## Archive for May, 2005

### The better model.

For the purpose of this discussion I have created an overly simplified business model to describe how the numbers look based on several assumptions.

First off, let’s take a look at what the pricing looks like as it sits currently.

\$25.00/month – telephone – This does not include long distance or optional services.
\$15.00/month – Dialup Internet – no allowance for a second line or services like CallWave
\$30.00/month – Satellite or Cable TV – admittedly this provides for more than basic service.

\$70.00/month – Total for all of the above services.

If we include Broadband in the above equation the numbers would be increased by approximately \$20.00/month bringing the monthly total to roughly \$90.00/month.

In Vermont our typical population pattern is dispersed in the following manner. We have a small town with a number of homes clustered together in the center and then roughly 10 miles of very few homes per mile until we hit the next town. For the purpose of this explanation I will assume that each town has a population of 200 homes (average) and for every 10 average sized towns we have one “city” with a total population of 1,000 homes/businesses. I beg your indulgence, I know this is not accurate but it does give us a framework to base this business model on. We will also stipulate that in every community this service is deployed in there is very close to a 100% service adoption rate. Considering that Adelphia charges up just under \$60/month for high speed Internet access only I can tell you without reservation that I would take this service in a heartbeat if it was available to me.

So, starting in the “city” we connect 1,000 homes/businesses to our fiber at an internal cost of \$11,000/mile plus \$1,800 per individual building. We will also have to make the assumption that in this city we have a density that equals 20 homes per mile (average) and that this would give us a figure of 50 wireline miles inside the city borders. (Please note – I have assigned these numbers as estimates and are for illustrative purposes only. Since every area will be different I have based these numbers on a worst case scenario, within reason.)

\$ 550,000 – fiber backbone for the entire city (50 miles at \$11,000/mile)
\$1,800,000 – total install cost for last mile (1,000 buildings at \$1,800/building)
\$2,350,000 – total investment to connect the city

Let’s look at those numbers, shall we?

Using a mortgage calculator based on a 6 percent loan on a 20 year amortization schedule we find the total monthly payment (including interest) works out of be \$16,836.13/month or \$16.84/month per subscriber to pay off the loan. If we assume that VoIP (not unlimited calling) has a cost factor of \$10/month and base Internet has an additional cost of \$5/month in bandwidth costs based on a massive oversubscription rate we then have to add in television. I am going to assign a cost for basic television that adds in \$10/month but this number is dependent on a number of variables including what we include in the basic service package. If you are willing to accept the numbers I provided, this is what everything now looks like.

\$16.84 – debt service.
\$10.00 – VoIP costs
\$10.00 – Television
\$ 5.00 – Internet bandwidth costs.
\$41.84 – total monthly cost on basic package.

\$59.99 – basic package retail price
\$41.84 – monthly cost to provide services

\$18.15 – net – however, there is overhead and additional expenses which need to be accounted for. Let’s not forget there are businesses that will be charged a higher monthly fee while the costs will stay close to the same and that a fair portion of residents will also opt for premium services and we can now offer additional services (security, remote backup/data storage, 4.9MHz public safety, advertising supported Hot Spots, VoIP over WiFi, etc.) that will generate additional revenue streams. We also can leverage the ability to supply one \$1,800 Customer Premise Equipment for Multiple Tenant Units – where more than one customer is connected using one device because they share the same building. This also changes the numbers in our favor.

Now, let’s look at the numbers when we factor in the smaller towns.

As we defined earlier, each small community is 10 miles away from the next or the city to keep this example simple.

So this would mean we have 10 miles times \$11,000 per mile or \$110,000 to run the backbone from the city into this smaller town. Additionally, we will set a constant of 5 homes per mile along the way that need to be connected.

This is what the breakdown looks like in this case.

\$110,000 – fiber backbone (10 miles at \$11,000/mile)
\$110,000 – run fiber through 10 miles of the town based on 20 homes per mile.
\$360,000 – 200 homes connected last mile
\$ 90,000 – 50 homes connected along the 10 mile backbone
\$670,000 – total cost to connect this small town

\$4,800.00 – total monthly payment for infrastructure based on 20 years at 6%

\$19.20/month
debt service per customer figured on 250 homes.

Now the model looks more like this in this case.

\$19.20 – debt service.
\$10.00 – VoIP costs
\$10.00 – Television
\$ 5.00 – Internet costs.
\$44.20 – total monthly cost on basic package.

\$59.99 – basic package retail price
\$44.20 – monthly cost to provide services

\$15.79 – net – with additional expenses not accounted for.

Looking at the totals I have provided here (who knows if this is reality) this is how I see a very small network of one “city” and ten “towns” adding up.

\$18,150
– monthly from the city.
\$39,475 – monthly from 10 towns

\$57,625/month revenue – with some but not all expenses accounted for.

Please keep in mind there is no charge included for installation in this model and I would think this is something that should be factored in – even if the installation fee is financed over several months or years. I can also see a minimal monthly rental for the set top box and the SIP router or outright sale of these items that would add to the bottom line.

Let’s look at some of the specific options and discuss the relative value.

In the above model we allow for each service to be added in as necessary and we will assign a retail pricing for each of the following services at the following rates.

\$35.00/month – Broadband Internet service – entry level tier (5 Mbps symmetrical).
\$15.00/month – Telephone service – unlimited in-state but limited long distance calling.
\$10.00/month – Basic television package to be determined.

