City of Powell, Wyoming Northwest Joint Powers Board Fiber-to-the-Premise Network Infrastructure

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1 City of Powell, Wyoming Northwest Joint Powers Board Fiber-to-the-Premise Network Infrastructure Project Whitepaper - Draft Downtown Powell, WY An independent survey of Powell s, prospective residential customers indicated that 60% to 73% would be interested in taking at least one service from

2 CITY OF POWELL WYOMING COMMUNITY FIBER-O B P Executive Summary... 4 Potential Community Benefits...8 Public-Private-Partnership: Overview General Concept... 9 Business Model - System Revenues... 9 Community Benefits as Part of the Financial Equation: Independent Market Research and Business Case Analysis Powell CityNet - Anchor Service Provider Anchor Service Provider - Financial Guarantee About the Northwest Joint Powers Board Recent State Legislation CityNet Private Sector Partners Project Team: Project Legal Structure Bond Finance Proposed Finance Structure High Level Overview Public Awareness and Communications Network Overview Technology and Architecture-Overview Electronics Outside Plant (OSP) Construction and Engineering Services Construction Management and OSP Documentation Operations and Management Billing of Wholesale Transport Charges (WTC) Summary SECTION ASSESSING THE NEED FOR NEXT GENERATION BROADBAND INFRASTRUCTURE.23 Executive Summary The Case for Next Gen Broadband (Ultra-Broadband) The Verizon Networking Strategy America s Global Competitiveness The National Landscape: Deployment and Competition in Broadband Infrastructure - The United States vs. Other Developed Countries Rankings Matter: America is falling behind What is the broadband problem? Evaluating the US Broadband Market Speed and Price Matter The Elusive Third Pipe Why Wireless Won t Save Us Local Global Competitiveness The Benefits of Broadband to Rural Communities: Statement of Jonathan S. Adelstein Commissioner, Federal Communications Commission; Before The Subcommittee on Rural and Urban Entrepreneurship Small Business Committee - United States House of Representatives May 9, 2007: The Publication The Nation, recently reported: Broadband and Economic Development CITY OF POWELL WYOMING COMMUNITY FIBER-OPTIC BROADBAND PROJECT.4 South Dundas Township, Ontario, Canada:

3 Social and Community Benefits for Broadband Social Benefit and Inclusion: Overview For families For Consumers For Rural Americans For Telecommuters Benefits to Seniors and the Disabled For People with Disabilities For Seniors Telemedicine Independent Living Benefits to Youth and Education Why Does Broadband Matter for Children? Economic Opportunity Healthcare Civic Participation: Program Examples: Benefits for Public Safety and Government Services Public Safety First Responders Public Safety- Enhanced Communications Community Emergency Broadcast System (CEBS) Video - Public Address System ARVIS Advanced Real-Time Video Information System Internet for Homeland Security For Government E-Government Services THE MUNICIPAL BROADBAND INFRASTRUCTURE OPTION...87 Incumbent Providers Are Not Likely to Meet Future Bandwidth Needs Telecom Companies: AT&T, Qwest, Verizon AT&T Project LightSpeed Why the current vision is shortsighted Wisconsin Technology Network: Broadband blues - Don't fall for Lightspeed hype: Cable TV Companies Municipal Fiber-To-The-User (Premise) Is a Rational Option Community Broadband Act of 2007: United States Congress Municipal FTTP Systems Can Be Successful in Some Situations in Which the Private Sector Cannot: A municipal broadband system creates economic value in many ways other than user fees: Examples of Successful Municipal Fiber Projects Jackson, Tennessee The Dalles, Oregon Bristol, Virginia Reedsburg, Wisconsin UTOPIA, Utah Most Existing Municipal Broadband Models: Need for a New Model: Municipality-Owned Network Specific Requirements Conclusion Why FTTH, Why Now? Fiber-to-the-Home Council Whitepaper

4 City of Powell Wyoming Community Fiber-Optic Broadband Project EXECUTIVE SUMMARY In today s world, it is an unavoidable fact that a community s jobs, economic development, education, and quality of life are becoming significantly, and increasingly affected, by the availability of broadband and advanced communications capabilities. Despite the fact that many analysts predict that these advanced communications capabilities would boost the ongoing development of the United States economy 1, the U.S. continues to fall behind numerous other industrialized countries in terms of broadband access for its citizens. A recent report from the OECD (Organization for Economic Cooperation & Development) ranked the U.S. 15 th out of 30 countries in per-capita broadband subscriptions, a decline of three places since last year when the U.S. ranked 12 th. This steady decline is fueling worries that American competitiveness will suffer. 2 Every year, the United States falls further behind the global leaders in broadband Internet access and the deployment of next generation, Today, the country (United States) is ranked 16th. This is unacceptable for a country that should lead the world in technical innovation, economic development, and international competitiveness. Many of the countries outpacing the United States in the deployment of high-speed Internet services, including Canada, Japan, and South Korea, have successfully combined municipal systems with privately deployed networks to wire their countries. As a country, we cannot afford to cut off any successful strategy if we want to remain internationally competitive. Senator John McCain Floor Statement, U.S. Senate, June 3rd 2005 broadband networks. Thanks to a combination of market and policy failures. Our markets lack the competition necessary to drive lower prices, higher speeds, and universal access. Our policies lack the imagination and potency to create real change. Meanwhile, Americans pay more money for less service than a dozen other nations. A third of U.S households are still stuck with dial-up, and another third lack Internet access of any kind. By many estimates, our broadband problem is becoming a crisis. 3 Today, in many U.S. markets, especially rural, the existing local telephone and cable TV infrastructures are incapable of, or limited in their ability to deliver either current or future broadband requirements. However, some incumbent Telco s are beginning to take action to stay competitive. The largest and most visible example is Verizon, Inc s FiOS, Fiber-To-The- Premise (FTTP) program. A $23 billion dollar five-to-ten year initiative focused on its current 1 The $500 Billion Opportunity: The Potential Economic Benefit of Widespread Diffusion of Broadband Internet Access: Robert W. Crandall and Charles L. Jackson; Brookings Institute and Criterion Economics, LLC, July U.S. Broadband Access Slips Further BusinessWeek: by Aaron Ricadela, April 25, Broadband Reality Check II The Truth Behind America s Digital Decline: S. Derek Turner, Free Press, August

5 18 state operating territory. However, even with this massive effort, it is estimated that the current initiative may only address between 30 to 50% of Verizon s total subscriber markets. 4 In addition, Verizon recently has begun selling off entire areas, such as Vermont and New Hampshire, which contain predominately rural systems. It is uncertain if the new debt-laden owners of these Verizon sell off systems will act anytime soon to substantially upgrade these networks to 21 st century FTTP based infrastructures. 5 Many analysts and government officials wonder if this is just the beginning of this kind of sell off of predominantly rural or low density territories, and what will this mean for the future of those regions. The combination of aggressive deployment of next-generation-broadband by other countries and its limited and selective deployment here in the U.S. are creating an emerging gap, or new digital divide. This new 21 st century digital divide, has the potential to dramatically affect the future economic and social viability of many rural communities and perhaps entire regions. It is not fanciful to suggest that broadband s importance is comparable to roads or rail when they were developed. Most advanced economies transitioned in the second half of the 20th century from being production-driven to service-driven. In the 21st century, they are transforming very rapidly towards being information and knowledge-driven. According to the U.S. Department of Commerce, knowledge-based industries now account for almost 70% of GDP. In this environment, the skill, speed and innovation required to transform raw data into valuable knowledge, and profitably exploit that knowledge, is pivotal to international competitiveness. The Information Society Report on Broadband in Ireland sums up this risk well; Assessing the gains in competitiveness due to broadband has meaningful interpretation only in relation to some other benchmark. Assuming that our competitors develop broadband at least as quickly as Ireland (which is probable) these gains are better expressed as the avoidance of losses. If all countries develop broadband at the same rate, there are no further actual gains to be included. However, if one lags the others, then redistribution takes place whereby the lagging economy suffers. Furthermore, even a relatively small deficiency could have a large impact on the competitiveness of the economy 6 When one takes into consideration, the dramatic difference in capabilities between what passes for broadband here in the U.S., and the high-capacity, 21 st century FTTP infrastructures, which are being deployed in other countries and selectively here, it poses a real concern, that over time, new divide can have a dramatic impact on many of our communities. By most estimates, the presence of a competitive next-generation broadband infrastructure in a community can facilitate new opportunities for organic growth in business, create a basis for sustainable economic development efforts, and create the opportunity for new competitive choices in service offerings made available to the community. In addition, this enhanced competitive landscape most often leads to lower prices and more diverse offerings, thus expanding impact by making services available to lower income households 7. In addition, a wide range of government services from public safety to education and healthcare also stand to 4 Verizon s army toils at daunting upgrade Company s future rests on $23B Herculean task: By Leslie Cauley; USA TODAY, 3/5/ Verizon sale of landlines to Fairpoint won t improve service: Cory Touchette; Times Argus March 12, Information Society on Broadband Ireland: 7 Broadband Reality Check II The Truth Behind America s Digital Decline: S. Derek Turner, Free Press, August

6 be dramatically enhanced, improving government efficiency and contributing to better quality of life for residents and businesses within the community. "Countries such as South Korea, Japan and, to a lesser extent, the United States are entering a new phase of broadband development," says Ben Macklin, emarketer senior analyst and the author of the new Broadband Worldwide: report. "The market is moving from the high-speed Internet to the very-high-speed Internet." The process is well underway in South Korea and Japan, where broadband users are trading up from DSL (digital subscriber line) to higher-bandwidth technologies such as optical fiber. 8 There is widespread agreement that, it is becoming necessary for the public sector to take certain initiatives, whether in policy initiatives or the initiation of projects, to insure the proper infrastructure is deployed, locally and nationally, to meet the growing demands for universal availability of next-generation broadband services. Communities cannot passively wait on the sidelines; they sometimes must act to ensure the necessary physical infrastructure gets built in their communities. Federal Trade Commission (FTC) Commissioner Jon Leibowitz recently stated; Why should local governments consider offering it (broadband)? The answer is simple: the private sector won t always do so. Municipal development of broadband may be the best option in some cities where many residents cannot afford the high prices of private Internet providers, or where Internet providers simply did not see enough economic incentive to provide universal coverage. It may be the only option in rural areas where phone and cable companies have not extended any service often contending that it would be prohibitively expensive. Indeed, even the mere threat of local government entering the broadband market may entice phone and cable companies to compete in these low-income and low-density areas. 9 Over the last several years, a growing number of U.S. cities have taken the initiative to implement broadband networks for their citizens, and some would argue, have convincingly demonstrated that this can be done successfully. A municipally owned next-gen broadband network has the advantage that its core purpose is to provide the vital communications infrastructure that enables businesses, residents and local governments to participate, and compete in, the 21 st century information economy, and can be focused on the achieving the goals and objectives of the individual community. Recognizing these issues in Powell, the City has engaged the services of U.S. MetroNets and a team of highly experienced firms to structure a public-private-partnership business model and finance structure. The goal of this partnership structure is to create a community owned, fiberoptic, next-generation broadband communications infrastructure, which would provide the basis for the delivery of advanced 21 st century communications services to all residents, businesses, and government entities within the City. CityNet, Powell s proposed next-gen broadband network, would operate as a wholesale, infrastructure only model, in which the City owns the network infrastructure, and provide a municipal revenue bond based financing structure, but which relies upon private service providers to provide the initial finance guarantees and sell all retail voice, video, and data services to customers over the network. 8 Broadband Zooms Around the World: emarketer; March Municipal Broadband Should Cities Have a Voice?: Remarks by Jon Leibowitz,Commissioner, Federal Trade Commission National Association of Telecommunications Officers and Advisors (NATOA)25 th Annual Conference Washington, D.C. September 22,

7 This type of infrastructure/retail services separation is known as a Managed Open Access system. This Public-Private-Partnership model places the City as the ownership conduit that facilitates the financing and building of the Fiber-To-The-Premise (FTTP) ultra-broadband infrastructure, while relying on capable and experienced private sector service providers to provide traditional and advanced communications and entertainment services. The proposed financing and ownership model combines a municipal revenue bond structure with private sector bond or financial guarantees. The private sector also partners with the City to provide the retail services that run over the system, as well as the other necessary expertise to operate and maintain the next-gen FTTP network. The goal is that the CityNet system will eventually provide opportunities for a wide range of independent service providers to have access to a vibrant and growing market in the City of Powell. 7

8 POTENTIAL COMMUNITY BENEFITS Amsterdam is building a citywide fiber-to-the-premises system. So are Hong Kong, Milan, and Zurich. If San Francisco follows suit, it would be making a far-sighted, multifaceted investment: FTTP would boost our economy, attracting software companies, video production houses, and digital media shops. It would enhance public health, allowing surgeons to review the same materials from different locations. Municipal fiber would improve public safety, facilitating the mirroring and backup of vital data at remote, earthquake-safe locations. It would enable unlimited and open communications breaking ongoing communication monopolies and save buckets of cash within a couple of decades San Francisco Bay Guardian- The Benefits of Fiber February 8, 2007 Government and business leaders worldwide are recognizing the need for advanced fiber-optic next-gen broadband communications infrastructure and the positive impact it can have on a broad range of services, business growth and quality-of-life in communities. Such presence of infrastructures effect the ability of nations and communities to be globally competitive as well as preventing or mitigating the damaging affects a lack of investment and initiative in broadband infrastructure could have. Some of the possible benefits of CityNet are: More desirable place to live and work: Improve quality of life promote clean industry Economic Development: Investment in 21 st century critical infrastructure for business growth o Help local businesses be competitive in the global economy o Create new business and job opportunities in the community - growth o Attract new businesses more desirable industry Benefits to Senior Citizens: Lower medical costs, delay of institutionalized living and additional economic output generated by seniors. Value of these benefits is estimated to be at least $927 billion over the next 25 years 10 Education: Interactive distance and learning - Extending the benefits of educational opportunities throughout the community for life-long learning Improved Access to Health Care: Advanced Tele-Medicine: Affordability and availability of services Better Services for Residents and Businesses: Telecom/Voice, TV/Video and High- Speed Internet Services Video-On-Demand, HDTV, Teleconferencing, Telecommuting More Competition: Lower Prices, better services and improved service choices Homeland Security and Public Safety: Increase the effectiveness and reduce costs Government Services: More cost effective delivery of, and access to government services Improve citizen access and lower costs Intelligent Grid: Lower Power Costs through AMR and Peak Load Shaving, etc. Avoid being left on the wrong side of the new Next Generation Broadband Digital Divide: - Make the community regionally and globally competitive 10 Robert E. Litan, December 2005, Great Expectations: Potential Economic Benefits To The Nation From Accelerated Broadband Deployment To Older Americans And Americans With Disabilities, New Millennium Research Council. 8

9 PUBLIC-PRIVATE-PARTNERSHIP: OVERVIEW GENERAL CONCEPT The CityNet Fiber-To-The-Premise (FTTP) network will be based on the Open Service Provider Network (OPSN ) business model, which positions the physical infrastructure (including the fiber and transport electronics) as a publicly owned wholesale communications infrastructure. In this type of model, the City is the ownership or infrastructure conduit only. The funding is proposed to be structured through taxable municipal revenue bonds or certificates-ofparticipation (COPs). During the initial finance period, the security for the debt instruments would typically be limited to the system revenues and specific assets of the system, with a credit enhancement from a private sector service provider capable of delivering advanced voice/telephone, video/tv and high-speed Internet data services. In consideration of the service provider issuing the additional credit enhancement for the system, they become the exclusive or Anchor Service Provider (ASP) for a predetermined period of time (currently estimated at six years) on the CityNet infrastructure, during which time they guarantee adequate fiscal performance of the system to satisfy the debt service and operations costs for that initial period. The ASP would be responsible for providing high quality competitive services to businesses and residents, with core services including basic and advanced telecom services, ultra-broadband high-speed Internet services and TV/Video services over fiber, with standard as well as advanced content and features. The ASP will be responsible for billing their retail customers, and providing for their customer service requirements. In addition, it is anticipated that the ASP will be contracted by CityNet to provide the operations and maintenance services for the CityNet FTTP infrastructure, as this would most likely provide the greatest operational efficiency and streamlined accountability. Any additional services needed for other administration and oversight of the CityNet infrastructure will also be provided by private sector companies, so no additional burden will be placed on Northwest Improvement Projects Joint Powers Board (NWJPB) or City staff or resources for ongoing administration. By having the private sector provide these services helps assure no taxpayer cross-subsidization of the system occurs through any NWJPB/City staff and/or resources being used to provide daily ongoing management or operational support for CityNet. In addition, the planning, financing, engineering, construction, materials, construction management, documentation, etc are performed by outside private sector firms. NWJPB and/or City staff would only be involved at the highest levels for basic approvals and oversight to insure the goals and objectives of the City and best interests of the community are being met. BUSINESS MODEL - SYSTEM REVENUES The business model anticipates that as subscriber penetration grows and revenues are achieved beyond what is required for operations, annual debt service and any debt service reserve, the excess revenue would flow down to meet any other obligations as defined by contracts and operating agreements. Other uses of excess revenues may include, but are not limited to: Capital Reserve Fund: Covers expansion, technology upgrades, etc Rate Stabilization Fund Payment of Free Cash Flow Revenues to ASP in consideration of risk in issuing the bond guarantees 9

10 Payment of Free Cash Flow Revenues to NWJPB/City general or enterprise funds for system expansion or other community uses. Payment of Free Cash Flow Revenues for System and Network Management Services Based on the costs and current growth estimates, in order to have sufficient revenue to cover the debt service and operations of the network, approximately 35 to 40% of the addressable market will need to subscribe to services being offered over the network by the ASP during the first three years. During the first 20 years the City will be receiving approximately 25% of the available Free Cash Flow from the project. After year 20, the City will receive at least 50% of the Free Cash Flow. Under this scenario, based on projected take-rates and system revenues, the estimated cumulative Free Cash Flow the City would receive during the first 30 years of the project is approximately $22 million. (Note: That in this scenario it is assumed the bond would be retired by year 20 and therefore all system revenues beyond operating expenses are Free Cash Flow.) Community Benefits as Part of the Financial Equation: It is important to note that the business case for a municipal FTTP infrastructure such as CityNet is not limited to the more easily-quantified matters as cash flow and capital investment, rather, the business case for such a network also must include the less quantifiable financial factors, including: Economic development, Improved government efficiencies, Small business empowerment, Job creation, Livability in the community, Benefits to seniors and the disabled, Improved educational opportunities, Lower power rates from Automated Meter Reading (AMR) and improved power management, increased sales tax revenue derived from business growth, and Real estate tax revenues from positive growth in residents and businesses, and Other factors that constitute the overall benefits of a next-generation, community-focused broadband infrastructure. INDEPENDENT MARKET RESEARCH AND BUSINESS CASE ANALYSIS As part of the Integrated Implementation Plan (IIP) process, a comprehensive independent primary market research study was conducted within the City of Powell; to assess the current market, consumer demands and market drivers. Analysis of the market research findings show, that based upon the City s existing demographic characteristics, projected population growth, the local competitive environment, and incorporating other national research, that: (Note: The independent research was conducted by The Summit Group-Phoenix AZ. Analysis of survey results and incorporation of national research was performed by Lewis Young Robertson and Burningham, SLC, UT) The Powell, Wyoming Cable Survey responses indicate that many of the City s existing residents possess a strong interest in fiber-optic broadband services. The percentage of respondents indicating that they were likely or very likely to change from their current service provider to a competitive service provider is shown in the following table. 10

11 Subscriber Penetration is defined as a resident or business subscribing to at least one of the core services expected to be offered on CityNet, such as, basic or advanced telephone services, high-speed internet or related services and TV or video services. Factors Influencing Powell Residents to Change Service Providers 11 Survey Price Benefit to Community Faster Speed Reliability Customer Service More Channels Enhanced Services Video on Demand Internet 75% 63% 59% 58% 51% N/A N/A N/A Telephone 73% 58% N/A 49% 49% N/A 52% N/A TV 73% 60% N/A 42% 47% 46% N/A 23% N/A =Not Applicable In order to estimate potential take rates, this analysis considers three possible scenarios low, medium, and high with the medium scenario being the more probable scenario. Survey respondents have been distinguished by: 1) Those who already receive voice, video, and/or data services through an existing service provider, and 2) Those who do not currently receive voice, video, and/or data services through an existing service provider. This distinction has been made since more interest in broadband services will likely exist among those who already subscribe to voice, video, and/or data services than those who do not. Approximately 20 percent of the survey s respondents do not subscribe to voice, video, or data services. This analysis has conservatively discounted the percentage of respondents who expressed some willingness to switch service providers. The discount rate used for those who did not participate in the survey because they did not subscribe to voice, video, or data services is slightly higher than the discount rate used for those who participated in the survey. For example, if 73 percent of the surveys respondents indicated that they would switch their television services for a better price (which was the highest factor influencing one s decision to change from one service provider to another), we discounted the 73 percent by 20 percent for the non-response group and by 13 percent for the response group to arrive at a projected take rate of 59 percent for existing residents, assuming that the most critical factor (in this case, price) was addressed. Scenario Year 1 Year 2 Year 3 Year 4 Year 5 Low 17.2% 21.3% 25.4% 30.1% 33.7% Medium 28.6% 33.5% 39.4% 44.7% 50.4% High 52.7% 59.3% 66.9% 74.7% 82.2% 11 Results taken from the Powell, Wyoming Cable Survey. Results include all respondents who indicated that they were either likely or very likely to change service providers if another service provider offered the benefits listed in Figure

12 However, it should be noted, that the higher subscriber penetration rates are more likely to be achieved if the CityNet Anchor Service Provider ensures the following elements are supported during the implementation phase of the project. These elements are, but not limited to: 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Projected Total Penetration Rates Over Five Years Year 1 Year 2 Year 3 Year 4 Year 5 Low Medium High (1) Cost Competitive Services: Service Providers offering voice, video, and data services at costs that are competitive with the costs for similar services offered by the City s current incumbent service providers; (2) Superior Products and Customer Service: Offering better, higher quality, voice, video, and data services and superior support and customer service; (3) Service Positioning: Ensuring the Anchor Service Provider is positioned to immediately deliver high quality voice, video, and data services at competitive prices on the Network (ASP) (4) Brand and Recognition: An Anchor Service Provider that has, or can quickly establish brand recognition in the community; and (5) Marketing and Awareness: Actively marketing the services offered through the Network, along with establishing broad community awareness initiatives communicating the benefits of the network to the community. To more fully understand the probabilities of achieving a particular subscriber take-rate scenario, it is helpful to compare the projections for Powell against other municipal broadband projects that have been undertaken across the country. Many of the newer projects, which are based on FTTP architectures have only been in operation for an average of three (3) years, so longer term penetration data (which is the only metric assessed in this table) is not available. Based on the data gathered, which was collected in October 2006, shows an Overall Average penetration rate of 59% at 4.2 years of operation. This would tend to validate the assumption of the medium penetration scenario as the most probable for Powell. The projected levels of penetration in the medium scenario would put the Powell CityNet system at or beyond breakeven sometime between year two and three. The system should, based on the analysis provided here, be well past break-even and have significant cash reserves by the end of year six. 12

13 POWELL CITYNET - ANCHOR SERVICE PROVIDER The City of Powell and TCT West, Inc. entered into an Anchor Service Provider Agreement on March 16, Under the terms of the agreement, the NWJPB/City of Powell will grant TCT West, Inc. the exclusive rights to use Powell CityNet to provide retail voice, video, and data services for the first six years of network operation. The specific terms of the agreement are provided in the Anchor Service Provider Agreement. This agreement has been assigned by the City of Powell to the Northwest Joint Powers Board (NJPB). The NWJPB contract with TCT West, Inc. and TRI TEL, Inc. subsidiaries of Tri County Telephone Association, Inc. (collectively TCT or Tri County Telephone ) of Basin, Wyoming allows TCT to be the anchor and exclusive initial service provider for the Powell CityNet system for six (6) years. In exchange for this initial period of exclusivity, Tri County Telephone Association, Inc. has guaranteed the obligations of its subsidiaries under the contract to help secure the initial six-year financing term. TCT has approximately 6,450 customers in Big Horn, Park and Washakie Counties, and offers its current customers standard telephone service, cell phone service, Voice over Internet Protocol (VoIP), Internet services, wireless Internet, and cable TV (both digital and IPTV). TCT currently serves approximately 75 customers in Powell and has agreed to transfer those customers to the Network once it s built. TCT plans on providing the following services through the Powell CityNet Network: Standard Telephone and Long Distance Calling Voice over Internet Protocol (VoIP) Cable TV (Digital and HDTV) Broadband Internet Services Triple Play (Telephone, TV & Internet) 13

14 TCT has extensive experience in serving small and rural communities in Wyoming and has established a strong reputation centered on superior products and service. In addition, market research shows TCT is perceived by the Powell market as a local Wyoming company and TCT hopes to be able to draw on the residents desire to trade with a local business. Tri County Telephone s local presence and the municipally owned Network should help TCT and the Network successfully compete with the incumbent service providers. TCT has prior experience in competing against Bresnan Communications, the incumbent cable TV service provider. In other communities where TCT has competed against Bresnan, and TCT has typically captured over one-half of the video market share during the first five years of operations. TCT has not competed directly against Qwest; however, other service providers have captured significant shares of the telephone market from Qwest within two years of entering other rural Wyoming markets serviced by Qwest. When TCT enters the Powell market using the advanced capabilities of the CityNet FTTP network, it will be able to offer the latest state-of-the-art services that can only be delivered cost effectively over an all fiber network. Qwest is using much older technology delivered over a mostly copper twisted pair network and Bresnan is using a hybrid fiber coaxial cable network. Neither network can match the capabilities or operational cost efficiencies of an FTTP network. An example of the capability difference between the CityNet network and the incumbents systems is the level of high-speed data service each can deliver. Qwest and Bresnan offer DSL and Cable modem services capable of up to 7 Mbps and 8 Mbps (million bytes per second) download speeds, respectively. The claimed upload speed for Qwest is up to 956 Kbps and for Bresnan the upload speed is up to 1 Mbps. The actual speeds typically degrade as the number of users connecting to the Internet increases, hence the up to phase used in advertising. The CityNet network and TCT will be able to deliver dedicated bandwidth to each customer, which will not degrade as more users come online and can also deliver the same upload speeds as the download. This will result in each customer actually receiving the Internet speed (5 Mbps, 10 Mbps, or 100 Mbps) they purchased from the network with symmetrical capacity for both downloading and uploading of data. In addition, the CityNet FTTP network will have the bandwidth to accommodate future applications and demand without costly upgrades. ANCHOR SERVICE PROVIDER - FINANCIAL GUARANTEE TCT and the NWJPB have entered into an anchor service provider agreement, where TCT has agreed to pay the greater of (i) the Wholesale Transport Charges for actual Network utilization by TCT for the year or (ii) the Guarantee Obligation for the year. Interest payments on the Network s debt in years 1 and 2 will be capitalized. In exchange for the financial guarantee, the NWJPB has granted TCT the exclusive use of the Network for six years (following closing of the financing) and 50% of the free cash flow from the Network for 20 years. Any payments to TCT from the free cash flow are subordinate to re-payment of the financing and the population of the Debt Service Reserve Fund (DSRV). At the end of the exclusive use period, the Network will be made available to other qualified service providers. 14

15 ABOUT THE NORTHWEST JOINT POWERS BOARD The Northwest Joint Powers Board (NWJPB) was created in November 2001 by a Joint Powers Agreement (JPA) entered into by the Cities of Cody and Powell, WY pursuant to the Wyoming Joint Powers Act, for the purpose of providing an efficient, orderly, and economically feasible method of financing the construction, acquisition, renovation, expansion or creation of projects or facilities which would be of service to and be for the public benefit of the participating agencies and their residents. Under state law, the NWJPB has certain authority to acquire property, enter into contracts and issue debt needed to finance and operate utility systems. The authority granted by state law includes telecommunication systems. The NWJPB Joint Powers Agreement was modified in April of 2006 to specifically authorize the board to plan, finance, construct and operate fiber-optic advanced telecommunications systems in the cities of Powell and Cody. RECENT STATE LEGISLATION During its 2007 Session, the Wyoming Legislature passed Senate File No. 0080, enrolled as Act No. 54 (the "Act"). In relevant part, the Act requires the governing body of any city or town of Wyoming, before entering into an exclusive franchise, partnership, joint venture, contract, resale agreement or any other exclusive agreement with any party regarding telecommunications service, to: (i) determine that no private provider of telecommunications services is currently providing substantially the same or similar service within the city or town; (ii) submit a written request to all private providers of telecommunications services within the city or town for provision of the same quality and grade of telecommunications service within the same time frame and at the same consumer prices proposed under the exclusive contract; (iii) determine that the private telecommunications providers have not agreed within ninety days of the written request to provide telecommunications service as indicated in criteria (ii), or if the provider has agreed, that it has not commenced providing or constructing facilities to provide the service as indicated in criteria (ii); and (iv) limit the exclusive contract to not more than six years. The Act does not apply to contracts entered into before July 1, 2007, and, consequently, does not apply to contracts entered into between the City of Powell/NWJPB and TCT for the CityNet network. Notwithstanding such inapplicability, the NWJPB has previously undertaken steps substantially similar to those outlined in criterion (i) through (iv) above with respect to the exclusive contract between the Issuer and TCT. Future contracts between the NWJPB and private service providers will need to adhere to the Act. BALANCE OF PAGE INTENTIONALLY LEFT BLANK 15

