Entries in Lifeline (1)

Monday
Dec052011

The FCC’s Egalitarian Cable Broadband Initiative: What does it Mean for RLECs?

The “Biggest Effort Ever” to Address Broadband Adoption

A wave of $9.95 per month broadband plans initiated by the Comcast-NBCU merger and seconded by a new FCC program announced on November 9, 2011 will potentially sweep millions of low-income families online. Comcast’s “Internet Essentials” program and the FCC’s “Connect 2 Compete” initiative are intended to increase broadband adoption through significantly below-market prices coupled with affordable computers and digital literacy training. This is surely a benefit to the millions of families who cannot afford $40-150 per month DSL, FTTH, 4G or high-speed cable, but is it a competitive threat to small companies?

This all started with a little merger earlier this year between cable goliath Comcast and media behemoth NBC Universal. The high-profile and reasonably controversial merger was approved by the FCC with a variety of “conditions and enforceable commitments,” according to a January 18 Wall Street Journal article. One of Comcast’s “voluntary commitments” is to expand broadband to low-income families at reduced rates. The text of the commitment explains: “Comcast will make available to approximately 2.5 million low income households (i) high-speed Internet access for less than $10 per month; (ii) personal computers, netbooks, or other computer equipment at a purchase price below $150; and (iii) an array of digital-literacy education opportunities.”

Enter Internet Essentials. Since it is a voluntary commitment, Comcast isn’t forced to provide $9.95 per month broadband, but one gets the impression that they had better just do it with a smile on their face lest they face scrutiny from the FCC for noncompliance. However, one also has to wonder if Comcast would be implementing such a program if not for merger commitment.

Internet Essentials basically follows the merger commitment language mentioned above to the letter. Eligible participants can purchase broadband for $9.95 per month plus tax, with no price increase, activation fee or equipment rental fee. Second, these families can purchase a computer for $149.99 plus tax at the time of enrollment. Finally, eligible families can receive free Internet training, “available online, in print and in person,” according to the Internet Essentials website.

Households must meet the following criteria to be eligible for the program: live in a Comcast service area, have at least one child enrolled in the National School Lunch Program, have no current Comcast account (or an active account within the last 90 days), and finally “not have an overdue Comcast bill or unreturned equipment,” which will hopefully not disqualify too many people right off the bat. Internet Essentials began at the start of the 2011-12 school year; and enrollment will be open for the next three full school years. Families who enroll can stay at the $9.95 per month rate “as long as at least one child in their household continues to receive free lunches under the National School Lunch Program.”

Internet Essentials was such a groundbreaking idea that the FCC decided to initiate a copycat program (called Connect 2 Compete) on a wider scale, backed by a venerable army of “Who’s Who in Broadband and Tech.” Connect 2 Compete includes the same three principles as Internet Essentials: $9.95 per month broadband, low cost computer and digital literacy training. Just like Internet Essentials, the program is available for households with at least one child receiving free lunches, no broadband service for the last 90 days, and no outstanding bills or equipment rental fees. Connect 2 Compete will start in the spring on a trial basis and then expand nationwide in fall 2012. The companies involved in Connect 2 Compete include the cable industry and NCTA (providing the broadband service), Microsoft and Redemtech (providing refurbished computers with Windows and MS Office), and Best Buy (providing digital literacy training via the Geek Squad). Other participants include Morgan Stanley (microloans), United Way Worldwide, Boys and Girls Club, Goodwill, Connected Nation, NAACP, and several others who together form “an unprecedented coalition of nonprofit and grassroots organization.” According to FCC Chairman Julius Genachowski, “These commitments total up to $4b in value and can benefit millions of Americans.”

Connect 2 Compete has already been met with praise, skepticism and criticism. Both Internet Essentials and Connect 2 Compete are spearheaded by the cable industry and will therefore primarily only impact low-income consumers in urban areas—not that this is bad, since broadband adoption in low-income urban areas a very serious concern. However, what about low-income households that do not include a child on the school lunch program, like elderly, disabled and single-person homes? Perhaps the FCC will tweak the eligibility requirements to include a broader demographic once the program is underway.

When he announced Connect 2 Compete last month, Genachowski cited America’s shameful 68% broadband adoption rate compared to South Korea and Singapore’s 90% adoption rate. Genachowski emphasized that education, jobs and health care are becoming more and more dependent on broadband, and “Broadband is now a basic requirement to participate in the twenty-fist century economy.” It also appears as though the FCC intends for Connect 2 Compete to be an urban counterpart to the high-cost Connect America Fund, even though Connect 2 Compete is focused on adoption while the Connect America Fund is focused on deployment. Deployment isn’t as much of a problem in urban areas; but adoption is certainly an issue in rural areas just as much as in urban areas, so it will be interesting to see if Connect 2 Compete eventually comes to RLEC territory in some form or another.

At least one non-cable, rural-focused broadband provider is apparently jumping on the $9.95 per month broadband bandwagon. CenturyLink recently announced its like-minded program, Internet Basics, which provides 1.5 Mbps (download; same as Comcast) broadband, $150 netbooks and training for more than 100 communities across the country. The key difference with Internet Basics is that households are eligible if they also qualify for the telephone Lifeline program. According to a November 21 blog post by CenturyLink vp of public policy and federal legislative affairs John F. Jones, “The true potential of adoption programs like CenturyLink’s and the ones envisioned by Chairman Genachowski will be realized at the local market level, where communications providers and their employees work hand-in-hand with community leaders and civic groups to properly identify needs, resources, and opportunities to advance not only broadband availability, but also understand and overcome the barriers to adoption and faced by those not online today.”

For RLECs, these low-income broadband adoption programs are definitely something to watch. Connect 2 Compete might actually have a double meaning, where it could boost the competitive position of cablecos that compete with telcos for low-income consumers. But, will small companies see any financial benefit from offering extremely low-cost broadband? They might if they face significant cable competition and serve large populations of potentially eligible households. Another point to consider is that today’s $9.95 customers just might become tomorrow’s $49.95 customers, especially if they utilize the broadband connection to find a new job or improve the family’s financial situation. A November 10 Wall Street Journal article about Sprint’s perspective on the Lifeline program caught my attention, stating that “In any given period, Sprint has said, more than 50% of its net new customers have come to the carrier via the free service,” called Assurance Wireless.

Economic, market and regulatory forces are definitely putting pressure on broadband providers to offer extremely low-rates coupled with cheap hardware and digital training to low-income Americans. Can we expect a large-scale rural initiative similar to Connect 2 Compete? What are RLECs currently doing to help increase broadband adoption and digital literacy for their low-income customers? Does Connect 2 Compete increase the competitive threat posed by cable companies?