Upgrades would be available for services as the customer wishes.

For example, should a customer wish they can decide to drop the telephone service included in this package (\$15.00/month) and opt for Packet8 (or a competing company) they would now be able to make unlimited calling anywhere in the US or Canada for \$20.00/month (only raising their total monthly bill by \$5.00/month) as opposed to Verizon’s Freedom package which costs \$59.95/month for roughly the same level of service.

A customer could choose to opt out of the television package and save another \$10/month on their monthly service bill allowing them to receive Broadband as a platform to take advantage of competing services at a price that is competitive with industry standards.

However, this would be selling the infrastructure short and ignoring many of the services that might be provided including telecommuting, video conferencing, streaming video, Video on Demand, distance learning, remote medical diagnostics, remote security along with many services that will soon become available if the necessary infrastructure is in place.

Please note- I readily admit that this model is not complete but rather built to demonstrate the validity of the concept. I have tried to present what I see as the underlying financial model that allows this project to work. I also carefully omitted any monies that might be made available through RUS grants or the impact that private investment would bring to this model.

I would like to clearly state for the record that I believe the dynamics of this deployment could be dramatically changed if a hybrid fiber backbone/wireless last foot delivery system was employed. If, for example, we were to employ the newly FCC approved 3650 band for last foot delivery a significant reduction in the investment necessary to connect the end user could be realized where we might be able to drop the installation cost per building connected from \$1,800/unit to well below \$600/unit.

One final thought, this is not something that I conceived of or invented. This is a business model that is currently in operation and can be duplicated with very well understood cost factors. The business that I “borrowed” this plan from has constructed it in such a way that the company was “Cash Flow Positive” within 90 days insuring that this business is sustainable.

My wife and I just returned from ISPCON late yesterday. Over the last five or six years I have attended several trade shows and while I would not consider myself an expert in this subject I can tell you that it is not difficult to tell ISPCON from the average show. Everything (I mean EVERYTHING) is handled in a manner that could only be labeled as first class. The only complaint I had was the show packed too much into to too short a time – if you could call that a complaint.

Over the next several days I will try to drill down on many of the specifics of what was presented. I can tell you that Matt Larsen and Tom DeReggi did nothing short of excellent in their presentations. This is not to say that the other sessions we attended we anything less than excellent – quite the contrary – every single event we participated was fantastic! I really wish I could have attended all of them but there are only so many hours in a day and there are four concurrent tracks taking place at any given time so we were forced to choose carefully.

There were two events that happened during the show that stand out in a show that had a continuous stream of fantastic offerings and I will be writing more on these events in the coming days.

On Wednesday night there was an informal meeting listed as the ISP-CEO roundtable discussion. While I wasn’t sure exactly what to expect, I can reliably tell you that this evening turned out to be one of the most enjoyably, educational and enriching evenings in my entire life – no kidding!

Originally scheduled from 5:00 to 7:00PM my wife and I reluctantly left the group at midnight. I understand that quite a few people stayed until 3:00 in the morning. Doug McDonald did an outstanding job moderating the discussion while keeping the conversation going and doing it with a sense of humor.

The evening covered topics ranging from interacting with your local politicians along with the FCC to how to role out a fiber network in rural areas that is cash flow positive in 90 days. Along the way was a very frank discussion about what we are doing that is working for us in our individual businesses and what isn’t. Let’s face it, it is a difficult thing to stand up and discuss what is working for you in front of your competitors but it is even more of a challenge to stand up and lay out where you failed. However, as most of us know, we do learn a lot more from our failures than we do our successes.

I cannot even begin to express the true value of this meeting to you as you would have had to been there to experience the entire event to comprehend the total value. I am happy to say that I cannot remember any time that I have ever been surrounded by such brilliant people, where open and honest communication was the tone and where the quality of information was unparalleled. This one event would have justified the entire cost and time we dedicated to the show yet it was only one event out of a schedule of many.

On Thursday morning we arrived with the intention of attending two sessions but instead became engrossed in conversations with people who had attended the roundtable meeting the night before. I was amazed that everyone I spoke to came away from that meeting with near religious reverence for what we had all participated in. Everyone, without exception, had universally the same thing to say, they all felt enriched and each one managed to have a collection of little snippets from the discussion that we all picked up on and continued the subject for the next three hours. Reluctantly, we all moved to a luncheon event featuring Earl Comstock as the guest speaker who provided a 15 minute overview of the Brand X case.

For those of you who do not know anything about Earl Comstock he is a telecommunications lawyer who was deeply involved in the original Telecommunications Act of 1996. This man understands our industry and has a grasp of what the regulatory environment that governs us is doing for us as well as against us.

If you haven’t been following the Brand X case, we are now waiting for the final decision from the Supreme Court as to whether the Cable Companies will have to open up their networks in the same manner as the ILECs were forced to allow us access to their networks. This case goes far deeper than the impact it will have in the cable industry, it also touches on whether or not the telecommunications network could be close off as well as whether or not WISPs will have to open up their networks!

Additionally, the audience learned that some of the “truths” we seem to believe are completely incorrect and more importantly that the logic behind our reasoning is flawed from a legislative standpoint.

