The Industry

Get Ready for Higher Interest Rates

The Federal Reserve recently raised its benchmark interest rate by 0.75%, the biggest increase since 1994. The interest rate is still low by historical standards, with the fed rate now at 1.75%. But there is a lot of talk among economists that the fed rate will likely increase to as much as 3.5% this year and possibly 4% next year.

The federal benchmark rate is the rate at which the Federal Reserve loans money to large banks, and the higher interest rates quickly permeate through the economy in the form of higher interest rates for commercial lending, car loans, mortgages, etc.

Refer to the graph below to see why I refer to current rates as still low. The federal reserve rate dropped to near to zero at the beginning of 2009 and has stayed incredibly low since then, other than a blip upward to 2.4% at the beginning of 2019. But the last time the fed rate was this low was in 1958, so the recent low rates have been an historical anomaly. After having enjoyed low interest rates for thirteen years, I think it’s obvious that most of the economy has come to take low rates for granted.

This is a particularly germane issue today because a lot of ISPs are considering borrowing large amounts of matching funds for broadband grants. Higher interest rates mean larger annual debt payments, and that can easily make the difference between a business plan being feasible and not feasible. For a new project to cash flow, the new customer revenues must be large enough to cover operating expenses plus the cost of debt.

Below is a simple table showing the annual debt costs for a $10 million loan – which would represent a 25% grant matching for a $40 million broadband grant project. Down the left are interest rates. Across the top is the loan term, in years. The values in the table are the annual debt payments. This makes it easy to grasp the impact of an interest rate increase. If you were hoping for a 15-year loan for $10 million at 4% and the interest rate increases to 6%, the annual debt payment climbs by $128,000.

Loan Term
Rate 10 15 20 25
3% 1,424,564 940,295 727,087 608,139
4% 1,485,278 1,001,437 789,933 673,091
5% 1,547,218 1,064,558 855,462 741,368
6% 1,610,359 1,129,601 923,565 812,785
7% 1,674,678 1,196,508 994,126 887,139

The chart also suggests the strategy to offset interest rate increases, which is to find longer-term debt. If that same 15-year loan at 4% can instead be financed for twenty years at the higher 6% interest rate, the annual debt payments would decrease by almost $78,000, even with the higher interest rate.

This is not to suggest that finding longer-term loans is easy. Most commercial banks don’t like making loans for longer than 10 or 12 years in length. There are specialty banks like CoBank and RTFC that will give out longer-term loans, but even they are not going to make long-term loans available to everybody. Most banks dislike tying up their equity in long-term loans.

The only group of borrowers that have a relatively easy time getting longer-term loans are municipalities. Federal bond law allows financing for terms up to the economic life of the assets being financed. I’ve routinely seen municipal bonds for fiber networks financed for terms as long as 25 or 30 years.

The bottom-line advice in a time of increasing interest rates is to make sure that you understand the implications for whatever project you’re thinking of funding. In past decades I can remember many times when increasing interest rates put projects on hold since they became impossible to pencil in. As you can see by the long-term fed chart, if you wait long enough, interest rates that go up will eventually come back down.

Unfortunately, grant projects are not going to allow borrowers to wait out a bad cycle of interest rates. You either take the higher-rate loan or you pass on the project. As an aside, the rising interest rates are another reason against asking for irrevocable letters of credit. Banks are not going to guarantee or lock in interests today if the money is going to be needed a year or two from now. An irrevocable letter of credit is worthless if the interest rate rises and the borrower can no longer afford the debt.

Economists have been saying for a number of years that interest rates need to return to the normal cycle. Much of the reason for low interest rates has been meddling b the government to force interest rates lower. But this return to normal rates couldn’t happen at a worse time for purposes of funding BEAD matching. It’s one more factor that is going to make accepting a big grant that much more expensive.

Regulation - What is it Good For?

Will Broadband Labels Do Any Good?

The FCC is still considering the use of broadband labels that are supposed to explain broadband to customers. This sounds like a really good idea, but I wonder if it’s really going to be effective?

