How Much Will Consumers and Business Pay for Really-Fast Broadband?

As the Federal Communications Commission shifts universal service programs to support broadband access rather than voice, the European Commission pushes for ubiquitous 30-Mbps service across the community, with a further objective of 100-Mbps service for roughly  half of potential consumers by 2020, it is fairly clear that there is widespread support for the idea that faster broadband can have important economic and social benefits.

If Federal Communications Commission Chairman Julius Genachowski gets his way, the FCC will set a goal of 100-Mbps service delivered to 100 milliion American homes by 2020. 100 Mbps or faster is the FCC goal

Genachowski says his preferred approach to a national broadband policy would require ISPs to offer minimum home connection speeds by 2020. The “100 Squared” initiative might in fact be too modest a goal, he suggests.

"We should stretch beyond 100 megabits," he adds. But "availability" is only part of the business equation. Demand is the other part. And at least so far, there isn't much evidence that substantial numbers of businesses or consumers are willing to pay for 50 Mbps, 100 Mbps or potentially 1 Gbps service. 

It might be a different story is the cost of such service were no more than what consumers now pay, but it seems highly doubtful investment can be raised, if that were to be the expected outcome.

Few customers now buy 50-Mbps services where such speeds are available, in large part because the cost is in the triple-digits range. Proponents might argue that the goal is 100 Mbps for not much more money than people now pay for 4 Mbps or 7 Mbps service, but it is hard to envision how even "free" opto-electronices could support such a value-price combination.

In other words, even if all the active elements actually were provided for free, could service providers actually build ubiquitous networks offering 100 Mbps or faster speeds, and price in middle-double digits? So far, the answer appears to be negative.

About 60 percent of the cost of building an FTTH network is construction work, ducts and cables, not to mention cabinets, power supplies and other network elements. Still, in some dense areas, it might be possible to do so, since the construction and cable might amount to about $1200 per home passed. Again, keep in mind we assume totally free opto-electronics.

In suburban areas the business case is marginal, at best, since about $2400 might have to be spent on construction and passive elements.

Since the FCC goal only calls for connecting 100 million homes out of possibly 113 million, we can safely assume the cost of most rural networks of such capacity need not be considered.

Of course, opto-electronics are not "free." But the point is that construction costs, were nothing else an issue, would still be a tough proposition, if the goal is very high speed access at prices most consumers would pay.

American consumers will be paying more for broadband in the future, if for no other reason than that most mobile plans will require it, and those charges will be paid for on a "per-device" basis, not "per home."

What seems improbable is that U.S. consumers are willing to increase overall broadband spending by an order of magnitude (10 times) to have 100 Mbps or faster service on a fixed basis.

One can of course argue from history. Prices for lower-speed broadband services have declined over time, while the prices for the faster tiers have remained stable, but speeds have increased. The issue is how much price compression is possible.

"In order to earn a return for investors, you have to be conscious of what consumers will pay. I don't know this is something consumers will pay for," Piper Jaffray analyst Christopher Larsen says. "It's a nice goal, but it's a little on the over ambitious side."

And in a capital-intensive business such as communication networks, being too early, with too much additional capacity, processing or storage, can be ruinous. One might point to the dramatic bubble in capacity investing, competitive local exchange networks or e-commerce sites around the turn of the century.

Equally to the point is the serious gap that developed between 3G mobile networks, especially in Europe, and the promised new applications that proponents expected would develop.

It has been roughly a decade since European mobile operators placed big spectrum bets on "third generation" mobile broadband, and then largely watched as killer apps failed to emerge, customer use of the new networks remained sluggish, and executives ruefully noted they had overpaid for spectrum.

As operators now gear up for a transition to 4G, we will hear similar talk about new applications the network will enable. The difference is that, a decade after launch, the  "killer app" for 3G turns out to be mobile broadband access.

Right now, 4G is mostly “just” faster access. But 4G looks to be a potential replacement for fixed-line broadband, so maybe, early on, a lead application for 4G will be displacement of fixed-line broadband connections, and not any particular new application.

Some might argue that a lead app for 4G is turning out to be personal Wi-Fi hotspots, for example, another “access” function. A decade from now, we are likely to have discovered that some important new applications, enabled specifically by 4G, have arisen. But it will take some time, if 3G is any predictor.

At some point, the gap can be bridged either by “build it and they will come” improvements in processing, storage or communications that outstrip known demand, or “build it and they will come” applications that might be usable by only a fraction of potential consumers.

