Congress Ignores Rural Broadband

One of the biggest topics in rural America right now is the inability of employees to work from home and students to stay connected to schools from home due to the lack of broadband. Rural homes have struggled with poor broadband for many years, but the Covid-19 pandemic has brought the issue into a focus as rural residents are told to shelter in place, but don’t have the broadband needed to stay employed or to keep up with schoolwork.

I expected Congress to tackle this issue to some significant extent in the stimulus package that was just passed. However, the level of funding for broadband is disappointingly small in terms of finding any meaningful broadband solutions. The Senate bill contains the following:

  • $25 million to the RUS Distance Learning, Telemedicine & Broadband Program for the ‘‘Distance Learning, Telemedicine, and Broadband Program” (page 617).
  • $100 million for the USDA Reconnect program. This is a grant program administered by the USDA that provides grants and loans for bringing broadband to areas where at last 90% of households don’t have access to broadband of at least 10/1 Mbps. The money is to be prioritized to previous recipients of this grant (pages 622/623)
  • $50 million to the Institute of Museum and Library Services to prevent, prepare for, and respond to the coronavirus, including grants to States, territories, and tribes to expand digital network access (page 773).
  • Secretary of Veterans Affairs may enter into short-term agreements with telecommunications companies to provide temporary, fixed or mobile broadband service to provide mental health services to isolated veterans (page 807).

There is no such thing as bad grant money that brings better broadband, and all of the above allocations are welcome. However, none of this money is going to make more than a miniscule dent in the rural broadband issue. The only award that is likely to construct new broadband facilities is the $100 million for the ReConnect grant program. I’ve seen estimates over the years that it will take $100 billion to bring fiber to everybody in rural America. While a $100 million grant program might sound huge, if the need is $100 billion, then Congress just allocated one-tenths of one percent (0.1%) of the money needed to solve the rural broadband issue. It would take 1,000 years of grants at that level to bring fiber broadband to rural America.

Don’t get me wrong – the ReConnect grants have been going to independent telcos, electric cooperatives, and independent ISPs and any ISP that gets this extra money will be glad to get it. But when we map out the areas covered by this extra money you won’t be able to see it on a map of the US.

I think Congress is misreading rural America. My consulting firm does surveys and interviews in rural America and we have continued to do this during the pandemic. Rural America is pissed. They aren’t annoyed, they aren’t just sore – they are fuming mad that the government has been ignoring them for a decade by not bringing them broadband. They are mad at everybody – local politicians, state politicians, and federal politicians. Broadband isn’t a partisan issue, and I’m getting the sense that folks without broadband are ready to vote out anybody who is not bringing them a broadband solution, regardless of party.

You can’t blame them for being mad. One of the counties I’m working with right now is typical of much of rural America. We’ve done speed tests across the county and found almost nobody getting speeds faster than 5 Mbps, with many getting only a fraction of that. These homes mostly have DSL or fixed wireless broadband. These slow speeds are for the homes that can get at least some broadband – many homes have nothing. A large percentage of residents have tried satellite broadband and found it to be worthless. That’s understandable since we’re seeing latency of 700 to 900 milliseconds for satellite households – too much latency to connect to a corporate server or to connect to a school for remote classes or to do homework.

Almost every home we talk to has a story about how a lack of broadband costs them money when they have to drive 30 minutes each way to sit outside for a WiFi connection so their kids can complete their homework. Residents tell us of the inability to work from home or to start a home-based business. These folks are frantic and angry now that they are cut off from their jobs and schools.

It’s impossible not to sympathize with these rural residents. I am sitting in an office with good broadband. Sheltering in place is, at worst, a hassle for my wife and me. We’re able to work all day and we’re able to spend as much time on the Internet as we want when we’re not working. But what about people who have lost their paycheck because they are unable to work from home? What about students who feel they are losing a school year and are fearful they’ll have to repeat a grade? I find it impossible to believe that members of Congress aren’t hearing these same stories and I can’t understand how Congress ignored the millions of Americans without broadband in the stimulus plan.

