ON NTIA INQUIRY INTO BROADBAND DEPLOYMENT

I.INTRODUCTIONThese comments are filed on behalf of Hughes Network Systems (HNS), a division of Hughes Electronics Corporation.HNS provides a broad range of satellite services, including the recently introduced DIRECWAY two-way consumer satellite broadband service.In the near future, HNS will provide its DIRECWAY services via a next generationmore advanced two-way satellite broadband platformservice called SPACEWAY.HNS is committed to providing broadband services throughout the United States and has a great interest in the policies of NTIA, the FCC and other government agencies regarding the deployment of broadband services.[1]

These comments discuss the substantial benefits to the public from broadband deployment and propose some government policies to encourage that development.In particular, these comments discuss onetwo of the five “guideposts” for government policy discussed by NTIA Director Victory in a recent speech.[2]HNS’ comments focus on the need to encourage facilities-based competition to cable and telephone companies as the most effective means of providing broadband to all of America---urban, suburban anHNS’s commentsfocus on: 1) the importance of vigorous competition among competing networks of providers in order toin the effective delivery of high-quality broadband at competitive prices; and rural.

Special emphasis should be placed on encouraging the development of satellite systems to foster competition in the provision of broadband service and regulatory obstacles to the deployment of satellite systems should be eliminated. 2) the importance of recognizing that market forces do not operate similarly in all geographic areas. Both of these considerations point toward greater reliance on satellite systems in providing broadband service and the need to remove regulatory obstacles to the effective deployment of these systems.

II.THE VALUE OF BROADBANDIt is generally accepted that the widespread availability of broadband telecommunications capability brings substantial economic benefits.A recent paper by Robert Crandall and Charles Jackson traces the productivity growth in the economy and its relation to the information technology revolution of the 1990’s.[3]Their contention is that continued national economic growth requires extensive Internet connectivity, which can build upon pastinvestment in telecommunications networking equipment and can facilitate IT networking. The paper quotes Vinton Cerf, Chairman of the Board of the Internet Corporation for Assigned Names and Numbers, as stating that the “Internet will be the 21^st century’s telecommunications infrastructure.”

The study envisions a future with greatly expanded uses of the Internet, including “network aware” appliances connected to databases via high-speed access.Such a networks will require the “always on” characteristic associated with broadband services in order to maximize new services and productivity.Consistent with numerous government statements, the paper demonstrates that broadband access to the Internet will offer tremendous benefits to a broad cross-section of the public.

Crandall andJackson use demand functions to estimate the consumer surplus of high speed Internet access, based on an assumption that the service is priced at $40.00 dollars per month.UtilizingBased on reasonable characteristics of the demand function, the authors estimate a consumer surplus ranging from a low of $284 billion to a high of $427 billion per year.They also estimate the benefits of broadband access using another methodology by identifying specific gains to consumers from access to broadband such as the replacement of second phone lines, improvement in the feasibility and performance of activities such as telecommuting, and the introduction of other, completely new services and applications.Based on this methodology, the authors estimate benefits to consumers ranging from a low of $272 billion to a high of $520 billion annually.The authors also estimate the increase in the “producer surplus” that would result fromlower costs as efficiency improves, could amount to another $100 billion annually.

For the purposes of the NTIA inquiry, it is important to note that the size of theseprojected benefits turn on the extent of broadband service deployment. Crandall and Jackson note that “uUniversal diffusion” of broadband will lead to substantially higher consumer benefits.For example, their study calculates athe difference in the total “surplus” captured by consumers if there isbetween a fifty ninety-four percent broadband penetration of households (the current penetration rate for telephone service) and that with a aninety-four fifty percent penetration rate ( the current penetration rate for telephone service).The would be a gain in consumer surplus if this additional number of households have broadband access is of $200 billion per year withand a related gain in producer surplus of about $50 billion per year.In other words, the marginal value ofgain from nationwide availability- in and of itself -is almost as large as the entireconsumer surplus at a 50% household penetration rate.This is a variation of the principle underlying Metcalf’s Law that the value of a network is proportional to the square of the number of devices attached to it.

