So long, broadband duopoly?

Analysts at the Federal Communications Commission appear to agree with forecasts that project 90 percent of the U.S. population is likely to have access to broadband networks capable of peak download speeds in excess of 50 Mbps as cable systems upgrade to DOCSIS 3.0. See http://www.broadband.gov/download-plan.

But FCC analysts also estimate that about 15 percent of the U.S. population is likely to be able to choose between two providers, both cable a telco. At first glance, this would seem to be a problem for most telcos other than Verizon.

If in fact a large percentage of the U.S. broadband customer base does decide to buy 50-Mbps services, or even faster services, many telcos are going to be at a huge disadvantage, if one assumes broadband access will be the foundation service for most telcos.

As necessity typically is the mother of invention, one wonders whether ways of using fiber-to-neighborhood networks will be capable of upgrading to speeds not possible so far, much as cable operators are working on new ways to boost their own broadband speeds. One should not discount the possibility, or the incentives for suppliers to come up with such solutions.

On the other hand, "headline" speeds, as important as they are for marketing purposes, might not necessarily correspond to consumer buying preferences in the near term, or even in the medium term. So far, few U.S. consumers have decided 50 Mbps access services were valuable enough to buy them, where such services are available.

If that remains the case, services offering 20 Mbps or 25 Mbps might be good enough, at least for the medium term, and urban fiber-to-neighborhood networks ought to be able to reach 40 Mbps, as Qwest already offers in Denver, for example.

Telcos with lower density serving areas and longer loop lengths will find it rather expensive to match that sort of speed using any hybrid network (fiber distribution, copper access). But much might hinge on the actual state of end user demand (willingness to pay).

Nor should observers think there is no more speed that can be wrung out of all-copper access networks. A reasonable way of putting matters is that additional copper pairs can be bonded to achieve higher speeds. There are technical issues, of course, ranging from availability of requisite pairs in existing cable, and interference issues within cables. But researchers already are working on ways to create higher-speed circuits by using more extensive bonding.

Oddly enough, the dwindling number of fixed-line voice circuits actually helps to some extent, as it frees up additional copper pairs, in some cases. It isn't easy, but sometimes extensive pair bonding will prove workable. Beyond that, the costs of fiber-to-customer infrastructure continue to improve, especially where either aerial plant or underground conduit are in place.

So it is not clear that cable's current advantages are of a permanent nature. That might be the case, in some areas and perhaps in many areas. But telco executives have powerful incentives not to concede the long-term future.

And since all observers now agree that the goal of 100 Mbps, within a decade, is the aspirational target the market likely will support, technologists and business planners will be looking at any number of solutions. At one level, the issue is technological: how can it be done? At an equally important level, the issue is how to match investment to expected revenues.

One might argue that with multiple 4G wireless networks and growing use of mobile devices, actual end user demand at fixed locations might not grow as rapidly as some forecast. A large number of fast, but not super-fast connections--both mobile and fixed--might well prove quite workable.

That doesn't mean telco planners can avoid the work of figuring how to pay for and build networks running up to 100 Mbps at some medium term point in the future. But the scaling might wind up being more graceful than people sometimes assume.

So long, broadband duopoly?

Australia National Broadband Network Pricing Clues

Australia's planned National Broadband Network (NBN) expects, over a decade, to build a fiber-based broadband access network providing 93 percent of Australian homes and small businesses with 100 Mbps service. Some locations will be served by wireless or satellite services that will operate at 12 Mbps. Fixed wireless will be used to supply service to about four percent of locations, while satellite is used to deliver service to about three percent of locations.

In total, about 13 million connections will be supplied.

"Retail pricing structure for fiber products is based around bundled (cheap or free) voice, fast broadband access and multi-channel TV," the NBN plan suggests. That little tidbit largely reflects the prevailing view that voice communications, though still a huge part of the overall value proposition, will not be the revenue driver for the network. Some might wonder about the relative contribution of multi-channel TV, over the medium or longer term, as well.

Of course, since the NBN will only supply wholesale access and transport, the specific retail plans will be determined by the retail providers themselves. Some may elect not to provide any one of the potential constituent services. Also, the NBN and its retail partners will continue to compete in a market with existing cable competition and expected growing competition from mobile networks as well.

One might guess, based on prior instances of robust wholesale regimes, that Telstra's current 70-percent-plus share of voice, and nearly-70-percent share of fixed broadband, could drop to about 40 percent, as already is the case in the wireless services domain. Market share of about 40 percent for fixed services would be consistent with other markets where robust wholesale competition is possible.

Some idea of the "retail pricing floor" can be gleaned from planned NBN pricing. Wholesale prices for a single 12 Mbps circuit are set at $24. A retail service provider will add operating, sales and capital costs to derive retail pricing. Other prices include wholesale charges of $27 for a 25 Mbps service with 10 Mbps return; $30 for a 25/20 service and  $34 for a 50/20 access; $38 for 100/40 service.

