Over at FierceBroadbandWireless, there’s a good overview of the broadband stimulus program by Lynette Luna, drawing on some of our analysis.
She also has some interesting commentary from Robert Anderson of WindTalk; one of the applicants that’s focused on loans rather than grants.
Worth reading.
(Posted from the back seat of a taxi in Chicago, using a MacBook Air and Verizon Wireless MiFi)
Leave a Comment » | 
Verizon, broadband | Tagged: Chicago, FierceBroadbandWireless, Lynette Luna, MacBook Air, MiFi, Robert Anderson, Verizon Wireless | 
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Posted by Michael A M Davies
Moe’s update of his insightful analysis of the applications for broadband stimulus funding motivated me to take a look at the numbers for the other underwater bridge to nowhere, the ADAK Eagle project, serving the Aleutian Islands. This seeks ~98% grant-funding of $242m, rather than the 50% of the Kodiak-Kenai project
While we recognize the value of bringing broadband to rural communities, those areas of the United States that are unserved and underserved, we have to ask what is the right technology? How do we balance the costs and benefits?
The Aleutian Islands illustrate this dilemma perfectly. Confronted with the challenge of providing physical connections amongst these far-flung communities, the answer was not to build an interstate highway, it was the Alaska Marine Highway System, choosing an appropriate technology:
The mission of the Alaska Marine Highway System is to provide safe, reliable, and efficient transportation of people, goods, and vehicles among Alaska communities, Canada, and the “Lower 48,” while providing opportunities to develop and maintain a reasonable standard of living and high quality of life, including social, education, and health needs.
The Alaska Marine Highway System has been operating year-round since 1963, with regularly scheduled passenger and vehicle service to 30 communities in Alaska, plus Bellingham, Washington, and Prince Rupert, British Columbia. There are currently eleven vessels in the AMHS fleet, additional ferries have been planned.
During the past ten years the Alaska Marine Highway System has carried an average of 400,000 passengers and 100,000 vehicles per year.
Alaska Marine Highway
It is part of the National Highway System and receives federal highway funding; it has been named as an ‘All American Road’ by the Federal Highway Administration:
The Alaska Marine Highway makes up a large part of our ‘highway system’ and is a route so special it has earned the title of All American Road, the only Byway of its kind
The fiber-based bridge to nowhere seeks $242m in funding to serve <9,000 people, of who about half live in Unalaska. Using the same calculation basis as before:
The state of the art in broadband satellite terminals is the Thrane and Thrane EXPLORER® 700, which retails for ~$6,500. At these prices, we could give every household in Alaska one of these and a voucher for $50,000 in services, and we’d still be way ahead; this would cost about half as much.
Thrane and Thrane EXPLORER® 700
Leave a Comment » | broadband, infrastructure | Tagged: ADAK Eagle, BGAN, broadband, Thrane and Thrane | Permalink
Posted by Michael A M Davies
Our post last week on applications for broadband stimulus funds received a lot of attention. While some people disagreed with our conclusions, most found our analysis surprising and interesting: Roughly 4x the total program funding applied for in the first round, and much of this associated with only a handful of applications. The distribution of dollars among states was also uneven, and probably not allocated in the way you would do it to maximize the impact while minimizing the cost.
On Friday, I had the opportunity to speak with Robert Anderson, CEO of WindTalk, which sits at #7 in our ranking of top applications by size of funding request. Mr. Anderson pointed me in the direction of an interesting new piece of analysis. Many of the other large applications, he pointed out, are “grant only” requests while WindTalk is a pure loan application. His belief is that loan applications will receive favorable treatment in the awards process.
The breakdown of loans vs. grants for the top ten applications (by size of funding request) is as follows:
Breakdown of top ten broadband stimulus applications by grant vs. loan amount requested
As Mr. Anderson suggested, the top ten applications are weighted toward grants, and WindTalk is the largest loan-only application. The satellite players – EchoBlue, Satellite Broadband ARRA App LLC, and AtContact – all also have significant loan elements in their applications. RADGOV, on the other hand, is asking for $1.3 billion in grants, while Hughes Network Systems has request $398M, and Adak Eagle has a $242M grant request representing ~98% of the cost of one of our two so-called “underwater bridges to nowhere.” Kodak-Kenai, who we singled out in a prior post, is requesting over 50% loan funding.
