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March 19, 2010
The US telecoms regulator has issued its National Broadband Plan (NBP) in response to Congress' demand in February 2009 for universally accessible, affordable and widely-adopted broadband. The document sets out a number of goals for 2020 and ways to achieve them. The proposals are the basis for debate between stakeholders and for legislation. The highlights are:
Speed, availability and adoption
- To give anchor institutions such as schools, hospitals and government buildings in every community access to 1Gbit/s connections
- To pass 100m households, about 87% of national total, with networks capable of 100Mbit/s actual download speed and 50Mbit/s actual upload speed
- To enable all homes and businesses to receive 4Mbit/s actual download speed and 1Mbit/s actual upload speed
According to the regulator, 95% of the US population can already connect at this base speed using fixed methods (DSL, cable and fibre-to-the-premises (FTTP)). This estimate is based on whether homes are covered by cable or FTTP networks, or for DSL-only areas, homes' proximity to the central phone office (or phone exchange). Crucially, however, the estimate does not account for the detrimental effects that factors including network congestion and in-home wiring can have on the speed experienced. The FCC is attempting to tackle this inaccuracy and account for a wider range of factors that influence actual speed by launching in-home tests carried out by consumers.
The remaining 5% of the population, occupying 7m homes mainly in rural areas, is either underserved or unserved. The majority of these homes, 6m, have no access to broadband, defined by FCC as speeds above 0.75Mbit/s; 1m can only receive actual speeds between 0.75Mbit/s to 4Mbit/s. The estimated cost to upgrade this portion using fixed and wireless means is put at $24bn (average $343 per home), of which a significant share, $14bn, would be needed for the 0.25m most remote homes. The projection assumes next-generation wireless broadband networks announced by Verizon, AT&T, Cox, MetroPCS (LTE) and Clearwire, OpenRange (WiMax), which are expected to cover 5m of the 7m homes in the gap, will need further investment to be able to deliver 4Mbit/s actual speed.
- To boost broadband household penetration to 90%, up from 68% at year-end 2009 according to Screen Digest
Competition
- To increase the accuracy and depth of broadband data collected from ISPs - on availability, penetration, churn, bundled products, retail prices and in-home actual speeds. This data will be made publically available
- To reduce practical and pricing barriers to broadband rollout:
- Free up 500Mhz of wireless spectrum, of which 300Mhz will be made available purely for mobile use; this includes 120Mhz of reallocated TV broadcast spectrum
- Evaluate costs and provide best practice guidelines for access to existing private infrastructure including utility poles and conduits; make federal financing of rights-of-way infrastructure (roads, bridges, sewers, rail, gas and water pipes, electricity) contingent on states deploying jointly with broadband infrastructure; introduce 'dig once' legislation for these rights-of-way to avoid operators having to build under recently laid works
- Review broadband wholesale prices, including incumbent telco fees for transporting 3rd party providers' traffic from central offices or mobile switching centres to internet peering points. The aim will be to ensure rates and conditions are just and reasonable, with the option for the FCC or other authorities to implement remedies in specific regions or market segments lacking effective competition
- Current FCC data gives the following picture of ISP competition: 4% of homes are in areas served by three fixed ISPs, 78% are served by two, 13% are served by one and 5% have no fixed broadband provider. Importantly, these statistics do not signify that 82% (78% plus 4%) of homes have the choice between two or three fixed providers. Data is insufficiently detailed on coverage within each area to determine if multiple providers compete head-to-head - another inaccuracy that the regulator plans to address
Funding
To help achieve the goals for availability, the FCC can draw on the following funds to subsidise providers if necessary:
i) $7.2bn one time fund released by government under the economic stimulus package in February 2009
ii) A new Connect America Fund (CAF), which will appropriate funds currently allocated under the Universal Service Fund (USF) that is primarily focused on expanding fixed voice coverage. The regulator proposes that $15.5bn be shifted from USF to CAF by 2020
iii) A new Mobility Fund to ensure no states are lagging behind the national average for 3G coverage, as a basis to support next-generation mobile broadband deployment. No details on the amount this fund would hold.
The National Broadband Plan includes some useful proposals - improvements in data collection accuracy, opening up of wireless spectrum, infrastructure access guidelines and provision of funding - to address overpricing, speed underperformance and gaps in broadband coverage.
However, a number of its key suggestions either seem unambitious (e.g. 100m homes with 100Mbit/s actual speed given cablecos' DOCSIS 3.0 plans), hesitant (e.g. deferring the central question of broadband wholesale price regulation for later review while relying on publication of detailed pricing and speed information to enhance competition), or unclear (e.g. lack of a specific price for affordable broadband).
By 2013, all five major cable operators, which together pass over 100m homes, are planning to have upgraded their networks to the DOCSIS 3.0 standard that is capable of delivering 100Mbit/s actual speeds to consumers. Comcast alone had upgraded around 52m by 2009. As such, by 2013, it's expected that market forces alone will already have pushed ISPs close to achieving the FCC's 2020 goal for 100m homes with access to 100Mbit/s actual speed. Against this background, the regulator's target for next-generation broadband seems overly conservative.
More ambitious and costly is the goal for 1Gbit/s provision to key institutions, particularly in remote areas where upgrading traffic backhaul networks and running out fibre to individual buildings will be considerably higher than in densely-populated areas. To give an insight into the economics of FTTP: Verizon puts the average cost of connecting a home at ~$1500; but it's important to note this is the cost for higher-return, urban areas, rather than lower-return, rural areas. Given the financial burden, rolling out the ultra-fast broadband to rural community buildings is likely to require funding from the CAF.
The universal service commitment for broadband of 4Mbit/s is also likely to draw on the CAF. Comparatively, it is one of the more ambitious announced worldwide (e.g. the UK has a lower target of 2Mbit/s, and fails to specify whether this is actual or advertised speed). For all homes within cable, FTTP and VDSL network areas, achieving 4Mbit/s actual speed is not expected to be an issue. However, other homes with only DSL as an option for access, and which are further than about 3.5km from the central office, will most likely have to revert to wireless broadband solutions to connect at the speed. As the NBP notes, before this is technically achievable for consumers via wireless solutions, providers will need to invest significant sums in their WiMax and LTE infrastructure, of which a large part is likely to be subsidised.
To achieve the target of broadband adoption at 90% will require entry level products that in many cases will need to be cheaper than current prices. However, the report fails to mention a baseline price for affordability, in contrast to countries such as France, where by year-end 2010 there is a set maximum price of €35/month for access of at least 0.5Mbit/s. Screen Digest research shows that in the US, the average retail broadband price in 2009 was $39.10, more expensive than the average of $22.02 in Western Europe. Contrary to the continued price decline in Western Europe, US broadband prices also rose marginally during 2009.
The decision on whether to bring in regulatory remedies to bring retail prices down - including possible price caps on wholesale broadband products - has been postponed until the FCC has collected and analysed relevant data. Rather, the regulator is looking to achieve lower prices by enhancing information available to consumers, particularly on package speed and pricing. Consumers' increased awareness and the threat of subscriber churn could be useful to bring about price competition in areas where more than one fixed ISP is competing head-to-head. But in regions where there is only one fixed ISP, even if consumers are aware they're receiving a comparatively poor service, there is still no competitive incentive for the ISP to adapt pricing as the consumer has no power to switch. It remains to be seen how the FCC will decide to address this central issue in the longer run, particularly prevalent in more remote areas.
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