Wholesale pricing for a 250/100 plan will cost $70; $100 a month will buy a 500/200 service and $150 is the wholesale price per month for a 1 Gbps/400 Mbps service. The charges intentionally are designed to encourage wholesale partners to buy and retail services running at 100 Mbps.

The NBN also will sell symmetrical services with guaranteed quality of service (committed information rates).

NBN Co will "provide a layer two bitstream service only, using a GPON (gigabit passive optical etwork) architecture. The company is not preparing for the provision of layer one services, layer one unbundling, functional or structural separation. Retail partners will not be able to buy "dark fiber," in other words.

Wholesale products will be sold supporting downstream bandwidths of 12 Mbps, 25 Mbps, 50 Mbps, 100 Mbps, 250 Mbps, 500 Mbps and 1 Gbps, with upstream bandwidths ranging from 1 Mbps up to 400 Mbps. The NBN also will offer wholesale voice capabilities.

The NBN will add video streaming delivery, but will not supply the rest of the video infrastructure. Also planned are features to support multi-location enterprises and 1 Gbps virtual LAN services, as well as protected diverse-routing services.

The entire fiber network will take 9.5 years to build, assuming no materials or labor delays, and is projected to cost $36 billion. Revenues to 2020 are expected to be about $21 billion and operating costs are expected to run about $22 billion through 2020. The Australian government is contributing R27.5 billion, with debt financing of about $13 billion. The internal rate of return is expected to be seven percent.

For Telstra, the stakes are high, as Telstra will essentially be out of the infrastructure business, and purchase access and transport services from the NBN. Telstra also will divest its cable network customers as well.

You can read the full report here

Fiber to the Home for Smart Grid Apps

Will Access Rules Kill New Fiber to Home Investment?

A number of vendors at the FTTH Council meeting said their business in Europe, where the European Union imposed open access rules, has come to a virtual standstill, and that's something they want to avoid in the U.S. market, Carol Wilson, Light Reading events chief editor, reports.

Much will hinge on whether Title II regulation is imposed on broadband access services, or whether, by some other mechanism, mandatory wholesale rules, especially with discounted access rates, are on imposed on the owners of fiber-to-customer networks.

To be sure, competitive providers would get a new lease on life if such rules were put into place. But just as surely, incentives to build new fiber-to-customer access plant will diminish.

Some will argue this won't happen. But it apparently is happening in Europe, at least by some accounts.

FCC Could Crash FTTH Party

FTTH Penetration Grows, But Relatively Slowly

The number of U.S. locations with a fiber-to-the-home connection available continues to grow. The number of customers who decide to buy services from those FTTH passings is growing much more slowly.

In part that is because there is a gap between facilities being made available and services being marketed.

But even when it is marketed, some of us would say the take rate is lower than we would have anticipated.

At the moment, about 36 percent of homes able to buy FTTH services actually do so. You can attribute much of the resistance to consumer willingness to stick with cable operator access services and the comparable value of cable triple play services, compared to telco alternatives.

New Hurdles for FTTH Investment?

Is the investment case for fiber to the home networks getting more challenging? Yes, says Rupert Wood, Analysys Mason principal analyst. A shift of revenue, attention and innovation to wireless networks is part of the reason. But the core business case for triple-play services also is becoming more challenging as well.

All of that suggests service providers will have to look outside the traditional end-user services area for sustainable growth. Many believe that will have to come in the form of services provided to business partners who can use network-provided information to support their own commerce and marketing efforts. Those partners might be application developers, content sites, ad networks, ad aggregators or other entities that can partner with service providers to add value to their existing business operations.

Current location, type of device, billing capabilities, payment systems, application programming interfaces and communication services, storage services, profile and presence information might be valuable in that regard.

Fiber to the home long has been touted by many as the "best," most "future proof" medium for fixed access networks, at least of the telco variety. But not by all. Investment analysts, virtually all cable and many telco excutives also have argued that "fiber to the home" costs too much.

Over the last decade or so, though, something new has happened. Innovation, access, usage and growth have shifted to wireless networks. None of that is helpful for the FTTH business case. That is not to say broadband access is anything but the foundation service of the future for a fixed-network service providers. Fixed networks in all likelihood always will provide orders of magnitude more usable bandwith than wireless networks.

The issue, though, is the cost of building new fiber networks, balanced against the expected financial returns.

“FTTH is often said to be ‘future-proof’, but the future appears to have veered off in a different direction,” says  Rupert Wood, Analysys Mason principal analyst. Regulatory uncertainty, the state of capital markets and executive decisions play a part in shaping the pace of fiber deployment. But saturation of end user demand now is becoming an issue as well.

