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Broadband Bringing Home the Bits Summary and Recommendations INTRODUCTION Broadband is a means to multiple, diverse ends encompassing family, work, and society generally. In addition to enabling entertainment and e-commerce applications, broadband can enrich the Internet’s exploitation as a public space, making electronic government, education, and health care applications richer and more compelling and useful, and it can provide new modalities for communication, notably within communities or families. Broadband commands attention because it enables dramatically different patterns of use that offer the potential for significant changes in lifestyle and business. This report from the Computer Science and Telecommunications Board’s Committee on Broadband Last Mile Technology examines the technologies, policies, and strategies associated with broadband local access connectivity (often referred to as the “first mile” or “last mile” problem, depending on one’s perspective) and makes recommendations aimed at fostering its deployment. The committee’s findings and recommendations are confined to broadband in the United States and focus largely on broadband for residences (with some discussion of broadband for small businesses and broader connectivity issues for communities). Broadband service to the home depends on high-speed data transmission across local access facilities—the communications links and related hardware that connect the premises and the rest of a telecommunications network, most notably between the home or small business and the set of interlinked data networks that make up the Internet. These
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Broadband Bringing Home the Bits facilities fall into two categories: (1) existing facilities built by an incumbent telephone or cable company for the purpose of delivering voice or cable TV service and (2) new facilities—such as fiber optic cable, wireless, or satellite—constructed specifically for the purpose of delivering broadband. Before broadband, dial-up connections over the public telephone network were the dominant way in which homes were connected to the Internet or other online services. The performance of these modem connections has reached a plateau defined by the bandwidth of telephone circuit switches (more than 50 kilobits per second [kbps] under optimal conditions, but possibly less depending on factors such as line, interior wiring, and modem quality), and further improvements have required new technology approaches. At present, two access technologies that leverage existing infrastructure—digital subscriber line (DSL) and hybrid fiber coax (HFC; or cable modem)—are maturing, as evidenced by wide availability, industry standards, multiple product vendors, volume pricing, and deployment experience; others—such as terrestrial wireless and fiber-to-the-home (FTTH) —are being developed and deployed on a smaller scale. The range of technology options captures part of what makes broadband vexing—fiber promises maximum bandwidth; wireless offers pervasiveness, flexibility, and potentially faster deployment; and satellite offers nationwide coverage (albeit with some gaps and limited total capacity). Today, DSL and HFC are most prominent, shape consumer experience, and fuel much of the politics that surrounds broadband. Looking forward, as other technologies such as fiber and wireless surmount cost and other deployment barriers and become more pervasive in residential broadband, providers, consumers, and policy makers alike will face new issues. The committee’s work started in late 1999 and was completed in fall 2001, a period encompassing significant broadband deployment and both boom and bust in the telecommunications and Internet markets. Until recently, only universities and large businesses and organizations had high-speed Internet access, reflecting a favorable economic return on investment in providing service to these customers. In contrast, residences and small businesses (and smaller offices of larger organizations) have been less likely to attract investment. Also, many homes are relatively distant from neighboring homes or are connected today by hard-to-upgrade telecommunications infrastructure, and some are in remote locations—all factors that entail higher per-premises costs and inhibit deployment. Following roughly a decade of development and experimentation, residential (and small business) broadband services have been available in selected markets for several years and more recently have become mass-market. Cable operators, incumbent local exchange carriers (ILECs),
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Broadband Bringing Home the Bits and competitive local exchange carriers offering data services (data CLECs) have been the largest players, complemented by overbuilders (using HFC, wireless, or fiber) and satellite-based providers. The past couple of years have been a period of dramatic growth in broadband deployment—by summer 2001, more than 8 percent of U.S. households were subscribers to broadband service (only a comparative handful had service in 1999). Mid-2001 data also indicate that broadband-capable cable systems reach roughly 60 million households and that a substantial fraction of telephone company central offices support DSL (DSL availability for individual customers is subject to line-to-line variability). At the same time, many communities, especially smaller or more remote ones, lack broadband today, and some households in communities with general availability cannot obtain service owing to particular conditions (e.g., telephone line condition or length, or residence in a multidwelling unit without broadband). The study period has also been marked by deployment difficulties. There have been numerous reports of poor customer service in terms of both installation delays and poor operational reliability, with charges and countercharges as to whether the data CLECs or incumbents were responsible for reported difficulties and delays in establishing DSL service. The 2001 wave of CLEC bankruptcies and shutdowns called into question the unbundling strategy contemplated in the Telecommunications Act of 1996. If the committee had completed its work in mid-2000, it might well have done so with a rosier assessment of prospects for investment, the strength of broadband overbuilders and competitive local exchange carriers, and so forth. In formulating its recommendations, the committee was mindful of how much the situation had changed just during the course of its work and of how these changes underscore the perils of basing policy on short-term trends (either positive or negative). Broadband deployment has been the subject of scrutiny by legislators, regulators, communities, the computing industry, and the public at large, and a number of potential barriers have been noted by these groups. Political attention has escalated along with that devoted to the Internet; like the Internet, broadband is linked to social and economic benefits. With sustained improvements in the Internet’s core and in network connectivity within many businesses and other organizations, the last mile to residences and small enterprises has come to be viewed by some as a critical bottleneck. Key questions include these: What is broadband? Why do people need it? How much demand is there for broadband?
