-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-426		

TITLE:     Telecommunications: Broadband Deployment Is Extensive 
throughout the United States, but It Is Difficult to Assess the 
Extent of Deployment Gaps in Rural Areas

DATE:   05/05/2006 
				                                     
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GAO-06-426

     

     * Report to Congressional Committees
          * May 2006
     * TELECOMMUNICATIONS
          * Broadband Deployment Is Extensive throughout the United States,
            but It Is Difficult to Assess the Extent of Deployment Gaps in
            Rural Areas
     * Contents
          * Results in Brief
          * Background
          * 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
               * About 30 Million American Households Purchase Broadband
                 Service
               * Deployment of Broadband Appears to Be Extensive, but FCC's
                 Form 477 Data May Not Provide an Accurate Depiction of Gaps
                 in Broadband Deployment
          * 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
               * Several Key Market Factors Related to the Cost of Service
                 and Demand Influence Deployment Decisions
                    * Cost Factors
                    * Demand Factors
                    * Taxation of Internet Access
               * Certain Critical Technical Factors Affect Broadband
                 Deployment
               * Federal and State Government Efforts, and Access to
                 Resources at the Local Level, Have Impacted the Deployment
                 of Broadband
                    * Federal Programs Have Funded Broadband Infrastructure
                    * Various State Programs Assist the Deployment of
                      Broadband Services
                    * Local Issues and Access to Resources Impact the
                      Deployment of Broadband Services
                    * Community Leadership Encourages the Deployment of
                      Broadband Services
          * A Variety of Household and Service Characteristics Influence the
            Adoption of Broadband
          * Stakeholders Identified Several Options to Address the Lack of
            Broadband in Certain Areas, but Challenges Exist with
            Implementation
               * RUS Broadband Programs Could Provide a Source of Targeted
                 Assistance, but Stakeholders Identified Several Concerns
                 with the Programs
               * USF Programs Indirectly Support Broadband Service, but
                 Several Stakeholders Expressed Concerns
               * Resolving Spectrum Congestion and Management Concerns Could
                 Facilitate Greater Wireless Broadband Service
          * Conclusion
          * Recommendation for Executive Action
          * Agency Comments and Our Evaluation
     * Scope and Methodology
     * Data Reliability
     * Broadband Deployment and Adoption Models
          * Design of Our Broadband Deployment and Adoption Models
               * Deployment Model
               * Adoption Model
          * Data Sources
          * Assessing Broadband Deployment
          * Estimation Methodology and Results
               * Deployment Model
               * Adoption Model
     * Additional Communications Technologies
     * Comments from Industry Participants
     * GAO Contact and Staff Acknowledgments

Report to Congressional Committees

May 2006

TELECOMMUNICATIONS

Broadband Deployment Is Extensive throughout the United States, but It Is
Difficult to Assess the Extent of Deployment Gaps in Rural Areas

Contents

Tables

Figures

Abbreviations

May 5, 2006Letter

The Honorable Ted Stevens Chairman The Honorable Daniel K. Inouye
Co-Chairman Committee on Commerce, Science, and Transportation United
States Senate

The Honorable Joe L. Barton Chairman The Honorable John D. Dingell Ranking
Minority Member Committee on Energy and Commerce House of Representatives

The universal availability of high speed Internet access over broadband
technologies-commonly referred to as broadband Internet access-has become
a national goal.1 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.2

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.

Results in Brief

About 30 million American households purchase, or have adopted, broadband
service, but it is difficult to assess the extent of gaps in the
availability of broadband in local markets. Using a survey of American
households, we found that 28 percent-or about 30 million-subscribed to
broadband service in 2005. In addition, 30 percent of surveyed households
subscribed to a dial-up Internet service, and 41 percent did not access
the Internet from their home. Among households subscribing to broadband
service, we found roughly an equal share taking cable modem and digital
subscriber line (DSL) service, the two primary broadband services at this
time. Households in rural areas were less likely to subscribe to broadband
service, compared with households in urban and suburban areas. On a
semiannual basis, FCC conducts an extensive data collection effort using
its Form 477 to assess the availability of advanced telecommunications
service in the United States. As of July 2005, FCC has found that 99
percent of Americans live in the 95 percent of zip codes that have at
least one broadband provider reporting to be serving at least one
subscriber. These data clearly indicate that deployment of broadband
networks has been extensive. However, for its zip-code level data, FCC
collects data based on where subscribers are served, not where providers
have deployed broadband infrastructure. Based on our analysis is appears
that these data may not provide a highly accurate depiction of deployment
of broadband infrastructures for residential service in some areas.3