The breakdown of the rest of the applicant pool is equally revealing:
Breakdown of broadband stimulus applications - grant vs. loan requests
Fully 2/3rd of applications are grant-only and nearly 60% of the requested funds are associated with these grant-only applications. In total, 77% of the applied for dollars are for grants.
These totals stand in contrast to the government’s targets for the first round of applications, both in shear dollar amounts as well as the flavor of award (grant vs. loan). The round one allocation was supposed to look like this:
Extent of grant funding (Grant funds/loan funds):
(i) 0 points if this ratio equals 100%
(ii) 1 points if this ratio is between 100% and 75%
(iii) 3 points if this ratio is between 75% and 50%
(iv) 5 points if this ratio is lower than 50%
(v) 10 points if no grant funds are requested
Drilling deeper into the grant and loan combination applications is also interesting. The following scatterplot shows grant requests on the x-axis and loan requests on the y-axis for each application incorporating some grant and some loan.
Most applications with both grant and loan elements fall near the 50/50 line
Here we see the BIP self-scoring guidelines having some impact as most applications fall along the 50% loan vs. grant threshold (387 out of 545 combination applications between 45% and 55% grant), and another small cluster sits around the 75% demarcation (34 applications with 70-80% grant).
As I said last week, there are a lot of applications chasing a lot more money than is available. It will be interesting to see how it plays out. Should loan-heavy requests be given priority over grant-heavy requests? Or should the emphasis be on reaching the most unserved and underserved homes per dollar, regardless of type of award?
Comments appreciated.
1 Comment | broadband | Tagged: broadband stimulus, fixed wireless, satellite broadband, underwater bridge to nowhere, WindTalk | Permalink
Posted by Moe Kelley
Our recent post on the broadband stimulus package has been attracting a lot of attention, and in particular some people seem concerned about our characterization of the Kodiak-Kenai proposal as an ‘underwater bridge to nowhere‘.
Kodiak Kenai's proposal costs $344 million (image from Fierce Broadband Wireless)
It motivated Scott Slater of the Personal Broadband Industry Association to comment that:
Your post seems to miss the large point and intent of the broadband funds in the Stimulus Act…
…At PBIA we give well thought out, well designed, and scalable projects in rural Alaska, just as in other remote and rural parts of the country, the benefit of the doubt as it appears they qualify as well as anyone, if not more, for the intended uses of the rural broadband funds in the Stimulus Act. It just so happens that after our review of total reach, total design, total scalability, and total shovel readiness of the proposed Alaska projects, we think the Kodiak Kenai Cable Company’s proposal should move forward and be funded under the Stimulus Act…
…It is important to know the facts. Your post did not demonstrate this understanding. There are larger federal policies at play here and the Kodiak Kenai Cable Company’s project appears to hit all of them.
Actually, we agree 100% with a couple of the key points that Scott makes:
The rural portions of Alaska are in, in fact, the most remote and unserved in America (see our earlier post on population density and broadband economics)
[T]he broadband funds in the Stimulus Act…were designed to deploy true broadband to locations that are ”unserved” and “underserved”
But the unfortunate reality is that these funds are finite, so that one of the key considerations here must be how much the service is improved, for how many people, and at what cost. There is a huge opportunity cost to very expensive projects that serve small numbers of people; the much larger number of people who could have benefited had that spending been allocated to its highest and best use.
As my colleague Moe Kelley (the author of the original post) put it in responding to Scott’s comment:
I am struggling with how hundreds of millions of dollars for undersea fiber could possibly be the most cost effective solution to serve only thousands of customers. I am also struggling with how this investment will ever pay itself back or reap any meaningful benefit in terms of job growth, new business formation, or economic recovery.
Kodiak Kenai's 'underwater bridge to nowhere'
The question at hand is not: “How do we reach every man, woman, and child in the US with super fast broadband regardless of cost?”