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Broadband Bringing Home the Bits How important and urgent is deployment of broadband? What is the likely shape of broadband deployment in the coming years? Is the pace of deployment reasonable and adequate, or are there failures that necessitate intervention? How will broadband deployment be paid for? How might the present policy regime for broadband be made more effective? The multifaceted and dynamic future anticipated by the committee in the findings and recommendations below will be troublesome to regulators and policy makers. This future implies that different forms of intervention will be required in different geographical regions; that intervention should change over time as players enter and leave the market and as the working definition of broadband changes (which could change the number of real options); and that problems will arise, given the typical slow pace of the policy-making process. Finally, the ebb and flow of competition will inevitably lead to claims and recriminations of predatory pricing, obstructionist incumbents, partial regulation, and so on. The remainder of this summary presents the committee’s key findings and recommendations with respect to these vexing questions. While implementing some of the committee’s recommendations would require changes to the Telecommunications Act of 1996, many would not. Viewing the act’s provisions as only one of a number of factors shaping broadband deployment, the committee believes that revision of the act or associated regulation is not critical at present, but that changes in light of the realities of broadband will become increasingly important over time. At the same time, the committee has not shied away from making recommendations simply because they would be inconsistent with the provisions of the present act. Further, the committee anticipates that in view of the public spotlight enjoyed by broadband, there will be multiple efforts to change the act itself as well as to undertake more evolutionary changes within the act’s framework. Rather than comment on the merits of any particular pending legislation (the committee is explicitly not doing this), the committee offers its recommendations as guidelines, as broadband policy evolves over the next several years.
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Broadband Bringing Home the Bits FINDINGS Finding 1. Broadband Is a Convergent Platform Capable of Supporting a Multitude of Applications and Services. Although the term “broadband” can be used to refer to other services, such as digital television, that are not necessarily carried using Internet technology, the main focus of this report—and the issue of most interest to service providers, consumers, and policy makers alike—is broadband Internet connectivity. Although broadband is often associated with particular facilities or transmission technologies used for its implementation, it is a more general concept. With convergence, everything—video, audio, text, and so forth—has become a digital stream that can be transported across the Internet. Taken together with the Internet’s layered design, this phenomenon makes broadband Internet a platform that is capable of supporting many different types of applications—the familiar e-mail, World Wide Web, games, audio, and video; new applications not yet in widespread use; and applications yet to be invented. The Internet’s design also permits broadband Internet to be run over many different types of communications links—DSL, HFC, fiber, wireless, and so forth. At present, however, such services as television and telephony are different products employing distinct facilities. The convergent nature of broadband will permit, if not foster, industry convergence and consolidation across traditional industry lines—cable television and telephone service are viewed today as separate markets, but the distinction will make less sense over time. Convergence is a potential enabler of competition: with multiple broadband providers that compete in terms of performance and services, users can switch providers to find the most attractive combination of price and performance. A stovepiped policy environment—in which different rules apply to broadband services depending on whether they are provided using cable, public telephone network, wireless, or other technologies—will come under increasing pressure. Technology trends suggest another mismatch between present policy and the nature of broadband services. To obtain greater performance, access networks will likely converge on similar architectures in which fiber reaches close to premises, and high-speed coax, upgraded DSL, or wireless links connect to the premises themselves. Another option is for fiber to be run all the way to the premises. In either case, treating different “flavors” of broadband under disparate regulatory regimes becomes more problematic. While the similarities are more important than the differences, there is a complicating factor: the capabilities of broadband services based on different access technologies will vary somewhat—e-mail is possible over
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Broadband Bringing Home the Bits almost any sort of link (though the experience will be better over a faster link), while high-quality video streaming demands a high minimum speed. The higher ultimate capacity and lower cost associated with providing high downstream capacity mean that the cable operators using HFC would have an easier time entering the telephone market than ILECs would have delivering high-quality video over present-generation DSL, and the latency inherent in geosynchronous satellite services makes them less suitable for telephony, videoconferencing, or games that require low transmission delays. More generally, access technologies have cost and performance trade-offs that vary across different deployment scenarios. Finding 2. Broadband Should Be Defined in a Dynamic and Multidimensional Fashion. Policy makers and others have struggled to come up with reasonable definitions of broadband (versus narrowband), and many groups have an interest in such definitions. Broadband definitions are important for monitoring progress in deployment at the national, state, or local level. Definitions are also an important component of specific policies, such as eligibility for tax credits or compliance of providers with build-out mandates. Broadband development, deployment, and adoption should be viewed as an ongoing process that works through several mechanisms: incremental upgrades in the broadband infrastructure, reallocation of existing capacity to broadband, improved end equipment that permits faster performance over the existing infrastructure, and installation of new infrastructure. Today’s first-generation broadband technology is not the end point in terms of performance—what is considered broadband today will not be viewed as broadband in the future, much as 300-baud modems appear inadequate compared with today’s 56-kbps modems. Upgrades may or may not require the development of new technologies, but all require investment premised on market demand and willingness to pay. Much like dial-up, which went through a succession of upgrades until it reached the limits imposed by the capacity of telephone switches, broadband has launched a new cycle of incremental upgrades and opportunities for yet more new infrastructure deployment. Unlike dial-up, for which the carrier and the Internet service provider (ISP) were distinct and upgrades required only new modems at each end, broadband requires more extensive upgrades to facilities and terminal equipment. An examination of local access technologies on the horizon, other computing and communications capabilities, and potential applications makes apparent several quantitative performance and application clusters. Today’s residential broadband capabilities, which are typified by