Some of the items included on the FCC sample label are great. The most important fact is the price. It has become virtually impossible to find broadband prices for many ISPs. Many ISP, including the largest ones, only show special pricing online that applies to new customers. These ISPs show the public the sale prices, but it’s often impossible to know the list prices. It’s often the same if somebody calls an ISP – they’ll be offered different promotional packages, but it’s like pulling teeth to get the truth about the everyday price that kicks in at the end of a promotion.

I’m curious about how the broadband labels will handle bundling. The surveys we’ve done recently show that half or more of homes in many markets are still buying a bundle that might include broadband plus voice, cable TV, security, smart home, or cellular. Big ISPs have never wanted to disclose the cost of individual products inside of a bundle and I can’t wait to see how ISPs handle a bundled broadband product.

There are also hidden fees and other ways to disguise the real price. Disclosing pricing will be a huge breath of fresh air – if ISPs are forced to be totally honest. I can imagine the PR and marketing groups at the bigger ISPs are already agonizing over how to disclose pricing while still keeping it cloudy and mysterious.

More perplexing is the broadband speed issue. The sample label that the FCC circulated for comment would require ISPs to list the typical download speeds, typical upstream speeds, typical latency, and typical packet loss. What does typical mean? Consider a Comcast market where the company sells residential broadband that ranges between grandfathered 50 Mbps and 1.2 Gbps. What is the typical speed in that market? How will any consumer be able to judge what a typical speed means?

I’ve written about broadband speeds a lot, and for many technologies, the speeds vary significantly for a given customer during the day. What’s the typical broadband speed for a home that sees download speeds vary by 50% during a typical day? I don’t always want to come across as skeptical, but I’m betting that the big cable companies will list the marketing speeds of their most popular broadband product and call it typical. Such a number is worthless because it’s what customers are already being told today. I don’t have a proposed solution for the various speed dilemmas, but I fear that whatever is told to customers will be largely uninformative.

What will the typical consumer do when told the typical latency and packet loss? It’s hard to think many homes will understand what those terms mean or what the typical values mean.

ISPs are also supposed to disclose network management processes. Does this mean a cable company must be truthful and tell some neighborhoods that their coaxial cable is too old and needs to be replaced – because that is s specific network practice? Will a cable company tell a customer that their neighborhood node is oversubscribed, which accounts for slowdowns at peak times? I’m guessing the network management processes will be described at the total market level instead of at the neighborhood level – again, making them largely uninformative.

I’m also curious how the FCC will know if customers are being told the truth. Folks who read this blog might tell the FCC if a broadband label is deceptive or wrong – but what is the FCC going to do with such complaints? Broadband issues are often hyper-local, and what happens on my block might be different than somebody living just a few blocks away.

I want to be clear that I am not against the broadband labels. Forcing ISPs to be public with prices is long overdue, as long as they disclose the truth. But I’m skeptical about many other things on the labels, and I fear big ISPs will use the labels as another marketing and propaganda tool instead of disclosing what people really need to know.

Regulation - What is it Good For?

BEAD Matching Funds

Most of the published summaries of the BEAD grant rules state that the BEAD program will provide 75% funding, meaning a grant applicant must contribute 25% of the cost of the grant project. The reality is that the matching rules are more complicated than that simple rule. Following is a more detailed dive into the issue of BEAD matching.

Matching funds can come directly from the grant applicant or can be provided by local and state governments using funding from the CARES or the ARPA programs. The BEAD rules don’t allow matching contributions from other federal sources such as the FCC Universal Service Fund, ReConnect grants, or the RDOF subsidy awards. The BEAD rules allow federal broadband loans to be used to supply the matching funds.

While the grant rules allow matching to come from the CARES or ARPA money, there is a big catch. States are required to incentivize matching funds to be directly funded by entities with the financial wherewithal to make such contributions. This means a State might penalize an applicant with a good balance sheet from using state and local matching funds in an application. This is an interesting feature that means that big corporate applicants or other entities with a strong balance sheet probably should be prepared to directly fund all matching and not use other grants as matching. One way to think about this rule is that the NTIA wants to reward applicants that put skin in the game. They don’t want to see entities that come with 75% BEAD grants and 25% local grants. I know that the big ISPs and other strong entities like larger electric cooperatives are seeking to make partnerships to get access to local grant funds – but this rule might mean that is a bad idea.