Some think the logjam can be broken only by moving faster towards faster networks, to create the right environment for application developers. That tends to be an opinion held by people whose core business interests do not require investing the money.

Service providers are quite a bit more circumspect, and “greed” is not the primary reason for such views. In fact, experience teaches service providers that consumers are quite careful about spending their own money on communication services, devices and features.

One case in point is a study of small-business broadband by Columbia Telecommunications Corporation, which conducted a nationwide survey on behalf of the Small Business Administration.

The really significant finding is that respondents won't pay all that much for 100 Mbps or 1 Gbps connections. Businesses Want 100 Mbps, 1 Gbps, but won't pay

And price resistance is stubborn. Even when the price for such a service is just 10 percent to 20 percent higher, businesses are significantly less likely to switch to a 100-Mbps service from what they currently buy.

As you might guess, if small businesses are hesitant to spend 10 percent to 20 percent more to get 100 Mbps, they are even more hesitant to spend more for an extremely fast Internet connection of 1 Gbps. This is especially true for prices that are 40 percent or more higher than their current prices.

If you asssume the average prices now range between $70 a month to $124 a month, then survey respondents show significant resistance to paying much more than $84 to $149 a month for 100 Mbps service, or $98 to $174 for 1-Gbps service.
This graphic might confuse you. The taller the bars, the less likely the respondent is to take the action indicated. The tallest bar, a score of "5" would mean "highly unlikely" to take the action. SMB broadband demand report

A score of "1," shown by a shorter bar, would indicate strong willingness to take the action.

The point is that small business users aren't willing to spend much more to upgrade from their current level of service to 100-Mbps service.

The most surprising finding is that even the same prices, or prices 10 percent 5to 20 percent lower do not cause small business respondents to become certain of switching. Scores around "3" indicate a "maybe, maybe not" attitude.

No matter what these respondents say about wanting higher speeds, they don't appear to be willing to pay much of anything for it.

FCC Chairman Genachowski on Spectrum Crisis

"We can predict the crisis that is coming," says Federal Communications Commission Chairman Julius Genachowski. "Because demand is going up and supply is staying flat." "If we don't increase the supply of spectrum we're going to throttle the growth and the opportunity and the job creation we can get from mobile innovations," he says.  FCC Chairman Genachowski on Spectrum Crunch

CTIA Backs Net Neutrality Rules

CTIA-the Wireless Association, a trade group that represents wireless carriers, filed a motion in federal court supporting the Federal Communications Commission's net neutrality regulations. CTIA backs net neutrality rules: 


Four public interest groups, including Free Press, have sued the FCC, arguing that the agency's net neutrality rules do not go far enough. 

The CTIA filing might strike some as odd, to the extent that the industry group is supporting mandatory "best effort only" broadband access. Sometimes, half a loaf is better than no loaf. The rules allow mobile service providers greater freedom to manage their networks, in principle also preserving the ability to create quality of service mechanisms. 


Even for service providers that operate both fixed and mobile networks, freedom for the strategic mobile business means it is an acceptable compromise to give up the ability to create quality of service mechanisms for fixed line broadband access. 


Of course, there already is a challenge to all of the rules, filed by Verizon Wireless, so fixed-line interests are not completely sacrificed as a result of CTIA support for the net neutrality rules. 


For some, net neutrality is about denying ISPs the legal right to create new revenue-generating products that create quality of service mechanisms, as this is said to create a "two tier" Internet. Sometimes people mistakenly believe it is about "content blocking." 


In the former case, if there are restraint of trade issues, they can be dealt with by the Federal Trade Commission. There is a legitimate concern that ISPs might favor their own services over rival services by applying QoS only to "owned" services, not to all services willing to pay for such QoS. But many would note that other remedies already exist for such situations. 


In the latter case, the FCC and all ISPs already have agreed that consumers have the right to access all lawful content. 


For others it is about both consumer choice and network management, in the former case the right of a consumer to buy services that optimize voice, video or gaming experiences, in the latter case the simple necessity of managing a shared resource. In either case, anti-competitive conduct can be restrained by either effective market competition or the FTC. 

FCC Testing White Spaces Databases

The Federal Communications Commission is testing the ability of white spaces databases to accurately correlate locations where unused TV spectrum can be used by unlicensed devices, while protecting TV broadcasts from interference.

White spaces are unused spectrum between TV stations and are considered prime real estate because signals in this band travel well, making the band ideally suited for mobile wireless devices, says Julie Knapp of the FCC.

