5
Technology Choices: What Are the Providers Deploying?

Introduction

Predicting the future of technology deployment is an inexact undertaking, given the many uncertainties in technical developments, market forecasts, and regulatory actions. However, an assessment of current plans and trends is a good starting point for identifying a range of possibilities. This chapter presents a variety of information about current levels of deployment in the key areas of network technology and infrastructure. It also reviews the main infrastructure provider industries' announced plans for new deployment over the next several years, as revealed in white papers contributed as part of the NII 2000 project, comments at the workshop and forum, and trade and market-research publications. (Announced deployment plans, of course, are not necessarily firm commitments; they may change, as did those of many firms during the course of this project. However, every attempt has been made to present information that is as up to date as possible.)

This chapter represents, in part, a response to the Technology Policy Working Group (TPWG) request for a "road map" of technology deployment over the next 5 to 7 years. The material included here answers the TPWG's call for a synthesis of projections; however, there are no available data that reliably support precise forecasts of specific deployment events by specific dates. The steering committee has attempted to identify the boundary conditions of future deployment and some potential signals indicating major turning points, or forks in the road, which should be



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--> 5 Technology Choices: What Are the Providers Deploying? Introduction Predicting the future of technology deployment is an inexact undertaking, given the many uncertainties in technical developments, market forecasts, and regulatory actions. However, an assessment of current plans and trends is a good starting point for identifying a range of possibilities. This chapter presents a variety of information about current levels of deployment in the key areas of network technology and infrastructure. It also reviews the main infrastructure provider industries' announced plans for new deployment over the next several years, as revealed in white papers contributed as part of the NII 2000 project, comments at the workshop and forum, and trade and market-research publications. (Announced deployment plans, of course, are not necessarily firm commitments; they may change, as did those of many firms during the course of this project. However, every attempt has been made to present information that is as up to date as possible.) This chapter represents, in part, a response to the Technology Policy Working Group (TPWG) request for a "road map" of technology deployment over the next 5 to 7 years. The material included here answers the TPWG's call for a synthesis of projections; however, there are no available data that reliably support precise forecasts of specific deployment events by specific dates. The steering committee has attempted to identify the boundary conditions of future deployment and some potential signals indicating major turning points, or forks in the road, which should be

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--> monitored as indicators of change in the next several years. Table 5.1 presents the steering committee's broad conclusions about the technological capabilities—with respect to end-user access to services—of infrastructure that is likely to be deployed and available in the next 5 to 7 years. Some aspects of nomadicity, and of hardware and software technologies that enable information infrastructure, are implicit in table entries, but these topics are not fully summarized in the table. The remainder of the chapter provides supporting evidence and analysis. The discussion assumes a very basic familiarity with several important information infrastructure technologies, such as hybrid fiber coaxial cable (hybrid fiber coax; HFC) architectures for residential broadband (high-data-rate) communications, integrated services digital network (ISDN) and other digital telephone services, wireless voice and data services, and broadcast television. Chapter 4 introduces these technologies in brief, discussing key issues underlying technical debates about deployment (for example, the capabilities of likely architectures for fiber-optic networks in residential areas). This chapter focuses on what is being deployed today, what plans have been announced, and what the overall capabilities of anticipated information infrastructure components will be. The decision to invest in deployment of infrastructure depends, of course, on an expectation of demand for services over that infrastructure. Accordingly, in addition to addressing deployment—the supply of infrastructure—this chapter also presents selected data on both current and projected demand for information infrastructure-related services. These data are drawn from a range of published government and private sources. Other economic and regulatory issues that affect investment prospects and timing of deployment are considered more fully in Chapters 3 and 6. This chapter divides the topic of infrastructure into several broad categories: (1) infrastructure of wireline telephone carriers, including both the local access component and the backbone (long-distance) component; (2) data communications services carried over the wireline infrastructure; (3) wireline infrastructures for advanced services to the home being deployed by cable television and telephone companies; (4) on-line information services and Internet access; (5) wireless services, such as cellular telephony, personal communication service (PCS), and wireless data; and (6) broadcast services, including terrestrial and satellite television broadcasting and multichannel multipoint distribution service (MMDS, or wireless cable). These distinctions do not reflect industry boundaries as clearly as they once did, as restrictions on lines of business erode and mergers and alliances occur among the firms offering these services. Nevertheless, distinctions in the technological capabilities of these types of infrastructure remain important, and projections of their

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--> deployment, however speculative, are necessary for an understanding of the NII's capacity to support current and future applications. More material is provided on telephony than on cable or miscellaneous wireless technologies. Consistent with available materials is the expectation that telephony will continue to be the dominant source of two-way bandwidth for homes and small businesses in the near-term period of interest. In a perfect world, comparable material and analysis would be presented on the full range of information infrastructure applications and services; however, their speculative nature and relative invisibility in the aggregate, as reflected in available data sets, precluded such a presentation. Wireline Telephony Summary and Forecasts The local access infrastructure in 5 to 7 years (the primary time scale on which the steering committee focused) will be based on digital switching. This infrastructure will support basic voice-grade, circuit-switched telephone service ("plain old" telephone service, or POTS), with enhancements such as caller identification and call forwarding. POTS will grow slowly relative to more advanced access services. However, because of its current overwhelming dominance, POTS will still be the primary telephone service. The principal role of ISDN will be as an access method to data networks, transporting packets to and from the remote business or residence. While ISDN will be available virtually everywhere in the Unites States, its deployment rate (actual sales of service to customers) is uncertain. Low-cost customer premise equipment for ISDN will become available in the next 1 to 2 years, both for the client side (adapter cards) and the remote access (points of presence (POP), local area network (LAN)) side. However, service installation costs coupled with very high monthly service costs will limit residential and small-office deployment. Rapid deployment of ISDN can happen, but only if the price of service approaches that of POTS. It is not clear at this time what factors will drive telephone companies to lower prices, although competition from alternative access services (such as cable and wireless data) could lead to such an outcome. Long-distance and interoffice telephone infrastructure will be fiber-based with sufficient bandwidth to meet anticipated demands. In the local access infrastructure, because of the high cost of deploying new fiber cables, fiber availability at the customer's premises will continue to be limited to business users in high-density districts—where more users and traffic volume can be served by each fiber deployed. (Telephone com-

