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TelcoTV 2010: Should the Feds Fund Entertainment?

LAS VEGAS -- TelcoTV 2010 -- Old rules that still govern how money tied to the Universal Service Fund is doled out will need to be set aside as the feds look to reform and size the fund to foster rural access to broadband services, regulatory experts said here at a session dedicated to telecom policy. (See TelcoTV 2010: RUS Sends Friend Request to FCC and FCC Goes for USF Reform.)

But, even as broadband access starts to play a key role with the USF, more thought needs to be applied to the types of services and apps, including video, that will come out of those efforts to help recoup network costs.

However, when it comes to other projects, such as the National Broadband Plan, the Federal Communications Commission (FCC) is still relatively focused on bits and bytes, and not necessarily looking to extract entertainment value out of the effort, said Michael Romano, senior VP of policy at the NTCA - The Rural Broadband Association .

But perhaps it should be. "Part of that speed is, frankly, Netflix and over-the-top entertainment," said Catherine Moyer, director of legal and regulatory affairs for Kansas-based Pioneer Communications. "You have to start making those arguments," she added, noting that those speeds are also there to help drive other much more important apps such as distance learning.

Although the FCC is inquiring about how Internet-capable video gateways can help drive broadband adoption in its National Broadband Plan, much of the focus of that effort has also been tied to defining current broadband speeds and what speeds and reach should be targeted by 2020. (See FCC: Broadband Starts at 4 Mbit/s , FCC Chair Sets 2020 Broadband Vision , FCC Floats 'Simple' Gateway, CableCARD Rules , and Will Reclassification Derail FCC's Broadband Plan?)

But even the FCC's current definition for broadband (4 Mbit/s downstream by 1 Mbit/s upstream) may already be out of date when customers layer in video. Pioneer, Moyer said, already supports more than 4/1, "because consumers come to expect it."

"Video," she added later, "absolutely drives [broadband] adoption."

Still, adding video into the federal funding equation can be tricky. In addition to the access network, there's also some fogginess on how other required pieces, including set-tops and in-home wiring, should or shouldn't factor in. There's a "misconception" as to which parts should fall into that funding pool, and which ones should stay out of it, explained Ronald Dibelka, manager of technical planning for the National Exchange Carrier Association (NECA).

But the bottom line, he said, is that the market has changed dramatically since the early days of the Universal Service Fund. "The access system is not what it was 25 to 30 years ago," Dibelka said. The inter-carrier piece is going away to make room for backhaul and broadband. Today's USF "is not a packet-based accounting system. The [current] rules aren't really made for that stuff."

As for the FCC's National Broadband Plan, opinions varied on when it would be finalized, with Moyer predicting that some of the proposals will likely slip to early 2011, to be followed by lengthy comment and ex parte cycles.

"It's a huge plan," she said. "It's easily going to be pushed."

Dibelka was the least optimistic, seeing it finalized in three to five years. Romano thinks 2012 is likely the earliest time for it to reach the finish line.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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spc_markl 12/5/2012 | 4:18:55 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

I believe in a limited federal government for the US.  However, the only way the country is going to have access to fiber optics everywhere is for the government to fund it as it did with the interstate highway system. 


Unfortunately, it will probably not get done until we are economically forced to when we will deperately need to catch up with the rest of the world.  But the first priority has to be on deploying fiber optic networks ubiquitously, not funding services.


Mark Lutkowitz, Telecom Pragmatics

Jeff Baumgartner 12/5/2012 | 4:18:53 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

Well, it's true that you need to put the pipes in first, but I tend to agree with the panel when they say the services and apps that will be running through them need to be added to the context.  the discussion needs to go beyond speeds. JB

cnwedit 12/5/2012 | 4:18:53 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

I think the panel's bottom line is that the current regulatory system is horribly outdated, given that it was set up when long-distance voice was the big ticket item, and rules about network demarkation points were set up to allow consumers to buy their own phones. Whether or not the feds want to fund video entertainment - and it's understandable if they don't - broadband access does need to be funded, and the most efficient way of doing that may well be to allow service providers to pay for their part of the network construction bill by selling video or access services that support high-quality OTT video.


 

paolo.franzoi 12/5/2012 | 4:18:52 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

What the telcos did not state is the game played here.


So...they go out and create an unregulated subsidiary to run its video offering.  They use USF and RUS funds (and grants/loans from the Recovery Act) to build out their gold plated access networks (you should see the costs of getting 50Mb/s VDSL to a single farm - FTTH is actually cheaper).  Then, they rent out their regulated and subsidized network to their unregulated subsidiary.  They suck as much equipment as they can into the regulated side (especially if they are still a rate of return carrier) in order to get as much as possible paid for by tax dollars.


None of this applies to their Tier 2 (Frontier as an example) or Tier 1 (Verizon as an example).  That is why the rural properties of the larger carriers are what are in the biggest problems.  The small carriers game the system to get as much money as they can from it.


So, cry me a frickin' river.  You guys should go look at some of the smaller carriers and what percentage of their revenue comes from different supports from NECA (High Cost Loops or Switch Miles ).  But nobody is going to do...say Mendicino, California - which is an AT&T property.  AT&T does not get subsidies for those properties and I am not sure if folks would be happy to give them money to do fiber there.


seven


 

frnkblk 12/5/2012 | 4:18:46 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

Without subsidies few if any rural networks can be built and supported.  Remember that the FCC subsidies are for telephone service -- there was no obligation that the RLECs build out broadband networks, but by and large they've done it because it was the right thing to and enable their unregulated operations. 


