CBRS Auction Winners

The FCC held a recent auction for the  3.5GHz Citizens Band Radio Spectrum (CBRS). The auction went for 76 rounds and raised over $4.5 billion for the FCC. This auction was unique in that spectrum was licensed at the county-level awarding up to seven licensed 10 MHz channels in each county. Each PAL (Priority Access License) is good for 10 years.

CBRS spectrum can be used in several applications. The spectrum has good field operating parameters and falls in the middle between the two existing blocks of spectrum used for WiFi. This makes the spectrum ideal for rural point-to-multipoint fixed wireless broadband since it can carry a decent amount of bandwidth for a decent distance. The best aspect of this spectrum is that it’s licensed and will largely be free from interference. For the same reasons, this is also a good spectrum for cellular data.

The biggest winner in the auction was Verizon which spent $1.89 billion on the spectrum. The company landed 557 PALs licenses in 57 counties. The company needed this spectrum to fill-in mid-range spectrum for 5G. Verizon has also recently announced a fixed cellular broadband product for rural homes and this spectrum could provide an interference-free way to deliver that product from rural cell sites.

As expected, Dish networks was also a big winner and will be paying $913 million for CBRS spectrum. As the newest nationwide cellular carrier, the company needed this spectrum to fill in the holes in the cellular spectrum it already controls. The other traditional cellular companies were a no-show. AT&T didn’t buy any of the CBRS spectrum. T-Mobile only purchased 8 PALs licenses in six counties.

The largest cable companies scored big in the auction. Charter bought $464 million of spectrum, Comcast is paying $458 million for spectrum, and Cox purchased $212 million of spectrum. As the newest entrants in the cellular business, Comcast and Charter have been buying wholesale cellular broadband from Verizon – this spectrum will let them shift to their own cell sites for a lot of cellular traffic. There is also speculation that cable companies might be planning on using the new spectrum to launch a fixed-wireless product in the rural areas surrounding their cable properties. Both Charter and Cox have entered the upcoming RDOF auction that is awarding $16.4 billion for rural broadband and the companies might be planning on using this spectrum to cover any areas they can win in that reverse auction.

One of the smaller cable companies, Midcontinent Communications, spent over $8.8 million for PALs licenses. Midco already won sizable rural grants to deploy 100 Mbps broadband in Minnesota and the Dakotas. This spectrum will help the company meet those grant pledges and perhaps allow it to pursue RDOF grants.

There were a few other large bidders. One was Nextlink which provides fixed wireless broadband today in Texas, Oklahoma, Kansas, Nebraska, Iowa, and Illinois. Windstream purchased over 1,000 PALs and the traditional telco is likely going to replace aging rural copper with wireless service, while also possibly be expanding into new service territories with fixed wireless. SAL Spectrum LLC won 1,569 PALs. This company owns numerous other blocks of spectrum and it’s not clear who the user of this new spectrum might be.

The biggest news is that the auction allowed smaller bidders to win licensed spectrum. There were 228 different winners in the auction, most of which are small WISPs, telcos, and electric cooperatives. These entities benefited by the FCC’s willingness to auction the spectrum at the county level. Most previous wireless spectrum was allocated using much larger footprints, which kept small bidders from acquiring spectrum.

Broadband and New Factories

There is a lot of talk across the political spectrum about the need to bring manufacturing back to the US. The pandemic has made it clear that the US is far too dependent on other countries that make the things we need to succeed. I found it painful back in March and April watching governors pleading with foreign countries to ship us the basic supplies needed to test for the coronavirus.

Medical supplies are just the tip of the iceberg and as a country, we’ve outsourced goods across the spectrum. It’s disappointing to look at the iconic American companies that no longer make their goods in the US. We’ve outsourced Schwinn bikes, Rawlings baseballs, Levi jeans, Converse All-star sneakers, Fisher-Price toys, Samsonite luggage, Brach’s candy, Fender guitars, Dell computers, Black & Decker and Craftsman tools, Radio-Flyer red wagons, and even America Girl and Barbie dolls.

Over 60,000 US factories have shut since 2001 when China joined the WTO. Manufacturing jobs at the end of WW2 II represented over 60% of all jobs in the US economy, and that has dropped today to under 9%. The reasons we’ve lost American factories are complex. While much of it can be blamed on manufacturers chasing higher margins through lower labor costs, many US factories also grew old and obsolete as owners didn’t put profits back into modernization. The strong US dollar has often contributed to US-made goods being at a disadvantage on world markets.

