TMCnews Featured Article

March 08, 2010

National Broadband Plan has Two Major Provisions

By Gary Kim, Contributing Editor

There are only two major areas where the Federal Communication Commission’s upcoming National Broadband Plan is likely to cause heated contention, says Dan Hays, PRTM director. Not coincidentally, those two areas--boosting national access speeds to 100 Mbps, and releasing 500 MHz of additional spectrum for wireless broadband--are the most-costly parts of the plan and require the greatest investments and asset divestitures by private entities.
The goal of 100 Mbps service provided to 100 million U.S. homes by 2020 is a huge undertaking. By the FCC’s (News - Alert) own estimates, it will take an investment of $350 billion to reach that goal. 
The other big initiative is in the wireless area, specifically the effort to get TV broadcasters to give up 500 megahertz worth of spectrum so that wireless service providers can use it. At prices of just 40 cents per megahertz of spectrum per person, the typical way of valuing spectrum, acquirers would have to spend $60 billion to acquire the spectrum. At $1 per megahertz per potential user, the spectrum would cost $150 billion. 
Those are not trivial sums under any circumstances and especially under expected global debt market conditions over the next decade. 
There are just two problems with the spectrum auction idea: existence of willing buyers and sellers. Under other circumstances, one would logically expect there would be lots of willing buyers for such blocks of additional spectrum.
Hays says the broadcasters already have said they are unwilling to sell. Even if they do agree to sell, the cost to acquire that much spectrum would be quite expensive, coming at a time when service providers are straining to justify further investments in their fixed plant.
The 100-Mbps access plan likewise has just two problems: who will pay for the investments, and whether end users are willing to pay substantially more than they now do for the upgraded speeds. 
Commercial organizations aren’t terribly interested in investing now to provide speeds that high, as there is little consumer willingness to pay much more than what people pay today, Hays says. 
The percentage of household income spent on communications in the United States is in line with the rest of the world today, he says. So it does not make sense to assume a step level change in spending even if much-higher speeds are made available. 
Observers sometimes forget there are supply as well as demand issues for the broadband access business. As Hays notes, to make a market one must have buyers and sellers. 
Beyond the issue of the specific speed goals, there is the broader issue of broadband usage, which is lower among older, rural and lower-income populations, as well as lesser-educated population segments. 
But Hays says there is a generational and cultural issue at work. A good percentage of broadband non-adopters are older than 65. But as younger users who 'cannot live without broadband' move up the age cohort, that particular non-adoption issue fixes itself, says Hays. 
About half of all broadband non-users say they do not use broadband because it is not relevant, the FCC says, citing data from the Pew (News - Alert) Internet & American Life Project. Another 13 percent say it is too difficult to use. In other words, arguably 63 percent of the broadband problem is lack of user demand. 
Some 19 percent of non-users say 'price' is the reason they do not use broadband. Whatever role governmental funding mechanisms can help with in terms of building access facilities, or supporting on-going affordable service, it is not entirely clear that either of these mechanisms can help meaningfully with services whose cost might be an order of magnitude higher than current retail prices. 
About 17 percent of non-users say they actually cannot buy broadband because it is not available, according to the Pew Internet & American Life Project. 
Anyone can quibble with the precise results. Few if any other studies suggest facilities 'non-availability' really is that high. Low single digits worth of U.S. homes likely have no fixed access.
The National Cable Telecommunications Association says 92 percent of all U.S. homes have cable broadband access available to them. Telco broadband availability is likely something on the order of 86 percent of U.S. homes. The FCC also says 15 percent of Americans also use mobile broadband connections. 
What the FCC’s data likely suggests is that people actually do not have accurate awareness. A nationally-representative sample of knowledgeable respondents should show low to mid-single digits of households physically unable to buy a fixed network broadband service. And satellite access should reduce the number of homes physically unable to get any broadband service to an extremely-small number. 
The historic analogy might be adoption of cable TV – multi-channel video services – and mobile usage. 
Once upon a time one could hear many doubters about why people would buy cable TV when they could get off-air video for no incremental cost. Over time, people decided they really did need it. The same thing has been at work with mobility services and will be true of broadband as well. 
Such trends will not 'fix' every real or imagined problem with broadband penetration, value, quality or cost. But some problems are fixed, over relatively short periods of time, when consumers value innovations enough to buy them. 
The problem of access speed is more complicated. Absent a massive government-sponsored investment program, the market for higher-speed products has to include buyers as well as sellers. If you want to know why virtually no ISP ever releases actual numbers of consumer customers for 50-Mbps or higher access services that is because the numbers are so small. 
In other words, not many people today are willing to spend hundreds of dollars to buy 50-Mbps services. An argument that most people will buy 100 Mbps services in the future therefore makes implicit assumptions.
Either the price will be roughly in line with today’s prices, that some unforeseen innovation allows building of such networks at an order of magnitude less investment, that consumers will dramatically shift their spending profiles, or that profiles stay the same but average gross income rises to much-higher levels, say twice current levels. 
“The Internet creates value only if applications are adopted by consumers; greater adoption yields greater value,” said the FCC. 

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Kelly McGuire