The basic financial problems include competition from other contestants, which lowers the maximum penetration an operator can expect. FTTH has to be deployed, per location. But services will be sold to only some percentage of those locations. There is a stranded investment problem, in other words.

The other issue is that the triple-play services bundle is itself unstable. FTTH networks are not required to provide legacy voice services. In fact, the existing networks work fine for that purpose. One can argue that broadband is needed to provide the next generation of voice (VoIP or IP telephony), but demand for fixed-line voice has been dropping for a decade. So far, there is scant evidence that VoIP services offered in place of legacy voice have raised average revenue per user. Most observers would note the trend goes the other way: in the direction of lower prices.

And though entertainment video services offer a clear chance for telcos to gain market share at the expense of cable operators, there is at least some evidence that overall growth is stalling, limiting gains to market share wins.

Broadband access also is nearing saturation, though operators are offering higher-priced new tiers of service that could affect ARPU at some point. So the issue is that the business case for FTTH has to be carried by a declining service (voice), a possibly-mature service (video) and a nearly-mature service (broadband access).

And then there is wireless substitution. Fixed-line voice already is being cannibalized by mobile voice. Some observers now expect the same thing to start happening in broadband access, and many note new forms of video could displace some amount of entertainment video spending as well.

The fundamental contradiction is that continued investment in fixed-line networks, which is necessary over time, occurs in a context of essentially zero growth.

Atlantic-ACM, for example, now forecasts that U.S. wireline network revenue, overall, between now and 2015, will be flat at best. Compound annual growth rates, in fact, are forecast to be slightly negative, at about 0.3 percent. Where total industry revenue was about $345 billion in 2009. By 2015, revenue will be $337 billion, Atlantic-ACM predicts.

That is not to argue against replacement of aging networks; in fact that is a necessary and normal part of any network deployment. The issue is the declining amount of revenue any such network can generate.

"Overall consumer spend on telecoms has long since ceased to grow in developed economies," says Wood.

And though FTTH promises dramatically-higher bandwidth, demand is a bit uncertain at the moment. "Even though many cable operators have been offering superfast fixed broadband connectivity for some time in Europe and North America, take-up of such services remains troublingly low."

Aside from some early adopters, Wood argues, new services that uniquely take advantage of FTTH are needed. Industry executives are aware of that need, and have been for quite some time.

The issue is that the scale and pace of innovation in wireless now outstrips what is happening on the fixed line network. That makes the revenue upside for FTTH a tougher challenge. In some markets, cheaper copper-based alternatives might continue to make more sense, Wood argues.

That is particularly true in Europe, says Wood, where consumer willingness to pay a premium for additional bandwidth is low and where broadband prices are already significantly lower than in North America.

"This level of commitment to FTTH looks unsustainable and fundamentally unreasonable, especially when VDSL networks will pass far more households," says Wood. "We therefore expect telcos that have opted for FTTH roll-out beyond proof-of-concept trials and greenfield sites to back away from further commitment and, in some cases, reduce the scale of their FTTH roll-out plans."

So the strategic issue now would seem to be whether continued FTTH momentum can be sustained. It would be an unexpected turn of events, if it turns out Wood is correct.

BT Has Same Cost Problem as AT&T, Verizon, CenturyLink

BT has said that there is a commercial case for it to upgrade about two thirds of its national network to fiber-to-the-cabinet and fiber-to-the-premises networks. The rest of the country, though, is too sparsely populated to justify wholly private investment, BT insists.

People sometimes forget how sensitive infrastructure costs are to the vagaries of population density, terrain, soil composition and duct or pole access. In the United States, as elsewhere, loop length (distance from customer location to the nearest central office) is inversely proportional to population density. So are capital requirements. The cost of serving the last 10 percent of customers is extraordinarily high compared to the cost of reaching the most-dense 30 percent of locations (click on image for larger view).

Whitehall invites broadband subsidy goldrush • The Register:

After 10 Years of Big Bandwidth, Where are the New Apps?

After a decade of fiber-to-the-home access, what do service providers have to show for it? Not as much as you might think, suggests Benoît Felten, Yankee Group principal analyst.

"Surprisingly perhaps, considering the decade’s worth of experience some Asia-Pacific countries have with FTTP, they face many of the same issues surrounding FTTP that have been prevalent in the West," says Felton.

The business model, for example, is no less an issue than in other markets. "Finding a sustainable business model" is as important for private players in the Asia-Pacific markets as you can guess it is for service providers elsewhere. High bandwidth provided at low cost might be great for consumers, but is challenging for providers.

Government subsidies and support in some markets is part of the answer for some providers, though.

Service innovation also is an issue. FTTH provides "more" bandwidth. But does it stimulate new applications and businesses that did not exist before? The answer, so far, seems to be "no." That is not to say broadband is unimportant as an enabler of economic activity.