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--> TABLE 5.1 Infrastructure Capabilities for End-User Access Within 5 to 7 Years Capability Residential Telephony: Traditional Analog Voice Facilities Residential Telephony: ISDN Residential Advanced Services, Cable and Telephony: HFC, FTTC Data rates to and from the end point Low—not far above currently available 28.8-kbps data rates Moderate—128 kbps Moderate to high—downstream digital broadcast of 100s of TV channels; two-way data transmission via cable modem at 100s of kbps to 10s of Mbps Bidirectionality (downstream and upstream bandwidth) Symmetrical Symmetrical Asymmetrical, but upstream capacity will be adequate for many interactive services and is extensible with incremental investments Continuous operation (connection is "always on"—e.g., enabling e-mail delivery to the user at any time) User must dial in (or be called) to connect to the network; circuits are generally available when demanded User must dial in or be called; call set up is rapid enough that operation is effectively continuous if either end can initiate the call Data and video services—yes; voice telephony—see traditional analog voice facilities Real-time multimedia access (full-motion video) No Limited— adequate for teleconferencing Yes—but asymmetrical, pending investment in upstream capacity (see above) NOTE: For definitions of the abbreviations used in this table, see Appendix G, p. 278.

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--> Business Wide Area Networking: Frame Relay, SMDS, ATM Wireless: Terrestrial Cellular, PCS, Mobile Data, Wireless LANs Satellite Voice and Data: VSAT, LEO Terrestrial and Satellite Broadcast: ATV, LMDS, DBS High—1.5 Mbps to 155 Mbps and higher Mobile—low, 10 to 20 kbps; LANs—moderate, 100s of kbps to current wire-based LAN speeds Moderate to high—400 kbps (Spaceway) to 2 Mpbs (Teledesic gateway service) Moderate to high—digital broadcast of 100s of video channels; data broadcast currently at 100s of kbps Symmetrical Depends on system Depends on system Upstream channel is through another medium, such as wireline or wireless telephony Yes Some services require dial-in; others provide continuous operation Some services require dial-in; others provide continuous operation Yes, if television receiver is turned on Yes Highest-bandwidth wireless LANs can support multimedia; other wireless services cannot No (exception— higher-capacity LEO satellites, such as those in the Teledesic system) Yes, but downstream only

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--> pany deployment of hybrid fiber and copper infrastructures capable of supporting broadband services in residential neighborhoods is discussed separately in this chapter, in the section titled ''Cable Television and Telephony: Advanced Services to the Home.") Local Access and the Larger System The public switched telephone network is the most broadly deployed two-way (nonbroadcast) component of the national information infrastructure (NII). It is an evolving infrastructure; however, starting from such a large base, system-wide changes will take time to implement. Projections of future NII deployment may reasonably start, therefore, with analysis of the present telephone infrastructure. The local operating companies, or local exchange carriers (LECs), represent the access portion of the telephone network. More than 1,300 companies provide local telephone service in the United States; most are far smaller than the regional Bell operating companies (RBOCs). They provide local service to end users and sell access to their network to inter-exchange carriers (IXCs) that offer direct-dialed long-distance service.1 The seven RBOCs and GTE together account for most of the local exchange market. Historically, these firms have held a monopoly on end users' access to telephone communications within their respective service areas, although competitive access providers (discussed below in this section) have a growing share in many markets. The other major part of the telephone network is represented by the long-distance companies, or IXCs. There are about 450 IXCs, most of which resell capacity purchased from other, facilities-owning carriers; the three largest are AT&T, MCI, and Sprint. Their networks form backbones carrying traffic between separate local areas. The physical infrastructure of the local exchange consists of access lines, switches, and trunks. Access lines connect end users at homes, businesses, and other locations to the telephone network; they constitute the portion of the network known as the local loop. Switches and interoffice trunk lines direct and carry communications across the network. Communications that leave the local telephone company's service area must pass over facilities owned by long-distance carriers and terminate on facilities owned by other firms, such as other LECs and wireless (primarily cellular) carriers. (See Chapter 4 discussion of technology trends in telephone infrastructure, as well as the white papers by J.C. Redmond et al. and Stewart Personick.) According to the Federal Communications Commission's (FCC's) Statistics of Communications Common Carriers (1994, Table 2.5), all U.S. LECs combined (a larger group than in the Infrastructure report cited below)

