PowerPoint Presentation

The Next American Upgrade:The Role of Higher Education in Providing the United States a Strategic Bandwidth AdvantageBlair LevinExecutive Director, Gig.U

Palo Alto, CaliforniaMarch 13, 2012AgendaThe what and why of a strategic bandwidth advantageBackground and status of Gig.USteps moving forward1the What and Why of a Strategic Bandwidth Advantage2A strategic bandwidth advantage3A strategic bandwidth advantage4

What does a Farmer and a Doctor need?25 years agoTodayDial toneDial ToneMobile DataEnough Bandwidth for real time collaboration with an MRIA strategic bandwidth advantage5

A region or country has a strategic bandwidth advantage when its residents have the appropriate bandwidth to most effectively collaborate with others in improving economic growth and social welfare, with a functionality and at a price superior to those in other regions or countriesAy, theres the rubDoes America need a strategic bandwidth advantage? A question in three parts6Question 1: Does America need a strategic bandwidth advantage? Impact of bandwidth on productivityOther countries are not waitingThe coming data deluge

7New inputs drive economic growthFastest growing parts of the economy are those that best use new inputsProductivity8Such changes are key to productivity growthTechnological change and other factorsImprovedlabor quality

Capital investmentData: US Bureau of Labor StatisticsContribution to long-term productivity growth52%37%11%

Productivity9Rebooting the economy requires innovation, for which broadband platform is keyThe biggest leaps in growth are driven by meta-ideasImproving the exchange of information improves the conditions for innovation.Productivity10Broadband is the common platform for knowledge exchange Improvements in each element of the ecosystem drive improvements in others in a virtuous cycle.Broadband EcosystemProductivity11The benefits of world leading networksProductivity12Other countries are not waitingHome Internet May Get Even Faster in South KoreaBy Mark McDonald, February 21, 2011Other countries investing in Gigabit connectivity through policy driven actions . . .Cheap, Ultrafast Broadband? Hong Kong Has ItBy Randall Stross, March 5, 2011South Korea already claims the worlds fastest Internet connections the fastest globally by far but that is hardly good enough for the government here.By the end of 2012, South Korea intends to connect every home in the country to the Internet at one gigabit per second. That would be a tenfold increase from the already blazing national standard and more than 200 times as fast as the average household setup in the United States.Hong Kong residents can enjoy astoundingly fast broadband at an astoundingly low price. It became available last year, when a scrappy company called Hong Kong Broadband Network introduced a new option for its fiber-to-the-home service: a speed of 1,000 megabits a second--known as a gig-- for less than $26 a month. In the United States, we dont have anything close to that. But we could. And we should.. . . Others with Gigabit networks include Japan, Sweden, Spain, TurkeyCompetition13Other international effortsOsborne announces 10 super connected citiesBy Maijia Palmer, November 30, 2011England has different strategies to build faster broadbandLondons CityFibre to build a $800 million gigabit networkBy Om Malik, November 3, 2011The chancellor has pledged an additional 100m fund to help create 10 super-connected cities across the UK, which will have broadband speeds of 80 to 100 megabits a secondIt means creating new superfast digital networks for companies across our country. These do not exist today. See what countries like China or Brazil are building, and youll also see why we risk falling behind the rest of the world, Mr Osborne said.

When it comes to fiber-based broadband, the U.K. lags behind its European neighbors, which have been aggressive in rolling out really fast networks. Many critics blame British Telecom dragging its feet mostly because it doesnt have any real competition.Competition14Research facilities are moving to 100 Gbps connectionsNational LambdaRail provides 100 Gigabit Connection for NOAA at Supercomputing 2011. Next Generation Research Capabilities Will Be Demonstrated Using Cisco Technology and NLR Transport NetworkBy Bizjounrals.com, November 7, 2011Research institute deploys 100 Gigabit Ethernet from core to closetBy Shamus McGillicuddy, November 28, 2011Competition15We know there are bottlenecks aheadDNA Sequencing Caught in Deluge of DataBy Andrew Pollack, New York Times, November 30, 2011BGI, based in China, is the worlds largest genomics research institute, with 167 DNA sequencers producing the equivalent of 2,000 human genomes a day.

BGI churns out so much data that it often cannot transmit its results to clients or collaborators over the Internet or other communications lines because that would take weeks. Instead, it sends computer disks containing the data, via FedEx.Data Revolution16Question 2: Will current market forces provide one in a timely manner? Timing mattersWhat the current market is telling us about the next upgrade17Accelerated pace of development means less time to react so the slow lose outIncremental Value AddWinnerLoserElectricityTelephoneInternetMobile telephoneInventionUbiquity

highvalue addmediumvalue addlowvalue addINNOVATIONAct nowPotentialforcompetitiveadvantageAct laterTelevisionTimeEarly action leads to leadership18First, timing matters because if we wait, we risk losing leadership

Timing19

we will accelerate our efforts to improve our overall growth profile. We will do that by looking at opportunities to either divest or restructure low performing and nonstrategic assets.