In a nutshell, here’s what you need to know.
We don’t have any say over what traffic can pass over our networks. This leads us back into the discussion we have been having about blocking VoIP or P2P networks.

Incredibly, this is something that is what protects us and keeps us in business. This is how I believe we need to look at this issue. What we have to realize it that we need to embrace the fact that whatever regulations we ask the powers that be to pass must apply to everyone else equally. In other words we cannot ask for the regulatory body to “regulate them but not us” and expect this to happen. If we demand that the ILECs and the cable companies carry our traffic (unfiltered) we must also do the same thing. If we demand that the ILECs are mandated to allow us to connect then we are also forced to connect anyone who requests our service – even a competitor.

This is because we do not “own” our networks. Okay, before you hit me with the “we do too” comeback, we don’t own our networks in the eyes of the regulatory bodies. Once we sell to the public over a public resource (spectrum) we become common carriers in the eyes of the law. If we choose to enter into this field we MUST accept all of the rules and conditions set out under that set of regulations.

In the coming days (as time and comprehension allows) I will be providing more information about what I picked up at ISPCON and how it applies to all of us. Hang in there, it’s going to be a fun ride.

Here is an unsolicited and uncompensated comment.

If you have never attended an ISPCON, you need to. This is an event with no equal, first class and one of the finest opportunities any of us will ever have to get exactly the information we need to run our businesses. Specifically, Jon Price is nothing short of a genius and manages to keep a hopelessly complex show running and on-track while still keeping his poise and never seeming as though he was even breaking a sweat.

I can personally attest that this is the show to attend, it is well worth the cost in both time and money. The education I received in this event will provide me the edge necessary to move forward and make the right decisions.

### The day is coming.

In a speech given at a trade show made up of digital printers, Brian Roberts (chairman, president and CEO of Comcast) threw down the gauntlet.

“Comcast Corp. is working to give its Internet customers download speeds of 200 megabits per second, its chairman, president and CEO said Tuesday.

“The day is coming when, in 45 seconds, you can download a movie (to a personal computer),” Brian Roberts said.”

The article this quote was taken from can be found here:

Please Note – Mr. Roberts has been saying this type of thing for quite some time now and I do not see this as a specific announcement of this service starting on Monday – any Monday. We need to remember that the throughput levels he is discussing are a technical reality with the equipment now being available and ready to deploy should Comcast choose to do so.

If we allowing Comcast five years to actually implement this technology (yes, I pulled that number out of my ass) what will we have to meet this level of service? Comcast certainly has the money and the network infrastructure to handle this while we would be looking at a forklift replacement – if that were economically feasible. Verizon in that same five-year tineline should have a large percentage of their customers connected to their Fios network allowing them to deliver ultra high speed service.

WISPs, however have nothing that can even begin to approach this technology, at this time or in the foreseeable future for that matter. As lead times for product development is measured in years and the necessary production scale up then needs to be put in place, I can’t see us meeting the five-year timeframe as things stand now. In order for the WISP industry to be able to meet this challenge we will need to demand that our suppliers start to design and manufacture this equipment right now, in earnest, if we are ever to become anything more than a footnote in the history of connectivity deployment.

It would seem a shame to have had so much potential and have wasted it because we couldn’t read the handwriting so clearly painted on the wall. Conversely, if we claim we are an industry that is focused on providing broadband to areas that are not covered by the cable companies or the ILECs it would seem that we will be creating and maintaining the next generation of the digital divide, one that I like to think of as the multimedia and communications divide(tm).
The battle of the “haves” and the “have nots” still continues in earnest.

One thing I do see being clearly foreshadowed is the ability of many of the larger service provider to use their network to provide targeted advertisement directed to the end user. While this is certainly not a new concept by any means it does provide an glimpse into one of the ways this network will generate revenue aside from direct billing to the end customer.

Think of this as GMail on a much larger scale.

“Comcast also is trying to develop verbally controlled remote controls and technology that allows it to deliver personalized ads to customers, Roberts said.”

Comcast (or any capable provider) would now look at monitoring my surfing habits and generate a profile of exactly what my interests are. This profile could then be marketed to advertisers so that they could tailor their advertising to only be fed to people who have an interest in their product, perhaps on a fee per shoving it in my face basis.

Aside from the privacy issues (which I am unwilling to address here) we are now looking at a service that will soon turn my Internet experience into something almost as enjoyable as commercial television. I would expect that Comcast would encapsulate this “service” into their Terms of Service agreement making it mandatory for me to accept this more than likely unregulated barrage if I want their service.
Nice!

Could I have some more spam, please?

The insidious flaw in this plan is that as the Internet evolves into a communications medium I have to wonder if as I setup my high definition video conference link to my customer, will I be treated to “Sorority girls gone filed!” as I am trying to explain the value of my services and why he should spend his hard earner money on me to provide them.

There was a time when communications was held at a near sacred level in this country or more correctly, the industrialized world. Are we now going to allow this critical function to become simply another medium for a continuous stream of brain-numbing commercials to be fed to us?

I believe it is time for us to take a hard look at what we are creating here and what this technology could do for us or to us. Will we be facing a future of more advertising shoved down our throats? Will subliminal advertising be allowed in this new medium further distracting us from what we are trying to accomplish? Will I be caught in a world where there is no way to have a conversation without advertising (even if it is targeted advertisement tailored to my “tastes”) forced upon me?

