Universal Broadband in the United States: Is it a Pipe Dream or Soon-to-be Reality?

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1 Santa Clara University School of Law From the SelectedWorks of Krista S. Jacobsen Fall 2007 in the United States: Is it a Pipe Dream or Soon-to-be Reality? Krista S Jacobsen, Santa Clara University Available at:

2 in the United States: Is it a Pipe Dream or Soon-to-be Reality? Krista S. Jacobsen 1 Introduction Internet access increasingly has been viewed as vital for countries economic well-being. In March of 2004, President Bush expressed the view that access to the Internet for all Americans is critical to the country s economic growth, and he established a goal that every American should have affordable high-speed Internet access by As of December 2006, however, allegedly only 19.6% of the United States population subscribed to broadband service. 2 This take rate establishes the United States as fifteenth in the world in broadband penetration, 3 behind countries such as Denmark, the Netherlands, Iceland, Korea, Japan, the United Kingdom, and Canada. 4 As recently as 2001, the United States ranked as high as fourth. 5 Critics bemoan the country s ranking and call for a national broadband strategy so the United States can improve its position in the broadband race and fulfill the President s vision of affordable high-speed Internet access to all Americans. 6 This paper considers the status of broadband access in the United States and the feasibility of achieving universal broadband. The paper begins by considering whether the country s oft-cited ranking as determined by the Organisation for Economic Cooperation and 1 Bush Seeks Broadband For All, MSNBC, available at 2 OECD Broadband Statistics to December 2006, (last visited Nov. 30, 2007) [hereinafter OECD Broadband Statistics to December 2006]. 3 It does, however, establish the United States take rate as above average among OECD countries, which on average had only 15.5 subscriptions per 100 inhabitants as of June, See OECD, Information and Communications Technologies, OECD Communications Outlook 2007, 158 (2007), [hereinafter OECD Outlook]. 4 OECD Broadband Statistics to December 2006, supra note 2. 5 John B. Horrigan, U.S. Lags Behind: Why it will Be Hard to Close the Broadband Divide, available at 6 Jonathan S. Adelstein, Remarks at the PCIA Wireless Infrastructure Show (Orlando, FL, Oct. 2, 2007).

3 Development (OECD) is a valid indication of how successfully or unsuccessfully the United States is progressing toward universal broadband. Various criticisms of the OECD methodology are presented and evaluated to determine whether the United States is indeed falling behind in the broadband race. The FCC s data collection methodology is also described and critiqued. Next, the paper examines the availability and adoption of broadband. Two classes of candidate broadband users are considered: those to whom broadband is available, and those to whom it is not. The paper investigates why those potential subscribers to whom broadband is available have not subscribed to broadband service. Among the factors considered are wealth, level of education, and age. The paper then posits explanations for why broadband is not available in certain locales. Finally, the paper considers what the broadband policy should be in the United States, and whether specific proposed broadband legislation is likely to help the country realize the goal of universal broadband. 2 Rankings: Why the Sky Might Not Be Falling After All The OECD rankings cause great consternation among commentators in the United States. 7 How can a country that pioneers so much innovation in broadband access lag behind significantly smaller countries like Iceland and the Netherlands? And, more urgently, how can the United States have dropped from a rank of number thirteen in June of 2006 to number fifteen just six months later? 8 This section examines the methodology the OECD uses to compute the rankings and concludes that significant flaws in the methodology reduce the validity and utility of the OECD rankings. The FCC s metrics, and in particular the heavily criticized zip-code-level data, are also considered. Although the FCC s data collection does not provide an accurate 7 See, e.g., Alliance for Public Technology, 11, Achieving : Policies for Stimulating Deployment and Demand (available at html). 8 OECD Outlook, supra note 3, at

4 picture of broadband availability, the underlying data are more accurate than the data relied on by the OECD. Thus, the FCC s metrics are better, but not perfect, indicators of the status of broadband adoption in the United States. Nevertheless, the FCC can improve its visibility into broadband availability and adoption by collecting additional information from service providers, including whether subscribers are residential or businesses, and by excluding broadband satellite subscription information from its presentation of data intended to portray broadband availability as a function of geography. 2.1 The OECD Methodology The OECD recognizes that the best way to measure broadband adoption in a country would be to count the number of people in that country who use the Internet. 9 But finding this number is difficult: some countries statistical agencies determine the number of Internet users based on household survey data rather than by counting users in a more scientific manner. 10 Furthermore, the definition of the term user varies among countries reporting agencies, and therefore the OECD has concluded counting users is not a feasible or reliable way to compare Internet use from country to country. 11 The OECD overcomes this problem by gathering information from major telecommunication and cable providers in participating countries and determining the number of subscribers based on these companies market shares. 12 The advantage, according to the OECD, is that subscriber has the same meaning for most providers: it is the number of active 9 Id. at Id. 11 Id. 12 Id. at

