Telecommunications: Broadband Deployment Is Extensive throughout the United States, but It Is Difficult to Assess the Extent of Deployment Gaps in Rural Areas
Published: 2006-05-05T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Both Congress and the President have indicated that access to broadband for all Americans is critically important. Broadband is seen as a critical economic engine, a vehicle for enhanced learning and medicine, and a central component of 21st century news and entertainment. As part of our response to a mandate included in the Internet Tax Nondiscrimination Act of 2004, this report examines the factors that affect the deployment and the adoption of broadband services. In particular, this report provides information on (1) the current status of broadband deployment and adoption; (2) the factors that influence the deployment of broadband networks; (3) the factors that influence the adoption, or purchase, of broadband service by households; and (4) the options that have been suggested to spur greater broadband deployment and adoption.
section_title: What GAO Found
paragraphs: About 30 million American households have adopted broadband service, but the Federal Communications Commission's (FCC) data indicating the availability of broadband networks has some weaknesses. FCC conducts an extensive data collection effort using its Form 477 to assess the status of advanced telecommunications service in the United States. For its zip-code level data, FCC collects data based on where subscribers are served, not where providers have deployed broadband infrastructure. Although it is clear that the deployment of broadband networks is extensive, the data may not provide a highly accurate depiction of local deployment of broadband infrastructures for residential service, especially in rural areas. A variety of market and technical factors, government efforts, and access to resources at the local level have influenced the deployment of broadband infrastructure. Areas with low population density and rugged terrain, as well as areas removed from cities, are generally more costly to serve than are densely populated areas and areas with flat terrain. As such, deployment tends to be less developed in more rural parts of the country. Technical factors can also affect deployment. GAO also found that a variety of federal and state efforts, and access to resources at the local level, have influenced the deployment of broadband infrastructure. A variety of characteristics related to households and services influence whether consumers adopt broadband service. GAO found that consumers with high incomes and college degrees are significantly more likely to adopt broadband. The price of broadband service remains a barrier to adoption for some consumers, although prices have been declining recently. The availability of applications and services that function much more effectively with broadband, such as computer gaming and file sharing, also influences whether consumers purchase broadband service. Stakeholders identified several options to address the lack of broadband in certain areas. Although the deployment of broadband is widespread, some areas are not served, and it can be costly to serve highly rural areas. Targeted assistance might help facilitate broadband deployment in these areas. GAO found that stakeholders have some concerns about the structure of the Rural Utilities Service's broadband loan program. GAO was also told that modifications to spectrum management might address the lack of broadband infrastructure in rural areas. Also, because the cost of building land-based infrastructure is so high in some rural areas, satellite industry stakeholders noted that satellite broadband technology may be the best for addressing a lack of broadband in those regions. While several options such as these were suggested to GAO, each has some challenges to implementation. Also, a key difficulty for analyzing and targeting federal aid for broadband is a lack of reliable data on the deployment of networks.

section_title: Letter
paragraphs: The universal availability of high speed Internet access over broadband  technologies—commonly referred to as broadband Internet access—has  become a national goal. The Telecommunications Act of 1996 directed the  Federal Communications Commission (FCC) and state commissions to  encourage the deployment of advanced telecommunications capability.  Similarly, in 2004, the President stated that there should be a national goal  for universal, affordable access to broadband technology by 2007. The  importance placed on access to broadband correlates to its many benefits  for individuals and society. Broadband is seen as a critical economic  engine, a vehicle for enhanced learning and medicine, and a central  component of 21st century news and entertainment.
As part of our response to a mandate included in the Internet Tax  Nondiscrimination Act of 2004, this report examines the factors that affect  the deployment—that is, the building of infrastructure over which  broadband services can be provided—and the adoption of broadband  services. We focus particularly on the deployment and adoption of  broadband to households, as opposed to businesses or institutions. In  particular, this report provides information on (1) the current status of  broadband deployment and adoption; (2) the factors that influence the  deployment of broadband networks; (3) the factors that influence the  adoption, or purchase, of broadband service by households; and (4) the  options that have been suggested to spur greater broadband deployment  and adoption. In January 2006, we released a report that examined the  impact of the Internet tax moratorium on state and local tax revenues, as  also mandated by the law.
To respond to the objectives of this report, we selected eight states and  conducted case studies on the status of broadband deployment and  adoption. For each of the states—Alaska, California, Kentucky,  Massachusetts, North Dakota, Ohio, Texas, and Virginia—we interviewed  state and local officials, including local franchising authorities, state public  utility regulators, and representatives from governors’ offices; state  industry and government associations; private cable and telephone  providers; wireless Internet service providers; and municipal and  cooperative telecommunications providers. We also spoke with a variety of  individuals and organizations knowledgeable about broadband services,  such as national industry associations and experts. We spoke with  representatives from FCC, the National Telecommunications and  Information Administration of the Department of Commerce, and the Rural  Utilities Service (RUS) of the Department of Agriculture. To assess the  status of broadband deployment and to understand the factors affecting the  deployment and adoption of broadband, we used survey data from  Knowledge Networks/SRI’s The Home Technology MonitorTM: Spring 2005  Ownership and Trend Report. Knowledge Networks/SRI interviewed  approximately 1,500 randomly sampled households, asking questions about  each household’s purchase of Internet services and the availability of cable  television service. Using these data, we estimated two econometric models:  One model examined the factors affecting broadband deployment and the  second examined the factors affecting households’ adoption of broadband  services. We combined the household survey data with information from  FCC’s Form 477 filings, which contain information on companies’ provision  of broadband services by zip codes. This enabled us to develop information  about what options for broadband a particular household would have. To  assess the impact of Internet taxes on broadband deployment and  adoption, we contacted officials in 48 states and the District of Columbia to  determine whether the state, or local governments in the state, imposed  taxes on Internet access in 2005; we did not evaluate the level of taxation.  We concluded that information from Knowledge Networks/SRI and FCC  (with modifications discussed later in this report) was sufficiently reliable  for the purpose of this report. All percentage estimates from the  Knowledge Networks/SRI survey have margins of error of plus or minus 7  percentage points or less, unless otherwise noted. See appendix I for a  more detailed discussion of the overall scope and methodology for this  report, including a discussion of how we selected the case-study states;  appendix II for an assessment of the data reliability of the Knowledge  Networks/SRI survey; and appendix III for a more detailed explanation of,  and results from, our deployment and adoption models.
We conducted our work from April 2005 through February 2006 in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: Internet access became widely available to residential users by the mid  1990s. For a few years, the primary mechanism to access the Internet was a  dial-up connection, in which a standard telephone line is used to make an  Internet connection. A dial-up connection offers data transmission speeds  up to 56 kilobits per second (Kbps). Broadband, or high-speed, Internet  access became available by the late 1990s. Broadband differs from a dial-up  connection in certain important ways. First, broadband connections offer a  higher-speed Internet connection than dial-up—for example, some  broadband connections offer speeds exceeding 1 million bits per second  (Mbps) both upstream (data transferred from the consumer to the Internet  service provider) and downstream (data transferred from the Internet  service provider to the consumer). These higher speeds enable consumers  to receive information much faster and thus enable certain applications to  be used and content to be accessed that might not be possible with a dial- up connection. Second, broadband provides an “always on” connection to  the Internet, so users do not need to establish a connection to the Internet  service provider each time they want to go online.
Consumers can receive a broadband connection to the Internet through a  variety of technologies. These technologies include, but are not limited to,  the following:  Cable modem. Cable television companies first began providing  broadband service in the late 1990s over their hybrid-fiber coaxial  networks. When provided by a cable company, broadband service is  referred to as cable modem service. Cable providers were upgrading  their infrastructure at that time to increase their capacity to provide  video channels in response to competition from direct broadcast  satellite (DBS) providers such as DirecTV® and Dish Network. By also  redesigning their networks to provide for two-way data transmission,  cable providers were able to use their systems to provide cable modem  service. Cable modem service is primarily available in residential areas,  and although the speed of service varies with many factors, download  speeds of up to 6 Mbps are typical. Cable providers are developing even  higher speed services.
DSL. Local telephone companies provide digital subscriber line (DSL)  service, another form of broadband service, over their telephone  networks on capacity unused by traditional voice service. Local  telephone companies began to deploy DSL service in the late 1990s— some believe, in part, as a response to the rollout of cable modem  service. To provide DSL service, telephone companies must install  equipment in their facilities and remove devices on phone lines that may  cause interference. While most residential customers receive  asymmetric DSL (ADSL) service with download speeds of 1.5 to 3 Mbps,  ADSL technology can achieve speeds of up to 8 Mbps over short  distances. Newer DSL technologies can support services with much  higher download speeds.
Satellite. Currently, three providers of satellite service can offer nearly  ubiquitous broadband service in the United States. These providers use  geosynchronous satellites that orbit in a fixed position above the  equator and transmit and receive data directly to and from subscribers.  Signals from satellites providing broadband service can be accessed as  long as the user’s reception dish has a clear view of the southern sky.  Therefore, while the footprint of the providers’ transmission covers  most of the country, a person living in an apartment with windows only  facing north, or a person living in house in a heavily wooded area might  not be able to receive Internet access via satellite. Earlier Internet  services via satellite could only receive Internet traffic downstream— that is, from the satellite to the subscriber—and upstream Internet  traffic was transmitted through a standard telephone line connection.  Currently, however, satellite companies provide both upstream and  downstream connections via satellite, eliminating the need for a  telephone line connection and speeding the overall rate of service.  Transmission of data via satellite typically adds one-half to three-fourths  of a second, causing a slight lag in transmission and rendering this  service less well-suited for certain applications over the Internet. While  satellite broadband service may be available throughout the country, the  price for this service is generally higher than most other broadband  modes; both the equipment necessary for service and recurring monthly  fees are generally higher for satellite broadband service, compared with  most other broadband transmission modes.
Wireless. Land-based, or terrestrial, wireless networks can offer a  broadband connection to the Internet from a wide variety of locations  and in a variety of ways. Some services are provided over unlicensed  spectrum and others over spectrum that has been licensed to particular companies. In licensed bands, some companies are offering fixed  wireless broadband throughout cities. Also, mobile telephone  carriers—such as the large companies that provide traditional cell  phone service—have begun offering broadband mobile wireless  Internet service over licensed spectrum—a service that allows  subscribers to access the Internet with their mobile phones or laptops  as they travel across cities where their provider supports the service.  Such services are becoming widely deployed and are increasingly able  to offer high-speed services. A variety of broadband access  technologies and services are also provided on unlicensed spectrum— that is, spectrum that is not specifically under license for a particular  provider’s network. For example, wireless Internet service providers  generally offer broadband access in particular areas by placing a  network of antennae that relay signals throughout the network.  Subscribers place necessary reception equipment outside their homes  that will transmit and receive signals from the nearest antenna. Also,  wireless fidelity (Wi-Fi) networks—which provide broadband service in  so-called “hot spots,” or areas up to 300 feet—can be found in cafes,  hotels, airports, and offices. Some technologies, such as Worldwide  Interoperability for Microwave Access (WiMAX), can operate on either  licensed or unlicensed bands, and can provide broadband service up to  approximately 30 miles in a line-of-sight environment.
