This debate was central to the fascinating discussion at the State of Telecom event at Columbia’s Instititue of Tele-Information, held in mid-October. I attended the afternoon sessions.

Wall Street’s vision

Simon Flannery, managing director at Morgan Stanley, described the challenges that are eroding the margins of the cellcos. Of course, the top two cellcos are doing better than the rest. Flannery said that margins at Verizon at about 45 percent, while margins at Sprint are about 16 percent. Apps that are eroding core revenues include free text messaging and free calling.

Meanwhile, cellcos are selling advanced services that require more bandwidth. “Backhauling fiber to towers requires a massive build,” said Flannery. “Smaller carriers lack the cash flow to reinvest, and there is no financing for newtowkrs that are without returns.”

The market is trending towards a duopoly.

Craig Moffett, senior analyst at Bernstein Research, said that the services that people pay for are the easiest to provide: internet access, phone calls, and so on. “People are less willing to pay for information and entertainment, which are services that cost more to provide.”

Voice may require 9.6 Kbps and people will pay $50 per month for it. People will only pay about $30 per month more for the next generation services that multiply data usage by 10 or 100 times. “The sale price per bit is falling faster than the cost per bit.”

At the bottom end of the market, Moffett said, there is the “poverty problem” where households whose net income is negative after paying for food, clothing, and shelter account for perhaps 40 percent of all homes. “Retailers can depend on the upper two quintiles, but telcos have to sell to the full 100 percent of the population,” Moffett claimed.

The consumer advocate concurs

Mark Cooper of the Conumer Federation claimed that he disagreed with everyone on all sides of this debate. He said that in some poor countries, there are 75 cell phones per 100 people. “People who have no electric power at home may have cell phones.”

If a cellco is just adding voice customers, it’s easy to grow. “It is easy to add subscribers but it is expensive to add capacity. Users, uses, and usage all add costs to wireless mobile networks.”

He agreed with the Wall Street analysts that the marginal sale price of bandwidth drops rapidly.

He added, however, that unlicensed wireless spectrum is the great success story of the past two decades. Even AT&T is now selling Wi-Fi. “Unlicensed has no champion in the scrum for spectrum.” Cooper said that at most 10 percent to 20 percent of spectrum should be sold to the cellco monopolies, so that the Washington can avoid the next monopoly and the next “100 year mistake.”

The Economist Magazine has the data

In an article entitled The Limits of Frugality, The Economist magazine warns that those rural cellphone users who have no electricity in their homes will soon be paying higher prices. “Sunil Mittal, the boss of Bharti Airtel, the mobile-phone operator … said the extra cost of servicing rural customers, and their low usage levels, had made things unprofitable. Prices are now expected to go up across the industry, after two decades of decline. India’s low-cost telecoms revolution has, it seems, reached its limit.”

Buildouts will now focus on the urban rich. “Today perhaps 17 percent of India’s population has half of its spending power, according to the Asian Development Bank …. One proxy for the difference in profitability between the urban rich and the rural poor is the price paid for mobile-telecoms spectrum. In the 2010 auctions for 3G telecoms licences, operators bid ten times more for a slice of the airwaves in affluent Delhi, with 18m people, than in east Uttar Pradesh, with 120m people.”

Washington, D.C.’s policymakers should expect fixed wireless and wireline internet to connect the rural poor at an affordable price. The true price of cellular broadband is going up fast, worldwide, and like all price rises, it will harm the poorest the most.

Ohio’s governor faced Alaska’s dilemma in miniature: a large number of worthy projects over a large land area with not enough cash to fund them all.

Unfortunately, Ohio chose simply to recommend (.pdf from Baller Herbst Law Group) most of the projects without ranking them. This is not too helpful to the NTIA.

Projects left off the list include an $800,000 project by father-son WISP JB Nets.

On the other hand, a small $30,000 public library project, Coschocton Public Library, did make it to the list and deserves to be funded.

Ohio has several impressive organizations. Case Western Reserve University submitted several ambitious, worthy applications and they are on the list.

OneCommunity submitted two bids totalling about $180 million ($80 million loan). This impressive outfit is likely to get funding for its non-profit open fiber network covering 58 counties.