5 registered Internet accounts. 13 Thus, the OECD has concluded that counting subscribers in this manner provides the best internationally comparable metric of Internet use Fundamental Flaws in the OECD Calculations Several flaws in the OECD methodology are obvious. First, as the OECD acknowledges, the number of active Internet accounts does not necessarily accurately reflect the number of Internet users. 15 A single person might maintain several accounts, for example, to reduce spam, and these extra accounts falsely inflate the number of subscribers the OECD counts. Likewise, a single household might use one master account to access the Internet, but each household member might have a separate account on Yahoo!, Google, or the like. Thus, several people would have Internet access in that household, but the OECD would count only one, because the service provider would count only one active Internet account. Thus, by substituting the number of active Internet accounts for the number of users in a country, the OECD data does not accurately reflect how many people use the Internet. Worse yet, it is impossible to say whether the OECD is overestimating or underestimating the number of users in each country. A second problem with the OECD s counting methodology is that the organization only gathers information from major providers. 16 The OECD does not elaborate on how it determines which providers are major, or even which providers it has determined are major. 17 Yet the United States has more than one thousand small, mostly rural telephone companies ; 18 undoubtedly, the OECD does not take into account data from many or most of them. The OECD does not describe how it incorporates market share information in its 13 Id. 14 Id. 15 Id. 16 Id.. 17 United States Telecom Association, Telecom Statistics, (last visited Nov. 10, 2007). 18 Id.. 4

6 calculations, but one can imagine at least two possible approaches. If the major providers information is assumed to be representative of all providers such that if 50% of the major providers customers subscribe, then 50% of all providers customers are assumed to subscribe the number of subscribers attributed to the uncounted providers may be grossly inaccurate, and likely too high. On the other hand, if the data from major providers is assumed to represent the entire body of broadband subscriptions in the country, then some subscribers those of non- major providers go uncounted. In fact, the FCC itself failed to incorporate data from some smaller providers in older calculations. 19 Because the United States has nearly as many competitive local exchange carriers and competitive access providers as independent local exchange carriers, 20 as well as many small independent carriers, failing to include their data underestimates the number of people in the country who use the Internet. This defect is particularly ironic because many of the smaller providers serve rural areas, the service of which is cited as a significant challenge to the achievement of universal broadband. 21 A third problem with the OECD s methodology is that it calculates rankings of member countries by computing the number of broadband subscribers per capita rather than per dwelling or living unit. 22 Thus, when several people live in the same household and access the Internet through a single broadband connection, the OECD methodology underestimates the number of users. FCC Commissioner McDowell noted a consequence of this flaw: if every home and business in every OECD country, including the United States, had a broadband connection, the United States would fall to twentieth in the OECD rankings, despite having one hundred percent 19 FCC, Trends in Telephone Service, 2-1, 20 Id. at See, e.g., BroadbandReports.com, Rural Broadband: Yet More Hearings, No Action, (last visited Nov. 28, 2007). 22 OECD Outlook, supra note 3, at

7 broadband penetration. 23 Similarly, if every existing broadband customer in the United States had a fiber-fed 100 megabit per second (Mbit/s) connection, the country s rank would only be only twelve. 24 The Commissioner asserts that forty-three states, compared individually to some countries that are, according to the OECD, ahead of the United States in the broadband race, have higher household broadband adoption rates than all but five European Union countries. 25 For the United States, a better measure would be to count the number of households with Internet access. It is probably safe to assume that everyone in a broadband-connected household, except perhaps young children, has access to the Internet. An average number of Internet users per household could be computed on a local, regional, or national basis using the average number of household members over a certain age, perhaps ten years, from the most recent census data. For the United States, counting the number of households with broadband access would likely improve the country s ranking. Estimates of how many American households subscribe to broadband vary. In 2005, survey data suggested 28% of households subscribed to broadband. 26 In 2007, estimates were on the order of 42% of households, 27 reaching 47% of American adults. 28 In comparison, as of 2007, only 23% of European Union households subscribed to broadband. 29 An additional problem with the OECD methodology is that the OECD does not count those persons who access the Internet through Wi-Fi hot spots. One-third of the world s Wi-Fi hot spots are in the United States, and it is impossible to know how many Wi-Fi users are online 23 Luncheon Address: Commissioner Robert M. McDowell, Broadband Policy Summit III (June 7, 2007), Crystal City, VA [hereinafter McDowell Address]. 24 Id. 25 Id. 26 United States Government Accountability Office, Broadband Deployment is Extensive throughout the United States but It Is Difficult to Assess the Extent of Deployment Gaps in Rural Areas, 10 (May 2006), [hereinafter GAO Report]. 27 McDowell Address, supra note Horrigan, supra note 5, at McDowell Address, supra note 23. 6

