Debating the Role of Satellite Broadband in the Connect America Fund
DISH Network (Nasdaq:DISH), EchoStar Technologies (Nasdaq:SATS), Hughes Network Systems, ViaSat Inc. (Nasdaq:VSAT), and WildBlue Communications (“The Satellite Broadband Providers”) filed joint reply comments in the Universal Service Fund Reform proceeding, arguing that satellite broadband providers should be allowed to receive direct support through the proposed Connect America Fund. The Satellite Broadband Providers also argue in favor of reverse auctions, and they claim that the technological advances of next-generation satellite broadband will make satellite broadband a competitive alternative to terrestrial wireless and wireline services.
The Satellite Broadband Providers claim that there is a role for all broadband technologies in the Connect America Fund. They cite broad support for satellite broadband in the USF Reform proceeding and argue that “a wide range of commenters concur that satellite is the least expensive way to bring broadband to many consumers.” The Satellite Broadband Providers contend that $21b could be saved if 47% of unserved households are served with satellite broadband instead of terrestrial broadband. The Satellite Broadband Providers reference support from comments by the California and Ohio Public Utility Commissions and Comcast (Nasdaq:CMCSK), and they dispute criticism by the Federal State Joint Board and RLECs. They insist that the criticisms are “based on outdated and incorrect information,” because their opponents do not consider the benefits of next-generation satellite broadband, which is expected to be launched this summer.
One of the most common criticisms of satellite service is latency, but the Satellite Broadband Providers claim “satellite broadband performs just as well as terrestrial wireless broadband for highly latency-sensitive applications such as gaming.” They add that next-generation satellite broadband will enable 12/3 Mbps with moderate latency, coupled with low deployment costs and competitive consumer rates. A May 2011 report by Stephen Cobb for the Rural Mobile & Broadband Alliance (RuMBA) entitled “Satellite Internet Connection for Rural Broadband” is not nearly as optimistic about the technical capabilities of satellite service. This report questions whether satellite is a viable broadband service for rural areas, and it outlines four “satellite service gaps:” latency, bandwidth, price/performance, and service. Based on these critical gaps, this report concludes that satellite service does not enable basic broadband functionality, and “satellite Internet service is an amazing technological achievement but it is not broadband.” I highly recommend this report as a technical critique of satellite broadband, as it provides some interesting analysis which refutes many of the claims made by the Satellite Broadband Providers.
The Satellite Broadband Providers also support reverse auctions, but warn that RLECs should not receive any “rights of first refusal” or preferential treatment in reverse auctions. The Satellite Broadband Providers call RLEC comments in favor of preferential treatment “self-interested attempts to advance private interests at the expense of the public.” The Satellite Broadband Providers add that preferential treatment would violate competitive and technological neutrality, and RLECs should only win reverse auctions if they present the most efficient case—if not, they insist that “RLECs should lose.”
In their reply comments, AT&T (NYSE:T) argues “the Commission should permit CAF recipients to satisfy their service obligations via satellite in extremely high-cost areas.” AT&T and other large price cap carriers wish to be able to partner with satellite providers to deploy broadband in rural areas that would be unprofitable to serve alone. I interpret this argument as a means for the large carriers to secure USF support without actually having to commit to serving rural areas or put forth the investment to do so. The way I see it, the CAF recipient partnered with a satellite provider would receive support to serve a high-cost area. The recipient would pass along some of this support to their satellite partner, but also probably keep a share of the support for themselves. I believe the additional cost of providing support to a satellite provider plus their partner would inflate the bidding price in a reverse auction, defeating the purpose of finding the lowest-cost and most efficient broadband provider. Why is it necessary to direct support through an intermediary if the satellite provider will be doing all the heavy lifting?
I do believe there is a limited opportunity for satellite providers to reach the most uneconomical unserved households with broadband. In some cases is it literally not technologically possible or fiscally practical for a wireline or terrestrial wireless carrier to reach certain locations in remote and rugged areas. However, I do not condone large price cap carriers using satellite broadband providers as a crutch to lean upon only when it is conveniently uneconomical to reach the extremely remote households with terrestrial broadband. If satellite providers participate in CAF, I believe they should be the direct recipients of CAF support, without using a price cap carrier as an intermediary.
Many questions remain regarding the role of satellite broadband providers in the reformed Universal Service Fund: Should satellite providers become direct recipients of CAF, possibly to compete with RLECs, or should they become indirect recipients of CAF support on behalf of price cap carriers? Do extremely rural customers actually want satellite broadband service, even if it is the only option? Will the alleged improvements in satellite technology really make this service a competitive alternative to cable, DSL and wireless broadband? Hopefully some of these issues will be worked through in time for the FCC’s final decision on USF Reform, or extremely rural households may be treated as second-class broadband citizens and the FCC will fail to achieve the goal of reducing the rural-rural digital divide.