The RBOCs (such as AT&T) have had the same opportunities for their unregulated arms, too, but other than Verizon, have not invested as much in their rural plant.  Why?  Because they haven't been able to make a business case and/or shareholder concerns.  The point is that even with revenue potential of unregulated operations, RBOC can't make the case to build out broadband in rural areas.


So I'm not sure if brookseven is arguing that there should be subsidies or not, because without them, there would be little wireline-delivered rural broadband.

frnkblk 12/5/2012 | 4:18:44 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

You're right, the rural properties of the RBOCs are generally in worse shape than the RLECs.  That said, the RBOCs can speak for themselves in Washington, and if getting additional subsidies for their rural plant was important to them, they can commission their lobbying groups to make that case in front of Congress and the FCC.  


RLECs don't want that 4 versus 100 Mbps digital divide the FCC has been suggesting.  They want their network and services to be competitive to the national carriers, AND they don't want exist monies cut for their ongoing operations and loan repayments.  If you look at the press coverage of this year's Telergee report you'll see that the margins of the RLECs are decreasing.  There's the mistaken notion that the built networks are fully paid for and require no ongoing maintenance.  That's not the case, and the RLECs are making the point that if American are concerned that the USA is behind in broadband and we want to be a broadband-enabled society, that the dollars need to be there to build and support the network of the future.  

paolo.franzoi 12/5/2012 | 4:18:44 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

frnkblk,


The subsidies that the rural telcos get do not apply to AT&T and Verizon because they are based around thing like the percentage of high cost loops in a LATA.  


What I am arguing is that the small telcos have done a lot of work to take advantage of the subsidies.  Some of this is basically a scam to move money from the unregulated subs cost to that of the regulated sub.


There are no need for further subsidies for these folks - they already get them.  They take advantage not because "it is good" they do it because "it is good for them".  


What I am saying is that there is this misconception that the rural carriers need more subsidies.  They don't.  The places that have issues are the rural properties of the larger telcos.  Verizon is doing it by SELLING their rural plant.  They are not putting money in it - they are dumping it as fast as they can.  The first dump of lines was to Fairpoint.  They now have an upcoming dump to Frontier.  This worked well for Fairpoint (note sarcasm) - we will have to see how it works for Frontier.


I do not believe that anyone is advocating subsidies for AT&T and Verizon, but that is where things will have to head.  Note Century and Frontier are stuck on this front and have taken scaling measures to improve their finances not network investment measures.


 


seven


 

MNewsom 12/5/2012 | 4:18:43 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

I agree with Mark and he / we could use an even earlier example -- the REA projects started during the 30s.  RUS is the successor agency to the REA, BTW.  Also, I read recently some study concluding that for every x new broadband connections, y new jobs are created.  Furthermore, this is how BT says they're going to bring broadband to 90% of UK - tapping into public funds.  I add this only because it speaks to Mark's comment about US falling further behind in this key area of infrastructure. 

spc_markl 12/5/2012 | 4:18:43 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

Seven,


I agree that the Tier 2s are in trouble.  They need to find ways to bring in more revenue and higher margins by getting into new businesses, such as perhaps hosted PBX/managed VoIP.


Qwest gives CenturyLink a national footprint, which should be sufficient for now.  The safe bet is probably CenturyLink buying T-Mobile for wireless services.


Changing the definition of Universal Service is somewhat problematic.  Even if the lobbying efforts of Verizon and AT&T were to fail (which is hardly guaranteed), they would both drag their feet as much as possible (just as they did with the 1996 Telecom Act) and hold it up in the courts indefinitely.


Mark

paolo.franzoi 12/5/2012 | 4:18:43 PM
re: TelcoTV 2010: Should the Feds Fund Entertainment?

 


The RLECs are a very loose term.  There is a huge difference between the Mom and Pop OPASTCO companies that get well over 50% of their revenue from various NECA progams and Century/Frontier/Windstream/TDS/Fairpoint etc.


The former have been getting lots of money for basically maintaining a copper plant and doing lots of investment in high bandwidth networks (your results may vary by which company you are talking about).  The latter are tweeners where they in general (and Century is the most aggressive trying to get out of this) don't have a lot of urban properties that can support the very high density buildouts like U-verse and FiOS.  They have all tried IPTV rollouts but have not done so broadly.  The reason is very simple - the money required for those companies to hit their properties broadly just make any business sense. 


Now, Century at the end of the mergers will basically be as big as Verizon post-line shedding in terms of wireline subscriber count.  It has no wireless play nor does it have a Tier 1 long haul network (the Qwest network is just not on the scale of AT&T or Verizon).  So, once it absorbs all these bits it then has to figure out what to do next (get Sprint?  partner with T-mobile?).  The others are much more stuck and there has been an ongoing consolidation in the Tier 2s to drive efficiency.


So, I think the money is already in place for the Tier 3s (if they want it).  The Tier 2s are in a world of hurt.  The Tier 1s are doing there own thing and basically ignoring their rural properties.  If you look at the recovery act both the Tier 2s and Tier 1s ignored it because they do not want the Federal oversight.  I don't think any of us no oversight.  My take has been to simply implement a law that mandates 100Mb/s per home as a Universal Service.  The structures exist to support Universal Service and watch all the carriers gnash their teeth.


seven


 

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