A New Partnership Model

Last year the New Hampshire legislature passed bill SB170 that allows municipalities to bond for a broadband network as long as the town doesn’t have existing broadband speeds of at least 25/3 Mbps.

Several small towns in the state have taken advantage of the new legislation and have entered into a partnership with Consolidated Communications, the incumbent telephone company serving much of the state. Consolidated became the incumbent after acquiring Fairpoint in February 2017.

The latest announced partnership is for Dublin, NH, a town of a little more than 1,500 residents. In the announced partnership, Dublin will finance a $1.3 million bond to build fiber to every resident and business in the town. The bond passed by a vote of 223 to 5. The town will own the network and has partnered with Consolidated to operate the business.

On paper, Consolidated will make the bond payments, but in fact, the residents of the town will make the payments. Consolidated plans to add a surcharge to each broadband bill of $11.50 per month. I assume the surcharge will go away once the bonds have been retired. Residents are not required to subscribe to broadband and won’t pay the surcharge unless they are a broadband customer.

The partnership in Dublin follows a similar partnership last year in Chesterfield, a town of 3,600. Other New Hampshire towns are weighing similar partnerships – with Consolidated and with other ISPs.

These partnerships are unique in that the towns are trusting their network to the incumbent telecom provider. Granted, Consolidated is new to the state and is probably being viewed as a breath of fresh air. The company is also investing in fiber in larger communities in the state and announced it will build fiber to pass over 86,000 residents in the state. There was a lot of frustration with the previous incumbent Fairpoint, which seemed unwilling to build fiber or even to upgrade DSL to faster speeds. Consolidated is currently embarking on improving DSL speeds for 500,000 customers.

These small communities know that lack of broadband is hurting their communities. People don’t want to buy houses in communities without good broadband, and communities without broadband foresee a bleak future as people settle instead in other communities around them.

Dublin and Chesterfield are joining a long list of towns that are willing to borrow the money needed to bring broadband. Every community in this situation looks around for the best operating model available to them – and in this case they chose the incumbent telco.

Legislators around the county need to take a look at the realities of municipal broadband. For every community that decides to become an ISP there are a lot more cities that instead partner with an existing ISP. The vast majority of cities have no interest in becoming a commercial ISP, but still can be hindered from finding partnerships by existing laws that prohibit municipal participation in broadband.

It’s time for legislators to ignore the lobbyists of the giant telcos and cable companies and do what’s right for their constituents and communities. These two New Hampshire towns will be better places to live when they get fiber – the residents and businesses will be able to fully partake in our modern online society and not be left behind. The New Hampshire legislature did the right thing last year and a whole lot of other states need to take heed.

Disconnected – A Documentary about the Broadband Gap

Today I’m touting a documentary created by WRAL TV from Raleigh, North Carolina. The documentary is called Disconnected and looks at the plight of those living without home broadband. I have to disclose that I have a role in the documentary as the industry talking head that comments on the various topics.

The documentary shows what it’s like to not have broadband at home. The majority of Americans have good broadband and many of them have no idea that just a few miles outside their towns and cities that people struggle from having poor broadband or no broadband. Homes without broadband struggle with things that most people take for granted – kids doing homework online, connecting to a doctor’s website, working from home. Communities without broadband struggle because they are losing businesses that need broadband and they can’t attract new businesses.

The documentary was created before the coronavirus pandemic which has heightened the need for home broadband. How can we send students and workers home and then expect them to function in homes that don’t have broadband?

Below is the advertisement for the documentary. It will also be available starting this evening on the WRAL website. If you’re in North Carolina, note that the documentary actually airs at 7:30 tonight.

The primary purpose of this documentary is to inform the public that a lot of the people in North Carolina don’t have home broadband. But this is not North Carolina specific because this same documentary could be made about every rural county in America that doesn’t have a broadband solution. As somebody who constantly works to improve rural broadband, I am still surprised when I talk to urban folks who have no idea that many homes don’t have broadband. Hopefully, this documentary will open a few such eyes – because we need everybody’s support to find solutions to close the rural broadband gap.

