureitsrulesdrive,anddonotsuppress,improvementsinthisecosystem.Further,itmustrethinkhowitdeliversessentialpublicservicesinlightofnewopportunitiescreatedbythisecosystem.Itmaysurprisesomebutthisapproachisdeeplyatoddswithprevailinggovernmentpolicies.Theideathatdominatescurrentbroadbandpolicyisthattheprimarymetrictowhichourpolicyshouldaspireistomaximizethespeedofthewirelinenetworktoourmostruralofresidents.ThisideaishurtingAmerica.Wemustendit.It'swronginalmosteveryrespect.Thereisnoprimarymetric.Quickthoughtexperiment.Whichwouldweprefer?Greathammersbutnonailsorblueprint?Greatnailsbutnohammerorblueprint?Greatblueprintbutnohammerornails?Answer:withoutall,disaster.Howwoulditprofitustohavehighspeedsifourdevicesareslow,ourapplicationsuselessandourusersilliterate?Tothosewhothinkbetternetworksaretheonlydriverofperformance,considerhowtheiPhonechangedourmobileecosystem.Becausethemobiledevicemarketisdiverseandcompetitive,Applewasabletoenterandcatalyzeanexplosionofuseandinnovation,and,notcoincidentally,anacceleratednetworkupgrade.AstheiPhone’simpactdemonstrates,thetellingmeasureistheimprovementthroughoutthesystem,notanysinglemetric.Whichleadstothesecondproblem;theknee‐jerkfocusonspeed.Speedisaninput;whatmattersisoutput.Thedatashowedthatwhileweneedtoincreasespeedsinsomeareas,thebiggestuntappedpromisehasmoretodowithapplications;particularlynewwaysofdeliveringeducation,healthcare,publicsafety,jobtrainingandothercriticalpublicservices.

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Somecriticsoftheplanhavecomplainedthatwe“pooh‐poohed”speed.Ifindthisargumentfatuous.Weunderstoodspeedasanimportantinputbutaswithanyinput,theincrementalvaluedoesnotriseinalinearfashion.Goingfromnarrowbandtobroadbandwascriticalbutthatdoesnotmeanthesameincreaseinspeedwillagainproducethesameincreaseinvalue,orbecommiseratewiththeincrementalcost.Moreover,whilespeedisanimportantinput,itisnottheonlyone,andwhatwecaremostaboutistheoutput—highperformanceknowledgeexchange.Athirderrorisfocusingprimarilyonwirelineservices.Wirelineisimportantbutmobile,wirelessserviceswillbeeverybitasimportant.Intermsofeconomicgrowthinthenextdecade,itmaybemoreimportant.Wirelesstodayisahorizonindustry,anindustrythatpointstohowretail,manufacturing,agriculture,transportation,healthcare,education,andeveryothersegmentofoureconomycanimprovetheirperformance.OneofthepointsofJohnson’sbookisthatgreatinnovationscomefromtheconfluenceofdifferentriversofthoughtandtechnologyformingamorepowerfulriver.Hedescribesthisasthe“adjacentpossible.”Hesuggeststhe“historyoflifeandhumanculture,then,canbetoldasthestoryofagradualbutrelentlessprobingoftheadjacentpossible,eachnewinnovationopeningupnewpathstoexplore.”HedescribesNASAengineersattackingthecrisisingettingtheendangeredApollo13astronautshomebyputtingeverythingtheastronautshadaccesstoonatable.Manyitemswerenotusuallyconsideredpartsthatcouldworktogether.Butthepresenceofallpartsinspiredinnovationsthatsavedtheday.Johnsonwritesthe“tricktohavinggoodideasisnottositaroundingloriousisolationandtrytothinkbigthoughts.Thetrickistogetmorepartsonthetable.”HalVarianofGooglemakesasimilarpointwhenhetalksabouttheimportanceof“combinatorialinnovation.”Mobileisenteringitseraoftheadjacentpossible,thecombinatorialinnovation,asupgradedspeedsmeetemergingdevelopmentsinnanotechnology,locationawarenessapplications,andmachine‐to‐machinecommunications.Butblindedbyourtraditionalthinking,somedon’tseewirelessasanessentialunderpinningofoureconomicfuture,andareslowtograspthepotentialdangeroflackofspectrum.Injustafewyears,insufficientspectrumcouldleadtohighpricesandbadservice,costingoureconomybillions.Theplanidentifiedtheurgentneedtoactandcreatedaninnovativebutsimplesolutionthathasbi‐partisansupport:allowexistingspectrumlicenseholderstoparticipateinanauction,enablingmarketforcestofreeupnewspectrum.

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Lostinthecurrentdebateovermanycomplicatedspectrumandpublicsafetyissuesisasimpletruth:thattheconstantreevaluationofhowtoallocateresources,whethertheyarefinancial,humanorpoliticalcapital,isessentialtoawellfunctioningenterpriseorsociety.Spectrummaybethemostsignificantassetcontrolledbygovernmentyetourcurrentsystemdoesnothaveanyeffectivewaytoreallocatespectrumbasedonchangingtechnologies,marketsandconsumerpreferences.ThePlan’sproposaladdressesthatgapinawaythatwillbeimportantnotjustforthenextfewyearsbutfordecadestocome.Astorural,it’simportanttoconnectallofit.Butruralshouldnotbe,asiteffectivelyistoday,themajorfocusofourpolicyeffort.Thesamewithresidential;indeedmostofuniversalservicetodayisandhasbeendevotedtoservingtheresidentialruralmarket.Considerhowwewouldprioritizeuniversalservicefundstoassureaubiquitous,diverse,constantlyimprovingecosystem.Thenconsiderhowweactuallyspendittoday.Atthebeginningofthedecadewespentaboutthesameonlastmileruralconnectionsaswedidonconnectingpublicinstitutions,suchasschools,librariesandruralhealthclinics.Inthelastdecade,wirelesshasgreatlyincreaseditsabilitytooverbroadband,whichshouldresultinloweringthecostofdeploymentoflastmileconnectivitytoruralhomes.Andtheopportunitytoimproveservicesinschools,librariesandruralhealthcareshouldhasincreasedwithlivevideo,thoughthatopportunityrequireshigherbandwidth.Fromastrategicperspectiveweshouldbespendingmoreoninstitutionsandlessonhomes.Butwehavekeptinstitutionsatthesamedollarlevelwhiletheamountwespentonlastmileconnectivitytoruralhomeshasmassivelyincreased.Thisresultisanaturalconsequenceoflettingourpolicybedictatednotbystrategicanalysisbutbytheinterestsofthosewhobenefitmostfromthecurrentthinking.Anexampleofthewrongwaytothinkabouttheproblemwasarecentop‐edbytheheadoftheIowaTelecomAssociationattackingthereformsproposedinthePlan.Itwasextremelywellwrittenandwronginalmosteveryway.Itattackstheplanasanti‐ruralwhentheplanisthefirstefforttogetbroadbandtoallruralAmerica.Partoftheproblemtodayisarural‐ruraldividecausedbyourcurrentsystem.WesubsidizesomeruralcarriersenoughtobuildaMaserati,requirethemonlytoproduceaMercedeswithenoughofasubsidysotheyonlyhavetochargeforaCorolla.Forotherruralcarriers,wetelltheirsubscriberstowalk.Theauthor’ssolution,notsurprisingly,ismoregovernmentsubsidiesforhisclientsandnothingtosolvetheproblemofunservedruralareas.Butthemostdangerouspartoftheeditorialwasthis.AfternotingthatthePlansetsagoalofatleast100millionAmericahomeshavingaccesstonetworkscapableofdelivering100Mbs,he

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wrote,“(i)tishardtobelieve,buttheFCCdoesnotbelieveallIowansshouldhaveaccesstothesametypeofbroadbandspeeds.”Thisisalovely‐soundingideaandarecipefordisaster.Itignoresthatitisthemarket,notthegovernment,whichsetsthespeedmostAmericansreceive.Itignoresitwouldrequiretaxingallcurrentsubscribersabout$30amonth,causingtensofmillionstohavetodroptheirservice,hardlytheresultwewantfromauniversalservicesystem.Itignoresthat,basedonaplethoraofdataonactualconsumertrends,getting4Gwirelesstoruralishigherpriorityforconsumersthanawirelineupgrade.Anditdefiescommonsensetothinkthatpeoplewhoseworkisoutdoorsandmobiledon’tcareabouttheservicetheycangetontheirtractor.Mostimportant,itignoresarobust,constantlyimprovingbroadbandservice,aserviceessentialtoalltheeconomicenginesofthiscentury,requiressomesectorstohavespeedsfarhigherthantheyhavetoday,andhigherthanitwouldevermakesenseforthegovernmenttosubsidizetoothers.Forexample,ifourresearchinstitutions—certainlyacriticalassetforrespondingtothisSputnikmoment—aretoremainthebestintheworld,theyneedworld‐leadingconnectivity.Sotoo,ourleadingmedicalcenters,andotherinstitutions,publicandprivate,whicharekeytoourinternationalcompetitiveness.Weneedabroadbandplanthatservesastrategyofeconomicgrowth,notabumperstripthatservesembeddedinterests.Whiletheargumentsoftheruraltelephonecompanieshavesignificantlogicalandeconomicflaws,theyhavemanysupporterswhohaveofferedupwaystodrivenewcapitalintoruralareas.Iamallforwaysincreasedcapitalinvestmentbutwhenweexaminetheproposals,theysufferfromthesameunwillingnesstoconsiderincrementalcostsandincrementalbenefits.AcommoncriticismisthatthePlanweerredbynotadoptingtaxchangestostimulatefiberbuild‐outs.Let’sputasidethatrealistically,theyhavenochance;theyaretaxexpendituresandweareinaneraofcuttingbudgets.Ifwehadproposedthemwewouldhavebeenlaughedat,butnotjustbecausetheyarenon‐starters:theyarebadideas.First,taxcreditsareinthiscaseaveryinefficientwaytousepublicpowers.Duringthetransitionandtheplan,welookedatseveralsuchproposals.Iinitiallythoughtthemworthybuttheeconomists,demonstratedtheywouldeffectivelypayforthingsthatwouldhavebeendoneanywayor,likerateofreturnregulation,causenon‐economicinvestments.Ithinkwehavehad

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enoughofrulesthathavethepublic$17,000alineperyearperhouseandseenoneedtocreateanewincentiveforsuchspending.Second,itputstheheavyhandofthegovernmentonthescaleofcompetition.AsastudybyCITIshowed,wehavewirelinecompetitionforover90%ofthehomes.Butafibertaxcrediteffectivelyonlyhelpsonesideinthatcompetition.Further,asVerizonhasalreadybuiltsignificantfiber,itonlyhelpsasubset.WhyshouldgovernmentpolicyfavorthecapitalexpendituresofWindstreambutnotCharter?Whyshouldgovernmentdecidethatonekindoftechnologysolutiondeservesataxbreakbutanalternativethatperformsthesamefunctiondoesnot?Ifweonlyhadasingleproviderforthelion’sshareofthepopulation—asothercountrieshave—suchapolicymightmakesense.Butwherecompetitiveforcesaredrivingupgrades,shouldn’twewantthatprocesstoplayout?Third,andmostprofound,weshouldwantthecapitalallocationdecisionsofcompetitiveplayerstoreflectmarkets.ThatAT&TandVerizonaremovingtheircapitalexpenditurestomobilereflectsthechoicesofconsumers,whoincreasinglywanttotakeadvantageofwhatsmartphonesandtabletscandoanddonotyetseethevalueofmovingtheirexpenditurestopayingmoreforfasterwirelineservice.TaxcreditsinthiscontexthavetheeffectofthegovernmenttellingtheCEOsofAT&TandVerizon,“don’tlistentotheconsumers.We,thegovernment,knowbetteraboutwhatisintheconsumerinterestandwewantyoutospendyourcapitalonmorewirelineandlesswirelessnow.”Thatisaprofoundlybadidea.Asistheidea,alsoofferedascriticismofthePlan,thatweshouldhaveproposedmoreoff‐taxexpenditures—whichstillrequireAmericanseverywheretopaymoreforbenefitsthatarehighlyunlikelytobecommensuratewiththecost—todrivefibertoareaswherethecostperhomecannotbejustified.Thatsuchdeeplyflawedargumentshaveanylegsisunfortunate,butfrankly,theprocessbywhichthepubliclearnedofthePlanbearssomeoftheblame.DuringtherolloutofthePlan,onespeech—theonethatsetforththatgoalof100Mbpsto100millionhomes—attractedagreatdealofattention.Ididn’thaveaproblemwiththegoal.AsthePlanexplains,goalsareanimportantwayofsettinganorthstaronourcompass.Thatspeechgarneredsomuchattention,however,iteffectivelydefinedtheplanforthemassaudience.Ononelevel,itwasagreatsuccess;butthatshort‐termsuccesshasprovencostlyoverthelong‐term.

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Itmuddiedthewatersfortheuniversalservicedebate.Asnotedabove,ruralrepresentativesconstantlyarguethatifurbanareashave100Mbps,theyareentitledtoexactlythesame,whateverthecost.ThespeechfocusedattentiononthehortatorypartofthePlan—theaspiration—ratherthanthemoreimportantcallsforaction,diminishingtherealpowerofthePlan.Further,itfocusedonthemarketsegmentforwhichgovernmentactionisleastlikely—atleastinthenear‐term‐‐toberequired.Overthenextseveralyearsexistingmarketforcesaredrivingupgradesinthemassmarketforbothwirelineandwireless.Incontrast,governmentneedstoactintheunservedend—bothdeploymentandadoption—andthehighend,bystimulatinggigabitcommunitiesandaidingkeypublicanchorinstitutions.Thegovernmentneedstoactthroughoutthemarkettoimprovethewayitdeliversessentialpublicservices,suchaseducation,publicsafety,jobtrainingandhealthcarebytakingadvantageofbroadbandecosystem.Thesuccessofthespeech,however,hidfromviewtheprimarytargetsforaction.Butthemostproblematicelementwashowitplayedintotheconventionalwisdomthattheplanshouldbeaboutthenetworkspeedtohomes,ratherthantheadmittedly,hardertodigestbutmoreimportantgoal:improvingAmericabyusingbroadbandtoempowerhighperformanceknowledgeexchange.Itdidn’tdothehardbutessentialworkofchangingthewaywelookattheproblem.AnotherPeterDruckerinsightisrelevanthere:“Thedangerintimesofturbulenceisnottheturbulence.Itistoactwithyesterday’slogic.”Farmoreimportantthanahortatorygoalregardingnetworkspeedisthepracticalrealitythattoday’spoliciesarebasedonyesterday’slogicandyesterday’srealities,lockingusintolow‐performanceknowledgeexchange.Consistentwithyesterday’slogic,ouremergencyalertsystemrunsonalow‐performanceknowledgeexchangeplatformmostAmericansspendmostoftheirtimedisconnectedfrom—thebroadcastsystem—insteadofthehigh‐performanceknowledgeexchangeplatformmostAmericansareconnectedto24/7—themobilecommunicationsnetworks.Consistentwithyesterday’slogic,our911systemisbasedonvoice,notdata.Today’slogicshouldallowustoseethatinsteadofforcingalltoofferuniform,low‐performanceknowledgeexchangevoicecalls,weoughttounleashcompetitiontoofferhigh‐performance

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911upgradesthatenablesendingvideos,texts,thehealthrecordandbloodtypeofthevictimtotheambulance,apeertopeerneighborhoodcallforhelpforfunctionslikeCPR.Consistentwithyesterday’slogic,wedelivereducationalmaterialsthroughalowperformancetechnologydeveloped5centuriesago—textbooks‐‐insteadofhighperformanceeBooks,whichareeasiertoupdate,assess,improve,whichprovidestudentsfarmorediverseanddynamicmodesoflearninginwaysthatworkbestfortheindividualstudents,allatacheaperprice.Icouldcitesimilarexampleswithhealthcare,energy,jobtrainingandmanyothers.Inshort,ourpublicarenaisstillusingthelogicofthepast;theeraoflowperformanceknowledgeexchange.Butthereishope.IntheplanwesetoutanagendaforsuchactionsandtodaythatagendaiscentraltoeverymajorproceedingtheFCCisnowundertaking.TheplandefinedthespectrumagendaforCongressionalandWhiteHouseactivityinawayunparalleledforanFCCdocument.Theplan’sagendaisreflectedinthetechnologyplansofnumerousagencies,includingtheDepartmentsofEducationandHealthandHumanServicesandthenewConsumerFinanceAgency.Ithasstimulatedanumberoflocalgovernmentandnon‐profitactivities.Iftheplanisunderstood,asitshouldbe,asanagenda‐setting,targetclarifyingdevice,thenthatrecordofsettinganagendaandclarifyingtargetsisonetobecelebrated,notberated.AsnotedinJohnson’sbook,innovationiscollaborativeandcollaborativeeffortswithmanyagencieshasleadtoagreaterpushforhigh‐performanceknowledgeexchangeinhealthcare,education,andotherareas,withmembersofourteamofourteamnowplayingkeyrolesintheagencywithdirectmissionresponsibility.Thenation’sCTO,AneeshChopra,andtheheadofNTIA,LarryStrickling,aremakingsurethatthegreatrecommendationsareimplementedandthemerelygoodareimprovedandimplemented.Theyunderstandtheimportanceofhigh‐performanceknowledgeexchangetothecountryandthepathweneedtotraveltogetthere.Wecanbepleasedbutweallknowwehavealongwaytogo.Nothingwillbedonepreciselyasweenvisioned,notshouldit.Aswewroteintheplan,theplanisinbetaandalwayswillbe.HighPerformanceKnowledgeExchangeisnotachievedinasingleevent;itisaprocessthatiseverongoing.ThePlandidnotstartorendthatprocess.ButIhope,anditappears,thePlanacceleratedit.

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Whichprovesaveryimportantpointworthrepeating:planbeatsnoplan.

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LetThemEatWireless

EliNoam294ColumbiaBusinessSchool

April2011LastMarch,theFederalCommunicationsCommissioninWashington,withsomefanfare,presenteditsNationalBroadbandPlan(NBP).AyearlaterandwellovertwoyearsintothenewAdministration,itisworthlookingattheprogressinpromotinganinfrastructurethatcandidateObamahaddeclaredessential.IwroteayearagointheFinancialTimes295thatwhiletheplanwasexcellentinitscomprehensivenessanddirection,itwassignificantlyhobbledbyamajorrestriction–adismalbudgetrealitywhichpreventstheAdministrationfromprovidingfundstoaprojectwhichitdeclaredtobeaprimenationalinitiative.WithinsuchconstraintstheNBPmanagedtomaneuvercreatively.Butthat'snotthesameasdetermininghowthenationshouldproceedifit’snottryingtodoitonthecheap.Ialsolikedtheopen‐mindednessoftheplan,whichwasdescribedbyitsauthorsasa“beta”versionreadyforimprovements.Theyshouldbeencouragedtomaintainsuchaperspective.Theplanisanationalassetbutitisnotdoctrine.Inthespiritofconstructivedialogue,Iwilladdressonemajorissue,thecentralrolethatwirelessupgradeplaysintheNBP.WhathashappenedintheyearsincetheNBPwasunveiled?Thegoodnewsisthatin2010,homeswithfiberpassing(orclosenearby)increasedbyabout9.5million,andcable’sfastDOCSIS3.0becameavailableto25millionadditionalhouseholds.Butlittleofthatwasduetotheplanortostimulusmoneys.Actually,intheprecedingyear,2009,thoseupgradeshadbeenstillhigher,9.8millionfortelecomand30millionforcable.AsCITI’sstudyofprojectedinvestmentshows296theyareexpectedtodeclinein2011andbeyondastheupgradeanddeploymentprogramsarenearingcompletion.Basically,theplan’sgoalsonbottomline

294EliNoamistheDirectoroftheColumbiaInstituteforTele‐InformationandaprofessoratColumbiaBusinessSchool295Noam,Eli,“PayingfortheAmericanNationalBroadbandInternetPlan”FinancialTimes,April5,2010.http://www.ft.com/intl/cms/s/0/89f0b142‐40e3‐11df‐94c2‐00144feabdc0.html296SeeAtkinsonandSchultz“BroadbandinAmerica,”http://www.broadband.gov/docs/Broadband_in_America.pdf

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connectivityseemtobemetbyregularmarketforces.Thetaskaheadismoreaboutunservedareas,astheNBPrecognized.Theplan’sbottom‐linegoal,proclaimedbytheFCCChairman–100millionhouseholdswithaninternetconnectivityof100megabitspersecondby2020–wasanuncomfortablebumper‐stickerfortheNBP’sauthorswhosetargetsweremorecomplex.Butsomebottomlineisinevitablyneededtomeasureprogress,andusingsuchayardstickthe“100square”targetwashardlyambitious.Asmentioned,giventherateatwhichprivatecableandtelecomcompaniesarepushingahead,thegoalwouldbeachievedanywaywithoutgovernmentsupport(thoughnotasequallydistributed).Othercountriesaremoreambitious.Korea,whichalreadytodayhasanalmostuniversalserviceatthelevelof100Mbps,announcedatargetof1gigabitpersecondtoeveryhousehold.Japanaimstoreacha100%fiberpenetrationin2011,upfrom50%in2009.Australiaiscreatinganationalfibertotheneighborhoodfor93%ofthepopulationat100Mbps,withlast‐mileupgradesforgigabitconnectivitytofollowwithdemand.AdvocatesoftheNBPdownplaytheimportanceofbitthroughputrates(“speed”)andstressinsteadprogressintheapplicationsandpenetrationsofbroadbandconnectivity.Ofcourse,thereisadiminishingreturnforconnectivityspeed.Buthasitbeenestablishedthattoday’sspeedinmetropolitanareasistheoptimumforthefuture?Theenvironmentishighlydynamic.Applicationsandperformanceareintertwinedinachicken‐and‐eggscenario.Whenalargeuserbaseofhigh‐speedusersemerges,applicationscatchup,andviceversa.Justashorttimeagohardlyanyonewatchedvideoovertheinternet.Mostinternetvideoventurescollapsedbecausetheirspeedrequirementswereaheadoftheuserbase.Today,thatproblemhasdeclinedconsiderablyandthereisroomforYouTube,Hulu,andNetflix.NetflixhasovertakenComcastasthenumberonevideosubscriberserviceinthecountry.Millionsofpeopleaccesstheirvideoentertainmentonline.Trytotakeitawayandexpectarebellion.Trytodenyittosomepeopleandexpectarevolt.Yesterday’svisionbecomestoday’scommonplace,andtomorrow’sentitlement.Theleadingedgeofanelectronicinfrastructureisessentialforeconomicprogress,justastheconcernforthetrailingedgeisimportantforsocialdevelopment.Applicationsareofcourseimportant,buthistoricallygovernmentshavebeenmoresuccessfulininfrastructurewithitshugeexternalities–roads,airports,transmissionlines‐‐thaninapplications–buses,airlines,refrigeration.Andnow,themoderatespeedgoal–intermsofpushingtheleadingedgeofinfrastructure‐‐ofthenationalplanhasbeenfurtherloweredbyashiftofemphasis,fromnolessthanPresidentBarackObama.InrecentspeechesPresidentObamahasselectedthewirelesspartoftheNBPforspecialemphasis.ThebroadbandprioritiesoftheAdministrationarenowpubliclyfocused

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ontheemergingnewfourthgenerationofwirelessmobileandfixedphonesanddevices,alsoknownas4G.Theideaistoliberate500Megahertzofspectrum,toauctionitofftoprovidersof4G‐‐presumablymobiletelecomcompanies,thusmorethandoublingtheirspectrum‐‐andtousetheproceedstocreatebroadbandconnectivityforunservedareasandpeople.Let’slookattheelementsofthisprogram.Willithappen?Willitdothejobofspreadingenoughbroadband?Andwhatarethealternatives?Willthewireless‐basedapproachwork?Wherewouldthenewspectrumcomefrom?First,fromseveralexistingallocationsandgovernmentalusers,thoughwhetherthiswillactuallymaterializeisagoodquestion,becauseeachoftheseuseshasitsfierceadvocates.Intheplan,perhapswisely,thereisnoattempttogoafterbigslicesofgovernmentspectrum,evenwhereitislargelytechnologicallysuperseded,suchasdomesticradaroutsideofperimeterdefenses.297Asecondpartofthenewspectrumformobilecommunicationswouldcomefromothermobileuses,especiallythoseforsatellites,whichhavetanked.MostoftheremainingspectrumwouldcomefromexistingTVbroadcasters,whowouldvoluntarilygiveupallorsomeoftheirover‐the‐airspectruminreturnforthecarrotofanunspecifiedsliceoftheauctionrevenuesandthestickofunspecifiedspectrumuserfees.Theseauctionswouldraiseanestimated28billiondollars.Butwillthishappen?Unlessfinanciallyimperiled,mostbroadcastershavenointentiontovoluntarilysurrenderwhattheyhavecometoconsidertheirspectrumpatrimony,orbepushedtoyetanotherband,especiallyiftheresultistofacilitatetheentryofcompetingvideoplatformsandviewingoptions.Maybetheywillgiveupasliceoftheirspectrum,sincewithdigitalmulticastingtheymightneedlessspectrumtostayinthesingle‐channelbusiness.But,thebroadcastersmostlikelytotrytosellorleasetheirspectrumarethoseofruralTVstationswithlowaudiencesandperhapshighdebt.Butinthoseareasspectrumisnotscarce.Incontrast,intheurbanareaswhere4Gusewouldrequirealotofspectrum,broadcastersarelesslikelytosell.Broadcastersstillservicedirectlyabout15%ofAmericanhouseholds(andmanymoreovercable),andaretheprimarywayinwhichcandidatesforCongressreachtheirconstituents.ThusCongresswillnoteasilyapproveaninvoluntarydisplacementofbroadcastersunlesstheirruralconstituentsbenefitsubstantiallytomakeupforlossofpartoftheirfreeTV.