III. CURRENT U.S. BROADBAND DEPLOYMENT

In order to place the Crandall-Jackson study in context, it is useful to consider the recent report by the Federal Communications Commission on high-speed services for Internet access, which evaluated the extent of broadband deployment as of December 31, 2000.[4]Without providing a specific definition of “broadband,” the FCC used two categories of service availability: 1) “high-speed services,” which involve “transmission at a speed in excess of 200 kbps in at least one direction”; and 2) “advanced services,” which are defined as “transmission in excess of 200 kbps in each direction.”

The FCC report indicates that broadband availability using either of these measures is growing rapidly and that full economic benefits are likely to be achieved in the short term.The report notes that seventy-five percent of the country’s zip codes have at least one high-speed provider and that these seventy-five percent of zip codes incorporate ninety-six percent of the population.The report is related to a discussion of policy issuesin an FCC Notice of Inquiry.[5] Although the report is optimistic, the absolute numbers of subscribers shown in the report isshould be less encouraging. According to the FCC, the number of high-speed connections at the end of 2000 was 7.1 million lines, of which 5.2 million were residential and small business subscribers.Advanced services accounted for a total of 4.3 million lines.The 5.2 million combined total for residential and small business subscribers can be compared to a recent Census Bureau count of 105 million residential households, suggesting resulting in a penetration rate of about 5%.Including small businesses would result in an even lower penetration rate.

BAn additional concern is that the broadband capacity currently provided in the United States is predominantly coaxial cable, ADSL, and “other” wireline.Significantly, newer technologies such as fiber optic cable and broadband satellite account for a relatively small percentage of the provision of broadband service s in both categories.This low percentage reflects the facts that deployment of fiber in telephone networks is costlyquite new, that cable-based broadband is growing at a very high rate, and that two-way consumer satellite broadband service was only initiated this year. All of these technologies will be major factors in the future of broadband deployment if government policy fully supports the development of these alternative networks.

The Commission’s Third Notice of Inquiry divides broadband infrastructure into four general categories, which are quite useful in understanding current barriers to broadband deployment: 1) backbone; 2) middle mile; 3) last mile; and 4) last one hundred feet (to the end user terminal).A recent paper published by the Discovery Institute draws upon the FCC classification and insightfully makecontributes some significant insights a .[6]The paper begins by making a distinction between unused bandwidth and unusable bandwidth and states that “a network connection is no broader than the narrowest segment of an end to end link5.”The central point is that blockages in the provision ofbroadband in the last mile or even last one hundred feet, prevent the effective utilization of the significant broadband trunk capacity that already exists.

The high costs of wireline, last mile networks is clearly athe primary reason for the low broadband penetration rate.Evaluating these costs provides a basis for understanding better the policy issues that must be addressed in any national policy to support broadband technologies.The Phoenix Center utilizes statistics of RCN ( a large cable operator in the North East) to estimate network costs in a recent analysispaper.[7]Their conclusion is that wireline networks cost $1,750 per house passed and $2,500 per marketable home. Phoenix estimates that even for fiber optic networks in urban areas, the cost of installation is $3 million per mile.Although the report does not indicate how costs vary based on population density, it is obvious that the costs per house passed and per marketable home would consequently be much higher in rural areas.

The Phoenix Center concludes that if, every home in the United States were to be connected via fiber optic cable, the overall cost of the infrastructure would be approximately $300 billion.Given this high sunk cost, a significantreasonable penetration level would be necessary to recover the costs of the network. Accordingly, the financial risks of extending service to these areas is very high, especially if there has not been a demonstration of an effective market by another technology with different cost characteristics..

