The Broadband Stimulus Package Is Broken

12:05 PM -- If you are a cable TV or telecom service provider, the risks associated with both applying for and receiving federal funds for rural broadband coverage are not only daunting, but can render the whole exercise as downright useless. The intricacies and complexities in completing just the paperwork for submission can cost lots of time and money, and that should factor in for any venture that's attempting to provide high-speed broadband to "unserved" or "underserved" areas. (See Accessing Obama's Broadband Billions.) Here's a list of problems and solutions:
  • The problem: The Broadband stimulus project, helmed by the Rural Utilities Service (RUS) and the National Telecommunications and Information Administration (NTIA) , does not have maps highlighting where residents do not have access to broadband service, yet they have asked for detailed maps from applicants vying for federal dollars. The solution: Meet with and ask for submissions of maps by incumbents that are not serving contiguous areas surrounding them, and award grants to companies that can prove how the funds would benefit their interests and the public's to increase their respective broadband footprints.
  • The problem: The current rules preclude some applicants from applying since they are considered to be in the footprint of incumbent operators, which sometimes choose to serve more lucrative areas, like suburbs. These less economically attractive areas can also include urban regions and cities with lower homes-passed densities and demographics that do not meet company pay-back requirements. The solution: Offer incumbent companies the incentive to build out low-density areas, within or adjacent to their footprints. Since they are already making a profit from high-density areas, it would make a more compelling “business carrot” to just extend their plant. It does not make good business sense for applicants who are not already within the area, or have a profitable business within the area, to build new plant for low density areas. The cost would be prohibitive; the pay-back would be less than desired; cities and county governments could end up subsidizing the venture with tax dollars in the long-term; and federal dollars would be wasted if these ventures went belly up.
  • The problem: The rules seem to favor incumbent providers -- those that serve a particular area, but have not served the larger contiguous areas within their regions. These areas seem to be in a “black hole” under current rules that preclude applicants from applying where these operators can reach and serve the “underserved." Incumbents also have the right to “veto” applications that are aimed at their territories. The solution: Offer these incumbents an incentive to serve this new base within their contiguous footprint. Federal stimulus funds could be doled out to those companies, large or small, to subsidize investment of the “underserved." Allocate funds to half the project (on a home-passed per mile basis) at the beginning, and supply the remaining funds based on the number of additional homes passed from the expansion.
While this is not rocket science, it does require detailed planning and enlistment of help from the private sector. But here are a few additional helpful steps to consider:
  1. Find those homes and businesses representing the “underserved, or acquire/construct maps.
  2. Offer incentives to those companies with contiguous plant to serve these targets, since these operations are most likely to be successful in the long term.
  3. After the initial round of disbursements based on the above criteria, initiate a second round to clean up the remainder of underserved areas.
— Leonard Grace, a cable industry vet, is a telecom strategist and blogger. He can be reached at [email protected]. Special to Cable Digital News
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LeonardGrace 12/5/2012 | 3:58:29 PM
re: The Broadband Stimulus Package Is Broken

Seven, thanks for the comment!

These are interesting ideas; universal service, mandatory speeds for every customer, and bandwidth caps if providers can provide a bandwidth maximum not to exceed without additional charges.

The Universal Service, (I don't know); enhanced speeds for preferred customers, (yes); published cap limits on bandwidth, (yes);I beleive the Pipelines are going to move in this direction, they are just not there yet with the needed upgrades to infrastructure. Docsis 3 should be helping with conjestion problems, but it probably depends on where you are located.

thanks again!

paolo.franzoi 12/5/2012 | 3:58:29 PM
re: The Broadband Stimulus Package Is Broken


Step 1:  Delete the package.

Step 2:  Require Broadband of a goodly (this is what we should argue about) becomes a Universal Service.  Let me start with a 10Mb/s by 1Mb/s service as the MANDATORY to every residence in the US by cable and telco.

To follow on, I am okay with adding bandwidth caps if we can have guaranteed maximum rates of oversubscription.




LeonardGrace 12/5/2012 | 3:58:28 PM
re: The Broadband Stimulus Package Is Broken

Comment on Step 1: Delete Package

i'm not sure from a business scenerio they can accomplish this one!

Pipelines have to spread out the cost, (use economies of scale), to reach a broad audience to get the "pay-back" needed from infrastructure build-outs, upgrades, plus overhead and programming costs, while not excluding personel costs......

Packages allow them to attract a wide variety of customers, but what they really want is a "Triple or Quad Play" customer who is willing to let them build a package suitable for their needs, whicle offering it at an attractive price as compared to shopping al-a-carte.


LeonardGrace 12/5/2012 | 3:58:27 PM
re: The Broadband Stimulus Package Is Broken

Ok, I'm getting there....delete the Stimulus Package!

Well, it could be deleted because it does not seem to be working as it is structured.

Yes, these companies mentioned are making money, which afterall is the "American Way", and Wall Street demands they make it every quarter, so rates have to go up as their markets mature. The problem is a lack of competition, but this continues to evolve with Verizon's (FTTH), and AT&T's (U-Verse), and DBS on the Digital Video side. The larger companies realized early on that to compete in this type market, they needed to be large. They also needed "economies of scale" to offer all that was demanded, which ended up not being cheap.

As a consequence, smaller companies just don't have a fighting chance at competing with the conglomerates. This goes back to the merger frenzy which has taken place over the past 10 - 15 years; with deregulation companies were allowed to merge and buy-out competitors, while capturing the best markets, thereby reducing competition. 

So, you have the large Pipelines with deep pockets for lobbying that can influence legislation.