The current administration has made it a priority to create American manufacturing jobs and has succeeded in adding back about 900,000 manufacturing jobs since the start of 2017. Joe Biden in his recent presidential acceptance speech talked about creating policies that would create 5 million new manufacturing jobs. The pandemic has made it clear to politicians on both sides of the aisle that we need to manufacture critical goods like drugs and electronics in this country again. It’s insane for the country to have to rely on others for basic commodities like medicines.

The question I ask today is if communities in America are ready for new factories? New factories are different than traditional factories. New factories will almost universally include at least some level of automation. New factories will require a fast and secure broadband connection. Factories today are tied into the cloud for much of the software they use. They use the Internet to interface real-time with suppliers and customers. Factories are often connected to other branches of the company that collaborate over broadband in real-time.

Any community that wants to attract new factories must have great business broadband. That means not only fiber to connect to the business parks where factories are located, but it means diverse fiber routing so that a factory doesn’t lose broadband if somebody cuts a fiber inside of a city. It also means having diverse Internet routes leaving a city so that a fiber cut doesn’t isolate broadband. Factories are not going to locations where the Internet connections are not iron-clad.

Many communities I work with are still working to solve the first issue, which is to build the basic fiber infrastructure. We always hear about communities that have made the big plunge to build fiber to everybody in town, but there are far more communities that have quietly found ways to bring fiber to industrial parks and other key employers.

However, building fiber to business parks is only half of the needed solution. It’s just as important to a community that the fiber connection between the community and the Internet is secure. Factories really don’t care if the reason for fiber outages is inside or outside the community – they want to locate in places where broadband connections are virtually guaranteed.

Unfortunately, many communities are served by poor middle-mile networks that make the community susceptible to Internet outages. This blog from May talks about the counties in northwest Colorado that have suffered as a region every time there has been an outage on CenturyLink’s middle-mile fiber. It was fairly common for a fiber outage in the region to knock out broadband to the whole region and the key infrastructure like hospitals, law enforcement, and factories. These communities banded together to construct Project THOR – a fiber network built to guarantees that a fiber cut or an electronics outage doesn’t disrupt broadband.

If we are going to see a resurgence of new factories, then communities need to make an honest assessment of the local and regional broadband capabilities and vulnerabilities. Cities that have sound broadband infrastructure need to be crowing about it, and communities with gaps in Internet capability need to get in gear and find ways to solve broadband problems. If we indeed see a flood of new factories being built, it might be a once-in-a-generation event, and cities don’t want to miss out due to not having decent basic fiber infrastructure.

Data Usage Remains Robust in 2Q20

OpenVault recently published its Broadband Insights Report for the second quarter of 2020. Since OpenVault’s software is used to track usage in major Internet POPs, the company has a unique perspective on broadband usage in the country.

The report says that the peak of data usage this year was in March when people first reacted to the pandemic. Data usage is down slightly compared with the first quarter, but still much higher than data usage a year ago, In the second quarter the average home used 380 gigabytes of data per month. This is down 6% compared to the average usage in March 2020 of 403 gigabytes. But the second quarter data usage is up 36% over the average usage of 280 gigabytes per household used in the second quarter of 2019. Before the pandemic, household broadband usage was growing at a rate just above 20% annually, so the 36% growth in a year demonstrates the huge impact on the pandemic on broadband.

Median data usage has increased even faster than average usage. The median usage measures the middle point where half of homes use less and have of homes use more broadband. The median usage in the second quarter of 2019 was 144 gigabytes and has grown 54% in a year to 223 gigabytes. This indicates that even households that previously would have been light data users are now using a lot more data during the pandemic. This likely can comes from both increase cord-cutting as well as from students and adults working from home.

OpenVault reports that usage for homes with unlimited broadband plans (no data caps) grew even faster and increased by 42% over 2019. The company surmises that the big increase is at least partially because the big ISPs are not enforcing data caps during the pandemic. However, part of this increase is also likely due to an increase of what OpenVault calls power users. These are homes that use more than 1 terabyte of data per month.

