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Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States, presented at 36th Annual Telecommunications Policy Research …

Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States, presented at 36th Annual Telecommunications Policy Research Conference, George Mason University School of Law, Arlington, Virginia September 28, 2008

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  • 1. Lies, Damn Lies and Statistics:Lies, Damn Lies and Statistics: Developing a Clearer AssessmentDeveloping a Clearer Assessment of Market Penetration and Broadbandof Market Penetration and Broadband Competition in the United StatesCompetition in the United States A Presentation at the 36th Annual Telecommunications Policy Research Conference George Mason University School of Law September 28, 2008‘ Rob Frieden, Professor of Telecommunications and Law Penn State University rmf5@psu.edu Web site : http://www.personal.psu.edu/faculty/r/m/rmf5/ Blog site: http://telefrieden.blogspot.com/
  • 2. 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 globalFew would dispute the view that broadband access contributes to regional and global competitiveness, especially in the hinterland where distance insensitivity can havecompetitiveness, especially in the hinterland where distance insensitivity can have greater impact.greater impact.  ““This country needs a national goal for…the spread of broadband technology. WeThis country needs a national goal for…the spread of broadband technology. We ought to have…universal, affordable access for broadband technology by the yearought 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 have2007, 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 Georgegot plenty of choices when it comes to [their] broadband carrier.” President George W. Bush, March 26, 2004W. Bush, March 26, 2004 http://www.whitehouse.gov/infocus/technology/economic_policy200404/chap4.htmlhttp://www.whitehouse.gov/infocus/technology/economic_policy200404/chap4.html  John Kneuer, Assistant Secretary for Communications and Information andJohn Kneuer, Assistant Secretary for Communications and Information and Administrator at the Commerce Department’s National Telecommunications andAdministrator at the Commerce Department’s National Telecommunications and Information Administration claims the United States “has the most effectiveInformation Administration claims the United States “has the most effective multiplatform broadband in the world.”multiplatform broadband in the world.”  Mission accomplished? The Internet does provide a case study of successfulMission accomplished? The Internet does provide a case study of successful government incubation, anchor tenancy and privatization. But even for basicgovernment incubation, anchor tenancy and privatization. But even for basic telecommunications services, a $ 7 billion subsidy mechanism works to promotetelecommunications services, a $ 7 billion subsidy mechanism works to promote greater accessibility and affordability.greater accessibility and affordability.  Does broadband require similar government promotion?Does broadband require similar government promotion?
  • 3. 3 Using Current Broadband Statistics, One Can ReachUsing Current Broadband Statistics, One Can Reach Vastly DifferentVastly Different Conclusions About ConditionsAbout Conditions in the U.S.in the U.S. The broadband marketplace in the U.S. is doingThe broadband marketplace in the U.S. is doing quite well and could do better if governmentquite well and could do better if government deregulated further to remove regulatoryderegulated further to remove regulatory uncertainty and disincentives for investment.uncertainty and disincentives for investment. versus True broadband, i.e., 786 kilobits per second orTrue broadband, i.e., 786 kilobits per second or greater, shows marketplace failure in manygreater, shows marketplace failure in many regions where two or less facilities-basedregions where two or less facilities-based carriers operate.carriers operate.
