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American National Broadband Plan Good First Step

Paul Budde

The National Broadband Plan that the FCC will present on 17 March will set the USA on a completely different telecoms path. This plan will hopefully show Congress that it is worthwhile making the legislative changes that will deliver the social and economic benefits of a national broadband infrastructure.

Groundwork for a new direction in telecoms

Shortly before Barack Obama won the election in 2008 I started to work with what became the Obama Transition Team on some of the US telecoms policies. Obama and his small team of technological experts were aware of the developments in Australia — particularly in relation to the need for trans-sector policy on broadband infrastructure.

Together with a team of national (US) and international experts we prepared half a dozen 'BigThink' strategy reports for the Obama Team in the White House.

We also established a good relationship with the FCC (Blair Levin's team) and NTIA (Larry Strickling).

ALL parties publicly agreed to a trans-sector approach and many of our suggestions are clearly reflected in the stimulus package (open networks) of the FCC national purpose strategy. And our suggestions also appear in the upcoming National Broadband Plan — in the trans-sector approach to the public safety sector and the proposed mobile broadband infrastructure for this sector.

Visionary plan now needs legislative action

However, if we're talking about 'national purpose' a transformation of the telecoms industry is crucial, and the FCC has been specifically forbidden by Congress to address this topic.

The National Broadband Plan will most certainly highlight the benefits attached to a 'national purpose' policy but it is up to the Congress to make it happen. The plan will provide a new, visionary direction for telecoms in America but unfortunately in its current state it is a toothless tiger. It will be up to Congress to take action through legislation — without that it will be impossible to implement the plan in any timely fashion.

As matters stand at the moment the plan is the best the FCC can do. They should be applauded for the work they have done so far — they have laid the foundation for a totally new telecoms direction in the USA.

All of these trans-sector/national purpose policy proposals require very significant changes to the way the telecoms industry works and if — as has been stipulated by Congress — this can't and therefore will not be addressed in the Plan.

Affordable access to broadband infrastructure

Another key to telco transformation is the creation of a level of 'affordability' both for the end-users and for the sectors that could use the infrastructure, you won't get this without tough legislation.

To just get very fast broadband to American homes in isolation from this trans-sector approach is fairly useless. While you might get such a service to all homes the reality is that without a utilities-based trans-sector approach towards the underlying broadband infrastructure it will be impossible to make that an affordable service. We only have to look at the charges that currently apply to such (fiber-based) broadband services to realize that probably only about 25% of Americans can afford this.

While not defined as such in the USA, broadband is simply infrastructure. (Access to that infrastructure is now declared a national right in several European countries.) A problem in the US legislation is that the previous Administration gave broadband the unusual classification of 'an information service' and not an access service.

National purpose good for the nation and for lowering the consumer bill

If the trans-sector approach is applied other sectors (healthcare, education, energy, public safety) can be directed by the government to start using this network — thus paying their share towards the cost of the broadband infrastructure — for the delivery of their services, e.g., the monitoring of aged people from their homes to reduce the need for hospitalization.

This has to be a government-driven approach as the social and economic trans-sector benefits fall outside the balance sheets of the telco providers. These benefits need to be carefully monetized and used as input by the government in developing government policies in these areas. The OECD has indicated that the savings made by using the broadband network for healthcare, education and transport alone could pay for the deployment of a national broadband network.

Unfortunately the economic benefits are very hard to calculate. But was it possible to predict the benefits of the electricity network when it was built? The naysayers in those days said that it was outrageous to pay for infrastructure that would simple replace candles.

Structural changes to the industry are needed

In order for those sectors to be able to deliver these services the broadband infrastructure needs to be made available to them on a utilities basis. This can't be done within the vertically-integrated structure of the telecoms industry. An open network policy is required, and that is clearly not on the table in the United States — at least not for 90% of the infrastructure that will be involved in its National Broadband Plan.

So, yes, even without legislative changes the new broadband plan might indeed deliver broadband to most people in the USA — but at what cost to the average American citizen? For the moment at least, the incumbents can't believe their luck at the honey pot the government is placing in front of them. They are in a prime position to deliver these networks and they will not be required to do this at an affordable price. The government will pay the going rack rate which will include a very fat premium to the carriers on top of costs.