Among the applications envisioned for such white spaces are "Super Wi-Fi", wireless broadband networks, support for video devices and services and machine-to-machine communications.

Generally speaking, there will be much more spectrum available in rural areas than in urban areas. That should spark interest by service and application providers who want to build their businesses in rural areas. There will be spectrum available in urban areas as well, but there also are many more bandwidth options in dense, urban areas.

FCC Announces Public Testing of First Television White Spaces Database

FCC Chairman Talks About Need for More Mobile Spectrum

FCC Net Neutrality Rule Creates Tiered Internet Access, Despite Not Wanting To

The Federal Communications Commission's "Open Network" rules, which inevitably will be known as the "network neutrality" rules, ironically enshrine the notion of tiered Internet access service, even when it attempts to keep the fixed-network Internet access service a "best effort only" type of product.

There are two reasons. First, the rules applying to wireless networks are more flexible. The second reason is that the rules explicitly exempt enterprise access services from the rules.

"Mass-market retail service" is covered, meaning "a service marketed and sold on a standardized basis to
residential customers, small businesses, and other end-user customers such as schools and
libraries."

"The term does not include enterprise service offerings, which are typically offered to larger organizations through customized or individually negotiated arrangements," the official document says.

That suggests we might conceivably see wireless and business access become the places where more experimentation occurs, since those are the places that differentiated access products can be created and sold.

read the whole document here

A Bit More Clarity on FCC's Net Neutrality Order

Following are key excerpts from the Report and Order adopted by the Commission to preserve the open Internet, released by the Federal Communications Commission. Though the language will be fleshed out when the formal order is issued, the language hints at the amount of work yet to be done to flesh out what it all means.

Rule 1: Transparency

A person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings.

Rule 2: No Blocking

A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not block lawful content, applications, services, or non-harmful devices, subject to reasonable network management.

A person engaged in the provision of mobile broadband Internet access service, insofar as such person is so engaged, shall not block consumers from accessing lawful websites, subject to reasonable network management; nor shall such person block applications that compete with the provider’s voice or video telephony services, subject to reasonable network

Rule 3: No Unreasonable Discrimination

A person engaged in the provision of fixed broadband Internet access service, insofar as such person is so engaged, shall not unreasonably discriminate in transmitting lawful network traffic over a consumer’s broadband Internet access service.  Reasonable network management shall not constitute unreasonable discrimination.

Select Definitions

Broadband Internet access service:  A mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service.  This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in this Part.

Reasonable network management.  A network management practice is reasonable if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service. Legitimate network management purposes include: ensuring network security and integrity, including by addressing traffic that is harmful to the network; addressing traffic that is unwanted by users (including by premise operators), such as by providing services or capabilities consistent with a user’s choices regarding parental controls or security capabilities; and by reducing or mitigating the effects of congestion on the network. 

Pay for Priority Unlikely to Satisfy “No Unreasonable Discrimination” Rule

A commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic in the connection to a subscriber of the broadband provider (i.e., “pay for priority”) would raise significant cause for concern.  First, pay for priority would represent a significant departure from historical and current practice.  Since the beginning of the Internet, Internet access providers have typically not charged particular content or application providers fees to reach the providers’ consumer retail service subscribers or struck pay-for-priority deals, and the record does not contain evidence that U.S. broadband providers currently engage in such arrangements.  Second this departure from longstanding norms could cause great harm to innovation and investment in and on the Internet.  As discussed above, pay-for-priority arrangements could raise barriers to entry on the Internet by requiring fees from edge providers, as well as transaction costs arising from the need to reach agreements with one or more broadband providers to access a critical mass of potential users.  Fees imposed on edge providers may be excessive because few edge providers have the ability to bargain for lesser fees, and because no broadband provider internalizes the full costs of reduced innovation and the exit of edge providers from the market.  Third, pay-for-priority arrangements may particularly harm non-commercial end users, including individual bloggers, libraries, schools, advocacy organizations, and other speakers, especially those who communicate through video or other content sensitive to network congestion.  Even open Internet skeptics acknowledge that pay for priority may disadvantage non-commercial uses of the network, which are typically less able to pay for priority, and for which the Internet is a uniquely important platform.  Fourth, broadband providers that sought to offer pay-for-priority services would have an incentive to limit the quality of service provided to non-prioritized traffic.  In light of each of these concerns, as a general matter, it is unlikely that pay for priority would satisfy the “no unreasonable discrimination” standard.  The practice of a broadband Internet access service provider prioritizing its own content, applications, or services, or those of its affiliates, would raise the same significant concerns and would be subject to the same standards and considerations in evaluating reasonableness as third-party pay-for-priority arrangements.

