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Public Policy – The Future of Broadband. Gary Bolton Vice President, Global Marketing. About ADTRAN. Leading Suppler of Communications Networks Comprehensive product portfolio > 1,700 products Revenues ~ $500M 2009 Product Development Investment - $83M 1,600 direct employees

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Public policy the future of broadband

Public Policy – The Future of Broadband

Gary Bolton

Vice President, Global Marketing


About adtran

About ADTRAN

Leading Suppler of Communications Networks

Comprehensive product portfolio > 1,700 products

Revenues ~ $500M

2009 Product Development Investment - $83M

1,600 direct employees

Broadband Solutions

FTTH, FTTN, DSL, Carrier Ethernet Solutions

Enterprise Solutions

Converged Access and Unified Business Solutions

Mobile Backhaul

Ethernet, Optical and TDM

U.S. Based Company

Headquartered in Huntsville, AL

US Manufacturing – Huntsville, AL

Traded on NASDAQ: ADTN

Strong Balance Sheet

25 year history of continuous profitability


Broadband stimulus programs round 1

Broadband Stimulus Programs – Round 1

$7.2B Broadband Stimulus Program

Round 1 Infrastructure NOFA

RUS: $2B

NTIA: $1.2B

2200 Round 1 Applications for $28B

Tier 1 and most Tier 2 providers did not apply

133 Awardees (6% of applicants)

51% Last Mile

39% Middle Mile

10% Wireless

$1.87B has been awarded ($1.51B grants + $357M loans)

Only 27% of $7.2B Broadband Stimulus has been awarded

No Funds have been distributed yet for Infrastructure projects


Highlights of bbs round 2

Highlights of BBS Round 2

  • Rural Utilities Service – Broadband Initiatives Program (BIP)

    • $2.2B in funding

      • $1.7B for Last Mile projects

      • $300M for Middle Mile projects

      • $100M for Satellite Projects

      • $5M for Rural Library Broadband and Technical Assistance

      • $95M available for a reserve

  • NTIA – BB Technology Opportunities Program (BTOP)

    • $2.6B overall distribution

      • $2.35B for Comprehensive Community Infrastructure (CCI) projects

      • $100M Sustainable Broadband Adoption (SBA)

      • $150M Public Computer Center (PCC)

  • Round 2 Application Window Closed 3/26/10

    • 867 BTOP Applicants requesting $11B in grants

  • All $7.2B BB Stimulus Funds must be allocated by 9/30/10

    • Project must be substantively complete within 2 yrs of award


Key broadband stimulus changes

Key Broadband Stimulus Changes


National broadband plan

National Broadband Plan

Plan delivered to Congress on 3/16/10

360 pages, 6 goals, 200 recommendations, 60 proceedings to be initiated

Unprecedented Record

36 workshops and 9 hearings

Over 250 witnesses

Nearly 50,000 pages of written comments

31 Public Notices

The Plan reflects the FCC’s view and likely policies, although it did not actually do anything substantive

Congressional Oversight Hearing held 3/25

NBP hearing with all FCC Commissioners

FCC published a schedule of 60 proceedings

Julius Genachowski

FCC Chairman

Blair Levin

NBP Team


2010 key fcc broadband action agenda

2010 Key FCC Broadband Action Agenda


National broadband plan1

National Broadband Plan

Plan sets 6 aspirational goals by 2020

(national compass)

100 Squared Initiative

Global Leadership in Mobile Broadband

Affordable access and skills to use broadband

1Gbps to Community Anchor Institutions

Broadband for Public Safety networks

Broadband for Smart Grid


Current situation

Current Situation

US suffers from slow progress on

Availability, Adoption and Utilization of broadband

100M Americans do not subscribe to broadband

  • 14M lack adequate infrastructure

  • 10M school children are without home access to broadband

  • Millions of Americans lack internet skills for jobs

  • Gap in utilization for other national priorities such as health information technology, Smart Grid, education, and public safety

