Transcript Best Practices in Broadband Development Without Unnecessary Incentives A Presentation at the 32nd Annual Conference of the Pacific Telecommunications Council Honolulu, Hawaii January 17-20, 2010 ‘ Rob Frieden,

Best Practices in Broadband Development
Without Unnecessary Incentives
A Presentation at the
32nd Annual Conference of the
Pacific Telecommunications Council
Honolulu, Hawaii
January 17-20, 2010
‘
Rob Frieden, Professor of Telecommunications and Law
Penn State University
[email protected]
Web site : http://www.personal.psu.edu/faculty/r/m/rmf5/
Blog site: http://telefrieden.blogspot.com/
Incentive Creation and Disincentive Avoidance in
Broadband Development

While best practices require nations to consider a variety of strategies for
stimulating Next Generation Network development, the U.S. FCC has
become preoccupied with “incentivizing.”

Politically adept stakeholders have gamed the legislative and regulatory
process to secure premature deregulation, financial subsidies, and incentives
even where competitive necessity would stimulate investment.

Governments need to calibrate incentive creation and avoid tilting the
competitive playing field with inconsistent regulation, subsidies, grants, tax
credits, loans, loan guarantees and other incentives.

NGN development has a substantial impact of a nation’s competitiveness in
the global economy and should not be the subject of regulatory
brinksmanship.

In the U.S., it appears that the most financially secure, incumbent carriers,
are playing a game of “chicken” with Congress and the FCC over NGN
development; major incumbents have refrained from submitting proposals
to use a portion of the $7.2 billion available for NGN development,
probably because of network neutrality requirements.
2
Until 2009 the U.S. Assumed a Robustly Competitive
Broadband Market Existed
Despite ample evidence to the contrary, until 2009 the U.S. government, including
the FCC saw no need to create broadband incentives based on evidence of global best
practices.
“[T]here is substantial competition in the provision of Internet access services.
Broadband penetration has increased rapidly over the last year with more Americans
relying on high-speed connections to the Internet for access to news, entertainment,
and communication. Increased penetration has been accompanied by more vigorous
competition. Greater competition limits the ability of providers to engage in
anticompetitive conduct since subscribers would have the option of switching to
alternative providers if their access to content were blocked or degraded. In
particular, cable providers collectively continue to retain the largest share of the mass
market high speed, Internet access market. Additionally, consumers have gained
access to more choice in broadband providers.” AT&T Inc. and BellSouth Corp.,
Application for Transfer of Control, Memorandum Opinion and Order, 22 FCC Rcd.
5662, 5724-25 (2007).
In 2008, John Kneuer, then Assistant Secretary for Communications and
Information and Administrator at the Commerce Department’s National
Telecommunications and Information Administration claimed the United States “has
the most effective multiplatform broadband in the world.”
3
The FCC Provides One Source Document for All the Positive News on
Broadband Penetration—Everything Else Constitutes a “Trade Secret”
Necessitating Confidential Treatment
4
The U.S. Has 100% Broadband Penetration With Consumers in 94.6% of All
Zip Codes Having 4 or More Broadband Choices
Source: FCC (2009)
100%
90%
Percent of Zip Codes with High-Speed Providers
80%
100%
70%90%
80%
60%70%
60%
50%50%
40%
40%30%
20%
30%10%
0%
20%
10%
Jun
2000
Jun
2001
Jun
2002
Jun
2003
One or More Providers
Jun
2004
Jun
2005
Jun
2006
Jun
2007
Four or More Providers
0%
One or More Providers
Four or More Providers
5
Lines by Information Transfer Rates in the Faster Direction as of June 30,
2008 (Includes only lines exceeding 200 kbps in both directions)
Source: FCC (2009); http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-292191A1.pdf
Total “High Speed” Lines (theoretical bitrate exceeds 200 kbps in 1 direction)
Total High-Speed Lines
140,000,000
130,000,000
120,000,000
110,000,000
100,000,000
90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
Jun
2000
Jun
2001
Jun
2002
Jun
2003
Jun
2004
Jun
2005
Jun
2006
Jun
2007
High-Speed Lines by Technology as of June 30, 2008
ADSL
22.6%
All Other
46.2%
SDSL and Traditional
Wireline
0.7%
Fiber
1.8%
Cable Modem
28.8%
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The U.S. Ranks 15th Among OECD Nations in
Terms of Household Penetration
source: OECD (2009)
http://www.oecd.org/document/54/0,3343,en_2649_34225_38690102_1_1_1_1,00.html
OECD Broadband subscribers per 100 inhabitants, by technology, December 2008
40
Other
Fibre/LAN
Cable
DSL
35
30
25
OECD average
20
15
10
5
0
7
The U.S. Lags Most Nations in Broadband Penetration
On the Basis of Per Capita GDP
source: OECD (2008)
OECD broadband penetration and GDP per capita
Broadband penetration, December 2008
40
Broadband penetration (subscribers per 100 inhabitants, Dec 2008)
GDP per capita, 2007
90,000
GDP per capita (USD PPP, 2007)
80,000
35
70,000
30
60,000
Simple correlation = 0.65
25
50,000
20
40,000
15
30,000
10
20,000
5
10,000
0
0
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source: Internetinnovation.org; http://internetinnovation.org/images/factbook/by_country.png.
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Who’s Statistics Are Most Credible?




