Telecommunication Infrastructure SubCommittee

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Telecommunication Infrastructure Sub-Committee
Governors Council on Innovation and Technology
Connecting Arizona to the Future
Would you tell me please, which way I ought to
go from here? said Alice. That depends a good
deal on where you want to get, said the cat. I
dont much care where, said Alice. Then it
doesnt matter much which way you go, said the
cat. Lewis Carroll Alice in Wonderland
October 7, 2004
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Universal Access - Focus

• What is needed to achieve Universal Access ?
• Five Criteria
• Dramatic transformation depends upon
• Leadership, Policy, Strategic Planning, Funding

Participant
Criteria
Outcomes Impacted By TIC (Strategic Plans,
Policy Funding)
Provider Industry Government Consumer
Gartner Group The Payoff of Ubiquitous
Broadband Deployment 1 July 2002
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Estimated Economic Impact of Broadband Build-out

• Widespread, high-speed broadband access will
  increase our national GDP by 500B annually by
  2006.
• Brookings Institute Study 2001
• Interpolating for Arizonas population, economic
  impact on Arizonas GDP - 8.5B Annually.
• 11,500 additional non-service industry based jobs
  
• Other studies show similar impact - usually too
  conservative (Korea, China, India, Ireland)

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GDP Improvement with Broadband

• Studies aimed at quantifying contribution of
  broadband to GDP improvement range from 2.5 to
  15

This Model reflects a modest 4 improvement

• Graph based upon following assumptions
• AZ average GDP grows _at_ 8.25
• BB growth contribution in year 1 1
• BB growth contribution in year 2 2
• BB growth contribution in year 3 4
• BB growth contribution in year 4 4
• BB contribution remains at 4 thereafter
• Cumulative GDP increase over 10 years 42B
• From just Rural (23) Contribution

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Statements of Broadband benefit

• From an Australian study - Harnessed
  effectively, broadband connectivity will be a key
  driver of Australia's Gross Domestic Product
  (GDP), jobs and wages growth. Broadband
  technologies will be the roads and railways of
  the 21st century, generating the next wave of
  economic expansion, particularly in inner
  Australia.
• Broadband-enabled small-medium enterprises stand
  to earn on average almost double the revenue per
  employee
• Can transform the way people live, work and do
  business.
• Without broadband, firms will fail, others will
  relocate, but either way our state will be the
  loser . . .

Paul Chapman University of Adelaide, Australia
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Benefits of Broadband to Rural Arizona

• Critical to rural economic vitality if cities and
  towns are expected to maintain and grow
  economically
• Allows rural Arizonans a chance to also compete
  on a world-class economic basis
• Offers businesses/residents a quality-of-life
  choice rather that forced relocation to congested
  areas

• Provides diversity to the economy
• Bridges the innate Digital Divide that exists
  today

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How are other states addressing it ?

• MI Broadband Development Authority
• Bond authority funded by 50M Housing Authority
  Investment
• Interest rate Baseline Too high to attract
  investments
• WA K-20 Project
• Identified Multi-use infrastructure
  (Universities, K12, Telemedicine, E-Government)
• Compete against ILEC (Qwest)
• CO Beanpole Project
• State investment in multi-use network (26.5M)
• Cost share with private industry nodes in each
  county
• Mixed success story ILEC still controls costs
  (set at 1999 rates) subsequent build-out

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Understanding there is a problem

• Telecom infrastructure in rural Arizona is
  incapable of supporting long-term economic
  development goals
• Less than 75 of Arizonas 97 communities over
  500 in population are equipped with
  broadband-capable infrastructure
• The missing Middle-Mile inhibits broadband
  deployment outside metro Phoenix Tucson
• Long-term economic impacts are HUGE
• Positive with it ... Negative without it
• Identified as a major issue in the Arizona
  Partnership for the New Economy, and in the
  recent Battelle Study on Advanced Communication
  and IT Industry

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Impacts of Broadband

• Arizonas growth expectations will be negatively
  affected if lack of broadband infrastructure
  persists
• Affordability dictates demand
• Availability is driven by providers ROI

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Basic Realities in Arizona

• Local Loop (last-mile) is not the key issue
• Broadband providers business cases are upended
  by middle-mile costs
• Primary carrier is 15B in debt and with
  others, are saddled with cash flow problems
• Little capacity to make levels of investment
  necessary to fix middle-mile problems many
  years before build-out can be complete if left to
  carriers
• State Government unlikely to appropriate the
  100M - not feasible in current fiscal
  climate
• State Government not interested in becoming a
  telecom carrier. nor should it be

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Why does it eventually have to be fiber ?