Under section 706 of the Telecommunications Act of 1996, Congress directs  FCC to encourage deployment of advanced telecommunications capability,  which includes broadband, to all Americans. In implementing the act, FCC  has treated the two most widely available broadband services—cable  modem and DSL service—as information services having a  telecommunications component. FCC’s approach of not treating such  services as telecommunications services has important legal implications  because a service defined as a telecommunications service could be  subject to regulation under Title II of the Communications Act, which  imposes substantial common carrier regulations unless the commission  choose to forebear from their enforcement. As part of its responsibilities,  FCC periodically issues a report to Congress on the status of advanced  telecommunication capability in the United States. To prepare this report,  FCC developed a periodic reporting requirement using Form 477. In  November 2004, FCC modified its rules regarding the filing of the 477 form,  which went into effect for the companies’ second filing in 2005.  Specifically, FCC removed existing reporting thresholds, and companies  are now required to report their total state subscribership by technology.
section_title: About 30 Million American Households Purchase Broadband Service; Despite Evidence of Substantial Broadband Deployment throughout the United States, It Is Difficult to Assess Deployment Gaps in Some Areas
paragraphs: We found that in 2005, about 30 million American households—or 28  percent—subscribed to broadband, although households in rural areas  were less likely to subscribe to broadband service than were households in  urban and suburban areas. Households appear to subscribe to cable  modem and DSL services—the two primary broadband services—in  approximately equal numbers. FCC requires providers of broadband  service to report on the geographic areas in which they serve subscribers,  but these data are sometimes used to infer the status of deployment of  companies’ Internet infrastructure. Some stakeholders find FCC data  collection efforts useful for comparison of adoption of broadband across  states, but we found that the data may not be as useful for understanding  the status of broadband deployment across the country.
subsections: section_title: About 30 Million American Households Purchase Broadband Service
paragraphs: Based on survey data from 2005, we found that 28 percent of American  households subscribe to broadband service. Figure 1 illustrates how  American households access the Internet, by various technologies, and also  shows the percentage of households that do not own a computer. As  shown, 30 percent of American households subscribe to dial-up access, and  about 41 percent of American households do not have an Internet  connection from home. Of those households that do not access the  Internet, more than 75 percent do not have a computer in the home, while  the remaining households own a computer but do not have online access.
Among online households, we found 50 percent subscribe to dial-up  service, and 48 percent subscribe to a broadband service. Additionally, we  found that of those households subscribing to a broadband service, roughly  half purchase DSL service and half purchase cable modem service. (See fig.  2 for the types of connections purchased by online households.)
Finally, we found that households residing in rural areas were less likely to  subscribe to broadband service than were households residing in suburban  and urban areas. Seventeen percent of rural households subscribe to  broadband service, while 28 percent of suburban and 29 percent of urban  households subscribe to broadband service. (See fig. 3 for the percentage  of urban, suburban, and rural households purchasing broadband service.)
We also found that rural households were slightly less likely to connect to  the Internet, compared with their counterparts in suburban areas.
section_title: Deployment of Broadband Appears to Be Extensive, but FCC’s Form 477 Data May Not Provide an Accurate Depiction of Gaps in Broadband Deployment
paragraphs: In order to fulfill its responsibility under section 706 of the  Telecommunications Act, FCC collects data on companies’ broadband  operations. In early 2004, FCC initiated a proceeding to examine whether it  should collect more detailed information for its broadband data gathering  program than had previously been collected. Specifically, FCC asked  whether it should do several things to enhance the broadband data  including (1) requiring providers to report the speeds of their broadband  services, (2) eliminating the reporting threshold such that all providers of  broadband—no matter how small—must report to FCC on its services, and  (3) requiring that providers report the number of connections by zip code.  In late 2004, FCC released an order in which it decided to require all  providers—no matter how small—of broadband to report in the 477 data  collection effort on broadband and also required providers to report  information about their services within speed tier categories. The  commission decided not to require providers to report the number of  connections (or subscribers) that they serve within each zip code or the  number of connections in speed tiers or by technology within each zip  code, finding that finding that such a requirement would impose a large  burden on filers (particularly smaller entities), and would require  significant time to implement. In particular, several providers commented  in the 2004 proceeding that it would be costly and burdensome to develop  the software and systems to generate the detailed zip code-level data and  that the cost and burden of further reporting requirements would likely  outweigh the benefits of more substantial information on broadband  deployment in the United States. On the other hand, 3 state utility  commissions asked FCC to gather more information within zip codes or by  some other Census boundary because such information is, in their view,  important for tracking broadband availability.
Based on the modifications to the filing requirements FCC implemented,  FCC collects, through its Form 477 filings, information on several aspects  of each company’s provision of broadband at the state level, such as the  total number of subscribers served, the breakdown of how those  subscribers are served by technology, and estimates within each  technology of the percentage of subscribers that are residential. For each  technology identified in the state reporting, providers also submit a list of  the zip codes in which they serve at least one customer. As discussed  above, companies do not report the number of subscribers served or  whether subscribers are business or residential within each zip code; they  also do not report information on the locations within the zip code that  they can serve.
In July 2005, FCC found that 99 percent of the country’s population lives in  the 95 percent of zip codes where at least one provider reported to FCC  that it serves at least one high-speed subscriber as of December 31, 2004. In  83 percent of the nation’s zip codes, FCC noted that subscribers are served  by more than one provider, and the commission noted that for roughly 40  percent of zip codes in the United States, there are five or more providers  reporting high-speed lines in service. Although these data indicate that  broadband availability is extensive, we found that FCC’s 477 data may not  be useful for assessing broadband deployment at the local level. While  FCC, in general, notes that the 477 zip-code data are not meant to measure  deployment of broadband, in its July 2005 report, the commission states  that in order to be able to evaluate deployment, the commission “instituted  a formal data collection program to gather standardized information about  subscribership to high speed services. . . .” (Emphasis added. ) Based on  our analysis, we found that collecting data about where companies have  subscribers may not provide a clear depiction of their deployment,  particularly in the context of understanding the availability of broadband  for residential users.
One quandary in analyzing broadband deployment is how to consider the  availability of satellite broadband services. Even though broadband over  satellite may not be seen by some as highly substitutable for other  broadband technologies because of certain technical characteristics or  because of its higher cost, satellite broadband service is deployed: Three  companies have infrastructure in place to provide service to most of the  country. The actual purchase of satellite broadband is scattered  throughout the country and shows up in FCC’s 477 zip-code data only  where someone actually purchases the service. It is not clear how satellite  service should be judged in terms of deployment. Since it is available  throughout the entire country, one view could be that broadband is near  fully deployed. Alternatively, it could be viewed that satellite broadband— while available in most areas—does not reflect localized deployment of  broadband infrastructure and should therefore not be counted as a  deployed broadband option at all. In either case, FCC’s zip-code data on  satellite broadband—which is based on the pattern of scattered  subscribership to this service—does not seem to be an appropriate  indicator of its availability.
Aside from the question of how to view satellite deployment, other issues  arise in using subscribership indicators for wire or wireless land-based  providers at the zip-code level as an indicator of deployment. These issues  include the following:   Because a company will report service in a zip code if it serves just one  person or one institution in that zip code, stakeholders told us that this  method may overstate deployment in the sense that it can be taken to  imply that there is deployment throughout the zip code even if  deployment is very localized. We were told this issue might particularly  occur in rural areas where zip codes generally cover a large geographic  area. Based on our own analysis, we found, for example, that in some  zip codes more than one of the large established cable companies  reported service. Because such providers rarely have overlapping  service territories, this likely indicates that their deployment was not  zip-code-wide and that the number of providers reported in the zip code  overstates the level of competition to individual households. We also  found that a nontrivial percentage of households lie beyond the 3-mile  radius of their telephone central office, indicating that DSL service was  unlikely to be available to these homes.
Companies report service in a zip code even if they only serve  businesses. One academic expert we interviewed expressed a concern  about this issue. Based on our own analysis, we found that many of the  companies filing 477 data indicating service in particular zip codes only  served business customers. As such, the number of providers reported  as serving many zip codes is likely overstated in terms of the availability  of broadband to residences.
FCC requires that companies providing broadband using unbundled  network elements (UNE) report their broadband service in the zip  code data. When a provider serves customers using UNEs, they  purchase or lease underlying telecommunications facilities from other  providers—usually incumbent telephone companies—to serve their  customers. Having these providers report their subscribers at the state  level is important to ensure that correct numbers on the total  subscribers of broadband service is obtained. However, while UNE  providers may make investments in infrastructure, such as in  collocation equipment, they do not generally own or provide last-mile  connectivity for Internet access. Thus, counting these providers in the  zip-code-level data may overstate the extent of local infrastructure  deployment in the sense that several reporting providers could be  relying on the same infrastructure, owned by the incumbent telephone  company, to provide broadband access.
Based on our analysis, we believe that the use of subscriber indicators at  the zip-code level to imply availability, or deployment, may overstate  terrestrially based deployment. We were able to check these findings for  one state—Kentucky—where ConnectKentucky, a state alliance on  broadband, had done an extensive analysis of its broadband deployment.  ConnectKentucky officials shared data with us indicating that  approximately 77 percent of households in the state had broadband access  available as of mid-2005. In contrast, we used population data within all zip  codes in Kentucky, along with FCC’s 477 zip-code data for that state, and  determined that, according to FCC’s data, 96 percent of households in  Kentucky live in zip codes with broadband service at the end of 2004. Thus,  based on the experience in Kentucky, it appears that FCC’s data may  overstate the availability and competitive deployment of nonsatellite  broadband.
Additionally, to prepare our econometric models, we relied on FCC’s 477  data to assess the number of providers serving the households responding  to Knowledge Networks/SRI’s survey. Based on FCC’s data, we found that  the median number of providers reporting that they serve zip codes where  the households were located was 8; in 30 percent of these zip codes, 10 or  more providers report that they provide service. Only 1 percent of  respondents lived in zip codes for which no broadband providers reported  serving at least one subscriber, according to FCC’s data. To better reflect  the actual number of providers that each of the survey respondents had  available at their residence, we made a number of adjustments to FCC’s  provider count based on our analysis of the providers, certain geographic  considerations, and information provided by the survey respondents.  After making these adjustments, the median number of providers for the  respondents fell to just 2, and we found that 9 percent of respondents likely  had no providers of broadband at all.