We do reap what we sow. Incredibly, this does not hold true, in any meaningful way, for manure.

### We live in interesting times!

In the six plus years I have been associated with this industry I have noticed on thing that can always be counted on. With the possible exception of spam, ISPs/WISPs will have differing opinions on just about everything from which email software to use to whether to support MuniWireless projects.

Here is one of the few issues we can all uniformly agree on, the Universal Service Fund. There seems to be one uniform feeling by everyone in this industry towards this money grab, we all despise it and want it dead.

Today, I find the FCC is finally going to take a hard look at this in an Open Commission Meeting on Thursday, May 19th, apparently not realizing that the latest Star Wars episode will be opening that day and most of America will be taking the day off!

All kidding aside, this is a very serious subject, one that every single one of us needs to become deeply involved with. For years it has been suspected that the Universal Service Fund was being used to “cross support” DSL in effect using all of our money to compete against us.

My wife and I attended a Vermont Public Service Board meeting a couple of years ago where a Verizon representative candidly admitted that Verizon sells DSL at well below their cost. Why, in the name of everything that is holy in business would any business sell a product or service at below a company’s real cost? In the semiconductor business or the steel industry this type of behavior is considered “dumping” and would usually lead to sanctions against any company found guilty of engaging in such action. Yet the ILECs are given a free pass.

There have even been well documented cases of the ILEC selling DSL to the end user at a lower rate than the sell it to CLECs at wholesale! Why is this? We can only assume that the powers that be are so convinced that broadband is important that they are willing to overlook not only bad business practices but also what could be construed as illegal behavior. I would submit that this is very short-sighted thinking at the best. If this type of anti-competitive business practice is allowed the net result is that independent businesses that would normally provide competition will not be able to get a foothold and we all lose in the long run.

Great, thank God they’re on our side!

What would happen if the Universal Service Fund was withdrawn? Can we predict the real effect this might have on the telecommunications industry? We can certainly draw the conclusion that the lose of this kind of revenue would have a direct effect on their business model, one that would have some pretty far reaching consequences.

How will this affect Verizon’s deployment of fiber (Fios) or SBC’s deployment of VDSL? What does this mean for rural telephone service in many places where there are simply not enough customers per mile to provide service profitably? What kind of financing mechanism would we need to put in place where we can still supply telephone service in places like Victory, Vermont even though the residents there will never even begin to pay for the cost of maintaining the infrastructure that carries service to them? Now something needs to be said that in order for someone from elsewhere in the country to be able to call Victory, Vermont (hey, it could happen) the network must reach there but is the entire country willing to pay the extra money to supply service to the hundreds of thousands of locations that need to be subsidized in order to get service?

One thing that comes to mind is that the ILECs will have to make some really tough choices in order to continue with their plans if the USF gets discontinued. The first thing they would have to do is stop selling services (any services) at below their cost. This means the retail price of DSL will climb to where the competition has set the price point at. Cool, free enterprise and market competition can now move forward as they were meant to.

As to Verizon’s plans to roll out fiber or the rest of the ILEC’s plans to “modernize” their network infrastructure the cost would have to now be carried by the revenue they earn – just like everybody else. They could now court investors, present a solid business plan and convince the potential investors that they have a sound (not to mention) profitable strategy, one that an investor should feel comfortable investing their money in. Considering how well they have been able to do this in the past leads me to think they might have a little problem convincing anyone to believe them – but that’s me, I’m cynical.

Could this be one of the first solid indications of the course Commissioner Martin plans to steer the FCC? Is it possible that we might finally be seeing the FCC adopt the Fast Fail policy? Are we finally seeing a dawning of an era where the telecommunications industry is finally going to be allowed to have real competition?

I don’t know.

I do know that if every single one of the people I have heard bitch about the USF write one letter, makes a single telephone call or sends one email the FCC just might get the message how much we all feel the USF is nothing short a menace.

One more thing I know, the FCC isn’t some nameless, faceless government agency, they are a group of people who have repeatedly reached out to us in an attempt to get feedback from us. It is our responsibility to provide that feedback or they will never understand how we feel.

You said you wanted change. You said you wanted the USF to be discontinued. This is your chance, your big chance to get what you said you wanted. But, like everything else in this world, you must work to get what you want.

Here’s a list of email addresses for you to write to:

Chairman Kevin J. Martin: KJMWEB@fcc.gov
Commissioner Kathleen Q. Abernathy: Kathleen.Abernathy@fcc.gov
Commissioner Michael J. Copps: Michael.Copps@fcc.gov

Here is the FCC’s mailing address for those of you who prefer the US Postal system:

Federal Communications Commission
445 12th Street, SW
Washington, DC 20554

Here’s the FCC’s 800 number:

1-888-225-5322

And here’s a piece of advice – take a few minutes out of your busy day and DO SOMETHING!

### The digital caste.

“We hold these truths to be self-evident, that all men are created equal…”

Those were some pretty disruptive words in their day, words that shook the entire foundation of the ruling class. It clearly stated that there from our perspective there was no inherent right to a better life based on birth or wealth.

To a certain extent the concept of free enterprise is at odds with this idea as it becomes impossible for a for profit company to treat everyone equally. Those who have money can purchase products while those without cannot. This is a reality in our lives.