There is another provision that I think a lot of grant applicants are going to find disturbing. States are required to incentivize matches of more than 25%. This brings an aspect of what feels like the reverse auction into the process, meaning entities willing to contribute higher matching will gain a preference over applicants bringing 25% matching. I label this as disturbing because this could be a way for the well-heeled giant ISPs to snag a lot of grant awards – they can outbid other applicants by bringing more than 25% matching funds. However, unlike a reverse auction, an outbid applicant gets no opportunity to amend their first proposal and make a counter-off. This makes the BEAD application feel like a blind, one-round reverse auction.

At the other extreme, a State has the ability to waive any matching requirements, particularly for small applicants or for areas with extremely high costs. If not done well, this could really gum up getting funding to high-cost areas. Would somebody offering a 5% match automatically beat somebody that is asking for the match waiver?

The BEAD grants also allow for in-kind matches. These are non-cash donations of property, goods, or services that meet federal audit standards. In-kind matches can be complicated and might include things like employee time or volunteer services; equipment; supplies; indirect costs; computer hardware and software; use of facilities; or waiver of fees associated with access to rights of way, pole attachments, conduits, easements, or access to other types of infrastructure. These are worth considering. For example, it would count as a non-cash in-kind match if a local government provided free permitting for a grant project.

These various matching rules add another layer of complication to the grant process. Applicants now have to worry if pursuing local matching funds from ARPA will hurt their chances of winning. Applicants must worry if some big ISP offers more than a 25% match to outbid them to grab a market. A lot of the answers to these questions will depend upon how a given state interprets the NTIA rules – it won’t be surprising to see these requirements handled differently by state. This means that it’s going to be vital to understand the nuances of what your state is proposing because the grant rules are not going to be the same everywhere.

The Industry

Bringing Broadband to the Arctic

The Arctic region has largely been left out of the broadband arena in the past due to the high cost of building last-mile broadband infrastructure. The primary broadband available in the region has been provided for decades by Iridium Communications, which provided only low-bandwidth connections capable of supporting satellite phones and low-bandwidth monitoring devices. The lack of broadband looks to be changing as multiple satellite companies are targeting the region as a good business opportunity.

Starlink and OneWeb already have polar-orbiting satellites that can serve the region. In fact, the original OneWeb business plan focused on the Arctic as its first priority due to the lack of competition.

Telesat has negotiated to connect to indigenous communities in the Arctic through a partnership with the Canadian government. The government has already provided some grants and last year announced a financing deal that will invest $690 million in preferred equity and $790 million in loans to enable Telesat Lightspeed to complete its low-orbit satellite constellation. The government will also receive warrants that can be exchanged in the future for additional shares of Telesat stock. This adds to the $400 million provided by the government of Quebec. The low-orbit constellation will begin with 298 satellites positioned to deliver speeds up to a gigabit across Canada.

SES plans to serve the Arctic with a fleet of medium-earth-orbit satellites that should start launching by the end of the year. MEO satellites deploy in orbits higher than 1,200 miles but closer than the geostationary satellites at 22,000 miles above the earth. The biggest challenge for these satellites is finding orbits that avoid the high-energy Van Allen radiation belts. The SES business plan is to provide high-bandwidth connections to remote places and in addition to the Arctic, will be pursuing broadband for cruise ships, cellular towers, and government networks.

The Arctic Satellite Broadband Mission (ASBM) is being built by Northop Grumman and is a joint venture between Inmarsat, the British satellite operator, the Norwegian Ministry of Defense, and the U.S. Air Force. These satellites are aimed at providing cellular telephone service and also supporting the military. Two satellites are scheduled to launch by the end of this year and will have highly elliptical orbits that will vary between 5,000 and 27,000 miles above the earth. The orbits can be changed to avoid radiation storms.

The Russian Satellite Communications Company (RSCC) announced plans to launch four satellites in highly elliptical paths within a few years to serve the far north polar regions. I have to wonder if these plans are on hold due to the severe economic sanctions in place against the country.

Satellite broadband is an awesome solution for places where there are likely to be no alternatives. I understand why rural residents of the U.S. are flocking to Starlink since, for many of them, it’s the only workable broadband solution on the horizon. I continue to wonder how satellite broadband will stay competitive in the lower forty-eight after the many grant-funded networks are finally built. But there will always be homes in the U.S. out of reach of landline networks or customers that don’t like the landline ISPs, so it would not be surprising to see the satellite companies with a small but steady customer base south of the Arctic for the long-haul.