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--> serve 147.9 million access lines. About 40 million switched circuits (30 percent) and virtually all dedicated, leased circuits are business and institutional access lines; many of these connect to sites with multiple users on a private exchange, each with a unique telephone number. Therefore, the total number of telephones attached to the network is significantly greater than 147.9 million. The types of services that may be carried over the physical telephone infrastructure depend not only on the bandwidth and transmission quality (absence of errors) in the links, but also on the type of encoding and switching. The ongoing transition from analog to digital switching in the telephone system is important both for improving the quality of basic voice service (POTS) and as a prerequisite for many services beyond POTS. A 1995 FCC report (Kraushaar, 1995b), Infrastructure of the Local Operating Companies Aggregated to the Holding Company Level, presents a detailed view of recent deployment of infrastructure—specifically, lines and switches—by the RBOCs and GTE (see Table 5.2). Together, these firms account for over 90 percent of the nation's total access lines. According to the report, which includes data through the end of 1993, digital switching has steadily become predominant within the local network: 66 percent of access lines are served by digital switches, 33 percent by analog stored program control switches, and 1 percent by electromechanical switches. The North American Telecommunications Association (NATA) projects a continued increase in the proportion of access lines served by digital switches. By 1996, NATA forecasts a total of 201 million access lines. Of these, 82 percent will be served by digital switches, 18 percent by analog switches, and less than 1 percent by electromechanical switches (NATA, 1995, p. 66). Integrated Services Digital Network The copper portion of the local plant traditionally carries one voice circuit to and from the customer premises per twisted pair of copper wires, using analog transmission. However, all-digital transmission technologies such as ISDN are extending the capacity of the copper plant. (Asymmetric digital subscriber line (ADSL) technology can increase copper's capacity even further; see Chapter 4. Development of the technology is continuing, but no large-scale deployments by any carrier have yet been announced.) The FCC's report (Kraushaar, 1995b) indicates that the theoretically available, total ISDN access line capacity (basic or primary rate) at central office switches is more than 42 million. This capacity represents the maximum number of lines that could be served by the telephone carriers' current ISDN-capable switches—digital switches with

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--> TABLE 5.2 Infrastructure of the Local Operating Companies, 1991 to 1993   1991 1992 1993 Switches (incl. local, tandem, hosts, and remotes) 16,400 16,700 18,529 Total access lines served (millions)a 123.0 125.8 131.4 Percent of access lines served by:       Digital switches 52.6 58.7 66.3 Analog switches 44.6 39.7 32.5 Electromechanical switches 2.7 1.6 1.1 ISDN-capable switches 964 1,437 2,173 Total ISDN access line capacity (millions) 21.3 29.8 42.1 ISDN basic rate interfaces equippedb 298,176 491,430 587,229 ISDN primary rate interfaces equippedb 1,730 3,147 5,814 Local loop copper terminations in central office (thousands)b 208,381 209,059 215,578 Local loop fiber terminations in central office (thousands)b 277.7 576.7 620.2 aIncludes both residential and business access lines. bInterfaces equipped at the central office, whether or not circuit is in use. SOURCE: Kraushaar (1995b). the necessary software control to support ISDN.2 The current sales of ISDN services, however, are far below the theoretical capacity in the switches, at approximately 400,000 to 500,000 lines (Wildstrom, 1995). To serve new ISDN customers, the telephone carrier must have ISDN-capable switches, which must in turn be equipped with per-line terminating equipment. The latter is an investment that can be made incrementally, in response to (or anticipation of) customer demand; it is not necessary for the carrier to equip the entire network for ISDN at once. Typically, more interfaces are equipped at the central office than are actually in use; the FCC estimates that installation of interfaces at the central office leads sale of services and actual subscriber use by 12 to 18 months. The number of ISDN basic rate interfaces equipped with the necessary line connections in the central offices at the end of 1993 (the year for which the most recent FCC data are available) was 587,229. (The FCC's estimated 18-month margin is therefore consistent with the estimated 1995 ISDN subscribership of 400,000 to 500,000.) The number of higher-capacity, primary rate interfaces equipped in the central offices was 5,814 in 1993. The majority of basic rate interfaces and all primary rate interfaces in use are currently serving business or other institutional custom-

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--> ers, rather than home users (Kraushaar, 1995b, p. 26; FCC, 1994, Table 2.10). According to the white paper by Stewart Personick, ISDN availability will continue to expand. Through 1996, availability will range from 53 percent of the NYNEX service area to 86 percent of the Pacific Telesis area. NATA cites forecasts by Dataquest that the number of basic rate interface ISDN lines in service will increase to 1.1 million in 1998, at an average annual growth rate of 47.1 percent. The level of investment needed to achieve this growth is uncertain; however, Personick's white paper estimates that deploying the switching capacity, line-termination equipment, and related systems in the central offices to meet demand for ISDN (and other, higher-capacity services) will represent a total investment on the part of LECs in the billions of dollars. As noted above, the sales of ISDN services to date are far smaller than what could be supported by the theoretical availability of ISDN in the telephone system. Growth in demand will be stimulated by several factors. One important source of demand for ISDN is as an access technology for connecting remote users (such as workers in homes and small offices) to router-based networks, such as workplace LANs or on-line services; for low-volume users, this will be cheaper than leasing a dedicated circuit. For example, deployment of ISDN connections by on-line service providers is beginning to take place, in anticipation of subscribers using ISDN to access their services. CompuServe recently announced plans for local ISDN access in 10 cities, supplementing current ISDN access via an 800 number. Prodigy and America Online officials indicate that they are focusing on bringing their subscribers up to 28.8-kbps modem access (Hayes, 1995). Another factor in the growth of demand for ISDN is the lower costs for customer-premise equipment needed to take advantage of ISDN. Investment in customer equipment, such as adapters for connecting personal computers (PCs) to ISDN lines, is the responsibility of the end user; increases in volume production, standardization, and improvements in the price-performance ratio of computer equipment will continue to bring this cost down rapidly in the next several years. (ISDN line adapter prices fell from $2,000 in 1994 to less than $500 in 1995; see Wildstrom, 1995.) However, the prices that telephone carriers charge for ISDN service are not declining nearly as rapidly as customer equipment prices, and ISDN remains significantly more expensive than POTS. Until this gap is narrowed, it appears unlikely that the market for ISDN will grow rapidly. Substantial competition from alternative access providers, such as cable television systems and wireless networks, is one factor that could accelerate ISDN price decreases. Access lines with higher capacity than POTS and ISDN are available

