Of the nominally US$787 billion that makes up the American Recovery and Reinvestment Act of 2009, less than 1% has been directed to be used for funding a variety of broadband initiatives throughout the U.S. Yet, it seems that the broadband subsidy funding has attracted much more than its fair share of attention with all types of projects and proposals being floated and developed by entities large and small across the country.
The U.S. Commerce Department’s National Telecommunications and Information Administration (NTIA) has been given $4.4 billion to extend broadband and wireless services to rural, suburban and urban areas, while another $2.8 billion goes to the Department of Agriculture’s Rural Utilities Service (RUS) to expand broadband access specifically to rural areas. Both agencies have been seeking comments and developing timelines on how the monies should be spent and, completely unsurprisingly, there appears to be little consensus among the myriad of interested parties beyond each wanting a slice of the pie.
Frankly, most comments and projects are self-serving with ISPs and telcos looking for funding for wireline infrastructure, mobile companies touting wireless services, satellite companies trumpeting satellite, cities and towns focused on local projects for themselves, and others saying preference should be given to connecting public institutions and schools while different lobbying groups say broadband penetration to consumers in rural areas need to be increased; this is just a small sampling of ideas being put forward. It seems inevitable that the $7.2 billion will be spread over a wide array of projects and efforts, and that it will be next to impossible to focus the monies on solving any one specific issue on a national scale (say broadband to all public schools, libraries, hospitals and similar institutions), as noble as some of these causes may be.
While NSR is admittedly biased towards the satellite industry, our view after years of research into the specific issue of bringing metropolitan-equivalent broadband services to rural households and companies in the U.S.A. is that it should not come down to a question of government agencies picking between competing proposals using different technologies to offer broadband services as seems the current trend. Instead, NSR suggests that the overarching goal should be to create an environment that stimulates demand and offers all service providers a level playing field in going after that demand. It is all too often overlooked, but the simple fact is the U.S. today has 100% broadband coverage thanks to satellite service providers. The concept of "unserved" households is fiction, and writing off satellite as that "other" service is no longer acceptable within the context of developing the overall broadband market in the country.
Going a step farther, NSR would suggest that when it comes specifically to the question of bringing alternative broadband services to (typically rural) households and businesses whose only current option is satellite, then NSR would argue that those who propose using subsidy monies to offer a terrestrial wireline or wireless alternatives to satellite should in fact be given a fair chance. However, direct subsidies for infrastructure projects (be it fiber in the ground, upgrading DSLAMs in central offices, installing WiMAX on towers, or even paying for new satellites) is almost certainly the wrong approach because, as noted above, putting government in the position of choosing one technology project over another is an almost certain path to more failures than successes. Further, this will lead to a mish-mash of regional efforts based on who has made the effort to put together a proposal by the imposed deadlines.
Instead, NSR would propose that when it comes to helping people and businesses in the U.S. whose only current choice is satellite, then the best use of the subsidy monies is to ensure that whatever choice the consumer makes, they can obtain a broadband service at the same cost and quality as currently found in metropolitan areas.
In Australia, the Australian Broadband Guarantee Program essentially takes this approach and puts the government’s money into leveling the playing field for all service providers and not into a specific technology choice. To "un-tilt" the playing field, the government provides a per subscriber subsidy to whoever the provider may be. For satellite services, this may mean paying for most equipment and installation costs as well as some of the subscription cost. For terrestrial players using the likes of WiMAX or 3G/4G as well as traditional aDSL or cable modem, this could mean some form of cash payments to the service provider for each subscriber signed up in order to underwrite the cost of providing the service. The important issue is that the subsidy be linked to a service provider actually signing up a subscriber and not to the cost of eventually providing a future service. The amount of the subsidy could certainly vary, but the goal as noted above is that the service provider engages to bring a metropolitan equivalent service, and the subscriber pays essentially the same amount as if they were living in a metropolitan area. The more successful a service provider is in signing up subscribers, the more subsidy money they will receive, and this instills an essential competitive aspect into the program.
Does such an approach mean that every consumer or business (no matter where they are located) will have a large array of options in their type of broadband service? The answer is no. The simple fact is that some technologies are better at serving some subscribers than others. To take the extreme example, using government money to underwrite the cost of bringing fiber to every household no matter how far it is located away from an existing node or spreading WiMAX on thousands of towers in very rural areas to bring services to a handful of homes all in the name of "creating competition" is simply an inefficient usage of limited funds. Instead, subsidies open to all players no matter the specific regional market they serve that are linked to signing up subscribers and limiting governments share of the cost to bringing it to the same level as someone in a metropolitan area takes the government out of the role of selecting the right technology and leaves that to the market which is best suited for such decisions. Given that satellite already offers 100% coverage, this means that other service providers using other technologies are free to ignore some subscribers that are simply not economical to serve while focusing their energies on areas where real and sustainable competition makes economic sense.