16 CITYNET PRIVATE SECTOR PARTNERS PROJECT TEAM: USM has worked for several years to develop key relationships with leading firms in the financial, legal, telecom and FTTP industry, to facilitate the best solutions and obtain better pricing and support than would normally be offered to small stand alone projects such as CityNet. The experience and expertise these companies in the financing, engineering and implementation of multi-million dollar telecommunication infrastructure projects helps assure that CityNet will be implemented in a most cost-effective and timely manner. The industry-leading private partners listed below, working with local officials and advisors helps to create the solid foundation for creating a highly successful project. The key strategic partners include: Municipal Finance Team: Lewis Young Robertson & Burningham Salt Lake City, UT (Financial Advisor) Seattle Northwest Securities, Seattle WA, Portland OR, Boise ID, SLC, UT Ballard Spahr Andrews and Ingersol, LLP, SLC, UT Bond Counsel Legal Counsel: Earl Jay Peck Smith Hartvigson, LLP, SLC, UT General Counsel for USM David Shaw Attorney, Kirton & McConkie, Lindon, UT Telecommunications and Utility Law NWJPB Counsel Baller Herpst Law Group, Wash. D.C. Specialized Telecom and Utility Law Political Advisors Market Research: Capitol Strategies Las Vegas, NV The Summit Group Phoenix, AZ Engineering, Construction Management, Documentation, Project Management: MasTec - Miami, FL, Las Vegas, NV (Construction enineering) Mid-State Consultants, Nephi, UT (Engineering and Construction Management) CCE Services, Miami, FL (Engineering) Psomas Los Angeles, CA (Project Management) Equipment & Material: Motorola, Shamburg, IL - Electronics Wave7 Optic, Inc. - Alpharetta, GA Electronics Calix GPON Equipment Petaluma, CA OFS Atlanta, GA - Fiber Optic Cable ADC - Minneapolis, MN - CO Equipment & Material Outside Plant Construction Services: MasTec, Inc, Coal Gables, FL Michels Pipeline, Inc, Brownsville, WI PROJECT LEGAL STRUCTURE BOND FINANCE The anticipated financing structure would be the issuance of municipal debt instruments, by the NWJPB. The legal review conducted by NWJPB outside legal counsel and the national Bond Counsel firm of Ballard Spahr Andrews and Ingersol, LLP Salt Lake City Office, has reached a preliminary conclusion that under Wyoming law, the authority of the NWJPB to own and bond for such a system, is clearly defined. In addition, if the proposed structure and proper processes recommended by legal counsel are followed, CityNet would not be in conflict with any relevant Federal laws. 16

17 PROPOSED FINANCE STRUCTURE HIGH LEVEL OVERVIEW The financing would be through the issuance of taxable municipal non-recourse revenue bonds or Certificates of Participation (CPs ), which means the interest earned by investors would be taxable and that there is no recourse to public assets other than the CityNet system and its revenues. In addition to these securities, it is anticipated that the ASP would provide an additional layer of guarantee, known as a credit enhancement which would take the form of; a take-or-pay guarantee structure, where the ASP guarantees to generate sufficient subscriber penetration and revenues in the required time frame, or pays any short fall that may occur during that time. The current ASP contract calls for the guarantee coverage period of the ASP would be the first six years of system operations. The current financing proposal calls for and initial six (6) year finance term with a 20 year level payment amortization, with the first two (2) years having interest only payments, which are covered out of capitalized interest which is included in the financing. This allows the system sufficient time to be constructed and achieve adequate subscriber penetration to cover ongoing operations and debt-service. The proposed financing structure allows for early refinancing in years three (3) through (6). After the system has at least two years of operating history with sufficient subscriber penetration, the NWJPB could refinance the system at a lower interest rate and extended terms, which would lower the break-even. Due to the lack of credit history of the NWJPB, it may be necessary to create a structure which would allow the City to assist the NWJPB is securing a suitable refinancing of the system in year seven. This can be accomplished through structuring a Contingent Obligation where the city would agree in advance to lease the system from the NWJPB in year seven. Such municipal lease structures are subject to annual appropriations of the governing body at that time. In year seven the system becomes open to all qualified service providers. Legally speaking, the city would not be putting a single dollar at risk, subsidizing a single private service provider, etc under the structure of a contingent obligation. In addition, should the system achieve a debt coverage ratio of 1.25% of debt service for six consecutive quarters, which is likely based on market research and analysis, and the advantage of two years of interest only payments with a slow principal amortization, the city s contingent obligation and the ASP s take-or-pay obligation would be extinguished. In no case is it proposed that the NWJPB or City be required to pledge general fund monies, make tax pledges, public subsidies or cross-subsidization of public funds, or make any other guarantees beyond those identified above to secure the initial six (6) year financing term for the CityNet system. PUBLIC AWARENESS AND COMMUNICATIONS There are many potential benefits the City of Powell s residents and businesses will receive from a municipally-owned ultra-broadband network. The public awareness and communications plan U.S. MetroNets would propose will be designed to properly inform residents and businesses about the opportunities, benefits, and services that next-generation fiber-optic broadband can provide. In addition, it will help identify the market strategies that will assist the ASP to more effectively address the needs of the community and assure adequate subscriber penetration and community benefit is achieved. U.S. MetroNets recognizes the importance of public awareness and educational efforts, which effectively implemented, will help the project to achieve the goals and vision put forth by 17

18 community leaders. To date, USM has helped the City to create awareness and support for CityNet using various communications efforts, including community education workshops, press information, whitepapers and reference materials and telephone surveys, etc. These communications efforts are primarily intended to inform the public about the benefits which could be provided by an advanced ultra-broadband communications infrastructure, and to minimize the affect any false information (distributed by project detractors) might have on the success and acceptance of the project in the community. These types of programs would continue throughout the life of the project. NETWORK OVERVIEW CityNet is planned to supply the fiber optic highway where voice, video and data service providers and the residents and businesses in Powell can connect. As such, the CityNet infrastructure should be architected to support the widest possible range of services, both private sector and governmental. To properly determine the architecture requirements for such an FTTP network, U.S. MetroNets, as part of preparing this plan, has assessed the potential demands and requirements that present, as well as future, advanced, voice, video, and data services might place on a system. CityNet will be architected so the bandwidth of the network will be sufficient to allow multiple service providers to simultaneously supply multiple services at speeds up to 100 million bytes per second ( Mbps ) for residential subscribers and 1000 Mbps for commercial subscribers. The Network capacity is also designed to allow for new services to be added as they become available. The Network will be architected to be competitive against the existing technologies used by other providers. Currently, DSL (digital subscriber line) service is generally available in Powell. Where offered by Qwest, their top tier offering, has a download of up to 7Mbps and upload of approx. 900Kbps. Cable Modem services by Bresnan are 8Mbps download and less than 1Mbps upload speeds for their premium package, respectively. Using CityNet, service providers will be able to deliver dedicated Internet access speeds up to 1000 Mbps. The capacity available will be symmetrical allowing equal speeds for both downloading and uploading of data or services. As a reference comparison, high-speed Internet services offered over the UTOPIA system, Private Service provider s offer 15Mbps download and upload for $39.95 per month, speeds well beyond anything currently offered in Powell at prices comparable to, or lower than, the current providers much slower services. 12 TECHNOLOGY AND ARCHITECTURE-OVERVIEW The leading technology in FTTP deployments, being led by Verizon, France Telecom, and others, is Gigabit Passive Optical Networks (GPON), which was designed from the ground up for the delivery of highly reliable, advanced Triple Play voice, video and data services. GPON is widely considered to be the most advanced PON protocol in the marketplace today, offering multiple-service support with the richest possible set of management features. GPON offers twice the Bandwidth and split ratio compared to other PON technologies. GPON s 2.5-Gbits/sec Bandwidth can be split up to 64 times to keep costs down. If needed, GPON can also use lower split ratios, i.e. 32, 16 and 8, to deliver more Bandwidth as needs grow. For example, GPON 12 Note: UTOPIA (Utah Telecommunications Open Infrastructure Agency) is a 14 city inter-local agency with an OSPN based FTTP system similar to that proposed for TOPNet 18

19 allows 2.5-Gbps/sec of Bandwidth to be shared by as many as 64 customers, or about 35 Mbits/sec per customer. EPON, by contrast, enables a maximum 900 Mbits/sec (i.e Gbits/sec line rate x efficiency) of Bandwidth split between 32 customers, or about 28 Mbits/sec per customer. The ability to double the split ratio, or serve twice the customers, while delivering equal or more Bandwidth reduces per-subscriber costs for GPON. Significant capital expenditure (CAPEX) savings are realized at the optical line terminal (OLT) end of the network, while costs at the optical network terminal (ONT) end remain the same. GPON not only provides efficiency as a transport network, but also delivers simplicity and scalability for future expansion in supporting additional services. With GPON, Bandwidth can be cost-effectively increased by simply reducing the split ratio, i.e. 32, 16, 8, etc., effectively doubling the Bandwidth per user at each split ratio. This can be accomplished without changing out, or upgrading any electronics to new standards, which has the potential to effectively provide the longest possible technology lifecycle. GPON carries the two-fold capability of higher bit rates and higher efficiency when carrying multiple services over the network. The main features of GPON, based upon requirements set forth by service providers within the FSAN ( Full Service Access Networks ) standards group, can be summarized as follows: Full Service Support, including legacy voice (TDM), VoIP, RF Video (Cable TV), IPTV, Broadband, Ethernet, and others; Native support for IP technologies and services and Ethernet transport; Physical reach of at least 20 km with a logical reach support within the protocol of 60 km; Support for various bit rate options using the same protocol, including 2.5 Gbits/sec downstream, 1.25 Gbits/sec upstream, and others; Strong Operations, Administration, Maintenance, and Provisioning (OAM&P) capabilities offering end-to-end service management; and Security at the protocol level for downstream traffic due to the multicast nature of PON. ELECTRONICS The Electronics will be provided by Calix of Petaluma, CA. Calix s latest generation C7 GPON OLT and 700 Series ONTs will be deployed. ABOUT CALIX: Calix has established itself as a leader in two key North American broadband markets: Passive Optical Networking (GPON), as well as Digital Subscriber Line (DSL) based on the fastest-growing equipment category, Multi-Service Access Platforms ( MSAPs ). Information from Dell Oro Group shows that Calix continued its leadership position in Q2, 2006 for GPON OLTs and ONTs, a position Calix has held since Dell Oro Group began tracking the GPON market. In addition, Calix has established a large and growing footprint in North America with over 350 customers, 180 of which employ FTTP to deliver services to over 140,000 subscribers, and 80 that are delivering IPTV services to more than 100,000 subscribers. These customers include five of the top eight US wire-line service providers. Service providers deploy Calix access systems to enable a rich set of information, communication, and entertainment services and to expand their revenue base beyond connectivity. Calix access helps service providers transform their networks 19

20 from circuit to packet, narrowband to broadband, and to drive fiber deeper into the network. Calix has deployed its solutions in hundreds of service provider networks throughout North America, and has shipped more than two million ports. For more information, visit the Calix website at OUTSIDE PLANT (OSP) CONSTRUCTION AND ENGINEERING SERVICES The recommended architecture for CityNet is a Passive Optical Network (PON) (See PON description in Glossary), which is the most cost effective and most often deployed FTTP architecture. The PON Outside Plant (OSP) has been designed and engineered with a highly capable 1-32 split ratio, where one strand of optical fiber can cost effectively feed up to 32 subscribers by means of a passive optical splitter. This will provide the best cost/performance ratio for offering competitive triple play (voice, video and data) services. The PON architecture overlay was prepared in conjunction with Calix, one of the leading manufacturers of PON systems. The OSP has been fully engineered by Mid-States of Nephi, Utah, a firm with many years of experience engineering telecom networks, including FTTP systems. The Network was designed and engineered to well established USDA RUS standards, and includes a detailed set of engineering documents, including 59 primary CAD drawings and 264 individual Staking Sheets to support the project. MasTec, Inc. was selected to construct the outside plant based on a competitive bid process. Prior to construction proceeding (after bond closing), contractors will be required to furnish firm, fixed price/unit price bids, which include all labor and materials necessary for completion of the outside plant as engineered. In addition, the prime contractor will be required to furnish a performance bond for CityNet and their contract will contain a Liquidated Damages clause with damages assessed daily and equal to the total principal and interest on the bonds pro rated on a daily basis, should they fail to perform to cost or schedule parameters as defined in their contract. CONSTRUCTION MANAGEMENT AND OSP DOCUMENTATION Construction Management and Inspection services are typically provided by the firm who provided the OSP engineering; this allows the engineer to insure the network is constructed in compliance to the engineering specifications. The construction manager then provides detailed as built drawings, documenting how the network was actually constructed, so the finished asset is fully documented. This documentation is provided in hard copy as well as interactive electronic GIS software format, which includes; maps and records to support the fiber-to-thepremise (FTTP) network that will integrate with the City s GIS program. This work includes: (1) Digital map and record creation representing the FTTH infrastructure, in GIS and/or ATLAS (AutoCAD based program) formats (2) ATLAS software to help maintain the CityNet facility (3) Web interface to view the maps and records via the Internet, and (4) Training of operators using the ATLAS system or integration into the existing ESRI GIS system 20

21 OPERATIONS AND MANAGEMENT CityNet will be operated and managed by the NWJPB s private sector partners according to predefined contracts and agreements that outline the specific terms and conditions for management and operation of the NWJPB/City owned infrastructure. It is typically the case that these agreements will need to be formalized as part of, or prior to bond closing. The agreements must be congruent with the requirements for operations and management of the bond purchases, Anchor Service Provider and NWJPB/City. CityNet is proposed as a wholesale capacity, distribution-only system; therefore, the NWJPB/City will not manage the retail content offered, or the inputs or outputs of the service providers using the Network. USM s contract responsibilities require it to integrate and manage the community approval process, funding, planning, engineering, construction, service provider contracting, and assist with long-term operation of the Network. BILLING OF WHOLESALE TRANSPORT CHARGES (WTC) The NWJPB/City and USM will be responsible for billing and collecting the Wholesale Transport Charges from the ASP or other service providers. A private entity will manage the billing and collection process for Wholesale Transport Charges (WTC) pursuant to a Management Agreement and final bond terms and conditions. CityNet will incorporate sophisticated management software and systems to assure the network can be effectively and efficiently operated and maintained. To accomplish this, many of the functions involved in network management are automated, including the testing and fault repair, the service activation monitoring, and the performance of service provider connections to subscribers. In addition, the system controls will be designed for easy use and operation. It is this kind of attention to details that will help assure that CityNet will operate at the highest levels of performance and efficiency. What helps make this level of operations and management control possible is a comprehensive management and control system known as an Element Management System or EMS. The EMS system is integrated into the implementation and operations plans and cost estimates for this project. The EMS is capable of managing individual network elements and of providing an end-to-end access management solution that reaches into the customer premises and has a comprehensive integrated Web interface, which will allow all authorized parties, CityNet, service providers, etc. to have full access to all performance and service data and reports. The web interface also provides business reports that help the Network Manager and Service Provider optimize network resources, as well as to make business decisions that will enhance the network s revenue generation capability. In addition, the web interface provides access to a wide variety of network and platform reports designed to optimize network and business operations. These reports include fault management, inventory tracking, performance management, node/element management, log queries and more. 21

22 SUMMARY This document is intended to provide the necessary basic project structure and relevant data, and to provide a document that generally explains the project to community leaders and the public-atlarge. 22

23 SECTION 2 Assessing the Need for Next Generation Broadband Infrastructure The stakes for our economy could not be higher. Our broadband failure places a ceiling over the productivity of far too much of the country. Should we expect small-town businesses to enter the digital economy, and students to enter the digital classroom, via a dial-up connection? The Internet can bring life-changing opportunities to those who don't live in large cities, but only if it is available and affordable. Even in cities and suburbs, the fact that broadband is too slow, too expensive and too poorly subscribed is a significant drag on our economy Future generations will ultimately pay for our missteps Michael J. Copps Commissioner Federal Communications Commission. Washington Post; Nov EXECUTIVE SUMMARY As we move into the 21 st century the rapid advancements in communications-based applications and services has been driving the need for greater availability of low-cost, high-bandwidth services. Applications from business automation, e-commerce, social networking, telecommuting, tele-medicine, distance and distributed education, and many more are fulfilling the promise of changing how people live and work. Worldwide, leaders in government, industry and education have recognized the opportunities that establishing a leadership position in the deployment of next generation fiber-optic based ultra-broadband infrastructure can mean in maintaining and improving the global competitiveness of our individual communities and nation. Already, many countries such as Japan, South Korea, China, Estonia, Sweden, Norway, France, and others have launched national initiatives to deploy FTTP infrastructure throughout their countries. Many countries in Europe, such as, Sweden, Norway, France and others are specifically encouraging and promoting municipal public/private-partnerships as a core strategy to develop fiber-to-the-premise solutions in their cities and towns. These leaders have realized, as Senator McCain stated when introducing his legislation to protect the rights of municipalities in the U.S. to participate in bringing next-gen ultra-broadband to their businesses and residents, As a country, we cannot afford to cut off any successful strategy if we want to remain internationally competitive. 13 The problem community s face in remaining globally competitive is not just a national policy problem. In a country that has such a broad mix of urban to suburban to rural populations, and a 13 Senator John McCain Floor Statement, U.S. Senate, June 3rd 2005 Congressional Record Senate S7299 SEC. 2. Community Broadband Capability 23

24 wide range of carriers and infrastructure, a one-size-fits-all national policy fix is unlikely to provide a solution even if a national policy is realistically achievable. As larger carriers such as Verizon sell off entire service regions of predominantly rural communities, one comes to the realization that this problem varies in magnitude by region and individual local factors. Successful solutions must consider the regional and local circumstances and find creative, innovative ways for the public and private sectors to work together to find successful solutions that address individual local and regional realities and circumstances. To date a growing number of communities across the nation are launching broadband initiatives or contemplating such initiatives. The current list totals well over 300 cities and counties, and the list grows daily. However, one of the major challenges for communities is that there has been no clear model to follow in developing local broadband initiatives. The initiatives that have been undertaken have been diverse and the challenges often daunting as recently experienced by Lafayette Louisiana, which fought a multi-year legal battle with the incumbent telephone and cable duopoly to establish its right to build a municipal FTTP system. The long and drawn out multi-year process included a public referendum where over two-thirds of voters supported the FTTP initiative, but, which has only recently been cleared to move forward. For most communities, such a long and expensive process is a major deterrent in deciding to undertake these types of initiatives, even when they believe they are vital to their economic futures and to improving and sustaining quality of life. Clearly, any successful plan needs to identify and address the potential political and financial issues and objections typically raised by incumbent service providers and other likely detractors of these types of projects to insure the highest probability for success. Additionally, the local goals, objectives and issues the community may have for such a project need to be clearly understood and addressed and the local and regional communications infrastructure landscape assessed to assure the viability of implementing an ultra-broadband infrastructure within a community. 24

25 THE CASE FOR NEXT GEN BROADBAND (ULTRA-BROADBAND) Although broadband services are expanding and more consumers are subscribing to broadband, our Nation is falling behind the rest of the world in the deployment next generation broadband infrastructure. Broadband as we know it will be obsolete and we must begin to examine how the United States can remain a leader in communications technology. As a nation, we must have a thoughtful national policy to make sure all Americans have the communications infrastructure that they need to learn and compete in a global environment. A national broadband policy is critical to the future of our country. Having a very robust broadband network available to all Americans would provide a tremendous social and economic benefit Those who have a fast enough pipe to use those applications will enjoy a huge benefit, both social and economic. As we all recognize, creating next generation broadband networks is crucial to our international competitiveness. It is not news that the United States is lagging many other nations in terms of penetration of current-generation broadband, for example, cable modems and digital subscriber lines. Perhaps more worrisome is that we are also falling behind in terms of nextgeneration broadband technology. In Japan, tens of millions of people have access to a direct fiber connection, and 100 megabit connections are commonplace. Korea has been the leader in DSL for years, and now it also is extending fiber all the way to the home. The same is happening in Europe--100 megabit connections are becoming routine in these countries, and it is crucial that the United States not fall behind again. We must have a policy that ensures the deployment of a strong broadband network for all Americans. Sen. John D. Rockefeller Floor Statement, U.S. Senate: Introducing Senate Resolution S ESTABLISHING A NATIONAL GOAL FOR THE UNIVERSAL DEPLOYMENT OF NEXT- GENERATION BROADBAND, May 09, 2007 There is a new, heightened awareness of the impact next generation (Next-Gen), or ultrabroadband infrastructure leadership, can have on our nation s global competitiveness. Its impact on critical areas such as, economic development, educational opportunities, health care, public safety, and many other vital elements making up quality of life for residents and businesses have led many government leaders to renew the debate on how such infrastructure and services will be delivered, who will deliver them and how can we assure equal and timely access to them. Next-Gen - Ultra-broadband is not just an issue of speed, or downloading a movie in the blinkof-an-eye, rather it is acknowledging the significance of next-gen broadband as an enabling tool that powers the applications which can enhance the viability of our communities and positively change people s lives by enabling new frontiers of opportunity and enhanced access to local and global services, wherever one lives or works. Recently, John Podesta, President and CEO of the Center for American Progress, and former Chief of Staff to President William J. Clinton stated; Broadband, or high-speed Internet, is a technology that, in terms of powering economies could be the 21 st century equivalent of electricity. 25

26 The awareness of the potential impact which maintaining a world-class information infrastructure and promoting the deployment and universal availability that next-gen broadband can have on national and regional economic competitiveness is not new. The U.S. Department of Commerce Office of Technology Policy released a comprehensive report in 2002, which foretold of the possible dire consequences to our nations economic viability if we failed to find ways to meet the challenge of ensuring the timely universal deployment of next-gen ultrabroadband networks. The U.S. Department of Commerce report concluded: With respect to this last point maintaining a world-class information infrastructure there may be no element more critical today than ubiquitous and affordable high-speed Internet broadband. The deployment and usage of broadband networks will significantly impact the global competitiveness of nations and businesses in the 21st Century. It is important to note here that the current generation of broadband technologies (cable and DSL) may prove woefully insufficient to carry many of the advanced applications driving future demand. Today s broadband will be tomorrow s traffic jam, and the need for speed will persist as new applications and services gobble up existing bandwidth. 14 More recently, the New America Foundation came to a similar conclusion in its report, stating: Knowledge is now the principal source of wealth creation and new jobs in the United States. Ensuring that the United States and its populace keep up with the fast pace of knowledge dissemination and continuously evolving technology is crucial to maintaining a vibrant economy as well as remaining secure at home. 15 One of the most important areas where the availability of true high-speed, affordable, next-gen broadband can have the greatest impact is in dramatically expanding educational opportunities and bringing those opportunities directly into homes, businesses and schools. Helping our children compete and succeed in an increasingly information-centric economy should be a priority. A recent brief issued by The Children s Partnership titled Helping Our Children Succeed; What s Broadband Got To Do With It? stated: Broadband is changing the way children learn, communicate, play and prepare for their future. As a child grows up, critically important information about health care, scholarships, colleges, jobs, and community life such as driver s licenses or registering to vote is increasingly on the Internet, and sometimes only on the Internet. 16 This statement is not only true for children, but people of all ages and demographic groups as the digital transformation of our economy and culture continues at record speed. There can be little doubt about the value and importance that next-gen broadband networks can play in helping position a community, its residents and businesses to take full advantage of the economic opportunities within the global information based economy. The future viability of many of our 14 Understanding Broadband Demand A review of Critical Issues; U.S. Department of Commerce, Office of Technology Policy. November, Eamon A. Kelly, The Digital Opportunity Investment Trust and America s Global Leadership, Spectrum Series Working Paper #11, New America Foundation, Feb The Children s Partnership: Helping Our Children Succeed; What s Broadband Got To Do With It?

27 businesses and communities in sustaining and enhancing the local quality of life may be largely dependent on the availability of advanced world class next-gen broadband infrastructure. Senator John McCain further stated; We need to help our businesses capitalize on their ingenuity so that they can become more internationally competitive. That is why we need to do all we can to eliminate barriers to competition and create incentives for the delivery of high-speed Internet services for public suppliers of broadband services, private suppliers of broadband services, and public-private partnerships as well. 17 The Communications Workers of America (CWA), which represents more than 700,000 workers employed in telecommunications, the media, public sector, manufacturing, health care and the airlines, recently stated in a policy paper presenting the case for accelerated deployment of true high-speed next-gen broadband: The telecommunications industry is at a critical juncture. The emergence of a new telecommunications system - one based on high-speed interactive networks designed for voice, data, and video communications - opens up tremendous opportunities for improving the quality of our economic, civic, and personal lives. While most attention has been focused on entertainment and gaming the real story is that advanced high capacity communications networks have become essential to economic growth and can increase democratic and civic participation, improve the delivery of health care, education, job training, public safety and other vital services. However, the United States has failed to bring the benefits of this telecommunications revolution to most of our population. While more households are adopting broadband, our relative position in the world is worsening. We have fallen to 16th among the major industrialized nations in terms of broadband adoption even though we were the home of the computer and the Internet. This is not surprising since we spend relatively less as a nation on telecommunications investment and we spend relatively more as consumers for slower speeds. For example, the Japanese can obtain broadband connections with 8.5 times the speed, but at one-twelfth the cost. To make matters even worse, there is a substantial digital divide that separates access to high speed Internet based on income and geography. 18 The issue of broadband capacity and speed is critical because it defines what applications a consumer, businesses, students, or government agencies can effectively utilize. Dialup connections of 56 kilobits per second (kbps) or standard ADSL connections of 7Mbps download and less than 1Mbps upload, are too slow, and cannot handle many of the applications that promise the greatest potential benefits. Some countries have already established goals of 100 megabits per second (mbps) both in terms of download and upload speeds. In the U.S., speeds most often actually obtained by consumers using DSL and Cable Modem range from 1 to 3 mbps download and kbps upload. 19 Yet, even these speeds, though considered broadband by current FCC standards (FCC defines broadband as 200kbps one-way) are too slow; for example, 6 mbps is needed for such important 17 Senator John McCain Floor Statement, U.S. Senate, June 3rd 2005 Congressional Record Senate S7299 SEC. 2. Community Broadband Capability 18 Speed Matters: Affordable High Speed Internet for All - A Communications Workers of America Policy Paper October Communications Workers of America (CWA) nation wide speed test of 70,000 broadband users across the county: 27

28 interactive features as videoconferencing, which is a key application for distance learning, telemedicine, worker training, civic participation and public safety, just to name a few. Broadband Applications & Speeds Download Upload Application Technology Speed Speed 56 kbps 56 kbps Low Quality, Streaming Audio Dial Up 200 kbps 200 kbps FCC Definition of Broadband DSL Lite, Satellite: (256 kbps) 1 mbps 256 kbps Low Quality, Streaming Video ADSL, Cable Modem* 2.5 mbps 384 kbps Medium Quality Streaming Video ADSL, Cable Modem* 4 mbps 384 kbps 1-Standard TV Channel ADSL, Cable Modem* 6 mbps 768 kbps Videoconferencing Client (med quality) ADSL, Cable Modem* 20 mbps 6 mbps HD Video VDSL**, Cable Modem*** 100 mbps 100 mbps All + others Fiber-to-the-Premise Figure 2.1 Broadband Applications and Speeds Source: S. Derek Turner, Broadband Reality Check Free Press, August 2005 NOTES: * Consumers may not obtain the listed speeds due to a number of reasons. For Example, DSL loop lengths and line condition from the central office and Cable Modem bandwidth is typically shared by up to 500 subscribers on a single node, which can cause speeds to vary. ** VDSL requires very short copper loop lengths of between 1000 feet to 3000 feet with no line quality problems to achieve top advertised speeds. *** Higher speeds for Cable modem service require DOCSIS 2.0 or 3.0 with small node sizes of 256 subscribers or less to achieve higher speeds. Recently, Communications Workers of America (CWA) President, Larry Cohen, took the case for universal high speed (next-gen) internet access to the U.S. Congress. When testifying before the House Subcommittee on Telecommunications and the Internet Cohen spoke in support of a discussion draft of the Broadband Census of America Act. He stated This legislation would be a significant first step in bringing high speed internet access to every American. 20 Cohen also discussed the Speed Matters Speed Test, describing the results of the more than 70,000 people in the U.S. who have taken it as "deeply troubling." The average download speed 20 Testimony of Larry Cohen; President Communications Workers of America-Submitted to the Subcommittee on Telecommunications and the Internet of the House Energy and Commerce Committee May 17,