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Broadband Bringing Home the Bits several hundred kilobits per second to several megabits per second downstream and several hundreds of kilobits per second upstream, support such applications as Web browsing, e-mail, messaging, games, and audio download and streaming. At downstream speeds of several tens of megabits per second, new applications are enabled, including streaming of high-quality video, download of full-length (70- to 90-minute) audiovisual files in tens of minutes rather than hours, and rapid download of other large data files. Reaching this plateau would enable true television– personal computing convergence. With comparable upstream speeds, computer-mediated multimedia communications become possible, including distance education, telecommuting, and so forth. With FTTH, a new performance plateau with gigabit speeds both up- and downstream would be reached; what applications would take full advantage of this capacity remains to be seen. This interplay between technology capabilities and application requirements is captured in a more general fashion by the two complementary approaches to defining broadband presented below. • Broadband Definition 1. Local access link performance should not be the limiting factor in a user’s capability for running today’s applications. For example, today’s typical Web browsing is not significantly improved by speeds in excess of 1 megabit per second (Mbps) because of speed-of-light limits on round-trip travel time across the Internet. In other words, upgrading a user’s 1-Mbps link with one 10 times faster would not speed up the transfer of a typical Web page. To take another example: for streaming media, increasing local access performance significantly above the rate at which such content is typically streamed today would not improve the user’s experience (though, per definition 2, increased capabilities would help spur higher-quality streams). • Broadband Definition 2. Broadband services should provide sufficient performance—and wide enough penetration of services reaching that performance level—to encourage the development of new applications. Capacity improvement and application innovation are tightly coupled in a “chicken-and-egg” fashion: an application will not be made available until a critical fraction of subscribers receives a high enough level of performance to support it, yet service providers will not deploy higher-performance broadband until there is sufficient demand for it. The performance of a broadband service should, therefore, be good enough and improve sufficiently to facilitate this cycle and not impede it. Definition 2
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Broadband Bringing Home the Bits also implies a broadband penetration threshold effect: enough users must have a higher-performance service to create a sufficiently large market to attract application developers. Two different notions underlie these definitions. Under definition 1, the presumption is that existing applications and capabilities of the rest of the network will be unleashed by improvements in the local access segment. The presumption of definition 2 is that application innovation will materialize if performance constraints are eased. The implications of definition 2 are familiar today—current broadband service offerings do not provide high enough performance to support applications such as high-quality video, while investment in higher performance awaits demonstration of demand and willingness to pay. The parties demanding improved performance include, along with segments of the public, applications developers and content suppliers that see the potential for new markets that they might serve (but for the availability of more bandwidth) and policy makers who project potential social and economic benefits that would result from deployment of higher-performance service. While bandwidth is the most significant performance parameter in terms of enabling new applications, others are also important. “Always on”—a characteristic of almost all broadband services today—is important to enabling certain types of applications. It changes the way in which people experience broadband as a service. Symmetry, which refers to the relative down- and upstream bandwidths, also has implications for the types of applications that are supported. Some applications, such as Web browsing, make modest demands on the upstream channel as they require receipt of much less data than they transmit, while others, such as videoconferencing, require more symmetric bandwidth. Delay affects the performance of time-sensitive applications, notably, applications such as telephony and online games that involve real-time interactions with people. Finding 3. Demand for Broadband Is Evident. In the United States, some form of broadband is reportedly now available to more than half of U.S. households, and subscription rates grew rapidly during the period from 1999 to 2001. Penetration has been much higher than the average in markets where broadband has been available for several years. For example, in Portland, Maine, an early test market for Time Warner Cable, about one-quarter of households are cable modem subscribers—a mass market that illustrates the appeal of broadband well beyond a handful of early adopters. Similarly, in the current worldwide leader, Korea, where favorable conditions have already made broadband available to much of the population, broadband subscription rates are
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Broadband Bringing Home the Bits reported to be even higher: more than one-quarter of households. In the United States, numerous anecdotal reports of frustration about delays in obtaining broadband service, reliability problems, and nonavailability all support a view of a rising tide of demand and use (as well as problems). These developments indicate that broadband access is valued by a broad base of Internet users, not just a small group of technology lovers, and that broadband is viewed as an important communications service. At present, it is difficult to forecast what the ultimate total “take-rate” will be, though the 1990s penetration of personal computers (PCs) and Internet service to roughly half of U.S. households suggests growth at least up to this level. Notably, today’s demand level has been based mainly on a limited set of applications (e-mail, Web browsing, file sharing, and limited audio and video streaming). Indeed, there is a significant gap between the capabilities of current broadband services and some of the cutting-edge applications that have been touted but are not generally available to the public. Continued growth in demand for higher-speed services can be foreseen based on applications being used or tested by early adopters in enterprise and campus networks, experimental initiatives in both industry and