Measured Steps for Mobile Broadband

Mobile broadband presents special considerations that suggest differences in how and when open Internet protections should apply.  Mobile broadband is an earlier-stage platform than fixed broadband, and it is rapidly evolving.  For most of the history of the Internet, access has been predominantly through fixed platforms -- first dial-up, then cable modem and DSL services.  As of a few years ago, most consumers used their mobile phones primarily to make phone calls and send text messages, and most mobile providers offered Internet access only via “walled gardens” or stripped down websites.   Today, however, mobile broadband is an important Internet access platform that is helping drive broadband adoption, and data usage is growing rapidly.   The mobile ecosystem is experiencing very rapid innovation and change, including an expanding array of smartphones, aircard modems, and other devices that allow mobile broadband providers to enable Internet access; the emergence and rapid growth of dedicated-purpose mobile devices like e-readers; the development of mobile application (“app”) stores and hundreds of thousands of mobile apps; and the evolution of new business models for mobile broadband providers, including usage-based pricing.

Moreover, most consumers have more choices for mobile broadband than for fixed broadband.   Mobile broadband speeds, capacity, and penetration are typically much lower than for fixed broadband,  though some providers have begun offering 4G service that will enable offerings with higher speeds and capacity and lower latency than previous generations of mobile service.   In addition, existing mobile networks present operational constraints that fixed broadband networks do not typically encounter.   This puts greater pressure on the concept of “reasonable network management” for mobile providers, and creates additional challenges in applying a broader set of rules to mobile at this time.   Further, we recognize that there have been meaningful recent moves toward openness, including the introduction of open operating systems like Android.  In addition, we anticipate soon seeing the effects on the market of the openness conditions we imposed on mobile providers that operate on upper 700 MHz C-Block spectrum, which includes Verizon Wireless, one of the largest mobile wireless carriers in the U.S.  

In light of these considerations, we conclude it is appropriate to take measured steps at this time to protect the openness of the Internet when accessed through mobile broadband

Specialized Services

In the Open Internet NPRM, the Commission recognized that broadband providers offer services that share capacity with broadband Internet access service over providers’ last-mile facilities, and may develop and offer other such services in the future.  These “specialized services,” such as some broadband providers’ existing facilities-based VoIP and Internet Protocol-video offerings, differ from broadband Internet access service and may drive additional private investment in broadband networks and provide consumers valued services, supplementing the benefits of the open Internet.  At the same time, specialized services may raise concerns regarding bypassing open Internet protections, supplanting the open Internet, and enabling anticompetitive conduct.  We note also that our rules define broadband Internet access service to encompass “any service that the Commission finds to be providing a functional equivalent of [broadband Internet access service], or that is used to evade the protections set forth in these rules.”

We will closely monitor the robustness and affordability of broadband Internet access services, with a particular focus on any signs that specialized services are in any way retarding the growth of or constricting capacity available for broadband Internet access service.  We fully expect that broadband providers will increase capacity offered for broadband Internet access service if they expand network capacity to accommodate specialized services.  We would be concerned if capacity for broadband Internet access service did not keep pace.  We also expect broadband providers to disclose information about specialized services’ impact, if any, on last-mile capacity available for, and the performance of, broadband Internet access service.  We may consider additional disclosure requirements in this area in our related proceeding regarding consumer transparency and disclosure.  We would also be concerned by any marketing, advertising, or other messaging by broadband providers suggesting that one or more specialized services, taken alone or together, and not provided in accordance with our open Internet rules, is “Internet” service or a substitute for broadband Internet access service.  Finally, we will monitor the potential for anticompetitive or otherwise harmful effects from specialized services, including from any arrangements a broadband provider may seek to enter into with third parties to offer such services.   The Open Internet Advisory Committee will aid us in monitoring these issues.

FCC Passes Net Neutrality Order, Unclear What it Means

The Federal Communications Communication has voted to approve new net neutrality regulations on a three-to-two vote. As nearly as we can tell, the new rules, which will face court challenge and possible contrary instructions from the U.S. Congress, mandates network management transparency, and simply codifies existing rules protecting a consumer's right to use lawful applications.

The actual language of the order is not available yet, and much remains to be understood. Some would characterize the general thrust of the rules as forbidding some forms of "priority access" to sites and applications.

The rules appear to apply to both fixed and mobile networks, though only "unreasonable discrimination" is prohibited.

