IIA Broadband Ambassador Letter to the Hill

Dear Chairmen Rockefeller and Waxman, Ranking Members Hutchison and Barton:

We write in our continued support of your worthy mission of encouraging universal broadband deployment and adoption for all Americans and in response to your calls for input from constituents.  In short, we are writing because we at the Internet Innovation Alliance believe broadband is an essential element to our economic and national success in the 21st century.

Like a majority of your compatriots in Congress who have made their concerns publicly known, we are very worried that the so-called “third way” proposal of the Federal Communications Commission (FCC) might impose new and potentially sweeping regulations on broadband services under Title II of the 1934 Telecommunications Act.  This represents a distraction from an otherwise comprehensive approach to broadband laid out by FCC Chairman Genachowski, and it has the potential to undermine billions in private investment needed to upgrade networks, expand coverage and grow our still-struggling economy.  We urge you as leading Members of Congress to encourage regulatory restraint and a more thoughtful and deliberate approach as it pertains to broadband regulation.

It is our shared belief that the proposed new and unexpected regulations —regulating broadband information services as telephone utility services – are far more likely to widen the digital divide than close it.  According to the vast majority of market analysts, such an unexpected sea change to established broadband policy would deter new investment where and when it is needed most.  Furthermore, unexpected regulation will potentially exacerbate persistent demographic gaps by pricing broadband beyond the reach of many low and moderate-income Americans.

We need carefully-focused and narrowly-tailored legislation that empowers the FCC to advance core consensus elements of the National Broadband Plan, including initiatives to promote digital literacy, universal service reform, and spectrum availability.

We believe that minimal regulation and consistent bipartisanship lead to maximum investment and innovation.  Regrettably, the “third way” expanding Title II would maximize regulation.   Applying old regulations to new technologies merely because it seems legally viable will not solve current market realities, no matter how well they are implemented or how much the FCC promises to forbear.  With great insight, you and the rest of the United States Congress have stepped up in a bipartisan fashion and explained to the FCC that it needs to slow down and approach broadband regulation in a focused and targeted way.

Let us work together to provide targeted and measurable goals for the FCC, removing much of the uncertainty that has been created since the unveiling of the National Broadband Plan.  After all, the goal of the National Broadband Plan is to create certainty that leads to universal broadband access, not more regulation that impedes deployment and adoption by unserved and underserved Americans. 

Thank you for your careful consideration of our views.

Sincerely,

IIA’s Response to the FCC NOI on Broadband Reclassification

Download report: 71510_IIA_NOI_Filing.docx

Chairman Julius Genachowski
Commissioner Meredith Attwell Baker
Commissioner Mignon Clyburn
Commissioner Michael J. Copps
Commissioner Robert M. McDowell

Federal Communications Commission
445 12th Street, SW
Washington, DC 20554

GN Docket No. 10-127

July 15, 2010

Dear Chairman Genachowski and Commissioners Baker, Clyburn, Copps and McDowell:

Thank you for the opportunity to offer comments on the proposal to bring broadband information services under Title II of the 1934 Act.  While we share your goals of preserving an open Internet and enabling universal broadband deployment and adoption, we fear the proposed “third way” approach will undermine these objectives, reducing investment, stalling economic recovery and inhibiting the pace of broadband progress in America. 

This proposal seems intended to fit changed legal circumstances rather than evolving market realities. It could disserve consumers by threatening the continued growth of the industry at a time when increased innovation, investment and job creation are critical to the economy. Recognizing this reality, a bipartisan majority in Congress has urged the Commission to shelve this proposal and let the elected lawmakers lead. Instead of re-defining new technologies to fit old regulatory categories, the FCC should allow Congress to craft clear and narrowly tailored authority that enables the Commission to accomplish specific, focused objectives.

The Internet Innovation Alliance believes the biggest challenges to universal broadband adoption in America right now include:

•     The need for ongoing investment in network capacity (up to $350 billion according to FCC estimates) despite significant economic headwinds and uncertainty for investors, to support the bandwidth required by 50,000,000 new customers and ever-more-robust applications;
• The need for digital literacy programs that target the 37 percent of Americans who have access to broadband but have not signed up for service, either because they do not know how to use the services or do not appreciate how it would benefit their lives; 
• The need to expand the amount of wireless spectrum available while enhancing effective network management strategies;
• The need to improve enforcement efforts in the face of exponentially-increasing cyber attacks and fraud.

The IIA shares the belief that competition among ISPs and the free and open nature of the Internet have been essential to broadband’s success and remain critical to its future.  However, the free and open Internet is not at risk.  We are unaware of any current examples of ISPs “blocking or degrading” web sites or broadband traffic.  And the few allegedly “bad actions” by ISPs over the past five years have quickly resulted in prompt reversals.  The FCC should not expand regulatory risk, even with promises of forbearance, to protect against hypothetical harm.

