Partisanship and the FCC

The current FCC has a clear bias towards the big cable companies, telcos and cellular companies. There is nothing particularly wrong with that since this FCC represents an administration that also is big-business oriented. Past FCC’s have clearly favored policies that reflected the administration in charge. For instance, the prior FCC under Tom Wheeler was pro-consumer in many ways and pushed things like net neutrality and privacy – issues that had the support of the administration but not of the giant ISPs.

However, in the last few decades the FCC has gotten a lot more partisan. It’s becoming rare to see a policy vote that doesn’t follow party lines. This isn’t true of everything and we see unanimous FCC Commissioner support for things like providing more spectrum for broadband. But FCC voting on any topic that has political overtones now seem to follow party lines.

The most recent example of the increased partisanship is evident with the release of this year’s 2018 Broadband Deployment Report to Congress. In that report Chairman Pai decided to take the stance that the state of broadband in the country is fine and needs no FCC intervention. The FCC is required to determine the state of broadband annually and report the statistics and its conclusions to Congress. More importantly, Section 706 of the Telecommunications Act of 1996 requires that the FCC must take proactive steps to close any perceived gaps in broadband coverage.

In order to declare that the state of broadband in the country doesn’t require any further FCC action, Chairman Pai needed to come up with a narrative to support his conclusion. The argument he’s chosen to defend his position is a bit startling because by definition it can’t be true.

The new broadband report, released on February 9 concludes that “advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. . . This finding does not mean that all Americans now have broadband access. Rather, it means that we are back on the right track when it comes to deployment“. The kicker comes in when the report says that the FCC’s data from ISPs “does not yet reflect the beneficial effects of the Commission’s actions in 2017,” such as “ending the adverse impact on investment caused by the [2015 Net Neutrality] Order. . . For instance, several companies, including AT&T, Verizon, Frontier, and Alaska Communications either commenced or announced new deployments in 2017.

In effect, the FCC now says that broadband deployment is back on track due to its December 2017 net neutrality repeal. But the ‘facts’ it cites don’t support its argument. First, any broadband improvements made by the cited telcos in 2017 would have been authorized and started in 2016 before this new FCC even was in place. Further, a big percentage of the recent broadband deployments of these particular telcos are due to earlier FCC decisions prior to the Pai FCC. For example, AT&T was required as a requirement of the purchase of DirectTV to pass 12 million new residences and businesses with fiber. A lot of the broadband spending made by AT&T, Frontier and Alaska Communications are using CAF II funds given to them by the Wheeler FCC and which the companies are required to spend. None of those expenditures have anything to do with the repeal of net neutrality. And since net neutrality was only reversed a few months ago, it’s impossible to believe that any of the broadband spending in 2017 was due to this FCC. It’s far too early to see if that order will have any impact on rural broadband expenditures (something no industry experts expect).

This FCC Broadband Report concludes that deployment of broadband in the country is on track and reasonable. Yet the numbers in the report show that there are still 19 million Americans in rural America without access to adequate broadband. There are 12 million school-aged children who are suffering from the homework gap because they don’t have broadband at home.

By declaring that broadband deployment is adequate, Chairman Pai has let his FCC off the hook for having to take any actions to address the issue. But his stated reasons are based upon an argument that is clearly not supported by any facts. This would seem to put the Chairman in violation of his Section 706 obligations, although that’s probably something only Congress can determine.

I’m saddened to see the FCC become so partisan. This is not a new phenomenon and we saw partisan voting under the last several FCCs. Before that we had pro-big business FCCs such as the one under Chairman Michael Powell. But that FCC was far less partisan and still basically used the facts at its disposal in making decisions and setting policy.

The FCC has a mandate to balance what’s good for both the public and the telecom companies. In an ideal world the FCC would be a neutral arbiter that listens to the facts and sides with the best arguments. This trend towards a partisan FCC is bad for the industry because it means that major policies will flip-flop when we change administrations – and that’s not good for ISPs or the public. Partisanship does not excuse this FCC from abrogating its responsibility and making specious arguments not supported by facts. This FCC has taken partisanship too far.

Walking Away from Cable

Several different events in the last week got me thinking about an interesting trend in the cable industry. First, in my community there is a Redbox outlet in a neighborhood grocery store. My wife and I were discussing how busy they seem to be in renting out movie DVDs. All of the Blockbuster and other movie rental outlets have closed. Until I moved to this neighborhood recently I hadn’t notice any video stores or related outlets in a long time. But this Redbox seemed to have a lot of business.

