Where’s the CAF II Success?

If you’ve read this blog you know I’ve been a big critic of the FCC’s CAF II program that gave over $10 billion in federal subsidies to the biggest telcos to improve rural broadband. My complaint is that the program set the embarrassingly low goal of improving rural broadband to speeds of at least 10/1 Mbps. My complaint is that this money could have done a huge amount of good had it been put up to reverse auction as was done with the leftover customers from this program last year – many ISPs would have used this funding to help to build rural fiber. Instead, the telcos are using the money mostly to upgrade DSL.

While I think the program was ill-conceived and was a giveaway to the big telco lobbyists, I am at least glad that it is improving rural broadband. For a household with no broadband, a 10 Mbps product might provide basic access to broadband services for the first time. We are now into the fifth year of the six-year program, so we ought to be seeing the results of these upgrades. USTelecom just published a blog saying that deployments are ahead of schedule and that CAF II is a quiet success.

The telcos have told the FCC they are largely on track – by the end of 2018 they should have upgraded broadband for at least 60% of the required households. AT&T and Windstream report that they have made at least 60% of the needed upgrades everywhere. Frontier says they are on track in 27 of the 29 states needing upgrades. CenturyLink says they are on track in only 23 of 33 states that are getting CAF II upgrades. According to USTelecom, over 2.1 million households should now be seeing faster speeds.

It’s also worth noting that the CAF II program should improve broadband for many more households that are not covered directly by the program. For example, when upgrading DSL for a CAF II area that surrounds a town, those living in the town should also see better broadband. The secondary benefit of the CAF program is that rural towns should be seeing speeds increasing from 6 Mbps or slower to as fast as 25 Mbps. By now many more millions of households should be seeing faster broadband due to CAF II.

What I find puzzling is that I would expect to see an upward burst of broadband customers for the big telcos because of CAF II. But the numbers aren’t showing that. There were four telcos that accepted more than $1 billion from the program, as follows, and three of them lost broadband customers in 2018:

Funding Households Per Household 2018 Broadband Customers
CenturyLink $3.09 B 1,190,016 $2,593 (262,000)
AT&T $2.96 B 1,265,036 $2,342 (18,000)
Frontier $1.7 B 659,587 $2,578 (203,000)
Windstream $1.07 B 413,345 $2,595 8,400
Total CAF II $10.05 B 4,075,840 $2,467

Windstream is the only telco of the four that gained customers last year. Windstream’s footprint is probably the most rural of the four telcos. We know that every telco is losing the battle for customers in towns where cable companies are increasing speeds on coaxial networks. Windstream seems to be offsetting those losses, and I can conjecture it’s because they have been selling more rural broadband.

AT&T is in a category all by itself. It’s impossible to know how AT&T is faring with CAF II. They are largely implementing CAF II using their cellular network (with the goal of tearing down rural copper). The company has also been deploying fiber past millions of homes and business in urban areas. They are clearly losing the residential broadband battle in urban markets to companies like Comcast and Charter. However, I can tell you anecdotally that AT&T hasn’t given up on urban copper. They have knocked on my door in Asheville, NC at least three times in the last year trying to sell DSL. I have to assume that they are also marketing broadband improvements in rural areas.

CenturyLink and Frontier are clearly bleeding broadband customers and each lost over 200,000 customers just in the last year. I have to wonder how hard these companies are marketing improved rural broadband. Both companies work in urban and suburban markets but also in numerous county seats situated in rural counties. Like every telco they are losing DSL customers in these markets to the cable company competitors.

Just like I have anecdotal evidence that AT&T is still pushing copper I hear stories that say the opposite for CenturyLink and Frontier. I worked in a few rural counties last year where the CAF II upgrades were reported as complete. And yet the communities seemed unaware of the improvements. Local politicians who bear the brunt of complaints from households that want better broadband weren’t aware of any upgrades – which tells me their rural constituents weren’t aware of upgrades.

I honestly don’t know what this all means. I really expected to find more positive evidence of the impact of CAF II. From what I know of rural America, households ought to leap at the opportunity to buy 10/1 Mbps DSL if they’ve had no broadband in the past. Are the upgrades being done but not being followed up with a marketing and public awareness campaign? Are actual upgraded speed not meeting the 10/1 Mbps goal? Are the upgrades really being made as reported to the FCC? We’re perhaps a year and a half away from the completion of CAF II, so I guess we’ll find out soon enough.

3 thoughts on “Where’s the CAF II Success?

  1. I’m the President/CEO of Midwest Energy & Communications, a rural electric cooperative headquartered in Southwest Michigan. We started our FTTH project fully in 2015 and have been building 400 miles of main line fiber every year. We currently have 9,500 subscribers and adding approximately 60 per week. We happy to say that we have lessened the burden on both cable and copper providers without $1.00 of USF/CAF support!!

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    • Makes you wonder hard if the giant telcos ever needed CAF II money. If they had been good corporate citizens they would have reinvested profits to maintain the copper better and to eventually replace it with fiber. They sucked huge profits out of rural America over the last 40 – 50 years.

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      • I think it’s clear that they never needed the money. My own numbers show that if I had ten year pay back terms on network roll outs I could then upgrade them cyclically based on their own revenue and show a handsome profit doing it. It’s no wonder they won’t let us get into any of the funds; the Local ISP market would eat their lunch with 10 billion in long term funding. They can’t even connect a few more houses for that price.

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