National Telecommunications and Information Administration

[Docket No. 011109273-1273-01]

RIN 0660-XX13

Notice, Request for Comments on Deployment of Broadband Networks and Advanced Telecommunications

Request For Comments on Deployment of Broadband Networks and Advanced Telecommunications Services

 

Introduction

 

These comments are being submitted to the National Telecommunications and Information Administration (NTIA) on behalf of the membership of AeA – Advancing the Business of Technology (formerly the American Electronics Association).  AeA is the nation’s largest high-tech trade group, representing more than 3,500 U.S.-based technology companies.  Membership spans the industry product and service spectrum, from semiconductors and software to computers, Internet and telecommunications systems and services. 

 

The purpose of the AeA comments is to 1) answer the question in the NTIA request for comments concerning the current status of broadband deployment, and 2) to urge the NTIA and the rest of the federal government to adopt policies that accelerate the deployment of broadband.

 

The deployment of broadband is one of the top priorities of AeA, for a very simple reason - AeA represents the companies that make the products that make broadband a reality. As the largest high-tech trade association in the U.S., representing both industry giants and small start up tech companies, AeA wants to emphasize in the strongest possible terms that increasing the speed of broadband deployment is a top priority of the high-tech industry. The slowdown in broadband deployment has caused a great deal of harm to the high-tech industry and a continued slow down in broadband deployment could endangered the future growth of the high-tech industry.

 

Unlike most other companies and organizations that will file comments to the NTIA, AeA and its members have no particular “axe to grind” in the ongoing broadband fights. AeA and its members will benefit only when broadband is widely available to consumers. AeA does not favor one technology or one platform for broadband deployment. Instead, AeA favors the development of a competitive broadband market that allows households to subscribe to a broadband service that delivers the greatest bandwidth that is technically feasible.

 

The economic growth of the 1990’s was fueled by the high-tech industry, and in particular by the development of the Internet. The entire high-tech industry benefited from the commercial application of the Internet. More than 1.4 million jobs were created by the high-tech industry in the 1990’s, paying an average salary of $64,000 by 2000. By any measure, the high-tech industry led the economic expansion of the past six years. The high-tech industry anticipated that broadband deployment would build on the past success of the Internet and move consumers into the next generation of products based on high-speed Internet access.

 

The combination of the dot.com collapse and the collapse of the competitive local exchange companies (CLECs) has created a great deal of economic hardship in the high-tech industry. The slowdown of broadband deployment has further pushed the high-tech industry into economic hardship. New product orders have evaporated at many companies. Suppliers to these companies have seen their customers disappear. Venture capital – the life-blood of high-tech – has all but disappeared.

 

The economic situation of many companies in the high-tech industry is dire. The federal government can assist the high-tech industry by adopting policies that encourage a strong and competitive broadband marketplace and by removing any regulatory roadblocks that prevent broadband from being deployed. AeA and its members will work with all concerned parties to ensure this outcome.


Executive Summary

 

AeA examined the available federal and private data to obtain a better understanding of the broadband market. The findings of AeA research include:

 

Current deployment of broadband to households is increasing, but at a slow rate: Both cable modem and DSL providers are experiencing growing markets. However, these markets are not growing at the same rate as last year or as in 1999. Nor is the growth at a level to drive the employment and economic growth that the high-tech industry has experienced over the last six years.

 

Cable Modem is the leading provider of high-speed home Internet access: A combination of factors have made cable modem Internet access the largest provider of household broadband services. At present, cable modem broadband suppliers have approximately 2/3rds of the home broadband market.

 

A competitive marketplace for high-speed Internet access has not developed: A competitive marketplace – with a multitude of suppliers and a range of choices for consumers – has not developed for broadband. The exception is households located in large urban areas such as New York City and Los Angeles. The collapse of the CLECs and the technical limits on DSL deployment has left a large segment of the public with cable modem broadband as their only choice for high-speed Internet access. For rural Americans, satellite is likely the only means of obtaining high-speed Internet access. Even in areas where cable modem and DSL access is available, the services likely come from only two companies. Thus, “competitive” markets for broadband Internet service is defined, in most instances, as two companies providing broadband services to households.

 

Email is the killer app: Many high-tech companies have argued that a “killer application” would help drive the deployment of broadband. Right now, the top application on the Internet for home Internet subscribers is email. The ability to send and receive email is by far the top reason why people subscribe to home Internet service.

