PropTech

One of the things that I’ve always loved with our industry is that there are dozens of new acronyms to learn every year – and that’s the result of the industry always moving in new directions. The latest new acronym for me is PropTech, meaning telecom technology designed to benefit large buildings. There are now numerous companies, including well-funded start-ups, that are specializing in bringing broadband and upgrading other technology in buildings.

It’s been interesting to watch the growth of the industry over time. For many years the telecom focus for large buildings was bringing a competitive cable TV product into buildings, usually delivered by satellite.

When broadband was first introduced in the late 90s and speeds were still slow, tenants were able to get sufficient broadband from the cable or telephone incumbent. The first place we saw a demand for bigger bandwidth was in high rises housing big corporate clients. This was an area of focus for the telcos and the big CLECs that arose in the late 1990s. CLECs were measured by how many buildings they had lit with fiber – and the numbers were low, with only a handful of large buildings connected in each major city.

There were cost barriers for constructing downtown fiber – construction costs were high, gaining access to entrance facilities was a challenge and there was no easy technology for stringing fiber inside older buildings – so the number of fiber-wired buildings remained relatively small. Around 2000 we started to see newly constructed residential and business high rises come wired with fiber. But getting fiber into older buildings remained a challenge. I have numerous clients that built fiber to whole cities before 2010 but bypassed the high rises and large apartment complexes.

This started changing a decade ago as we saw new technologies aimed at more easily rewiring older buildings. Probably the most important breakthrough was flexible fiber that could easily bend around corners, allowing fiber-wiring schemes that could unobtrusively hide fiber in the corners of ceilings. Since then we’ve seen other improvements that make it easier and affordable to service larger buildings such as the use of G.Fast to distribute broadband using existing copper wiring.

PropTech is now taking real estate technology to the next level. Broadband is still the primary focus today, and building owners want fast broadband for tenants. But PropTech goes far beyond just broadband. Landlords now want to provide networked WiFi in common areas. Landlords want cellular boosters to provide better cellphone coverage for tenants. Buildings owners want to tout security and want security cameras in parking and other common areas that can be accessed by tenants. We’re seeing landlords now adding smart-home technology into upscale units. We’re also seeing buildings with business tenants constructing sophisticated data center rooms rather than the old wiring closets that used to house electronics.

Some of the new technology is designed to help landlords control their own operating expenses. This includes things like sensors and smart meters aimed at minimizing power costs. New buildings are going green, often generating much or all of their own energy needs – all supported by a robust telecom infrastructure.

Convincing landlords to spend the capital to adopt PropTech isn’t always easy. PropTech business plans stress new revenue streams from providing broadband, new revenues from increased rents and cost-savings as a way to pay for upgrades. The ultimate value to a landlord is the increased value of the property from modernizing. Some PropTech companies are even bringing the funding required to pay for the upgrades, making it easy for a landlord to say yes.

PropTech is creating some interesting changes in urban broadband. For many years the best broadband in cities was found in single family homes. But today some of the best networks and fastest data speeds are found in the high rises – where just a few years ago renters suffered from slow broadband and poor cell phone coverage.

A New Way to Finance Fiber

I recently was part of a team that brought the financing to build fiber in Dallas, Oregon. The new fiber business is operating under the name Willamette Valley Fiber. Dallas is a community of over 15,000 located near to the state capital of Salem. As the title of this blog suggests, this project was funded in what I am sure is a new way for the industry.

The funding uses what might best be described as private activity bonds. This are municipal-like bonds that are distributed in the public bond market. In this case the bonds, and the network, are owned by a non-profit corporation. The primary benefit to this financing structure is that the City doesn’t have to go onto the hook for the new debt – something that many cities are reluctant or unable to do. Building fiber networks is expensive and many cities are unable to tackle the size of the needed debt. In this case, the City of Dallas, while thrilled to be getting the fiber network, is not associated with or a party to the bond financing.