With all that said, the solution probably lies in creating and nuturing competition while creating access for all in broadband. But, with the agenda being blanket access for the immediate future, a workable Stimulus Package needs to be constructed to get the job done.

Seven, good comments and thanks for the input.

paolo.franzoi 12/5/2012 | 3:58:27 PM
re: The Broadband Stimulus Package Is Broken

Wrong package Leonard.

Delete the Stimulus Package.  Other than Charter and Qwest, who is NOT making lots of money here - Comcast is, Cox is, Verizon is, AT&T is - see a pattern?

Just get RID of the Broadband Stimulus and force (for cable) DOCSIS 3.0 available to all cable customers in say 5 years.  For Telcos force either 5 band VDSL2 or FTTH available in the same timeframe.  Now THAT would drive job creation and broadband deployment.



rjmcmahon 12/5/2012 | 3:58:27 PM
re: The Broadband Stimulus Package Is Broken

I think competition ideology is part of the problem.  The issue is that an ROI needs to be secured for capital to invest.  And the existing oligarchs probably should be excluded from leveraging yesterday's monopolies into tomorrows lest we buy bicycles from slick Sam

<img alt="" src="http://www.youtube.com/watch?v=Sgjypdq9bDo">

Folks 150 years ago figured this out yet somehow we haven't learned the lesson despite that.

"Such a process happened in the water industry in nineteenth century Britain. Up until the mid-nineteenth century, Parliament discouraged municipal involvement in water supply; in 1851, private companies had 60% of the market. Competition amongst the companies in larger industrial towns lowered profit margins, as companies were less able to charge a sufficient price for installation of networks in new areas. In areas with direct competition (with two sets of mains), usually at the edge of companies' territories, profit margins were lowest of all. Such situations resulted in higher costs and lower efficiency, as two networks, neither used to capacity, were used. With a limited number of households that could afford their services, expansion of networks slowed, and many companies were barely profitable. With a lack of water and sanitation claiming thousands of lives in periodic epidemics, municipalisation proceeded rapidly after 1860, and it was municipalities which were able to raise the finance for investment which private companies in many cases could not. A few well-run private companies which worked together with their local towns and cities (gaining legal monopolies and thereby the financial security to invest as required) did survive."

rjmcmahon 12/5/2012 | 3:58:26 PM
re: The Broadband Stimulus Package Is Broken

The phone companies aren't "losing" landlines but transfering them to mobile which has already been consolidated.&nbsp; They really don't need to invest much in wireline other than replacements to hold their monopoly position.&nbsp; If competition were to materialize in infrastructures it would be expected to serve the business markets first.&nbsp; The "consumer competition" is feigned and used as a ploy for regulatory capture and has been going on for decades or more.

What one would expect is innovation at the application level.&nbsp; This really can't happen with purpose built networks.&nbsp; The current models really only work for purpose built networks. So don't expect much in innovation beyond Facebook and twitter, which are near useless.

Real progress kinda requires a society to wake up from belief and start seeing reality.&nbsp; Belief is powerful and comforting, so most stick with it despite when observations reveal it's obviously invalid.&nbsp; For example, humans stuck with a geocentric model of the solar system for a long time before accepting the heliocentric model.&nbsp; The current oligarchs just pander to belief because it's the best way to maintain the status quo and it's a lot easier than actually going outside and performing some physical labor.


LeonardGrace 12/5/2012 | 3:58:26 PM
re: The Broadband Stimulus Package Is Broken

rjcmahon, there is good logical in your comments and analogy.

The problem with competition in the Cable TV business model remains the huge cost in building and maintaining infrastructure. In my experience, if two companies build expensive infrastructure and split the existing customer base, profit margins decline significantly; while innovation, new products and services begin to suffer.

There lies the problem of why you do not see two cable companies in most areas. It is just not profitable. However, with the Verizon's and AT&amp;T's already having existing infrastructures and phone customers in most of Cable markets, the ability to compete is more attractive, therefore FTTH, and U-Verse. With declining revenues from the loss of the land-line business, Telco's have been forced to search for new revenue streams, in broadband, Digtal TV/HD, and IP Telephony.

For consumers to continue receiving innovation and new products/services, these companies need lots of capital, and a sufficient customer base with profits to produce that capital.

Thanks for a great comment.

cw.774 12/5/2012 | 3:58:25 PM
re: The Broadband Stimulus Package Is Broken

I like this post too.&nbsp; But big difference between a mid 19th century municipalty and the current US federal government level of remote controlling though.&nbsp; Municipalities may still have some inkling of what thier constituency is needing.&nbsp; The Feds?&nbsp; Today?&nbsp; No way!&nbsp; That's why I agree w/Seven and say kill it.

LeonardGrace 12/5/2012 | 3:58:25 PM
re: The Broadband Stimulus Package Is Broken

rjmcmahon, you make some good points!

Yes, the Telco's have moved&nbsp;into mobile while continuing to protect their land-line investments with broadband competition. Just remember, as Jack Welch said, "if you don't have a competitive advantage, then don't compete."

Take a look at where mobile has evolved from: talking to each other thruogh mobile phones, to serious applications of texting, content, and e-mail. The IPhone and Blackberry were market revolutionary successes.

The Cable Industry has evolved from re-broadcasting the big three networks into distant markets to: terrestrial delivery of content, to the internet that is content driven, to fiber deployment which gave increased bandwidth, clarity, and all the content seen today.

So innovation is apparent, but it takes a "true capitalist economy" to bring it about. Is it perfect, no?; is it universal, no? It is "profit driven" with shareholders that demand increases in those profits regularly. But, without Wall Street and shareholders, the capital for innovation and new services would not be available.

Again, thanks for the intriguing input.

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