  • Considerable lags among poor, elderly, racial and ethnic minorities, rural areas, and those with disabilities


Current situation cont

Current Situation cont…

U.S. has numerous providers (vs dominant fixed provider)

Cable plays prominent role

Must strike balance between public and private sectors to spur broadband

Government policy can drive, and has driven progress

3 Categories of Government Policies

Fostering innovation and competition in networks

Redirecting assets that government controls or influences

Optimizing use of broadband to help achieve national priorities


High performance america

High Performance America

Mission: Create “High-Performance America”

Productive, creative, efficient, with affordable broadband everywhere, and everyone able to use valuable broadband applications

4 Categories of Recommendations

  • Policies to ensure robust competition and maximize consumer welfare, innovation, and investment

  • Encourage network upgrades and competitive entry, ensure efficient allocation and management of assets government controls or influences, such as spectrum, poles and right-of-ways

  • Reform current universal service mechanisms to support deployment of broadband and voice in high-cost areas, ensure affordability for low-income, and boost adoption and utilization

  • Reform laws, policies, standards, and incentives to maximize broadband in sectors government influences such as public education, health care, and government operations


National broadband plan implications

National Broadband Plan Implications

Potential Winners

FTTH Providers

100/50Mbps actual rate to 100M Households by 2020, 50/20Mbps to 100M by 2015

$24B anticipated for wireline broadband build out for universal 4/1Mbps broadband

CLECs

FCC will make facility-based providers provide easier access to facilities, interconnection and wholesales services (although the pricing set by the regulators will be important)

Apps Developers

Key to adoption; regulatory environment to encourage investment and innovation

Wireless Providers and Emerging Wireless Providers

Thumb on the scale to enable wireless to compete with wireline providers and also as a “complementary” broadband service

Potential Losers

Cable providers and TV Broadcasters

STB lack innovation, Cable perceived and dominant provider, spectrum demand

Satellite

Relegated to be relevant to only last 1% which still are unserved

Tier 1s

50% of Federal broadband subsidies will be targeted to AT&T, Vz and Qwest serving areas (could also be viewed as subsidy opportunity for Tier 1s)


Key nbp proceedings

Key NBP Proceedings

  • Open Internet/Net Neutrality – Pro: Google Con: Telcos and Cable

    • Potential to discourage new investment from Incumbents

  • Copper Retirement – Pro: CBeyond/XO Con: ILECs

    • CLECs have asked FCC to limit ILECs ability to retire copper when fiber is deployed

  • Special Access Pricing Regulation – Pro: Wireless Con: Wireline

    • Limits on special access pricing used for wireless broadband could “subsidize” such wireless services to the detriment of wireline broadband

  • USF Reform – Pro: Wireless/Wireline broadband Con: Wireline voice and Wireless ETC

    • $7.7B/yr USF funding ($4.5B/yr for High-Cost) will be retargeted to broadband

  • Title I vs Title II – Pro: Wireless/CLECs Con: ILECs

    • FCC is considering reclassifying broadband from Title I information service to a Title II communications service. Heavier Title II regulations will likely result in disincentives for ILEC broadband deployment

  • “Actual” vs “Advertised” Speeds focus by the FCC provides significantly advantages for wireline, eliminating artificial advantage of wireless broadband and cable services

  • Regulation of Pole Attachment Rates – Pro: RLEC/ILECs/CLECs Con: Power and Cable

    • ILEC rates for attachment substantially higher than that charged to cable companies


Comcast decision

Comcast Decision

  • Tuesday April 6th the D.C. Circuit Court vacated the Comcast Order

    • On grounds that the FCC did not properly assert ancillary jurisdiction to impose requirements on Comcast’s network management practices

  • As a result, the FCC extended the reply comment deadline in its Open Internet proceeding from April 8th to April 26th.  