If there is any one hurdle to the financing structure it’s that these are pure revenue bonds – meaning that they only are supported by the revenues of the project. There are no backdrop guarantees by a City or anybody else to support the bonds if the project doesn’t perform as expected. That means that any business plan funded this way must be solid and conservative to make sure that revenues will cover costs. That leads to a few key characteristics for a project to be funding in this way:

  • Bond financing generally will have higher up-front costs than other kinds of financing, but they are usually offset by lower interest rates. The high up-front costs mean this kind of financing is only cost effective for projects the size of Dallas or larger.
  • It’s essential that there are no cost overruns from construction because there is no party, like an underlying City, that can step in to make up for any cash shortfalls. This means that engineering must be done before funding, and that a design-builder must be found that’s willing to build the network for a guaranteed price. This means tying down not only fiber costs, but the costs of drops and electronics.
  • It’s also mandatory to understand the community, and that means doing surveys and other market research to make sure that the community is receptive to buying from a new fiber network. It’s easy to just assume that fiber sells, but one of our products at CCG Consulting is doing surveys and we’ve seen major differences from market to market, sometimes even within the same region.
  • It’s also mandatory to have a cost structure that minimizes expenses. The best way to do that is to find an ISP operator who’s already successfully operating a fiber business. There are significant expense saving when an ISP opens an additional market. The fiber business is largely an economy of scale business and there are huge benefits to an operator for spreading joint and common costs across an additional market.

This means that the best structure for this kind of financing is to find an existing ISP willing to tackle operating the new market. That operator will benefit financially by allocating costs to the new market, and the new venture benefits by lower costs. As an example, if an ISP opens up a new market that doubles their size, the cost for something like the salary of their CFO effectively is halved for the original business as half of the CFO’s cost is allocated to the new market. The new market benefits by getting a CFO for half of the cost compared to hiring one.

In Dallas the operator is MINET, a municipal ISP that is owned jointly by the nearby cities of Monmouth and Independence Oregon. MINET has been effective as an ISP with a market penetration in their own markets of nearly 85%. The Dallas expansion offers the opportunity to double their customer base, meaning that they can allocate a high percentage of existing costs to the Dallas venture – a win-win for both parties.

Our team is interested in developing more fiber ventures that meet the above criteria. I’d like to hear from communities that want fiber and that already know of a nearby quality ISP that would be interested in operating the business.

I’m also interested in hearing from existing ISPs that can meet our criteria. We’re only interested in ISPs with a track record of success. An ISP can benefit two ways from such a venture – they can gain economy of scale and allocate a lot of existing expenses away from their current business. An ISP-operator also can benefit from profit sharing if the new venture is successful.

You can contact me at blackbean2@ccg.comm if you think you have a project that can benefit from this kind of financing.

What’s Next for Rural Broadband?

Now that most of the CAF II money and A-CAM money has been awarded, what’s next for rural broadband? If you ask the FCC that question they are likely to answer that there might yet be one more CAF II auction to fund the 261,000 homes that went unclaimed in the last auction. However, I think this is a much bigger question.

There are still tens of millions of homes that don’t have a broadband option that meets the FCC’s current definition of 25/3 Mbps. That includes all of the places that were funded by the CAF II funds provided to the big telcos and that were only required to provide broadband with speeds of 10/1 Mbps. It also includes numerous other homes that don’t have fast broadband and that are mis-categorized by the inadequate FCC broadband maps that are populated falsely by the big ISPs.

One of CCG’s products is performing surveys and related market research in rural areas. We’ve done a lot of surveys and also asked people to take speed tests in rural communities where the actual speeds at homes are significantly lower than the advertised speeds and the speeds shown on the FCC maps. I’m not just talking about rural farms, but also in sizable towns like county seats where the broadband is still pretty crappy.

It’s obvious that this FCC is working hard to be able to claim that they have taken care of the rural broadband problem. They want to say that they’ve funded broadband everywhere and that their job is done. What they are never going to admit is that the job will never be done until rural areas have the same kind of broadband infrastructure as cities.

This particular FCC is pretending that the need for broadband is sitting still, when in fact the demand for household broadband, both for speeds and for total download volumes keep doubling every three or four years. By the time the current FCC chairman has been in his seat for four years, the comparative quality of rural broadband will have halved due to this increase in demand.

Don’t interpret what I just said to mean that I have disdain for the current FCC. The last FCC under Chairman Tom Wheeler was a huge contributor to the problem when they awarded billions of dollars to the big telcos to make broadband upgrades over seven years to 10/1 Mbps – at a time when 10/1 Mbps already didn’t meet the definition of broadband. That was obviously a political decision since the original plan was to award all of the CAF II funds by reverse auction – which would have helped to fund a lot of rural fiber.

Even if the FCC was highly motivated to solve the rural broadband gap they don’t have the tools to do so. The FCC’s only tool for funding more broadband is the Universal Service. I wrote a blog last week noting how this fund is already overcommitted. Since I wrote that blog I looked at my own cellphone bills and my family alone is contributing several hundred dollars per year towards the USF fund. We are not going to get the many billions we need to expand broadband by taxing landline and cellphone users.