I also saw an article in FierceCable that noted that only 5% of US households have subscribed to a vMVPD – an online cable provider like Sling TV, DirecTV Now or Playstation Vue. My first thought is that a 5% market penetration seems pretty phenomenal for an industry that is barely two years old. But the article notes that while 5% of households are current subscribers to online programming, another 8% of the market has tried and dropped one of the services. Since only about 20% of the total households don’t have traditional cable service it makes you wonder what the real upper potential for this market might be – it might be a lot smaller than the vMVPDs are hoping for.

I also went to a Superbowl party. The half dozen families attending are from my neighborhood and it turns out all of the households are cord cutters and don’t subscribe to traditional cable service. I was the only one that used a vMVPD and I currently have a subscription to Playstation Vue. None of them had tried a vMVPD and they seemed to have no interest in doing so. (I only use Playstation Vue because it’s the cheapest way to get Big10 sports and Fox Sportsnet so I can watch Maryland sports teams – I rarely watch the other linear programming).

National broadband penetration rates are now at 84% of all households. I’ve seen many of the opponents of spending money to build rural broadband say that households just want broadband to watch video. Netflix has made a huge dent in the market and served nearly 55 million US homes at the end of 2017. Add to that some percentage of the 90 million homes that subscribe to Amazon Prime, and it seems like there might be some truth in that.

But if households are cutting the cord, why aren’t more of them buying one of the on-line cable alternatives? Those services have packages that carry only the most popular cable channels at half the price of buying traditional cable.

I think the answer is a combination of two factors. One of the predominant factors is price. Every family at the neighborhood party has kids and they dropped traditional cable because it was too expensive. That has to be the factor that explains why the Redbox outlet is doing so well. Most of the movies available from Redbox are also available online. But getting online means also having an Internet-enabled TV or else buying a Roku or other web interface. And even then, watching many of these newer movies means subscribing to yet a different online service. I think there is a cost barrier, or perhaps a technology barrier that is keeping households using a traditional DVD player and Redbox.

Two different households at the party told me that they were satisfied with just watching Netflix and the free programming available on YouTube. And that is the second important trend. Households are getting used to watching just a subset of the programming that is available to them. When somebody drops cable TV and doesn’t buy a vMVPD service it means they have walked away from all of the content that is available only in those two media.

Most of my neighbors still watch the major networks using rabbit ears (something I don’t do). So they are still watching whatever is available on local CBS, NBC, ABC and FOX. But the families on my street are learning to live without the Game of Thrones, or the Walking Dead. They are no longer watching ESPN, Discovery, Comedy Central, the Food Network and the hundreds of channels that make up traditional cable TV.

This means their kids are not growing up watching traditional cable networks, and thus are not developing any brand loyalty to those networks or their programming. If you don’t learn to love a network when you are a teenager, will you decide to watch it when you are older?

I don’t have any answers to these questions, and obviously I can’t define a trend just from talking with some of my neighbors. But I found it intriguing that they all had dropped traditional cable and had not replaced that programming with something online. This tells me that there must be a lot of people who are not enamored with linear programming whether it’s on cable or online. And a lot of people are convincing themselves that it’s okay to walk completely away from the big pile of programming that is offered by the cable TV networks.

This is potentially a watershed phenomenon, because somebody that walks away from traditional programming is probably not coming back. These folks are cord cutters who are literally walking away from most of the programming available on traditional cable. Those networks and their programming are going to become irrelevant to them. But interestingly they are still going to consume a lot of video content – just not that created by the traditional cable networks. In my mind these households are looking a lot like Generation Z in that they are foregoing traditional programming and watching something else.

The vMVPDs are banking that people will transition down to their smaller packages when they leave a cable TV provider. But will they? This is a phenomenon that you can’t determine from industry-wide statistics, other than perhaps by seeing the dropping number of paid subscriptions to the various cable networks. People like my neighbors are dropping cable due to the expense, but they are quickly learning to live without traditional cable programming and aren’t chasing the online alternatives.

AT&T and Net Neutrality

The big ISPs know that the public is massively in favor of net neutrality. It’s one of those rare topics that polls positively across demographics and party lines. Largely through lobbying efforts of the big ISPs, the FCC not only killed net neutrality regulation but they surprised most of the industry by walking away from regulating broadband at all.

We now see states and cities that are trying to bring back net neutrality in some manner. A few states like California are creating state laws that mimic the old net neutrality rules. Many more states are limiting purchasing for state telecom to ISPs that don’t violate net neutrality. Federal Democratic politicians are creating bills that would reinstate net neutrality and force it back under FCC jurisdiction.

This all has the big ISPs nervous. We certainly see this in the way that the big ISPs are talking about net neutrality. Practically all of them have released statements talking about how much they support the open Internet. These big companies already all have terrible customer service ratings and they don’t want to now be painted as the villains who are trying to kill the web.