In the second quarter 8.7% of homes used at least 1 terabyte of data per month, more than double the 4.1% of terabyte homes a year earlier. This now includes 1% of all homes that are using more than 2 terabytes of data, triple since a year earlier in 2019.

One reason for the higher data usage might be explained by households subscribing to faster data plans. At the end of the second quarter, 4.9% of homes are now subscribed to gigabit data speeds, more than double the 2.1% of gigabit subscribed in the second quarter of 2019. Over 61% of homes in the country are now subscribed to broadband speeds greater than 100 Mbps. That includes 37.8% subscribed to plans between 100 Mbps and 200 Mbps, 13.5% subscribed to plans between 200 Mbps and 400 Mbps, 5% subscribed to speeds between 400 Mbps and 900 Mbps, and 4.9% subscribed to gigabit speeds. Less than 20% of homes nationwide are subscribed to plans slower than 40 Mbps.

There is one segment of broadband usage that continued to increase in the second quarter of 2020. Upload usage from homes is up 56% over a year earlier. Upload demand is directly related to the need to connect for homes to connect to school and work servers and to take part in Zoom and other video conferencing services. It’s likely before the pandemic that many homes had never much needed the upload link from home.

What is most intriguing about the continued increase in upload demand is that upload usage continued to grow even after school semesters were ending for the year. During the second quarter tens of millions of upload links to school servers would have gone quiet as school semesters ended, and yet upload demand continued to grow. It’s going to be interesting to see what the fall school semester does to broadband usage.

The Other Homework Gap

I snagged today’s blog title from Christopher Ali, a professor in the Department of Media Studies at the University of Virginia. He recently wrote an article for the Benton Institute for Broadband & Society that reminds us that there is a second homework gap in addition to the one in K12 schools. There are almost 20 million college and graduate students across the country, most of which have been recently been notified that most or all of the fall semester this year will be done online.

Secondary education has already been in the process of migrating online. Eduventures estimated that the percentage of students already tackling an online degree before the pandemic was 29% of those pursuing an associate’s degree, 42% for a bachelor’s degree, 27% for a master’s degree and 3% of those working towards a doctorate. In the fall of 2020, nearly all secondary students will have some or all of the curriculum online.

Most college and university campuses have good broadband. Most campuses across the country are connected with fiber, coming in part from the effort by the folks at Internet2 which connects 321 universities to transmit data between campuses at gigabit speeds. Most college campuses have good broadband to classrooms, dorms, along with campuswide WiFi that enables students to easily connect to university data networks.

But the pandemic has sent college students home for the fall semester where they will have to take coursework online. Far too many students come from homes without good broadband. We’ve known for years that there are millions of rural homes without good broadband. But it’s easy to forget that 10% to 30% of the homes in various urban markets have no broadband, at home, mostly due to affordability issues. Ali says there are still 42 million Americans without home broadband.

In many states, school systems are finding broadband solutions for K12 students without broadband. Almost every state and county I’ve talked to since the start of the pandemic has one or more programs to connect K12 students. Many are providing cellular hotspots. Unfortunately, this is not always a great solution since many rural homes also don’t have a good cellular signal. Other schools are spreading hotpots around the community so that students can drive or walk to get broadband access. But nobody is making these same efforts for college students. These students are largely on their own, and there is no doubt that the lack of broadband will cause students to drop out of school.

Since broadband research is Ali’s field, he’s sensitive to the plight of his students and has designed a curriculum that will work for students who can get only rudimentary access to broadband. He’s prerecording classes so that students can download files rather than having to make a 2-way video connection. He’s gone old-school and has enabled group chats as a low-bandwidth way to have a dialogue with students.

But most college professors are not accommodating students without broadband. I have a daughter who is a senior at Texas Tech, and she tells me about the challenges of doing classes online. For example, she took a class in American Sign Language in the spring semester which become extremely challenging when moved online in the middle of the semester. Her professor is deaf and all communication during the course is done using sign language – which is hard to make work with twenty students online at the same time. She also has been taking science classes with labs that have been watered down due to going online. There are some aspects of college courses that will never translate well into an online format. It’s hard to picture how students taking a dance class, an anatomy dissection lab, or an advanced electronics lab class can transition easily to online. Some topics require hands-on experience.

