Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at the 36 th Annual Telecommunications Policy Research Conference George Mason University School of Law September 28, 2008 ‘ Rob Frieden, Professor of Telecommunications and Law Penn State University Web site : Blog site:

2 Absent Market Failure, Should Governments Stimulate Broadband Investment, Subsidize Service, or Become a Carrier? Few would dispute the view that broadband access contributes to regional and global competitiveness, especially in the hinterland where distance insensitivity can have greater impact. Few would dispute the view that broadband access contributes to regional and global competitiveness, especially in the hinterland where distance insensitivity can have greater impact. “This country needs a national goal for…the spread of broadband technology. We ought to have…universal, affordable access for broadband technology by the year 2007, and then we ought to make sure as soon as possible thereafter, consumers have got plenty of choices when it comes to [their] broadband carrier.” President George W. Bush, March 26, “This country needs a national goal for…the spread of broadband technology. We ought to have…universal, affordable access for broadband technology by the year 2007, and then we ought to make sure as soon as possible thereafter, consumers have got plenty of choices when it comes to [their] broadband carrier.” President George W. Bush, March 26, John Kneuer, Assistant Secretary for Communications and Information and Administrator at the Commerce Department’s National Telecommunications and Information Administration claims the United States “has the most effective multiplatform broadband in the world.” John Kneuer, Assistant Secretary for Communications and Information and Administrator at the Commerce Department’s National Telecommunications and Information Administration claims the United States “has the most effective multiplatform broadband in the world.” Mission accomplished? The Internet does provide a case study of successful government incubation, anchor tenancy and privatization. But even for basic telecommunications services, a $ 7 billion subsidy mechanism works to promote greater accessibility and affordability. Mission accomplished? The Internet does provide a case study of successful government incubation, anchor tenancy and privatization. But even for basic telecommunications services, a $ 7 billion subsidy mechanism works to promote greater accessibility and affordability. Does broadband require similar government promotion? Does broadband require similar government promotion?

3 Using Current Broadband Statistics, One Can Reach Vastly Different About Conditions in the U.S. Using Current Broadband Statistics, One Can Reach Vastly Different Conclusions About Conditions in the U.S. The broadband marketplace in the U.S. is doing quite well and could do better if government deregulated further to remove regulatory uncertainty and disincentives for investment. versus True broadband, i.e., 786 kilobits per second or greater, shows marketplace failure in many regions where two or less facilities-based carriers operate.

4 Lines by Information Transfer Rates in the Faster Direction as of June 30, 2007 (Includes only lines exceeding 200 kbps in both directions) Source: FCC (2008); available at: State_Link/IAD/hspd0607_tables.xls Total “High Speed” Lines (theoretical bitrate exceeds 200 kbps in 1 direction)

5 The U.S. Has 100% Broadband Penetration With Consumers in 77.4% of All Zip Codes Having 4 or More Broadband Choices Source: FCC (2008); available at: State_Link/IAD/hspd0607_tables.xls

6 The FCC Provides One Source Document for All the Positive News— Everything Else Constitutes a “Trade Secret” Necessitating Confidential Treatment

7 Wireless Carriers Don’t Claim the Trade Secret Exemption and Willingly Disclose Coverage

8 source: OECD (2007) The U.S. Ranks 15 th Among OECD Nations in Terms of Household Penetration source: OECD (2007)

9 source: OECD (2007) The U.S. Lags Most Nations in Broadband Penetration On the Basis of Per Capita GDP source: OECD (2007)

10 U.S Broadband Rates: Quite Cheap to Some and Quite Expensive to Others (source: OECD 2007)

11 (source: OECD 2007) U.S Broadband Rates: Moderate to Many (source: OECD 2007)

12 Who’s Statistics Are Most Credible? Most satellite and terrestrial wireless broadband options do not exceed 200 kbps, yet the FCC showed a 24% increase in market penetration from Most satellite and terrestrial wireless broadband options do not exceed 200 kbps, yet the FCC showed a 24% increase in market penetration from Wall Street Journal tests of the cutting edge, Apple iPhone 3G measured actual data speeds in the kbps range. Wall Street Journal tests of the cutting edge, Apple iPhone 3G measured actual data speeds in the kbps range. The U.S. government and sponsored academics dispute the OECD statistics as failing to include Wi-Fi hot spots, at work access, etc. The U.S. government and sponsored academics dispute the OECD statistics as failing to include Wi-Fi hot spots, at work access, etc. Additional excuses include the lack of computer literacy and access, having a large rural hinterland, adverse demographics, yet other nations with similar disadvantages do better. Additional excuses include the lack of computer literacy and access, having a large rural hinterland, adverse demographics, yet other nations with similar disadvantages do better.

