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Broadband by 2007? Don't hold your breath

Broadband for everyone by 2007 sounds like a great idea, but President Bush's proposal last week was so thin on details that it's difficult to examine.  It's even harder to imagine how the vision might become reality. Analysis by Bob Sullivan, MSNBC.

Broadband for everyone by 2007. That sounds like a "lovely idea," said one telecom industry worker. But President Bush's proposal, floated Friday during a speech in New Mexico, was so thin on details that it's difficult to examine. It's even harder to imagine how the vision might become reality. 

"We ought to have universal, affordable access to broadband technology by the year 2007," Bush said in the speech. "And then we ought to make sure as soon as possible thereafter consumers have plenty of choices."

Of course, trade associations and companies like Cisco Systems Inc., which would benefit from a swift uptake of broadband, hailed the president's remarks. Bush's statement echoed a release issued back in January 2002 by a high-tech consortium called TechNet, which called for broadband access to 100 million homes by the end of the decade. At the time, Cisco CEO John Chambers compared the importance of broadband deployment to 20th century efforts to land a human on a moon

But just what how the country might arrive at universal broadband access remained a mystery after Bush's speech, which perhaps purposefully employed the phrase, "ought to have."  Today, only 20 percent of the country is wired for broadband, according to analyst firm The Yankee Group. Perhaps another 40 percent is broadband-ready, says Rob Rich, executive vice president of communications infrastructure technologies at Yankee. Wiring the rest of America would cost tens of billions of dollars. Combine that with plummeting consumer broadband prices, and you've got a business model no one wants.

Even the best wishes of a president or a candidate -- Democratic candidate John Kerry made a similar campaign statement later in the day on Friday -- can't change the fundamental economics at play.

"It is an extremely ambitious goal," Rich said.  "I do think it's an interesting idea for everyone to have affordable broadband technology. That's kind of like motherhood and apple pie isn't it?"

But there's much more than nostalgia at stake. The United States is losing its grip as global technology leader, some say. A recent U.N. study indicated the United States ranks 11th in the world in terms of broadband use, trailing countries like Hong Kong and Iceland.

A problem of space
The complex problem starts with the wide-open spaces which dominate the American landscape. Expanding broadband capabilities is largely a physical task, with telephone or cable companies required to add new hardware neighborhood by neighborhood. In dense urban areas, there can be an economic return. But expansion into rural, or even some suburban areas, just isn't economically viable.

"Providing service to 95 percent of the population of the United States is cheap and easy. Providing service to 95 percent of the area of the United States is incredibly expensive and hard," said Jeff Francis, a former systems architect at backbone providers like Level 3 and Touch America. He said installing the hardware for a new neighborhood DSL connection costs about $500,000 -- and only customers who live within 10,000 feet of the hardware can use the service. That means only neighborhoods with about 1,000 homes near a so-called phone company "central office," are worth the bother.

Cable broadband also requires costly capital outlays by the cable companies, which are often required to string new coaxial cable around neighborhoods before offering service. The only widely available wireless solution, satellite broadband, is nearly triple the price of DSL or cable. Other wireless technologies are in development, but none is widely deployed.

"There is no silver bullet," Francis said.

A $20 billion problem
As a rough estimate of how much wiring the country would cost, Rich said hooking up each new DSL subscriber in urban or suburban areas costs about $300 each -- or about $10 billion for all the un-wired homes left in densest parts of the United States. It would cost another $10 billion to DSL-enable much of rural America, he said. Adding a single DSL subscriber in some parts of Alaska can cost $9,000, for example. There simply is no way a telecommunications firm can recover that kind of investment.

"The Verizons and the SBCs of the world will have to have some kind of incentive," Rich said. 

Many telecommunications industry observers think there's only one way for the United States to catch up with countries like South Korea: Offer a massive subsidy to the telecommunications firms that have to do the heavy lifting. The subsidy could come in the form of a tax break, or more likely, a fee added to broadband service which would be used to pay for expansion. Many draw parallels to the Universal Service Fund, created in 1934, which was designed to bring telephone service to all of the United States. A similar fee placed on broadband service would effectively force urban dwellers to pay for infrastructure upgrades in rural America.

It's hard to imagine a Republican administration agreeing to such a wide-ranging fee, or a major adjustment to the current Universal Service Fund, which certainly will be called a new tax by any Bush opponent. But without some kind of enormous cost-shifting mechanism, universal broadband just won't happen.

"At end of day there will be people who are not connected," said Laura Ipsen, vice president of worldwide government affairs for Cisco Systems Inc. "The Universal Service Fund is going to need to morph and ensure that it gets us coverage of everyone."

Ipsen, though, was optimistic that new wireless technologies, and new applications for broadband Internet, such as cheap phone calls, will drive broadband expansion quickly during the next several years.

"We think 2007 is a good goal," she said.

Regulatory confusion
Still, the fortunes of broadband access are inextricably tied to other telecom issues, such as the the nagging problems with implementation of the 1996 Telecommunications Act.

Designed to lower consumer prices by forcing phone companies to open their telephone lines to competitors, the law now acts as a disincentive to broadband infrastructure investment, some say. After all, why spend the money laying the new cable if a competitor will be able to arrive later and have a right to sell on that bandwidth.

FCC regulations implementing the law continue to face court challenges, leaving telecom firms confused about what rules they will have to follow if they invest in broadband infrastructure. Moreover, the act is expected to get a thorough overall next year, when it's up for renewal.

Nevertheless, amid the confusion, telecom industry members applauded the fact that broadband ranked any mention at all by the sitting president.

“We applaud the president for setting a clear goal for full deployment of the most important technology of our time,"  said Walter B. McCormick, Jr., President of the United States Telecom Association, which represents Verizon, SBC, and about 1,000 other telecommunications companies.  "We look forward to working with his administration on policies that will promote investment and speed the delivery of new broadband choices, services and opportunities into every American community.”