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.
The final component of Internet users is why – specifically,
why to consumers subscribe to home Internet service? The answer – email.
Source:
2000 Falling Through the Net: Towards Digital Inclusion
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.)
Chart 1
Chart 2
Chart 3
Chart 4
Chart 5
Chart 6
Source: Cable Data Com News, March
1, 2001; June 1, 2001; Sept. 1, 2001, and Dec. 1, 2001
Chart 7
Chart 8
DSL Deployment
Growth by Company 2001
Source: TeleChoice
Inc. Nov. 27, 2001
Source: Cable Data Com News, March
1, 2001; June 1, 2001; Sept. 1, 2001, and Dec. 1, 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
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
Source: General
Accounting Office, Characteristics and Choices of Internet Users, Feb.
2001, Page 47
ENDNOTES