Despite these concerns about FCC’s 477 data, several stakeholders,  including a state regulatory office and a state industry association, said  they found FCC’s data useful. An official at a state governor’s office also  noted that analysis of FCC data allowed them to make conclusions about  the extent of deployment in their state. Similarly, an official in another  governor’s office said that they use FCC’s data to benchmark the  accessibility of broadband in their state because it is the only data  available. A few academic experts also told us that they use FCC’s data.
section_title: A Variety of Market and Technical Factors, in Addition to Government Involvement and Access to Resources at the Local Level, Have Influenced the Deployment of Broadband
paragraphs: Several market characteristics appear to influence providers’ broadband  deployment decisions. In particular, factors related to the cost of deploying  and providing broadband services, as well as factors related to consumer  demand, were critical to companies’ decisions about whether to deploy  broadband infrastructure. At the same time, certain technical factors  related to specific modes of providing broadband service influence how  and where this service can be provided. Finally, a variety of federal and  state government activities, as well as access to resources at the local level,  have influenced the deployment of broadband infrastructure.
subsections: section_title: Several Key Market Factors Related to the Cost of Service and Demand Influence Deployment Decisions
paragraphs: As companies weigh investment decisions, they consider the likely  profitability of their investments. In particular, because broadband  deployment requires substantial investment, potential providers evaluate  the cost to build and operate the infrastructure, as well as the likely  demand—that is, the expected number of customers who will purchase  broadband service at a given price—for their service. Based on our  interviews, we found that several cost and demand factors influence  providers’ deployment decisions.
subsections: section_title: Cost Factors
paragraphs: The most frequently cited cost factor affecting broadband deployment was  the population density of a market. Many stakeholders, including  broadband providers, state regulators, and state legislators, said population  density—which is the population per square mile—was a critical  determinant of companies’ deployment decisions. In particular, we were  told that the cost of building a broadband infrastructure in areas where  people live farther apart is much higher than building infrastructure to  serve the same number of people in a more urban setting. As such, some  stakeholders noted that highly rural areas—which generally have low  population density—can be costly to serve. Results from our econometric  model confirm the views of these stakeholders. We found that densely  populated and more urbanized locations were more likely to receive  broadband service than were less densely populated and rural locations.  For example, we found that urban areas were 9 percentage points more  likely to have broadband service available than were rural areas.
Terrain was also frequently cited as a factor affecting broadband  deployment decisions. In particular, we were told that infrastructure build- out can be difficult in mountainous and forested areas because these areas  may be difficult to reach or difficult on which to deploy the required  equipment. Conversely, we were told that flat terrain constitutes good  geography for telecommunications deployment. For wireless providers, we  were told that terrain concerns can present particular challenges because  some wireless technologies require “line-of-sight,” meaning that radio  signals transmitted from towers or antennas need an unobstructed  pathway—with no mountains, trees, or buildings—from the transmission  site to the reception devices at users’ premises. Terrain can also affect  satellite broadband availability in rural areas that have rolling hills or many  trees that can obstruct a satellite’s signal.
Some stakeholders also said costs for what is known as “backhaul” are  higher for rural areas and can affect the deployment of broadband  networks in these areas. Backhaul refers to the transmission of  information—or data—from any of a company’s aggregation points to an  Internet backbone provider that will then transmit that data to any point on  the Internet. This is also sometimes referred to as the “middle mile.”  Internet traffic originating from rural areas may need to travel a long  distance to a larger city to connect to a major Internet backbone provider.  Because the cost of transmitting over this distance—that is, the backhaul— can be high, one stakeholder noted that backhaul costs are another barrier  to deployment in rural areas. However, using our econometric model, we  did not find that the distance to a metropolitan area with a population of  250,000 or more—our proxy for backhaul—was associated with a lower  likelihood of broadband deployment.
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Based on our interviews with stakeholders, we found that certain demand  factors influence providers’ deployment decisions. In particular, because  stakeholders noted that potential providers seek to deploy in markets  where demand for their service will be sufficient to yield substantial  revenues, certain elements of markets were identified as affecting the  demand for broadband:   Ability to aggregate demand. For rural locations, officials we spoke  with stressed the importance of aggregating sufficient demand. For  example, officials in one state told us that to justify the cost of  deployment in rural areas where population density is low,  telecommunications providers need to be able to aggregate all of the  possible demand to make a business case. We were also told that  aggregation is furthered by ensuring that a large “anchor tenant” will  subscribe to the service. Possible anchor-tenant customers described to  us included large businesses, government agencies, health-care  facilities, and schools. Because the revenues from such customers will  be significant, two stakeholders noted that the anchor tenant alone will  help to cover a significant portion of the providers’ expenses.
Degree of competition. We found that the degree of existing  broadband competition in a local market can inhibit or encourage  deployment, depending on the circumstances. Some new entrants— companies not already providing a telecommunications service in an  area—reported that they avoid entering markets with several existing  providers and seek out markets where incumbent telephone and cable  companies do not provide broadband service. The lack of existing  service enables the entrant company to have the potential to capture  many customers. At the same time, stakeholders told us that  deployment by a new entrant often spurred incumbent telephone or  cable providers to upgrade their infrastructures so as to compete with  the entrant in the broadband market.
Technological expertise. A few stakeholders noted that demand will  be greater in areas where potential customers are familiar with  computers and broadband, as these individuals are more likely to  purchase broadband service.
Stakeholders we spoke with rarely mentioned the per-capita income of a  service area as a factor determining deployment. In fact, a few stakeholders  credited cable franchising requirements with ensuring deployment to low- income areas; in some cases, cable franchise agreements require cable  providers to build out to all parts of the service territory. However, a 2004  study did find that areas with higher median incomes were more likely to  have competitive broadband systems. Similarly, results from our  econometric analysis indicate that areas with higher per-capita income are  more likely to receive broadband service than are areas with lower per- capita income.
section_title: Taxation of Internet Access
paragraphs: Using our econometric model, we did not find that taxation of Internet  access by state governments influenced the deployment of broadband  service. Taxes can raise consumer prices and reduce revenues and impose  costs on providers, and thereby possibly reduce the incentive for  companies to deliver a product or service. To assess the impact of Internet  taxes on broadband deployment, we contacted officials in 48 states and the  District of Columbia to determine whether the state, or local governments  in the state, imposed taxes on Internet access. To incorporate this analysis  into our model, we used a binary variable to indicate the presence of the  tax; that is, each state was placed into one of two groups, states with a tax  and states without a tax. As such, this binary variable could potentially  capture the influence of other characteristics of the states, in addition to  the influence of the tax. While the parameter estimate in our model had the  expected sign—indicating that the imposition of taxes may reduce the  likelihood of broadband deployment—it was not statistically significant.
section_title: Certain Critical Technical Factors Affect Broadband Deployment
paragraphs: Many stakeholders we spoke with commented on issues related to  technical characteristics of networks that provide broadband. In particular,  many noted that certain technical characteristics of methods used to  deliver broadband influence the extent of its availability. In terms of issues  discussed for established modes of broadband delivery, we were told the  following:  DSL service can generally be provided over telephone companies’  copper plant to residences and businesses that are within approximately  3 miles from the telephone company’s facility, known as a central office.  However, if the quality of the telephone line is not good, the distance  limit can be reduced—that is, it may only be possible to provide DSL for  locations within some lesser distance—perhaps 2 miles—from a central  office. We were told, for example, that in some rural areas, DSL is more  limited by distance because the telephone lines may be older. While the  distance limit of DSL can be addressed by deploying certain additional  equipment that extends fiber further into the network, this process can  be expensive and time consuming.
Across spectrum bands used to provide terrestrial wireless broadband  service, technical characteristics vary: In some cases, signals may travel  only a short distance, and in other cases, they may travel across an  entire city; in some cases there may be a need for line-of-sight from the  transmission tower to the user, but in other cases, the signals may be  able to travel through walls and trees. Some stakeholders mentioned  that wireless methods hold great promise for supporting broadband  service.
Satellite technology can provide a high-speed Internet service  throughout most of the United States. However, the most economical  package of satellite broadband service generally offers, at this time,  upstream speeds of less than 200 kilobits per second, and therefore this  service does not necessarily meet FCC’s definition of advanced  telecommunications services, while it does meet FCC’s definition of  high-speed service. Despite the near universal coverage of satellite  service, consumers need a clear view of the southern sky to be able to  receive transmissions from the satellites. Additionally, transmission via  satellite introduces a slight delay, which causes certain applications,  such as VoIP (i.e., telephone service over the Internet), and certain  computer gaming to be ill-suited for use over satellite broadband.
Some emerging or expanding broadband technologies do not currently  have significant subscribership, but have the potential to be important  means of broadband service in the coming years. These technologies  include deep fiber deployment (e.g., fiber to the home), WiMAX, broadband  over power lines (BPL), and third-generation (3G) cellular. Each of these  technologies has technical considerations that are influencing the nature of  deployment. See appendix IV for a discussion of these technologies.
section_title: Federal and State Government Efforts, and Access to Resources at the Local Level, Have Impacted the Deployment of Broadband
paragraphs: We found that government involvement in several venues, and access to  resources at the local level, have affected the deployment of broadband  networks throughout the nation. In particular, we found that (1) certain  federal programs have provided funding for broadband networks; (2) some  state programs have assisted deployment; (3) state and local government  policies, as well as access to resources at the local level, can influence  broadband deployment; and (4) broadband deployment—particularly in  more rural settings—is often influenced by the extent of involvement and  leadership exercised by local government and community officials.
subsections: section_title: Federal Programs Have Funded Broadband Infrastructure
paragraphs: We found that several federal programs have provided significant financial  assistance for broadband infrastructure.
The Universal Service Fund (USF) has programs to support improved  telecommunications services. The high-cost program of the USF  provides eligible local telephone companies with funds to serve  customers in remote or rural areas where the cost of providing service is  higher than the cost of service in more urbanized areas. The high-cost  funds are distributed to providers according to formulas based on  several factors, such as the cost of providing service, with funds  distributed to small rural incumbent local exchange carriers (ILEC) and  larger ILECs serving rural areas based on different formulas.  Competitive local exchange carriers can also qualify to receive high-cost  funds. While high-cost funds are not specifically targeted to support the  deployment of broadband infrastructure, these funds do support  telecommunications infrastructure that is also used to provide  broadband services. We were told by some stakeholders in certain states  that high-cost support has been very important for the upgrade of  telecommunications networks and the provision of broadband services.  In particular, some stakeholders in Alaska, Ohio, and North Dakota told  us that high-cost support has been critical to small telephone  companies’ ability to upgrade networks and provide broadband  services. Additionally, the e-rate program of the USF has provided  billions of dollars in support of Internet connectivity for schools and  libraries. Another USF program, the Rural Health Care Program,  provides assistance for rural health facilities’ telecommunications  services.
