Fri, Nov 02, 2001 page19

• Cost, regulations blocking broadband Net rollout

  Industry heads, pundits and politicians all have a different take on how to boost the rollout of high-speed Internet services. However, a consensus is far from evident

  • NY TIMES NEWS SERVICE
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  Calls for US policymakers to speed the rollout of broadband-speed Internet access to American homes and businesses have gained some new weight since the Sept. 11 terrorist attacks.

  With the already battered telecommunications industry seemingly thrown into a prolonged slump, the argument goes, a concerted national effort to boost broadband could be the best elixir to get telecom, and maybe the whole economy, growing again.

  Businesses disrupted by air-travel restrictions and anthrax scares -- and in lower Manhattan, the literal destruction of their offices -- have found that enabling employees to work from home can be a crucial contingency plan for coping with disaster, terror-related or otherwise. That calls for more broadband, the high-speed "always on" Web connections provided by cable modems, digital subscriber lines (DSL), or wireless and satellite technology, because telecommuting by dial-up modem is few people's idea of productivity.

  

  Kristin Rauschenbach, president of Maynard-based PhotonEx, a heavily funded start-up developing the next generation of ultra-high-speed optical communications gear, believes speeding up the rollout of broadband Internet access is crucial to reviving the fortunes of long-haul netowrk providers.

  PHOTO: NY TIMES

  Old arguments

  At the same time, Sept. 11 crystallized some old arguments. For a nation grappling with how to move forward and foster prosperity, many say, "universal broadband" could be a powerful stimulus to the 21st century economy as the transcontinental railroads, rural electrification, or interstate highway construction of decades past.

  "Technology got the economy going," said Isadore T. Katz, a former Massachusetts telecom regulation analyst who is now president of Lightchip, a Salem, New Hampshire, optical-networking manufacturer. "What can revive the economy? Put telecom back on its feet again."

  Katz thinks policymakers should take a serious look at a "national broadband bill" with subsidies funded from the same kinds of "universal service" fees that subsidize rural phone service (Companies like his ultimately could benefit).

  At the same time, however, other analysts warn that a government effort to promote broadband is fraught with perils, including misdirected and wasted subsidies and tax breaks.

  In a speech last Friday, Michael K. Powell, the chairman of the Federal Communications Commission, said the problem does not seem to be that Americans can't get broadband -- but that they won't, at least not for the prevailing US$50 a month. Citing studies by J.P. Morgan and others, Powell said nearly three-quarters of all US households have access to cable modems, and another 45 percent can get phone-based digital subscriber lines. But only 12 percent, or just under 8 million households, have signed up so far, according to Jupiter Media Metrix.

  "We all want some broadband. There also is some angst that it is not here, or that it is not coming fast enough," Powell said. But in weighing whether "government actions" are needed to promote broadband, Powell said he is convinced that "the key measure is the availability of the service, not adoption rates. Consumers may not yet value the services at the prices they are being offered."

  While questions of what role federal and state policy makers should play in promoting broadband are likely to be hashed out for years, it is clear that once-booming broadband growth seems to be stagnating, especially in DSL. And last week was a bad-news week for broadband: SBC Communications said it is slashing capital spending next year by 20 percent, with most of the cuts in its "Project Pronto" effort to bring DSL to the last 40 percent of its service area. SBC squarely blamed federal regulations for the cuts.

  AT&T Wireless said it will wind down its "fixed wireless" broadband networks that bring high-speed access to nine mostly Western US cities, taking a US$1.3 billion charge, because it has concluded the systems will take too much investment to reach profitability.

  Sprint abandoned its ION (integrated on-demand network) project that promised a one-wire voice and broadband connection for homes and businesses, as it slashed 6,000 jobs.

  As of last summer, according to Jupiter, cable modems accounted for 5.5 million, or 70 percent, of the broadband lines in service, with DSL a distant second at 2.2 million. Most major phone companies reported slowing growth rates for DSL last summer. SBC and Verizon have been particularly vocal recently in complaining that regulation is discouraging them from expanding the availability of DSL.

  Baby Bell DSL competitors have gone out of business, including the Boston area's Digital Broadband Communications and HarvardNet, saying they could not survive depending on the Bells for their "last mile" connection. But Baby Bells still complain that they are forced to give rivals access to their networks at below-market rates.

  Competitors, they charge, can freeload on the billions of dollars they have to spend on upgrading copper wires for high-speed data service. Under a new "line-sharing" policy implemented by the FCC last year, Verizon Communications says it is now forced to sell access to rival DSL providers for an average of US$0.88 a month per line -- for service it typically charges US$50 a month to provide retail, according to spokeswoman Susan M. Butta.

  Verizon earlier this month said it had reached the milestone of 1 million DSL lines in service, but launched a 40-percent-off deal to reach its goal of landing 200,000 to 300,000 more lines by year's end.

  "We need a policy that substantially improves the incentives for people who are building networks," said Michael Boland, Verizon's senior vice president of federal legislative relations. "There's a positive benefit to the economy and the security of society from having additional broadband. But for us to really accelerate the national buildout, we have to have commercially reasonable [network rental] rates that fairly compensate the people who make the investment."