There exists a balance that needs to be maintained in order for our society to function. The medical infrastructure is an excellent example. There is no way we could provide for any kind of medical service, from ambulance to major hospitals, if only the rich had to pay the entire bill. The same holds true for our telecommunications network, our interstate highway system along with our network of secondary roads. Would our country be better off if only the wealthy communities had telephone service or paved roads? I believe that a parallel holds true for the broadband infrastructure.

In this day and age, having unfettered access to the wealth of information and the ability to collaborate on any idea is a large part of what separates the next “Bill Gates” from some guy pumping gasoline at the local service station. If we look at two examples, a teenager in Lowell, Vermont (with no adequate broadband available) and another child the same age living in Hong Kong, which child will have the necessary tools to move forward in this world economy? While the answer will never be 100% in either child’s favor I believe this example clearly illustrates the need for our nation to embrace a next generation communications infrastructure.

Does this mean government should build this network?

Not from where I sit, private enterprise is capable of doing so usually for substantially less money and with far better efficiency but there needs to be not only incentives to make universal coverage a reality but the removal of century old archaic rules and regulations allowing this move forward.

As things stand right now, our country is at a crossroads as to where we are going with this and how we are going to get there. This holds true for the rest of the world along with us. What is fair? How do we grow this system in such a way that our entire country benefits without incurring a cost that hurts our country? Even more important, how do we make this equitable?

“Is it fiber-to-the-home or fiber to the rich?”

This public comment was made to Comcast’s investors by chairman Brian Roberts. I see a massive disconnect happening from what we are actually trying to accomplish and what is currently being done. Under the category of introducing the pot to the kettle and discussing who is really black, I found this comment amusing. We have a cable company actively working to roll out telephone service to its installed base (while bypassing nonprofitable neighborhoods) calling the ILECs out for “cherry picking” only the wealthy neighborhoods for their state of the art services.

The reality is that this is also what the WISP industry is doing but to a much smaller extent. Let’s face it, we need to roll out profitable networks, ones that are sustainable and while we have a very different set of constraints most of us will only light up areas that have meet the minimum requirements for a business case. We do have the advantage of not being tied to a certain number of homes per wireline mile as we can look at any geographic region from the perspective of how many users inside the coverage zone of our WiPOP. We also have the insanity to work for less profit than any of these bigger companies – something I am not sure we should be proud of.

This still leaves us in a position where a large portion of our country will never be covered by any broadband network – both in rural locations as well as urban environments. Why? Too little revenue for too big an investment coupled with ongoing expenses that cannot justify the business model.

Great, any idiot can identify the problem but the important things is what kind of answers can we suggest?

To address this question we first need to take a look at the contributing factors that surround these issues. I am not going to pretend the following list is complete but I believe I have identified the major points.

Population Density – Simply stated, without enough people in any given area no form of broadband can be provided without some form of subsidy. Please note – this is true of telecommunications services.

Cost of connectivity – This is one of the two major expenses that every service provider much accept in providing broadband service. This holds true universally for cable companies, telephone companies, satellite providers and wireless even though the costs are expensed in different ways.

Cost of infrastructure
– This is the other of the two major expenses that every service provider deals with. Whether it is the cost associated erecting the poles and stringing copper wire, coax cable or fiber along with maintaining the network, digging a trench and burying the network or even building out a wireless network the investment is enormous.

Return on investment
– No matter how you analyze the problem it only makes sense that whatever money is spent is used in such a way as to maximize efficiency. This holds true regardless of whether private enterprise is employed or government. In a private enterprise we have the investors (or our own wallets) to answer to and losing money is a self-correcting problem. If the government tackles the situation we seem to be more accepting of enormous amounts of money being spent with little more being done than token whining. This does not exempt either of the mechanisms from needing to be paid for, one way or another.

Allocation of resources – Whether we define resources as RF spectrum, right of way for land use, public funds or simply the ability to provide service in a given area, the necessity to maximize the return of this investment has to be considered foremost. At this point it should be clear to everyone that no one type of network is going to be perfect for every area or deployment. The reality is that cable and telephone are only different shades of the same wireline technology applied to the problem. Satellite and wireless are two similar technologies trying to compete for the same service arena but to date are not even showing up on the pie chart in any meaningful way. The battle between satellite and wireless will be fought out when the total cost vs performance is added up.

Monopoly management – One of the techniques that has been used with some success is the awarding of a monopoly status to a company (with legislative oversight) in an attempt to “jumpstart” an industry. This technique was used with both the telecommunications industry and the cable industry. I think it can also be stated that the results were mixed with the end effect being that the public that was being served was upset at how the service was provided and worked to overturn the monopoly.

Where does this leave us?

From all of the above we can clearly see that by forcing the telecommunications industry to provide service uniformly to all areas of the country we have managed to get service to just about everywhere but at a huge cost. This cost is largely borne by the USF (Universal Service Fund) along with tax breaks and outright grants. The question is, should we be doing things this way?

Let’s face it, in areas where there isn’t a specific density of customers per wireline mile using either the telephone company or the cable company to deliver service is quite simply not the most cost effective way of providing service. As proof we can see the huge areas of the country that the cable companies have left with no infrastructure in place leaving these customers instead to the satellite TV providers. If telephone service wasn’t mandated and subsidized there wouldn’t be telephone service there either.