8 at any given moment. 30 Counting the number of users who access the Internet via Wi-Fi for example, at a local café or library is nearly impossible because most network owners have no reason to determine how many users have logged on to the network, especially if they provide the service free of charge. Furthermore, even if a network owner were motivated to and could count how many logins occurred, the owner might not be able to tell whether each logon corresponded to a different person. Additionally, a network owner could not be sure in counting users that each person logging on to the network was not already accounted for in another count of Internet users, such as one counting digital subscriber line (DSL) or cable modem users. Therefore, a single person who logged on more than once could be double counted, as could users who have alternate broadband access. Yet there may be some people who access the Internet solely through Wi-Fi hotspots, and these users are currently uncounted by the OECD. Thus, although accurately counting Wi-Fi users is difficult, by not counting those users who access the Internet solely through wireless means, the OECD almost certainly underestimates the number of Internet users in the United States and in other OECD countries with large numbers of hot spots. 2.3 Problems With Relying on the OECD Rankings as an Indicator of Broadband Adoption One problem with relying on the OECD rankings to determine how well or poorly a country s residents are adopting broadband is that the OECD does not take into account a country s geographic size or population density, which disadvantages rural countries. 31 Broadband access through wired means requires certain minimum capabilities and characteristics of those wires and their associated network hardware. For example, achievable DSL speeds vary 30 Id. 31 McDowell Address, supra note 23. 7

9 inversely with the length of the telephone line; therefore, operators typically do not deploy DSL on lines longer than about 18,000 feet (approximately 3.4 miles). 32 Because telephone lines in rural areas tend to be longer than lines in more densely populated areas, provision of DSL might not be possible without extensive plant upgrades. Likewise, sparsely populated rural areas may not have a cable plant. Wireless broadband access via Wi-Fi can span only a small area up to 150 feet indoors and up to 300 feet outdoors and signals in the unlicensed band used for Wi-Fi signals are attenuated by walls and suffer from interference from other signals that use the same band. 33 Consequently, in some rural areas, the only reasonable broadband options may be a satellite link or a wireless technology such as the WiMAX standard. 34 These factors lead to the inevitable conclusion that bringing broadband to rural areas is fundamentally more difficult, and possibly more expensive, than bringing broadband to densely populated areas. Thus, countries with large rural areas, such as the United States, face a bigger challenge than most other OECD countries. In fact, as of October of 2006, Canada was the only country ranked higher than the United States with a similar size, and most of Canada s population is resides within 200 kilometers of the United States border. 35 Those who believe the United States is not adopting broadband rapidly enough argue that although the United States has a low overall population density, most of the population does not live in rural areas. 36 However, population maps indicate that wide swaths of the United States 32 Philip Golden, Hervé Dedieu, and Krista S. Jacobsen, Implementation and Applications of DSL Technology, 645 (Auerbach Publications 2008) [hereinafter Golden]. 33 Slate.com, Wi-Fi for Dummies, (last visited Nov. 29, 2007). 34 Institute for Electrical and Electronics Engineers, : Part 16: Air Interface for Fixed Broadband Wireless Access Systems (2004). 35 Natural Resources Canada, Population Density 2001, (last visited Nov. 8, 2007). 36 Daniel K. Correa, Assessing Broadband in America: OECD and ITIF Broadband Rankings, 5 (April 2007). 8

10 are not what the census bureau classifies as metropolitan areas. 37 Other maps show that these non-metropolitan areas are, in fact, populated by between ten and one hundred people per square kilometer. 38 Furthermore, OECD studies show that countries with more dense urban populations do not necessarily have higher levels of broadband penetration. 39 Some commentators argue that the population density of the United States should not be taken into account because counties with even lower population densities, such as Iceland and the Scandinavian countries, rank higher than the United States. 40 However, as is the case in Canada, most of the population in those countries is concentrated in urban areas. For example, 92% of Iceland s population lives in urban areas. 41 In contrast, only 77% of the population in the United States lives in areas classified as urban. 42 As for Scandinavian countries, Denmark, which is currently the leader in broadband according to the OECD, does not have a lower population density than the United States: Denmark has 123 people per square kilometer, 43 whereas the population density in the United States is only 29 people per square kilometer. 44 The population density of Sweden is indeed lower than in the United States, with twenty people per square kilometer; however, 83% of the population lives in urban areas. 45 Therefore, comparing broadband adoption in the United States with broadband adoption in geographically 37 United States Census Bureau, Metropolitan Areas of the United States and Puerto Rico: 1999, 38 NASA Earth Observatory News, United States Population Density Map, (last visited Nov. 8, 2007). 39 Correa, supra note 36, at Alliance for Public Technology, Achieving : Policies for Stimulating Deployment and Demand, 13 (available at 41 World Resources Institute, EarthTrends: The Environmental Information Portal, Country Profile Iceland, (last visited Nov. 10, 2007). 42 World Resources Institute, EarthTrends: The Environmental Information Portal, Country Profile United States, (last visited Nov. 10, 2007). 43 World Resources Institute, EarthTrends: The Environmental Information Portal, Country Profile Denmark, (last visited Nov. 10, 2007). 44 World Resources Institute, EarthTrends: The Environmental Information Portal, Country Profile United States, (last visited Nov. 10, 2007). 45 World Resources Institute, EarthTrends: The Environmental Information Portal, Country Profile Sweden, (last visited Nov. 10, 2007). 9

