Expert Opinion: Broadband Adventures in Wunderland: The Myth of the $7 million home

Broadband Mapping, Broadband Stimulus, Broadband's Impact, Education, Expert Opinion, Health July 21st, 2011

, Broadband Industry Analyst, Author

If it were a piece of classical music, the “study” by Navigant Economics’ Jeffrey Eisenach and Kevin Caves could easily be titled “Variations on a False Narrative in the key of F.” They claim, after a review of three (count ‘em, 3) of the hundreds of broadband grants, the broadband stimulus cost too much for too little ROI.   

The most misleading of the claims, though, is the alleged $349,234 spent per un-served household. Well, I should say the $7 million per un-served household, but I’ll come back to that in a bit.

U.S. broadband policy and strategy suffers from three fundamental failures that limit the advances we could be making, while allowing the most ridiculous assertions to pass as educated commentary on the progress we do make. Industry funded “research” such as this National Cable & Telecommunications Association (NCTA) funded and hyped report is an example of our latter affliction.

The biggest threats to better broadband in America are many people’s 1) failure to understand financial sustainability, 2) failure to understand what the broadband need are and 3) unwillingness to acknowledge, let alone fight, the failure of competition.

Six years ago, I wrote in my book “Fighting the Good Fight for Municipal Wireless” that consumers are the weakest pillar in the business case for broadband in many communities. They cost a lot to win and retain as customers, and the revenue they generate can be small compared to the cost of the network, particularly in small rural communities. Local government, businesses and other anchor “tenants” (a.k.a. institutions) subscribing to the network is how you generate revenue (or grants) needed to run the network. If broadband is to be successful in many communities, you can’t ignore this reality.

Yet everyone and his mother seems to cling to the consumer as their point of reference. How many houses are passed (served)? What’s the ARPU (average revenue per user)? Pricing practices, marketing messages, types of services offered, measures of success, arguments made against broadband stimulus, reasons given for having a stimulus.

Broadband success is not a matter of homes “passed” but by first resolving the needs of those various anchors I listed. Santa Monica is a good example. The IT department used that city’s dark fiber to replace aging communications technology, generating $750,000 in savings that they invested in expanding the network, and then selling access to local businesses. That revenue, in turn, went into further expansion and the circle continued. In time, consumers received free WiFi in various city locations and other benefits that wouldn’t have been possible if the first emphasis had been consumers.

Whether small town or large metropolis, serve the institutions first and then leverage the benefits to meet constituents’ needs. “Pass” a home with fiber for $30,000 on the way to providing a school with gigabit service that subsequently serves 100 homes with highspeed fixed wireless for five years, and you get a pretty good deal. The supposed “high cost of the stimulus” is less dramatic when you have a clearer understanding of the big financial picture of some of these projects.

That leads to the second failing: not grasping the real needs these projects are meant to resolve. Assess the need of local government to revamp its communication systems to deliver more and better services in the face of continuing budget cuts. Examine what type of communication infrastructure local businesses need to compete on a global scale, what schools need to capitalize on digital learning tools for the 21st Century, what hospitals need to transform healthcare delivery.

These needs translate into demand for high-capacity broadband networks that come with hefty price tags, so you have to spend a lot to put the right infrastructure in place. But those needs also translate into subscribers willing to pay healthy but fair prices that financially sustain these networks in the long term. More importantly, when you meet these combined institutional needs, the benefits are many, varied and long lasting. You get a very different picture of the cost effectiveness of Rural Utilities Service (RUS) broadband subsidies. Often, the picture does not fit neatly or obviously into an accountant’s Profit & Loss mindset.

Because there are politicians, journalists and regular citizens who can’t or won’t see the true needs of organizations that comprise the foundation of the broadband business case, they are easily distracted by shrill claims by industry shills of government waste. They more likely become contributors to the problem rather than enablers of the solution.

This brings us to the third failing epitomized in the false narrative of the $7 million un-served home: the absence of political will in some quarters to aggressively address the lack of competition. Quite a few of these stimulus awards went to projects that will “overbuild” areas where there are existing providers. In case you missed my last column, just because a provider offers service in an area doesn’t mean there is competition in that area.

You hear the incessant whining of incumbents about overbuilding and unfair competition. When Eisenach and Caves calculated their “squandered” dollars per un-served home, they identified homes without access to service. But what about the hundreds of homes in areas that subscribe to service that’s over-priced and crappy because there’s insufficient competition to drive prices down and innovations up? They’re also un-served by adequate broadband at an affordable price. Are there hundreds of homes in areas where incumbents advertise services that constituents actually can’t get, but by government standards are deemed “covered?” Sorry, they’re un-served. What about the local companies, home businesses, schools and hospitals that can’t buy high-end broadband to meet identified needs, even if they have the money, because no provider in the area is capable of providing sufficient capacity? They’re un-served.

Eisenach and Caves’ numbers don’t mean jack because they’re running a false narrative. It doesn’t appear they’re addressing numbers for the homes whose broadband is so deficient it may as well be dial up. Their report addresses residences while apparently failing to take into account the businesses and institutions that currently are un-served, yet will be with the stimulus projects. They constantly claim “duplication of services” when in fact, someone selling Internet access doesn’t automatically make their service meaningful broadband.

If you want to know the value of this particular tune, you just need to see who’s paying the piper.

 

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