 

E-Commerce and Bill paying are the fastest growing Internet services: Surveys indicate that online shopping and bill paying are the fastest growing uses of the Internet. Current events may further increase the growth of these trends.

 

Home Internet access more likely in high-income, highly educated households: Federal data indicates Internet subscribers, especially broadband Internet subscribers, tend to be wealthier, better educated, and younger than the average population.

 

 


What is Broadband?  Broadband is more than a term for a specific technology.  Broadband is shorthand for high-speed Internet services. What is high-speed Internet service? According to the Federal Communications Commission (FCC), high-speed Internet service is, “(a service) that provide(s) the subscriber with transmissions at a speed in excess of 200 kilobits per second (kbps) in at least one direction.”[i] The FCC further defines advanced broadband services as “provid(ing) the subscriber with transmission speeds in excess of 200 kbps in each direction.[ii]

 

When high-tech companies discuss the deployment of broadband, they are referring to a much more advanced type of broadband – the ability to provide seamless, on-demand delivery of data, text, audio, video, movies and still pictures. The delivery of this service would come through a multitude of devices including computers, television sets and web-based appliances, telephones and personal digital assistants. In its pleading to the FCC, Intel Corporation states that high-speed Internet access is at a minimum “6 Megabits per second (Mbps).”[iii] The Intel pleading refers to 100 Mbps as a goal for household high-speed Internet access.

 

Another definition of broadband has been put forward in a prepublication report issued by The National Academies. In this report, Broadband, Bringing Home the Bits, the Academy states that broadband should be defined “in a dynamic and multidimensional fashion.” The Academies then defined broadband as “(1) local access link performance should not be the limiting factor is a user’s capability for running today’s applications, and (2) broadband services should provide sufficient performance – and wide enough penetration of services reaching that performance level – to encourage the development of new applications.”[iv]

 

The definition put forward by the National Academies gets close to how the high-tech industry would define broadband. AeA and its members believe a better way to define broadband is to compare applications with the amount of bandwidth needed to deliver an application. For example, streaming video requires 175 kbps, VHS quality video requires 300 kbps, television-quality reception requires 750 kbps, DVD quality reception requires 4 Mbps, and high definition video would require 19.8 Mbps. Using the FCC definition of broadband would limit its application to streaming video, which is not the outcome the high-tech industry envisions from the deployment of broadband.

 

Therefore, to a working definition of broadband needs to take into consideration what type of bandwidth is necessary for high-quality video transmissions. While AeA supports the Intel goal of expanding the available bandwidth to households to 100 Mbps, this amount of bandwidth – given current technologies – is not going to be available to households anytime in the near future, meaning within the next 5-10 years. Therefore, for the purposes of comparing data in these comments, AeA will use the FCC definition of broadband. However, for the purposes of a definition that best reflects the views of the AeA membership, AeA would ask NTIA to adopt a broad definition of broadband that takes into consideration its dynamic and changing nature and reflects the need for increasing the amount of bandwidth for improved applications.


 

Internet Access

 

Home access to the Internet is a new technology. For most consumers, access to the Internet was not widely available until the mid-1990’s. The federal government began keeping statistics on home Internet access in 1997 and on home broadband access in 1999. Like most new technologies, access to the Internet has increased rapidly. According to the U.S. Census Bureau, the number of homes with Internet access increased by 123% between 1997 and 2000. Surveys since 2000 indicate that the number of homes with Internet access has increased beyond 50%. (See appendix table 1).

 

For most households, accessing the Internet means dial-up service. Most surveys on home Internet access show that 85%-92% of all home Internet service is dial-up. Cable modem, digital service lines (DSL), satellite, television, and fiber wire make up the remaining means of home access to the Internet.

 

Dial-up Internet service has approximately 53.3 million subscribers.[v] America Online (AoL) is the largest dial-up Internet service, with almost 24% of the total Internet access market. MSN, United Online, Earthlink, and @Home were the top five Internet access companies as of Nov. 2, 2001.[vi] Interestingly, the one ISP market that is declining the fastest is the free ISP market. Since the beginning of 2001, the free ISP market has lost almost 15 million customers.[vii]

 

Development of the Broadband Market

 

The deployment of broadband to households began in earnest in 1999. Three types of companies were attempting to establish themselves in this new market: cable television providers (cable multi-system operators – MSOs), Competitive Local Exchange Companies (CLECs), and Incumbent Local Exchange Companies (ILECs –the former Bell operating companies).