11 smaller countries or countries with more highly concentrated urban populations is, given the reach limitations of DSL, the lack of cable infrastructure in rural areas, and the limitations of wireless technology, fundamentally unfair. 2.4 The FCC s Methodology Section 706 of the Telecommunications Act of 1996 requires the FCC to encourage deployment of advanced telecommunications in the United States on a reasonable and timely basis. 46 To meet this obligation, the FCC instituted a formal program to collect standardized information about high-speed service subscriptions from wireline and wireless telephone providers, cable operators, satellite service providers, and all other facilities-based providers of broadband services. 47 The FCC collects the number of broadband connections provided by DSL, T1 lines, cable modem, optical fiber, satellite, fixed and mobile terrestrial wireless, power lines, and all other technologies, 48 where broadband is defined as a connection that supports a maximum bit rate of at least 200 kilobits per second (kbit/s) in at least one direction. 49 In addition, the FCC collects percentage breakouts for specific counts of connections, such as the percentage of total connections a company provides over local loop or wireless last-mile facilities it owns, the percentage of total connections that provide bit rates in excess of 200 kbit/s in both directions to residential customers, and information about connection speeds. 50 Each independent local exchange carrier (ILEC) is also required to report its best estimate of what percentage of its customer base could subscribe to DSL, whether from the ILEC or a competitive 46 FCC, High-Speed Services for Internet Access: Status as of June 30, 2006, 1 (2006), 47 Id. 48 FCC, Instructions for Local Telephone Competition and Broadband Reporting Form (FCC Form 477), 3-4 (2007), 477/477instr.pdf. 49 Id. at Id. at 5. 10

12 provider, over the ILEC s facilities. 51 Cable plant owners are required to report the same information with respect to broadband cable modem service. 52 Finally, the FCC collects from each provider a list of zip codes in which at least one of the reported broadband connections, whether for a business or residential customer, is provided Flaws in the FCC s Data The FCC has been criticized for its data collection, which some feel presents a misleading and overly optimistic picture of broadband availability and adoption in the United States. 54 Following some scathing criticism, particularly for its collection of zip-code-level information, 55 the FCC has improved its data collection, but room for improvement remains. 56 At the outset, it is important to recognize that broadband availability and broadband adoption are different, but related, concepts. Availability concerns technical, regulatory, and business issues, and the actions of service providers. Adoption, on the other hand, concerns the actions of consumers, which may be motivated by social, economic, and educational factors. Availability is possible without adoption, but adoption is not possible without availability. Therefore, broadband availability is arguably the more pressing concern and, as Congress directed and the FCC recognizes, should be the focus of the FCC s data collection effort. 57 Unfortunately, however, most of the data collected by the FCC provides information about broadband adoption. The most widely criticized data is the zip-code-level data, which 51 Id. at Id. 53 Id. at See generally Allen S. Hammond, The FCC's Third Report on Broadband Deployment: Inequitable, Untimely and Unreasonable, 24 Hastings Comm. & Ent. L.J. 539 (2002) (noting multiple flaws with the FCC s data collection and presentation). See also (last visited Nov. 10, 2007); GAO Report, supra note Hammond, supra note 54, at GAO Report, supra note In the Matter of Inquiry Concerning the Deployment of Advanced Tele-communications Capability to All Americans in a Reasonable And Timely Fashion, and Possible Steps To Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, 15 F.C.C.R , (2000). 11

13 indicates whether broadband has been adopted by at least one subscriber in a particular zip code. 58 There are two problems with this data as an indicator of adoption. First, it does not distinguish between residential and business customers. 59 Therefore, the existence of at least one broadband connection in a particular zip code does not indicate that broadband has been adopted by any residential customers, 60 who are at the heart of the concern over the so-called digital divide. Residential adoption should be the FCC s primary concern because the objective of universal broadband is for every American not every business to have Internet access. The second problem with the zip-code-level data is that it simply indicates at least one home or business in that zip code subscribes to broadband; it does not indicate how many broadband subscribers are in that zip code. 61 Therefore, it could be misconstrued as indicating a large number of people in that zip code have broadband access. Interestingly, the FCC considered requiring providers to report how many subscribers they serve within each reported zip code, which would have provided more accurate adoption data, but it decided not to require this information after several providers complained the data would be too expensive and burdensome to generate. 62 The providers argued that the burden imposed by the additional requirements would outweigh any benefits of more detailed information on broadband deployment in the United States In the Matter of Inquiry Concerning the Deployment of Advanced Tele-communications Capability to All Americans in a Reasonable And Timely Fashion, and Possible Steps To Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, 17 F.C.C.R. 2844, 2848 (2002); GAO Report, supra note 26, at Hammond, supra note 54, at GAO Report, supra note 26, at Hammond, supra note 54, at 544; GAO Report, supra note 26, at GAO Report, supra note 26, at Id. 12