academia, and the possibilities afforded by increasingly cheap home networks and specialized consumer electronics. With new applications, wider penetration, and broadband’s use as a convergent platform for multimedia content delivery, much wider demand and use can occur. Finding 4. Deployment as a National and Local Imperative Today, broadband is for the most part an adjunct to home PC use and a means of faster Web browsing, and narrowband alternatives provide some measure of access to commonly used content and services. Thus, one cannot say with confidence today that broadband access in the home is critical to being a functioning member of society. But in light of robust demand and the likelihood that with growing use, new content and applications will make use of broadband capabilities, it is reasonable to project that broadband will take on increasing socioeconomic importance in the future. There are several principal arguments for taking steps to foster broadband deployment: Spillover benefits. Because broadband can support many different types of applications and services, its full potential is unlikely to be apparent from scrutiny of any one category. When one looks at a promising individual application today, such as telework, it is easy to see that what exists—in terms of capabilities, use, or benefits—falls short of what some
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Broadband Bringing Home the Bits have forecast. But what broadband promises, because of its capacity and general-purpose nature, is the chance to try multiple applications of different types and to provide various mixes that can be valuable to different users. The economic and social benefits in the aggregate will, therefore, exceed those of one application, giving rise to spillover benefits not readily captured by any one stakeholder. For example, broadband deployed for mass entertainment can also carry noncommercial content. To the extent that broadband providers themselves are not able to fully capture the benefits of investment in performance enhancements, a broader societal interest in promoting broadband performance improvements arises from these spillover benefits. The willingness of broadband providers to invest will be less than that implied by the broader societal interest arising from these spillover effects. The link between performance and applications innovation and ties to other high-technology sectors. If broadband is to support new, rich multimedia applications, the gap between computing and deployed last mile communications performance will have to be closed. In the short term, this would translate into upgrading from today’s hundreds of kilobits per second to tens of megabits per second—which all of the present generation of wireline broadband technologies can support, with appropriate investment (shorter loop lengths in the case of DSL and smaller cluster sizes and/or more spectrum dedicated to broadband in the case of HFC), and which is well within the capabilities of FTTH. Although the performance of broadband services today nearly always exceeds that available through dial-up access, the first-generation systems frequently provide only modest improvements in speed over older technology, and sustained upgrades would be needed to satisfy both broadband definitions 1 and 2. Per-passing costs of initial investment. Some infrastructure costs must be borne regardless of how many customers in a given area actually subscribe to a service. Because of the major, even dominant, role of these per-passing costs for wireline infrastructure, investment becomes, in essence, a decision contingent on a finding of collective demand. For wireless, the penalty can be somewhat but not fully offset via a strategy whereby the cluster size served by a common feed is decreased as rates of subscription and demand increase. (A similar principle also applies to wireline technologies that permit such clustering, such as HFC, but with less impact on the per-passing costs than is the case for wireless.) Also, early adopters will not be able to obtain broadband service until a service provider decides to make an investment deemed capable of attracting a broad subscriber base. As a service provided over a network, broadband stands in marked contrast with computers, which individual consumers can purchase as the need arises, and which providers produce for a mar-
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Broadband Bringing Home the Bits ket not tied to a geographic area. Similarly, an individual can upgrade to a higher-performance computer to meet individual demand, whereas broadband services will tend to have capabilities aimed at the average user. The committee took note of the fact that other countries, recognizing these arguments and the potential societal importance of broadband, have opted for more active strategies than those of present U.S. policy or those that the committee’s recommendations below would contemplate, especially at the national level. These national strategies in other countries do not match the U.S. context, in terms of political system, the historical private sector role in telecommunications, geographic diversity and population dispersion, or the nature of the existing telecommunications infrastructure. That is not to say that the goals and means of these strategies are not appropriate in their own contexts. Finding 5. Many Factors Pace Deployment. There is a sense in some quarters that something is “broken” with respect to broadband rollout. There are several areas of frustration: concerns over an insufficient rate of penetration of some form of broadband; associated concerns that some areas will end up being left out; concerns that the process of upgrading broadband service could stall, leaving consumers with only the performance offered by first-generation technology; concerns about business failures leaving customers with no broadband alternative; and concerns that the quality of what is being deployed will be inadequate in terms of performance, reliability, or customer service. Given the realities of the situation, what is reasonable to expect with respect to deployment? Finding 5.1. Broadband deployment will not occur overnight. The rapid evolution of some aspects of the Internet can lead observers to think that if something does not happen within 18 months, it will not happen. But the phenomena associated with deployment cycles measured in months have generally been in the non-capital-intensive software arena (even here, real change may lag perception), in a sector unconstrained by regulatory uncertainty. In contrast, even with a conservative estimate of $1,000 as the average cost of wiring an individual residence, the total cost of building new broadband infrastructure—such as rewiring to provide FTTH to all of the roughly 100 million U.S. households—would be $100 billion. A major portion of this figure is in construction costs that are not amenable to dramatic cost reductions. Even for cable and DSL, where delivering broadband is a matter of upgrading existing infrastructure,