A variety of market and technical factors, as well as federal and state
government efforts and access to resources at the local level have
influenced the deployment of broadband infrastructure. Most importantly,
companies contemplating the deployment of broadband infrastructure
consider both the cost to deploy and operate a broadband network and the
expected demand for broadband service. We found it is more costly to serve
areas with low population density and rugged terrain with terrestrial
facilities than it is to serve areas that are densely populated and have
flat terrain. It also may be more costly to serve locations that are a
significant distance from a major city. As such, these important factors
have caused deployment to be less developed in more rural parts of the
country. Firms also consider the extent of existing competition in the
broadband market when making deployment decisions: New entrants are more
likely to enter markets with no competitors, but at the same time, we
found that incumbent cable and telephone companies may respond to entry by
new companies by rolling out broadband in markets where they had not yet
provided service. Even when cost and demand factors are favorable,
technical factors can limit the deployment of broadband service in certain
contexts. For example, DSL-the primary broadband service provided by
telephone companies-can generally extend only 3 miles4 from the central
office with copper plant, which precludes many households from obtaining
DSL service.5 Finally, we found that a variety of federal and state
government efforts as well as access to resources at the local level have
influenced the deployment of broadband infrastructure. At the federal
level, one of the programs of the Universal Service Fund (USF)-known as
the High Cost Fund-has indirectly facilitated broadband service in more
rural areas. Similarly, the Department of Agriculture's Rural Utilities
Service (RUS) provides grants and loans to promote broadband service in
rural areas. At the local level, access to rights-of-way, pole
attachments, wireless-tower sites as well as the video franchising process
can influence the pace of deployment. We also found that strong leadership
within a community can help promote broadband deployment by, for example,
enhancing the likely market success of companies' entry into rural
markets. Finally, using our econometric model, we found that the
imposition of taxes was not a statistically significant factor influencing
the deployment of broadband.

A variety of characteristics related to households and services influence
whether consumers purchase (or adopt) broadband service. Based on our
econometric model, we found that several characteristics of households
influence the adoption decision. Our model showed that households with
high incomes were 39 percentage points more likely to adopt broadband than
lower-income households, and those with a college-educated head of
household were 12 percentage points more likely to purchase broadband than
households headed by someone who did not graduate from college. While
rural households are less likely to adopt broadband, our findings indicate
that this difference may be related in part to the lower availability of
broadband in rural areas. In addition, based on discussions with
stakeholders, we identified several characteristics of broadband service
that influence whether a consumer purchases the service. The price of
broadband service remains a barrier to adoption of broadband service for
some consumers, although prices have been declining recently. The
availability of applications and services that either require or function
much more effectively with broadband-such as computer gaming and file
sharing-also influences whether a particular consumer purchases broadband
service. Using our model, we found that the imposition of the tax was not
a statistically significant factor influencing the adoption of broadband
service at the 5 percent level. It was statistically significant at the 10
percent level, perhaps suggesting that it is a weakly significant factor.
However, giving the nature of our model, it is unclear whether this
finding is related to the tax or other characteristics of the states in
which the households resided.

Targeted government assistance might help facilitate the deployment of
broadband service, and stakeholders we spoke with identified several
options to spur greater deployment of broadband service in rural America.
However, each of the policy options that stakeholders discussed with us
had challenges to their implementation. For example, a few of the
stakeholders we spoke with expressed concerns about the structure of the
Rural Utilities Service's broadband loan program. Also, several of the
stakeholders suggested that modifications to spectrum management might
address the lack of broadband infrastructure in rural areas. Finally,
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 option for addressing a lack of
broadband in those regions. Ultimately, we found that a key difficulty for
analyzing and targeting any federal aid for broadband is a lack of
reliable data on the deployment of networks.

We provided a draft of this report to the Department of Agriculture, the
Department of Commerce, and FCC for their review and comment. The
Department of Agriculture had no comments on the draft. The Department of
Commerce and FCC provided technical comments that we incorporated, as
appropriate.