At some point we’ll be out of the pandemic and back to normal, whatever that might come to mean. A big concern for universities is that they might lose a substantial portion of their current student population who are unable to keep up online. There are no easy answers to this dilemma, other than perhaps the kinds of steps that Ali is taking to accommodate students with low bandwidth. Universities can’t easily tackle the same solutions as K12 schools because their student base is likely dispersed widely. Universities are scrambling to figure this out, but if they don’t have a broadband contingency plan in place by now it’s too late for this school year.

The Impact of a Work-at-Home Economy

Analysts at the Federal Reserve Bank of Atlanta looked at the long-term impact of working from home on the economy and ranked different parts of the economy on two factors related to working at home – the likelihood that an area will generate a lot of work at home opportunities, and the ability of an area to support a work-at-home economy.

The premise behind the study was that we are likely to see much higher levels of people working home after the end of the pandemic. The pandemic has allowed employers of all types and sizes to see the impact on their business of having people work from home. It’s been widely reported that many businesses have seen no negative effects of having employees working from home, and many have reported increased productivity. Employers that are able to continue with work at home policies have been sharpening their pencils and have realized the amount of money they can save by downsizing or eliminating costly office space.

Businesses have also found that many employees like working from home. Workers are enjoying the savings from eliminating costly commutes, from not having to dress for work, and from not spending money on lunches. People love the gained freedom to take care of home tasks during the day while still working, and the relief from being near to family and kids instead of at a job site.

The study began by looking at what it called the impacted employment share. Researchers looked at the sectors that are being most negatively impacted by the pandemic, such as tourism, hospitality, travel, manufacturing, and agriculture. The sector impacts were then layered onto states to see which states are having the biggest negative job impact from the pandemic. The states with the biggest percentage employment impact are Wyoming and Nevada, with 62% of employees in sectors that are affected negatively by the pandemic. At the other end of the scale was New York where only 42% of jobs are in sectors that are negatively impacted by the pandemic.

The study then looked at the percentage of jobs that might reasonably be moved home in each part of the country. This was also done by sector, and sectors of the economy that can most easily accommodate moving workers home include financial services, information technology, and knowledge-based businesses. This sector analysis was also layered onto states and individual markets. The analysis showed the areas that were least able to migrate jobs to the home include Yakima, WA, and Salinas CA, where only 20% of existing jobs can be done from home. The highest places include San Jose – Sunnyvale – Santa Clara CA, Bloomington, IL, and the Washington DC metropolitan area where 32% of jobs could be transitioned to working from home.

Finally, the study combined the analysis to identify states that are the best and worst positioned to handle a work-at-home economy. This final analysis brought in data such like the availability of good broadband that can support working from home. The researches judged states not only by the availability of broadband but also by broadband subscription rates. Markets around the US vary between 12% and 23% in terms of homes without a broadband subscription, and that tracks well with income and poverty levels. The researchers reasoned that local economies with low broadband subscription rates are less likely to support a work-from-home economy.

The study also considered the percentage of homes that only connect to the Internet by cellphone, which ranged from a low of 7% in New Hampshire to a high of over 20% in Mississippi. They reasoned that people using cellular as the only source of broadband are not positioned to work from home. Finally, the study recognized that there are many rural communities without access to good broadband.

The bottom-line conclusion of the report is that states differ significantly by the ability to move jobs home to help weather the pandemic. A second conclusion is that no state is fully ready to handle the pandemic. For example, New York has over 41% of jobs negatively impacted by the pandemic but has less than 30% of jobs that could be transitioned to home. But New York is still far better off than states like Wyoming and Nevada where over 62% of jobs are negatively impacted by the pandemic and less than 25% of the jobs in the state could be transitioned to working from home.

The study doesn’t draw any conclusion beyond compiling the facts. It’s study has clearly identified states that are going to have the hardest time coping if the pandemic continues. What we know from past economic upheavals is that people follow jobs. If the US economy is going to have a larger percentage of people working from home in the future, it stands to reason that people are going to want to live in places where they can be hired for the work-at-home economy and where there is sufficient and affordable broadband to allow them to do so.

A trend towards working from home is going to change migration patterns within the country. We’ve seen decades of people migrating south to find manufacturing jobs as factories in the north went under and new jobs were created in the south. People may not have to contemplate such long-distance migration in the future, but the work at home trend presages increased short-distance migration from areas with poor broadband to areas with good broadband. A community without good broadband has to view the work-at-home trend with dread because the data in this report hints at a continued outflow of workers, a continued brain drain of young people, lower housing values, and all of the other negative aspects of an area in economic decline. We no longer need a strong economic argument for improving rural broadband – it’s staring us right in the face.