But it is fair to say even after a decade of having FTTH, there is little to point to except online gaming, in terms of new and widely-used applications. "Even in Japan and South Korea, there aren’t that many disruptive or innovative services available to end-users, with the exception of online gaming," Felton says.

"While there’s been a vibrant development of Internet activities, especially in South Korea, this hasn’t necessarily resulted in the kinds of services that are generally expected, such as health care or connected communities," says Felton.

Sustainability, especially in a market context, remains an issue as well. While things have been slowly improving for early deployers, especially NTT, which announced at the conference that its average revenue per user  for FTTP services has increased from 4,800 yen to 5,590 yen between 2006 and 2009, the revenue from fiber-grade services that actually benefits the telco remains limited.

Regulators, on the other hand, must continually monitor the degree of competition in the access market as well, and Felton notes that NTT has 75 percent market share in the fiber access market, but only 30 percent or so in the digital subscriber line market.

Asia-Pacific is still by far the most advanced region of the world when it comes to fiber to the premises deployment and adoption. Asian FTTP adoption is estimated at 40 million subscribers, compared with just eight million in North America and 3.5 million in Europe.

The Korea Communications Commission and KT have ambitions to upgrade to a national target of 1 Gbps connectivity. That's an important national goal, but such government-lead policies arguably are not replicable in other markets that must rely on normal supply and demand constraints.

In some "state-lead" markets, the advantage for incumbent operators is an easier business case. In Malaysia, the government has decided to co-finance a fifth of the cost of an urban deployment of FTTP. As you would expect, Telecom Malaysia customers are able to buy service that is quite attractive compared to what one would find in a market where such subsidies are not available, says Felton.

In Australia and New Zealand, deployment models involve heavy government intervention, both in funding and investment structure establishment.

The biggest anticipated growth of this second wave is China. The Chinese government itself is not directly involved in the FTTP push, but all of the competing Chinese telcos are state owned, which imposes different constraints on their investment decisions compared to private players.

The somewhat discouraging news is that, after 10 years, FTTH has not produced unambiguously new and lucrative applications. That doesn't mean such applications will not develop, but simply that a private market cost-benefit analysis might suggest it still isn't so smart to charge ahead with a robust FTTH program at all costs.

Verizon Slows FiOS Build: Implications for National Broadband Plan?

Many things have changed since Verizon Communications first began its FiOS construction program in 2004, and in the years leading up to that decision, when hot debates were held about the wisdom of fiber-to-neighborhood versus fiber-to-home networks.

Mobile broadband, especially the faster 3G and new 4G networks, now will begin to offer a serious alternative for a signficant number of end users.  Consumer resistance to paying higher prices for higher-speed fixed broadband (50 Mbps and above) has not lessened.

Cable companies have solidified their position as specialists in the consumer services segment, with the exception of wireless. Given cable's position in consumer video and voice, financial returns from fiber-to-home deployments, in the mass market, are getting harder to justify, not easier.

In many ways, leading U.S. telcos have found that their strengths in wireless and enterprise services are matched by relative cable strength in the mass market video and voice product segments.

Also, opportunity costs arguably have risen over the last 10 years, opportunity cost representing the potential gains a company might have made if capital had been deployed elsewhere,, such as wireless or software, instead of high-capacity fiber access.

In the background are concerns about the long-term relative value of multi-channel entertainment and voice revenues as well, which dampen financial returns from those two core services.

Take all of that into account and the apparent lessening desire on Verizon's part to continue investing in fiber to the home is logical, perhaps even prudent.

Given capital scarcity, burgeoning wireless and mobile broadband opportunities, as well as the slower growth for legacy services such as entertainment video, fixed access and voice, it would be hard to argue with an argument that effort is better placed squarely in the wireless arena, rather than fixed line services.

For that reason, it is not a complete surprise that Verizon seems to be slowing its FiOS program, which had been nearing the end of the major construction phase, in any case. The company says it no longer will seek to build FiOS in communities where it has not already gotten video franchises issued.

That means Verizon apparently will not undertake FiOS builds in Baltimore and downtown Boston, for example, a scenario many of us would not have predicted.

Verizon is still negotiating for franchises in some smaller communities, mainly in New York, Massachusetts and Pennsylvania, but it is not working on securing franchises for any major urban areas.

Verizon never committed to bringing FiOS to its entire local-phone service area, originally planning to make service available to about 18 milliion households by the end of 2010, a goal it will reach. Since the program began, however, Verizon also has been selling assets in less-populated areas in the Midwest and West Coast.

The recruitment of new FiOS TV subscribers slowed last year. In the fourth quarter, it added 153,000 subscribers, little more than half of the number it added in the same period the year before.

At the end of last year, Verizon had 2.86 million FiOS TV subscribers and 3.43 million FiOS Internet subscribers (most households take both).

Investors never have liked the FiOS program, which will wind up costing an estimated $23 billion. FiOS likely has been a key reason Verizon has been able to compete with cable companies.