The question is more like: “What is the best way to spend $7.2 billion to provide the greatest improvement in broadband service affordability and availability to unserved and underserved areas while also creating jobs and spurring economic growth?”
From that perspective, $344 million dollars to connect a few people in Western Alaska will deny the benefits of the broadband stimulus to much larger numbers of people elsewhere; rural communities somewhere else in the United States will lose out.
Here’s a quick calculation to provide some context:
On that basis, $344 million dollars is about $50,000 per household subscribing to broadband service. That’s a very expensive underwater bridge to nowhere.
4 Comments | broadband | Tagged: $28 billion, broadband stimulus, Fierce Broadband Wireless, Kodiak Kenai, Personal Broadband Industry Association, underwater bridge to nowhere | Permalink
Posted by Michael A M Davies
$28 billion in applications were received in the first round of an ostensibly three round process to award $7.2 billion in broadband stimulus allocated in the American Recovery and Reinvestment Act of 2009 (ARRA). Recently, the National Telecommunications Information Administration (NTIA) and the Department of Agriculture’s Rural Utility Service (RUS) have released summary data on each of these applications at their Broadband USA site.
We have downloaded and analyzed a complete set of these summaries and have made a few initial observations:
The following charts fill out the top 10 states in terms of total funds requested as well as funds requested per capita:
Top 10 states by total broadband stimulus funds requested and funds requested per capita
In our last post on broadband policy, I highlighted the six least densely populated states: New Mexico, South Dakota, North Dakota, Montana, Wyoming, and Alaska. These states all have fewer than 20 people per square mile and actual broadband performance that is demonstrably lower than the US average. Of these laggards, only Alaska makes the cut in the top 10 for total funding requests, but four out of the six are represented in the top 10 on a per capita basis – and a fifth, Montana, is ranked 11th.
This one piece of news is encouraging, at least: Some of the money is likely to head to the markets with the greatest need.
Unfortunately, digging deeper provides reason for concern. Three of the top 10 states ranked on funding requests per capita are in the top 10 for actual broadband performance: Rhode Island, the District of Columbia, and Maryland. These are all densely populated areas with meaningful broadband competition.
Looking at specific high value applications gets even more interesting. Among the top 10 applications, four are satellite, three are unlikely to qualify, and the remaining two have a disturbing, “bridge to nowhere” feel. These are all very large projects and most don’t seem to fit the model the architects of the broadband stimulus program had in mind.
Top 10 broadband stimulus applications by total funding request
Echostar, Hughes, and AtConnect are applying for funding to support satellite broadband deployments in spite of the fact that satellite already has nationwide coverage but does not “count” in the calculation of unserved and underserved areas. RADgov and Edgenics are applying for funding to support e-learning, computer learning centers, and government information web portals far in excess of what is likely to be available for these non-broadband-access initiatives. Kodak-Kenai and Adak Eagle are each proposing hundreds of millions of dollars of investments in undersea fiber to serve very few potential subscribers in remote areas of Alaska – an underwater bridge to nowhere!
Beyond the top ten, the value of applications continues to be highly concentrated, with the top 10% of the largest applications corresponding to 66% of total funds applied for and the top 20% representing roughly 80% of the total.
The top 10% of applications represent 66% of total funds applied for
It will be interesting to see how the process plays out – if awards will be made to a few large, pork barrel projects or if dollars will be carefully allocated to the rural states and areas where broadband economics break down and private sector competition is likely to remain weak.
(Update #1 – amended characterization of WindTalk following clarifying conversations with its management; Update #2 – responses and analysis of the cost per household @ Where $28 billion of broadband stimulus goes – the ‘underwater bridge to nowhere’ costs $50,000 per household)
7 Comments | broadband, infrastructure | Tagged: broadband economics, broadband stimulus | Permalink
Posted by Moe Kelley
This morning at 4G World in Chicago, Bill Morrow, CEO of Clearwire, described the need for 4G networks to support bandwidth hungry applications on smartphones, and we can’t agree more.