The fix needs to come from Congress. That doesn’t seem likely from the current Congress that already approved a $600 million fund for rural broadband grants and then added on a provision that made the grants nearly impossible to implement. Clearly influenced by lobbyists, Congress added a provision that the grants couldn’t be used in areas where more than 10% of homes already have 10/1 Mbps broadband – and there are very few such areas.

I honestly have a hard time understanding Congress’s reluctance to address rural broadband. When I go to rural counties these days I’m told that getting better broadband has become the number one local issue. I know that rural folks and rural politicians are pleading with their state and national representatives to find broadband funding.

I also know that most politicians say they are in favor of rural broadband. I’ve only seen a handful of politicians in the last decade who told their constituents that they don’t support rural broadband funding. I’ve also found that rural broadband is a nonpartisan issue and at the local level politicians of both parties understand that communities need better broadband.

I wish I could end this blog by suggesting a solution for the problem, but there isn’t any unless the states and the federal government decide at some point to help. State broadband programs providing matching grants have seen some success. I’m sure that federal matching grants would also help as long as they weren’t structured to be giveaways to the big ISPs.

A Better WiFi?

Regardless of the kind of ISP service you buy, almost every home network today uses WiFi for the last leg of our broadband network. Many of the broadband complaints ISPs hear about are actually problems with WiFi and not with the underlying broadband network serving the home.

Luckily the engineers that support the WiFi standards don’t sit still and are always working to improve the performance of WiFi. The latest effort was kicked off a few weeks ago when the 802.11 Extremely High Throughput Study Group of the IEEE initiated an effort to look for ways to improve peak throughput for WiFi networks.

This group will be investigating two issues. First, they want to find ways to increase peak throughput on WiFi for big data applications like video streaming, augmented reality and virtual reality. The current WiFi standard doesn’t allow for a prioritization of service and the device in your home with the lowest bandwidth requirement can claim the same priority for grabbing the WiFi signal as the most data-intensive application. This is key feature baked into the WiFi standard that was intended to allow the WiFi network to communicate simultaneously with multiple users and devices.

The Study Group will also be looking latency. We are now seeing applications in the home like immersive gaming that require extremely low latency, which is difficult to achieve on a WiFi network. Immersive gaming requires fast turnaround of packets to and from the gamer. The sharing nature of WiFi means that a WiFi network will interrupt a stream to a gamer when it sees demand from another device. Such interruptions are quick, but multiple short interruptions means a big data stream stops and starts and packets get lost and have to be resent. Changing this will be a big challenge because the pauses taken to accommodate multiple applications is they key characteristic of the sharing nature of WiFi.

This Study Group effort is a perfect example of how standards change over time. They are trying to accommodate new requirements into an existing technology. We’ve never had applications in the home environment that require the combination of dedicated bandwidth and extremely low latency. In a business environment any application of this nature would typically be hard-wired into a network and not use WiFi. However, businesses now also want mobile performance for applications like augmented reality that must be supported wirelessly.

The Study Group is taking the first step, which is to define the problem to be solved. That means looking in detail at how WiFi networks operates when asked to handle big data applications in a busy environment. This deep look will let the engineers more specifically define the exact way that WiFi interferes with ideal network performance. If they have one, the Study Group might suggest specific solutions to fix the identified problems, but it’s possible they won’t have one.

The end result of the work from the Study group is a detailed description of the problem. In this case they will identify the specific aspects of the current WiFi specifications that are interfering with the desired performance. The Group will also specifically define the hoped-for results that would come with a change in the WiFi standard. This kind of document gives the whole industry a roadmap and set of specific goals to tackle, and interested labs at universities and manufacturers around the world will tackle the problem defined by the Study Group.

Most people in the industry probably view standards as a finished product, as a specific immutable description of how a technology works. However, almost the exact opposite is true and standards are instead a list of performance goals. As engineers and scientists find ways to satisfy the goals those goals the standards are amended to include the new solutions. This is done publicly so that all of the devices using the protocol are compatible.

I just had this same discussion a few days ago concerning the 5G standards. At this early stage of 5G development what’s been agreed upon is the overall goals for the new wireless protocol. As various breakthroughs are achieved to meet those goals the standards will be updated and amended. The first set of goals for 5G are a high-level wish list of hoped-for performance. Over the next decade the 5G standard will be modified numerous times as technical solutions are found to help to achieve those performance goals. It’s possible that some of the goals will never be met while others will be surpassed, but any given time the 5G ‘standard’ will be a huge set of documents that define the current agreed-upon ways that must be followed by anybody making 5G gear.