Growth of DSL Subscriptions

2000 – 2001

 
 


Since 1999, cable MSOs have captured the largest share of the broadband market. Approximately 2/3rds of the home broadband subscribers use a cable modem to access the Internet.

 

Source: TeleChoice, Inc., Nov. 27, 2001

 

Source: TeleChoice, Inc. Nov. 27, 2001

 
Between 1999 and 2000, both the CLECs and ILECs fought to connect households to high-speed Internet service. Over the past year however, the ILECS have all but disappeared as a supplier of Direct Service Lines (DSL) broadband service. Today, DSL is provided almost exclusively by the ILECs. Market surveys indicate that somewhere between 2.4 million and 2.8 million households are connected to the Internet through a DSL line.[viii]

 

Other technologies are delivering high-speed Internet services to households, but these technologies are either too new or too esoteric for most household consumers. For example, satellite television providers have begun to offer high-speed Internet access to their customers. Approximately 100,000 – 120,000 households receive their high-speed Internet service from a satellite provider.[ix] Fiber and wireless transmission make up the other technologies that are delivering high-speed Internet access to households.


Growth of Broadband deployment

DRAFT

 
 


Cable MSOs have enjoyed steady growth throughout the first three-quarters of the year, with an overall growth rate of 58%. The growth of individual cable MSOs has also been steady throughout the year. For example, Time Warner Cable is now the largest provider of cable modem Internet in the U.S., having added 715,000 customers in 2001 – a 75% increase. Comcast added 392,700 customers – a 98% increase, and Charter added 255,000 new subscribers – a 101% increase.

 

DSL subscription rates have also been increasing over the past year, though not as quickly as cable modems. Since the 4th quarter of 2000, DSL subscriptions have increased by 64%. Household DSL subscriptions increased 23% in the 1st quarter, 16% in the 2nd quarter, and 15% in the 3rd quarter. Although DSL deployment is increasing, it is at a far slower pace than in 2000 and 1999.

 

The providers of DSL have been shrinking throughout 2001. With the collapse of the CLECs, six companies – SBC, Verizon, Qwest, BellSouth, Covad, and Broadwing - provide 97% of the residential DSL service in the U.S.

 

While the growth rates of both cable modem and DSL broadband are respectable, the problem for both the broadband providers and the high-tech industry is that all had based their business plans on much higher broadband deployment growth rates. The slowdown in deployment has had a negative effect on both broadband providers and the high-tech companies that provide equipment and software for these services. The member companies of AeA are confronted with a situation that looks on the surface like it is no problem, but in reality has had a very negative impact on the bottom lines of the companies that both supply broadband to consumers and the products that rely on broadband deployment.

 

Who subscribes to Internet services?

 

Government statistics indicate that the users of the Internet tend to be younger, wealthier, and better educated than society as a whole.

Source: 2000 Falling Through the Net: Towards Digital Inclusion

 
 


More than one-half of individuals between the age of 9-55 use the Internet. Use of the Internet by individuals older than 55 and younger than the age of 9 drops sharply.

Source: 2000 Falling Through the Net: Towards Digital Inclusion

 
Internet use increases with education attainment. Individuals with a bachelor’s degree are far more likely to be an Internet user than individuals with lower education attainment. Income is also a factor in Internet use. The higher one’s income, the more likely a person will be an Internet user.

 

Reasons People Use the Internet at Home

 

Source: 2000 Falling Through the Net: Towards Digital Inclusion

 
Where an individual accesses the Internet is a key component of the debate over broadband. Broadband is a unique technology from the perspective of access. Most individuals have access to high-speed Internet access in their office. Though there is no data to substantiate this claim, there is anecdotal evidence to suggest individuals are not subscribing to broadband at home because it is readily available (and free) at work. Only 25% of Americans access the Internet exclusively from their home. The fact that a large percentage of Americans can access the Internet at a high rate of speed at the office is a significant factor that cannot be overlooked when discussing the deployment of broadband.

 

Source: 2000 Falling Through the Net: Towards Digital Inclusion
 
The final component of Internet users is why – specifically, why to consumers subscribe to home Internet service? The answer – email.

 

Email is the “killer app” driving home Internet subscription. Surveys indicate the ability to send and receive email is far and away the top reason people sign onto an Internet service. Surveys also indicate that shopping and paying bills is the fastest growing use of home Internet users. Recent events may further increase the application of these services over the Internet. What is interesting about the reasons for home Internet usage is that dial-up Internet is adequate for these services.

