Abstract:

In a lively Telecom Council panel session sponsored by AT&T, seven industry executives discussed the ramifications for the U.S. government’s stimulus package and federal budget proposal as related to broadband policy. The sober and candid assessments offered a realistic view at what is involved in building out broadband, particularly using wireless technology, to underserved and rural areas in the U.S.

Backgrounder:

The Obama Team pitched improved broadband access and "Network Neutrality" as key priorities during the Presidential campaign. The stimulus bill the new administration initiated and the U.S. Congress passed (as the American Recovery and Reinvestment Act) on February 17, 2009, set aside $7.2 billion in funds for broadband build-outs. Of that, the Commerce Department’s National Telecommunications and Information Administration (NTIA) will administer $4.7B, while the Department of Agriculture’s Rural Utilities Service (RUS) will control $2.5B. Wireline, unlicensed wireless broadband (WISPs), and high-speed cellular data service are all eligible for grants and/or loans. Companies can tap into one, but not both of these pools of funds, if their application is approved by the respective government agency (NTIA or RUS).

The final version of the bill maintains that projects funded by NTIA must adhere to "nondiscrimination and openness principles." The funds must be dispersed before September 30, 2010, to projects that can be completed within two years. The RUS funds, to be awarded by Sept. 30 of this year, focus more on rural broadband access, requiring that at least 75 percent of an area receiving funds be in a rural area without sufficient high-speed broadband access. The RUS will give priority to projects that give consumers a choice of more than one service provider. Although rural telcos are not the only companies eligible to receive RUS money, they may be best positioned to receive it because many of them are already familiar with the process. Recipients of RUS funding traditionally have been required to use equipment approved by RUS, and that is not expected to change. The approval process relies heavily on the experiences of fund recipients, who must install and use a product for six months before it can be approved. That requirement favors companies that already have RUS approval.

It’s hoped that this new funding will create jobs and provide broadband Internet access to many communities that don’t have it now. Maybe the U.S. telecom industry will become more competitive and innovative as a result? But there are many issues involved and many industry players may stay on the sidelines. There are also many rules and regulations that have yet to be set by the government agencies before funds will be dispersed. For example, there is no part of the bill that defines the terms "broadband," "unserved area," or "underserved area." The NTIA will work with the Federal Communications Commission (FCC) to define those terms and spell out guidelines for funding.

While the focus of this panel session was on wireless broadband access, wire-line solutions (e.g. Fiber to the Node/Premises, Broadband over Power lines, etc) are also possible.

For more information, please refer to:

Stimulus bill includes $7.2 billion for broadband

http://news.cnet.com/8301-13578_3-10165726-38.html

Author’s note: The rural or underserved includes 12M households and 35M people in the U.S. According to Pew Research, 38% of rural Americans have broadband, which implies that 62% don’t.

http://pewresearch.org/pubs/888/home-broadband-adoption-2008

Prior definitions of Broadband, and “served area” in the USA have been deceptive at best. Historically, residents of a zip code were said to be in a “served area” if only a single subscriber in that zip code had broadband access. This distorts the US availability numbers and paints a deceptively positive picture.

Panel Discussion:

The panel was co-moderated by Derek Kerton of the Kerton Group and Jon Metzler of Blue Field Strategies. The five panelists were:

• Christopher Boyer, AT&T, AVP – Internet & Technology Policy
• Danielle Coffey*, Vice President, Government Affairs for Telecommunications Industry Association (TIA)
• Mike Masnick, founder Techdirt; CEO, floor64
• Robert Rini*, Partner, Rini Coran, PC (Washington DC based law firm representing WISPA)
• David Pejcha, Marketing Director, Silver Springs Networks

* These two panelists dialed in from DC as Dulles Airport was closed and their flights cancelled.

Jon Meltzer noted that the $7.2B for broadband is the largest such government funded disbursement ever. It is about the size of the Universal Service Fund (USF)- which was approximately $7.6B total at last check. The USF is a fund that is mandated by the U.S. Federal government for the purpose of subsidizing rural, low income, and health/ education telecommunications customers. Jon notes that USF subsidization of broadband is still expected (perhaps to decrease its bias toward copper wire voice service).

