Public Policy – The Future of Broadband

Public Policy – The Future of Broadband

Gary Bolton

Vice President, Global Marketing

Gary Bolton

Vice President, Global Marketing

2® Adtran, Inc. 2010 All rights reserved Proprietary and Confidential

About ADTRAN

Leading Suppler of Communications Networks– Comprehensive product portfolio > 1,700 products– Revenues ~ $500M– 2009 Product Development Investment - $83M– 1,600 direct employees

Broadband Solutions– FTTH, FTTN, DSL, Carrier Ethernet Solutions

Enterprise Solutions– Converged Access and Unified Business Solutions

Mobile Backhaul– Ethernet, Optical and TDM

U.S. Based Company– Headquartered in Huntsville, AL– US Manufacturing – Huntsville, AL

Traded on NASDAQ: ADTN– Strong Balance Sheet– 25 year history of continuous profitability

3® Adtran, Inc. 2008 All rights reserved

Broadband Stimulus Programs – Round 1

$7.2B Broadband Stimulus Program

Round 1 Infrastructure NOFA– RUS: $2B – NTIA: $1.2B

2200 Round 1 Applications for $28B– Tier 1 and most Tier 2 providers did not apply – 133 Awardees (6% of applicants)

51% Last Mile 39% Middle Mile 10% Wireless

– $1.87B has been awarded ($1.51B grants + $357M loans) Only 27% of $7.2B Broadband Stimulus has been awarded

– No Funds have been distributed yet for Infrastructure projects


Highlights of BBS Round 2

Rural Utilities Service – Broadband Initiatives Program (BIP)– $2.2B in funding

$1.7B for Last Mile projects $300M for Middle Mile projects $100M for Satellite Projects $5M for Rural Library Broadband and Technical Assistance $95M available for a reserve

NTIA – BB Technology Opportunities Program (BTOP)– $2.6B overall distribution

$2.35B for Comprehensive Community Infrastructure (CCI) projects $100M Sustainable Broadband Adoption (SBA) $150M Public Computer Center (PCC)

Round 2 Application Window Closed 3/26/10– 867 BTOP Applicants requesting $11B in grants

All $7.2B BB Stimulus Funds must be allocated by 9/30/10– Project must be substantively complete within 2 yrs of award


Key Broadband Stimulus Changes


National Broadband Plan

Plan delivered to Congress on 3/16/10– 360 pages, 6 goals, 200 recommendations, 60

proceedings to be initiated– Unprecedented Record

36 workshops and 9 hearings Over 250 witnesses Nearly 50,000 pages of written comments 31 Public Notices

– The Plan reflects the FCC’s view and likely policies, although it did not actually do anything substantive

Congressional Oversight Hearing held 3/25– NBP hearing with all FCC Commissioners

FCC published a schedule of 60 proceedings Blair LevinNBP Team

Julius Genachowski

FCC Chairman


2010 Key FCC Broadband Action Agenda


National Broadband Plan

Plan sets 6 aspirational goals by 2020

(national compass)

1. 100 Squared Initiative2. Global Leadership in Mobile Broadband3. Affordable access and skills to use

broadband4. 1Gbps to Community Anchor Institutions5. Broadband for Public Safety networks6. Broadband for Smart Grid


Current Situation

14M lack adequate infrastructure 10M school children are without home

access to broadband Millions of Americans lack internet skills

for jobs Gap in utilization for other national

priorities such as health information technology, Smart Grid, education, and public safety

Considerable lags among poor, elderly, racial and ethnic minorities, rural areas, and those with disabilities

US suffers from slow progress on

Availability, Adoption and Utilization of broadband

100M Americans do not subscribe to broadband


Current Situation cont…

U.S. has numerous providers (vs dominant fixed provider)– Cable plays prominent role

Must strike balance between public and private sectors to spur broadband– Government policy can drive, and has driven progress

3 Categories of Government Policies1. Fostering innovation and competition in networks2. Redirecting assets that government controls or influences3. Optimizing use of broadband to help achieve national

priorities


High Performance America

Mission: Create “High-Performance America”Productive, creative, efficient, with affordable broadband everywhere,

and everyone able to use valuable broadband applications

4 Categories of Recommendations1. Policies to ensure robust competition and maximize consumer

welfare, innovation, and investment

2. Encourage network upgrades and competitive entry, ensure efficient allocation and management of assets government controls or influences, such as spectrum, poles and right-of-ways

3. Reform current universal service mechanisms to support deployment of broadband and voice in high-cost areas, ensure affordability for low-income, and boost adoption and utilization

4. Reform laws, policies, standards, and incentives to maximize broadband in sectors government influences such as public education, health care, and government operations


National Broadband Plan Implications

Potential Winners FTTH Providers

– 100/50Mbps actual rate to 100M Households by 2020, 50/20Mbps to 100M by 2015– $24B anticipated for wireline broadband build out for universal 4/1Mbps broadband

CLECs– FCC will make facility-based providers provide easier access to facilities,

interconnection and wholesales services (although the pricing set by the regulators will be important)

Apps Developers – Key to adoption; regulatory environment to encourage investment and innovation

Wireless Providers and Emerging Wireless Providers– Thumb on the scale to enable wireless to compete with wireline providers and also

as a “complementary” broadband service

Potential Losers Cable providers and TV Broadcasters

– STB lack innovation, Cable perceived and dominant provider, spectrum demand Satellite