This situation cries out for structural changes to the industry, but it doesn't look as though change will take place in the foreseeable future.

The end result is that access to broadband will remain significantly more expensive to Americans than to people in countries that opt for an open network and utility approach towards basic infrastructure.

Regional and Rural America will be second rated

Another result will be that regional and rural users will get a second-rate service (lower speed). There is no way that those premium prices charged by the incumbent telcos can be afforded to build an equivalent broadband network in regional America. This is a very dangerous development as it will undermine the delivery of the trans-sector services to those communities. Healthcare, energy and public safety services require Qos, security, reliability, privacy protection, etc. A second-rate network will certainly compromise some of that and might even render it unacceptable for the usage of such service.

As mentioned above, the incumbents are jumping up and down with joy and — in relation to voluntary cooperation to give some spectrum back — the broadcasters are arrogantly saying 'over my dead body'. But in reality, and based on decades of anti-competitive behavior, who among these players will voluntarily give up their monopolistic rents as requested by what is, in that respect, a rather powerless FCC.

The ball is now in the court of Congress

Congress should take a very hard look at itself and answer some these questions before propping up an outmoded telecommunications structure. This money can only be spent once and at present it appears that without structural changes to the industry the new National Broadband Plan will not provide the right foundation for those national interest investments. It would be impossible to successfully implement these policies without simultaneously addressing the structural issues in the industry.

We have top-class people involved in the development of the National Broadband Plan — the ones mentioned above, as well as the excellent team of extremely hardworking people that Blair Levin has built up.

So that's not the issue. The issue is the failure of the American political system.

For the first time in its history a different approach is being taken towards telecoms in America — we now accept such notions as open networks, network neutrality and trans-sector/national. Let us hope that Congress now takes the baton from the FCC and supplies the legislative follow-up that is required to implement this very important first step.

The plan, as it will be presented on 17 March, has gone as far as the FCC can take it. It is now up to the legislators to be visionary — to make sure that the National Broadband Plan is followed up with legislation that will enable the telecoms industry to deliver the enormous social and economic national benefits highlighted in the plan.

By Paul Budde, Managing Director of Paul Budde Communication. Paul is also a contributor of the Paul Budde Communication blog located here.

Related topics: Broadband, Policy & Regulation, Telecom

 
   

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Comments

Too much jargon Richard Bennett  –  Mar 10, 2010 1:13 PM PDT

You lost me in the second paragraph, where you wrote: Obama and his small team of technological experts were aware of the developments in Australia—particularly in relation to the need for trans-sector policy on broadband infrastructure."

What on earth is "trans-sector" broadband policy? Jargon of this sort may mean something to bureaucrats, but it doesn't convey a thing to the Internet community.

you are so right Richard :) Paul Budde  –  Mar 10, 2010 4:27 PM PDT

I apologize for that and I am very glad you asked so I can explain this very important concept. What I am advocating is that we do need to multiply the economic and social benefits of (new) broadband infrastructure. Rather than just using it for fast Internet access, we should also use that infrastructure to deliver e-health, education, public safety and smart grid applications. Of course technically this is not a major problem. However, in order to do this in an affordable way the infrastructure needs to be made available to other sectors on a utilities cost basis. Otherwise the costs of these services would be too high either for those sectors to use that infrastructure or for the end users of that service. This requires a separation between infrastructure access costs and the costs of using services that are delivered to us over that infrastructure.

If you only use the new (expensive fiber) infrastructure for fast Internet than the costs for the end user will be along the lines that FiOS is charging; which is unaffordable for most users. So if you could bring those costs down by letting other sectors use that infrastructure and as such contribute to the costs of infrastructure than this shared arrangement would also make it possible to lower the end user price for fast Internet. I have a free report that explains this a bit more:
http://www.budde.com.au/Research/Global-Fast-broadband-and-Trans-sector-policies.html

I hope that I have been able to explain this to you but pls don't hesitate to ask more question as I believe it is a very important concept.
Paul

Seems a bit of a leap Richard Bennett  –  Mar 10, 2010 4:42 PM PDT

I get the fact enabling more services on the broadband infrastructure lowers the cost of providing access to each service, but that doesn't lead inexorably to local loop unbundling. Triple-play services lower the cost of access for each service by sharing a common infrastructure, for example. And there's no evidence that Verizon triple play is more expensive than cable triple play or DSL triple play, at the end-user level. In the US, we've always paid for infrastructure by selling services; that's how we finance the PSTN as well as the sewer system.

