Improving Our Digital Infrastructure, Part 2

FCC_New_LogoYesterday’s blog discussed the FCC’s recently published roadmap of how we can get broadband to rural America. That blog looked at the positive aspects of the plan, such as setting a goal to bring at least 25/3 Mbps broadband to almost every home in the nation. But there are a few aspects of that plan that I fund troubling that I will examine today.

One of the biggest red flags in the paper is that the FCC suggests that federal funding for fiber be granted using a reverse auction to be awarded ‘at a national / regional level’. This means that the FCC leans towards giving the funding to the largest telcos in the same manner that they did the CAF II funding. That would mean giant hand-outs to companies like Verizon, AT&T, CenturyLink and Frontier. The idea of a reverse auction is a good one, in that the whoever asks for the least amount of support can get the federal funding support. But if that funding is only awarded at a regional or national level, then by definition, only these giant companies have any opportunity for the funding. Smaller companies don’t have any realistic way to scale up to serve gigantic regional service areas.

We already can see the amazing strides made by independent telephone companies, cooperatives and others in bringing broadband to rural America. It would be a travesty to set the rules in such a way as to exclude these companies from a chance at the money (as already happened with CAF II). If you ask any rural customer if they would prefer to be served by a cooperative or AT&T – the answer is always going to favor the smaller local company rather than a national one.

The second aspect of the FCC roadmap that concerns me is that it refers in several places to providing fiber networks that are capable of supporting 5G. I am really hoping that the FCC is not envisioning that these many billions of funding are going to go to building rural infrastructure just so the wireless companies can then offer 5G for the last mile instead of fiber-to-the-premise. I’ve probably written half a dozen blogs about 5G technology and I have serious technical doubts about it ever being a viable rural technology. And that means no amount of money can make it work if it’s the wrong technology for rural America. I hope I am wrong and that the FCC hasn’t bought into AT&T and Verizon’s vision of 5G as the ultimate network, but the wording in the FCC’s documents sets off a lot of red flag warnings for me.

Another thing that makes me think that the FCC wants to give the money to the biggest companies is that they support using accelerated depreciation as a way to improve the financial viability of building rural infrastructure. Any smaller company that invests in fiber today already doesn’t pay taxes on that new investment for up to ten years due to the tax savings from existing depreciation rules. The only companies that would really get the full benefit of accelerated depreciation are the giant telcos that could use the tax savings from these new investments to shield profits from other parts of the company.

There is another part of the FCC document that has me scratching my head – where they discuss somehow using this new plan to support Smart Cities concepts. The first half of the FCC document talks about providing funding to build broadband for rural areas – and those are the last places where anybody will ever be thinking about smart city technologies. But perhaps the FCC is suggesting that the federal government should help to promote smart city concepts in addition to funding up to $80 billion for rural broadband. But I would hate to see money needed for rural America siphoned to the cities – not that they don’t need this, but it ought to be addressed in some other manner.

Another concept that puzzles me a bit is that the FCC suggests that tax credits could be used to encourage the repatriation of the trillions of dollars that US corporation are keeping overseas to avoid US taxes. Tax credits might be a great way in general to get that money reinvested back into the US. But I doubt that big companies like Apple and Google will want to invest in rural fiber with that money after they’ve repatriated it. Even with huge government support, rural broadband projects are only going to earn modest infrastructure level returns, at best.

Finally, this proposal has one glaring omission. The FCC makes the blanket assumption that places with 25/3 Mbps broadband today is set for future broadband. I know that the cable and other networks in small town America – in rural county seats, for example, are not at all the same as the networks in urban areas. While these smaller towns might have 25/3 broadband today there is no guarantee they will ever be further upgraded – the return on making such upgrades in tiny markets is miniscule. This program could produce what I call reverse donuts – great broadband to farms surrounding county seats with slower and older technology. That would be an unusual outcome of a plan like this.

Bottom line for me is that the goals established by the FCC are great. But I think it would be a huge mistake if they end up handing billions only to the big telcos, especially if the end vision is to use 5G to serve rural America instead of fiber. There are aspects of this plan that sound like they were written by AT&T and Verizon. It’s impossible to know if this document represents the old or new FCC regime, but I didn’t hear any outcry on its release and I suppose it is the vision of Chairman Pai and staff.

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