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The State Of Broadband: Page 4 of 5

Emerging Competition

Simplifying and streamlining the status quo won't be as quick as we want it to be, but the situation isn't bleak.

True, many of the wireline highways are owned by the same folks that own the off-ramps and have a big interest in resisting competition (the likes of AT&T, Verizon, and Qwest from the telco sector and Comcast, Time-Warner, and Cablevision from cable TV). But competition is in fact emerging.

Players like Morris Broadband serve relatively small and rural areas, catering to customers the larger players simply won't touch. CenturyLink, a larger player, serves rural customers in 33 states. PAETEC competes in 84 of the top 100 areas, known as "metropolitan service areas," which are anything but rural. Then there are municipal broadband projects such as LUS Fiber, a fiber-to-the home network started by the utility in Lafayette, La., that offers business services (10-Mbps symmetric) starting at $65 a month.

It's hard to get information out of the incumbents--we tried, but folks like Verizon said that they don't see how consumer broadband is related to serving enterprise customers. But the conventional wisdom is that they won't serve an area unless they can get 25 potential customers per mile. Smaller players will look at areas with five or 10 potential customers per mile. Bottom line: Whenever competitors enter a market, prices fall. In a striking irony, the incumbents opposed to broadband regulation have lobbied local and state authorities to prevent broadband buildouts by municipal entities.

In addition to the wireline broadband alternatives, consider that the airwaves are wide open. Wireless ISPs like Clear and mobile phone and 3G data providers like T-Mobile and Verizon Wireless are interesting, but your bandwidth and reliability may vary when attempting to use their business-class SOHO service. That said, back in the day of the bag phone, nobody would rely on a cell phone for anything that was hugely important, but that didn't keep IT organizations from playing with them in noncritical areas.

We're also interested by the services offered by the likes of Texas-based ERF Wireless, which is completely focused on serving businesses, mainly banking and oil companies. ERF's model: Customers invest in their own wireless infrastructure to backhaul to ERF's network and then pay an ongoing port fee to access a secured backbone. CEO Dean Cubley says ERF's banking customers pay about half of what they were paying to incumbent providers and have about a three-year payback on their capital investment.

The point is, it's not just about regulation, the FCC, and the incumbents. The best way forward might be to rely on alternative wireline and wireless carriers to increase broadband competition.

Economic Development Effect

The two federal broadband stimulus programs, BTOP and BIP, will make a substantial difference in our three criteria of competition, accessibility, and fairness. Most notably, the awards include provisions that any backbone network buildout must allow open access.

The programs will affect your company, if not immediately, then through what we think of as a "trickle-up" effect. Here are a few examples.

The Keystone Initiative for Network Based Education and Research, a Pennsylvania recipient of a $99.6 million BTOP grant, says it will serve "educational, research, healthcare, and economic development partners." These types of organizations used to talk only about education and research. Then, because of affiliations with university hospitals, healthcare got added. Hello, telemedicine! Now economic development organizations are getting involved. Thus, a trickle-up effect.

Even when stimulus dollars aren't in the picture, economic development folks get charged up about high-speed access. Electric Power Board, the municipally owned utility in Chattanooga, Tenn., says it will offer a fiber network with speeds of 150 Mbps to all 170,000 homes and businesses (urban and rural) in its footprint by the end of this year.

J.Ed. Marston, a VP with Chattanooga's Chamber of Commerce, says the utility's fiber network is integrated with a smart grid, letting it provide affordable electric power redundancy, which is "getting a lot of attention from both commercial and industrial users and has been very well received by economic development prospects." One ISP we spoke with who's familiar with the matter says Volkswagen chose to build a plant in Chattanooga (construction started in 2008, with $1 billion of investment and 2,000 new jobs) in part because of proximity to the fiber backbone that goes from Atlanta to Chicago, both significant network access points. Existing midsize (100-plus employees) and large businesses in Chattanooga are now more interested in developing work-from-home opportunities for their employees.