Telemedicine and Broadband Access

North Carolina’s Broadband Infrastructure Office and the NC Department of Health and Human Services published a 77-page report that compares the state of healthcare and broadband access in Western North Carolina. I expect to soon see similar reports from around the country as States are taking a hard look at broadband access and related issues.

Western North Carolina is in Appalachia and has higher rates of poverty than the rest of the state. Many of the counties in the region had economies driven by coal extraction and related supply chains. These areas were already seeing economic devastation before the pandemic.

As might be expected, the report shows that deaths from diabetes, stroke, heart disease, opioid use, COPD, and unintentional injuries are higher in western North Carolina than in the state’s metropolitan areas. The region has far fewer doctors per 10,000 population than the rest of the state.

There had already been a start for bringing telemedicine to the region. For example, Mission Health, a large health care provider in Asheville had already been working with rural hospitals in a few western counties to bring access to specialists. But like everywhere else in the country, the need for telemedicine has exploded since the advent of the pandemic.

As might be expected, broadband access is low in many of these counties. Western North Carolina is like the rest of Appalachia, with hilly and mountainous terrain, a lot of woods, narrow and winding country roads, and scattered rural populations. The counties in the region have already identified the lack of broadband as a major problem before the pandemic and have been taking steps to try to attract ISPs to the region.

This study is the first step attempt in correlating broadband access to the availability of health care. One of the first steps taken in the study was to equate the broadband adoption rate in counties to the degree to which a county has higher death rates than the rest of the state. Interestingly, there were no counties with high broadband adoptions that rated below average for health statistics. However, only 3 or the 20 counties were rated as having high broadband adoption rates.

The study surveyed what the report called safety net sites – locations that provide health care to low-income people. They found that 70% of these locations were already using telemedicine before the pandemic. However, most of these health care providers said they were underutilizing telemedicine. The study showed that many of the health care facilities don’t have an affordable or reliable broadband connection, making it hard for them to reliably conduct telemedicine.

The State Broadband Office had identified almost 72,000 homes in these rural counties that don’t have access to broadband at home, meaning there is no ISP able to provide a broadband connection capable of delivering telemedicine. Telemedicine platforms differ, but I’ve been told that most telemedicine connections require both a download and an upload connection of between 3 Mbps and 4 Mbps. Anybody living in a rural area knows that an upload speed of that magnitude is a rarity.

The study also showed that even where broadband is available that 17 of the 20 counties have lower than average rates of computer ownership and broadband adoption. The study correlates this with the level of poverty, which is also lower in these areas than average for the State.

This study is an important step in understanding the broadband gaps in Western North Carolina, and telemedicine is only one of the many ways that lack of broadband is hurting the region. If any good has come out of the pandemic, it’s that state government has turned its attention to the huge problems caused by poor broadband in rural areas. Hopefully, this will translate into finding broadband solutions – which is going to be a huge challenge in Appalachia.

A New Rural Broadband Product?

Verizon announced a new wireless data product that raises a few questions for me. Verizon announced the ‘LTE Home Internet’ product on this web page. The product is easily explained. Verizon will be delivering unlimited data using the cellular 4G LTE network. Customers must buy a receiver from Verizon for $240, but the company is offering a $10 discount for 24-months which returns the cost of the box over two years. The product is $40 per month for a household that is buying a Verizon cellular product that costs at least $30 per month. Non-Verizon wireless customers pay $60 per month. There is free tech support for setup issues for 30-days, implying that tech support will entail a fee after that.

Verizon touts the product as delivering 25 Mbps download speeds, with bursts as high as 50 Mbps. Verizon is launching the product in three markets – Savannah, GA, Springfield, MO, and the Tri-cities area at the area near the borders of Tennessee, Virginia, and Kentucky.

The first question raised is if this product is intended to replace Verizon’s rural hotspot product, marketed as Verizon Jetpack. The Verizon announcement says, “Verizon will expand home Internet access to customers outside the Fios and 5G Home footprints, expanding home connectivity options to rural areas.”, which implies that this is a replacement for the current rural 4G hotspot product. If so, this would be a drastic repricing for rural LTE broadband.