Of great concern, this proposal threatens to undermine investment by adding significant uncertainty and depressing returns.  Analysts and expert observers have overwhelmingly identified this proposal as a negative blow to America’s economic recovery and investment in broadband.  For example:

•   “Reclassifying broadband to bring it under FCC jurisdiction is the ‘the nuclear option’...This would call into question virtually every assumption about the terminal value of networks…Markets abhor uncertainty. Today (day of FCC’s announcement that it will push forward with Title II reclassification of broadband) we got uncertainty in spades…this development is an unequivocal negative.” (Sanford Bernstein Senior Analyst Craig Moffett)
•   “...Decreased investments by broadband service providers will hinder capital expenditures by others in the ecosystem, particularly those at the edge…the imposition of network neutrality rules could have devastating impacts across the ecosystem between 2010 and 2015. A 10 percent decrease in investment by wireline and wireless broadband service providers, coupled with likely spillover effects, could result in the loss of 502,000 jobs across the entire ecosystem and would have a negative impact on U.S. GDP on the order of approximately $62 billion per year.” (Study: Davidson, Charles and Bret Swanson. “Net Neutrality, Investment & Jobs: Assessing the Potential Impacts of the FCC’s Proposed Net Neutrality Rules on the Broadband Ecosystem.” New York Law School. June 2010.)
•  “Net neutrality acts like a tax on the Internet. It imposes overheads on network operators, which, in turn, decrease network investments, providing less opportunity, not only for the operators, but also for those that use the operators’ networks as well.” (Study: Jude, Michael. “Net Neutrality: Impact on the Consumer and Economic Growth.” Frost & Sullivan. May 2010.)
• “[The “third-way” regulation angle] creates potential long-term negative investment (and competitive) implications for major cable broadband providers.” (Standard & Poor’s Analyst Tuna Amobi)

IIA also fears the proposed new regulations are more likely to widen the digital divide than close it.  By deterring new investment where and when it is needed most, this regulatory approach could add to the cost of service and price broadband beyond the reach of many low and moderate-income Americans.  Experts on the digital divide have not cited “lack of common carrier regulations” as either a cause or a cure for race or income-based differences in broadband adoption.  Nor did former Pew researcher John Horrigan find any non-users of broadband citing concerns over the future of the free and open Internet as the basis for their failure to buy broadband. 

A groundbreaking December 2009 poll of 700 African Americans and 200 Latinos conducted by former Obama Campaign pollster Cornell Belcher found that the main reasons that non-Internet users in communities of color remain offline are (1) they do not see the need/value, (2) they lack computers or smart phones and (3) they lack the digital literacy and online confidence.  We understand how to remedy all of these challenges, none of which would be solved or even addressed by this proposal.

We believe that minimal regulation and consistent bipartisanship will lead to maximum investment and innovation.  Regrettably, the “third way” expanding Title II would maximize regulation and ignore the bipartisan majority. The Commission should shelve this proposal and await focused and narrowly-tailored legislation from Congress that authorizes core elements of the National Broadband Plan, including initiatives to promote digital literacy, universal service reform and expand spectrum availability. 

Thank you for your careful consideration of our views.

Sincerely,

Bruce Mehlman & David Sutphen

Co-Chairmen, Internet Innovation Alliance

Mobile Access 2010

Download report: Mobile_Access_2010_PewResearchCenter_72010.pdf

Principal findings: Six in ten Americans go online wirelessly using a laptop or cell phone; African-Americans and 18-29 year olds lead the way in the use of cell phone data applications, but older adults are gaining ground.

Six in ten adult Americans are now wireless internet users, and mobile data applications have grown more popular over the last year.

As of May 2010, 59% of all adult Americans go online wirelessly. Our definition of a wireless internet user includes the following activities:

• Going online with a laptop using a wi-fi connection or mobile broadband card. Roughly half of all adults (47%) go online in this way, up from the 39% who did so at a similar point in 2009.
• Use the internet, email or instant messaging on a cell phone. Two in five adults (40%) do at least one of these using a mobile device, an increase from the 32% of adults who did so in 2009.

Taken together, 59% of American adults now go online wirelessly using either a laptop or cell phone, an increase over the 51% of Americans who did so at a similar point in 2009.

Cell phone ownership has remained stable over the last year, but users are taking advantage of a much wider range of their phones’ capabilities compared with a similar point in 2009. Of the eight mobile data applications we asked about in both 2009 and 2010, all showed statistically significant year-to-year growth.

This year we also asked for the first time about seven additional cell phone activities. Among all cell phone owners:

• 54% have used their mobile device to send someone a photo or video
• 23% have accessed a social networking site using their phone
• 20% have used their phone to watch a video
• 15% have posted a photo or video online
• 11% have purchased a product using their phone
• 11% have made a charitable donation by text message
• 10% have used their mobile phones to access a status update service such as Twitter

Fabricating a Broadband Crisis? More Evidence on the Misleading Inferences from OECD Rankings

Download report: Misleading_Inferences_from_OECD_Rankings_PhoenixCenter_72010.pdf

The late Senator Daniel Patrick Moynihan was famous for observing that “Everyone is entitled to his own opinion, but not his own facts.” If only current policymakers heeded such wisdom when it comes to citing international rankings of broadband penetration as a justification for aggressive public policy interventions.