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Broadband Bringing Home the Bits Recommendation 2.4. Ensure appropriate radio spectrum for broadband and associated capabilities. Wireless is well suited for certain less densely populated regions, offers an additional path for entry by new facilities-based competitors, and, if suitably configured, is unique in its support for mobile use. Both licensed and unlicensed spectrum plays a role in enabling various wireless broadband alternatives as well as local area and mobile capabilities that complement and supplement wireline broadband access. The committee did not examine in detail whether current spectrum allocations are sufficient or appropriate, but notes that spectrum availability is a precondition to any wireless deployment. Nor did the committee evaluate the merits of various allocation schemes or the trade-offs between allocations for fixed versus mobile, licensed versus unlicensed, or unshared versus shared uses. Efforts to examine spectrum policy to support broadband and related services (both current and contemplated), such as those being undertaken by the Federal Communications Commission, should be continued. Recommendation 3. Reflect the Convergent Nature of Broadband and Target Policy at the Appropriate Layer. The Telecommunications Act of 1996, which for the most part assumes the continued existence of a number of distinct services that run over distinct communications technologies and separate infrastructure, does not fully reflect the convergent nature of broadband (different communications infrastructures are able to deliver a similar set of services using a common platform, the Internet) nor the evolution toward a common technology end point (deep penetration of fiber, complemented by short runs to the premises). Recommendation 3.1. Move toward a more coherent, consistent policy framework for broadband. Failure to move toward a more coherent, consistent policy framework could lead to policy-induced distortions in technology deployment. For example, even as several major cable operators have entered into open access agreements, the industry has considerably greater control over access and content than do the telephone companies, which fall under industrywide common carrier rules. A more coherent policy would also better accommodate technological innovation beyond today’s HFC and DSL systems. Progress in rationalizing the overall regulatory framework (which would require revision of the Telecommunications Act of 1996)—
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Broadband Bringing Home the Bits to address the mismatch between convergent services and stovepiped regulation—would also help reduce uncertainty and thus could stimulate investment. In the process of reconciling policy across technologies (and associated industries), policy should emphasize broad deployment and facilities-based competition (Recommendations 1 and 2) and not simply apply existing regulations that were designed to deal with circumstances particular to individual technologies (or associated business). Also, technology convergence notwithstanding, policy should be able to accommodate a diversity of business models as incumbents and entrants alike experiment with different business strategies. These realities are generally appreciated by the Federal Communications Commission as well as by the regulated industries themselves; the issue today is how and when the regulatory framework should be reformulated. Recommendation 3.2. If regulation of a broadband-delivered service is contemplated, it should be done in a service- rather than a technology-centric fashion. Reflecting political or social interests, various communications services—such as today’s broadcasting and telephony—are subject to regulation. It is reasonable to anticipate that services delivered over broadband will be subject to similar scrutiny, and thus it is prudent to identify the most appropriate means of regulating them. Formulation of any future regulation should focus on the service rather than on the particular transmission technology. Flexible service-centric approaches that tolerate technology diversity are essential, because broadband-delivered services are subject to faster change and greater variation—because of the general-purpose nature of the broadband infrastructure over which they run—than are conventional services. For example, if broadband is to be used to provide telephone service intended to substitute for conventional telephone service, regulators should focus on the marketing of the service to ensure that the promised reliability and 911 service are in fact delivered, rather than on the technical means by which the service is provided (whether over the Internet or otherwise). Defining regulated services this way not only encourages convergence by relying on a technology-independent way of describing the service, but it also tolerates service diversity by permitting different types of services to be defined. One might, for the purposes of regulation, define two classes of telephone service: (1) a service intended to substitute for conventional phone service (providing high reliability and 911 service) and (2) a less costly service for more discretionary uses. Another reason to move toward a service-centric approach is that the
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Broadband Bringing Home the Bits assumptions underlying regulation of services are frequently tied to the characteristics of particular technologies. For example, regulation of broadcasting has been fashioned in an environment of over-the-air channel scarcity, a condition that need not apply to broadband-delivered services. Recommendation 4. Take Active Steps to Promote Increased or Accelerated Deployment, Including at the Local Level. As described above, the economics associated with investment in broadband suggest that, absent some additional impetus, achieving nationwide broadband deployment may be a protracted process. In at least some parts of the country—type 0 and 1 regions—there may be little or no broadband deployment or facilities-based competition, and intervention may be required. Type 2 areas, in which the telephone and cable incumbents constitute a duopoly, are also places for government at all levels to explore intervention that would encourage new entrants where the market appears to be capable of supporting more participants. Many of these incentives should be locally based, because there is considerable local diversity in the conditions for broadband deployment. Recommendation 4.1. Establish a federal and state policy framework supportive of local initiatives that ease market entry and foster competition. Current broadband policy is largely federal in scope, and it assumes, at least implicitly, a uniform national approach. But the degree of natural competition and prevalence of technology will vary by region, state, and municipality, and policy at all levels will have to accommodate this diversity. Federal rules should continue to bound the range of outcomes—for example, by preventing local governments from raising unreasonable barriers to entry or from discriminating in providing access to public facilities, and by preventing a proliferation of inconsistent local rules that can complicate and deter investment. But because it is communities themselves that have the most at stake in regard to broadband service, there are appropriate forms of local decision making, based on local conditions and needs. Particularly at the municipal level, various sorts of incentives and local arrangements can encourage and even shape the form of broadband deployment that occurs (e.g., localities may target their communications purchases as a way to encourage an entrant).