• No other trunk technology has the ability to
  scale to meet future needs.
• Education, Healthcare, Government, Business,
  Residents
• Broadband value analyses assumed
• DSL/Cable rates initially (256-512 Kbps now)
• Minimum 8-10 Mbps at 10 years out point
• Convergence voice, data video
• 100 channels of SD video requires 300 Mbps
  bandwidth
• 100 channels of HD video requires 3-4 times that
• World is trending toward VoIP over and above
  rapidly increasing data demand
• Not enough bandwidth/spectrum available in copper
  and/or microwave combined

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Fiber in Arizona vs. Other States
Fiber Map - AZ

• Map at right reflects how little fiber reaches
  anywhere but key cities
• Remainder of state surviving on aging copper and
  microwave plant.
• Mostly full
• Each access point should have 2 paths in/out for
  reliable telecom
• Lack of redundant paths devastates whole regions
  when outages occur
• Monopoly ownership of existing pipes keep costs
  high

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Examples of other States . . .
GEORGIA Fiber as a result of the 5-year BB
fiber push
COLORADO Fiber as a result of the ongoing
BeanPole Project
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Costing Arizonas Middle-Mile Fix

• Infrastructure Installation Costs
• Single Mode Fiber
• In-City 24-Strand 4.7K per mile
• Inter-City 48-Strand 10K per mile
• Digging
• In-City 60K per mile
• Inter-City 25K per mile
• Aerial
• In-City 20K per mile
• Inter-City Varies 12-30K per mile
• Figures do not include termination equipment or
  Right-of-Way. Fiber costs obtained from Corning.
  Fiber laying costs derived from direct
  consultation with Arizona contractors.

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How much fiber should be laid?

• Giving communities of gt5000 residents access to
  fiber should be a minimum goal
• Reaching towns in AZ traverses paths that equate
  to approximately 2500 miles of new fiber
• Based on previous slide
• (25K10K) X 2500 mi 87.5M
• Reaching farther into even smaller communities
  might nearly double that figure to 150M

Digging
Fiber
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Arizonas Return on Investment ?

• Economic impact would escalate to 8.5B annually
  and 11,500 jobs (excluding growth inflation)
• 150M investment would put fiber in place to
  enable this growth
• At the current sales/corporate/personal tax
  rates, derivable revenues would reach
• Over 100 Million per year - each year
• This is recurring revenue given a ramp period

Source Center for a Sound Economy (CSE)
Report State Economies can Benefit from
Broadband Deployment, Wayne T. Brough, Ph.D, 01
Dec 2003
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Where could funding come from ?

• Arizonas Service Fund rate adjustment
• Current 0.01 per line/month yields 1M/year
• Increase to 0.50/mo could yield 50M/year
• Side Benefit State of Arizona has control over
  the rate
• Balance return from Universal Service
• Feds collect over 150M/yr from AZ.give back
  60 (Source of 80 - 90M/yr)
• Bond projects by communities or regional
  organizations
• Ongoing private carrier investments
• Federal Grants (if permitted)

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Possible Next Steps

• State enables authority for BB telecom networks
• Priorities set for telecom projects
• Leverage state contracting authority and
  inter-agency ROW agreements to expedite buildouts
• Funding from multiple sources
• State revenue sources (e.g., AZ universal service
  fund)
• Appropriations
• Interagency transfer (GADA, CEDC, Housing Auth.,
  etc.)
• Federal programs and grants (e.g., USF)
• Private Investment (Tax incentives)

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Related Statewide Issues

• Rights-of-Way also a major issue
• Need streamlined process cost mitigated
• Reservations present significant ROW issues
• Operational cost of telecommunications to State
  of Arizona
• Government Education, Health, Transportation,
  e-Gov, etc.
• If the state owns the pipes, the cost of use
  minimized. Massive long-term savings
  especially when telephony moves largely to IP
  networks

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Credits
This brief originally created by Vernon Reed
Director of Telecommunications Strategy
Planning Greater Flagstaff Economic
Council Added to and Edited by ATIC Council
Members Galen Updike - GITA