14 The larger problem for the FCC is that the zip-code-level data has been misinterpreted as a measure of broadband availability, 64 probably on the theory that broadband must be available where it has been adopted. In fact, the FCC did not originally intend for the zip-code-level information to be used for this purpose. 65 But because the FCC collects no other data that indicates where across the country broadband is available, the zip-code-level information has been used, even by the FCC, as if it indicated availability. 66 The flaw in using adoption data to infer availability on the zip code level is, of course, that if a single home or business in a zip code has broadband access, the entire zip code is presumed to be wired, and broadband is assumed to be available to all households in the zip code, when in fact it is possible that broadband is only available to that single home or business. 67 As a result, the zip-code-level data may be used to overstate broadband availability. 68 Another criticism of the FCC s zip-code methodology is that it improperly includes satellite service. 69 Regarding availability, because broadband service over satellite is available throughout the country, one can argue that broadband is now available to everyone in the United States. 70 But satellite equipment and service tend to be more expensive than equipment for DSL or cable modem broadband access, 71 which suggests satellite would not be most consumers first choice for broadband access. 72 Furthermore, because satellite connections require signals to travel to and from a satellite, they have higher latency than terrestrial-based broadband 64 See, e.g., BroadbandReports.com, Mapping American Broadband, (last visited Nov. 30, 2007). See also GAO Report, supra note GAO Report, supra note 26, at Id. 67 Hammond, supra note 54, at Id. at See also GAO Report, supra note 26, at GAO Report, supra note 26, at Id. 71 Id. at OECD, The Development of Broadband Access in Rural and Remote Areas, 10 (2005), [hereinafter OECD Rural Broadband]. 13

15 connections 73 and are unsuitable for delay-sensitive applications, such as gaming. Some satellite services use subscribers telephone lines to send data from the home, thus making the phone line unavailable for calls while the broadband connection is in use. 74 For these reasons, satellite service offers a different, and arguably less desirable, broadband experience and is not a true substitute for DSL or cable modem. 75 Thus, the FCC s primary concern should be the availability of broadband via terrestrial-based access methods. Furthermore, the inclusion of satellite subscriptions in the FCC s zip-code-level data decreases the usefulness of that data even as an indicator of broadband adoption. 76 Satellite broadband customers are scattered throughout the country, and it is entirely possible that there is a single satellite subscriber in a particular zip code, and no other broadband access is available or has been adopted. 77 Yet the FCC s zip-code-level data would suggest that zip code is wired for broadband. 2.6 Improving the FCC s Data Collection The widespread criticism of the zip-code-level data has shown that the FCC erred by not requiring providers to report how many subscribers are served, or servable, in each reported zip code. The FCC can improve its zip-code-level adoption data by requiring providers to disclose how many broadband subscribers are in each zip code, and how many of them are residential subscribers. This information would allow the FCC to map precisely where residential broadband subscribers reside at least to zip code granularity and, perhaps more importantly, to determine where broadband is not available to residential customers. In so doing, the FCC can 73 Id. 74 Id. 75 FOX News, Satellite Broadband Access: Slow, Expensive, Necessary, (last visited Nov. 11, 2007). 76 GAO Report, supra note 26, at Id. 14

16 determine more accurately how rapidly the United States is bridging the digital divide and progressing toward universal broadband availability. The FCC currently requires providers to estimate what percentage of their customers could subscribe to DSL or cable modem service, and this data gives some indication of broadband availability. The FCC can improve the visibility into broadband availability by requiring providers to report how many facilities (central offices or cable head-ends) they own, how many of those facilities have been fitted with equipment to provide DSL or cable modem service, how many customers that equipment can support, the total number of customers connected to each facility owned by the provider, and how many of those customers subscribe to broadband. Knowing that a particular AT&T central office is wired for DSL, for example, means that 100% of customers on lines shorter than 16,000 feet have broadband available to them Status of Broadband in the United States The previous section concluded that the OECD s rankings are not a good indicator of how well or rapidly the United States is progressing toward the goal of universal broadband. 79 The section also found that the FCC collects data primarily related to broadband adoption, and that it can improve its visibility into how well the United States is progressing toward universal broadband by collecting more detailed information indicative of broadband availability. Given the asserted importance of the Internet to the country s social and economic welfare, this section considers factors that affect broadband availability and adoption in the United States. 78 from Tom Starr, AT&T Labs, to Krista S. Jacobsen, student, Santa Clara School of Law (Nov. 12, 2007, 08:54:00 PST) (on file with author). 79 Some commentators argue that rankings matter because they provide information about the upper limit of what is possible in broadband deployment, even though countries are different. See, e.g., Correa, supra note