 

Dial-up v. Broadband – Different reasons for subscribing

 

For most households, access to the Internet comes from a dial-up service. Why do consumers chose dial-up service? The General Accounting Office (GAO) released a comprehensive survey of Internet users this past February, which contained several findings on the differences between dial-up and broadband Internet users. Almost half said that dial-up was the appropriate speed of service. However, the next two answers hold promise for broadband suppliers, as almost 40% of respondents said they either had no choice or were unaware that they had another choice for Internet service. The fourth highest response – the ability to chose their Internet Service Provider (ISP) demonstrates that there are consumers who are aware that dial-up Internet service offers flexible choices for ISPs, while cable modem broadband service does not allow consumers to chose their ISP.

 

When broadband users were asked the same question, it is no surprise that speed was given as the top answer. The real surprise is that 25% of broadband subscribers cite price as the reason for using this service. If you combine disconnect a phone line with best price, one-fourth of the respondents to the GAO survey are citing monetary reasons for subscribing to broadband Internet services.  By dropping the extra phone line, broadband subscribers are likely breaking even by switching from dial-up to broadband.

 

Internet service: At what price?

 

Dial-up Internet service is the least expensive option for consumers. It is still possible to access dial-up Internet service for free, though that form of Internet access is becoming less available. For most consumers, dial-up Internet service is priced around $21-$25. The GAO survey – which reflects data that is almost a year old – shows that most consumers (51%) pay between $15 and $30 per month for Internet service.

 

Broadband service is more expensive than dial-up. Broadband providers have increased the price of their service this year, and these price increases have been blamed in part for the slowing of demand for broadband. The average DSL consumer is paying $51.68 per month for broadband access – a 10% increase for the year. Cable modem users pay on average $44.17 per month for Internet access – an 11% increase for the year.[x]

 

How much more are broadband subscribers willing to pay for their current broadband service?

 

How much more are dial-up subscribers willing to pay for broadband?

 
In their study of Internet users, the GAO asked dial-up Internet users how much more they would be willing to pay for broadband service. Almost 40% said “nothing,” while another 40% said between $1 and $10. The rest were willing to pay between $11 and $30 more for broadband service. Using the GAO data, and assuming most dial-up customers are paying $20 per month for their service, about 20% of dial-up users are willing to pay the $45-$50 per month for broadband Internet service.

 

The more interesting question GAO asked broadband customers was how much more were they willing to pay for broadband service. Half of the respondents said they were not willing to pay anymore for their broadband service than they are currently paying. If the results of this question were accurate, the price increases experienced by broadband users would help explain the slowdown in new broadband subscriptions this year.

 

Conclusion

 

The ability to subscribe to broadband services for a limited number of consumers became available in late 1998 or early 1999. Like all new technologies, its deployment has hit some rough spots. Complaints about installment, value, and service have been noted in the media. However, throughout 1999 and 2000 broadband technology enjoyed near 100% quarterly growth. In late 2000, that growth slowed to about 40% and in 2001 slowed further to 15% per quarter. Given the terrorist attacks of 9/11, it is unlikely that the growth levels of broadband deployment will be as high as the previous three quarters of 2001.

 

For the high-tech industry, the slow down in broadband deployment has been devastating. All high-tech products benefit from the increase in broadband deployment. A slowdown in broadband deployment means fewer sales of computers, peripherals, the products that go into making a computer, software, and the services that support each of these products. Moreover, there is no way to measure products that don’t come to market or services not provided because of the broadband slowdown.

 

The NTIA can assist the high-tech industry with the deployment of broadband by advocating a strong federal policy that encourages all levels of government to work together to adopt policies that encourage the development of a competitive consumer broadband market and by removing regulatory obstacles to broadband deployment. By adopting this position, the NTIA can serve as the advocate for greater broadband deployment in the federal government.

 


Appendix

 

(See charts in accompanying document.)

