By Definition, Universal Service is "Underfunded," Likely to Lead to Tax Hikes

Among the many unknowns surrounding high speed access investment, taxes, fees, consumer prices, terms and conditions of service raised by new common carrier regulation of Internet access, there are similar unknowns about another change declared by the Federal Communications Commission, namely the redefining of “broadband” to a minimum of 25 Mbps downstream and 3 Mbps upstream.

To point to just one potential issue, about 20 percent of rural U.S. households lacked access to Internet access of at least 4 Mbps downstream. Under the new definition, 53 percent of rural U.S. homes lack access to broadband.

The redefinition has to affect universal service funding, eventually.

For starters, more households now be found to lack “broadband” capability. And many Internet service providers once deemed to be providing broadband will find themselves suddenly not providing broadband.  

That means ISPs will have to invest more. Also, the amount of money allocated for USF purposes might now be viewed as too small to upgrade many more millions of locations.

In other words, the fees charged to Internet access customers to support universal services now will climb.

On one hand, it is reasonable enough to point out that average or typical U.S. Internet access offers are bounding ahead. Comcast, for example, now will be offering gigabit access to nearly 21 million households--virtually its entire footprint, by the end of 2015.

At the same time, it also will sell a 2-Gbps services to 18 million of its households, also by the end of 2015. Rarely in Internet history has a leap so high been made so fast.

On the other hand, one might argue that the changing definition, intentionally or not, is one way an agency can create a bigger problem for it to solve.

The implications for service providers of the Comcast attack are fairly significant. One has to wonder whether most telcos will be able to respond in kind.

It is entirely possible that a great many telcos will simply have to content themselves with offering high speed access that is not the best in the market.

It would not be surprising to see some telcos shift more assets to mobile and international expansion, as investing in domestic fixed network assets becomes ever more unrewarding.

Oddly enough, if the intent of some government action is to ensure competition those acts tend also to dent the attractiveness of investment, at least by a major class of competitors.

Comcast now has shown the fruitfulness of Google Fiber’s strategy to create incentives for other ISPs to invest faster in higher speed access. The number of customers able to buy Google Fiber will remain quite small, for quite a long time.

Comcast, on the other hand, immediately is able to sell gigabit services to 21 million U.S. homes, and 2 Gbps to 18 million.

AT&T cannot react so fast. Verizon may not wish to. Small telcos have big decisions to make as well.

On the other hand, the net effect of all that gigabit marketing will be to increase sales of services in the 50 Mbps to a couple hundred megabits per second. In truth, no consumers, when web browsing, are really going to experience benefit beyond about 10 Mbps to 15 Mbps, in any case.

Perhaps downloading operations are the one area where visible benefit is gained, though.
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