A Message to DC – A Quick Fix for the Broadband Gap

Millions of people without broadband are being sent home to work. Even more millions of households without broadband have kids coming home to finish out the school year. It’s not realistic to expect many of these folks to shelter in place to wait out the coronavirus emergency if they don’t have broadband at home. These folks are going to go out every day to find broadband.

There is one way that the federal government can quickly provide broadband to those without it. The government should buy piles of portable WiFi hotspots that work on cellular networks and distribute them to homes that need the broadband to function.

Distributing hotspots is only half of the needed solution. The cellular carriers will want to be compensated for all of the broadband usage on the cellular networks, and the federal government should just write a lump sum checks to Verizon, AT&T, T-Mobile, and the smaller cellular carriers so that people using these hotspots can get the broadband for free during the crisis. We can’t let the carriers bill this as if it is normal cellular data or everybody working at home would get a bill for $500 per month. One interesting idea is for the cellular carriers to connect these hotspots to the newly released spectrum band they’re touting as 5G – they could then claim that 5G saved the day!

The federal government should also distribute funding now to beef up cellular networks. The FCC was already planning to distribute $9 billion later this year using the newly created 5G Fund which is aimed at improving rural 4G. Let’s fund this now out of coronavirus funding and ask the carriers for an accelerated plan to improve cellular data coverage now.

The final challenge is getting the WiFi hotspots into the right hands. This could be done through employers asking for hotspots for employees and for school systems asking for hotspots for students. Those two groups could do the heavy lifting of identifying the homes that have the most immediate need for a broadband solution.

Most urban ISPs have announced plans to make it easier on folks without broadband, but none of those plans helps the millions of rural homes without broadband today. As a country, there may be no better use of federal money than to enable millions of homes to comply with stay-at-home directives while remaining productive. Every employee we can keep working is one less person that is going to need other assistance due to the crisis. Everybody benefits if we can keep students on track to finish the school year.

I’ve heard giant numbers like a trillion dollars, being thrown around that will be needed to keep the economy afloat. What I’m suggesting would cost only a tiny percentage of that. It’s also an idea that will create a greater dollar benefit than the cost of the program. Keeping folks working and paying taxes might be the best possible use of federal funding during this emergency.

We could skip the hotspots and instead subsidize data plans on cellphones. However, using a hotspot makes it easier to create one connection per household. We also don’t want the hotspots to roam, and activating data on cellphones would likely invite people to leave the home.

We also need a fast solution. People need broadband to work at home now, not 3 months or 6 months from now. We don’t want to create a lot of red tape for this and we don’t run this funding through existing programs like SBA or E-Rate, because doing so means nobody gets a hotspot this year. This is a national emergency and we need to treat it as such.

When this crisis is over we hopefully will finally have the discussion about providing more funding for building rural broadband infrastructure – but those are multi-year plans and don’t help with the immediate problem. We need a solution for those without broadband or we’re going to pay a big price for inaction. Getting a mobile hotspot to somebody trying to work in a home provides a solution immediately.

If the federal government doesn’t tackle this, states might want to consider it. Nobody understands more than local politicians the societal benefit of keeping people working. We can either spend a few hundred dollars per home to get broadband or we can spend thousands for the same homes if people can’t work and are unemployed – the math is simple.

New Emphasis on Working from Home

One of the hottest topics in the news related to coronavirus is working from home. Companies of all sizes are telling employees to work from home as a way to help curb the spread of the virus. Companies without work-at-home policies are scrambling to define how to make this work to minimize disruption to their business.

Allowing employees to work at home is not a new phenomenon. Most large corporations have some portion of the workforce working at home at least part-time. Studies have shown that home-based employees are often more productive than those working in the office. Those working at home enjoy big savings, both in dollars and time, from not commuting to an office.

There are a few communities around the country that have offered incentives to attract employees who work from home. The first such program I heard of was in 2018 where Vermont offered a cash incentive of between $5,000 and $10,000 for families with a home-worker to relocated to the state. The state has an aging population and wanted to attract families with good incomes to help energize the local economy. The state recognized that the long-term local benefits to the state from attracting high-paying jobs is worth a lot more than the cash incentive they are offering.

