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Broadband Expert Andrew Odlyzko Warns Telecom Investors That Industry Has Its Math Wrong, Again

in Expert Opinion by

November 4, 2014 – Nearly a year-and-a-half ago, Verizon Communications CEO Lowell McAdam claimed in an editorial in The New York Times, “The United States built its lead because companies invested nearly $1.2 trillion, over 17 years, to deploy next-generation broadband networks.”

That number is meaningless: over a period of 17 years, much of the infrastructure would have to be replaced at least once. Internet progressed from dialup to digital subscriber line (DSL) to cable and fiber today. Cell phones went through at least two generations of change in this time. McAdam may be quoting meaningless numbers because meaningful numbers don’t make Verizon look too good.

You can find meaningful numbers for investment and profitability in the latest paper by Professor Andrew Odlyzkoandrew-o, a mathematics professor at the University of Minnesota who has a history of getting internet statistics right when the rest of the world gets the numbers wrong. In 1998, when telecommunications industry boosters were claiming that traffic was doubling every 100 days, Odlyzko said it was growing by 75 percent to 150 percent each year. The difference between 1000 percent each year and 100 percent each year turned out to be the difference between telecom boom and telecom bust. He gets his numbers from authoritative sources such as the OECD and CTIA.

Today, when the cellular telephone industry claims that it is burning cash, Odlyzko says it’s not true. When the cellular telephone industry says its business is driven by demand for high bandwidth video, Odlyzko says that industry growth is driven by demand for communications, and that the interesting trend is that texts are replacing voice calls.

In his new paper, Will smart pricing finally take off? (available here), Odlyzko prints the following table:

Table 2: Voice to text substitution (US)

year voice minutes billions texts billions
2005 1,495 81
2006 1,798 159
2007 2,119 363
2008 2,203 1,005
2009 2,275 1,563
2010 2,241 2,052
2011 2,296 2,304
2012 2,300 2,190

 

The cell phone companies are pleased because texts are where the profits are, as explained by table 1, price per megabyte (the table shows approximate numbers, but those approximate numbers show where the profits are):

SMS $1,000.00
cellular voice 1.00
wireline voice 0.10
residential Internet 0.01
backbone Internet 0.0001

 

The reality is that cellular networks don’t need to invest in platinum-plated networks. Their customers merely require a network that can deliver text messages. Cell phone network companies (if you can believe their SEC filings) are incredibly profitable, and are spending relatively little on infrastructure:

year revenues in $ billions capex in $ billions capex/revenues
2004 102.1 27.9 27.3%
2005 113.5 25.2 22.2
2006 125.5 24.4 19.4
2007 138.9 21.1 15.2
2008 148.1 20.2 13.6
2009 152.6 20.4 13.3
2010 159.9 24.9 15.6
2011 169.8 25.3 14.9
2012 185.0 30.1 16.3

 

Odlyzko estimates that it would cost only $240 billion to replace the equipment in every cell phone network in the U.S. He reasons:

In wireless, industry statistics show that cumulative capital investment, from the start of service three decades ago, came to $365 billion by the end of 2012. Much of that investment has of course been written off, as old equipment gets replaced. So to replace everything (and it is far easier to replace telecom installations, even cell towers, than it is to replace electric power plants), would probably not cost more than half of the cumulative total, or about $180 billion. But just to be safe, let’s assume it would take $240 billion.

He thinks it is shocking that Verizon had to pay $130 billion to buy out Vodafone’s 45% share of Verizon Wireless. It makes sense only because “modern telecom is less about high capital investments and far more a game of territorial control, strategic alliances, services, and marketing, than of building a fixed infrastructure.” Verizon must be assuming that Vodafone’s high profit margins will continue but that is only possible if the cellular telephone market in the U.S. has already succumbed to the market failure known as monopoly.

This blog post does not describe the focus of the paper, which argues against an assumption by many industry analysts that telecommunications companies should charge based on usage instead of charging a flat fee. The numbers, which are a mere excerpt, are useful because once again, Odlyzko is warning the industry that it has its numbers wrong, and the last time Odlyzko had the numbers right and the telecommunications industry got its numbers wrong, telecommunications investors lost $1 trillion.