Indeed, there are many policymakers (and policy peddlers) in this country—including current Federal Communications Commission Chairman Julius Genachowski—that (apparently) believe that the U.S. is “falling behind” in broadband adoption and, therefore, aggressive regulatory intervention is required to remove this blight from our national reputation. This belief is derived largely from data on broadband connections collected and reported by the Organization for Economic and Cooperative Development (“OECD”). Every six months, the OECD releases its data on per-capita broadband connections for its thirty member countries, and these countries are listed in descending order based on per-capita connections.  This practice presents the data in terms of a rank, and that rank has (regrettably) become the standard by which to judge the successes and failures of broadband policy in this and other countries.

In numerous papers, I have debunked the idea that the OECD rankings can be used as a measure of relative performance. One reason per-capita connections are an invalid measure of-capita connections are an invalid measure of broadband penetration is that each country has its own unique maximum value for the measure (all share zero as the minimum).  In other words, if in every OECD country every household and business had broadband (the “Broadband Nirvana”), you would still observe large differences in their per-capita subscription rates.  As such, each country’s per-capita subscription rate has its own scale, and consequently, comparing per-capita connections presents the quintessential apples-to-oranges problem. Moreover, in this Nirvana, the U.S. ranks 20th, five spots below its present position.  Consequently, if near ubiquitous adoption across the OECD is the expected outcome (even for just the more developed economies), then the U.S. will always have a middling rank. 

Also, as I have argued before, when interpreting rank it is essential to first establish an expectation of rank.  Without a meaningful expectation, it is impossible to say whether our observed rank is too high, too low, or just right.  In PERSPECTIVE NO. 08-03, Broadband Expectations and the Convergence of Ranks, I provide compelling evidence that the U.S. is meeting expectations on broadband connections per capita (a rank close to 15th is expected even with good performance).That is, there is no “broadband crisis.”

The Economic Impact of Broadband Investment

Download report: Economic_Impact_of_Broadband_Investment_Broadband_for_America_.pdf

In this paper we analyze the economic impact of broadband deployment on consumer welfare, job creation, and economic output. This study represents an update of prior studies conducted in 2001 and 2003, in which we made several projections based on the best available data at the time. We begin by comparing those predictions against the actual U.S. broadband experience during the past decade. As it turns out, many of our predictions concerning economic welfare and employment/output effects were conservative because we could not envision the myriad applications made possible by broadband connections; nor could we envision the rate at which broadband access prices would fall. In a largely deregulatory climate, broadband penetration skyrocketed to nearly 65 percent penetration by the end of the decade as absolute and quality-adjusted prices fell, and first-generation technologies—cable modem, DSL, and 3G wireless—individually covered approximately 90 percent of all U.S. households and collectively covered even more.

In the second part of the paper, we analyze how much additional investment will naturally occur to wire the country with next-generation technologies. That new investment will expand domestic output and it will create jobs. We also estimate the output and job effects under an alternative scenario in which next-generation deployment is accelerated and is expanded in scope. Recognizing our limited ability to conceptualize next=generation applications, we attempt to estimate the spillover effect of next-generation technologies on other sectors of the economy. Finally, we briefly assess various policy options facing regulators. Given the amount of investment that continues to be deployed in this sector and the precarious current state of the U.S. economy, and given the linkage between that investment and jobs/output, regulators must diligently avoid taking any steps that might undermine the industry’s incentives to invest.

Net Neutrality, Investment & Jobs: Assessing the Potential Impacts of the FCC’s Proposed Regulations

Download report: Impact_of_Net_Neutrality_NewYorkLawSchool_62010.pdf

Sustained capital investments in broadband infrastructure have generated hundreds of thousands of U.S. jobs and annually contribute tens of billions of dollars to U.S. Gross Domestic Product (GDP). The proliferation of fast wireline and wireless networks has spurred edge innovators to develop new services, applications, devices, and cutting-edge content. Broadband has thus become a critical component of the nation’s economic infrastructure. Broadband is also the focus of myriad federal initiatives, culminating most notably in the FCC’s National Broadband Plan, which recognizes that broadband enables the delivery of an array of market-enhancing services like real-time telemedicine and smart energy tools. The nation’s robust broadband ecosystem stems directly from the stable, light-touch regulatory approach that the FCC carefully developed and consistently implemented over the last several years.