Some programs of the U.S. Department of Agriculture’s Rural Utilities  Service (RUS) provide grants to improve rural infrastructures providing  broadband service. The Community Connect Program provides grants  to deploy transmission infrastructures to provide broadband service in  communities where no broadband services exist, and requires grantees  to wire specific community facilities and provide free access to  broadband services in those facilities for at least 2 years. Grants can be  awarded to entities that want to serve a rural area of fewer than 20,000  residents. Approximately $9 million was appropriated in 2004 as well as  in 2005 for this purpose.
RUS’s Rural Broadband Access Loan and Loan Guarantee program  provides loans to eligible applicants to deploy infrastructures that  provide broadband service in rural communities that meet the program’s  eligibility requirements. A wide variety of entities are eligible to obtain  loans to serve small rural communities. To obtain a 4 percent loan, the  applicant must plan on serving a community with no previously  available broadband service, but loans at the Treasury interest rate do  not have such a requirement.
The Appalachian Regional Commission’s Information Age Appalachia  program focuses on assisting in the development and use of  telecommunications infrastructure. The program also provides funding  to assist in education and training, e-commerce readiness, and  technology-sector job creation. We were told that in Kentucky, funding  from the commission assisted the development and operations of  ConnectKentucky, a state alliance that focuses on broadband  deployment and adoption. The Appalachian Regional Commission also  provided some funding for projects in Ohio and Virginia.
section_title: Various State Programs Assist the Deployment of Broadband Services
paragraphs: A number of states we visited have had programs to assist the deployment  of broadband services, including the following:   The Texas Telecommunications Infrastructure Fund began in 1996 and  according to an official of the Texas Public Utility Commission  committed to spend $1 billion on telecommunications infrastructure in  Texas. Public libraries, schools, nonprofit medical facilities, and higher  education institutions received grants for infrastructure and  connectivity to advanced communications technology. The program is  no longer operational.
ConnectKentucky is an alliance of technology-focused businesses,  government entities, and universities that work together to accelerate  broadband deployment in the state. ConnectKentucky focuses on three  goals: (1) raising public awareness of broadband services, (2) creating  market-driven strategies to increase demand—particularly in rural  areas, and (3) initiating policy to reduce regulatory barriers to  broadband deployment.
The Virginia Tobacco Indemnification and Community Revitalization  Commission partially funded Virginia’s Regional Backbone Initiative.  The backbone initiative is designed to stimulate economic development  opportunities by encouraging the creation of new technology-based  business and industry in southern Virginia, which has historically relied  heavily on tobacco production.
section_title: Local Issues and Access to Resources Impact the Deployment of Broadband Services
paragraphs: The ability of a company to access local rights-of-way, telephone and  electric poles, and wireless-tower sites can influence the deployment of  broadband service. In particular, a few stakeholders we spoke with said  difficulty in gaining access to these resources can serve as a barrier to the  rapid deployment of broadband service because accessing these resources  was a time-consuming and expensive process. Companies often require  access to rights-of-way—such as areas along public roads—in order to  install infrastructure for broadband service. In some instances, companies  can face challenges gaining access to rights-of-way, which can hinder  broadband deployment. For example, we were told that in one California  community, providers had difficulty bringing wires across a highway, which  limited their ability to provide service in all areas of the community. Some  companies also require access to telephone and electric poles to install  their broadband infrastructure. Depending on the entity owning the pole,  we were told that acquiring access to poles could be costly and time  consuming. For example, one BPL provider told us that it encountered  difficulty accessing poles owned by the telephone company. Finally,  wireless companies need access to towers or sites on which they can install  facilities for their broadband infrastructure. A few stakeholders we spoke  with told us that gaining this access can be a difficult process. For example,  one company said providers are often challenged by the need to learn each  town’s tower-siting rules. While some stakeholders identified problems  gaining access to these resources, other stakeholders did not identify  access to rights-of-way, poles, and other resources as issues in deploying  broadband services.
We found that the video-franchising process can also influence the  deployment of broadband service because companies may be building  infrastructure to simultaneously provide both video and broadband  services. To provide video service, such as cable television, companies  usually must obtain a franchise agreement from a local government. Some  stakeholders assert that the video-franchising process can delay the  deployment of broadband service because providers must negotiate with a  large number of local jurisdictions. Further, these negotiations can be time  consuming and costly. As a result, these stakeholders believe that local  franchising can hinder their ability to deploy broadband infrastructures.  Alternatively, some stakeholders believe that the video-franchising process  is important because it helps promote deployment of broadband service to  all areas of a community. For example, some jurisdictions have ubiquity  requirements mandating deployment to all areas of a community, including  those that are less affluent. These stakeholders argue that without the local  ubiquity requirement, service providers could “cherry pick” and exclusively  provide broadband services to more economically desirable areas.
In some instances, municipal governments provide broadband  infrastructure and service. For example, we spoke with officials in five  municipal governments that provide wire-based broadband service, often  in conjunction with the government’s electric utility. We also spoke with  one municipal government that provided wireless broadband service. A  few of these municipal government officials told us that their municipality  had undertaken this deployment because they believe that their  communities either do not have, or do not have adequate, private  broadband service. A significant number of stakeholders we interviewed  support a municipality’s right to provide broadband services and believe  that broadband service is a public utility, such as water and sewer. Some  support municipal deployment of broadband, regardless of whether other  providers are available in that area, while other stakeholders support a  municipality’s right to deploy broadband service only if there are no other  broadband providers serving the area. However, other stakeholders we  spoke with oppose municipal government deployment of broadband  service. These stakeholders believe that municipal governments are not  prepared to be in the business of providing broadband and that municipal  deployment can hinder private-sector deployment.
section_title: Community Leadership Encourages the Deployment of Broadband Services
paragraphs: We found that the cost of serving rural areas presents a challenge to the  nationwide goal of universal access to broadband. One of the ways that  some communities have addressed the lack of market entry into rural areas  has been through initiatives wherein community leaders have worked to  enhance the likely market success of private providers’ entry into rural  broadband markets. For example, some community leaders have worked  to aggregate demand—that is, to coordinate the Internet needs of various  users so that a potential entrant would be able to support a business plan.  We were told that this leadership—sometimes by key government officials,  sometimes through partnerships—was seen as critical in helping to spur  the market in some unserved areas. The following examples illustrate this  point:   In Massachusetts, several regional coalitions that have been called  “connect” projects focus on demand aggregation as a tool to encourage  further deployment of telecommunications backbone and broadband  networks in more rural parts of the state that were not well served by  broadband providers. In particular, three such regional groups said their  demand aggregation model is designed to maximize the purchase of  broadband services in their region by working with local hospitals,  schools, home businesses, small business, and residents to demonstrate  the full extent of the demand for broadband and thus encourage private  investment in infrastructure. For the one project that was the most  developed, a few stakeholders told us that the group had been critical in  helping to spur infrastructure development in the area, and that  leadership by State government was important to the development of  the initiative.
ConnectKentucky, as discussed earlier, is an example of a state coalition  taking a leadership role to develop information on state deployment  levels, educate citizens about the benefits of broadband service, and  advocate broadband-friendly policies with the state legislature.  Throughout our meetings in Kentucky, the work of ConnectKentucky  was stated to have been instrumental in the development of a common  understanding of the state of broadband deployment and adoption as  well as in instigating new initiatives to advance the market. The key  element of ConnectKentucky that was cited as crucial to its success was  leadership from state government, in particular from the governor’s  office.
In Alaska, we found that in one remote area—Kotzebue, a community 26  miles above the Arctic Circle—strong local leadership was important to  the development of a public-private partnership that provides improved  medical care to the region. The local leadership from the health  cooperative brought together parties in the community and worked with  them to develop a plan to provide enhanced health service throughout  the community’s villages. The Maniilaq Health Center uses a wireless  “telecart” with a video camera that can send high-quality, real-time  sound and video between the center and Anchorage. The center’s  physicians are able to perform procedures under the guidance of  experts in Anchorage who can “remotely” look over the physicians’  shoulders. In addition, there are village clinics staffed by trained village  health aides. These village clinics are connected to the main health  center via a broadband link that allows them to share records and  diagnoses via the telecart.
section_title: A Variety of Household and Service Characteristics Influence the Adoption of Broadband
paragraphs: We developed an econometric model to assess the many factors that might  influence whether a household purchases broadband service. The model  examined two types of factors: the tax status of states in which  respondents live, and the characteristics of households. We also discussed  these issues, as well as the influence of characteristics and uses of  broadband service, with stakeholders.
Based on our model and interviews with stakeholders, we identified  several characteristics of households that influence broadband adoption.
First, our model indicated that high-income households are 39 percentage  points more likely to purchase broadband service than are low-income households.Similarly, some stakeholders we spoke with stated that  adoption of broadband service is more widespread in communities with  high income levels. A key underlying factor may be that computer  ownership is substantially higher among higher-income households,  according to a survey conducted by the Census Bureau. Second, our model  results showed that households with a college graduate are 12 percentage  points more likely to subscribe to broadband services compared with  households without a college graduate. In fact, when discussing the effects  of education on the demand for broadband, we were told that some college  graduates see broadband as a necessity and would be less likely to choose  to live in a rural area that did not have adequate broadband facilities. Third,  we found that households headed by young adults are more likely to  purchase broadband than are households headed by a person 50 or older.  Similarly, a few stakeholders we spoke with said that older adults are less  likely to purchase broadband. This may be the case because older  Americans generally have lower levels of computer ownership and  computer familiarity. We also were told that households with children in  school are more likely to have broadband service. Figure 4 provides some  descriptive statistics to illustrate the relationship between several  demographic characteristics and the adoption of broadband.
We also examined whether households residing in rural areas were less  likely to purchase broadband service than those living in urban areas. As  noted earlier, we found that only 17 percent of rural households subscribe  to broadband service. Our model indicated, however, that when the  availability of broadband to households, as well as demographic  characteristics, are taken into account, rural households no longer appear  less likely than urban households to subscribe to broadband. That is, the  difference in the subscribership to broadband among urban and rural  households appears to be related to the difference in availability of the  service across these areas, and not to a lower disposition of rural  households to purchase the service.
