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To What Extent Will the US Broadband Stimulus Package Provide a… Stimulus?

The story of America’s lacklustre broadband performance is relatively well known. Part of that story relates to its low broadband penetration levels when compared with other developed economies. In 2008 the US still languished around the middle of the OECD broadband penetration rankings (at around 15th) having slipped from near the top of the table (4th place) since 2001. Another aspect of the story relates to broadband speeds. For instance, although Japan and the US have similar broadband penetration rates, OECD data indicate that Japan has nearly ten times faster broadband speeds than the US, based on average advertised download speeds. Again, the US ranks around the middle of the OECD rankings (14th place) in terms of average broadband speeds. Thus, in terms of broadband technology levels, the USA still trails behind leading countries such as Japan and Korea, and some European countries such as France and Italy, by a full generation.

These and similar figures have been cited in repeated calls for a US national broadband policy to drive a major overhaul of US broadband markets. By the beginning of 2009 any such policy was still merely an aspiration. Indeed, the momentum behind broadband policy development may well have had the wind knocked out of it by the financial crisis. Thus it came as no surprise when, despite the broadband sector calling for government grants or tax credits in the order of tens and even hundreds of billions of dollars, a relatively modest $6 billion was earmarked for the broadband sector in the American Recovery and Reinvestment Bill 2009. This amount was less than 1% of the total fiscal stimulus package (which broadly comprised $275 billion in tax credits and $550 billion in government investment).

The $6 billion was earmarked for “broadband and wireless in underserved areas” which ostensibly goes some way to actioning Obama’s election pledge to bring broadband to the entire nation. The latest Senate revision of the Bill increases the amount of grants to $9 billion.

Apart from quantum, there are a number of important questions still to be answered before one can better anticipate what the broadband package will ultimately achieve.

For instance, to what extent will the open access requirement determine the likely participants? For example, will it deter some private participants because their current models are not open access and they may not want to set a workable precedent. In addition, when the initial draft of the package had the funding in the form of grants rather than tax credits, one expected as much or even greater participation by municipalities compared to the private sector. However the Senate’s revision to the package now also provides 10% tax credits which would naturally favour private investment. Furthermore the minimum speed requirement may preclude some technologies and participants that would otherwise be better suited to the target areas.

Perhaps the most contentious part of the Senate’s revision is the 20% tax cut to companies for bringing next-generation speeds (defined as 100Mbps/200Mbps) to underserved AND EXISTING areas. This would appear to go well beyond the scope of the initial package and would clearly be a massive windfall to Verizon Communications who is in the process of spending billions bringing FttH networks to their footprint. Verizon’s upcoming deployments to which it had already committed, in the order of an estimated $4 billion per year over the next two years, would automatically benefit from a tax break under the Senate’s version of the package—hardly a stimulus effect. On the other hand, to the extent that DOCSIS 3.0 would achieve speeds that qualify, the tax break could in fact stimulate cable to more quickly deploy these upgrades. Disappointingly, the Senate’s criteria for the tax credits do not include any network neutrality or network non-discrimination principles.

There is still much wrangling to come between the Senate and the House before the detail of the package is finalised. And the devil may well be in the detail. But one suspects that once the dust settles, the US will still be languishing in broadband penetration and speed levels. Only then perhaps will the Obama administration be pressed to turning to the bigger question of a national broadband policy, one that focuses on encouraging or indeed mandating open-networks (or at the very least network neutrality rules) which would drive competition and innovation in the much bigger sector, the digital economy. Only once the digital economy (e-health, e-education, e-commerce, digital media etc) is allowed to flourish would we expect a truly noticeable stimulus to the broader economy and to living standards.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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Connecting a Geographically Diverse Nation T_Amontree  –  Feb 6, 2009 8:45 PM

According to the World Economic Forum, the United States has among the most competitive Internet infrastructure in the world, and it is continually improving. Unlike Luxembourg, the Netherlands and other nations “ahead” of the United States in the flawed study you cite, the U.S. faces the unique challenge of a vast geography.  It is this challenge that is the subject of the current stimulus debate:  How can government policies encourage universal broadband access in remote pockets of the country?  Both U.S. policy-makers and the U.S. broadband industry are committed to achieving the important national objective of connecting all Americans to the diverse opportunities that broadband brings into our lives.

Tom Amontree, USTelecom – The Broadband Association

US specifics Paul Budde  –  Feb 7, 2009 2:41 AM

Thanks for your comments Tom, much appreciated. I love discussion.
I am sure that you know that the US is certainly not leading the world in bb penetration. They key reason for this is not its geography but its lack of real competition. While there are telecoms and cable networks, this duopoly is reaching its limits of competition. That’s why Obama and most other developed countries are now taking about open networks. Once you get more equal access to the underlying infrastructure you will get more competition, better prices and more innovation. This will not be delivered by the current duopoly. In rural and regional areas there is very little infrastructure competition nor is there a regulatory regime in place in the US that for example requires local loop unbundling (again this is in place in all countries that do have higher bb penetrations and better quality bb than the US). You notion about the uniqueness of the US is used by all countries in one way or another who want to defend their poor broadband position you will hear the same argument in Australia, Canada, New Zealand. While I most certainly see your rural problems, as does Obama, I can’t accept this as an excuse why the US is doing to badly in the international bb stats. The solution for the US is exactly the same solution that other countries are pursuing create more competition and innovation (and better prices) by stimulating open networks and don’t pump more money in the bottomless pit of the closed networks of the incumbent players. The Amsterdam examples might give you a glimpse of the future.