29 in the test was 1.9 mbps, which compares to 61 mbps in Japan, 45 mbps in South Korea, 18 mbps in Sweden, 17 mbps in France, and 7 mbps in Canada. 21 Cohen further stated; Speed Matters on the Internet; it determines what is possible; whether we will have the 21st century networks we need to grow jobs and our economy, and whether we will be able to support innovations in telemedicine, education, public safety, and public services to improve our lives and communities. High speed Internet could even help address the global warming crisis by allowing people to get things done without getting into their car. Equally disturbing, Americans pay more for slower connection speeds than people in many other countries. In Japan, 80 percent of households can connect to a fiber network at a speed of 100 megabits per second. This is 30 times the average speed of a U.S. cable modem or DSL connection, at roughly the same cost. The United States is stuck with a 20th century Internet. Too many Americans - especially those in rural areas, or low-income households, aren t connected at all. 22 Telecommunications Industry Association (TIA) President Matthew J. Flanigan noted that nextgeneration broadband is a matter of international competitiveness for the United States: America has fallen behind in broadband penetration, reducing our relative efficiency in a number of ways. Now a number of network operators are starting to deploy robust technologies like fiber-to-the-home. That is a very positive development because it will allow us to better compete in the international market for converged services. The challenge for many community leaders, however, especially those not on the top of the list for Next-Gen broadband infrastructure deployments like Verizon s FiOS program is, if and how, will this critical infrastructure be made available in their communities. From the many studies and reports about the effect that both current and next-gen broadband can have on our economy and other critical aspects of quality of life in our nation and its communities, it is becoming increasingly clear that decisions made nationally, or by community leaders about broadband infrastructure initiatives can dramatically affect the future of those communities in ways yet incalculable, and the competitiveness of entire countries may be affected. The following article by Bill Whitton of Verizon Communications was provided by the Fiber to The Home Council, and was originally published in their January 2007 FTTH Prism newsletter. This article clearly identifies the value and importance Verizon places on their FiOS FTTP nextgen infrastructure program. 21 Communications Workers of America (CWA) nation wide speed test of 70,000 broadband users across the county: 22 Testimony of Larry Cohen; President Communications Workers of America-Submitted to the Subcommittee on Telecommunications and the Internet of the House Energy and Commerce Committee May 17,

30 The Verizon Networking Strategy By Brian Whitton, Executive Director, Verizon Technology Organization For Verizon and other key players in the domestic wireline telecom market, the 21 st Century offers myriad opportunities for success or failure in the battle to become the primary tripleplay provider for a consumer s voice, broadband and video services. The new reality we all face is threefold: customers service expectations are much more sophisticated, bandwidth demand for access to the Internet has and will continue to grow, and the rate of new service introductions is increasing. We believe that in this environment a network service provider who opts for something short of fiber optics all the way to the home will be at a disadvantage in today s and tomorrow s triple-play voice, data and video marketplace. (Emphasis Added) Facing these new realities and given technology choices that were not practical just a few short years before, Verizon in 2003 made a critical decision. For us, in this new battleground, bandwidth is the key enabler for everything. And only one medium could provide that bandwidth. (Emphasis Added) We decided to move ahead with replacing the copper wire in our access network with robust, more reliable, high-capacity fiber optic links all the way to the home. Since launching this fiber to the premises, or FTTP, network in early 2004 in Texas, we haven t looked back. And while the new broadband and video services already riding our fiber into homes in parts of 16 states are industry leading, that s just the tip of the iceberg. FTTP is the type of future proof technology and strategy that will allow us at Verizon to continually evolve to meet our customers needs. Today, we remain the only major U.S. telecom company deploying fiber all the way to the home on a widespread scale. On top of this, we expect to realize significant operations and maintenance savings as fiber becomes more ubiquitous in our local access network. Overall, by 2010 we expect to achieve savings of about $1 billion in annual, ongoing operating expenses due to the FTTP network. Fiber by itself is more reliable than copper and coaxial cable, and the absence of powered, active electronics in the field removes a point of vulnerability during power outages. Also, since fiber is less susceptible to problems related to moisture, it is inherently more reliable and can last longer than coax and copper. We saw this first hand when heavy rains led to flooding in parts of eastern New England in the spring of In those areas where we have a large amount of FTTP deployed, we experienced far fewer reports of troubles. Since we launched the FTTP project in Keller, Texas in early 2004, we have utilized BPON (broadband passive optical network) electronics to deliver our FiOS-branded broadband speeds of up to 50 Mbps downstream and up to 10 Mbps upstream. Today with a single strand of fiber leaving our central office with 622 Mbps and returning 155 Mbps upstream on two separate wavelengths we offer those broadband products in over 1,500 communities in the 16 states where we re building our FTTP network. Utilizing a third wavelength for broadcast video, our most popular FiOS TV product offers hundreds of all-digital video and music channels, over 20 high-definition channels and more than 3,000 video-on-demand titles. In addition, we utilize our data wavelength to provide interactive FiOS TV video services, such as video on demand. With these two classes of services, we are a significant competitor to the existing cable TV operators. Many of our new broadband and video customers are abandoning cable companies for services that are more robust and more reliable. Today, we sell FiOS TV in over 100 communities in parts of eight states, and we continue to add more as we obtain the necessary video franchises. Another way of looking at it is today our fiber-based video products are available to some two million households. 30

31 But it s not enough to offer high-capacity broadband and video services. Fiber is an incredible platform for innovation. For example, today we offer two advanced products that are coupled with our FiOS TV service in the home. One is our Home Media DVR service that allows a customer to record a high-definition movie in one room and play it in another, and also allows a customer to display digital content (e,g, digital photos) stored on a PC on the main TV screen in the house. Another service, called Widgets, allows instant, one-click access to very localized weather and traffic on the bottom of the customer s TV screen. Widgets are a great example of blending the Internet and TV experience to enhance the customer s experience. For Verizon, it was also not enough to focus on the new, high-capacity optical pipe into the home. We had to make sure our approach to in-home networking supported our products and was simple for the customer to use. We do not believe our customers should need to obtain an advanced IT degree to take full advantage of what fiber to the home can offer. Using the new industry standard of TR69, we ll soon be able to remotely configure a customer s service, and see deeper into the customer s in-home and outside network to detect and then fix problems often before the customer knows there s a problem. We also began deploying a new broadband home router (built by Actiontec) that positions our customers for today and tomorrow. This new router, which has four wireless ports, is capable of supporting speeds up to 100 Mbps within the home, and it can also support future services that allow different devices within the home to interact. An important development on the in-home networking front is our decision to begin using MoCA, or Multimedia over Coax Alliance. This technology allows us to use existing in-home wiring for video, broadband and voice services. This helps reduce our installation costs and minimizes inconvenience for the customer since, for example, we might not have to install new Ethernet cable to deliver broadband to a computer. We have long desired a scenario where we could install FiOS service in a home using a no new wires approach, and it looks like we re there. We re beginning now to install FiOS home electronics (the ONT, or Optical Network Terminal) that use MoCA technology. As cited earlier, one of the primary reasons we opted for fiber to the home was its ability to upgrade speeds and services without having to perform expensive additional outside plant upgrades. This is accomplished by acquiring and deploying new electronics that can be installed on either end of the same fiber links we re using or installing today. We have already announced that we are moving ahead with plans for GPON (gigabit passive optical network) technology, which allows us to increase downstream speeds by up to four times and upstream by up to eight times. The fiber leaving our central office will now carry 2.4 Gbps downstream and 1.2 Gbps upstream. This development, which will be under way during the first quarter of this year, certainly proves the future proof aspects of FTTP. In addition to ramping up broadband speeds and widening our lead in the broadband marketplace, the new GPON architecture will fully support an all-iptv approach to video delivery down the road. Today we use a hybrid broadcast and IP approach, but we envision moving to all IPTV when the technology further matures. Our overall plan is to continue our current rate of passing some three million homes per year with FTTP. By the end of 2006 we expected to have passed some six million homes. We have projected that we ll pass a total of about 18 million premises with fiber by the end of This represents more than half the approximately 33 million households in our 28-state wireline service area. Between 2004, when we began the project, and 2010, we will have invested some $18 billion in net capital in the FTTP project. This total is net of the approximately $4.9 billion 31

32 we estimate we would have otherwise been required to invest to maintain traditional copper wire technologies over the same period. Our overall sales targets are based on our expectations of attracting up to seven million FiOS Internet customers and up to four million FiOS TV customers by year-end Verizon was expected to have about 725,000 FiOS Internet customers by the end of We also expected to have about 175,000 FiOS TV customers by the end of We began selling FiOS Internet service on the FTTP network in late 2004, and we began selling FiOS TV about a year later, in September While sales of new fiber-based products are well under way, we re also seeing some strong advances in reducing the cost-per-premises passed. By the end of 2006, we expected that the cost-per-home passed would be $850, down from $873 just a few months earlier. The cost-perhome connected has also steadily declined from $1,220 about a year ago to about $715 projected anticipated at the end of By 2010 we estimate our cost per-home passed will be $700, on average, and our cost to connect a home will be about $650. In closing, we feel we are only at the beginning of a major industry revolution. Those of us at Verizon who are directly involved with this project truly feel we are participating in a once-in-alifetime effort. Never before has a telecom company undertaken such a significant network upgrade in order to deliver the best products available to its customers. From our labs where the new network was first tested, to our many equipment suppliers, to the employees involved in deploying the network and/or installing it in customers homes, it has been a unique partnership where everyone involved has been extremely enthusiastic about setting a new standard for the way telecom services are delivered. For many of our employees who have worked exclusively with copper technology for decades, it has literally been an opportunity to re-invent their careers and be challenged by learning an entirely new technology. We look forward to remaining in touch with Prism readers and editors as this revolution continues. 32

33 AMERICA S GLOBAL COMPETITIVENESS Advanced high-capacity communications networks will boost our economy and revolutionize our lives at home, at work, and at play. High-bandwidth networks have already allowed American businesses to improve productivity, create jobs and increase wages. America should be the undisputed world leader in broadband innovation and deployment. America is the birthplace of the Internet. Yet there is significant concern that our ranking, by whatever measure, in the global information economy is less than it should be. While the overall number of United States households adopting broadband is growing, our relative position in the world is worsening. Consumers in other countries enjoy broadband connections that are faster, cheaper and offered by more providers. I believe that there are several areas that need attention and serious consideration: Encourage infrastructure investment: Telephone and cable companies are actively upgrading their existing infrastructure, but even services like DSL have limits presented by old legacy networks. Promote competition: We should promote deployment and demand at the local level by any entity using any technology, including municipalities. Rep John Dingell - Chairman of the House Committee on Energy and Commerce. The Hill Affordable Broadband for Everyone, February In 2004, as President Bush outlined his broadband goals when he spoke about the America s international ranking in broadband penetration, which at the time was 10th overall. That s not good enough for America, he said. Tenth, is 10 spots too low as far as I m concerned We ought to have a universal, affordable access for broadband technology by the year 2007, and then we ought to make sure as soon as possible thereafter, consumers have got plenty of choices when it comes to purchasing the broadband carrier. See, the more choices there are, the more the price will go down. And the more the price goes down, the more users there will be. And the more users there will be, the more likely it is America will stay on the competitive edge of world trade. 23 Since then, the United States has fallen to 16th place in the International Telecommunications Union s (ITU) broadband penetration rankings Additionally, the United Nations Organization for Economic Co-Operation and Development (OECD) publishes a yearly report that looks at broadband deployment trends and statistics in the 30 OECD countries. Each year for the past several years, the U.S. has continued to drop in almost every relevant ranking since 2001, when the OECD first started collecting data. In 2001, 23 White House, Promoting Innovation and Economic Security Through Broadband Technology, March 26, 2004, 33

34 the United States ranked 4 th among the 30 nations surveyed. After several years of steady decline in the rankings, we now rank 15 th. The number of U.S. broadband subscribers per 100 people grew to 19.6 in December 2006, up 0.4 percentage points from 19.2 in June 2006, a growth rate far below the 2.0 percentage point OECD average. Many of the leading European countries including Denmark, Netherlands, Iceland, Switzerland, and Norway continue to pull away from the pack with faster adoption rates. In response to the OECD s recent announcement in their 2006 report 24 that the United States has fallen in its country-by-country ranking of broadband penetration, FCC Commissioner Michael J. Copps issued the following statement: "Every year brings more bad news as the United States slides farther down the broadband rankings. It's a national embarrassment and the only way to change it is to develop a broadband strategy like every other industrialized nation has already done. These rankings aren t a beauty contest they re about our competitiveness as a country and creating economic opportunity for all our people. Bringing high-speed broadband to every corner of the country is the central infrastructure challenge we face. Always in the past, our nation found ways to stay ahead of everyone else in building infrastructure like turnpikes, railroads and highways. Now, in broadband, we re not even an alsoran." 25 In November of 2002, the U.S. department of Commerce Office of technology Policy released a report Understanding Broadband Demand A review of Critical Issues which even then, pointed to the affect broadband deployment can have and the need to maintain our leadership in the deployment of next-gen broadband infrastructure. The report cited our need to develop, educate and attract the brightest scientists and engineers. And, to provide the information infrastructure that will allow U.S. business to lead in efficiency of supply chain, new levels of automation to compete with low labor costs abroad and the network capacity to drive innovation and development of new broadband tools, applications and services. If the infrastructure does not exist here to make such developments possible and economical, it will be developed by businesses in other countries, which could have the affect of reversing 60 years of global technology and information technology leadership. The report states that maintaining a world class information infrastructure is the single most important element to achieving all of the other goals, as it is a critical enabler: The wealth of nations is changing. While prior centuries were dominated by nations with superior industrial or agricultural capabilities, the innovation age rewards new competencies and strengths. Knowledge ideas and the people who generate them is the new coin of the realm. Innovative capacity is the key driver of future economic prosperity. Cross-cutting emerging technologies such as genomics, bioinformatics, quantum computing and nanotechnology promise even faster change and deeper disruption in the future. It is no exaggeration to predict that there will be more change in the next 30 years than we witnessed in all of the 20th century. While America enters this new age of innovation following 60 years of global technology preeminence, our future innovation leadership is anything but assured. In fact, it s very much at stake. Our ability to remain a global technology (and thereby economic) leader will depend upon a variety of factors including: Our ability to attract, retain, and educate the best and brightest scientists and technologists; 24 OECD Directorate for Science, Technology, and Industry, Broadband Statistics to December 2006, (April 2007): 25 April FCC Press Release: 34

35 Our support for world-class R&D and innovation in the public and private sectors; Our success in fostering a business environment that rewards risk and encourages entrepreneurship; and Our ability to maintain a world-class information infrastructure. With respect to this last point maintaining a world-class information infrastructure there may be no element more critical today than ubiquitous and affordable high-speed Internet broadband. The deployment and usage of broadband networks will significantly impact the global competitiveness of nations and businesses in the 21st Century. It is important to note here that the current generation of broadband technologies (cable and DSL) may prove woefully insufficient to carry many of the advanced applications driving future demand. Today s broadband will be tomorrow s traffic jam, and the need for speed will persist as new applications and services gobble up existing bandwidth. 26 The U.S. is not alone in recognizing these risks and in facing the challenges of next-gen broadband infrastructure leadership and potential dominance from other countries that are better organized and taking aggressive measures to deploy next generation ultra-broadband networks. In addition to the much talked about initiatives in Asia, many countries in Europe are now beginning to move aggressively. France Telecom and several other competitors are pursuing an initiative with the government to connect four (4) million subscribers with fiber connections. 27 Deutsche Telekom has plans to offer speeds of up to 50 mbps in 50 German cities next year 28, and FTTP initiatives in Sweden, Norway and other European countries have placed increasing pressure on those falling behind. Recently, Financial Times reported that the UK is now waking up to the same awareness of the growing new digital divide which will separate those who have access to next-gen ultrabroadband infrastructure. 29 The article reported on the recently released report from the Broadband Stakeholders Group, which is a UK government sponsored committee of government leaders and corporate stakeholders such as British Telecom and many other private sector firms. The report makes clear their belief of the critical nature of timely deployment of next-gen broadband infrastructure, which they have defined as: Next generation broadband is defined as broadband access services that are capable of delivering sustained bandwidths significantly in excess of those currently widely available using existing local access infrastructures and technologies. The report goes on to state: Ministers and regulators have just two years to find ways of encouraging investment in the next generation of high-speed broadband, or the UK s competitiveness will suffer, according to a report published on Monday. 26 Understanding Broadband Demand A review of Critical Issues: U.S. Department of Commerce, Office of Technology Policy. November, France has One of Europe's Largest Telecom Markets, & has Emerged as a Leader in Fiber Deployment- DUBLIN, Ireland--(BUSINESS WIRE)--Research and Markets ( c47527) December Deutsche Telekom: 50 Mbit/s Broadband Announced: IFA: UPDATED - Digital-Lifestyles.info: September by Simon Perry 29 UK must increase broadband investment By Andrew Edgecliffe-Johnson and Andrew Parker Published: April : Financial Times 35

36 Existing internet access networks, and those being rolled out, will be too slow to meet the demands of the most bandwidth-hungry businesses and households by 2012, the Broadband Stakeholder Group report warns. If steps are not taken [by 2009] to prepare for next-generation broadband, then we may well find ourselves in a position where it is too late to catch up, said Kip Meek, BSG chairman. 30 A recent study by the Economic Strategy Institute - Americas Technology Future at Risk: Broadband and Investment Strategies to Re-fire Innovation, makes a compelling case, which supports the 2002 U.S. Department of Commerce report cited earlier. The Economic Strategy Institute study illustrates how our broadband telecommunications infrastructure underpins the entire technology and information sectors of the economy, which are critical to maintaining 21 st century economic leadership. In fact, it concludes that losing leadership in broadband deployment could put The technology ecosystem at risk. The study reports the following about America s declining position globally in broadband deployment and its affect on the future of U.S. technology leadership: Of even more concern is the fact that the negative trends are not confined just to the manufacturing sector or the trade deficit. In the age of the Internet, access to high-speed (broadband) data transmission facilities is no longer a luxury for the rich and large corporations. It is absolutely essential to remaining effective and competitive in virtually every walk of life. Not having such access is like being constrained to riding a bicycle while everyone else goes speeding by in a car. As recently as 2000, the United States led the world in broadband deployment. But as the following chart indicates, South Korea has now gained world leadership as the United States has fallen to sixteenth place, just slightly ahead of long time laggard France. Further exacerbating the situation is the fact that broadband has an entirely different meaning in much of Asia as compared to the United States. In Japan and Korea, for example, broadband usually means data speeds of 100 megabits per second. 31 In the United States, the normal speed is 700 kilobits to 1.5 megabits per second. On top of this, the cost per megabit in much of Asia is well below that in the U.S. In Japan, for example, it is about one twentieth that of the United States BROADBAND STAKEHOLDER GROUP - PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK: April Takada, Yoshihisa, and Shinohara, Takeshi, Promoting Broadband: The Case of Japan, International Telecommunications Union, Document PB/07, Geneva, April Americas Technology Future at Risk: Broadband and Investment Strategies to Refire Innovation Clyde Prestowitz, President; Economic Strategy Institute, March

37 Figure 2.2 Broadband Penetration by Technology The transformational qualities of such high-speed connections cannot be over-emphasized. A whole new range of products and services becomes possible at bandwidths of 100 megabits per second. Feature length motion pictures in their native resolutions can be downloaded in a couple of minutes at such speeds. Digital high-definition television can be streamed in real time. Video conferencing becomes routine and instantaneous. Doctors can diagnose patients and confer with colleagues from thousands of miles away. In short, ultra-high speed broadband allows for a new and better Internet experience, and opens up valuable new revenue streams for entertainment and information providers. As brand new products and services are tested and rolled out in the Asian and European markets that have these capabilities, the companies offering such services will benefit from first-mover advantages and will gain a leg up on their U.S. competitors. In fact, because America is trailing so badly in the roll out of high speed broadband networks, American firms are at risk of missing the boat altogether in these new business sectors, simply because they lack the ability to deliver advanced services over our outmoded telecommunications infrastructure. This is increasingly driving them to move their operations to where the high-speed data infrastructure is. Thus more and more companies are acting like Silicon Valley start-up STOKE, which recently announced that it is focusing on Korea as it rolls out its new fixed/mobile convergence technology Ibid 37

38 SOUTH KOREA - USING INFORMATION AND COMMUNICATIONS TECHNOLOGY TO DOMINATE THE DIGITAL ECONOMY 34 South Korea is not only determined to use information technology to improve its international competitiveness, it is focusing on a range of communications initiatives to promote itself as a primary Asian economic hub. Part of this goal includes promoting the communications industry as a way of creating an advanced center for applications and hardware development and production. One great success can be seen in how the nation s leading firms have positioned themselves as leaders in the wireless handset market, a success that provides South Korea with recognition in a key area. But the long-range goal is to make South Korea a center of the world s digital economy, with products and services that are more advanced than any others serving the global market. This is a strategy that will take a long time to achieve, but a close reading of the multiple initiatives that South Korea has adopted since 1985 suggests that the Koreans are definitely in for the long haul. In 1987, at a time when the U.S. was balkanizing its telecoms industry under a consent decree, the South Korean government began to modernize and reform it s telecommunications markets with the National Basic Information System ( ), the first national project to support the creation of computer networks. Under this system, the initial steps were taken toward developing data networks that supported the Internet. This effort was expanded in 1995 with The Korea Information Infrastructure (KII) project. A key part of KII was the construction of a national high-speed public backbone. KII also included the development of information and communications technology applications, support for R&D, and IT-related pilot projects. 35 KII emphasized public-private partnerships and established an information promotion fund that fostered research and encouraged private companies to make long-term investments. A certification program under which the government certified new buildings as having 100 Mbps, Mbps, or 10 Mbps broadband capacity available was also launched, and the government provided test beds at low cost to help companies ameliorate the risks of R&D. 36 Over the years, the South Korean government has modified some of the provisions of KII to adjust its emphasis and aims. In 1996, it adopted The National Framework Plan for Informatization Promotion. This plan established an annual action program for different sectors, included a blueprint for an information society (with e-government plans), and set up of the Informatization Promotion Committee consisting of top level decision makers chaired by the Prime Minister and advised by leading members from the business community and academia. A separate e-government initiative organized in 2001 focused on e-procurement, the financial/education information system, and the personnel management system along with an effort to encourage Koreans to file their tax returns on-line through a home tax service. E-Korea, which was started in 2002, has the goal of getting more than 90 per cent of all Koreans online, improving e-government and encouraging schools to use more sophisticated Information and 34 Ibid 35 Kelly, Tim, Gray, Vanessa and Minges, Michael, Broadband Korea: Internet Case Study, Geneva, International Telecommunications Union, March Ibid 38

39 Communications Technology 37 (ICT) applications. This effort will see the South Korean government invest over 70 trillion won (US$ 53 billion) in ICT over the next five years. 38 By comparison, the US government spent $60 billion on ICT in 2004, 39 the Chinese government spent $10.9 billion on ICT in 2005, India spent $4.0 billion in and Australia spent $3.8 billion on ICT in South Korea has also placed substantial emphasis on building a labor force with the skills needed for a more sophisticated communications industry. Its human resource policy has five major components: i) continue to build better IT infrastructures, ii) foster high quality workforce from educational institutions, iii) retrain IT and non IT workers to adapt to rapidly changing needs of IT industries, iv) bridge the digital divide, and v) make institutional amendments in fostering IT professionals. 42 This has all produced an Internet development so rapid that it has put South Korea far ahead of the United States in a number of key categories: 1. Although its population is one fifth that of the United States and its GDP is only about one-fifteenth the size of US GDP, South Korea s Internet backbone 43 carries about onethird of the traffic that the US backbone carries, about one Terabit per second, and about twice as much as Japan s backbone at 0.5 Terabits per second. 2. Average Internet bandwidth usage per user per month in South Korea is 5.5 Gigabytes 44, compared to 1 Gigabyte per US user. 3. In South Korea, 80 percent of households have subscribed to residential broadband in 2005, up from a striking 43 percent in March 2002, at that time the highest percentage in the world. 45 In the United States, the household figure was 29 percent in 2004 and it is expected to increase to 62 percent by These technologies include both computer and communications technologies. Many governments, as is true in South Korea, have strategies that join both computing and communications initiatives since there are a great many interconnections between the markets for these two technologies. 38 Kelly, Tim, Gray, Vanessa and Minges, Michael, Broadband Korea: Internet Case Study, Geneva, International Telecommunications Union, March 2003, pp ATP Innovations.com, Free Trade Agreement opens ICT doors in Washington, March 2, Rediff.com (India), ICT spending: China beats India, November 15, ICT spending includes spending on computer hardware, computer software, computer services and communications by the government, PSUs, state PSUs and other government agencies. 41 Bajkowski, Julian, Australian government ICT spending swells to $3.8B, Computerworld Today (Australia), April 18, Korea Information Strategy Development Institute, IT Industry Outlook for Korea: White Paper, Seoul, 2005, p Chon, Kilnam, Broadband Networks, presented at Asia Broadband Summit, February 22, Traffic is measured as average peak traffic or the average of peak traffic during a 10 to 60 minute period. 44 Odlyzko, Andrew, Internet economics, Internet evolution, and Misleading Networking Myths, University of Minnesota Digital Technology Center, Minneapolis, 2005 and Chon, Kilnam, Broadband Networks, presented at Asia Broadband Summit, February 22, Kelly, Tim, Gray, Vanessa and Minges, Michael, Broadband Korea: Internet Case Study, Geneva, International Telecommunications Union, March 2003, p Chon, Kilnam, Broadband Networks, presented at Asia Broadband Summit, February 22,

40 4. In 2004, about 18 percent of the country s GDP was derived from e-commerce compared to 9 percent in the United States With almost 70 per cent of stock market trading done online, South Korea is the number one online stock trader in the world. 48 In the United States, 24 percent of dial up users and 36 percent of broadband users conducted online transactions, such as purchasing, banking and trading stocks in By September 2003, South Korea had 21.3 million online banking users, one of the highest in the world on a per capita basis. 50 In the US, 13 million people use online banking daily and 53 million say they use online banking at various times when they are online. 51 South Korea s citizens have also become sophisticated Internet users. For instance, the number of E-Signature users surged from 1.92 million at the end of 2001 to 8.71 million at the end of This compares favorably with 20,000 such users in Germany, 10,000 in Japan, and 700,000 in Taiwan. 52 South Korea s latest efforts will address crossing the divide between separate voice, data and video systems to create one integrated multifunctional infrastructure. It plans to deploy a Broadband convergence network (BcN) that will link telecommunications with broadcasting and the Internet. The BcN will create a ubiquitous environment for Internet-enabling multimedia service that is universally available at low price, and with no restrictions on place, time or devices. Its aim is to create a new market for broadband convergence service, which will, in turn, form the basis for digital home, intelligent service robots, next-generation mobile telecom, etc. 53 The goal of deploying the BcN is to improve Korea s efficiency and productivity. The BcN will support an advanced test bed network and be managed by a joint team of manufacturers and network operators. The bottom-line strategy is to combine the network deployment with the technology development. 54 JAPAN S POLICIES TO PROMOTE BROADBAND 55 In January 2001, Tokyo established a Cabinet-level Headquarters on IT and announced an e- Japan Strategy. The Strategy aimed at assuring that at least 30 million households were within reach of high-speed Internet access (e.g. via DSL, CATV and Fixed Wireless Access) and at 47 Korea Information Strategy Development Institute, Industry Outlook of Korea in 2005, Seoul, p Kelly, Tim, Gray, Vanessa and Minges, Michael, Broadband Korea: Internet Case Study, Geneva, International Telecommunications Union, March 2003, p GartnerG2 Says Broadband is Hitting Critical Mass Among U.S. Households in 2003, October 23, GartnerG2, GartnerG2 Says Broadband is Hitting Critical Mass Among U.S. Households in 2003, Lake Buena Vista, Florida, October 23, Kelly, Tim, Gray, Vanessa and Minges, Michael, Broadband Korea: Internet Case Study, Geneva, International Telecommunications Union, March 2003, p Pew Internet and American Life Project, State of Online Banking, February 2005, p Korea Information Strategy Development Institute, IT Industry Outlook for Korea: White Paper, Seoul, 2003, p Korea Information Strategy Development Institute, IT Industry Outlook for Korea: White Paper, Seoul, 2003, p Korea Information Strategy Development Institute, IT Industry Outlook for Korea: White Paper, Seoul, 2003, p Americas Technology Future at Risk: Broadband and Investment Strategies to Refire Innovation Clyde Prestowitz, President; Economic Strategy Institute, March