A great example is AT&T. The company’s blog posted a letter from Chairman Randall Stephenson that makes it sound like AT&T is pro net neutrality. It fails to mention how the company went to court to overturn the FCC’s net neutrality decision or how much they spent lobbying to get the ruling overturned.

AT&T also took out full-page ads in many major newspapers making the same points. In those ads the company added a new talking point that net neutrality ought to also apply to big web companies like Facebook and Twitter. That is a red herring because web companies, by definition, can’t violate net neutrality since they don’t control the pipe to the customers. Many would love to see privacy rules that stop the web companies from abusing customer data – but that is a separate issue than net neutrality. AT&T seems to be making this point to confuse the public and deflect the blame away from themselves.

Stephenson says that AT&T is favor of federal legislation that would ensure net neutrality. But what he doesn’t say is that AT&T favors a bill the big companies are pushing that would implement a feel-good watered-down version of net neutrality. Missing from that proposed law (and from all of AT&T’s positions) is any talk of paid priority – one of the three net neutrality principles. AT&T has always wanted paid prioritization. They want to be able to charge Netflix or Google extra to access their networks since those two companies are the largest drivers of web traffic.

In my mind, abuse of paid prioritization can break the web. ISPs already charge their customers enough money to fully cover the cost of the network needed to support broadband. Customers with unlimited data plans, like most landline connections, have the right to download as much content as they want. The idea of an AT&T then also charging the content providers for the privilege to get to customers is a terrible idea for a number of reasons.

Consider Netflix. It’s likely that they would pass any fees paid to AT&T on to customers. And in doing so, AT&T has violated the principle of non-discrimination of traffic, albeit indirectly, by making it more expensive for people to use Netflix. AT&T will always say that are not the cause of a Netflix rate increase – but AT&T is able to influence the market price of web services, and in doing so discriminate against web traffic.

The other problem with paid prioritization is that it is a barrier to the next Netflix. New companies without Netflix’s huge customer base could not afford the fees to connect to AT&T and other large ISPs. And that barrier will stop the next big web company from launching.

I’ve been predicting that the ISPs are not going to do anything that drastically violates net neutrality for a while. They are going to be cautious about riling up the public and legislators since they understand that Congress could reinstate both net neutrality and broadband regulation at any time. The ISPs are enjoying the most big-company friendly FCC there has ever been, and they are getting everything they want out of them.

But big ISPs like AT&T know that the political and regulatory pendulum can and will likely swing the other way. Their tactic for now seems to be to say they are for net neutrality while still working to make sure it doesn’t actually come back. So we will see more blogs and newspaper ads and support for watered-down legislation. They are clearly hoping the issue loses steam so that the FCC and administration don’t reinstate rules they don’t want. But they realistically know that they are likely to be judged by their actions rather than their words, so I expect them to ease into practices that violate net neutrality in subtle ways that they hope won’t be noticed.

Selling Wholesale 5G

Frontier announced the other day that it was interested in selling off much of the Verizon FiOS networks it had recently acquired in 2016. Apparently, the company is over-leveraged and needs the cash to make a healthier balance sheet. But regardless of the reason, that puts a sizable pile of last mile fiber networks onto the market.

I read a summary of a report by Cowan Equity Research that suggests that there is increasing value for fiber networks now based upon the potential for selling wholesale connections to 5G providers. As I think about this, though, I’m betting that a lot of fiber network owners will be extremely leery about allowing 5G providers onto their networks.

Without looking at the Frontier specifics, consider an existing last mile fiber network that already passes all, or nearly all of the homes and businesses in a community. Every fiber business plan I’ve ever created shows that any last mile fiber network requires a substantial customer penetration in order to be financially viable. The smaller the footprint of the network, the higher the needed customer penetration rate.

Consider how a 5G provider would gain access to an existing fiber network. They’d want to gain access for each 5G transmitter and would pay some fee per unit, or else a fee to lease the whole network. That fee would have to be low enough for the 5G provider to make a profit when selling broadband. I’m guessing that the Cowan group assumes this will provide an attractive second revenue stream for an existing fiber network.

That assumption ignores the fact that the 5G company will be competing directly against the fiber owner for retail broadband customers. It’s not hard for me to envision a scenario where the fiber network owner will lose margin by this transaction. They will be trading high margin retail customers for low-margin 5G wholesale connections.

I saw one market analyst that guessed that a Verizon 5G gigabit offering would capture 30% of the customers in a market. The only way for that to happen would be for the 5G provider to take a big chunk out of the customer base of both the incumbents in the market as well as the fiber owner.

