|
 Jobs can be created by sensible spending of $5-8B in stimulus over two years, about the most the industry can put to work without massive waste. That represents 25% subsidies on $20B - $30B of total investment. About half of that would provide “ubiquitous” 3G/4G wireless towers, according to the CTIA/Costquest study I’ve confirmed. That would allow President Obama to declare that 99% of American homes can be served with multi-megabit broadband.
The balance would provides generous loans and a 25% subsidy to just about everything that's practical to build in 6 and 18 months. Verizon and AT&T might be able add another 9-10M lines beyond the 20M already in their financial plans. The total cost would be $6-7B, 25% stimulus $1-2B. Cable can't add much for a great reason: they are so rapidly upgrading to 50 megabit DOCSIS 3.0 there’s no good place for stimulus. Comcast and Cablevision will do 100% by 2010, 50M homes and about half the country. The other cablecos are right behind, unless they have financial problems. Without a penny of stimulus, 50 megabit cable will reach 75% of U.S. homes quickly. Loans, not grants, to the financially challanged cablecos (Charter, TIme Warner) would raise the 50 megabit coverage past 85% very quickly.
Commercial rate loans and a very small targeted stimulus will bring 50 meg to at least 85% of the U.S. in a few years, and possibly almost all the the 96% of the U.S. served by cable. 2-3% will need an extension of cable or telcos lines for service, and satellite should be upgraded to much higher speeds. Upgraded satellite is the right choice for the 1% or so remote land based connections would cost $20,000 to ten times that figure, which I consider too high a subsidy. The multi-megabit satellite will offer some competition for people with few other choices.
The rumored spending plans are three or four times more than the $5-8B that's the maximum sensible over two years. Informed sources fear that's because the bill allows companies to collect subsidies on the builds already planned, not just on the additional investment that would build jobs. The details are confidential, but based on the numbers lobbyists are leaking to the press, the level of subsidy is much higher than a sensible 25%. Update, January 5 in D.C. Several senior people tell me they have looked closely at where the money is going, and expect the worst abuses will be avoided.
Obama's first priority is jobs in the next six months. Construction contractors are ready to go for wireless towers and to move faster on Verizon FIOS and AT&T U-Verse. Rural to the last 2%, limited additional cable upgrades, and some smaller projects can also move quickly. Other fiber to the home builds - the only other plausible network investment of size - require extensive planning, systems complicated to develop and training tens of thousands of workers. New entrants (included AT&T switching from U-Verse to true fiber to the home) are highly unlikely to have much impact until three or four years out. British Telecom's 21st Century network is two years behind schedule, and U-Verse also fell two years behind. Verizon stayed on schedule because they ramped slowly over three to five years. Multi-billion dollar investments are simply impractical in a short period.
DSL and cable equipment largely is produced outside the U.S., hence doesn't add U.S. jobs. Upgrading cable, adding more cable/DSL/U-Verse, and upgrading existing wireless towers creates far fewer jobs. There's little labor and a significant percentage of the equipment is imported. I believe that subsidizing computers and connections for poor people is good, as Free Press and others have suggested. However, much of the spending to provide more connections will be spent on imported equipment.
What Must Be Fixed
I don’t know what’s being considered behind closed doors, but all the visible proposals provide $billions to companies for deployments they would - and are - doing without a penny of subsidy. Any competent economist will tell you providing money to shareholders is usually the worst way to create jobs in the short run.
About $5-8B at a 25% subsidy is about the maximum the industry can absorb, but the beggars in business suits believe they can get $20B to $30B for “broadband stimulus.” The best public guess is they will get most of what they want. The people who know aren’t talking, and the people talking don’t know.
You don’t create jobs by giving money to companies for builds they would already do without a subsidy, which is apparently what’s going on in the frantic rush to allocate $700B for Obama’s signature on January 21st. Some smart and honorable people are making the decision, so I’m presenting the data as best I can. Part of the issue is that years of work by some of the most effective advocates in the world has left many confused. The 2+2=5 gang is very, very good.
World class persuasion is always part of D.C. telecom battles, but there’s a particular problem this time. The bill comes from the finance and budget committees, and I hear “the finance committee only knows about tax credits.” The goal is increased investment for more jobs, so if the tax credit only applies to increased investment that would be a fine solution. The latest proposal I’ve seen simply doesn’t do that, but in the rush for a bill may go through. The obvious move is to compromise, and the usual compromise is to spend more money if it is available.
A far better compromise is to appropriate the money as an automatic tax credit for clearly increased spending that creates jobs. Areas that are not clearly mostly new builds/added jobs should be appropriated subject to rules the FCC puts in place. The incoming FCC is on top of the issues, working directly with Congress on the legislation. They can move very quickly because they share the urgency.