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Broadband Bringing Home the Bits Recommendation 4.2. Explore public sector initiatives that foster market entry. Initiatives involving public sector actors may provide an alternative to imposing unbundling requirements on incumbents in order to provide increased competition in type 0, 1, and 2 circumstances. These initiatives should be articulated, researched, and evaluated with a focus specifically on reducing barriers to entering competitors by building or facilitating enabling infrastructure. A decision to provide a publicly funded broadband service—which might be done in an attempt to introduce service where there currently is none—can affect the number of broadband providers in a given area. In cases where a market is capable of supporting only one private provider, the introduction of a public network to compete with it could have the effect of driving the private sector network out of operation. Similarly, the creation of a public network could deter future entry into a market capable of supporting only a very limited total number of players. Also, where government bodies enter into exclusive arrangements with a single company, there is the risk of regulatory capture. These factors all argue that local governments should concentrate on taking steps to encourage and facilitate competition among private sector players, rather than creating new quasi-monopolistic entities. Options include these: Fiber condominium arrangements with public participation. A locality declares its intention to build out fiber along its streets and invites any interested parties to purchase some share of the fibers installed (and possibly installs additional dark fiber for future use). Customer-owned condominium arrangements. Customers own links to a suitable aggregation point. This option would most likely take the form of a condominium arrangement in which a group of households would coinvest in new wireline infrastructure—probably fiber—that serves a neighborhood or community; this arrangement might be facilitated by local governments. Partnerships with the private sector to install (and possibly maintain) fiber. The town itself, the schools and municipal departments, businesses and other private sector players in the town, the citizens themselves, and any interested broadband providers can sign up. Municipal investment in wholesale second-mile fiber facilities, or fiber conduit. Second-mile fiber facilities provide connectivity to neighborhoods that can be shared by competing broadband providers who in turn provide broadband to individual homes and shared conduit that decreases each provider’s installation costs. Municipal investment in either would be analogous to the investment in streets as an enabler for local com-
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Broadband Bringing Home the Bits merce—here enabling the value-added flow of bits instead of the flow of cars and trucks. In each case, the locality provides motivation, coordination, and resources for joint action. It may share in the cost of the common construction and may also prohibit the digging up of the streets again for some period after the construction. Typically, some provision would also be made to lease colocation space to service providers at the fiber termination points to facilitate Internet interconnection. By avoiding the extra cost of uncoordinated overbuilding—keeping down the per-passing costs —this approach attempts to provide competition at per-passing costs comparable to those of a single provider. Local and regional government or quasi-governmental agencies can also act in effect as anchor tenants that underwrite some of the cost of installing infrastructure, reducing the costs for other government agencies, private sector firms, or even individual customers. Recommendation 4.3. Relax federal, state, and local rules to ease market entry or to stimulate investment. Local governments can also relax rules that deter or preclude overbuilders from entering a market, such as by providing access to rights-ofway, forms of relief for opening of facilities to competitive higher-level service providers, and so on. Local policies that tend to protect the incumbents from facilities-based entrants should be strongly discouraged or even preempted at the state or federal level. Various forms of regulatory relief—such as a relaxation of franchise fees or obligations—could be granted in return for infrastructure build-out or upgrade commitments. One option would be to provide relief from certain forms of regulation, such as mandated access in exchange for specified deployments of new or upgraded facilities. Another option would be to reduce the business risk associated with facilities construction by providing assurances that compensation would be provided for future regulatory imposition of unbundling requirements. Regulators might also provide a “safe harbor” (exceptions from heavy regulation) for providers in a type 1 situation if they behave comparably (in terms of prices and service quality) to providers in a type 3 situation. Finally, in cases where broadband providers fail, governments at all levels can take steps to expedite a transfer of assets to ensure continuity of service for affected customers.
