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Verizon's $B From Stimulus
Friday, 30 January 2009 16:40

Saul Hansell was interested in how much Verizon, etc. would collect on the stimulus.  He asked me how I estimated the $1B to Verizon's best friendVerizon. Looking closely since you ask, my best guess is Verizon collects just over $1B, of which about $750M comes from the additional tax credits in the Rockefeller bill. If they decided to go hard for rural grants, that could double. 

The key thing is that they will get 20% on FIOS in "underserved" areas, which includes most of the Bronx, Brooklyn, parts of Manhattan and Queens, and many others they will build -- especially since they've already done most of the affluent suburbs. "Underserved" as I read it includes most census tracts with a substantial number of poor, no matter what their broadband coverage. More than 20% of the Bronx and Brooklyn are below the poverty line, the cutoff in this bill.

FIOS 20% in underserved areas $700M
FIOS  grants additional in unserved areas $90M
Depends on where Verizon builds in 2009-2010 and the details of what's included.

Non-FIOS in unserved areas, $30M They have been doing some extension of DSL in their 16% uncovered. The bells have more than half of the "rural" lines by geography.

Wireless, $200M
Really tough to estimate this one. There's $2B mostly for rural wireless in the NTIA part and a 10% tax credit for unserved in the finance part. Given that Verizon is one-third of the U.S. wireless business (and actively wants to participate, I believe), I'm assuming

Total, $1,020,000,000
Unscientific likely range $600M to $2B, with the key variables being how much of Verizon's build gets 20% and whether the allowed cost is closer to $700 (Verizon home passed) or twice that (probably including in-home, network, and overhead.)
There's a load of Alice in Wonderland language here. In particular, "underserved" has little to do with whether or not there is broadband service. Instead, it's defined by income and covers most of the poorer half of the country. In particular, I believe the Bronx and Brooklyn are covered by the greater than 20% qualify as poor. Depending on census tract, much of Queens etc. as do almost half of the counties in West Virginia(text at end, quick check for numbers and I may misunderstand.) Bill details at end

Details

From Rockefeller's  pr

"Rockefeller offered an amendment, which was accepted by the Senate Finance Committee, to the stimulus bill that establishes a 10 percent tax credit for investments in current-generation broadband infrastructure in rural and underserved areas; a 20 percent credit for current-generation broadband in areas that have no access at all now; and, a 20 percent tax credit for next-generation broadband infrastructure (i.e., even higher speeds), which results in faster, more reliable connections."

From markup

http://finance.senate.gov/sitepages/leg/LEG%202009/012709%20Modifications%20to%20the%20Chairman%27s%20Mark%20of%20ARRA%20Title%20I%20(Tax)%20and%20Social%20Security%20(2).pdf
"The amendment provides an investment tax credit for “qualified broadband
expenditures.” Qualified broadband expenditures comprise both “current-generation” and “nextgeneration” broadband. The provision establishes a 10 percent credit for investment in currentgeneration broadband in rural and underserved areas. The provision establishes a 20 percent credit for investment in current-generation broadband in unserved areas. The provision establishes a 20 percent credit for investment in next-generation broadband in in rural, underserved, and unserved areas. "

The bill now speaks of indirect as well as direct spending, which could double what is covered. Totally imprecise until details rules (and enforcement) are clear.

"Qualified equipment means equipment that provides current- or next-generation broadband services at least a majority of the time during periods of maximum demand to each subscriber, and in a manner substantially the same as such services are provided by the provider to subscribers through equipment with respect to which no credit is allowed under the provision. Limitations are imposed under the provision on equipment depending on where it extends, and on certain packet switching equipment, and on certain multiplexing and demultiplexing equipment."

We don't know Verizon's FIOS buildout areas (%underserved), how much they will collect on their non-FIOS  builds in the unserved and underserved territory (1-2M homes in their territory), and what will be included in "indirect costs" (which can double things here.)  Verizon could but probably won't answer the first and probably the second, while the third is unclear till the FCC writes the rules. With that uncertainty, here's what's in my estimate.

They have between 1M and 2M "unserved", most with grants of up to 80% and many economic practical to reach. (GPON goes 20 kilometers. 250-1000 people in a small town or along a highway generally profitable to serve.)

For FIOS

6M FIOS homes added to the network 2009-2010. That's the $700 figure, or 4.2B. That's building the network, something sensible to encourage. The amendment mentions routers, etc., which would probably allow many network elements to be included. I have no solid way to estimate what would be included, but it will be substantial. Assuming 30%, that's another $1.4B.