The rules appear to be less affected than fixed networks are, though the language used is broad enough that the actual details will have to be filled in by actual enforcement actions later, taken on a case-by-case basis. It appears we will have to wait not only for the actual written order, but for the legal challenges, case-by-case complaints to the FCC and then possible Congressional direction, one way or the other.

In short, it isn't entirely clear what has changed, here, and how big the impact might be.

Read more: http://www.electronista.com/articles/10/12/21/fcc.approves.net.neturality.rules.despite.gop/#ixzz18ltQVSRl

As expected, many who had argued for more-rigorous rules are disappointed. See http://www.freepress.net/press-release/2010/12/21/free-press-fcc-net-neutrality-order-%E2%80%98squandered-opportunity%E2%80%99 for example.

Few U.S. Consumers Buy 25-Mbps Services

It appears there is almost no U.S. consumer buying of the highest-speed broadband access services, according to Federal Communications Commission data.

Of services offering 25 Mbps or more bandwidth, business buyers register something on the order of two percent of total broadband subscriptions.

Consumer take rates are low enough not to register on the graph. One might argue that take rates for the higher tiers among consumers are so low only because the 25 Mbps services are not available in most markets. That's true. See http://ipcarrier.blogspot.com/2010/12/us-broadband-access-not-as-bad-as-some.html.

But even where such services are available, take rates remain quite low. Low enough, in fact, that U.S,. service providers never disclose the numbers.

U.S. Broadband Access: Not as Bad as Some Believe

There's an interesting statistic in the Federal Communications Commission's latest report on the state of U.S. broadband access services. The FCC took a look at locations by zip code, and estimated that 48 percent of U.S. households had, at the end of 2009, the ability to buy downstream service of at least 3 Mbps and upstream service of more than 200 kbps from at least three fixed-network providers.

Some 44 percent had the ability to buy such service from at least two fixed-network providers.

Some 28 percent of households had the ability to buy service of at least 3 Mbps/768 kbps from at least three providers, while 48 percent had the ability to buy from at least two providers.

About 22 percent of househoulds could buy service of at least 6 Mbps/1.5 Mbps from at least two providers, while 57 percent could buy from at least one provider.

Some 20 percent of U.S. households could buy service of at least 10 Mbps from at least two providers, while 58 percent could buy service from at least one provider.

If one adds in wireless providers, the FCC found that 58 percent of U.S. homes could buy wireless service of at least 3 Mbps/200 kbps from at least three providers, while 35 percent could buy from at least two providers and six percent had at least one provider.

About 40 percent of U.S. households could buy service of at least 3 Mbps/768 kbps from at least three providers, while another 40 percent could buy service from at least two providers, and 17 percent could buy service from at least one provider.

That means 97 percent of U.S. homes can buy service of  3 Mbps/768 kbps from at least one provider in each area. In addition, 28 percent of those households could buy such service from at least three providers; 48 percent could buy from at least two providers and 21 percent could buy from at least one fixed provider.

About 80 percent of U.S. households can buy 6 Mbps/1.5 Mbps service from one to three network providers, and also 80 percent could buy service from at least one provider as well.

Some 79 percent of U.S. households could buy 10 Mbps/1.5 Mbps service from at least one provider.

You can argue more speed is needed, or that prices are too high: people do that. But that's a significant number of facilities-based competition for nearly 80 percent of U.S. households.

10% Reduction in U.S. Communications Investment Would Cost 300,000 Jobs, $100 Billion in Wages, Over 5 Years

The economic impact of Federal Communications Commission policies that depress capital investment in the U.S. telecom indusry by 10 percent would lead to job losses exceeding 300,000 over a five year period, a new economic analysis by the Phoenix Center for Advanced Legal and Economic Policy Studies estimates.

A 10-percent reduction in investment costs 130,000 information-sector jobs per year in the following five years, plus indirect jobs of about 198,000 over the same five-year period.

For each million dollars of investment, the Phoenix Center finds that 10 jobs are affected in the information sector and perhaps 24 jobs across the entire economy, about a 40-percent larger effect than found in most earlier studies.

Lost earnings over a five-year period for a 10-percent decline in investment could be $36 billion in the information sector and $100 billion for all affected jobs.