But satellite broadband ought to dominate the Arctic for decades to come. It can bring decent bandwidth to remote places that may never be candidates for building landline networks. It will be an interesting change for the area as it goes from barely connected to fully connected.

The Industry

Should You Pursue the BEAD Grants?

I took part in a webinar last week for the NRTC that talked about the good, the bad, and the money issues with the upcoming BEAD grants. It was one of the better webinars I’ve participated in, and the panelists were full of great ideas and perspectives. At the end of the session, the last question asked, “How do you reconcile some of the impractical aspects of the BEAD grant processes with the reality of the market?” That question referred to the long list of issues with accepting the BEAD grant funding that was highlighted during the webinar. To mention just a few of them:

  • There are a number of grant provisions that are going to increase the cost of the grant. This includes things like getting an irrevocable letter of credit, having to pay prevailing wages, having to conduct an environmental and historical review, having to comply with Buy America, and an extensive (and probably expensive) grant preparation process. These might significantly increase the amount needed for matching funds.
  • The grant NOFO rules encourage States to award grants that offer the highest amount of matching funds. This brings in a reverse auction feel to the grants where ISPs willing to contribute more can likely win the grants.
  • There is a possibility of big issues with the FCC mapping that an applicant will have to navigate.
  • Grant funds are considered to be taxable income.

Any potential applicant is going to have a problem with these or other aspects of the grants. The question is really asking how far an applicant ought to go out of their comfort zone.

My response to the question was to get immediately get involved with your State broadband grant office. The various State broadband grant offices are in communication, and there is hope that if enough States push back that the NTIA might soften some of the most troubling aspects of the grant rules. States also have another option, which is to build friendlier rules into the State grant rules since, at the end of the day, each State gets to decide who wins the grant funding. ISPs need to provide specific feedback to State grant offices now so that they understand how troubling some of the grant rules are for potential applicants.

I still stand by that advice, but the instant the webinar was over, I realized that is only half of the answer. At some point, an ISP is going to have to determine if it can live with all of the grant requirements.

I haven’t talked to any ISP that isn’t uneasy about some aspect of the grant rules. My first advice to an ISP considering the BEAD grants is to take the time to consider the aspects of the grants that you find troublesome – then categorize them. Some grant issues are just annoyances that will make it harder to ask for the grants. But other issues are more serious, and every ISP will have its own list. You should separate the troubling issues into two categories – issues that will cause big headaches and issues that are potential deal stoppers and might make you decide not to bother with the BEAD grants.

Obviously, an ISP needs to publicly communicate about the issues that might cause you to bow out of the grant program. The States and the NTIA need to hear this because it will be a national embarrassment if good ISPs don’t ask for the grant money. The NTIA does not want to be labeled as having created the next RDOF plan.

But this list also means that an ISP is going to have some hard decisions to make. I already know ISPs that have decided that it’s not going to be worth jumping through all of the hoops to pursue BEAD grants. I’ve advised them to at least wait until their State files a plan that might take the edges off of the provisions that are troubling.

But at the end of the day, an ISP should not take grant money that will ultimately harm your business. For example, you can’t take a grant if you know the math doesn’t work. There are plenty of examples of ISPs that have gone south because they bit off more than they could chew by entering a market where they were not successful. If the numbers look bad, don’t assume that some future magic will somehow turn that around.

The final gut check before saying no to the grant funding is to understand what happens if the grant goes to somebody else. For example, if you are an electric cooperative, will you be okay if the grant instead goes to AT&T, Frontier, or a giant wireless carrier? It’s highly likely that somebody is going to pursue and win the grants in most of rural America. If you are a rural ISP and you don’t take part in the BEAD grant, you may never have another chance to expand your rural footprint. This is what makes this such a hard decision – for many ISPs it’s going to be either take grant money that includes a lot of problems and issues or else be locked out expansion in the areas around you.

Regulation - What is it Good For? Technology

The NTIA Preference for Fiber

As might be expected when there is $42.5 billion in grant funds available, we are probably not done with the rules for the BEAD grants. There are several areas where heavy lobbying is occurring to change some of the rules established by the NTIA in the NOFO for the grants.