Lawyers can show problems with any likely provision, but most of them are unimportant but in practice the industry is so concentrated a good plan can come close, much closer than a general tax credit currently most likely.
An automatic credit is appropriate for new wireless towers for the 7% currently unserved. Few are scheduled to be constructed. Towers can go up in months, the construction and equipment is mostly domestic, and it provides multi-megabit service to many who can’t get it now. That’s my recommendation number one. Other than towers and backhauls, there are few jobs created in wireless. Upgrades are primarily adding equipment, and even phones with U.S. brand names are often manufactured abroad.
I would also provide a credit for spending substantially above 2007. Because capital spending is essentially flat at most companies, providing a credit for anything more than 5% above 2007 would almost all go to incremental investment. Setting that as anything above 2007 spending would work fairly well also. I would also include a provision that the credit only begins when capex is equal to depreciation. Many telcos are not maintaining their networks and buying back stock instead,
It’s actually practical to identify increased, job creating spending for most companies because the current plans are well known. Free Press has found precedents in tax law for credits for spending more than previously planned. The plans of over 60% of U.S. lines are clear. The others can probably document their plans with an audit and perjury penalties with reasonable accuracy, or their plans can be inferred from their direct peers. Time Warner Cable faces similar economics as Comcast and Cox for example so their likely plans should be similar.
All of which is perfectly sensible and probably politically impossible. It would provide AT&T and Verizon far less than they expect, and even less to the cablecos. All have privately discussed throwing a monkey wrench in the process if they don’t get their way, and the decisionmakers may go along to get things passed quickly. These companies have enormous power in D.C., a different story.
So the only reasonable compromise is to appropriate the money, and let the incoming FCC make the particular rules. It’s highly unlikely a tax credit can be quickly defined that doesn’t give away public money without results.
My recommendations below for subsidies are based on the companies’ current public plans and what is practical to actually build. AT&T is going from 16M end of 2008 to 30M in 2010 according to their 2007 annual report. Verizon is on track for 3M/year of FIOS. Comcast and Cablevision are 100% upgraded for 2010.
Everything is secret, with decisions by a few dozen people trying to accomplish two years work in two weeks. There were no holidays this year, and I’m getting my emails returned very late at night. Telecom policy is a very small field, where we all know each other. The people making these decisions are the best of the best, although they need a few more technologists this time. Dale Hatfield is great, but he can’t do everything, and I haven’t met anyone like him on the Congressional side.
The proposals from telco advocates are extraordinary. One supported by Verizon sounds reasonable, but when you read the details in his plan he would pay Verizon and AT&T $3B+ if and only if they first cut their own spending by $6B and similar to the cablecos (ITIF.) Verizon and AT&T running as fast as they can could probably increase 60% in two years, about $6B total or $1.5B
There’s enough money in the $700B program to spend $30B on broadband networks, so everyone is advocating spending it for their preferred project. The cops want new radios, the telco suppliers are out in force for tens of billions for their customers, and every lobbyist in town is promising clients millions in stimulus money. The telco unions are doing everything they can to help their employer. The real powers, Verizon, AT&T and a few peers, are keeping almost invisible because they don’t want people to realize where the money is going. This is the biggest decision of the next five years or more, and they are throwing everything they have at it, privately. Their top people are high level Republican operatives in a town that turned Democrat, so their allies do the public speaking. In private, when Jim and Tom speak, politicians listen.
Even the consumer advocates jumped in, expecting a “broadband strategy” that would bring independent fiber to every home. In background, somehow the actual plans getting funded make only token gestures to anyone other the current companies, likely to collect 95% of the money. Bill Kennard once explained how that happens. “In Washington, we have these people I call black ninjas. They work by night and are very, very good.”
Many consumer-focused advocates would like to offer 200 megabit fiber to every home, an ideal long-term solution. It doesn’t have a chance, because very little can be built in 6-24 months. More would be amazing. Some of the most competent technical outfits in the world (British Telecom, Iliad/Free.fr, Verizon, and AT&T among them) have not been able to ramp large network builds in less than 3-5 years. It’s a good idea to help competitors get started, but this bill is about jobs, not good telecom policy. My number is based on a 60% increase by Verizon, UTOPIA, Burlington, Vermont Tel, and every other company with substantial fiber builds underway. I’d be strongly in favor of helping them or anyone else with realistic plans for millions of lines of fiber within the two years. I don’t believe even AT&T can do things that fast. They have great engineers, but their “FTTN” is totally different from a fiber home build. They’d have to train tens of thousand of people, build a totally different technical architecture (their TV hasn’t been tested over fiber, for example,) and do that when they couldn’t even meet their U-Verse deployment plans.