There are markets where selling wholesale 5G might be a good business plan. For example, I’ve seen speculation that Google Fiber and other large overbuilders hope to achieve a 30% market share in large NFL-sized cities. I could foresee a scenario where Google Fiber might increase profits by offering both retail broadband and wholesale 5G connections.

But in smaller markets this could be a disaster. If the fiber network is in a smaller town of 50,000 people, the existing fiber network might need a 45% or 50% customer penetration to be profitable. It’s not hard imagining a 5G scenario that could drive the network owner out of business through loss of higher-margin retail customers. I can’t see why owners of fiber networks in smaller markets would allow a direct competitor onto their network. While the new source of 5G revenue sounds enticing, the losses from retail margins could more than offset any possible gains from the wholesale 5G revenues.

The Frontier example offers yet another possibility. Verizon is famous for cherry-picking with its fiber networks. They will build to one street and not to the one next door. They will build to one apartment or subdivision but not the one next door. Verizon seems to have stayed very disciplined and built only to those places where the cost of construction met their construction cost criterion. I could foresee somebody owning a cherry-picking network to leverage it to get to the homes that are not directly on the fiber routes. We still don’t yet understand the factors that will determine who can or cannot be served from a 5G network, but assuming that such a network will extend the effective reach of fiber this seems like a possible business plan.

But there are fiber networks owned by telcos, municipalities and fiber overbuilders that might look at the math and decide that having a 5G provider on their network is a bad financial idea. I have a difficult time thinking that cable companies will allow 5G competitors access to fiber that’s deep in residential neighborhoods. My gut tells me that while Wall Street foresees an opportunity, this is going to be a lot harder sell to fiber owners than they imagine.

Regulating From Broadband Maps

One of the more bizarre things we do in the US is regulate broadband based upon broadband maps. There are numerous federal grant and subsidy programs that rely upon these maps (and the underlying databases that support them) as well as various state programs. The FCC also uses this same data when reporting broadband penetration in the country to Congress each year, as just occurred on February 9.

The maps are intended to show how many households can purchase broadband of various speeds. Currently the arbitrary speed thresholds tested are download speeds of 10 Mbps, 25 Mbps and 100 Mbps. These speeds are measured due to past decisions by the FCC. For example, the FCC chose a 10/1 Mbps speed goal for any company that accepted CAF II money to upgrade rural broadband. The FCC’s current definition of broadband is still set at 25/3 Mbps.

Anybody that understands broadband networks knows that much of the data included in the databases and the mapping is incorrect, and sometimes pure fantasy. That makes sense when you understand that the speeds in this mapping process are all self-reported by ISPs.

There are numerous reasons why the speeds in these databases are not an accurate reflection of the real world:

  • There are still ISPs that report advertised speeds rather than actual speeds received by customers.
  • Any speeds represented for a whole DSL network are inaccurate by definition. DSL speeds vary according to the size of the copper wires, the condition of the copper cable and the distance from the source of the DSL broadband signal. That means that in a DSL network the speeds available to customers vary street by street, and even house by house. We’ve always known that DSL reported in the mapping databases is overstated and that most telcos that report DSL speeds report theoretical speeds. I’m not sure I blame them, but the idea of any one speed being used to represent the performance of a DSL network is ludicrous.
  • The speeds in the database don’t recognize network congestion. There are still many broadband networks around that bog down under heavy usage, which means evenings in a residential neighborhood. Nobody wants to be told that their network is performing at 10 Mbps if the best speed they can ever get when they want to use it is a fraction of that.
  • The speeds don’t reflect that ISPs give some customers faster speeds. In networks where bandwidth is shared among all users on a neighborhood node, if a few customers are sold a faster-than-normal speed, then everybody else will suffer corresponding slower speeds. Network owners are able to force extra speed to customers that pay a premium for the service, but to the detriment of everybody else.
  • The maps don’t reflect the way networks were built. In most towns you will find homes and businesses that were somehow left out of the initial network construction. For example, when cable companies were first built they largely ignored business districts that didn’t want to buy cable TV. There are lots of cases of apartment and subdivision owners that didn’t allow in the incumbent telco or cable company. And there are a lot of homes that just got missed by the network. I was just talking to somebody in downtown Asheville where I live who is not connected to the cable network for some reason.
  • Not all ISPs care about updating the databases. There are many wireless and other small ISPs that don’t update the databases every time they make some network change that affects speeds. In fact, there are still some small ISPs that just ignore the FCC mapping requirement. At the other extreme there are small ISPs that overstate the speeds in the databases, hoping that it might drive customer requests to buy service.
  • One of the most insidious speed issues in networks are the data bursts that many ISPs frontload into their broadband products. They will send a fast burst of speed for the first minute or two for any demand for bandwidth. This improves the customer experience since a large percentage of requests to use bandwidth are for web searches or other short-term uses of bandwidth. Any customer using this feature will obtain much faster results from a speed test than their actual long-use data speeds since they are actually testing only the burst speed. A rural customer using burst might see 4 Mbps on a speed test and still find themselves unable to maintain a connection to Netflix.
  • Sometimes there are equipment issues. The best-known case of this is a widespread area of upstate New York where Charter has kept old DOCSIS 1.0 cable modems in homes that are not capable of receiving the faster data speeds the company is selling. It’s likely that the faster network speed is what is included in the database, not the speed that is choked by the old modems.
  • And finally, speed isn’t everything. Poor latency can ruin the utility of any broadband connection, to the point where the speed is not that important.

