by Steve Pastorkovich
OPASTCO Business Development Director/Senior Policy Analyst

As we get closer to the installation of a new administration, the calls for a national broadband policy of some type seem to gain momentum. In addition, a number of groups are calling for various broadband funding initiatives to be part of any economic stimulus package. At this early stage, much remains unclear, although some of the suggestions for additional tax incentives and improved depreciation for broadband infrastructure echo some of OPASTCO's longstanding positions.

But apart from a stimulus package, what specifically should a national broadband policy include? On this point, there remain many details to work out.

One component that is often overlooked in discussions about a national broadband policy is the intrinsic link between video and broadband. Many consumers have broadband available, but choose not to subscribe. This changes when broadband is bundled with video. As more consumers purchase broadband, it becomes less expensive and easier to deploy to more areas. Therefore, affordable access to video content is an important element of any national broadband policy.

Lack of Broadband Demand Is Often a Bigger Barrier than Lack of Access

Many are concerned about lack of access to broadband services. Of course, there are remote areas that are difficult or impractical to serve. But research has consistently shown that lack of demand is an even bigger barrier to wider broadband adoption and deployment than a lack of access to broadband infrastructure. Stimulating demand where broadband is available makes it more economical to deploy infrastructure in less populated, higher-cost areas.

Several studies have confirmed what many service providers already know: lack of consumer demand is often a bigger barrier to further investment than a lack of access to broadband services.

According to a recent survey conducted by ConnectedNation, 42 percent of rural consumers who did not subscribe to broadband services chose not to do so because they simply didn't see the need for it. An additional 34 percent did not subscribe because they do not have a computer, which they often do not see a need for either. Cost was cited as the reason by 22 percent of those not subscribing to broadband, while 19 percent said that broadband was not available to them.

So cost and availability are clearly major factors that impede more widespread broadband subscriptions in rural areas. Yet consumers' perceived lack of need for broadband, and lack of computers, is much more prevalent.

The lack of demand is not limited to rural areas. According to a study by the Pew Internet and American Life project, 27 percent of adult Americans do not use the Internet at all. Among these, 33 percent say they are not interested in using the Internet. Nine percent say it's too difficult, and another seven percent say the Internet is a waste of time. Taken together, these three categories make up nearly half of non-Internet users nationwide. In contrast, only 12 percent say they don't have access.

These numbers are similar to the results of a survey done by Parks Associates in 2007. Only three percent of those not subscribing to broadband indicated it was due to a lack of availability. In contrast, 44 percent were not interested or were happy with dial-up, while 17 percent were unsure how to use the Internet, and 14 percent were content with only having broadband access at work.

Video Stimulates Broadband Demand, Which Stimulates Build-Out

If more consumers who had access to broadband subscribed to the service, it would be more economical to deploy it to those who lack access. Carriers of all sizes have consistently found that when video and broadband services are bundled together, customers buy more of each. This has led the FCC to correctly surmise that the "ability to offer video service and to deploy broadband networks are linked intrinsically."

Market researchers have reached similar conclusions. The Parks Associates survey concluded that entertainment applications are the key to enticing non-broadband subscribers to sign up. "If anything will pull in the holdouts," Parks Associates declared, "it's going to be applications that make the Internet more akin to pay TV."

Video Content Reform Is a Broadband Issue

From the above, we see that lack of demand is a greater barrier to broadband adoption than lack of availability. And the intrinsic link between video and broadband subscription has been firmly established. Therefore, it is clear that one of the best ways to spur more broadband adoption is to bundle the service with video content.

However, rural carriers are having increasing difficulty obtaining the programming that customers demand. Rural carriers must have access to this content at nondiscriminatory rates and conditions. However, programmers retain the ability and incentive to discriminate against small video providers. The current retransmission consent regime allows broadcasters to increase prices at a staggering pace. And programmers also force small video providers to tie unwanted channels to "must-have" content, further increasing the costs that customers must pay. In addition, the "terrestrial loophole" allows a programmer to discriminate against small providers if content is delivered to head ends over fiber lines instead of via satellite. All of these factors inhibit video competition, as well as the ability to increase broadband take rates.

OPASTCO's Video Content Advocacy

OPASTCO has spent several years aggressively pointing out how reform of retransmission consent, forced tying, and the terrestrial loophole are necessary to achieve the twin goals of video competition and further broadband adoption. OPASTCO does not support a new regime of heavy regulation, but only seeks market-based reforms of existing rules that have become outdated and inadvertently allow programmers to establish a stranglehold on necessary content.

For a while, as OPASTCO worked with small cable companies, consumer advocates, and others, we appeared to be making progress on these issues in 2008. However, the election, as well as the upcoming transition to digital television scheduled for February 17, 2009, helped programmers stall reform efforts.

Conclusion

The recent emphasis on broadband policy provides another opportunity to achieve meaningful video content reforms in the coming year. But OPASTCO cannot do it without the active involvement of its members. Please be ready to engage policymakers at the FCC and on Capitol Hill to help demonstrate how video content reform really is a broadband issue.