Even with the subsidization the telephone companies are crying poverty at having to provide service into many of these sparsely populated areas. Verizon recently sold off Hawaii and part of their upstate New York territory in an effort to divest of areas that lose them money. Considering that all of us make up the huge amount of money that Verizon loses in these areas I believe we can all breathe a collective sigh of relief whenever Verizon manages to become more efficient.

In an effort to deal with this problem we are now seeing a large push by the telecommunications industry to build out cell phone service into many areas but this strategy also has the limitation of being very expensive and needing a set number of customers per mile or there will never be any form of payback.

At this point, we need to look at what the best technology (best as defined by most cost effective) to provide for each segment of our nation. To that end I need to ask, what would happen if instead of us requiring Verizon (and the rest of the ILECs) to only bring bulk connectivity to these locations at very reasonable prices?

What would happen if Verizon brought a DS3 into Lowell, Vermont and then only had to provide a couple of dozen T1s to different neighborhoods? Verizon would have a fraction of the cost for these services and Lowell, Vermont could have ubiquitous service provided by an independent company at reasonable rates. Everybody wins – Verizon spends loses money providing service and might even break even by charging only what this connectivity and transport costs, Lowell gets not only broadband but also a local company to be their provider and the US taxpayers no longer have to provide money for some town they have never heard of to have telecommunications services.

This very same infrastructure could also deliver television/Video on Demand, distance learning, videophone and a variety of other services that Lowell, Vermont might never otherwise see.

What we are talking about here is maximizing efficiency. The best network technology needs to be utilized to provide services. Unfortunately, the current system is making this impossible. As long as there is a Universal Service Fund coupled with a monopoly to spend the money we will never see any meaningful change.

It is time we take a look at how we do things paying close attention to what works and what doesn’t. It is the programs we instituted long ago that are now preventing us from moving forward employing the recent technologies that weren’t even conceived of when these programs were put in place.

The thing is, we need to do this now. If we don’t we will have broadband for the rich, high speed internet for the rich and dialup for the poorer caste in our societies, if they can even afford it. Without doubt, we as a society will all pay for this shortsightedness – even the rich.

Can I cut anyone a slice of cake?

### The world is flat indeed.

As the flow of information becomes a torrent it becomes difficult for any of us to discern what is really original thought. As an information addict myself it is almost impossible to separate what concepts I read last week from the opinions I formulate. I would suggest that this is true form most people as everyone I am familiar with seems to have built their work from the work of someone before them. This form of concept evolution dates back all the way to the very beginnings of time with the exceptions of those very rare “Eureka moments” that come along every so often.

The World is Flat by Thomas L. Friedman is one of those publications that makes me wonder if anything I believe about the coming future was ever original thought. I can honestly say I have never met Mr. Friedman (I would very much like to) and I haven’t read his book but I believe this man has hit the nail squarely on the head.

In this interview with Wired magazine Mr. Friedman outlines some of the premises of his book.

WIRED: What do you mean the world is flat?

FRIEDMAN: I was in India interviewing Nandan Nilekani at Infosys. And he said to me, “Tom, the playing field is being leveled.” Indians and Chinese were going to compete for work like never before, and Americans weren’t ready. I kept chewing over that phrase – the playing field is being leveled – and then it hit me: Holy mackerel, the world is becoming flat. Several technological and political forces have converged, and that has produced a global, Web-enabled playing field that allows for multiple forms of collaboration without regard to geography or distance – or soon, even language.

Wait a minute, did he just imply that the Internet is going to drastically change the way we live, work and interact? Damn, I’ve been screaming that to everyone who would listen for the last several years – most of the time to people who were either deaf or incapable of understanding.

Here’s another quote that strikes pretty close to home for me.

WIRED: The book is almost dizzily optimistic about India and China, about what flattening will bring to these parts of the world.

FRIEDMAN: I firmly believe that the next great breakthrough in bioscience could come from a 15-year-old who downloads the human genome in Egypt. Bill Gates has a nice line: He says, 20 years ago, would you rather have been a B-student in Poughkeepsie or a genius in Shanghai? Twenty years ago you’d rather be a B-student in Poughkeepsie. Today?

WIRED: Not even close.

FRIEDMAN: Not even close. You’d much prefer to be the genius in Shanghai because you can now export your talents anywhere in the world.

No kidding, there are no sacred jobs and any location in the world that has good connectivity is now equal to every other? Wouldn’t this also imply that there are rapidly becoming places in the world that are going to emerge as better places to live as the cost of living and the quality of life will be far superior to many of the top places we think of today?

From a purely economic standpoint, isn’t living in one of the high tech belts like Silicon Valley or Research Triangle a better location for a high tech employee than most rural locations? At this time, the answer is unequivocally yes but the times they are a changing.

If there was one way of summing up what these changes might mean to us, how about this one simple quote provided as a response to the interviewer’s question.

WIRED:You quote a CEO who says that Americans have grown addicted to their high salaries, and now they’re going to have to earn them. Are Americans suffering from an undue sense of entitlement?

FRIEDMAN: Somebody said to me the other day that – I wish I had this for the book, but it’s going to be in the paperback – the entitlement we need to get rid of is our sense of entitlement.

The ramifications of what this may mean is nothing short of staggering.

