[IP] Broadband by 2007? Don't hold your breath
Delivered-To: dfarber+@xxxxxxxxxxxxxxxxxx
Date: Wed, 31 Mar 2004 20:38:04 -0800
From: Dewayne Hendricks <dewayne@xxxxxxxxxxxxx>
Broadband by 2007? Don't hold your breath
Bush proposal thin on details and realism
ANALYSIS
By Bob Sullivan
Technology correspondent
MSNBC
Updated: 11:09 p.m. ET March 29, 2004
<http://www.msnbc.msn.com/id/4626449/>
Broadband for everyone by 2007. That sounds like a "lovely idea," said one
telecom industry worker. But President Bush's proposal, floated Friday
during a speech in New Mexico, was so thin on details that it's difficult
to examine. It's even harder to imagine how the vision might become reality.
"We ought to have universal, affordable access to broadband technology by
the year 2007," Bush said in the speech. "And then we ought to make sure as
soon as possible thereafter consumers have plenty of choices."
Of course, trade associations and companies like Cisco Systems Inc.,
which would benefit from a swift uptake of broadband, hailed the
president's remarks. Bush's statement echoed a release issued back in
January 2002 by a high-tech consortium called TechNet, which called for
broadband access to 100 million homes by the end of the decade. At the
time, Cisco CEO John Chambers compared the importance of broadband
deployment to 20th century efforts to land a human on a moon
But just what how the country might arrive at universal broadband access
remained a mystery after Bush's speech, which perhaps purposefully employed
the phrase, "ought to have." Today, only 20 percent of the country is
wired for broadband, according to analyst firm The Yankee Group. Perhaps
another 40 percent is broadband-ready, says Rob Rich, executive vice
president of communications infrastructure technologies at Yankee. Wiring
the rest of America would cost tens of billions of dollars. Combine that
with plummeting consumer broadband prices, and you've got a business model
no one wants.
Even the best wishes of a president or a candidate -- Democratic
candidate John Kerry made a similar campaign statement later in the day on
Friday -- can't change the fundamental economics at play.
"It is an extremely ambitious goal," Rich said. "I do think it's an
interesting idea for everyone to have affordable broadband technology.
That's kind of like motherhood and apple pie isn't it?"
But there's much more than nostalgia at stake. The United States is losing
its grip as global technology leader, some say. A recent U.N. study
indicated the United States ranks 11th in the world in terms of broadband
use, trailing countries like Hong Kong and Iceland.
A problem of space
The complex problem starts with the wide-open spaces which dominate the
American landscape. Expanding broadband capabilities is largely a physical
task, with telephone or cable companies required to add new hardware
neighborhood by neighborhood. In dense urban areas, there can be an
economic return. But expansion into rural, or even some suburban areas,
just isn't economically viable.
"Providing service to 95 percent of the population of the United States is
cheap and easy. Providing service to 95 percent of the area of the United
States is incredibly expensive and hard," said Jeff Francis, a former
systems architect at backbone providers like Level 3 and Touch America. He
said installing the hardware for a new neighborhood DSL connection costs
about $500,000 -- and only customers who live within 10,000 feet of the
hardware can use the service. That means only neighborhoods with about
1,000 homes near a so-called phone company "central office," are worth the
bother.
Cable broadband also requires costly capital outlays by the cable
companies, which are often required to string new coaxial cable around
neighborhoods before offering service. The only widely available wireless
solution, satellite broadband, is nearly triple the price of DSL or cable.
Other wireless technologies are in development, but none is widely deployed.
"There is no silver bullet," Francis said.
A $20 billion problem
As a rough estimate of how much wiring the country would cost, Rich said
hooking up each new DSL subscriber in urban or suburban areas costs about
$300 each -- or about $10 billion for all the un-wired homes left in
densest parts of the United States. It would cost another $10 billion to
DSL-enable much of rural America, he said. Adding a single DSL subscriber
in some parts of Alaska can cost $9,000, for example. There simply is no
way a telecommunications firm can recover that kind of investment.
"The Verizons and the SBCs of the world will have to have some kind of
incentive," Rich said.
Many telecommunications industry observers think there's only one way for
the United States to catch up with countries like South Korea: Offer a
massive subsidy to the telecommunications firms that have to do the heavy
lifting. The subsidy could come in the form of a tax break, or more likely,
a fee added to broadband service which would be used to pay for expansion.
Many draw parallels to the Universal Service Fund, created in 1934, which
was designed to bring telephone service to all of the United States. A
similar fee placed on broadband service would effectively force urban
dwellers to pay for infrastructure upgrades in rural America.
It's hard to imagine a Republican administration agreeing to such a
wide-ranging fee, or a major adjustment to the current Universal Service
Fund, which certainly will be called a new tax by any Bush opponent. But
without some kind of enormous cost-shifting mechanism, universal broadband
just won't happen.
"At end of day there will be people who are not connected," said Laura
Ipsen, vice president of worldwide government affairs for Cisco Systems
Inc. "The Universal Service Fund is going to need to morph and ensure that
it gets us coverage of everyone."
Ipsen, though, was optimistic that new wireless technologies, and new
applications for broadband Internet, such as cheap phone calls, will drive
broadband expansion quickly during the next several years.
"We think 2007 is a good goal," she said.
Regulatory confusion
Still, the fortunes of broadband access are inextricably tied to other
telecom issues, such as the the nagging problems with implementation of the
1996 Telecommunications Act.
Designed to lower consumer prices by forcing phone companies to open their
telephone lines to competitors, the law now acts as a disincentive to
broadband infrastructure investment, some say. After all, why spend the
money laying the new cable if a competitor will be able to arrive later and
have a right to sell on that bandwidth.
FCC regulations implementing the law continue to face court challenges,
leaving telecom firms confused about what rules they will have to follow if
they invest in broadband infrastructure. Moreover, the act is expected to
get a thorough overall next year, when it's up for renewal.
Nevertheless, amid the confusion, telecom industry members applauded the
fact that broadband ranked any mention at all by the sitting president.
"We applaud the president for setting a clear goal for full deployment of
the most important technology of our time," said Walter B. McCormick, Jr.,
President of the United States Telecom Association, which represents
Verizon, SBC, and about 1,000 other telecommunications companies. "We look
forward to working with his administration on policies that will promote
investment and speed the delivery of new broadband choices, services and
opportunities into every American community."
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