lies, damn lies and statistics: developing a clearer assessment of market penetration and broadband...

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Lies, Damn Lies and Statistics: Lies, Damn Lies and Statistics: Developing a Clearer Assessment Developing a Clearer Assessment of Market Penetration and of Market Penetration and Broadband Competition in the Broadband Competition in the United States United States A Presentation at the 36 th Annual Telecommunications Policy Research Conference George Mason University School of Law September 28, 2008 Rob Frieden, Professor of Telecommunications and Law Penn State University [email protected] Web site : http://www.personal.psu.edu/faculty/r/m/rmf5/ Blog site: http://telefrieden.blogspot.com/

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Page 1: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

Lies, Damn Lies and Statistics: Lies, Damn Lies and Statistics: Developing a Clearer AssessmentDeveloping a Clearer Assessment

of Market Penetration and Broadband of Market Penetration and Broadband Competition in the United StatesCompetition in the United States

A Presentation at the36th Annual Telecommunications Policy Research Conference

George Mason University School of LawSeptember 28, 2008

Rob Frieden, Professor of Telecommunications and LawPenn State University

[email protected] site : http://www.personal.psu.edu/faculty/r/m/rmf5/

Blog site: http://telefrieden.blogspot.com/

Page 2: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

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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 Few would dispute the view that broadband access contributes to regional and global competitiveness, especially in the hinterland where distance insensitivity can have competitiveness, especially in the hinterland where distance insensitivity can have greater impact.greater impact.

““This country needs a national goal for…the spread of broadband technology. We 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 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 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 got plenty of choices when it comes to [their] broadband carrier.” President George W. Bush, March 26, 2004 W. Bush, March 26, 2004 http://www.whitehouse.gov/infocus/technology/economic_policy200404/chap4.htmlhttp://www.whitehouse.gov/infocus/technology/economic_policy200404/chap4.html

John Kneuer, Assistant Secretary for Communications and Information and John Kneuer, Assistant Secretary for Communications and Information and Administrator at the Commerce Department’s National Telecommunications and Administrator at the Commerce Department’s National Telecommunications and Information Administration claims the United States “has the most effective Information Administration claims the United States “has the most effective multiplatform broadband in the world.” multiplatform broadband in the world.”

Mission accomplished? The Internet does provide a case study of successful Mission accomplished? The Internet does provide a case study of successful government incubation, anchor tenancy and privatization. But even for basic government incubation, anchor tenancy and privatization. But even for basic telecommunications services, a $ 7 billion subsidy mechanism works to promote telecommunications services, a $ 7 billion subsidy mechanism works to promote greater accessibility and affordability.greater accessibility and affordability.

Does broadband require similar government promotion?Does broadband require similar government promotion?

Page 3: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

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Using Current Broadband Statistics, One Can Reach Using Current Broadband Statistics, One Can Reach Vastly Different Vastly Different Conclusions About Conditions About Conditions

in the U.S.in the U.S.

The broadband marketplace in the U.S. is doing The broadband marketplace in the U.S. is doing quite well and could do better if government quite well and could do better if government deregulated further to remove regulatory deregulated further to remove regulatory uncertainty and disincentives for investment.uncertainty and disincentives for investment.

versus

True broadband, i.e., 786 kilobits per second or True broadband, i.e., 786 kilobits per second or greater, shows marketplace failure in many greater, shows marketplace failure in many regions where two or less facilities-based regions where two or less facilities-based carriers operate.carriers operate.

Page 4: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

44

Lines by Information Transfer Rates in the Faster Direction as of June 30, Lines by Information Transfer Rates in the Faster Direction as of June 30, 2007 (Includes only lines exceeding 200 kbps in both directions)2007 (Includes only lines exceeding 200 kbps in both directions)

Source: FCC (2008); available at:http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-Source: FCC (2008); available at:http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/hspd0607_tables.xlsState_Link/IAD/hspd0607_tables.xlsTotal “High Speed” Lines (theoretical bitrate exceeds 200 kbps in 1 direction)Total “High Speed” Lines (theoretical bitrate exceeds 200 kbps in 1 direction)

010,000,00020,000,00030,000,00040,000,00050,000,00060,000,00070,000,00080,000,00090,000,000