In the draft, 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 noted that the
commission had recently 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. 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 going forward. FCC did not comment on our final
recommendation.

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.

Background

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).6 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:

o 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(R) 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.

o 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.

o 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.

o 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.7 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,8 and companies are now required
to report their total state subscribership by technology.9

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

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.

About 30 Million American Households Purchase Broadband Service

Based on survey data from 2005,10 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.

Figure 1: Status of Household Computer Ownership and Internet Connection

Among online households, we found 50 percent subscribe to dial-up service,
and 48 percent subscribe to a broadband service.11 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.)

Figure 2: Household Online Connection

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.12 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.13

Figure 3: Percentage of Households Subscribing to Broadband, by Type of
Location

Deployment of Broadband Appears to Be Extensive, but FCC's Form 477 Data
May Not Provide an Accurate Depiction of Gaps in Broadband Deployment

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.14 While FCC, in general, notes that the 477 zip-code data are not
meant to measure deployment of broadband, in its July 2005 report,15 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.16

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.17 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:

o 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.

o 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.

o FCC requires that companies providing broadband using unbundled network
elements (UNE)18 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.19
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.

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

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.

Several Key Market Factors Related to the Cost of Service and Demand
Influence Deployment Decisions

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.

Cost Factors

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.

Demand Factors

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:

o 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.

o 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.

o 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.20
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.

Taxation of Internet Access

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 Columbia21 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.

Certain Critical Technical Factors Affect Broadband Deployment

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:

o 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.

o 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.

o 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.

Federal and State Government Efforts, and Access to Resources at the Local
Level, Have Impacted the Deployment of Broadband

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.

Federal Programs Have Funded Broadband Infrastructure

We found that several federal programs have provided significant financial
assistance for broadband infrastructure.

o 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.

o 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.

o RUS's Rural Broadband Access Loan and Loan Guarantee program provides
loans22 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.

o 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.

Various State Programs Assist the Deployment of Broadband Services

A number of states we visited have had programs to assist the deployment
of broadband services, including the following:

o 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.

o 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.

o 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.

Local Issues and Access to Resources Impact the Deployment of Broadband
Services

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.

Community Leadership Encourages the Deployment of Broadband Services

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.23 The following examples
illustrate this point:

o 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.

o 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.

o 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.

A Variety of Household and Service Characteristics Influence the Adoption
of Broadband

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.24  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.25 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.

Figure 4: Factors Influencing Subscription to 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.

o 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.26 However, because we lacked data on the price of
broadband service, we were unable to include this variable in our
econometric model.27 We did not find that the number of companies
providing broadband service affected the likelihood that a household would
purchase broadband service.

o 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.

o 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.

Stakeholders Identified Several Options to Address the Lack of Broadband
in Certain Areas, but Challenges Exist with Implementation

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.

RUS Broadband Programs Could Provide a Source of Targeted Assistance, but
Stakeholders Identified Several Concerns with the Programs

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:28

o 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.

o 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.29 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.

o 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.

o 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,30 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.

USF Programs Indirectly Support Broadband Service, but Several
Stakeholders Expressed Concerns

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:

o 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.31 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.

o 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.

o 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.

Resolving Spectrum Congestion and Management Concerns Could Facilitate
Greater Wireless Broadband Service

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.32 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.

Conclusion

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.

Recommendation for Executive Action

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.

Agency Comments and Our Evaluation

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 h  ttp://www.gao.gov.

If you have any questions about this report, please contact me at (202)
512-2834 or h  [email protected]. 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.

JayEtta Z. Hecker Director, Physical Infrastructure Issues

Scope and MethodologyAppendix I

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.

Data ReliabilityAppendix II

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.

Broadband Deployment and Adoption ModelsAppendix III

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.

Design of Our Broadband Deployment and Adoption Models

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.

Deployment Model

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.1 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

o the population in the area;

o the population density in the area;

o the percentage of the population residing in an urban area;

o the per-capita income in the area;

o the educational attainment of the population in the area;

o the population teleworking in the area;

o the age of the population in the area;

o the distance to a metropolitan area with a population of 250,000 or
more; and

o whether the state in which the area is located imposed a tax on Internet
access in 2005.