Alexander Goldman is a recent graduate of Brooklyn Law School, and recently passed the New York Bar Examination. He worked at ISP-Planet and ISPCON, was Chief Analyst for CTI’s American Recovery and Reinvestment Act grants, and had internships at the Federal Communications Commission and the Internet Division of the NY State Attorney General. At Brooklyn Law School, he was a Trade Secrets Fellow and won CALI awards in Contracts and Antitrust.

BroadbandBreakfast.com accepts commentary from informed observers of the broadband scene. Please send pieces to commentary@broadbandcensus.com. The views reflected in Expert Opinion pieces do not necessarily reflect the views of BroadbandBreakfast.com and Broadband Census LLC.

An Active Debate Over Whether Wireless Broadband Must Also Play Under Net Neutrality Rules

in Broadband's Impact/FCC/Net Neutrality/Wireless by

WASHINGTON, September 29, 2014 – Whether or not mobile Internet providers will be subject to the same net neutrality rules as wired broadband providers has become an increasingly prominent factor in the current debate over net neutrality rules.

IMG_20140419_192311

The proposal laid out by the Federal Communications Commission in May would only be applicable to wired internet service providers, although the Commission did ask for public comments about what to do on the subject of mobile broadband. In its prior Open Internet Order of 2010, the FCC decided against including rules on wireless broadband. Instead, the agency said only that wireless providers could not block services directly competed with their own services. 

Now many technology companies, plus consumer and advocacy groups, have voiced their support for wireless services being covered by net neutrality rules.

FCC Chairman Tom Wheeler highlighted Microsoft’s comments in his speech at CTIA this year: “There is no question that mobile broadband access services must be subject to the same legal framework as fixed broadband access services.”

Google – which opposed including wireless services under net neutrality four years ago – this year switched sides regarding wireless inclusion in net neutrality: “These rules should apply regardless of whether you’re accessing the internet using a cable connection, a wireless service, or any other technology.”

Many in the wireless industry are nervous about new net neutrality rules. Meredith Baker, CEO of the wireless industry association CTIA, said that different rules should govern wired and wireless broadband. She made these comments both in her speech at the GSMA Mobile 360 summit on September 22 and in comments made in June. Wireless companies have continued to argue against this “platform parity” since “mobile broadband depends on public airwaves known as spectrum, which is a finite commodity with limited capacity,” said The New York Times.

“Our objective should be to preserve an Open Internet, not artificially impose the same set of rules on all platforms. Forcing all platforms under a single set of rules was rejected in 2010, and should be rejected again now.”

– CTIA CEO Meredith Baker

On Tuesday September 16, FCC held roundtable discussions on net neutrality, including one on mobile broadband. Wireless carriers reiterated their 2010 arguments that net neutrality rules would impair their ability to effectively manage their networks to maintain performance.

For example, AT&T throttles data speeds of customers with legacy unlimited data plans for the remainder of the billing cycle after they exceed 3GB of data. Droid-Life first reported that Verizon Communications will start performing “Network Optimization” on its top 5 percent of data users (those who use more than 4.7 gigabytes of data a month) with unlimited data plans in congested areas, similar to what T-Mobile and Sprint are already doing.

A legacy Verizon unlimited data plan costs $29.99 per month. $30 per month will now only get a customer 500 megabytes of data per month, and it costs $70 for a 4 GB plan. These prices don’t even take into account the $40 line access charge. Wheeler expressed his concern that throttling unlimited data plans could be about increasing revenue and not managing congestion back in the end of July in a letter to Verizon’s CEO, and followed up later by writing to all the major carriers to ask about their network management policies.  

In his CTIA speech, Wheeler said he knows that there has been “significant changes in mobile marketplace since 2010.” Earlier this month, he said that all options are still on the table. That may mean that net neutrality rules will be the same across both wired and wireless broadband platform, or the possibility of new, separate rules for the mobile internet.

 

Broadband Roundup: FTC a Loser Under Title II, Rural Gigabit Projects, and Wireless Sponsored Data

in FCC/Fiber/Net Neutrality/Wireless by

WASHINGTON, September 23, 2014 – In a filing with the Federal Communications Commission, the Federal Trade Commission noted that some of its regulatory authority would be lost if the FCC decided to regulate broadband as a public utility.