I know I can count on the rhetoric spewing parrots asking if I am screaming “The sky is falling.” again. (Funny how that same phrase gets repeated time and time again. You would think there might be some original thought to the opposing side of the discussion but I suppose that would lend credence to the thought there was any thought being placed into this issue.) In all fairness, this does relate back to the opening statement I wrote indicating that I have difficulty in differentiating between what I read in the past and my own original thought.

Will things change as we move into the future? We all know that no matter how hard we fight to prevent it there will be change. Can anyone accurately predict what those changes will be and what the real impact will be? No, I do not think so. We can certainly speculate, read what information is provided to us and draw the logical conclusions as best we can but the reality is there are too many unknowns that can throw off the equation. We cannot predict what inventions and innovations will become commonplace and what the real effect of them might be. We do not know what ideas some 15 year old kid living in some unheard of location will introduce to us that will radicalize the way things are thought of or done.

We do know things will change. We do know we have to adapt with them and we will either adapt or fight fruitlessly against the tide.

My grandmother wouldn’t put a telephone into the house for a number of years when they were first introduced. My wife’s grandmother will not allow a computer into their home. I believe the very same parallel exists with many people as far as the adoption of the Internet and especially broadband service.

But even with this resistance, the telephone and computer have caught on as will broadband. How fast we accept these changes and leverage all that they can provide will dictate what will happen to us in the near term.

One thing I find amusing in a never-ending way, the more things change the more we can see the same classical reactions happening. One has to wonder if humanity ever learns, if we really progress or if it is only a small percentage of us that move forward and the rest die off.

The terms “cutting edge,” “leading edge.” bleeding edge,” and “early adopters” are used to label us – terms that are more often used as insults than anything else. It is these people, the technology risk takers, the few of us that are willing to set sail in their obsolete wind driven ships looking for a new world that drag the rest of us along with them. These are the people we should be treasuring but instead we only pay them the homage they are due when they are old or perhaps dead.

Do we learn?

I don’t know, ask me sometime in the future and I will tell you with some certainty how we did.

### Assessing failure.

In between the bread and circus being delivered to us about the Muni Wireless issue and the deploying of fiber by Verizon is one harsh truth, we have pretty much failed to meet a very necessary requirement in our national infrastructure – delivering broadband to everyone who wants it.

Back in 1998 I wanted something better than dialup – slow dialup at that. Where I lived (right next to the last telephone in the universe) we connected at near BBS speeds. This meant that every time I needed a Windows driver, an anti-virus library update or even collecting email I had to wait and wait and wait. As the Internet became more important to by business I had to add in another telephone line so as to not tie up our voice lines and our fax line.

At that time the choices were few in my area ranging from ISDN (at a cost that ran from roughly \$150/month for a single channel connection to just above \$300/month for a dual channel connection) to either a fractional T1 (about \$700/month with IP) or a full T1 that was well above \$1,700/month based on a 36 month contract. Obviously, none of those solutions were acceptable for a small computer sales and service company like my own.

As more and more of my customers were asking if there was anything I could do about their Internet connection we decided to research what technologies were out there that might allow us to share a higher bandwidth connection. The rest is history, as they say.

Yet almost a decade later there is still a significant portion of the US that has no access to broadband (as currently defined by the FCC as 200Kbps) if we exclude the current of satellite providers.

How can this be after nearly a decade?

The honest answer is that we have a combination of factors that are contributing to this. From one side we have the regulatory environment that has created a patchwork of confusing rules and regulations that even a telecommunications lawyer has troubler sorting out. On the other side we have the ILECs who between their extravagant lobbying efforts and their complete inability to ethically deal with any form of competition to their monopoly are dooming our country to mediocrity at best and economic failure as the most extreme outcome. All this so they can keep their jobs.

Apparently, the ILECs are not the least bit in-line with that statement.

Focusing in specifically on the WISP perception we need to look at what steps could be taken to help assist WISPs to fill in the holes. I heard Rudy Leser (Alvarion) describe this as the Swiss Cheese problem. What we have is broadband coverage (the cheese) and pockets with no coverage (the holes) something that seems to describe the situation here pretty well.

What should we be looking towards to help remedy this problem? I see three possible areas that need to be addressed; regulation, upstream connectivity prices and mandated availability along with hardware costs.

Regulation – Let’s face it, the set of laws that govern the telecommunications industry are nothing short of a nightmare. The ILECs are asking for a level playing field and I am going on record in support of that. This country needs one set of very simple to understand set of rules that makes it easy for anyone to deliver communications services.

The problem is that the ILECs are asking for a level playing field that slants in their favor – something that we cannot allow. Right now the telephone companies receive billions in Universal Service Fund fees to support telephone service in this country.

As we move into an age where more people are starting to connect to the world through the Internet one has to wonder of this program is now being used as it was originally intended.

“The notion of universal phone service dates back to the early 1900s. Theodore Vail, then president of American Telephone & Telegraph Co., convinced President Woodrow Wilson the newly invented telephone would catch on quicker if the country adopted a nationwide system similar to the one used for mail. At the time, a number of companies were building phone networks around the country, but the systems weren’t connected. Allowing one company to consolidate these networks as part of a government-sanctioned monopoly would create uniformity, Mr. Vail argued. He declared his vision “one system, one policy, universal service.”