Adoption Model

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.2 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.3 The decision to purchase, or adopt, broadband service is a
function of

o the income of the household;

o the education attainment of the heads of the household;

o the age of the heads of the household;

o the presence of children in the household;

o the racial composition of the household;

o the occupation of the heads of the household;

o the number of people in the household;

o whether the household resides in an urban, suburban, or rural location;

o the number of companies providing broadband service in the area; and

o whether the state in which the household resides imposes a tax on
Internet access.

Data Sources

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.

o 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.

o 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).

o 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.

Table 1: Deployment Model: Definitions and Sources of Variables

                                        

           Variable                     Definition                 Source     
Deploy                   A binary variable that equals 1 if  FCC 2004 Form 
                            broadband service is available to   477 and GAO   
                            the household responding to         analysis      
                            Knowledge Networks/SRI's survey.    
Internet taxation        A binary variable that equals 1 if  GAO analysis  
                            the state where the household       
                            resides imposes a tax on Internet   
                            access.                             
Population, in thousands The number of residents in the area Census Bureau 
                            where the household resides, in     
                            thousands.                          
Urbanization             The percentage of the population    Census Bureau 
                            residing in an urban area.          
Distance                 The distance to a metropolitan area GAO analysis  
                            with a population of 250,000 or     
                            more.                               
Percentage of            The percentage of the population    Census Bureau 
work-at-home residents   working from home.                  
Percentage of population The percentage of the population    Census Bureau 
under 16                 under the age of 16.                
Percentage of population The percentage of the population 17 Census Bureau 
17 to 24                 to 24 years old.                    
Percentage of population The percentage of the population 65 Census Bureau 
65 or older              or older.                           
Percentage of population The percentage of the population    Census Bureau 
with a high-school       with a high-school degree.          
degree                                                       
Percentage of population The percentage of the population    Census Bureau 
with education beyond    with education beyond high school.  
high school                                                  
Per-capita income, in    The per-capita income in the area,  Census Bureau 
thousands                in thousands of dollars.            
Population density, in   The ratio of population to square   Census Bureau 
thousands                miles in the area, in thousands.    

Source: GAO.

Table 2: Adoption Model: Definitions and Sources of Variables

                                        

             Variable                      Definition              Source     
Adopt                         A binary variable that equals  Knowledge     
                                 1 if the household responding  Networks/SRI  
                                 to Knowledge Networks/SRI's    
                                 survey purchases broadband     
                                 service.                       
Internet taxation             A binary variable that equals  GAO analysis  
                                 1 if the state where the       
                                 household resides imposes a    
                                 tax on Internet access.        
Number of broadband providers The number of companies        FCC 2004 Form 
                                 providing broadband service to 477 and GAO   
                                 the household.                 analysis      
Income between $30,000 and    A binary variable that equals  Knowledge     
$49,900                       1 if the household's income is Networks/SRI  
                                 between $30,000 and $49,900.   
Income between $50,000 and    A binary variable that equals  Knowledge     
$99,900                       1 if the household's income is Networks/SRI  
                                 between $50,000 and $99,900.   
Income $100,000 or more       A binary variable that equals  Knowledge     
                                 1 if the household's income is Networks/SRI  
                                 greater than or equal to       
                                 $100,000.                      
Race-white                    A binary variable that equals  Knowledge     
                                 1 if the household reported    Networks/SRI  
                                 its race as white.             
College graduate              A binary variable that equals  Knowledge     
                                 1 if either the man or woman   Networks/SRI  
                                 of the household is a college  
                                 graduate.                      
Age 34 to 49                  A binary variable that equals  Knowledge     
                                 1 if either the man or woman   Networks/SRI  
                                 of the household is 34 to 49   
                                 years old, and neither is      
                                 younger than 34.               
Age 50 or older               A binary variable that equals  Knowledge     
                                 1 if both the man and woman of Networks/SRI  
                                 the household are 50 years old 
                                 or older.                      
Children                      A binary variable that equals  Knowledge     
                                 1 if a child age 17 or younger Networks/SRI  
                                 resides in the home.           
Household size                A binary variable that equals  Knowledge     
                                 1 if three or more people      Networks/SRI  
                                 reside in the home.            
Occupation-professional       A binary variable that equals  Knowledge     
                                 1 if the man or woman of the   Networks/SRI  
                                 household reports working in a 
                                 professional position.         
Occupation-clerical, sales,   A binary variable that equals  Knowledge     
or technical                  1 if the man or woman of the   Networks/SRI  
                                 household reports working in a 
                                 clerical, sales, or technical  
                                 position, and neither reports  
                                 working in a professional      
                                 position.                      
Occupation-blue collar        A binary variable that equals  Knowledge     
                                 1 if the man and woman of the  Networks/SRI  
                                 household report working in a  
                                 blue collar position.          
Occupation-other              A binary variable that equals  Knowledge     
                                 1 if the man or woman of the   Networks/SRI  
                                 household reports working in a 
                                 position other than a          
                                 professional, clerical, sales, 
                                 technical, or blue-collar      
                                 position.                      
Rural location                A binary variable that equals  GAO analysis  
                                 1 if the household resides in  
                                 an area outside a metropolitan 
                                 statistical area (MSA).        
Suburban location             A binary variable that equals  GAO analysis  
                                 1 if the household resides in  
                                 an area inside an MSA but      
                                 outside the central city of    
                                 that MSA.                      