The study was conducted by T. Randolph Beard, Ph.D. Phoenix Center Senior Fellow and Auburn University Economics Professor, Phoenix Center Chief Economist Dr. George S. Ford and Phoenix Center Adjunct Fellow Professor Hyeongwoo Kim, of Auburn University.

read the study here

FCC Wants More Input on Wireless, Managed Services

The Federal Communications Commission's Wireline and Wireless Bureaus are seeking further public comment on issues related to specialized or ‘managed services and mobile broadband, at least partially, and perhaps largely, because Verizon and Google have reached their own agreement about how to implement network neutrality on Verizon's fixed networks, but have agreed not to apply the rules to wireless access.

The FCC wants further input on the exemption of new managed services from the "best effort only" Internet access agreement. In essence, Google and Verizon have agreed to what network neutrality advocates have asked for on the fixed networks. That virtually ends discussion about Internet access and network neutrality.

But the mobile network now emerges as the area where policy advocates will focus their energy, and many will not be happy with the exemption for managed services, though the policy foundation for prohibiting such services seems quite weak. Lots of services, such as private network services or cable TV or telco TV routinely use the same physical facilities, but represent different services from "Internet access" and in fact are regulated using entirely different rules.

linkf

U.S. Fixed-Line Voice Lines Rose for First Time Since 2000 in 2008

Perhaps the most-significant finding contained in the latest Federal Communications Commission data on voice lines is that total voice lines in service actually grew in 2008, reversing a declining trend since 2000.

We will have to wait for 2009 data to see whether this is a new trend or an anomoly. Still, the news is that, for the first time since 2000, total fixed voice lines in service have grown, rather than contracted.

That doesn't mean the trend has reversed for incumbent telcos, though. All of the gain came from non-traditional suppliers, either cable companies or competitive local exchange carriers. But it seems clear cable companies were the clear winners.

The big jump between June 2008 and December 2008 were accounts provided over coaxial cable lines used by cable firms. Between June and December, coaxial cable VoIP accounts increased from slightly less than 10 million to 20 million.

At year-end 2008, there were 141 million end-user switched access lines in service and 21 million
VoIP subscriptions in the United States, or about 162 million wireline retail local telephone service connections in total.

Of these, 97 million were residential connections and 65 million were business connections.

By technology and customer type, the 162 million wireline retail local telephone service connections were: 48 percent residential switched access lines, 39 percent business switched access lines, 12 percent residential VoIP subscriptions, and one percent business VoIP subscriptions.

link

Does Anybody Really Believe a "Small" Number of Title II Rules Will Hold, Long Term?

The Federal Communications Commission's press release on opening its notice of inquiry on Title II common carrier classification of broadband access services will leave many service providers a bit queasy. For starters, the rules almost certainly will apply to cable companies, which never have been regulated, in any way, as "common carriers."

Secondly, even if the FCC promises some lighter-touch "third way," once Title II rules are established as the framework, there is no formal barrier to later changes in rules that would apply more than a "small number" of Title II rules. Nobody familiar with government logic and practice will feel safe that the promised forbearance will hold over the long term.

Taxes and rules get instituted in modest ways, for specific purposes, and then never "sunset." Over time, in the case of taxes, amounts keep creeping up. Over time, in the case of administrative or legal requirements, old rules continue to drift out of date with changed circumstances.

Nor will the actual language provide much comfort. The FCC says it wants to fundamentally alter broadband access regulation, but will "forbear," at its own discretion, from applying all the common carrier rules, "other than the small number that are needed to implement fundamental universal service, competition and market entry, and consumer protection policies."

Not many observers think, over the long term, that the number of rules will remain "small." Where else in federal government action have you seen rules become less numerous over time?

Once Title II is the new framework, any number of steps, including price regulation, entry regulation and other rules are possible. In a nutshell, what was best about the old, highly-regulated monopoly system was service quality and universal access. What was worst was high prices and low rates of innovation.

Under competitive conditions the effect of common carrier regulation is mixed. We are likely to see both low prices and low innovation, plus less investment.

Verizon already earns 70 percent of its cash from operations, not wireline, and the balance continually is shifting to wireless. With lower likely return from wired operations, rational operators will simply starve the wired networks and invest more heavily in wireless.

The problem is that wireline service as a whole is becoming less profitable, and providing less revenue. You don't help matters by making it less profitable, and creating less revenue. You only accelerate its decline.

FCC Title II Push is "Reckless," "Risky" and Will Create a "Casino" Environment

Mincing no words, former FCC Commissioner Harold Furchgott-Roth says the Federal Communications Commission's drive to reclassify broadband access as a common carrier service is "reckless" and "risky," will lead to a dampening of investment in networks, years of legal challenge and replaces an investment climate with a "casino" environment.