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--> to customers from telephone companies and capacity resellers, in the form of leased, dedicated lines to customers. These customers are primarily at businesses and other institutional locations where volume of use justifies the expense of the connection. The circuits, which may be copper or fiber (although new deployments today are usually fiber), generally carry digitized voice and/or data. Common increments of capacity are 56 kbps, 1.5 Mbps (T1 or DS1), and 45 Mbps (DS3), at successively higher prices per connection but successively lower prices per unit of capacity. Deployment of the data services that can be carried over these circuits, such as frame relay and asynchronous transfer mode (ATM), are discussed in the section "Data Communications" below in this chapter. Telephone Industry Fiber Deployment Fiber deployment is a significant indicator of advancing telecommunication technology. Fiber represents both the capacity to carry new, higher-bandwidth applications (such as digitized video) and the reengineering of the infrastructure to carry basic telephone service with lower costs and higher quality and reliability. Long-distance carriers told the steering committee that for the next 5 to 7 years, they will continue to have sufficient bandwidth to meet the nation's demand for voice telephony, data, and video communications. The backbones of their networks will be optoelectronically switched, over fiber lines; all-optical switching, however, will still be under development and will be far from substantial deployment. The white paper by Robert Powers et al. notes that the bit rates achievable through a given fiber have grown from 405 Mbps in 1983 to 2.4 Gbps today, with an anticipated leap to 40 Gpbs by 2000, using wave-division multiplexing. The authors calculate that by 1996 or 1997 it should be possible for a fiber pair to carry over 600,000 voice circuits, eliminating concerns about bottlenecks in the long-distance portion of the telephone network "for the foreseeable future." In the local exchange, fiber is widely deployed between central offices; however, only a small fraction of total local-loop plant is fiber-based (see, for example, the white paper by Mahal Mohan). The FCC's annual Fiber Deployment Update: End of Year 1994 (the most recent edition available; see Kraushaar, 1995a) presents detailed data on current fiber deployment by major IXCs and the Bell, GTE, Contel, and United local operating companies. The IXCs have deployed 101,861 miles of fiber cable, while local operating companies have deployed 257,734 miles of fiber cable. There is an average of 25 to 35 separate strands of fiber per cable. The capacity of this infrastructure, as noted by Powers et al., may be subject to approximately 16-fold increases with higher-speed optoelectronics by the end of the decade. Even with present technology, the

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--> capacity of the IXCs' fiber could be increased substantially by activating deployed fiber that is currently unutilized ("dark" fiber).3 Dark fiber is currently about 50 percent of the total for AT&T and about 44 percent for Sprint. The percentage of lit or activated fiber for local operating companies ranges from 26 percent for SBC (formerly Southwestern Bell) to 60 percent for GTE. The FCC reports that 94 percent of channels in the LECs' local loop plant terminate at the central office on copper and 6 percent on fiber (Kraushaar, 1995b). Four of the seven Bell operating companies reported data distinguishing the number of fiber miles in the subscriber plant (local loop) from total plant. For NYNEX, Pacific Telesis, SBC, and US West, subscriber plant fiber miles are 52 percent of total fiber miles (Kraushaar, 1995a). Most fiber deployment in the local loop is in the portion closest to the central office; most lines change over to copper before reaching the end user (crossing the "last mile" to customer premises). However, the number of fiber lines reaching the customer (mainly in the form of dedicated circuits leased to businesses) is growing rapidly. The number of subscriber services terminated on fiber at the customer premises at the 1.5-Mbps (DS1) rate at the end of 1993 was 148,286, up from 37,029 in 1989 (an average annual growth rate of 140 percent).4 The white paper by J.C. Redmond et al. cites forecasts of the number of dedicated access lines as reaching more than 3 million DS1 lines and about 1 million higher-rate, DS3 lines by 2002. Of these lines, virtually all new deployments will be on fiber to the customer premises (possibly excluding a final, short segment close to the customer, depending on the architecture used). Digital access lines are used for both voice and data applications. However, data communications are the primary source of the rapid growth in the demand for these lines. A Yankee Group survey of Fortune 500 firms' telecommunications managers reports, for example, that 8 percent of these firms are now using dedicated 1.5-Mbps lines for data communications. By 1999, 24 percent expect to do so, and 5 percent will be using 45-Mbps lines for data (Yankee Group, 1995b). Kraushaar (1995a) also discusses fiber deployment by competitive local exchange carriers (COMPLECs), also known as competitive access providers.5 The report considers only facilities-based carriers, not capacity resellers. The report includes firms such as Metropolitan Fiber Systems, Teleport Communications Group, and competitive access systems owned by Time Warner Communications, which is also one of the largest U.S. cable television firms. Fiber owned by the COMPLECs listed in the report (not an exhaustive list, but including the major firms) comprises 9,304 miles of cables. (Each cable contains, on average, from 20 to 200 individual fibers.) This total mileage reflects a 63 percent average annual growth rate from 1990 to 1994. The two largest systems, Metropolitan