Source: GAO.

Assessing Broadband Deployment

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:

o removed firms providing only satellite service;

o removed firms that provided only broadband service to business
customers, since residential households were the focus of our study;

o 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;4

o 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;

o removed cable operators if the responding household indicated that cable
service did not pass the residence; and

o 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.

Estimation Methodology and Results

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.5 In this section, we present descriptive statistics
and estimation results for the two equations and discuss the results.

Deployment Model

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.

Table 3: Deployment Model: Descriptive Statistics

                                        

                   Variable                    Mean  Standard Minimum Maximum 
                                                    deviation   value   value 
Deploy                                     0.911     0.285   0.000   1.000 
Internet taxation                          0.546     0.498   0.000   1.000 
Population, in thousands                  26.022    17.982   0.070 113.935 
Urbanization                              76.154    33.240   0.000 100.000 
Distance                                  34.361    42.743   0.249 572.803 
Percentage of work-at-home residents       3.257     2.064   0.000  33.333 
Percentage of population under 16         24.018     4.651   6.225  41.219 
Percentage of population 17 to 24         10.585     4.785   0.583  55.113 
Percentage of population 65 or older      12.995     5.688   2.195  59.057 
Percentage of population with a           29.546     9.002   3.121  68.966 
high-school degree                                                 
Percentage of population with education   51.395    16.092   8.836  95.348 
beyond high school                                                 
Per-capita income, in thousands           44.466    15.597   9.583 164.479 
Population density, in thousands           2.976     6.876   0.002  74.814 

Source: GAO.

Table 4: Deployment Model: Estimation Results

                                        

                        Variable                       Parameter estimate and 
                                                                    [p-value] 
Intercept                                                          -2.9299 
                                                                              
                                                                    [0.0097]a 
Internet taxation                                                  -0.1486 
                                                                              
                                                                     [0.2275] 
Population, in thousands                                            0.0099 
                                                                              
                                                                     [0.1140] 
Urbanization                                                        0.0102 
                                                                              
                                                                    [0.0001]a 
Distance                                                           -0.0012 
                                                                              
                                                                     [0.3115] 
Percentage of work-at-home residents                               -0.0600 
                                                                              
                                                                    [0.0392]b 
Percentage of population under 16                                   0.0335 
                                                                              
                                                                     [0.1192] 
Percentage of population 17 to 24                                   0.0198 
                                                                              
                                                                     [0.3027] 
Percentage of population 65 or older                                0.0468 
                                                                              
                                                                    [0.0271]b 
Percentage of population with a high-school degree                  0.0114 
                                                                              
                                                                     [0.3260] 
Percentage of population with education beyond high                 0.0121 
school                                                                     
                                                                     [0.1957] 
Per-capita income, in thousands                                     0.0270 
                                                                              
                                                                    [0.0074]a 
Population density, in thousands                                    0.1706 
                                                                              
                                                                    [0.0159]b 
Number of observations                                               1,402 
1-LogL/Log0                                                        32.0077 

Source: GAO.

aSignificant at the 1 percent level.

bSignificant at the 5 percent level.

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.