This risk is reflected in the actual deployment of cable and DSL in the United States.Utilizing data from the FCC report mentioned earlier, the Futron Corporation has determined that only four metropolitan areas in the country have over 200,000 cable and DSL lines and only four Basic Trading Areas reach ten percent household penetration (see Appendix A). While this limited deployment is understandable for wireline technologies, fixed wireless networks also are deployed almost exclusively in heavily populated areas.Futron Corporation has examinedAn examination of the eight fixed wireless operators that dominate the market and has determinedindicates that they are licensed in fifty-seven percent of the country’s Basic Trading Areas but operate in only sixteen percent (see Appendix B).

Satellites, however, by having wide-area and a nationwide ‘footprints’,’ can offer full national coverage as soon as service is provided. Accordingly, satellites have the capability of introducing broadband services into rural and underserved areas more rapidly than terrestrial systems which must build separate, regionalgeographic networks.

IV. BROADBAND SERVICES VIA SATELLITES

In June 2001, Hughes DIRECWAY introduced its Ku-band satellite-return (two-way) consumer broadband service, which meets the FCC’s definition of “high-speed” services by providing Internet access at speeds comparable to DSL and cable.DIRECWAY’s download speeds exceed 400 Kbps and uplink speeds are approximately 128 Kbps. This asymmetric speed of service supports HNS’ experience that the downlink speed – getting information to the customer – is of highest importance and use to residential and small business users who wantrapid access to information, but have far less need to send large quantities of information at high speeds.

In addition, Hughes will soon launch its new SPACEWAY Ka-band geostationary satellite system, which will far exceed the FCC’s standard for advanced services. The SPACEWAY satellite platform will provide super-fast download speeds of starting at 30 Mbps and uplink rates from 512 Kbps for the smallest earth terminals for individual users, and from tens of Mbps for businesses and hubs. SPACEWAY will make this service available nationwide in 2003.

SPACEWAY will utilize a“mesh” network configuration that will provide directconnectivity between each and every consumer obtaining service, eliminating the need to transmit signals through a central hub or pass through speed-choking nodes and lines. SPACEWAY will support services such as videoconferencing and telemedicine applications.Telemedicine applications can include teleradiology and “virtual meetings” for medical consultation as described by the Office for the Advancement of Telehealth in the Department of Health and Human Services.[8]SPACEWAY will also support connection to Wi-Fi wireless LAN services such as IEEE 802.11b, 802.11a and 802.11g.

HUGHES believes that its DIRECWAY and SPACEWAY satellite systems – along with other broadband satellite systems – are likely to be major providers of broadband technology for small businesses and consumers in the United States.The NRTC has stated that “if current business and technology trends continue, Ka-band services could reach rural homes before most urban areas have access to extensive fiber networks, fixed wireless, or 3G mobile networks.”[9]Terrestrial broadband deployment is highly focused on larger businesses, metropolitan areas and affluent suburbs.The cost of either DSL or cable, as noted by the Phoenix Study, generates financial risk in areas with low population density.

However, broadband service will not be limited only to rural areas.Satellites will offer vigorous competition to other providers in urban areas as well.The ability of satellites to compete with terrestrial networks is demonstrated by the factthat approximately fifty percent of the satellite TV customers arein urban areas.Accordingly, broadband satellitesshould be seen as universal competitors to terrestrial providers throughout the United States.

V.THE NEED FOR CLEAR SPECTRUM 

In the Third NOI, the Commission asks what it can do to fulfill its statutory mandate to encourage the deployment of advanced services deployment. For Hughes and other satellite broadbandproviders in this capital intensive sector, the central problem is lack of sufficient unshared spectrum that is suitable for the two-way broadband services.To provide the greatest number of urban and rural users with affordable, advanced services, Hughes and other broadband satellite providers must have sufficient spectrum that is allocated exclusively for satellite use.Failure to accessobtain clear spectrum makes it much more difficult for satellite providers to become a competitive alternative to terrestrial broadband service throughout the country, including rural and other underserved areas.