He demonstrated the difference between an iPhone’s performance using AT&T’s 3G network and an iPhone using WiFi to connect to Clearwire’s 4G WiMax network. The difference was impressive: Clearwire’s network performed beautifully for both streaming video and Google Earth, while AT&T’s network was sluggish.
Unfortunately, it is exactly this need of 4G smartphones for data capacity that will likely spell the downfall of WiMax. By our estimates, smartphones will be responsible for roughly 50% of mobile data traffic within the next five years. But the iPhone is not available with WiMax – and neither are any other mainstream smartphones.
Yesterday Kris Rinne opened the 4G World conference by laying out AT&T’s plan to forego HSPA+ and move directly to LTE, with commercial rollouts beginning in 2011. This is slightly behind Verizon’s aggressive LTE deployment across 20-30 markets planned for late 2010. The iPhone, RIM’s BlackBerry, Windows Mobile devices, and a wide variety of Android devices will all be available to run on these LTE networks.
WiMAX is a great technology, but the window of opportunity is short. Ultimately, the availability of leading smartphones, apps, and content will determine 4G winners and losers.
Leave a Comment » | AT&T, WiMAX, broadband, smartphones | Tagged: 4G, Android, AT&T, BlackBerry, Clearwire, Google Earth, iPhone, LTE, RIM, smartphone, WiMAX | Permalink
Posted by Moe Kelley
There’s a discussion on Mobile Innovation about ‘When will Femtocells go Mass Market?’
We think it’s now ‘if’, not when:
So, who needs the extra cost and expense of a femtocell, when the WiFi infrastructure is already there? Vodafone is asking £160 (= US$265, €183) for its femtocell, the Vodafone Access Gateway:
Vodafone Access Gateway
A Belkin N150 Enhanced Wireless Router for BT is just £70 ( = US$117, €80) – less than half as much:
Belkin N150 Enhanced Wireless Router
Part of the discussion was triggered by a new report from Juniper Research, which puts the numbers at just 15 million worldwide by 2012. That’s hardly mass market: it’s much less than 1% of subscribers in the developed world. It’s not enough to put any sort of dent in the smartphone surge shortfall.
So for femtocells, it’s becoming if, not when…
1 Comment | WiFi, broadband, femtocells | Tagged: Belkin, femtocells, smartphone, Vodafone, WiFi | Permalink
Posted by Michael A M Davies
Nokia’s netbook, the Booklet 3G, has been being lambasted for its high price, particularly given its slow processor and smallish hard drive:
Nokia's Booklet 3G
It seems that many of the people critiquing it are focused on its high price, without recognizing the impact of the features which differentiate it:
These features change the function of the device, the job that potential users might hire it to do.
The function of a netbook is to connect quickly and cheaply to the web via WiFi in the home; this is the job that users hire netbooks to do.
What about customers who want a netbook-like device, that they can use while either mobile, or where WiFi is not available:
A very long battery life may even eliminate the need for a top-up charge during the day, and hence for carrying a wall wart and scavenging for power.
The right way to look at an innovation is from the perspective of the function of the innovation. For Nokia that means how does its Booklet 3G stack up against the other candidates for this job:
The trade-off amongst these candidates is then very different:
Seen through this lens, moving into these adjacent markets makes a lot more sense for Nokia; its Booklet 3G netbook is the not-a-netbook. The interesting question for Nokia then becomes: are there enough customers in the developing world where it is so strong, leveraging 3G rather than fixed broadband, or enough road warriors who prefer their candidate for the job of portable companion?
Leave a Comment » | Apple, Nokia, WiFi, broadband, iPhone, netbook, smartphones | Permalink
Posted by Michael A M Davies
One of the most important developments for network operators is the growth of “over the top” services. This can take several forms, as better connectivity and more capable devices leads to a shift from ‘dumb devices + smart switches’ to ’smart devices + dumb switches’:
According to Silicon Alley Insider, we have apparently reached an interesting inflexion point: the ‘over-the-top’ platform Hulu (strapline – Watch your favorites. Anytime. For free.) now has more unique viewers than Time Warner Cable, ranking 3rd behind Comcast (strapline – High-Speed Internet, Cable, Phone …) and DirecTV (strapline – Good TV. Better TV.