AT&T Chairman and CEO Randall Stephenson, January 26, 2012Verizon has stopped the FiOS BuildAnd AT&T is looking to sell wire line assetsSecond, market forces are not providing critical mass of world leading networks in U.S. Timing20It is not the fault of the companiesIt is a simple matter of math:

For the investor in the networks, the math usually doesnt work

Market Forces21The basic equationsBenefits accruing to:

Investor in the networkContent and applicationsEquipment and devices Local communityThe regionThe country

Totalbenefits of high speed networks

But the only benefits that matter for the investment case are the benefits that matter to the investorMarket Forces22C + O > (r)R + SB + (-CL)C Capital ExpendituresO Operating Expendituresr RiskR- RevenuesSB- System Benefits (Benefits that drive increased revenues outside the communities where the new or incremental investments are made.)CL- Losses due to competition

For the investor, the equation usually looks like this:23Market ForcesThe returns do not justify the investmentSector /opportunityEcosystem changeCapExOpExRiskRevenueCompetitive LossesTelcoGrant of monopolyLowerRaiseCable Grant of monopoly, pole attachment law, compulsory broadcast licenseLowerRaiseRural areasUSFLowerLowerWirelessLimited # of licensesLowerDBSLimited # of licenses, program accessLowerRaiseBroadband upgradeDeregulation, two wire policyRaiseRaiseWireless upgradeMore licenses, lowered TAC, oversight of siting authorityLowerRaiseMarket ForcesHistorically, investments are made when policy alters equation 24Which, as the Google fiber project demonstrates, is also within the power of the local communitySector /opportunityEcosystem changeCapExOpExRiskRevenueSystem BenefitsGoogleDeals with City, State, and UtilitiesLowerLowerLowerRaiseRaiseMarket ForcesC + O > (r)(.5)R + SB + (-CL)Revenues for underlying wired infrastructure spilt between two facilities, creating greater risk for long-term financing, but competitive forces not strong enough to compel investment

Today, the equation is worse for broadband in the United StatesMarket Forces26C + O > (r)R + SB + (-CL)R wont increase until new applications develop, but the new applications wont develop until new network investments are made.

Market ForcesAnd theres the chicken and egg economics27Question 3: What is the path to achieve an upgrade?Key elementsBiggest barrier28C + O < (r)R + SB + (-CL)But how do we do that?The path forward: change the math29Key ElementsFocus on what other parties can doOther beneficiaries, particularly local communities, can dramatically affect the math of the providerCan help understand the math, but difficult to change itInvestor in the networkContent and applicationsEquipment and devicesLocal communityThe regionThe country

Key Elements30This coalition is similar to the kind of community organizing that economic development coalitions commonly doCommunities have developed creative partnerships to reducing OpEx, CapEx while raising expected revenues.There are paths for communities to improve investment math

McGinn: UW, Seattle want great ideas for unused fiberBy Todd Bishop, GeekWire, November 14, 2011How Kansas City, Kan., Won Over GoogleBy Jessica Mulholland, Governing, April 19, 2011Key Elements31States can also play a role in changing the mathBiggest Barrier32Background and Status of Gig.u33Lead to Background for Gig.U34To move ahead fastest, best to focus on communities where math is easiest and impact most favorableEconomics favorable in University-communitiesDemand for Bandwidth =GreatestCost of Deployment =LeastPositive Impact of Network Access Due to Innovation Culture and First Major Use Case (Health Care) =GreatestKey Elements35University communities are the birthplace of many network-based innovationsKey Elements36The University Community Next Generation Innovation ProjectOver the summer of 2011, 37 leading research universities, in partnership with their local communities, formed Gig.U

Our MissionOur StrategyAccelerate the deployment of world-leading, next generation networks in the United States

Use university communities as test beds

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Gig.U Member Institutions

For new test-beds to foster experimentation and innovation, it makes sense to work with communities that have strong traditions of experimentation and innovation

38Relationship Between Gig.U and R&E Networks: Partnership, with Different Roles, in Common Mission 39A University and Community Strategic Bandwidth Advantage40Gig.U TimelineGoals of the RFI ProcessIdentify creative approaches to design, operate and finance self-sustaining next-generation networks for member communities while evaluating the trade-offs between these different approachesUnderstanding the factors that influence the level of private sector interest in working with any individual communityAnalyze options in which multiple Project communities can work together beyond the RFI process to improve the private sector business case for next-generation networks and services41Interest in working with universities and communities to break traditional molds 42Type of RespondentNumberOperators & service providers24Network equipment14Consultant, content & services, user equipment8Research & education network2Other942Gig.Us guiding premises validated by the RFI Premise 1: University communities are most favorable environments for next-gen networks

43Validated: number and quality of responsesValidated: content of responsesPremise 2: The current market will not produce world-leading networks in the near term

Multiple Potential Upgrade Paths44Next; organize community effort to change the mathBiggest Barrier45Asymmetry: key to changing the math in local policyBiggest Barrier46Community and university preferences will define the universe of acceptable options 47Reference architecture & operating modelArchitectureMunicipal, private or otherOwnershipTotal 1 sq. block or to demand in 10 sq. milesGeographyMicro-trenching, sewer systems, etc.ConstructionStreamlined permitting, rights of wayIncentivesHealth information exchange, community servicesUse casesData only, triple play, wireless, etc.ServicesDesire to focus on white spaces, lasersTechnologies47Importance of scale, scope and well defined organization48As consumersEconomies of scaleInfluence on the value chainAs information holdersLowered transaction costs through standardized operationsAs a learning organizationShared experiencesBest practicesAs a voiceOutreach to vendorsCommunity engagement Organization of demand side is critical for successCollaboration, done right, is effective48C + O < (r)R + SB + (-CL)In Sum, Gig.U in a Single Slide49In SummaryContent and applicationsEquipment and devicesLocal community (particularly those with the best economics and innovative cultures)The region/stateThe country

Organize those who benefit, but are not part of the investment equationto change the mathand thereby produce a strategic bandwidth advantage.Next Steps50Local action; national supportNext Steps51Momentum Building For High Bandwidth EffortsNext Steps52In closing, what in our country do we want to be the envy of world?53

.and what will it be?1GbpsGigUHeadline from Chinese Newspaper day after Gig.U launch54