100,000,000110,000,000

Jun 2000 Jun 2001 Jun 2002 Jun 2003 Jun 2004 Jun 2005 Jun 2006 Jun 2007

40.2%

54.2%

5.6%

> than 200 kbps, < than 2.5 mbps

≥ than 2.5 mbps, < than 10 mbps

≥ than 10 mbps

Page 5: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

55

The U.S. Has 100% Broadband Penetration With Consumers in 77.4% of All Zip Codes Having 4 or More Broadband Choices

Source: FCC (2008); available at:http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/hspd0607_tables.xls

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun2000

Jun2001

Jun2002

Jun2003

Jun2004

Jun2005

Jun2006

Jun2007

One or More Providers Four or More Providers

Page 6: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

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The FCC Provides One Source Document for All the Positive News—Everything Else Constitutes a “Trade Secret”

Necessitating Confidential Treatment

Page 7: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

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Wireless Carriers Don’t Claim the Trade Secret Wireless Carriers Don’t Claim the Trade Secret Exemption and Willingly Disclose CoverageExemption and Willingly Disclose Coverage

Page 8: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

88

The U.S. Ranks 15th Among OECD Nations in Terms of Household Penetration

source: OECD (2007) www.oecd.org/sti/ict/broadbandsource: OECD (2007) www.oecd.org/sti/ict/broadband

0

5

10

15

20

25

30

35

DSL Cable Fibre/LAN Other

OECD Broadband subscribers per 100 inhabitants, by technology, June 2007

OECD average

Page 9: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

99

0

5

10

15

20

25

30

35

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Broadband penetration (subscribers per 100 inhabitants, J une 2007)

GDP per capita (USD PPP, 2006)

The U.S. Lags Most Nations in Broadband Penetration On the Basis of Per Capita GDP

source: OECD (2007) www.oecd.org/sti/ict/broadbandsource: OECD (2007) www.oecd.org/sti/ict/broadband

Page 10: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

1010

33.3830.5630.44

28.7126.75

25.2924.13

22.8822.1821.9821.9321.6621.2221.0220.7520.09

19.3418.5918.1417.92

16.9916.7916.5416.1515.82

14.9910.75

7.746.06

5.80

Czech Republic

Korea

Iceland

Mexico

Portugal

Luxembourg

Italy

Austria

Hungary

Canada

Norway

Australia

J apan

Germany

Poland

Spain

Greece

Belgium

Ireland

Finland

France

Sweden

United Kingdom

New Zealand

Slovak Republic

United States

Turkey

Netherlands

Denmark

Switzerland

321.8850.93

79.38157.52

91.7190.83

54.44102.33

166.9497.63

163.04108.45

131.5745.19

132.48233.64

90.4372.66

154.0349.04

74.0189.60

62.76119.70

266.93199.99

117.1887.68

72.6252.15

1.00 10.00 100.00 1000.00

Czech RepublicKorea

IcelandMexico

PortugalLuxembourg

ItalyAustria

HungaryCanadaNorw ay

AustraliaJapan

GermanyPolandSpain

GreeceBelgiumIrelandFinlandFrance

Sw edenUnited Kingdom

New ZealandSlovak Republic

United StatesTurkey

NetherlandsDenmark

Sw itzerland

Broadband price ranges, October 2007, all platforms, logarithmic scale, USD PPP

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

Page 11: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

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Average broadband monthly price per advertised Mbit/s, Oct 2007, USD PPP

97.4363.8929.13

28.1425.03

22.8522.22

21.3419.59

18.5518.4017.7017.6617.54

16.7515.2614.9214.31

13.4512.60

11.529.81

8.448.17

7.315.965.29

4.613.70

3.09

TurkeyMexicoGreeceCanadaPolandSpain

IcelandAustralia

Slovak RepublicBelgium

Sw edenDenmark

AustriaCzech Republic

New ZealandNetherlands

IrelandHungary

FinlandUnited States

PortugalNorw ay

GermanySw itzerlandLuxembourg

KoreaUnited Kingdom

ItalyFranceJapan

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

Page 12: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

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Who’s Statistics Are Most Credible?Who’s Statistics Are Most Credible?

Most satellite and terrestrial wireless broadband options do Most satellite and terrestrial wireless broadband options do not exceed 200 kbps, yet the FCC showed a 24% increase in not exceed 200 kbps, yet the FCC showed a 24% increase in market penetration from 2006-2007.market penetration from 2006-2007.

Wall Street JournalWall Street Journal tests of the cutting edge, Apple iPhone 3G tests of the cutting edge, Apple iPhone 3G measured actual data speeds in the 200-500 kbps range. measured actual data speeds in the 200-500 kbps range.