Most satellite and terrestrial wireless broadband options do
not yet provide true broadband service, yet the FCC reports
that 16.5% of all lines provided via satellite, terrestrial fixed
or mobile wireless. Offered service at greater than 200 kbps.
Wall Street Journal tests of the cutting edge, Apple iPhone 3G
measured actual data speeds in the 200-500 kbps range.
The U.S. government and sponsored academics dispute the
OECD statistics as failing to include Wi-Fi hot spots, at work
access, etc.
Additional excuses include the lack of computer literacy and
access, having a large rural hinterland, adverse demographics,
yet other nations with similar disadvantages do better.
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Reasons Why Incumbents Can Postpone Major
Broadband Investment





Currently incumbents can “make their numbers” thanks
to still growing wireless revenues, generous universal
service funding, and the absence of competitive
necessity.
In the third quarter of 2009, Verizon reported that 58%
of its total revenues accrued from wireless service.
Most of the $7 billion annually allocated for universal
service flows to incumbent local exchange carriers.
U.S. broadband in many locales is comparatively slow
and expensive despite two platform options (DSL and
cable modem).
Until 2009, the U.S. had no targeted broadband
development funding.
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Global Best Practices in Broadband Development
Best practices does not require nations to “throw money at the problem,” but instead:
•
Develop a vision and strategy;
•
Promote digital literacy, i.e., the ability to use digital technologies to pursue
information, communications and entertainment interests;
•
Invest in infrastructure, aggregating demand, and serving as an anchor tenant;
•
Foster facilities-based competition;
•
Create incentives for private investment and disincentives for litigation and other
delay tactics;
•
Offer electronic government services, including healthcare, education, access to
information, and licensing;
•
Auction off universal service franchises that receive subsidies and grants; and
•
Revise and reform governmental safeguards to promote a high level of trust, security,
privacy, and consumer protection in NGN services, including electronic commerce.
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Development Models
Top/Down
Nations emphasize expanding the supply of broadband capacity by
stimulating access through:
Expanded universal service obligation to include broadband
service;
Using financial stimulus tools such as grants, subsidies, and tax credits;
Reallocated spectrum to expand available bandwidth useable for
broadband services; and
Supporting competition from multiple platforms, including retrofitted
fixed line telephone networks, cable television plant, wireless, fiber
optic links, and the powerline grid.
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Development Models (cont.)
Bottom/Up
Nations emphasize stimulation of demand for NGN and the services
they deliver through government:
Becoming an early provider of NGN-mediated services and an underwriter of
programs designed to enhance digital literacy, i.e., the skills needed to use NGNs
for enhancing social and personal utility;
Offering access to e-government services ;
Offering free or subsidized computers and support for the creation of digital
content;
Funneling grant money to “community champions” and broadband demand
aggregators in addition to carriers; and
Addressing consumer protection issues including, privacy, network reliability,
security and neutrality, and competition policy issues.
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