In continuing to examine the three primary section of Title II of the Communications Act, today, we look at Section 202. As a reminder, the review is because of the major announcement made by the FCC Chairman to redefine broadband carriers by using Title I of the Act and 6 sections of Title II. Today we will address Section 202.

Reading Section 202 of the Act is an interesting exercise as the focus of the act is on Broadcast Ownership. However, it becomes applicable to net neutrality as it contains a phrase stating that carriers are prohibited from making “any unjust or unreasonable discrimination in charges, practices…” and they cannot “subject any particular person, class of persons, or locality to any undue or unreasonable prejudice or disadvantage.” Both of these phrases get to the heart of the issue as presented by various ASPs, such as Google, the Comcast lawsuit and comments from Sprint and AT&T.

In the case of Comcast, treating different applications and services unequally or in a prejudicial manner would have end. They would not selectively be able to slow down traffic that they considered disruptive to their network or competitive to their cable or VoIP offerings. Over-the-top VoIP would become a protected service along with gaming, on-demand video and other broadband consuming applications. Of course, there is a downside to this. Major consumers of broadband would have the potential to hog available capacity thereby reducing the quality of service for the occasional or low capacity user. This can be addressed in multiple ways by the ISPs. The key to their various options lies in the phrase “undue or unreasonable prejudice.” Carriers are not prevented from charging different prices for broadband consumption. And where last year I was clearly reluctant to support such tiered pricing, I have modified my position.

If we look at the blogs of two weeks ago when I analyzed broadband costs and speeds in the US versus the members of the G7, prices in the US can move upward slightly without impacting the adoption rate. However, the speeds offered by the various US carriers need to increase sharply. If the ISPs increase the speeds with minor increases in price, then customers will have the option of selecting the level of service needed for their various uses of the Internet.

It is clear that the road chosen by the FCC is fraught with pitfalls, misleading turns and choices. Also, since we are human, whatever is ultimately done will not be perfect. However, even AT&T released a statement supporting this move by saying “the "unreasonable discrimination" prohibition in section 202(a) "is both administrable and indispensable to the sound administration of the nation's telecommunications laws."

I am not Pollyanna believing that all will be good. Too much is riding on this for Broadvox’s and other ITSPs success. However, I do not want to approach this as a naysayer or with the belief, the sky is falling.

Section 254 on Friday…

A recent cover story by CRN interviewed small IT related businesses regarding President Obama’s 2009/2010 legislative activity/wins and the impact on their business. While I am sure the story was not attempting to accurately poll IT related SMBs, it was clear that most of those interviewed were not optimistic about the newly passed laws. The most discussed law was the Healthcare bill. Most of the SMBs see additional cost, potential taxes and very little improvement in the health insurance plans they provide for their employees. Moreover, there is the concern that too much effort went into the healthcare battle and not enough attention was paid to assisting the nation’s small entrepreneurs in recovering from lost revenues due to the recession. Prior to the recession there were over 250,000 IT related small businesses. Today, that number hovers around 200,000, a tremendous loss in talent and jobs for the technology industry.

I debated having this as the subject of the blog until I read this morning the FCC has been advised by so-called experts that SMBs need more competitive pricing for broadband access and services to meet the demands of a changing sales environment. Most of the anecdotal stories given during a hearing chaired by Senator Mary Landrieu revolved around the difficulties faced by businesses in rural areas. However, as you now know from last week’s blogs, most of the broadband issues that need to be addressed are outside of rural areas. In fact, I appreciated the beginning of a statement given by Jonathan Adelstein, administrator of the Agriculture Department’s Rural Utilities Service, noting, “approximately 181 applications requesting $2.9 billion from Agriculture’s Broadband Initiatives Program came from small businesses…” That was the economically important element of his statement. The rest was more political involving minority owned firms, Indian tribes and native Alaskan and native Hawaiian entities.

Additionally, I was not surprised to learn businesses with 25 or fewer employees pay two times more per employee for broadband than those with more than 25 employees. Most of the price differential is based upon the way broadband is sold, the bigger the pipe, the lower the cost per megabit. It may not be fair, but it is reality.