Chris Boyer stated that AT&T was supportive of a flexible framework to deploy broadband services. However, AT&T was not seeking funds from the stimulus bill during the legislative process. However they are looking at how the legislation may advance their already substantial investment in broadband and projects currently in progress. Chris sited AT&T’s experience in California remarking that AT&T currently makes available broadband to around 90% of its service territory and getting broadband to the last 10% of the population (that does not yet have the infrastructure in place to realize broadband service) was a very expensive proposition. He later commented that AT&T’s broadband network is closer to 85% (give or take) built out elsewhere in the U.S.

The panelists agreed that the requirements for filing grant/loan applications needs to be clearly defined as do the previously mentioned terms- "broadband," "unserved area," or "underserved area." It would also be useful to define "over served area" for contrast with "underserved area." While creating jobs is the number one goal of this legislation, it’s equally important that the technology selected meets the need of the targeted user community.

If “rural” is defined as 20,000 or less, and grants/loans are contingent on addressing the “unserved” or “underserved” rural markets, the likelihood that an incumbent carrier would use the funds to roll out a broadband network for a city of 250,000 or so would be unlikely, according to Jon Meltzer.

Danielle Coffey said that TIA would ask for the time for grant/loan disbursement be accelerated, that the filing requirements not be too onerous, and that the selection criteria be technology neutral.

Robert Rini’s law firm (Rini Coran, PC) has been working with several wireless companies and Wireless ISPs (WISPs) who have asked how they can gain access to licensed spectrum to deploy wireless broadband technologies. The WISPs are interested in receiving government funding to build out wireless broadband in "small, granular service areas."

Derek Kerton observed that it’s a natural tendency of SP’s to deploy new wireless technology in densely populated areas, (e.g. Towerstream’s fixed WiMAX deployment in major U.S. cities) so they can get a better ROI. Greenfield operators often prefer to be the fourth or fifth provider in a dense city than the first provider in an underserved rural zone. So if rural deployment is the priority, then special requirements need to be attached to the funding. The population addressed by the new deployments is also important and should be taken into consideration when approving grants/ loans. Derek was concerned that job creation was more likely to come from incumbent SP’s, but they were not the likely candidates to provide broadband to rural areas (it’s the independent telcos and WISPs). Would a stimulus whose goal was to provide jobs also move the country forward in terms of the global broadband race?

Mike Masnick opined that more broadband competition in the market would create more jobs than a narrowly targeted government sponsored program, and especially so over the long-term. A narrowly defined jobs program would not really help the U.S. economy, which would face the same problems in 12 to 18 months.

Bob Rini, along with several other panelists, felt the final bill "was not stimulating enough." While Clearwire and Digital Bridge Communications may benefit from the bill, due to their synergy with educational institutions and ownership of 2.4G-to-2.5GHz spectrum, the WISPs would also benefit because they are well positioned to provide wireless broadband to rural and underserved areas. WISPs are generally very small businesses operating on a shoestring budget. They have expressed a keen interest in building out wireless broadband in their service areas, perhaps using WiMAX technology at 700MHz or 2.3G-to-2.5GHz licensed frequencies. WISPs (along with this author) believe that licensed spectrum is necessary to provide a carrier grade service- to eliminate interference, noise and signal distortion. Note that AT&T wireless broadband services operate on licensed spectrum.

Some WISPs are considering the 3.65GHz “lightly licensed” band for fixed WiMAX service, but there is no method yet defined by the FCC (or anyone else) to resolve contention amongst multiple possible users of that band. The rural telcos would have to work out spectrum re-use zones or other sharing agreements prior to turning on wireless broadband service. WISPs have not competed well at auctions for licensed spectrum, so a lightly licensed approach would be better for them if a contention or spectrum sharing arrangement can be defined. Rini said, "The FCC has one year to figure this out."

David Pejcha company (Silver Springs Network) builds smart power grids– a communications overlay over the last mile for electricity distribution. Utilities are considering smart grids to better manage their electricity distribution, provide automated remote meter reading, electricity switching for efficient distribution to customers. In addition, they plan to offer on-demand customer notification of electricity use. Electricity demand is outpacing supply so the power delivered needs to be more efficiently managed and usage monitored automatically. Solar energy producing modules might also connect to a smart power grid. Silver Springs Networks builds wireless communications systems using unlicensed 900MHz spectrum. Their network provides a direct link between the electric utility and its customers. It is an "Open IP network" that permits many different devices to attach to it. AT&T provides backhaul transport for some smart grids.