One of the areas with the most lobbying is coming from WISPs that are complaining that the NTIA has exceeded its statutory authority by declaring a strong preference for fiber. The NTIA went so far as to declare that fixed wireless technology that doesn’t use licensed spectrum is not a reliable source of broadband and isn’t eligible for BEAD grants. The wireless industry says that the NTIA is out of bounds and not sticking to a mandate to be technology neutral.

I decided to go back to the Infrastructure Investment and Jobs legislation and compare it with the NOFO to see if that is true. Let’s start with the enabling language in the legislation. The IIJA legislation makes it clear that the NTIA must determine the technologies that are eligible for the BEAD grants. One of the criteria the NTIA is instructed to use is that grant-funded technologies must be deemed to be reliable. Reliable is defined in the Act using factors other than speed and specifically says that the term “reliable broadband service’ means broadband service that meets performance criteria for service availability, adaptability to changing end-user requirements, length of serviceable life, or other criteria, other than upload and download speeds.

I interpret ‘adaptability to end-user requirements’ to mean that a grant-eligible technology must have some degree of what the industry has been calling being future-proofed. A grant-funded technology must be able to meet future broadband needs and not just the needs of today.

‘Length of serviceable life’ refers to how long a grant investment might be expected to last. Historically, broadband electronics of all types typically don’t have a useful life of much more than a decade. Electronics that sit outside in the elements have an even shorter expected life, with components like outdoor receivers for wireless not usually lasting more than seven years. The broadband assets with the longest useful lives are fiber, huts, and new wireless towers. If you weigh together the average life of all of the components in a broadband network, the average useful life of a fiber network will be several times higher than the useful life of a wireless network.

NTIA then used the reliable service criteria to classify only four technologies as delivering a reliable signal – fiber, cable modem hybrid fiber-coaxial technology, DSL over copper, and terrestrial fixed wireless using licensed spectrum. Since DSL cannot deliver the speeds required by the grants, that leaves only three technologies eligible for BEAD grants.

The legislation allows the NTIA to consider other factors. It appears that one of the other factors the NTIA chose is the likelihood that a strong broadband signal will reach a customer. I speculate that fixed wireless using only unlicensed spectrum was eliminated because interference of unlicensed spectrum can degrade the signal to customers. It’s a little harder to understand which factors were used to eliminate satellite broadband. The high-orbit satellites are eliminated by not being able to meet the 100-millisecond requirement for latency established by the legislation. I would speculate that low-orbit satellites are not eligible for grants because the average life of a given satellite is being touted as being about seven years – but I’m sure there are other reasons, such as not yet having any proof of the speeds that can be delivered when a satellite network fills with customers.

From the short list of technologies deemed to be reliable, the NTIA has gone on to say several times in the NOFO that there is a preference for fiber. When looking at the factors defined by the legislation, fiber is the most future-proofed because speeds can be increased drastically by upgrading electronics. Fiber also has a much longer expected useful life than wireless technology.

The accusations against the NTIA seem to be implying that the NTIA had a preference for fiber even before being handed the BEAD grants. But in the end, the NTIA’s preference for fiber comes from ranking the eligible technologies in terms of how the technologies meet the criteria of the legislation. It’s worth noting that there are other parts of the NOFO that do not promote fiber. For example, state broadband offices are encouraged to consider other alternatives when the cost of construction is too high. I think it’s important to note that any NTIA preference for fiber does not restrict a state from awarding substantial awards to fixed wireless technology using licensed spectrum – that’s going to be a call to make by each state.

There is a lot of lobbying going on the expand the NTIA’s list to include fixed wireless using unlicensed spectrum and satellite broadband. I’ve even heard of rumors of lawsuits to force the expansion of the available technologies. That’s the primary reason I wrote this blog – as a warning that lobbying and/or lawsuits might delay the BEAD grants. I think the NTIA has done what the legislation required, but obviously, anybody who is being excluded from the grants has nothing to lose by trying to get reinstated in the grants. When there is this much money at stake, I don’t expect those who don’t like the NTIA rules to go away quietly.