  Among broadband bills pending on Capitol Hill are a measure proposed by US representatives Billy Tauzin, Republican of Louisiana, and John Dingell, Democrat of Michigan, that has been widely attacked as a giveaway to the Baby Bells because it would let them into the long-distance data market even before they meet pro-competition standards to get state-by-state approval for long distance.

  Senator John F. Kerry, the Massachusetts Democrat, last year proposed tax credits for companies building super-high-speed network links. James A. Dolce Jr., chief executive of Westford-based Unisphere Networks, which makes DSL support equipment that has been bought by the national phone companies in Germany and South Korea, as well as AT&T and dozens of international carriers, said he is struck by how much stronger government-backed DSL deployment efforts are outside of the US.

  South Korea already has nearly as many DSL lines in service as the whole US, and Korean officials last week launched a US$15 billion public-private effort to bring 20-megabit-per-second service to 84 percent of Korean households within four years.

  "It's almost sacrilegious to say this, but in some cases, monopolies do work," particularly when it comes to rolling out broadband, Dolce said.

  "I wouldn't say the government ought to go give SBC money to deploy DSL," he said, "but it's clear that the [1996] telecom act started out with good intentions but hasn't worked" and needs to be radically overhauled to create better incentives for "incumbent carriers" to keep building out their networks.

  Acceleration

  Kristin Rauschenbach, president of Maynard-based PhotonEx, a heavily funded start-up developing the next generation of ultra-high-speed optical communications gear, said accelerating broadband rollouts would be crucial to reviving the long-haul network carriers and their equipment vendors.

  One common diagnosis of the telecom sector's deep woes is that carriers spent heavily building up the "core" of their networks, including transcontinental fiber optic lines, way ahead of growth in metropolitan traffic, including broadband.

  "If you can open up the metro [networks], you can load up the core and get the core growing again," she said.

  But, Rauschenbach said, it will be a choppy process of finding the services that drive consumer interest in getting broadband, while mass deployment of services that use heavy bandwidth -- such as movies and music on demand and rich entertainment -- will depend on broadband becoming more widely available and used.

  "It's fits and starts. It's chicken and egg, and it takes 10 years to play out," Rauschenbach said. However, US Representative Edward J. Markey, the ranking Democrat on the House telecommunications subcommittee, said he has an easy solution for companies complaining about slow adoption of broadband services: Cut your prices.

  "People aren't subscribing," Markey said. "The question is: Why? I believe it's largely because the price is too high." Markey said all research he has seen indicates that US$30 a month is the key "price point" at which millions of people who could get broadband would.

  Most providers, including Verizon and AT&T Broadband locally, bumped typical household prices to US$50 from US$40 last summer.

  Markey said the focus should be to promote even more competition, not strengthen the financial hand of the phone giants.

  And Stephen Adams, acting executive director of the Pioneer Institute, a market-oriented think tank in Boston, said he fears that all a new tax incentive or subsidy proposal from Capitol Hill would do is "get everybody to stop their rollout, because everybody would wait to get the incentive. It would just stop it dead in its tracks. The best thing to do is to make sure the market works."

  Massachusetts is ahead of most parts of the country in broadband deployment. Verizon says 2.3 million of its 4.7 million phone lines in the state can support DSL, just under half, above the national average of about 40 percent. AT&T Broadband offers high-speed cable modem access to 1.7 million Bay State homes, about 75 percent of its territory, and is launching a new, business-oriented cable modem service in 33 Boston suburbs this week.

  Local efforts

  Spokesman Rick Jenkinson said the company expects to boost that to over 90 percent within 12 months after broadband gaps are filled in areas including Boston and former Cablevision-served suburbs, Springfield, the Cape Cod communities of Orleans and Brewster, and smaller towns in the upper Pioneer Valley. "We've been deploying and spending that money with no tax incentives," Jenkinson said.

  Likewise, even as fixed-wireless broadband has proven to be a financial disaster for companies such as now-bankrupt Teligent and Winstar, some small local companies are pressing ahead with wireless broadband here, vowing not to make the mistake of building a network far ahead of landing customers.

  At the state level, the Massachusetts Technology Collaborative, a quasi-public state agency based in Westborough, has decided the best role it can play is in promoting "aggregation," or identifying and assembling groups of businesses and organizations that want broadband in unserved areas of the state to entice vendors.

  In Berkshire County, the group helped back an effort that has led Global Crossing and Springfield-based Equal Access Networks to begin installing broadband connections at a fraction of the cost of Verizon lines.

  A similar effort in Franklin and Hampshire counties got a huge boost through commitments from four area colleges (Amherst, Hampshire, Mount Holyoke and Smith) to use the network.

  While still grappling with whether tax breaks, subsidies, or regulatory changes are needed, the collaborative's Tom Hubbard said "aggregation projects can help fill the gaps."

  He said this is especially true if state government begins using its leverage in negotiating telecom service contracts for offices in remote corners of the state as vehicles for unserved businesses and organizations to get broadband.
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