With the United States currently ranking 10th among industrialized countries in the availability of broadband, President George Bush’s recently announced goal of universal, affordable broadband availability by 2007 was certainly welcome and needed. However, if the United States wants to improve this ranking and achieve the president’s goal of ubiquitous broadband, policies that truly promote competition, innovation and investment as well as new approaches and business models, will be required.
The deployment and availability of cable modem and DSL services is being driven by incumbent providers. While the RBOCs have announced plans to upgrade their decades-old copper last mile to next-generation fiber, and cable companies continue to upgrade their existing cable plants, their investments are focused on extending the life of their current networks for as long as possible. Even with additional incentives proposed by the Bush administration, the incumbent providers do not see a sufficient return to justify replacing their decades-old copper last mile with highcapacity fiber.
If the country’s providers continue down this road, the nationwide, next-generation fiber infrastructure envisioned by Bush that will connect every home, business and school to deliver ubiquitous broadband will not be achieved by 2007, if ever.
Ranked No. 1 in broadband penetration rates (currently estimated at more than 70 percent), South Korea offers some valuable lessons. In 1995, the Korean government created a comprehensive plan for the Korea Information Infrastructure which included deploying high-speed, high-capacity fiber-to-the-home networks with average speeds of 20mbps symmetrical broadband to all households by 2010. South Korea’s impressive results are largely the result of government policies that created a market environment of free competition with minimal regulations regarding entry and pricing. The enhanced services, applications and e-commerce that the broadband infrastructure has made possible are fueling the growth of the Korean economy, job creation and quality-of-life improvements.
Bush’s technology agenda includes “promoting innovation and economic security through broadband technology” and his administration supports a wide range of policy directives to create economic incentives and remove regulatory barriers. These include accelerated depreciation for deployment of nextgeneration fiber networks in rural areas and support for the FCC’s decision to free incumbents from having to lease new fiber networks to competitors. But who is really benefiting from these policies and incentives?
The 1996 Telecommunications Act was supposed to deregulate the industry and promote consumer choice through increased competition for telecommunications services. Thousands of competitive carriers went out of business attempting to offer new services over incumbent networks as required under the Section 271 UNE-P provision of the act, and many areas of the country still have no meaningful competition. For many consumers, the act has not delivered its promised benefits.
Through successful lobbying efforts by incumbents, key provisions of the act have been overturned. One example is the recent Supreme Court ruling in Missouri Municipal League v. Nixon (Missouri’s Attorney General), which granted states the authority to prohibit municipalities from offering phone services. This decision reversed one of the key pro-competitive provisions of the act that “any entity” cannot be prohibited from providing telecommunications services. The FCC sided with Nixon in the case, which will help incumbent providers maintain their voice services monopoly in this state.
A significant trend is occurring across the country. Municipalities, utility companies and real estate developers, after unsuccessfully waiting for incumbents to upgrade their networks and deliver the advanced services these communities need to grow and prosper, have decided to build their own fiber networks. Render, Vanderslice & Associates reported that 128 communities in 32 states are delivering broadband services to their communities via advanced fiber-to-the-user networks.
This innovative approach can help Bush deliver on his ubiquitous broadband promise. But when these communities look to take control of their own destinies, incumbent providers try to convince residents the projects are too risky or that they will end up having to pay for them with their own tax dollars. Or, like in Missouri, they get laws passed to prevent these communities from offering the critical broadband services they need to secure their economic futures.
A viable alternative has emerged. An innovative twist on public/private partnerships, it is the approach being taken by the Truckee Donner Public Utility District (TDPUD) in Truckee, Calif.
The TDPUD has been providing reliable electric power and water services for more than 75 years to more than 12,000 homes and businesses near Lake Tahoe. The community has consistently grown over the past 10 years as Silicon Valley refugees have flocked there to escape the congestion in the San Francisco Bay area.
However, the availability of high-quality broadband services has not kept pace with Truckee’s growth, and the demand for more advanced broadband services reached a fevered pitch.
For years, the community has tried to get the local phone and cable companies to upgrade their networks so the community can get high-quality, affordable broadband services; but it hasn’t happened and residents continue to struggle with dial-up Internet access and poor-quality analog cable TV. To satisfy strong community demand for advanced broadband services, the TDPUD realized the only way to get the services it needed was to build its own fiber network.
The cost to build a state-of-the-art fiber network that would connect all of the homes and businesses in the community was approximately $16 million. The TDPUD needed a way to pay for the cost of the FTTU network but did not want have to issue municipal bonds that would require a public vote.
Although the community fully supported the project, a traditional municipal bond financing package would require ratepayers to back the financing through increases in property and sales taxes if sufficient revenue to pay the debt was not realized.
The solution: an innovative, private revenue bond financing approach and revenue-sharing business model introduced to the TDPUD by Eagle Broadband, the service provider they selected to deliver the broadband services, operate and maintain the fiber network. This unique public/private partnership model works because when construction of the network is complete, Truckee will get a state-of-the-art broadband network with financing backed entirely by subscriber revenue and the network itself without burdening the residents. In addition, because the TDPUD is a nonprofit entity, once the debt service is met, remaining revenue can be reinvested in the community.
This public/private partnership model is different from the traditional incumbent model whereby incumbents pay for their own networks, deliver services and keep all the revenue. If the country is forced to rely solely on private enterprise and the traditional model, it will be years, if ever, before these critical fiber networks are built.
The FCC’s current goals for broadband are to “establish regulatory policies that promote competition, innovation and investment in broadband services and facilities.” True competition and consumer choice were lawmakers’ goals for the 1996 Telecom Act. What’s needed now is more permissive legislation that encourages, not limits, “any entity” to be able to provide broadband services.
As innovative, new, self-supporting public/ private partnership models are demonstrating, communities can and should be allowed to play a key role in building our next-generation communications infrastructure. It is our best shot at meeting the country’s critical need for ubiquitous broadband.
Randy Shapiro is vice president of marketing at Eagle Broadband. He can be reached at rshapiro@eaglebroadband.com.