Verizon is the only major U.S. phone company to draw fiber all the way to homes and the only one to offer broadband speeds approaching those available in Japan and South Korea. But the financial returns have not been so overwhelming that the decision to expand the program is completely clear.

Verizon's experience might be an implicit warning to policymakers that although the goal of 100 Mbps service, provided to 100 million U.S. homes, by 2020 is a fine stretch goal, but might face trouble if it means consumers have to pay significantly more for such service. Consumers might prefer 20 Mbps to 30 Mbps for $50 to $60 a month, rather than 50 Mbps for $100 a month, and certainly more than 100 Mbps for $150 to $200 a month.

related article

Except for Wireless, National Broadband Plan Much Ado About Almost Nothing

Oddly enough, the proposed National Broadband Plan is light on new spending and puts primary emphasis on wireless, while mixing in a bit of a grab bag of existing and vexing voice-related issues. The goal of getting 100 Mbps service to 100 million U.S. homes by 2020 appears to be just that, a "goal," not a requirement.

Some people would call that a mistake, but the Federal Communications Commission is not unmindful of some basic facts, including the requirement that the investment heavy lifting must be done by private industry, and that means raising lots of investment capital from private sources.

Those sources already have made clear their fears that too much tinkering with broadband regulations, especially regulating broadband access as a common carrier service, will choke off investment.

The single-biggest substantive proposal is the plan to make 500 megahertz of new spectrum available for wireless communications by reallocating spectrum presently used by TV broadcasters.

It might be close to heresy, but if you look out 10 years, the business case for investing lots of money in fiber to home facilities is starting to look worse, not better. Many policy advocates call for much-higher speeds and lower costs at the same time. That's not a convincing scenario for investors who would have to take a chance on loaning money in that sort of market.

Also, to the extent that entertainment video has been a big part of the business case, not many observers would believe the future is as bright as the past has been. With voice also under pressure, it may not make as much sense as it once did to invest too aggressively in fixed broadband. Broadband still is the foundation service for fixed networks in the future.

But that is a different issue from the separate issue of how much investment ought to be made, because it is unclear how much users are willing to pay for really-fast service, or how much incremental revenue might actually be created by new applications that require really-fast broadband.

VoIP Will be a Mixed Blessing for Mobile Service Providers

This prediction for use of mobile VoIP by about 2013, made by In-Stat, might suggest the reasons why incumbent voice providers have been somewhat hesitant to fully embrace VoIP.

The pie chart suggests that a majority of VoIP activity on mobile phones will be provided by third party, over-the-top providers, not the "service providers" themselves.

That's roughly the same experience fixed line operators have had: most of the usage is enabled by third-party application providers or competitors, notably cable companies.

Some might find it odd, but VoIP actually has been a mixed blessing for incumbent voice providers. It represents the next generation of voice, but the next generation of voice turns out to be an application "anybody" can provide.

VoIP proponents have hammered away at the theme that VoIP is about new features, not price. The market keeps demonstrating by its spending that price is what VoIP "really is about." Features are nice, especially in the business market, but consumers seem to buy based on their ability to "save money," rather than for the whiz-bang new features.

The fundamental dilemma for an incumbent voice provider is that they essentially must invest more money, to provide new features end users won't pay for, at lower or the same prices. To a certain extent, that's the similar problem service providers face when upgrading to fiber-to-home or fiber-rich access networks. Video services are truly new. But broadband access has been following a "more speed for the same money" trajectory, for the most part. Fiber-rich access networks have made possible new faster tiers, sold for more money, to be sure.

But it would be tough to make the argument that the new sales of faster access, plus revenue from new video services, have earned sufficient return to justify the investments in a classic sense. More often, such investments are strategic, intended to ensure that a provider still has a business, more than investments that immediately produce attractive revenue lift.

VoIP has been a mixed blessing for incumbent telcos, though it has been very satisfying for cable operators and some over-the-top providers.

23% of U.S. Business Sites Now are Fiber-Served

What percentage of U.S. business locations would you suggest now have optical fiber connections available to them? According to Vertical Systems Group, just 23 percent of U.S. sites and 15 percent of sites in Europe have optical access.


While most large enterprise locations in the United States and Europe are fiber-connected, small and medium business sites generally are underserved with fiber from any service provider.


"The good news is that overall accessibility to business fiber has more than doubled within the past five years," says Rosemary Cochran, Vertical Systems Group principal.


The challenge ahead is to extend fiber connectivity to remote business locations. Of course, not all smaller business locations need the fiber that typically supports gigabit-per-second bandwidth. Given that 1.544 Mbps connections are the mainstay for most smaller and even many mid-sized businesses, many customers might be quite satisfied with speeds in the tens of megabits per second.