The Jetpack hotspot is widely used in rural America where there are no other broadband alternatives. From what I can see, the Verizon hotspot is the most expensive broadband in the country and is billed at data rates similar to normal cellular plans. The Jetpack product has four available pricing tiers based upon the monthly data allowance. The 10 GB plan is $60, the 20 GB plan is $90, the 30 GB plan is $120, and the 40 GB plan is $150. The real price killer is that Verizon bills additional gigabytes at $10 each. I’ve talked to rural households that spend $500 or per month or more for the hotspot plan.

The release of the new product caught the industry by surprise and there was little or no buzz that this was coming. The big question that those living in rural America will have is if Verizon will offer this as an alternative to the Jetpack product. Is Verizon planning to move customers from plans that cost hundreds of dollars per month to a plan that offers unlimited data for $40 to $60? If so, then this is great news for rural America.

My second question concerns data speeds. Verizon advertises the existing Jetpack product as having from 5 to 12 Mbps download and 2 to 5 Mbps upload. However, the current plan comes with a warning that the product only works where Verizon has a ‘strong’ data signal. I’ve talked to a number of households that say that the Jetpack product is only delivering a few Mbps. Rural LTE data speeds are reliant upon two factors – how close a customer is to a cell tower, and the underlying strength of the broadband feeding the tower.

I wonder if the new product will be any faster? There is a chance that it can be faster if the new device utilizes more frequency bands than the old hotspot receiver. But cellular speeds, in general, get weaker with distance from a cellular tower, and folks that are more than a mile or two from a tower are not likely to get the touted 25 Mbps speeds on the new product.

The cynic in me suspects that Verizon will only activate this product near markets where they have faster broadband products. This would be a good fill-in product for low-bandwidth homes in neighborhoods served by FiOS or the new fiber-to-the-curb FWA product. This is not a bad broadband product for a home that only reads emails and watches a single stream of video – but this product would bog down quickly if used to support multiple simultaneous users.

I doubt that the average urban broadband customer appreciates the misery of homes using the Jetpack hotspot. Data use is metered and it cost $10 of broadband to watch a movie. Families with kids using the hotspot have a constant fight to keep them off the Internet. I hope my gut feeling is wrong and that Verizon will introduce this everywhere and toss out the hotspot product. Even if this product doesn’t bring faster data speeds to rural homes, the pricing and the ability to use unlimited data would be a welcome relief to homes using the Jetpack hotspot. It’s possible that this product is Verizon’s response to T-Mobile’s promised rural 5G product, but we’ll have to wait to see where this is made available before getting too excited about it.

Charter Considering RDOF Grants

Charter let the world know that it plans to pursue RDOF grant funding in its most recent 8-K filing with the Securities and Exchange Commission. The company says that it might pursue grant funding to build to ‘multi-million passings’ involving ‘multi-billion investments’. It’s an interesting strategy. Charter already serves rural county seats and other towns across the country which puts them close to many of the areas where RDOF funding is available.

The RDOF grants cover the most rural and remote pockets of customers in the country. While there are some small rural towns included in the RDOF grant footprint, most of the customers covered by the grants are truly rural, consisting of farms and scattered homes in rural counties.

Charter will have to make some technology choices about how to serve rural America. The company can win the most money in the grant process if they file as a gigabit-speed provider. Gigabit speeds are available today with fiber technology and also with the hybrid fiber-coaxial networks operated by Charter and other cable companies. The RDOF grants can be awarded to technologies that support speeds over 25/3 Mbps. However, the grant includes incentives to favor ISPs willing to use faster technologies.

Charter could pursue slower technologies, like fixed wireless, but that funding is harder to win. To date, none of the big cable companies have ventured into wireless technology, other than a few trials. It’s always been a bit of a mystery why Charter and other cable companies haven’t erected wireless antennae at the fringes of their network to cheaply capture customers just out of reach of the HFC networks. My theory has always been that big cable companies are not nimble enough to handle drastically different technology platforms since all of their processes are designed for around coaxial and fiber technologies.