Since then other communities have tried the same thing. I recently read about a similar effort in Tulsa, Oklahoma, which has been watching its population drop since 2016. In Tulsa, a foundation is fronting the $10,000 payments used to attract home workers to the community. There is a similar program in Topeka, Kansas and in northwest Alabama.

I’ve been working from home for twenty years, and during that time I’ve seen a big shift in the work-from-home movement. When I first worked from home, I didn’t know anybody else who was doing so. Over time that has changed and in my current neighborhood over a third of the homes on my block include at least one adult working from home. According to Bloomberg, about 4% of the full-time workforce, not counting self-employed people, now work from home. Adding in self-employed people means that work-from-home is a major segment of the economy.

Wall Street seems to have recognized the value of working at home. As I write this article the Dow Jones average has dropped over 11% since February 14th. During that same time, the stock price of Zoom, a company that facilitates remote meetings has climbed over 27%.

I’m sure that most of the people being sent home to work are going to eventually return to the office. However, this current crisis is likely to make many companies reexamine their work-from-home philosophy and policies. Companies that allow people to work from home, at least part-time, are going to be the least disrupted by future economic upheavals.

If you read my blog regulatory you knew what’s coming next. The one group of people who can’t work from home are those who can’t get a decent home broadband connection. Huge numbers of rural homes in the country still have no broadband option or can only buy broadband that is not sufficient for working from home. Most corporations test the home broadband connection before letting employees work from home, and homes can be disqualified due to poor download speed, poor upload speed, or poor latency. A home broadband connection that meets the FCC definition of broadband at 25/3 Mbps might still be deemed by a corporation to be inadequate for working from home.

My consulting firm CCG talked to a homeowner this week who moved to a rural area looking for an improved lifestyle. The wife works from home, and before they bought the new home they were assured that the broadband there was fast enough to support work at home. It turns out the home is served by a WISP that is delivering less than the advertised speed, and that working from home is impossible in the new home. This family is now facing a crisis caused by lack of good broadband – and there may be no solution for their problem.

Sadly, a whole lot of America is losing economically by not being able to attract and support good-paying jobs from those working at home. If a city like Tulsa is willing to pay $10,000 to attract one work-from-home employee, imagine the negative impact on rural counties where nobody can work from home.

CenturyLink Ready to Launch Gigabit Broadband in Springfield, MO

It’s rare to be surprised by events in the telecom world. The announcement last summer that CenturyLink will be an ISP on a city-owned fiber network in Springfield MO was one of the most surprising things I’ve heard since the announcement years ago that Google was going to become a gigabit ISP. The joint venture has been progressing and CenturyLink says it should be adding customers in the community this spring.

The partnership between the city and CenturyLink is interesting:

  • CenturyLink has agreed to lease the network over 15-years at a payment that made the city comfortable enough to build the network. The city says they won’t have to raise electric rates since the lease revenue stream justifies the cost of the new $120 million fiber expansion.
  • The city is providing dark fiber and CenturyLink will provide all of the electronics. There have been no public announcements saying which party pays for the fiber drops. Since this is being touted as an expansion of smart-grid, it would make sense that the city owns the drops.
  • The arrangement is described as non-exclusive, meaning that other ISPs are free to serve on the network. The announcements don’t say if CenturyLink gets a head-start over other ISPs through some period of exclusivity before open access kicks in. That’s been the case in similar arrangements.
  • CenturyLink is offering $65 gigabit broadband ‘for-life’ with a guarantee that the price will never be increased. Speeds are advertised ‘up to 940 Mbps. In other CenturyLink markets the gigabit product requires paperless billing and prepayment with a credit card or bank debit. CenturyLink charges $5 for an optional WiFi modem.

There are a few other similar well-known arrangements in the industry. This is similar to the Google Fiber arrangement with Huntsville, Alabama. It’s similar to the Ting arrangement in Westminster, Maryland and Charlottesville, Virginia. What’s unusual and surprising about this deal is that it’s with one of the big incumbent telcos. However, CenturyLink is not the incumbent in Springfield and enters the market purely as an outside ISP. CenturyLink will be competing side-by-side with AT&T, the first instance of two large incumbents telcos competing in a residential market. The other competitor and the incumbent cable provider in Springfield is Mediacom.