Text Box: Source: Cable Data Com News, Dec. 1998 - Dec. 2001
Data available for the second quarter of 2000 and from the fourth quarter of 2000 on.
Text Box: Growth in Cable Broadband Subscriptions
2nd Quarter 2000 – 3rd Quarter 2001
Text Box: Source: Falling Through the Net: 
Towards Digital Inclusion, Oct. 2000
Text Box: Internet Access
Dial-up v. Broadband
Text Box: Source: U.S. Census Bureau: Home Computers and Internet 
Use in the United States, August 2000
Text Box: Home Internet AccessChart 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chart 2

 

 

 

 

 

 

 

Chart 3


Chart 4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Text Box: Source: Cable Data Com News, March 1, 2001; June 1, 2001; 
Sept. 1, 2001, and Dec. 1, 2001

 

Chart 5

Text Box: Growth of Cable Modem Deployment 
By Quarter - 2001

 


Chart 6

Source: Cable Data Com News, March 1, 2001;  June 1, 2001;  Sept. 1, 2001,  and Dec. 1, 2001

 

Chart 7

Text Box: DSL Deployment Growth by Quarter
2001

 

 

 

 

 

 

 

Text Box: Source: TeleChoice, Inc., Nov. 27, 2001

 

 

 


Chart 8

DSL Deployment Growth by Company 2001

 
 


 


Source: Cable Data Com News, March 1, 2001;  June 1, 2001;  Sept. 1, 2001,  and Dec. 1, 2001

 

Source:

TeleChoice Inc.

Nov. 27, 2001

 

 

 

 

 

 


Internet Usage by Age

 
Chart 9

 

 

 

 

 

 

 

 

 


Chart 10

Internet Usage by Income

 
 


 

 

 

 

 

 

 

 

 

Source: 2000 Falling Through the Net: Towards Digital Inclusion

 
 


Internet Usage by Location

 
Chart 11

 

 

 

 

 

 

 

 

 

 


Chart 12

 

 

Top Reasons why individuals subscribe to dial-up Internet service

 

 

 

 

 

 

 

 

 

 

 

 


Text Box: Source: General Accounting Office, Characteristics and Choices of Internet Users, 
Feb. 2001, P. 51

 

 

Chart 13

 

Top Reasons Why Individuals Subscribe to Broadband Internet Service

 

 

 

 

 

 

 

 

 

 

 

 

Source: General Accounting Office, Characteristics and Choices of Internet Users,

Feb. 2001, Page 37

 
 

 


What people pay for home Internet Service

 
Chart 14

 

 


Text Box: Source: General Accounting Office, Characteristics and Choices of Internet Users, Feb. 2001, Pages 45-46

Source: General Accounting Office, Characteristics and Choices of Internet Users, Feb. 2001, Page 47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



ENDNOTES



[i] Federal Communication Commission release of data on high-speed Internet access, August 9, 2001, Page 1, first footnote

[ii] Ibid

[iii] Comments of Intel Corporation before the Federal Communications Commission, CC Docke5t No. 98-146, Page 2

[iv] Broadband: Bringing Home the Bits (2001), prepublication copy, Page A-1

[v] CyberAtlas, “Number of U.S. Internet Subscribers Drop Again” by Michael Pastore, Nov. 15, 2001

[vi] ISP Planet, “Top U.S. ISPs by Subscriber: Q3 2001” by Patricia Fusco

[vii] CyberAtlas, “Number of U.S. Internet Subscribers Drop Again” by Michael Pastore, Nov. 15, 2001

[viii] Telechoice survey estimates 2,834,134 home subscribers at the end of the third quarter 2001 and Kinetic Strategies estimates 2,484,789 home subscribers.

[ix] CyberAtlas, “Number of U.S. Internet Subscribers Drop Again” by Michael Pastore, Nov. 15, 2001, states that 114,000 households subscribe to satellite Internet service. The FCC, on August 9, 2001, issued its report “High-Speed Services for Internet Access: Subscribers as of December 31, 2000,” reported 112,405 satellite and “fixed wireless” subscribers.

[x] Information on broadband pricing taken from a press release from ARS, Inc., which conducted a survey of DSL and cable modem prices.

 

About the data

 

Because broadband is such a new technology, there is not a great deal of data on this subject. The oldest data dates back to late 1998. In addition, federal government data on broadband deployment is current only through February 2001. Because the federal data is almost a year old, AeA had to rely on private sources of data on broadband deployment for 2001. Much of this data in summary form is available on the Internet. However, the actual reports are not available to the general public. Therefore, much of the market data for this year is taken from press releases and media stories. We attempted to put forward credible information for 2001 from reliable market survey firms. If there were discrepancies between market survey companies, AeA indicates that the data falls within a range of points. When possible, AeA double checked data on individual companies with the companies. To further ensure accuracy, AeA did not combine market-generated survey data with federal data.