In addition to household characteristics, we also found that characteristics  and uses of broadband service available to consumers can also influence  the extent to which households purchase broadband service.
Some stakeholders we spoke with mentioned that the price of  broadband service is an important factor affecting a household’s  decision to purchase this service. Some stakeholders mentioned, for  example, that one of the key reasons for the recent surge in DSL  subscribership is due to recent price declines for the service: Some  providers are now offering DSL for less than $15 per month. Conversely,  because satellite broadband service is expensive and also requires the  upfront purchase of expensive equipment needed to receive the satellite  signal, several of those we spoke with said that the expense of satellite  broadband deters its purchase. In fact, a recent study suggests that  areas served by multiple providers, where prices may tend to be lower,  may have higher rates of broadband adoption. However, because we  lacked data on the price of broadband service, we were unable to  include this variable in our econometric model. We did not find that the  number of companies providing broadband service affected the  likelihood that a household would purchase broadband service.
Some stakeholders also told us that the availability of applications and  content not easily accessible through dial-up, as well as the degree to  which consumers are aware of and value this availability, contribute to a  household’s decision to adopt broadband. For example, some functions,  applications, and content—such as gaming, VoIP, and music and video  downloads—either need or function much more effectively with  broadband service than with dial-up service and, as such, make  broadband a major attraction for households that value these types of  services and content. Alternatively, some applications, such as e-mail,  function adequately with dial-up service, and for households that  primarily use the Internet for e-mail, there may be little need to upgrade  to broadband service. Several of those we spoke with noted that a “killer  application”—one that nearly everyone would view as essential and  might entice more American households to adopt broadband—has not  yet emerged.
We also examined whether the tax status of the state in which each  survey respondent lived influenced their likelihood to adopt broadband  service. As mentioned earlier, we used a binary variable to represent the  presence of Internet taxation. As such, the variable may capture the  influence of other characteristics of the states in which the households  resided, in addition to the influence of the tax. Further, lacking a  variable for the price of broadband service, we cannot assess how the  imposition of the tax influenced the price of the service. Using our  model, we found that the parameter estimate had the expected sign— indicating that the imposition of the tax may have reduced the  likelihood that a household would purchase broadband service. While  the estimate was not statistically significant at the 5 percent level, it was  statistically significant at the 10 percent level, perhaps suggesting that it  is a weakly significant factor. However, given the nature of our model, it  is unclear whether this finding is related to the tax or other  characteristics of the states in which households resided.
section_title: Stakeholders Identified Several Options to Address the Lack of Broadband in Certain Areas, but Challenges Exist with Implementation
paragraphs: Stakeholders we spoke with identified several options to facilitate greater  broadband service in unserved areas; however, each option poses special  challenges. RUS broadband programs provide a possible means for  targeted assistance to unserved areas, but stakeholders raised concerns  about the effectiveness of the loan program and its eligibility criteria. USF  programs have indirectly facilitated broadband deployment in rural areas,  but it is unclear whether the program should be expanded to directly  support broadband service. Finally, wireless technologies could help  overcome some of the cost and technological limitations to providing  service in remote locations, but congestion and the management of the  spectrum remain possible barriers.
subsections: section_title: RUS Broadband Programs Could Provide a Source of Targeted Assistance, but Stakeholders Identified Several Concerns with the Programs
paragraphs: As mentioned earlier, RUS provides support through grants and loans to  improve rural infrastructures providing broadband service. The  Community Connect Broadband grant program provides funding for  communities where no broadband service currently exists. One loan  program, which provides loans at 4 percent, also requires that no existing  broadband providers be present in a community, but loans at the Treasury  interest rate are available to entities that plan to serve communities with  existing broadband service. Several stakeholders with whom we spoke, as well as the findings of a recent report by the Inspector General (IG) of the  Department of Agriculture, raised concerns about these programs: Effectiveness of loans. It is not clear whether a loan program—such  as the RUS loan program—is effective for helping rural areas gain  access to broadband services. RUS requires applicants to submit an  economically viable business plan—that is, applicants must show that  their business will be sufficiently successful such that the applicant will  be capable of repaying the loan. But developing a viable broadband  business plan can be difficult in rural areas, which have a limited  number of potential subscribers. As a result, RUS has rejected many  applications because the applicant could not show that the business  plan demonstrated a commercially viable and sustainable business. In  fact, the agency has been unable to spend all of its loan program funds.  Since the inception of the program in 2002, the agency has fallen far  short of obligating the available funding in this program. For example,  RUS officials told us that in 2004, they estimated that the appropriations  for the broadband loan program could support approximately $2.1  billion in loans, but only 28 percent of this amount—or $603 million— was awarded for broadband projects. RUS officials also told us that its  2005 appropriations could support just over $2 billion in loans, but only  5 percent—or $112 million—was awarded to broadband projects. One  stakeholder we spoke with suggested that a greater portion of RUS  funds should be shifted from loans to grants in order to provide a more  significant level of assistance for rural broadband deployment. RUS  officials noted that they are currently evaluating the program and  recognize that the program criteria limit the ability of the agency to  utilize their full loan funding.
Competitive environment requirements. During our interviews,  some stakeholders expressed concerns about how the presence of  existing broadband deployment was considered in evaluating RUS grant  and loan applications. In the case of the grant program, RUS approves  applications only for communities that have no existing broadband  service. Some local government officials and a company we spoke with  noted that this “unserved” requirement for RUS grants can disqualify  certain rural communities that have very limited Internet access— perhaps in only one small part of a community. Alternatively, regarding  the Treasury rate loan program, a few providers and the IG’s report  criticized the program for supporting the building of new infrastructure  where infrastructure already existed. In particular, we learned that loans  were being let for deployment in areas that already had at least one  provider and in some cases had several providers. As such, it is not clear  whether these funds are being provided to communities most in need.  RUS officials noted, however, that the statute specifically allows such  loans. Additionally, the issue of how the status of existing service is  gauged was a concern for one provider we spoke with. RUS obtains  information about existing providers from applicants, and agency  officials told us that agency field representatives review the veracity of  information provided by applicants during field visits. However, RUS  officials told us that FCC zip-code data is not granular enough for their  needs in evaluating the extent of broadband deployment in rural areas.
Community eligibility. A few local officials we spoke with criticized  the community size and income eligibility requirements for the grant  and loan programs. In Massachusetts, one stakeholder said that most  small towns in part of that state exceed RUS’s population requirements  and thus do not qualify for grants or loans. The grant and loan programs  also have per-capita personal income requirements. One service  provider in Alaska said that the grant program income eligibility  requirements can exclude Alaskan communities, while failing to take  into account the high cost of living in rural Alaska.
Technological neutrality. Satellite companies we spoke with said  RUS’s broadband loan program requirements are not readily compatible  with their business model or technology. Once a company launches a  satellite, the equipment that individual consumers must purchase is the  remaining infrastructure expense. Because the agency requires  collateral for loans, the program is more suited for situations where the  providers, rather than individual consumers, own the equipment being  purchased through the loan. Yet, when consumers purchase satellite  broadband, it is common for them to purchase the equipment needed to  receive the satellite signal, such as the reception dish. Additionally,  broadband service must be provided at a speed of at least 200 kilobits in  both directions—which is not necessarily the case for satellite  broadband—for it to qualify for RUS loans. Moreover, RUS officials  noted that for satellite broadband providers to be able to access RUS  loans, they would have to demonstrate that each customer lives in a  community that meets the community size eligibility requirement. As  such, this program may not be easily utilized by satellite broadband  providers. Yet for some places, satellite could be a cost-effective  mechanism to provide broadband infrastructure into rural areas. For  example, in 2005, the RUS Community Connect program provided  grants to 19 communities that average 554 residents and 194  households. The total cost of these grants was roughly $9 million. Thus,  RUS spent an average of $2,443 per covered household, but the cost  per household that adopted broadband would be even higher since only  a subset of these households would choose to subscribe to broadband  service. By contrast, two satellite providers we spoke with estimate that  their consumer equipment and installation costs are roughly $600 per  subscribing household. These figures might not fully represent the full  nature of the services provided through the grant program and those  available via satellite; for example, grantees of the RUS program are  required to provide free Internet service to community centers.
section_title: USF Programs Indirectly Support Broadband Service, but Several Stakeholders Expressed Concerns
paragraphs: While the USF program does not directly fund broadband service, the  funding provided to support telecommunications networks indirectly  supports the development of infrastructure that can provide many  communications services, including broadband. USF’s high-cost program  helps maintain and upgrade telecommunications networks in rural areas.  Three stakeholders we spoke with in Alaska, Ohio, and North Dakota  attributed the relative success of broadband deployment in rural areas to  the USF program. Additionally, the Schools and Libraries Program and the  Rural Health Care Program help facilitate broadband service to specific  locations; according to two providers in Alaska, these programs have been  very beneficial in bringing some form of broadband service to rural Alaskan  villages that might have received no service without these government  programs.
However, stakeholders we spoke with identified several concerns about  the USF program:   Large ILECs serving rural areas and rural ILECs receive high-cost fund  support under different formulas. The two types of ILECs have different  eligibility criteria under which they can qualify to receive high-cost  support and more support is provided to rural companies than to  nonrural companies serving rural areas. Two stakeholders we spoke  with suggested that the eligibility criteria should be modified, such that  the criteria better reflect the cost to provide service in particular areas,  rather than the type of company providing the service. Alternatively, two  stakeholders we spoke with favor the current eligibility criteria and  funding mechanism.
Two stakeholders we spoke with expressed concerns about a lack of  coordination across USF funding sources, which could lead to  inefficient use of funds and inadequate leveraging of funds. For  example, in Alaska, two stakeholders noted that governments and  providers receive “silos” of funding for schools, libraries, and rural  health centers. Because the programs are narrowly defined, multiple  entities might be the recipient of funding for broadband service, which  could lead to multiple broadband connections in relatively small rural  communities. One stakeholder noted that since each entity might use  only a fraction of its available broadband capacity, there can be capacity  for Internet traffic available for other uses or users, but funding  recipients are sometimes not allowed to share this capacity, either with  other entities or with residents in the community. Thus, communities  may be unable to leverage the available funding for other uses.