41 least 10 million within reach of ultra-high-speed Internet access (e.g. via Fiber-To the Home, or FTTH) by the end of To this end, the Headquarters also announced a five-part program in March 2001 that provided for projects to promote the broadband strategy. The program included initiatives in (1) infrastructure, (2) human resource[s], (3) e-commerce, (4) e-government and (5) network security. 56 The human resource part of this effort included improving information technology education in schools, creating more educated telecommunications and IT professionals, and enhancing the everyday use of IT and telecommunications. 57 In addition, the Japanese government also sought to promote broadband deployment and adoption through special financing, tax reductions, and guarantees of liabilities. In order to obtain these benefits, operators must have their broadband deployment plans approved by the Ministry of Public Management, Home Affairs, Post and Telecommunications. Once approved, the Development Bank of Japan (DBJ) offers operators a low, or no-interest, loan to support their deployment of broadband access lines. The Telecommunications Advancement Organization of Japan (TAO) provides subsidies of up to 2 per cent interest on a DBJ loan. Tax incentives that the government offers include a 6-18 per cent reduction in the corporation tax on operators of broadband equipment who introduce new broadband services. In addition, operators who are introducing broadband services can also apply for a per cent reduction on the tax imposed on their fixed assets. 58 Finally, the government provides loan guarantees through the TAO, which guarantees the debt liabilities of operators introducing broadband access networks. 59 In July 2003, the government redoubled its efforts by adopting a second phase strategy dubbed e-japan Strategy II that set specific infrastructure goals and identified seven areas 60 that would be the focus of broadband initiatives. The main aim was to create a ubiquitous networked society by focusing on pilot projects that could demonstrate how to extend society s use of information technology and create new ways to build value through the use of communications networks and information technology. Interestingly, initial progress was hindered by the resistance of Nippon Telephone and Telegraph (NTT) to an unbundling initiative introduced by the Ministry of Posts and Telecommunications (MPT). NTT had invested in alternative technology and was reluctant to agree to lower prices for the ADSL broadband being pushed by the ministry and new entrant carriers. Eventually, however, MPT revised the unbundling and pricing requirements and NTT accepted the new arrangements under which it became one of the most aggressive promoters of broadband access. The results quickly became apparent. As the International Telecommunications Union (ITU) has noted, considering that there was no broadband market in Japan at the end of 2000, it can be said that Japan has caught up with the top class broadband countries. Moreover, keen facilities based competition has led to the world s lowest prices 61. All the strategies and programs seem to be producing the desired results. Within 18 months of the announcement of the initial targets, about 34 million households were within reach of ADSL 56 Takada, Yoshihisa, and Shinohara, Takeshi, Promoting Broadband: The Case of Japan, International Telecommunications Union, Document PB/07, Geneva, April 2003, p Ibid p.6 58 Ibid. p Ibid. p Srivastava, Lara and Kodate, Akihisa, Ubiquitous Network Societies: The Case of Japan, Geneva, International Telecommunications Union, April 2005, Document UNS/07 61 Takada, Yoshihisa, and Shinohara, Takeshi, Promoting Broadband: The Case of Japan, International Telecommunications Union, Document PB/07, Geneva, April 2003, p

42 services while 23 million were in reach of cable modem and 14 million were in reach of FTTH. 62 By the end of 2002, broadband use had more than doubled and achieved a penetration rate of 54.5 percent. 63 The Japanese government is forecasting 70 percent by By the beginning of 2004, the number of ADSL subscribers had reached nearly 14 million and FTTH subscribers had climbed to one million. 65 CHINA ATTRACTING EVER MORE TELECOM MANUFACTURING AND R&D 66 As rapidly as South Korea has moved to the forefront of advanced telecommunications, China s rise as a communications leader may be even swifter. One recent South Korean study estimated that the technology gap between South Korea and China in telecommunications was just over two years. 67 Moreover, in some ways China s ambitions trump those of the Koreans. Not only do the Chinese envision creating a fast and reliable broadband backbone to serve as the central nervous system of their economy, they aim to make China the location of choice for telecommunication equipment manufacturing. The Chinese have their eyes not just on the jobs that will come with all those new factories, but on the attendant R&D facilities as well. China has set a number of ambitious national goals, which include: 1. Raising the share of telecommunications services and manufacturing of GDP to 5% by 2005, and using it to spur export growth. 2. Building a 200,000-km addition to China s long- haul countrywide optical fiber network Attracting $151 billion of new investment to the telecom sector in the period. In sum, China is seeking to leverage the transformative power of modern telecommunications technologies in two fundamental ways. First, following the lead of Japan and South Korea, China is investing heavily in new broadband infrastructure, creating a modern communications network that will lower even further the costs of doing business in China and make its companies and private citizens ever more productive, efficient and competitive. On top of this, however, China is also seeking to become the global leader in the manufacture and production of cutting-edge telecommunications equipment. If it succeeds in capturing this sector, not only will this encourage more high-quality jobs and investment to flow to China, but the Chinese will eventually take the lead in the creation and development of new communications technologies. R&D facilities will follow manufacturing to China, and young scientists and engineers will flock there in pursuit of the jobs and training facilities that have left the U.S. and relocated to China. As they do and Chinese telecommunications equipment volumes increase, China will play an 62 Ibid. p Ibid. p Takahara, Kozo, Ipv6 Strategy in Japan, Japanese Ministry of Public Management, Home Affairs, Posts and Telecommunications, Tokyo, April 13, 2004, p Ibid. p Americas Technology Future at Risk: Broadband and Investment Strategies to Refire Innovation Clyde Prestowitz, President; Economic Strategy Institute, March Pillsbury, Michael, China s Progress in Technological Competitiveness, US China Economic and Security Review Commission, April 21, 2005, p China, Ministry of Information Industry, Summary of the Tenth Five-Year Plan ( ) Information Industry, 2002, p. 1 42

43 increasing roll in setting technical standards for state-of-the-art communications technology. The standards setting process, in turn, will no doubt be used to China s competitive advantage by ensuring that Chinese businesses have access to cutting edge telecom technologies first. Just as many U.S. industry groups did in the last century when American telecom equipment manufacturers were the undisputed leaders in innovating new communications technologies, Chinese businesses will use their technological edge to reduce costs, add more value and otherwise strengthen their competitive advantage in virtually all lines of business where telecommunications and related information technologies are key drivers of productivity growth. The public policy community must recognize that broadening and deepening our telecommunications networks is a critical link to restoring innovation, R&D and investment, all of which are key ingredients to developing the scientific, engineering, and technical talent that the United States needs to drive new job creation, productivity and real growth in the domestic economy while restoring technological leadership. BALANCE OF PAGE INTENTIONALLY LEFT BLANK 43

44 THE NATIONAL LANDSCAPE: DEPLOYMENT AND COMPETITION IN BROADBAND INFRASTRUCTURE - THE UNITED STATES VS. OTHER DEVELOPED COUNTRIES The United States lags behind other developed nations in high-speed Internet subscribers, in affordability and speed The speed of service offered via cable modems and the digital subscriber lines (DSL) of telecommunications companies "wouldn't even qualify as broadband in many countries abroad unless they arrived to the home with a good gust of wind behind them," Edward Markey, D-Mass: Chairman - House Energy and Commerce Telecommunications and the Internet Subcommittee Thursday, February 1, 2007) Study after study and report after report shows the U.S. is not keeping pace with other countries in penetration of current generation broadband (CGB) technology and even further behind in the deployment of next generation next-gen broadband infrastructure (NGB) led by fiber-to-thepremise deployments. Though some Telco s and a handful of municipalities have deployed, or are deploying next-gen broadband infrastructures, this is barely scratching the surface of the broadband infrastructure problem in the U.S. Clearly, the current broadband problems we face are severe and the consequences of resting on the status quo unacceptable. Recent broadband policy has not embraced a free market approach to enabling competition, but rather supported the entrenched incumbency of a rigid duopoly. It is important that we set aside the myths and excuses we have used to justify our broadband troubles up to now. The reality is that the US broadband market has significant failures in the three metrics that matter most: availability, speed, and value (cost per unit of speed). Despite years of promoting universal availability, there are still roughly 10% of American households that lack a terrestrial broadband provider. Research shows broadband customers in the U.S. pay more for a lot less bandwidth than our global competitors. Finally, we do not have a competitive market that is pushing speeds up and prices down at a rate sufficient to raise our stature relative to the rest of the world. In a study released this year by the Organization for Economic Cooperation and Development, the US has dropped from 12th to 15th in broadband penetration among the 30 member nations in the last 6 months as illustrated in the chart below. In addition, our growth rate relative to the other OECD nations over the past year ranks at a lowly 20th place among the 30 member nations. 44

45 Figure 2.3 U.S. Ranking among OECD Countries in Broadband Penetration, December 2006 However, while adoption rate is an important measure, many experts agree it is not sufficient to accurately assess a nation s relative position in broadband technology. A more complete measure would also consider speed and price. Increasingly, in the digital economy, and, as previously discussed herein, the speed and capacity of the network matters, as it determines what applications and services can be made available. And, price determines the cost of those applications and services, which impacts affordability and hence true availability and how fast and deep penetration of advanced services can occur. The, ITIF (Information Technology and Innovation Foundation) has expanded upon the OECD rankings, developing a more complete model that measures broadband penetration, price and speed in OECD countries. The findings show that America, which ranks 12th overall in their rankings, faces a multifaceted broadband challenge. 69 BALANCE OF PAGE INTENTIONALLY LEFT BLANK 69 Assessing Broadband in America: OECD and ITIF Broadband Rankings; Daniel K. Correa, The Information Technology and Innovation Foundation (ITIF) April,

46 Table 2.1: ITIF Broadband Rankings Factoring Price, Speed and Penetration Ibid. 46

47 Table 2.2: Penetration Rankings: Per Household vs. Per Capita As shown in the ITIF analysis, when penetration, price and speed are considered together, several nations see their ranks change significantly. Korea and Japan move to 1st and 2nd, respectively, both far ahead of the rest due to above average speeds and below average prices, with Korea claiming the top spot because of its more extensive penetration. At 12th overall, America is still stuck in the middle of the pack, ranking 12th in penetration, 15th in average speed, and 6th in price per bit of the fastest available technology. Clearly, slow speeds and slow adoption rates are the twin challenges facing the United States in terms of broadband. However, speeds are beginning to increase in the United States, particularly as fiber is built out by some broadband providers. 71 RANKINGS MATTER: AMERICA IS FALLING BEHIND Because ubiquitous high-speed broadband promises important economic and social benefits, it is important to track our progress towards that goal. Yet there are those who argue that America s lagging broadband position should provide no cause for worry. These Panglossians generally make five main arguments. The first two critique ranking methodology while the last three dispute the basis for examining rankings at all. First, some point to America s low population density as justification for slower broadband penetration. Certainly, it is far less costly to deploy broadband infrastructure to urban apartment buildings in Seoul than to rural towns in Wyoming. The problem with this argument is that the majority of Americans do not live in rural towns in Wyoming. In fact, densities in leading Scandinavian countries are about half that of the United States. 72 However, because the majority of citizens in OECD countries live in urban areas, a nation s overall population density is not an accurate measure. For example, though Australia is the least densely populated country in the OECD, 93 percent of its citizens live in urban areas (the 3rd highest percentage in the OECD). 71 Ibid. 72 The United States has the 12th highest urban population percentage in the OECD, according to United Nations, World Population Prospects: The 2004 Revision, (2004). 47

48 Therefore, a more appropriate gauge of population density urbanicity takes into account both the percentage living in urban areas and the average density of those areas. 73 Among OECD nations, there is virtually no correlation between a country s urbanicity and its level of broadband penetration (0.07). In other words, OECD countries with more densely urban populations do not necessarily have higher levels of broadband take-up. Population density is not a sufficient explanation for America s lagging broadband penetration. Second, some find fault with the OECD s measurement of broadband penetration on a per capita basis, claiming that America is actually ahead on an absolute basis. But by the same token, America also leads the OECD in number of non-subscribers, and we certainly do not hear anybody touting that dubious accomplishment. In short, the only way to make meaningful international comparisons for broadband and most other measures is by accounting for different country sizes. This means measuring broadband on a per capita or per household basis. Otherwise, we are comparing apples to oranges. However, as we note above, an assessment based on households is the more accurate measure and on that measure America s performance is somewhat better. Finally, some claim that rankings do not matter because market forces alone dictate the proper pace of broadband adoption. If more American consumers wanted broadband or consumers needed faster speeds, we would have more and faster broadband. In fact, other nations, the argument goes, may have too much broadband due to market-distorting government subsidies. What this argument overlooks is that broadband is different than most items consumers purchase. In the case of broadband, there are market failures that hinder the market from supplying the amount necessary to optimize total social benefits. 74 These market failures involve various forms of what economists call positive externalities. For example, the fastest broadband connections simultaneously support a host of digital video, voice, and data applications. Yet the development and deployment of these applications such as telemedicine is hindered by a classic chicken or egg dilemma: they will not develop without a market of high-speed broadband subscribers, but consumers need these applications as a lure to enter the high-speed broadband market in the first place. 75 Historically, in the U.S., we rely on the market forces of a duopoly to produce robust crossplatform competition, which appears to be at our peril. When the chief supporters of the statusquo, wait-and-see approach to the arrival of a third competitor to DSL and cable are the incumbents themselves, we should understand that they do not expect it will happen. Further, we can see that most of the global leaders in broadband performance have embraced so-called open access network rules, policies that bring competition both between and within technology platforms. This combination of intermodal and intramodal competition appears to be a key to regaining the U.S. s once-lofty stature as the world s technology leader. 73 Urban population data obtained from United Nations, World Population Prospects: The 2004 Revision, (2004). Population density of largest metropolitan areas obtained from Demographia, Demographia World Urban Areas, (March 2007): 74 Robert D. Atkinson and Andrew S. McKay, Digital Prosperity: Understanding the Economic Benefits of the Information Technology Revolution, (Washington, DC: The Information Technology and Innovation Foundation, 2007): 75 Assessing Broadband in America: OECD and ITIF Broadband Rankings; Daniel K. Correa, The Information Technology and Innovation Foundation (ITIF) April,

49 WHAT IS THE BROADBAND PROBLEM? For many years now, Congress and policy makers have grappled with the policy challenges of realizing universal, affordable access to high-speed Internet services. The facts are unambiguous. A significant number of American households around 10% have no available terrestrial broadband service. 76 A much larger percentage over 40% have service available to them, but they do not subscribe, foregoing the social and economic benefits of connectivity because of high prices, a lack of equipment and training, or simple disinterest. 77 Research continues to show most rural areas lag behind urban areas in broadband access, often significantly. Current deployment plans by the nations largest Telco s provides cause for significant concern that deployments of critical next-gen broadband will continue to bypass rural and low density areas. In addition, research has shown that the poorest among us, and who could stand to benefit the most, are the least likely to gain access to these new technologies that could lead to social mobility. The cost to our economy and the quality of life in our society mounts each successive year that these problems go unsolved. 78 Meanwhile, alarmingly, the US is falling behind the rest of the world in broadband penetration and market performance, ceding the tremendous benefits of leading the world in network connectivity to other countries. Once called the digital divide, this policy issue is now often recognized by the simple but unenviable moniker: the broadband problem. Dozens of scholarly articles and books about the subject have been written in an effort to clarify the stakes, the options, and the evidence in favor of one solution over another. It is one of the most important policy issues of our time. It would be impossible for us to provide in this setting a full accounting of the broadband problem. Instead, we will offer a brief discussion and recommendations to answer two central questions: what is going wrong and what should be done about it. EVALUATING THE US BROADBAND MARKET For years now, the US government has set goals to realize universal, affordable broadband service for the country. This is consistent with our long history of using policy to promote the expansion of essential communications services. In 1934, when the Communications Act set the goal for communications policy to make available to all people of the United States, a rapid, efficient, nationwide and world-wide wire and radio communications service with adequate facilities at reasonable charges, two-thirds of the American people did not have telephone service. It was this forward looking commitment, sustained over decades, which gave America the finest communications network in the world. 76 Broadband Deployment is Extensive throughout the United States, but it is Difficult to Assess the Extent of Deployment Gaps in Rural Areas, Government Accountability Office, Report to Congressional Committees, GAO , May Extrapolated from High-Speed Services for Internet Access as of June 30, 2006, Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission.; calculated assuming one line per household, based on July Census household estimates; S. Derek Turner, "Broadband Reality Check II," Free Press, Consumers Union, and Consumer Federation of America, August 2006, Available at 78 Massive Economic Benefits Foreseen: Broadband for Seniors and Disabled Ultra-fast telemedicine and telecommuting can save money and improve quality of life: Dr. Robert E. Litan PhD, Kauffman Foundation; Broadband Properties February

50 In 2004 President Bush called for us to reach the milestone of universal broadband by this year (2007). There is now no chance we can achieve that result. While it is true that the total number of broadband lines deployed in the US is rising and the total number of broadband users is now near 50% of the country, the US growth rate in broadband penetration compared to other nations is not encouraging. Looking at the amount of growth in broadband penetration between December 2005 and December 2006, the U.S. is ranked 20th out of 30 among OECD nations. 79 Simply put, other nations are surpassing us. In 2004, when the US was ranked 10th in broadband adoption among industrialized nations, the President stated, Tenth is 10 spots too low, as far as I m concerned. 80 Since then, study after study evaluating the broadband performance among the world s leading nations has shown the steady decline of the US down the ranks. Though some have scrutinized the data from these studies to find some qualifications to ease our wounded pride, the trend lines are not in error. The broadband problem is most commonly assessed through a raw headcounts of households that have access to high-speed Internet service, what services are available, and how many consumers subscribe to those services. These are valuable data points that give us a picture of competition in the marketplace and consumer behavior. Accordingly to the best available data: Extrapolating from FCC data, nearly 60% of U.S. homes are not broadband adopters 81. The rate of residential broadband adoption continues to slow. From June 2005 to June 2006 the number of residential advance service lines increased 34%. But from June 2004 to June 2005 the increase was 62% % of ZIP codes have one or less cable and/or DSL provider. 83 Given that FCC ZIP code data overstates the level of broadband deployment; this should be viewed as a conservative figure. Some states have large gaps in coverage. Over 40% of South Dakota households are not wired for cable broadband. Over 40% of New Hampshire and Vermont households are not wired for DSL 84 (Nevada had incomplete data) The broadband market remains a duopoly. 96% of residential advanced services lines are either cable or DSL. 85 There are no viable 3rd pipe competitors. o From June 2005 to June 2006 there were only 637 new broadband over powerline (BPL) connections added, bringing the total to just over 5000 nationwide, or 0.008% of all U.S. Broadband connections. 86 From December 2005 to June 2006 the number of advanced service satellite broadband connections DECREASED by 40% Organization for Economic Cooperation and Development, OECD Broadband Statistics to December 2006, 80 Richard Hoffman. When It Comes To Broadband, U.S. Plays Follow The Leader, InformationWeek, 15 Feb 2007, 81 High-Speed Services for Internet Access as of June 30, 2006, Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission.; calculated assuming one line per household, based on July Census household estimates: A1.pdf 82 Ibid. 83 Ibid. 84 Ibid. 85 Ibid. 86 Ibid. 50

51 Mobile wireless broadband from cellular carriers enjoyed a rapid growth rate in the last year. However, these connections remain slow and costly compared to wireline alternatives. They are not substitutable competitors with DSL and cable modem, but rather form a complementary market dominated by vertically integrated firms with little incentive to cannibalize wireline market share. (See below for analysis). This record of performance has not positioned us well in the race for global competitiveness with all of the economic and social benefits at stake. According to the OECD, the US is 15th among the 30 member nations in broadband penetration, lagging behind the acknowledged world leaders, the Netherlands and South Korea, but also Canada and all of Scandinavia. 88 The ITU, evaluating a larger number of countries than the OECD, places the US at 16th. 89 A separate ITU study measuring a variety of factors in the Digital Opportunity Index, places the US at 21st. 90 This is a particularly valuable analysis because it explores eleven different variables of technology development to assess each country in the study including the proportion of households with telephones, mobile telephones, computers, and Internet access; the rates of connectivity to the communications infrastructure; and the cost of connectivity relative to per capita income. Notably, the US dropped from 8th place in the Digital Opportunity Index in 2000 to 21st place by We are ranked 36 th relative to other nations in the increase in the absolute value of our Digital Opportunity Index score between 2000 and It is critical to recognize that any evaluation of the health of the broadband market must not end with a calculation of the available services, platform market share, and subscribership. There are three key metrics for understanding the broadband problem: availability, speed, and value (cost per unit of speed). In crafting a national broadband policy, we must recognize that true marketplace competition is the touchstone that yields marked improvements in all three metrics. Though the sizeable service gaps that leave much of rural America without a viable current generation broadband (CGB) connection are a huge problem, this is likely the easiest issue to resolve. Far more challenging are the starkly unfavorable comparisons in speed and value which separate us from the world leaders in next-gen broadband (NGB). The following data-points suggest that we have a long way to go to catch up with the rest of the world, even if we manage to reach the goal of universal availability. 91 According to Takashi Ebihara, senior director of the corporate strategy department at NTT East Corp, Americans pay 7 times as much on a cost-per-megabit basis for bandwidth compared to the Japanese - $.70 versus $4.90 average in the U.S Ibid. 88 Organization for Economic Cooperation and Development (OECD), "OECD Broadband Statistics to December 2006," World Information Society Report, August 2006, 91 For a detailed background on product availability in Europe, see: OFCOM, The International Communications Market 2006, 92 Grant Gross, U.S. customers pay considerably more than the Japanese for bandwidth, IDG, 4 April 2007, 51

52 According to the OECD, Subscribers in Japan, Sweden, Korea, Finland and France pay the least per Megabit per second (Mbps) of connectivity: o Japan: $0.22 o Sweden: $0.35 o South Korea: $0.42 o Finland: $0.59 o France: $0.82 o In the U.S. a 3 Mbps DSL line retails for about $30, or $10 per Mbps, while a 6 Mbps cable line sells for about $45, or $7.50 per Mbps. A 50 mbps connection in Japan costs $30 per month. Such speeds are not even available in the US. American customers can expect to pay $20-30 per month for (at best) 3 mbps of DSL connectivity or between $40-50 per month for 4-8 mbps of cable modem connectivity. Not only do American consumers settle for less, we often pay more for it. 93 A French company offers the triple-play - 50 mbps of symmetrical broadband service, unlimited telephony and cable television - for 30 euros per months. Neither this level of service nor this price point is available in the US by a wide margin. 94 The proportion of slow connections is on the rise. In December 2005, 15% of broadband lines had upload speeds slower than 200kbps. By June 2006 this had increased to 22% of lines. The proportion of DSL lines that had upload speeds slower than 200kbps increased over the 12/06-6/06 time period from 18.4% and 18.9%. 95 Over half of all broadband connections in the U.S. are slower than 2.5Mbps. 96 Prices aren t dropping. Pew data 97 showed a year-to-year increase for cable, and a slight decrease for DSL - but the bulk of that is due to low-intro slow-speed teaser rates. Yes, broadband speeds are slowly increasing, but we would expect a competitive broadband market to yield BOTH quality increases and price cuts. The consequences of lagging performance could be severe. Thomas Bleha, in his widely read 2005 article describes the situation so aptly it is worth quoting at length: In 2001, Robert Crandall, an economist at the Brookings Institution, and Charles Jackson, a telecommunications consultant, estimated that "widespread" adoption of basic broadband in the United States could add $500 billion to the U.S. economy and produce 1.2 million new jobs. But Washington never promoted such a policy. Last year, another Brookings economist, Charles Ferguson, argued that perhaps as much as $1 trillion might be lost over the next decade due to present constraints on broadband development. These losses, moreover, are only the economic costs of the United States' indirection. They do not take into account the work that could have 93 Ibid. 94 Neuf Offers 50 Mbps in Paris for 30 EUR per month, MuniWireless, 7 March 2007, 95 High-Speed Services for Internet Access as of June 30, 2006, Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission. 96 Ibid. 97 John B. Horrigan, Home Broadband Adoption 2006, Pew Internet & American Life Project, May 28,

53 been done through telecommuting, the medical care or interactive long-distance education that might have been provided in remote areas, and unexploited entertainment possibilities. The large broadband-user markets of Northeast Asia will attract the innovation the United States once enjoyed. Asians will have the first crack at developing the new commercial applications, products, services, and content of the high-speed-broadband era. Although many large U.S. firms, such as Cisco, IBM, and Microsoft, are closely following developments overseas and are unlikely to be left behind, the United States' medium-sized and smaller firms, which tend to foster the most innovation, may well be. The Japanese and the South Koreans will also be the first to enjoy the quality-of-life benefits that the high-speed-broadband era will bring. These will include not only Internet telephones and videophones, but also easy teleconferencing, practical telecommuting, remote diagnosis and medical services, interactive distance education, rich multimedia entertainment, digitally controlled home appliances, and much more. 98 SPEED AND PRICE MATTER As stated previously, while the rate of adoption is a useful metric, it is an insufficient measure of a nation s broadband performance. A more accurate metric also accounts for cost and speed, two factors which OECD tracks in another report. 99 To see why, consider the cases of Japan and Switzerland. Broadband penetration in Switzerland has reached 28.5 subscribers per 100 people, the 5th highest in the OECD and Japan ranks 14th with just 20.2 broadband subscribers per 100 people. From these numbers one might conclude that broadband in Switzerland is more advanced. The real picture, however, is far different. Although a smaller share subscribe in Japan, residents have access to a much more robust network. In the majority of Japan that is served by NTT East, 100 mbps fiber optic service is available to 75 percent of residents, typically for about $27/month (PPP). 100 Indeed, Japanese citizens enjoy the fastest broadband in the world at the lowest prices per bit. On the other hand, the fastest connection widely available in Switzerland is 2.4 mbps DSL, at a price of approximately $52/month (PPP). 101 That amounts to twice the price of Japanese broadband for a fraction of the performance. Clearly, all broadband is not equal. To capture more completely the state of broadband deployment in OECD countries, we have developed the ITIF Broadband Rankings, a combined measure of penetration on a household basis, the average download speed, and the price per bit of the fastest generally available technology (see Section 2: Table 1) Thomas Bleha. Down to the Wire. Foreign Affairs, May/June OECD Directorate for Science, Technology, and Industry, Multiple Play: Pricing and Policy Trends, (April 2006): Takashi Ebihara, Presentation: Understanding the Japanese Broadband Miracle, (Washington, DC: The Information Technology and Innovation Foundation, April 2007): OECD Directorate for Science, Technology, and Industry, April All prices cited in this report are adjusted for Purchasing Power Parity (PPP). The PPP exchange rate equalizes the purchasing power of two currencies measured against a fixed basket of goods. 102 The penetration data used, from December 2006, is more recent than the available price and speed data, which is from September

54 The first indicator measures household adoption rates. Although the OECD assesses deployment on a per capita basis, household adoption may be a more accurate measure. 103 Different average household sizes mean that countries require different numbers of broadband connections to achieve the same levels of penetration. To see why, consider that the average household size in Korea is 3.1 persons compared to 1.9 in Sweden. On average, a single broadband connection (one subscriber ) in a Korean home gives access to 50 percent more people than a connection does in Sweden. For this reason, Korea s relative level of broadband penetration is actually significantly higher than the OECD reports (see Section 2: Table 2). 104 As a result, even if the same share of households subscribed in Sweden as in Korea, Korea would rank significantly lower in subscribers per capita because they have larger households. Likewise, some have argued that America is unfairly penalized for its larger average household size. And there appears to be some truth to this claim. Using the household measure, the U.S. penetration ranking does go up somewhat, from 15th to 12th place. The second indicator is average broadband download speed. Speed is important because downloading a 100 MB file at 4 mbps (approximately the speed of most cable broadband in the United States) takes over 3 minutes, while the same file downloads in just 8 seconds at a speed of 100 mbps. 105 Higher-speed networks will be crucial if our nation is to fully benefit from broadband technologies and the emerging high bandwidth applications that ride on them. However, measuring speed is not as straightforward as penetration because national networks are normally composed of connections of widely varying speeds. We calculate average download speeds based on OECD data that compiles the advertised speeds offered by several major broadband providers in each country. The OECD gathered this data from national providers wherever possible. 106 The final measure is the price per bit (USD PPP) of the fastest generally available technology OECD measures penetration on a per capita basis because comprehensive data on household penetration is generally unavailable. ITIF has used average household size as a multiplier to convert OECD per capita penetration data to household penetration data. It should be noted that one problem with this method is that the OECD data likely also includes some DSL business subscribers. 104 Data for average household size were obtained from a variety of sources household data for 15 European countries were taken from Eurostat, Tables: Population and Social Conditions. The most recent household data available for the remaining 15 countries were obtained either through their respective national statistical agencies or Encyclopedia Britannica Online, which compiles these data. 105 There are 8 megabits in a megabyte, so a 100 megabit per second connection takes 8 seconds to transmit a 100 megabyte file. 106 OECD s 2006 report Multiple Play: Pricing and Policy Trends benchmarks the speed offerings of some major incumbent DSL, cable and fiber providers in OECD countries. We recognize that this is not a perfect measure because these speeds may not be perfectly representative, but believe that it provides the best and most current possible snapshot. Our methodology for calculating broadband speed in the ITIF Broadband Rankings involves averaging the speeds of the incumbent DSL, cable and fiber offerings provided in OECD s April 2006 Multiple Play report, with each assigned a weight according to that technology s respective percentage of the nation s overall broadband subscribership, as reported in OECD s Broadband Statistics to December For nations that did not have a listed fiber speed in the Multiple Play report but had fiber subscribers, a speed of 10 Mbps was assigned. This analysis omits alternatives to these technologies because the data do not allow for an accurate calculation of their market share. However, the market share of most alternative technologies is minimal in OECD countries. 107 USD price per bit (PPP) of the fastest available technology is calculated from the broadband offerings examined in the OECD s Multiple Play: Pricing and Policy Trends report. 54