This Work Group has their work cut out for them, because the issues that are interfering with large dedicated data connections or that are introducing latency into WiFi are core components of the original WiFi specification. When the choice was made to allow WiFi to share bandwidth among all users it made it difficult, and maybe impossible to somehow treat some packets better then the rest. I’m glad to know that there are engineers who are always working ahead of the market looking to solve such problems.

False Advertising for 5G

As has been expected, the wireless carriers are now actively marketing 5G cellular even though there are no actual 5G deployments. The marketing folks are always far in front of the engineers and are proclaiming 5G today much in the same way that they proclaimed 4G long before it was available.

The perfect case in point is AT&T. The company announced the launch of what they are calling 5G Evolution in 239 markets. They are also claiming they will be launching what they are calling standards-based 5G in at least 19 cities in early 2019.

The 5G Evolution product doesn’t contain any part of the new 5G standards. Instead, 5G Evolution is AT&T’s deployment of 4G LTE-Advanced technology, which can be characterized as their first fully-compliant 4G product. This is a significant upgrade that they should be proud of, but I guess their marketing folks would rather call this an evolutionary step towards 5G rather than admit that they are finally bringing mature 4G to the market – a claim they’ve already been making for many years.

What I find most annoying about AT&T’s announcement is the claim that 5G Evolution will “enable peak theoretical wireless speeds for capable devices of at least 400 megabits per second”, although their footnote goes on to say that “actual speeds are lower and will vary”. The 4G standard has been theoretically capable of speeds of at least 300 Mbps in a lab setting since the standard was first announced – but that theoretical speed has no relevance to today’s 4G network that generally delivers an average 4G speed of less than 15 Mbps.

This is like having a fiber-to-the-home provider advertise that their product is capable of speeds of 159 terabits per second, although actual speeds might be something less (that’s the current fastest speed achieved on fiber by scientists at the NICT Network System Research Institute in Japan). The intent of the statement on the AT&T website is clearly aimed at making people think they will soon be getting blazingly fast cellular data – which is not true. This is the kind of false advertising that is overstating the case for 5G (and in this case for 4G) that is confusing the public, politicians and regulators. You can’t really blame policy-makers for thinking that wireless will soon be the only technology we will need when the biggest wireless provider shamelessly claims speeds far in excess of what they will be ever be deploying.

AT&T’s second claim of launching standards-based mobile 5G in 19 markets is a little closer to the truth, but is still not 5G cellular. That service is going to deploy millimeter spectrum hotspots (a technology that is being referred to as Mi-Fi) in selected locations in 19 cities including Las Vegas, Los Angeles, Nashville, Orlando, etc.

These will be true hotspots, similar to what we see in Starbucks, meaning that users will have to be in the immediate vicinity of a hotspot to get the faster service. Millimeter wave hotspots have an even shorter propagation distance than normal WiFi hotspots and the signal will travel for a few hundred feet, at best. The hotspot data won’t roam and will only work for a user while they stay in range of a given hot spot.

AT&T hasn’t said where this will be deployed, but I have to imagine it will be in places like big business hotels, convention centers and indoor sports arenas. The deployment serves several purposes for AT&T. In those busy locations it will provide an alternate source of broadband for AT&T customers who have a phone capable of receiving the Mi-Fi signal. This will relieve the pressure on normal cellular data locally, while also providing a wow factor for AT&T customers that get the faster broadband.

However, again, AT&T’s advertising is deceptive. Their press releases make it sound like the general public in these cities will soon have much faster cellular data, and they will not. Those with the right phone that find themselves in one of the selected venues will see the faster speeds, but this technology will not be deployed to the wider market in these cities. Millimeter wave hotspots are an indoor technology and not of much practical use outside. The travel distances are so short that a millimeter wave hot spot loses a significant percentage of its strength in the short distance from a pole to the ground.

I can’t really blame the marketing folks at AT&T for touting imaginary 5G. It’s what’s hot in the marketplace today and what the public has been primed to expect. But just like the false hype when 4G was first introduced, cellular customers are not on the verge of seeing blazingly fast cellphone service in the places they live and work. This advertising seems to be intended to boost the AT&T brand, but it also might be defensive since other cellular carriers are making similar claims.

Unfortunately, this kind of false advertising plants the notion for politicians and policy-makers that cellular broadband will soon be all we will need. That’s an interesting corporate tactic to take by AT&T which is also building more fiber-to-the-premise right now than anybody else. These false claims seems to be most strongly competing with their own fiber broadband. But as I’ve always said, AT&T wears many hats and I imagine that their own fiber folks are as annoyed by this false advertising as the rest of us in the industry.