A large number of wireless last mile projects were recommended, including Utopian Wireless’ submission.

It will be a tough decision for the federal government, which may not have $350 million for Colorado and may have to fund only part of the project.

The next project on the list, Brainstorm Internet, was one of the best-written applications I saw. It uses DragonWave for backhaul and Redline’s WiMAX equipment and promises to reach a large number of businesses and residences, relative to cost. It looks like a very solid project, exactly what the stimulus was designed for, and asks for only about $6 million, half grant and half loans.

The Viaero Cellular project for Northeast Colorado looks to me like the kind of project the stimulus should not fund. The cellco already has the land plots for the towers, and might, I think, serve this area anyway. It’s asking for $154 million, which is a lot. The company promises to deliver a transparently-managed and open network, but I’m not certain that would be possible.

In contrast to the network applications, some of which seem too expensive, the public computer center applications are generally around one million dollars per project and would deliver clear and measurable value — and would not happen without stimulus funds. Even Denver’s public library is asking for barely more than $250,000.

Educating people on the advantages that broadband can provide them is a valuable task but it will be very difficult to measure. The state has its own project, and I assume that will be funded. Two other projects aim to improve the use of IT in healthcare — a valuable effort but one whose results will also be difficult to measure.

In Missouri, governor Jay Nixon (D) has chosen, in his letter to the federal government, one project, Show-Me Technologies, which will partner with the state to deliver fiber to areas that will lower broadband costs for state institutions.

That angers Victoria Proffer. She suspects that the state pretended to have an open request for information process but that Show-Me Technologies had in fact won the race before it was run.

The project that the governor endorsed is run by a subsidiary of an energy company and promises that the energy company will pay enough in subscription fees to connect electrical substations to keep the project running.

The Show-Me project also promised to be open access and to build towers for WISPs. We’ll see if that happens — and whether they let Proffer’s company offer service there.

Other recommendations in the governor’s letter

The governor’s letter recommends several companies I don’t know. One of them filed 20 applications — which I believe is a sign of poor due diligence — but is a legitimate company. Boonville, MO-based GlenMartin is an equipment company that was founded in 1918 and now makes towers. It plans to cover the rural areas of the state through fixed wireless broadband.

I interviewed Brian Becker of SEMO.net (SouthEast Missouri.net) in 2003. His local million dollar project in self-described “Ashcroft country” also made the list. Congratulations, Brian!
]]> http://net-statistics.net/wordpress/2009/10/missouri-jay-nixon-show-me-proffer/feed/ 0 http://net-statistics.net/wordpress/2009/10/att-brough-wireless-network/ http://net-statistics.net/wordpress/2009/10/att-brough-wireless-network/#comments Mon, 26 Oct 2009 13:42:58 +0000 Alex http://net-statistics.net/wordpress/?p=127 Brough’s slashdotted analysis of the issues in the AT&T Wireless network, built on a mailing list and the work of David Reed, makes interesting reading.

Wireless equipment maker DigitalBridge Communications Corp of Ashburn, VA filed 64 applications across several midwestern and southern states.

New EA Inc, which as Flow Mobile filed 112 applications, plus one application as New EA, also submitted 19 pages of comments to the FCC concerning the broadband stimulus. A key request was that fixed and mobile wireless be considered separate services. Many will disagree.

Tower maker GlenMartin of Boonville, MO filed 14 applications.

Jedai Networks, a maker of broadband equipment which says it’s based in Atlanta, filed 28 applications.

Utopian Wireless Corporation, founded in 2006 to deploy WiMAX in rural areas, filed 40 applications.

Some filed many applications for a reason.

KeyOn Communications, a publicly owned WISP (KEYO.OB), filed 11 applications covering various areas.

The Northeast Michigan Council of Governments/Northern Michigan Broadband Cooperative filed 33 applications, each covering a different point to point fiber link between two institutions. I’ll give them the benefit of the doubt and assume there was a reason to file separate applications rather than one consolidated application.

Middletown, RI-based business-focused WISP TowerStream submitted 19 applications, but I’ll assume they had a good reason.