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How the National Broadband Plan Will Encourage Investment

March 2nd, 2010 by Admin User

p><em>&nbsp;[Remarks by Blair Levin on February 24, 2010.]</em></p><p>I'm speaking to a group of institutional investors about the Plan on&nbsp; today.&nbsp; It will be in a question and answer format, but I thought I would share how I will approach the conversation.<br /><br />I hope to talk about how the Plan will affect the investment climate for what we think of the broadband ecosystem (suppliers of network services, devices and applications) both on the demand and supply sides. The Plan will increase demand and impact supply in every part of the ecosystem in the long-term in a few ways.<br /><br />First, the plan will accelerate the move of certain sectors from processes designed and optimized for the technology of the past to more efficient processes enabled by broadband.&nbsp; <br /><br />As we discussed at the last Commission meeting, certain sectors of the economy-health care, education, public safety, energy, government services-have not utilized new, broadband-enabled processes nearly as effectively as they can.&nbsp; We have identified barriers to that use that, if overcome, should spark an important increase in the demand for broadband across the board.<br /><br />For an example of how such changes can positively affect the ecosystem, <a href="http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-293742A1.pdf">look at slide 101 from our September, 2009&nbsp;&nbsp; meeting</a>.&nbsp; It reports on a study that demonstrated that using hosted electronic health records could save 18% over having such records on the doctors' own servers.&nbsp; These savings are enjoyed even though for such hosting to work, the doctors have to spend twice as much on connectivity.&nbsp; As noted in the slide, the dollar savings are only the beginning of the benefits of such services.<br /><br />Another way the plan could affect demand is by accelerating adoption.&nbsp; Right now, over 100 million Americans have not adopted broadband.&nbsp; About 14 million can't adopt because there is no affordable broadband available where they live.&nbsp; For these Americans, the universal service fund-the reform of which is discussed below-will play a critical role.&nbsp; The other 86 million have not adopted for a variety of reasons, including affordability and digital literacy.&nbsp; (Yesterday, our head of consumer research, John Horrigan, <a href="http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-296443A1.pdf">released the details of a study he did on the subject</a>.)&nbsp; While this is a complicated problem (I talked about some of the complexity in <a href="http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-295886A1.pdf">a speech I gave at Minority Media and Telecommunications Council Broadband and Social Justice Summit</a>,&nbsp; the plan will recommend that for the first time ever, the federal government take specified, targeted actions to increase adoption. These actions will increase the market for goods and services across the broadband ecosystem.<br /><br />Another big issue affecting investment is spectrum.&nbsp; From the perspective of economic growth, the worst use of spectrum is to leave it unused.&nbsp; Spectrum that lies fallow is a drag on the economy and does not foster the public interest.&nbsp; And there is no upside to letting it sit: unlike, say, oil, spectrum is a natural resource whose use today does not diminish its usefulness tomorrow. <br /><br />When we started the planning process, it became immediately apparent that there were a number of bands of spectrum that had been allocated but were not being used.&nbsp; Some had to do with market reasons but in a number of cases, it turned out that the FCC simply had not made the decisions necessary for various parties to make the investments required for the spectrum to be used.&nbsp; So the Plan will make a number of recommendations related to such spectrum.<br /><br />But the nation also needs to make sure there is an efficient market for spectrum, so that, as demand for spectrum increases--which pretty everyone agrees it will--the market can shift spectrum to those uses that can generate the most economic growth, jobs and social value.&nbsp; That does not happen today, so the Plan will make various recommendations to improve how government creates and operates the market for spectrum, including creating new tools for both licensed and unlicensed use.<br /><br />The plan will also recognize that the availability of spectrum is a market by market phenomenon.&nbsp; There has been much discussion about a looming spectrum squeeze later in this decade.&nbsp; That crisis is largely an urban issue.&nbsp; In rural America, meanwhile, there is a significant amount of underutilized spectrum.&nbsp; The plan will make several recommendations for better utilization of spectrum in rural areas that should drive investment and improve the business case for providing service to rural America.&nbsp;&nbsp; <br /><br />Finally, I am sure I will get a number of questions about universal service and intercarrier compensation, two sets of rules that have long affected investment, particularly in network deployment.&nbsp; On the universal service side, the plan will provide an opportunity for the Commission to, for the first time, articulate how it will meet the Congressional directive that all people in the United States should have access to broadband.&nbsp; As part of that, the plan will lay out a staged approach so that, over time, universal service support will go to broadband services that include voice, rather than voice-only services.<br /><br />One critical question is whether, in doing so, we should increase the assessment level on the ecosystem or try to accomplish the goal based on the current funding level (which is over $8 billion a year.)&nbsp; The plan will take the approach that we should try to universalize broadband without having to increase that level.&nbsp; That is not an easy choice. Among other issues, it means that for the first time ever, the Commission will have to decide how to shift resources from current expenditures to broadband deployment in unserved areas.&nbsp; But we think it can be done without causing anyone to lose access to existing voice or broadband services.<br /><br />Intercarrier compensation is another complicated policy in which carriers charge each other for origination, transport and termination of traffic.&nbsp; The current system has long been criticized for distorting investment.&nbsp; The plan will also make a series of recommendations designed to eliminate those distortions and regulatory arbitrage.&nbsp; Like the universal service recommendations, the plan will provide an opportunity for the Commission--again, for the first time--to lay out a staged approach so that intercarrier compensation reflects how companies will exchange traffic in an IP-based broadband world.<br /><br />While universal service and intercarrier compensation are two different sets of rules, they affect many of the same entities.&nbsp; Therefore, the path for changing one has to be harmonized with the path for changing the other.&nbsp; This again, creates complexity, but the Plan will try to harmonize the changes to encourage investment in unserved areas, continue support in those areas that have broadband today but need support to continue to offer it, and eliminate rules that have discouraged investment in new technologies.<br /><br />This is far from a complete list of how the Plan will encourage investment.&nbsp; The plan has a number of other recommendations that will increase investment--from reforming rights of way rules, to enabling the emergence of an innovative, competitive set top box market, to new approaches to test beds and research and development, to assisting small businesses to better utilize broadband, to increasing incentives to invest through consumer transparency. But we believe these changes, taken together, will jumpstart all aspects of the ecosystem, and bring the best broadband to every American.</p>



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