Hulu vs Pay TV
This analysis relies on factoring up cable subscriber households to match unique online viewers, so it may if anything overstate the numbers of unique viewers for cable companies:
To calculate cable viewers, we multiplied their end-of-June video subscribers by 2.59, the U.S. Census Bureau’s most recent stat for average persons per household.
There is a major shift underway, which is going to have a profound impact on business models throughout the video content ecosystem. Silicon Alley Insider believes that Hulu may have a strong future, but implicitly only if it sustains the revenues (and business models) of content producers:
Hulu is increasingly making a strong case that it could be the video platform for the future — if it can ever create nearly as much revenue for content producers as cable companies do today
This has been the subject of intense debate in the office, and last week in meetings with a couple of clients. As one of my colleagues put it: “where’s the money going to come from for high production value TV shows like ER and Lost“? Here’s where I at least think Silicon Valley Insider may have got it wrong; there’s no immutable law of nature that says we have to preserve revenue for content producers.
New business models for content distribution will also change the business models for content production. I am confident that the market will clear, that if consumers want this content then channels will emerge to funnel the money to producers; the corollary to this is that as we give consumers more choice about what, when and where they consume video content, what they’re prepared to pay for may be very different. If high production value dramas are to survive and thrive, they may need to find new ways to monetize their content, or new mechanisms to fund it.
Putting in the links to this post, I found two things intriguing:
Google search for Lost
1 Comment | broadband, convergence, video | Tagged: Comcast, DirecTV, ER, Hulu, Kung Fu Panda, Lost, over the top, Time Warner Cable | Permalink
Posted by Michael A M Davies
The economics of wireline broadband deployment are fairly straightforward, yet acknowledgment of this reality is usually painfully absent in broadband policy discussions. Much of the cost to rollout or upgrade a broadband network is driven by the miles of outside plant required, while the revenue opportunity depends on the number of homes passed. Simply put, densely populated areas are more profitable than rural areas and there is a cut off point below which broadband services are not financially viable without an external economic lifeline, such as a government subsidy.
Data released yesterday in a report from speedmatters.org illustrates this well. They compiled data on actual download and upload speeds from each state based upon 413,000 speed tests performed over the past year. We took this data and combined it with geography, population, and income data from the US Census to perform some quick and dirty analysis.
The scatter plot below shows population density (in people/square mile) vs. average broadband download speeds (in kbps) for all 50 states:
Higher broadband download speeds are delivered in states with higher population density
We also looked at median household income and “income density”, but these relationships proved to be not as interesting (income density = household income * # of households / square miles).
As you can see from the chart, the top 6 most densely populated states have much better broadband performance than rest of the country. New Jersey, Rhode Island, Connecticut, Massachusetts, Maryland, and Delaware all have population densities over 400 people per mile and average 8.7 Mbps in download speed as a group. The average download speed for the bottom six states, however, is only 3.3 Mbps. These least populated states all have under 20 people per mile: New Mexico, South Dakota, North Dakota, Montana, Wyoming, and Alaska.
From my first hand professional experience as both executive and advisor, including recent work on getting broadband stimulus funding, I can tell you that the business case for serving 20 people per mile with DSL or cable is pretty ugly!
In spite of this basic economic fact, public policy debate usually centers on how we are falling behind other countries, and how the problem is corporate greed, monopolistic cable or telco power, or some other nefarious culprit that can be legislated away. According to Speed Matters’ report, the key benchmark countries we are falling behind are:
Of these, only Sweden is a fair comparison to the US as a whole, which has 80 people per square mile. I submit to you that the difference in performance between the US and these leading broadband countries is primarily based on real economic costs, not corporate greed. It is much cheaper on a per household basis to deliver broadband to these markets than it is in the US.
2 Comments | broadband, infrastructure | Tagged: broadband, economics, population density, stimulus package, Sweden | Permalink
Posted by Moe Kelley
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