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Towards Universal Broadband: Flexible Broadband Pricing and the Digital Divide

Reaching Universal Access through Affordability at All Income Levels1

Driven by the conviction that the widespread use of broadband can support economic recovery and help the United States achieve other important national goals, President Obama has proposed that every American should have the opportunity to connect to broadband service. On his campaign web site, the President declared: “America should lead the world in broadband penetration and Internet access” and he promised to bring “true broadband to every community in America.”2 In enacting the American Recovery and Reinvestment Act of 2009, the Congress signaled its agreement by providing $7.2 billion in dedicated funding to advance broadband’s spread and by directing the Federal Communications Commission to develop a national strategy to achieve universal broadband.

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Wireless Overview

More than 95 percent of the U.S. population – those living in urban, suburban and rural America – are served by at least three competing carriers, and more than half live in areas served by at least five.  Eight years ago there were 100 million U.S. wireless customers. Today, there are more than 270 million, and in 2008 they used more than 2.2 trillion minutes – a tenfold increase since 2000.  At the same time, prices have declined precipitously.  Revenue per minute has fallen 89 percent since 1994, and U.S. wireless prices are much lower than in any other industrialized county.  And, while at&t and Verizon are currently the two largest wireless providers, the next two largest, Sprint and T-Mobile, have a combined 82 million customers, and the carriers that round out the top 10 have another nearly 20 million customers among them.

As wireless technology and services have grown exponentially in the last 25 years, California has been one of the prime engines of that growth.  Strategic partnerships between carriers and handset manufacturers, application developers and content providers, the private and public sector give consumers access to unparalleled innovation in the wireless space.

Today, more than 160 wireless service providers in the U.S. directly employ more than 257,000 workers who earn salaries totaling more than $12 billion each year.  This is in addition to the numerous early-stage companies, high-tech start-ups and small businesses in the wireless space that are also key contributors to the U.S. economy. California is home to one of the few areas where wireless start-ups cluster, Silicon Valley, where competition thrives, partnerships form and innovation flourishes.

According to the Federal Communications Commission, California serves the largest number of wireless users, 32,247,015, at the end of 2007.

The number of wireless users has more than doubled in California over the past 7 years.

Technology Taxes

California has been ground zero for technology development. For California to remain a global technology leader, the state will need to ensure a favorable business environment for innovation. Yet, recent studies indicate that increasing numbers of Silicon Valley businesses are looking outside of California to start new operations. Other states and countries, such as China, where the government has tripled R&D spending since 1998, are becoming more attractive to many companies. As California continues to suffer from record budget deficits and the search for new revenue becomes more urgent, the state must be careful not to hinder an industry that will be essential to a recovery and long-term prosperity.

The success of the technology industry in the state has brought huge sums of venture capital and wealth to the state that has benefited all Californians, and it is important to continue fostering the entrepreneurship and innovation that improves everyone’s quality of life. Maintaining a tax structure that does not place an undue burden on the technology industry is essential to California’s economic health and to keeping the state at the forefront of cutting-edge technology.

This industry is highly mobile and competitive, and tax policies play a critical role in determining competitive advantages. Taxing digital products (for example music, ring tones, e-books) could give out-of-state sellers a significant advantage since they can still easily reach customers online. In addition, R&D tax credit policies can influence where technology companies decide to locate. A great deal of R&D has found its way to California historically, but in this increasingly global economy revising this incentive could be necessary to keep the state competitive.  For instance, right now California’s R&D credit only applies to labor costs and not machinery. So there is double taxation on R&D – taxation of the equipment used in R&D and of the product when sold. The credit could also be more valuable if it was tradable so start-up companies that are not yet turning a profit can benefit as well.

Cyber bullying

The number of children and young people accessing the internet has increased dramatically in recent years. They have been key drivers of the social media movement, as services like Facebook and Twitter provide them with new spaces to engage their peers. However, the growth of online use among younger populations has made online safety a concern as the internet provides new opportunities for activities such as cyber bullying, where harassment occurs through technologies like text or instant messaging and email. Several studies have found that cyber bullying is not a small, isolated problem.  The National Crime Prevention Council has reported that cyber-bullying affects over 40% of all American teens. It is more common among females than males, and is most prevalent among 15- and 16-year-olds.