The innovative vibrancy evident throughout the broadband ecosystem is in danger of being undermined by FCC proposals, including the impending application of common carrier regulations to some elements of the Internet, that would both overturn decades of precedent and fundamentally alter existing and future business models of broadband service providers. For a capital intensive sector like U.S. broadband – one that has invested hundreds of billions of dollars in network expansion and upgrades over the past decade, and that has directly generated hundreds of thousands of jobs in the communications sectors and many thousands more in related industries – the FCC’s proposed actions are enormously significant. Especially at a time when the national economy is attempting to recover from a major and enduring downturn and private sector job creation remains a concern, the destabilizing impacts of the FCC’s proposals place the nation’s economy at even greater risk. 

The FCC’s Proposed Network Neutrality Rules & The Likely Negative Impacts on the Broadband Ecosystem

As the broadband ecosystem and consumer demand continue to evolve at a rapid and oftentimes unpredictable pace, new sources of revenue will be needed to assure that more data-intensive uses are supported and that additional network upgrades and expansions are adequately funded. Indeed, some predict that, without the ability to adapt business models to shifting utilization patterns, some service providers, especially those in the wireless arena, could become unprofitable. Thus, the FCC’s network neutrality proposals, which would prohibit or restrict several new business models, threaten to constrain the ability of the market to identify and pursue sources of much needed revenues and to deliver new services. 

This paper estimates a range of job and investment losses that are likely to result from the implementation of the FCC’s proposed net neutrality rules. In particular, the entire broadband ecosystem is sensitive to changes in regulation since the sector has evolved and thrived under a light-touch regulatory regime. Indeed, many estimate that, in the absence of the FCC’s network neutrality proposals, investment and job growth will continue apace across the sector. This paper supports estimates that broadband service providers will commit at least $30 billion annually in capital expenditures on broadband alone between 2010 and 2015, resulting in the creation or sustainment of 509,000 jobs. These investments will spur capital expenditures by others in the ecosystem. To this end, a 5 percent incremental increase in capital expenditures by these ecosystem companies could boost investment by approximately $18 billion per year between 2010 and 2015, and yield an additional 450,000 jobs created or sustained. Conversely, decreased investments by broadband service providers will hinder capital expenditures by others in the ecosystem, particularly those at the edge. The analyses in this paper indicate that the imposition of network neutrality rules could have devastating impacts across the ecosystem between 2010 and 2015.

Home Broadband Adoption 2009: Broadband adoption increases, but monthly prices do too.

Download report: Broadband_Adoption_and_Pricing_Pew_Internet_62009.pdf

Home broadband adoption stood at 63% of adult Americans as of April 2009, up from 55% in May, 2008. 

The latest findings of the Pew Research Center’s Internet & American Life Project mark a departure from the stagnation in home high-speed adoption rates that had prevailed from December, 2007 through December, 2008. During that period, Project surveys found that home broadband penetration remained in a narrow range between 54% and 57%.

The greatest growth in broadband adoption in the past year has taken place among population subgroups which have below average usage rates. Among them:

• Senior citizens: Broadband usage among adults ages 65 or older grew from 19% in May, 2008 to 30% in April, 2009.
• Low-income Americans: Two groups of low-income Americans saw strong broadband growth from 2008 to 2009.
• Respondents living in households whose annual household income is $20,000 or less, saw broadband adoption grow from 25% in 2008 to 35% in 2009.
• Respondents living in households whose annual incomes are between $20,000 and $30,000 annually experienced a growth in broadband penetration from 42% to 53%.

Overall, respondents reporting that they live in homes with annual household incomes below $30,000 experienced a 34% growth in home broadband adoption from 2008 to 2009.

• High-school graduates: Among adults whose highest level of educational attainment is a high school degree, broadband adoption grew from 40% in 2008 to 52% in 2009.
• Older baby boomers: Among adults ages 50-64, broadband usage increased from 50% in 2008 to 61% in 2009.
• Rural Americans: Adults living in rural America had home high-speed usage grow from 38% in 2008 to 46% in 2009.

Population subgroups that have above average usage rates saw more modest increases during this time period.

• Upper income Americans: Adults who reported annual household incomes over $75,000 had broadband adoption rate change from 84% in 2008 to 85% in 2009.
• College graduates: Adults with a college degree (or more) saw their home high- speed usage grow from 79% in 2008 to 83% in 2009.

Notably, African Americans experienced their second consecutive year of broadband adoption growth that was below average.

• In 2009, 46% of African Americans had broadband at home.
• This compares with 43% in 2008.
• In 2007, 40% of African Americans had broadband at home.

The Pew Internet Project’s April 2009 survey interviewed 2,253 Americans, with 561 interviewed on their cell phones.

Net Neutrality: Impact on the Consumer and Economic Growth

Download report: Impact_of_Net_Neutrality_on_Consumers_and_Economic_Growth.pdf

This study has been reposted with permission from Frost & Sullivan.

As a result of questions from Stratecast’s subscribers concerning the impact of possible net neutrality regulation or legislation, Stratecast launched a project to explore the dynamics of net neutrality insofar as they affect the business of network operators and service providers. The objective was to ultimately estimate the effects that such principles would have on consumers and the economy generally.