55 This gives a good indication of whether the highest quality broadband is an affordable option for consumers. It should be noted that an additional measure of broadband availability (as opposed to broadband take-up) would also be useful, but unfortunately such data is not widely available. When penetration, price and speed are considered together, several nations see their ranks change significantly. Korea and Japan move to 1st and 2nd, respectively, both far ahead of the rest due to above average speeds and below average prices, with Korea claiming the top spot because of its more extensive penetration. At 12th overall, America is still stuck in the middle of the pack, ranking 12th in penetration, 15th in average speed, and 6th in price per bit of the fastest available technology. Clearly, slow speeds and slow adoption rates are the twin challenges facing the United States in terms of broadband. However, speeds are beginning to increase in the United States, particularly as fiber is built out by some broadband providers. 108 THE ELUSIVE THIRD PIPE WHY WIRELESS WON T SAVE US To the extent that US broadband policy has been guided by any logic, it is the argument that intermodal or cross-platform competition will be the savior of national broadband performance in the marketplace. While much of the rest of the world has opened up vigorous competition within platforms, we have staked our broadband future on competition between platforms. So far, it has not worked out the US broadband market has long been a rigid duopoly that shows few signs of weakening. The lack of price competition between DSL and cable modem is apparent in the marketplace. Cable operators have made no attempt to match DSL on price. Comcast CEO Brian Roberts poured cold water on the idea that he is concerned about introductory price cuts in DSL. We continue to believe and continue to charge for our services a rate that we think is a great value because the product is so much better. When Hyundai cuts their prices, BMW isn't exactly upset about it. 109 Though they have picked off consumers who want higher speeds, they primarily rely on bundled services to hold customers. The DSL operators have aimed their marketing strategy at transitioning dial-up customers with introductory rates to low-end DSL. However, this practice is ebbing. Recent industry analysis shows that introductory DSL prices are rising; so are prices for bundled services. According to a recent press report, Bank of America analyst David W. Barden noted that a duopoly is emerging where cable and phone companies can avoid provoking price cuts in their core services. Carriers, for instance, can discount DSL service while keeping prices up on phone service, and cable firms can drop prices for phone service but maintain higher pay-tv rates. 110 The broadband problem in the US flows from a simple policy mistake a decision to rely upon a duopoly of telephone and cable companies to decide where and when to deploy this vital infrastructure with no overarching social responsibilities whatsoever. They have slow rolled deployment, kept prices far above those in other nations, and emphasized bundles of services targeted to upper income Americans built around franchise services. The result is restricted 108 Assessing Broadband in America: OECD and ITIF Broadband Rankings; Daniel K. Correa, The Information Technology and Innovation Foundation (ITIF) April, See: James S. Granelli, Prices going up for phones, Net, 1 Feb 2007, Baltimore Sun, 55

56 availability and a network that is intended to maximize short-run profits, not the long-run national interests of social welfare. 111 Though some might maintain that duopoly competition is sufficient, it is the expectation of a third pipe competitor that has propped up the logic of relying on intermodal competition to reach our policy goals. The steady promise over the last year or two has been that a viable wireless competitor is right around the corner. This hypothetical wireless competitor will throw open the gates of competition, unleash market forces, and the genius of the invisible hand will drive down prices, increase innovation, and turn the US back onto the path toward regaining global leadership in broadband technology. Some commentators claim that the wireless competitor has already arrived in the form of 3G mobile cellular broadband. For example, Steve Largent, the President and CEO of CTIA made the following comment: As we enter our third decade, the wireless industry is poised to enter a Wireless Renaissance, bringing advanced services like wireless Internet, to more than 200 million mobile Americans. 112 Recent data from the FCC seem to support this point of view. 60% of the increase in broadband connections over the past 6 months is due to mobile cellular wireless connections. 113 But these promising statistics are only promising because they are misleading. The FCC counts a broadband capable PDA subscriber exactly the same as a residential DSL or cable modem subscriber when counting broadband connections. The problem is that the wireless and wireline broadband products are in completely different product markets. They are not comparable in either performance or price; they are not substitutable services; and they are certainly not direct competitors. Though no precise data exists, it seems obvious that the overwhelming majority of subscribers to mobile broadband devices have not cancelled their wireline broadband service as a result. The wireless product is a complementary product for which the consumer pays extra. Most consumers do not use mobile wireless broadband on cell phones for the same purposes as a residential broadband connection. Consider these facts: These new mobile broadband lines are for the most part mobile devices with a data service capable of accessing the Internet at >200kbps speeds. They are highly unlikely to be used as a primary home broadband connection. In fact, 89.5% of mobile wireless connections are business subscribers, not residential subscribers. 114 In total, 17% of all broadband lines counted by the FCC are now mobile wireless. But only 3.8% of advanced service lines are mobile wireless (>200kbps in both directions), and only 2.5% of residential advanced service lines are mobile wireless. 115 What's more, the three largest mobile data carriers are AT&T, Verizon and Sprint. Two of these three carriers are also ILECs, and are the number one (AT&T) and number three (Verizon) most subscribed to broadband Internet service providers, and are the top 2 DSL providers in the United States. 116 Sprint s joint venture with cable operators also diminishes any potential role it could play as a third pipe. 111 Testimony of Ben Scott, Policy Director Free Press, on behalf of Free Press, Consumers Union and Consumer Federation of America; before the United States Senate - Committee on Commerce, Science and Transportation; Regarding Communications, Broadband and Competitiveness: How Does the U.S. Measure Up? April 24, CTIA Testimony before the US Senate Committee on Commerce, Science and Transportation, S. 2686, Communications, Consumer s Choice, and Broadband Deployment Act of 2006, May 18, FCC Report: High-Speed Services for Internet Access as of June 30, 2006, Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission. 114 Ibid. 115 Ibid. 116 Leichtman Research Group, May

57 It is important to note that the multi-functionality of cellular phones with broadband data components may contribute to an overstating of the true level of mobile broadband use. A provider of a DSL line only reports to the FCC the lines that are actively subscribed to (and presumably used). However, if a cellular customer s mobile device is capable of data transfers at >200 kbps, then they are counted as a broadband line, even if the customer rarely uses the device for non-voice purposes. Cellular broadband connections are duplicate connections -- that is, very few people subscribe to and use a mobile broadband connection as their home broadband connection. Furthermore, mobile wireless connections are not substitutes for cable or DSL connections. These connections are slow, have strict bandwidth caps, and other restrictions, such as users not being allowed to use the connection for VoIP applications (Internet phone) and numerous other Internet-based functionalities. 117 These services, while valued by consumers, are not competitors to wireline broadband service. They have not brought the competition necessary to drive down prices and drive up speeds in the overall broadband market. It would be unwise to bet that they will. Vertically integrated carriers that dominate the wireline broadband market are highly unlikely to offer a wireless broadband product that can potentially cannibalize their wireline market-share. It is far better business to offer a complementary service. If 3G mobile broadband won t bring us competition, surely the auction of the 700 MHz band will do so, right? Will 4G (WiMax) finally bring us the third pipe in this Wireless land rush? Not likely. The Digital TV (DTV) transition has long been touted as the moment when wireless broadband will come into its own. A senior executive at Motorola made these comments in July of 2005: The spectrum that will be made available at 700 MHz as a result of the transition to digital television provides a unique opportunity to provide facilities-based competitive broadband services. 118 His comments are typical of the hopes many have expressed. The frequencies vacated by the broadcasters in 2009 are up for auction early next year, and this beachfront spectrum is thought by many to be the answer to the broadband competition woes. To be sure, the 700 MHz auction could be a good opportunity to bring a reasonably capable third pipe to the market, especially for rural areas. Indeed, it has been hailed as such by legislators, regulators, and industry leaders alike. Yet the favorites to win this auction (the major cellular carriers) really do not intend to deliver the third pipe. Further there are technical limitations that come with the proposed structure of the auction that would make it very difficult for any licensee to produce the desired outcome. It is quite a striking disconnect. All of the rhetoric about this auction promises the inauguration of the elusive third pipe in wireless broadband. But none of the facts of what the FCC is doing will realize those lofty goals. Why is there such a divide between the rhetoric of 700 MHz as the promised land of the third pipe and the reality of the auction? First, there is nothing that says the winning bidders must use 117 Tim Wu, Wireless Net Neutrality, New America Foundation, February 2007, Michael D. Kennedy, Senior Vice President, Motorola, Before the United States Senate Committee on Commerce, Science, & Transportation, July 12,

58 the frequencies to offer wireless broadband services that are true competitors to DSL and cable. Looking at the likely winners of the auction, it is clear that a competitive market is the last thing on their minds. The incumbent carriers are thought by most odds-makers to be the most likely winners in this auction just as they were in the last spectrum auction for Advanced Wireless Services frequencies. These companies are the nation s leading providers of DSL service. Why would they use the 700 MHz licenses to offer a wireless broadband service that cannibalizes their own market share in DSL? The answer is they would not not here anymore than they have in 3G cellular broadband. They are far more likely to use this spectrum to offer new services which consumers will buy on top of their existing wireline voice service, wireline broadband service, and wireless voice service. This new service, 4G wireless, will be an enhanced mobile data service capable of delivering limited amounts of video and audio to a handheld device, as Sprint has already announced and has begun to roll out. This is not an unwelcome product, of course, but it will not solve the broadband problem, will not help the U.S. and its communities keep pace with other countries in next-gen broadband capabilities, and it will not bring a viable third pipe to bridge the digital divide to poor and rural communities. Second, most of the other bidders in the pool will be looking to grab spectrum to fill out the geographic coverage area of their existing cellular networks. This will also allow them to compete, to some degree, with AT&T and Verizon Wireless, the industry leaders. This is not an unwelcome development either, but by itself, it will not solve the broadband problem. Third, none of the spectrum blocks up for auction are large enough to provide a true alternative to DSL and cable modem no matter the intentions of the bidders. The largest block up for auction is 10 MHz. That translates into about 15 mbps of capacity spread over a cell sector. Depending on the density of users in that sector, the actual throughput performance experienced by a customer will struggle to exceed 2 mbps on the download, and probably will be less. 119 That s not bad today, but down the line as DSL and cable providers eventually increase speeds to 5-10 mbps of throughput for each user, that wireless service will not be a true competitor. It will be a reasonable broadband experience for a wireless device used for limited applications, but it will not be a substitute for a residential wireline connection. To have that, you would have to allocate at least 30 MHz to the task. Clearly, what is needed then is a third line to the home which has the inherent capabilities to meet the requirements for advanced applications and services and be capable of supporting multiple independent service providers to truly facilitate competition and lower prices. A municipal open access FTTP infrastructure provides a viable option that would allow communities to take control of their broadband futures now, especially for rural communities who may be near the bottom of the list for incumbent infrastructure upgrades. 119 This estimate of bit rates (roughly 1.5 bits per hertz) in the 700 MHz band was provided by an engineer responsible for one of the entities preparing to bid for a 700 MHz license. It was confirmed independently by two other wireless engineers as a reasonable estimate given the frequency, power levels and modulation schemes available today. 58

59 LOCAL GLOBAL COMPETITIVENESS THE BENEFITS OF BROADBAND TO RURAL COMMUNITIES: Reliable, affordable access to broadband communications infrastructure has become as essential as water and electricity service in creating healthy and successful communities in the 21st century. However, as previous studies have concluded, private sector provision of such infrastructure has been slow in coming to the rural areas of Arizona where it has been difficult to ensure an adequate return on investment. Throughout the country as well as in Arizona, the private sector has invested heavily, but the industry cannot undertake an infrastructure modernization effort at the scale broadband requires by itself. In a predictable but unfortunate cycle, the telecommunications industry invests based on its calculation of consumer demand; consumer demand is driven by the availability of compelling content and services; and the content creators hedge their bets based on perceived consumer demand and availability of advanced network services. A catalyst is needed to break the cycle of waiting and, by default, that catalytic agent is government. Public institutions are uniquely positioned to need and anchor the network in all parts of the state, while having greater tolerance for amortizing network construction costs over a longer period of time. Arizona Broadband Initiative and Framework; Analysis and Report: Arizona Department of Commerce, Center for Digital Government, April 2007 Broadband technology can break down the barriers of distance allowing residents of more remote communities to participate fully in economic and civic life. For example, farmers and ranchers increasingly need broadband for monitoring weather, market quotes, crop reports, and quicker access to parts and feed/seed suppliers. One report found that broadband saved a parts supplier 1-3 hours per day and improved service quality. 120 Rural businesses also can use broadband to expand markets and increase access to such critical services as banking, accounting, order fulfillment, and freight forwarding. Broadband also allows rural communities to attract businesses and individuals that would not be able otherwise to live and work in rural communities. Broadband also opens up educational and health care opportunities to rural communities that otherwise would function as barriers to economic development. For example, broadband has allowed Indian nations to develop tourism, advertise native products, and create culturally relevant curricula for students. 121 One recent example of how next-gen broadband brought jobs to a rural community that otherwise would have never been possible occurred in the nearby town of Ten Sleep Wyoming. The Billings Gazette reported: In South Korea's booming economy, the latest secret weapon in gaining a competitive business advantage is a kindergarten teacher living on a ranch 33 miles south of Ten Sleep. 120 Alliance for Public Technology, Grange Technology Project, February 11, Karen Buller, National Indian Telecommunications Institute 59

60 Along with five other teachers in the town of roughly 300, Kathleen Hampton has been participating in a pilot program for a startup business that lets students in South Korea learn English over the Internet. Kent Holiday, founder of Eleutian, said he is pleased with the success of the pilot program, and is planning to launch a commercial version of the service March 1. "Our biggest difficulty now is finding enough teachers and getting them trained," said Holiday, whose distance learning company will match students in South Korea with teachers more than 5,800 miles away in Wyoming. Holiday said the chronic shortage of native English speakers in South Korea gave him the idea for the business, so he returned to the U.S. with a plan to launch Eleutian. His original strategy was to locate near a college campus in Utah, but Holiday said his wife returned from Korea to visit her parents in Ten Sleep, where she saw workers from TCT West installing fiber optic lines. "The reason we finally decided to start here was because of TCT and the network they had. We couldn't do it without that," Holiday said. Fiber optic connections are ubiquitous in South Korea, which is one of the most wired countries in the world. But Holiday said towns like Ten Sleep, where fiber is available to every home, are almost unheard of in the U.S. With the Bighorn Basin lacking many large telecommunications customers, Davidson said TCT West works hard to help local companies grow into large clients. With many communities in the region served by a fiber optic line, Davidson said it was possible for other similar ventures to locate here. Holiday said teachers in Ten Sleep will eventually be able to work from their homes. "That would be fine with me," said Sarah Anderson, an elementary school teacher in Ten Sleep who has been working from a call center there. If Powell develops a similar fiber optic network, teachers there could also work from home, Holiday said. Holiday said he sees distance learning as just one of many new uses for high-speed data networks, and that the Bighorn Basin could be positioned to take advantage of a host of opportunities. "Why couldn't students in Ten Sleep, for instance, study advanced placement math with a teacher and other students in Cody?" he said. "If there's any place that needs distance learning, it's Wyoming. "But you have to have the network to be able to do it," Holiday said. "It's like the railroads in the 1800s. A lot of cities didn't recognize the need. And today, if you're not on the railroad, what are you?" Wyoming call center caters to S. Koreans: By Ruffin Prevost, Billings Gazette, February 20,

61 Recently FCC Commissioner Jonathan Adelstein testified before the U.S. House Subcommittee on Rural and Urban Entrepreneurship Small Business Committee describes the situation regarding rural broadband deployment and its affect on rural communities so aptly, it is worth quoting at length here. Statement of Jonathan S. Adelstein Commissioner, Federal Communications Commission; Before The Subcommittee on Rural and Urban Entrepreneurship Small Business Committee - United States House of Representatives May 9, 2007: In the United States, the private sector is currently dictating which areas receive broadband, and for the most part, service providers are offering broadband to urban rather than rural areas. Based on figures from the Competitive Broadband Coalition, more than 53 million Americans in urban areas have access to broadband technologies (mostly DSL and cable modem services) compared to less than one million Americans living in rural areas. Community leaders are concerned that areas without broadband service will struggle economically as firms and jobs move to regions either elsewhere in the United States or abroad where instant, high bandwidth connectivity is available and affordable. Furthermore, the digital gap between those living in rural versus urban areas will continue to increase. According to Wall Street Journal growth projections for various broadband technologies, over the next three years, for every rural resident there will be 20 urban residents with high-speed Internet access. The problem is even worse when considering the fact that 90 percent of the connections making up the Internet backbone do not even run near rural areas. However, broadband has the ability to level the playing field for rural communities by virtually eliminating distance restrictions for business, residents, and government. Broadband will bridge the digital divide, irrespective of economic class, between rural and urban communities. Broadband continues to become increasingly vital to our everyday functions and to our economy. Broadband provides the ability for everyone business and consumers alike to be able to access information that is fundamental to survive, grow, and thrive in to the 21 st Century. For the rural community, broadband means a future. Without broadband, the digital divide will widen and those communities without broadband will become extinct. Mr. Chairman, Congressman Fortenberry, and members of the Subcommittee, thank you for inviting me to testify about one of the seminal challenges confronting our Commission and the country: ensuring the ubiquitous deployment of affordable, high speed broadband infrastructure to every corner of this country. We need to maximize the potential of every citizen to contribute to our social, cultural and economic life through communications, whether they live in major cities or in rural, insular or other high-cost areas, whether they are Native Americans living on tribal lands or residents of economically challenged sections of our inner cities, whether they live with disabilities, whether or not they speak English, and regardless of their income level. I would like to talk to you today about why I believe this is such an important guiding principle for communications policy and a few of the ways we at the FCC and you in Congress can and must work to achieve this ambitious goal. We need to make broadband the dial-tone of the 21 st Century. I am particularly honored to be here because -- as a fourth generation South Dakotan and the first FCC Commissioner from my state, and even from the entire upper Midwest -- I am naturally interested in the important role of broadband as a tool for promoting economic development in Rural America. Early in the last century, my grandfather became an engineer and founded a company that built roads throughout our state. The motto of our family company was Builders of Better Bridges and Highways. I keep that spirit in mind in my work at the FCC. Just as roads and 61

62 bridges provide physical links between our communities, our communications networks now bring people together in ways that my grandfather never could have imagined, but that, I m sure, would have made him smile in wonder. In some areas of the country, our communications tools have already surpassed the reach of the physical infrastructure to overcome the limits once immovably fixed by distance. I have visited the Bush region in Alaska, above the Artic Circle, where satellite technology, funded through universal service support, connects even some of the most isolated villages to the health and educational facilities of hub cities, even though no roads connect these towns. As we upgrade our nation s communications networks to provide broadband functionality and advanced communications services everywhere, our children will integrate these tools into their lives in ways that we are only beginning to see. The Role of Broadband for Rural America By expanding the reach of advanced communications technologies, we can bring new hope to many communities where it is in short or diminishing supply. We are only scratching the surface of the opportunities that these technologies can bring. We stand at the threshold of a revolution in the applications that will ride over this infrastructure. These opportunities hold enormous potential for consumers and workers in small towns and Rural America. Broadband can connect entrepreneurs to millions of new distant potential customers, facilitate telecommuting and increase productivity. These new connections can create new jobs by allowing businesses to set up remote locations and call centers. Since I have joined the Commission, I have traveled across the country and seen broadband technologies harnessed in rural areas in ways folks back inside the Beltway might never have imagined. For example, at auction houses across the Midwest, entrepreneurs are using broadband technologies to conduct real time cattle auctions over the Internet. Ranchers from across the country can log in, watch real time video of the livestock and make purchases without leaving their ranches. By putting their livestock up for bid in cyberspace, these auction houses have been able to bridge remote locations, expand their potential markets, and cut the costs of reaching their customers. Broadband can also unlock transformational opportunities through distance learning and specialty classes that might otherwise be confined within the physical walls of a traditional school. Similarly, telemedicine applications are giving Rural Americans access to diagnostic services, like mobile mammography and emergency services that had been unavailable because of distance, cost, weather, or geography. As we have seen through events like the devastation of Hurricane Katrina, our communications services become even more critical in times of disaster or national emergency, whether as a means of conveying critical information to the public, enabling citizens to communicate with their loved ones, or providing an essential tool for our first responders. Broadband networks are essential to any plan to make emergency networks robust and redundant enough to survive and function in the face of such disasters in the future. Broadband technologies have the potential to improve the quality of life in even some of most remote and economically challenged communities. On Native American lands, I have seen tribally-owned providers using broadband infrastructure to bring jobs to their communities that serve not only as important sources of employment, but also as training grounds for the young people of the tribes. In almost every small community I visit, I hear how hard it is to develop a workforce with sufficient training in technology. Yet without such workers, it is hard for a small town to develop and oversee cutting edge communications systems. We want people to be able to stay, work, and thrive in the communities where they grew up, yet I often hear that it is harder to 62

63 keep young people in rural areas these days because they feel a palpable lack of local opportunities. Broadband communications can benefit Rural America in many ways, perhaps most of all by restoring the sense of opportunity that first made Americans venture forth and settle the more remote areas of this country. As consumers are increasingly empowered to use broadband in newer, more creative ways, the stage on which we all must compete is also evolving into a global one. New telecommunications networks are a key driver of this new global landscape. They let people do jobs from anywhere in the world -- whether an office in downtown Manhattan, a home on the Cheyenne River Indian Reservation, or a call center in Bangalore, India. This trend should be a wake-up call for Americans to demand the highest quality communications systems across our nation, so that we can harness the full potential, productivity and efficiency of our own country. We must give all our towns the tools they need to compete in this new marketplace. If we fail in this, be assured, our competitors around the world will take full advantage of our failure. Rural America and Global Competitiveness Keeping our communities connected and ensuring that the latest technologies reach all Americans, including those in remote and underserved areas, are principles that are enshrined in the Communications Act. Meeting these goals will be more important than ever as we enter a new age of global competitiveness. We ve made progress, and there are many positive lessons to draw on, but I am increasingly concerned that we have failed to keep pace with our global competitors over the past few years. Each year, we slip further down the regular rankings of broadband penetration. For small businesses, those in rural areas, and low income consumers, the problem can be even more acute. According to one recent report, seventy-six percent of small businesses in rural areas report no access to terrestrial broadband services. Even more troubling, there is growing evidence that citizens of other countries are getting a much greater broadband value in the form of more available megabits for less money. According to the ITU, the digital opportunity afforded to U.S. citizens is not even near the top: in fact, it is 21st in the world! This is more than a public relations problem. It is a major productivity problem, and our citizens deserve better. Indeed, if we do not do better for everyone in America on this score, then we will all suffer economic injury as a result. In this broadband world, more than ever, we are truly all in this together. Some have argued that the reason we have fallen so far in the international broadband rankings is that we are a more rural country than many of those ahead of us. If that is the case, and since geography is destiny and we cannot change ours, rather than merely curse the difficulty of addressing rural communications challenges, we should redouble our efforts and get down to the business of addressing and overcoming them. I am concerned that the lack of a comprehensive broadband communications deployment plan is one of the reasons that the U.S. is increasingly falling further behind our global competitors. Virtually every other developed country has implemented a national broadband strategy. This must become a greater national priority for America than it is now. We need a strategy to prevent outsourcing of jobs overseas by promoting the ability of U.S. companies to in-source within our own borders. Rural America and underserved urban areas have surplus labor forces waiting to be tapped. No one will work harder, or work more efficiently, than Americans, but many are currently without opportunities simply because the current communications infrastructure is inadequate to connect them with a good job. That situation must improve. 63

64 A National Broadband Strategy for All Americans We must engage in a concerted and coordinated effort to restore our place as the world leader in telecommunications by making available to all our citizens affordable, true broadband, capable of carrying voice, data and video signals. An issue of this importance to our future warrants a comprehensive national broadband strategy that targets the needs of all Americans, including those in Rural America. A true broadband strategy should incorporate benchmarks, deployment timetables, and measurable thresholds to gauge our progress. We need to set ambitious goals and shoot for real high-bandwidth broadband deployment. We should start by updating our current anemic definition of high-speed of just 200 kbps in one direction to something more akin to what consumers receive in countries with which we compete, speeds that are magnitudes higher than our current definitions. We must take a hard look at our successes and failures. We need much more reliable, more specific data than the FCC currently compiles so that we can better ascertain our current problems and develop responsive solutions. Giving consumers reliable information by requiring public reporting of actual broadband speeds by providers would spur better service and enable the free market to function more effectively. We must redouble our efforts to encourage broadband development by increasing incentives for investment, because we will rely on the private sector as the primary driver of growth. These efforts must take place across technologies, so that we not only build on the traditional telephone and cable platforms, but also create opportunities for deployment of fiber-to-the-home, fixed and mobile wireless, broadband over power line, and satellite technologies. We must work to promote meaningful competition, as competition is the most effective driver of innovation, as well as lower prices. Only rational competition policies can ensure that the U.S. broadband market does not devolve into a stagnant duopoly, which is a serious concern given that cable and DSL providers now control approximately 95 percent of the residential broadband market. There also is more Congress can do, outside of the purview of the FCC, such as providing adequate funding for Rural Utilities Service broadband loans and grants; ensuring RUS properly targets those funds; providing tax incentives for companies that invest in broadband to underserved areas; devising better depreciation rules for capital investments in targeted telecommunications services; investing in basic science research and development to spur further innovation in telecommunications technology; and improving math and science education so that we have the human resources to fuel continued growth, innovation and usage of advanced telecommunications services..congress has charged the Commission with ensuring that the American public stay wellconnected and well-protected, directing us in the very first section of the Communications Act with making available to all the people of the United States rapid, efficient Nation-wide communications services. That starts with a continuing commitment to connectivity and nowhere is this more important than in Rural America. If the horse and wagon were the key tools that allowed my ancestors to settle the west, broadband networks will be a big part of maintaining and restoring the vitality of our rural communities in the future. Let us face this new frontier of silicon and fiber as bravely and resourcefully as they did the original frontier of forbidding forests and vast prairies. If we do, I know we will experience similar success and the proper place in the history of American progress. For the sake of ourselves, our children, and this great country, may we be as bold and successful in our own pioneering endeavor 64

65 as they were in theirs. Thank you for your leadership on rural broadband and for the opportunity to testify before you today. 123 Some rural communities and even those located near larger urban areas are often being targeted by some of the larger telecom companies for sale after many decades of neglect. In fact in the case of Vermont and New Hampshire, entire states, which have predominately rural and/or lower density demographics are being sold off so capital investments can be focused on prime high value areas. The Publication The Nation, recently reported: Northern New England is just emerging from its annual "mud season" -- long the bane of backroad drivers throughout the region. Nevertheless, residents of Maine, Vermont and New Hampshire are now worried about getting stuck in a different way. That's because their local phone company, the corporate giant Verizon, wants to ditch them as customers. Labor and consumer activists, joined by some public officials, are organizing against this move, in a high-stakes regulatory and political battle with consequences for the future of telecommunications in all of rural America. Verizon's proposed $2.7 billion transfer of local access lines to FairPoint Communications -- a small, largely nonunion North Carolina firm -- is part of a nationwide trend toward rural telecom redlining. Everywhere it can, Verizon is trying to abandon "low-value" landline customers and is focusing instead on building its wireless customer base and investing billions of dollars in a new "FIOS" service. FIOS provides voice, video and high-speed broadband connections on a single fiber-optic cable network, now being extended directly to homes and businesses in big cities and affluent suburbs. While "high-value" customers in these areas move into the fast lane of the information superhighway, the contested sale to FairPoint would leave northern New Englanders far behind. Residential customers -- not to mention schools, businesses, hospitals and emergency responders -- will still be dependent on "dirt-road dial-up" for their Internet access or, at best, will move into the slow lane of digital subscriber line (DSL) service, a technology that some regard as outdated and prohibitively expensive for rural economic development. "FairPoint, a highly leveraged company, will have great difficulty meeting the big dividend and debt commitments it has made as part of this purchase, while simultaneously investing enough to maintain current facilities, improve service quality and expand broadband availability," argues Kenneth Peres, research economist for the Communications Workers of America 124 As this article illustrates, rural communities and perhaps entire states and regions will face additional barriers and challenges in ensuring their communities and states can remain competitive in the kind of telecommunications infrastructure is available to their residents and businesses. And, even clearer, next-generation broadband can prove to be of greater benefit to rural economies and those who move first can benefit even more. Smaller communities can often move quicker than lager ones to address perceived threats, challenges and opportunities. 123 STATEMENT OF JONATHAN S. ADELSTEIN COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION BEFORE THE SUBCOMMITTEE ON RURAL AND URBAN ENTREPRENEURSHIP SMALL BUSINESS COMMITTEE UNITED STATES HOUSE OF REPRESENTATIVES MAY 9, Rural America Is Being Left off the Information Superhighway: by Steve Early; The Nation; May

66 The recent report from the Rural Maryland Council made the following assessments: Economic and technological dislocation, and increasingly exurban-type sprawl residential development pose continued challenges. Agricultural and other resource-based industries continue to underpin local economies but are increasingly under threat from national and international competition, land development pressure, and regulatory influences. A lack of access to affordable, high-speed broadband services puts the more outlying communities at a tremendous economic development disadvantage. The digital divide in America today is when families or businesses don t have access to high speed internet services. Although today about 50 percent of Maryland s rural population has the ability to receive high-speed internet service, most have trouble affording it. In those rural communities where broadband services are available, individuals and businesses often pay twice as much (or even more) than their counterparts in the State s urban and suburban areas. This lack of available and affordable broadband service creates a significant barrier to economic development, especially for technology-based companies, value-added agricultural operations, and even traditional medium-sized and small businesses interested in locating in rural communities. 125 The Information Society Report on Broadband in Ireland illustrates well both the risk vs. opportunity of being left behind or being an early mover could mean. Assessing the gains in competitiveness due to broadband has meaningful interpretation only in relation to some other benchmark. Assuming that our competitors develop broadband at least as quickly as Ireland (which is probable) these gains are better expressed as the avoidance of losses. If all countries develop broadband at the same rate, there are no further actual gains to be included. However, if one lags the others, then redistribution takes place whereby the lagging economy suffers. Furthermore, even a relatively small deficiency could have a large impact on the competitiveness of the economy 126 A policy paper issued by the Brennan Center for Justice at NYU Law School drew substantially similar conclusions to the Information Society Report, it stated: Waiting for private industry to act may be more costly than the price associated with building a public network. Communities that are not served by private providers forego economic development opportunities. These opportunities may be relocated to states with more thoughtful broadband policies or they may end up overseas in countries with more robust broadband policies. The loss of opportunity is not limited to commercial businesses. Communities without broadband will have less effective Internet access to offer students and the medical community A Rural Maryland Council Special Report: 2020 Rural Prosperity Investment Initiative Building on the Past; Investing in the Future: Information Society on Broadband Ireland: The Need to Permit Broadband from Public Entities, Brennan Center for Justice at NYU Law School, p. 51 (May 2006) 66

