Broadband Stimulus: Small Details, Big Difference

The revised Senate version of the "stimulus" bill has not yet been passed. Nor has it been reconciled with the House version. But there could be big differences. The revised Senate version funnels money through the National Telecommunications & Information Administration. The House version splits disbursements between NTIA and the Agriculture Department.

The difference? For a company such as Qwest Communications, the Agriculture Department funds would not be available, because of Agriculture Dept. rural loan program rules. The NTIA program does not operate under those rules, making Qwest eligible to apply.

Essentially, Agriculture Dept. rules ascertain eligibility on a statewide basis, while NTIA would fund on a community basis. As Qwest serves both urban and rural communities in each of its states, it has been ineligible for rural broadband loans that it might otherwise qualify for.

So the reconciliation process will be crucial.

About $6.5 Billion in Broadband Spending Still in S.1

The 778-page Senate version of the "stimulus" bill apparently calls for about $6.5 billion in tax credits for supplying broadband to rural or "under-served" areas. It is not yet clear what will happen when the Senate version of the bill is reconciled with the House version.

The House version includes more specific references to broadband speeds, while the Senate version deletes those references.

Earlier versions of the Senate bill had talked about providing tax credits for building new capacity in rural and underserved areas would be as much as 40 percent, but only for service operating at 100 Mbps or faster.

A 30-percent credit would be offered for service operating at 5 Mbps or better. The bill also seems to allow 40-percent credits for wireless service operating at 6 Mbps or better downstream and 30 percent tax credits for wireless service of 3 megabits per second or better.

It does not appear that those clauses remain relevant in the new revised Senate "stimulus" bill, and reconciliation with the House bill might reinsert them in some way.

The revised language could be quite important, though, as many investors might balk at the notion of building 100 Mbps service as a prerequisite for getting loans under the broadband program, which in the revised Senate version also would operate under National Telecommunications And Information Administration oversight, not shared with the Agriculture Department as in the House version.

What a chore it has been to read the revised bill, and the original bill before it!

Sprint Nextel Operations Outsourcing Imminent?

Sprint Nextel Corp. soon will announce it is outsourcing part of its network operations to Ericsson, removing about 2,000 to 7,000 employees from Sprint's payroll, reports the Kansas City Business Journal.

That move, which would indicate Sprint Nextel no longer considers some parts of its network operations to be so important they must be staffed in-house, could affect about a third of Sprint’s network employees.

Sprint spokeswoman Lisa Zimmerman-Mott denied the report, though.

Sprint has said it would cut 8,000 jobs by the end of March. Those cuts include the head of Sprint’s network, Kathy Walker. In addition, former Ericsson executive Sven-Christer Nilsson joined Sprint’s board in November, the Kansas City Business Journal reports.

Cusick estimated that outsourcing network operations would save about 25 percent of expenses in that area.

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."