Is Broadband ‘Wildly Competitive’?

The FCC is in the process of creating its first report to Congress required by the Ray Baum Act, which is the bill that reauthorized the FCC spending for 2019 and 2020. That bill requires the FCC to create a report every two years that, among other things assesses the “state of competition in the communications marketplace, including competition to deliver voice, video, audio, and data services among providers of telecommunications, providers of commercial mobile service, multichannel video programming distributors, broadcast stations, providers of satellite communications, Internet service providers, and other providers of communications services”.

The FCC accepted comments about what should be included in its first report, and as you might imagine received a wide variety of comments from the industry and other interested parties.

In typical big carrier fashion, the NCTA – The Internet & Television Association, the lobbying group representing the largest ISPs filed with the FCC arguing that the broadband marketplace is already ‘wildly competitive’. The big ISPs have a vested interest in the FCC reaching such a conclusion, because that would mean that the FCC wouldn’t have to take actions to create more competition.

The reasoning the big carriers are using to make this claim is ironic. They argue that the FCC shouldn’t use its own 25/3 Mbps definition of broadband since the FCC is currently spending billions of dollars in the CAF II program to deploy broadband that meets a lower standard of 10/1 Mbps. They say that if US broadband is examined for the amount of competition at the lower 10/1 threshold that most markets in the US are competitive. That’s ironic because the FCC was pressured into giving all of the CAF II money to the big telcos after intense lobbying and the funds were originally intended to be awarded through a reverse auction where ISPs would have been rewarded for building broadband capable of delivering speeds up to 1 Gbps.

Further, if the FCC was to accept the idea that 10/1 Mbps is acceptable broadband then the FCC would probably be obligated to count cellular broadband as an economic substitute for landline broadband since it delivers speeds in the same range as the CAF II deployments.

However, making that same determination is impossible at faster speeds. Even the FCC’s own highly-skewed mapping data shows there are not many households in the country with two options for buying 100 Mbps service. Where households have two choices for buying 25/3 Mbps broadband the second option is almost always DSL, which the big telcos are letting die a natural technological death, and which often delivers speeds much slower than advertised. As I’ve written about in this blog, my firm has done surveys in numerous communities where the delivered speeds for both cable modems and DSL were significantly slower than the advertised speeds and certainly slower than the data in the FCC database that is collected from the big ISPs and used to create the FCC’s broadband coverage maps and other statistics.

The only way to claim that broadband is ‘wildly competitive’ is to count broadband speeds slower than the FCC’s 25/3 Mbps definition. If the FCC was to accept cellular broadband and satellite broadband as the equivalent of landline broadband, then a large majority of homes would be deemed to have access to multiple sources of broadband. I would restate the NCTA’s ‘wildly competitive’ claim to say that a majority of homes in the country today have access to multiple crappy sources of broadband.

We’ll have to see what the FCC tells Congress in their first report. I suspect their story is going to be closer to what the big ISPs are suggesting than to the reality of the broadband marketplace. This FCC already seriously considered accepting cellular and satellite broadband as an equivalent substitute for landline broadband because doing so would mean that there are not many places left where they need to ‘solve’ the lack of broadband.

The FCC finds itself in an unusual position. It gave up regulation of broadband when it killed Title II regulation. Yet the agency is still tasked with tracking broadband, and they are still required by law to make sure that everybody in the country has access to broadband. Let’s just hope that the agency doesn’t go so far as to tell Congress that their job is done since broadband is already ‘wildly competitive’.

Funding the USF Broadband Programs

A number of telecom advocacy groups came together recently to ask the FCC to increase the budget for the high-cost portion of the Universal Service Fund to at least $2.4 billion for the next fiscal year just begun on October 1. The joint filing was by ITTA – The Voice of America’s Broadband Providers, USTelecom – The Broadband Association, NTCA – The Rural Broadband Association and WTA – Advocates for Rural Broadband.

Small telcos are specifically asking that the FCC fully fund the commitments made to them in 2016 for the A-CAM program. This is the fund that is providing money to rural telcos to upgrade their networks to at last 25/3 Mbps – although it seems like most companies are using the money to upgrade to fiber. That program is bringing a permanent broadband solution to numerous rural communities.

The A-CAM and other high-cost support programs are not currently fully funded. This is due to several factors. First, more small telcos accepted A-CAM funding than the FCC anticipated, creating a bigger financial commitment than was expected. But more importantly, the FCC has been tapping the Universal Service Fund for other broadband commitments such as the CAF II program that gave billions to the large telcos to upgrade to only 10 Mbps. This same fund is also used to provide e-rate funding for schools to get affordable broadband, to support libraries, to support rural healthcare and to provide the lifeline program to make telephone and broadband more affordable for low-income households.