The FTC protects the privacy and security of consumer data by imposing obligations on broadband service providers through the enforcement of the Federal Trade Commission Act, the Fair Credit Reporting Act and Children’s Online Privacy Protection Act, among other federal laws. The FTC Act prohibits deceptive and unfair practices as to require companies to truthfully market their products and refrain from engagement in harmful business practices, while simultaneously promoting competition based on truthful claims. However, this same section also includes an exemption clause for the activities of common carriers.

Gigabit Networks in Rural Northern Minnesota and in Miami, Florida

Paul Bunyan Communications announced its plans to launch Gigazone, a new advanced regional Gigabit fiber network. Eventually covering the company’s 5,000 square mile service area in northern Minnesota, the new network will be one of the largest rural gigabit in the country.

“Expanding broadband is a great equalizing force for boosting rural economies,” said Sen. Amy Klobuchar, D-Minn., said in a statement. “Today you don’t need to live off a major highway or in a bustling city to find a good job, start a new business, or get a high quality education but today you do need a high-speed Internet connection.”

Also, Atlantic Broadband announced its initial Gigabit service in Indian Creek Village near Miami, Florida. The company, which provides cable services in Maryland, Delaware, South Carolina, Central Pennsylvania and Florida, is evaluating expansion opportunities to expand.

“Atlantic Broadband utilizes [a radio frequency] over glass platform which means that all the in-home wiring, [customer premises equipment, head-end and back office systems remain the same as the rest of our service network,” the spokesperson noted to Telecompetitor. the company expects to use both fiber-to-the-home and DOCSIS 3.0, the advanced cable modem technology.

CTIA CEO Touts Competitive Benefits of Sponsored Data

CTIA CEO Meredith Baker stressed how mobile Internet providers increasingly seeing sponsored data as a way to handle growing competition in the wireless marketplace, reported the Washington Post.

T-Mobile, AT&T and Sprint are all starting to offer these service packages. Under its Music Freedom program, T-Mobile currently provides its customers with unlimited music streaming from certain music services that does not count against their data allowance. Sprint’s newly unveiled Virgin Mobile Custom plan allows unlimited access to either Facebook, Twitter, Instagram or Pinterest and additional data for $12 a month. Paying $10 more will allow unlimited use of all four social networks and unlimited streaming from any one music app costs an extra $5. AT&T announced its sponsored data programs in January. These plans allow a consumer to access to the contents of these services without counting against the consumer’s data allowance.

Baker, former head of the U.S. Department of Commerce’s National Telecommunications and Information Administration and an FCC commissioner from 2009 to 2011, argued, “we should want competitors fighting to see who can manage the best network, and optimize the most services for the most subscribers. No one wants a one-size-fits-all mobile internet experience.”

Separately, the wireless lobbying group urged Congress to develop a new way for paying for the FCC’s Universal Service Fund programs in a comment submitted to the House Energy and Commerce Committee. Currently, the Universal Service Fund is partially financed by consumers through fees on phone service. CTIA suggested that some of the programs should be funded through the general budget process. The lobbying group also urged the agency to cut money from developing wired service to instead focus on wireless service.

Broadband Roundup: Senate Announces Hearings on Open Internet, While House Democratcs Urge FCC to Regulate Broadband, and Popular Web Sites Protest ‘Slow Lanes’

in Net Neutrality by

WASHINGTON, September 10, 2014 – The Senate Judiciary Committee announced that it had scheduled a hearing next Wednesday on the best means to protect an open internet. Committee Chairman Patrick Leahy, D-Vt., said he saw the hearing as an opportunity to hear testimony about his views regarding importance of a free and open internet.

Leahy and Rep. Doris Matsui, D-Calif., each sponsored legislation dubbed the “Online Competition and Consumer Choice Act” in their respective chambers, S. 2476 and H.R. 4880. Their bills would direct the Federal Communications Commission to ban “certain preferential treatment or prioritization of internet traffic.”

