Who Should Pay for Broadband?

by Neale Martin published December 11, 2006 in Telephony Telephony

With the shift in power in the House and Senate after this year's midterm elections, it comes as no surprise that one of the Democratic members of the FCC launched a broadside at the state of broadband in the U.S. Michael Copps' tirade against an editorial in the Washington Post claims that the U.S. is 15th or 21st in the world (depending on how you measure) in broadband deployment and that, “universal broadband adoption would add $500 billion to the U.S. economy and create 1.2 million jobs.” He also condemns U.S. broadband for being too slow and too expensive.

Copps cherry-picks data to make the U.S. situation look far more dire. He neglects to mention that the U.S. has far more broadband customers than any other country and that the U.S. market accounts for one-third of the world's total. He finds the overall take rate of broadband woeful, but neglects to address the fact that 35% of homeowners don't even own a computer, and 42% aren't online at all.

And oddly, he points out that 80% of fiber-to-the-home builds last year were in Japan. Does this mean he considers AT&T's FTTN project unacceptable? After all, Japan has 128 million citizens living on a landmass the size of California, with 30 million in the Tokyo area alone. FTTH is a pretty easy business case with those kinds of densities.

I have long been an advocate of big pipes (recommending FTTH in the 1990s), but such a simplistic view of the marketplace by an FCC commissioner is frightening. The cable industry spent $85 billion upgrading its infrastructure to provide broadband Internet access to the vast majority of U.S. households. They have steadily increased the speed of their Internet connections, added voice-on-demand and voice and, recently launched a triple-play offer of all three services for $99.

In large part because of the bizarre position of the FCC that they had to open up their networks to competitors, ILECs were hesitant to follow the cable companies’ lead with a massive upgrade. Instead, they retrofitted their networks for DSL until the rules were clarified. Now, they are building networks to compete with cable.

While I am in the camp that believes AT&T should push fiber beyond the node, I would not presume that I know enough to tell it how to run its business. If they don't get it right, they will lose to cable. Verizon's FTTH gamble is five times larger than AT&T's, and Wall Street is punishing the company for the length of time it will take to get a return on that investment.

The real issue is: Who should decide what broadband networks are built and who should pay for them? The relevance of this question was brought home last week during a presentation I did for a group of network engineers who consult for rural LECs (RLECs). The engineers relayed that most FTTH is happening in greenfield situations and that RLECs were still hesitant to commit because technology issues are still unresolved (GPON/BPON, MPEG 2/MPEG 4, etc.) and the business case analysis was still too speculative.

My response was that all ILECs face a future of inevitable decline if they do not make the necessary investments quickly and that their communities would suffer a similar fate. At this, one of the engineers volunteered a recent experience where an RBOC representative explained at a town hall meeting why it would be years before they could upgrade this small community's network. The engineer had been working to set up a municipal network for the local government, but had difficulty getting funding. Upon hearing that the giant phone company relegated their community to an analog backwater, two different bank officials approached the engineer with a commitment of funding to build out an FTTH network.

The marketplace can be brutal, but ultimately, it is the best and final arbiter of what products and services should be rolled out — not government officials or media pundits.