The indirect coverage included almost certainly includes about 1M of those 6M  newly passed and about 1M of the already passed connected, a low figure based on the results they have been getting (20+%). At $600/home that's another $1.2B (wiring, fiber connect and drilling, and possibly hundreds of dollars of equipment ONT, maybe DVR.)  I think this is particularly pernicious because none of this is required unless and until Verizon has a paying customer. They aren't going to turn away paying customers, so would add the bandwidth and home hookups without needing a subsidy, even in incremental territories.

4.2B (FIOS network) + 1.4B (indirect cost estimate) + 1.2B (home hookups) is a total of $6.8B.

Verizon has to do 80% or so of the city by 2012, so could concentrate on the subsidy areas. So is most of Buffalo, Binghamton, and Camden (Poor black people are good customers for cable TV. They watch more television, I hear.)  It turns out the 20% poverty percentage is very different if you go family or per capita, because of all the kids.

How much of the $6.8B is included in unserved or underserved is impossible to determine if we don't know where Verizon will be deploying FIOS. Since half of New York City is "underserved" (as I read it), Verizon could choose to do all of that in 2009-2010 and the rest of the city in 2011-2014 (as promised in franchise), especially because most of the 25% of New York City they already done is mostly above average income. That's almost a million and a half homes in New York City alone at 20% subsidy. If they do similar for one-third (1.5M) of the remaining 4.5M two year plan, that takes the underserved to 3M, or half of FIOS.

Half of $6.8B is $3.4B. At 20%, that's just under $700M for FIOS alone.

For Non-FIOS, rural, underserved

"A qualified subscriber, with respect to current-generation broadband services, means any
nonresidential subscriber maintaining a permanent place of business in a rural, underserved, or
unserved area, or any residential subscriber residing in a rural, underserved, or unserved area that
is not a saturated market. "   

Current-generation in underserved and rural gets 10%. Current-generation is 5 down, 1 up and includes all of AT&T U-Verse and most of Verizon DSL. Verizon last year was catching up with DSL some areas they avoided, although they stopped ordering more equipment late in the year, I hear.  Depending on what's included, that's 10% of $200-500M, more if satellite hookups are included. (About 20% of Verizon homes are not set to get FIOS before 2013-2014. DSL payback in most places is 2-3 years.)

another $20-50M

For unserved

Contrary to popular belief the majority of "rural" and "unserved" areas belong to the Bells. That makes sense, since they have 85-90% of all lines. There are large areas of upstate New York, West Virginia, and Southern Virginia that Verizon never put in DSL because they intended to sell the state. In particular, two years ago West Virginia DSL avail was only 65%, one of the lowest rates anywhere in the developed world.  New England was similar, but Fairpoint is catching up. They have between 1M and 2M "unserved", most with grants of up to 80% and many economic practical to reach. (GPON goes 20 kilometers. 250-1000 people in a small town or along a highway generally profitable to serve.)  

Unserved can get grants up to 80%, and there's more money in the rural part of the bill than can be sensibly spent.  Verizon has between 1M and 2.5M "unserved" homes, some in areas that could be profitably reached with U-Verse. (Many towns of 1,000 people can be profitably fibered. Verizon insisted the GPON spec go to 20 kilometres with this in mind.) If they found 300,000 that made sense for FIOS today, there's nothing in the bill that would prevent their asking for 40-80% subsidies there, not just 20%.

Assuming they got 50%, that's 30% more than the 20% on 300,000 homes x $1,000, or $90M

Wireless

There is over $2B in the bill for rural wireless, "wireless technology transmission of signals at a rate of at least 3 million bits per second to the subscriber and at a rate of at least 768 kilobits per second from the
subscriber. "  There is a credit of 10% for rural and underserved, and 20% for unserved. Verizon will definitely be upgrading rural and underserved to 3G/4G in large volume, and that equipment probably qualifies for 10%. In addition, Verizon probably will build (or lease) some towers in "unserved" areas at 20%. Many key unserved wireless areas are along highways, prime wireless territory.

Verizon after purchasing Alltel has perhaps a third of U.S. wireless. I think it reasonable to assume they will collect 10% of that $2B, or $200M

Definition of "underserved"

An underserved area is a low-income community designed under section 45 D which is
defined as a population census tract located in either (1) a poverty rate of at least 20 percent or
(2) median family income which does not exceed 80 percent of the greater of metropolitan area
median family income or statewide median family income (for a nonmetropolitan census tract,
does not exceed 80 percent of statewide median family income).