Hughes is currently facing significant challenges in obtaining rights to clear spectrum in both the Ku and Ka bands.For example, Hughes has urged the FCC not to authorize wireless technologies to share spectrum with satellite services in the Ku-band.The recent MITRE study indicates that there would be “significant interference” to small, ubiquitous satellite television terminals if the spectrum is shared with terrestrial wireless operators unless providers adopt far-reaching “mitigating factors.” The mitigating factors identified by MITRE are neither practical not conducive to the development of a nationwide broadband network. 

HNS has confronted similar difficulties in obtaining clear spectrum in the Ka band.SPACEWAY satellites arewill be some of the most efficient spacecraft ever built with regard to spectrum usage.A single SPACEWAY satellite will offer more capacity of as much asthan ten conventional satellites today.Nevertheless, the amount of available bandwidth directly tly affects the capacity of each SPACEWAY satellite and determines the number of users that can be accommodated at a given orbital position.In the FCC’s Ka-band spectrum and licensing proceeding, Hughes had requested 1000 MHz of clear spectrum in the Ka-band, but was granted only 500 MHz of useable, clear spectrum for use before 2010..[10]8 This decision significantly reduced the number of users that can be served from a single orbital slot. In doing so, the decision negatively impacts the economics of satellite service by limiting the allocation of development costs to a smaller number of spacecraft.

Ruby Ranch in its comments to the Third NOI makes this exact point that satellite providers have insufficient access to clear spectrum.9[11]It states: “[I]f everyone in the US who wants advanced telecommunications services…were to sign up tomorrow for satellite Internet service, the service would slow to a crawl.There is nowhere near enough bandwidth available in present satellites to serve a substantial fraction of US households or businesses.” (emphasis added)In sum, when asked what government can do to speed broadband deployment,Hughes does not suggest that satellites can or should be the only way that wireless Internet service is provided, but Ruby Ranch correctly observes that additional spectrum is needed to support the provision of broadband satellite services.Hughes reasserts its call that at least 1 GHz of clear Ka band spectrum be made available for ubiquitously- deployed satellite broadband terminals.The failure to do so will constrain the ability of satellite broadband operators to provide much needed broadband services to the greatest number of Americans.

VI. CONCLUSION

Congress and the Administration can adopt policies that promote the rapid deployment of broadband services throughout the United States.Such deployment will be increasingly linked to local and national economic development.The country is at the earliest stages of this technological development curve, yet dramatic advances are already on the horizon. Facilities-based competition, notably between cable and satellite systems , will be a major driver in rapidly facilitating broadband deployment.It is essential that we adopt policies that facilitate the development of competing technologies so that, wherever possible, consumers have choice among competing networks.

Federal policy should be as neutral in supporting these different technologies and should not place an undue emphasis on one technological approach or business model over another.We believe that the satellites – as long as they are not precluded by regulatory barriers or discriminatory government policies – will takes their place alongside DSL, cable modem and other technologies as a major competitor in the provision of broadband service in both rural and urban areas.

All broadband technologies have certain advantages.It is important for Congress ad the Administration to recognize the particular advantages that stem from delivering broadband through a limited number of spacecraft, including the low marginal costs to serve new communities, the efficient delivery of service in low-density areas, and the ability to offer services quickly to a very large service area once the spacecraft is deployed.Satellites providers have the ability to speed up the deployment of broadband because service does not have to wait for the deployment of terrestrial infrastructure. 

Despite the great promise of satellites, they cannot reach their full potential unless they are allowed to operate free of unnecessary regulatory barriers and they have access to the essential resources needed to operate.The single most important resource satellite providers must have is sufficient, clear spectrum in which to transmit signals.Without clear spectrum, event the most advanced satellite system cannot reach users with high-quality transmissions.Limiting spectrum not only reduces, not only the quality of service, but the capacity of individual satellites as well.HNS has previously urged the FCC to allocate 1 GHz of clear spectrum in the Ka-band for the next generation of broadband satellites. By doing so, the FCC would go far to promote the rapid deployment of broadband networks and allow the marketplace to push applications, services and technology.oyment of broadband the national policy goal of vigorous competition by alternative networks in both urban and rural communities across the United States.