Add to that the assertion that the telephone network is “owned” by the Telephone companies even though we (the American public “we”) were forced to pay for not only the building but also the maintenance of this mammoth network and we have to wonder exactly how level a playing field the ILECs really want.

Here’s a suggestion, let’s take away the Universal Service Fund, ask each telephone company to reimburse the American public for the cost of building and maintaining this network and we will then give them ownership of the entire network when they have finished paying off the debt. Add to that, no more tax breaks, no more bailouts along with no more subsidies and I think we can put together a deal. Even more interesting is the notion that these behemoths would now have to behave like a real company! That’s right, raise capital, go into debt, earn your business and all that.

What this creates is a motivation for these companies to deliver service efficiently using any method they with to employ to deliver service. The great thing about this is that I can see these companies all of a sudden realizing that they need to partner with WISPs in order to make money and provide service into areas that they might not otherwise be able to provide service. Will the telephone companies accept this deal and then succeed at it? I sincerely doubt it. They talk a big game but without the protected monopoly status and constant massive infusions of tax payer’s money they would collapse in record time.

Upstream connectivity prices and mandated availability

In this day and age it is ridiculous to ask anyone to pay the money the ILECs expect us to pay for upstream connectivity. The reason they can charge us this much is because of the protection afforded them by the overseeing regulatory bodies (see above) and this very protection is affecting every single provider all the way down the line.

The idea that the ILECs can cross-subsidize services so that we (the independent ISP) help pay for DSL is incredibly short-sighted yet we know that this is allowed with a wink and a nod so that it can be said we are addressing the broadband delivery issue.

What would happen if the cost of a full DS3 throughout the entire United States was mandated at \$500? The technology is certainly there as is the infrastructure to deliver it. How about if we demand that anywhere the ILECs have facilities they provide DS3s at that price within a 30 day timeframe? What would that do to the independent service provider’s costs? Would this then translate into a lot more connectivity being deployed into our rural areas? I am sure the increase would be dramatic. I am equally sure that the biggest reason we cannot get this kind of service isn’t that the ILECs couldn’t deliver it – profitably – but that the ILECs understand that this would pave the way for their downfall as the one true monopoly – something they just can’t seem to understand is going to happen anyway. What’s worse, once they do understand it is inevitable, they might begin to understand it would be the best damned thing to ever happen to them.

Stupid is as stupid does…

Hardware costs

Everybody’s favorite complaint, the price of hardware. Somewhere in the lost passages of time, a wise man once said you need to invest money to make money. I believe this wisdom has also been rephrased to the current “There’s no free lunch.”

Incredibly, just about every WISP I run into seems to believe they should be able to spend almost no money and be instantly profitable! What is this some kind of instant gratification thing that has taken on a life of its own? Where is the annals of business case study does it say this is a sound business practice? Name me one other business that requires no initial investment (or next to no investment) that will blossom into a successful business in no time flat. Please, I’ve been looking for one for most of my life and I can’t find anything like it.

That doesn’t mean that our hardware costs need to be as high as they are – not by a long shot.

Classically speaking, what set of factors can we find that have traditionally had an impact on the cost of manufactured goods. Well, there’s certainly supply and demand. As we know if there are not enough of a certain commodity the price rises and when there are too many of any given product the price drops. We can also add in the dynamic that mass production brings to the equation. As any manufacturer buys in larger quantities the price drops. Think of this as the Walmart effect, if you will.

In order to make the WISP market more competitive we need to lower our costs for our hardware but at the same time the costs won’t come down until the quantities we buy significantly increase – kind of a Catch-22 we are caught in.

One thing that can be said for the hardware manufacturers is that they aren’t asleep at the switch. Whether they saw the handwriting on the wall (take a look at what happened with WiFi) or they just finally listened to what we WISPs have been screaming at them for the last several years, I believe WiMAX was exactly created to deal with this issue.

So, what is cheap?

Without exception every broadband provider out there has costs, the ILECs, CLECs, the cable companies and WISPs. What I can’t understand is how WISPs complain about the “excessive cost of equipment” when they have none of the incredibly high expenses that any of their competitors have. One common complaint is that CPE costs in the \$200 to \$300 range (sometimes more) and the cable modems associated DSL modems are in the sub-\$100 price range.

This completely ignores the reality of the cost of the Central Office, the DSLAM and the maintenance of the copper network – yes, I do realize that other services are delivered over that infrastructure. The same holds true for the cable industry as though the headend is free and all of the costs of maintaining the coax infrastructure is taken care of magically.

WiMAX promises a pretty interesting dynamic to the situation and if it lives up to its mass-produced, extremely low cost potential this might lower the overall cost of delivering bandwidth but it still falls short of the mark of delivering bandwidth to everywhere in the US.

The bottom line, private enterprise has failed miserably in providing universal coverage for our country. What broadband there is (and the discussion still rage about the reality of this) is still pathetic compared to other countries where ubiquitous coverage is available at a reasonable price and at far greater speed than we have even in out best locations.

The cost of this is incalculable but suffice it to say that we are paying for it economically. I am often accused of screaming that “The sky is falling.” To those who say that, you might want to look a up, things are not as rosy as you might remember them. The damage we are allowing to happen while we refuse to acknowledge how far we are falling behind will last for more than a few years.

Remember, being vain, stubborn and ignorant while refusing to do little more than spout someone else’s rhetoric is no way to go through life.