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Broadband Bringing Home the Bits Recommendation 4.4. Provide financial incentives for investment in underserved and high-cost areas. Examples of financial incentives would include tax credits given for building out infrastructure in underserved areas, or incentives—including tax credits and changes in permitting and zoning rules—given to providers that invest in infrastructure upgrades exceeding specified buildout or performance targets or that make investments in training and support of developers and users. Another option would be to provide government-guaranteed loans for infrastructure upgrades and build-out in high-cost areas. Recommendation 5. Increase Local Capacity to Promote Broadband Deployment. The recommendations above point to a number of specific measures that local or regional governments might pursue to promote broadband deployment in their communities. These opportunities also represent a considerable challenge for many communities that lack experience and knowledge in managing the complex legal, regulatory, and economic issues these options encompass. A few communities have already taken significant initiative with respect to broadband, but the majority are just now exploring the options before them. Therefore, mechanisms to enhance local capacity can play a critical role. Because one of the motivators for broadband is demand for work- and business-related applications and associated applications such as continuing education, in some circumstances it will be appropriate to link broadband initiatives with broader economic development efforts. Recommendation 5.1. Support planning grants for localities to explore options. Because an exploration of the complex set of issues confronting each community requires expertise, the engagement of various sectors within the community, and input from the public at large, federal and state governments should support planning grants to communities that demonstrate serious interest in taking steps to advance broadband deployment. Recommendation 5.2. Provide cost sharing for field trials, including local-government-sponsored initiatives. Cost-sharing grants or subsidies for communities that have limited-
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Broadband Bringing Home the Bits performance or no broadband would support experimentation with premarket technologies and alternative organizational models. Such trials would permit governments and private sector firms to obtain more realistic experience with the performance of technology alternatives, help industry move up the learning curve of emerging technologies, test alternative organizational approaches and access models (such as municipally owned fiber or conduit available to multiple providers), and test demand stimulation strategies (e.g., locally developed content and applications). While there may be municipalities that have existing public utilities capable of embarking on such a program, a more likely mode is through partnership with private firms. Recommendation 5.3. Establish a national clearinghouse to raise awareness, provide technical assistance, and disseminate best practices for local and regional efforts to accelerate broadband deployment. A mechanism for sharing best practices for local and regional policies, regulation, and planning would help communities that are facing complex decisions. For instance, model regulatory frameworks would illustrate the range of possible outcomes, provide regional and local governments a starting point in negotiating with providers, and help overcome the knowledge and experience imbalance that local and regional governments may experience. Efforts by the National Association of Telecommunications Officers and Advisors and the Association for Community Networking are promising first steps. In-depth, authoritative information will be needed if best practices are to be useful to communities across the capability spectrum. A national clearinghouse would permit maximal sharing of best practices but would not necessarily supplant state or regional efforts, which may be better positioned to focus on local circumstances and needs. Recommendation 6. Defer Development of a Universal Service Policy for Broadband Until the Nature of Broadband Services, Pace of Deployment, Distribution of Access, and Social Significance Become Clearer. The Telecommunications Act of 1996 devotes considerable attention to measures that continue support for near-universal telephone service. Existing universal access programs such as the high-cost fund support (which, by helping to expand or upgrade rural public telephone networks, can also provide a foundation for DSL deployment, as well as extend or improve dial-up service) and the e-rate program (which funds Internet
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Broadband Bringing Home the Bits access in many schools, libraries, and health care institutions) have helped to increase broadband access. The 1996 act has instigated efforts to develop policy for expanding broadband access (such as the Federal-State Joint Board on Universal Service). A number of the committee’s recommendations aim to increase the breadth of deployment. While the committee anticipates demands that universal service programs be extended to residential broadband, its view is that it would be premature to embark on a comprehensive new universal service program until the overall shape of residential deployment and the nature of broadband services are better understood. The committee does not believe that, at least at present, a social contract analogous to that developed for telephony would be appropriate for broadband. It is already apparent that broadband is a desirable and useful service, and it is reasonable to presume that it will take on increasing social importance in the future. But there is a difference between a service’s being useful and showing great promise, which has motivated the recommendations in this report aimed at widening deployment, and a service’s being critical to meaningful participation in society (as telephone service has come to be understood). In the early stages of deployment and acceptance, policies aimed at fostering rapid, widespread deployment, complemented by broadband access through schools, libraries, and other public centers, are appropriate. Further, defining an appropriate universal service policy will be complicated. For voice, the shared understanding of what society should expect from the telephone industry, which became the goal of federal and state regulators, has been that a more or less uniform telephone service should be available to residential customers at a roughly uniform price. However, broadband is not a uniform service. Different users have different needs, and different technologies deliver different variants with different features as well as cost and performance characteristics. Also, as the two definitions for broadband advanced by this committee indicate, as technology and use evolve, what is broadband today will not be considered so in the future. One cannot employ a simple universal definition for broadband such as “faster than 200 kilobits per second.” The cost could be made uniform only through substantial transfer payments within the system—an approach that was possible in the simple, more static world of telephony but that is very hard to carry out in the less well defined, changing, competitive world of broadband. This suggests that natural cost and service variations must be accepted (which must be distinguished from exercise of market power). For instance, satellite-based service is capable of reaching essentially all parts of the country. As a result, there will be relatively few people who will literally be unable to obtain some form of broadband (assuming these services are marketed to