67 Broadband Changes Small Business Opportunities 06/17/2007 Associated Press Broadband Internet service is opening up a world of new possibilities for small businesses in Oregon. One example is MaintSmart Software Inc., which sells to customers in 25 countries from three desktop computers in offices near the North Bend airport. MaintSmart moved from Lodi, Calif., in 2006, said Vice President Dan Cook, three years after a company owned by the Coquille Indian Tribe installed optical fiber cable. "All of my business is done on the Internet," said Cook, whose software is used to maintain industrial machinery. "If we couldn't get a fast Internet connection here, this area would have been out, period." Telecommunications infrastructure has become a real strength and strategic asset for Oregon over the past five years, said Chris Tamarin, telecommunications coordinator for the state Economic and Community Development Department. "Before the Internet, small businesses in small towns had fairly local trading markets," Tamarin said. "Telecommunications services are an enabler. They allow small businesses in small towns to compete in national and international markets." In 2000, 22 percent of the ZIP codes in Oregon had no broadband access. Just five years later, all but 2 percent of ZIP codes in the state have broadband access. The gap in unemployment rates between rural and non-rural counties has narrowed during that time, for whatever reason, with unemployment in rural counties now only 1.5 percent higher than in urban counties. Reliable broadband service has been installed on most of the Oregon coast in the past three or four years, said Onno Husing, executive director of the Oregon Coastal Zone Management Association. That's bringing an under-the-radar business revolution. "It's created an entirely new, quiet, sustainable economic sector on the Oregon coast," Husing said. "All of these things that used to hold back rural communities are disappearing." Jon Richards, operator of the rural incubator where MaintSmart is located, said optical fiber lines have given new life to his region, which suffers from a poor transportation infrastructure. "We are at a real disadvantage when it comes to moving heavy product," said Richards, who also directs the Small Business Development Center at Southwestern Oregon Community College in Coos Bay. "But if we can compete on moving data and information, we'll be much more attractive and have a more dynamic economy." Hundreds of miles to the east, Richard Chaves of Chaves Consulting Inc. of Baker City said high-speed Internet access has made his business possible. His company handles all the billing 67

68 for the Oregon Health Plan, as well as being the help desk for a software firm in Seattle and the help desk for election software used by all of Oregon's county clerks. "In my opinion, the Internet is a tool that rural communities can exploit," Chaves said. "We can compete from a cost standpoint really well against companies in larger cities." Some business advocates note that many rural residents are still waiting for affordable broadband access. Bill Carter, state director Oregon Small Business Development Centers, a network of 20 training centers, said businesses in rural areas need low-cost high-speed Internet access to stay competitive. "It's not getting better fast enough," Carter said. Information from: The Oregonian, AP Wire - Oregon kgw.com News for Oregon and SW Washington. BALANCE OF PAGE INTENTIONALLY LEFT BLANK 68

69 BROADBAND AND ECONOMIC DEVELOPMENT The broadband industry group quotes research I think that it was mentioned by the noble Earl, Lord Erroll that shows that a clear link exists between communications technologies and economic growth. On the most cautious assumptions, it says that, by 2010, GDP will be 3.5 billion higher as a result of broadband, and that it could be as much as 16 billion higher. The benefits in terms of quality of life could be even more dramatic. UK-wide availability of broadband would encourage many businesses to migrate from London to the regions, and from high-rent cities to smaller towns and villages. It will help employers to stagger working hours, relieving pressure on commuter transport systems. It will enrich our leisure; for example, in the enormous growth of online genealogical information or in the creation of personal websites that enable us to share information with people throughout the world. It will enhance democracy by enabling us all to keep tabs on what the Government are doing and to build webbased coalitions for correcting their mistakes. That is why this is the most important issue that we face in the 21st century. Lords Hansard text for 14 Jan 2004: Does broadband Internet access matter to the U.S. economy, and if so, how much? That is the question a recent report issued by the U.S. Department of Commerce, Economic Development Administration and submitted by scholars from MIT and Carnegie Mellon universities sought to answer. The report made the following conclusions: Empirical estimates of broadband s impact are an important input to investment decisions related to economic development. Such estimates can, for example, help predict potential benefits obtainable from government investments that directly or indirectly subsidize broadband deployment or use. Examples of such investments in place or proposed at the federal and state levels include targeting of Universal Service Funds toward broadband; the broadband loan program of the U.S. Department of Agriculture; digital divide grants; and technology-led economic development programs. At the level of local government, an estimate of broadband s likely impact can inform a community s evaluation of the case for public sector investment in broadband related programs. We find support for the conclusion that broadband positively affects economic activity in ways that are consistent with the qualitative stories told by broadband advocates. Even after controlling for community-level factors known to influence broadband availability and economic activity, we find that between 1998 and 2002, communities in which mass-market broadband was available by December 1999 experienced more rapid growth in (1) employment, (2) the number of businesses overall, and (3) businesses in IT-intensive sectors. In addition, the effect of broadband availability by 1999 can be observed in higher market rates for rental housing in The results support the view that broadband access does enhance economic growth and performance, and that the assumed economic impacts of broadband are real and measurable Measuring Broadband s Economic Impact - Final Report: Prepared for the U.S. Department of Commerce, Economic Development Administration - Submitted by: Sharon E. Gillett Dr. William H. Lehr, Carlos A. Osorio - Massachusetts Institute of Technology; Professor Marvin A. Sirbu Carnegie Mellon University, February 28,

70 A comprehensive study conducted SQW for the Scottish Executive examined the impacts of broadband deployment and the impact of next-gen broadband is likely to have on the Scottish economy. They reviewed other studies from around the globe in addition to conducting significant original research. The report drew the following conclusions: There is a growing body of evidence in the economic literature that Information and Communication Technology (ICT) and the organizational and process innovations which it enables - has very significant positive impacts on productivity and economic output. Given that ICT investments being made by businesses are increasingly reliant on sites having broadband connectivity, we estimate that something in the order of a third to half of the productivity benefits associated with ICT-related innovation in the period would not be realized if affordable broadband were not available. 129 The report also recognized the social impacts of next-gen broadband deployments As well as bringing economic benefits, the availability and take-up of broadband has important social impacts. The advent of 2B and 3B+ 130 services will facilitate new forms of video-related consumer entertainment some of which will be in direct competition with services delivered via other platforms. There is evidence that first generation broadband has accelerated the growth in teleworking, and we anticipate that the increased bandwidths associated with 2B and 3B+ broadband can only serve to make teleworking still more attractive In Scotland s health and education services, broadband is already bringing significant benefits. We foresee that these services could well have a much higher reliance on video-based (and large image file) applications than will be the case for a typical business. We therefore expect the higher bandwidths associated with affordable 2B and 3B+ services to bring substantial incremental benefits to the health and education sectors in Scotland where they are available. 131 Another report prepared by KPMG for the Australian government on Australia s broadband future also came to similar conclusions: Broadband is important. There are now hundreds of reports from governments, respected international economic bodies and reputable analysts that estimate the long-term economic benefits of broadband to be in the billions of dollars and whole percentage points of GDP growth. For example, a report by analyst Dataquest in 2002, projected that true broadband (>10 Mbps) could incrementally increase US GDP by up to US$500 billion for each of the next 10 years. 132 Even more importantly for Australians, the Government s own Broadband Advisory Group s (BAG) report in 2003, stated that, next generation broadband could produce economic benefits of $12-30 billion per annum to Australia. It is not fanciful to suggest that broadband s importance is comparable to roads or rail when they were developed. Most advanced economies transitioned in the second half of the 20th century from being production-driven to service-driven. In the 21st century, they are transforming 129 Next Generation Broadband in Scotland - Final Report: Scottish Executive Social Research B = Downstream peak bandwidth of at least 5Mbit/s (100 x dial-up), but less than 50Mbit/s, at a price affordable by households; 3B = Downstream peak bandwidth of at least 50Mbit/s (1000 x dialup), but less than 500Mbit/s, at a price affordable by households 131 Next Generation Broadband in Scotland - Final Report: Scottish Executive Social Research Leaders or Laggards Australia s Broadband Future: July 2004, KPMG Australia 70

71 very rapidly towards being information and knowledge-driven. According to the Department of Foreign Affairs and Trade, knowledge-based industries now contribute almost half of Australia s GDP. In that environment, the skill, speed and innovation required to transform raw data into valuable knowledge and profitably exploit that knowledge, is pivotal to international competitiveness. This is where broadband sits. Even beyond the need for healthy competition, there needs to be far more active consideration of Australia s long-term infrastructure needs to support broadband speeds in the tens, if not hundreds, of megabits per second. At some point, a copper last mile access network will cease to be an adequate technology platform to support such requirements ubiquitously. The evidence appears indisputable. Governments and major world economic agencies are freely likening broadband to roads, rail and electricity in its macroeconomic impact on future competitiveness. The BSG s report in the UK stated: If properly encouraged and harnessed, broadband can help to accelerate the five key drivers of economic growth; enterprise, innovation, competition, investment and skills. 133 In 2005, economists George S. Ford and Thomas Koutsky conducted a comprehensive study on the economic impacts of a municipally sponsored fiber network in Lake County Florida, the report showed tangible economic benefits: "Lake County has experienced a 100% increase a doubling in economic growth relative to its Florida peer counties since offering its municipally owned broadband fiber-optic network broadly to public and private entities. This growth rate is not a function of population growth indeed, on a per capita basis; Lake County has experienced 128% growth over its peers since the municipal broadband network was built" 134 In this paper, we explore whether broadband investment by municipalities has an effect on economic growth. To do so, we employ an econometric model to compare economic growth in Lake County, Florida, with other similar Florida counties. In 2001, Lake County a small county in central Florida began generally offering private businesses and municipal institutions access to one of Florida s most extensive, municipally-owned broadband networks, with fiber optic connections to hospitals, doctor offices, private businesses, and 44 schools. Our econometric model shows that Lake County has experienced approximately 100% greater growth in economic activity a doubling relative to comparable Florida counties since making its municipal broadband network generally available to businesses and municipal institutions in the county. Our findings are consistent with other analyses that postulate that broadband infrastructure can be a significant contributor to economic growth. Our results suggest that efforts to restrict municipal broadband investment could deny communities an important tool in promoting economic development... It has been argued that municipalities invest in broadband infrastructure to serve a diffuse public purpose (better educated public, more business opportunities, etc.) that private communications providers acting alone may ignore since these external benefits cannot be captured as profits. The Bureau of Economic Advisors estimates that for each $1 invested in broadband, the economy benefits nearly $3 but unless a private 133 Ibid. 134 George Ford, Thomas Koutsky, Broadband and Economic Development: A Municipal Case Study from Florida, Applied Economic Studies p. 1 & 3 April

72 communications provider can gain the lion s share of that economic benefit, its incentive will be to under-invest in broadband infrastructure. Economic theory indicates that in the presence of large externalities, which broadband Internet probably produces, public ownership of resources may be desirable. In addition, the Florida Municipal Electric Association issued a report in 2005 The Case for Municipal Broadband in Florida which stated the following: If communities are forced to wait for broadband services: Important economic development opportunities will pass them by for neighboring states and regions, Children will lose educational opportunities, and Health care will be more expensive and less accessible. Ubiquitously available broadband could unleash: an estimated $500 billion in economic growth (nationally) create more than 1.2 million high-wage jobs (nationally) restore America s global competitiveness boost business productivity which is essential to raising standards of living for all families in America allow small businesses to reach global markets 135 Two additional recent examples of fiber-optic broadband s economic benefits to small or rural communities are Bristol Virginia and South Dundas Township in Ontario Canada. Bristol Virginia: Virginia Business Magazine reported about how Bristol s FTTP network was a key factor in attracting two significant companies new facilities, creating significant economic development for the community: There was a time when Bristol, Va., and other mountain communities yearned for better roads - ribbons of asphalt that would link them with the world beyond. Today, an impressive network of highways crisscrosses this region in Southwest Virginia. Now leaders of this city of 18,000 at the Tennessee state line have turned their attention to building a different kind of highway over which voice, data and video can travel at lightning speeds. They're laying cables of hair-thin glass fibers - fiber optics. Their goal remains unchanged: to link with the outside world so that the region can stay in the game when it comes to economic development. Build it and they will come. The strategy seems to be working. Two technology companies, CGIAMS Inc. and Northrop Grumman Corp., are building data centers in nearby Russell County that will create 1,500 goodpaying jobs. They were attracted in part by the availability of OptiNet, an 800-mile fiber-optic network operated by Bristol Virginia Utilities (BVU). Our City Council and board understood that we needed to have these services, said Wes Rosenbalm, BVU s president and CEO. Since we are a third-tier city, we knew it was going to be some time before the market made an investment in our community. We had to take matters 135 The Case for Municipal Broadband in Florida, Florida Municipal Electric Association: 2005 p

73 into our hands and give ourselves another chip in the economic development game. This was also an opportunity to improve our citizens quality of life. The broadband network will soon make a big difference in the region s economy, which has been lagging in recent years with the decline of the agriculture, coal mining, tobacco and textile industries. CGI Inc., a software developer, and Northrop Grumman, a data backup service provider, are building data centers in nearby Russell County. These two companies employ about 700 people with an average salary of $50,000, which Rosenbalm said is extraordinary for their community. Both companies have attributed a part of their location decision to the fact that they can get redundant broadband service with both Verizon and OptiNet in the area, said Jerry Brown, Bristol s director of economic development. So far, Bristol has used the network as a tool to retain the region s current employers. 136 South Dundas Township, Ontario, Canada: A study was commissioned by the United Kingdom Department of Trade and Industry and undertaken by SNG in 2003 and was one of the first attempts to quantify the economic impact of broadband deployment on a community, the study reports: In June 2001, the Township of Dundas completed the building of a fiber-optic network to provide fiber access to most of the commercial and community users in the three major villages ranging in size from 2,400 to 800. Dundas is a rural township of some 11,000 people covering some 520 square kilometers and is located in Ontario, Canada. The economy of the township is based on manufacturing, construction, agriculture and the service sector. Throughout the 1990's, the area suffered significant job losses and the township was in decline. The decision to build the network was based on the belief that a community can influence its economic development by securing appropriate high bandwidth access for services and business within the community. It was considered a necessary infrastructure investment to both retain and attract business to the area. Existing telephone and cable operators expressed no interest in providing service to the area, as the investment could not be justified financially. The system requirements were that it must provide broadband virtual private networks (VPN) and high-speed Internet access for municipal facilities, emergency and public services, businesses and industrial spaces. It was understood from the beginning of the project that it would never generate sufficient revenues to offset the investment and the justification was based on the economic improvements it would bring. The end customer would make a one-time payment for the installation of the local loop and could then contract with an ISP for service. Operation and Maintenance of the network was contracted to a third party, which also became the ISP, as there were no ISPs that were interested in providing service to such a small market. The network build cost was $750,000 and the monthly network operation and maintenance costs were about $11,000. As of April 2003, there were 24 businesses and organizations connected to this network. Between June 2001 and April 2003, the following economic effects can be directly attributed to the fiber network in South Dundas: 62.5 new jobs $2.8 million in commercial / industrial expansion $140,000 in increased revenues and decreased costs 136 Bristol s broadband push; Expansion strategy helps attract major employers to Southwest Virginia: by Paul Miller Virginia Business Magazine, November

74 The Input Output model indicated that, over the next two to four years, these effects would have the following: $25.2 million increase in GDP for Dundas County 207 person years of employment for Dundas County $8.0 million increase in tax revenues This network has provided measurable economic benefits to South Dundas and has received favorable reviews from users about its benefits to their organizations. In the absence of this initiative on the part of Dundas, this level of service would never likely be available to this area. However, since there is no revenue generated to Dundas from this service and given that it pays in excess of $130,000 for annual operation and maintenance, the Township is in effect subsidizing the end user impacts. The changes now underway with the transformation to a true global information economy make the capability, capacity and availability of a countries or communities broadband infrastructure critical to their economic competitiveness and viability. How a community will ensure the deployment of next-gen broadband infrastructure in their communities must become a keystone of any viable economic development program or strategy. SOCIAL AND COMMUNITY BENEFITS FOR BROADBAND Social Benefit and Inclusion: Overview The Internet and the more sophisticated applications supported by broadband are becoming an increasingly dominant force in virtually all aspects of economic and social interaction. Broadband provides Governments and the private sector with opportunities to both improve the delivery of services and reduce the costs. Broadband facilitates inclusion by helping to overcome geographic and socio-economic barriers. Broadband has countless applications in health, education, public services, employment, business, and personal services. Based on case studies that have been done on individual applications and projects, there are significant benefits that can accrue. One of the more graphic examples in the social sector is the multi-billion dollar impact that broadband could have on the United States through its application in the provision of health care and improving social inclusion. A recent study by Dr. Robert Litan (2005) addressed the economic benefits of widespread deployment of broadband to individuals over the age of sixty-five and individuals with disabilities in the United States. There were two types of benefits, cost savings and additional output. These would accrue as the result of lower medical costs, lower costs of institutionalized living, and the additional output generated to the economy by increased labor force participation by these two groups. The cost savings arise through the application of telemedicine that enables cost effective two-way and real-time communications between health care providers and patients in the delivery of disease management programs, thereby reducing the costs of medical care. The ability to remotely monitor patients will greatly reduce the need for institutionalized living and the very high costs associated with it, as patients can be monitored at home or in community health centers. 74

75 The provision of "Next-Gen Broadband" across a municipality will provide the capability for applications that are not really possible via a dial-up modem or over existing Current- Generation broadband offerings, and also technology that doesn t require access to a personal computer. The expansion of total output will be through the use of broadband for telecommuting that will provide these two groups greater opportunities for remote working, thereby increasing labor force participation and revenue generation. "Taken together, the estimates imply that under the business as usual scenario, broadband technologies used to benefit seniors and individuals with disabilities can generate between $89 billion and $150 billion in cumulative benefits by 2010, and substantially larger cumulative totals by 2030: $927 billion to $1.34 trillion." 137 The scale of these benefits when applied to the world as a whole and to other sectors demonstrate the importance of broadband, as an enabler of social well-being and the reasons why communities are coming to regard the provision of broadband as an essential service. This illustration is just one example of the potential of broadband applications to improving the quality and level of services. Broadband assists rural and remote communities to overcome some of the disadvantages associated with low population density and the distance from larger urban centers. Some of the key broadband applications that focus on improving social conditions and inclusion of individuals are telemedicine, distance learning, teleworking, public safety, and e-government. 138 For families Broadband is changing the way families learn, communicate, play and prepare for their future. Critically important information about health care, scholarships, colleges, jobs, and community life such as driver s licenses or registering to vote is increasingly on the Internet, and sometimes only on the Internet. 139 Parents can keep on top of their child's homework and be in contact with their teacher. Children in the most isolated inner-city neighborhood or a rural region can access the same universe of knowledge as a child in the most affluent suburb, transforming the way teachers teach and students learn. Many online academic enrichment services use video, animation, sound, and interaction to help children learn, to excite them about a topic, and to reinforce concepts learned in class. Broadband is increasingly necessary to view multimedia Web sites. Some services even offer real-time tutoring by connecting students to a live tutor through a video and audio feed. Early research also indicates that such technology can have a strong impact on improving academic performance, particularly among children with lower grades. A growing number of immigrants in the United States are staying in touch through videoconferencing technology developed for use in the corporate world. Entrepreneurs 137 Litan, R. "Potential Economic Benefits to the Nation From Accelerated Broadband Deployment to Older Americans and Americans with Disabilities," New Millennium Research Council, December Telecommunications Industry Association, "The Economic and Social Benefits of Broadband Deployment", October The Children s Partnership: Helping Our Children Succeed; What s Broadband Got To Do With It?

76 from California to New Jersey are connecting relatives using high-quality cameras and fast broadband Internet links, helping them to maintain family ties. The service connects offices placed near consulates or wire transfer agencies in Latino neighborhoods in the United States with an ever-expanding network of offices across Mexico, Central America and South America. Students can complete a university degree online For Consumers The Internet is already transforming the way we live, work, and play. 31 billion s are now sent each day. More than 12.4 million Americans telecommute full-time, and already more than 14 million Americans have placed a telephone call over the Internet. But the best is yet ahead. With broadband: Americans, no matter where they live, can be no more than a keystroke or a mouse click away from the jobs and opportunities that broadband creates and supports Doctors in urban areas can diagnose patients in rural areas, or consult with experts from around the globe. Employees from around the world can collaborate on projects in real time, or gain new on-demand skills as they need them. Citizens can register their cars, buy fishing licenses and pay parking tickets on-line, saving both time and money. People can play a greater role in democracy as a blogger, online activist, or movie creator. Consumers can benefit from competition in more cost-efficient voice and video services, lowering costs but increasing choices. Computer professionals can often repair their client's software glitches virtually. Seniors can take advantage of new remote health monitoring technologies and independent living. Children can take language or piano lessons from experts around the globe A business owner with a good idea and a high-speed Internet connection can become a corner store in the global economy. And anyone with a computer can become a reporter, broadcaster, movie producer, or musician. For Rural Americans Nowhere is broadband opportunity as profound as it is in rural America. In too many rural communities, because jobs have migrated to urban areas, high school graduates often feel they have only two choices - go away, or go nowhere. Broadband can: enable consumers to bridge the distance between urban and rural America allow rural businesses to reach new markets deliver new economic opportunities, allowing rural economies to become an engine for higher paying information age jobs reconnect distant families Already big businesses are utilizing broadband to in-source jobs to rural America rather than outsourcing jobs abroad. Further expansion of broadband access to rural markets may help shrink the urban, rural wage gap by allowing highly paid workers to move to more remote areas, 76

77 and rural Americans to access higher paying urban jobs. 140 Broadband can also deliver new online learning and job opportunities that enhance modern rural life. The future should not be to deny rural American s access to these new transformative technologies, but to ensure that rural Americans can take full advantage of their benefits. For Telecommuters Broadband access is essential for enabling more Americans to occasionally work from home delivering dramatic benefits: If everyone who could took full advantage of telecommuting, the reduction in miles driven would save $3.9 billion a year in fuel and the time savings would be equal to 470,000 jobs, 141 reducing our dependence on foreign oil, traffic congestion, and greenhouse gas emissions at the same time. 79% of all office workers agree that allowing employees to work remotely improves their work-life balance. 142 People who normally commute 30 minutes each way to and from work can reduce their commute by 125 hours annually over a 50-week year the equivalent to giving them more than three weeks of additional time with family and friends every year. The White House flu pandemic plan suggests every business have a plan in place to allow employees to work from home. However, one in four Americans say they likely would lose their job, or business, if they had to stay at home for seven to 10 days in a severe flu pandemic, according to a new survey. 143 Broadband is an essential ingredient in allowing people to stay connected to work and work from home. BENEFITS TO SENIORS AND THE DISABLED For People with Disabilities Broadband is an especially promising technology for the 54 million Americans with disabilities by providing breakthrough new benefits not possible in today s legacy phone network. As all Americans increasingly depend on and the Internet to work and communicate, it becomes even more important to ensure that people with disabilities are not left out of the digital revolution. Broadband-enabled technology... is simply a more inclusive technology than the universal service-supported voice telephone network gives Americans with disabilities the opportunity to improve personal communication and leave inaccessible voice telephony behind for people with disabilities, is not just something nice to have, it is a critical communications link and equalizer with the rest of the population. Yet for Americans with disabilities to be able to benefit from new technologies, policymakers must 1) ensure the continued vitality of existing relay services, and 2) ensure that disabled 140 Song, Moohoun; Peter F Orazem and Rajesh Sing: Broadband Access, Telecommuting and the Urban-Rural Digital Divide: Iowa State University. March Rockbridge Associates Inc.; 2005/2006: National Technology Readiness Survey University of Maryland. July 12, Avaya 2005 Global Research Report: Working to Communicate Better in Business January Hoskinson, Charles. One in Four Say They d Lose Job or Business if They Had to Stay Home in a Pandemic October 27,

78 Americans, who are too often living in poverty, also have access to broadband enabled benefits at home. For Seniors Policies designed to accelerate the use of broadband could save seniors more than $800 billion by reducing health care costs. 144 These benefits are as substantial as what the federal government is likely to spend on homeland security over the next 25 years, and under the right set of policies, could exceed what the United States currently spends annually for health care for all its citizens. A New Millennium Research Council analysis finds that accelerated broadband deployment could: Lower medical costs Lower costs of institutionalized living Generate additional output by more seniors and individuals with disabilities in the labor force. Telemedicine High speed interactive broadband with instantaneous contact between health professionals and patients enables remote monitoring, efficient chronic disease management, and more effective responses to emergencies. Traditional health care allows face-to-face interaction between provider and patient. However, in some settings this system encounters obstacles including distance and time restraints. High speed broadband augments current medical services by using technology to make health care more accessible, cost effective and flexible. For example, broadband has allowed doctors in Georgia to save lives and minimize the potentially devastating impact of strokes on rural Georgians. The REACH system connects the Medical College of Georgia s neurology department with 10 rural Georgia hospitals. When a patient has a stroke, there is a 3-hour window for doctors to determine whether the stroke is caused by clotting or bleeding, and administer life saving/enhancing medicine. However, the medicine that saves individuals suffering from a stroke caused by a clot will be devastating to individuals suffering from a stroke caused by bleeding. Thus, an examination by an experienced professional is required. Most often, there is little possibility of getting a stroke victim from rural Georgia to the few urban hospitals that have access to stroke specialists within the three-hour window. Once a stroke patient is taken to a rural community hospital, the Reach program, using high speed broadband, allows a doctor anywhere in the world with access to a computer to conduct a quick examination of the patient, determine the type of stroke, and prescribe the correct medicine. Specifically, the physician at the community hospital calls the tertiary medical center, which contacts an on-call neurologist. The neurologist assesses the patient through the REACH system via the Internet, examines the patient s responses to certain physical directions via video, assesses the patient according to the NIH stroke scale and prescribes the correct medicine. Rural Georgians have benefited from this program. Broadband does not improve the REACH program; it makes the REACH program possible Litan, Robert E. Great Expectations: Potential Economic Benefits To The Nation From Accelerated Broadband Deployment To Older Americans And Americans With Disabilities New Millennium Research Council. December Speed Matters Affordable High-Speed Internet for All; Communications Worker of America - Policy paper, December

79 Independent Living 146 High speed Internet can help senior citizens and people with disabilities live independently, improve their quality of life, increase participation in economic and civic life, and reduce costs of care. However, these benefits can only be realized if high speed broadband is available in all environments. For example, the advances made through audio technology can improve opportunities for individuals who are blind. Text can be converted to audio and made completely navigable for a blind person. This information can either be downloaded or examined in real time over a broadband connection, rather than waiting for the information to be presented on CD- ROM or other conventional devices. This allows access to many types of printed materials, including textbooks, newspapers, and government reports. Broadband is not only important for transmission of video; audio requires large amounts of bandwidth making the high capacity of broadband necessary in order to ensure that people who are blind can utilize information as they choose. Accessibility is one of the most inspiring developments in broadband. This technology can overcome many of the barriers that have been faced by people with physical limitations. Another example is provided by real-time sign language interpreting. Sign language interpreters have become commonplace. Deaf people need interpreters for routine tasks such as going to the doctor or just to have a conversation with a friend. This process requires scheduling an appointment with the interpreting agency, coordinating with the doctor s schedule, waiting for the interpreter and then sometimes being unable to finish a conversation if the interpreter must leave. However, high speed broadband enables video conferencing which means that the interpreter does not have to travel to different locations. Clients can utilize this system when and how they need, without being tied to the schedule of the interpreter while interpreters can serve more clients by not losing travel time between sites. 147 BENEFITS TO YOUTH AND EDUCATION Why Does Broadband Matter for Children? 148 The Children s Partnership (TCP) examined current research regarding children and Information and Communications Technology (ICT), including high-speed Internet. The findings in the report, Measuring Digital Opportunity for America s Children (DOMS), highlight the ability of properly applied ICT to improve children s lives in four specific areas: 149 academic achievement, preparation for the workforce, health care, and civic participation. Broadband plays a significant role in those areas, serving as the infrastructure or conduit for many critical services to youth. Here are a few examples of how broadband contributes to the healthy development of children and youth. 146 Ibid. 147 Alliance for Public Technology and the Benton Foundation, A Broadband World: The Promise of Advanced Services, The Children s Partnership: Helping Our Children Succeed; What s Broadband Got To Do With It? Digital opportunities are defined as the benefits derived from the use of any Information and Communications Technology (ICT) such as but not limited to, the Internet, computers, hardware, applications, advanced media technology, hand-held devices, and other instruments for hearing or vision impairments, etc. to improve or enhance children s lives in the areas of health, economic opportunities, educational achievement, and civic participation. 79