There are some in the industry touting this as a new paradigm for bringing gigabit fiber – but I’m not sure that is so. Like with any business model, all of the facts and the numbers must line up for any market to be a good target for overbuilding with fiber. It’s possible that there are unique characteristics of Springfield that might make this model hard to replicate in most other places.

Springfield owns a municipal electric utility and the utility decided years ago to build fiber to serve its own needs and to bring fiber to businesses in the city. The city started this new venture already owning 700 miles of fiber – much of which will likely be the backbone for building the last-mile for this venture. Springfield is also touting this as a smart grid initiative, meaning the electric utility is likely picking up a piece of the cost of the new fiber construction. There is a good chance that the math would not look nearly so favorable for a city without an electric utility – because in that case the venture would be starting with no existing fiber and the new fiber venture would have to absorb 100% of the cost of the new construction. I’ve looked at this lease model for cities that don’t own existing fiber or an electric utility and the math is often not pretty.

Don’t read those last statements as a criticism of the fiber lease model, but rather just as a recognition that all of the financial factors must align just right for this kind of venture to work. Any city owning an electric utility ought to do the math and consider this model. Cities with low construction costs for fiber might also be good candidates.

The surprising part of this arrangement is that this is being done by CenturyLink. This is an incumbent telco that is well known throughout rural America for operating lousy copper networks. The company has been ignoring the customers in rural markets, and CenturyLink customers living in rural Missouri can’t be thrilled to hear that the company will be offering gigabit fiber in a new market while continuing to ignore their broadband plight. CenturyLink is not going to sink a lot of capital in Springfield, but it’s paying for the cost of electronics and installation.

I have to give CenturyLink credit for tackling this venture. They were building fiber-to-the-home networks before Jeff Storey, the new CEO put a kibosh on spending capital for projects earning ‘infrastructure returns’. The FTTP businesses is an economy of scale business and CenturyLink can take advantage of the staff and platforms they already have in place to operate efficiently in Springfield. Since this is dark fiber the company can still do everything the CenturyLink way – which is an important factor for a big telco. We’ll have to wait to see if this is a new business line for CenturyLink or if Springfield is a unique case.

Is it Time for Honest Pricing?

Verizon is getting a lot of positive press from changing its product pricing to be more transparent. I look at the new pricing structure. and see both plusses and minuses.

The new pricing is a straightforward menu of prices as follows:

  • There are three broadband products: 100 Mbps for $40, 300 Mbps for $60 and 1 gigabit for $80. The first two products charge $15 monthly for a router – a router is included in the gigabit product price.
  • There are new, and lower-priced cable TV options. Your FiOS TV is $50 (plus $12 for a settop box). A customer chooses 5 channels and Verizon provides 120 other channels based upon that choice. More FiOS TV provides 300 channels for $70 and includes one free settop box. The Most FiOS TV is $90 and comes with 425 channels, one free settop box and some use of a DVR. Verizon is also now reselling YouTube TV for $50.
  • A basic voice line is $20 and comes with caller ID. I assume voice mail is extra. They didn’t include it in the announcement, but there must be a higher-priced product that includes unlimited long distance.
  • Customers must use autopay and paperless billing to get any of these products.

There are some definite positives from the new pricing:

  • Verizon says they have eliminated hidden fees.
  • Verizon has eliminated term contracts for these products. It’s not clear in the announcement, but customers under current contracts are likely going to have to finish those contracts before moving to the new prices.
  • This eliminates the games that Verizon and other big ISPs have played with bundling discounts. With bundle discounts, customers got some nice price breaks for buying multiple products. However, the discounts were never associated with any product, and customers found that when they tried to drop any one product that they lost the bundling discount. This new pricing is a menu and customers can pick what they want to buy, and due to monthly billing can add or subtract products later with no penalty.
  • Along those same lines, Verizon will have finally taken out all of the hassles of trying to negotiate for standalone products. Customers can pick any products from this new menu of services, including standalone broadband.