  • FCC still intends to go forward with network management regulation

  • FCC must ensure that it has the proper jurisdiction

  • Potential Options for the FCC

    • Reclassification (Title I vs Title II)

    • FCC can challenge the court’s decision

    • Congressional legislation


Public policy the future of broadband

Possible Outcomes from FCC NBP

FCC is anticipating scenario #1 as justification for more spectrum allowing wireless to compete with wireline to ensure broadband competition


Usf and intercarrier compensations

USF and Intercarrier Compensations

In 2009, USF = $7.7B ($3.56B in 1998)

$4.5B High-cost program

$2.1B Schools and Library program

$897M Low-income program

$206M Rural Healthcare program

14% of LD revenue (5% in 1998)

Universal Reform Act of 2009

USF and ICC role in National Broadband Plan

Goal of making broadband universally available

Contribution Methodology

Transition

Impact of Changes in Current Revenue Flow


Usf and icc reform stage 1

USF and ICC Reform – Stage 1

Stage 1: Laying the Foundation for Reform (2010-2011)

  • Recognize that business case is some high cost areas doesn’t work

  • Create Connect America Fund (CAF) for High Cost areas

    • Support one broadband provider per geographic area

    • Make support competitively and technology neutral

    • Use market-based mechanisms for awarding support

    • Hold funding recipients accountable by

      • Imposing timelines for deployment

      • Verifying broadband availability

      • Setting up reporting requirements

    • Create Mobility Fund providing one-time support to bring all states to 3G

    • Design new USF to minimize tax consequence


Usf and icc reform stage 1 cont

USF and ICC Reform – Stage 1 cont…

Stage 1: continued…

Shift $15.5B over 10yrs from current High-Cost program to broadband

Implement Sprint and Vz wireless merger commitments

Transition rate-of-return carriers to price cap regulations

Freezing Interstate Common Line Support funding pending development of new method

Redirect Interstate Common Line Support to broadband deployment

Establish schedule to phase out legacy High-Cost support for Competitive Eligible Telecom Carriers over 5 yrs

Split estimated $15.5B in savings between Connect America and Mobility Funds

Adopt interim rules to reduce intercarrier compensation arbitrage


Usf and icc reform stage 2

USF and ICC Reform – Stage 2

Stage 2: Accelerating Reform (2012 – 2016)

  • Begin distribution from CAF to areas with most unserved households or to states that provide matching funds

  • Broaden USF contribution base

  • Begin staged reduction of per-minute Intercarrier Compensation (ICC) rates to low, uniform levels;

    • reduce intrastate terminating access to interstate levels, then to reciprocal compensation levels;

    • reduce originating rates in equal increments

  • Implement interim ICC solutions to address arbitrage


Usf and icc reform stage 3

USF and ICC Reform – Stage 3

Stage 3: Complete Transition (2017 – 2020)

Manage total fund size to remain close to current levels (in 2010 dollars)

Recognize that low-income component may continue to grow for reasons unrelated to the Plan

Eliminate legacy high-cost USF program and provide support through CAP

Set deadlines for providers to meet deployment goals

Consider alternative methods, such as satellite broadband, to serve last 1% of households

Phase out per-minute ICC compensation, monitor carrier behavior for exercise of market power

Congress should consider providing optional public funding to CAF to accelerate and smooth the transition (ie several $B over 2-3yr period)

Congress should consider other government actions to promote availability

Expand RUS loan-grant programs and RUS Community Connect program


Adtran s broadband advocacy efforts

ADTRAN’s Broadband Advocacy Efforts

Advocacy Summary

Encourage a full tool box of broadband solutions to allow service providers to choose the best solution on a project by project basis

Discourage any incremental regulatory obligations to enable maximum grant participation by our service provider customers

Stimulate broadband demand and improve end-user experience

Educate and update our customers and community anchor institutions on the latest stimulus and NBP developments

Stimulus website,

webinars,

service provider conference,

weekly blogs


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