80 Education Many online academic enrichment services use video, animation, sound, and interaction to help children learn, to excite them about a topic, and to reinforce concepts learned in class. Broadband is increasingly necessary to view multimedia Web sites. Some services even offer real-time tutoring by connecting students to a live tutor through a video and audio feed. Early research also indicates that such technology can have a strong impact on improving academic performance, particularly among children with lower grades. 150 The dynamic of two-way communication, discourse and conferencing allows students and teachers to minimize the obstacles of distance and maximize the potential of simultaneous voice, data, and video sharing. For example, the Milwaukee public school system used the federal E- rate program to construct an advanced broadband network for its schools, fifty-five of which have access to two-way video. The schools are utilizing the interactivity to augment learning by partnering with outside groups. A program called Classes and Courtrooms brings judges and middle school social studies students together to discuss how the court system works. Discovery World, a local communitybased organization, offers math and science programs. Former students who are now in college connect with current high school students to discuss life after high school. Rather than directing students to websites, the interactivity presents real-time information that brings classroom lessons to life. Milwaukee also is using the technology for administrative and training purposes. 151 Economic Opportunity 152 Possessing ICT skills makes students more attractive to potential employers and can give students the skills needed for most professions. In addition, access to broadband means youth, particularly in rural or inner-city communities where viable employment opportunities are limited, have the option to obtain internships or employment in their desired profession without leaving their community. Broadband multiplies the employment opportunities available in these communities by allowing residents to apply for jobs in which they can telecommute and relieve the brain drain many small communities experience. Broadband can also stimulate job growth and the local economy by attracting more businesses to the area. Healthcare 153 The Children s Partnership found that using ICT can improve children s health and their access to health care by improving the quality of care, helping children and parents manage chronic conditions more effectively from home (producing cost savings), allowing access to vital health information, and helping young people enroll in health programs electronically, allowing them to stay up to date on their immunizations Dale Mann, et al., West Virginia Story: Achievement Gains from a Statewide Comprehensive Instructional Technology Program, 1999, as cited by Wendy Lazarus and Andrew Wainer with Laurie Lipper, Measuring Digital Opportunity for America s Children: Where We Stand and Where We Go From Here (Santa Monica, CA: The Children s Partnership, June 2005). 151 Alliance for Public Technology and the Benton Foundation, A Broadband World: The Promise of Advanced Services, The Children s Partnership: Helping Our Children Succeed; What s Broadband Got To Do With It? Ibid. 154 Wendy Lazarus and Andrew Wainer with Laurie Lipper, Measuring Digital Opportunity for America s Children: Where We Stand and Where We Go From Here (Santa Monica, CA: The Children s Partnership, June 2005) 80

81 One experiment showed that youth using an Internet-based monitoring system from home were able to manage their asthma attacks (a frequent cause of school absenteeism), reducing limitations in activity by 48% compared to a control group of children using written diaries. 155 Children, their parents, and their primary care providers in rural or isolated areas can also gain access to medical specialists without having to travel hundreds, or even thousands of miles by utilizing telemedicine services such as videoconferencing that allow for real-time interaction, diagnosis, and consultation. Similarly, Internet-based electronic applications for children entering publicly funded health insurance programs are showing real promise as a way to speed up the application process for parents and allow states to determine eligibility more efficiently and economically. These are just some of the ways broadband can be used to improve overall health and health access for children. Civic Participation: 156 The Internet can play a key role in connecting children to others, by providing them with ways to express themselves or find others who share interests. Youth can also interact with their government or elected officials through real-time discussions or by watching streaming video of government in action. Students can also learn about the legislative and electoral processes by participating in online simulations, and can use the Internet to organize around issues affecting their local communities. However, parents, teachers, and mentors need technology training so they can guide children and adolescents in using the Internet safely. 157 As the lives of young people increasingly rely on information and communications technologies for education, health and medical care, civic engagement and workforce preparedness, the principle of universal access to broadband becomes one of central concern to the nation s children, youth, and families. We stand at an historic moment when the opportunity to build a new digital high-speed infrastructure can advance the dual goals of enriching and expanding opportunities for each and every child, while contributing to the nation s capacity to compete effectively in a global economy. Working together, policy-makers, telecommunication companies and community leaders can get the job done right for generations of children and families to come. BALANCE OF PAGE INTENTIONALLY LEFT BLANK 155 Sylvia Guendelman, et al., Improving Asthma Outcomes and Self-management Behaviors of Inner-city Children, Archives of Pediatric and Adolescent Medicine, Vol. 156, No. 2 (Feb. 2002): The Children s Partnership: Helping Our Children Succeed; What s Broadband Got To Do With It? The Children s Partnership, A Parent s Guide to Online Kids 101, PowerPoint Presentation, Feb

82 Program Examples: K 12 technology literacy standards - North Carolina Universal broadband efforts - Philadelphia Wireless Project After-school programs - Harvard Family Research Project Workforce readiness examples - Pathways to Our Future Technology, youth, and health - One-E-App BENEFITS FOR PUBLIC SAFETY AND GOVERNMENT SERVICES Public Safety First Responders Access to high speed broadband is increasingly important for police, fire and emergency medical personnel as a means to respond to crises in this post 9-11 world. More than 90% of the nation s public safety infrastructure is financed, owned, operated, and maintained by more than 60,000 separate, independent local jurisdictions and police, fire and emergency services. Public safety personnel operate on 10 different frequency bands, and their equipment, sometimes more than 30 years old, is often frequency incompatible. When Hurricane Katrina hit, emergency responders from different jurisdictions used different frequencies and could not communicate. High speed broadband would enable first responders to share text, image and video across jurisdictional barriers. Fire incident commanders could monitor and direct their units via voice, video and dataenhanced communications either at the scene or remotely. Knowing the exact location of firefighters in a building could mean the difference between their going home to a family or not. Public Safety- Enhanced Communications Public safety has in recent years taken on a much broader meaning and goes well beyond the provision of emergency services involving police, fire, ambulance and rescue support to the population. There is now an increased emphasis on measures to identify potential public safety and security issues and develop contingency and response plans to deal with them. These types of public safety activities require extensive coordination and communications, which is driving the need for increasingly more sophisticated and cost-effective broadband services, particularly within urban areas. Broadband technology has a large number of applications in the area of public safety and is being used increasingly by emergency service personnel in many aspects of their work. Broadband networks provide police forces with the capability of continuous two-way communications between command centers and police in vehicles with laptop computers equipped with broadband Wi-Fi data access. This allows for real-time, high-bandwidth applications, such as the exchange of information, images and reports on stolen vehicles, missing 82

83 persons, identification of individuals, maps and layouts of buildings, and monitoring of high-risk situations and personnel using full-motion video. Broadband has numerous applications to assist other emergency service personnel in responding to accidents, incidents and other interventions requiring new or specialized information that will enable them to make faster and more informed decisions. It also allows for greater protection of emergency service workers through improved communications and decision-making between the command center and the individuals in the field. As an example, broadband technology can be used to provide accurate three-dimensional positioning that can be used to locate the exact position of a fire fighter in a burning building. 158 The importance of broadband to public safety and more specifically in the case of a critical disaster, was most visibly demonstrated by the events that occurred in New Orleans in the aftermath of Hurricane Katrina. The breakdown of the existing copper cable based, telecommunications infrastructure and lack of inter-operability of radio systems greatly hampered the relief operations because of the inability of residents and agencies to communicate. It should be noted, that as New Orleans and the Gulf Coast area telecommunications infrastructure is being rebuilt after Hurricane Katrina, it is being done, in almost all cases, with 100% passive optical fiber infrastructure that would have the greatest survivability in such a disaster. In addition, in New Orleans a wireless broadband overlay is being implemented. In a study of the communications failures on September 11, 2001, the National Academies of Science found that the Internet held up better than other communications technologies on that fateful day. On 9/11, 95% of cell phone calls at 11 a.m. failed to get through, the central office for the phone system cut off 300,000 landline phones, television stations were knocked off the air, and police and Fire Department radios failed. During Katrina, 38 Public Safety Answering Points (PSAPS) failed preventing 911 calls from being answered, which public safety leaders say could have been avoided if they had switched to IP based voice and data communication. 159 In contrast, only 2% of Internet addresses remained off-line for an extended period. 9/11 demonstrated the Internet s overall resilience to attacks thru its flexibility, and adaptability. But six years after 9/11, America has not done enough to advance the broadband Internet technologies that can help avoid future communications failures. Some specific applications for enhanced communications and real-time information are in the areas of informing the community and monitoring critical or high priority locations. Community Emergency Broadcast System (CEBS) The horrific events of September 11, 2001 pointed out the need for a community emergency evacuation and notification system. The Emergency Broadcast System (EBS) and the Public Address System (PAS) were implemented to fill that need. A natural expansion of the National Emergency Broadcast System is to utilize the advanced VoIP communications capabilities of the FTTP CityNet system. 158 The Telecommunications Industry Association, "The Economic and Social Benefits of Broadband Deployment", October Reardon, Marguerite. "911 dials IP technology" ZDNet. January 13,

84 In seconds, the CEBS, operated by the local government emergency services departments can send pre-recorded, or ad hoc messages to every VoIP phone or in the community. The CEBS alerts users at their desks by activating lights on the phones and playing audio messages through the phones' speakers and handsets. A text message, identical to the audio message, simultaneously appears on the LCD screens of the phones to notify hearing-impaired residents. Text messages could also be sent to any TV on any channel that are connected to the CityNet system, which is one of the enhanced capabilities supported by IP TV and typically is implemented over FTTP infrastructures. Video - Public Address System The community can implement a Video-Public Address System, which can broadcast live or taped video content to all TVs within the community who are on the CityNet system. The Public Address System works with the CEBS playing the same messages that come out over the phones, or independently, in case a phone is not working. Utilizing advanced IP video capabilities, the broadcast could, on single or multiple special community-based channels give out real-time information and advise residents what to do in an emergency, or could be broadcast on all channels. ARVIS Advanced Real-Time Video Information System Public Safety can install a real-time IP TV camera system in strategic and/or vital locations in the community. This system allows real-time monitoring of facilities, public areas and other areas in the community to provide greater public safety. With wireless overlays these systems can also be expanded to include live mobile video systems to and from sheriff patrol cars. IP video systems are far more cost effective and flexible, which increases the overall potential applications and benefits. Internet for Homeland Security In a post-9/11, post-katrina communications environment, ubiquitous broadband is a national security imperative, as during those events Internet data communications remained the most reliable. Designed by Defense Department to withstand a nuclear attack, the Internet has some inherent advantages over traditional communications systems in an emergency: a decentralized broadband network with multiple paths between any two points and the Internet s packet communication protocol-enhanced network capabilities eliminate many single points of failure, and enables the network to automatically and efficiently work around failures. Connecting public safety answering points to broadband, like we ve connected schools and libraries, is the new post-katrina communications imperative. For Government Universal broadband could also have important advantages for government services as well, allowing government workers to communicate in more geographically-dispersed locations in an emergency. In the event of a major 9/11-type attack on Washington, offices could be inaccessible but employees will still need to communicate. 84

85 Many Government workers using broadband enabled phones could immediately work from home or other broadband-enabled locations, maintaining continuity of government services. Next-gen broadband capabilities combined with IP enabled voice and video and data services could operate as effectively as if they were in the office, and special teams formed of experts who are geographically dispersed could seamlessly organize and function to meet a crisis without having to get on planes, which may be grounded like after 911. Many government agencies are already making the switch to broadband-enabled voice services, but without next generation symmetrical, high-capacity broadband at home, workers won t be able to realize the true potential of work from anywhere technologies. E-Government Services E-Government or Electronic Government refers to the use of information and communications technology (ICT) for managing the internal activities of Government and the delivery of government services, products and information to the public. Accenture, which conducts an annual survey and evaluation of the progress made by National Governments in implementing E- Government, has described its major impact, as follows: "Electronic Government (e-government) enables high performance. It enables better outcomes for less cost-maximum value from every resource expended. It provides an avenue for enhanced or entirely new customer services services that may not even have been imagined yet. In the process it helps Government transform service delivery, so that they may meet their obligation to their stakeholders in the most efficient and cost-effective way possible." 160 E-Government services and applications to the public are varied and the increasing sophistication of the services that can be offered and their cost-effectiveness is to a great extent dependent on the level of information and communications technologies used, and the ubiquitous availability of affordable high-speed Internet connections. Information can be obtained from Governments in a number of ways ranging from obtaining it from a visit to a local Government office to using online services. In a study done by the Government of Canada on a comparison of channel costs per transaction, it demonstrated that there are very significant cost savings from using online services. In its survey, it estimated (all figures are in Canadian dollars) that the cost of an in-person transaction was $44, a mail transaction was $38, and a telephone transaction was $8. In comparison, the cost of a transaction done online was less than $ This level of cost saving is very much dependent on the requisite ICT services and processes being in place and the ability of the users to access it. Although a number of online transactions can be transacted using dial-up Internet access, a broadband connection is becoming more important, as the applications requiring greater bandwidth increase. 160 Accenture (2004), "E-government Leadership: High Performance, Maximum Value" May Accenture (2004), "E-government Leadership: High Performance, Maximum Value" May Government/HighValue.htm 85

86 Broadband greatly facilitates E-Government applications at all levels of Government and this interaction can be as important to Local Governments, as it is to the State and National Governments. However, in order to take full advantage of E-Government and realize its potential efficiencies and cost benefits, there must be universal, or near universal, availability of affordable high-speed Internet and soon Next-gen broadband services will be required to effectively carry the video conferencing and other bandwidth intensive content required for delivery of more effective Next-gen government services Clearly, to make this a reality for many communities, there is an increasing need and role for local open-access, fiber-optic networks in communities where broadband availability is, and will remain a challenge, and also where there is a need for improved services. BALANCE OF PAGE INTENTIONALLY LEFT BLANK 86

87 The Municipal Broadband Infrastructure Option The first question policy makers need to ask is this: why is broadband good for consumers? There are many reasons, but the most compelling is that broadband is increasingly vital to our everyday functions and to our economy. It s not just about having the ability to download a movie in almost the blink of an eye, it s about the ability for everyone business and consumers alike to be able to access information that is fundamental to survive, grow, and thrive into the 21st Century. Many additional cities small, medium, and large are considering or implementing broadband networks. (We estimate perhaps 300 municipal broadband projects at present.) They are responding to a basic lack of service, they are seeking to promote business, and they are using such networks to ensure public safety, improve educational opportunities and enhance consumer welfare. I d like to focus today on municipal broadband and discuss why it is right for consumers, why the arguments advanced by its opponents fail and, why, upon closer examination, these arguments are internally inconsistent. Finally, I ll talk a bit about the Commission s role in opposing legislation that threatens competition Remarks by Jon Leibowitz Commissioner, Federal Trade Commission National Association of Telecommunications Officers and Advisors (NATOA)25th Annual Conference, Washington, D.C., September 22, 2005 In their campaigns, the incumbents and their allies have typically included emotional appeals to private-enterprise ideology; flawed statistics; complaints about supposedly unfair advantages that municipalities have over the private sector; attacks on the motives and competency of public officials; and false or incomplete, misleading and irrelevant examples. In many cases, these arguments have mirrored the unsuccessful arguments that the major electric power companies and their allies made against municipal ownership a century ago, when electric power was the must-have technology of the day, and thousands of unserved or underserved communities established their own electric utilities to avoid being left behind in obtaining the benefits of electrification. 162 Senator Frank Lautenberg recognized the same parallels. A century ago, there were efforts to prevent local governments from offering electricity. Opponents argued that local governments didn t have the expertise to offer something as complex as electricity. They also argued that businesses would suffer if they faced competition from cities and towns. But local community leaders recognized that their economic survival depended on electrifying their communities. They knew that it would take both private investment and public investment to bring electricity to all Americans. We face a similar situation today. Municipal networks can play an essential role in making broadband access universal and affordable. We must not put up barriers to this possibility of municipal involvement in broadband deployment Baller Lide: The Case For Public Fiber-to-the-User Systems March Baller Herpst Law Group 163 Senator Frank Lautenberg Floor Statement U.S. Senate: CONGRESSIONAL RECORD SENATE June 23,

88 Municipalities that have FTTP systems stand out in the global economy and have a much greater chance of achieving the benefits listed above than communities that do not have such systems. As a result, municipalities have been at the forefront of FTTP deployments in the United States. Municipalities have for years accounted for more than 30 percent of all homes passed by FTTP systems and of nearly 50 percent of homes passed in large projects of at least 2000 homes. 164 INCUMBENT PROVIDERS ARE NOT LIKELY TO MEET FUTURE BANDWIDTH NEEDS In many cases, unless cities take matters into their own hands, they are not likely to obtain the bandwidth capacity that the experts predict they will need in the years ahead. There is simply no reason to believe that the incumbent communications providers will deploy sufficient bandwidth capacity in the foreseeable future, if ever. 165 Telecom Companies: AT&T, Qwest, Verizon AT&T has no intention of overbuilding its territory with FTTP. 166 While there are isolated reports of pilot projects and occasional Greenfield fiber deployments, AT&T s clear strategic position for the future is not based on deploying FTTP but on using its existing copper infrastructure to provide broadband service using ADSL2+ technology for the last mile. Although AT&T took an early lead among the Bell companies in introducing fiber into its system, it is now far less aggressive than Verizon in deploying fiber to consumers: The company's plan to focus its capital strategy on improving DSL's availability and bandwidth stands in contrast to the plans of its ILEC brother Verizon Communications, which will spend the next few years and billions of dollars deploying fiber deep into their networks. 167 Even assuming (contrary to fact) that AT&T were going to deploy ADSL2+ everywhere in its service area immediately, 168 such a deployment would still fall short of meeting predictable bandwidth demand. The reason is that, even under ideal conditions, ADSL2+ has maximum bandwidth capacity of only Mbps downstream and 1-3 Mbps upstream. That is below the range of Mbps that the Bells own supported research by Technology Futures, Inc., predicted that U.S. households would begin to reach by 2006, and it is far below the bandwidth levels that even average homes, let alone tech-savvy homes, will need by Qwest, the smallest of the Baby Bells has taken a cautious wait-and-see approach to FTTP, and is only deploying the advanced infrastructure in select green-field developments. The company has deployed VDSL in select markets and has piloted IPTV over the VDSL lines. Qwest s current strategy appears to be in line with AT&T s but on much smaller scale and slower deployment schedule. 164 Conversations with Michael Render, whose firm Render Vanderslice & Associates maintains and frequently updates a database of fiber to the home deployments across the United States. His reports are often summarized by the FTTH Council, and the Telecommunications Industry Association, Baller Lide: The Case For Public Fiber-to-the-User Systems March Baller Herpst Law Group 166 C. Wilson, Ackerman Paints Picture of Cautious Aggression, Telephony Online, Jan. 11, 2005, &magazineid=7&siteid= AT&T should set sights higher than repackaging DSL with Project Lightspeed: by Jim Carlini, Wisconsin Technology Network 04/26/ The Bell companies are taking a ten-year-plus view for next-generation deployments. See D. Koenig, Verizon, SBC find TV Venture a Tough Go, Associated Press (May 31, 2005), 88

89 AT&T Project LightSpeed Why the current vision is shortsighted AT&T has initiated the rollout of its incremental step towards next-gen broadband, with a 22 state rollout of its LightSpeed DSL and U-verse video service, which the company says they want to make available to 8 million subscribers by the end of 2007 and 19 million by the end of 2008, spending an estimated $6.5 billion dollars. As mentioned earlier, Qwest so far has essentially been following in AT&T s footsteps when it comes to next-generation broadband plans. Since far more has been written on AT&T s Project LightSpeed, it will be presented here as an example. This, however, like Verizon s $23b 18 state FiOS program will only reach a percentage of existing subscribers, perhaps not even half. Analysts have questioned whether this incremental step towards next-gen broadband will be enough, or will is be too little, too late to too few? Nyquest Capital recently stated: In short, AT&T is deploying a very complex architecture with major limitations in the interest of saving money. The major problem with this approach is it offers nothing better than what the incumbent cablecos can provide. Cable s broadband is faster. Cable customers don t need to worry about how many channels a household is watching simultaneously. Verizon s approach delivers a user experience equivalent to cable with the ability to radically surpass it by deploying new bandwidth hungry applications as they emerge. 169 In addition, San Francisco, where AT&T is the incumbent telephone/dsl provider, commissioned a Fiber Feasibility Study, which looked at issues faced by that city in making sure there is the proper infrastructure in place for the City, that its residents and businesses remain globally competitive, and maintain and improve quality-of-life and critical services in the city. Many of the issues San Francisco faces are not too different from those faced by Powell. The study states: AT&T is the incumbent local exchange carrier in San Francisco, where it offers Digital Subscriber Line (DSL) services to most of the City and leases enhanced circuits to government and businesses at higher prices. Small and medium sized businesses may have difficulty affording these circuits. DSL represents a relatively low-bandwidth form of broadband -- a network of roads, not superhighways. 170 DSL does not even have the capabilities of a cable modem network because it is based on lower-bandwidth infrastructure. DSL runs on telephone network copper wires, which simply cannot handle the same capacity as fiber or even as Comcast or RCN s hybrid 169 AT&T and the Jedi Mind Trick: Drew Schmitt Nyquist Capital March AT&T s new naked DSL product (so-named because it can be purchased alone rather than in a more costly bundle with other products) provides speeds of only 786 Kbps downstream and approximately half that upstream. A higher-end DSL product offers 1.5 Mbps downstream and half that upstream at a higher price. Ryan Kim, AT&T to offer 'naked' DSL for far less than before, San Francisco Chronicle, January 16, 2007, accessed January 23, Theoretically, DSL can provide as much as 15 Mbps downstream and a few Mbps upstream under ideal circumstances (such as close proximity to AT&T s central office) but these circumstances are rare and the product is likely to be pricey. 89

90 fiber/coaxial (HFC) networks. As capacity requirements increase, DSL is likely to fall further behind cable. 171 AT&T does not plan to build FTTP. 172 AT&T has announced a strategy for upgrading its existing copper systems to fiber-to-the node (FTTN), known by the AT&T brand, Project Lightspeed. This technology is actually the next generation of DSL technology and is extremely limited in capacity - even for today s existing applications. To our knowledge, only a few, very limited areas actually received Project Lightspeed service as of the end of AT&T has not committed to a date certain by which even this limited technology will be widely-deployed in San Francisco. 174 Project Lightspeed s century-old copper technology can carry only a few video channels at once-and likely no more than one High Definition channel at a time. The theoretical data capacity of this architecture is up to 25 Mbps per customer but AT&T s current stated plan is to offer only one to six Mbps downstream and up to one Mbps upstream. The remainder is required to offer video. Even if AT&T does upgrade to this architecture in San Francisco, its limitations are likely quickly to be reached. From a technical standpoint, Project Lightspeed is a short-term solution in a market where bandwidth needs are growing exponentially and high, symmetrical capacity is increasingly needed for small businesses and for popular emerging applications like gaming, video-gaming, video-downloads, and videoconferencing. AT&T s 100 year-old copper plant is not capable of meeting these needs in the medium or long-run. 175 A thorough analysis of AT&T s project Lightspeed strategy is provided in an article below by Northwestern University Adjunct Professor James Carlini, titled: Broadband blues: Don't fall for Lightspeed hype - System is a "stagecoach" compared to faster broadband options (See article on following page) 171 The limitations of DSL are demonstrated by the efforts of Verizon to supplement its old copper phone networks with new FTTP networks in limited metropolitan areas within its existing footprint, which does not include San Francisco. 172 CTC interview of Ken Mintz, AT&T Area Manager, External Affairs, November 14, 2006; AT&T says won't need fiber-to-the-home network, Reuters, December 5, 2006, 05T152035Z_01_N _RTRUKOC_0_US-ATTLINDNER. xml&wtmodloc=internetnewshome_c2_internetnews-1, accessed December 21, Brian Santo, The Smell of Money, CED Magazine, November 16, CTC interview of Ken Mintz, AT&T Area Manager, External Affairs, November 14, Fiber Optics for Government and Public Broadband: A Feasibility Study Prepared for the City and County of San Francisco January 2007: Columbia Telecommunications Corporation 90

91 Wisconsin Technology Network: Broadband blues - Don't fall for Lightspeed hype: System is a "stagecoach" compared to faster broadband options By James Carlini 09/01/06 Strip-back all the hype, all the emotional arguments, and all the IP-driven features, and what broadband speeds are you really getting? In the great race for global competitiveness, economic development equals broadband connectivity and broadband connectivity equals jobs. The fuel for broadband connectivity is the need for speed. That s all the consumer needs to know. In fact, that s all politicians need to know. AT&T's Project Lightspeed offers data speeds that are nothing out of the ordinary and are not being well received by those in the know. Staying with copper to the door (CTTD) instead of upgrading to fiber to the premise (FTTP, which is also referred to as fiber to the home or FTTH) is like saying you re going to put in a stagecoach to run a 500-mile NASCAR race. They may slap all the fancy decals on your wagon, and even give you a silver buggy whip, but in the long run, you will be far behind the competition - if you finish the race at all. The misconceptions out there are rampant. Take, for example, one blog that talks about switching to high-speed, fiber-optic DSL. DSL is a copper-based technology, and saying it is a high-speed solution is not true. A fiber backbone does not give you fiber speeds at the premise. In fact, 6 Mbps (megabits per second) is not that fast compared to 1 Gbps (gigabit per second). A six-horse hitch is not going to compare with Dale Earnhardt, Jr. s supercharged horsepower. It sure isn t going to keep up in a race. Copper giddy up just doesn t cut it. As asked in an earlier column this spring: After all the fuss, is 6 Mbps enough bandwidth? Most of this Project Lightspeed architecture is not even deployed yet, and 6 Mbps speeds are starting to look like a far cry from state-of-the-art. The need for speed In another example, this is the concern: What if the demand for speed overcomes the limitation of Project Lightspeed s hardware? This is a valid concern about customers outgrowing the max speed of 25 Mbps to 30 Mbps. This apprehension is very real. The maximum will probably be hit faster than the anticipated lifespan of the network infrastructure. Some would argue that we are already surpassing that as states like California set objectives like 1 gigabit or bust by If any state is looking at establishing a broadband initiative at this point, it should be setting the bar at 1 gigabit like California. Take note, Illinois, Wisconsin, and others. There are no concessions for anything less. For all the hype and fanfare, as well as the proposed magnitude of capital expenditures on Project Lightspeed, I truly expected the three levels of speed to be more like 500 Mbps, 1 Gbps, and 2 Gbps to the premise. If this were the case, AT&T would have blown the doors off its competition as well as its global rivals in this great race. To me, this is where AT&T should be today. Instead, the three service levels of speed are: Express at 1.5 Mbps. Pro at 3 Mbps. Elite at 6 Mbps. 91

92 These are all the downstream speeds with a common upstream speed of 1 Mbps or less. You can get that and more on cable today and do better with some wireless services. None of these elite services provide premium fuel for futuristic speeds. More important, the physical connection to your house is still copper. CTTD is not only your father s copper connection, but it was also your great grandfather s connection. Disappointingly, Project Lightspeed does nothing to push the global competitiveness of the U.S. network infrastructure. In fact, it puts us farther behind other countries. Korea just announced plans to build 60 ubiquitous cities by This approach includes highspeed networks as well as integrating RFID tags and smart cards that will impact the integration of supply-chain management within that country. This sounds more substantial than replicating cable and delivering 200 TV channels. Setting the standard is the sign of an industry leader. Playing catch up or providing mediocrity is the sign of a member of the trailing pack. This lack of leadership does not adhere with the basic principle I established in 1984 for all organizations applying technology: Leading-edge organizations do not maintain their positions using trailing-edge technology. That statement still rings very true some two decades later. We are in a much bigger race today as global pressure has upped the stakes for everyone. Is Project Lightspeed really Project SCHMOE in disguise? Fiber to the node (FTTN) might as well be called fiber that touches nothing because it doesn t even come close to being FTTH or FTTP. The node could be 3,000 feet away from your house. That means you still have more than a half mile of copper in the last mile. That can t be just any copper. A huge issue that doesn t get much press is that the copper must be pristine, according to an installation expert. If Project Lightspeed is to work, the copper connecting to your house has to be really good. That, in itself, should be a red flag. Will they have to replace old copper with new copper? They might as well go with new fiber because copper, as a commodity, has shot up in price. Is it still a cost-effective solution? I don t think so. Project Lightspeed just perpetuates Project SCHMOE, which stands for stagecoach-era communications that hinder municipalities, organizations, and employees. For the sake of global competitiveness, some municipalities and industrial parks already understand that they need gigabit infrastructures. For example, look at the 800-acre DuPage National Technology Park, where they have 10 Gbps connectivity. Project Lightspeed does not promise that at all. The limitation is in the last mile of copper wire. Why doesn t AT&T want to spend the money to build the infrastructure right? This is the same company that, when it was a monopoly and had locked-in profits, would specify platinum connections instead of copper in central offices in order to ensure the highest quality connectivity - and quality returns to themselves. There is also the issue of jobs. How many more jobs could be created if AT&T took the right approach and made Project Lightspeed a full FTTH initiative? If you look at the International Brotherhood of Electrical Workers in Illinois, they have lost more than 3,000 jobs since Making Project Lightspeed an FTTH or FTTP project would help create more jobs. 92