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--> several years to connect residential customers to on-line services and the Internet through cable systems, including Tele-Communications Inc., at data rates much higher than those of POTS or ISDN. Use of these modems depends on two-way capacity in the cable network, which is enabled by amplifiers in the upstream direction on the coax portion of the cable plant. Cable industry representatives told the steering committee that this capacity will become available in most cable systems as part of their upgrades to HFC over the next few years (see the white paper by Wendell Bailey and James Chiddix). In addition, according to equipment manufacturer Scientific-Atlanta, current sales of cable-system devices designed to provide return-path signals are approximately equal to sales of forward-path units, indicating that operators are installing full two-way plant.11 On-Line Services And Internet Access For Consumers Summary and Forecasts On-line services include consumer services such as news, entertainment, social interaction, education, and on-line banking, as well as business information services such as market research, technical information, and patent and trademark data, among others. In addition, on-line and Internet access services represent an intermediate level of infrastructure, built upon (and stimulating demand for) lower-level infrastructure such as telephony. They serve in turn as bases on which specialized consumer, business, educational, government, and other types of services can be offered. On-line services and Internet access for consumers represent significant sources of demand for a range of commercial, education, entertainment, and other services. Their growth may also stimulate deployment by telephone carriers, cable operators, and other infrastructure providers in the next 5 to 7 years. (Internet access for business networking purposes is discussed separately, in the section above on data communications.) On-line Services and Internet Access Business information services are a significant U.S. industry. The investment firm of Veronis, Suhler & Associates forecasts growth from $29 billion (1994) to $39 billion (1999) in business spending for marketing, financial, credit, payroll, product and price, legal, technical, and other business information (Veronis, Suhler, 1995, p. 296). Half of these business services are currently delivered in electronic form (one-fourth on line

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--> and one-fourth electronic or CD-ROM databases) and half in print form (directories, newsletters, and so on; see Veronis, Suhler, 1994, p. 253). A forecast of the relative sizes of the print and electronic segments of the business information market is not available from this source; however, even assuming that electronic, interactive media remain no more than half of the total business information services market, business users would appear to be a significant market for interactive information services in the next several years. In fact, the growing penetration of LANs in the workplace, combined with improved information search and retrieval software, has the potential to put business-information access in the hands of workers in their offices, as opposed to information retrieval specialists in corporate libraries. This will stimulate an expansion of the electronic share of the business information services market. According to a market review by SIMBA Information Inc., consumer-oriented on-line services receive lower revenues per subscriber, on average, than do business-oriented services (such as Lexis/Nexis, Dow Jones News/Retrieval, and Reuters); however, consumer on-line services have more subscribers than do business information services and are growing much more rapidly (SIMBA, 1995). As of the end of 1995, on-line services reached 11.3 million subscribers, a 15 percent increase over the preceding 3 months (Arlen, 1996, p. 1). America Online is the largest, with 4.5 million subscribers. The other leading services are CompuServe, with 4.0 million subscribers; Prodigy, 1.6 million; Microsoft Network, 600,000; e-World, 126,000; and Delphi Internet, 125,000. These six services account for 97 percent of subscribers, as estimated by Arlen (1996). Veronis, Suhler & Associates estimated 1994 revenues for on-line services and consumer Internet access (distinct from business internet-working across the Internet, discussed in the data communications section above) at $1.4 billion, with a customer base of 4.7 million households (Veronis, Suhler, 1995, pp. 310 and 313). This represents about half of all households with both a PC and a modem. The report projects compounded growth in this market of 33 percent per year, to $6.1 billion by 1999. The projected growth is in response to improvements in services, content, and software tools for navigating the Internet; increasing penetration of PCs and modems; and the assumption that by 1999, 90 percent of households with a PC and a modem will subscribe to Internet access and/or on-line services. Veronis, Suhler & Associates predict that access to on-line information and other services will increasingly take place over the Internet. Many content providers will establish their own presence on the World Wide Web, bypassing traditional on-line services such as America Online, CompuServe, and Prodigy, which will in turn expand their businesses of providing Internet access to individuals. (They will thus compete with

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--> some Internet service providers, such as Netcom, that serve both corporate and individual customers, as discussed in the section above on data communications.) Both on-line services and content sources available on the Web will stimulate new demand for Internet access among consumers, small office and home office users, and business users (within the last group, mainly those who do not already have Internet access as a consequence of their business networking requirements). The relative success of consumer services offered through third parties, such as on-line services, compared to the success of services offered directly over the Internet will be an indicator of change in this market. One early sign may be evident in the fact that in October 1995, Pacific Telesis and Times Mirror dissolved a partnership aimed at creating an on-line information and home shopping service. The firms cited as the main reason for changing their plans the Internet's rapid growth and their expectation that businesses will pursue direct relationships with home customers over the Internet (Lippman, 1995). Wireless And Broadcast Infrastructure Over the course of the NII 2000 project, including the January 1995 workshop and May 1995 forum, the steering committee received a range of inputs concerning projected capabilities of wireless and broadcast technologies to support emerging voice, data, and other NII services. The potential for many of these services appears significant, as the discussion of technology trends in Chapter 4 makes clear. However, very little input was received supporting specific forecasts of deployment of these technologies. The following material primarily reflects a variety of information drawn from market research literature and from trade and other publications. Summary and Forecasts The role of wireless will evolve over the next 5 to 7 years, with numerous changes in the technological and regulatory contexts. This section considers a number of very different technologies, including cellular telephony, wireless data networking, and terrestrial and satellite broadcasting. Most of the business sectors represented here, other than terrestrial television broadcasting, are rather new and have a less concrete perspective on their business model than do the more mature industries of wireline video and telephony. These new businesses therefore face a higher degree of experimentation and redefinition in the next several years. Decreasing costs and new availability of spectrum suggest that there