Our focus on the solution is too narrow Craig Settles  –  Feb 8, 2009 8:42 AM

It seems to me that every time a telco brings up what great competition we have in the U.S., someone needs to point them to a range of communities such as Pulaski, TN, Greene County, NC, Bristol, VA and Oklahoma City. In all three areas, incumbents refused to be bothered with what these communities needed and wanted, so the local governments built their own broadband solutions.

Pulaski will tell you how their public utility cannot provide the community that’s down the road with service that could save them millions of dollars because of telco-induced anti-competition legislation. At the same time, the telcos whine about how difficult it is to get fiber into remote areas because of the vast expanse of our geography while side-lining those with proven ability to do just that. Let stimulus money flow to local governments, and pass national legislation that removes the handcuffs of telco-influenced restrictions on their ability to provide their own solutions.

The national discussion, both in Congress and elsewhere, has to stop making it seem our only options for solution providers are Verizon and incumbent cable companies. As in, “open access will limit incumbents’ involvement,” or “requiring 50 Mbps will prevent the cable companies from participating.” Yeah, that’s true, but let’s not present it as if they’re the only game in town. They’re not! There are regional and local telcos such as MTCO in Metamora, IL that can step up to the plate. Have we forgotten that it is the small and the swift that bring technology up to the next level? Stand firm the tougher standards, and local or new players will step into the breech.

And while we’re talking about narrowed focus, Congress should be dissuaded from any form of tax credits that are granted on a promise of future highspeed networks. Though this may be normal tax credit logic, in the past, states like Pennsylvania went for that sucker play with incumbents who take the credits now, but keep shuffling out some song and dance about how “it’s taking us longer than expected to deliver. However, next year…” The heck with that!! Not one dime of tax credit should be granted until network projects are locked in with state or local governments, preferably with ironclad penalty clauses for failure to deliver.

Better than tax credits, though not necessarily at their exclusion, is having Congress take a 2-by-4 (metaphorically speaking) upside the collective heads of financial services companies so they free up credit for regional and local service providers that could be launching network projects if they just had easier access to money. Several of these providers have told me tax breaks, they don’t need. Cold hard cash, they need, and cash flow will be sure to follow. 

If you want to get a good picture of what’s happening and what’s really needed in both rural and urban areas from this broadband stimulus bill, take a look at this report - http://roisforyou.wordpress.com. We can’t let our narrow focus on stimulating the economy right now short-change the future. With a little more creative thinking we can tackle both short- and long-term needs.

muni broadband Paul Budde  –  Feb 8, 2009 9:35 AM

Good on you Craig,

I think community based broadband (muni broadband) would be a real good move forwards and the stimulus package should be used to empower local communities to decide how they want to move forward in building out their local networks. It should be forbidden that the incumbents can sue local communities to move into this direction. I remain puzzled about this as no other country in the western world protects their incumbent to the extent as what happens in the USA.

Mapping and meet-me-points Paul Budde  –  Feb 8, 2009 12:05 PM

If we want to do this effective and efficient Steve, we need to map the fibre that we have (telecoms, utilities, munies, etc). Once we know where it is we establish meet-me-points where these networks can be linked in a neutral way (e.g. within community facilities). This also provides us with an indication where the gaps are that might need funding from the stimulus package.

Technology inventory advised Craig Settles  –  Feb 8, 2009 4:41 PM

Though this may seem trivial, what you guys point to is a need for communities and state governments to take a technology inventory of their assets and asset providers before finalizing their respective plans of attack.

Anyone committed to moving these projects forward quickly, but with an eye toward maximizing their network’s long-term value, should focus on existing technology assets that have a future, meaning it’s generally not proprietary or about to become obsolete. Someone who’s involved with a city broadband technology project described to me how the local incumbent sales rep keeps convincing that city’s government to buy a technology that’s outdated, but it’s what the city has been buying for years. As long as they continue down this path, it will be impossible to modernize this segment of the city’s communication infrastructure.

existing technology Paul Budde  –  Feb 8, 2009 11:00 PM

You are correct Craig. The good thing with telecom is that most technologies can be interconnected with each other, so let’s make sure that we use standardized technologies and start with what we have, most people don’t need 100Mbs tomorrow so let do it step by step, look were the gaps are an make sure that where upgrades are needed we start implementing technologies that are catering for our future needs both from a technology point and equally important from a affordability point of view. As it will take 10 years and longer to fibre up the whole country there is also plenty of room for wireless solutions, these are much faster to implement, if needed some of that can overtime be replaced by fibre, but let’s do that on a demand basis. What is needed is that the whole country - as quickly as possible (within a few years) - does get an affordable good speed broadband network. Paul

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