17 3.1 Areas Where Broadband is Available, But Not Adopted Several factors appear to affect peoples decisions not to subscribe to broadband service when it is available. First, survey data indicates that a sizeable segment of the population 29 percent does not use the Internet at all. 80 Many of the people in this group are older or poor. 81 According to the Pew Internet Project s February 2007 survey, the median age of those who do not use the Internet is One quarter of non-internet users report annual household incomes of lower than $20, Furthermore, non-internet users tend not to have positive views of information technology. 84 They may worry about information overload or believe the Internet is a dangerous place. 85 Some may not own a computer. 86 Thus, those who fear information technology likely would not subscribe to broadband service even if they could afford it. 87 Another segment of the population fifteen percent uses the Internet but does not subscribe to broadband service; instead, they use dial-up connections. 88 Surprisingly, Pew Internet reports that only 40% of the dial-up users surveyed said they would like to migrate to broadband, which means 60% of dial-up users are content with dial-up service. 89 One reason may be that dial-up subscribers are not using applications requiring high data transfer rates. 90 For example, can function satisfactorily at dial-up speeds if users are not sending or receiving large attachments. 91 Another reason these users are content with dial-up access may be the availability of Internet access in the workplace: twenty-nine percent of dial-up users have a 80 Horrigan, supra note 5, at Id. 82 Id. 83 Id. 84 Id. 85 Id. 86 GAO Report, supra note 26, at Horrigan, supra note 5, at Id. 89 Id. 90 GAO Report, supra note 26, at Id. 16

18 broadband Internet connection at work, 92 and 93.46% of United States workers connect to the Internet at work using a broadband connection. 93 Although the 40% of dial-up users who would like to switch to broadband might be encouraged to do so by reductions in the price of broadband service, Pew Internet reports that those who switch from dial-up to broadband usually do so because they desire faster connections. 94 People who want to take advantage of high-speed applications and content, such as gaming, voice over Internet protocol (VoIP) service, and music and video downloads, need broadband connections. 95 This need, rather than price, is likely to be the condition that prompts current dial-up users to switch to broadband in the future. Although price reductions might not entice some dial-up users to switch to broadband, income is strongly correlated with broadband adoption. Whereas 62% of United States households with incomes over $100,000 subscribe to broadband service, fewer than 12% of households with incomes less than $29,900 subscribe. 96 Although the higher take rate among high-income households might be due in part to the fact that providers are more likely to make broadband available in high-income communities, 97 there is undoubtedly a strong relationship between income and broadband adoption. Level of education also correlates strongly with broadband adoption. Nearly 47% of United States households with a college graduate subscribe to broadband. 98 In comparison, fewer than fifteen percent of households with only high-school educated residents subscribe to 92 Horrigan, supra note 5, at Website Optimization, OECD Broadband Report Questioned US Broadband Penetration Grows to 81.8% Among Active Internet Users May 2007 Bandwidth Report, available at 94 Horrigan, supra note 5, at GAO Report, supra note 26, at Id. at Id. at Id. at

19 broadband. 99 Households without a high school graduate are unlikely to subscribe to broadband service. 100 These results are not surprising given the obvious relationship between education and earning power, and the fact that high-income households are more likely than poorer households to subscribe to broadband service. Thus, several factors influence broadband adoption in areas where it is available. These factors include age, attitudes toward technology, income, and level of education. People with higher education levels and higher incomes are much more likely to subscribe to broadband, whereas older people may fear the Internet or computers, and both the aged and poor may not be able to afford broadband service. 3.2 Areas Where Broadband Is Not Available In determining why broadband is not available in an area, whether the area is urban or rural can influence the answer. In both rural and urban areas, business factors may explain, at least in part, why broadband service is not available. If a service provider cannot find a way to deploy broadband service profitably, that provider will not deploy broadband. Therefore, if a provider collects data that suggests those living in the area would not subscribe to broadband service if it were available, the provider likely will not deploy broadband, absent some incentive. However, the OECD points out that incumbent service providers often act in response to competition from other broadband providers. 101 Thus, if a single provider finds a reasonable business case and begins to offer broadband service in an area not served by an incumbent provider, whether urban or rural, the incumbent may suddenly find that the business case is more appealing than it first thought Id. 100 Id. 101 OECD Rural Broadband, supra note 72, at Id. 18