93 Will AT&T pressure Illinois for concessions by dangling a couple hundred jobs they could transfer out of state? Maybe Illinois should play hardball and say FTTP is a stipulation before any concessions are even considered. That way, everyone wins. Illinois gets a commitment for a real broadband infrastructure, more jobs get created to implement it, and AT&T gets its concessions. I doubt they ll go for that that, though. AT&T Vice President Mike Tye clearly stated in a recent city council meeting in Naperville, Ill. that "full build out is a deal killer for AT&T.. Project Slightspeed? Let s cut through all the marketing hype, the industry expert analyses, and the bleating of company shills at municipal meetings and go directly to the last mile. In any race, this is very important to winning or losing. This is telecom 101. No matter what people pitch, copper does not come close to fiber in delivering bandwidth to the door. Twisted pair does not even match coaxial cable. Any new construction should be looking at FTTP. If they are cabling areas again, they should be pulling fiber not copper as fiber has a much longer useful life as a basic component of the network infrastructure of the future. The average consumer doesn t care about the physical wire that comes to the house until it becomes the deciding factor in terms of speed. The average consumer has gotten to be fairly sophisticated in knowing that copper DSL is better than dial-up, but not as good as broadband. People back winners. They don t back whiners. If you want to lead the pack, you have to offer a winning car with heavy horsepower. In this case, it s heavy bandwidth rather than a stagecoach with flashy decals. Carlinism: There s no such thing as a turbo stagecoach on the information superhighway. James Carlini is an adjunct professor at Northwestern University. He is also president of Carlini &Associates. Carlini can be reached at james.carlini@sbcglobal.net or Check out his blog at: 93

94 Cable TV Companies Cable companies currently offer bandwidth in the single-digit Mbps range, with some isolated exceptions. The companies claim that they have no plans to make widespread boosts in their bandwidth capacity. At most, they say, they may match the speeds offered by the telephone companies. 176 Cable giant Comcast, specifically, has no apparent plan to deploy FTTP or an equivalent service. In fact, Comcast CEO Brian Roberts recently ridiculed Verizon s FTTP efforts, saying I think it does not show any economic promise. 177 Comcast and the rest of the cable industry appear to be relying on the existing hybrid fiber-coax (HFC) network architecture for the future. The industry generally hopes that software advances and changes to DOCSIS cable transmission standard will enable greater use of HFC plant. Unfortunately, even the optimistic prognosis of HFC capacity using the next-generation DOCSIS 3.0 is 100 Mbps, and that has only been proven in a laboratory setting thus far. A second key point is that cable, by virtue of its architecture, is a shared system. Thus, individual users are not likely to see anywhere near the maximum capacity of cable systems, particularly at times of peak usage. FTTP, by contrast, can currently enable at least 1 Gbps in both downstream and upstream, and is, for all practical purposes, unlimited for future demands and growth. MUNICIPAL FIBER-TO-THE-USER (PREMISE) IS A RATIONAL OPTION Municipalities have long provided for their own needs for water, sewer, gas, electricity, transportation systems, airports, hospitals, educational and occupational programs, and numerous other necessities and amenities that the citizens of the municipality have deemed appropriate. They have also proven that they can operate highly sophisticated systems as well as, if not better than the private sector, and at lower cost. Municipalities are not primarily motivated by the desire to make a profit, as that term is understood by Wall Street, but by the need to meet important needs of the community. Chief among these are enhancing economic development, educational and occupational opportunity, access to affordable health care, digital equity, public safety, homeland security, environmental protection, efficient government service, cultural enrichment, and all of the factors that contribute to a high qualify of life. A public FTTP system can contribute to the fulfillment of each one of these goals. To be sure, a public FTTP system is certainly not appropriate for all cities, or for all circumstances, and no municipality would rush into such a project. But in many situations, particularly where a public power utility would develop and operate the system, the deployment 178 of a public FTTP network can be a rational, prudent, and wise decision for the betterment of the community. 176 See, e.g. M. Reardon, Cablevision: We re not afraid of Verizon s fiber, ZDNet News (May 5, 2005), K. Leonard, Verizon Speeds Internet Service, Pittsburgh Tribune-Review (May 5, 2005), P. LaMonica, Comcast Talks Tough About Telecom Threat, CNNMoney.com (February 8, 2006), Baller Lide: The Case For Public Fiber-to-the-User Systems March Baller Herpst Law Group 94

95 COMMUNITY BROADBAND ACT OF 2007: UNITED STATES CONGRESS In July of this year (2007) Senator Frank Lautenberg, joined by Senators Smith, McCain, McCaskill, Snowe and most recently Ted Stevens (R-AK) sponsored the Community Broadband Act of The strong bi-partisan support for the rights of municipalities to act in the interests of their residents and businesses in ensuring the timely deployment of broadband infrastructure demonstrates the level of importance our national leaders put on broadband infrastructure. It also underscores their position that municipalities do have an important roll in ensuring broadband infrastructure deployment and that there should be a focus on public-privatepartnerships as part of the solutions to be pursued. This legislation was also introduced into the U.S. House of Representatives by Congressmen Boucher (D-VA) and Upton (R-MI) on August 1 st Representative Boucher s floor statement introducing this legislation is included below. Press Release: Office of U.S. Sen. Frank Lautenberg (D-NJ July 24, 2007) LAUTENBERG INTRODUCES COMMUNITY BROADBAND ACT OF 2007 NJ Sen. joined by Sens. Smith, Kerry, McCain, McCaskill and Snowe in effort to foster universal, affordable broadband access WASHINGTON, D.C. Sen. Frank R. Lautenberg (D-NJ) today introduced legislation to help make broadband access universal and affordable across the country. The measure would promote economic development, enhance public safety, and increase educational opportunities by removing barriers that prevent cities and towns from offering broadband services to their residents. Broadband access should be universal and affordable, said Sen. Lautenberg. Universal broadband access would promote economic development, enhance public safety and increase educational opportunities for millions of Americans across the country. Towns and cities across the country are offering fast, affordable Internet, and states should be encouraging these initiatives, not hindering them. A recent study by the Organization for Economic Co-operation and Development shows that the United States ranks 15 th worldwide in terms of people with broadband access. The countries that outrank the U.S. have relied in part on municipal broadband networks. Fourteen states in the U.S. have passed legislation to prohibit or restrict local municipalities and communities from offering high-speed broadband access to residents. Sen. Lautenberg s measure known as the Community Broadband Act of 2007 stipulates that states cannot prohibit a municipality from offering broadband to its residents, and that a municipality that is a provider cannot discriminate against private competitors. 95

96 STATEMENT OF CONGRESSMAN RICK BOUCHER Floor Statement in Support of the Community Broadband Act of 2007 August 1, 2007 Madam Speaker, I rise to introduce the Community Broadband Act of 2007 in which I am pleased to be joined by the gentleman from Michigan, Mr. Upton. I appreciate his co-authorship of the measure and the steps we have taken together to draft the bill. Our legislation will encourage the deployment of high speed networks by ensuring the ability of local governments to offer community broadband services. Broadband has changed the way that people in our nation live, work, transact business and obtain information. The ways people work and play today are fundamentally different from a decade ago, due in significant part to the growth and development of the Internet, faster and more efficient ways to access it and the broad new range of Internet based services now in common use. But for our citizens to be able to reap the benefits of this transformation, they must have access to broadband, and The United States has fallen woefully behind other developed nations in its deployment. According to the most recent statistics released by the Organization for Economic Cooperation and Development, the United States has dropped from 12 th in the world to 15 th for broadband penetration. The nation that invented the Internet and today creates its most popular globally utilized applications can and for the sake of our national economy must do, better than that. Most of the areas in the U.S. that lack broadband are lightly populated rural regions. Almost 20 percent of households nationwide are not served by a broadband provider, and others are served by a single provider that may charge higher rates for the service given the absence of competition. In my district, for example, we have a county with a population of 16,000 people where the most populous town has 614 residents. That county has no broadband service. I represent dozens of small communities with populations measuring in the hundreds of people where broadband is absent. That pattern is replicated across rural America, and our current global standing is a reflection of it. It is no surprise that building out broadband to such areas is a low priority for cable and telephone service providers, but that reality does not make broadband any less essential to the lives of unserved rural residents. If the commercial broadband providers are not willing to deploy in particular areas, local governments should be able to step in and fill the gap. At the turn of the last century, when the private sector failed to provide electricity services to much of America, thousands of community leaders stepped forward to form their own electric utilities. At that time, opponents to municipally-operated electric utilities argued that local governments were not qualified to meet this task. They also argued that competition from the private sector would be hindered by the entry of municipalities into the market. Those arguments did not prevail because it was deemed to be in the public interest to deploy the then new essential infrastructure universally, and today we have thriving municipal electric utilities nationwide that have well served their localities for the past century. I believe that broadband today is the new essential infrastructure. It is every bit as necessary today as electricity service 96

97 was 100 years ago, and just as with electricity service 100 years ago, in many instances, the only entity willing to provide the service today is the local government. The Community Broadband Act of 2007 ensures that local leaders can bring broadband technology to their communities, just as local leaders did with electricity a century ago. More than 14 states have passed laws restricting public communications services. The U.S. Supreme Court has upheld the power of states to enact these barriers. Our legislation removes the barriers. It leaves room for states to enact reasonable terms and conditions under which local governments can deploy broadband, but it overturns absolute bars to localities offering the service. The bill includes competitive safeguards to ensure that public providers cannot abuse governmental authority by discriminating in favor of a public service to the disadvantage of private competitors. Community broadband networks have the potential to create jobs and increase economic development, enhance market competition, and accelerate universal, affordable Internet access for all Americans. Let s give localities the freedom to create arrangements that work for them, whether they own the infrastructure and offer the service, or whether they deploy the facilities and lease the lines to private service providers. The national interest requires that we harness the willingness of localities to elevate our world standing and to enrich the lives of their constituents and the economic prospects of local businesses that urgently need broadband services. I encourage our colleagues will join Congressman Upton and me in enacting the Community Broadband Act of MUNICIPAL FTTP SYSTEMS CAN BE SUCCESSFUL IN SOME SITUATIONS IN WHICH THE PRIVATE SECTOR CANNOT: Opponents of municipal broadband initiatives contend that public broadband projects are failures if they do not generate profits in the amounts, and within the short time periods, that investors and the financial community expect of private corporations. To define success this way is to miss two fundamental points: (1) public entities have fundamentally different ways of creating economic benefits for the community than the private sector; and (2) municipalities often undertake a public communications initiative precisely because the project would not be profitable enough for a private company. A municipal broadband system creates economic value in many ways other than user fees: The objective of a private-sector, profit-driven provider of communications services is, naturally, to produce a profit, primarily from customer fees. The sole duty of a profit-driven entity is to maximize the value of the company to its owners, by generating substantial profits over a relatively short period of years. That is certainly not a bad thing. To the contrary, it is essential to a capitalistic economy that private companies behave this way. The bottom line of a profit-driven company, however, is not directly enhanced by the benefits that a community may derive from the fulfillment of the community goals enumerated above. Such considerations are simply not part of the equation for the decisions made by the company. 97

98 Municipal broadband is different, and the differences between public and private providers are all but ignored in opponents critiques of municipal broadband. A community s decision to deploy a broadband network is driven by several important objectives other than the Wall Street metric of making a profit from user fees for services. User fees are only a part of the equation. The value of a modern, robust communications system to a community should also take into account the economic stimulation that the network enables, including jobs and businesses created or retained; increased income; increased spending; increased property values; increased educational achievement; more cost-effective government service; etc. All of these have real and significant monetary effects on a community. For example, consider the economic benefits that a new high-paying job contributes to the community, or the economic burdens that the loss of such a job will cause in the community. There is a massive amount of information linking municipal broadband investments to business attraction and retention, high salaries, and growth of the local economy. This includes several recent studies and hundreds of first-hand experiences of municipal officials to whom companies have said that the presence or absence of an advanced communications network was a significant factor in the company s decision to move to, stay in, or leave, a community. In short, municipal broadband networks create significant economic value for all concerned, and their measure of value goes well beyond user fees. The betterment of the community, economically and otherwise, is a significant part of the return on investment, and is an important part of the decision-making equation for municipalities. As a result, municipalities can fund and operate FTTP systems on a long-term basis, focusing on recovering costs over the life of the systems. 179 Private sector companies have completely different goals, driven by shareholders and the financial community s demand for high, near-term profits from user revenues. 180 In the face of this reality, it is completely inappropriate to use conventional Wall Street metrics to judge whether a municipal project is successful. The metric for success certainly should not be: If this were a private firm, would Wall Street like it? Indeed, many municipal broadband projects are undertaken because the Wall Street metric does not work. The town may be too remote, the population may be too sparse, or the demographic nature may not be consistent with the template used by private sector companies in their profitmaximizing decisions on where and whether to deploy. Those are precisely the circumstances, however, in which the community benefits of providing broadband become most profound, and most valuable. In short, because municipalities can take a long-term approach to fulfilling the community s needs, they can often make a successful business case for a project that a profit-driven private entity would not even consider. 179 Baller Lide: The Case For Public Fiber-to-the-User Systems March Baller Herpst Law Group 180 These positive externalities are unlikely to be considered by private providers when making FTTH deployment decisions. Lobo, Novobilski & Gosh, The Impact of Broadband in Hamilton County, TN. 98

99 I m very familiar with many government owned telecom operations throughout the world, over many years, and across many different forms of government, and I can tell you that governments generally do not subsidize publicly owned telecommunications. They milk telecommunications these systems generate a lot of revenue. Tim Nulty, Director of Burlington Telecom, Former Chief Economist, U.S. Senate Commerce Committee, Former Chief Economist, U.S. House Energy and Commerce Committee, Former World Bank Senior Project Manager, Former Telecommunications Entrepreneur in Eastern Europe, EXAMPLES OF SUCCESSFUL MUNICIPAL FIBER PROJECTS While it is still early in the life of most municipal FTTP projects, a number of projects have now had enough experience to support the preliminary conclusion that such projects can be successful, not only when judged by the standards that apply to public entities, but even when judged by the standards that apply to the private sector. Some examples follow. Jackson, Tennessee In Jackson, Tennessee, business and consumer leaders believed that the private telecommunications and cable companies were not acting swiftly enough to offer advanced services, and that this was causing Jackson to lose business opportunities to other communities. The Jackson Energy Authority (JEA), a hybrid municipal and public utility, had reached a similar conclusion, and it determined that an FTTP network could be a key driver for the local economy and could ensure that consumers would have access to advanced data and video services. JEA began construction in early 2004 with and had its first customers by May. The network is open to competitive providers of telecommunications and data services. Customers can receive (a) from two competitive local exchange carriers, up to 4 VoIP telephone lines and internet access service at speeds ranging from 512 kbps to 10 Mbps (with the potential for 40 Mbps), and (b) from JEA, 270 all-digital channels of cable television. The network currently serves over 11,500 customers and passes more than 30,000 homes and business in greater Jackson next year. This is currently the largest in-service FTTP network in the U.S., and the citizens of Jackson have a major attraction for new businesses as well as real competitive choices for telecommunications and cable services. 181 The Dalles, Oregon The Dalles, a city of 11,873 in the picturesque Columbia River Gorge, operates a 17-mile municipal fiber optic network. In 2004, The Dalles received $200,000 in federal economic development and infrastructure funds to complete the network and connect it to NOANet (Northwest Open Access Network), a cooperative that uses fiber owned by the Bonneville Power Administration to operate a statewide telecommunications network linking schools, hospitals, government agencies and businesses. The Dalles project was viewed as laying the technical foundation needed to promote economic growth in Wasco County Report on Tennessee Municipal Electric Systems Authorized to Provide Cable and Internet Services, Comptroller of the Treasury, State of Tennessee, June 30, 2005, at 4, Senators Secure Economic Development Dollars, Bend.com (January 22, 2004), 99

100 As a direct result of The Dalles s municipal networking capabilities, Google in 2005 decided to purchase an industrial site in The Dalles for $1.87 million, to house high-tech equipment that would be connected to the rest of the company s network. In doing so, Google is expected to bring to the Columbia River Gorge community between 50 and 100 jobs paying an average of $60,000 annually in wages and benefits, twice the county's average income. 183 Bristol, Virginia In Bristol, Virginia, the municipal utility, Bristol Virginia Utilities (BVU), first deployed a fiberoptic network in 1999 to commercial and public sector entities (such as schools and libraries) to help fuel the town s economic development and provision of services to its citizens. The decision to invest in an advanced all fiber-optic network, rather than in a traditional hybrid-fiber coax network, proved prescient. While the first-installed costs of the fiber network were 15% higher than they would have been for an HFC network, the fiber network could deliver the full suite of broadband applications with greater robustness and flexibility. As a result, citizens of Bristol in 2001, seeing the tremendous benefits of the services provided over the fiber-optic deployment to businesses and government, made it clear to BVU that they wanted a FTTU network throughout Washington County. After overcoming extensive efforts by the incumbents to thwart the project, which caused significant delays and needless costs, BVU began offering the triple-play package over the new FTTU network in July, By the middle of 2004, BVU had a penetration rate exceeding 40%. Today, the Bristol s penetration rate exceeds 60 percent, and it is viewed as an engine of economic development for the entire region of Southwest Virginia. For example, as Congressman Rick Boucher (D-VA) recently reported, the Bristol FTTU was instrumental in attracting more than 700 jobs to a single site in Russell County, VA, and Bristol is now expanding the system to Buchanan, Dickenson, Lee, Tazewell and Wise counties, which currently do not have access to such services 184. Critics of the Bristol system sometimes observe that its operating expenses increased 148% from 2002 to 2003, and 67% from 2003 to But the criticism fails to tie those increases to the revenue increases that the system s expense-generating activities caused. Those revenue increases were 84% from 2002 to 2003 and 517% from 2003 to When viewed in a more useful light, from 2002 to 2004, the system s revenues increased by 1035% while its expenses only increased by 314%, a very impressive performance. Furthermore, the Bristol system is now EBIDTA positive and has exceeded its EBITDA projections in three of its last four years. 185 In fact, demand for the BVU service is so high that the utility is having difficulty keeping up. More than 1,000 individuals and businesses requested service during a single fiscal quarter in 2005, while utility officials had projected 1,600 new connections for the entire year. "It s a good problem to have," said BVU General Manager Wes Rosenbalm in a December, 2005 news report. 186 "They re not all installed yet. We haven t been able to keep up with the demand, but we expect to fill those orders soon." 183 Port Deal With Google to Create Jobs, Gorge Business Journal (February 14, 2005); When judging and comparing private-sector communications providers, industry analysts typically use a standard known as "EBITDA" - Earnings, Before Interest, Taxes, Depreciation and Amortization Virginia Awash With Broadband Options, Broadband Reports.com (December 14, 2005), 100

101 As further evidence of the positive impact that BVU s network has had on its community, its cross-border sister city, Bristol, Tennessee, has followed suit with its own FTTU deployment, making the combined cities one of the most dynamic small towns in American. Reedsburg, Wisconsin Reedsburg is a small town (population of about 8,000) in Wisconsin. Several years ago, Reedsburg Utility Commission (a municipal utility for over 100 years) determined that deployment of a FTTU network the first in Wisconsin offering voice, high-speed internet access, and video services would be, in the words of its Superintendent Dave Mikonowicz, an excellent investment in our community s economic development and quality of life. The Utility initiated construction in 2002 of a state-of-the-art FTTU network, began acquiring its first customers in 2003, and by late 2004 had over 1000 customers (about a 25% penetration rate). Today, construction is largely complete, and the subscriber base continues to grow approaching 2,000 customers. Again, in the words of Superintendent Mikonowicz, Being a technologically advanced community is a key attraction to both residential and business prospects. Not only is the technology enhancing and enriching the quality of life of current residents and businesses, but it will continue to support our needs well into the future. UTOPIA, Utah One of the best-known municipal FTTU deployments in the country is the Utah Telecommunications Open Infrastructure Agency ( UTOPIA ), a consortium of 14 Utah cities. They have banded together to create an all-fiber network to deliver cutting-edge services to their citizens and businesses, enhancing the quality of life and boosting their economies. The network will serve about 170,000 homes and businesses when completed. (The first phase of construction will soon be completed.) Even during construction, UTOPIA has begun to provide wholesale services and has signed a variety of retail providers to sell voice, internet access, and video services. We are extremely encouraged by the progress the UTOPIA Community Metronet has experienced thus far, says Roger Black, UTOPIA s chief operating officer. Take rates from businesses and residential customers to date have exceeded our expectations, and construction and customer service are proceeding apace. UTOPIA has received several calls from businesses looking to relocate to UTOPIA member cities. The reason, the businesses often state, is to have access to the ultra high-speed Community Metronet. Many of these businesses are data-intensive. They rely on processes and critical applications that require big bandwidth. These businesses want to save money and connect to a reliable and secure network. In August 2007, two additional cities in Davis County Utah joined the UTOPIA project after the state legislative moratorium on new participants expired the previous month. This shows the continuing high-level of interest and support for such projects with communities and local government leaders. UTOPIA compares its business model to that of operating a public airport. Municipalities own and operate airports, but airlines are the service providers. When passengers buy airline tickets, a portion of each fare is returned to the municipality, which is then used to pay operational costs and retire revenue bonds. In other words, only those who use the service pay for it. 101

102 UTOPIA and the open access business model it utilizes was the brainchild and creation of U.S. MetroNet s founder and CTO, Ernie Bray. Below is an example of the pricing and features of AT&T Internet services offered on the UTOPIA network. Figure 2.4: AT&T UTOPIA Internet Pricing Plans *Information obtained from the AT&T website: 102

103 Figure 2.5: AT&T Plan Comparison *Information obtained from the AT&T website: 103

104 Robert Stahl of the South Dakota Public Utilities Commission recently testified to the U.S. Senate Commerce Committee: Municipal governments, as well as other policy-makers, have legitimate interests in ensuring constituents have access to broadband networks. Without broadband, a community s ability to attract and maintain business, to offer critical public services and to provide opportunities to its residents is severely hampered... I am incredibly sympathetic to communities that lack broadband and have met with people from such communities within my own state and listened to their concerns. Their ability to educate their children, keep their communities safe and compete in the global economy is severely hampered. Every opportunity, including municipal ownership or sponsorship, must be evaluated. My fellow commissioner, Dustin Johnson, and I have pledged our assistance to look for ways to bring broadband to these communities. And, in some of these instances, public ownership or public-private partnerships may be the only option. 187 The reason more cities have not acted is that most existing models have many elements that make it difficult for most cities to successfully launch an effort. Some of these issues are: Most Existing Municipal Broadband Models: Require General Obligation, Tax Backed Revenue, or other Taxpayer backed bonds o Risk and Politics o G.O. Bond Financing structures usually require a referendum Long political and public processes to secure project funding - typically 2 to 5 years City the Retail service provider in direct competition to Incumbents o Higher project cost, more complex startup and operations o Political Objections Govt. competing with the private sector Complex Project Logistics o Political, Legal, Funding, Technical, Business, Marketing, etc No Well Defined Program Streamlined process o Each project a One-of-a-Kind Clearly, a new model was needed, which was structured to eliminate or mitigate financial risk, was politically correct especially for more conservative, rural communities and carefully brought all the pieces together to provide a turn key type of program for cities. The UTOPIA project in Utah was one of the first such programs. The following outlines the main parts of the solution: Need for a New Model: Public-Private-Partnership: o Combine and Leverage the Core Competencies and Strengths of Public and Private Sectors Streamlined Turnkey Model Finance to Operations o Bring All Elements Together Know how to structure all elements to avoid pitfalls and mistakes 187 Mr. Robert Sahr : SD PUC, State and Local Issues and Municipal Networks: Senate Commerce Committee February

105 Legal, Political, Finance, Technical, Operations, etc.. Eliminate Rational Political Objections o City competing with the private sector o Risking taxpayers dollars Reduce or Eliminate Tax Payer and City Financial Risk o Clear Separation of System No City personnel spending public supported time Local Government Facilitates Competition - Not the Competitor: No competition in retail service areas Achieves Goals and Objectives of the City: Economic Development, Quality of Life, Improved Government Services Municipality-Owned Network Specific Requirements The proposed CityNet FTTP GPON based infrastructure will not only provide adequate bandwidth for the digital transmission of every type of data, video, and voice technology currently available, but will support new applications far into the future. The criteria for selecting a technology infrastructure are outlined below. More detailed information on network capacity, capabilities and type and kind of services supported is presented in other sections of this document. Existing and forecasted infrastructure presence Existing and forecasted demand (traffic demands, number of users, volume of data) Market breakdown and user profile (individual users, businesses etc) Type of offered services (standard packet, combination of services, etc) Population and geographical distribution with respect to the expected demand and use that will be offered Geographical coverage (landscape) Technical capabilities and telecommunications infrastructures (ads, FTTP, HFC, WiMax, LMDS, PLC, etc) Existing services/infrastructures (their quality), bit-rates and type of connections Use of common infrastructures Time evolution of the above characteristics Number of users Traffic loading and traffic models Use duration (e.g. per user or type of user) Tariffs based on technology type and interconnect Cost of equipment required (at the customer site) e.g. modem, wireless/wire-line router, etc Geographical density and user distribution Forecast of future service penetration e.g. per user type, area etc 105

106 Future Technologies The bandwidth potential of fiber-optic cable is near limitless and the selection of 2.4Gbps GPON utilizing a 1-32 split provides for a significant amount of future growth and application requirements. In addition, a properly engineered outside fiber plant (OSP) for a GPON system, would have additional fibers brought into the PON cabinets, which would allow for the seamless low cost doubling of bandwidth, simply by reducing the split ratio from 1-32 to 1-16 or even 1-8. This would permit the system on a splitter-by-splitter basis, to double available bandwidth several times at minimum cost. This architecture could realistically provide for the needs of the community for decades to come. CONCLUSION The current service offerings in Powell are less capable than what is being deployed and is available in some larger markets such as where Verizon is Deploying their FiOS fiber-to-thehome infrastructure, and is generally not up to par or competitive with the type of infrastructure now being deployed in many communities around the world. Based on the City s location and demographics, and lacking any verifiable facts to the contrary, Powell has no other prospects for securing its future with next-generation broadband technology, and has no realistic prospects of next-generation broadband being deployed in the community in the foreseeable future. In addition, the City s goals of having an initiative that would make next-generation broadband universally available over a reasonable amount of time, does not seem likely or realistic, unless the City is willing and committed to undertaking an initiative to ensure such an infrastructure is deployed. Clearly, the status quo is unacceptable. If we watch and wait, trusting that today s artificiallyconstrained marketplace will magically solve the next-gen broadband problem, we will see many of our communities and the US slip farther behind the rest of the world and widen the digital divide-both domestically and internationally. The consequences are too severe to tolerate this narrow path. The current trend lines are clear. We continue to have large gaps in broadband service across the nation. Worse still, the networks we do have are slower, more expensive, and less competitive than the global leaders in broadband performance. Our reliance on traditional Telco/CableCo competition has only proven to be partially successful, as we remain mired in a rigid duopoly. The sometimes overly optimistic predictions about mobile cellular broadband and WiMax do not appear to hold any real promise of a viable third pipe to provide next-gen broadband services to residents and businesses, which could provide meaningful competition for advanced voice, video and data services. Meanwhile, most incumbent network operators are following the demands of quarterly returns - investing in networks where costs are lowest and profits highest, often leaving the rest of the market behind. We must reject the argument that an open Internet and a high capacity network are mutually exclusive goals. We must have both for our information marketplace to prosper. A Municipal next-gen ultra-broadband open access infrastructure has the very real potential to accomplish both and bring additional and possibly substantial benefits to a community. 106

107 The Information Society report on broadband in Ireland, presented previously in this document, sums up this risk well; Assessing the gains in competitiveness due to broadband has meaningful interpretation only in relation to some other benchmark. Assuming that our competitors develop broadband at least as quickly as Ireland (which is probable) these gains are better expressed as the avoidance of losses. If all countries develop broadband at the same rate, there are no further actual gains to be included. However, if one lags the others, then redistribution takes place whereby the lagging economy suffers. Furthermore, even a relatively small deficiency could have a large impact on the competitiveness of the economy 188 Broadband access has become essential to economic growth, education and health care. Affordable broadband keeps jobs and attracts new businesses. It gives children computer skills to succeed in college and the work force. It expands opportunities to benefit from telecommuting and breakthroughs in telemedicine. Some of the main, potential benefits to a community are listed below: Provide the vital infrastructure that will enable businesses to grow, expand, and compete in the new information economy; Provide opportunities for new, organic growth in business; such as new home-based businesses, etc.; Create a basis for sustainable economic growth by attracting and retaining new businesses and residents; Make it possible to offer multiple competitive choices within each of the major service categories of voice, data, and video services to the communities; Offer affordable services that compare favorably to those available in other parts of the country; Expand enhanced learning opportunities through on-line libraries, tutoring, workshops, class offerings and class offerings; Increase access to essential medical services by facilitating links to regional medical and trauma centers; and Improve and preserve the quality of life of small town America. WHY FTTH, WHY NOW? FIBER-TO-THE-HOME COUNCIL WHITEPAPER 188 Information Society on Broadband Ireland: 107

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