Cutting the "Broadband Funding Gap" Down to Size

by on March 17, 2010 · 10 comments

The Federal Communications Commission released the full version of its National Broadband Plan yesterday — all 11+ megabytes of it. A quick read (!) of the 300+ page document reveals that the problem of broadband “availability” is not nearly as big as the numbers highlighted in the plan would lead one to believe. If you’re careful to read the caveats and the numbers in the plan that don’t get a lot of emphasis, the problem of people who lack access to broadband is quite manageable.

The plan states that 14 million Americans lack access to terrestrial broadband capable of delivering a download speed of 4 megabytes per second (mbps). Making broadband of this speed available to all Americans would cost $24 billion more than the likely revenues from sale of the service.

(To calculate the dollar figure, the report’s authors estimated the stream of future costs and revenues from extending 4 mbps broadband to places where it does not currently exist, then “discounted” them to present values to make the costs and revenues comparable.  The $24 billion “funding gap” is thus a present discounted value.)

Several key assumptions drive these estimates.

First, the plan explicitly declined to include satellite when it measured availability of broadband.

Second, even if the plan’s authors wanted to include satellite, the choice of the 4 mbps benchmark also excludes all but the most expensive residential satellite broadband plans.  Perhaps more importantly, the 4 mbps benchmark also allows the plan to ignore “third generation” wireless Internet as an option for households located in places that don’t have wired Internet. 

These are important omissions, because the plan reports that 98 percent of Americans live in places that have 3G wireless Internet. On the other hand, 95 percent of Americans have access to wired broadband capable of delivering 4 mbps downloads. If we include 3G wireless Internet, only 2 percent of Americans live in places where broadband is not available, rather than 5 percent. In other words, including wireless broadband in the calculation cuts the size of the problem by more than half!  If we include satellite, the number of Americans who don’t have broadband available must be truly miniscule.

Why is 4 mbps the goal, anyway? The plan does not explain this in great detail, but it looks like 4 mbps is the goal because that’s the average speed broadband subscribers currently receive in the US. As a result, the plan picked 4 mbps as the speed experienced by the “typical” broadband user in this country. Only problem is, other figures in the plan show that 4 mbps is not the speed experienced by the “typical” US broadband user. The same graph that shows the average broadband speed is 4.1 mbps (on page 21) also shows that the median speed is 3.1 mbps. Half of broadband users have speeds above the median, and half have speeds below the median; that’s the mathematical definition of a median. When the median is 25 percent below the average, it’s simply not accurate to say that the average shows the speed that a “typical” user receives. The typical user receives a speed slower than 4 mbps.

The 4 mbps figure is also way above the goals other nations have set for broadband; the plan shows that other countries typically seek to ensure that all citizens can connect to broadband at speeds between 0.5 and 2 mbps. A goal in that neighborhood would surely allow most 3G wireless services to count as broadband when estimating availability.

That $24 billion “funding gap” also deserves comment. That’s the amount of subsidy the plan estimates will be required to make 4 mbps broadband available to all Americans.  If you read the plan carefully, you will also find that a whopping $14 billion of that is required to bring broadband to the highest-cost two-tenths of one percent of American housing units — 250,000 homes  (page 138). That works out to $56,000 per housing unit!

One wonders whether most Americans would be willing to spend $56,000 per home to ensure that these last few folks can get broadband that’s as fast as the FCC’s broadband planners have decided they deserve. Here’s another option. A basic satellite broadband package costs about $70 per month. Giving these 250,000 expensive-to-reach households satellite broadband would only cost about $200 million a year. It would cost less than half of that if we actually expect these consumers to pay part of the cost — maybe the same $40 per month the rest of us pay in urban and suburban areas?

That cuts the broadband “funding gap” to $10 billion, plus maybe $100 million a year for the satellite subscriptions. If we abandon the arbitrary 4 mbps definition of “acceptable” broadband speed, so that 3G wireless counts as broadband, the gap would be maybe half that size (since more than half of the people who don’t have wired broadband available do have 3G wireless available).

 And guess what — the broadband plan identifies about $15.5 billion in current subsidies that the FCC could repurpose to support broadband. In other words, the FCC has the ability to solve the broadband funding gap all by itself, without a dime of new money from taxpayers, telephone subscribers, or broadband subscribers!

I’m surprised the plan didn’t point that out; coulda made the five commissioners look like real heroes.

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  • http://bit.ly/jriso James Riso

    I don’t consider myself an apologist for the Broadband Plan in general but I need to chime in here.

    Yes the 4 Mbps goal is arbitrary, but it’s not too high.

    First, you’re ignoring 4G mobile broadband entirely. From day one, WiMax and LTE basically match the plan’s goal for “actual” throughput. By 2020 they will be even faster, and will likely cover the entirety of the present 3G footprint you cite (it will by then be a history map). Like their predecessors, these networks are being financed with private capital.

