Everyone Wants a National Broadband Network, But Nobody Wants to Pay for It

The Federal Communications Commission held a series of discussions about broadband policies, wiring rural locales and fostering innovation, but the elephant in the room was funding.

The rough goal of the Fed's national broadband dreams is to wire everything in a high-speed access utopia. Radio waves, fixed wire and wireless technologies will all mesh into one big uber pipe for a bevy of innovative services.

It all sounds great on paper. Then the backhoes, private sector companies and reality bonks you over the head. Someone has to foot the bill for all of this wiring and frankly there’s not a lot of economic incentive for private companies to take on the mission. Is it any wonder that the Washington Post reports that Comcast (CMCSA), Verizon (VZ) and AT&T (T) don’t want broadband stimulus funds? Who would want the strings attached?

Here’s a look at the two money quotes—literally—from one of the FCC panels on Thursday.

Bill St. Arnaud, chief research officer of Canarie, said:

We doubt governments will invest in broadband given the deficits and the business case is weak. We’ll have to look to the private sector but the business case for next generation broadband even for a monopoly or duopoly are hard to make.

The problem: Carriers need triple play revenue to justify building those networks and that model only goes so far.

Adam Drobot, chief technology officer of Telecordia, said:

Whoever wires this up will spend well in excess of $300 billion. Improved productivity would make those figures more palatable.

Vint Cerf, vice president and chief evangelist at Google (GOOG), delivered his familiar refrain about how these broadband pipes are essentially the same as highways, the electric grid and other national infrastructure. These pipes should “open entrepreneurial opportunity beyond the party that builds it.”

But here’s the problem: Why would a party build this uber network if there weren’t any returns. Everyone wants access to this future network, but no one wants to be the sucker that has to build it.

Henning Schulzrinne, a professor at Columbia University, noted that the current economics favor the incumbents in the broadband market.

Simply put, the government will have to do it.

But before the U.S. goes on some Australian quest to wire far-flung regions, there needs to be more engineering and economic research.

St. Arnaud said that research and engineering can go a long way with radio technology, using white space and other angles to deliver broadband. However, just as much thought—if not more—has to be given to the business models that will justify next generation networks. For instance, the customer could own the last mile of fiber and maybe this fiber is bundled with a consumer’s electric bill.

The best takeaway from the FCC’s powwow is that the models have to change just as much as the infrastructure, but a lot of the chatter seemed devoid of much reality.

Comments

[dannym:]

the universal fee charged on phone bills was supposed to fund the buildout. where is all that money going?

Aug 14 11:31 AM

[the viking:]

It goes to the high cost ILECS and wireless subsidies for poor folk(They get a cell phone for $5/month and the wireless company gets $40/month from the government). Being in the business for the last 9 years I see smaller not for profit) entities building out very expensive IPTV networks and they get 110% return on their capital investment from NTCA and Universal Service fund. The big publicly traded companies like Verizon are dumping their high cost lines because... The profit and growth numbers are not good enough for their board of directors.

Aug 14 11:50 AM

[theworldhas...:]

the usf was supposed to fund voice buildout and it has, not bb buildout. besides that money is not available to the large companies who also serve many rural areas, so it wouldn't work for those areas unless the feds change the rules anyway. that means the feds have to first make it ok to use on bb and then make it ok for bigs to use in rural areas. oh yeah and then they have to find a way to collect the money from all competitors equally so as not to drive customers to competitors not collecting usf and away from those who do based on differences in surcharge prices. piece of cake.

Aug 14 12:15 PM

[Carousel:]

Larry, you must have missed my talk about how to roll out broadband extremely economically even in areas of very low population density.

Aug 14 10:48 PM

[eldo telecom:]

"For instance, the customer could own the last mile of fiber and maybe this fiber is bundled with a consumer’s electric bill."

This idea has merit. I've blogged on the New America Foundation's recommendation of state and federal tax credits to create incentives for homeowners to spend a $2,500 to $4,000 to connect their homes to last mile fiber "tails."
eldotelecom.blogspot.c...

This will still require cooperatives and local governments to build middle mile connections, NOCs and field distribution equipment. The real estate industry should get behind this concept since it will be a big boost for the residential RE market when it begins to recover.

Aug 14 11:16 PM

[Whatnow:]

This is one of the few articles I have seen to correctly address why BB has not expanded. When Ma Bell was split up and the regionals lost Long Distance as a source of revenue the plant in the rural area was no longer improved. The rural areas for voice are subsidized by the profits in the higher density areas. If they are losing money on the rural voice side how do you expect them to upgrade to high cost BB. Also many customers can barely afford their POTS bill.

Aug 15 08:40 AM

[a. palmer jr.:]

With the economy the way it is and increasing unemployment, I think it should be a crime what they charge for broadband, cable and satellite tv (reruns) and cell phones. I'll admit, when I had most of my productive working years, I didn't earn what some people did, but I did better than a lot of them, also. But with my income and savings it wouldn't take long to have real financial difficulties if I wasted money on all the "utilities" they offer.
A friend of mine gave me a Blackberry and I called to get service installed on it they told me it would cost close to $100 a month to use it. I asked if I could just get it fixed up to work as a cell phone only, with no frills, and they told me "no, with a Blackberry it's all or nothing." Well, for me it's nothing!

Aug 15 09:40 AM

[Joyful Alte...:]

Ma Bell was never in the rural areas, and the regionals still aren't, at least in Pennsylvania.

Aug 15 09:59 AM

[mollytjm:]

the other problem with this is that technology is changing so fast, that who says it'll all be what we need in 5 years? it is needed now, but building it will take time, even if the $$$ is available.

One reason the U.S was so far behind in online banking was that our banks did very early computers, which didn't handle it all that well...Europe waited a little and then went way ahead of us.
if the gov does it, it'll for sure be obsolete by the time they get done with all the haggling and wrangling. They can't even build roads that can handle the traffic when the new roads are complete (which they never seem to be anyway).

Accurate growth and technology forecasting is tough. I agree that someone will have to do this...but only people who think they'll make money at it will be game enough to try.

Aug 15 10:22 AM

[TinyTim:]

What happened to WiMax in urban areas?
Many cities started to offer this as part of their utility service.

The infrastructure with the deepest coverage into rural areas (besides satellite) is cellular. Given that broadband via cellular is expensive, wouldn't it be cheaper to subsidize this existing alternative?

Aug 15 04:41 PM

[polyptoton:]

"if the gov does it, it'll for sure be obsolete by the time they get done with all the haggling and wrangling. They can't even build roads that can handle the traffic when the new roads are complete (which they never seem to be anyway). "

So if I hear you correctly, Eisenhower should never have invested tax payer dollars in a national highway system because 50 years after the system was designed around 60M cars there are now 135M registered cars in the US (which does not include the 112M buses and trucks).

This not only needs to be built, it needs to be built right now with at least 30 year data progressions in mind and only hope that the rollout can keep up with the growth.

Aug 17 05:17 AM

[bcncv:]

I'm curious (maybe for a future article) in seeing the comparisons on the cost of wired rural broadband vs. the expected costs of wireless rural broadband when the technology comes available.

Intuitively, it seems like it could be done with much less infrastructure, but I don't know the market or technical limitations well enough to really judge.

Aug 17 03:45 PM

[Stone Fox C...:]

Mobile WIMAX is the answer.

Aug 17 04:45 PM

[vloscomp:]

Save all that money, give me a Universal HC.

Aug 17 05:01 PM