100 Mbps "Can't be Done"

I learned long ago that when somebody says something "can't be done," it is best to understand that claim as "I can't do it." I think we also have learned that even when somebody says something can be done, they might mean "it can be done so long as not that many people want to do it."

And that might be the case as cable operators prep broadband access services capable of running at speeds as high as 250 Mbps, at least so long as most people do not desire to buy services running at such speeds.

Broadband Reports says cable operators will start talking about a 250 Mbps service sopmetime later this year, though nobody will be able to buy it. Comcast also says it will be offering 100-Mbps service to about 25 percent of its potential customers by the end of 2010.

Comcast should be congratulated for that move, though it is not clear what might happen if lots of people actually bought it.  The rub is that providing 250 Mbps requires bonding of about eight standard 6-MHz channels.

The issue there is the same problem satellite operators have when providing downstream bandwidth. There are finite numbers of channels available, so cannibalizing bandwidth for data services reduces the amount of bandwidth available for video services.

The point is that some providers--particularly cable operators--will be able to claim speeds of at least 100 Mbps, at least in terms of what is commercially feasible at low penetration. it isn't clear any network can support 100 Mbps at high penetration, at least not at prices in two, rather than three digits.

Still, it is a reminder that when somebody says something "can't be done," one has to consider the source. Just because one company can't do it does not mean all companies cannot do it.

The other relevant observation is that "hero" devices and services are feasible. What is not clear is whether "mass market" availability is possible.

http://www.dslreports.com/shownews/Comcast-Exploring-250-Mbps-Service-107002

Is This Evidence of Declining Use of At-Home Broadband?

If one looks at the quarterly or annual data on broadband subscriptions during the course of the recent recession, one is hard pressed to find any significant evidence that broadband users downgraded their connections to dial-up or stopped using the Internet.

This data from the Pew Internet & American Life Project, on the other hand, shows leveling in 2009, about a year into the recession, and an actual decline late in 2009.

Some might note that a three-percentage point swing in reported behavior on this sort of survey would be within the margin of error, so it is hard to infer anything conclusively. But even a flattening would be significant, should the trend be later confirmed.

Broadband access at home has not yet ever declined. Virtually all the public firms have reported continual net customer additions, so any slowdowns or reversals might have occurred at private or smaller providers. We'll have to watch this.

100 Mbps for 100 Million Homes by 2020?

If Federal Communications Commission Chairman Julius Genachowski gets his way, the FCC will set a goal of 100-Mbps service delivered to 100 milliion American homes by 2020.

Genachowski says his preferred approach to a national broadband policy would require ISPs to offer minimum home connection speeds by 2020. The “100 Squared” initiative might in fact be too modest a goal, he suggests.

"We should stretch beyond 100 megabits," he adds.

The proposal is part of the FCC's national broadband plan, due for initial public comment in March 2010.
The goal is sure to come under some scrutiny by service providers, in part because there is not currently any way to provide bandwidth of that magnitude on a national basis while pricing service at rates most consumers would pay.

There is not enough usable wireless spectrum to provide that kind of coverage and usage, and fixed access networks are not completely or primarily subject to Moore's Law. While chipsets and processors do get faster, the cost of digging trenches does not get less expensive over time. In fact, construction cost is the dominant cost element for any optical network providing service directly to end users.

 "One hundred meg is just a dream," says Qwest Communications International Inc Chief Executive Edward Mueller. "We couldn't afford it."

Few customers now buy 50-Mbps services where such speeds are available, in large part because the cost is in the triple-digits range. Proponents might argue that the goal is 100 Mbps for not much more money than people now pay for 4 Mbps or 7 Mbps service, but it is hard to envision how even "free" opto-electronices could support such a value-price combination.
 
In other words, even if all the active elements actually were provided for free, could service providers actually build ubiquitous networks offering 100 Mbps or faster speeds, and price in middle-double digits? So far, the answer appears to be negative.

About 60 percent of the cost of building an FTTH network is construction work, ducts and cables, not to mention cabinets, power supplies and other network elements. Still, in some dense areas, it might be possible to do so, since the construction and cable might amount to about $1200 per home passed. Again, keep in mind we assume totally free opto-electronics.

In suburban areas the business case is marginal, at best, since about $2400 might have to be spent on construction and passive elements.

Since the FCC goal only calls for connecting 100 million homes out of possibly 113 million, we can safely assume the cost of most rural networks of such capacity need not be considered.

Of course, opto-electronics are not "free." But the point is that construction costs, were nothing else an issue, would still be a tough proposition, if the goal is very high speed access at prices most consumers would pay.
American consumers will be paying more for broadband in the future, if for no other reason than that most mobile plans will require it, and those charges will be paid for on a "per-device" basis, not "per home."

What seems improbable is that U.S. consumers are willing to increase overall broadband spending by an order of magnitude (10 times) to have 100 Mbps or faster service on a fixed basis.