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Broadband Bringing Home the Bits them). Thus, the geographical access divide is much smaller if the requirements are relaxed for what must be the same across regions, and if such trade-offs as lower reliability (e.g., satellites are susceptible to rain fade), higher latency, lower data rates, or higher up-front and monthly costs are permitted. Recommendation 7. Support Research and Experimentation. Recommendation 7.1. Support research and development on access technologies, especially targeting the needs of nonincumbent players and other areas that are not targets of stable, private sector funding. Much of current research has reflected the interests of incumbents. Research that looks at the needs of nonincumbent overbuilders should be specifically encouraged. Such systems will in all likelihood make use of less mature technology alternatives. And as overbuilds, they have lower levels of subscription (lower take-rates) and need to be cost-engineered to anticipate this outcome. Particular research targets include these: Architectural options and other means of cost reduction in fiber access networks, including new techniques for using coarse wavelength-division multiplexing and low-cost in-home receivers and/or transmitters. Enhanced wireless capabilities, including capacity and other enhancements for wireless that provide robust, spectrally efficient, and scalable broadband wireless access to homes; architectures for synergistic coexistence of various wireless access technologies (fixed, mobile, in-home, ultrashort-range, and so on); technologies for true mobile broadband wireless services beyond 3G; convergence of fixed and mobile Internet architectures and protocols; and new information-delivery paradigms for broadband mobile Internet services. Technologies that foster the accommodation of multiple competitive service providers over facilities. Such open access-ready systems might not be a natural research and development target of large incumbent providers but will be the preferred form for a variety of public sector or public-private deployments. Quality of service for homogeneous and heterogeneous access scenarios in the local access link and home, including for applications that make intensive use of the upstream channel. System robustness and reliability, reflecting the increasing importance of broadband services to individuals and organizations. Because the primary objective is to develop technologies that can be practically implemented by a broadband provider, research and development programs should encompass systems and economic perspectives,
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Broadband Bringing Home the Bits not just individual technologies or components. Doing this sort of research requires overcoming several institutional problems. Much of the computer science community traditionally has viewed cost reduction as an engineering topic for industry to pursue rather than as a legitimate research topic. Further, few academic research centers devote attention to systems engineering issues, which have generally been addressed by incumbents and their equipment suppliers. Recommendation 7.2. Support research on economic, social, and regulatory factors. With broadband a nascent service, now is an especially opportune time to study potential social and economic implications and to develop an understanding of these factors so as to inform government policy making and industry strategies. Areas for further research include these: Social and economic impacts of broadband connectivity and availability. Such understanding will help localities assess the case for local broadband initiatives and help fashion any future broadband universal access programs. Alternative business models and better understanding of consumer behavior and its relationship to currently available and prospective applications and services. Economic and regulatory barriers that may hinder the nonincumbent facilities provider. For example, the cost of the first mile is not the only barrier to deployment. Small neighborhoods (new construction, pockets of dense development, and so on) may be able to justify the construction of new facilities. But this construction cannot occur unless there is some larger network to connect to that serves to aggregate traffic from these neighborhoods. This is what might be called the “second-mile” problem—aggregation of traffic to the point where it is economically viable to connect to the rest of the broadband world. Improving our understanding of why local access performance has lagged that in other computing and communications sectors and what strategies might help to close that gap. Comparing U.S. progress with that in other countries, and evaluating how progress abroad relates to national broadband policies and strategies. Historically, a substantial fraction of funding for telecommunications economics research has come from industry itself. The increasing politicization of broadband (and telecommunications more broadly) argues for increased support from less directly interested parties, such as the federal government and foundations.
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Broadband Bringing Home the Bits Recommendation 7.3. Support development of alternative broadband content and services. More diverse content and applications—beyond mass entertainment and more commercially oriented content—could create new sources of demand and help attract individuals and communities to make further investments in broadband. Examples of such content include information of local interest; enhanced access to government information and services; and materials related to education, health, and culture. Not all such services require broadband (narrowband may be sufficient, and a way of reaching a wider audience in the short term), but broadband supports much richer content. Traditional means of providing such content, such as cable public, educational, and government channels or public radio and television broadcasting, do not obviously translate to broadband, so further consideration about how to achieve such ends will be required.
Representative terms from entire chapter: