Federal Communications Commission

FCC National Broadband Plan-Impacts on Oregon Telecommunications Policy

April 21st, 2010 by Admin User

FCC’s National Broadband Plan:  Impacts on Oregon Telecommunications Policy
Oregon Public Utility Commission
Portland, Oregon
May 4, 2010

Docket UT-100562
Policy Statement to Review State Universal Service Policies Washington Utilities and Transportation Commission
Olympia, Washington
May 5, 2010

Carol Mattey, Deputy Chief,
Wireline Competition Bureau, FCC
(as prepared for delivery)

Thank you for that kind introduction.  And thank you for the invitation to speak here today about the National Broadband Plan.  I’d like to give a particular thanks to the state commissioners and their staff your interest in and active participation during the National Broadband Plan process. 

While the Plan itself was ambitious enough, the implementation schedule is even more ambitious.  Last month we kicked off a rulemaking to begin the process of fundamentally reforming the federal USF system.  Big picture – we are facing the question of our generation – how are we going to get the networks of the future out there?  It’s vitally important that we work together on these issues.  We will need your help at every step of the way.

Why a National Broadband Plan?
There’s no question that broadband is a key communications medium of today, and is central to our economic growth and future as a nation, just as electricity and highways were in the last century.  

Congress’s charge in the Recovery Act
In the 2009 American Recovery and Reinvestment Act, Congress tasked the FCC to develop a National Broadband Plan that ensures “all people in the United States have access to broadband capability.”  The National Broadband Plan is about building the networks of the 21st century and making sure that everyone is connected to broadband.  Congress also mandated that the plan include:


  • A detailed strategy for achieving affordability of such service and maximum utilization of broadband infrastructure by the public;
  • An evaluation of the status of deployment of broadband service; and
  • A plan for use of broadband infrastructure and services in advancing public purposes such as community development, health care delivery, energy independence, education, and job creation.

After months of intensive work across every bureau and office in the agency, the FCC’s broadband team presented its final report to the FCC on March 16, 2010.  The FCC transmitted that report to Congress, and now the real work is beginning.

Goals of the National Broadband Plan
The plan is a strategic vision for where we want to go as a nation, and some key concepts of how we’re going to get there.  As part of establishing a strategic vision for the country, the National Broadband Plan set several goals for the United States.  Given that Congress asked us to ensure that “all people in the United States have access to broadband capability,” it should come as no surprise that one of those goals is that every American should have affordable access to robust broadband service and the means and skills to subscribe if they so choose.

While Congress directed us to develop a plan, a plan by its nature is not self-executing.  Stating a high level vision, and charting a path to get there are two different things.  The plan contains over 200 recommendations to help chart the path forward.  Roughly half of the recommendations directed to the FCC, and the remainder directed to Congress, the executive branch, and other entities outside the federal government.

Moving forward to ensure that every American has affordable access to robust broadband service makes reforming the federal universal service fund a centerpiece of the National Broadband Plan.  There has been growing consensus that the time has come to migrate our 20th century universal service programs focused on voice telephone service into 21st century programs focused on the broadband networks and services of the future. 

The Plan’s Approach to Sizing the Gap
Developing a plan to make broadband service available to every person in America, meant that we first had to establish what we mean by “broadband”. 

The Plan recommended a National Broadband Availability target of 4 Mbps downstream, 1 Mbps up in actual delivered bandwidth.  The Plan also proposed that the FCC should reassess this target every four years.  We selected this speed target because it is comparable to the level of broadband that is commonly subscribed to by broadband consumers today.

Some of you may wonder why the Plan set a national goal of 100 Mbps but proposed 4 Mbps as the target for USF funding.  There is a difference between aspirational goals and what we should fund in the near term through universal service.   

The plan concluded that the median actual speed purchased by consumers today – meaning that half of U.S. households have subscribed to this service – is a little under 4 Mbps.  In fact, only 6% of consumers today subscribe to service that exceeds 10 Mbps.  When deciding what to support with universal service funding, we are required under the law, section 254, to look at what a substantial majority of consumers are purchasing, among other things.  Today, it simply is not the case that “a substantial majority” of consumers subscribe to speeds in excess of 4 Mbps, much less 100 Mbps. When consumers actually start purchasing higher speed services in significant numbers, we can and should revisit what the USF funding target should be. 

After establishing a target, we then had to assess the current state of broadband deployment to determine how many homes already had access to broadband infrastructure that could provide service as defined by the target, or how many would in the near future, and how many homes did not have access to such broadband infrastructure.  For purposes of determining availability, the team took a competitively neutral approach, looking at potential availability from a cable company, wireline telco or wireless provider.

To estimate availability, the team used the best data available from government and commercial sources.  But estimating where broadband is and where it will or will not be deployed in the near-term is not an easy task, given the limited data that is publicly available about where broadband infrastructure and services are available in the United States.  The team gathered the limited available data and incorporated it into a model to estimate availability when available data was insufficient. 

National Broadband Plan Estimate of Availability
Two weeks ago, we released the product of this effort, a technical paper called “The Broadband Availability Gap.”  It is one of the most extensive, fact-based, and detailed analyses that the FCC has ever released. 

The model that the team developed estimated that across the country, there may be 7 million housing units that are not close enough to terrestrial broadband infrastructure today to receive broadband of speeds of 4 Mbps download and 1 Mbps upload – meaning they don’t have access to cable broadband, they don’t have access to DSL, and they don’t have access to a fixed wireless broadband service.  That’s roughly 14 million people.  Based on the model’s estimates, two-thirds of those 14 million unserved people live in the territories of price-cap carriers today.  The remaining one-third are served by small rate of return companies.  

The model suggested that even though approximately 95% of Americans have access to 4 Mbps broadband, an “availability gap” exists in nearly every county in the United States.

It’s important to realize these are just estimates – the number could be lower, it could be higher.  In fact, the FCC’s broadband subscriber data, known as the 477 data, suggests that the number of unserved households could be higher, as many as 24 million people.   

We should get a better picture of what’s out there once the state-wide mapping is done, next February. 

Sizing the investment gap
Once we identified the parts of America that won’t otherwise get broadband service, the next step was to establish how much funding it would take to extend broadband to those unserved areas.  We call this the “investment gap”.

The private sector has done a great job of getting broadband to most of the country, but in some areas of the country the private sector business case just doesn’t add up.  Low density areas just don’t have the customer base to justify the significant costs of network upgrades to provide broadband service. 

Since closing the “investment gap” will in large part depend on scarce subsidy dollars, we need to make sure that we spend those dollars efficiently.  So the team focused on a technology-neutral analysis, to calculate the cost of supporting the most-efficient network in any particular area.

I’ll just highlight a couple of key points:

  • The National Broadband Plan model estimated that close to $24 billion would be needed to make a positive business case to serve all of these unserved areas with terrestrial broadband.
  • The last 250,000 households (out of 7 million) represent more than half of that amount.
  • Third, and most important – this $24 billion represents the estimated investment gap to extending broadband to the unserved homes (both capex and, if necessary, opex).  The $24 billion does not include whatever amounts of support may be necessary to sustain broadband service in areas that already have broadband today, areas that receive USF subsidies and ICC revenues to run a business.  

National Broadband Plan Estimate of Lowest Cost Technology
This map provides one way of looking at the United States and understanding where—based on our current assessment—wireless and wireline broadband technologies are the most cost effective solution. 

On this map, red areas denote areas where we estimate that DSL and fiber upgrades are the most cost effective means of achieving 4 Mbps downstream.  The blue areas are those where fixed, 4G deployment appears to be the most cost-effective.

The point of my discussion in not to suggest that the model holds all the answers—it does not.  It is a tool to assist policymaking; ultimately, the FCC will have to decide what policies to follow.  We’re going to have to have serious conversations about what it means to be a broadband provider of last resort, and the impact of potential policy directions on the networks of the future.   The model produces estimates that can enable us to engage in a debate about what the right regulatory policies should be.  The FCC is working hard to develop a real understanding, a ball park sense, of the size of the problem to be solved, and how much it could cost to serve those areas where there is no private sector business case. 