20 Rural areas may present additional challenges, however. First, rural areas may not have cable infrastructure. Although the National Cable and Telecommunications Association (NCTA) reports that 119 million housing units are passed by high-speed cable data service, 103 this number exceeds by six million the number of households as counted by the United States Census Bureau in 2006, 104 which suggests the NCTA erred in its calculation, even though it claims to have used the Census Bureau s data. Second, the business case for deploying DSL may not be compelling in rural areas because lines tend to be long. 105 The average line length in rural areas of the United States in 1996 was 20,330 feet, 106 which is too long to support DSL. 107 As a consequence, if a provider does not make costly infrastructure upgrades, DSL may not work in a rural area, or it might provide rates that are only marginally higher than dial-up rates. 108 Although providers serving rural areas can receive monetary support from the high-cost fund, the eligibility criteria differ for large independent local exchange carriers (ILECs) and rural ILECs, 109 and these differences may affect a provider s motivation to offer broadband service. 110 Interestingly, in 2005 the OECD itself argued that a delay in the availability of broadband service in rural areas does not signify market failure, because equipment companies and service 103 National Cable & Telecommunications Association, Broadband Deployment, (last visited Nov. 11, 2007). 104 United States Census Bureau, Current Population Survey (CPS) Annual Social and Economic (ASEC) Supplement, (last visited Nov. 11, 2007) (reporting 116,011,000 households in the United States). 105 GAO Report, supra note 26, at Bruce L. Egan, Improving Rural Telecommunications Infrastructure (1996), Golden, supra note 32, at GAO Report, supra note 26, at In particular, for rural ILECs, the cost of service is based on the historical costs of the infrastructure used to provide a variety of communications services, but for non-rural ILECs, the cost of service is based on forwardlooking costs, and only the costs of providing specific telecommunications services. See GAO Report, supra note 26, at GAO Report, supra note 26, at

21 providers are working to improve the reach and decrease the cost of DSL. 111 Indeed, one reason the AT&T and BellSouth merger was approved by the FCC was because the companies committed to achieve 100% broadband availability to all consumers in the merged company s 22-state region by the end of The OECD believes competition among providers will spur rural broadband deployment most rapidly. 113 In particular, the specter of alternatives to wired broadband access, such as wireless, will encourage incumbents to find a way to provide broadband access. 114 The most economical way to provide broadband in rural areas may be by using wireless means, 115 such as WiMAX. 116 WiMAX is capable of supporting a total of Mbit/s over distances up to 30 miles. 117 Over shorter distances, WiMAX can support higher bit rates, up to about 45 Mbit/s in a 20 MHz band. 118 In any case, the total rate of WiMAX is shared by all users. 119 In Seoul, Korea, operators have successfully deployed an extensive WiMAX network that offers high-speed, mobile data access to users. 120 Although some service providers have expressed concerns about congestion in unlicensed bands of the spectrum, 121 congestion should not be a major issue in rural areas, which by definition are less densely populated than other areas. Limitations of the 2.5 GHz band are, however, potential issues with WiMAX. 122 As users 111 OECD Rural Broadband, supra note 72, at In the Matter of AT&T Inc. and BellSouth Corporation: Application for Transfer of Control, 22 F.C.C.R. 5662, 5827 (2007). 113 OECD Rural Broadband, supra note 72, at Id. at GAO Report, supra note 26, at Institute for Electrical and Electronics Engineers, : Part 16: Air Interface for Fixed Broadband Wireless Access Systems (2004). 117 WiMAX Forum, Can WiMAX Address Your Applications?, 7 (2005), WiMAX.com, What is the actual throughput (data transfer rate) of WiMAX Technology?, (last visited Nov. 11, 2007) [hereinafter WiMAX Throughput]. 119 Id. 120 OECD Outlook, supra note 3, at GAO Report, supra note 26, at WiMAX Throughput, supra note

22 of Wi-Fi know, signals in this band tend to be severely attenuated by any barriers, including walls and foliage. 123 This problem may be resolved if WiMAX is provided in the newly-free 700 MHz band, because this portion of the spectrum does not suffer from the same degradations as the 2.4 GHz band What Should be the Broadband Policy in the United States? The previous section examined why people do not subscribe to broadband service, even when it is available, and why broadband is not available in some areas. This section addresses policy considerations and proposes three general policies to encourage broadband adoption and facilitate broadband availability. 4.1 Changes to the Universal Service Fund The universal service fund (USF) was established to promote the availability of quality services at just, reasonable, and affordable rates; increase access to advanced telecommunications services throughout the Nation; [and] advance the availability of such services to all consumers, including those in low income, rural, insular, and high cost areas at rates that are reasonably comparable to those charged in urban areas. 125 Several accounts within the USF address particular objectives. 126 For example, the low income program gives qualifying customers discounts on telephone installation and monthly telephone service. 127 The USF was originally funded by fees charged to wireline voice customers, and later all telecommunications providers became obligated to pay into the fund. 128 But as broadband 123 Id. 124 FCC, FCC Revises 700 MHz Rules to Advance Interoperable Public Safety Communications and Promote Wireless Broadband Deployment (Jul. 31, 2007), FCC, Universal Service, (last visited Nov. 11, 2007). 126 Id. 127 FCC, Universal Service Program for Low-Income Consumers, (last visited Nov. 11, 2007) U.S.C. 254(b)(4) (West 2001). 21