My key concern about the CRN article and the FCC discussion about broadband pricing is how does the Obama administration or FCC plan to address the concerns of SMBs? We do not need additional government meddling with regard to pricing and competition, and Broadvox and other ITSPs are leery of any more changes to regulating VoIP/SIP Trunking providers. At some point, continued changes will cause an inverse reaction by service providers in the marketplace. Even now, there is some marketplace overhang in place as we wait for the FCC to determine if VoIP should be subject to similar rules accorded TDM.

So, has the Obama Administration been good for SMBs? No, but we do have two plus years to go.

See you on Friday…

We are down to the final leg of the three-legged stool, speed. Most studies examining broadband use a speed of 200kbps as the minimum measure. However, in 2008 the FCC finally realized that 200kbps was insufficient to support the bulk of existing Internet based services and applications. The new definition requires a speed of 768kbps for access to be called broadband. Using that definition, a majority of Americans do not have broadband services. In fact, the percentage of American households with broadband services at 768kbps or greater is less than 25%. Despite having access to higher speeds, most Americans are foregoing the option of increasing the speed of their broadband.

In Japan the average advertised broadband speed is 93.6 megabits and the cost per megabit is one-fourth that of the US. The average advertised broadband speed in the US is 8.8 megabits with only Canada having a higher per megabit price among the G7 (Canada, France, Germany, Italy, Japan, UK, and US). Interestingly, while Japan can boast 100-megabit speeds for residential users and SMBs across the country, fewer than 10% of high-speed lines in the US exceed 10 megabits. This is the true digital divide that remains for the most part unspoken by the bureaucrats at the FCC and politicians in congress.

The US needs to promote and nurture a competitive environment that delivers faster broadband. Our measurement for success should be the G7 and not the entire world where our rankings overstate our achievements and obfuscate our failures. Broadband access, penetration/adoption rates and speed should be the three elements of any strategy built to improve our global broadband position. And while previously, I have unabashedly supported the government assisting in the build out of our broadband infrastructure, I can no longer do so. I understand that as part of stimulating our economy we are going to spend $7.2 billion expanding broadband into rural, un-served and underserved markets. However, it will do little to nothing to address our fundamental needs.

In summary:

·         The price for broadband access in the US is good when it is normalized against global salaries and disposable income.

·         The price for broadband access in the US is bad when normalized only against the members of the G7.

·         Broadband access is now in 99% of US ZIP codes and at least 80% of the US population has an option to purchase broadband services.

·         57% of Americans either do not want broadband access (32%) or have made no investment in a computer or Internet access device (25%).

·         Broadband speeds in the US are rapidly becoming inadequate for the next generation of proposed Internet services and applications for residential users and SMBs (VoIP/SIP Trunking, Unified Communications, HD Voice, Video streaming and cloud computing)

Our strategy as a nation should be to encourage service providers to increase the speed of their broadband while holding down the cost. We need to have much better per megabit pricing. However, the government's role in this effort needs to be one of education where it explains the value proposition for having Internet access in the home. Until that happens, only a minority of Americans (22-25%) will take advantage of any improvements in our broadband infrastructure. Our current center of attention is examining rural versus urban infrastructure development. Our proper digital divide concern should be one that has a global or G7 focus.

Have great weekend and I'll see you on Monday with one of my favorite seafood dishes.

Before I begin, I want to remind you that most of the numbers used for the subject for this week's blog come from the Rural Utilities Service (RUS), National Telecommunications Infrastructure Administration (NTIA), Federal Communications Commission (FCC) and National Telecommunications Cooperative Association (NTCA). I am also using numbers from Insight, Belcher and ChannelVision Magazine. As this is not a college dissertation, and I do not plan to gain economically, I will not be labeling all of the usage going forward. Okay, the disclaimer is out of the way. Let's see what is really going on in the world of broadband in the US.

