Broadband – The Best WayBroadband – The Best Way

NARUC Staff Subcommittee on Finance NARUC Staff Subcommittee on Finance and Accountingand Accounting

October 9, 2007October 9, 2007

Glenn Blackmon, Ph.D.Glenn Blackmon, Ph.D.

Olympia, WAOlympia, WA

www.glennblackmon.comwww.glennblackmon.com

mail@glennblackmon.commail@glennblackmon.com

360 556-7888360 556-7888

Which broadband issue?Which broadband issue?

• Low-income households?

• Elderly?

• Businesses?

• Rural households and farms?

The policy issue is a combination of affordability and availability.

Broadband Issue is Largely Rural Broadband Issue is Largely Rural

States With

Highest Residential Broadband Rate

1 Hawaii 66%

2 Nevada 63%

3 New Jersey 62%

4 Connecticut 61%

5 California 60%

6 New Hampshire 60%

7 Massachusetts 58%

8 Maryland 56%

9 Florida 55%

10 Arizona 54%

11 Washington 52%

12 New York 52%

13 Rhode Island 52%

14 Colorado 52%

15 District of Columbia 51%

States With

Lowest Rural Population Rate

1 District of Columbia 0%

2 California 6%

3 New Jersey 6%

4 Nevada 8%

5 Hawaii 9%

6 Massachusetts 9%

7 Rhode Island 9%

8 Florida 11%

9 Utah 12%

10 Arizona 12%

11 Illinois 12%

12 Connecticut 12%

13 New York 13%

14 Maryland 14%

15 Colorado 16%

States with High Rural Populations Have Low Broadband Rates

0%

10%

20%

30%

40%

50%

60%

70%

20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70%

Percent of Occupied Housing Units with Broadband (Census and FCC data)

Perc

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of S

tate

's P

opul

ation

Liv

ing

in R

ural

Are

as (C

ensu

s da

ta)

ME

VT

NH

Americans w/o High-Speed Options Are Mostly in Rural Areas

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 10 20 30 40 50 60 70 80 90 100Population Deciles

Per

cen

t o

f P

op

ula

tio

n R

esid

ing

in a

ZIP

Co

de

wit

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o B

roab

and

Pro

vid

er

By Population Density

By Income

The 20% of ZIPs with lowest

population density account for 64% of

population w/o access to

broadband

Data Source: FCC broadband report, 12/06.

Demographic Differences Also Affect Demand for Demographic Differences Also Affect Demand for Broadband in Rural AreasBroadband in Rural Areas

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Over age 50 Household income < $30,000 Earned college degree

Source: Pew Internet & American Life Project, "Rural Broadband Internet Use," February 2006.

Rural

Non-rural

Looks like the classic balancing act Looks like the classic balancing act for state regulatorsfor state regulators

• Encourage regulated companies.– To introduce new technology.– To meet demand as it develops.– To avoid white elephants.

• Require regulated companies.– To avoid unreasonable discrimination.– To meet public policy obligations.

State regulators have used this State regulators have used this balancing approach beforebalancing approach before

• Technologies and services.– Touch-tone dialing.– Caller identification.– Digital switching.– Fiber trunking.– Modem bit rates.

• Using rate design, depreciation practices, other tools.

Federal universal service program Federal universal service program could have helpedcould have helped

• Sec. 254(b): Access to advanced services, at reasonably comparable rates.

• Sec. 254(c): Evolving definition of basic service, based on actual use of services.

Instead… Instead…

• 2002 Joint Board recommendation said no broadband support.– Not essential, not widely used, too expensive.– Maybe not even telecommunications.– FCC agreed in 2003.

• Broadband now classified as an information service.

• But rural ILECs can include broadband investment in USF.

Even without a national strategyEven without a national strategy

• Broadband adoption is increasing rapidly.– Broadband quickly hit 50% penetration.– Urban/rural gap is slowly narrowing.

• More rural carriers are offering broadband.– 91% of NTCA respondents offer broaband.– 87% say they face competition in some form.

Home Broadband & Dial-Up Penetration (% of adult Americans)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Jun-

00

Oct

-00

Feb

-01

Jun-

01

Oct

-01

Feb

-02

Jun-

02

Oct

-02

Feb

-03

Jun-

03

Oct

-03

Feb

-04

Jun-

04

Oct

-04

Feb

-05

Jun-

05

Oct

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Feb

-06

Jun-

06

Oct

-06

Feb

-07

Broadband Dial Up

Source: Pew Internet & American Life Project, May 2007.

Rural competition will speed Rural competition will speed broadbandbroadband

• Fixed wireless services offer broadband alternative.

• Also encourages wireline incumbents to offer broadband.

Customer: Canola farmer

Exchange: Edwall-Tyler, WA

USF Support: $1,165.68/yr

DSL: Not available

In town

DSL: 1.5MB $39.95/mo

Existing USF does not encourage Existing USF does not encourage broadbandbroadband

• Rural ILEC getting $1K in USF per line per year.

• No broadband outside town.

• Broadband from cellular ETCs is unavailable or expensive.

• Universal service program may pay $2-3K per year and still not buy broadband.

Fixed wireless alternativeFixed wireless alternative

• Wireless loops used to provide both voice and broadband Internet.

• Company will use other capacity, such as electric utility fiber to the home, where available.

Fixed wireless providerFixed wireless provider

• Must provide voice to qualify for high-cost support, even though voice already available.

• Voice service adds complications, such as rural interconnection.

• Will get 50-75% of ILEC support under Joint Board cap mechanism.

• In non-rural’s rural areas, no support at all.

SummarySummary

• Deregulatory policies have complicated rural broadband.

• Hard to see a viable role for state regulators.

• Nation is likely to make progress even without a national strategy.

• More rural competition means more rural broadband.

Glenn Blackmon, Ph.D.Glenn Blackmon, Ph.D.www.glennblackmon.comwww.glennblackmon.commail@glennblackmon.commail@glennblackmon.com

360 556-7888360 556-7888