13 Case Study: Port Matilda, PA The FCC reports I have eight (down from nine in the previous year) broadband options (source: FCC, Number of Holding Companies Reporting High-Speed Subscribers by Zip Code as of June 30, 2007 available at: State_Link/IAD/hzip0607.pdf (p.570). State_Link/IAD/hzip0607.pdf State_Link/IAD/hzip0607.pdf The options range from DSL (Verizon not available in my neighborhood, but presumably somewhere in the Zip Code) at $14.99 (up to768 kbps downstream/ up to128 Kbps upstream) to Satellite (Wild Blue $79.95 up to 1.5 Mbps downstream/ up to 256 kbps upstream, plus $ hardware, installation and activation fees).

14 Case Study: Port Matilda, PA (cont.) Making an “apples-to-apples” comparison, which factors in actual price cross elasticity, there are three distinct market segments: 1)Non-mobile residence and businesses that can access cable and possibly DSL service; available for as a low as $14.99 for DSL (with a 1-2 yr. service commitment) up to $37.99 (no service commitment for up to 3 Mbps downstream/ up to768 kbps upstream); cable modem service ranges from $27.99 for up to768 kbps downstream/up to128 kbps upstream) to $42.95 for up to 6 Mbps downstream/ up to 128 kbps upstream) for customers that currently subscribe to Comcast Cable or Comcast Digital Voice. Without bundling: $59.95; 2)Users that want mobile access; service available for as a low as 2)Users that want mobile access; service available for as a low as $26.95 for 10 Mbps plus about $10 in surcharges and fees (no throughput specified, but GPRS and Edge do not come close to wireline speeds); up to $59.95 (one-two year service commitment 5 GB quota and throughput of up to 600 kbps – 1.4 Mbps and at claimed average upload speeds of 500 Kbps – 800 kbps); and 3)Non-mobile rural users lacking access to cable modem or DSL; satellite service available for as low as $49.95 for up to 512 kbps downstream/up to 128 kbps upstream, plus $ hardware, installation and activation fees; $79.95 for up to 1.5 Mbps downstream/ up to 256 kbps upstream, plus $ hardware, installation and activation fees.

15 The Current Strategies Do Not Work Well Transparency and credibility is essential in data collection. Transparency and credibility is essential in data collection. Section 706 of the Communications Act could be interpreted as requiring the FCC to disclose broadband deficiencies rather than treat them as trade secrets. Section 706 of the Communications Act could be interpreted as requiring the FCC to disclose broadband deficiencies rather than treat them as trade secrets. e-rate subsidies have achieved modest goals at great expense and inefficiency. e-rate subsidies have achieved modest goals at great expense and inefficiency. Municipal wi-fi networks have mixed records; compare Blackburg, Va. with Philadelphia. Municipal wi-fi networks have mixed records; compare Blackburg, Va. with Philadelphia. Reserving to an incumbent wireline carrier a right of first refusal does not offer an optimal national strategy. Reserving to an incumbent wireline carrier a right of first refusal does not offer an optimal national strategy. Regulatory forbearance based on “robust competition” ignores evidence that over 98% of the national broadband market served by two types of carriers (cable modem and DSL). Regulatory forbearance based on “robust competition” ignores evidence that over 98% of the national broadband market served by two types of carriers (cable modem and DSL). A broad geographic footprint does not constitute a “perfect storm.” A broad geographic footprint does not constitute a “perfect storm.” Failure to apply Carterfone policies to wireless carriers passes up a lawful and inexpensive catalyst. Failure to apply Carterfone policies to wireless carriers passes up a lawful and inexpensive catalyst.

16 Recommendations Use more granular and forthright data collection and dissemination; the recent broadband statistics reform (using census tracts with an eye toward mapping penetration) constitutes a belated start toward rehabilitating the FCC into becoming an honest broker. However, the FCC needs to report actual throughput speeds and subscription costs with the same granularity as it does for wireline and wireless telephone service. The FCC should abandon its confidential treatment of broadband penetration data as trade secrets. Identifying locations where a specific carrier does not operate provides little, if any, potential financial harm to a carrier that already has determined that service there does not make financial sense. Likewise, identifying locations where little if any broadband competition exists could identify unserved, or underserved areas—a task consistent with the spirit of Sec Adopt best practices evident in other nations, e.g., Canada, Korea, Japan. – –capping government project funding to a percentage of total cost; – –creating incentives for demand aggregation; – –one time project funding rather than recurring discounts; – –promoting innovation and creativity in projects, including technologies that provide greater efficiency and lower recurring costs, e.g., wireless; – –auctioning off subsidies; and – –blending government stewardship and vision with financial incentives for private stakeholders to pursue infrastructure investments.