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April 1, 2009

Verizon Plans Rural Wireless Broadband

Verizon talks about expanding access to broadband in rural areas, wirelessly: Cnet's Marguerite Reardon interviews Verizon Wireless's CTO, who says that his company's plan for LTE will extend far beyond its current CDMA cellular footprint. The missing piece in this interview? The fact that Verizon is obligated to build out a significant footprint in the 700 MHz band about which the CTO is speaking; more on that in a moment.

The 700 MHz band has so much bang for the buck, perhaps offering four times the coverage area with a single base station than an 1700-2500 MHz base station (3G or U.S. WiMax). And that's in urban areas. In rural locations without obstructions and with less dense usage, I would imagine a single base station could cover an enormous area. Backhaul is still an issue, of course, but Verizon has a variety of frequencies it can use for long-distance point-to-point wireless feeds. And while LTE could deliver a pool of 50 Mbps in urban areas with 5 to 10 Mbps or more available per user, rural performance could be lower and still far exceed what's currently available.

Verizon Wireless's CTO speculates that Verizon could offer fixed wireless offerings to homes, much like Clearwire's WiMax. Clearwire can't provide such service across large areas outside of densely populated areas because its bandwidth portfolio is centered in the 2500 MHz (2.5 GHz) band, which is going to be unaffordable to deploy in less-populated areas. Clearwire could cover an entire town with one base station, but it wouldn't make sense for them to cover the area between small towns. In fact, Clearwire's pre-WiMax offerings were originally in lower-tier smaller-city markets that had poor DSL and cable broadband availability.

According to research last year from the Pew Internet & American Life Project, 38 percent of rural households in the U.S. have broadband access, and 12 percent of all American households use fixed wireless for access. This shows the great potential for selling service into the rural market in two ways: it's underserved, but those with service are likely paying too much for what they get.

I contacted that report's author a few days ago to ask about the wireless stat, as it seemed incredibly high to me. He explained that it included satellite and all forms of fixed wireless. I found some more recent confirmation of the number from a University of Vermont poll released just two days ago. Vermont has a rural population, but still sees most people in towns and cities. Internet access is Vermont, the poll said, is split out as: dial-up, 18 percent; cable, 24 percent; DSL, 42 percent; satellite, 7 percent; wireless Internet, 6 percent; fiber or other, 3 percent. That 13 percent combined wireless number neatly tracks the Pew's research.

Satellite Markets & Research estimates 731,000 satellite Internet subscribers as of 2008's second quarter. With a bit over 100 million households in the U.S., that's not even one percent of the market, but the Vermont numbers show how that skews in less-populated areas. Pew research puts just 55 percent of households online, with a relatively large number that want broadband. (Some significant number will never want it for reasons of costs or utility, of course.)

As we know, satellite Internet is a kind of marvelous, ugly, and expensive compromise to bring broadband to the hinterland. People who would otherwise be restricted to dial-up service, if they could even get a decent 56K signal, can have far higher rates. But the cost is high, upstream rates low, and satellite services weren't designed to offer pinpoint residential access.

Thus Verizon has a defined market, and it won a large number of licenses covering these rural markets in the 700 MHz sale a year ago; so did AT&T, which also bought up many previously auctioned 700 MHz licenses. Verizon captured the coveted national license, but both firms purchased a patchwork of regional licenses that let them build country-wide 700 MHz networks.

But what Cnet's Reardon doesn't mention, and Verizon's CTO deftly avoids, is that 700 MHz licenseholders are obligated to build out service across the licenses they won. The FCC, tired of awarding licenses that aren't used, attached some modest but significant installation requirements on Auction 73.

While there are several classes of licenses, each class has a 4-year check-in mark for signal coverage. In some classes, that's 35 percent of the geographic area regardless of population, ideal for rural areas; in others, it's 40 percent of the population. If that mark is met, then licenseholders have a full 10 years to build out to 70 percent of the geographic area or 75 percent of the population. Failure to hit a 4-year mark shortens the license term and remaining build out to 8 years. Failure to meet the final target at 8 or 10 years results in the likely loss of the license. Licenses were carved out so that even the cheapest have significant population centers, making it less than optimal for a licenseholder to abandon the coverage area.

Verizon's national licenses (the C Block) require population-based buildouts, which is fair for the scope of the licenses. But some significant spectrum in the A, B, and E blocks require geographic-based deployment. (The public/private D Block didn't have a winning bidder, and is now in limbo after the withdrawal of a significant partner in the public partnership.)

I don't believe Verizon is being disingenuous in pushing the rural message, but the company is also talking up how stimulus money could be used for rural buildouts after the company had, essentially, already agreed to cover 75 percent of the population of the U.S. and 75 percent of the population or area of licenses it purchased.