“Open Internet rules are the Bill of Rights for the online world,” Leahy said in a statement. “It is crucial that rules are put in place to protect consumers, online innovators, and free speech. Next week’s hearing will build on the discussion the committee started in Vermont. I look forward to hearing from a wide range of stakeholders who can speak firsthand about the impact the FCC’s decision will have on the Internet landscape.”

Significantly, S. 2476 aims to promote open internet approaches without requiring public utility regulation under Title II of the Communications Act.

Popular Websites Stage Online Protest 

On Wednesday, many internet users will come across spinning-wheel icons on their favorite websites.

Organized by activist groups Demand Progress and Fight for the Future, websites such as Reddit, Kickstarter, Vimeo, Foursquare and WordPress are attempting to simulate for their visitors what they believe would be a potential consequence unless stricter net neutrality rules are put in place than those proposed by FCC Chairman Tom Wheeler in May.

The spinning site-loading icon is only symbolic in nature, as the web sites won’t actually slow their load times. Instead, sites such as BitTorrent, Etsy, Digg, Urban Dictionary, and Netflix will urge their visitors to contact their US policymakers in support of strong net neutrality rules, according to Techhive.

IDG News Service chronicles how this slow lane protest came to be supported by advocacy groups such as the ACLU, the EFF, Engine Advocacy, the Free Press Action Fund, and Common Cause. It comes less than a week prior to the deadline for second-round comments in the FCC’s net neutrality proceedings.

Pelosi Wants Broadband Reclassified 

House Minority Leader Nancy Pelosi, D-Calif. wrote a letter on Tuesday to Wheeler describing her concern that FCC’s current position may lead to discrimination and prioritization of certain online content.

Pelosi referenced January’s D.C. Circuit Court of Appeals decision in Verizon v. FCC. Although the ruling upheld the FCC’s authority under which it might use Section 706 of the Telecommunications Act of 1996 as a basis for Wheeler’s current approach, Pelosi said that “the FCC should follow the court’s guidance and reclassify broadband as a Telecommunications Service under Title II of the Communications Act.”

Wheeler’s Remarks at CTIA 

Wheeler spoke to the wireless industry association CTIA on Tuesday at the group’s conference in Las Vegas. Wheeler cited the FCC’s blocking of AT&T’s acquisition of T-Mobile, as well as his opposition of Sprint’s recent attempt to acquire T-Mobile, as examples of the agency’s street-credibility with broadband voters.

Broadband Roundup: Wireless Data Exploding, Will Sprint Succeed with T-Mobile, Cybersecurity Bill

in Broadband Roundup/Media ownership/Mobile Broadband/Wireless by

WASHINGTON, June 18, 2014 – A new study by Wireless Association CTIA reported that between 2012 and 2013, mobile traffic and data increased by 120 percent. That’s 383 times the data usage from 2008. The result was $331 billion worth of investments into wireless networks last year, according to the association.

On the communications merger front, AT&T Chairman and CEO Randall Stephenson said Tuesday that he expects Sprint’s attempt to acquire T-Mobile to suffer the same doomed fate of AT&T’s attempt to acquire the wireless carrier, The National Journal reported.

Regulators won’t budge, he said, because in their minds, a colossal merger would reduce competition in the wireless industry from four major carriers to three.

“There were not other major issues. That was the issue, and that’s what they came after,” he said during an interview with David Rubenstein, CEO of the Carlyle Group, during an event hosted by the Business Roundtable, according to National Journal. “As you think about Sprint and T-Mobile combining, I struggle to see how that is not four going to three.”

Softbank Corp CEO Masayoshi Son, on the other hand, expressed more optimism about Sprint’s proposed merger, according to Reuters. Softbank owns majority share in Sprint.

“We can make it more effective by getting bigger scale,” he said at Tuesday’s interview, conducted jointly with former U.S. Secretary of State Colin Powell who is attending SoftBank-sponsored events in Tokyo. “Us becoming a more credible competitor in scale is something good for American consumers and citizens.”

Additionally, a Senate press release said that Senate Intelligence Chairwoman Dianne Fernstein has drafted a bill that allows companies to more easily share information about cyberattacks.