Of course, the drive to regulate broadband access as a common carrier service, despite being described as a targeted "third way" between unregulated information services and regulated common carrier services can be no such thing. The service either is an unregulated data service or it is a common carrier service under Title II. There is no permanent middle ground, as the FCC can later apply virtually any Title II common carrier obligations if it so desires, once the change is made.

In fact, the FCC's latest effort is the fourth time the FCC has launched inquiries into the status of information services, concluding three times before (Computer Inquiry I, II and III) that information or enhanced services are in fact to remain unregulated.

In light of those decisions, one has to ask: is broadband Internet access a separable telecommunications service plus a separate information service including processing, storage, retrieval, or a single integrated information service that uses telecommunications? If broadband access is deemed to be the former, the FCC might try to regulate some parts of the "access" service under Title II. If broadband access is seen to be the latter, then the current information services classification logically remains in place.

That's the chief problem with the Federal Communications Commission's effort to find some "third way" as it seeks

to impose Title II regulation for the first time, on broadband access services, says Russell Hanser, an attorney at

Wilkinson, Barker & Knauer.

"The uncertainty the proposal creates will create a dampening effect on investment in the broadband business,"

says Harold Furchgott-Roth, former FCC commissioner. Companies aren't sure what will happen and will delay

investment until there is certainty, he says.

The FCC's proposal simply is not conducive to investment, he says. "This is risky," he adds. It "puts businesses at

risk of making decisions they can't be certain about."

Years of litigation are certain to follow if the rules are put into place, Furchgott-Roth says. "The problem is that the proposal is not clear or narrow," and that is the sort of FCC decision that tends to clearly withstand legal challenge," he adds. "Anybody who talks to investors knows how much investors got burned 10 years ago based on faulty interpretations of rules," he says. "This is a casino environment."

If the FCC proceeds, and succeeds, "things will be tied up in courts for years an investors will gravitate to areas with greater certainty and opportunity for profit."

One might argue that means overseas investments will make more sense, or that investments in wireless will make more sense. But the FCC also seems to leaning towards regulating mobile providers more intensely than it already does, arguing that industry concentration is growing.

"There is a very clear correlation between certainty and investment," says Furchgott-Roth. "Unfortunately, both regulation and uncertainty is where we appear to be headed."

Will FCC Take "Nuclear Option"?

With the caveat that there is no direct relationship between the Federal Communication Commission's "National Broadband Plan" and the separate issue of "network neutrality," the two arguably might be related. The reason is that
a U.S. Court of Appeals for the District of Columbia Circuit could rule that, in fact, the Federal Communications Commission lacks sufficient authority to regulate broadband services, for reasons of network neutrality or mostly anything else related to broadband access and applications.

The Court of Appeals challenge by Comcast argues that the FCC has no authority to censure Comcast for throttling Bittorrent access by its broadband access customers.

New and express authority could, of course, be granted by Congress, but that would take some time. And if the FCC has not current statutory authority to create rules for broadband services, does it have authority to push through a reallocation of 500 megaHertz of wireless spectrum, arguably the centerpiece of its national plan?

If it loses, the FCC can appeal to the Supreme Court. But the court might not take the case, and even if it does, it could take years to get a decision.

So the FCC might try to move based on its current authority to regulate "telecommunications" services such as voice. That would overturn all existing federal rules relating to data services, and would incite a nuclear war with telecommunications providers, just as a threat to regulate cable TV industry as a common carrier also would trigger an all-out legal war with the cable industry.

Whether the FCC wants to trigger first an industry uprising and then years of legislation that will introduce massive uncertainty into the market, is unclear. Certainly the FCC cannot be unmindful of the industry response.

That is why any moves to reclassify broadband access, now a "Title I" data service, as a "Title II" common carrier service, will be a nuclear option. It guarantees that the full weight of the telecommunications industry, and possibly the cable TV industry as well, could be marshalled against any such changes.

And since all FCC thinking now is that only private investment will lead to advances in broadband access, a nuclear war with those interests seems self defeating. Not only will the regulatory fights be huge and determined, but no matter what the outcome, lawsuits will fly for years, further obstructing any serious progress. In the five years after the bloody battle, we will be about where we are now, but five years will have passed.

At a time of tumultuous change in the larger business, a six-year to seven-year period of extreme regulatory uncertainty would be damaging in the extreme, partly because investors would balk at investing and service providers would stop investing in wired facilities.

That's thing about what we used to call "mutually assured destruction." The problem with nuclear weapons under the old "deterrence" doctrine is that actual use of the weapons means failure. The only logic to nuclear weapons is not to use them. Oddly enough, we might stand on the precipice of just such a failure.