The discussion returned to licensed spectrum being more "investable" than unlicensed spectrum. Again, licensed spectrum prevents noise and interference. It was noted that cordless phones, microwave ovens, and wireless microphones operate at 2.4GHz, which would create interference for any unlicensed service at that frequency, e.g. long range/mesh WiFi. Further, the transmit power levels might be too high in an unlicensed service arrangement. Licensed spectrum, on the other hand, provides a de facto monopoly for the network operator- he has paid for the right of exclusion to keep competitors away.

Where will the licensed spectrum come from? The FCC is freeing up vacated UHF spectrum ("white spaces") for wireless Internet access and intends to make it available to SP’s as unlicensed spectrum for two classes of wireless broadband service: fixed access and personal/ portable access. The white space rules currently specify a 30-foot antenna on the receiver, fixed or portable. That’s a vestigial holdover from the TV broadcast world, according to Jon Meltzer.

With the transition to Digital TV, analog TV broadcasters will free a great deal of spectrum up on June 12th (DTV Delay Act),. But Rini is concerned that the FCC has not comprehensively specified how that spectrum will be used and distributed to interested SPs. WISPs are lobbying the FCC to create a lightly licensed regime for the vacated analog TV spectrum. Meanwhile, the "White Spaces Database Group," plans on formulating a plan to create, govern and maintain a wireless broadband network on abandoned analog television spectrum. When the spectrum is finally vacated, the group hopes that system in place, which will allow for the creation of an open wireless broadband network, which could be accessible by any device.

Currently, there is a secondary market for licensed spectrum in the U.S. Incumbent operators are leasing spectrum at wholesale rates directly to smaller SPs. In addition, Spectrum Bridge has become "the eBay" of auctioned spectrum. The Spec Ex or spectrum exchange is offered by Spectrum Bridge (http://www.spectrumbridge.com/).

Which companies might benefit from the broadband grants/ loans?

Mike Masnick opined that the stimulus funding criteria would be based on the projected number of jobs created by the broadband build-out, rather than any consideration of the requesting company to turn a profit. Since start-up companies are too small to be on the government’s radar screen, they are unlikely to get stimulus money. And since they focus on keeping costs down, and NOT hiring excessive headcount, they are not aligned with the stimulus’ goals. Start-ups are about long-term value creation, and the stimulus is about rapid job creation, thus Silicon Valley’s innovators probably will not participate in the broadband funding program. That is somewhat of a disappointment, as it’s the start-ups that provide long-term job growth and keep the US competitive with the rest of the world.

Counterpoint: We think that independent telcos, utilities, and WISPs will apply for the funding and start-up network equipment manufacturers will likely benefit. On February 17, 2009 (date the final bill was passed by Congress) start-up Airspan Networks announced the availability of what they claim is the industry’s most complete FCC and Rural Utilities Service (RUS) certified lineup of fixed and mobile WiMAX Base Stations and Customer Premises Equipment (CPE) for the U.S. rural market. RUS approval is obtained from the U.S. Department of Agriculture, affirming Rural Development acceptance and “Buy American” status of equipment. Airspan is among a select few WiMAX equipment manufacturers with this coveted “Buy America” status.

How are Capex and Opex impacted by the broadband stimulus?

The panelists and moderator pointed out that capex and opex are different accounting items. Jon Meltzer believes that the broadband stimulus may help with capex, but it won’t help lower opex. Still, offsetting capex is a non-trivial benefit. Grants could be used to offset the civil and construction costs of putting up a cell tower for rural broadband.

What is the FCC’s role in determining U.S. Broadband Policy?

Bob Rini provided this information: The FCC has one year to deliver Congress a report containing a national broadband plan “to ensure that all people of the United States have access to broadband capabilities” and establish benchmarks for reaching that goal. The plan will include:

• Analysis of the most efficient and effective mechanisms for ubiquitous service
• Strategy for achieving affordable service
• Evaluation of broadband deployment, including progress of funded projects
• lan for use of broadband to support national purposes

The FCC is expected to invite public comment to help develop national broadband plan

Finally, a questioner asked about "spectrum fees" in Obama’s new budget. No definitive answer was provided regarding renewal fees for operators that already owned licensed spectrum. But it’s something to watch down the line.

Reference:

What the broadband stimulus package means to rural telcos

http://telephonyonline.com/independent/news/broadband-stimulus-rural-telcos-0223/?smte=wr

Acknowledgement: The author would like to thank Bob Rini, Jonathan Meltzer and Derek Kerton for their diligent review of this manuscript and very helpful comments and clarifications.