Adoption Model

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.6

Table 5: Adoption Model: Descriptive Statistics

                                        

              Variable              Mean       Standard    Minimum    Maximum 
                                              deviation      value      value 
Adopt                           0.336          0.473      0.000      1.000 
Internet taxation               0.553          0.497      0.000      1.000 
Number of broadband providers   3.307          2.161      1.000      9.000 
Income between $30,000 and      0.223          0.417      0.000      1.000 
$49,900                                                         
Income between $50,000 and      0.336          0.473      0.000      1.000 
$99,900                                                         
Income $100,000 or more         0.149          0.356      0.000      1.000 
Race-white                      0.858          0.349      0.000      1.000 
College graduate                0.499          0.500      0.000      1.000 
Age 34 to 49                    0.378          0.485      0.000      1.000 
Age 50 or older                 0.424          0.494      0.000      1.000 
Children                        0.387          0.487      0.000      1.000 
Household size                  0.465          0.499      0.000      1.000 
Occupation-professional         0.442          0.497      0.000      1.000 
Occupation-clerical, sales, or  0.154          0.361      0.000      1.000 
technical                                                       
Occupation-blue collar          0.029          0.167      0.000      1.000 
Occupation-other                0.244          0.430      0.000      1.000 
Rural location                  0.052          0.222      0.000      1.000 
Suburban location               0.568          0.496      0.000      1.000 

Source: GAO.

Table 6: Adoption Model: Estimation Results

                                        

                   Variable                  Parameter estimate and [p-value] 
Intercept                                                          -1.4919 
                                                                              
                                                                    [0.0001]a 
Internet taxation                                                  -0.1683 
                                                                              
                                                                     [0.0745] 
Number of broadband providers                                       0.0118 
                                                                              
                                                                     [0.6101] 
Income between $30,000 and $49,900                                  0.4531 
                                                                              
                                                                    [0.0024]a 
Income between $50,000 and $99,900                                  0.7429 
                                                                              
                                                                    [0.0001]a 
Income $100,000 or more                                             1.1331 
                                                                              
                                                                    [0.0001]a 
Race-white                                                          0.2905 
                                                                              
                                                                    [0.0405]b 
College graduate                                                    0.3525 
                                                                              
                                                                    [0.0009]a 
Age 34 to 49                                                       -0.2239 
                                                                              
                                                                     [0.0759] 
Age 50 or older                                                    -0.3316 
                                                                              
                                                                    [0.0217]b 
Children                                                            0.1318 
                                                                              
                                                                     [0.3894] 
Household size                                                      0.1241 
                                                                              
                                                                     [0.3894] 
Occupation-professional                                             0.2610 
                                                                              
                                                                     [0.1409] 
Occupation-clerical, sales, or technical                            0.2098 
                                                                              
                                                                     [0.2867] 
Occupation-blue collar                                              0.2638 
                                                                              
                                                                     [0.3879] 
Occupation-other                                                    0.0212 
                                                                              
                                                                     [0.9086] 
Rural location                                                     -0.3234 
                                                                              
                                                                     [0.1892] 
Suburban location                                                   0.0983 
                                                                              
                                                                     [0.3406] 
Number of observations                                                 901 
1-LogL/Log0                                                        16.2800 

Source: GAO.

aSignificant at the 1 percent level.

bSignificant at the 5 percent level.

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.

Additional Communications TechnologiesAppendix IV

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.1 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,2 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").

Comments from Industry ParticipantsAppendix V

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.

GAO Contact and Staff AcknowledgmentsAppendix VI

JayEtta Z. Hecker, (202) 512-2834 or [email protected]

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.

(544102)

www.gao.gov/cgi-bin/getrpt? GAO-06-426 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact JayEtta Z. Hecker at (202) 512-2834 or
[email protected].

Highlights of GAO-06-426 , a report to congressional committees

May 2006

TELECOMMUNICATIONS

Broadband Deployment Is Extensive throughout the United States, but It Is
Difficult to Assess the Extent of Deployment Gaps in Rural Areas

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.

What GAO Recommends

GAO recommends that FCC develop information regarding the cost and burden
that would be associated with various options for improving the
information available on broadband deployment and report this information
to the relevant Senate and House committees to help them determine what
actions, if any, are necessary. FCC provided technical comments on this
report, but did not comment on this recommendation.

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.
*** End of document. ***