Congressional Budget Office Says "Stimulus" Plans Will Reduce Output in the Long Run

The Congressional Budget Office now estimates that by 2019 the Senate "stimulus" legislation would reduce U.S. gross domestic product  by 0.1 percent to 0.3 percent. H.R. 1, as passed by the House, would have similar long-run effects, the CBO says.

"Most of the budgetary effects of the Senate legislation occur over the next few years," CBO says.  Even if the fiscal stimulus persisted, however, the short-run effects on output that operate by increasing demand for goods and services would eventually fade away."

"In contrast to its positive near-term macroeconomic effects, the Senate legislation would reduce output slightly in the long run, CBO estimates, as would other similar proposals."

"In principle, the legislation’s long-run impact on output also would depend on whether it permanently changed incentives to work or save. However, according to CBO’s estimates, the legislation would not have any significant permanent effects on those incentives."

see http://www.cbo.gov/doc.cfm?index=9619.

$6 to $9 Billion for Rural Broadband Soon? Maybe Not.

Don't get your hopes up that the $6 billion to $9 billion in potential "economic stimulus" spending to support broadband in rural areas will have any near-term measurable impact, either as a way of getting the country out of its current recession, or getting more broadband to rural users. 

Analysis from the Congressional Budget Office now indicates it will take seven years to get that money spent, and, at best, about 60 percent of the money might be spent in the years leading to 2011. In other words, by the time most of the money actually gets spent, the recession is likely to be over. 

The CBO projected that much of the $6 billion in broadband grants geared to underserved and unserved areas will be spent between 2012 and 2016.

Praiseworthy though the effort to extend rural broadband is, the current proposal does not seem to support the goal of "stimulus," which is to put money to work right now. For starters, any grantees would have to put up 20 percent of any project's cost from their own, or other sources. One might question the ability to do so, under current tight credit conditions. 

Then there are "open access" rules that might affect 100 percent of any grantee's business. And there is no definition of what that means. Right now, any executive would have to factor in the impact of those rules on the whole business as the price of getting grant aid. Depending on how "open access" is defined, service providers might well conclude they cannot accept funding. 

"CBO anticipates that funds provided to the National Telecommunications and Information Administration to administer the broadband grant program would take longer to spend--seven years--because the new appropriations would far exceed the agency's 2009 funding of $17 million, and the legislation would require, in most circumstances, that grant recipients provide 20 percent of the project's cost from non-federal sources," the CBO says. 

So an agency geared to disburse $17 million annually would have to suddenly gear up to disburse nearly $3 billion, an increase of two orders of magnitude. If you've ever had any hand in running any agency that does this sort of thing, you know that increases of that scale simply cannot be handled effectively, that fast. 

Under the House-passed bill, about $6 billion for broadband grants and loans, the National Telecommunications and Information Administration would distribute $2.8 billion in broadband grants with $1 billion going to wireless broadband. 

The Rural Utilities Service is expected to administer the remainder through its broadband loan program. The Senate is working on a $9-billion version that would include tax credits. 

New Era of Discrete Apps?

Many changes are possible as we move into an era of Web-based applications, built and accessed as Web services. On the demand side, users will be accustomed to a new way of buying and using software. On the supply side, we will see different business models. 

Especially for communications-enabled business processes, we likely will see more reliance on something we might call "discrete applications," rather than the more-monolithic approach we have seen historically, where lots of features were purchased upfront with the buying of a switch solution, for example. 

That doesn't mean every application is efficiently provided discretely. Generally speaking, large scale tends to dramatically tip the scale towards platform-based solutions. Conversely, low volume tends to tip the scale towards hosted, Web-based approaches. 

That is a pattern we have seen for services such as business phone systems, carrier switches and server farms, for example. If a provider or enterprise has high volume and lots of users, buying and owning switches and facilities tends to make more business sense than leasing or renting services or capacity.

Conversely, small entities with relatively low volume demand almost always are better off renting capabilities rather than buying and owning their own infrastructure. 

Roughly the same sort of economic logic should come into play in a new era where more applications are built and intended for use by relatively smaller number of users than in the past. The example already is seen in the broad consumer market.

Consider even broadly-purchased applications and services such as multi-channel video services. In an older paradigm, a single provider might expect 70 percent penetration. In a competitive market, even a successful provider might expect to get just 30 percent penetration. 