At this point, someone (especially those outside the satellite industry) will no doubt try to point out a supposed "flaw" in such an approach. They will contend that this is unfair to households and businesses that are left only with satellite as an option because satellite is more expensive for a poor quality service. In a sense, the satellite industry is partially at fault for this common (mis)perception. In the past, and to a certain extent today, it is true that satellite broadband services are sold at a premium over what is available in terms of broadband options in metropolitan areas, and the service quality is sometimes less than desirable. However, this situation in changing and already from a technical point of view, satellite service can offer as much "speed" as any comparable terrestrial service. The current issue for the satellite service provider is an economic one of offering a comparable speed but still being able to close the business case in terms of maximum number of subscribers it can support at these higher, metropolitan equivalent speeds. And within a few short years, this business case will be made even easier as the new generation of high throughout satellites (HTS) become available.
More importantly, the perception of "poor" quality satellite services is not entirely the industry’s fault, and part of the issue is how the market has conditioned people to perceive quality. One of the most common measures used today is the maximum download speed a broadband service can offer, be it satellite, aDSL, cable modem, or something else. It has become common for typical consumer and business users to equate a high "top speed" number with high quality, and service providers often up-sell subscribers to more costly service plans (sometimes plans that are more expensive than satellite) based on their quoted "top speed". However, this is in fact very misleading because every single broadband service provider that exists today will state somewhere in the fine print of its plan that its top speed is offered on a best effort basis. The simple fact is that a subscriber will only see the top speed if they are the ONLY person using the service provider’s network at the time, a very unlikely situation given that every service provider uses some type of bandwidth sharing scheme. There can even be the case where terrestrial service subscribers to "high speed" services get a poorer quality service than satellite if they happen to be in a node with very high usage and many subscribers.
Assuming that one agrees that the simple measure of the "top speed" of a broadband service is an insufficient indicator of service quality, then NSR suggests that another element of any broadband subsidy effort by government agencies is to include fair standards for the measure of service quality that consumers and businesses can easily understand when it comes to making a choice or, in the case where the consumer has no choice, that is mandated as a minimum service level should the service provider choose to accept government subsidies. One possible measure would be for service providers to publish, and the government to set minimum standards, on how much throughput a subscriber could expect to obtain if every subscriber to a specific service was online at the same time. This essentially boils down to an indication of a service provider’s contention ratio and shows more realistically the quality of a broadband service.
In its recently published "Broadband Satellite Markets 8th Edition" study, NSR projected uptake of what it calls single site satellite broadband Internet access subscribers in the North American market (U.S. plus Canada). This essentially equates to subscribers to the likes to HughesNet and WildBlue plus a smaller number of additional service providers in the North American market. As can be seen from the table below, NSR projects that single site satellite broadband subscribers in North America will reach some 2.9 million in 2018, up from about 885,000 in 2008. The Baseline forecast assumes satellite service providers will only moderately benefit from eventual stimulus monies. Should the satellite sector be highly successful and the government undertakes a long-term effort in subsidizing any type of broadband service to rural areas such that subscribers can obtain metropolitan equivalent services, then NSR’s current High Growth projections from the BBSM 8th Edition study could well turn out to be too modest. Conversely, should the government take a path that chooses one technology over another and places money mainly into infrastructure investments, then satellite broadband service providers could well be undercut due to the playing field being tilted against them, and the Low Growth projects could even over-estimate market demand for the coming ten years.
In summary, NSR clearly favors direct government intervention that, among other policy alternatives, brings to rural households and businesses in the U.S. broadband services that are equivalent in both price and true quality of service as is found in urban and suburban parts of the country. NSR does not believe that government agencies should get in the business of choosing one technology over another and infrastructure investments, being they satellites in space or wires in the ground or boxes on towers, should be avoided when it comes to addressing underserved markets. Instead, structuring a subsidy scheme that is open to all potential service providers to tap into while at the same time setting fair standards for service quality in order to offer consumers who only have a single choice some measure of protection appears to NSR the best way to both create a level playing field and to allow the entire broadband industry the freedom to choose how to best serve the market.
Sure, everyone in America would love to have a fiber pipe to their home with nearly unlimited throughput at pricing similar to today’s broadband rates, but this is something that is in no way within the realm of possibility within the current fiscal environment. Taking a realistic approach that at a minimum levels the playing field for both the service provider and the subscriber is very achievable and, just as importantly, is something that is sustainable well beyond the onetime windfall of the stimulus package. After all, this is what good government is all about.
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Information for this article was extracted from the NSR report entitled: Broadband Satellite Markets, 8th Edition. For more information go to www.nsr.com.