23 began to proliferate, consumers started to migrate to information service alternatives to traditional wireline voice services, such as VoIP. 129 As a result, contributions to the fund began to decrease. 130 Thus, in June of 2006, the FCC began to require providers of interconnected VoIP services to contribute to the USF. 131 Interconnected VoIP services are those that enable real-time, two-way voice communications, require a broadband connection, require IPcompatible customer premises equipment, and permit customers to receive calls from and terminate calls over the public switched telephone network (PSTN). 132 Consequently, companies who provide services that are substitutes for traditional voice service are now required to pay into the USF. 133 Both the Senate and the House of Representatives of the United States Congress are considering legislation to update the universal service requirements by amending section 254 of Title 47 of the United States Code to incorporate the FCC s VoIP ruling and to make other changes to encourage universal broadband deployment and adoption. 134 The House bill requires USF contributions only from providers who use either telephone numbers or Internet protocol addresses to enable the provision of a service in which real-time, two-way voice communications is the primary function. 135 Thus, the House bill imposes USF obligations only on those providers of services intended primarily to replace traditional wireline telephony service, including Skype 129 Anne Broache, FCC approves new Internet phone taxes, (last visited Nov. 11, 2007). 130 Id. 131 FCC, In the Matter of Universal Service Contribution Methodology, 3 (2006), Id. at Id. 134 The Senate is considering the Universal Service for Americans Act, S. 101, 110th Cong. (2007), and the Universal Service for the 21st Century Act, S. 711, 110th Cong. (2007). The House of Representatives is considering nearly identical legislation in the Serving Everyone with Reliable, Vital Internet, Communications, and Education Act of 2007, H.R. 42, 110th Cong. (2007), and the Universal Service Reform Act of 2007, H.R. 2054, 110th Cong. (2007). 135 H.R. 2054, 110th Cong. (2007). 22

24 and cable telephony providers, which do not necessarily, but can, use the public switched telephone network. In contrast, the Senate bill requires USF contributions from communications service providers, where communications service includes telecommunications, broadband, or IPenabled voice service, whether offered as part of a bundle of services or separately. 136 Therefore, the Senate bill would burden broadband providers, even those who do not provide voice services as a primary product, with USF obligations. In so doing, the Senate bill would expand the reach of the USF and provide a means dramatically to increase USF contributions rather than simply to reinvigorate a deflating USF. Some commentators oppose the USF expansion proposed in the Senate bill. They argue that expanding universal service this way would only greatly increase the already-burdensome fund and that introducing subsidies would distort any attempts to establish the broadband free market many policymakers seek. 137 The argument is that if broadband service provision were to trigger a USF contribution requirement, the cost of providing broadband, which is ultimately borne by consumers, would increase, which might discourage adoption where broadband is available but consumers are price-sensitive. 138 Commentators argue that a tax on broadband, even to support the laudable goal of universal broadband, would actually harm the take rate, and the United States would then find itself even further behind other countries in the broadband race, regardless of how the ranking is computed. 139 Supporters of the legislation argue that broadband providers should have to pay into the USF to ensure broadband access becomes universal, and that as long as the tax is only a dollar or two per month, consumers will not be 136 S. 101, 110th Cong. (2007). 137 Telephony Online, Universal Concerns, (last visited Nov. 29, 2007). 138 Alliance for Public Technology, Achieving : Policies for Stimulating Deployment and Demand, 22, Id. 23

25 deterred from subscribing to broadband service. 140 Whether the proposed House or Senate legislation will, in fact, accelerate or hinder broadband deployment and adoption is unclear. The House bill is less drastic, in terms of likely consumer impact, but the Senate bill is more likely to generate the monies needed to fund universal broadband in addition to reinvigorating and stabilizing the USF. The bill under consideration in the Senate also proposes to establish a program to provide financial assistance from the USF for deployment of broadband service to unserved areas in the United States. 141 The legislation would establish a new account within the USF called the Broadband for Unserved Areas Account. 142 Funds from the new account would be used to provide financial assistance to eligible carriers deploying broadband to unserved areas. 143 In addition, legislation being considered by the House of Representatives would expand the Lifeline Assistance and Link Up Programs to allow eligible consumers to use lifeline assistance for wired or wireless telephone service, Internet access service, wired or wireless broadband service, or any evolving technology the FCC deems to be a high-quality telecommunications service or technology. 144 This part of the proposed legislation should encourage broadband deployment, because monies from the Broadband for Unserved Areas Account can be allocated to defray expenses associated with deploying broadband in rural and other infrastructure-challenged areas. Allowing the recipients of Lifeline and Link Up funds to use their subsidies to purchase Internet or broadband service rather than simply an analog phone line should also encourage broadband adoption, as long as fund recipients understand that with a broadband connection they can get 140 Eric Bangeman, ARS Technica, New bill would impose Universal Service Fund fees for broadband access, (last visited Nov. 29, 2007). 141 S. 101, 110th Cong. (2007). 142 S. 711, 110th Cong. (2007). 143 Id. 144 H.R. 42, 110th Cong. (2007). 24