It would be a challenge for the FCC to meet the request and I’m not sure there is an easy way for them to do so. The Universal Service Fund is funded by fees assessed against landline telephone service, cellphone service and against broadband connections that are deemed to be interstate in nature – these are generally broadband connections sold by regulated telcos using the soon-to-be-obsolete TDM technology.

This fee is an additive to these services and the rate being charged has climbed over the years as the number of both landline telephones and special access transport circuits has dropped. In the last quarter the assessment topped 20% for the first time and has climbed over the years. I can recall when the assessment was under 5%.

This all creates a dilemma for the FCC. The revenues against which USF can be assessed are shrinking. Landline use continues to plummet; cellphone prices are trending downward and special access is being displaced by other kinds of transport. As much as the FCC might want to fully fund rural broadband, it has numerous other obligations to meet from the same pile of money like the e-rate program and rural healthcare broadband.

There has been talk for years of expanding the USF base. If the USF fee was assessed against home and business broadband the overall percentage would plummet from today’s 20% rate. However, Congress nixed the idea of assessing USF against broadband by sticking to the philosophy that we should not tax the Internet. This was a concept that was introduced when broadband was a fledgling industry, which somehow became a mantra that is outdated. Broadband revenues dwarf the fees for products like landline telephone service.

The FCC’s hands are tied from assessing USF against broadband by Congress. But even if Congress changed their mind, the FCC has now given up regulation of broadband and they might not have the authority to assess a fee on a product they declare they don’t regulate.

It’s to everybody’s benefit that the FCC finds a way to fund commitments they made for rural broadband just a few years ago. The FCC has some latitude and they could probably apply all fund shortfalls against another program like CAF II – but with the lobbying power of the big telcos that’s unlikely.

The FCC also has another huge source of revenue they could tap. The agency has been collecting gigantic fees for the auction of spectrum in recent years and there is no reason that all or part of this money couldn’t be diverted to rural broadband. However, this also would require action by Congress, which directly diverted auction fees to the US treasury earlier this year when they enacted the Ray Baum bill.

The funding shortfalls are mostly the result of the FCC committing more funds than are available in the fund. Since the USF is funded by fees on services, the fund can’t have cost overruns and spend more money than it has – unlike many other government programs. Every time I hear the FCC announce a new initiative out of the Universal Service Fund I always wonder which other parts of the fund will be raided. I think we now know that it’s funding for rural broadband.

Another Spectrum Giveaway?

It looks like the FCC might finally be ready to move forward with a plan for Citizens Band Radio Service (CBRS). In what seems to be the repeated theme of the current FCC, the rules for awarding the spectrum heavily favor the big carriers.

The FCC has been wrestling with the disposition of this spectrum for years and it’s not hard to understand why. The spectrum sits between the two current WiFi bands and is ideal for data transmission. This band of spectrum would be a huge boon for rural broadband. The 150 megahertz of spectrum could be leveraged to greatly increased fixed wireless data speeds from WISPs. If the spectrum was fully made available for rural fixed wireless broadband we could see foxed-wireless data speeds increased to hundreds of Mbps.

But the spectrum is also ideal for 5G cellular data. This is the kind of bandwidth that cellular carriers need in urban areas if they are going to try to boost cellular speeds to the target of 100 Mbps set by the 5G standards. Additionally, the width of this band of spectrum makes it ideal for communicating with huge numbers of IoT devices using the 5G capability of slicing spectrum into tiny or large bands as needed for an individual application.

This is obviously not an easy decision for the FCC which is why the determination of how to use the spectrum has dragged on for years. They’ve had a wide range of proposal in front of them for how to allocate the spectrum. The big cellular companies have always urged having an auction for the spectrum with licenses covering large geographic areas as has been done with most other cellular spectrum.

The small wireless carriers and rural broadband advocates have been urging a solution that would provide bandwidth for rural broadband while also satisfying the needs of the urban 5G carriers. They’ve lobbied for licensing at least some of the spectrum to areas as small as a census blocks while also promoting spectrum sharing so that multiple license holders can coexist on the spectrum. Under their plan both the rural WISPs and the cellular carriers in towns could use the spectrum, with little overlap.