Charter is likely considering building fiber-to-the-home networks if they win RDOF grant funding. The hybrid fiber-coaxial technology that cable companies use in urban areas is poorly suited to serving scattered rural customers. The signal on an HFC network has to be boosted every two miles or so, and every time the signal is amplified some of the effective bandwidth carried on the network is lost. It would be a major challenge to maintain gigabit speeds required by the grants on a rural HFC network. It would only be possible with lots of fiber and tiny neighborhood nodes serving only a few homes. Charter has often cited the technology challenges of uses HFC technology in low-density areas as the reason it doesn’t expand outward from existing markets – and those reasons still hold true.

Charter claims to have expanded to add 1.5 million homes to its existing networks over the last two years, and in the 8-K filing says these are mostly rural customers. However, from what I’ve heard, most of these new Charter neighborhoods are in small subdivisions surrounding existing Charter markets. Charter has not been building rural networks to reach 1.5 million farms.

Charter and the other big cable companies have quietly introduced last-mile fiber technology into their networks. When cable companies build into new subdivisions today, they mostly do so with fiber technology.

It would be interesting if Charter’s strategy is to use the grant money to build fiber to farms. I know plenty of other ISPs considering the same business plan in places where there is enough RDOF grant funding available to make a business case.

There is no guarantee that Charter will ultimately win any grant funding and filing the grant short form on July 15 only gives Charter the option to participate in the auction in October. However, if the company bids in the auction, it will be good news for markets where Charter would build fiber technology. The big downside to the RDOF grant process is that in markets where no ISPs propose to build gigabit technology, the funding could end up going to satellite broadband providers – and there is no rural neighborhood that would prefer Viasat over Charter.

Will There Be a Credit Crunch?

ISPs are collectively going to be borrowing huge amounts of money over the next year as a result of the various state and local grant programs. For example, the $16.4 billion RDOF grant likely will drive ISPs to borrow many billions to match the grant awards. The federal ReConnect grants and the numerous State grant programs will also drive significant new debt.

I’ve followed the banking industry for decades and I’ve seen how banks react to economic stress. In my adult lifetime, I’ve witnessed several major economic downturns. The economy took a major downward turn in 1973-75, in 1981-82, after the dot-com crash in 2001, and most recently in 2007-09. In each of these cases, banks reacted by tightening credit, meaning that it became harder, or even impossible to borrow money.

The COVID-19 pandemic is different than these other recessions in that the reaction to the virus crashed an otherwise healthy economy. The pre-pandemic economy was showing some signs that the decade of growth was slowing, but the economy at the beginning of this year was in relatively good shape. That pre-pandemic economy should easily have been able to support the loans needed for a major expansion of broadband.

The pandemic has stressed banks in unusual ways. For example, banks have generated a huge amount of loans to small businesses to support the Paycheck Protection Program that’s part of the recent stimulus relief plans. While these loans are ultimately backed by the government, they’ve eaten severely into bank cash reserves.

Banks are also seeing a lot of bad debt due to the pandemic. Tens of millions of people are currently out of work and many are having trouble making debt payments on mortgages, car loans, student loans, credit cards, you name it. Huge numbers of businesses have shut their doors, or even if still open have curtailed or stopped making rent or mortgage payments. I’ve read numerous predictions that there will be a business real estate crisis soon as landlords react to suddenly vacant buildings.

Banks have already started to react in ways that you would expect during any downturn. Small businesses that are still open have had lines of credit frozen. It’s gotten harder to apply for a home mortgage. Banks have already cut back on lending new money to small businesses.

During past downturns, banks also curtailed loans to larger businesses. I can remember several times when industry lenders like CoBank and RTFC either stopped lending or became far more selective in making loans. Just a decade ago there was a short period of time when even Fortune 500 companies had trouble borrowing money.

It’s really hard to predict bank behavior right now since this is not a ‘normal’ recession. Underneath all of the current ugly financial news is a hope that the economy can spring back to life if medical science develops a vaccine or effective treatment. Unfortunately, there are parts of the economy that are not likely to come back quickly, or even at all. Many of the small businesses that are still shut due to the pandemic are likely not coming back. We’ve seen a big string of major retailers fail, and that is going to cascade to kill shopping malls and shopping districts. A lot of businesses say that they intend to continue with work-from-home initiatives that were forced upon them during the pandemic – and that means a lot of empty business real estate.