A counterpart bill to a similar House bill, the measure offers “liability protection to companies that participate  in the program.”

Broadband Roundup: House Communications Committee Seeks Comments from Trade Groups on Telecom Law

in Broadband Roundup/Broadband's Impact/FCC/Net Neutrality by

WASHINGTON, June 17, 2014 – The House Energy and Commerce Committee put forward an opportunity for individuals and interest groups to offer comment on telecommunications policy, and many individuals and trade groups took advantage of the opportunity, The Hill reported

The Telecommunications Industry Association said that in 1996, lawmakers didn’t grasp the manner in which new technologies “directly challenge each other in the marketplace,”

“A legislative focus on specific, well-defined public interest objectives will ultimately prove more durable in achieving those objectives as technology evolves, rather than an approach which micro-manages how content providers, network operators, and customers should relate to each other,” said the group representing equipment manufacturers.

CTIA – The Wireless Association suggested the FCC adopt a minimal regulation.

“To accommodate this changing landscape, competition should be defined flexibly to include an examination of what consumers consider product substitutes, including services offered by non-carrier providers,” the group said.

Sprint said in a press release that it just reached agreements with 12 rural and regional network carriers on their fourth-generation LTE networks.

“These agreements seek to increase wireless competition by providing the carriers – and their customers – low-cost access to Sprint’s nationwide 4G LTE network and an opportunity to pursue an expanded utilization of 4G LTE across America where the cost of building such networks and the roaming costs are often prohibitively expensive,” read the press release

Dubbed the rural roaming preferred program, the effort was developed in conjunction with Competitive Carriers Association and now extends to “23 states, over 350, 000 square miles and a population of over 34 million people.”

Apple said it is asking schools to apply for its portion of the ConnectED program to improve connectivity and technology in schools, The Washington Post reported.

The company has already invested $100 million to the program and will be contributing further by providing iPads, MacBooks, software and technical training to “schools with a high percentage of students in lunch assistance programs.”

Ron Carruth, superintendent for the Whittier County School District in Whittier, Calif., said “we are looking to partner with schools that share our vision of using technology to transform education. If a school is selected, we will provide it with Apple products, education content and wireless infrastructure, and we will work closely with teachers to further their professional development.”

The applications are due on June 20.

In other news, a study by the Information Technology & Innovation Foundation found that about one-third of Americans are not competent in the use of computers and the internet. That’s nearly twice the number of people without internet access.

The report urged increased investments into digital skills education by the public and private sectors.

Industry Reactions to Tom Wheeler’s Nomination to Be FCC Chairman: CCIA, NCTA, CTIA, NTCA, CEA and MPAA

in FCC by

WASHINGTON, May 1, 2013 - The following are reactions from President Barack Obama’s Announcement that Tom Wheeler would be Chairman of the Federal Communications Commission from several of the leading major telecommunications, media and technology industry trade groups.

Ed Black, President and CEO of the Computer and Communications Industry Association: 

“President Obama has nominated the right leader for the right job at the right time.

“I have known and respected Tom Wheeler for many years, and believe his exceptional understanding of much of the industry, combined with his demonstrated commitment to protecting the public interest, makes him uniquely qualified to lead this important agency facing many complicated and critical decisions.

“Tom’s knowledge of the telecom, cable and Internet industries and his experience representing the wireless and cable industries when they were the newest disruptive innovators makes him an excellent choice. A frequent impediment to US innovation is that incumbents too often protect their legacy business models rather than allowing the market to evolve in ways that help consumers. Wheeler’s career backing start ups and promoting disruptive innovators in the wireless and cable industries is an important perspective to have in a Chairman.

“The choice of Wheeler reinforces our belief that President Obama understands the Internet’s role as both a communications tool and as a key for growing the digital economy. We need an FCC Chairman to chart the right course that will boost Internet openness, promote robust competition, innovation and affordable high speed Internet access.”

Michael Powell, President and CEO of the National Cable and Telecommunications Association:

“We congratulate Tom Wheeler on his nomination as Chairman of the Federal Communications Commission. With his significant experience in both the private and public sector, Tom is an exceptional choice to lead the Commission during a time when the telecommunications marketplace is experiencing significant innovation and incredible change. We welcome the pending appointment of Mignon Clyburn as interim chairman as she is a distinguished and able public servant. We will continue working closely with the entire Commission as they tackle important issues facing America’s dynamic media, technology and telecommunications landscape.”