It looks like we’re nearing the end of the debate and as usual, the large carriers appear to have won. FCC Commissioner Michael O’Rielly recently released a document that proposes to auction the spectrum off with the license footprints defined as county boundaries. Another boon to the big ISPs is lengthens the term of the licenses from 3 years to 10 years and allows licenses to be renewed. He’s also proposing that county bids can be ‘packaged’, allowing bidders to go after multiple counties with one bid. His article makes it sound like the spectrum will be released next year, so I have to assume that a majority of FCC Commissioners are on board.

He makes his plan sound like a compromise between the interests of small and large wireless providers. However, we know from past practice that the big wireless carriers will buy all of the spectrum in counties with any sizable population centers and remove those counties from the market for smaller carriers. It’s even unlikely that WISPs will win many licenses in mostly rural counties since there are usually well-heeled speculators that buy spectrum with the hopes of selling it for more later.

The FCC could have chosen to deploy this spectrum in a way that could have helped to solve the rural broadband gap. We know that the availability of bandwidth drops off rapidly at the edge of towns and cities. This means that for most of rural America the best broadband solution for now is fixed wireless. The proposal to license spectrum by census block was somewhat complicated, but it would have made this spectrum available in rural America where it is badly needed.

We know that cellular carriers don’t share or license their spectrum to others. There is a lot of existing licensed spectrum owned by the cellular carriers that sits empty and unused in rural America. The FCC is squandering away another opportunity to provide the bandwidth needed to provide robust broadband in rural areas. The cellular carriers will buy most of the CBRS spectrum and will use it to enhance cellphone broadband in towns and cities – an admittedly great use of the spectrum. Yet two miles outside of towns the spectrum will sit unused, when it could be providing 100 Mbps broadband to the residents there. It’s frustrating and perplexing that the FCC won’t require spectrum sharing in places where the license holders aren’t deploying it – not only for CBRS spectrum, but for all licensed spectrum.

The 5G Summit

There was recently a 5G Summit held at the White House to discuss how the administration could encourage the public sector to deploy 5G as quickly as possible. The purpose of the summit was summarized well by Larry Kudlow, the director of the National Economic Council who said the administration’s approach to the issue is ‘American first, 5G first”.

Kudlow went on to say that the administration wants to give the wireless industry whatever they need to deploy 5G quickly. The FCC recently took a big step in that direction by speeding up and cutting the costs for attaching 5G small cell sites to poles and other infrastructure in the right-of-way.

There are a few other ways that were mentioned about how the administration could foster 5G deployment. David Redl, the head of the NTIA called for the government to make the needed spectrum available for 5G. The FCC is in the process of having an auction for spectrum in the 25 GHz and 28 GHz bands. The FCC is also working towards finalizing rules for the 3.5 GHz and 3.7 GHz spectrum (the 3.5 GHz CBRS band will be the subject of tomorrow’s blog).

I hope that the fervor to promote 5G doesn’t result in giving all of the new spectrum to the big wireless carriers. One of the best things the FCC ever did was to set aside some blocks of spectrum for public use. This fueled the WiFi technology sector and most homes now have WiFi networks. The spectrum also powers the fixed wireless technology that is bringing better broadband to rural America. While 5G is important, the administration and the FCC need to set aside more public spectrum to allow for innovation and broadband deployment outside of the big ISP sector.

I found this summit to be intriguing because it’s the first time I recall the government so heavily touting a telecom technology before it was introduced into the marketplace. There was mention in the Summit that the US is in a race with China to deploy 5G, but I’ve never seen anybody explain how that might give China an advantage over the US. China is far behind the US in terms of landline broadband and it makes sense for them (and much of the rest of the world) to stress wireless technologies.

There certainly was no similar hoopla when Verizon first announced the widespread deployment of fiber – an important milestone in the industry. In fact, at the time the press and Wall Street said that Verizon was making a mistake. It’s interesting to see that Verizon is again the market leader and is the only company, perhaps aside from T-Mobile, that has announced any plans to deploy 5G broadband. It’s worth looking back in history to remember that no other big ISPs followed Verizon’s lead and for over a decade the only other fiber to residences was built by small telcos, municipalities and small overbuilders.

Even if the government makes it as easy as possible to deploy 5G, will other big ISPs follow Verizon into the business? For now, AT&T has clearly decided to pass on the technology and is instead investing in fiber to homes and businesses. The big cable companies have shown no interest in the technology. The cellular companies will upgrade mobile networks to 5G but that’s expected to happen incrementally over a decade and won’t be a transformational technology upgrade. 4G LTE is still expected to be the wireless workhorse for many years to come.

