Obama’s $8 Billion Broadband Stimulus: Opportunity or Risk for Big Telecom?

Check out the new video I shot about the $8 billion Obama broadband stimulus and what it means for the nation’s largest telecom companies such as AT&T, Verizon Communications and Qwest. I shot it in preparation for the big online Web video project launching in late April. Hopefully I can tell you more about this very soon. But in the meantime, please enjoy the video!

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Secrets of Big Telco: Why They Are Not Lining Up for Obama’s Broadband Plan

Today, BusinessWeek published a story written by Arik Hesseldahl and I, “Big Telcos Drag Their Heels on Broadband Stimulus.”

It reveals for the first time why some of the major telecom companies are dragging their heels on asking for federal money, and includes text from a letter we obtained from industry trade group, USTelecom (see it below).

Here’s the top of the story:
Big Telcos Drag Their Heels on Broadband Stimulus
Telecom giants are concerned that Washington’s $8 billion plan to promote broadband access will force them to open their networks to other providers

As Washington prepares to dole out some $8 billion to promote the spread of broadband access, don’t expect Big Telco to rush to the front of the line.

Some of the largest U.S. telecom operators, including AT&T (T), Verizon Communications (VZ), and Qwest Communications International (Q), are dragging their heels on asking for federal money. Some may sit out early funding rounds entirely or ultimately ask for only a sliver of the total.

Telecom giants are concerned that once finalized, the program will include burdensome regulations that will force them to open their equipment to rivals or otherwise hamper their ability to manage broadband networks, according to three people familiar with the thinking of the big service providers.

BUSINESSWEEK OBTAINS LETTER
That sentiment was captured in a Mar. 16 letter sent by industry group USTelecom to the Commerce and Agriculture Depts. and the Federal Communications Commission. In the letter, which was obtained by BusinessWeek, the group urged government officials to not let the broadband stimulus get mired down in contentious policy debates. “The agencies should not try to impose other requirements on grantees as part of this process,” wrote USTelecom CEO Walter McCormick.

Click here to read the entire letter.

Update: Qwest Does Block Internet Traffic (In Rare Cases)

Last August, I reported that Qwest did not block or constrict Internet traffic. That’s what I was told by Steve Davis, Qwest’s senior vice president of public policy.

In December, an individual with the handle Bob Dobbs posted a comment on my blog alleging that Qwest did in fact block Internet traffic. As an example, Dobbs said “access to the popular torrent tracker, thepiratebay.org is blocked on Qwest.”

It turns out that Bob was half right. Just recently, Qwest spokeswoman Kate Oravez told me via email that the company does not block thepiratebay.org.

However, Oravez said that Qwest does block consumer Internet traffic “in rare cases to protect the network or to block access to web sites that the National Center for Missing and Exploited Children has identified.”

Examples of blocking cited by the company include:

* When a customer is redirected to our Customer Internet Protection Program.

* When we need to protect our network and our customers against malicious traffic in very rare cases for Internet wide events such as the Slammer worm.

* When traffic is going to web sites that the National Center for Missing and Exploited Children has identified that contain child pornography.

Democratic National Convention Photo Stream

[Outside the Pepsi Center with downtown Denver in background.]

[Main entrance to Pepsi Center.]

[Lobby of the Pepsi Center.]

[Qwest engineers in the surrogate communications data center they set up. Notice the wood floor they preconstructed since bolts were not allowed in the floors.]

[On floor of Pepsi Center during roll call with Hillary Clinton putting Obama over the top of the nomination.]

[Journalists watching Hillary Clinton speech in media tent.]

Qwest: We Don’t Block Internet Traffic

At the Democratic National Convention on Tuesday, I had the opportunity to meet Steve Davis, Qwest’s senior vice president of public policy. I asked Steve about the company’s policy with respect to the management of Internet traffic.

The issue has been in the news recently as Comcast, the nation’s largest cable operator, has come under fire from the Federal Communications Commission for secretly blocking the peer-to-peer file trading service BitTorrent.

“We are for everything that prohibits blocking of Internet traffic,” said Davis. “But we don’t support regulation of transport.”

I asked Davis if Qwest blocks or constricts any Internet applications as Comcast has done in the past. His response: “We don’t engage in the type of constriction that Comcast does.” (Since Comcast announced on Thursday that it will impose a monthly cap of 250 gigabytes on their customers, I didn’t have a chance to ask Davis about this new policy.)

Rather than blocking or constricting Web traffic, Davis said Qwest’s approach is to offer consumers several different flavors of bandwidth. Qwest, which serves about 13 million customers in 14 Western states, offers four different speeds at the moment, said Davis, including options for 1.5 megabytes (Qwest Connect Silver)), 7MB (Qwest Connect Platinum) , 12MB (Qwest Connect Titanium) and 20MB (Qwest Connect Quantum). Prices start at $46.99 per month.