Whether the gap is $24 billion or some larger number – the point is, it’s a lot of money and it affects millions of Americans.  All the more reason to redouble our efforts to reform the federal universal service fund.
Roadmap for USF/ICC Reform
One of the critical questions we wrestled with was whether the shift of USF from voice to broadband should be accomplished through modifications to the existing program – in particular the High Cost fund – or through creation of something new.  We ultimately concluded that the existing High Cost fund was beyond repair. A new funding structure is needed, with a gradual and phased transition from the old to the new. 

The current USF system indirectly supports some broadband deployment, but there is no way today to track that investment.   Officially only voice is supported, and there’s no obligation to let the FCC know how USF revenues are being spent to advance broadband.  USF today also doesn’t do a good job of targeting the money evenly across the hard-to-serve areas that can be found in practically every state.  High Cost support today is determined by complicated formulas that depend in part on the regulatory status and size of the firm receiving support, instead of the economics of serving consumers in a particular geographic area.   The result is that some consumers are served with broadband, and others are not. 

We also can’t lose sight of the fact that USF has grown significantly over the last decade – with the contribution factor to collect revenues for USF at a historic high – over 15%.  That’s real money from real people – collected from wireline and wireless telephone companies, from cable VoIP providers, and ultimately passed through to consumers on their phone bills. 

To the extent we are going to expand the mission of USF to include broadband, the natural question is – where’s the money going to come from?  As they say, “money doesn’t grow on trees.”

As we started down the path of thinking about how to get broadband to the unserved areas and how to maintain phone service for consumers everywhere – we quickly came to the conclusion that we need to be serious about limiting growth in the USF.  There are limits to what is fair or appropriate for consumers to bear.  High cost is projected to be $4.6 billion – maybe even $4.9 billion this year.  Raising the existing contribution factor by 25 or 50% or more over the current 15% to extend broadband to those unserved areas is just not feasible in today’s world. 

The implication of these conclusions is that we need, as a nation, to make some hard choices.

Given a finite amount of money available for USF, the question is how to get a baseline level of broadband to everyone, rather than continuing down a path where some consumers have fiber to the home, while others have nothing. 

To get broadband to everyone while living within our existing budget, we will have to shift how we spend our high cost dollars today, without removing money from the broadband ecosystem overall.  And we will have to make the transition gradually, avoiding flash cuts along the way. Solving hard problems requires making hard choices, and that is what we have had to do. 

Specifically, we have designed a phased transition – with three phases over 10 years – to ensure that providers that require universal service funding to serve their communities can make the migration successfully.  In the first phase, roughly 2010-2011, we will establish a Connect America Fund targeted to supporting broadband, and a Mobility Fund that will target one-time support to states that significantly lag the national average for 3G service.  I want to be perfectly clear on this point – the Plan’s vision is that the Connect America Fund would provide support not just to extend broadband to the unserved areas but also to those areas that already meet the target, to the extent there’s a need for ongoing support.  

The Plan’s vision is that the Connect America Fund will provide support for broadband only in areas where there’s no private sector business case to offer affordable service. 

The Plan recommended that eligibility for the Connect America Fund be technology and provider neutral. In some areas, the most economical solution may be extending fiber closer to the home.  In other areas, a fixed-wireless solution may be best. 

Because USF resources are finite, the FCC’s objective based on Congress’ mandate is to spend those dollars wisely to maximize the number of households that are served with broadband.  The idea is in a given geographic area, the Fund will subsidize only one broadband network.  Our economic model demonstrates that funding multiple broadband networks in a given geographic area increases the level of subsidy required substantially.

The Plan recommended that the FCC consider a market-based mechanism to select the provider offering the most bang for the buck, meaning whoever can serve the entire area at the lowest cost. 

We recognize that USF historically has been part of a social compact between the government and private sector firms, who are required to serve all customers.  Our notion is that whoever receives the subsidy has to be the provider of last resort for the area – and accept all the obligations that entails.  This is one of the core questions that we need to discuss, and one where state input is absolutely critical.  We need to proceed in a thoughtful way to make sure we are preserving service to rural consumers. 

Fund recipients need to be accountable for what they do with the money, and subject to timelines for achieving universal broadband access.  

And finally, the Plan recommended that the FCC reform intercarrier compensation, with the long term goal of moving away from a system where payments between carriers are based on minutes of use, recognizing that we are moving to a world of IP to IP interconnection.