– Relegated to be relevant to only last 1% which still are unserved Tier 1s

– 50% of Federal broadband subsidies will be targeted to AT&T, Vz and Qwest serving areas (could also be viewed as subsidy opportunity for Tier 1s)


Key NBP Proceedings

Open Internet/Net Neutrality – Pro: Google Con: Telcos and Cable– Potential to discourage new investment from Incumbents

Copper Retirement – Pro: CBeyond/XO Con: ILECs– CLECs have asked FCC to limit ILECs ability to retire copper when fiber is deployed

Special Access Pricing Regulation – Pro: Wireless Con: Wireline– Limits on special access pricing used for wireless broadband could “subsidize” such

wireless services to the detriment of wireline broadband

USF Reform – Pro: Wireless/Wireline broadband Con: Wireline voice and Wireless ETC

– $7.7B/yr USF funding ($4.5B/yr for High-Cost) will be retargeted to broadband

Title I vs Title II – Pro: Wireless/CLECs Con: ILECs– FCC is considering reclassifying broadband from Title I information service to a Title

II communications service. Heavier Title II regulations will likely result in disincentives for ILEC broadband deployment

“Actual” vs “Advertised” Speeds focus by the FCC provides significantly advantages for wireline, eliminating artificial advantage of wireless broadband and cable services

Regulation of Pole Attachment Rates – Pro: RLEC/ILECs/CLECs Con: Power and Cable

– ILEC rates for attachment substantially higher than that charged to cable companies


Comcast Decision

Tuesday April 6th the D.C. Circuit Court vacated the Comcast Order– On grounds that the FCC did not properly assert ancillary jurisdiction

to impose requirements on Comcast’s network management practices

As a result, the FCC extended the reply comment deadline in its Open Internet proceeding from April 8th to April 26th.

FCC still intends to go forward with network management regulation

FCC must ensure that it has the proper jurisdiction

Potential Options for the FCC– Reclassification (Title I vs Title II)– FCC can challenge the court’s decision– Congressional legislation


Possible Outcomes from FCC NBP

FCC is anticipating scenario #1 as justification for more spectrum allowing wireless to compete with wireline to ensure broadband competition


USF and Intercarrier Compensations

In 2009, USF = $7.7B ($3.56B in 1998)– $4.5B High-cost program– $2.1B Schools and Library program– $897M Low-income program– $206M Rural Healthcare program– 14% of LD revenue (5% in 1998)

Universal Reform Act of 2009

USF and ICC role in National Broadband Plan– Goal of making broadband universally available– Contribution Methodology– Transition– Impact of Changes in Current Revenue Flow


USF and ICC Reform – Stage 1

Stage 1: Laying the Foundation for Reform (2010-2011)– Recognize that business case is some high cost areas doesn’t

work– Create Connect America Fund (CAF) for High Cost areas

Support one broadband provider per geographic area Make support competitively and technology neutral Use market-based mechanisms for awarding support Hold funding recipients accountable by

– Imposing timelines for deployment– Verifying broadband availability– Setting up reporting requirements

Create Mobility Fund providing one-time support to bring all states to 3G

Design new USF to minimize tax consequence


USF and ICC Reform – Stage 1 cont…

Stage 1: continued… Shift $15.5B over 10yrs from current High-Cost program

to broadband– Implement Sprint and Vz wireless merger commitments– Transition rate-of-return carriers to price cap regulations– Freezing Interstate Common Line Support funding pending

development of new method– Redirect Interstate Common Line Support to broadband

deployment– Establish schedule to phase out legacy High-Cost support

for Competitive Eligible Telecom Carriers over 5 yrs Split estimated $15.5B in savings between Connect America

and Mobility Funds Adopt interim rules to reduce intercarrier compensation

arbitrage



Stage 2: Accelerating Reform (2012 – 2016)– Begin distribution from CAF to areas with most unserved

households or to states that provide matching funds– Broaden USF contribution base– Begin staged reduction of per-minute Intercarrier Compensation

(ICC) rates to low, uniform levels; reduce intrastate terminating access to interstate levels, then

to reciprocal compensation levels; reduce originating rates in equal increments

– Implement interim ICC solutions to address arbitrage



Stage 3: Complete Transition (2017 – 2020)– Manage total fund size to remain close to current levels (in 2010 dollars)– Recognize that low-income component may continue to grow for

reasons unrelated to the Plan– Eliminate legacy high-cost USF program and provide support through

CAP– Set deadlines for providers to meet deployment goals– Consider alternative methods, such as satellite broadband, to serve last

1% of households– Phase out per-minute ICC compensation, monitor carrier behavior for

exercise of market power

Congress should consider providing optional public funding to CAF to accelerate and smooth the transition (ie several $B over 2-3yr period)

Congress should consider other government actions to promote availability

– Expand RUS loan-grant programs and RUS Community Connect program


ADTRAN’s Broadband Advocacy Efforts

Advocacy Summary Encourage a full tool box of broadband solutions to allow service

providers to choose the best solution on a project by project basis

Discourage any incremental regulatory obligations to enable maximum grant participation by our service provider customers

Stimulate broadband demand and improve end-user experience

Educate and update our customers and community anchor institutions on the latest stimulus and NBP developments

– Stimulus website, – webinars, – service provider conference,– weekly blogs

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Public Policy – The Future of Broadband

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