While two stakeholders we spoke with suggested expanding the USF  program to include broadband service, we found little support for this  overall. Some stakeholders we spoke with expressed concern about  funding the USF program at current levels of support. These  stakeholders fear that expanding the USF program to include  broadband service, which would increase program expenditures and  thus require additional funding, could undermine support for the entire  USF program.
section_title: Resolving Spectrum Congestion and Management Concerns Could Facilitate Greater Wireless Broadband Service
paragraphs: As mentioned previously, certain wireless technologies hold the potential  for supporting broadband service in difficult-to-serve rural areas. In less  densely populated areas, installing wire-based facilities for cable modem  and DSL service represents a significant cost factor. Therefore, certain  wireless technologies may be a lower-cost way to serve rural areas than  wireline technologies.
While wireless technologies hold the promise of expanding the availability  of broadband, some stakeholders we spoke with expressed concern about  the degree of congestion in certain bands as well as the management of  spectrum. For example, in some geographic areas, we heard that  congestion in certain unlicensed spectrum bands makes providing wireless  broadband Internet access more difficult, and a few stakeholders said that  with more unlicensed spectrum, wireless providers could support greater  broadband deployment. Additionally, wireless providers we spoke with  also expressed concern about the management of spectrum, particularly  the quality of certain bands and quantity of spectrum available for wireless  broadband service. Two stakeholders mentioned that spectrum allocated to  wireless broadband service is susceptible to having communications  obstructed by interference from trees and buildings. In a 2005 report, we  noted that experts agreed that the government should evaluate its  allocation of spectrum between licensed and unlicensed uses. But we also  noted that these experts failed to agree on whether FCC should dedicate  more or less spectrum to unlicensed uses. In June 2006, FCC will conduct  an auction of spectrum dedicated to advanced wireless services, which will  make available 90 MHz of spectrum for wireless broadband services. FCC  staff also noted that the commission has other efforts underway to increase  available spectrum for wireless broadband services.
section_title: Conclusion
paragraphs: In the past several years, the importance of broadband for Americans and  for the American economy has been articulated by interested stakeholders,  as well as by the President, Congress, and the last several FCC chairmen.  Universal availability of broadband has been set forth as a policy goal for  the near term—2007. And progress toward this goal has been substantial.  The availability of broadband to residential consumers has grown from its  nascent beginnings in the latter part of the 1990s to broad coverage  throughout the country. In the last 10 years, providers in traditional  communications industry segments—telephone and cable—have upgraded  and redesigned miles of their networks in order to offer broadband  services. The provision of broadband through various wireless means, as  well as over the existing electricity infrastructure, have also been  developed, and for many, if not most Americans, the burgeoning broadband  marketplace is characterized by competitive choice in broadband access  and creative and ever-expanding applications and content. Many would  consider the rollout of broadband infrastructure as a success story of  entrepreneurial initiative.
But not all places or people have experienced the full benefits of this rapid  rollout of broadband services. As with many other technologies, the costs  of bringing broadband infrastructure to rural America can be high. For  private providers who must weigh the costs and returns of their  investments, the feasibility of serving the most rural parts of our country  may not work within a reasonable business model. While there are federal  support mechanisms for rural broadband, it is not clear how much impact  these programs are having or whether their design suggests a broad  consideration of the most effective means of addressing the problem. And  one of the difficulties of assessing the gaps in deployment and where to  target any federal support is that it is hard to know exactly where  broadband infrastructure has not been deployed. FCC does collect data on  the geographic extent of providers’ service, but these data are not  structured in a way that accurately illustrates the extent of deployment to  residential users. Without accurate, reliable data to aid in analysis of the  existing deployment gaps, it will be difficult to develop policy responses  toward gaps in broadband availability. This could hinder our country’s  attainment of universally available broadband. And as the industry moves  quickly to even higher bandwidth broadband technologies, we risk leaving  some of the most rural places in America behind.
section_title: Recommendation for Executive Action
paragraphs: In a draft of this report provided to FCC for review and comment, GAO  recommended that FCC identify and evaluate strategies for improving the  477 data such that the data provide a more accurate depiction of residential  broadband deployment throughout the country. In oral comments  regarding this recommendation, FCC staff acknowledged that the 477 data  have some limitations in detailing broadband deployment, but also noted  that there had recently been a proceeding examining its broadband data  collection efforts and that some changes to the data collection had been  implemented. In that proceeding, the commission also determined that it  would be costly and could impose large burdens on filers—particularly  small entities—to require any more detailed filings on broadband  deployment. Although FCC staff told us that analysis of potential costs had  been conducted, exact estimates of these costs and burdens have not yet  been determined. Moreover, many have expressed concern about ensuring  that all Americans—especially those in rural areas—have access to  broadband technologies. Policymakers concerned about full deployment of  broadband throughout the country will have difficulty targeting any  assistance to that end without accurate and reliable data on localized  deployment. As such, we recommend that FCC develop information  regarding the degree of cost and burden that would be associated with  various options for improving the information available on broadband  deployment and should provide that information to the Senate Committee  on Commerce, Science, and Transportation and the House Energy and  Commerce Committee in order to help them determine what actions, if any,  are necessary to employ going forward.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Agriculture, the  Department of Commerce, and the Federal Communications Commission  for their review and comment. The Department of Agriculture provided no  comments. The Department of Commerce and FCC provided technical  comments that we incorporated, as appropriate. FCC did not comment on  the final recommendation contained in this report.
We also provided a draft of this report to several associations representing  industry trade groups and state and local government entities for their  review and comment. Specifically, the following associations came to GAO  headquarters to review the draft: Cellular Telecommunications and Internet  Association (CTIA), National Association of Regulatory Utility  Commissioners (NARUC), National Association of Telecommunications  Officers and Advisors (NATOA), National Cable and Telecommunications  Association (NCTA), National Telecommunications Cooperative  Association (NTCA), Satellite Industry Association (SIA), US Internet  Industry Association (USIIA), United States Telecom Association (USTA),  and Wireless Internet Service Providers Association (WISPA). Officials  from CTIA, NARUC, and NTCA did not provide comments. Officials from  NATOA, NCTA, SIA, and USIIA provided technical comments that were  incorporated, as appropriate. USTA and WISPA provided comments that  are discussed in appendix V.
We are sending copies of this report to the appropriate congressional  committees and to the Secretary of Agriculture, the Secretary of  Commerce, and the Chairman of the Federal Communications  Commission. We will also make copies available to others upon request. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you have any questions about this report, please contact me at (202) 512- 2834 or heckerj@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  Contact information and major contributors to this report are listed in  appendix VI.
section_title: Scope and Methodology
paragraphs: The objectives of the report were to provide information on (1) the current  status of broadband deployment and adoption, (2) the factors that  influence the deployment of broadband networks, (3) the factors that  influence the adoption of broadband service by households, and (4) the  options that have been suggested to spur greater broadband deployment  and adoption. To respond to the four objectives, we used a variety of  approaches.
To gather opinions for all four objectives, we employed a case-study  approach. This approach allowed us to identify issues at the state and local  level that would not be apparent in nationwide data. We selected eight  states for our case studies: Alaska, California, Kentucky, Massachusetts,  North Dakota, Ohio, Texas, and Virginia. We selected these states based on  Census Bureau data on statewide income, urbanization, population density,  and percentage of households using the Internet. We also considered  whether each state taxed Internet access. We sought to include states in  diverse categories of each of our selection criteria. In each state, we  interviewed state and local officials, including local franchising authorities,  state public utility regulators, representatives from state governor’s offices;  associations; private cable and telephone providers; wireless Internet  service providers; and municipal and cooperative telecommunications  providers.
We also spoke with a variety of individuals and organizations  knowledgeable about broadband services. In particular, we spoke with  industry providers, trade associations, and academic experts. We also  spoke with representatives from the Federal Communications Commission  (FCC), the National Telecommunications and Information Administration  of the Department of Commerce, and the Rural Utilities Service of the  Department of Agriculture.
To assess the factors influencing the deployment and adoption of  broadband, we used survey data from Knowledge Networks/SRI’s The  Home Technology MonitorTM: Spring 2005 Ownership and Trend Report.  Knowledge Networks/SRI is a survey research firm that conducted a survey  on household ownership and use of consumer electronics and media.  Knowledge Networks/SRI interviewed approximately 1,500 randomly  sampled telephone households, asking questions about the household’s  purchase of computers and Internet access. All percentage estimates from  the Knowledge Networks/SRI survey have margins of error of plus or minus  7 percentage points or less, unless otherwise noted. See appendix II for a  discussion of the steps we took to evaluate the reliability of Knowledge  Networks/SRI’s data. Using the data from Knowledge Networks/SRI, we  estimated two econometric models. One model examined the factors  affecting broadband deployment. We also developed a model to examine  the factors affecting a household’s adoption of broadband services. See  appendix III for a more detailed explanation of, and results from, our  deployment and adoption models.
To assess the status of broadband deployment, we used FCC’s Form 477  data that identified companies providing broadband service by zip code.  We used FCC’s data to identify the companies reporting to provide  broadband service in the zip codes where respondents to Knowledge  Networks/SRI’s survey resided. To assess the reliability of FCC’s Form 477  data, we reviewed documentation, interviewed knowledgeable officials,  and performed electronic testing of the data elements used in our analyses.  We made several adjustments to these data, such as excluding satellite  companies and companies only providing service to businesses. See  appendix III for more on our methodology concerning adjustment to FCC’s  477 data. With these adjustments to the data, we determined that they were  sufficiently reliable for the purposes of this report.
We conducted our work from April 2005 through February 2006 in  accordance with generally accepted government auditing standards.
section_title: Data Reliability
paragraphs: To obtain information on the types of Internet access purchased, or  adopted, by U.S. households, we purchased existing survey data from  Knowledge Networks Statistical Research (Knowledge Networks/SRI).  Their survey was completed with 1,501 of the estimated 3,127 eligible  sampled households for a response rate of 48 percent. The survey was  conducted between February 22 and April 15, 2005.
The study procedures yielded a sample of members of telephone  households in the continental United States using a national random-digit  dialing method. Survey Sampling Inc. (SSI) provided the sample of  telephone numbers, which included both listed and unlisted numbers and  excluded blocks of telephone numbers determined to be nonworking or  business-only. At least five calls were made to each telephone number in  the sample to attempt to interview a responsible person in the household.  Special attempts were made to contact refusals and convert them into  interviews; refusals were sent a letter explaining the purpose of the study  and an incentive. Data were obtained from telephone households and are  weighted to the total number of households in the 2005 Current Population  Survey adjusted for multiple phone lines.
As with all sample surveys, this survey is subject to both sampling and  nonsampling errors. The effect of sampling errors due to the selection of a  sample from a larger population can be expressed as a confidence interval  based on statistical theory. The effects of nonsampling errors, such as  nonresponse and errors in measurement, may be of greater or lesser  significance but cannot be quantified on the basis of available data.