Everyone can agree that the internet must be a safe and secure environment for children so they can fully enjoy the educational and entertainment benefits that being connected to the wider world provides..  Cyber bullying can be psychologically harmful, and has led to suicide in extreme cases. CALinnovates strongly supports expanding educational efforts for online safety. Children must understand what personal information should not be given out online, what actions qualify as cyber bullying, and how to report it if they see it happening. This type of education should happen early, before children become active online users. All should feel welcome in the online community and not be deprived of its benefits by those who misuse technology.

Personal Cloud Computing

The cloud is a deceptively simple concept for the modern consumer. Most of us use the cloud every day and probably never think about it. Popular online services and destinations like Gmail, Netflix, MobileMe, and Twitter are all operating in the cloud and the information and media we send to, or receive from, these sources is all passed through the cloud.

When people talk about the cloud, they’re using the concept of a cloud as a metaphor for the internet. Services like Gmail, which save you from having to own and operate your own email hosting server and software, are actually hosting your emails and information in many remote data centers via the internet or cloud. These redundant data centers, where your information is housed, are important because they’re the reason using the cloud is so powerful, cheap, and easy for all of us.

For example, when you send a new tweet on Twitter, your new tweet is instantly housed in and across a wide expanse of data centers- large groups of powerful computers you never see. These data centers store your tweet securely and make it possible for you and your friends to see your tweet from multiple devices (smart phones, laptops, desktops) and from anywhere in the world (your house, your office, on the train) instantly. Your new tweet is in the ‘cloud’ and the benefits that come with using the cloud don’t end there.

In addition to allowing device and location independence, the cloud provides security for your data. Data, once in the cloud, is essentially backed-up and lives in the cloud even if you lose the original copy on your PC. Decentralizing your data means you’re covered should something go wrong. Services and applications that use the cloud make it easy to instantly upload, backup, share, and access information to and from anywhere in the world. Because the cloud has so many applications, it’s already become a big part of many users’ daily online activity.

California is home to many of the leading services using the cloud like Google, Flickr, Twitter, Netflix, and Apple. The cloud is the online space in which the future of exchange between users and services will be made possible and Californian innovators are leading the way. Whether or not users are aware that they’re utilizing the cloud when they log-in to read their mail or upload some photos, the cloud is becoming an integral part of how we all use and share information more freely and effectively.


In the digital world, data is measured in bytes. A single digital character, a letter or number, is a single byte. A typewritten page is about 2,000 bytes, or two kilobytes, and a small, low-resolution image is about 100,000 bytes, or 100 kilobytes. There are about 5 million bytes, or 5 megabytes, in the complete works of Shakespeare, and a pickup truck full of books might amount to one billion bytes, or a gigabyte. One billion of those book-filled pickup trucks, or one billion gigabytes, is an exabyte.

The term “exaflood,” coined by Bret Swanson of Progress & Freedom Foundation, refers to the growing torrent of data on the Internet. By 2010, Internet users worldwide could produce as much as 988 exabytes of data. The Internet was famously overbuilt during the 1990s, but much of that capacity is being used now or soon will be. A shortage of bandwidth will slow down service for everybody, possibly causing Internet brownouts or service interruptions.

The good news is that with investment and wise public policy, we can upgrade our broadband networks to meet the challenge of the coming “exaflood,” ensuring that all Americans have the opportunity to enjoy and benefit from everything the Internet has to offer.

Exaflood facts and figures:

  • Annual global IP traffic will exceed two-thirds of a zettabyte (667 exabytes) in four years. Last year’s forecast anticipated a run rate of 522 exabytes per year in 2012. The economic downturn has only slightly tempered traffic growth, and this year’s forecast predicts 510 exabytes per year in 2012, growing to 667 exabytes per year or 56 exabytes per month in 2013.
  • Global IP traffic will quintuple from 2008 to 2013. Overall, IP traffic will grow at a compound annual growth rate (CAGR) of 40 percent.

Global Internet Highlights

  • In 2013, the Internet will be nearly four times larger than it is in 2009. By year-end 2013, the equivalent of 10 billion DVDs will cross the Internet each month.