297Noam,Eli,“Curbin‐airdelaysforfree,”FinancialTimes,December17,2007.http://www.ft.com/cms/s/0/1f124c7e‐acd8‐11dc‐b51b‐0000779fd2ac.html#axzz1OtCaO3q3

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Giventheinevitablelegislativeandlegalroadblocks,theprocessofshiftingspectrumfromTVbroadcastingtotelecomwilltakemuchtimeandpoliticalcapital.Intheend,itislikelythatmuchlessspectrumwillbeavailableforauctioningthanenvisioned,andhencelessmoneywouldbegeneratedbytheauctionthanhopedfor.Furthermore,inanycalculationofnetproceedsoneneedstosubtractthepay‐offstobroadcastersfortheirspectrum,thecostofclearingotherspectrumbandsfortheirrelocation,thetaxdeductibilityandamortizationofthespectrumlicensesbytheirnewholders,aswellastherequirementtosupportpoorTVviewerswhentheyareforcedtomovetheirTVsetstoanotherband,andtocableandsatellitesubscriptionTV.Andofthesespeculativeauctionrevenues,onlyapartwouldactuallygotobroadbandinfrastructure–aone‐time$5billionforrural4G.Virtuallynothingwouldgotowardsfiberupgrade,ortocable‐basedinfrastructure,ortoanupgradedtraditionalcopperbasedDSL.$9.6billionwouldgotocutthefederaldeficit.(Thisraisesanotherquestion,thoughnotoneofcommunicationspolicy:shouldthenationsellofflong‐termassetsinordertofundcurrentconsumption?)Anadditional$10.7billionwouldgotowardsapublicsafetynetwork,ofwhichaboutonethirdwouldpayoffthepublicsafetyuserstovacatetheirspectrumfor4Guse.Onlythatthirdcouldbecountedtowardsbroadband.Inotherwords,amajorstrugglewithbroadcastersinthenameofbroadbandinternetwillresultingeneratingonly$8.2billiontowardsinfrastructure,allofitfor4Gwireless.ThesecondquestiontoaddressiswhetherthemobilewirelessapproachwilldothejobofcreatingbroadbandforruralAmerica.Andhere,too,Iamsupportivebutskepticalwhetherthisisenough.Basically,theperformanceof4Gasabroadbandplatformismodestandwillbesooninsufficient.Myconclusionisnotbasedonlackofknowledgeaboutthewirelessmedium.Havingbeenalongtimewirelessenthusiastasalicensedradioamateur,AdvancedClass,I’veoperatedmobileradiotransmittersandreceiversbeforemobilewirelessbecameaconsumerproduct.JustamongmyregularFinancialTimescolumnstherearehalfadozenfavorablecolumnsonthetopic‐‐celebratingtheprogressofwirelessintheUS298advocatingmore

298Noam,Eli,“There‐assertionofAmericainICT,”FinancialTimes,June19,2010,http://www.ft.com/intl/cms/s/0/4a453178‐7b33‐11df‐8935‐00144feabdc0.html#axzz1OtCaO3q3

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governmentspectrumforcivilianusage299openingupunderutilizedspectrum300acceleratingthemoveawayfromanalogbroadcasting;301andidentifyingthesuperiorityofmobile‐basedTV.302Movingmorespectrumtomobileandfixedwirelessusersisalaudablegoalanddeservingsupport.Butitishardlyanationalbroadbandpush.It’sforemostamobileenhancement.Itsmaincontributionwouldbetoimprovethecoverageforeverysmartphoneuserinthecountrytohigherdataspeeds,tomakebroadbandubiquitousgeographically,andtocreatecompetitivealternativestotheexistingcable‐telcoduopoly.Theseareimportantaccomplishments.Buttheydonotsolvetheruralbroadbandproblem.4Gwirelesswouldreachrealisticallyspeedsofonlyabout3Mbps–ignoreallofthose‘upto’speedprojectionsinthepressthataregeneratedbycorporatePRmachines‐‐oncealotofpeopleusedata‐intensiveapplicationsandsharethespectrum.Thisisonlyafractionofthespeedofwirelinespeeds.Incomparison,fibersupportstoday150Mbps,andcaneasilybeupgradedtogigabitspeedsasdemandemerges.Cable’sDOCSIS3.0modemservicerunsatover50Mbpsandcanreadilyreach200.EvenDSL,usingslightlyimprovedtelephonenetworks,canreachinnewerversionsover20Mbps.Inotherwords,fiberandcableare50‐100timesasfast,andDSLisabout7timesasfast,andtheyhaveadecentheadroomtoexpandspeed.Therearemanypeoplewhodonotconceiveoftheneedformorespeedthan4GwillprovidewhenitreachesruralAmerica.Thisisshort‐sighted.First,thereisthesimplematterofconvenience.Ifittakesoneminutetodownloadamovieovercableorfiber,itwouldtakewireless,ataspeedthatisslowerbyafactorof100,onehourand40minutes.Thatisalotoftime.Second,ifmillionsofpeopleweretostreammoviesoverwireless,thenetworkswouldcometoacrawl.Unlessonewouldaddhugeamountsofspectrum–unavailable‐‐oraverylargenumberofcellsites–expensiveandenvironmentallyunsound.Let’sdoasimpleback‐of‐theenvelopecalculation.Supposewesucceedinallocatingto4Gnewspectrumtotaling300Megahertz.Eachcellsitecoulduseonesixthofthesefrequencieswithoutinterferingwithitsneighbors.Furthermore,duples(2‐way)communicationswouldhalvethechannelineachdirection.Thiswouldtranslate‐‐usingatranslationof2bitspersecondpereachhertz‐‐toa2‐

299Noam,Eli,“Curbin‐airdelaysforfree,”FinancialTimes,December17,2007.http://www.ft.com/cms/s/0/1f124c7e‐acd8‐11dc‐b51b‐0000779fd2ac.html#axzz1OtCaO3q3300Noam,Eli,“Thefourthwayforspectrum,”FinancialTimes,May29,2003.http://www.elinoam.com/eli/fourth_spectrum.pdf301Noam,Eli,“Theothertransition:Analogswitch‐off,”FinancialTimes,January16,2009.http://www.elinoam.com/eli/the_other_transition.pdf302Noam,Eli,“Comingsoon:mobile,immersive,interactiveentertainment,”FinancialTimes,July17,2009.http://www.ft.com/intl/cms/s/0/00ab099c‐7301‐11de‐ad98‐00144feabdc0.html

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waypipeof50Megabitspersecond.Therefore,anytimethatmorethan10peopletrytousethecellsiteatthesametime,theaveragespeeds(combininguploadsanddownloads)woulddropbelow5Mbps(50Mbpsdividedby10.)And,ofcourse,morethan10peoplewouldusethecellsiteifitistheonlyormainconnectivitytotheinternet.Theonlywaytocounteractthiswouldbebyconstructingalargenumberofadditionalcellsites,sothatthenumberofpops(people)persitewoulddrop.Buteveniftherewouldbeacellsiteforeachsingleuser(lessthanapop)thespeed,bytheabovecalculation,wouldbeonly50Mbps.Thisisnotamatterofbetterengineering,it’sphysics.Engineeringmightimprovespectrumefficiencyandotherelementsabit,buttheheadroomisnothuge.Third,applicationswillcontinuetorapidlygrowintheirneedsforspeed.Let’sdoanotherback‐of‐the‐envelopecalculation.AnHDqualityTVhas1080horizontallinesand1920verticallines,i.e.2millionpixels,3primarycolorsarerequiredforeachpixelat8bits/color,and60framespersecondistheTVstandard.ThismeansthatsuchHDTVrequires3Gbpsofspeed,plussomeforaudio.AhouseholdwillrealisticallyrequireasecondandthirdchannelforothersimultaneoususessuchasTVwatching,games,orchannelsurfingbyothermembersofthehousehold,orbymulti‐taskers.Thiswouldmeanatransmissionspeedrequirementofabout10Gbps.(Compressionreducesthis,ofcourse,maybebyafactoraof100,andonewillreducetheframerateto30.Thiswouldbringdowntherequiredbitrateto50Mbps,butattheexpenseofqualityandlatency.Latencyisimportantformulti‐playergames.)Butthehighernumberof10Gbpsisthebenchmark.Andthisisnottheendforspeedrequirements.Noneoftheaboveisextravagant.WithTVscreensbecomingflatter,bigger,andcheaper,thepixeldensitywillhavetogrowjusttomaintainsharpness.ThenextgenerationofTVresolution–4K—hasabout8.5millionpixels.Thereare3colorsperpixel,andtheywillrequireanincreaseto16‐bitscolor.Theframeratewillremainat60framespersecond,andmorelikely72ormore.Thisaddsupto44Gigabitspersecond.Tocreatethree‐dimensionalityrequiresadoubling.2‐wayinteractivitydoublesthisagain.Superioraudiosucha5.1or7.1willalsorequiremorebandwidth.Addingallthisup,back‐of‐the‐envelopestyle,resultsinatransmissionrequirementofabout200Gigabitspersecond.ThreesuchchannelsperhouseholdswouldbringittooveronehalfofaTerabit.(AndthisdoesnotevenincludeafutureTVofimmersion,whichwouldwraparoundtheviewerandrequiretentimesasmuch.).Thisisabout200,000asmuchasthespeedof4Gundernormalutilization,andevenmoreif4Gisheavilyutilizedandthussloweddown!Obviously,allofthesenumberswillbesqueezedbycompressionandothertechniques.Butthisisthereferencepointfromwhichengineeringmustartfullywhittlebitsawaytofitthenarrowerchannel.Evenifwecompressandreducebandwidthbyafactorof1000,itwouldstillrequire600Mbpsperhousehold,200timesfasterthan4G.

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Yes,itwilltaketimeforsuchTVtoemerge.Fromtoday’sperspectiveitmightnotseemtomeetanimminentconsumerdemand.Butthat’swhatpeoplealsosaidwhencolorsupplantedblack‐and‐white,orwhen1080linesofHDdoubledthe525linesofNTSC,orwhenDVDsreplacedVCRs,orwhencableTVintroduced12channelsinsteadofthefourorfiveover‐the‐airsignals.Usersgetusedtohigherqualityandquantityalmostimmediatelyandtheynevergoback.Thepointisthatweshouldnotunderestimatethecontinuedpushtowardssuperiorvideoquality.TheNBP,too,mentionsthattransmissionspeedsofbroadbandhavebeenrisingattherateof20%peryear.ThisisagoodreminderthatweshouldnotfashionnationalpolicyonassumptionsofastaticTVbutfuture‐proofitinstead.Andweshouldnotexpectruralareastositbyholdingtheirlittle4Glaptopscreenswhiletheirmetropolitanbrethrenenjoy2‐way,3D,4K,5.1sound,6footscreentelevision.Thereareotherdimensions,too.First,costtousers.Becauseoftherelativescarcityofspectrum,mobile4Gbroadbandservicewouldbemoreexpensivethanwirelineservices,asawaytomatchdemandwithsupply.Satellite‐basedbroadbandinternet,eveninitsforthcomingnextgeneration,isstillmoreexpensive.Andtherewillbenosavingsinhardware.It’shardtoimaginethatruralpeoplewoulddotheirtaxesortypetheirresumesonasmartphone,sotheywouldstillrequireacomputerortabletdeviceformeaningfuluses.Second,costtotaxpayers.Fromataxpayer’sperspective,a4GwirelesscoveragewouldalsobemoreexpensivethanDSLforlargepartsofthecountry.ThisisshownbytheFCCitselfinitsmapdepictedbelow.Ascanbeseen,forthewesternandnortheasternpartsofthecountry,closingthebroadbandgapbymeansofDSLwouldbecheaperthanwith4G.303Third,restrictivnessonusers.Theinherentlimitationsofwirelesscommunicationsmeanthattheirusewouldbemorerestrictedandmanagedbythenetworkoperatortokeepdataflowing.Inotherwords,theopennessoftheinternet,protectedthroughrulesofnetneutralitywhicharealsoaprioritytotheObamaAdministration,wouldbehardertosustaininthemorelimitedwireless4Genvironment.Wouldruralareasacceptforlongthe4Gmobilecommunicationsastheirbroadbandplatform—atalowerspeed,higherprice,andwithlessopenness?Atfirst,itwouldofcoursebeanimprovementforthosewhocurrentlyhavenobroadbandaccessatall,andprovidecompetitivealternativestoothers.Thiswouldbewelcomedwithopenarms.Butsoon,therealityofa

303TheFCCmapprobablyignoresthepotentialoffixed4Ginruralareas,whichcouldprovidehigherspeedsatalowercostthanDSL,andareoftenoperatedbyindependentcompanies,so‐calledWISPs.Theyoftenuselicense‐freebandsinlowdensityareaswherespectrumismoreplentiful,thusnotrequiringthecostlyrelocationsofexistingusers.

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second‐gradequalityofconnectivitywillsinkin.Itwillleadtoalternativemarket‐basedorpoliticalsolutionstoupgradetheserviceleveltomatchthatofmetropolitanareas,i.e.,towireline.Thus,4Gwirelessisonlyatemporarysubstitute.4Gastheplatformforbroadbandconnectivitymightgetabitfasterwithtechnology,butabsentahugeextraallocationofspectrumorvastarrayofcellsites–unlikely,costly,andenvironmentallycontroversial‐‐thewirelinetechnologieswillleavewirelessinthedust.It’sbasicphysics.Andasmetropolitanareasacquirewiredconnectivityspeedsofhundredsorthousandsofmegabitpersecond,ruralareaswillnotremainsatisfiedwithwireless4Gspeedsthatareahundredtimesslower,anymorethantheirgrandparentsstayedwithpartylinephoneconnections.Andwhyshouldthey?It’sbasicpolitics.Already,mostruralhouseholdsarenotdependentonwirelessforbroadband.AmajorityofsuchresidentsarealreadypassedbycableTVwhichenablesmuchfasterspeeds,andstillmoreruralhouseholdsalsohaveaphoneconnection.Intime,thesewirelineconnectionswillbeupgradedandreachmostruralhouseholds.Thisdoesnotrequireagreen‐fieldsconstruction.EventheFCC’sownmapshowsthatupgradetoDSLwouldbecheaperthan4Gwirelessformuchofthelow‐densityregionsintheWestandNortheast.Thisleavesoutonlythoserelativelyfewhomesthatarenotconnectedtoanycommunicationsnetwork,yetwhohaveelectricpower.Theirproblemcanbedealtwithbyfixedwireless,providedbyentrepreneurialWISPs,withoutsuchatinytailwaggingtherestofthecountry.Wearefrequentlytoldthatthegovernmentshouldnotandwillnotpickplatforms.ButtheNBP’semphasisonfundingandclearingthespectrumfor4Gisexactlythat.Enhancedmobilityisimportant.Butitcannotbedescribedasaplatform‐neutralityforbroadband.Whythennotmovethenationalefforttofiber(withpossibletailsofcoaxorfixedwireless),whichisfuture‐proof,incontrasttowireless?TheproblemisthattheFederalbudgetdeficitdoesnotpermitthefundingofanationalfiberorruralnetworkupgradeinitiative.Thisleavesthegovernmentwiththefallbacktouseanoff‐budgetcurrency–spectrumallocations—toadvanceitsgoals,anditshapesitspreferencetothewirelessplatform.Butiffiberandothernetworkupgradesaretobepursued,astheyshouldbe,weshouldjointlyandconstructivelybrainstormabouthowthoseinvestmentscouldbegenerated,ratherthanputallpubliceggsinthe4Gbasket.Beforewedoso,let’sgetsomesenseofthefundingmagnituderequired.Canweaffordawirelinenetworkupgrade?Theplan’sadvocatespresentnumbersthataresohugeastoserveasdeal‐breakers,about$320billionofincrementalgovernmentalsupport.This

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number,whosederivationisnotexplained–orcouldnotbefound‐‐intheNBPreportoritstechnicalpapers304,isbasedona100%penetration,whichisunrealistic.Thelastfewpercentaccountformuchofthecost.EvenPresidentObamaspokeofa98%wirelesspenetration.Second,anygovernmentsubsidywouldnothavetocovertheentireinvestmentcost,onlypartofit.Yetbyotherestimates,thenecessarysubsidytosubsidizefiberacrossthecountry,ismuchlower.DaveBurstein,editorofDSLPrime,estimates$14billion,basedonextrapolatingVerizonFiOS's$650perhomepassedto80%ofthecountry,andsubtractinghomesalreadyreachedbyfiber.Fromthisshouldalsobesubtractedthenumeroushouseholdswhichalreadyarereachedbycablemodemservice,andthosehouseholdsforwhompremiumDSLprovidesahighspeedoption.Evenifwemultiplythelowerfigurenumberbythreeitwouldmeanthatanextensionofbroadbandservicebyacombinationoffiber,cablecoax,andDSLisnotwildlyoutofreach,especiallywhensuchupgradeisspreadoutoverseveralyears.Thisdoesnotreplacethewirelessapproachbutaddsastrongwirelinealternativedimension.Themostconstructiveapproachhereneeded,givenbudgetrealities,istocreativelygenerateoff‐budgetstrategies,beyondtheauctionsofbroadbandspectrumandnotexcludingit.Justasbroadcastauctions,thesestrategiesare“secondbest”optionsconstrainedbyrealities,justasthefinancingthroughbroadcastauctionsare.Choicesarealwaysimperfect.Optionsinclude:1.Taxincentives,throughinvestmentcreditsorforincrementalhigh‐speednetworkupgradesinlow‐low‐densityareas,andforcertainhardwareupgradesbylow‐incomeendusers.Taxincentivesarenotideal,butcomparedtowhat?Directgovernmentmoneyinfusionisn’tlikely.Thestimulusfundingisgone.Andfundingthroughspectrumtransferswillnotbesufficient.2.Regulatoryincentives,suchasencouragementforcable,telecoms,andotherinfrastructureproviderstosharethefiberinlow‐densityareasandthusreducetheircost.Thiswouldhavetobesubjecttoopennessrequirementsandconsumerprotections.3.CreationofaFederaloff‐taxfundingmechanism.Thisalreadyexiststhroughtheuniversalservicefundforruraltelecom,whichisbeingtransformedintoawiderconnectionmechanismforAmericanbroadband.ThatisoneofthemostpositiveinitiativesoftheNBP.Itis,ineffect,aninternaltaxingmechanismfortelecomandsoonforbroadband,paidthroughalevyoncommunicationsbills.However,theamountsraisedtodayforhigh‐costareasisabout$4.5billion,ofwhichmaybeathirdwouldgotobroadbandupgrades,whichisnotenough.Expandingthismechanismwouldbethemostrealisticsourceoffunding,anditmightfindthe

304FCCOmnibusBroadbandInitiative.TechnicalPapers:Chapter3.http://download.broadband.gov/plan/the‐broadband‐availability‐gap‐obi‐technical‐paper‐no‐1‐chapter‐3‐calculating‐the‐investment‐gap.pdfLastaccessedMay2,2011

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approvalevenofanti‐taxRepublicansbecauseitispro‐ruralandnotformallyatax.Butitmustalsobetargetedcloselytolow‐densityareas,andnotbesprinkledasabenefittoallruraltelcos.4.Localcostsharing.Thereshouldbeamuchstrongerroleandresponsibilityforstatesandmunicipalitiestosupporttheinfrastructureintheirstatesfollowingtheirownpriorities.Theycouldworkwithprivatecompanies,andusetax‐freemunicipalbondstosupporttheseprojects.Theycouldsupportthebuildingofcelltowersontheirlandandofbackhaulfromthosetowers,andsharethemamongproviders,whichwouldalsomakeenvironmentalsense.ThisshouldbepromotedbyFederalmatchingcontributions,usingthebroadbandfundmentionedabove.5.Addspectrum,beyondtheproposedreallocation.Institutea"useitorloseit"spectrumpolicy,andreclaimunusedspectrumandre‐allocateittounlicensedusers,withauserfeepayabletoexistinglicensees.305Thiswouldincludegovernmentalspectrum,whichtheNBPtreatsgingerly.Andgivelicenseesflexibilityinwhattheycandowiththespectrum.(Aquasi‐economicargumentisfrequentlymadeisthatauctioningoffbroadcastspectrumwillturnsuchspectrumtoitsbestuse,closingthe‘valuegap’.Well,onewouldexpectsuchagap.Ifoneputsonetypeofusage—mobilecommunication‐‐whichhasanunregulatedpricingandsubscriptionmodel‐‐againstanothertypeofusage–freeTV‐‐thatisprohibitedfrompaymodels,ofcoursethefirstplatformwins.)Providingmorespectrumfor4Gisalaudablegoalandshouldbediscussedonitsownmerits.Butsuchatransferfromoneindustrytoanothershouldnotbesoldpoliticallyasapro‐ruralpolicywhenthatextraspectrumismostlyimportanttometroareas.Itisnotamajorbroadbandinitiativeifonly$5‐8billionareallocatedtothatpurpose,underthebestofcircumstance.Itshouldnotbeusedasadeficit‐reductionpolicy,whenwesellscarceassetstofundcurrentconsumption,andwherethenetcontributiontothebudgetwillbeprobablymuchlowerthanhopedfor.AnditshouldnotbeexpectedtosolveruralAmerica’sbroadbandneedswhentheactualservicegradewillbesignificantlyinferior,andwherewirelinealternativesareavailable.Thus,wirelessasastrategytospreadbroadbandisashort‐termstrategy.Ifwewanttoaddressthefuturewemustalsoaddressplatformswithmuchgreaterspeeds.Let’sstarttodosowithoutdelay,andwithoutdefensiveness.Muchworkneedstobedone.Thereisnodoubtinmymindthatwithin20yearsvirtuallyallAmericanhouseholdswillusebandwidthwellabove200Mbps.Muchofitwillbeprovidedonacommercialbasis,butsomewillhavetobegeneratedbyavarietyofpublicpolicies.In20yearstherewillbefiberconnectivityprettymuchwhereverthereiscoppertoday,usingthesamerightsofway,utilitypoles,andducts.And

305http://www.citi.columbia.edu/elinoam/articles/SPECTRM1.htm

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peoplewillthenwonderhow20yearsearlierwethoughtthat3Mpbswouldbeenough.Justaswewondertodayhowourparentsorgrandparentsgotalongon3or4TVchannels.

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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 Tele-Information. He was assisted by Javier Avila and Giacomo Meille, research analysts at the Columbia Institute for Tele-Information

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ThisstudywasfundedbytheRuralCellularAssociation.Theauthorissolelyresponsiblefortheviewsexpressedinthisstudy.

