1. Internet as Essential Infrastructure: Public Utility, Private Utility or Neither? Internet Access as Essential Infrastructure: Public Utility, Private Utility or Neither? A Presentation at The Legal and Political Debate Over Network Neutrality University of San Francisco School of Law January 26, 2008 ‘ Rob Frieden, Professor of Telecommunications and Law Penn State University rmf5@psu.edu Web site : http://www.personal.psu.edu/faculty/r/m/rmf5/http://www.personal.psu.edu/faculty/r/m/rmf5/ Blog site: http://telefrieden.blogspot.com/http://telefrieden.blogspot.com/

2. 2 Absent Market Failure Should Governments Stimulate Broadband Investment, Subsidize Service, or Become a Carrier? Few would dispute the view that broadband access contributes to regional and global competitiveness, especially in the hinterland where distance insensitivity has a greater impact, e.g., cheap telecom promotes outsourcing. Few would dispute the view that broadband access contributes to regional and global competitiveness, especially in the hinterland where distance insensitivity has a greater impact, e.g., cheap telecom promotes outsourcing. “This country needs a national goal for…the spread of broadband technology. We ought to have…universal, affordable access for broadband technology by the year 2007, and then we ought to make sure as soon as possible thereafter, consumers have got plenty of choices when it comes to [their] broadband carrier.” President George W. Bush, March 26, 2004 http://www.whitehouse.gov/infocus/technology/economic_policy200404/chap4.html “This country needs a national goal for…the spread of broadband technology. We ought to have…universal, affordable access for broadband technology by the year 2007, and then we ought to make sure as soon as possible thereafter, consumers have got plenty of choices when it comes to [their] broadband carrier.” President George W. Bush, March 26, 2004 http://www.whitehouse.gov/infocus/technology/economic_policy200404/chap4.html The Internet provides a case study of successful government incubation, anchor tenancy and privatization. The Internet provides a case study of successful government incubation, anchor tenancy and privatization. Governments historically have operated public utilities, or conferred lavish financial benefits to private utilities. Governments historically have operated public utilities, or conferred lavish financial benefits to private utilities. Even non-utilities, e.g., local exchange telephone companies, have qualified for generous subsidies, e.g., over $7 billion in universal service funding annually. Even non-utilities, e.g., local exchange telephone companies, have qualified for generous subsidies, e.g., over $7 billion in universal service funding annually.

3. 3 Using Current Broadband Statistics, One Can Reach Vastly Different About Conditions in the U.S. Using Current Broadband Statistics, One Can Reach Vastly Different Conclusions About Conditions in the U.S. The broadband marketplace in the U.S. is doing well and could do better if government deregulated further to remove regulatory uncertainty and disincentives for investment. versus True broadband, i.e., 786 kilobits per second or greater, shows marketplace failure in many regions where two or less facilities-based carriers operate.

4. 4 Lines by Information Transfer Rates in the Faster Direction as of December 31, 2006 (Includes only lines exceeding 200 kbps in both directions) Source: FCC (2007); available at: http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC- State_Link/IAD/hspd1206_tables.xls

5. 5 The U.S. Has 100% Broadband Penetration With Consumers in 84% of All Zip Codes Having 4 or More Broadband Choices Source: FCC (2007); available at: http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC- State_Link/IAD/hspd1206_tables.xls

6. 6 source: OECD (2007) www.oecd.org/sti/ict/broadband The U.S. Ranks 15 th Among OECD Nations in Terms of Household Penetration source: OECD (2007) www.oecd.org/sti/ict/broadband

7. 7 source: OECD (2007) www.oecd.org/sti/ict/broadband The U.S. Lags Most Nations in Broadband Penetration On the Basis of Per Capita GDP source: OECD (2007) www.oecd.org/sti/ict/broadband

8. 8 Case Study: Port Matilda, PA The FCC reports I have nine broadband options (source: FCC, Number of Holding Companies Reporting High-Speed Subscribers by Zip Code as of June 30, 2006 available at: http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC- State_Link/IAD/hzip0606.pdf at p. 569) http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC- State_Link/IAD/hzip0606.pdf at p. 569http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC- State_Link/IAD/hzip0606.pdf at p. 569 The options range from DSL (Verizon not available in my neighborhood, but presumably somewhere in the zip code) at $14.99 (up to768 kbps downstream/ up to128 Kbps upstream) to Satellite (Wild Blue $79.95 up to 1.5 Mbps downstream/ up to 256 kbps upstream, plus $368.95 hardware, installation and activation fees).