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--> may be a major expansion of wireless telephony. In addition to terrestrial cellular and personal communication service (PCS) offerings, there have been applications for satellite-based telephone services that would add further to the competitive offerings. Additionally, demand for wireless telephony could be stimulated if it could be used for cost-effective data access at reasonable bandwidth; the large-scale viability of this application remains to be proven. There are many proposed plans and visions about the use of wireless in support of data communications. Wireless LANs have been on the market for several years, and even though demand for these products has not accelerated dramatically, they suggest what the cost and potential of wireless data might be. Wireless as a component of nomadic computing is an application that stimulates much speculation but that has not yet entered the market to a significant degree. These services might emerge over the next 5 to 7 years, subject to regulatory decisions, emergence of technical standards, and a viable business model. Wireless has also been proposed as an alternative to wireline for residential, educational, and small business data access. This application also seems viable from a technical perspective but depends on the allocation of spectrum and the setting of standards. Prices for early offerings for wireless data seem competitive with wireline offerings under some circumstances. These areas may emerge, but are not likely to mature, in the next 5 to 7 years. A number of new video delivery offerings have begun to emerge, and some will mature over the next 5 to 7 years. Direct broadcast satellite distribution of digital video signals has entered the market more quickly than anticipated and is viewed by some as potentially growing to represent a real source of competition to terrestrial broadcasting and cable video delivery. Provision of terrestrial wireless cable services is viewed with increasing interest by telephone carriers and others as a way to compete with existing cable systems without making large investments in a new, broadband wireline infrastructure. Traditional television broadcasters will begin converting to digital broadcasting within the next several years, although uncertainty about market demand and the need for products to support both analog and digital standards during the transition suggest that a fast transition is unlikely. Wireless Telephony Demand for wireless voice telephony services, almost entirely for mobile users, is projected to grow significantly. Decreasing costs of service, due in part to advances in the performance of hardware available at a given cost and new digital standards, are increasing demand for existing cellular services. In addition, the rollout of PCS over the next several

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--> TABLE 5.8 Mobile Communications Subscribers, 1993 and Projected for 1998   Users (in millions)   1993 1998 (projected) Cellular Analog 16 22 Digital 0 13 Paging 16 26 Mobile data 1 7 Personal communication service (PCS) 0 2 Personal digital assistants (PDAs) 0 2 Total 33 72   SOURCE: NATA (1995). years will create up to six new choices for mobile users throughout the United States, beyond the two now available in most places. The resulting competition is expected to stimulate demand for wireless voice communications. NATA's annual market review for 1995 projects growth in the number of mobile communications subscribers through 1998 as shown in Table 5.8 (NATA, 1995, pp. 133 and 136). The Personal Communications Industry Association (PCIA) produced a rather different forecast in its 1995 survey of members (see the white paper by Mary Madigan). PCIA members anticipate, by the year 2000, combined demand for new PCS, cellular, paging, and narrowband PCS of almost 118 million subscriptions. This forecast for 2000 includes 15 million digital broadband PCS customers, with revenues of $8.8 billion (mainly voice services, 7 percent from data services); 50 million cellular subscribers (up from 23.2 million in 1994), of which 30 percent will be business users, with total revenues of $26 billion; and over 50 million narrowband PCS subscriptions (mainly business users), including advanced voice paging, two-way acknowledgment paging, and one-way and two-way messaging. The white paper by Robert Roche of the Cellular Telecommunications Industry Association (CTIA) cites projections for demand that are somewhat more modest than PCIA's. CTIA anticipates cellular subscribership in 2006 in the range of 38.2 million to 55.1 million. One factor that could stimulate demand for wireless telephony is increased wireline local-access prices that LECs could be forced to change, if the substantial network access revenues they receive from IXCs (quantified in the ''Demand for Telephone Services" section above in this chap

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--> ter) should decrease. Regulatory changes could drive down these network access charges, as could a shift of IXCs toward other, competing ways of accessing their customers—including wireless local access networks. AT&T's purchase of the largest cellular telephone service, McCaw Communications, represents such a shift. However, deployment of infrastructure to meet growing demand for wireless may prove challenging. The white paper by Roche projects an enormous increase in the number of cellular and PCS antennas and base stations. For example, PCS will have six licensees per area, as opposed to just two for cellular. Although new digital technologies will enable switches to carry more callers, the higher frequencies of PCS mandate smaller cell sizes and thus more cells to achieve geographic coverage. Both Roche and Madigan note in separate white papers that delays and uncertainty in antenna siting, which is subject to regulation by local governments, will complicate this deployment. CTIA has analyzed the anticipated costs of deploying nationwide PCS networks. Assuming $500,000 per switch, with one switch per basic trading area (of which there are 493 nationwide) and two per major trading area (102 nationwide); another $100,000 for the electronics in each cell site within each trading area, not counting the costs for real estate and for local permits; and four to six separate PCS networks, it can be anticipated that a $20 billion to $40 billion investment will be needed to deploy PCS voice networks nationwide. 12 However, some vendors such as QualComm are developing digital microcell technologies that may make new wireless networks much cheaper than CTIA's estimates indicate. Microcells enable greater use of frequencies than do larger cells, raising the system capacity. As a result, microcell systems could eventually lower capital costs for wireless PCS, per circuit available in the total system, far below those for current cellular systems.13 A standards issue remains for digital cellular communications. Wireless carriers have chosen competing standards for digital cellular service in their operating areas. Time-division multiple access (TDMA) systems have the lead in the market, with more than 500,000 customers in the United States; but some carriers have chosen code-division multiple access (CDMA) because of its more efficient use of spectrum. CDMA is supported by Alltel, Ameritech, Bell Atlantic/NYNEX, Sprint, and AirTouch/U S West; TDMA is supported by AT&T/McCaw, BellSouth, Rogers Cantel, and SBC Communications (Poppel and Marino, 1995, p. 34). Global System for Mobile Communications (GSM) has been chosen as the digital standard in Europe and many other parts of the world. Although it is technically feasible for handsets to incorporate more than