Making the infrastructure available to non-Internet services is an interesting problem. Many services - such as smart grid - are less demanding of network resources than plain old Internet service, so they should get a price break in principle; others, such as health and video conferencing are more demanding, but for short periods of time. So it's not clear that local loop unbundling helps to apply rational economics to such applications. It's probably better to price them on the basis of volume x service requirements.  But I don't see local loop unbundling as relevant in the US as our market has the world's highest level of intramodal (cable vs. DSL vs. FiOS) competition.

We've also never had the state monopoly on cable television or telephone service that many foreign countries have had.

You might enjoy the ITIF report "Explaining International Broadband Leadership" on this subject: http://itif.org/media/itif-forum-explaining-international-broadband-leadership

Oops Richard Bennett  –  Mar 10, 2010 5:06 PM PDT

The US has the most inter-modal competition, not intra-modal. We invented the latter and then abandoned it.

separation vs. unbundling Paul Budde  –  Mar 10, 2010 5:16 PM PDT

I agree, unbundling will not do that job Richard. Countries that pursuing this trans-sector approach are very clearly talking about a structural separation of the infrastructure from the services.I know that this is not something that can be easily achieved in the US. However, the $7.2. broadband billion stimulus, the smart grid stimulus and the FCC Public Safety plan are based on an open network approach that will achieve that separation.

While there is a level of duopoly competition in the US in relation to cable and telco I don't think that such a system will be able to deliver the level of affordability as mentioned above. If we want to pursue such an approach, we really need to start working towards open networks. The sectors should be able to deliver their services independently from telcos, etc a bundling with entertainment or comms doesn't really make sense here,

Structural Separation stalls investment Richard Bennett  –  Mar 10, 2010 5:29 PM PDT

You get the cheapest networks by applying price controls as France has done, you don't get fiber to the home that way. Japan has unbundled DSL but effectively bundled fiber, so that motivated NTT to string fiber. They also got tax breaks for fiber, so the program was essentially taxpayer funded. Yet Japan has the same level of broadband adoption as the US, about 66%.

Openness is fine, like motherhood we all love it. The question is at what level the network should be open - cable, bit stream, packet stream, or Internet. Each country is in a different position, so there's no one-size-fits-all solution. In the US there are probably more people willing to pay for a government health plan than for government broadband, but not all that many are happy about health care. I don't think public financing is going to work here.

I agree Richard there is no silver Paul Budde  –  Mar 10, 2010 5:39 PM PDT

I agree Richard there is no silver bullet and each country will have to find its own way forward. If we look at the economic and social problems we are facing (healthcare costs, environment, education, e-commerce - as in cloud computing - etc) it does make sense to start looking at delivering some of the trans-sector services via broadband so perhaps we can see that as a more or less common goal for most countries, but I agree that we all will have to find our own best way forwards to reach such a goal and I think the National Broadband Plan from the FCC is an indication of a possible scenario for the US.

National Purposes Richard Bennett  –  Mar 10, 2010 6:06 PM PDT

There's a broad consensus in the US that there's much to be gained in positive externalities from higher-speed and more ubiquitous broadband, greater adoption, and more effective use of broadband networks by service industries and the government. That consensus doesn't extend into a consensus on how the needed buildout will be financed, and under what conditions it will be available for sale. I suspect the Plan will not offer solutions on this area either, and if it does they're largely moot as the Congress has the final say.

When the Plan is delivered next week, the fun starts.

nail on the head Paul Budde  –  Mar 10, 2010 6:23 PM PDT

You hit the nail on the head Richard. The reality is that because of the externalities some govt guidance is required - in the end the buck stops at Congress - and there are some very serious politicking problems here and I therefore don't see a quick resolve.

What the FCC is doing is showing the path forwards. It certainly is a rather different FCC than the one we had under the prev. Admin. it will be a step by step approach but I think that a lot of what they saying makes sense and is in the national interest of America and it therefore warrants some very serious consideration by Congress.

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