One can of course argue from history. Prices for lower-speed broadband services have declined over time, while the prices for the faster tiers have remained stable, but speeds have increased. The issue is how much price compression is possible.

"In order to earn a return for investors, you have to be conscious of what consumers will pay. I don't know this is something consumers will pay for," Piper Jaffray analyst Christopher Larsen says. "It's a nice goal, but it's a little on the over ambitious side."

Having a "stretch goal" is fine. Firm mandates, though, might run smack up against stubborn consumer willingness to pay and the fixed costs of building access infrastructure.

Google to Build Fiber to Home Test Networks

In the latest version of its Internet access demonstration projects, Google says it will build some wholesale fiber-to-the-home networks. James Kelly, Google project manager, says Google is looking for communities interested in becoming trial sites, and will be accepting requests for information until March 26, 2010.

Initial plans call for building FTTH facilities serving 50,000 people, perhaps as many as 500,000. That's a bit indefinite. Assume a typical household has about 2.5 people in it and one could see perhaps 20,000 to 200,000 homes connected.

But there are lots of unanswered questions. It isn't clear whether Google means "a network passing X number of homes" or "a network serving X number of homes." Those are very different sorts of numbers if Google builds anyplace where a strong cable operator and a strong telco provider already are in business.

As a demonstration project, Google would learn as much serving 20,000 potential customers as 200,000. Frankly, there is very little that is unknown about the cost of building a fiber-to-home network, really. What Google might be interested in is the business case for a wholesale broadband network that didn't have to supply voice and traditional video services.

But again, there is very little that is unknown about that business case, either. We know the cost to build the network and operate it as an ISP. You can derive commercial rates by looking at what is charged in the local, regional or national markets, multiply by take rate of homes passed and you'd have your scenario without digging a single trench.

Kelly says "we are going to try out new ways to build and operate fiber networks and share what we learn with the world."

There likely is not much to be uncovered about the process of building FTTH, so Google likely means sharing what it learns about the business model for wholesale networks, which a few have experimented with in the U.S. market.

Broadweave, which operates in Provo, Utah, is an example, though it is unclear whether the firm will continue to allow wholesale customers to use its network. The current thinking seems to be to operate as a typical retail triple-play provider, rather than as a wholesale provider of access to third parties who may wish to do so.

Broadweave Networks took over a project originally started as a municipal FTTH network, paying $40.6 million for the assets, and struggled in 2009. The company drastically slowed its growth among residential customers to save on the high cost of new sign-ups in the spring of 2009, reports the Daily Herald.

Broadweave began asking prospective customers to foot part of the $1,000 installation bill in an effort to discourage new customers and effectively slow growth while the company grapples with ongoing financial concerns.

The company is instead decided to focus on commercial accounts and reactivation of former customers who already have optical drops in place.

The flow of new customers reportedly was slowed from hundreds a month to "tens or dozens" a month.

Google might attempt to prove the thesis that an FTTH wholesaler can make money strictly as a supplier of access services to third party partners who simply lease capacity on such networks. The big question always has been whether any such network actually is viable in markets where there are strong cable and telco competitors already in place.

Google previously has built limited municipal Wi-Fi networks as well. It isn't clear what Google believes it might have learned from those experiments.

In truth, the gambit most likely is simply another tool to be used in Google's lobbying for setting of national broadband policies, and not much more.

Cbeyond Asks FCC for Mandatory Wholesale Optical Access

Cbeyond has the Federal Communications Commission to reverse its rules on wholesale obligations for fiber-to-customer networks. On copper access networks, competitors have rights to buy wholesale access. The FCC has ruled that on new fiber-to-customer networks, competitors have no similar rights.

Predictably, incumbents say the current rules should remain in place, which allow any voluntary wholesale deals, but do not require incumbents to offer wholesale access. The rules are consistent with rules that apply to U.S. cable companies, which likewise have no obligation to sell wholesale access to competitors.

The Telecommunications Industry Association  and the Fiber-to-the-Home (FTTH) Council have filed comments opposing the change.

The debate is an old one. Incumbents argue that the business case for FTTH is troublesome, and that they need the ability to profit from FTTH investments without being required to make those faciltities available to competitors who do not have to build expensive facilities of their own when they can simply lease capacity from others.

Though it is difficult to prove, one way or the other, the FCC has faced a dilemma. It can seek to spur competition by mandating robust wholesale access, or it can spur deployment of new optical access facilities, but might not be able to achieve both goals.

The reason is that incumbents can simply refust to upgrade their networks when they do not feel they will get an adequate financial return. There is some important evidence that incumbents are right about the ability to raise investment capital for FTTH.

Investors punished Verizon Communications for pushing ahead with its FTTH program, preferring AT&T's less-costly FTTN approach, for example. Calle and telco executives point out that all competitors are free to build their own facilities if they want, and most observers would note that in markets where there are three ubiquitous FTTH or FTTN networks, it has proven difficult to sustain business models allowing all three competitors to remain in business.