Global Video Highlights

  • Internet video is now approximately one-third of all consumer Internet traffic, not including the amount of video exchanged through P2P file sharing.
  • The sum of all forms of video (TV, video on demand, Internet, and P2P) will account for over 91 percent of global consumer traffic by 2013. Internet video alone will account for over 60 percent of all consumer Internet traffic in 2013.
  • In 2013, Internet video will be nearly 700 times the U.S. Internet backbone in 2000. It would take well over half a million years to watch all the online video that will cross the network each month in 2013. Internet video will generate over 18 exabytes per month in 2013.
  • Video communications traffic growth is accelerating. Though still a small fraction of overall Internet traffic, video over instant messaging and video calling are experiencing high growth. Video communications traffic will increase tenfold from 2008 to 2013.
  • Real-time video is growing in importance. By 2013, Internet TV will be over 4 percent of consumer Internet traffic, and ambient video will be 8 percent of consumer Internet traffic. Live TV has gained substantial ground in the past few years: globally, P2P TV is now slightly over 7 percent of overall P2P traffic at over 200 petabytes per month.
  • Video-on-demand (VoD) traffic will double every two years through 2013. Consumer IPTV and CATV traffic will grow at a 53 percent CAGR between 2008 and 2013, compared to a CAGR of 40 percent for consumer Internet traffic.

Global Mobile Highlights

  • Globally, mobile data traffic will double every year through 2013, increasing 66x between 2008 and 2013. Mobile data traffic will grow at a CAGR of 131 percent between 2008 and 2013, reaching over 2 exabytes per month by 2013.
  • Almost 64 percent of the world’s mobile data traffic will be video by 2013. Mobile video will grow at a CAGR of 150 percent between 2008 and 2013.
  • Mobile broadband handsets with higher than 3G speeds and laptop aircards will drive over 80 percent of global mobile traffic by 2013. A single high-end phone (such as an iPhone or Blackberry) generates more data traffic than 30 basic-feature cell phones. A laptop aircard generates more data traffic than 450 basic-feature cell phones.

Business Cloud Computing

Few businesses providing products and services today can abstain from maintaining an online presence or engaging in some form of e-commerce. To be competitive in the modern marketplace, enterprises, both large and small, have adopted online business solutions to reach consumers and deliver their products in a fast, efficient, and unencumbered manner. However, until recently the daunting costs; in terms of personnel, upstart and upgrade time, and capital; associated with software and hosting solutions have made those solutions as much of a challenge as an asset to the world of e-business.

The solution to these problems is cloud computing. Cloud computing is a new approach to providing businesses with the software and hosting services they need. The ‘cloud’ is a metaphor for the internet, and cloud computing relies on utilizing the internet for a business’ software needs. Traditionally, a business needed to buy or rent servers and software and employ a staff of IT professionals to maintain them. This approach required significant capital, personnel, space, and equipment while lacking flexibility, efficiency, and ease of use.

Cloud computing is different; it allows businesses to interact with their hosting and software resources over the internet. This means that a business does not have to pay the high costs associated with buying and maintaining the software solutions they need. Those resources are pooled within the cloud to be used immediately when a business needs them. In cloud computing, a business simply interacts with and customizes the software they need via the internet or ‘cloud’. For this reason, cloud computing offers greatly diminished startup times and altogether eliminates startup costs. Instead of setting up a complicated system of software, businesses simply ‘plug in’ to the cloud’s existing services and pay a small, predictable subscription cost determined by their needs. In this way, cloud computing is similar to a utility- when you use more you pay more and vice versa. If using cloud computing is like using your energy meter at home, the traditional model of hosting would be akin to building and maintaining your own power plant.

Cloud computing offers further benefits compared to traditional software and hosting models. For example, scaling your needs is easy and instant with cloud computing. As an enterprise’s online business grows, the enterprise can simply pay more for the additional services they require. And, if a business requires less, they aren’t forced to pay for more than they need. Large and small businesses alike will benefit from the reduced cost, increased flexibility, and ease of use that cloud computing provides. Cloud computing will allow California’s businesses to compete in the digital marketplace without the traditional and often prohibitory costs associated with growing an online business. California is already home to many of the leaders in cloud computing such as Google and Salesforce and California’s rich, pioneering history of online business makes cloud computing an important development in the state’s continued advancement of e-business. Cloud computing will help lend an edge to California’s businesses and will provide tools that allow the state’s entrepreneurs and enterprises to grow and succeed unhindered.