Unfortunately, most of the errors in the broadband databases and maps overstate broadband speeds rather than under-report them. I’ve worked with numerous communities and talk to numerous people who are not able to get the broadband speeds suggested by the FCC databases for their neighborhoods. Many times the specific issue can be pinned down to one of the above causes. But that’s no consolation for somebody who is told by the FCC that they have broadband when they don’t.

Millennials and Media

I’ve read a lot recently in various trade articles talking about the percentage of Millennials that are watching (or not watching) traditional TV content. The various polls and studies show that Millennials are far less interested in watching linear TV than older generations. They are far less likely to buy a traditional cable TV subscription.

Millennials are starting to have a huge impact on our society. They now make up 32% of all adults in the US. They are more educated than earlier generations and 40% of Millennials between the ages of 25 and 29 have completed a bachelor’s degree compared to 32% for Generation X and smaller numbers for Baby Boomers and the Silent Generation.

But I have rarely read anything that describes what Millennials are doing in place of watching traditional TV. We now know from a study by Nielsen that part of the answer lies in the fact that Millennials read a lot more digital content than older generations. Digital content is content generated by online sites. Nielsen says digital content is now the primary source of news, sport, fashion trends and general knowledge for this generation – to a far greater extent than older generations.

Nielsen has begun tracking digital content and has begun to rate it much like they do for television viewing. Since advertising is shifting towards the web this tracking is of great value to potential advertisers. Historically we’ve been ranking websites by the number of ‘hits’ on their website. But the Nielsen digital tracking goes much deeper and measures time spent at each web site – which is what advertisers want to know. Advertisers have been able to get this kind of information from huge sites like Facebook, but never for everything else on the web.

Here are just a few of the things that Nielsen found about Millennials and digital media:

  • In terms of volume, the leading website used by Millennials is BuzzFeed. This site reaches 83% of US Millennials each month. The content on BuzzFeed is aimed at Millennials and the average BuzzFeed viewer sees an astronomical 38 videos on the site per month. Users don’t have to go to BuzzFeed to see the content, which is widely distributed through the various social media platforms. The platform carries news, the many videos, quizzes and the popular Millennial food site Tasty.
  • Just behind BuzzFeed is Group Nine Media. This company has four web brands including NowThis, The Dodo, Seeker and Thrillist. The companies content is aimed at younger audiences and now reaches 81% of Americans in their 20s. The platform has grown quickly to 1 million minutes per month of streamed content.

Another popular digital content site is MIC. This site offers news aimed at younger viewers and reaches over 25% of people between 21 and 34 years old each month. They are now attracting over 40 million unique viewers per month. Perhaps the most interesting thing about the site to advertisers is that 56% of their viewers are female.

Refinery29 is a site aimed at young women. It’s a mix of fashion, beauty, entertainment and money news. The platform is a mix of text articles and videos and reaches 62% of women between 18 and 34 each month, but a huge 88% of women between 21 and 24. In 2017 Adweek reported that the site reached 500 million viewers worldwide.

Another web site that caters to Millennials has an interesting distribution network. Rather than maintain a web site, VIX distributes content on social medial sites like Facebook, Instagram and YouTube. The site carries video content on lifestyle tips, entertainment, food and life hacks. 62% of VIX viewers are female and VIX reaches 40% of US women between 18 and 49 each month.

All of this is bad news for companies that advertise on TV. Statistics show that linear TV audiences are aging quickly as younger viewers abandon watching real-time TV and its associated ads. Anything that is bad for TV advertisers is ultimately bad for the TV product and anybody that sells it. But the reality is that younger generations are abandoning the programming made for and watched by older generations. This is almost inevitable and is a market reality that the whole industry needs to come to grips with.