  • 4. 4 Lines by Information Transfer Rates in the Faster Direction as of June 30,Lines by Information Transfer Rates in the Faster Direction as of June 30, 2007 (Includes only lines exceeding 200 kbps in both directions)2007 (Includes only lines exceeding 200 kbps in both directions) Source: FCC (2008); available at:http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-Source: FCC (2008); available at:http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC- State_Link/IAD/hspd0607_tables.xlsState_Link/IAD/hspd0607_tables.xls Total “High Speed” Lines (theoretical bitrate exceeds 200 kbps in 1 direction)Total “High Speed” Lines (theoretical bitrate exceeds 200 kbps in 1 direction) 0 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 90,000,000 100,000,000 110,000,000 Jun 2000 Jun 2001 Jun 2002 Jun 2003 Jun 2004 Jun 2005 Jun 2006 Jun 2007 40.2% 54.2% 5.6% > than 200 kbps, < than 2.5 mbps ≥ than 2.5 mbps, < than 10 mbps ≥ than 10 mbps
  • 5. 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:http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC- State_Link/IAD/hspd0607_tables.xls 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Jun 2000 Jun 2001 Jun 2002 Jun 2003 Jun 2004 Jun 2005 Jun 2006 Jun 2007 One or More Providers Four or More Providers
  • 6. 6 The FCC Provides One Source Document for All the Positive News— Everything Else Constitutes a “Trade Secret” Necessitating Confidential Treatment
  • 7. 7 Wireless Carriers Don’t Claim the Trade SecretWireless Carriers Don’t Claim the Trade Secret Exemption and Willingly Disclose CoverageExemption and Willingly Disclose Coverage
  • 8. 8 The U.S. Ranks 15th Among OECD Nations in Terms of Household Penetration source: OECD (2007) www.oecd.org/sti/ict/broadbandsource: OECD (2007) www.oecd.org/sti/ict/broadband 0 5 10 15 20 25 30 35 Denmark Netherlands SwitzerlandKoreaNorwayIcelandFinlandSwedenCanadaBelgium UnitedKingdomAustraliaFrance Luxembourg UnitedStatesJapanGermanyAustriaSpain New Zealand ItalyIrelandPortugal CzechRepublicHungaryPolandGreece SlovakRepublicTurkeyMexico DSL Cable Fibre/LAN Other OECDBroadband subscribers per 100 inhabitants, by technology, June 2007 OECDaverage
  • 9. 9 0 5 10 15 20 25 30 35 Denm ark Netherlands Switzerland KoreaNorwayIcelandFinlandSwedenCanadaBelgium United KingdomAustraliaFrance Luxem bourg United StatesJapanG erm anyAustria Spain New Zealand ItalyIrelandPortugal Czech RepublicHungaryPolandG reece SlovakRepublicTurkeyM exico 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Broadbandpenetration(subscribers per100inhabitants,June2007) GDP percapita(USD PPP,2006) The U.S. Lags Most Nations in Broadband Penetration On the Basis of Per Capita GDP source: OECD (2007) www.oecd.org/sti/ict/broadbandsource: OECD (2007) www.oecd.org/sti/ict/broadband
  • 10. 10 33.38 30.56 30.44 28.71 26.75 25.29 24.13 22.88 22.18 21.98 21.93 21.66 21.22 21.02 20.75 20.09 19.34 18.59 18.14 17.92 16.99 16.79 16.54 16.15 15.82 14.99 10.75 7.74 6.06 5.80 CzechRepublic Korea Iceland Mexico Portugal Luxembourg Italy Austria Hungary Canada Norway Australia Japan Germany Poland Spain Greece Belgium Ireland Finland France Sweden United Kingdom New Zealand Slovak Republic United States Turkey Netherlands Denmark Switzerland 321.88 50.93 79.38 157.52 91.71 90.83 54.44 102.33 166.94 97.63 163.04 108.45 131.57 45.19 132.48 233.64 90.43 72.66 154.03 49.04 74.01 89.60 62.76 119.70 266.93 199.99 117.18 87.68 72.62 52.15 1.00 10.00 100.00 1000.00 Czech Republic Korea Iceland Mexico Portugal Luxembourg Italy Austria Hungary Canada Norway Australia Japan Germany Poland Spain Greece Belgium Ireland Finland France Sweden United Kingdom New Zealand Slovak Republic United States Turkey Netherlands Denmark Switzerland Broadband price ranges, October 2007, all platforms, logarithmic scale, USDPPP U.S Broadband Rates: Quite Cheap to Some and Quite Expensive to Others (source: OECD 2007)
  • 11. 11 Average broadband monthly price per advertised Mbit/s, Oct 2007, USD PPP 97.43 63.89 29.13 28.14 25.03 22.85 22.22 21.34 19.59 18.55 18.40 17.70 17.66 17.54 16.75 15.26 14.92 14.31 13.45 12.60 11.52 9.81 8.44 8.17 7.31 5.96 5.29 4.61 3.70 3.09 Turkey Mexico Greece Canada Poland Spain Iceland Australia Slovak Republic Belgium Sweden Denmark Austria Czech Republic New Zealand Netherlands Ireland Hungary Finland United States Portugal Norway Germany Sw itzerland Luxembourg Korea United Kingdom Italy France Japan U.S Broadband Rates: Moderate to Many (source: OECD 2007)(source: OECD 2007)
  • 12. 12 Who’s Statistics Are Most Credible?Who’s Statistics Are Most Credible?  Most satellite and terrestrial wireless broadband options doMost satellite and terrestrial wireless broadband options do not exceed 200 kbps, yet the FCC showed a 24% increase innot exceed 200 kbps, yet the FCC showed a 24% increase in market penetration from 2006-2007.market penetration from 2006-2007.  Wall Street JournalWall Street Journal tests of the cutting edge, Apple iPhone 3Gtests of the cutting edge, Apple iPhone 3G measured actual data speeds in the 200-500 kbps range.measured actual data speeds in the 200-500 kbps range.  The U.S. government and sponsored academics dispute theThe U.S. government and sponsored academics dispute the OECD statistics as failing to include Wi-Fi hot spots, at workOECD statistics as failing to include Wi-Fi hot spots, at work access, etc.access, etc.  Additional excuses include the lack of computer literacy andAdditional excuses include the lack of computer literacy and access, having a large rural hinterland, adverse demographics,access, having a large rural hinterland, adverse demographics, yet other nations with similar disadvantages do better.yet other nations with similar disadvantages do better.