INTRODUCTION:ThebroadbandsupplygapinruralAmericaissignificant.Ofthe7,035,613housingunitsthatareeitherunservedorunderservedbybroadbandhighlightedintheNationalBroadbandPlan,alargeportionislocatedinwhatthecensusbureauclassifiesasruralcounties.Thebroadbandmapestimatesthat4,326,299householdsthatdonothaveaccessorcanonlypurchaseservicewithadownloadspeedthatislessthan4Mbpsarelocatedinruralcounties306.Thisisnosurprisesince,asexpected,thebroadbanddeploymentplansofnationalcarriersdonotincludeintheirprioritiestheconstructionofeitherfixedormobilebroadbandfacilitiesinthesegeographiesbecausetheirlowercustomerdensityand/orlowsocio‐economicpopulationdonotresultinattractiveeconomicsofnetworkdeployment.

Obviously,supplygapdoesnotequatetobroadbandpenetrationinthesensethatevenunderuniversalcoverageconditionsitwouldbeexpectedthatanumberofthesehouseholdswouldnotbesubscribingtobroadbandservicesimplyduetoissuesrelatedtoaffordabilityandeducationalfactors307.Nevertheless,unlessthesecommunitiesarenotgiventheopportunitytoconnecttotheInternettheywillremainpermanentlymarginalized.ItisinthiscontextthattheNationalBroadbandPlanidentifiedasanationalprioritythedeploymentofbroadbandtechnologytoaddresstheunservedandunderservedcommunities.Inparticular,thePlanemphasizedthatwirelessbroadband,morespecificallytheservicesofferedwithinthe700MHzfrequencyband,wasoneoftheprimarytechnologiessuitedtoaddressthesegaps.InadditiontothegoalsoutlinedintheNationalBroadbandPlan,oneofthebasicobjectivesoftheBroadbandTechnologyOpportunitiesProgram(BTOP),astimulusprogramincludedintheAmericanRecoveryandReinvestmentAct,istopromotedeploymentofbroadbandfacilitiescoveringwhataretodayunservedorunderservedcommunities.

TheobjectiveofthisstudyistoevaluatetheemploymentimpactthatresultfromwirelessbroadbanddeploymentinruralAmerica308.First,itreviewsevidencefromotherstudies

306RuralcountiesdenotedbyUSDArural‐urbancontinuumcodes4andup.307SeeHorrigan(2009).308InapriorstudyofbroadbandemploymenteffectsintheUnitedStates,thisauthorcouldnotreachapreciseestimationoftheimpactofpositiveexternalities(seeKatzandSuter,2009)

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regardingtheeconomicimpactthatbroadbandhasonruralenvironments.Second,itfocusesonKentucky,astatewithalargeruralpopulation(whichhasgeneratedadisaggregateddatasetofbroadbandpenetrationanddeployment),andanalyzestheeconomicimpactthatbroadbandhashadinthepast.Withthisevidenceinhand,weprojectthepotentialeconomicimpactofdeployingbroadbandintheunservedandunderservedareasofKentucky,andextendtheresultsto19stateswiththelowestbroadbandpenetrationinthenation.RESEARCHEVIDENCEOFTHEECONOMICIMPACTOFBROADBAND:Theeconomicimpactofbroadbandcomprisesfourtypesofeffects(seefigure1).

Figure1.Broadbandeconomicimpact

Thefirsteffectresultsfromtheconstructionofbroadbandnetworks.Likeanyinfrastructureproject,thedeploymentofbroadbandnetworkscreatesjobsandactsovertheeconomyinawaythatisencapsulatedbymultipliersmeasuringtheinterrelationshipbetweenindustrialsectors.Thesecondeffectresultsfromcalculatedgainsand"spill‐over"externalities,(suchasnetworkeffectsandinnovation),whichimpactbothenterprisesandconsumers.Forenterprises,theadoptionofbroadbandwithinfirmsleadstoamultifactorproductivitygain,whichinturncontributestogrowthofGDP.Ontheotherhand,residentialadoptionhasamultipliereffectthatincreasesrealhouseholdincome.BeyondthesedirectbenefitswhichcontributetoGDPgrowth,residentialusersreceiveabenefittotheirconsumersurplus,whichisdefinedasthedifferencebetweenwhattheywouldbewillingtopayforbroadbandserviceanditsprice.WhilethislastparameterisnotcapturedintheGDPstatistics,itcanbequitelarge.Consumersmaybewillingtopaysubstantiallyabovethemarketpriceforbenefitssuchasenhancedaccesstoinformation,entertainmentandpublicservices.

Broadbandresearchthatshowshardevidenceofaneconomicimpactfallsintothreecategories:

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

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• 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,theimpactofbroadbandonruraleconomiescomprisesseveraleffectsthatarespecifictothegeographicarea.Onaggregate,theimpactofbroadbandonstateswithapredominantlyruralgeographyissignificant.Forexample,inarecentlypublishedsurveyof30,000householdsand70,000businessesinNorthCarolina,theStrategicNetworksGroup(2010)foundthat:

• 18%ofnewjobswerecreated“ondirectaccountofbroadbandinternet"(Thisincluded28%ofjobscreatedatsmallfirms(<20employees))

• 54%ofbusinessessaidtheycouldnotoperatewithoutbroadband• 45%ofNorthCarolina’sbroadbandhouseholdsareeitherrunninga

businessfromtheirhome(31%)orplanningtorun(14%)oneinthenext12months

• 65%ofhouseholdsuse(42%)orplantouse(21%)broadbandtosellthingsonline

• 85%percentofestablishmentssaidthatbroadbandwasessentialtotheirbusiness

However,whiletheaggregateimpactappearstobesignificant,itisimportanttodifferentiatebroadbandimpactwithinthreedistinctregions:metropolitanareas,ruralenvironmentsthatareadjacenttometropolitanareas("ruralperipheries")andremoteruralareas.Eachoftheseareashasgeographicandeconomicspecificitiesthatconditiontheeconomiccontributionofbroadband.Infact,researchsuggeststhatduetothespill‐overeffectsofmetroareasonruralperipheries,(e.g.,laborarbitragecosts,transportationandwarehousing,etc.),theeconomicimpactofbroadbandonthelatterregionissignificant.Ontheotherhand,thespecificfeaturesofruraleconomies(e.g.,heavyagriculturalsectoremphasiswithparticularproductionfunctions),maylimitandcauseanextendedtimelagfortheimpactofbroadbandinnon‐metroadjacentareas.

Broadbandeconomicimpactinremoteruralperipheries:

Ruralperipheries,definedasthegeographiessurroundingmetropolitanareas,aresubjecttoaspecificsetofinterrelationshipwithurbancenters.Forexample,theeaseofaccesstolaborpoolswithsomecostdifferentialsfacilitatestherecruitmentofemployeesresidentintheperiphery.Similarly,lowerrealestatecostsresultsintherelocationofcertainfacilitiesandfunctionstoadjacentruralareas.Inthiscontext,broadband,inawaysimilartotransportationinfrastructure,actsasanenablerofthespatialspill‐over,allowingtheruralperipheriestobenefitfromtheeconomicgrowthofmetropolitancenters.Priorresearchhasidentifiedthemultipleeconomiceffectsthatbroadbandresultsin:

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• Firmrelocationwithconsequentimpactonemploymentandpayroll• Growthinthenumberofestablishmentsthatbenefitfromlowerrealestate

costswhileservingthelargemetropolitanmarkets• Facilitationoftelecommutingwithconsequentreductionintransportationcosts

andlessquantifiableincreaseofconsumersurplus

Theresearchliteraturehaspointedoutthedirectrelationshipexistingbetweeneconomicimpactofbroadbandandproximitytourbanconcentrations.Reasonscouldrangefromsupplyside(e.g.economicsofdeploymentfavorearlyentryofcompetitiveproviders)todemandside(e.g.sectoralcompositionoftheeconomyemphasizingindustrieswithhightransactioncosts).

IntheirevaluationoftheUSDABroadbandLoanProgram,KandilovandRenkow(2010)foundthatthecommunitiesclosesttourbancentersbenefitedsubstantiallyfromloansforbroadbanddeployment309.Inparticular,theydeterminedthatthebroadbandeconomicimpactinmetropolitancountiesishigherthaninthoseruralcountieslyingintheperipheryofmetropolitanareas.Nevertheless,broadbanddeploymentappearstoimpactemploymentand,minimally,thenumberofestablishmentsinruralcounties.Whyisbroadbandhavingsome,albeitattenuated,positiveeffectinruralcountiesadjacenttometropolitanareas?Theanalysistheauthorsperformbyindustryindicatesthatthestrongestpositivecontributionofbroadbandtoemploymentandpayrollliesinthetransportationandwarehousingsector.Thiswouldconfirmthetrendthatmetro‐adjacentruralcountiesbenefitfromrelocationoffirmstotheperipheryenabledbybroadbandandrelatedinfrastructure.

AsimilarfindingwasreachedbyBurtonandHicks(2005)intheirstudyoftheCentralAppalachianregion,accordingtowhichnewbusinessesareunlikelytolocateinareaswithoutbroadband.Thestudyconcludesthat,whilebroadbandisnotasignificantindicatoroffirmproductivityingeneral,forfirmsofthesameage,productivityincreases14‐17%iflocatedinabroadbandarea.Assuch,thereisa“tendencyforproductivefirmstolocateinplaceswithbroadband”.ThisfindingisalsosupportedbyastudyoftheimpactofIowa’sMunicipalTelecommunicationsNetwork(2003)ontherelativesuccessofthepreviously“bedroomcommunity”CedarFalls,IAovertheneighboringcommunityofWaterloo310:

Shideleretal.(2007)alsofoundthatbroadbanddeploymenthadastatisticallysignificantpositiveimpactonoverallemploymentinKentucky,accountingforbetween0.14%and5.32%ofoverallemploymentgrowthduringtheobservedperiod.Italsofoundthatadditionalbroadbanddeploymentwasmosteffectiveatstimulatingemploymentgrowthinlocalesthatalreadyhadan

309Theauthorsmentionthat,accordingtoaprogramaudit,itwasfoundthatbetween2005and2008,broadbandloanswereextendedto148communitieswithin30milesforcitieswithpopulationsgreaterthan200,000.310Asanote,neitheroftheareascanreallybeconsideredrural;CedarFallshadapopulationof36,000andWaterloohadapopulationof69,000,makingthemmuchmore“smallcity”orsuburban.

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averagebroadbandsaturationinsteadofareaswithsparsedeploymentorhighsaturation,suggestingincreasingemploymentreturnstodeploymentinunderserved(likelyrural)areas.Onanindustry‐by‐industrybasis,Shideleretal.(2007)foundbroadbandtobethemaindriverofincreasingemploymentinthe“information”sector(25.27%to87.07%ofgrowth),the“administrative,support,wastemanagement,andremediationservice”sector(23.74%to84.56%ofgrowth)andthe“construction”sector(0.62to21.76%ofgrowth)311.However,otherstudiescastsomedoubtonShideleretal.’supbeatpicture.Shideleretal.notedbroadbanddeploymentwastheprimarydriverofemploymentinonlytwoareas:theinformationsector,andthe“administrative,support,wastemanagement,andremediation”sector.Fortheinformationsector,thestudypointedtothenecessityofbroadbandtoITcompaniesandtheincreasedpossibilityoftelecommutingasthelikelymechanismsbywhichbroadbandsupportedemploymentgrowth.Inthe“administrative,support,wastemanagement,andremediation,”theypointtotelecommutingandpromulgationofcallcentersinruralareaswherebusinessinputs,includinglabor,becomeaffordablewhenbroadbandinfrastructureisavailable.However,althoughtheincreasedpossibilitytotelecommuteiscommontobothsectorsandiscitedasamajorreasonforemploymentgrowth,Song(2006)foundinitsstudyofbroadbandimpactinIowanostatisticallysignificanteconomicbenefittotelecommutingasawholebesidestheconsumersurplusofbeingabletoworkfromhome312.Inotherwords,telecommutingcannotyetbeprovedtocreatejobsorincreaseGDP.

Ontheotherhand,regardingtheargumentthatupgradedbroadbandinfrastructuremaymakeitcost‐effectiveforITcompaniestodomorebusinessandincreaseemployment,andforcallcenteroperationstobeexpandedgivengenerallylowerexpensesinruralareasoncebroadbandisinstalled,GreensteinandMcDevitt(2010)arguethatgrowthinemploymentinbusinessesenabledbybroadbandmayjustaseasilybe“cannibalism”ofjobsfromelsewhereinthestateor

311Thisisunsurprisingfortheinformationsector,andtheauthorspointtobothtechnologycompaniesrequiringbroadbandtooperateandtheincreasedabilitytotelecommuteasreasonsbroadbandimprovedemploymentinthesectors.Theauthorsrationalizebroadbandhelpedgrowthinthe“administrative,support,wastemanagement,andremediationservice”sectorduetotelecommutingandbecausethatsectorincludesthecallcenterbusiness,whichrequiresbroadbandinfrastructuretooperateandhasbeenexpandinginruralKentucky.Theauthorsbelievethatgrowthinconstructionemploymentattributedtobroadbandwasmainlyasecondaryeffectfromdemandforconstructionbroughtaboutbyincreasedgrowthinothersectorsaffectedbyimprovedbroadbandaccess.Broadbanddeploymentimproved(thoughwasnottheprimarydriverof)employmentinthe“realestate,rentalandleasing,”“arts,entertainmentandrecreation,”and“otherservices”segments.“Accommodationsandfoodservices”werenegativelyimpactedbyincreasingbroadbandpenetration,theauthorsargue,becauseofthereducedneedfortravelagenciesandthesubstitutionofbroadband‐enabledtechnologyforotherwiselow‐wagelabor.Broadband’seffectonothersectorswaseitherneutral,notstatisticallysignificant,orcouldnotbegeneralizedduetotoosmallasamplesize.312Song(2006)statesthataftercontrollingforendogeneity,returnstoruralITadoptionarenotsignificant,implyingthatthegainsfromtelecommutingaremorelikelytocomefrompeoplemovingtoruralareasinsteadofenablingexistingruralresidentstotelecommute.

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inthecountryinsteadofthecreationoftruly“new”ruraljobs.ThisargumentwasalsoraisedbythisauthorinhisanalysisofpotentialimpactoftheBroadbandTechnologyOpportunityProgram(KatzandSuter,2009).Inthecaseofcallcentersinparticular,itiseasytoimagineanetlossscenariowhereurban,higher‐payingjobsarecannibalizedbylower‐payingruraljobsmadepossiblebygovernment‐sponsoreddeploymentofruralbroadband.Whileobviouslydifficulttoquantifyeitherway,thelogicofcannibalismcutsagainsttheeconomicpotentialofbroadbanddeploymentonboththesectorandaggregatelevel,raisingsomedoubtsabouttheoptimisticconclusionsofShideleretal.(2007).However,ithasalsobeenindicatedthatjobcreationinruralareascouldtakeplacenotasaresultofurbandecline,butdrivenbyrelocationofenterprisesfromoverseasbacktotheUnitedStates313.

Broadbandeconomicimpactinremoteruralareas314:

Theimpactofbroadbandinremoteruralareascomprisesthecombinationofmultiplecountervailingeffects,someimpactingeconomicdevelopmentandothersenhancingconsumersurplus:

• Relocationofestablishmentstoruralcountiesinspecificindustrysectors,combinedwithemploymentlossesinothersectors(e.g.retaildistribution)

• Productivitygainsinselectedsectors(e.g.travel,lodgingandentertainment)whichcanresultinemploymentlosses

• Improvementsinaccesstohealth,education,socialinclusionandentertainment

AstudyofresidentialinternetbehaviorinShippagan,Canada(Selouanietal.,2007)315,revealsthatprimaryimpactofthetechnologyisintheareaofsocialinclusion,withconsequentconsumersurplusincrease.AsimilarstudytoShipagganalbeitrelyingoninput‐outputmatrices316,wasconductedforSouthDundas,aCanadiantownshiplocatedaround150kilometersawayfromMontrealand120kilometersawayfromOttawa(StrategicNetworkGroup,2003).BetweenJune2001andApril2003,thefollowingeconomiceffectscanbedirectlyattributedtothedeploymentofafibernetworkinthetown:

• $25.22millionincreaseinGDPforDundasCountyand$7.87millionincreasefortheProvinceofOntario

313Anotedcaseinpointistheattractionofcallcentersbacktothiscountry.Virtualcallcentersrelyonruralpopulationlinkedtoacentrallylocatedsupervisor.TheyhavebecomeincreasinglypopularintheUSduetothequalityofthelaborpoolandeconomicsthatcangetclosetomatchingcallcentersoverseas.314ItisimportanttoobservethatalargeportionofresearchonbroadbandimpactinruralisolatedareashasbeenconductedinCanada.ThisraisestheneedtoemphasizethedevelopmentofresearchinthisrealmwithintheUnitedStates.315Thecommunityisextremelyrural;itis255kilometersfromthenearestcityofmorethan100,000(Moncton),andis500kilometersfromQuebecCity.316Thedatafortheinput‐outputmodelusedinthestudywascollectedfromasurveyofeverybusinessintheDundasarea.

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• 207personyearsofemploymentforDundasCountyand64fortherestofOntario

• $3.5millionincreaseinprovincialtaxrevenuesand$4.5millionincreaseinfederaltaxrevenues

Additionalfindingssuggestthatthereisacorrelationbetweentheuseofbroadbandtechnologyandjobgrowth.Nineteenoutof38(50.0%)businesseswithbroadbandaccesstotheInternetexperiencedjobgrowth.Thisnumberincludes24organizationsusingthefibernetwork,13ofwhich(54.2%)experiencedjobgrowth.Whiledatasuggeststhatthereisalinkbetweenjobgrowthandbroadbandaccess,acausallinkcouldnotbeestablishedduetothelimitednatureofthisstudy,thoughthecorrelationappearstoholdacrossindustrysectorsandorganizationsize.

Tosummarize,theresearchresultsindicateadirectionallypositivecontributionthatbroadbandmakestoeconomicgrowthandjobcreationinruralareas.Theeffects,sofar,appeartobemostsignificantintheruralperipheriesofmetropolitanareas,wherebroadbandoperatesasanenablerofspatialspill‐over,resultinginanexpansionoflabormarkets.However,itisimportanttoemphasizethatjobcreationintheruralperipheriesmightresultfromlabordisplacementfromeitherthemetropolitanareasorotherregions.Inaddition,thetechnologyfacilitatestheredeploymentofindustriestotheruralperipheriestogainaccesstolowerrealestatecosts,andbetterlinktotransportationnetworks.Finally,whilestillnotsignificant,theeffectsoftelecommutingappeartobeplayingaroleineconomicgrowthoftheruralperipheries.

Withregardstoisolatedruralareas,researchresultsarebeginningtoyieldsomeinsightsontheeconomicimpactofbroadband.Asexpected,employment,payroll,andfirmrelocationappeartobelessinfluencedbybroadbandinruralperipheries.However,somecasestudiesindicatethatbroadbandcanfacilitatesomejobcreation,andmoreimportantly,counterrural‐urbanmigrationtrendsbyenhancingsocialinclusionthroughcommunicationsandinformationaccess317.

THEECONOMICCONTRIBUTIONOFBROADBANDINKENTUCKY

ThissectionanalyzestheimpactthatbroadbandhashadontheeconomyofKentucky.ItbeginsbyreviewingthediffusionofbroadbandtechnologyandrelatedITplatformsinthestate.Followingthis,econometricmodelsestimatingthepastimpactofbroadbandonemploymentandothereconomicindicatorsarepresented.Finally,basedonthestatisticalmodels,theimpactoffuturebroadbandadoptionisestimated.

317ifjobtransfersoccurfromthecitytoruralareas,economistsmightarguethatthisisapositivemovebringingsomeequilibriumamonglaborpools.Finally,sociologistswillalsoarguethatjobtransfersfrommetrotoruralareashelptheretentionofemploymentinthelatter,whichpromotesamoreviabledevelopmentpathtoruralenvironmentsthreatenedbymigrationanddepopulation

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ThestateofKentuckyranks44thintheUnitedStatesintermsofGDPpercapita.ThegrowthofKentucky'sGDPsince2000hasaveraged3.7%,slightlylowerthanthatoftheUnitedStates,4.1318.In2009,Kentucky’spopulationwas4,314,113319,anditsincomedistribution,asmeasuredbytheGinicoefficientwas0.464320,whichranked36thamongUSstates.Fromageographicalstandpoint,thestate'seconomicactivityisveryconcentrated.Of120counties,tenaccountfor63.45%oftheKentucky’sincome(seefigure2).

Figure2.Kentucky:CountyDistributionofStateIncome(2009)CountyIncomeiscalculatedasthenumberofemployeesmultipliedbyaverageincomeSources:CensusQuarterlyWorkforceIndicators;analysisbytheauthors

In2008,therewere92,587businessestablishments,employing1,570,800residents321.InThepasteightyears,thenumberofestablishmentshasbeenfairlystable,whilethenumberofemployeeshadbeengrowingconsistentlyuntil2008whenitcontractedduetotheeconomiccrisis(seefigure3).

318Source:BureauofEconomicAnalysis,USDepartmentofCommerce.319Source:2010Census;USCensusBureau,PopulationDivision.320TheGinicoefficientisameasureoftheinequalityofadistributionusedtomeasureincomeinequality;avalueof0expressingtotalequalityandavalueof1maximalinequality.Source:2009AmericanCommunitySurvey.321Source:USCensusCountyBusinessPatterns

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Figure3.Kentucky:BusinessEstablishmentsandEmployees(1991‐2008)Sources:USBureauoftheCensus;CountyBusinessPatterns

Accordingtothesestatistics,theaveragenumberofemployeesperestablishmentis20,upfrom16in1998.In2008,halfofallKentuckyestablishmentsemployedfewerthanfiveemployees,while3%employedmorethan100employees322.

Accordingtothesectordecomposition,professionalservicescomprisethelargestshare(26.9%)ofbusinessestablishments,followedbyretailtrade(17.3%)(seefigure4).

Figure4.Kentucky:NumberofestablishmentsbyIndustrySector(2008)Source:USCensusBureau;CountyBusinessPatterns

322Source:USCensusBureauCountryBusinessPatterns.(2008)

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Relativetonationalfigures,Kentuckyhasagreaterconcentrationofretailtradeestablishments(17.3%to14.5%)andalesserconcentrationofprofessionalservicebusinesses(26.9%to30.3%).Bothsectorsarelikelybeneficiariesofbroadbanddeployment(seeShideleretal.,2007).Sincetheadventoftheeconomiccrisis,Kentuckyhasperformedweakly.GDPgrewby3.2%from2007‐2008andby‐0.43%from2008‐2009.ThisisslightlybetterthantheUSaverages,whichwere2.6%and‐1.3%,respectively.UnemploymentinKentuckyhassoared.In2007averageseasonallyadjustedmonthlyunemploymentwassteadyat5.5%,butthisfiguregrewto6.6%,10.4%and10.3%inthefollowingyears.Unemploymentbegantogrow(yearoveryear)inMarchof2008,reacheditspeakgrowthrate(77.2%)inMarchof2009,andonlystartedtodiminishinMayof2010.However,theunemploymentratehashoveredaround10.0%sinceJuly2010323.Bankruptcieshavegrownsteadilysince2007.Totalsforthe2007,2008,2009andthefirstthreequartersof2010are17,155,21,468,25,218and19,458,respectively.Duringthefirstquarterof2007therewere4,294butinthethirdquarterof2010theyhadincreasedby46%324.Inthiscontext,itiscriticaltoconsiderallpolicyinitiativeslikelytohaveapositiveimpactoneconomicgrowthandjobcreation.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

323Source:BureauofLaborStatistics.(2010)324Source:AmericanBankruptcyInstitute(2010)

325Source:FCC’sreport“InternetAccessServices:StatusasofJune30,2009.(2010)

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Thegrowthofbroadbandlineshasincreasedatanaveragerateof57%overthepasttenyears,reachingapenetrationof20%ofthepopulation,and52%ofhouseholds326(seetable2).

Table2.Kentucky:GrowthinBroadbandLinesandHouseholdPenetration(2000‐2009)

YearTotalLines Residential Business Population Households

Penetrationperpop.

