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Obama’s Broadband Plan Will Fail

We stand by our analysis from March 2010, in which we indicated that a national wireless broadband plan remains a second-class option as the infrastructure for the emerging digital economy in America.

In his State of the Union address President Obama set the goal of enabling businesses to provide high-speed wireless services to at least 98% of all Americans within five years. To pay for this the government hopes to raise nearly $28 billion from spectrum auctions.

Key elements of the policy are:

  • Nearly double wireless spectrum available for mobile broadband
  • Provide at least 98% of Americans with access to 4G high-speed wireless
  • Catalyse innovation through a wireless innovation (WIN)
  • Develop and deploy a nationwide, interoperable wireless network for Public Safety
  • Cut the deficit by $9.6 billion over the next decade (surplus spectrum auction revenue).

When the President was elected in November 2008 the plans that we discussed with the White House were far more ambitious and the American National Broadband Plan talked about an FttH network for a range of trans-sector (national purpose) services. However a dysfunctional Congress, heavily lobbied by the incumbent players, made it impossible for the President to follow that road. With that, the policy quickly moved in the direction of wireless, since the FCC does have control over spectrum and can initiate that process without the explicit approval of Congress.

But a nationwide wireless network will never be able to provide the same capacity as an FttH network, so it will not be possible to use this for sophisticated high-quality healthcare, education—or for entertainment services. Furthermore, one could argue against government intervention here as the new 4G networks will be built by the current mobile operators anyway.

At the moment the 98% of Americans targeted by Obama’s plan are already linked to 3G networks; and the natural upgrade to 4G is just around the corner. The only difference will be that the operators now have the possibility of getting a significant amount of the $18 billion from the government to pursue their commercial interest. There is nothing in the plan that would see a change to the current situation, where both Congress and the FCC are captives of the incumbent players—companies whose sole aim is to preserve their vertically-integrated business models.

By comparison, the National Broadband Plan in Australia will deliver FttH to 93% of the population and only 7% will be connected to wireless infrastructure for that purpose. Similar to the USA, Australians also are already connected to wireless broadband networks, which operate parallel to the national fixed broadband infrastructure.

Another worrying factor is that net neutrality does not apply to wireless networks in the USA, so operators can discriminate against certain content and/or content providers to suit their own commercial needs. This will make many of the services that require capacity and quality very expensive, unaffordable for most. In America there is absolutely no guarantee of an open Internet approach over wireless networks. This will lead to closed, purposed-based broadband services, where throttling speeds will become the norm and prices will stay high.

Furthermore, in order to reap the $28 billion that the government aims to collect in spectrum fees it will have to provide attractive licences to the industry—to organisations that are focused on maximising their profits—and that means that there will be less room for an effective national purpose policy (for example, the use of wireless broadband infrastructure by government authorities, utilities and other public utilities-based not-for-profit services will simply be too expensive).

Obama’s plan also requires the cooperation of broadcasters, who will have to vacate spectrum. They have already indicated that they are not overly enthusiastic about this and it could delay the process, and potentially increase the costs, as the broadcasters will demand significant compensation, since they will not only have to give up spectrum but will also face competition from these new wireless broadband networks.

In addition, the highly siloed, splintered and divided Public Safety sector has indicated that it has problems with the prospect of sharing a wireless network with other (commercial) operators; so here also significant problems lie ahead.

As we have indicated previously, national broadband plans that are aimed at nation-building and serving the national purpose can only be developed once structural changes have been made to the underlying industry. The country needs to focus on the benefits that will result from open broadband infrastructure as an enabler in transforming the economy and the society. These benefits largely fall outside the balance sheets of the telcos, so why would they bother?

Also, without fundamental industry changes the spectrum—which is basically a public resource—will be exploited for commercial purposes and the whole plan will further add to high usage prices for the public who owns it.

Unfortunately it has become clear over the last two years that the President will not be able to instigate such fundamental changes and the most likely outcome, therefore, will be more of the same old operators, a lengthy legislative process and very little innovation.

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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