The Denver-based phone company is able to offer beefier bandwidth because it recently began rolling out fiber optic cables in certain parts of its territory. Qwest is pursuing a strategy called “fiber-to-the-node,” which means it is laying cable from its central offices to nodes in various neighborhoods. That contrasts with Verizon’s more aggressive and expensive strategy of installing fiber optic cables directly into people’s homes.

Even so, Davis noted that offering consumers pay-what-you-drink options “doesn’t necessarily solve all problems” when it comes to U.S. broadband policy. “You could have back-haul problems too,” said Davis.

And it won’t help Americans living in rural areas who have no access to the Internet. To help solve that problem, Davis said Qwest is in favor of providing government subsidies for areas with no service to one low-cost provider that could wire the locale. “You wouldn’t subsidize competition,” said Davis.

My own take: Generally speaking, it’s better to have a solution come from the marketplace rather than government regulators. And while Om Malik and others have criticized the idea of tiered broadband, I believe some version of tiered pricing is the best solution to the bandwidth shortage.

Om makes a good point when he notes that cheap broadband has been a key factor in fueling the growth of the Internet. The broadband revolution has helped give birth to YouTube, MySpace and a host of other innovations that have energized the Web, creating new demand for Internet services.

And since Internet service has become a critical utility of our age, I agree that Internet providers should offer basic level service for a reasonable price. But let’s face it: Some people use more broadband than others and they should probably pay for it. I think it’s a very American idea: pay for what you use. And it’s economic 101.

That’s why competition should be a hallmark of our broadband policy–not government regulation of pricing. Competition will spur communications providers to offer higher and higher speeds at lower and lower prices. The battle between cable companies and phone companies has helped lower Internet service prices and raise entry-level speeds. But we need to find more ways to promote competition in future mediums, such as wireless broadband–especially since our appetite for bandwidth continues to grow with the rise of high definition video content.

What do you think?

Wiring the Democratic National Convention

Telecommunications is one of those industries that many people take for granted. People expect their phone lines, TVs and Internet connections to work. It’s only when they don’t that people raise a stink. The upside of this is that it reflects the increasing importance of communications. It’s becoming like air or water or oil, a vital resource that we can’t live without.

But at the Democratic National Convention, the normally invisible communications infrastructure was made visible. That’s because the normal pipes and wires would not be able to handle all the communications needs of the 15,000 members of the media that have descended on Denver this week. Making phone calls, broadcasting TV and publishing Internet content required the installation of 6,000 new voice and data lines. And for that, you can thank Denver-based Qwest Communications, which is wiring the DNC (and the Republican National Convention next week.)

The crazy thing is that Qwest had to donate $6 million in services to the Democratic National Committee to earn the right to become the “Official Telecommunications Provider” of the DNC.

Why would Qwest fork over a $6 million in-kind donation for such an honor? The answer is that the company is taking a modest but calculated risk that providing communications services to the DNC is a great marketing and branding event that could generate new contracts in its corporate and government lines of business–the main source of growth for the company. Already, Qwest is making money by charging thousands of media organizations thousands of dollars for their Internet and phone connections. But the real payoff could come down the line if corporate and government customers hire Qwest for more extensive work in the future.

“This really demonstrates the capacity of Qwest,” says Robert D. Tregemba, Qwest executive vice president of network operations. “The strategy was to showcase that piece.”

So far, the reviews have been positive. While some people have complained about poor Internet connections in Denver hotels and cafes, most journalists I spoke to said the DNC’s communications services have been working pretty well. Phone calls are going through, blog entries are posting and TV shows are going live without a hitch.

It’s a pretty impressive feat of engineering that the company has been preparing for over the last 18 months. Besides the 6,000 voice and data lines, Qwest built a network operating center in the bowels of the Pepsi Center, laid fiber optic cable underground in the parking lot to wire the media tents and power several cell phone towers, and installed data and voice ports for each state delegation on the convention floor.

The really tricky part: Several weeks ago Barack Obama announced he was moving his keynote speech from the Pepsi Center to Invesco Field, and Qwest has had to scramble to wire a totally new site at the last minute. We’ll see Thursday night if Qwest pulled off this minor miracle.

Another challenge was security. To protect the network and physical site, Qwest worked with the Secret Service. Qwest engineers told me they foiled one hacker yesterday who tried to break in to the convention network through the DNC Web site.

The 3,300 miles of fiber and 140 miles of copper and coaxial cable Qwest installed provide enough Internet bandwidth to support 180,000 homes with a 20 megabyte connection and phone service for more than 200,000 homes, according to R. Dayl White, a Qwest engineer who designed and oversaw the construction of the network.

And it all has to be taken apart in two days after the DNC closes. Doh!

Denver, Baby

FYI: I am heading to Denver today to attend the Democratic National Convention.

If any readers are there, please ping me via the blog or email. Maybe we can connect in the Big Tent!?!

While checking out the convention, I will also be meeting with executives from Qwest, local venture capitalists and a few old friends and colleagues.

It’s not quite Burning Man or Chicago ’68 but I think it should be interesting, with all the historical uniqueness and drama swirling around the Pepsi Center.