Steve Largent, President and CEO of CTIA – The Wireless Association:

“On behalf of the wireless industry, we congratulate Tom on today’s announcement. Tom has a deep understanding of communications issues, a passion for hard work and creative thinking, a diverse background that spans the realm of the Internet world and a keen understanding of how mobile wireless broadband can drive our economy and innovation. His leadership of the FCC’s Technological Advisory Council, combined with his private sector experience means he will hit the ground running. We look forward to working with Tom, once he completes the Senate confirmation process, on the breadth of spectrum and other wireless telecom matters which are pending at the Commission and critical to the maintenance of our position as global leader in mobile communications.”

Shirley Bloomfield, CEO of the NTCA – The Rural Broadband Association:

“NTCA congratulates Mr. Wheeler upon his nomination to serve as the next chairman of the FCC. Small rural carriers have worked diligently to deliver on the President’s vision of universal broadband access, and we know that Mr. Wheeler appreciates the need for a stable, well-defined regulatory climate to facilitate investment in and upgrade of broadband-capable, IP-enabled networks. This is particularly important in the hard-to-serve areas in which NTCA members operate, and we look forward to working with Mr. Wheeler to fulfill the promise of high-quality, affordable and sustainable broadband access for all Americans.”

Gary Shapiro, President and CEO of the Consumer Electronics Association:

“President Obama has made an excellent choice in nominating Tom Wheeler. As the former president of the National Cable Television Association (NCTA) and the former CEO of CTIA – The Wireless Association, he understands the impact of government actions on innovation and competitiveness.

“As the chairman of the U.S. State Department Advisory Committee on International Communications Policy and Information Policy, Wheeler helped develop the unprecedented unified position of the U.S. government, Congress and industry opposing the International Telecommunication Union’s effort to encourage countries to wall off their citizens’ Internet access. Wheeler also helped coordinate the U.S. response to the Haiti disaster which quickly restored basic telecommunications service to Haiti and put into place a strategy for future responses to areas hit by a telecommunications breakdown.

“The FCC plays a vital role in the lives of all Americans. CEA and its 2,000 technology industry member companies look forward to working with Wheelerand his colleagues to help the FCC advance technology innovation through spectrum reallocation and other groundbreaking issues. Wheeler is experienced, qualified and certain to make a difference as FCC chairman.”

Chris Dodd, Chairman and CEO of the Motion Picture Association of America:

“I’d like to congratulate Tom Wheeler on his nomination today by President Obama to be FCC Chairman. Tom has demonstrated strong leadership skills at a time of major change in the telecommunications, cable, and wireless industries.  I look forward to working with Tom, an entrepreneur and experienced policy expert,  to ensure the smooth delivery of American content over a variety of devices and networks, both here and abroad.”font

Profiles of Prospective Candidates to be FCC Chairman: Mignon Clyburn and Tom Wheeler

in Congress/FCC/People/Wireless by

WASHINGTON, March 27, 2013 – This week BroadbandBreakfast.com will begin a series profiling many of the top prospective candidates that might be selected to serve as chairman of the Federal Communications Commission. Julius Genachowski, the 29th chairman, on Friday announced that he would step down within a few weeks.

Mignon Clyburn joined Genachowski as one of five members of the commission in 2009. By law, the president selects one of five commissioners to serve as chairman. Clyburn might be selected due to her tenure at the commission and for her 11 years as a member of South Carolina’s Public Service Commission. Clyburn’s father, Representative Jim Clyburn, D-S.C., is currently the third-Democrat in the House of Representatives, behind Minority Leader Nancy Pelosi and Minority Whip Steny Hoyer. The younger Clyburn has long been a champion of for competition across consumer markets.