What matters most to ISPs right now is what the banking industry is going to be like by the end of this year. What happens if many of the ISPs looking for matching funds for grants are unable to borrow? How might the FCC react if billions of grants fall onto the floor due to a lending crisis?

I don’t have a crystal ball and this blog is not meant as a prediction that borrowing is going to dry up. But I’ve seen enough recessions to know that lending is not going to continue unchanged. Anybody thinking about accepting large amounts of grants needs to think about a back-up plan if it becomes harder to borrow. The FCC and ISPs have all assumed that that matching funds will  be readily available for anybody that lands a large grant. It’s historically been relatively easy to borrow for projects that are funding largely by grants – but this is definitely not normal times.

Google Fiber Comes to Iowa

The City of West Des Moines recently announced a deal with Google Fiber to bring fiber to pass all 36,000 residents and businesses in the city. This is a unique business model that can best be described as open-access conduit.

The city says that the estimated cost of the construction is between $35 million and $40 million and that the construction of the network should be complete in about two-and-a-half years. The full details of the plan have not yet been released, but the press is reporting that Google Fiber will pay $2.25 per month to the city for each customer that buys service from Google Fiber.

What is most unique about this arrangement is that conduit will be built along streets and into yards and parking lots to reach every home and business. I know of many cities that lease out some empty conduit to ISPs and carriers, but the big limitation of most empty conduit is that it doesn’t provide easy access to get from the street to reach a customer. West Des Moines will be spending the money to build the conduit to serve the last hundred feet.

This business arrangement will still require Google Fiber to pull fiber throughout the entire empty conduit network – but that is far cheaper for the company than building a network from scratch. The big cost of building any fiber network is the labor needed to bring the fiber along every street – and the city has absorbed that cost. The benefit of this arrangement for Google Fiber is obvious – the company saves the cost of building a standalone fiber network in the City. It’s the cost of financing expensive networks up-front that makes ISPs hesitant to enter new markets.

From a construction perspective, I’m sure that the City is building fiber with some form of innerduct – which is a conduit with multiple interior tubes that can accommodate multiple fibers (as is shown in the picture accompanying this blog). This would allow additional ISPs to coexist in the same conduits. If the conduits built through yards also include innerduct it would make it convenient for a customer to change fiber ISPs – disconnect fiber from ISP A and connect to the fiber from ISP B.

The City is banking on other ISPs using the empty conduit because Google Fiber fees alone won’t compensate the city for the cost of the conduit. The press reported that Google Fiber has guaranteed the City a minimum payment of at least $4.5 million over 20 years. I’m sure the City is counting on Google Fiber to perform a lot better than that minimum, but even if Google Fiber connects to half of all of the customers in the City, the $2.25 monthly fee won’t repay the City’s cost of the conduit.

This business model differs significantly from the typical open-access network model. In other open-access networks, the City pays for 100% of the cost of the network and the electronics up to the side of a home or business. The typical monthly fee for an ISP to reach a customer in these open access-networks ranges between $30 and $45 per month. Those high fees invariably push ISPs into cherry-picking and only pursuing customers willing to pay high monthly rates. The $2.25 fee in West Des Moines won’t push ISPs to automatically cherry-pick or charge a lot.

Any ISP willing to come to the city has a few issues to consider. They avoid the big cost of constructing the conduit network. But a new ISP will still need to pay to blow fiber through the conduit. Any new ISP will also be competing against Google Fiber. One of the most intriguing ISPs already in the market is CenturyLink. The company has shown in Springfield, Missouri that it is willing to step outside the traditional business model and use somebody else’s network. I would have to imagine that other ISPs in the Midwest perked up at this announcement.

In announcing the network, the City said that they hoped this network would bring fiber to everybody in the City. Google Fiber doesn’t typically compete on price. Earlier this year Google Fiber discontinued its 100 Mbps broadband connection for $50. Many homes are going to find the $70 gigabit product from Google Fiber to be unaffordable. It will be interesting over time to see how the city plans on getting broadband to everybody. Even municipalities that own their own fiber network are struggling with the concept of subsidizing fiber connections below cost to make them affordable.

One thing this partnership shows is that there are still new ideas to try in the marketplace. For an open-access conduit system to be effective means attracting multiple ISPs, so this idea isn’t going to work in markets much smaller than West Des Moines. But this is another idea for cities to consider if the goal is to provide world-class broadband for citizens and businesses.