Are There any Cable Companies Left?

Today I ask the question if there are really any cable companies left in the US. This was prompted by seeing an article that the Shrewsbury Electric and Cable Operations (SELCO), the municipal cable provider in Shrewsbury, Massachusetts announced to the Board of Selectmen that they are no longer a ‘cable company’. They have always been a traditional cable company in that they deliver their signals to customers over a coaxial cable network. They originally only used that network to deliver the cable product. But over the years they added telephone and broadband service, and from a customer perspective they look the same as any other triple play provider which delivers these same services over copper or fiber.

This announcement was prompted by two facts. First, the company sells broadband to more homes and businesses than it sells cable TV service. And that is due, in part, to the fact that it is seeing customers abandon cable service in favor of watching streaming video over the Internet.

Shrewsbury is not unique and most of my other small triple play clients are in this same position. SELCO is unique only in that they announced it formally, which made it into the press and onto my desk. Except for some tiny rural cable companies that only sell cable service, it’s hard to imagine that every other cable company is not in the same position. And you can’t find a telco that doesn’t sell more broadband than telephone. In fact, it’s hard to find a telco any more where more than half of the customers have a landline – only in places where the cellular coverage is terrible.

The biggest company to make this announcement was Comcast. Over a year ago CEO Brian Roberts announced that Comcast was no longer a cable company. A quarter earlier their number of broadband customers had surpassed their cable customers, and since then broadband penetration is still growing steadily while cable customers are shrinking.

And yet the industry still refers to Comcast as a cable company. We still refer to AT&T as a telco even though they are primarily a wireless company. The use of these monikers comes from the technology being used – the technology, and the vendors that support each technology are different for those operating telephone copper networks, cable company HFC (hybrid Fiber Coax) networks or fiber. Yet, from a customer perspective these different kinds of companies sell the same thing – with the differentiator being their broadband speeds.

I struggle with this as a blogger since there are a lot more similarities between Comcast and AT&T than there are differences. Calling one a telco and the other a cable company no longer makes much sense. When taking about the whole industry I usually refer to triple play providers as ISPs or carriers.

We don’t have a good short word to describe companies that use their networks to sell the triple play services, and which now also other services like security, smart home, managed WiFi, etc. The word ISP really isn’t adequate because there are plenty of companies around that only sell Internet access. Those are ISPs in the strictest sense.

And carriers is an inadequate description. That’s an old telecom phrase that was used mostly to denote the bigger companies in the traditional telephone industry. But size of company is no longer a differentiator – from a product perspective, many smaller companies today have a more robust product offering than large companies like Frontier or Windstream.

What really starts making this difficult is that a lot of smaller ISPs are abandoning or thinking about abandoning cable TV service. They are finding that they can barely buy the raw programming for the retail prices offered with the smaller satellite cable packages. Small ISPs are quickly becoming double play providers, and they won’t fit into any description that includes the triple play.

So please bear with me when you see me referring to companies in this industry with descriptors that don’t really fit what they do for a living. If any of you have a better idea of what to call these companies I’m open to suggestion.

The Dawson Internet Act of 2018

A few days ago I wrote that we are not likely to get any significant telecom legislation this year. That’s unfortunate because we really need a major new Act to update all of the regulatory rules concerning broadband, telephone and cable TV. That got me thinking what I might write into such an act if I was the author, so following are the highlights of the envisioned Dawson Internet Act of 2018 (it’s time we stop calling this the telecom industry):

Cable TV. It’s time to scrap all requirements that dictate cable tiers. Cable companies need to be able to offer whatever channels they think make economic sense, including offering a la carte channels, if that’s what the public wants. I’d also scrap the must-carry rules for major network stations. The retransmission costs for those channels are one of the primary culprits for rate increases and removing the requirement to carry channels will return cable companies to a position of fair bargaining for price since they could walk away from any local station that wants too much.

Telephone. Other than a few rules that govern customer privacy I’d totally scrap federal regulations for landline service. I’d eliminate the CLEC classification and deregulate traditional telephone and VoIP equally to put the products on a non-regulated level playing field. I think I would retain the historic monopoly service territories, although I’d have to give that a lot more thought.

Interconnection. I’d keep the mandate that network owners must continue to interconnect with other carriers. They can’t be allowed to shut out a competitor by refusing to give them access to the underlying backhaul networks. But since I would eliminate the CLEC status, the big network owners need to be required to interconnect with anybody who meets specified technical standards.

ETC Status. Today a company must become an Eligible Telecommunications Carrier in order to participate in Universal Service Funds or other federal funding programs. I’d eliminate this requirement because it’s nothing more than a paperwork barrier to market entry. The current rules also disallow certain types of providers, such as owners of open access networks, although customers almost universally prefer that operating model.