The calls for mandatory wholesale come at a time when everybody acknowledges that the business case for traditional cable TV and voice services is becoming more difficult, and that neither cable companies nor telcos can rely on their mainstay businesses (video and voice) for future growth. In fact, both types of companies are seeing steady shrinkage of those legacy businesses.

Under such circumstances, and given the shift to Internet-based applications, it might not make lots of sense to weakent he business case for robust optical access investments at a time when the financial returns for doing so are under pressure in any case.

Supporters of mandatory optical access obviously would benefit from a rule change, as they could offer optical access without incurring the expense of building new facilities. So the dilemma the FCC faces is an emphasis either on innovation or competition, in some clear sense.

Since virtually all applications now can be delivered over IP-based connections, it no longer makes as much sense as it once did to directly link "access" and "competitive" services. With or without broadband access, companies now can deliver virtually any service over the top, on any broadband connection.

Under such circumstances, robust competition occurs at the application level, not the access level. In fact, that is precisely the problem telcos face with VoIP, and that cable companies face with online video.

Despite the Noise, Broadband Subscribers are Highly Satisfied

Judging by some commentary one hears on the Internet and blogosphere, customers are very unhappy with their broadband access services.

After all, isn't the United States woefully behind other nations in speeds?

A new study by Parks Associates shows the opposite. The overwhelming percentage of U.S. broadband customers, across every single platform are "highly satisfied."

There is, to be sure, a small percentage of users on every type of access network who say they are "highly dissatisfied" with their service. The shock might be how few actually are really unhappy.

Granted, continual improvement is a good thing. But the Parks Associates study suggests providers need to keep improving a service that provides overwhelming "high" satisfaction, rather than scrambling to update services that basically are seen as somehow inadequate.

Rural-Urban Broadband Customers Not so Different

Are rural broadband customers all that different from suburban or urban customers? Not so much, a new analysis by Parks Associations suggests.

The percentages of rural broadband households who are very satisfied and very dissatisfied with their broadband services are within the margin of error for all U.S. broadband households, Parks Asociates notes. In other words, they are no more inclined to be pleased or upset with their service and service provider.

Rural broadband consumers desire value-added services on par with all U.S. broadband households, with premium technical support services and online backup as the top-two desired value-added services.

And the overwhelming percentage of U.S. broadband consumers are highly satisfied with their access services, despite a small percentage that say they are highly dissatisfied.

Overall, the rural status of a household has little impact on level of satisfaction with its broadband service. The type of access service does seem to have some bearing on high and low satisfaction.

Households with fiber broadband services report high satisfaction ratings in larger numbers, and households receiving satellite and wireless broadband services exhibit lower satisfaction ratings. But there is an important caveat. Customers who buy bundles of service are happier than customers who do not buy bundles. So the key variable seems to be the ability to buy a bundle, more than the type fo access.

The business implications would seem to be clear enough. Bundles create higher satisfaction and higher satisfaction reduces churn.  A highly satisfied broadband subscriber is 46 percent less likely to churn from a current provider, whereas a highly dissatisfied customer is 384 percent more likely to leave a current broadband provider.

A subscriber to a triple play of access services (broadband, television, and home telephone)
 is 15 percent more likely to be a highly satisfied broadband customer.

More than 70 percent of cable broadband households subscribe to a bundle, about 25 percent of which buy a triple play. But most, about 66 percent, buy a dual-play bundle of video and broadband access.

DSL providers have 58 percent bundle penetration, with 25 percent of customers opting for a dual-play package of  broadband and video while 17 percent buy a triple-play bundle.

Fiber broadband providers have 78 percent bundle penetration, with 64 percent buying a dual-play broadband and video bundle and 49 percent buying a triple-play package.

Rural broadband customers are 10 percent to 20 percent less likely than broadband subscribers on a national level to subscribe to the most-common broadband bundles. One would therefore expect lower satisfaction in rural areas, since satisfaction and bundles seem to be directly related.

64% of U.S. Broadband Connections Now are Mobile

There are more mobile broadband subscriptions in service in the U.S. market than fixed line.

The CTIA notes that there are now 103 million mobile broadband customers in the United States, according to Informa Telecom and Media. There are more than 58 million fixed line subscribers, according to Insight Research Corp.

By that measure, there are 161 million U.S. broadband subscriptions. So mobile connections represent 64 percent of broadband connections now in use. And mobile broadband has exploded over the last 18 months.

In June 2008, mobile broadband accounted for more than 59 million high speed subscribers, about 45 percent of all broadband connection in the United States, according to the Federal Communications Commission.

Clearly, any effort to create a national U.S. broadband policy would have to recognize the leading role wireless now plays.