National Broadband Plan is Mostly a "Grab Bag" of Proposals

There were few, if any surprises, when the Federal Communications Commission finally released its proposed "National Broadband Plan," whose centerpiece is an effort to free up about 500 megahertz of spectrum for wireless access. A modest amount of incremental spending for rural broadband is proposed. '

Perhaps the real story here is a recognition that not much really can be done, or perhaps ought to be done, about the existing fixed-line broadband access market, except to encourage existing providers to upgrade speeds.

Except for Wireless, National Broadband Plan Much Ado About Almost Nothing

Oddly enough, the proposed National Broadband Plan is light on new spending and puts primary emphasis on wireless, while mixing in a bit of a grab bag of existing and vexing voice-related issues. The goal of getting 100 Mbps service to 100 million U.S. homes by 2020 appears to be just that, a "goal," not a requirement.

Some people would call that a mistake, but the Federal Communications Commission is not unmindful of some basic facts, including the requirement that the investment heavy lifting must be done by private industry, and that means raising lots of investment capital from private sources.

Those sources already have made clear their fears that too much tinkering with broadband regulations, especially regulating broadband access as a common carrier service, will choke off investment.

The single-biggest substantive proposal is the plan to make 500 megahertz of new spectrum available for wireless communications by reallocating spectrum presently used by TV broadcasters.

It might be close to heresy, but if you look out 10 years, the business case for investing lots of money in fiber to home facilities is starting to look worse, not better. Many policy advocates call for much-higher speeds and lower costs at the same time. That's not a convincing scenario for investors who would have to take a chance on loaning money in that sort of market.

Also, to the extent that entertainment video has been a big part of the business case, not many observers would believe the future is as bright as the past has been. With voice also under pressure, it may not make as much sense as it once did to invest too aggressively in fixed broadband. Broadband still is the foundation service for fixed networks in the future.

But that is a different issue from the separate issue of how much investment ought to be made, because it is unclear how much users are willing to pay for really-fast service, or how much incremental revenue might actually be created by new applications that require really-fast broadband.

FCC to Propose Spectrum for "Free or Low Cost" Broadband Access

The Federal Communications Commission appears to be ready to license some spectrum, as part of its proposed national broadband plan, for free or very-low-cost access. It is not clear whether the agency envisions giving a single national operator the entire frequency block, whether it will license the spectrum for free or for fee, or whether the plan mirrors other proposals that have been advanced.

FCC statement

The FCC has provided no additional details, but the thought is not new. Outgoing Federal Communications Commission Chairman Kevin Martin in 2008 had pushed for action on a plan to offer free, pornography-free wireless Internet service to about 95 percent of the country, using about 6 MHz of spectrum in a block of about 25 MHz. The licensee would have been free to create a revenue-generating plan using about 19 MHz.

The FCC's proposal mirrored a plan offered by M2Z Networks, which has been proposing
 providing free, wireless, family-friendly service at speeds of 512 kbps, providing a basic and relatively slow 384 kbps for downloads and 128 kbps for uploads.

M2Z Networks had proposed using AWS-3 spectrum in the 2155-2180 MHz band.

Advertising revenue would support the free service, while M2Z also proposed offering faster "for fee" services at speeds up to 3 Mbps.

M2Z also has said it would pay the government about five percent of revenues from such a service.

Telecom Return on Investment: Implications for Broadband Policy

Return on investment for major U.S. communications service providers has been falling for about a decade, which means it is a clear trend.

In business terms, that means the largest, best-financed U.S. communications providers face a worsening situation, not a rosy and growing market.

Unless a person believes the U.S. government has access to enough capital to reinvent 90 percent to 95 percent of the nation's infrastructure, something that might cost $300 billion or more, policymakers are going to have to rely on the private sector to do the heavy lifting.

Though we are yet weeks away from knowing what the Federal Communications Commission actually will attempt to achieve as a "national broadband policy," we are years away from knowing how it all will work out.

The reason is that sweeping changes of this sort always result in years of litigation, even once rules are set.

It seems fairly safe to argue that, whatever emerges, the rules will not be as bad as service providers fear, nor as good as some policy proponents would like. So long as the nation requires private firms and private capital to do the vast proportion of the work, policies that negatively affect investment will doom the effort.

Nobody will be completely happy when the rules are announced, or modified and litigated. But rational policymakers will not kill the golden goose. And service providers likely will face some changes they would rather not have to confront. That's just the way these things work.