The Industry

Here Comes FWA

Broadband industry statistics have been compiled by the Leichtman Research Group which provides an interesting new narrative for the industry. The biggest ISPs added just over one million new broadband customers in the first quarter of 2022, but half of the new customers went to the FWA products from Verizon and T-Mobile.

FWA stands for Fixed Wireless Access and is home broadband delivered using cellular frequencies. T-Mobile and Verizon are aggressively marketing the product, which is touted to have download speeds over 100 Mbps. The market is going to get hotter when Dish gets its launch underway soon. AT&T has also been promising a major new marketing effort to sell the product.

 1Q 2022 1Q Change % Change
Comcast 32,163,000 262,000 0.8%
Charter 30,274,000 185,000 0.6%
AT&T 15,533,000 29,000 0.2%
Verizon 7,400,000 35,000 0.5%
Cox 5,560,000 30,000 0.5%
Lumen 4,470,000 (49,000) -1.1%
Altice 4,373,200 (13,000) -0.3%
Frontier 2,819,000 20,000 0.7%
Mediacom 1,468,000 5,000 0.3%
Windstream 1,176,000 11,300 1.0%
Cable ONE 1,057,000 11,000 1.1%
T-Mobile FWA 984,000 338,000 52.3%
Breezeline 719,608 2,830 0.4%
TDS 495,200 4,900 1.0%
Verizon FWA 433,000 194,000 81.2%
Consolidated 380,150 (850) -0.2%
   Total 109,305,158 1,065,180 1.0%
Total Cable 75,614,808 482,830 0.6%
Total Telco 32,273,350 50,350 0.2%
FWA 1,417,000 532,000 60.1%

FWA was originally touted as the replacement for rural DSL. However, both T-Mobile and Verizon report having success selling the product in urban areas and competing with cable companies. This means that FWA success is going to bring down customer counts for other ISPs.

Over the past several years, Comcast and Charter have been accounting for most of the growth in broadband customers. In the first quarter, the two FWA providers and Comcast and Charter together account for 92% of net increases in broadband customers.

There are some interesting numbers inside this report.

  • Frontier has clearly turned it around after steady losses for several years and saw growth of 0.7% for the quarter.
  • The big loser is now Lumen, which lost over 1% of its broadband customers in the quarter.
  • We know that AT&T has been selling fiber connections at a hot pace but is still seeing significant losses of DSL customers to net out at a small positive growth.
  • The biggest percentage gainer among landline companies for the quarter is CABLE ONE, with quarterly growth of 1.1%.
  • Altice continues to struggle and lost broadband customers for the quarter.
Regulation - What is it Good For?

Reducing Construction Barriers

One of the most interesting sections of the BEAD NOFO requires that states must define how they are going to make it easier for grant recipients to implement broadband solutions. Specifically, the BEAD NOFO requires states to try to “reduce costs and barriers to deployment, promote the use of existing infrastructure, promote and adopt dig-once policies, streamlined permitting processes and cost-effective access to poles, conduits, easements, and rights of way, including the imposition of reasonable access requirements.

These are all great ideas, but I have to wonder if whoever wrote that understands how hard it is for a state to change any of these policies. Certainly, there is no state broadband grant office with the power to effectuate any of these changes – is this section of the NOFO aimed at legislatures?

Some states have wrestled with these issues for many years. Consider pole attachment and issues related to streamlining the process of building fiber on poles. At my last count, twenty states have adopted their own state rules for the processes related to pole attachments.

I have been involved in several state proceedings looking at pole attachment issues, and this is not something that any state can change quickly. Changing any of the rules associated with pole attachments means opening a docket and soliciting ideas from the parties involved. Since most poles are owned by electric companies, any proceeding brings in the full lobbying power of the electric companies to not do anything rash. It’s also debatable if a state can implement a radical pole attachment rule that is too far out of bounds with FCC rules – since the FCC requires state rules to still adhere to many FCC standards.

For the FCC to consider changing pole attachment rules would take even longer. The FCC has tackled this a few times, and as you might imagine, looking at this issue from a national perspective is hard since pole attachment issues vary widely by locality. The biggest issue with changing pole attachment rules is the lobbying power of the other parties that use the pole – the telcos and cable companies. While they build a lot of fiber, they don’t want to see it be easier for their competition to build fiber.

