Simple, cheap way to deliver broadband to half of those without

Simple, cheap way to deliver broadband to half of those without
Written by Dave Burstein
Alabama_poverty35M or so homes - about 100M people - don't take broadband in the U.S. You could subsidize 15-30M of them for 1/5th of the money spent each year on USF/ICC. Each family enrolled would pay say $7/month. The companies would make a normal profit, say 40% EBITDA. It requires no political tricks, and the economics are derived from top Wall Street analysts. It would be a very good thing, far more important than anything I've heard from the broadband plan. It is probably politically impossible. The FCC is hard to change. Here's the numbers for 3 to 10 megabit service for most of the poor in America. The difference in bandwidth cost between "back of the bus" speeds and real service is well under $1 (large carrier). They are well sourced and researched in depth, but forgive me for errors. I've been working most of 72 hours on details of the planm but this was too important not to publish.

$8: The marginal cost/month of broadband in 85+% of U.S., essentially all large carriers. The $8 figure comes from leading Wall Street analyst Craig Moffett, presumably direct from internal numbers at the big cablecos. My own research confirms it, although I speak of a range of $5-12 across the developed world. I have factchecked it with AT&T as well as a senior cabler and a large RLEC, as well as off the record with many CTO types, etc. I come to that figure by adding up the cost of bandwidth, customer support, modems, and the other main inputs required to add a customer to an existing network.

$15 A reasonable price for the government to pay when buying millions of lines for lifeline service. That provides teh companies with a reasonable profit, perhaps 40% EBITDA. It's ridiculous to pay retain for millions of lines. We know $15 is reasonable because both Verizon and AT&T charged $15 price for basic broadband until recently and always said they. were profitable. Many European broadband prices are at that level when bought as a bundle. The cost and profit figures are on target for all the larger carriers.

$7 Customer pays (a bargain)

$8 Subsidy/month to get to the $15 total.

< $100 Subsidy per family per year

10,000 families served per million of subsidt. 10,000,000 per $B.

20-30B homes for $3B/year. That's a lot of money to you or me, but less than 20% of the current USF/ICC total. Verizon or AT&T annual cash flow, etc. It's practical to identify $billions in waste in USF/ICC that can cover it over time.
Important note: 5-10% of the U.S. is rural or otherwise has higher costs, which is why elsewhere I point to reducing high rural backhaul costs etc. as critical.

Why isn't it in the plan already?
"That's not how lifeline works" I hear from someone powerful.We pay much more to the carriers, even when we know the price is very high because competition is weak. "That's not the rules." No one has absolute power to change those rules, not even the Chairman of the FCC or the Presdiant, but my correspondent is senior enough to put a plan like this on the table and possibly get it approved. Chairman Genachowski says getting everyone connected is Obama's highest priority. He can change the rules to make this practical.

"Carriers today are getting enormous margins on broadband" several on wall street have written. Moffett presented an 80% margin figure at the broadband workshops and one respected analyst tells me 90% in a private email. There prices provide a profit typical of U.S. business and most telecoms, but they will fight like hell to charge even more.

"Most wireline carriers will go bust in a few years if we don't increase their subsidies." Folks including Julius Genachowski (I hear second hand) are worried about this and it's often whispered on wall street. AT&T and Verizon will keep landlines going no matter what because landline backhaul is crucial to their mobile network. Income from the networks is far more than enough to pay the ongoing expenses. But Qwest and many others borrowed enormous sums to prop up dividends and buy their own shares and competitors. Iowa Tel, for example, in 2009 had profits of $0.72 but paid a dividend of $1.62. Frontier had earnings of $0.57 but paid a dividend of $1. Frontier hasn't covered their dividend since at least 2005. They've made up the difference by starving their networks while borrowing heavily. All these companies have lawyers in D.C. demanding higher subsidies, and no regulator wants to deal with a bankrupt carrier.
My take is that helping the poor comes before bailing out speculators in junk bonds, but I often tilt at windmills.

"It's too late in the process to change things." I wrote some of this months ago, although I didn't realize just how favorable the numbers would prove out. http://fastnetnews.com/stim/179-s/2188-save-half-on-broadband-subsidies-dont-pay-retail-for-a-million-lines. Free Press made it a prominant part of their proposals lately. That's wasn't enough to rise over the din of the carrier's demanding higher, not lower subsidies.

This is one of the clearest opportunities to really make a difference I've seen in policy. I've sent this recommendation to everyone at the FCC who reads my email. I hope they find the courage.
For the record: I've been urging this on everyone in power I can contact, many of whom are DSL Prime readers. Almost everyone at the FCC reads their own email except the Commissioners, so you too can petition them. In the spirit of the ex parte rules, when I make recommendations at the FCC I write them up like this publicly as soon as practical. If you review past issues of DSL Prime, you'll see I've presented at two FCC workshops and often spoken with senior officials.
Written by Dave Burstein

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