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--> one standard, thus enabling them to operate in different locations as the user travels, the additional hardware adds significant expense. 14 Wireless Data Networking BIS Strategic Decisions Inc. forecasts that the number of users of data on wireless networks will grow from 500,000 in 1994 to 9.9 million by 2000 (Wireless Messaging Report, 1995b). The distribution of users of data services available on these networks is shown in Table 5.9. As noted in the section above on data communications, one source of demand for wireless data services is the portable computer with a wireless data modem installed. A perspective on nomadic computing is given by IDC's estimates of the market for portable PCs (IDC, 1995e). Sales of portables are projected to grow at twice the rate of sales in the overall desktop PC market, from an installed base of 27 million in 1995 to 50 million in 1999. Wireless is seen, however, as a small component of these networked PCs. IDC does not estimate the installed base in this case, but it does estimate that the annual shipments of wireless-equipped portable PCs will grow from about 100,000 units in 1995 to 2.7 million in 1999. IDC predicts only a modest market for wireless LAN adapters—devices used to connect computers to wireless LANs—from 422,000 units in 1995 to 1.2 million by 1999, with an installed base of 4.2 million in 1999. Revenues of $204 million in 1995 are projected to grow to $385 million in 1999. IDC concludes that when wireless standards emerge, lower prices and increased shipments will follow (IDC, 1995e). The first nationwide mobile data services were packet radio networks—ARDIS (Advanced Radio Data Information Service) and RAM Mobile Data. These services provide low-speed communications at rates TABLE 5.9 Distribution of Users of Various Wireless Data Services, 1994 and 2000   Percentage of User Pool Service 1994 2000 (projected) Narrowband PCS (paging, etc.) 0 26 Cellular and broadband PCS 70 54 Dedicated data 14 10 Specialized mobile radio 2 4 Satellite 14 6   SOURCE: Wireless Messaging Report (1995b).

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--> of approximately 2.4 to 9.6 kbps (Brodsky, 1995). Somewhat higher-capacity data networks are under development by the start-up ventures Metricom and Tetherless Access Ltd. Metricom's product is a rapidly deployable network, operating in a portion of the spectrum allocated by the FCC for unlicensed wireless data networking; it consists of a mesh of poletop radios configured in a self-routing (not centrally switched) network, resulting in relatively low cost. Data throughput for end users is modest, up to 35 kbps, with flat-rate, unlimited-usage pricing. Tetherless Access offers the wireless equivalent of a 56-kbps private digital line; its advantage is the ability to deploy rapidly, without the need for stringing new cables. Although these services may not mature in the next 5 to 7 years, they offer opportunities for individuals to use advanced applications through wireless networking in locations where broadband service is either unavailable or prohibitively priced. Cellular telephone services are primarily circuit-switched, although cellular digital packet data (CDPD) standards are gaining acceptance and CDPD service was available in 19 markets as of February 1995 (Brodsky, 1995). CDPD is based on the Internet protocol suite (TCP/IP) and is thus well suited for Internet connection. None of the above systems offers the data communication rates available over wired systems with services such as ISDN. In the longer term, however, satellite systems may make higher capacities available for mobile users of both voice and data communications. For example, Teledesic (founded by Bill Gates and Craig McCaw) plans to offer globally available, high-bandwidth digital communications starting in 2001, with access at data rates of up to 2 Mbps (OTA, 1995; Brodsky, 1995). The investment cost for the network of 840 low-earth-orbit (LEO) satellites is estimated at $9 billion. Teledesic and similar LEO satellite-based communications networks represent a somewhat longer-term component of the nation's information infrastructure than do others outlined in this chapter; their potential to reach maturity is difficult to predict, given their high up-front investment requirements for an unproven service.15 However, one federal study predicted that in the next 10 years, at least two of the various proposed LEO systems are likely to be deployed and operational (Asker, 1995). Thus, while LEO systems are unlikely to reach significant levels of deployment in the next 5 to 7 years, they could have significant impact further in the future. Spectrum availability is clearly a limiting factor for data and other wireless communications, and so FCC spectrum policies are a central determinant of wireless infrastructure deployment. Two proposals to the FCC, both filed in May 1995, illustrate what could be done with additional spectrum. Apple Computer filed a petition for an "NII Band": 300 MHz of spectrum in the 5-GHz range for the purpose of unlicensed