The FCC has already started to take many clear, decisive and important steps in putting this reform into practice.  Last month, we started the process by releasing a USF Notice of Inquiry and Notice of Inquiry, focusing on three major topics:

First, the NOI seeks comment on how we might adapt the model developed for the National Broadband Plan to use as tool in USF disbursements.  I won’t go into all the details, but the model made a number of assumptions that would need to be adjusted if we were going to use this for USF disbursement purposes. 

Second, the NOI seeks comment on the concept of using a competitive procurement auction to target funding to extend broadband to unserved areas.  While press accounts referred to this as a reverse auction, that’s actually not what we were seeking comment on.  In a reverse auction, what is being auctioned off is the right to receive subsidy to serve a discrete geographic area, for instance, the right to receive a subsidy to serve an area in rural [Oregon] [Washington].   In a competitive procurement, the government is asking interested parties across the country in essence to compete against each other for the right to receive a finite amount of subsidy to extend service to unserved areas anywhere in the country, so the money would flow first to the areas requiring the lowest subsidy to deploy broadband.  It could be a tool for awarding a defined amount of money to accomplish the greatest amount of public benefit in the near term.

Third, the NPRM sought comment on specific proposals from the National Broadband Plan to move existing USF funding streams across all participants into the new reformed USF structure.   The NPRM seeks comment on capping ILEC support at 2010 levels as an interim measure pending adoption of new rules for a Connect America Fund.  We aren’t talking about eliminating high cost and putting nothing in its place.  The idea is to create a new funding mechanism.

The NPRM also proposes to reduce support flowing to Competitive Eligible Telecommunications Carriers, known as CETCs.  In the near term, this reduction will happen naturally as a result of merger commitments made by Verizon Wireless and Sprint.  Over the coming five years, the remainder of the CETC support should be phased down. 

The NPRM proposes to retarget towards broadband some of the existing High Cost funds provided to price-cap carriers – specifically the access replacement mechanism known as Interstate Access Support. 

Finally, the NPRM seeks comment on moving rate-of-return carriers to incentive regulation.  More than 30 states have gone to incentive regulation for local rates even for their smallest companies.  It’s time for federal regulators to take a look at our current rate of return scheme, which hasn’t changed in decades, and think about whether there are other ways to incent investment and efficiency.   

2010 Agenda
We clearly have a lot of work in store for us over the coming year.

Later this week—on Thursday May 6 at 3 pm—the model team will be giving a public presentation on the paper, which will be open to the public, webcast, and will provide an opportunity to ask questions.

We will be seeking comment on many more issues relating to USF later this year, as well as ICC.  The April NOI/NPRM was intended to just get the ball rolling.

Later this year, the FCC will be looking at revisions to its ongoing broadband data collection so that we have better data to track progress.

I’d like to leave you with several thoughts.

First, the world is changing.  The traditional business model is going away.  The younger generation, kids like my daughter, have wireless phones and a broadband connection – they are never going to have a landline.  I know change is hard, but you need to adapt.

Second, the state role is very important.  This truly has to be a federal-state partnership as we solve this infrastructure challenge.  We want to have an ongoing dialogue with state commissions around the country.  I honestly mean this when I say it – we need your input.  We need to talk about Carrier of Last Resort, and what’s going on with state high cost funds. 

Third, we need data.  We don’t want to develop USF policies based on high level advocacy: we are looking for facts.  We need better information about the cost to deploy broadband across the country, the penetration levels broadband providers are achieving, and what the business case for deployment really looks like, for all segments of the industry.  We need better information about the impact of declining intercarrier compensation revenues.  Please submit data into the record of the proceeding we’ve opened. 

Fourth, we need greater transparency and accountability about how these funds are used.  I’m not talking about a financial audit; I am talking about measurable outcomes in terms of broadband delivered to consumers.  If you are using government money to get the job done, the government has an obligation to monitor what progress is being made and how that government money – which ultimately comes from consumers – is spent.

And finally, getting the infrastructure out there is only part of the puzzle.  We also need to be thinking hard about how to increase adoption levels. 

I look forward to continuing the dialogue with you and other state commissions as we undertake this once-in-a-generation task.  Thank you.

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