The U.S. government and sponsored academics dispute the The U.S. government and sponsored academics dispute the OECD statistics as failing to include Wi-Fi hot spots, at work OECD statistics as failing to include Wi-Fi hot spots, at work access, etc.access, etc.

Additional excuses include the lack of computer literacy and Additional excuses include the lack of computer literacy and access, having a large rural hinterland, adverse demographics, access, having a large rural hinterland, adverse demographics, yet other nations with similar disadvantages do better.yet other nations with similar disadvantages do better.

Page 13: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

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Case Study: Port Matilda, PA

The FCC reports I have eight (down from nine in the previous year) broadband The FCC reports I have eight (down from nine in the previous year) broadband options (source: FCC, Number of Holding Companies Reporting High-Speed options (source: FCC, Number of Holding Companies Reporting High-Speed Subscribers by Zip Code as of June 30, 2007Subscribers by Zip Code as of June 30, 2007available at: available at: http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/hzip0607.pdf (p.570). (p.570).

The options range from DSL (Verizon not available in my neighborhood, but The options range from DSL (Verizon not available in my neighborhood, but presumably somewhere in the Zip Code) at $14.99 (up to768 kbps 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 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, Mbps downstream/ up to 256 kbps upstream, plus $368.95 hardware, installation and activation fees).installation and activation fees).

Page 14: Lies, Damn Lies and Statistics: Developing a Clearer Assessment of Market Penetration and Broadband Competition in the United States A Presentation at

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Case Study: Port Matilda, PA (cont.)

Making an “apples-to-apples” comparison, which factors in actual Making an “apples-to-apples” comparison, which factors in actual price cross elasticity, there are three distinct market segments:price cross elasticity, there are three distinct market segments:

1)1) Non-mobile residence and businesses that can access cable and possibly DSL service; 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 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 $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 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 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 128 kbps upstream) for customers that currently subscribe to Comcast Cable or Comcast Digital Voice. Without bundling: $59.95;Comcast Digital Voice. Without bundling: $59.95;

2)2) Users that want mobile access; Users that want mobile access; service available for as a low asservice 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)3) Non-mobile rural users lacking access to cable modem or DSL; Non-mobile rural users lacking access to cable modem or DSL; satellite service satellite service available for as low as $49.95 for up to 512 kbps downstream/up to 128 kbps 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 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 1.5 Mbps downstream/ up to 256 kbps upstream, plus $368.95 hardware, installation and activation fees.and activation fees.

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The Current Strategies Do Not Work Well

Transparency and credibility is essential in data collection.Transparency and credibility is essential in data collection. Section 706 of the Communications Act could be interpreted as requiring Section 706 of the Communications Act could be interpreted as requiring

the FCC to disclose broadband deficiencies rather than treat them as trade the FCC to disclose broadband deficiencies rather than treat them as trade secrets.secrets.

e-rate subsidies have achieved modest goals at great expense and e-rate subsidies have achieved modest goals at great expense and inefficiency. inefficiency.

Municipal wi-fi networks have mixed records; compare Blackburg, Va. Municipal wi-fi networks have mixed records; compare Blackburg, Va. with Philadelphia.with Philadelphia.

Reserving to an incumbent wireline carrier a right of first refusal does not Reserving to an incumbent wireline carrier a right of first refusal does not offer an optimal national strategy.offer an optimal national strategy.

Regulatory forbearance based on “robust competition” ignores evidence Regulatory forbearance based on “robust competition” ignores evidence that over 98% of the national broadband market served by two types of that over 98% of the national broadband market served by two types of carriers (cable modem and DSL).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 Failure to apply CarterfoneCarterfone policies to wireless carriers passes up a lawful policies to wireless carriers passes up a lawful

and inexpensive catalyst. and inexpensive catalyst.

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Recommendations

Use more granular and forthright data collection and dissemination; the recent broadband statistics reform (using census tracts with an eye toward mapping penetration) constitutes a belated start toward rehabilitating the FCC into becoming an honest broker. However, the FCC needs to report actual throughput speeds and subscription costs with the same granularity as it does for wireline and wireless telephone service.

The FCC should abandon its confidential treatment of broadband penetration data as trade secrets. Identifying locations where a specific carrier does not operate provides little, if any, potential financial harm to a carrier that already has determined that service there does not make financial sense. Likewise, identifying locations where little if any broadband competition exists could identify unserved, or underserved areas—a task consistent with the spirit of Sec. 706.

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.