    Second, the benchmark is not overly ambitious compared to those that have been set abroad, in light of the timing. Seven of the nine foreign plans reported on page 135 have deadlines that already passed or that will be reached this year. The only one that is comparable is Australia, at 2 Mbps by 2018. You’re right, the authors aim to overshoot that one. Personally I’m comfortable expecting more from our industry than the Australians can from theirs but perhaps you disagree.

    Third (perhaps prior to the above in reason) it’s likely that a decade from now the speeds of a “typical” fixed line broadband connection will be substantially higher than what we are seeing today. As such, 4 Mbps will probably be on the low-end of what is useful for many future applications (think 768 kbps now). But you don’t have to take my word for it. The authors recommended the FCC review this benchmark every four years, so it can adapt (even downwards, in theory) as our information about the market improves.

    You should also give the Broadband Task Force more credit regarding the math behind the $56,000 named to connect each of the final 250,000 units. They are obviously aware of satellite broadband, stating “while satellite can serve any given household, satellite capacity does not appear sufficient to serve every unserved household” (p 137). Until the group releases the “Broadband Availability Gap” paper they cite (which presumably details the methodology behind the estimates), it’s only fair to assume they put more thought into their work than taking current market prices and multiplying them by the number of unserved homes.

  • jerryellig

    I don't think we disagree very much.

    My point about 4 mbps was simply that it does not reflect what the “typical” user buys in the marketplace today. If the goal is to equalize opportunities using what people buy in the markeplace as a baseline, 4 mbps is excessive — a mistake driven by taking “average” to mean “typical.” But of course that could change in the future.

    I'd have been delighted if the plan had justified the 4 mbps on the grounds that 4G mobile broadband will soon provide that speed. That would mean the plan would have acknowledged that 4G wireless is a suitable substitute for wireline broadband. And that means the number of households where broadband is not available would be the number that are outside the footprint of 4G wireless, not just the ones outside the footprint of DSL, cable, and fiber. Assuming 4G wireless quickly achieves the same footprint as 3G, that means the number of households without 4 mbps broadband will soon be less than half the number the plan claims.

    Regarding the cost of serving the final 250,000 housing units, I think it's clear that the FCC staff tried their best to calculate the actual cost, and I'm looking forward to seeing the full paper released. Reading between the lines, it sounds like they might also agree that using $14 billion to subsidize very expensive wireline 4 MB broadband for those last 250,000 homes is pretty unreasonable. (Usually in these kinds of reports, a number like their calculation of the cost of serving the last 250,000 homes wouldn't even make it into the report unless the authors put it there because they wanted people to think carefully about whether this is a good idea!) So, my comments about the most expensive homes were not so much a criticism of the report as they are a caution that we should read the whole thing carefully rather than just pay attention to what makes it into the headlines. Overall, I'm impressed with the number of reality-based caveats that made it into this report.

    The report's claim about satellite capacity was made in regard to serving all homes without broadband, not just the 250,000 most expensive. Does the industry have capacity to serve another 250,000 customers? Somebody in the satellite industry shout out and let us know!

    We should also be careful not to take “capacity” figures as fixed. If there's enough demand, more capacity can be built, though in the satellite case I don't know if the capacity constraint is a spectrum issue or a hardware issue.

  • http://bit.ly/jriso James Riso

    You're right, I think we're more or less coming from the same place.

    I may have been overly charitable to the authors. They acknowledge that 5 out of the 7 million unserved households will soon be covered by 4G; and in principle they seem to agree that it's a possible substitute for fixed line. But at the same time they say investments on top of what the market plans to provide “may be necessary” to reach the 4mbps goal. Depending on the details I could end up finding their flavor of universal service unsavory also.

    I think you're right about the 250,000 number being there for a reason. I wouldn't doubt that a number of units somewhere around there still lacks a voice connection. Anyone have the stat handy?

    I was also wondering about the question of a marginal 250,000 from satellite providers. I don't know if it's a spectrum thing but I sure hope the team gave that some consideration.

  • http://www.google.com/profiles/JamesRiso James Riso

    You're right, I think we're more or less coming from the same place.

    I may have been overly charitable to the authors. They acknowledge that 5 out of the 7 million unserved households will soon be covered by 4G; and in principle they seem to agree that it's a possible substitute for fixed line. But at the same time they say investments on top of what the market plans to provide “may be necessary” to reach the 4mbps goal. Depending on the details I could end up finding their flavor of universal service unsavory also.

    I think you're right about the 250,000 number being there for a reason. I wouldn't doubt that a number of units somewhere around there still lacks a voice connection. Anyone have the stat handy?

    I was also wondering about the question of a marginal 250,000 from satellite providers. I don't know if it's a spectrum thing but I sure hope the team gave that some consideration.

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