It’s hard to imagine finding a way to universally streamline permitting in a state. It’s easy to understand why fiber builders don’t like the hodgepodge of permitting rules since every local jurisdiction has its own set of permitting rules and processes. But there is probably not a lot of interest by ISPs to let a State set universal permitting rules – in many states, the permitting rules for building along state highways are some of the most onerous, costly, and time-consuming. I also doubt that many states could declare jurisdiction over permitting since most state constitutions grant authority over local infrastructure to local governments.

The one change on the NTIA list that would have the most impact would be a requirement to make it easy to use existing infrastructure. There are existing fibers running through almost every rural county that is off-limits to anybody that wants to build last-mile fiber. It’s owned by telcos, cable companies, cellular carriers, and electric utilities – and all would fight tooth and nail against having a mandate to give access to their spare fibers. There is also a lot of fiber owned by state governments, local governments, and school boards. Interestingly, in most states, the legislatures have put these government-owned fibers off-limits for commercial purposes – all due to the lobbying effort of the existing ISPs. This requirement from the NTIA would be asking state legislatures to reverse the rules they put into place and have followed for decades.

Every list about infrastructure efficiency always suggests dig-once as a solution for reducing the cost of building fiber. This policy might have made a difference for the current grants if it was implemented twenty years ago, but implementing dig-once now would have very little impact on building BEAD grants if the requirement went into place tomorrow. Even if dig-once is implemented, it’s unlikely that a state policy will require the extra cost to add frequent access points along buried conduit – and without the access points, buried conduit is often nearly worthless for building last-mile fiber.

I completely understand the sentiment behind this requirement, but I think that state broadband offices are all going to tell the NTIA that these issues are not under their control. I find it a bit ironic that the NTIA wants states to take steps to make it easier and more affordable to build fiber while the NOFO layers on a lot of requirements that significantly inflate the cost of building a BEAD grant network.

The Industry

Q1 Broadband Usage Still Robust

The OpenVault Insights Report for the first quarter of 2022 shows that broadband usage remains high. The company gathers broadband usage data through ISPs from millions of individual broadband users to compile these reports, making the results a lot more reliable than a typical small sample.

Average household broadband usage in March 2022 was measured at 514 gigabytes, staying over half a terabyte of data used for the average household. That’s a measure of the total combined upload and download usage for the average customer during a month. This is a drop from 536 gigabytes in the fourth quarter of 2021, but the first quarter has always shown seasonally lower usage than at the end of the previous year. Usage for the first quarter is up 11% from the 462 gigabytes in the first quarter of 2021. That’s a lower growth rate than the 20% growth rate we’ve come to expect – however, 2021 was not a normal year due to the extraordinary growth from the pandemic.

The OpenVault statistics continue to show a huge number of users that are consuming more than 1 terabyte of data per month. At the end of the first quarter, 14.6% of homes used more than 1 terabyte of data, including 2.4% who used over 2 terabytes. That’s a significant increase since the first quarter of 2021 when 10% of homes used more than 1 terabyte of data – a year-over-year growth rate of 46%.

One of the most interesting statistics reported by OpenVault is the migration of customers over time to faster broadband tiers. The following table shows the percentage of nationwide households subscribed to various broadband speed plans in 2020 and 2021.

June 2020 June 2021 Dec 2021 Mar 2022
Under 50 Mbps 18.4% 10.5% 9.4% 7.6%
50 – 99 Mbps 20.4% 9.6% 7.6% 6.3%
100 – 199 Mbps 37.8% 47.5% 36.9% 17.0%
200 – 499 Mbps 13.5% 17.2% 28.5% 49.7%
500 – 999 Mbps 5.0% 4.7% 5.5% 6.1%
1 Gbps 4.9% 10.5% 12.2% 13.4%

It’s important to note that the above chart shows the subscribed speed and not the actual speeds, which are often lower. The migration to faster speeds is being driven by two factors. One is the big cable companies unilaterally upgrading basic speeds to 200 Mbps. But many of the speed upgrades are customer driven, as can be seen by the big growth in customers subscribed to speeds faster than 500 Mbps.