Broadband. The FCC needs to regulate broadband, even if they elect to regulate it lightly. Congress can mandate this and get rid of the nonsense of trying to make broadband fit under Title II and just explicitly give the FCC the authority and obligation to regulate it.

Network Neutrality. I would make network neutrality the centerpiece of broadband regulation. The most important aspect of network neutrality is prohibiting paid prioritization – because once the ISPs start doing that all of the nightmare scenarios of a broken Internet emerge.

Spectrum. I think the FCC is already on a good path to free up spectrum for broadband. But I think they are missing the boat by not providing more spectrum for public access. One only has to look at the huge economic boom created by WiFi to see that giving all spectrum to big monopolies is not the best answer. I’d also make a firmer use-it-or-lose it rule for rural spectrum. A huge amount of spectrum sits unused in rural America but is still under control of the big carriers who purchased large-area licenses. Finally, rather than turn spectrum auction proceeds over the US Treasury I’d redirect these revenues towards meeting universal service goals.

Universal Service. I’d maintain the requirement that the FCC monitor broadband connectivity and require them to try to find solutions for areas without good broadband. I’d also prohibit them from funding any broadband programs like CAF II that support technologies that are slower than the federal definition of broadband. I’d also mandate an ongoing process for defining the official speed of broadband.

Privacy. I like what I’m reading about the European Union privacy rules. They are allowing ISPs and others to monitor and track customers only with customer consent. That will allow people who care about privacy to maintain it while allowing others who choose to sacrifice privacy for services to allow tracking. The penalties for violating customer privacy must be economically severe.

Municipal Broadband. I’d eliminate all barriers to municipal competition. Local communities ought to be able to decide themselves if they want to tackle the risk of building broadband. This is particularly needed in rural America where, in many cases, the local government might be the only one willing to tackle funding a network.

Access to Poles, Ducts and Dark Fiber. I’d make these assets available to anybody that can meet technical standards to use them. I’ve still not decided how I feel about federal one-touch rules, but I’d have the FCC institute a major rulemaking to get more facts on the issues involved.

I’m sure everybody in the industry has a different list than mine. I remember all of the discussions and negotiations leading up to the Telecommunications Act. That Act took  some political bravery since Congress was taking on the big telcos for the greater public good – and that Act did a fairly good job of promoting competition. But I don’t see this same courage in Washington today and most of the topics on my list are sadly not even being discussed.

One Computer at a Time

We’ve been talking about the digital divide now for decades. There is still a big gulf in our society between homes with broadband, computers and the knowledge to use them and those without. In my view we are now in crisis mode – school children that don’t have computers and broadband are at a massive disadvantage compared to their peers and are nearly destined to fall behind and fail.

I recently ran across a group here in North Carolina that is taking big strides to solve the problem in the greater Charlotte area. The non-profit E2D (End the Digital Divide) has now given laptop computers to over 4,100 families with school kids and has made a serious dent in the digital divide in the area.

The organization has taken a several-prong approach to making this happen:

  • They are soliciting used laptops from businesses in the Charlotte area. Most big businesses replace laptops every few years and most of them have been ending up in the landfill. Now a number of businesses send all of their used laptops to E2D.
  • Used laptops need to be refurbished and E2D started several computer labs in area high schools where they hire students at a decent wage to refurbish the computers and install new software. The purpose of these labs is not only to get the laptops ready to distribute, but they are providing technical training for kids that is helping them move on towards college or a technical career.
  • Households that get a new computer also get a live tutorial and technical support to best take advantage of the new laptops.
  • Finally, the Charlotte area has a lot of homeless families and there are thousands of homeless kids in the area. E2D has partnered with Sprint to provide mobile hot spots and data plans that are providing broadband access to homeless students and others with no broadband.

I’d encourage you to browse their website.  It’s a great story and you ought to view the short video that’s on their home page.

The whole concept got started a few year ago when 12-year Franny Millen asked her father how kids without computers can keep up with schoolwork. She wanted to know what could be done about the problem and resolved to fix it. Her father, Pat Millen, founded E2D as a result of the challenge.

The program has already had great success. Students without computers and broadband are noticeably behind their peers and are far more likely to eventually drop out of school and to earn far less than those who finish high school or college. Early metrics show that kids receiving the E2D computers are catching back up and closing the gap – exactly the result you would hope to achieve.

But E2D knows they still have a long way to go. While they’ve distributed 4,100 computers they estimate there are still 20,000 more computers needed in the Charlotte area to get one to every student that needs one. And those computers must all be replaced every few years.