What Makes Jobs and What Doesn't
Wireless: Building towers require construction labor and domestic steel/concrete. Good job creator. I don't think anything else would create a significant number of jobs. Oher wireless network upgrades mostly involve adding equipment but little labor, and much of the equipment is from abroad. In addition, these upgrades would probably be made whether subsidized or not, because they are needed for customer demand.
Fiber: Fiber to the home is mostly construction labor, while some of the equipment is domestically sourced. Good job creator. The limit here is how much this can increase in 6 and 18 months. I'm estimating about 60%, which is ambitious.
Cable DOCSIS 3.0: Great stuff but few jobs. That's because the network is already in place, so no construction is needed. The total equipment cost is modest, which is wy they re going almost as fast as they can without subsidy.
Cable expansion: Great idea, and effective job creator because it's mostly consruction. Cable is at 96% already, almost all inexpensively upgraded. But extending cable to 98-99% may prove a great idea, will deliver 50 megabits, and is probably much cheaper than the telcos would be. In addition, 3% of cable customers can not get cable modems because their systems need upgrading. That's partly field amplifiers, etc, and requires labor.
DSL new builds: AT&T U-Verse, DSL from field cabinets and the magic word fiber in the name, is a poor job creator. The network is carefully designed for minimum labor, placing cabinets mostly near existing fiber of conduit. Much of the investment is equipment sourced from abroad. The same is true of any likely DSL deployment of Qwest and the RLECs. I've included about a 60% increase in U-Verse, but no DSL build uses that much labor or domestic gear.
Here’s Where it’s Smart to Spend Money
Today, 93% of U.S. homes can get broadband from cable companies, almost all with downstream speeds in the megabits. Only 4-6% of U.S. homes are limited to (painfully slow) satellite. Money meticulously targeted to that 4% is sensible public spending. I'd also support loans and small grants where that would make a difference. For example Direct money to low and middle class families or similar (community technology centers,
Instead, the most discussed use of the billions will provide tax credits to large companies that would be building as much without the subsidy. Detroit may need a bailout, but AT&T expects to earn $10B this year after taxes. Beyond subsidies, I recommend providing nearly unlimited un-subsidized loans for 3G/4G wireless. Some will default but will almost surely cost far less than subsidies of equal effect.
Ubiquitious 3G/4G wireless to homes not covered by towers.
$2-4B to get megabits of wireless to almost all of the currently un-served homes makes sense. Towers and backhaul in un-served areas are probably incremental and almost all U.S. job creating. Nearly anything else in wireless (upgrading to 3G/4G) is mostly non-incremental because it's related to the number of customers to serve. It's success-based spending that will happen anyway. But few rural towers are in the pipeline and they reach can reach unserved customers. (data reliability: I'm working from a detailed CTIA study from Costquest I've double checked with wireless experts.)
Enough subsidy to encourage the telcos and cablecos to build everything practical.
Verizon is set for 3M/year for FIOS, and would be doing well to increase that 50-60%, to 4.5-5M homes/year. Their cost is $700/home, and that build should be encouraged. God job creator, excellent network for customers.
AT&T U-verse is at 16-17M end of 2008, and per their latest Annual Report is set for 30M in 2010, 6 to 7 million more each year. I've based my estimates on a 50% increase in U-Verse, which is ambitous given they missed their 2008 target. Many people don't believe public money should go to a build that's only 1 meg upstream, 10 meg down and creates few jobs because of the low labor demand, but I've included it.
Unserved Rural Areas
5-7% of U.S. homes can’t get anything except satellite. About half of them can be offered 50 megabits for under $400 each with existing cable lines. 1% are difficult to serve with a wire. I personally believe that last 1% should be offered (upgraded) satellite rather than spending $30K to connect some of them. That leaves 2-3% who will require new builds of either DSL or fiber. Generous but not wasteful subsidies should make sense here.
Research and Mapping
A small amount of money, under a $100 million, can be effectively spent on research and mapping ready to go in 3 months and will have a large return. However the data is overwhelming that “demand stimulation” does not work well.
Labor Intensive Training/Community Technology
Direct Subsidies to Families With Less Money
Just please make sure to get a rate appropriate to buying 5M lines instead of paying retail. The carriers have 60-80% margins in their regular rates, which means they can drop prices considerably for a large order.
---------------------
I also recommend nearly unlimited loans with very little subsidy to companies that need them. I would set strict limits on the 25% subsidy to what is clearly incremental builds that create more jobs than the companies already plan. As far as I can figure, giving more than $1B or so total to Verizon and AT&T combined is ripping off the taxpayers for the benefit of their shareholders. |