To this end, we adopted what we believe is a novel approach to assessing net neutrality impacts: we have chosen to assess net neutrality from the perspective of decision makers in the network operators who must determine if making investments to expand network capacity are justified from a business sense. Such a process typically involves assessing risk and projecting revenues and expenses. As a consequence, the exercise is one of attempting to look at the world through the eyes of the CFO who is charged, both from a legal as well as a business perspective, to invest the funds of the company wisely.

However, an important caveat to the results we obtain is in order.  There are those who would view subjects such as net neutrality as inherently simple with obvious answers. Our modeling suggests that net neutrality is, in fact, fairly complex. In an effort to reduce the analytical complexity, our model assesses the view that a business analyst at a network operator would have when presented with the implications of net neutrality.

The model indicates that operators, in the presence of net neutrality, would likely reduce investment due to the increased risk. However, what if the operators maintained investment and simply recovered the costs associated with doing so from another source? To the degree that operator costs are increased due to net neutrality, the model indicates those costs are ultimately borne by the consumer.  An operator denied the opportunity to generate service revenue would be forced to adopt other methods for covering deployment costs: These could include simply passing along the costs to the consumer; creating service bundles that limit consumer choice; or passing the cost along to content providers. In the case of cost allocation to the consumer, these costs could be substantial: net neutrality could impose anywhere from $10 to as much as $55 each month on top of an average broadband access charge of $30.00.  To the extent that consumers were unwilling or unable to incur such costs, net neutrality could, ironically, have the effect of actually reducing broadband penetration.

Of course, an operator doesn’t necessarily have to deploy broadband infrastructure.  If the operator were unwilling or unable to recover the costs from the subscriber base, then the model predicts that   the operator would simply reduce or curtail network investment. This would not only lead to an eroding infrastructure, but will lead to the erosion of jobs and overall economic growth. Even assuming a best case scenario in terms of the amount of GDP impact and job growth, the Stratecast model still predicts that in 2011 alone, net neutrality could impose a seven billion dollar a year overhead on the economy with a commensurate job impact of up to 70,000 jobs.

In fact, the model indicates that net neutrality acts like a tax on the Internet.  It imposes overheads on network operators which, in turn, decrease network investments, providing less opportunity, not only for the operators, but for those that use the operators’ networks as well.

Indications are that, if net neutrality must be adopted, options which impose the lightest load on operator decision making should be considered.  Based upon this analysis, a narrow interpretation of net neutrality would seem to minimize the financial impact on both the consumer and the economy.

In any case, this report provides evidence to support the notion that net neutrality is much more complex than simply encouraging a level playing field. Policy which seeks to manage competition by influencing the investment decisions of operators could have a significantly negative impact on consumers, job growth and the economy generally.

This report will be of special interest to public policy makers, legislators, service providers and network operators.

The Employment and Economic Impacts of Network Neutrality Regulation: An Empirical Analysis

Download report: Employment_Economic_Impacts_NN_Brattle_Group_42010.pdf

As the Federal Communications Commission (FCC) continues its efforts to elaborate rules concerning net neutrality for Internet service in the U.S., it does so pursuant to Chairman Julius Genachowski’s mandate for a fact- and data- driven approach to information.

One area of significant discussion has been the potential economic and employment impacts these rules may have. This paper seeks to provide policymakers at the FCC with an empirical analysis of such impacts.

Key Findings

New network neutrality regulations proposed by the FCC could slow the growth of the broadband sector, potentially affecting as many as 1.5 million jobs, both union and non-union, by the end of the decade.

If the network neutrality regulations being considered by the FCC were implemented:

• Revenue growth in the broadband sector could slow by about one-sixth over the next decade;

• Broadband sector jobs lost could be expected to total 14,217 in 2011, growing to 342,065 jobs by 2020;

• Economy-wide, 65,404 jobs could be put in jeopardy in 2011, with the total economy wide impact growing to 1,452,943 jobs affected by 2020 due to reduced revenue growth in the broadband sector.

Mobile broadband is expected to be the source of most of the broadband growth over the next decade. Consequently, it would bear the largest share of the economic burden of network neutrality regulations. In 2008, mobile broadband lines accounted for only about one-quarter of all broadband lines, but would likely account for more than half of the economic losses over the coming decade if the proposed network neutrality regulations are put into place.

The possibility that such losses would be offset by gains in other parts of the Internet economy is remote. Notably, any dollar-for-dollar transfer of revenues from the broadband sector to the Internet content sector would be a net job loser because it takes significantly more spending on Internet content to create a U.S. job than it does to create one in the broadband sector.

The Coming Communications Boom? Jobs, Innovation, and Countercyclical Regulatory Policy.