Generally, it is agreed that the US has 120 million households, of which, 58 million (48%) do not have broadband access and 45 million (37%) have no access to the Internet. We can be forgiven for assuming that the lack of broadband access is due to geographical considerations, however, that would be wrong. Only 12 million households in this number are considered rural, or stated another way, only ten percent of households are without Internet access due to infrastructure cost considerations. But, how can that be? The primary reason given for the $7.2 billion of telecom stimulus spending is to expand access to broadband in rural areas. However, two things have to be noted, if that were true, it would do little to address our level of broadband penetration compared to the other G7 nations. It would also leave the majority of those, currently without any form of internet access, still without any Internet access. Therefore, it is worth noting that the second reason for the stimulus spending was to address "underserved" markets.

Again, a most notable objective but something is still missing. Using ZIP Code Tabulation Areas (ZCTAs) to measure broadband availability and the number of broadband providers (i.e. competition), we find that the percentage of ZCTAs with broadband access across the US is 99.6% with an average of seven providers. Wow! How can there be any deficiency in broadband access or penetration with such high percentages? The definition of broadband is fairly low (200 kbps) considering the world stage, where the US ranks an abysmal 18^th, and among the G7 nations is trailed only by Canada (a far more rural country). However, it is clear that "if we build it, they will come" may not apply to solving our penetration efforts.

Among the top two reasons given for not having Internet access are "they do not have a computer". Imagine that, in this day and age, fully 25% of respondents state that they do not have a computer and therefore do not need Internet access. The second and number one reason is also a bit of a shocker. In a world where, we say that everyone has or wants an iPhone and cannot live without an iPod, we learn that 32% say, "There is no need for the Internet". Expanding access to the Internet for 57% of respondents will do little to nothing to change their level of adoption. Therefore, we need to address this lack of use and interest in the Internet by increasing knowledge, awareness and communicating the value proposition of "being on line". In a study done by Stanford the two most important factors facilitating or inhibiting Internet access are education and age, and not income, nor race/ethnicity, or gender. Bottom line, if the US is serious about increasing the level of penetration for broadband usage then we must address these two factors, and spending money to simply build infrastructure will not solve the problem.

Expanding the adoption rate of level of penetration for broadband usage will in turn expand the revenue potential for ISPs, ITSPs like Broadvox, VoIP and SIP Trunking providers and the application developers and service providers. The IP ecosystem in the US will enable us to remain competitive globally.

See you on Friday...

An important lesson learned in my youth was if I use the right tool to repair something then brute force would seldom be necessary. In fact, most of the time using brute force resulted in additional damage. This begat a more deliberate process of studying the problem, developing various alternative solutions examining my tools, and ultimately making the right choice. Immediately, after the FCC lost its net neutrality case with Comcast, one of the alternative fixes under discussion was to alter the manner in which ISPs and ITSPs are regulated. The proposal would have these companies, which includes Broadvox, moved from being regulated by Title 1 of the Communications Act, to Title 2. The difference between the two classifications is startling and the ramifications completely unknown.

Title I states that the FCC "helps to outline the general duties of the telecommunication carriers as well as the obligations of all Local Exchange Carriers (LECs) and the additional obligations of Incumbent Local Exchange Carriers (ILECs)."

Title II: Broadcast Services however gives the FCC a clear and direct mandate. The FCC "Outlines the granting and licensing of broadcast spectrum by the government, including a provision to issue licenses to current television stations to commence digital television broadcasting, the use of the revenues generated by such licensing, the terms of broadcast licenses, the process of renewing broadcast licenses, direct broadcast satellite services, automated ship distress and safety systems, and restrictions on over-the-air reception devices."

While the major carriers with ISP operations are opposed to this change, imagine the potential impact on the smaller competitors like Broadvox and other ITSPs. We could see the erosion of our pricing differential through either the increase in costs or the decrease in allowed pricing. There would be considerable caution displayed by the reduction in expansion plans, new service offerings, investment groups and network upgrades until it is known how the FCC would wield this new power. And that will take some time to discover as the carriers and broadband providers would fight this for years in court. Furthermore, the entire Yin/Yang effect of changing political parties and political camps would be exponentially increased by this expansion of regulatory capability.

Thinking of Title II as the answer is to utilize brute force to repair a problem. The potential collateral damage could affect telecommunications and our global competitive capabilities for decades. FCC Chairman Julius Genachowski has not indicated his preference as to how to respond to the court ruling. I do hope that he will use the right tool with finesse.

See you on Monday...