Smart Grid

In recent years, California has been at the epicenter of the struggle for abundant and affordable energy. Energy shortages and scandals have put a premium on California’s available energy and have exacerbated consumer anxiety. Even as our state and our nation pursue new opportunities in clean and renewable energy sources, energy conservation and management remain critical to ensuring California’s resources, cost of living, and security for generations to come.

In October 2009, California legislators passed SB 17, groundbreaking smart grid technology legislation aimed at developing a plan for future smart grid deployment statewide. Smart grid technology combines intelligent monitoring systems and upgraded superconductive transmission lines to provide inherent energy conservation, reduced costs, and optimized energy use during off-peak hours. Investing in smart grid technology will allow California to dramatically improve energy exchange statewide while passing along savings to financially benefit all Californians within a system that provides incentives for conservation in the home. Intelligent monitoring systems will allow energy demand to be diminished during peak hours which will help consumers as well as energy technicians avoid brownouts and blackouts. Furthermore, California legislators have projected that early adoption of smart grid technology will attract federal funding and spur job creation in-state.

In addition to saving energy and money, smart grid technology is designed to be ‘self-healing’ in incidences of disruptions, outages, and other system problems. Furthermore, smart grid technology will be more resistant to intentional attacks on our energy infrastructure. California’s investment in smart grid technology is an investment in state and national security as well disaster preparedness. California is already home to three of the top five most active utilities in smart grid development and is poised to remain the leader in development and utilization of smart grid technology. While California has recently suffered from unique energy problems, the state’s unparalleled technology industry will be instrumental in providing solutions to meet consumer demand and improve energy availability and security for years to come. CALinnovates supports efforts to deploy smart grid technologies statewide.

K-12 High Speed Network

California has a strong K-12 research and education network infrastructure for public and private educational institutions. The K-12 High Speed Network program governs participation in the network and is funded by the California Department of Education. This program provides the K-12 system with a dependable source of high-speed internet services, data reporting, teaching and learning tools, and videoconferencing capabilities, among other features – at no additional cost to participating districts. These programs provide valuable support for teachers and students and help improve performance.  Currently 79% of California schools are connected – a noteworthy achievement. However, plenty of work remains to bring the benefits of the network to all California students.

CALinnovates believes the state should make expanding access to the K-12 High Speed Network a high priority. This program can reduce the achievement gap by methods of learning to students who otherwise might be left behind.  It also provides professional development opportunities for teachers by giving them new tools to complement their lesson plans. Also, the data capabilities provided by the network will make it easier for administrators to evaluate their schools in a number of categories.

The technology industry values its partnership with the education community and believes the potential of this partnership remains untapped. With approximately 1/3 of California students failing to graduate from high school and achievement lagging behind other states, we must find better ways of engaging students academically. Technology like the K-12 High Speed Network is a key ingredient of this.


The term “broadband” refers to the high-speed internet service which allows users to access a large volume of data very quickly. Think of it like a highway: the more lanes there are, the more traffic that can pass through efficiently. For instance, a very narrow road (or single-band signal) only has the capacity for light traffic, or Morse Code, for instance. Larger bandwidth can handle more types of data – such as telephone communication or music on the radio. A broadband “highway” has the capacity to move more complex and larger data vehicles very rapidly.

When you refer to cable, DSL, wireless modems, and satellite internet service, you’re talking about different types of broadband service.

Broadband is becoming accessible to more consumers across the country as private companies work to develop and deploy the networks needed to handle the internet traffic. The Brookings Institution found that in the year 2000, there were only 4.1 million broadland lines in the United States. Six years later, the number of lines had increased by 1500% with nearly 54 million broadband lines across the country. With a broadband connection, users no longer need to wait for Web sites to load. You can send e-mail, download and view files, and conduct business very quickly. The deployment of new broadband lines also spurs job creation and narrows the “digital divide” that can leave some regions offline. Policies that continue to promote competition encourage providers to expand and improve their services, and give consumers more choice and better offerings.

CALinnovates supports reasonable deployment of the California Broadband Initiative.  For more information on the initiative, please visit

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