That changes the economics of network investment. Where once a provider might build a whole network and expect to get customers at seven out of 10 homes, now a provider has to build a network where ultimate penetration is three homes out of 10. that means shared costs must be borne by a considerly smaller number of actual paying customers. 

In the Web sphere, roughly similar sorts of phenomena are at work: in the vast majority of cases, any single application will have a smallish number of users. The opportunity for any single application will be quite small, compared to an earlier era where most people used a small number of relatively-standard applications. 

The good news is that all of the tools and infrastructure we now have will support robust business models even at relatively lower levels of end user demand. So one of the other implications is that we may be entering an era of vastly-expanded use of "discrete applications," custom built in many cases using pre-built modules or "primitives."

That in turn presupposes new ways of packaging, pricing, marketing, delivery and support, new ways of discovering needs and building solutions to match those needs. This means more discrete apps and fewer of the monolithic sort, even though some apps will continue to be relatively monolithic because they have mass usage. 

Adoption, Not Availability, is the Broadband Problem

What broadband really needs--more than money to build more broadband-- is action on the demand side, says David McClure, U.S. Internet Industry Association president. The reason is that only about one percent of Americans actually cannot buy broadband access if they want to. 

"We can now reach 99 percent of all households in the United States with some form of broadband," he says. "We are in pretty darn good shape."

The issue some policy advocates seem to be concerned about actually is not "availability" but rather "appetite" or other issues. Some potential customers might want broadband, but do not own PCs. Others might want broadband, but can't afford to buy it. Many potential users do not use PCs. 

About 25 percent of the U.S. population does not use the Internet at all, McClure notes. "Worse than that, they don't care if they don't get it."

About 51 percent of the non-users say the Internet is not relevant to their lives, McClure adds. 

It is true that 66 percent of the U.S. population now has some form of broadband at home. But that is a different matter than "availability." Cable modem service alone reaches 19 out of 20 homes in America, for example.

About nine percent of users have a dial-up connection. Of these, the majority cite price as the reason they haven't switched to broadband. 

"Broadband in America is in wonderful shape and if you hear differently, it is a lie," McClure says. "Adoption is the problem, not deployment."

That doesn't mean we should neglect targeted investment in some areas where broadband really is not available or where coverage is spotty, he says. But there are several demand side issues that must be tackled to stimulate more usage. literacy is an issue. PC ownership and training are issues. 

Investments in “smart networks” to enhance the efficiency of the networks and provide for advanced products and services also would be useful. 

"Ask a 'public policy' advocate to name a place where broadband isn't available," McClure says. "They don't know any."

"U.S. broadband infrastructure is ranked fourth in the world and rapidly improving," he says. "U.S. broadband adoption is ranked at 15th in the world and not improving."

The important point is that "we are 15th in terms of adoption, not availability."

36% of Social Networkers Want Access from TVs

A recent survey of over 1000 households conducted by ABI Research found that 36 percent of those who currently use social media on a regular basis say they’d like to access their networks on the TV screen.

Younger consumers were more interested in engaging with their friends through chat and messaging, while middle-aged respondents were more likely to be interested in more passive social networking behavior such as checking status updates. 

The most popular potential application for those over 50 who expressed interest in TV social networking was being able to see what their friends were watching on TV.

Not a Good Day for Arizona Cox Customers

Both broadband access and voice seem to be down across much of the state.

Time Warner Cable Grows Revenues 8% in Recessionary Year

How does Time Warner Cable perform in a full year of recession? By growing revenues eight percent, or $1.2 billion, over full-year 2007, to reach $17.2 billion. Subscription revenues were up eight percent($1.2 billion) to $16.3 billion. Video revenues grew four percent ($359 million) to $10.5 billion, benefiting from the continued growth in digital video subscriptions and video price increases.

High-speed data revenues rose 12 percent ($429 million) to $4.2 billion, driven by continued high-speed data subscriber growth. Voice revenues climbed 36 percent ($426 million) to $1.6 billion.

The rate of revenue units added slowed later in the year, though. That is in line with past recessions, when customers delayed adding more enhanced services. 

Still, Time Warner faces a problem in its legacy video business that telcos face in their legacy voice business. Time Warner Cable is losing "basic video" subs, as telcos are losing voice line customers. Time Warner Cable lost 119,000 customers in that category when some analysts anticipated 27,000 to 46,000 or so basic cable customer losses. 

Keep in mind, though, that these losses would likely have occurred even without a recession, as market share shifts away from cable and to telco video services are a secular trend that was underway before the recession.