There was one negative issue mentioned at the Summit by Rep. Greg Walden of Oregon. While praising efforts to deploy 5G he also said that we needed to take steps to protect the supply chain for 5G. Currently the FCC has precluded the use of any federal funds to buy technology manufactured by Huawei. But a more pressing issue is the current tariffs on China that are inflating the cost of 5G electronics – something that will be a barrier to deployment if they remain in place for very long.

It’s likely that the Summit was nothing more than politicians climbing onto a popular bandwagon. There has been enough hype about 5G that much of the public views it as a cutting-edge technology that will somehow transform broadband. We’re going to have to watch the Verizon deployment for a while, though, to see if that is true.

The administration has it within their power to create more benefits for companies willing to invest in 5G. However, helping huge companies like Verizon, which doesn’t need the help, is not likely going to bring 5G to more homes. And federal money won’t transform 5G into a technology that can benefit rural America, since 5G requires a robust fiber network. I just hope this doesn’t signal more giveaways to the giant ISPs – but if the FCC’s small cell order is any indicator, that might be all it means.

FCC Revisiting Cable Franchise Fees

On September 24 the FCC issued a Further Notice of Proposed Rulemaking concerning cable franchise fees and related issues. This docket was prompted by a court decision in July 2017 by the U.S Court of Appeals for the Sixth Circuit concerning earlier efforts by the FCC to clarify and restrict franchise fees. In that case, Montgomery County, MD v. FCC the courts had remanded several FCC rulings as being unclear.

The FCC rules in dispute in the lawsuit had tried to do several things. First, they clarified that the maximum franchise fee that could be levied against a cable provider is 5%, and that the 5% fee had to include any in-kind payments expected from a cable company under a franchise agreement. Further, the FCC clarified that franchise fees were only supposed to be levied against cable TV revenues and not against other products and services offered by a cable company.

Cities (referred to as Local Franchise Authorities – “LFAs”) had expanded franchise agreements to include other mandatory payments. For instance, many LFAs required cable companies to provide free cable TV service to government offices and schools. Some franchise agreements required cable companies to provide free or reduced bandwidth to schools or low-income housing. The original FCC order even citied franchise agreements that required cable companies to plant flowers in parks and other non-standard fees on cable companies.

The original FCC order said that LFAs are allowed to extract payments in-kind, but that any such costs to cable companies would count against the 5% cap on total franchise fees. The court decided that the FCC had not been clear on the definition of in-kind payments. For example, the FCC wasn’t clear if the costs of providing PEG channels (channels set aside for the use of local governments to broadcast of government meetings and other such uses). The courts said it wasn’t even clear if cable companies could claim that the costs of having to expand to unserved areas in a city could count against the 5% franchise fee cap.

This new NPRM seeks to clarify franchise fee issues. Specifically, the order asks comments on the following issues:

  • The FCC proposes to treat incumbent and new competitive cable operators identically in order to not impose any restrictions that might hurt the expansion of broadband deployment.
  • The FCC seeks to clarify the definition of in-kind payments and reiterates that any such payments are to be included in the 5% cap on franchise fees.
  • The FCC is reaffirming that there should be no franchise fees imposed on other services like broadband, telephone or smart-home services.
  • The further clarify that there can be no other provisions included in a franchise agreement that would act to regulate any service other than cable TV. For example, some LFAs have been trying to use franchise agreements to dictate things like the coverage, speeds or prices of broadband services.
  • The FCC also asks if these same rules should apply to statewide franchise rules that have been created by state legislators as an alternative to local franchise authority.

It’s not hard to understand why cities fight so hard to find ways to expand franchise fees. Since the explosion of cable TV service in the 70s and 80s many cities have grown to rely on the tax revenues levied on cable TV service. However, as people cut the cord or downsize cable packages the amount of collected franchise fees is declining and cities want to find ways to protect their tax revenues. The FCC is correct in clarifying that the Cable TV Act of 1984 clearly restricted franchise fees to only cable service, and as that service declines in value the cities are going to see franchise tax revenues continue to decline in the future.

Small cable providers need to be aware of their rights when entering into franchise negotiations with cities. Cities are allowed to ask for a PEG channel for use by the city. The City can ask for the creation of an iNet (although they have to pay for the fiber). Cities shouldn’t be asking for anything else other than franchise fees. This particular set of rules will clarify that issue.

While these clarifications by the FCC are important, Commissioner Michael O’Reilly points out in comments that what’s really needed are new rules from Congress that take a fresh look at the regulation of cable industry. Franchise fees now put traditional cable companies at a competitive disadvantage compared to Netflix and other online video services which don’t have to charge such fees, and in the current dynamic video market the question of charging fees on cable need to be reexamined.