The report also highlights something that network engineers have always understood, which is that big events cause big spikes in usage. I’ve understood this since the days since telephone company network engineers braced themselves for Mother’s Day. OpenVault looked at the usage in Kansas City during the NCAA March Madness basketball game between Kansas and Duke. The regional usage spiked 24% during the game compared to the previous three Mondays.

The report, as always, has a few other interesting tidbits:

  • Average North American usage is more than double the average broadband usage in Europe.
  • In 2017, less than 10% of homes used more than 500 gigabytes of data per month. That’s now up to 25% of homes.
  • Average household upload usage has grown from 25 gigabytes at the end of 2020 to 32.5 gigabits at the end of the first quarter of 2022. That’s a 30% increase in 15 months. Interestingly, subscribers with unlimited data plans use three times more upload bandwidth than other subscribers.
  • OpenVault reports average nationwide U.S. download speeds of 312 Mbps, and average upload speeds of 22.5 Mbps. However, they don’t define how that is calculated, so it’s hard to put that into context.

OpenVault’s conclusion from the latest data is that ISPs should expect the continued growth of customers who use more than a terabyte of data per month. They also note that there is a marketing opportunity for ISPs since customers seem willing to pay to upgrade to faster speeds.

The Industry

The Digital Equity Challenge

It’s hard to look anywhere in the broadband industry today and not hear about digital inclusion. One big reason for this is the two giant grant programs created by Congress in the Infrastructure Investment and Jobs Act to tackle digital equity issues. The first is the State Digital Equity Capacity Grant Program, that will allocate $1.5 billion to the States for this program – that’s $300 million per year from 2022 through 2026. The second is the Digital Equity Competitive Grant Program. This grant program of $1.25 billion will be administered directly by the NTIA and will award $250 million per year from 2022 through 2026.

As I talk to folks, I’m starting to understand that a lot of people don’t really understand what digital equity means. Twenty years ago, we referred to this as the digital divide. The folks working with the digital divide issue came up with a three-legged stool analogy to describe the way to tackle the issue – make sure homes have a computer, make sure they have the training to use the computer, and get them connected to broadband.

These three steps haven’t changed. Unfortunately, we have twenty years of experience that shows that very few communities have made a big dent in the digital divide. There are communities that have been successful in solving parts of the three-legged stool – but not the whole thing. We now have a large amount of grant funding that can help communities finally make a real difference with digital equity.

One thing we’ve learned is that you have to solve all three issues for a given household to bring them into the digital world. It doesn’t do any good to provide the help needed to navigate the paperwork to get the $30 discount with the ACP program for a house that doesn’t have a computer. It does no good to give a computer to people who don’t know how to use it.

I remember twenty years ago that a lot of communities had free basic computer courses. But over the years, that kind of basic training seems to have melted away. This is partially due to an erroneous assumption that most adults know how to use computers. But I also think the training back then being wasn’t relevant to what people wanted from a computer, and instead tended to do things like teaching folks how to use Excel and Word.

Librarians can tell you how to do this the right way. People don’t ask for generic computer training in the library – they usually want to accomplish a specific task on the computer. That might mean applying for a specific job, looking up ancestors, using social media, or learning about a hobby. A librarian will tell you that helping somebody achieve a specific goal is the best way to demystify the Internet and to get people over any fear of using the computer.

These giant federal grants can help communities tackle this in the right way. A full digital equity plan might include somebody who can help folks navigate the ACP subsidy plan to choose and subscribe to a broadband product. The grants can be used to create a sustainable program to make sure homes can get computers. And a plan can provide trainers who can help individuals learn how to use the Internet to do the things that are most relevant in their lives.

Several colleagues have been telling me stories of the right way to train somebody to use the Internet. For example, one recent story I heard was about helping a young man develop the specific computer skills needed to land a higher-paying job. That kind of training can be transformational. That kind of result is not going to come from generic training courses in a computer lab – but with one-on-one training to help people achieve a specific goal. The whole community is better for every person lifted into digital literacy.

I guess the bottom line of this discussion is that the funding is available to put together comprehensive programs that can work. But it’s going to take a coordinated effort in a community to make real headway with digital equity. It’s going to be sad if communities use the one-time grant funding to tackle only one leg of the digital divide – we’ve been trying that approach for decades with only limited success. The good news is that there are people who know how to do this the right way – find them as soon as you can.

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