HouseholdPenetration

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%

(*)IncludessmallbusinessesSource:FCC;USCensusBureau,AmericanCommunitySurvey

AccordingtoConnectKentucky,fixedlinebroadbandcurrentlycovers95%ofhouseholds,whichamountsto57%growthinbroadbandavailabilitysince2002.TheFCCestimatesthattheunderservedsupplygapofbroadband(<4Mbps)inKentuckyamountsto266,000households.In2006,56%ofbusinessreportedactivelyusingtheinternettohandlebusinessfunctions,upfrom36%in2002.Ofthesebusinesses,85%accesstheInternetviabroadband.Thishasrisenfrom50%in2002.Ofthese,DSLcomprises54%ofbusinessaccesslines,whiletherestarecableorfixedwirelessaccess327.Broadbandadoptionisfairlyhomogeneousacrossindustrysectors.Themostrecententerprisesurvey,(whichwasconductedin2006),showedthat,withtheexceptionofHealthCare,mostsectorsreliedonbroadbandforInternetaccess.Accordingtotheresearchreviewedabove,theseadoptiontrendsshouldhavehadanimportantimpactontheeconomy.Thiswillbeassessedinthenextsection.

326ThestudyrecentlypublishedbytheEconomicsandStatisticsAdministrationandNationalTelecommunicationsandInformationAdministration(2010)estimatesbroadbandpenetrationat54%.327Only4%reliedonsatellitetechnology.

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EconomicimpactofbroadbandinKentucky:InordertoascertaintheeconomicimpactthatbroadbandhashadinKentuckytwoapproacheswereimplemented:1)apanelregressionthatmeasuredtheimpactofbroadbandavailabilityoncountyemploymentandcountymedianincome,and2)across‐sectionalregressionthatmeasuredtheimpactofbroadbandbyindustrysector.Thefollowingsectionreviewsmethodologyandresults328.Methodology:Severalstudies(Katzetal.,2010;Katz,2010;Koutroumpis,2009;Gillettetal.,2005)demonstratedthatbroadbandhasalaggedeffectontheeconomy.Thus,thegrowthofunemploymentandincomefromyearttoyeart+1wasmodeledasafunctionofaveragebroadbandavailability,(thepercentageofhomespassed),betweenyeart‐1andyeart.Controlsforeachofthefactorsthatdeterminebroadbandavailability(inaccordancewiththeliterature)werealsoincluded.Thesearemedianincome,unemployment,ethnicity,thepercentageofyoungpopulation(aged15to25),populationdensityandthegrowthrateinlaborforce.Therearealsoothervariablesthatmayaffectbroadbandavailabilitysuchaseducationandthenumberofschoolsinanarea,andthepercentageofacountythatisrural.Theseothervariableswereaccountedforbyincludingfixedeffectsinthemodel(overaperiodoffouryearsitisexpectedthattheywillnotchangesignificantly.)Controllingfortheeffectofthevariablesthatinfluencebroadbandavailabilityremovesselectionbias.Finally,dummyvariableswereincludedtocontrolfortheeconomicrecession.Hence,thespecifiedmodelis: Econt+1/Econt‐1=α+β1(Bbt‐1+Bbt)/2+β2XtWhereEconistheeconomicindicatorofinterest‐unemploymentorincome‐,Bbisbroadbandavailability,Xisthesetofcontrols,andtisfrom2005‐2008.Moreover,notethatwedonotcontrolformedianincomeinourunemploymentgrowthrateregressionandviceversa(wedonotcontrolforunemploymentinourmedianincomegrowthrateregression.)Thisisbecausethereshouldnotbearelationshipbetweenthesevariables.Preliminaryregressionsconfirmedthattherelationshipwasinsignificant,whilenotsignificantlyalteringanyothercoefficients.Asdiscussedabove,priorresearchsuggeststhattheimpactofbroadbandmaybeareaspecific,(i.e.,itmaydifferforruralandurbancommunities.)Asreviewed,Kandilovetal.(2010)identifiedthreeareasthatexperiencedverydifferenteffects329.Accordingly,ourmodelswere

328Datautilizedandmostregressiontablesareincludedinappendix329ThoughtheKandilovetal.(2010)studyisspecifictotheUSDA’sBroadbandLoanProgram,wesuspectthattheimpactofbroadbandavailabilitymayactuponsimilarlines.

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testedforthefollowingsub‐samples:metrocounties,(rural‐urbancontinuumcodes1‐3)330,ruralcountiesadjacenttometrocounties(rural‐urbancontinuumcodes4,6and8),andisolatedruralcounties(rural‐urbancontinuumcodes5,7and9.)InordertoassesstheimpactofbroadbandonspecificindustrysectorsofKentucky,asimilarmethodologytothatofShideleretal.(2007)wasused.Themodelestablishesarelationshipbetweenthecurrentgrowthrateofemploymentanditslaggedvalues,controllingforvariablesthataffecttheeconomicactivityandalsovariablesthatexplaindifferenceswithotherobservations,(i.e.,othercounties).Theeconometricmodelusedintheestimationsis:

Ln(Emplt+1/Emplt‐1)=α+β1(Bbt‐1+Bbt)/2+β2Xt

Thisequationstatesthattheemploymentgrowthrateisafunctionoftheaveragebroadbandpenetration,someexplanatoryvariables(X),andanerrorterm,ε,(whichhasalog‐normaldistribution).Becausethereisnotcounty‐leveltime‐seriesavailableforbroadbandadoption,themodelreliesonacross‐sectionalanalysisratherthanadatapanelanalysis.

Results:

Theresultsofthepanelregressionmodelsshowthatbroadbandavailabilityhasastatisticallysignificantpositiveimpactonemploymentandincome.SimilarlytoKandilovetal.’sresultsregardingbroadbandloansinruralareas,wefindthattheimpactofbroadbandavailabilityisdependentupontheareaofdeployment.Thoughbroadbandavailabilityimpactsruralaswellasmetropolitancounties,theeffectisarea‐specific(seetable3).

Table3.Kentucky:Impactofa1percentincreaseinbroadbandavailabilityonemployment

andmedianincome

ImpactonMedianIncome

ImpactonEmployment

MetropolitanCounties 0.0968* 0.0303

RuralCountiesAdjacenttoMetrocounties 0.0704*

RuralCountiesIsolatedfromMetroCounties 0.0800*

‐0.1953*

*Significantat1%level

Ourmodelsshowthattheimpactofbroadbandonmedianincomeisstatisticallysignificantforeachofthethreetypesofcounties.Theyalsosuggestthatthisimpactisthehighestformetro

330Seebelowforfurtherinformationonrural‐urbancontinuumcodes.

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counties,followedbyisolatedruralcounties,andlastlyruralcountiesthatareadjacenttometrocounties.Intheregressionformetrocountiesitisestimatedthatthecoefficientofaveragebroadbandisabout0.097percentagepoints331(seeTablea.1.inappendix).Thatis,onaverage,increasingbroadbandaverageavailabilitybyonepercentagepointleadstoa0.097percentincreaseinmedianincomeoverthefollowingyear.Forexample,ifaveragebroadbandavailabilitybetween2006and2007wereonepercenthigher,thenonewouldexpectmedianincometogrowanextra0.097percentagepointsbetween2007and2008332.Asnotedabove,theincomeregressions333suggestthattheeffectofbroadbandavailabilityisspecifictometro,(0.0968),adjacentrural,(0.0704),andisolatedruralcounties,(0.0800).Itislikelythattheserelationshipsstemfromacombinationofproductivityandemploymenteffects.Wewillreturntothispointafterwereviewtheunemploymentregressions.

Ourresultssuggestthatbroadbandavailabilityimpactsincomethemostformetrocounties,thenisolatedcounties,andfinallyadjacentcounties.Asdiscussedabove,thereissolidtheoreticalbackingfortheseestimations.However,itisevidentthattheinterplayofunemploymentandproductivityeffectsiscomplex.Forexample,thetheoryofferslittleinthewayofreasonswhyisolatedcountiesshouldbeimpactedmorethanruralcountiesthatareadjacenttometroareas.However,thesecomplexeffectsmakeitunlikelythateachtypeofcountyexperiencesthesameimpactandcoefficient.Moreover,itisverylikelythatmetropolitanareasexperiencethehighestincomeeffects.Intheunemploymentregressionsaslightlydifferentmodelwasused,addingadummyvariabletocontrolfortherecessionin2008334(SeeTablesa.4anda.5).ThisapproachwaschosenbecausetherecessionaffectedKentuckyunemploymentbeforeitaffectedthestate'smedianincome335.Whilethedatashowsthatthegrowthrateofunemploymentchangedmarkedlyfrom2006‐2005to2007‐2008(theaverageforKentuckycountieschangedfrom‐.0394to.1694),wedidnotobservethesamephenomenonformedianincome,(whichchangedfrom.02755to.0216).Moreover,twoseparatedummyvariableswereusedfor2008and2009because

331Thenumberofobservationsis140.332Notehowever,thatincreasingbroadbandavailabilitybyonepercentin2007(andnotalso2006)wouldonlyresultinanextra0.048percentagepointsbetween2007and2008.Becausewearedealinginaverages,ittakestwoyearstoreapthefull0.097effectofincreasingbroadbandavailabilitybyonepoint.333Thenumberofobservationfortheadjacentruralregressionis152andfortheisolatedruralregressionitis188334Again,thenumberofobservationsis140,152,and188formetro,ruraladjacent,andruralisolatedrespectively.335Thereareseveralpossibleexplanationsforwhythismayhavehappened.Forexample,itmaybethatpeoplethathaveincomesbelowthemedianlevelshadlessjobsecurity.Thentheunemploymentratewouldgrowearly,butmedianincomewouldremainunaffecteduntillateron.

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monthlyunemploymentdatashowedthattherecessiondidnotbegintoaffectKentuckycountiesuntilhalfwaythrough2008336.

Theimpactonunemploymentisonlysignificantforruralcounties337.Theimpactonemploymentinmetropolitancountiesisnotstatisticallysignificant.Theinterpretationforthebroadbandcoefficientismuchthesameasabove.Forexample,theregressionsshowthat,onaverage,increasingbroadbandaverageavailabilitybyonepercentagepointinruralcountiesleadstoa‐0.1953percentdecreaseinunemploymentoverthefollowingyear.Forexample,ifaveragebroadbandavailabilitybetween2006and2007wereonepercenthigher,thenonewouldexpecttheunemploymentratetoshrinkby.19percentbetween2007and2008.Unliketheincomeregressions,theunemploymentregressionsshowsignificantbroadbandeffectsonjobcreationsolelyinrural.Thisisareasonableresult.Onecontextwhichprovidesastrongtheoreticalbackingisthemergingoflabormarkets.Inthiscontext,itistobeexpectedthatbroadbandwillhavethesmallestimpactonmetrocounties.Thesecountieshavethelion’sshareofestablishmentsandemploymentopportunitiessoincreasingthesizeofthelabormarketshouldhaveonlymarginalifanypositiveeffects.However,broadbandmayextendlabormarketstoruralareas,e.g.,byenablingtelecommuting.Oftheseruralcounties,theprimarybeneficiariesareruralcountiesthatareadjacenttometroareasbecausethelaborforceismoretechnologicallyskilled(inaccordancewiththeindustriesthatarepresent).Weexpectthatisolatedruralareaswillalsobenefit,butatalowerrate.Theoretically,wealsoexpectthatfirmsintheservicesindustriescanreapgreaterproductivitygainsfrombroadband,(seebelowfortheresultsonsector‐specificbroadbandeffects).Henceitisexpectedthatmetrocounties,whichaccountforthevastmajorityofsuchfirms,willexperiencethelargestimpactonincome.Thisindicatesthattheemploymentopportunitiescreatedbybroadbandintheseareasarefarmorelucrativethanthemedianjob.Thoughtheportionofthepopulationthatistechnologicallyskilledintheseareasmaybesmall,itislikelythattheincrementalbenefitsofbroadbandforthispopulationarequitehigh.However,itwasnotpossibletoidentifyastatisticallysignificantresultformetrocounties.Turningnowtoassessingtheimpactofbroadbandpenetrationonsectoremployment,itwasfoundtobestatisticallysignificantonthegrowthinemploymentinthefinancialservicesandinsurance,wholesaletrade,andhealthsectors(seetable4).

336Webelievethatalternateregressions(notshownhere)validatedourmethodologicalchoices.Forexample,whenweincludedadummyforthe2008recessionintheincomeregressionsitresultedpositive.337Themodelsrunforemploymentimpactonrural‐adjacentandruralisolatedyieldednon‐significantresults.

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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

Theindustriescomprisinghighertransactioncostsandnetwork‐basedbusinessmodelsappeartobenefitmorefrombroadbandpenetration338.Furthermore,asinthemodelspresentedabove,theimpactofbroadbandinallcounties(comprisingmetroregions)alwaysappearstobehigherthaninruralcounties.Theimpactofbroadbandonthegrowthofthefinancialsectorwashighandsignificant.Accordingtothemodel,anincreaseof1percentagepointinbroadbandpenetration(from5%to6%)wouldyieldanincreaseof0.67%intheemploymentlevelinthefinancialsector339(seetablea.6inappendix).TheimpactofbroadbandontheFinanceandInsurancesectordeclineswhenmetrocountiesareexcluded,althoughtheresultsarestillsignificant340(seetablea.7.inappendix).Theimpactofbroadbandonthewholesaledistributionsectorwashighandsignificant.Accordingtothemodel,anincreaseof1%inbroadbandpenetrationwouldyieldanincreaseof0.84%inemploymentlevelinthewholesaledistributionsector341(seetablea.8.inappendix).

Thebroadbandimpactremainsstablewhenthemetrocountiesareexcluded.Thechangeinimpactcoefficientisminimalwiththepriormodel(seetablea.9.inappendix).InthecaseoftheHealthsector,broadbandhasasmallerimpactincomparisontotheothertwosectorsanalyzed

338Theconclusionsoftheseresultsshouldnotbeextendedtoindustriesthatcouldnotbeenanalyzed.339Theothervariablethatwassignificantwasthepercentageofpopulationbetween15and25yearsold.340Theothersignificantvariableisthepercentageofthepopulationwithouthighschooleducation.341Othersignificantvariablesincludepercapitaincome,populationbetween15and25yearsold,employmentgrowthintheprecedingperiod.Unexpectedresultsincludetheinverseimpactofeducationalattainmentinsectoremployment.

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(seetablea.10.inappendix).Theimpactofbroadbandisslightlylowerwhenthesampleisrestrictedtoruralcounties,nonethelessthesignificanceremains(seetablea.11inappendix).Theresultsofthesectorimpactmodelsarequiteilluminatingintermsofdeterminingwhichindustriesaremostbenefitedbyruralbroadband.Whileeffectsarestatisticallysignificantinfinance,wholesaletradeandhealthservices,theimpactislargestinthetradesector,reflectingthevalueofbroadbandasanenablerofrelocationofwarehousesanddistributioncenterstoareasoutsidethemetropolitancounties.Furthermore,whileemploymentisalsopositivelyimpactedbybroadbandinfinance,itscontributiondiminishesinruralenvironmentsreflectingthedifficultyoflocatingfinancialbackofficesinruralareas,primarilyduetolimitsinlaborpoolavailability.Ontheotherhand,thedeclineinimpactofhealthservicesforruralareasisnotthatimportantrevealingboththeexistenceofdemandinruralareasandthevalueofbroadbandinenablingtheredeploymentofhealthfacilities.

EstimatingtheeconomicimpactoffillingthebroadbandsupplygapinKentucky

BasedonthehistoricaleffectofbroadbandonKentucky'scountyemploymentandincome,theimpactofbroadbandavailabilityonfutureeconomicgrowthandemploymentisestimated.Forthispurpose,itisfirstnecessarytoassumehowbroadbandavailabilitywillevolveovertimebycounty.AccordingtotheFCC,asof2010,broadbandwasavailableto86.2%ofhouseholds,rangingfrom17%inElliotCountyto100%inBooneCountyandothers.Thebenefitofclosingthisbroadbandgapbydeployingwirelessbroadband,reaching100%availabilityinallcountiesthroughoutthestate,iscalculated.Basedontheeffectsanalyzedabove,theincreaseinbroadbandavailabilityto100%willdriveanaugmentationinmedianincomebycountyandcouldhelpreducethegrowthrateofunemploymentbycreatingorpreservingjobs.Accordingtothemodels,anincreaseinbroadbandavailabilityof1%wouldresultinadecreaseinunemploymentof0.1953%forruralcounties.Basedonthesecoefficientsandassumingafulldeploymentin2011342,impactontheunemploymentratewasestimatedfortheperiod2011‐2014.Itshouldbenotedthatwhilethemodelestimatesthelaggedimpactofbroadbandonunemploymentgrowth,thereisobviouslynodataforthesizeofthe2011laborforce.Thus,intheseestimatesthe2010laborforcewasused,whichisaconservativeconstraintsinceitisexpectedthelaborforcetobelargerin2011.Thisresultedin10,235jobscreatedorsavedfromeffectsofbroadbandonbusinessexpansion(seeTable5).

342Thisassumptionwasmadeforpurposesoftheestimationofeconomicimpact.

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Table5.Kentucky:ImpactofBroadbandAvailabilityonRuralJobCreationKeyFigures

CountyTypeTotalJobsSaved/Created

2011‐14NumberofCountieswith

SupplyGaps

RuralAdjacenttoMetroCounties 4,218 33

Rural,IsolatedfromMetroCounties 6,017 42

TotalRural 10,235 75

ThisestimateisfairlyconsistentwiththestateofKentuckyOccupationalOutlook,whichprojectsthatthestateeconomywillgenerate63,000jobopeningsperyeargoingforward.Accordingly,basedonthisestimate,13%willbeenabled/facilitatedbythefulfillmentoffullbroadbandavailability.Thenumberofjobssaved/createdislimitedbythenaturalunemploymentrate.Wecannotexpecttorealizeallthesejobsifpeoplearealreadyemployed.However,asofnowtheunemploymentrateisat10%,wellabovethenaturalrateof4‐5%.Inordertoaccountforthisphenomenon,wealsodonotallowtheimpactofbroadbandonunemploymenttoexceed5%inanyyearforanycounty.Whilethemodelsdonotallowbreakingdownthetotalemploymentnumberbetweenthosejobsthatwillbecreatedversusthosethatwillbepreserved,weutilizedtheprojectionsofKentucky'sOccupationalOutlookwhichstatethatthestructureofthechangeinemploymentforthe2008‐2018periodwouldbenewjobs(32%)andreplacementjobs(68%).Thisstructureappliedtoourmodelhelpsustobreakdownthetotaljobimpactofbroadbandintwocategories:newjobscreatedandjobssaved.Accordingtothis,itisestimatedthatofthe10,235jobssavedorcreatedinKentucky,3,254willbenewjobsresultingfromneweconomicactivitiestriggeredbywirelessbroadbanddeploymentinruralcounties.Conversely,6,981jobswillbesavedasaresultofthecombinedimpactofeconomicgrowthandenhancedcapabilitiesthatwillbeprovidedtothoseworkersasaresultofwirelessbroadband.Inaddition,accordingtothemodels,anincreaseinbroadbandavailabilityof1%alsodrivesanareaspecificeffectonincome.Inmetrocounties,ruralcountiesadjacenttometrocounties,andisolatedmetrocountiesbroadbandcausesincometogrowby0.0968%,0.0704%,and0.0800%

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respectively.Basedonthesecoefficientsandassumingafulldeploymentin2011343,impactoneachcountymedianincomewasestimatedfor2011‐2013344(seetable6).

Table6.Kentucky:ImpactofBroadbandAvailabilityonMedianIncome

KeyFigures

CountyTypeAverageIncreaseinMedian

Income2011‐2013NumberofCounties

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%woulddriveanaverageincreaseinmedianincomeof$914.56,whichrepresents2.0%increaseinthemedianincomeofKentucky,$43,765.Thoughmetrocountiesexperienceagreaterimpactperpercentageofbroadbandsupplied,ruralcountiesareexpectedtobenefitmorefromuniversalcoverage.Becausethesupplygapissomuchlargerinruralareas,theaveragegrowthinmedianincomeis$1,015forruralcounties,whereasitisonly$668inmetrocounties.However,thedifferenceismuchsmallerbetweenruralcountiesandmetrocountieswithsupplygaps($1,151to$936).

343Thisassumptionwasmadeforpurposesoftheestimationofeconomicimpact.344Notethatsimilarlytolaborforceabove,weusecurrent2010medianincomeforourestimations,thoughtheimpactwillbeon2011medianincome.

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ESTIMATINGTHENATIONALIMPACTINRURALSTATES

Theestimationofeconomicimpactonanationalscalewasconductedforthosestatesthatexhibitedthelowestbroadbandavailability.Forpurposesoftheanalysis,stateswithaccessibilitylowerthan90%accordingtotheNationalBroadbandPlanwereselected345.The19statesconsideredfortheanalysisareincludedintable7.

Table7.Statesidentifiedassignificantlylaggingbroadbandaccessibility

State Percentofunservedorunderserved

NumberofBroadband

lines

Households Householdpenetration

Population PopulationPenetration

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

345Whileweunderstandthistobeanarbitrarynumber,hisapproachhastheadvantageofconsideringonlythosegeographiesthatarefacingmajorinfrastructureaccessshortfalls,asopposedtoademand(penetration)problem.

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Asitcanbeseen,thesestateslagthenationalaveragebroadbandpenetration:whilebroadbandhasbeenadoptedonaverageby55%ofhouseholds(or21%ofthepopulation)ofthesestates,theUSnationalaverageis61%(or23%ofthepopulation).Furthermore,whilebroadbandisaccessibleonaverageby93.8%ofUShouseholds,inthefourteenlowestavailabilitystates,thenumberdropsto85.9%.Basedonthecoefficientsutilizedintheevaluationofthethreestatesstudiedindetailabove,theimpactonemploymentandmedianincomewasestimatedforthe19States(seetable8).

Table8.Economicimpactoffullbroadbandaccessibility

State Jobscreated/saved IncreaseinmedianincomePercounty

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%ofhouseholdsinthestateswithlowestbroadbandavailability,116,862jobscouldbecreatedand/orsavedbetween2011and2014.Furthermore,theaveragestatemedianincomecouldincreaseby$1,201.11.WeutilizedtheprojectionsofeachoftheStates'OccupationalOutlookwhichbreakdownnewandreplacementjobstobreaktotalemploymentimpactofbroadbandintwocategories:new

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jobscreatedasaresultofenhancedbroadbandaccessibilityinruralareasandjobssavedasaresultofthecombinedeffectofeconomicgrowthandbroadbandavailability.Accordingtothis,itisestimatedthatofthe116,862jobssavedorcreatedinthe19Stateswithlowestbroadbandaccessibility,38,409willbenewjobsresultingfromneweconomicactivitiestriggeredbywirelessbroadbanddeploymentinruralcounties.Conversely,78,453jobswillbesavedasaresultofthecombinedimpactofeconomicgrowthandenhancedcapabilitiesthatwillbeprovidedtothoseworkersasaresultofwirelessbroadband(seetable9)

Table9.EmploymentImpactbrokendownbyNewJobsversusSavedJobs

StateJobs

created/savedRatioofJobsduetogrowth

NewJobs SavedJobs

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

ThecurrentbroadbandsituationinKentuckyindicatesthatthereisstillaportionofthepopulationthatiseitherunserved(cannotaccessbroadbandservice)orunderserved(couldgainaccesstobroadbandserviceatdownloadspeedsunder4Mbps,whichisstillthestandardforuniversalservicedefinedintheNationalBroadbandPlan).Asexpected,alargeportionofthesupplygap(unservedorunderservedhouseholds)isconcentratedinruralareas(8.8%)comparedtothemetropolitancounties(5.2%).

