Larry F' Darby Darby Associates

1
Whither Broadband Telecommunications Network
Development?

• Broadband in a Post-Stimulus Environment
• New York Law School Media Center Conference
• 18 March 2009

2
Focal Points

• Outlook for broadband investment
• Drivers and constraints
• Role of Congress
• The bail-out
• Recent stimulus package
• Further steps
• Elements of a National Broadband Policy

3
Broadband Investment Outlook

• Forces
• Services Markets
• From wireline to wireless voice to digits
  narrow to broad convergence
• From communications to content
• New business models for network providers
• Regulation
• Net neutrality/Re-regulation
• Structural separation
• Business models
• Price discrimination
• Two-sided market models
• Network management
• Intercarrier compensation, universal service
  reform
• Spectrum amount and licensing terms
• Congress
• FCC oversight
• Wireless Consumer Rights

4
Capital Markets

• Pace and shape of financial market recovery??
• No consensus expert or political on likely
  outcome
• Investor assessments of BB Investment
• Negative to warming
• Investors quite risk averse
• Investors very sensitive to regulatory
  constraints
• Concerns compounded by economic outlook
• Income and expectations elasticity of demand
• Impact of frozen credit markets
• Overall flight to quality
• Risk, return and growth profile of BB not
  impressive
• Risks up, returns modest (at best), growth
  conjectural

5
Market Perspectives on Infrastructure Companies
6
Stock Market Values for Internet Value Cluster
7
Risk and Uncertainty

• Danger Plus Opportunity

8
Role of Congress Broadband Stimulus

• Purposeencourage BB investment/use
• Meansgrants, loans, loan guarantees
• Amount 7.2 B
• NTIA -- 4.7 B
• RUS -- 2.5 B
• Important differences in the programs
• Rules forthcoming details TBD

9
Missing Clues -- The Dog Didnt Bark

• Missing definitions served, unserved areas
  Broadband, High-Speed, public interest
• No technology preference
• No BB tax credits
• Minimal State role
• Consultative in NTIA program (Details TBD)
• None at RUS
• No restrictions on public v. private for profit
  v. nonprofit, BUT
• Emphasis on public sector participation

10
NTIA Program

• No restrictions on
• Geography, extent of prior development,
  technology, network element, type of entity (but
  some bias toward public entities) if meet public
  interest test (WHATEVER THAT IS)
• Restrictions
• Funds for construction/deployment, not OPEX
• Comply with current/future FCC NetNeut rules
• Matching funds20, subject to waiver
• Projects completed in 2 yrs -- Use it or lose it!

11
Preferences in the BB stimulus

• Policy Drivers and Decision Criteria
• Community anchor institutions
• Serving the maximum number of people
• Fastest speed possible
• Making broadband more affordable
• Serving socially disadvantaged
• Small businesses
• Challenge Harmonizing conflicting goals
• Gedankexperiment
• Compare application of National Library
  Association to a MuniNet to RLEC to an Assn. of
  Secondary Schools

12
RUS Program

• RUS Program Possible Advantages
• More limited pool of applicants (less
  competition)
• Projects do not need to satisfy net neutrality
  (non-discrimination and network interconnection)
  conditions.
• May include funding for operational expenses
• RUS Program Possible Disadvantages
• Preference for small telephone companies
• Much stricter rural requirements
• Priority is given to projects that provide
  end-users a choice of service providers.

13
National Broadband Policy?

• Dilemma
• High Cost
• Especially sensitive to population density
• Skewed demand
• Netheads v. others
• Lukewarm demand
• Especially among less advantaged
• Fostering competition v. Investment
• The Dilemma of Natural Oligopoly
• State and Federal Disconnect

14
If We Build It, Will They Log On?
Source Pew Foundation
15
Broadband Indifference
Source Pew Foundation
16
Some Policy Perspectives

• Supply side
• Tax relief for BB investment
• Minimize regulatory risks for ISPs
• More spectrum more efficient spectrum use
• Licensed v. unlicensed usage
• Reform USF allocations rationalize govt.
  subsidies, grants, etc.
• Demand side
• Tax relief again
• Training
• Rationalizing State and Federal differences
• States tax and subsidize Fed taxes and
  subsidizes
• Need Federal framework to support national policy
• Be patient Lots of to build out discount
  global comparisons