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--> wireless data communications. Apple claims this would support data rates up to 24 Mbps over 10- to 15-km distances (Apple, 1995). The Wireless Information Networks Forum (WINForum) petitioned for 250 MHz of spectrum in approximately the same frequency range, also for wireless data communications at about 20 Mbps (WINForum, 1995). Both technologies could support applications such as wireless local area networking and wireless access to wireline networks. If approved by the FCC, and if standards were settled and hardware manufacturers could produce equipment at reasonable cost, wireless could be a highly capable form of data communication infrastructure. In addition, because physical wire does not have to be laid, any wireless network has the potential to be deployed much more quickly and cheaply than competing wireline broadband services. On November 2, 1995, the director of the National Telecommunications and Information Administration (NTIA) recommended to the FCC that it initiate proceedings for these services; it remains to be seen what result proposals such as these may have. 16 Terrestrial and Satellite Broadcast Television Legislation to reform telecommunications regulation has been under consideration by both houses of the U.S. Congress. One of the changes proposed would allow television broadcasters to use part of their licensed spectrum, including that which was originally set aside for high-definition television, to provide supplemental digital services. According to investment analysts with Bear Stearns, digital television broadcasters could use this excess capacity to enter digital wireless businesses such as fax transmission, two-way paging, and dispatching. However, large investments would be required were they to offer higher-capacity interactive products and services (Friedman, 1994, p. 125). Wireless Cable Multichannel multipoint distribution service (MMDS), also known as wireless cable, is a competitor for wireline cable television distribution. The capacity of MMDS is less than that of traditional cable, with only about 25 to 40 channels. (However, digital technologies may increase this capacity many times.) Where wired infrastructure is lacking, deploying a new MMDS system is competitive with new cable plant, at about $1.5 million to $3 million per head end and $450 to $550 per subscriber. As a result, the primary market for current analog MMDS is value-conscious customers. Bear Stearns analysts project 5.5 million subscribers by 2000. MMDS operators currently offer limited interactive services using the telephone network as the return channel (the subscriber calls the central

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--> office). One provider, American Telecasting, demonstrated a completely wireless interactive technology in 1993 (Friedman, 1994, pp. 148-149). As several telephone companies have delayed deployment of HFC and FTTC infrastructures, some, such as Pacific Telesis, have shown an increasing interest in entering the wireless cable market through deployment of new systems or purchase and upgrade of existing systems. Wireless cable represents a means for entering the video distribution market more quickly and inexpensively than by deploying all-new cable infrastructures. The recent contract for Thomson Consumer Electronics to provide 1 million wireless set-top boxes to Tele-TV, a consortium of LECs, indicates the substantial volume of likely telephone company entry into this market (Cable Regulation Digest, 1995). Direct Broadcast Satellite With the advent of new digital direct broadcast satellite (DBS) systems (see Chapter 4), sales to consumers of satellite products have accelerated more rapidly than expected. DBS subscriptions are growing at a rate of 25,000 per week (Communications Daily, 1995a). Sales of receivers for the newest DBS service, Primestar and RCA's Digital Satellite System, topped first-year sales of color televisions and video cassette recorders; according to the Electronic Industries Association (EIA), they represent the most successful new product in the history of consumer electronics (Communications Daily, 1995d). An EIA survey found that more than 590,000 Digital Satellite System receivers were sold in the first year of availability, with 1995 sales forecast in the range from 1.2 million to 1.5 million units. Notes 1.   See FCC (1994), p. vi. The Federal Communications Commission maintains detailed information about the current infrastructure; however, it does not make forecasts in this area. 2.   This total includes lines that are routed to the switches from other central offices through foreign exchange services. 3.   Because most of the cost to deploy fiber is labor and installation (e.g., digging trenches), most firms lay more fiber than they need to meet current demand, in anticipation of activating, or "lighting," the dark fiber in the future. 4.   Note that these totals exclude trials, as well as all fiber deployment by competitive local exchange carriers (COMPLECs). See Kraushaar (1995b). 5.   COMPLECs typically serve business customers, for at least two reasons: (1) businesses represent high-volume, high-value customers; and (2) deployment of new infrastructure in concentrated business areas of communities is much less costly than deployment in lower-density areas.

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--> 6.   The FCC reports that a typical deployment consists of a fiber ring containing from 20 to 200 strands, with ends connected at a hub station. Each customer is therefore served by two redundant routes to the hub. 7.   See EDGE (1995). Note also that data traffic on the Internet has been growing far more rapidly, as noted in Chapter 4; however, it begins from a small base compared to data traffic on public and private networks overall. 8.   See PC Week, Oct. 17, 1994, p. A10. 9.   Demand for modems is driven not only by the need for remote access to corporate networks by workers in the home and on the road, but also by applications such as on-line services and Internet access (IDC, 1995c). 10.   This theme was raised by several participants in the forum. For discussion of early results of trials, see Schwartz (1995). 11.   Robert Luff, chief technical officer of Scientific-Atlanta, quoted in Communications Daily (1995e). 12.   Preliminary data provided to NRC staff by CTIA, June 1995. 13.   By one estimate, the cost could be $14 per circuit, as opposed to $5,555 per circuit using current, analog cellular technology. Assumptions in this estimate include cell site spacing of 20,000 feet versus PCS base station (port) spacing of 1,000 feet and 180 channels per cell or a PCS port. The cost per PCS base station is estimated to be far less than that for a cellular base station, at approximately $2,500 instead of $1 million; the PCS system would use many more stations, and the cost per available circuit in the total system would be much lower. See Cox (1995), p. 31. 14.   Research and development related to incorporating multiple cellular standards in software, which would reduce the cost of handsets, are in progress and may help alleviate this burden within several years. See OTA (1995), pp. 84-86. 15.   See OTA (1995), pp. 78-79. For example, the bond rating for the Iridium project, a planned LEO satellite-based voice telephony service, was recently downgraded, leading the company to revise its efforts to raise through external debt the $4.7 billion expected to be needed to deploy its 66-satellite system. The firm now plans to raise funds internally. See Communications Daily, September 21, 1995, p. 5. 16.   The NTIA, part of the U.S. Department of Commerce, is the executive branch agency with responsibility for telecommunications policy and management of radio spectrum for government uses. See Telecommunications Reports (1995j).