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TheanalysisofhistoricaleconomicimpactofbroadbandinKentucky(theonlystatewithrobuststatisticaldatasetscollectedbetween2004and2009)indicatesstrongeffectsintermsofjobcreationandincreaseofmediancountyincome.Theseeffectswereusedtoestimatetheeconomicimpactifbroadbandavailabilityweretobeincreasedtoreach100%346.Inordertoestimatethenationalimpactofprovidingfullbroadbandavailabilitythroughwirelesstechnology,theeconomicimpactwasestimatedforthenineteenstateswithlowestbroadbandavailability.Inthiscase,thetotalnumberofjobstobecreatedinthesestateswouldbe116,862.Inthiscontext,itiscriticaltogeneratethepolicyincentivesthatwillenabletheprivatesectortoinvesttoreachthistarget.ServicedeploymentinthisbandistheonlychoiceforunservedandunderservedhouseholdstogainaccesstobroadbandattheservicespeedstipulatedintheNationalBroadbandPlan.Inlightofthesepriorities,onecouldassumethatachievingthedesiredcoveragegoalswouldresultfromacombinationoftheinvestmentoftheprivatesector,primarilyruralcarriers,andgovernmentstimulus,suchastheBTOPprogram.However,twoobstacleshaveappearedthatdonotallowthisgoaltobeachieved.First,whileruralcarriershaveacquired700MHzspectrumtodeliverbroadbandservices,theyfacethelackofinteroperabilityframeworkwithnationalserviceprovidersoperatinginotherbands.Thissituationhasthepotentialtohamperthedeploymentofwirelessinfrastructureinareascurrentlyunservedbybroadband.Second,aportionofthepublicfundsbeingdedicatedtobroadbanddeploymentaspartoftheBTOPprogramarebeingassignedtofiberopticsinfrastructure,whichismoresuitedeconomicallyandtechnicallytoprovidingserviceinurbanandsuburbanenvironments.Giventhissituation,itisfairtoassumethatunlesswirelessserviceprovidersarenotsupportedbytherightinteroperabilityframeworkandsupplyconditions,theprivatesectorinvestmentofwirelessbroadbandinruralAmericawillbedelayed.Thenegativeimpactofthisstateofaffairsintermsofjobcreationandeconomicgrowthcouldbesignificant.

346BecausedataforthepanelregressionwasonlyavailableforKentucky,projectionsforOhioandWestVirginiareliedontheeconometricestimatesfromtheformerstate.ItisconsideredthatKentucky'sestimatescanbereliablyappliedtotheothertwostatesduetotherichsetofcontrolsandtheinclusionofcountyfixedeffects.Theonlyeffectsnotcontrolledforarestate‐fixedeffects.Therefore,theprojectionsassumethat,giventhesetofcontrols,(suchasincome,populationdensity,etc.),ruralcountiesinOhioandWestVirginiarespondtobroadbandinawaythatissimilartoruralcountiesinKentucky.Thesameassumptionappliesformetrocountiesinthethreestates.

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USDA,OfficeofInspectorGeneral,SouthwestRegion.2005.Auditreport:Ruralutilitiesservicebroadbandgrantandloanprograms.AuditReport090601‐4‐TE.http://www.usda.gov/oig/webdocs/09601‐04‐TE.pdf.USDA.2009.Auditreport:Ruralutilitiesservicebroadbandgrantandloanprograms.AuditReport09601‐8‐TE.http://www.usda.gov/oig/webdocs/09601‐8‐TE.pdf.

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APPENDICESDatautilized:ImpactofbroadbandavailabilityonemploymentandaverageincomeInthepanelregressionwhichmeasuresimpactofbroadbandonemploymentandincome,thedatacoverstheyears2004to2009.Broadbandavailability(2004‐2008)istakenfromtheConnectKentuckyresidentialsurvey.Medianhouseholdincome,thepercentageofpeopleaged15to25,thepercentageofpeopleaged65andmore,andthepopulation(2005‐2009)aretakenfromtheESRIBusinessAnalystSourcebookforCountyDemographics.Countrysize,insquarekm,isgatheredfromthe2000Census,whilelaborforceandunemploymentdataistakenfromtheBureauofLaborStatistics.RuralcountieswereidentifiedusingtheclassificationsystemoftheDepartmentofAgriculturefor2003(Rural‐UrbanContinuumcode).Thecodesthatdenotenon‐metropolitanareas(4‐9)wereusedtoidentifyruralcounties.Theycomprisebothruralcountiesadjacenttometrocountiesandisolatedruralcounties.

RuralUrbanContinuumCodes

Code Description

Metrocounties

1 Countiesinmetroareasof1millionpopulationormore

2 Countiesinmetroareasof250,000to1millionpopulation

3 Countiesinmetroareasoffewerthan250,000population

Non‐metrocounties

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

ThedistributionofKentuckycountiesaccordingtotheRural‐UrbanContinuumcodesisasfollows:

Code Kentucky

1 16

2 10

3 9

4 3

137

5 2

6 22

7 24

8 13

9 21

Total 120

ImpactofbroadbandbyindustrysectorForthecross‐sectionalanalysisofbroadbandimpactonindustrialsectors,theU.S.CensusBureau’scountybusinesspatternsdataseriesfor2004,2005,2006and2007wasused.Itprovidesbothtotalandsectoralemploymentatthetwo‐digitNorthAmericanIndustrialClassificationSystem(NAICS)level.Thisdatasetcontainsprivate,non‐agricultureproductionemploymentdatameasuredannuallyasoftheweekofMarch12.Usingthisdata,employmentgrowthratesfortheperiods2004‐05and2005‐07wereestimatedforeachofthetwo‐digitNAICScodes.AcombinationofzeroemploymentlevelsinruralcountiesandsuppresseddataduetoCensusdisclosurerulesledtomissingvaluesinthedataandreducedthenumberofobservationsandcountiesavailableforanalysis.Aftereliminatingindustrieswiththistypeofproblems,onlysixsectorswereavailableforthestudy:financialservicesandinsurance,wholesaletrade,construction,health,andretailtradeandaccommodationsectors.Thefollowingexplanatoryvariableswereincluded.Averagebroadbandadoptionlevelofhouseholds,calculatedwithinformationprovidedbyConnectKentucky,wasusedtomeasurebroadband.Thepercentagesofpopulationwithoutahighschooldegreeandwithcollegeeducationwereusedasmeasuresofthesupplyofunskilledandskilledlabor.ThesevariableswereconstructedusinginformationfromtheU.SCensus2000.Tomeasurelaboravailabilityseveralvariableswereincluded:growthinemploymentfor2004‐2005,percentageofpopulationbetween15‐25,percentageofpopulation65yearsoldandolderfor2005andthepopulationgrowthbetween2005and2007.AgeandpopulationgrowthvariableswereobtainedusingtheESRIBusinessAnalystSourcebookforCountyDemographics(2005and2007).Finally,theincomepercapitavariablewasincludedasacontrolvariableforthecharacteristicsofthecounty(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 ‐6.27E‐06 1.38E‐06 ‐4.53 0 ‐9.01E‐06 ‐3.52E‐06

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 ‐1.2E‐05 1.92E‐06 ‐6.14 0 ‐1.6E‐05 ‐7.97E‐06

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 ‐2.4E‐05 2.33E‐06 ‐10.34 0 ‐2.9E‐05 ‐2E‐05

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

139

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(2005‐7)

‐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

140

NumberofObservations 83

F(8,45) 1.29

Prob>F 0.2605

R2 0.1317

RootMSE 25.605

Tablea.7.Kentucky:BroadbandImpactonFinance&InsuranceEmploymentGrowth(2005‐7)

‐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 54

F(8,45) 2.29

Prob>F 0.0377

R2 0.2153

RootMSE 17.545

Tablea.8.Kentucky:BroadbandImpactonWholesaleTradeEmploymentGrowth(2005‐7)‐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

141

F(8,61) 8.93

Prob>F 0.0000

R2 0.5395

RootMSE 70.502

Tablea.9.Kentucky:BroadbandImpactonWholesaleTradeEmploymentGrowth(2005‐7)‐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 48

F(8,45) 9.38

Prob>F 0.0000

R2 0.658

RootMSE 72.852

142

Tablea.10.Kentucky:BroadbandImpactonHealthEmploymentGrowth(2005‐7)

‐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

Constant ‐119.7998 61.1014 ‐1.96 0.053 ‐241.35 1.7503

NumberofObservations 91

F(8,82) 4.10

Prob>F 0.0004

R2 0.2856

RootMSE 18.144

143

Tablea.11.Kentucky:BroadbandImpactonHealthEmploymentGrowth(2005‐7)‐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 61

F(8,52) 5.91

Prob>F 0.0000

R2 0.4763

RootMSE 18.736

144

OrganizingtoPromoteBroadband:MatchingStructureto

BroadbandPolicyGoals*

D.LindaGarcia347andTarkanRosenberg348•**

1.Introduction

InApril2010,theUSCourtofAppealsfortheDistrictofColumbiaruledthattheFederalCommunicationCommission(FCC)hadoversteppeditsauthorityinreprimandingComcastforhavinginterruptedusersofBitTorrentfile‐sharingservices.Inaunanimousdecision,theCourtruledthattheFCC’sattempttouseTitleIoftheCommunicationsActtoexecuteitspolicyfavoringanOpenInternetwasblatantlyillegal.TheconsequencesoftheCourt’sdecisionmightseriouslyunderminetheFCC’seffortstopromotebroadbandtechnology.AsdescribedbyArtBrodsky,thecommunicationdirectorofPublicKnowledge:349

Itwasaprettystrongopinionasthesethingsgo.ItwascrucialbecauseeverythingtheFCCwantstodowithitsbroadbandstrategyisdependentonquestionablelegalauthorityasaresultofthatcourtruling.

347D.LindaGarciaisaprofessorintheCommunication,Culture,andTechnologyProgramatGeorgetownUniversity348TarkanRosenbergisastudentintheCommunication,Culture,andTechnologyProgramatGeorgetownUniversity•ThispaperwasoriginallypresentedtotheNewAmericaFoundationConferenceDesigningtheCommunicationActforthe21stCentury,WashingtonDC,September29‐20,2010.*ThispaperwasoriginallypublishedintheJournalofInformationPolicyVol.1(2011).**Theauthorswouldliketothankthefollowingpeoplefortheirinputs:MarjoryBlumenthal,DavidRibes,MichaelNelson,DavidLightfoot,&RandyBass.349ArtBrodsky,“NoHoudinisNeeded:FCCShouldTakeDirectWaytoBroadbandAuthority,”PublicKnowledge,April26,2010,4:41http://www.publicknowledge.org/node/3025,accessedSeptember10,2010.

145

Thisisnotthefirsttimethatopponentsofcommunication‐relatedpoliciescircumventedsubstantiveissuesbyframingtheirargumentsinjurisdictionaltermsthatfocusontheFCC’sauthoritytoact.Oneneedonlyrecall,forexample,thatittookcriticsonlytwoyearsafterthepassageofthe1996TelecomActtochallengetheFCC’sroleinimplementingit.Inthisearliercase,theStatescontestedtheFCC’sCommonCarrierdocket96‐98(carrierinterconnectionorder)incourt,claimingthattheFCClackedtheauthoritytoestablishinterimproxyprices,ortoprescribespecificpricingmethodologiesthattheFCCmightuse.AgreeingwiththeStatesonjurisdictionalgrounds,theUS8thCircuitCourtofAppealsoverturnedtheFCCinterconnectionorderonJuly18,1997.Afewmonthslater,theCourtofAppealsreiterateditspositionwhentheStatesagainbroughtsuitagainsttheFCC—thistimeclaimingtheAgencyhadsoughttousesection271oftheCommunicationsActasawayofevadingtheCourt’searlierrulingontheinterconnectionorder.350

Whatmakesthepresentsituationuniqueandinterestingfromapolicyperspective,therefore,isnotjustthattheFederalCommunicationCommissionanditsbehaviorareatissue,butalso—andperhapsmoreimportantly—thattheFCChasactuallytakenastandindefendingitsauthority.For,overtheyears,theFCChasoftenbeenaccusedofcowtowingtoindustry’sinterests,andbackingdownwhenpoliticsbecametoointense.351

Beforecastingjudgment,however,wemustrememberthatthechallengesentailedinimplementingpolicies,whentheygoagainstindustryinterests,shouldnotbeunderestimated.352Oneneedonlyrecall,forexample,theproblemsthatformerFCCChairmanReedHundtfacedwhenheactedtoimplementthe1996TelecomAct.AccordingtoHundt,theAct’sfailurewasduenottotheoverzealousnessoftheFCC,butrathertothecontentiousnessoftheAmericanlegalculture,andthecomplexitiesoftheUSjudicialsystem.Ashedescribedtheproblem:“Whenitcomestolegislation,betweenthethoughtandthedeedfallstheshadowsystem.Theshadow,”hesaid,“iscastbythemillionsoflawyersinAmerica”.353FromHundt’sperspective,theFCCneededtohavemore,notless,authorityifitweretosuccessfully

350MarkRockwell,“AStrikeAgainstNewTelephoneCompanies—CourtShootsDownNetworkElementPlan,Quest”Telepath,November2,1997;MarkRockwell,“JurisdictionalBattleContinues—FCCTriesAgainonPricingRules,”Telepath,October6,1997,n.684;and“States,FCCInsistRelationshipisStrongDespiteNewLawsuitChallengingFCC’sPricingAuthority,”TelecommunicationsReports,September22,1997.351SeeD.Garcia,D.Linda.(January,2001).“WhenAgenciesareCapturedbyExperts:TheIronyofTelecomReform,”L’Industria,352See,forinstance,TomBradley,PCWorld,“UnveilingtheFCCBroadbandPlan,”PCWorldBusinessCenter,March15,2010,postedat11:38,accessedSeptember10,2010.353AsquotedinDavidBraun,“CommunicationCzarHundtBlastsReformFoot‐Dragging,TechWebNews,August14,1997.

146

implementtheTelecomAct.Curiouslyenough,today,BlairLevin,DirectoroftheOmnibusBroadbandInitiative,hasechoedChairmanHundt’ssentiments.OndepartingtheFCCafterthecompletionoftheplan,Levinactuallyquestionedwhether,givenindustry’sleverageandtherecentdecisionsoftheCourt,theBroadbandPlanisevenimplementable.354

Itisallthemoresignificant,then,thatFCCChairmanGenachowskididnotsimplybackdownuponhearingtheCourt’sdecision,norinthefaceofindustryprotests.355IntentonpursinganOpenInternetpolicy,hetookadifferenttack—onemightsaykillingtwobirdswithonestone.GenachowskinotonlyreassertedtheFCC’sauthoritytosetpolicyaslaidoutintheCommunicationsAct;healsoactedtobringbroadbandwithintheregulatoryframeworkoftheFCCbychangingbroadband’sclassificationfromaninformationservice(type1),whichareexemptfromregulation,356toacommunicationservice(typeII),whicharesubjecttoregulation.357Elaboratingonhisapproach,andassertinghisrighttopursueit,ChairmanGenachowskidescribedhispolicyasathirdway—thatistosay,anapproachthatentailsonlylightregulation.Asheexplained,theaimisnottoregulatebroadbandpricing,ortorequiretheownersofbroadbandinfrastructuretosharetheirassets;rather,theintentistoassurethattheFCChasthelegalauthoritytocarryoutitsobligations,especiallyastheyrelatetobroadband.358

Thissetofevents,whichoriginatedwiththe1996TelecommunicationAct(ifnotbefore)havegeneratedconsiderableturbulenceinthecommunicationspolicyarena.Thus,evenassomepartiesinindustrycallforfurtherconstraintsontheFCC,othersraisequestionsaboutwhetherornotthe1996ActneedstoberevampedtoprovidetheFCCwithgreaterauthority.359Thepresentsituationisnot,however,inastateofstalemate.Ascomplexityscientiststellus,chaoticsituations,suchastheoneinwhichwefindourselvestoday,canproducemajor

354MatthewLasar,“Theendofanalog:BlairLevinontheNationalBroadbandPlan,”http://arstechnica.com/telecom/news/2010/03:SeealsoEdMorrissey,AppealscourtrejectsFCCauthorityforNetNeutrality,”HotAir,postedApril6,@12:05,accessedSeptember9,2010.355KimHart,“BigphonecompanieschallengeFCC‘srighttoreclassifybroadband,”HilliconValley,April29,2010:postedat5:03pm.http://thehill.com/blogs/hillicon‐valley/technology/95213‐big‐phone‐companies‐challenge‐fccs‐right‐to‐reclassify‐broad,accessedSeptember10,2010.356EmmaWoollacott,“FCCmovestoassertauthorityoverbroadband,”TGDaily,Friday,June18,2010.http://s0.2mdn.net/1833838/tgdaily_hp__toner.html?rfp=http://www.tgdaily.com/business‐and‐law‐features/50263‐fcc‐moves‐to‐assert‐authority‐over‐broadband,accessedSeptember9,2010.357Broadbandserviceswerederegulatedandreclassifiedasan“informationservice”duringtheReaganAdministration.Cable,whichprovidedequivalentservices,wasnotregulated;sotheaimwastoprovideallISPsalevelplayingfield.Thedecisionwasalsoinkeepingwiththederegulatoryclimateoftheday.358MargariteReardon,“FCCdetailsplantoreassertauthorityoverInternet,”SignalStrength,MY6,2010;postedat7:59,accessedSeptember8,2010.359“TheFCC’sAuthorityOverBroadbandAccess:TheHistoryandContextoftheDebate,VIDEO,MediaBerkman,May27,2010.

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structuralchanges,intheformofphasetransitions.360Witheverythingupended,thefutureisupforgrabs,providingawindowofopportunitytoovercomethelegacyofthepast,andperhapsevenredesignthenation’scommunicationsystemtobettermeettheneedsofthe21stcentury.Onehopefulsigninthisregardisthat,shortlyafterChairmanGenachowskiannouncedthathewouldexercisehisbroadbandauthority,thechairmenofmajorCongressionalcommitteesstatedthattheywereinterestedinconsideringthesecontentiousissuesinthecontextofarevisedTelecommunicationsAct.361Ontheotherhand,effortsbyCongressmanWaxman,ChairmanoftheHouseEnergyandCommerceCommittee,362toputforwardanetneutralitybillwasstalledbytheRepublicansinthehouse,whosubsequentlyhavewarnedtheFCCthatitwouldexceeditsauthoritywereittocontinuetopursuenetneutralityonitsown.363Atthesametime,Genachowskihasreaffirmedhiscommitmenttoproceed.364Hence,whetherornotchangestothe’96Actmightbeachievedintoday’snewpoliticalenvironment,andtheformtheymighttake,issubjecttoconsiderablequestion.Nevertheless,inlightoftheintensebargainingandtimerequiredformajorpolicychangestotakeplace,itisworthwhiletoaddresssomepossibilitiesnow.

Considerthispaper,then,asathoughtpiece—stimulatedbythenotionthatanewTelecommunicationsActmightbeintheoffingatsomepointinthenearfuture.FocusingontheBroadbandPlan,itaskswhatkindsoforganizationalcapacitywillberequiredtoimplementit,andwherethatcapacitymightbestbehoused.Toaddressthisquestion,thepaperproceedsasfollows.First,itexaminestheFCCBroadbandPlanandthekindofgoalsthatitsetsout.Basedonthisdiscussion,sectiontwoarguesthatbroadbandshouldbeconceivedlessasadeploymentproblem(ashastraditionallybeenthecase)andmoreasadiffusionproblem.Thenextsectionexaminesthecriteriaforsuccessfuldiffusionefforts,aslaidoutbyEverettRogers.DrawingonRogers’scriteria,thefollowingsectionidentifiesthetypesoforganizationalcapacitythatwillberequiredtomeetthesecriteria.SectionfiveexaminesthehistoricalcaseoftheRuralElectrificationAdministration(REA),whichwasdesigned,ineffect,aroundadiffusionmodel.Inconcluding,thepaperaskswhetheritispossibletobuildsomeofthesuccessfulaspectsoftheREAexperienceintotheorganizationalarrangementssupportingaNationalBroadbandPlan.

360Seeforonediscussion,MarkBuchanan,SmallWorldsandTheGroundbreakingTheoryofNetworks,NewYork,W.W.Norton&Company.361“TheFCC’sAuthorityOverBroadbandAccess:TheHistoryandContextoftheDebate,MediaBerkman,May27,2010,video362“ChairmanWaxman’sStatementonNetNeutralityProposal.http://www.henrywaxman.house.gov/News/DocumentSingle.aspx?DocumentID=209385363Politico.com,“Sources:FCCChieftoMoveonNetNeutralityProposal.Sources:%20FCC%20chief%20to%20move%20on%20net%20neutrality%20proposal%20‐%20Kim%20Hart%20‐%20POLITICO.com.webarchive,accessed11/19/10.364ToddShields,“RepublicansTellFCCtoSetAsidePlanstoSetRulesforWebService,”BloombergOnline.November19,2010,postedat5:37,accessed11/19/10.

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2.TheNationalBroadbandPlan

Section706oftheTelecommunicationsActof1996callsontheFederalCommunicationCommissiontoencouragethedeploymentofadvancednetworkingcapabilities.Actingonthebeliefthatcompetitionwouldreducecostsandencourageinvestment,theFCCreliedalmostentirelyonthemarkettoachievethisgoal.Hence,itclassifiedInternetservicesas‘informationservices,’aclassificationoverwhichithaslittle,ifany,regulatoryauthority.365Whiletoutingtheimportanceofbroadbandservices,subsequentadministrationsmaintainedthissameapproach366.Contrarytotheexpectationsassociatedwiththispolicy,theUnitedStatescontinuedtofallbehindothercountriesinprovidinguniversalaccesstobroadbandservicesataffordableprices.367Itnowranks15thamongOECDcountries.368

RespondingtogrowingconcernslestourlagginginfrastructurenegativelyaffectUScompetitiveness,theObamaAdministrationtookupthebroadbandtorchaspartofitsstimuluspackage.InFebruary17,2009,alittlemorethanayearafterObamaassumedoffice,CongresspassedtheAmericanRecoveryandReinvestmentActof2009,whichcalledontheFederalCommunicationCommissiontodevelopaNationalBroadbandPlan,orroadmap,forensuringeveryAmericanhasaffordableaccesstobroadbandcapability369.Tothisend,theActprovidedmorethan$7billiontopromoteuniversalbroadbandaccess.

MirroringthefractionatednatureoftheUScommunicationpolicyarena,theAmericanRecoveryandReinvestmentActdistributesresponsibilityforpromotingbroadbandacrossanumberoffederalagencies.Thus,NTIAreceivedfundingtodevelopabroadbandinventorymap;theFCCiscalledupontodevelopanationalbroadbandplan;NTIA,inconsultationwiththeFCC,ischargedwithestablishingagrantsprogram—theBroadbandTechnologyOpportunitiesprogram;andRDUPischargedwithissuingloans,loanguarantees,andgrantsto

365GAO.BroadbandDeploymentPlanShouldIncludePerformanceGoalsandMeasurestoGuideFederalInvestment,May2009:1‐44.366AstheGAOhascharacterizedthesepolicies:OfficialsatOSTP,FCC,andNTIAduringtheBushAdministrationtoldusthatcurrentfederalbroadbandpolicywasmarket‐based;OSTPtoldusthattheBushAdministrationhadimplementedfiscal,technology,andregulatorypoliciesbasedontherecognitionthatacompetitivemarketplaceprovidesthebestenvironmentforachievingtheUnitedStates’broadbandgoals,andcompetitivemarketsshouldbederegulated;anofficialatFCCcharacterizedFCC’sbroadbandpolicyinrecentyearsasonethatreducedbarrierstoentry,lessenedregulationofbroadband,andencouragedinvestment;andNTIAtoldusthatfederalbroadbandpoliciesofthepastfewyearsflowfromanearlyspeechmadebyPresidentBushthatemphasizedthedeploymentofbroadband,andthatNTIAhadexecutedtoremoveeconomicdisincentives.”Ibid.:14.367Ibid.368Ibid.369CNNNews,“Stimulusbillincludes$7.2millionforbroadband,”February17,2009,postedat9:40am;Seealso,FCCpressrelease,“FCCLaunchesDevelopmentofNationalBroadbandPlan:SeeksPublicInputonPlantoEnsureEveryAmericanhasAccesstoBroadbandCapability,”April8,2009.

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increasebroadbandaccessibility.370Ofcourse,notwithstandingthisdivisionoflabor,theActrequirescooperationandcoordinationamongtheagenciesresponsibleforimplementingtheBroadbandPlan.Thus,forexample,theFCCisresponsibleforevaluatingtheprojectsfundedbytheAct.Todoso,itmustrelyonNTIA’sdatasettodeterminewhat,exactly,isanunderservedarea371.

Havingbeenvettedthroughanumberofdifferentvenuesandarenasthroughoutthecountry,372theFCC’sBroadbandPlanwasfinallyreleasedonMarch16,2010.Itwasanambitiousplan,embodyingalmost200recommendations.373

TheFCC’sNationalBroadbandPlanlaysoutbroadstrategiesandpolicyrecommendationstoCongressonhowtoprovidehighspeedInternetaccesstohomesandcommunitiesacrossthecountry.ThePlanidentifiessixmajorgoalsthatincludeprovidingbroadbandaccessto100millionhomesby2020,placingtheUnitedStatesattheinternationalforefrontofinnovationandspeed;providingeveryAmericanwithaffordableaccessandtheskillsneededtosubscribe;providingaccesstocommunitiestobeutilizedbynon‐profitandpublicinstitutions;providinganation‐widepublicsafetynetworktofirstresponders;andprovidingAmericanstheopportunitytotraceandmanagetheirenergyconsumptioninreal‐time374

Theplanfocusesonthreemajorstrategyareasthatincludeinvestment,adoptionandutilizationforpublicservicessuchashealthcareandeducation.EachsectioncontainsnumerousrecommendationstoCongressandotheragencies,suchastheNationalTelecommunicationsandInformationAdministration(NTIA),whichaimtomeetthevariousgoalsoverthenextdecade.Thefirstsection,entitled,“InnovationandInvestment,”callsontheFCC,theNTIAandCongresstofreeupwirelessspectrumforusebyInternetServiceProviders.Theaimistoencouragewireless/wirelinecompetitionathigherspeeds.ItalsocallsontheBureauofLabor

370GAO,op.cit.:17.371GAO,opcit.:22.372BroadbandInitiativesProgram,QuarterlyProgramStatusReport,SubmittedtotheCommitteeonAppropriations,UnitedStatesSenateandTheCommitteeonAppropriations,UnitedStatesHouseofRepresentatives,February17,2010,QuarterlyProgramStatusReport.373GrantGross,IDGNews,“FCCOfficiallyReleasesNationalBroadbandPlan,”PCWorldBusinessCenter,March16,2010,12:30.http://www.pcworld.com/businesscenter/article/191666/fcc_officially_releases_national_broadband_plan.htm;SeealsoTonyBradley,PCWorld,“UnveilingtheFCCNationalBroadbandPlan,PCWorldBusinessCenter,March15,2010,postedat11:38.http://www.pcworld.com/businesscenter/article/191534/unveiling_the_fcc_national_broadband_plan.html?loomia_ow=t0:s0:a38:g2:r3:c0.047330:b31935092:z0,accessedSeptember7,2010.374NationalBroadbandPlanCh.2,pp.25‐27

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Statisticstoprovidedetaileddataonbroadbandavailability,penetration,andprices.375Thesectionalsolaysoutrecommendationsforloweringinfrastructurecostsandforgovernmentinvestmentinresearchanddevelopmentprojects.

ThePlanalsocallsforstrategiesofinclusionandadoption,notingthat100millionAmericanhomesarewithoutbroadbandandthatapproximately14millionAmericanslackaccesstobroadbandinfrastructure.Whileitemphasizesthatmanylackingaccessmayforegoservicebecausetheyseenoneedforitintheirhomes,otherseithercannotaffordservice(orcomputersforthatmatter)orlacktheskillsneededtoutilizetheserviceseffectively.ThePlanpointstothegrowingdigitalexclusionamongthemostmarginalizedmembersofsociety—ethnicandracialminorities,seniorcitizens,thedisabledandthoselivingontriballands.376Amongafewoftherecommendationslaidouttocombatthisphenomenonareprojectsdesignedtointegratenon‐subscribersintothebroadbandecosystem,includingoneprovidingfundingtoenablea“universalizationtarget”of4Mbpsofdownloadand1Mbpsofuploadspeeds—thehighestintheworld.377Theplanfurthermoreaddressestheneedtoeliminatecostbarriers,aswellaslowerdigitalilliteracybylaunchingapublictrainingserviceintheformofaNationalDigitalLiteracyProgram.378

Thethirdandlastmajorsectionoftheplanfocusesonthe“diffusionlag”inthenation’spublicservicesector.Thesectionmakesrecommendationsintendedtoallowservicessuchashealthcare,education,firstresponders,andgovernmenttobeintegratedintoanecosystemandtodevelopa“digitalculture”andmoretransparency.Thissectionseekstoencourageenvironmentalawarenessandcivicengagementamongcitizensbyintegratingbroadbandintothesmartgrid,allowinguserstotracttheirenergyconsumptioninreal‐timeandcreatingamoretransparentgovernmentbyconnectinggovernmentandcitizensthroughsocialmediaenvironments.379Thissectionalsocallsforapublicsafetybroadbandresponsenetworkthatwouldallowfirstresponderstosendandreceivevoice,videoandotherdatamoreefficiently,andthepublictoaccessemergencyservicesacrossarangeofcommunicationplatforms.380

Includedinthissectionalsoarecallstocreateincentivesforwidespreade‐careadoptionandforensuringconnectivityforhealthcareresponselocations,suchasreplacingtheInternetAccessFundwithaHealthCareBroadbandAccessFund,andallocatingmoneystoupgradethe

376Ibid.PartII:129377Ibid.Ch.8:135378Ibid.Ch.9:168379Ibid.Ch.12andCh.14380Ibid.Ch.16:313

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broadbandserviceforhealthcareprovidersoperatingontriballands.381Intheareaofeducation,theplanlaysoutstrategiestopromoteonlinelearningthatincludethesharingandlicensingofdigitaleducationalcontent,reformingstateaccreditationorganizationstoallowformoreonlinecreditcourses,onlineteachingacrossstateslines,aswellasintegratingdigitalliteracystandardsintocurricula.382

Thelastchapteroffersupastatementandguidefortheplan’simplementation,pointingoutthattheplanitselfisexpectedtobeeverchanging.ItrecommendsthattheExecutiveBranchestablishaBroadbandStrategyCounciltocoordinatetheplan’simplementationandallowtheFCCtoregularlyupdateandpublishtimetablesandstatusreportsonthePlan’sdevelopment.383

Whilestakeholdershavegenerallyapplaudedtheintentoftheplan,therearemanywhoquestionspecificaspectsofit.384Forexample,someinthehightechcommunityandmanyothersrepresentingminoritygroupsandcommunity‐basedorganizationssaytheplandoesn’tgofarenough.385Somemembersoftheindustryarealsoambivalent;theywantmoredetails,fearingthat—intheend—thePlanmightservetodiscourageinvestment.Broadcasters,inparticular,areconcernedlestthespectrummadeavailableforbroadbandwillcomeattheirexpense.Atthesametime,manypublicinterestgroupsaredisappointedthattheplandoesnotrecommend‘openaccess’rulesrequiringthebigphoneandcableTVcompaniestoleasetheirnetworkstorivalssotheymightofferservicesattheirownprices.

Amorefundamentalcriticismoftheplan,andthefocusofthispaper,relatestoitsunderlyingrationale.Muchinkeepingwithpasttelecompolicy,theBroadbandPlanisinessenceatechnologydeploymentstrategy,relyingonindustrytoprovidethemomentumforadoption,bycompetinganddrivingpricesdownsothatmorepeoplecanaffordInternetaccess.Thevalueofthisapproachisquestionable,however,notonlybecausesimilareffortsinthepastappeartohavefailedtomeettheirobjectives,butalsobecauserecentsurveydatasuggestthatthepresentlimitstousagedonotrepresentsomuchofarealsupplyproblem,butratherasignificantdemandproblem.

381Ibid.Ch.10:200382Ibid.Ch.11;244383Ibid.Ch.17:333384MattRichtelandBrianStelter,“F.C.C.QuestionedonItsFar‐ReachPlantoExpandBroadbandAccess,TheNewYorkTimes,March16,2010.broadband/F.C.C.%20Questioned%20on%20Its%20Plan%2;SeealsoTomBradley,“FCCBroadbandPlanUnderFireFromAllSides,BizFeed,PCWorld,March3,2010.broadband/F.C.C.%20Questioned%20on%20Its%20Plan%2,accessedSeptember2,2010.385JoelleTessler,“Critics:Broadbandplandoesn’tgoforenough,”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,accordingtoarecentPEWresearchsurvey386privateInternetconnectivityhasonlyrisenby3%overthelastyear,andofthosesurveyed,53%donotbelievethegovernmentshouldinterveneinbroadband,orthattheissueisofparticularimportance.Themajorityofthoseunconcernedaboutbroadbandarenon‐subscribers,whoarguethatonlythosewhoalreadyhaveaccesstohigh‐speedservicesareconcernedaboutbroadbandexpansion.Anotherrecentsurvey,conductedbyABIResearch,reinforcedthePEWstudy,findingthatattheendof2009,64%ofhouseholdshadbroadband.Thestudybreaksthe35%ofnon‐subscribersintofourcategories.Thelargestgroup(37.8%)claimstohavenoneedforbroadband,26.3%citealackofaffordability,and18.3%don’townacomputerofanykind.Theremaining3.6%liveinruralorwildernessareaslackinginfrastructuralsupportforbroadband.387

EquallydoubtfulisthePlan’sexpectationthatgreatertechnologydeploymentwillleadtotheuptakeofinnovativeapproachestoemployingtechnologyforpublicpurposessuchashealthcare,e‐government,education,etc.AsJaniceHaugeandJamesPriegerhavepointedout,therehavebeenfewanalyticalevaluationsoftheimpactofdeploymentstrategiesontechnologyuptake,muchlessontheinnovativeuseoftechnologytoachievepublicgoals.Thus,thereisnoevidencetoguidepolicymakersaboutthechainofevents—andthereforethepointswherepolicyinterventionmightmakehaveapositiveimpact—thatlinkthedeploymentofInternettechnologiestoinnovativeoutcomesindiversepublicsettings.388Withoutsuchresearchanddata,properevaluation,feedbackandrestructuringcannottakeplace—asthePlan,asitispresentlylaidout,presumes.Underthesecircumstances,thereisarealdangerthatmanyoftheresources,allocatedtothebroadbandproblem,insomethingofavacuum,maygotowaste.AsRyanSingelhascharacterizedthesituation:

...Buthowdowemakesurethatthebillionsaren’tspentcreatingthe21stcenturyequivalentofditchestonowhere.Thequestionofhowtospendthatmoneymosteffectivelyislargelyunanswerable,sincealmostnooneknowsanythingabouttheinternet’sinfrastructureandthosethatdoaren’tsharingthatinformationwithpolicymakersorregulators.389

386JohnHorrigan.2008AdoptionStallsforLow‐incomeAmericansEvenasManyBroadbandUsersOptforPremiumServicesthatGiveThemMoreSpeed.Pew/Internet,HomeBroadbandAdoption:WashingtonDC.387LouisE.Frenzel,“BroadbandforEveryone,”ElectronicDesign,May11,2010,accessedFeb.10,2011,http://electronicdesign.com/article/communications/broadband_for_everyone.aspx.388Hauge,JaniceA,andPrieger,NamesE.(2010)“Demand‐SideProgramstoStimulateAdoptionofBroadband:WhatWorks?ReviewofNetworkEconomics:Vol.9:Iss.3,Article4.Availableathttp://www.bepress.com/rnevol9/iss3/4DOI10.2202/1446‐9022.1234

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3.TheNeedforaDiffusionPerspective

TheBroadbandPlanlaidoutbytheFCCclearlyrecognizesthatthefullbenefitsofbroadbandusageintheUnitedStateswillonlyberealizedwhenbroadbandtechnologyisemployednotonlybyindividualsseekingtheirownparticularends,butalso—andperhapsmoreimportantly‐‐bygroupsandsocialorganizationsthataimtousetechnologytoaddressmajorsocialandeconomicneeds.AshighlightedintheBroadbandPlan,theseoccasionsmightinclude,forexample—technologiestosupporteducation,healthcare,economicdevelopmentandemergencyservices.Thisisamajorshiftinemphasis,anditrequiresnewwaysofthinkingabouttechnologypromotion.Forexample,whenthefocusofapolicyisonindividuals,eachactingonhisorherown,itispossibletopursueasupply‐sidestrategy,whichlookstomarketcompetitiontoencourageinvestmentandlowerprices,therebyencouraginginnovationandgreaterusage.And,aswehaveseen,thishasbeentheprimaryapproachfollowedbytheFCCinthepast.However,ifadvancednetworkingtechnologiesaretooperatetopursuesocialandeconomicgoals,adeploymentapproachwillnotsuffice.Insuchcases,policymakersmusttakeaccountnotonlyoftheuser,butalsoofthesocialcontextinwhichthetechnologyisbeingdeployed.Inotherwords,policymakerswillneedtocreatetheoptimalconditionsfortheproductiveuseofnetworkingtechnologiesandtheirincorporationintoaparticularsocialsetting.

Tocapturethecriticalvariablesforsuccess,technologydeploymentstrategiesmustbelinkedtodiffusionstrategies.Whereastechnologydeploymentreferstothephysicalprovisionofinfrastructurefacilities,technologydiffusioncanbedefinedastheprocessbywhichtechnologiesandtechnicalinnovationsareextendedandadaptedovertimeandspace,andintegratedintoday‐to‐daysocialandeconomicactivities.390AsHanneyetal.,havedescribedthisprocesswithrespecttoinformationtechnologies:

...diffusioninvolvesmorethanacquiringcomputerizedequipmentandmicro‐electronics‐basedproductsandrelatedknow‐how.Itinvolvesthedevelopmentoftechnicalchange‐generatingcapabilitiesandtheadaptationofagiventechnologytoawiderangeofneeds391

389RyanSingel,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,accessedSeptember6,2010.

390SeeLawrenceA.Brown.1981.InnovationDiffusion:ANewPerspective.NewYork,NY:Methuen.;andEverettRogers,1995.DiffusionofInnovations,fourthedition.FreePress.391Hanna,Nagy,Guy,KenandRik,Arnold,1995.TheDiffusionofInformationTechnology:ExperienceofIndustrialcountriesandLessonsforDevelopingCountries.WashingtonDC:WorldBank,n.281.

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Ideally,thisprocessisacumulative,iterativeone;oncedeployed,newtechnologiescontinuetoevolve,andare“reinvented”inresponsetochangingneedsandcircumstances.Hence,thecoursethatthediffusionprocesstakesisdeterminednotonlybytechnicalandeconomicfactors,suchastechnologyadvancesanddecliningcosts,butalsobysocialandinstitutionalfactors,suchastheavailabilityofmechanismsforinformationlearningandinformationexchange.

Notwithstandingthecriticalrelationshipbetweendeploymentanddiffusion,thesetwostrategiesarerarelycombined.Infact,alltoooften,supplydrivendeploymentstrategies—focusingalmostexclusivelyontheproblemofaccess—worktounderminetheverysocioeconomicconditionsthatarerequiredtoencouragewidespreadandsustainableusage.392Unfortunately,changingcourseanddesigningandimplementingtechnologydiffusionstrategiesisespeciallychallengingintoday’sderegulated,economicenvironment,inwhichthepoliticalandeconomicmodusoperandiistoletmarketstaketheircourse.

4.CriteriaforExecutingaSuccessfulDiffusionStrategy

Tofullyappreciatewhatisentailedincarryingoutsuchastrategy,wemustlookmorecloselyatEverettRogers’well‐knowndiffusionmodel.AccordingtoRogers,diffusionislessamarketprocessandmoreacommunicationprocess.Tobeexact,diffusionis“theprocessbywhichinnovationsarecommunicatedthroughcertainchannelsovertimeamongthemembersofthesocialsystem.”393Accordingly,policystrategiesdesignedtopromotethegoalsoutlinedintheFCCBroadbandPlanmustbegroundedinasolidunderstandingofhowthesecommunicationprocesseswork.

AccordingtoRogers,innovationsarenotadoptedallatonestroke.Tothecontrary,adoptionisaprocessthattakesplaceovertime,andinthecourseoffivedifferentstages,eachofwhichisaseparate,andunique,socialprocessthatinvolvesactorsinteractingwithothers.Inphaseone,forexample,actorslearnfromothersaboutaninnovation,gainingsomeinitialinformationaboutwhatitisandhowitworks.Inphasetwo,actorsareeitherpersuadedbyothersofthebenefitsoftheinnovationornot,dependingontheattitudesthattheydevelopinthecourseoftheirexperiencingtheinnovation.Thethirdphaseoccurswhenactorsmakeadecisionastowhetherornottoacceptorrejecttheinnovation.Phasefour,inRoger’smodel,entailsthedecisionbyactorstoimplementaninnovation—thatis,toputitintopractice.Inthefinalphase,phasefive,actorswilleitherconfirmorreverseapreviousdecision.394

392Garcia,D.Linda,andGorenflo,Neil.September1997."BestPracticesforRuralInternetDeployment:TheImplicationsforUniversalServicePolicy."PaperpresentedtotheTelecommunicationsPolicyResearchConference.Alexandria,Virginia.Seealso,1991.OTA,RuralAmericaAttheCrossroads:NetworkingfortheFuture.WashingtonDC:U.S.GovernmentPrintingOffice.393EverettRogers.Opcit.,p.10.394Ibid.161.

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InRoger’smodel,anumberoffactorsplayaroleindeterminingwhetherornotthediffusionofaninnovationeventuallytakesplaceandthespeedatwhichitoccurs.Equallyimportant,thetypeofimpactsthatthesefactorshaveisrelatedtothephaseintheprocesswithwhichtheyareassociated.Takecommunicationchannels,forexample.AsRoger’spointsout,whereasmassmediachannelsareeffectiveintheinitial‘learning’phaseoftheprocess,peer‐to‐peertiesaremoreimportantinthepersuasionanddecisionmakingphases.Likewise,whereasintheinitialphaseofawareness,contactsamongheteropholousgroups395aremostproductiveingeneratinginformationaboutaninnovation,interactionsamonghomophilousgroupsaremoreeffectiveinthelaterphasesofadoptionwhenpeopledevelopmoreemotionallychargedattitudesaboutaninnovation.396

Rogersalsorelatesthesuccessandspeedofthediffusionprocesstotheattributesofinnovationsandthosewhoadvocateandusethem.Accordingly,hearguesthatinnovationsaremorelikelytobeadoptedtotheextentthattheyhavearelativeadvantage;arecompatiblewithexistingnormsandpriorwaysofdoingthings;arenotcomplex;butaretrialableandobservable.397Asimportantly,hecategorizespotentialusersaccordingtotheirinnovativeness—innovators,earlyadopters,earlymajority,latemajority,andlaggards—witheachcategorybeingassociatedwithspecificsocialandeconomicattributes.Thus,accordingtoRogers,earlyadopterstendtohavehigherstatus,wealth,levelsofeducationalachievement,socialmobilityandbemorecosmopolitethanlateradopters.398Similarly,Rogersdescribeschangeagentsasbeingmorecosmopoliteandeducatedthentheaveragepotentialuser.

Basedonthesecategories,thecriteriaforsuccessfuldiffusioncanbesummarizedasfollows:

∗Theinnovatorsinanygivensocialcontext(orcluster)musthaveaccesstosourcesof

informationfromoutsidethatcluster.Thiswillentailactivepromotionbyoutsiders,characterizedbyRogersaschangeagents.399

395Homophilyisthedegreetowhichpairsofindividualswhocommunicatearesimilar,whereasheterophilyisthedegreetowhichpairsofindividualswhointeractaredifferentincertainattributes.396Rogers,op.cit.:169.397Rogers,op.cit.:207.398Rogers,op.cit.,:269.399AsRogersdescribes,Ourintimatefriendsareusuallyfriendsofeachother’sformingaclose‐knitclique...Suchaningrownsystemisanextremelypoornetinwhichtocatchnewinformationfromone’senvironment.Muchmoreusefulforgainingsuchinformationaretheindividualsmoredistant(weaker)acquaintances;theyaremorelikelytopossessinformationthattheindividualdoesnotalreadypossess.Rogers,op.cit.:34.

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∗Changeagentsmustidentifyappropriateopinionleaderswhoareinfluentialwithinthetarget

socialsetting,andwithwhomchangeagentsareonarelativeequalsocialfooting,allowingformutualengagementandprovidingabasisfortrustandsupport.

∗Changeagents,andopinionleadersmustworktogethertoacquaintlessenthusiasticusers

withthenewtechnology,andtoprovideassistancetotheminusingit.Theuseofthetechnologyshouldberelatedtoagroup’sspecificgoals,sothatitscompatibilitywiththesegoals,anditscomparativeadvantageinachievingthem,canbeclearlydemonstrated.Aswell,learningaboutandapplyingthetechnologytoachievecommongoalsshouldbecarriedoutwithgroupparticipation,whichwillnotonlyreinforcecommitmenttothetechnologybutalsoprovideforaplatformformutualsupport.Sharedusageofatechnologytoachieveacommonpurposemayalsoenhancethesocialcapitalrequiredtosuccessfullycarryoutthatpurpose.

∗Provisionmustbemadetoprovidesupportovertimetoallownotonlyforsustainabilitybut

alsoforcontinuedinnovationasthetechnologyevolvesincontext.Tothisend,activelinkagesneedtobemaintainedbetweennationalpolicymakersandthoseoperatinglocally.

5.MeetingtheCriteria—TheOrganizationalCapacityRequired

Meetingthecriteriaforpromotingtechnologydeploymentisfarlessdemandingthanmeetingthecriteriaforencouragingtechnologydiffusion—onereason,perhaps,thatdeploymentstrategieshavetypicallybeenpreferredoverdiffusionstrategies.Ofparticularnoteinthisregardisthedifferenceintheorganizationalcapacityrequired.

Withdeploymentstrategies,forexample,muchoftheeffortislefttotheinvisiblehand.Thus,theGovernmentcaninvestininfrastructurefortheInternet,andthenleaveit,firsttothescientificcommunity,andlatertoindustry,tocarryonfromthere.Similarly,theGovernmentcanpromoteindividualusagebyenforcingcompetitionlawtoensurelowprices,andbyprovidingincentivesforinvestmentintheformoftaxcredits,etc.Inlikefashion,theGovernmentcanprovidefundingtogovernmentlabsfortechnologydevelopment,withoutbecominginvolvedintheinnovationprocessitself.

Notsointhecaseofdiffusionstrategies!Asdescribedabove,diffusionisnotastraightforwardlinearprocess.Tothecontrary,itishighlycomplex,takingplaceovertimeandinstages,eachofwhichisdependentonalltheothers.Eachofthesestageswillrequireitsownpolicystrategy,distinctresources,andengagementwithdifferentplayers.Ontopofthis,each

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strategymustbeflexibleenoughtoincorporatefeedbackandallowforadjustmentsalongtheway.Asimportantly,unlikedeploymentstrategies,whichtendtobetopdown,diffusionstrategiesrequireon‐goinginteractionbetweengovernmentchangeagentsandtargetpopulationssothat“learning‐by‐doing”cantakeplace‐inbothdirectionsandinnovativepracticescanemergeasaresult.

Compoundingthesituation,thereisno“onesizefitsall”diffusionstrategy,asisoftenthecasewithtechnologydeployment.Oneneedonlyconsiderthatthegovernmentcanemploytaxcredits,forinstance,toencourageinvestmentintechnologyrelatedindustries,regardlessoftheindustryinquestion.Similarly,thegovernmentcanfundresearchanddevelopment,withwide‐rangingspillovereffects,asthehistoriesofthecomputerindustryandtheInternetattest.Incontrast,meetingthesocietalgoalsthatareoutlinedintheFCC’sBroadbandPlanwillrequirediffusionstrategiesthataretargetednotonlytospecificsectorsofactivities,suchashealthcare,education,etc.,butalsotospecificplacesandinstitutionalsettings.Designingsuchstrategieswill,therefore,requireexpertisethatextendswellbeyondthetraditionallawandeconomicsthatistobefoundinmostFederalagenciestoday.Inadditiontotheneedforknowledgeofspecificsubjectareas,expertiseinthefieldsofsociology,anthropology,politicalscience,andcommunicationwillberequired.

Equallychallenging,effortstoenhanceorganizationalcapacitymayverywellbringwiththemgreatlyincreasedcosts.Evenassumingthatadequatefundingisavailableintoday’sdepressedeconomy,budgetaryconcernsandtheneedforaccountabilitymightrequirethatgovernmenttakeontheadditionalburdenofmonitoringprogress,anddevelopingandimplementingtoolstoassessoutcomes.Politicalcostsmayalsobegreater,notonlybecause—withgreateruncertainty—risksarehigher,butalsobecauseputtingtogetherthealliancesandresourcesnecessarytocarryoutadiffusionstrategywillgiverisetowinnersandlosers,andhencepotentiallyrequirelargeamountsofpoliticalcapital.

TheCaseoftheRuralTelephoneCooperatives&theREA

Togetanideaofhowsuchorganizationalcapacitymightbebroughttogether,andcoordinated,topromotebroadbandinfrastructureintheUnitedStates,itisusefultolookatthecaseoftheRuralElectrificationAdministration(REA).Initsheyday,theREA—aFederalagencyhousedintheDepartmentofAgriculture‐‐‐pursuedacombineddeployment/diffusionstrategyinanefforttodeliverbothelectricityandtelephonytoun‐servedruralareas.Tothisend,theAgencybroughttogetherchangeagents,opinionleadersandlocalcommunitiesinanon‐goingconfiguration,whichgeneratedincreasingreturnsaswellasthesocialcapitalsocriticalforruraldevelopment.EmployinglocalcapacitytogetherwithFederalsupport,theREAachievedit

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goalsatminimalcostandinasustainablemannerthatfosteredruraldevelopmentgoals.Giventoday’schallengesinpromotingbroadband,itistimetorevisitthehistoryoftheREAtoseewhatlessonsitaffords.

HowdidtheREAachievesuchsuccess?In1894,whentheoriginalBellTelephoneCompanypatentsexpired,USruralcommunitiesenteredthetelephonebusiness.Shunnedbyurban‐basedtelephonecompanies,ruralresidentstookituponthemselvestoprovidetheirownphoneservice,relyingalmostexclusivelyonlocalcapitalandlabor.Inmanylocalvillages,doctorsandotherlocalprofessionalstooktheinitiative,whereasinmoreremoteareasitwasfarmerswhosetupthefirsttelephonelines.

Ruralphonecompaniesorganizedthemselvesinawidevarietyofways,dependingontheirlocalresourcesandsituations.Somepurelyprivatecompanies,whichfunctionedasintercomsystems,consistedofasingleline,whichwasownedandsharedbyasmallgroupofpeople.Otherswereorganizedonaprofit‐seekingbasis,takingtheformofprivatelyownedandcommercialstockcompanies.Mutualstockcompanies,incontrast,wereownedentirelybyusers.Organizedonaninformalbasis,themembersoftheseorganizationspaidaproratedshareofthecapitalexpenditures,maintenance,andimprovementfees.Farmerlinesweretypicallysetupaspurelyprivateormutuallyownedsystems.400Thus,forexample,tojointheLibertyTelephoneCompanyin1910,onehadtopayanup‐frontfeeof$25;provideatelephone,apole,andsomelabor;aswellaspayaflatannualfeeof$7forservice.401

Ruralphonecompanieswereabletomakedowithsuchlimitedresourcesbecausetheysharedwhattheyhadandkepttheirexpensestoaminimum.Localfarmers,forexample,oftenbuiltnetworksusingtheirownmaterialsandtools.Whennecessary,theypurchasedequipmentfromindependentmanufacturersorthroughmailordercataloguesdistributedbysuchfirmsasSearsandRoebuckandMontgomeryWard.Havingbuilttheirownnetworks,thesefarmershadlittletroublemaintainingthem.Problemsdidarise,however,whentheyresortedtoverylow‐qualityequipmentandpoles,whichsometimesincludedbarbedwireandfenceposts.402Overall,however,themodelwasagreatsuccess.By1920,39percentofallfarmershadobtainedrudimentaryservice,andinsomeMidwesternstatesthenumberoftelephonesperpersonexceededthatintheEast.

Despitetheirinitialsuccessesandtheimportantservicebenefitsthattheyprovided,ruraltelephonecompanies'fateswereinextricablylinkedtothoseofthecommunitiestheyserved.WithindustrializationandtheonsetoftheGreatDepression,thesecompanieswerenolongerabletosustainthemselves.Manyfailed.Becauseurban‐basedtelephonecompanieswereunwillingtoservethesethin,unprofitablemarkets,serviceinruralcommunitiescontinuedto

400DaleHatfield.1980.SpeedingTelephoneServicestoRuralAreas:LessonsfromtheExperienceintheUnitedStats.WashingtonDC.AnnenbergWashingtonPrograminCommunicationStudies,NorthwesternUniversity.401C.W.Meyer.November16,1912.“HowWeBuiltaHome‐OwnedFarmer’sTelephoneLine.”402RoyA.Atwood.1984.TheTelephoneandItsCulturalmeaninginSouthernIowa.IowaCity,UniversityofIowa.

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deteriorate.Thus,by1940,only25percentofallfarmresidenciesintheUnitedStateshadworkingtelephones.403

ThistrendwasonlyreversedwhentheFederalGovernmentdecidedtoadoptalessmarketoriented,andmorecommunity‐based,approachtotelephonedeploymentinruralareas.Topromoteruraltelephony,theGovernmentturnedtotheRuralElectrificationAdministration(REA),whichhadalreadyprovensuccessfulinbringingelectricitytoruralareas.ThemodeladvocatedbytheREA—thecooperative—wasdesignedtoaddresstheproblemofmarketfailuresinruraleconomies.

Asinthecaseofthetelephone,ruralresidentshadgreatlylaggedbehindurbanresidentsinaccessingelectricity.By1935,lessthan12percentofallAmerica'sfarmswereserved.Privateutilitieswereunwillingtoprovideservicebecausedemandseemedlowandthetechnicalproblemshigh.Atfirst,theFederalGovernmentsoughttoassistandencourageprivateindustryratherthandisplaceit.Whenindustryfailedtorespond,PresidentRooseveltcreatedtheREA,whichbypassedmunicipalandprivateindustrywithitsowngrassroots,cooperativenetworks404EventhoughtheREA'sgoalswereambitious—universalhigh‐qualityservice,rapiddeployment,andlowrates—theagencywassuccessfulinachievingthem.Fewruralcooperativesdefaulted.By1940,3percentofallfarmershadelectricity;by1950,78percentwerereceivingservice;andby1959,96percent(UnitedStatesDepartmentofAgriculture,1989).

Ruralelectriccooperativesalsoplayedanimportantroleineconomicdevelopment.Tothisend,theyworkednotonlywithREA,which—thoughitsloanprogram—servedtopromotedeployment,butalsowiththelocalextensionservices,locatedatnear‐bylandgrantcollages,whohelpedtopromoteeconomicdevelopmentand,withit,technologydiffusion.Thus,thecooperativesaggressivelyrecruitedandservedindustrial,commercial,andsuburbancustomers,whichhadtheeffectofincreasingthenumberofconsumerseachyear,from5millionin1960to12millionin1987.Insodoing,theygreatlyfacilitatedthemovementofindustrial,commercialandnon‐farmresidencestoruralareas.405

Lookingforanewmissioninthelate1940s,REAwelcomedthetaskofhelpingtodeploytelephonestoruralareas.WithitsauthorityexpandedbyCongress,theREAhelpedtoachievehighquality,state‐of‐thearttelephoneserviceinruralcommunities.Toservewidelyscatteredresidences,itpioneeredtechnologytoreducethesizeofwire,itscostofinstallation,anditsvulnerabilitytolightningandicing.REAborrowersalsoreplacedpartylineswithone‐party

403UnitedStatesCensus,1949:1.404JohnD.GarwoodandW.C.Tuthill.1963.TheRuralElectrificationAdministration:AnEvaluation.WashingtonD.C.:TheAmericanEnterpriseInstitute.405UnitedStatesDepartmentofAgriculture.RuralElectrificationAdministration.1989.ABriefHistoryofRuralElectricandTelephonePrograms.WashingtonDC:USDA,REA.

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service.Rateswerestandardizedandcomprehensive"area"coveragewasprovided.Attestingtotheprogram'ssuccess,94percentofallfarmswereservedbytelephonesin1990.406

ThecontributionoftheRuralElectrificationAdministrationtoruralAmericawasbynomeanslimitedtotechnologydeployment,however.Byeducatingandworkingjointlywithruraltelephonecompanies,REAfosteredtechnologytransferwithoutwhichtechnicalsystemscouldnotbeupgradeand/ormaintained.Inaddition,bychannelingitssupporttolocalproviders,whoreliedasmuchaspossibleonlocalresources,theREAhelpedtoreinforceruraleconomies.

Thispolicy,inturn,hadpositivecumulativeeffects.Becausethecooperativesandindependenttelephonecompaniesweresociallyembeddedinlocalcommunities,theirmanagersandownerswereabletoquickentheflowofmarketinformationandpassontheirtechnicalskillsandentrepreneurialexpertise.Moreover,incaseswheretelephoneproviderswereorganizedascooperatives—whichoperatedaccordingtodemocraticrulesofthegame—theprocessofmanagingandadministeringtheprovisionoftelephoneserviceshelpedtobuildthesocialcapitalthatcangreatlyfacilitateeconomicdevelopmentinaruralenvironment.

REAfulfilledmanyofthegoalsthatwereoriginallyassignedtoit;butanother,andeverlasting,valuehasbeenREA’ssuccessfultechnologydiffusionmodelforovercomingmarketfailuresassociatedwithtechnologydeployment.Infact,inonemanneroranother,itisamodelthatpolicymakersmightreconsidertoday,whendevelopingstrategiestopromotebroadband.

PuttingTheHorseBeforetheCart

Recentsurveyshavemadeclearthatthedemandforbroadbandisrunningoutofsteam,asallbutthosewhoEverettRogerswoulddescribeaslateadoptersandlaggardshavebynowadoptedbroadbandtechnology.DrawingonRoger’sdiffusionmodel,itwouldappearthatpushingadoptionupthediffusioncurveatthispointrequiresanentirelynewpolicystrategythatistailoredtothistypeofuserandthisstageoftheprocess.Inparticular,hesitantadoptersmustbeconvincedthatthetechnologyinquestionisnotonly“cool”butalso—andmuchmoreimportantly—meaningfulintheirlives.Convincingtheseskepticalusers,moreover,willnotbeeasy.Learningaboutthetechnologythroughmarketinginformationandthemassmediaisnotenough;theseadoptersmustbeconvincedofthebenefitofthesetechnologiesbasedonface‐to‐faceinteractionswith,andsupportfrom,theirtrustedpeers.

TheREAexperiencesuggestsonewayoftacklingthisprocess;startwithaproblemsuchashealthcare,andemergencypreparedness(ofwhichtherearemany)andbuildon,andsupport,localactivists,whoarealsotrustedopinionleadersintheircommunities,togeneratebroadband‐basedstrategiestodealwiththeseproblems.Localactivistshaveafirst‐handknowledgeofthesituationontheground,sothey—farmorethannationalserviceproviders—arelikelytostructuretechnologicalsolutionsthataretailoredtoaspecificcontextandhencemakesensetohesitantadopters.Asimportantly,localopinionleadersarelikelytohavethesocialcapitalandnetworkresourcesrequiredtogeneratethetrustneededtobringreluctant

406Ibid.

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usersonboard.Alocalapproach,suchasthis,alsohastheadvantageofminimizingtheorganizationalcapacityrequiredattheFederallevel,abenefitthatisparticularlyrelevantintoday’spoliticalenvironment.Asimportantly—astheREAcaseclearlyillustrates—itisonlybyutilizinglocalcapacitythatsuchcapacitycangrow,generatingincreasingreturnsaswellasamoregeneralunderstandingofthewaythattechnologycancontributetolocalandnationalgoals.

Today’snationalbroadbandstrategy,aslaidoutintheBroadbandPlan,isafarcryfromsuchanapproach.Targeted,forthemostpart,tothedeploymentsideoftheequation,itlooksprimarilytotheavailabilityoftechnology,andtheabilityofuserstoemployit,todrivedemand.Notsurprisingly,therefore,itfocusesoncost‐basedstrategiestopromotedemand,whileplacingtheresponsibilityforpromotingbroadbandtoagenciesthathavetheprimeresponsibilityfordeterminingtelecommunicationspoliciessuchastheFCCandtheNTIA,notwithstandingthefactthattheseagencies—giventheresourcesavailabletothem‐‐maybeillequippedtograspthefullrangeofsocialandeconomicimplicationsofthetechnologiesoverwhichtheyoversee.

Tomoveforwardwithadiffusion‐orientedstrategywillrequirenotonlythinking“outsideofthebox,”butalsoimplementingpolicieswithinanewsetoforganizationalarrangements.Recallthatorganizationsarenotneutral.407Dependingontheirspecificpurposesandthecircumstancesinwhichtheyoperate,organizationsvaryaccordingtotheirresources,organizationalstructures,normativecriteria,operationalprocedures,andhowandtowhomtheydistributebenefits408Asimportantly,organizationsarepathdependent.Onceestablished,theybecomelockedintotheirways,takingoncharacteristics,orevenpersonalities,oftheirown.409AsdescribedbyDiMaggioandPowell:

Theconstantandrepetitivequalityofmuchorganizedlifeisexplicable,notsimplybyreferencetoindividuals,asmaximizingactors,butratherbyaviewthatlocatesthepersistenceofpracticesinboththeirtaken‐for‐grantedqualityandtheirreproductionofstructuresthataretosomeextentself‐sustaining410

407HaroldSeidman,Politics,PositionandPower:TheDynamicsofFederalAdministration,NewYork,NY:OxfordUniversityPress.408RichardScott,InstitutionsandOrganizations,2ndedition.ThousandOaks,CA:Sage.SeealsoJeffreyPfefferandGeraldSalancik,TheExternalControlofOrganizations:AResourcePerspective,Stanford,CA:StanfordUniversityPress.409DouglassNorth,Institutions,InstitutionalChange,andEconomicPerformance.NewYork,NY:CambridgeUniversityPress.SeealsoKarlWeick.SensemakinginOrganizations,ThousandOaks,CA:Sage.410PaulDiMaggioandWalterW.Powell.1991.“TheIronCageRevisited:InstitutionalIsomorphismandCollectiveRationalityinOrganizationalFields,”inWalterW.Powell.andPaulDiMaggio,TheNewInstitutionalisminOrganizationalAnalysis.Chicago,IL:ChicagoUniversityPress.

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HowToProceed?

Tomatchorganizationalstructuretobroadbandpolicygoalswillrequiretheestablishmentofanorganizationalcapacityspecificallydesignedtopursueaneffectivediffusionstrategy,aslaidoutabove.Tobetenableintoday’spoliticalclimate,suchastrategymustalso—andtothegreatestextentpossible—requirethelowestpossiblemonetaryincentivesandemployexistingorganizationalcapacity.Moreover,givenourgenerallackofunderstandingaboutbroadbandanditsdiffusion,anysetofarrangementsshouldpromotelearning‐by‐doingonthepartofusersandpolicymakersalike.Althoughanalyzingavarietyoforganizationaloptionsiswellbeyondthescopethispaper,weidentifyoneapproachthathasstrongpotential.However,onemustkeepinmindthatthisideaisspeculativeinsofarasitisbasedontheassumptionthatCongress,indesigningarevisedCommunicationsAct,specificallygrantstheauthoritytoimplementsuchabroadbandpolicy.

Theproposedideacallsforthecreationofanorganizationcapability,insidetheDepartmentofCommerce,butapartfromtheNationalTelecommunicationandInformationAdministration,allowingittooperatemuchlikeaskunkwork—thatistosay,anexperimentalstationwherelearning‐by‐doingcantakeplaceinanon‐goingfashionandwithrepresentationbypartiesinvolved.AlthoughNTIAhasresponsibilityforadministeringbroadbandgrantsundertheAmericanRecoveryandReinvestmentActof2009,itsapproachistypicallylinearandtop‐down,aswellasdeploymentoriented.Toshiftgears,andtakeontheresponsibilitiesrequiredtocarryoutaninteractivediffusionstrategywouldrequiregreatlyreorganizingNTIAandenhancingitscapacityandbreadthofknowledgeandexperienceatconsiderableexpense.

HousedwithintheDepartmentofCommerce,andseparatefromNTIA,aBroadbandExperimentalStationwouldhavethebenefitofexecutivebranchsupport.However,itwouldnothavealegacyfavoringdeploymentgrants.Moreover,incontrasttoNTIA,itcouldbeorganizedinanon‐bureaucraticway,employing—muchliketheRuralElectrificationAdministration—thefullrangeofparticipantswhoareengagedinbroadbandactivities—fromthelocaltothenational.Inkeepingwithadiffusionstrategy,changeagents(whomightbebroadbandproviders,governmentworkers,NGOs,professionals,academics,etc.)wouldbebroughttogetherwithlocalopinionleaderswhoareengagedinsometypeofpublicservices(e.g.healthcare,emergencyservices).Interactingtogether,theymightshareexperiences,gatherdataandfeedback,andworkoutinnovativesolutionstorecognizedproblems.Itisthesesolutionsthatmightbetested,adaptedandexpandeduponinaBroadbandExperimentalStation.

Therearemanybenefitstosuchanapproach.Forexample,aBroadbandExperimentalStationwouldminimizetheneedforadditionalorganizationalcapacityandencouragefeedback,learning,andcontinuedinnovation.Inkeepingwiththeeffort’sexperimentalandlearninggoals,aswellastoday’ssignificantfinancialconstraints,programparticipantsmightbeselectedthroughacompetitiveprocessbasedontheirprojectproposals.Projectswouldbeapproved

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basednotonlyonapplicants’abilitiestoputtogetheracommittedteamofstakeholdersandstrategiesthatincorporateallstagesofthediffusionprocess,butalso—andasimportantly—onthewillingnessofteammemberstobecomepartofanon‐goingparticipatorylearningprocess.Participantswould,thus,notbeengagedasmembersofapermanentstaff,butratheronaflexibleandtemporarybasis,correspondingtothenatureandtimeframesoftheirprojects.Rotatingparticipantswouldbothgeneratenewlearningwhileengaginginaproject,aswellashelptodiffusethesepracticesoncetheirprojectscometocompletion.AlumnioftheBroadbandExperimentalStationmightserveasevaluatorsoffutureprojects,aswellasadvisorstosubsequentparticipants.Overtime,participantsintheseprocesseswouldbelinkedtogetherinavirtualcommunityofpractice.

TheapproachlaidouthereisinkeepingwiththeBroadbandPlan’snotionthattheplanisnotfixed,butratherevolvinginaccordancewithhowsuccessfullyitisbeingimplemented.Toassurethatneededreadjustmentstakeplace,theBroadbandPlancallsfortheestablishmentofaBroadbandStrategyCouncilwithintheexecutivebranch,whichwouldreviewbroadbandstrategiesanddeploymentovertime.Whileitisimportanttohaveexternaloversightandamechanismforreadjustment,thePlandoesnotgofarenough.Merelymappingdeployment,asiscalledforinthePlan,failstoprovideusefuldataaboutimpactsandthemechanismsbywhichtheycomeabout.ApreferredmethodforevaluatingbroadbandstrategymightbetochargetheNationalScienceFoundation,whichhasabroadbaseoftechnicalandsocialscienceexpertise,withthetaskofsolicitingresearchonthissubject.TheresultsfromsuchresearchcouldthenbedirectedtotheStrategyCouncil.

Onefinalnoteaboutcostsandbenefitsisinorderhere.Diffusionstrategiesarefarmorecomplexandnon‐linearthandeploymentstrategies.Requiringthecoordinationandcollectiveactionofmultiplestakeholders,participatorystrategiescanbeveryuncertain.Nonetheless,collectiveactioncanyieldveryhighrewardsbygeneratingsocialcapitalandstimulatingincreasingreturns.Thus,totheextentthatgovernmentprograms,suchastheoneoutlinedabove,canprovideadequatethirdpartyincentivestopromoteparticipationandengagementinbroadbanddiffusion,thebenefitswilllikelyfarexceedthecosts.

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AdvancingCommunityBroadband:SocialEnterpriseSolutionstotheProblemoftheBroadbandDigitalDivide

BruceLincoln411

ColumbiaEngineering

IntroductionWheredowereallystandatthismomentintimeasitrelatestotheachievementofubiquitousbroadbanddisseminationintheUnitedStates?TheNationalBroadbandPlanprovidesuswithanambitiousframeworkforanAmericanresurgenceinbroadbandinnovation.$7.2billioninBroadbandStimulusfundinghasbeencommittedandthoseprojectsareintheirearlystagesofdevelopment.However,whataboutthoseunderservedandunservedareasthatdidnotreceiveanybroadbandstimulusfunding.Howdowegoaboutsolvingthebroadbanddigitaldivideinthoseareas?AttheCenterforTechnology,InnovationandCommunityEngagement(CTICE)attheFuFoundationSchoolofEngineeringandAppliedScience,ColumbiaUniversitywehavedevelopedasocialenterprisesolutiontotheproblemofthebroadbanddigitaldividecalledAdvancingCommunityBroadband.AdvancingCommunityBroadbandAdvancingCommunityBroadbandisajointcollaborationbetweenTheCenterforTechnology,InnovationandCommunityEngagement(CTICE)attheFuFoundationSchoolofEngineeringandAppliedScience,ColumbiaUniversity;PerScholas;theCenterforSocialInclusionandDataConversionLaboratory,Inc.AdvancingCommunityBroadbandisabroadbandtechnologystrategydedicatedtosolvingtheproblemsofthebroadbanddigitaldivideinunderservedandunservedcommunitiesthatdidnotreceivefundingfromeithertheBTOPortheBIPprograms.ForthepurposesofsubmissiontotheBTOPprogram,wedevelopedtwoproposals.SiliconHarlemisdesignedtoaddressthe

411BruceLincolnisanEntrepreneur‐in‐ResidenceatColumbiaEngineeringandanaffiliatedscholarattheColumbiaInstituteforTele‐Information

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problemsinUpperManhattanandtheSouthBronx.DigitalMississippiisdesignedtoaddresstheproblemsthatconfronttheMississippiDelta.AdvancingCommunityBroadbandfocusesinontwogeographicallydistinctcommunities:UpperManhattanandtheSouthBronxrepresentingoururbancatchmentareaandtheMississippiDeltawhichrepresentsourruralcatchmentarea.Thoughtheseareasaregeographicallydistinctandthusrequiredifferenttechnologicalsolutions,theysharesimilaritieswhenlookedatfromtheperspectiveofculturalandsocioeconomicdemographics.NeedsData:UpperManhattanandtheSouthBronxTheUpperManhattanEmpowermentZoneencompassestheneighborhoodsofCentralHarlem,EastHarlem,WashingtonHeights,andInwood.The2000censusindicatesthattheapproximately336,576peoplewhoresideinUpperManhattanarepredominatelyAfrican‐American(48.1%)andHispanic(37.4%).ThemedianhouseholdincomeinUpperManhattanis$24,569,comparedwiththeCity’soverallaverageof$34,434,and34.3%ofUpperManhattanresidentshaveincomesbelowthepovertyline.TheFurmanCenterreportsthatin2008,beforethecurrenteconomiccollapse,averageunemploymentinUpperManhattanwas10.87%,comparedwith7.1%inNewYorkCityasawhole.

AlthougheducationalperformanceisincreasingthroughoutNewYorkCitypublicschools,intheDistrictsthatmakeupUpperManhattan,thepercentageofstudentsperformingatgradelevelinreadingandmathconsistentlylagsbehindotherpartsoftheCity.Furthermore,morethan35%ofUpperManhattanadults(25yearsoldandover)donothavehighschooldiplomas,comparedwith27.7%ofallNewYorkers.

TheSouthBronxiswithinthepoorestCongressionalDistrictinthenation,andencompassesthepoorestneighborhoodintheNewYorkmetropolitanarea.Nearly50%ofthepopulationlivesbelowthepovertyline,andmorethanhalfofallBronxgovernmenthousingislocatedthere.Accordingtodatafrom2005‐2007,CongressionalDistrict16(coveringmostoftheSouthBronx)wastheonlycongressionaldistrictintheUnitedStatesduringthoseyearswithapovertyrateover40%,andinwhichamajorityofchildrenwerelivingbelowthepovertyline.In2007,theBronxCountychildpovertyrateof38.1%wasthehighestintheNortheast(northoftheOhioRiverandeastofIllinois)and27.1%ofthewholeBronxpopulationwasbelowpovertyin2007,alsothehighestfigureintheNortheast.Accordingtoa2010CommunityDistrictNeedsassessmentissuedbyMayorBloombergandtheDepartmentofCityPlanning,MottHavenandHuntsPointresidentsaresomeofNewYorkCity'sleastlikelytohavecompletedhighschoolorequivalencydegrees,whichhasleadtostaggering

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unemploymentrates.OnaveragetheseresidentsearnsignificantlylessthantherestofNYC.In2007,55.3%ofallresidentsreceivedsomesortofincomesupport.ComparedtoNYCasawhole,inHunt’sPoint/MottHaventhepercentageofadults25yearsandolderwithoutahighschooldiploma(61%vs.32%)andthepercentageoflinguisticallyisolatedhouseholds(28%vs.12%)aresubstantiallyhigherthanothercityregions.Approximately4.1%completeda2‐yearor4‐yearcollegecurriculum.StudiesshowthatincommunitiesofcolorsuchasUpperManhattanandtheSouthBronx,broadbandpenetrationhistoricallyskewstowardsthosewhohavemoreeducationandhigherincomes.However,a2009PewInternetandAmericanLifestudyfoundthat―AfricanAmericansexperiencedtheirsecondconsecutiveyearofbroadbandadoptiongrowththatwasbelowaverage.In2009,46%ofAfricanAmericanshadbroadbandathome.Thiscompareswith43%in2008.In2007,40%ofAfricanAmericanshadbroadbandathome.

NeedsData:TheMississippiDeltaDigitalMississippiwillcover51municipalitiesina34countyarea(pleaseseeattachedlistofmunicipalitiesandcountiesintheservicearea).CensusdataonthepopulationsofthemunicipalitiesservedbyDigitalMississippiisnotavailable.However,thetotalpopulationacrosstheimpactedcountiesis1,262,859(U.S.Census,QuickFacts).

TheDigitalMississippicountiesareamongthepoorestinapoorstate.WhilethepercentageofMississippiresidentslivinginpovertyis19.9%,thecorrespondingfigurefortheDigitalMississippicountiesis23%.TheDigitalMississippicountiesalsohaveahigherpercentageofresidentsofcolor.AcrossMississippi,39.2%ofresidentsarepeopleofcolor.However,intheDigitalMississippicountiesthe51.7%ofresidentsarenon‐White.(AnalysisofU.S.CensusData,2000).Examinationoftrendsinhealthandeducationinsomeoftheimpactedcountiesrevealsbothtremendousneedandstrikingracialdisparities.Forexample,in2007theinfantmortalityratewasamere6.6per1,000birthsforwhitemothers.Fornon‐whites,however,theratewas15.5per1,000births.InseveraloftheDigitalMississippicounties,however,thedisparitieswereevengreater.Forexample

o Warren‐YazooCounties: White4.2;Non‐White11.5o Panola‐CoahomaCounties: White6.8;Non‐White15.9o Washington‐Bolivar: White4.8;Non‐White14.8

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(AmericanHumanDevelopmentProject,MSHumanDevelopmentReport,2009)Moreover,theHealthResourcesServicesAdministration(HRSA)hasdesignatedQuitman,Yazoo,Washington,Tallahatchie,Sunflower,Leflore,CoahomaandBolivarcounties—allofwhichwillbeimpactedbytheDigitalMississippiproject‐‐asprimarymedicalcare,healthprofessionalshortagecounties.(MSStateDepartmentofHealth).Similarly,educationaloutcomesinmanyoftheimpactedcountieslagbehindstateaveragesandBlackstudentsinthosecountiesfareworsethantheirWhitecounterparts.Forexample,78.5%ofMississippiresidentshavesecuredatleastahighschooldiploma.However,whilethisistrueof83%ofwhitesstatewide,itistrueofonly70.4%ofAfricanAmericansinthestate.ThesedisparitiesinhighschoolcompletionratesarealsoevidentinmanyofthecountiesthatwillbeimpactedbyDigitalMississippi.Forexample

o Washington‐BolivarCounties: White31.9%;AfricanAmerican13.1%o Leflore‐SunflowerCounties: White19.7%;AfricanAmerican8.9%o Panola‐CoahomaCounties: White15.3%;AfricanAmerican8.8%o Warren‐YazooCounties: White24.1%;AfricanAmerican10.3%

(AmericanHumanDevelopmentProject,MSHumanDevelopmentReport,2009)MetroscaleRegionalCyberspaceInitiativesortheMERCIModelAdvancingCommunityBroadbandisdedicatedtobridgingthebroadbandgapintwocommunities:UpperManhattanandtheSouthBronxinNewYorkandtheMississippiDelta.AdvancingCommunityBroadbandhasdevelopedamodelthatwebelievecanbeappliedtotheproblemsthataffectbothanurbanareaandaruralarea.ThatmodeliscalledtheMERCImodel.MERCistandsforMetroscaleRegionalCyberspaceInitiatives.SiliconHarlemrepresentsoururbanormetroscalecyberspaceintiative.DigitalMississippirepresentsourruralorregionalcyberspaceinitiative.Thereasonwecallthemcyberspaceinitiativesisbecausewewanttodifferentiatetheseprojectsfromtelecommunicationsinitiatives.Ourgoalisnottocompetewiththeincumbentprovidersintheprovisionoftelecommunicationsservicesbuttoprovidebroadbandasalife‐critical,missioncriticalinfrastructurethatisrequiredforparticipationinthedigitaleconomy.SiliconHarlemSiliconHarlemwilldeployanadvanced,community‐basedwirelessbroadbandinternetworkthatwillblankettheUpperManhattanEmpowermentZonefrom116thStreetto168thStreet.TheSiliconHarlemNetworkwilldevelopandruntenteleworkcentersstrategicallylocatedincommunityanchorinstitutions.EachteleworkcenterwillusetheSiliconHarlemportaltogive

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localresidentsorsmallbusinessownersaplacewhere,fornocharge,theywillbeabletodothefollowing:

1.LearnhowtouseacomputerandtheInternet

2.Gainonlinejobtraining

3.Engageintele‐employment

4.Accessdigitalservicesandproducts

SiliconHarlemwillprovideeducation,awareness,training,access,equipment,andsupporttocommunityanchorinstitutions,supportjobcreation,andaddresstheneedsofvulnerablepopulations.

SiliconHarlemwillsupportjobcreationbyenablinglocalresidentstotakeondataconversionwork—theconversionofpaperdocumentsintoopticallystored,digitallyretrievabledocuments—whichtraditionallyhasbeenfarmedoutoverseas.Toaccomplishthis,SiliconHarlemispartneringwithDataConversionLaboratory,Inc(www.dclab.com)toprovisioneachteleworkcenterasaCenterforExcellenceinDocumentConversion.DataConversionLaboratorywouldcontractwitheachteleworkcentertocompletedataconversionwork.

DataConversionLaboratorywillestablishtrainingprogramsandprovidetheirconversionsoftwareforuseateachteleworkcenter.Participantswillbetrainedforpositionsdependentuponliteracylevel.ThoseindividualswiththelowestreadinglevelsortheleastproficientEnglishlanguageskills,willbetrainedasBulkScanners.Thesearefollowedbymoreadvancedpositions,asfollows:FirstProofreader,SecondProofreader,SeniorProofreader,JuniorEditor,SeniorEditor.Trainingnormallytakessixmonthsatwhichtimetheteleworkerisimmediatelyemployable.Afterediting,CodersconverttextdocumentsintoHTML,SGML,orXML.Inaddition,thecompanyemploysManagersandSupervisorsaswellasCustomerServicePersons.

Theentry‐levelBulkScannerpositionincludesaneducationalbenefit,andastheyimprovetheirreadingabilityemployeescanadvancetobecomeProofreaders.AdirectoutcomeofthisworkisthattheemployeesnotonlylearnthevalueofahomecomputerandInternetaccessbutalsocannowaffordsuchnecessitiesbecauseoftheirjob.

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SiliconHarlemhasfivegoals:

1.Creatingjobs

2.Closingthebroadbandgap

3.Encouragingdemandforbroadband

4.Spreadinghigh‐speedaccesstoschools,universities,libraries,community

centers,jobtrainingcentersandpublicsafetypersonnel

5.JumpstartingtheGreenEconomyinHarlem

TimelineofImplementation

StageZero‐Preliminary‐ConsortiumOrganization

StageOne‐InfrastructureDeployment

StageTwo‐CreatingtheTeleworkCenters)

StageThree‐OperationalizingSiliconHarlem

StageFour‐ProvidingDistanceEducationandTele‐HealthServices

StageFive‐SustainabilityPeriod

SiliconHarlemasamodelisreplicabletoothersettings.Themethodologycouldbeappliedtootherurbansettings,suchasNewark,NewJersey;Philadelphia,Pennsylvania;Baltimore,Maryland;orWashington.D.C.SiliconHarlemcanbeappliedtoruralsettingssuchasIttaBena,MississippiortotheentireDeltaRegion.

DigitalMississippi:AProposaltoDeveloptheMississippiOnlineNeighborhoodElectronicNetwork(MSONE‐Net)DigitalMississippiisastrategictechnologyinitiativewhosegoalistoprovidethemajorityoftheneediestcitizensofMississippiwithaffordablebroadbandbytheyear2015.DigitalMississippihasfivegoals:

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1. Createjobs2. Closethebroadbandgap3. Stimulateinvestmentinbroadband4. Spreadhigh‐speedaccesstoschools,universities,libraries,communitycenters,job

trainingcentersandpublicsafetypersonneland5. Encouragedemandforbroadband.

DigitalMississippiwillcover51municipalitiesina34countyarea(pleaseseeattachedlistofmunicipalitiesandcountiesintheservicearea)withatotalpopulationacrosstheimpactedcountiesof1,262,859(U.S.Census,QuickFacts).ThiscoveragearealackseffectivebroadbandaccessforthedeliveryofbasicInternetserviceletalonesuchcriticalInformationAgeservicesase‐education,e‐government,e‐employmentande‐economicdevelopment.Thecostpermileforthedeploymentofwirelineinfrastructureiscostprohibitivebaseduponpopulationdensityandgeographicdistance.However,thecosttodeployahighspeedwirelessbroadbandnetworkisbycomparison,non‐costprohibitiveandcanberapidlydeployedandoperationalized.DigitalMississippiproposestodeveloptheMississippiOnlineNeighborhoodElectronicNetworkorMSONE‐Net.DigitalMississippiwillbecarriedoutinasetofstages.InStageOne,thegoalistosolvethelastten‐mileandthelastone‐mileproblemwhichpreventsthedisseminationoffibertoresidentsofruralMississippi.UrbanCyberspacewillpartnerwithTelepakNetworkstoutilizetheirfiberopticnetworkasthebackbonefortheproposednetwork,TheMississippiOnlineNeighborhoodElectronicNetworkorMSONE‐Net.InStageTwo,thegoalwillbetocreateteleworkcenters.Teleworkcentersarepublicaccesscommunitytechnologycenterswhichcanbelocatedinexistingfacilitiessuchasschools,libraries,churches,jobtrainingfacilitiesandcommunitycenters.AteleworkcenterdoesnotonlygivethelocalcitizenaplacewheresheorhecancomeandlearnhowtouseacomputerandtheInternet,italsoprovidesonlinejobtrainingandemploymentatthedesktopthroughaportal.ForthepurposesofDigitalMississippi,weproposetocreatejobsbythereverseoutsourcingofdataconversionworkwhichtraditionallyhasbeenfarmedoutoverseas.InStageThree,thegoalwillbetoextendthereachoftheMississippiOnlineNeighborhoodElectronicNetwork(MSONE‐Net)toincludeothercriticalpublicandmunicipalfacilities,smallbusinesses,community‐basedorganizations,hospitals,firstresponders,civicandculturalinstitutionsandresidenceswhileprovisioningthenetworkwithlife‐criticalservicessuchasdistancelearning,tele‐healthande‐governmentinformation.InStageFour,thegoalistodeliverdistanceeducationandtele‐healthservicesacrossthenetwork.

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TheprojectwillbeunderthedirectionofTugalooCollegeinpartnershipwithAlcornStateUniversity,JacksonStateUniversity,theJacksonMedicalMall,theDeltaHealthAlliance,MississippiPublicBroadcastingandtheBBKingBlluesMuseumandDeltaEducationalResourceCenter.FullSpectrumSouthinconjunctionwiththeUrbanCyberspaceCompanyhaveorganizedaconsortiumoftechnologypartnerswhichincludesTelepakNetworksasthebackboneprovider;CONXXandAlvarionasthewirelessbroadbandsolutionsproviders;PerScholasastheproviderofITtrainingandlowcosthomecomputers;andDataConversionlabsastheprovideroftheDocumentConversionSpecialisttrainingandtheteleworkemploymentopportunities.JobCreationEstimateforDigitalMississippiOverthedurationoftheDigitalMississippibroadbanddevelopmentinitiativeitisestimatedthattheactivityoftheprojectwillcreatejobsinanumberofareas.NetworkBuildoutThebuildoutofthenetworkwillbecarriedoutbythreecontractingcompanies:

1. UrbanCyberspace2. Conxx3. JandFLabs

Eachofthesecompanieshavecommittedtotrainandemployanumberoflocalworkersinthefollowingareas:

• ProjectOfficeAdministrativeAssistants‐3jobs• NetworkInstallers‐12jobs

TeleworkCenter‐DevelopmentPerScholaswilltrain40developerswhowillworkonthedevelopmentofthe20teleworkcenters.Onceoperational,theteleworkcenterswilltrain25personsper2‐monthcycleasDocumentConversionSpecialistsinthefollowingareas:

• BulkScanners• ProofReaders• Editors• QualityAssuranceSpecialists• Coders• Programmers• Managers• Salespersons• CustomerService

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Overthecourseofayear,oneteleworkcenterwilltrainandemploy150peopleinthelocaldataconversionindustry.Alltwentyteleworkcenterswillcreate3,000teleworkpositions.CommunityHealthHousesEachteleworkcenterwilldoubleasaCommunityHealthHouse.CommunityHealthHouseswilltrainandemployCommunityHealthWorkerswhowillberesponsibleformanagingandadministeringonthelocallevelthetele‐diagnosticservices.EachCommunityHealthHousewilltrain5workersper2‐monthcycleforatotalof30workersperyear.Acrossthe20housenetworkthatwillamountto600newjobsasCommunityHealthWorkers.ITTrainingPerScholaswilltrainITprofessionalswhowillrefurbishandservicecomputersaswellasinstall,programandmaintainthehomecomputernetworkswhichwillbedevelopedintheendusershomes.PerScholaswilltrainandemploy100ITProjectmanagers.EducationalAssociatesMississippiPublicBroadcastingwilltrainintheuseofitsReadBetweentheLionseducationprograms100parentswhowillbeemployedinHeadStartCentersasEducationalAssociates.DigitalMississippiisa$15milliondollarinitiativewithafive‐yeartimelinewhichincludesthetwoyeardeploymentandimplementationperiodfollowedbyathreeyearsustainabilityperiod.PilotingSiliconHarlemandDigitalMississippiAdvancingCommunityBroadbandisaninitiativewhoseobjectiveistodevelopaproceduralmethodologythatcanbeappliedtothesolutionofthebroadbanddigitaldivideinbothanurbanaswellasaruralsetting.Inordertodothis,AdvancingCommunityBroadbandisintheprocessofdevelopingapilotprojectbaseduponthemotiveelementbehindbothSiliconHarlemandDigitalMississippi:theteleworkcenter.Thepilotprojectwilldevelopaproof‐of‐conceptcommunityteleworkcenteratPerScholas’trainingfacilitylocatedintheSouthBronx.TheobjectiveofthisprojectistodemonstrateandevaluatetheviabilityoftheteleworkmodelforthepurposeofreplicatingitthroughoutthefiveboroughsofNewYorkCityaswellastootherurbancentersandruralareas.

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ProjectDescriptionThegoalofthisprojectistodevelopaself‐sustainingcommunityteleworkcenter.ThepilotsitewillbelocatedattheSouthBronxfacilityofthetechnologynon‐profit,PerScholas.PerScholas’fifteenyearmissionhasbeentoprovideeducation,awareness,training,access,equipment,andsupporttocommunityinstitutions,supportjobcreation,andaddresstheneedsofvulnerablelocalpopulations.

PerScholaswillsupportjobcreationbyenablinglocalresidentstotakeondataconversionwork—theconversionofpaperdocumentsintoopticallystored,digitallyretrievabledocuments—whichtraditionallyhasoutsourcedoverseas.PerScholaswillpartnerwithDataConversionLaboratory,Inc.toprovisiontheteleworkcenterasaCenterforExcellenceinDocumentConversion.DataConversionLaboratorywouldcontractwiththeteleworkcentertocompletedataconversionwork.

DataConversionLaboratorywillestablishthetrainingprogramandprovidetheirconversionsoftwareforuseattheteleworkcenter.Participantswillbetrainedforpositionsdependentuponliteracylevel.ThoseindividualswiththelowestreadinglevelsortheleastproficientEnglishlanguageskills,willbetrainedasBulkScanners.Thesearefollowedbymoreadvancedpositions,asfollows:FirstProofreader,SecondProofreader,SeniorProofreader,JuniorEditor,SeniorEditor.Trainingnormallytakesfromthreetosixmonthsatwhichtimetheteleworkerisimmediatelyemployable.Afterediting,CodersconverttextdocumentsintoHTML,SGML,orXML.Inaddition,thecompanyemploysManagersandSupervisorsaswellasCustomerServicePersons.

Theentry‐levelBulkScannerpositionincludesaneducationalbenefit,andastheyimprovetheirreadingabilityemployeescanadvancetobecomeProofreaders.AdirectoutcomeofthisworkisthattheemployeesnotonlylearnthevalueofahomecomputerandInternetaccessbutalsocannowaffordsuchnecessitiesbecauseoftheirjob.

SkillsinDemandWhenevaluatingjobcreationprogramsonehastobecognizantofthetypesofjobsbeingcreated.Thejobsbeingcreatedinthisprogramarereadilytransferabletothecommercialmarketplace.IndividualswithXMLskillsareingreatdemand.Inadditiontobeingverypertinent,someofthesejobscanbeperformedathomeenablingpopulationslikesinglemotherstoworkfromhome.

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Also,physicallychallengedandwheelchairboundindividualscanbeputtoworkintheprocessaslongastheycanreadacomputerscreenandtype.TrainingTheconversionofPapertoXMLisamulti‐stepprocess.Thestepsare:

1. ScanningthePaper2. OCR(OpticalCharacterRecognition)toextractthetext3. Proofreadingthepagetoensureaccuracy4. StylingthetextintoMicrosoftWord5. ConvertingtheWordDocumentstoXML6. Viewingthedocumentandcorrectinganyerrors7. FinalQualityCheck

Trainingtoperformthemostcomplexconversiontasksiscompletedwithin6monthswhiletrainingforthesimplertasksiscompletedwithinweeksallowingtheemployeetobeproductivealmostimmediately.Also,thedifferenttasksrelatedtodocumentconversionallowsindividualswithvariedlevelsofskillandaptitudetobeemployable.Forexample,the“Scanner”doesnothavetobeasskilledastheQualityAssuranceindividualwhoisnotasqualifiedastheConversionSpecialist.Individualswithalllevelsoftalenthavearoleinthisproductionprocess.TimelineofImplementation

StageZero‐OrganizationofProjectAdministrationandPreliminaryProjectDesign

DuringStageZero,thecollaboratingorganizationswillinessencebeinpre‐productionmode.Thiswillentailtheinitialestablishmentoftheformalworkingrelationshipswhichincludestaskassignmentsandidentificationofadministrativerolefunctions.StageOne‐InfrastructureDeployment

DuringStageOne,theshort‐termgoalistohavethewideareaandthelocalareanetworkconnectivityfortheInternetinstalledandactivatedinPerScholas’sfacility.StageTwo‐CreatingtheTeleworkCenter

DuringStageTwo,theworkingteleworkcenterwillbecreated.Thecomputersandperipheraldeviceswillbeconnectedtothenetworkandprovisionedwiththeappropriatesoftware.The

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officesandthevariousworkingareaswillbesetupandfurnished.ThemilestonewillbethecompletionofthedocumentconversioncenterbytheendofDecember.StageThree‐OperationalizingtheTeleworkCenter

DuringStageThree,thetrainingprogramwillformallybegin.ThefirstcohortoftraineeswillbecomprisedoffifteenpeopledrawnfromPerScholas’srecruitmentpool.Theparticipantswillgothroughthefullprogramoftrainingwhichwillresultintheirbeingthefirstclassofdocumentconversionspecialists.Whilethetrainingisunderway,thefirstconversioncontractswillbesolicitedfromcorporateclients.StageFour‐ProvidingDistanceEducationandTele‐HealthServices

DuringStageFour,theparticipantsaspartoftheirexposuretodigitalservices,willbeofferedtheopportunitytotakeadvantageofonlineeducationcoursesprovidedbyCUNYandotheronlinelearningprovidersaswellastele‐healthservicesprovidedbydifferentNewYorkbasedhealthproviders.StageFive‐EvaluationandSustainabilityPeriod

DuringStageFive,theobjectivewillbetoconductevaluationsthatwillinformourthinkingastothedesignoftheprojectandtoourunderstandingofwhatishappeninginreal‐time.TheultimatepurposeissothattheprojectcanbemadesustainablebothoperationallyandfiscallyTherewillbetwodifferenttypesofevaluationscarriedoutduringtheproject.Therewillbeaformativeevaluationoftheprojectandtherewillbeaneconomicanalysisoftheproject.TheformativeevaluationwillbedesignedandcarriedoutbyTheCenterforSocialInclusion.TheeconomicanalysiswillbedesignedandcarriedoutbyDr.RaulKatzoftheColumbiaInstituteforTele‐Information.AdvancingCommunityBroadbandasaMeanstoInformtheNationalBroadbandPlanAdvancingCommunityBroadbandhasatwo‐partstrategydesignedtoinformtheimplementationoftheNationalBroadbandPlan.WhatweexplainedaboveiswhereweintendtoinfluencetheNBPthroughinnovativeformsofprojectpracticesuchasSiliconHarlemandDigitalMississippi.AdvancingCommunityBroadbandalsoisorganizedtoinformtheNBPthroughpolicyinnovation.On December 7th, 2010, we organized a symposium on Capitol Hill entitled, “AdvancingCommunity Broadband: Transforming Community Economics Through Broadband”. Thesymposiumbrought together anationally recognizedandexpert groupofpanelists todiscuss

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the current state of broadband deployment strategies, the opportunities and necessity forcommunity‐scaleapproachestomeetthesechallenges.Ourpanelists focusedontherolethatcommunity‐scale approaches can play in eliminating the digital divide while empoweringcommunities to create new opportunities in the information economy. Meeting the goal ofuniversalbroadbandadoptionandseizingthenewopportunities itenableswill requireaboldnewapproachtoinfrastructureinvestmentsthatprioritizesequityandrecognizesthepossibilityof community‐scale solutions within the context of national priorities. The findings from thesymposium will be published in the report The Promise and Challenge of CommunityBroadbandModels:LessonsfromTheNationalSymposiumonCommunity‐ScaleBroadband.Toconclude,AdvancingCommunityBroadbandbelievesweareinaperiodoftimethatisbestcharacterizedbytheoperatingconceptofwhatwecallanewlocalism.Thisiswhywearepilotingprojectsbaseduponthecommunity‐scalemodel.Whetheritisthechurchoracooperative,thedeliveryofcontent,servicesandapplicationsoverbroadbandcanalsoreturnaproportionatestreamofrevenuethatgoesbacktothecommunityandisreinvested.Thiswillencouragethekindoflocalinnovationthatwilladdresscommunity‐specificissuesbutwhichmoresocanbeexpandedincrementallytocreateregionalinnovationeconomiesofscaledrivenbybroadbandandthegreeneconomy.