Download report: Communications_Boom_ProgressivePolicyInstitute_42010.pdf

This policy memo brings together three important strands of current policy debate: jobs, innovation, and regulatory policy. Everyone these days is concerned about the slow pace of job creation coming out of the Great Meltdown. Over the past six months, the economy has generated less than 600,000 net new private sector jobs— hardly enough to make a dent in the 14.6 million unemployed.

A bigger issue, though, is that the job drought actually started well before the meltdown. In the last business cycle—running from 2000 to 2007—the private sector created 4.4 million net new jobs. But out of those, fully 74 percent were in the health/education sector. That is, most of the private-sector jobs were being created in places like hospitals, nursing homes, and universities that are heavily government-funded. In effect, the public sector has been keeping the job market a?oat since the beginning of the decade.

Most distressingly, America’s great strength—its innovative sector—actually lost jobs during the 2000-2007 business cycle. This sector includes everything from aerospace to pharmaceuticals to telecommunications to software (see Table 1). Some individual industries added employees, but collectively the innovative sector lost almost 700,000 jobs from 2000 to 2007, before the bust hit.

That performance was far worse than anyone expected: In 2001, the Bureau of Labor Statistics published projections implying that the innovative sector would create 1.7 million net new jobs by 2007. In other words, the innovative sector had a shortfall of 2.4 million jobs relative to expectations, even before the bust.

There are promising signs, however, of a rebound in one part of the innovation sector: communications. Internet companies, alongwith ?rms engaged in wireless telecom and computer systems design, seem to be emerging as “job leaders” in the next economic expansion. Unfortunately, these companies are also embroiledin struggles with federal agencies – and among themselves – over whether more regulation is required to police competition in communications.

With unemployment stuck at just under 10 percent, federal policy makers would be wise to take a countercyclical approach to regulatory policy as well as ?scal policy. No serious economist wants to clamp down on public spending or raise taxes until the economy starts creating jobs at a more rapid clip. By the same token, there should be no rush to regulate sectors of the economy that are ?nally beginning to reweave the severed connections between innovation and new jobs. For now, getting more Americans working is more important than regulating growing industries to ward off dangers that at this point remain more speculative than real.

National Broadband Plan

Download report: http://www.broadband.gov/download-plan/

Broadband is the great infrastructure challenge of the early 21st century.

Like electricity a century ago, broadband is a foundation for economic growth, job creation, global competitiveness and a better way of life. It is enabling entire new industries and unlocking vast new possibilities for existing ones. It is changing how we educate children, deliver health care, manage energy, ensure public safety, engage government, and access, organize and disseminate knowledge.

Fueled primarily by private sector investment and innovation, the American broadband ecosystem has evolved rapidly. The number of Americans who have broadband at home has grown from eight million in 2000 to nearly 200 million last year. Increasingly capable fixed and mobile networks allow Americans to access a growing number of valuable applications through innovative devices.

But broadband in America is not all it needs to be. Approximately 100 million Americans do not have broadband at home. Broadband-enabled health information technology (IT) can improve care and lower costs by hundreds of billions of dollars in the coming decades, yet the United States is behind many advanced countries in the adoption of such technology. Broadband can provide teachers with tools that allow students to learn the same course material in half the time, but there is a dearth of easily accessible digital educational content required for such opportunities. A broadband-enabled Smart Grid could increase energy independence and efficiency, but much of the data required to capture these benefits are inaccessible to consumers, businesses and entrepreneurs. And nearly a decade after 9/11, our first responders still lack a nationwide public safety mobile broadband communications network, even though such a network could improve emergency response and homeland security.

Innovation and National Broadband Policies: Facts, Fiction and Unanswered Questions

Download report: Innovation_and_National_BB_policies_3210.pdf

Larry F. Darby
Joseph P. Fuhr Jr.

“Innovation” has emerged as a pivotal element in the debate over whetherthe Federal Communications Commission (FCC) should impose newconstraints on managers and providers of broadband network infrastructures. This study brings to bear facts and analysis emergingfrom a review of much of the literature on innovation and especiallythat bearing on claims by advocates of “net neutrality,” “open networks”and related notions.

We find that innovation is thriving at both the core and the edge of thenetwork in the current policy environment, which has fundamentallyallowed the Internet to evolve with little government involvement.Further, we find no evidence that greater FCC involvement in markets forbroadband services would protect or promote innovation in the InternetEcosystem. Indeed, we believe that such intervention is more likely todiscourage innovation than to stimulate it. In addressing these issues,the study finds and presents support for the following conclusions:

Responding to incentives and opportunities availed within the prevailing scheme of regulatory forbearance, network infrastructure providers have compiled an impressive record of innovation reflected in a cascade of new transmission and switching technologies; new local distribution and devices; an impressive array of new services; dramatically increased functionality; and adoption of creative business practices tailored to the changing topology of networks;

By any reasonable assessment, core cable, wireline and wireless networks reflect enormous historical and ongoing innovation as marked by the adoption of new technologies, incorporation of advanced equipment
and software, expansion and improvement of services offerings, and the introduction/diffusion of new business models;