9. 9 Case Study: Port Matilda, PA (cont.) Making an “apples-to-apples” comparison, which factors in actual price cross elasticity, there are three distinct market segments: 1)Non-mobile residence and businesses that can access cable and possibly DSL service; available for as a low as $14.99 for DSL (with a 1-2 yr. service commitment) up to $37.99 (no service commitment for up to 3 Mbps downstream/ up to768 kbps upstream); cable modem service ranges from $27.99 for up to768 kbps downstream/up to128 kbps upstream) to $42.95 for up to 6 Mbps downstream/ up to 128 kbps upstream) for customers that currently subscribe to Comcast Cable or Comcast Digital Voice. Without bundling: $59.95; 2)Users that want mobile access; service available for as a low as 2)Users that want mobile access; service available for as a low as $26.95 for 10 Mbps plus about $10 in surcharges and fees (no throughput specified, but GPRS and Edge do not come close to wireline speeds); up to $59.95 (one-two year service commitment 5 GB quota and throughput of up to 600 kbps – 1.4 Mbps and at claimed average upload speeds of 500 Kbps – 800 kbps); and 3)Non-mobile rural users lacking access to cable modem or DSL; satellite service available for as low as $49.95 for up to 512 kbps downstream/up to 128 kbps upstream, plus $368.95 hardware, installation and activation fees; $79.95 for up to 1.5 Mbps downstream/ up to 256 kbps upstream, plus $368.95 hardware, installation and activation fees.

10. 10 U.S Broadband Rates: Quite Cheap to Some and Quite Expensive to Others (source: OECD 2007)

11. 11 (source: OECD 2007) U.S Broadband Rates: Moderate to Many (source: OECD 2007)

12. 12 The Current Strategies Do Not Appear Ideal e-rate subsidies have achieved modest goals at great expense and inefficiency. e-rate subsidies have achieved modest goals at great expense and inefficiency. Municipal wi-fi networks have mixed records; compare Blackburg, Va. with Philadelphia. Municipal wi-fi networks have mixed records; compare Blackburg, Va. with Philadelphia. Reserving to an incumbent wireline carrier a right of first refusal does not offer an optimal national strategy. Reserving to an incumbent wireline carrier a right of first refusal does not offer an optimal national strategy. Regulatory forbearance based on “robust competition” ignores evidence that over 96% of the national broadband market served by two types of carriers (cable modem and DSL). Regulatory forbearance based on “robust competition” ignores evidence that over 96% of the national broadband market served by two types of carriers (cable modem and DSL). A broad geographic footprint does not constitute a “perfect storm.” A broad geographic footprint does not constitute a “perfect storm.” Failure to apply Carterfone policies to wireless carriers passes up a lawful and inexpensive catalyst. Failure to apply Carterfone policies to wireless carriers passes up a lawful and inexpensive catalyst.

13. 13 Strategies Worth Considering Adopt best practices evident in other nations, e.g., Canada, Korea, Japan. – –capping government project funding to a percentage of total cost; – –creating incentives for demand aggregation; – –one time project funding rather than recurring discounts; – –promoting innovation and creativity in projects, including technologies that provide greater efficiency and lower recurring costs, e.g., wireless; – –auctioning off subsidies; and – –blending government stewardship and vision with financial incentives for private stakeholders to pursue infrastructure investments. Apply Wireless Carterfone. Allow e-rate beneficiaries to serve nearby residents. Adopt spectrum allocation and management rules favoring market entry rather than warehousing and incumbency.