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Broadband stimulus: Wireless makes sense, but check the ROI

Broadband stimulus package efforts may be largely wireless broadband oriented, but net neutrality provisions may hinder the ROI of many broadband projects.

Improving essential U.S. infrastructure was one of the many objectives of The American Recovery and Reinvestment Act of 2009. While this was primarily aimed at correcting the long-term neglect of America's highways and bridges,

What seems to be happening here is that the broadband stimulus bill is evolving into a wireless broadband stimulus bill.
Mike Jude
Program ManagerFrost & Sullivan
it also included funding to increase the amount and quality of broadband access, known generally as the broadband stimulus.

In terms of the broadband stimulus funds, the rules for evaluating broadband proposals were somewhat byzantine, consuming 120 pages of tightly written prose. But they made one thing clear: Wireless broadband solutions would be an acceptable response and would be encouraged, in fact.

It's not surprising that when the initial broadband stimulus proposals were received on Aug. 14, more than half of those publicly disclosed were based on wireless technology. Of the rest, several were for broadband long-haul implementations, and a few were for fixed infrastructure deployments (submissions by municipalities have not been made public so far).

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Interestingly, not one of the Tier 1 wireline carriers submitted a proposal. What seems to be happening here is that the broadband stimulus bill is evolving into a wireless broadband stimulus bill.

This is not terribly surprising given the nature of the geographic areas the bill was designed to address. The directive to the Federal Communications Commission (FCC) and National Telecommunications and Information Agency (NTIA) was to apply stimulus dollars to unserved or underserved areas. By definition, underserved means a region where no more than 50% of households have access to facilities-based, terrestrial broadband service, and unserved means areas with less than 90% availability of broadband access.

At least $2.9 billion was specifically earmarked for rural broadband projects. Coincidentally or not, the funding favors areas where wireless technologies would tend to make the most sense.

Wireless projects make better sense in rural areas from an economic standpoint. For the same amount of funding that would deploy a rather limited amount of fixed infrastructure, a relatively vast area can be covered with a few cell sites. Given the rural nature of much of the U.S., the virtues of wireless are clear.

Broadband stimulus funding has net neutrality caveats

But before the champagne is uncorked, a few wrinkles that need to be considered. >p>The stimulus rules also contain a heavy dose of common carriage language in the form of net neutrality. This means that for those successful applications, carriers will need to provide equal access to the broadband connection to competing service providers. If the project is marginal to begin with (to the point where public funding is required), then a requirement for open access might potentially reduce the ROI sufficiently to make the project non-viable in the long run.

As noted in the upcoming Stratecast report, Broadband Stimulus and Net Neutrality: Impact on Access, broadband stimulus only covers up to 80% of the project costs. This means carriers will need to obtain funding in any case and must factor the carrying cost of this debt into their financial calculations. For projects that don't quite meet all of the criteria, less than 80% funding may be provided. Therefore, carriers must plan for a real business model that realistically assesses the number of subscribers. A "build it and they will come" approach won't work here.

Ultimately, many wireless projects will probably be funded. For those providers that have submitted requests or plan to in subsequent rounds of funding, attention to the long-term viability of the deployments is critical.

At some point, the public money will be consumed and the networks that have been deployed under the stimulus will need to stand on their own financially. Attention to the business model and the potential subscriber base are critical in ensuring that the broadband stimulus funding leads to long term benefits rather than short-term experiments.

About the author: Mike Jude is a program manager at Stratecast/Frost & Sullivan in charge of the consumer communication services practice. He brings 30 years of experience in technology management in manufacturing, wide-area network design, intellectual-property management and public policy. Jude holds degrees in electrical engineering and engineering management and a Ph.D. in decision analysis. He is co-author of The Case for Virtual Business Processes: Reduce Costs, Improve Efficiencies and Focus on Your Core Business, Cisco Press, 2003.

This was last published in September 2009

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