Presence of pervasive complementarities among services dictates that core innovations in network platforms have enabled, encouraged and increased the value of important edge innovations that would otherwise
have been impossible;

While good and unambiguous measures of innovation are often lacking, there is an undeniable link between diffusion of network innovation and the enormous network investments now being made by
broadband infrastructure providers;

Many of the innovations now apparent at the edge reflect investment and business model applications of services first introduced by Internet
Service Providers at very early stages of the development of the Internet;

Imposing common carrier type regulation on network providers would diminish network providers incentives and opportunities to continue historic trends in innovation and investment;

There is no analysis or data in the literatures on innovation and regulation to prove claims that the proposed net neutrality rules would on balance promote innovation in the Internet Ecosystem;

Net neutrality proponents incorrectly characterize the incidence of innovation activities and accomplishments, particularly with respect to core v. edge innovation; and

The proposed net neutrality rules might be expected to reduce innovation in broadband networks and those that would be enabled at the edge. They would do so to the extent that new constraints on broadband
network providers would increase uncertainty and risk, reduce prospects for growth, and undermine network managers’ incentives and opportunities to adapt to rapidly changing technical and economic conditions in the
Internet Ecosystem.

This study finds no support in theories of innovation, innovation practice, or reviews of numerous empirical studies, of drivers of and constraints on innovation, for the main contentions of net neutrality supporters. Available data and analysis do not establish: a) the absence of network innovation in general; b) the primacy of innovation at the edge over the core; or most importantly; c) that greater ex ante regulation of markets for broadband infrastructure is needed, or can reasonably be expected to increase the rate of innovation and consumer welfare creation by network providers and elsewhere in the Internet Ecosystem.

Our review finds no significant market failure attributable to insufficient innovation by network providers or superior innovation outside network infrastructures. As to the need for new regulations, the public interest would be well served were the Commission to heed the wisdom of Hippocrates: “First, do no harm!”

Broadband Adoption and Use in America

Download report: Broadband_Adoption_and_Use_FCC_22010.pdf

The Federal Communications Commission’s October-November 2009 survey finds that nearly two-thirds (65 percent) of American adults use high-speed Internet connections to go online from home.

The FCC conducted a survey of 5,005 Americans in October and November 2009 in an effort to understand the state of broadband adoption and use, as well as barriers facing those who do not have broadband at home. The main findings are:

• 78 percent of adults are Internet users, whether that means broadband, dial-up, access from home or access from someplace other than home.
• 74 percent of adults have access at home.
• 67 percent of U.S. households contain a broadband user who accesses the service at home.
• 65 percent of adults are broadband adopters. The discrepancy of two percentage points between household and individual home use is because some survey respondents are nonbroadband users but live with someone who, at home, is.
• 6 percent of Americans use dial-up Internet connections as their main form of home access.
• 6 percent are Internet users but do not use it from home; they access the Internet from places such as work, the library or community centers.

For the purposes of this report, home broadband users are those who said they used any one of the following technologies to access the internet from home: cable modem, a DSL-enabled phone line, fixed wireless, satellite, a mobile broadband wireless connection for your computer or cell phone, fiber optic, T-1. In other words, home broadband users opt in to that classification through a survey question not by adhering to definition of broadband by speed that might be read to them.

The main dividing lines for access are along socioeconomic dimensions such as income and education.

• 46 percent of adults whose highest level of education is a high school degree are broadband users at home; 82 percent of adults who have attended or graduated from college are broadband users at home.
• 52 percent of Americans in households with annual incomes of $50,000 or below have broadband at home, compared with 87 percent of those in households with incomes above that level.
• Among low-income Americans—those whose annual household incomes fall below $20,000—broadband adoption stands at 40 percent.

African-Americans and Hispanics trail the average in broadband access, although gaps have narrowed since early 2009.

• 59 percent of African-Americans have broadband at home.
• 49 percent of Hispanics (English and Spanish speaking) have broadband at home.
• For Hispanics who took the survey in Spanish, broadband adoption is only 20 percent.
• For Hispanics who opted to take the survey in English, 65 percent have broadband.

These figures represent increases from levels registered in surveys conducted in early 2009 by the Pew Research Center, which found in April that 46% of African Americans and 40% of Hispanics (English and Spanish speaking) used broadband at home.

High-Speed Services for Internet Access: Status as of December 31, 2008

Download report: High-Speed_Internet_Access_FCC_22010.pdf

Total subscribership by technology

• High-speed Internet access connections to homes and businesses over fixed-location technologies increased by 10% during 2008, to 77 million.  By contrast, the annual rate of increase was 17% during 2007. 
 