Outside of the commission, many consider the front-runner for the position to be Tom Wheeler. Wheeler has deep ties to the Democratic Party and the Obama Administration. Wheeler campaigned for and raised funds for President Obama.In 2009, Wheeler led a division of the Obama-Biden Transition Project that dealt with science and technology. Beyond his party connections, Wheeler has served as the head of two prominent telecommunications trade associations. He was President of the National Cable Television Association (NCTA) from 1979 to 1981. After several years as CEO of various technology start-ups, he became the head of the Cellular Telecommunications & Internet Association, and which is now called CTIA – The Wireless Association, until 2004. Wheeler is the current Managing Director of Core Capitol Partners, a Washington based venture capitol firm with over 300 million dollars in capital under management.

Congress Seeks Winning Design for Proposed Spectrum Auctions

in FCC/Mobile Broadband/National Broadband Plan/Wireless by

WASHINGTON, June 2, 2011 – The Subcommittee on Communications and Technology explored legislation Wednesday that would encourage the voluntary participation of broadcast companies and wireless providers in spectrum auctions.

“There is a looming spectrum crisis, and we must get additional spectrum into the marketplace,” said Rep. Doris Matsui (D-CA)

Witnesses before the subcommittee testified if a solution is not adequately devised, increasing consumer demand for mobile broadband products potentially threatens to overcrowd spectrum to the point where it is unusable and innovation is stifled.

“Today, the United States is the world’s clear leader in wireless broadband,” said Chris Guttman-McCabe, Vice President of Regulatory Affairs for CTIA-The Wireless Association during his prepared remarks. “Although the United States is home to just 4.6 percent of the world’s population and 5.8 percent of global wireless subscribers, the U.S. claims 20.4 percent of global high-speed wireless broadband (3G and 4G) subscribers.

“The growth in the demand for mobile broadband and the corresponding need for additional spectrum has been well-documented both by the government and respected private sector parties like the Yankee Group, CODA, and Kleiner Perkins,” said McCabe.

Subcommittee members and witnesses alike expressed the need to design legislation for successful spectrum auctions.  The subcommittee and the witnesses agreed that voluntary incentive auction that would benefit consumers, broadcasters, the government and the general economy.

“Authorizing the FCC to conduct incentive auctions should be the foundation of our spectrum policy efforts,” said Rep. Henry Waxman (D-CA). “We should take full advantage of the FCC’s world-class expertise on auction design and give the agency the ability to work with auction experts to set up the best possible incentive auction.”

“Spectrum legislation presents a tremendous opportunity to promote wireless broadband, spur economic growth, create jobs, and generate significant revenue for the American taxpayer,” said Subcommittee Chairman, Rep. Greg Walden (R-OR), in his opening remarks.

Walden, a former radio broadcaster, while acknowledging the need for smarter spectrum policy, did not seem to agree that incentive auctions were the only answer.

“I would like to see a partnership between broadcasters and wireless companies on spectrum,” said Walden after the hearing. “Part of the reason we held this hearing was to tease out the new technologies. HDTV has only been out for two years, and the companies have put in a lot of work. Now they’re starting to explore what else you can do with that spectrum and mobile TV is certainly a piece of that.”

Witnesses from broadcast companies expressed support for a broadband solution as called for in the National Broadband Plan, but also voiced their concerns. Broadcasters wanted assurance that they would be protected in the potential legislation.

“There is only so much that the laws of physics will allow us to do without crippling our capability to serve our local communities now and in the future,” said Todd Schurz, President and CEO of Schurz Communications.

Schurz outlined four points to serve as a baseline for protecting broadcasters.  Broadcasters, he said, should not be forced to inferior spectrum bands, nor should they be subject to increased interference.  Additionally, if broadcasters are repacked they should not bear the cost and after repacking their signal footprint should not decrease.

Repacking is a means by which broadcasters are moved to different spectrum bands and compressed to free up more contiguous spectrum.

Broadcasters also hope to gain from the increased spectrum demands of consumers.

“To borrow a sports analogy, you go where the puck is going,” said Bert Ellis, President of Titan Broadcasting. “This is where the consumer is going, and we want to be able to go there as well.”

At a time when the U.S. budget deficit is the talk of the town, voluntary incentive auction legislation could provide a method to reduce the budget deficit; the U.S. Treasury would reap the majority of the money from the auctions.