  • 13. 13 Case Study: Port Matilda, PA The FCC reports I have eight (down from nine in the previous year) broadbandThe FCC reports I have eight (down from nine in the previous year) broadband options (source: FCC, Number of Holding Companies Reporting High-Speedoptions (source: FCC, Number of Holding Companies Reporting High-Speed Subscribers by Zip Code as of June 30, 2007Subscribers by Zip Code as of June 30, 2007 available at:available at: http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/hzip0607.pdfhttp://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/hzip0607.pdf (p.570).(p.570). The options range from DSL (Verizon not available in my neighborhood, butThe options range from DSL (Verizon not available in my neighborhood, but presumably somewhere in the Zip Code) at $14.99 (up to768 kbpspresumably somewhere in the Zip Code) at $14.99 (up to768 kbps downstream/ up to128 Kbps upstream) to Satellite (Wild Blue $79.95 up to 1.5downstream/ up to128 Kbps upstream) to Satellite (Wild Blue $79.95 up to 1.5 Mbps downstream/ up to 256 kbps upstream, plus $368.95 hardware,Mbps downstream/ up to 256 kbps upstream, plus $368.95 hardware, installation and activation fees).installation and activation fees).
  • 14. 14 Case Study: Port Matilda, PA (cont.) Making an “apples-to-apples” comparison, which factors in actualMaking an “apples-to-apples” comparison, which factors in actual price cross elasticity, there are three distinct market segments:price cross elasticity, there are three distinct market segments: 1)1) Non-mobile residence and businesses that can access cable and possibly DSL service;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 toavailable 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$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 kbpsupstream); 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 todownstream/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 or128 kbps upstream) for customers that currently subscribe to Comcast Cable or Comcast Digital Voice. Without bundling: $59.95;Comcast Digital Voice. Without bundling: $59.95; 2)2) Users that want mobile access;Users that want mobile access; service available for as a low asservice 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)3) Non-mobile rural users lacking access to cable modem or DSL;Non-mobile rural users lacking access to cable modem or DSL; satellite servicesatellite service available for as low as $49.95 for up to 512 kbps downstream/up to 128 kbpsavailable for as low as $49.95 for up to 512 kbps downstream/up to 128 kbps upstream, plus $368.95 hardware, installation and activation fees; $79.95 for up toupstream, plus $368.95 hardware, installation and activation fees; $79.95 for up to 1.5 Mbps downstream/ up to 256 kbps upstream, plus $368.95 hardware, installation1.5 Mbps downstream/ up to 256 kbps upstream, plus $368.95 hardware, installation and activation fees.and activation fees.
  • 15. 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 requiringSection 706 of the Communications Act could be interpreted as requiring the FCC to disclose broadband deficiencies rather than treat them as tradethe FCC to disclose broadband deficiencies rather than treat them as trade secrets.secrets.  e-rate subsidies have achieved modest goals at great expense ande-rate subsidies have achieved modest goals at great expense and inefficiency.inefficiency.  Municipal wi-fi networks have mixed records; compare Blackburg, Va. withMunicipal wi-fi networks have mixed records; compare Blackburg, Va. with Philadelphia.Philadelphia.  Reserving to an incumbent wireline carrier a right of first refusal does notReserving to an incumbent wireline carrier a right of first refusal does not offer an optimal national strategy.offer an optimal national strategy.  Regulatory forbearance based on “robust competition” ignores evidenceRegulatory forbearance based on “robust competition” ignores evidence that over 98% of the national broadband market served by two types ofthat over 98% of the national broadband market served by two types of carriers (cable modem and DSL).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 applyFailure to apply CarterfoneCarterfone policies to wireless carriers passes up a lawfulpolicies to wireless carriers passes up a lawful and inexpensive catalyst.and inexpensive catalyst.
  • 16. 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. 706.  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.