Sampling errors arise because of the use of a sample of individuals to draw  conclusions about a much larger population. The study’s sample of  telephone numbers is based on a probability selection procedure. As a  result, the sample was only one of a large number of samples that might  have been drawn from the total telephone exchanges from throughout the  country. If a different sample had been taken, the results might have been  different. To recognize the possibility that other samples might have  yielded other results, we express our confidence in the precision of our  particular sample’s results as a 95 percent confidence interval. We are 95  percent confident that when only sampling errors are considered each of  the confidence intervals in this report will include the true values in the  study population. All percentage estimates from the survey have margins of  error of plus or minus 7 percentage points or less, unless otherwise noted.  The 95 percent confidence interval for the estimate of the total number of  U.S. households that subscribed to broadband service in 2005 is 28.5  million to 33.7 million households.
In addition to the reported sampling errors, the practical difficulties of  conducting any survey introduce other types of errors, commonly referred  to as nonsampling errors. For example, questions may be misinterpreted,  some types of people may be more likely to be excluded from the study,  errors could be made in recording the questionnaire responses into the  computer-assisted telephone interview software, and the respondents’  answers may differ from those who did not respond. Knowledge  Networks/SRI has been fielding versions of this survey for over 20 years. In  addition, to reduce measurement error, Knowledge Networks/SRI employs  interviewer training, supervision, and monitoring, as well as computer- assisted interviewing to reduce error in following skip patterns.
For this survey, the 48 percent response rate is a potential source of  nonsampling error; we do not know if the respondents’ answers are  different from the 52 percent who did not respond. Knowledge  Networks/SRI took steps to maximize the response rate—the questionnaire  was carefully designed and tested through deployments over many years,  at least five telephone calls were made at varied time periods to try to  contact each telephone number, the interview period extended over about  8 weeks, and attempts were made to contact refusals and convert them into  interviews.
Because we did not have information on those contacted who chose not to  participate in the survey, we could not estimate the impact of the  nonresponse on our results. Our findings will be biased to the extent that  the people at the 52 percent of the telephone numbers that did not yield an  interview have different experiences with Internet access than did the 48  percent of our sample who responded. However, distributions of selected  household characteristics (including presence of children, race, and  household income) for the sample and the U.S. Census estimate of  households show a similar pattern.
To assess the reliability of these survey data, we relied on a prior GAO  report that made use of the Knowledge Networks/SRI 2004 survey for a  similar purpose. In that prior assessment, we determined that the data were  sufficiently reliable for our purposes. For this report we reviewed  Knowledge Networks/SRI’s documentation of survey procedures for 2005  and compared them to the procedures used in their 2004 survey. We  determined that their survey methodology was substantively unchanged.
Additionally, we performed electronic testing of the 2005 survey data  elements used in this report. We determined that the data were sufficiently  reliable for the purposes of this report.
section_title: Broadband Deployment and Adoption Models
paragraphs: This appendix describes our models of broadband deployment and  adoption. Specifically, we discuss (1) the design of our models, (2) the data  sources, (3) our methodology for assessing broadband deployment, and (4)  the estimation methodology and results.
subsections: section_title: Design of Our Broadband Deployment and Adoption Models
paragraphs: A company will deploy broadband service in an area only if the company  believes that such a deployment will be profitable. Similarly, a household  will purchase, or adopt, broadband service only if the value, or utility, to  members of the household exceeds the price the household must pay to  receive the service. In this section, we explain the two models we  developed to examine the factors that influence the deployment and  adoption of broadband service.
subsections: section_title: Deployment Model
paragraphs: A company will deploy broadband service in an area only if the company  believes that such a deployment will be profitable. Based on conversations  with industry stakeholders, including companies deploying broadband  service, we identified a number of factors that influence a company’s  decision to deploy broadband service. In particular, the following factors  may influence the decision to deploy broadband service: population  density, terrain, backhaul costs, existing or potential competition, the  technical expertise of the population, the income of the population, and  regulatory policies (such as rights-of-way policies). We also reviewed  relevant studies, and noted the same and additional factors that may  influence the deployment of broadband service. Some of these factors,  such as the population density and backhaul, will influence the cost of  providing broadband service, while other factors, such as the income of the  population, will influence the potential revenues that a company may hope  to generate. Together, these revenue and cost factors will influence the  potential profitability of providing broadband service, and ultimately the  decision to deploy broadband service.
To empirically test these hypotheses, we estimated the following  econometric model; since all the variables identified above were not  available, we were unable to include some of the variables—such as  terrain—in our model. The decision to deploy broadband service is a  function of  the population in the area;  the population density in the area;  the percentage of the population residing in an urban area;  the per-capita income in the area;  the educational attainment of the population in the area;  the population teleworking in the area;  the age of the population in the area;   the distance to a metropolitan area with a population of 250,000 or   whether the state in which the area is located imposed a tax on Internet  access in 2005.
section_title: Adoption Model
paragraphs: Households will purchase, or adopt, broadband service only if the value, or  utility, that members of the household receive from the service exceeds the  price of the service. In conversations with industry stakeholders, we were  told that several characteristics of households influence the extent to  which households purchase broadband service; we also reviewed other  studies, and noted characteristics of households that these studies  associated with the purchase of broadband service. In particular, the  following characteristics of households may influence the decision to  purchase broadband service: income, education, age of household  members, presence of children in the household, and the technological  knowledge of members of the household. These characteristics may be  associated with the extent to which a household would benefit from, and  therefore value, broadband service, such as using broadband to telework,  conduct research for school, and playing games. Industry stakeholders also  noted that price influences a household’s decision to purchase broadband  service.
To empirically test these hypotheses, we estimated the following  econometric model; because we lacked data on the price of broadband  service, we were unable to include this variable in our econometric model.  The decision to purchase, or adopt, broadband service is a function of  the income of the household;  the education attainment of the heads of the household;  the age of the heads of the household;   the presence of children in the household;  the racial composition of the household;  the occupation of the heads of the household;  the number of people in the household;  whether the household resides in an urban, suburban, or rural location;  the number of companies providing broadband service in the area; and  whether the state in which the household resides imposes a tax on  Internet access.
section_title: Data Sources
paragraphs: We required several data elements to build the data set used to estimate our  deployment and adoption models. The following is a list of our primary  data sources. In addition, we list all of the variables, definitions, and  sources for the deployment model in table 1 and the adoption model in  table 2.
We obtained data on a sample of households in the United States from  Knowledge Networks/SRI, using Knowledge Networks/SRI’s product  The Home Technology MonitorTM: Spring 2005 Ownership and Trend  Report. From February through April 2005, Knowledge Networks/SRI  interviewed a random sample of 1,501 households in the United States.  Knowledge Networks/SRI asked participating households a variety of  questions about their use of technology, including questions such as  whether the household purchased broadband service, and about the  household’s demographic characteristics.
From the Federal Communications Commission (FCC), we obtained  information on the companies providing broadband service in zip codes  throughout the United States in December 2004. For each zip code, FCC  provided the names of companies reporting, through the agency’s Form  477, that they provided broadband service to at least one residential or  small business customer and the type of company providing the service   (e.g., cable and satellite).
We used the most recent information from the U.S. Census Bureau to  obtain demographic information for the areas where the households  responding to Knowledge Networks/SRI’s survey were located.
section_title: Assessing Broadband Deployment
paragraphs: FCC’s Form 477 data include information on companies providing  broadband service to at least one residential or business customer in zip  codes throughout the United States in December 2004. However, since zip  codes can represent large geographic areas, companies providing  broadband service in a zip code might not have facilities in place to serve  all households in the zip code. Thus, while a household might reside in a zip  code in which FCC’s Form 477 indicates that broadband service is  available, that service might not be available to the household. Additionally,  as we note in the text, we identified other concerns with FCC’s data.  Therefore, we took additional steps to assess whether broadband service  was available to households included in Knowledge Networks/SRI’s survey.  In particular, we took the following steps for each observation in our data  set:  removed firms providing only satellite service;  removed firms that provided only broadband service to business  customers, since residential households were the focus of our study;  removed large incumbent local exchange carriers when the company  was identified as providing service in areas that lay outside of its local exchange area, since these firms typically provide service only to  business customers outside of their local exchange areas; removed firms when 2 or more of the 10 largest cable operators  reported providing broadband service, since large cable operators rarely  have overlapping service territories;   removed cable operators if the responding household indicated that  cable service did not pass the residence; and  removed companies providing telephone-based broadband service if the  household’s residence was greater than 2.5 miles from the central office  facility, since DSL service is distance limited.
section_title: Estimation Methodology and Results
paragraphs: For both the deployment model and adoption model, we are estimating a  reduced-form, binary-choice model. That is, broadband service is either  deployed in the area or it is not, and the household either purchases  broadband service or it does not. Given the binary choice nature of the  models, we employed the probit method to estimate the deployment and  adoption equations. In this section, we present descriptive statistics and  estimation results for the two equations and discuss the results.
subsections: section_title: Deployment Model
paragraphs: In table 3, we provide basic statistical information on all of the variables  included in the deployment model, and in table 4, we provide the results  from the probit estimation of the deployment model. Of the 1,501  respondents to Knowledge Networks/SRI’s survey, we used 1,402  observations in the deployment model; we were unable to match the zip+4  code for all 1,501 observations with publicly available data, which was  necessary to assess whether the residence was 2.5 miles from the serving  central office facility.
Results from our model indicate that several factors related to the cost of  providing broadband service and the demand for broadband service  influence the likelihood that service will be available in a particular area.  Regarding the cost factors, we found that urban areas and areas with  greater population density are more likely to receive broadband service.  For example, urban areas are about 9 percentage points more likely to  receive broadband service than are similar rural areas. These results are  consistent with broadband service being less costly to deploy in densely  populated, more urban environments, where a similar investment in  facilities can serve a greater number of subscribers than is possible in rural  areas. Regarding demand for broadband service, we found that areas with  greater per-capita incomes are more likely to receive broadband service.  Additionally, we found that areas with a greater number of people working  from home are less likely to have broadband service and that areas with a  greater percentage of people age 65 or older are more likely to have  broadband service.