• At year-end 2008, 25 million mobile wireless service subscribers had mobile devices (such as laptops and smartphones) with high-speed data plans for full Internet access.  By contrast, at that time there were 86 million subscribers whose mobile device was capable of transmitting information at speeds above 200 kbps, including subscribers who purchased only a voice service plan for the handset, subscribers whose data service included only customized-for-mobile content (for example, text and multimedia messaging, or the capacity to download ringtones and games), and the 25 million subscribers with data plans for full Internet access.  Because reporting practices previously varied among providers to a largely unknown degree, neither of the December 2008 figures is directly comparable to mobile wireless high-speed connections reported for earlier dates.
• Reported connections for the most widely adopted fixed-location technologies, cable modem and aDSL, increased by 14% and 3%, respectively, during 2008, to 41 million cable modem connections and 30 million aDSL connections, with the cable modem increase being partly due to more comprehensive reporting by small cable systems.  A 56% increase in total fiber-to-the- premises (“FTTP”) connections, to 3 million, was the largest rate of change among the fixed-location technologies.   
Residential subscribership by technology
• There were 86 million residential high-speed connections at year-end 2008, of which 70 million were fixed-technology connections and 16 million were mobile wireless subscribers with data plans for full Internet access. 
• Of the 86 million residential high-speed connections at year-end 2008, cable modem represented 46%, aDSL represented 31%, mobile wireless subscribers with data plans for full Internet access represented 18%, FTTP represented 3%, and all other technologies represented 1%.  At year-end 2005, by contrast, there were roughly half as many residential high-speed connections (44 million), of which cable modem represented 58%, aDSL represented 40%, and all other technologies represented 2%. 
• Residential FTTP connections increased by 61% during 2008 while residential aDSL high-speed connections were essentially unchanged.  Together, residential aDSL and FTTP connections increased by 4% during 2008, to 29 million. 
Connection speeds
• Of the 102 million total (combined residential and business) high-speed connections at year-end 2008, 86 million (or 84% or the total) were faster than 200 kbps in both upstream and downstream directions, 77% met the NOFA definition ofbroadband service (with 768 kbps or higher advertised downstream speeds and upstream speeds above 200 kbps), 49% had downstream speeds of 3 megabits per second (mbps) or more and upload speeds above 200 kbps, 34% had downstream speeds of 6 mbps or more and upload speeds above 200 kbps, and 11% had downstream speeds of 10 mbps or more and upload speeds above 200 kbps. 
• For fixed-location technologies as a group, 89% of connections met the NOFA definition of broadband service.  Among mobile wireless subscribers whose subscription included a data plan for full Internet access, 41% of subscriptions met the NOFA definition. 

• Of the 86 million residential high-speed connections reported at year-end 2008, 69 million (or 80% of the total) met the NOFA definition of broadband service. Of these, 56% were cable modem, 31% were aDSL, 4% were FTTP, 9% were mobile wireless subscribers with data plans for full Internet access, and 1% were a technology other than these. 
• Of the 17 million residential high-speed connections reported at year-end 2008 that did not meet the NOFA definition of broadband service, 56% were mobile wireless subscribers with data plans for full Internet access, 31% were aDSL, 8% were cable modem, 3% were satellite, 1% were fixed wireless, and 1% were a technology other than these.

Digital Nation: 21st Century America’s Progress Toward Universal Broadband Internet Access

Download report: Progress_Toward_Universal_Access_NTIA_22010.pdf

During the first decade of the 21st Century, U.S. broadband Internet connectivity by households has increased dramatically as its importance to our economy and way of life has grown. Based on a survey of over 50,000 households commissioned by the National Telecommunications and Information Administration (NTIA) and conducted by the United States Census Bureau, virtually all demographic groups have increased their adoption of broadband services at home over time. The data also reveal that demographic disparities among groups have persisted over time. Persons with high incomes, those who are younger, Asians and Whites, the more highly- educated, married couples, and the employed tend to have higher rates of broadband use at home. Conversely, persons with low incomes, seniors, minorities, the less-educated, non-family households, and the non-employed tend to lag behind other groups in home broadband use. 

Survey results demonstrate that persons in rural areas are less likely to use the Internet. For example, Blacks and Hispanics in rural areas exhibit a lesser propensity to use broadband than their counterparts in urban areas. A substantial difference in home broadband penetration remains between urban and rural areas. Although the gap has declined since 2007, it still is significant. 

Despite the growing importance of the Internet in American life, over 30 percent of households and 35 percent of persons do not use the Internet at home, and 30 percent of all persons do not use the Internet anywhere. Those with no broadband access at home amount to more than 35 percent of all households and approximately 40 percent of all persons, with a larger proportion in rural areas in both categories.  Overall, the two most important reasons given by survey respondents for not having broadband access at home are “don’t need” and “too expensive.”1 Inadequate or no computer is also a major reason given for no home broadband adoption. In rural America, lack of availability is a much more important reason for non-adoption than in urban areas. 

The U.S. Department of Commerce will undertake a more detailed analysis later this year when the full data base becomes available, and anticipates sponsoring new collections of Census data and conducting analyses of these data bases. We also will look forward to the findings that the broader research community will provide based on this data.