The organization gets funding from several sources. First are the ever-growing donations of used laptops from companies. They received a $218,000 grant in 2017 and receive donations from the local community. They also hold citywide lemonade sales to involve kids in fundraising. And finally, they ask for a payment from homes that get a computer.

Pat Millen believes that their effort ought to be duplicable in other parts of the country and he would like to see the model grow. Perhaps some other communities will read this blog and take the challenge. There are a lot of young students hoping for computers.

No New Telecom Act

For years it’s been obvious that we need a new telecom act. The Telecommunications Act of 1996 was largely aimed at promoting telephone competition and is now quaintly outdated. Today, carriers that want to provide traditional voice services still have to jump through a gauntlet of regulatory requirements while ISPs providing VoIP or no voice product have almost no regulation.

The 1996 Act is dated and some of its provisions cause unneeded problems within the industry. A good example is Google Fiber’s struggle getting onto poles in various cities. Google has shunned taking the regulated path, but in doing so they have not been availed the protections of the 1996 Act that provides access to poles, conduits and ducts. Since most new fiber builders are not offering traditional voice, the distinctions between regulated and unregulated carriers is out of date. But unless Congress changes the rules established by the 1996 Act, the FCC and the courts have choice but to enforce any explicit regulations required by that Act.

It’s also easy to overlook that the 1996 Act rewrote many of the rules for the cable industry. For example, some of the rules covered by the Act still require traditional cable providers to provide several specific tiers of cable service. It’s obvious that these rules no longer make sense and are hindering traditional cable companies from offering competitive small packages and the a la carte programming that customers clearly want.

At the 2018 State of the Net conference held last week Rep. Greg Walden, the chair of the House Energy & Commerce Committee said that he did not foresee any major telecom legislation this year, but rather piecemeal tweaks of telecom law to fix obvious problems. This same sentiment has been expressed by Sen John Thune who has the same role on the Senate Committee on Commerce, Science and Transportation. These committees are where telecom legislation begins.

We see this piecemeal approach in Congress right now. There are nearly a dozen proposed bills floating around Congress right now that have an impact on telecom. For example:

  • There are several bills that would simplify the paperwork to get funding from the Universal Service fund and would make it easier to fix telecom infrastructure after a natural disaster.
  • There are also several bills that would loosen or exempt telecom projects that get federal funding from having to undertake environmental and historic preservation reviews if facilities are placed in existing rights-of-ways.
  • There is a bill to streamline the application for placing telecom facilities on federal land, including a one-year shot-clock forcing a yes or no answer to an application.
  • There is a proposed bill that would require the FCC to monitor and improve broadband availability in ‘urban broadband deserts”.

There is nothing wrong with any of these bills and they propose to make changes that make sense. For example, the requirement to undertake environmental and historic preservation studies when using federal grant money probably added 15% of cost to projects funded by the BTOP program a few years ago. It makes no sense to do these studies when new telecom facilities are to be placed on existing poles or within the existing shoulders of roads. Tweaking the rules will save unneeded expense for future fiber projects.

But these bills are all small in scope and ignore the big issues. The time has probably come to eliminate telephone regulations, other than perhaps the few rules that directly protect consumers. It’s also time to open up access to poles and conduits to everybody without making them jump through the hurdles created by the 1996 Act. It’s time to eliminate any federal rules that dictate how cable networks must package their programming. There are number of these big issues that cannot be easily fixed by small piecemeal bills.

There is an even bigger issue looming over the creation of a new telecom act. The FCC has basically written itself out of the picture for regulating broadband. There are some aspects of broadband that need to be regulated and Congress would have to drag the FCC back into this role.

A new telecom act could create a fresh start for the industry and the FCC. All of the drama concerning Title II regulation of broadband was due to the fact that Congress failed to provide any guidance for regulating broadband. The FCC struggled over the last decade trying to find a backdoor way to justify governing some aspects of broadband – something the Congress could have fixed at any time by giving explicit authority to the FCC.

Regulating broadband one small inch at a time is not good policy. Any ISP can rattle off a list of a dozen things that don’t work as well as they would like. The only way to get the fresh start we need is with a new telecom act aimed at the new world we really live in. We are no longer a world that needs heavy telephone regulations or that should tell cable TV providers what to put on the air. What we need is a new framework that would empower the FCC to make sure that we can affordably build the fiber and wireless networks that are vital to our future. We need rules that require that broadband stay within affordable reach of most households. We need rules that prohibit ISPs from spying on customers. We really need Congress to do their jobs and restart the industry on a regulatory path that fits our times.