“The FCC incentive auction would likely generate large revenues for the government, perhaps in the range of that generated by the 700 MHz auction [in 2008], which generated close to $19 billion,” said Duke University Dr. Michelle Connolly, an economics professor at Duke University. “More importantly for the overall U.S. economy, it will help move a scarce resource to a more valuable use to our economy and society.”

Connolly cautioned, however, that the auction rules must provide a measure of certainty to licensees and the public.

“As important as the impact of rules imposed on the spectrum being auctioned, is the impact of uncertainty. Rules that increase uncertainty for bidders will also lead to lower bids,” said Connolly.

Every party involved, however, regardless of whether they would participate in a voluntary incentive auction, expressed certainty that meeting the needs of the American consumer was central to their service or proposal.

Experts Debate Incentive Auctions at Brookings

in FCC/Mobile Broadband/Spectrum/Wireless by

WASHINGTON May 6, 2011 -The Brookings Institution gathered key industry and government experts Thursday to discuss how solve the impending spectrum crunch through voluntary incentive auctions.

Incentive auctions would allow current spectrum owners to obtain a part of the proceeds from the auction of part or all of their spectrum holdings. Currently any revenue obtained from the sale of spectrum by the Federal Communications Commission goes directly to the Treasury Department. To increase participation in the auctions, the FCC has proposed to share the proceeds with the spectrum holders. Congress must first pass legislation changing the law to allow for the sharing of auction proceeds before the incentive auctions could be held.

“Wireless is the fastest-growing information communications technology around the world and it can become a key solution to bring broadband to the most remote Americans,” said Matthew Hussey, Legislative Assistant to Sen. Olympia Snowe (R-ME).

According to Hussey, however, Incentive auction may not be enough to solve the spectrum crunch many experts forecast.

Though incentive auctions are a useful tool in obtaining additional spectrum, he says, they would not be able to provide enough spectrum to meet the full needs of the wireless industry. Key innovations such as spectrum sharing and advanced radios must also be considered in determining solutions.

Hussey also called upon the FCC to conduct an in-depth spectrum inventory to determine if license holders are currently using their spectrum or if it is lying fallow.

Sen. Snowe, along with Sen. John Kerry (D-MA) called for a spectrum inventory earlier this year, but FCC Chairman Julius Genachowski stood by the information available on the Commission’s website, insisting that such an inventory had already been completed.

“The spectrum dashboard the FCC created presents a very broad overview of the current spectrum holdings; we need a much more granular view,” Hussey said. “We must remember that spectrum is a public good and must be used in a way to maximize the benefits of the American people.”

Christopher Ornelas, vice president and chief strategy officer at the National Association of Broadcasters, agreed that wireless broadband is the best solution to reach the most remote 8 percent of Americans who cannot access wireline broadband, but indicated he feels that spectrum should not be recklessly taken away from broadcasters.

“We do not have a problem of holding a truly voluntary auction, but broadcasters should not be coaxed into participating,” Ornelas said. “We need to first conduct a deep inventory of the spectrum currently being used before we make any decisions and right now, we lack the data to make the most informed decision. This is something that we can only do once, so we have to do it right.”

Ornleas also warned that after the auctions, any repacking of spectrum would have to be done very carefully to ensure that broadcasters who kept their spectrum would still be able to reach their original consumers. Repacking would create a contiguous block of users rather than having them spread out across the band.

Uzoma Onyeije, president of telecommunications consulting firm, Onyeije Consulting, echoed Ornleas’ sentiments on the lack of data.

“Before we act we need a truly complete and up to date inventory of how spectrum is being used,” said Onyeije.

“Incentive auctions are the key to meeting our future spectrum needs,” said Christopher Guttman-McCabe, vice president of regulatory affairs at the CTIA – the Wireless Association. “The rest of the world has already allocated hundreds of megahertz for mobile use while the U.S. only has 50.”

Mobile broadband is experiencing explosive growth according to Guttman-McCabe, even as more mobile phones allow users to use Wi-Fi networks.

Guttman-McCabe told the assembled crowd that U.S. consumers use considerably more data and voice services than their international counterparts which makes the lack of spectrum a major issue for mobile carriers.

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