We did not find that taxation of Internet access by state governments  influenced the deployment of broadband service. Taxes can raise consumer  prices and reduce revenues and impose costs on providers, and thereby  possibly reduce the incentive for companies to deliver a product or service.  Since we used a binary variable to indicate the presence of taxes, this  variable could also potentially capture the influence of other  characteristics of the states, in addition to the influence of the tax. Results  from our model indicate that Internet access taxes do not affect the  likelihood that companies will deploy broadband service; while the  parameter estimate has the expected sign, the estimate is not statistically  significant.
section_title: Adoption Model
paragraphs: In table 5, we provide basic statistical information on all of the variables  included in the adoption model, and in table 6, we provide the results from  the probit estimation of the adoption model. Since households can only  chose to purchase, or adopt, broadband service where it is deployed, we  only include households from Knowledge Networks/SRI’s survey where we  assessed that broadband service was available; based on our analysis, 133  respondents did not have broadband service available. Further, 355  respondents to Knowledge Networks/SRI’s survey did not answer one or  more demographic questions and 29 did not answer, or did not know, what  type of Internet connection their household purchased. Therefore, we  excluded these respondents. Thus, we used 901 observations in the  adoption model.
Our model results indicate that four characteristics influence whether  households purchase, or adopt, broadband service. First, we found that  households with greater incomes are more likely to purchase broadband  service than are lower-income households. For example, the 25 percent of  households with the highest income levels were about 39 percentage points  more likely to purchase broadband service than the 25 percent of  households with the lowest income levels. Second, households with a  college graduate are about 12 percentage points more likely to purchase  broadband service than are households without a college graduate. We also  found that white households are more likely to purchase broadband service  than households of other races. Finally, older households are less likely to  purchase broadband service than are younger households.
As with the deployment model, we did not find that taxation of Internet  access by state governments influenced the adoption of broadband service.  As mentioned earlier, we used a binary variable to represent the presence  of Internet taxation. As such, the variable may capture the influence of  other characteristics of the states in which the households resided, in  addition to the influence of the tax. Further, lacking a variable for the price  of broadband service, we cannot assess how the imposition of the tax  influenced the price of the service and thus the household’s adoption  decision. Using our model, we found that the parameter estimate had the  expected sign—indicating that the imposition of the tax may have reduced  the likelihood that a household would purchase broadband service. While  the estimate was not statistically significant at the 5 percent level, it was  statistically significant at the 10 percent level, perhaps suggesting that it is  a weakly significant factor. However, given the nature of our model, it is  unclear whether this finding is related to the tax or other characteristics of  the states in which households resided.
section_title: Additional Communications Technologies
paragraphs: Based on our conversations with stakeholders, and our own research, we  identified several emerging technologies that could further the deployment  of broadband service.
Broadband over power lines. Broadband over power lines (BPL) is an  emerging competitive source of broadband to the home. BPL transmits  broadband by using existing electric distribution networks, such as the  wires that deliver electricity to consumers. Although there are a few  commercial deployments, most BPL efforts are currently at the trial stage.  Trials and commercial deployments range across the urban-rural  landscape, from Cullman County, Alabama, to Cincinnati. Currently, BPL  can provide upstream and downstream speeds of 3 million bits per second  (Mbps), and next generation equipment is being developed to provide  speeds of 100 Mbps.
Industry stakeholders have identified several concerns with BPL service.  First, while traveling across the electric network, BPL can emit signals that  interfere with other users of the spectrum, such as amateur radio and  public safety. The Federal Communications Commission (FCC) has taken  steps to document, mitigate, and alleviate this potential problem. Second,  some stakeholders also expressed concern that, due to the age or condition  of the electric network, providers in some areas would be unable to  transmit Internet data at high speeds. Finally, some stakeholders expressed  varied opinions about the feasibility of BPL to bring broadband service to  rural areas. Some stakeholders were optimistic about BPL’s ability to serve  these communities, while others expressed skepticism, pointing out that  overcoming BPL’s distance limitations would require more equipment and  additional costs.
Wireless fidelity (Wi-Fi). Wi-Fi-enabled wireless devices, such as laptop  computers, can send and receive data from any location within signal  reach—about 300 feet—of a Wi-Fi-equipped access point. Wi-Fi provides  data transmission rates, based on the current transmission standard, of up to a maximum of 54 Mbps, which is shared by multiple users. Wi-Fi  equipment and services are based on the 802.11 series standards developed  by the Institute of Electrical and Electronics Engineers (IEEE) and operate  on an unlicensed basis in the 2.4 and 5 GHz spectrum bands. Several  stakeholders we spoke with said that Wi-Fi service complemented, rather  than substituted for, other broadband services.
The number of areas that can access Wi-Fi service, known as “hot spots,”  has grown dramatically and, according to one equipment manufacturer,  may exceed 37,000. Wi-Fi hot spots include such diverse entities as  airports, colleges, retail establishments, and even entire towns.  Increasingly, municipalities are planning or deploying larger area or  citywide hot spots; some municipalities considering or deploying a Wi-Fi  network include Atlanta, Philadelphia, San Francisco, and Tempe, Arizona.  While Wi-Fi service is widely deployed in urban and suburban areas, some  stakeholders identified a few problems with the service. Because Wi-Fi hot  spots operate in unlicensed spectrum, interference can be a problem.  Several stakeholders we spoke with mentioned congestion or limited  distance capability in Wi-Fi as a potential limitation of the service.
Worldwide Interoperability for Microwave Access (WiMAX). With  WiMAX service, the distance covered and data transmission speeds can  exceed those found with Wi-Fi service. WiMAX can provide data  transmission speeds of 75 Mbps with non-line-of-sight service—that is, the  signal can pass through buildings, trees, or other obstructions—or up to  155 Mbps with line-of-sight service. In a non-line-of-sight environment,  WiMAX can provide service in an area with a radius of 3 miles or more; in a  line-of-sight environment, WiMAX can provide service up to approximately  30 miles.  WiMAX equipment and services are based on the IEEE 802.16  series of standards and operate in unlicensed and licensed spectrum.
WiMAX networks are being deployed on a trial commercial basis, but some  challenges remain for further deployment. More than 150 pilot and  commercial deployments of WiMAX networks are currently in use. Because  of its greater capabilities in terms of distance and speed, WiMAX can  extend wireless broadband to less densely populated communities, where  wired solutions may be more expensive to deploy. Stakeholders we spoke  with serving smaller, less densely populated areas indicated that they were  testing or interested in WiMAX to serve their communities. However,  concerns have been raised about spectrum availability, interference, and  the ability of different manufacturers’ equipment to support the same level  of broadband applications. FCC has several initiatives under way to  increase the availability of spectrum for WiMAX services. While the WiMAX  Forum Certification Lab certifies WiMAX equipment, the standard allows  manufacturers of equipment various options, such as different levels of  security protocols, and thus, not all equipment may support the same level  of service, such as carrying voice over the Internet (VoIP) and security.
Third generation (3G) cellular broadband. Recently, several major  commercial wireless companies have introduced broadband service based  on advances in cellular technology and data protocols. Focused primarily  on the business customer and more expensive than cable modem and DSL  services, 3G services permit consumers to receive broadband service while  mobile. 3G services typically provide data transmission speeds of 400 to  700 kilobits per second (Kbps). There are two competing technologies: EV- DO service, introduced by Verizon and Sprint; and HSDPA, introduced by  Cingular. Currently, Verizon Wireless reports that its service is available  nationally in 181 major metropolitan markets, covering approximately 150  million people. Sprint reports providing EV-DO service in major airports  and business districts in 212 markets, covering approximately 140 million  people. For HSDPA service, Cingular reports that its service is available to  nearly 35 million people in 52 communities. Industry stakeholders  expressed concerns about the ubiquity of service, data transmission  speeds, and the monthly costs associated with 3G service. Opinions varied  as to whether cellular broadband services would be a competitive threat, or  a complementary service, for consumers of other broadband services.
Fiber to the home (FTTH). FTTH provides a high-speed, wire-based  alternative to traditional cable and telephone networks. According to the  FTTH Council, as of September 2005, 2.7 million homes were passed by  fiber and over 300,000 homes were connected to fiber in 652 communities  in 46 states. Stakeholders expressed concerns about the high cost  associated with deploying FTTH, and also that FTTH deployment was  concentrated in urban and suburban communities, or in newly developed  communities (known as “greenfields”).
section_title: Comments from Industry Participants
paragraphs: We provided a draft of this report to several associations representing  industry trade groups and state and local government entities for their  review and comment. The following associations came to GAO  headquarters to review the draft: Cellular Telecommunications and Internet  Association (CTIA), National Association of Regulatory Utility  Commissioners (NARUC), National Association of Telecommunications  Officers and Advisors (NATOA), National Cable and Telecommunications  Association (NCTA), National Telecommunications Cooperative  Association (NTCA), Satellite Industry Association (SIA), US Internet  Industry Association (USIIA), United States Telecom Association (USTA),  and Wireless Internet Service Providers Association (WISPA).
Officials from CTIA, NARUC, and NTCA did not provide comments.  Officials from NATOA, NCTA, SIA, and USIIA provided technical comments  that were incorporated, as appropriate.
USTA officials noted that our discussion of the effects of local franchising  on deployment imply that franchise agreements have helped to ensure  broad deployment of broadband, but that, in the view of USTA, franchise  buildout requirements can deter entry and thus reduce deployment.
WISPA officials expressed concern about our findings regarding the  taxation of Internet access and noted that it is important, in their view, that  wireless Internet access provided by small providers not be taxed, and in  fact, WISPA officials noted that small providers should be provided a tax  incentive to encourage investment and expansion in underserved areas.  Additionally, these officials expressed concern about the presentation of  data on how households currently access the Internet from their homes.  WISPA stated that these data understate the importance that wireless  access will have toward the goal of universal broadband coverage both  within and outside of users’ homes. WISPA stated that the report accurately  depicts that wireless Internet service providers (WISP) currently hold a  minority market share, and WISPA officials note that without certain  government policies to foster growth in the wireless industry, WISPs will be  at a competitive disadvantage. WISPA officials also expressed concern that  the report understates factors that are hindering the growth of the wireless  Internet industry—most notably, the need for additional spectrum under 1  Ghz, such as the TV white spaces. Further WISPA noted that the data  showing broadband penetration rates in urban, rural, and suburban areas  should not be interpreted as indicating that access to broadband is lower in  only rural areas. They suggested that differences in broadband penetration  rates across these types of locations are not that great and that pockets of  areas with no access exist in many areas. As such, WISPA suggests that  policy response regarding spectrum availability, USF funding, and Rural  Utilities Service be focused on engaging smaller providers that can bring  broadband to areas not currently served by the larger incumbent providers.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: Individuals making key contributions to this report include Amy  Abramowitz (Assistant Director), Eli Albagli, Stephen Brown, Michael  Clements, Sandra DePaulis, Nina Horowitz, Eric Hudson, Bert Japikse,  John Mingus, Sara Ann Moessbauer, Karen O’Conor, Lindsay Welter, and  Duffy Winters.