Telecommunications Demand Aggregation Workshop

1. Telecommunications Demand Aggregation Workshop Douglas Devereaux Office of Technology Policy U.S. Department of Commerce

2. Demand Aggregation WorkshopAgenda • Why Is Broadband So Important? • The Good News and Bad News About Broadband Deployment & Adoption • Recommendations for Results

3. Why Is Broadband So Important? Economic Rebound and Growth • IMPACT OF IT (7%) • 28% GDP Growth • 2x New Job Growth • Reduced Inflation • 2/3rds of New Productivity Growth • IMPACT OF BB ?? • $500B/year to US GDP • 1.2M new jobs Sources: IT – Department of Commerce, Economics & Statistics Administration, Digital Economy 2002; Broadband GDP – Crandall & Jackson, 2001; BB Jobs – TeleNomic Research, Feb. 2002.

4. Access Alone Faster downloads Faster e-mail Why Is Broadband So Important? Revolutionizing Business

5. Using Broadband Business Solutions CRM, Media Streaming, Supply Chain Optimization Virtual Manufacturing Telework, E-Learning, Collaboration Why Is Broadband So Important?Revolutionizing Business • Revolutionizing Business • Productivity • Cost Savings

6. Why Is Broadband So Important? Enduring Freedom The No. 1 technology challenge facing war fighters in Afghanistan is the need for more bandwidth. GCN reporting on comments of Maj. Gen. Charles E. Croom, vice director for command, control, communications and computer systems with the Joint Chiefs of Staff.”

7. Why Is Broadband So Important? Homeland Defense • Video Conferencing • Cockpit Monitoring • Offsite Data Backup • Airport Security • Emergency Info Distribution • Knowledge Mgmt

8. Why Is Broadband So Important? Health Care & Life Science • Anytime, Any Where Check-Ups • 24-7 Patient Monitoring • Expert Consultations • Bio Research

9. Why Is Broadband So Important? Education & Freedom • Distance Learning • Freedom of Information • Access to Truth

10. State of DeploymentThe Good News 2000 “Broadband” Subscriber Growth: 158% (FCC) 2001 “Broadband” Subscriber Growth: 90% (Yankee Group, est.) Years to reach 10% adoption (critical mass) Total years to reach 50% 90% availability from at least 1 provider by end of 2002. - Morgan Stanley VCR 10 14 CD Player 5 10.5 ColorTV 12 18 Cell Phones 8 15 Broadband 4.5 tbd Source: FCC

11. State of DeploymentFuture Projections • 35.1 Million households in 2006 (Jupiter Media Metrix, 2001) • 40 Million residential and 4 million small businesses in 2005 (JP Morgan – McKinsey, 2001) • 58 Million active users by 2004 – 517% growth over 2000 (eMarketer)

12. The State of DeploymentRemaining Challenges Supply Percentage of US Homes Demand TAKE RATE: ~12% households 20% Internet households Sources: Morgan Stanley Dean Witter, July 2001; FCC; NCTA

13. The State of DeploymentRemaining Challenges • VALUE & COST CONCERNS (76% up 11%) • UNDERSTANDING / AWARENESS • NFIB • La Grange, UK (72% “no interest in paying”) • GENERATIONAL (only 58% US pop. online) • HASSLES (Installation & CPE) • SATISFACTION WITH DIAL UP (75%) CONSUMER VALUE NEEDED!

14. The State of DeploymentRemaining Challenges • Lack of Killer Content • Music, Movies & Gaming on the sidelines Digital Rights Solutions & Business Models Needed!

15. The State of DeploymentRemaining Challenges DVD Quality = 4 Mbps MORE BANDWIDTH NEEDED! HDTV Quality = 19.8 Mbps TV Quality = 750 kbps Today’s “Broadband” is Tomorrow’s Traffic Jam Kira Greene, “Coming eventually: TV on the PC,” Broadcasting & Cable, 11 December 2000, 88.

16. The State of DeploymentRemaining Challenges MAJOR NEW INVESTMENT NEEDED! • “The cost of… rewiring to provide fiber-to-the-home to all the roughly 100 million U.S. households – would be some $100 billion, reflecting in considerable part construction costs that are not amenable to dramatic cost reductions.”(National Research Council, 2002) • “The move from narrowband to broadband networking [is] the largest, riskiest and most expensive undertaking the industry could ever attempt to accomplish.”(Bear Stearns & Co. estimating $200B cost for deploying broadband in U.S.)

17. The State of DeploymentRemaining Challenges • Deployment is on track. • It’s a supply-side issue. • Need to achieve deregulatory parity. • Need to subsidize carriers to incent investment. • Government should deploy its own networks. • Key is competition on each platform. • Deployment is off track. • It’s a demand-side issue. • Need greater enforcement of existing regulations. • Need to rely on market-based investment incentives. • Government should buy private services in bulk. • Key is competition among platforms. CONSENSUS RECOMMENDATIONS NEEDED!

18. Heavy Regulation Slow to Change Monopolistic Subsidized Minimal Regulation Rapid Innovation Competitive Market-Driven Why Broadband Presents Such a Policy Challenge Digital Convergence Telecommunications Information Technology PRICE$ PRICE$

19. Recommendations for ResultsPrivate Sector Actions • Lead by Example: Web content & E-Business Practices • Encourage Online Business by Partners, Customers, Suppliers • Support Employee Access at Home / Encourage Telework • Improve Security and Protect Privacy • Encourage distance learningat schools and Universities • Improve understanding of broadband business solutions, identify and remove barriers (Trade Associations)

20. Recommendations for ResultsState Government Actions BEST PRACTICES NEEDED Urban Planning Historic Preservation Revenues (e.g. ROW) Environment Bandwidth Size of Government

21. Recommendations for ResultsFederal Government Actions • Encourage Investment: Accelerated Depreciation for CapX, Internet Tax Moratorium, R&D • Work with FCC, States & Localities on Supply Side Regulatory Issues • Lead by Example via procurements & e-Gov • Partner with Industry to Protect Networks & IPR • Educate & Inform: Users, businesses, consumers

22. Recommendations for ResultsTECHNOLOGY IS THE KEY • Address Digital Rights Management Challenges • Improve Consumers’ Experience with Deployment • Develop Emerging & Existing Platforms • Deliver More Speed Over Coax and Copper • Develop Innovative Deployment Techniques • Develop New Applications to Add More Value • Develop E-Commerce QoS (guaranteed data rates, micro-payments, authentication, security, VoIP)