Of course, there are also negatives:

  • The settop box and router fees at $12 and $15 are outrageous considering that in both cases the box that Verizon is providing likely costs around $100. These add-ons costs are still going to be mentioned only in the small print in advertising, which still smacks of hidden fees.
  • Verizon is also including a $15 per month product they call TechSure Plus that provides for 24/7 technical support. Reading between the lines, this product means customers will have to pay Verizon $180 per year to avoid the long phone waits for customer service. The unspoken threat is that customers without this service will go to the end of the customer service queue. It’s a ballsy product statement by Verizon – pay extra if you ever want to talk to us.
  • All of this is only available where Verizon has fiber – and there is still a lot of their market that is not wired with fiber.

The new pricing is a definite challenge to the big cable companies that Verizon competes with. The $55 price for 100 Mbps broadband ($40 for the broadband and $15 for the router) sets a market bottom price and is a definite challenge to the cable companies. It’s likely that a big majority of Verizon customers will choose this product because of the low price and because most homes today are going to be happy with 100 Mbps service on fiber. This product will make the big cable companies sharpen their pencils for their base broadband product and also might make them hesitate from the annual broadband rate increases they’ve now built into their planning.

It’s going to be interesting to see how Comcast and the other big cable companies react to these new prices. They can advertise promotional pricing that can beat the Verizon rates, but those specials will likely still include hidden fees, and the rates will spring back to full price at the end of the promotional period. The big cable companies also need to be careful about offering lower prices only where there is FiOS – this will annoy the hell out of customers in other markets who will understand they are subsidizing lower rates in Verizon markets.

It’s not going to be surprising to see Verizon take away customers from the cable companies with these prices. The prices are not particularly low, but for the most part, they are honest and transparent – a refreshing change from a big ISP.

The Frontier Bankruptcy

Bloomberg reported that Frontier Communications is hoping to file a structured bankruptcy in March. A structured bankruptcy is one where existing creditors agree to cut debt owed to them to help a company survive. There is no guarantee that the existing creditors will go along with Frontier’s plan, and if not, the bankruptcy would be handed to a bankruptcy court to resolve.

It’s been obvious for a long time that Frontier is in trouble. Three years ago, the stock sat at over $51 per share. By January 2018 it had fallen to $8.26 per share, and to $2 per share a year ago. As I write this blog the stock sits at 59 cents per share.

Frontier has been losing customers rapidly. In the year ending September 30, 2019 the company lost 6% of its broadband customers (247,000), with 71,000 of the losses occurring during the third quarter of last year.

For those not familiar with the history of Frontier, the company started as Citizens Telephone Company, a typical small independent telco. The company grew by buying telephone customers from GTE, Contel, and Alltel. The company became Frontier when they bought the remains of the Rochester Telephone Company from Global Crossings. Since then Frontier went on a buying spree and purchased large numbers of customers from Verizon.

Frontiers woes intensified in 2016 when they bungled the takeover of Verizon FiOS customers while taking on huge debt. There were major outages in some major markets that drove customers to change to the cable company competitor. However, Frontier’s biggest problem is due to operating a lot of rural copper networks. The copper networks they purchased had been maintained poorly before acquired by Frontier. For example, Frontier bought all of the Verizon customers in West Virginia, and Verizon had been ignoring the market and had been trying to sell it for over fifteen years.

Frontier got a small boost when the FCC gave them $1.7 billion to upgrade rural DSL to speeds of at least 10/1 Mbps. This month Frontier reports that it has not fully met that requirement in parts of thirteen states. Customers in many places where Frontier has supposedly made the upgrades are saying that speeds are not yet at the required 10/1 Mbps.

Frontier’s real problem is that their rural properties are being overbuilt by other ISPs. For example, Frontier properties are the targets of funding for many state broadband grants. Most of the rural Frontier network is going to be targeted in the upcoming $16 billion RDOF grants this year. It would not be surprising to see the company quietly disappear from rural America as others build better broadband.

Meanwhile, other than in properties that formerly were Verizon FiOS on fiber, the company’s networks in towns are also providing DSL. We’ve seen every telco that offers DSL in urban areas like AT&T and CenturyLink lose a lot of customers year-after-year to the cable companies. It’s increasingly difficult for DSL to keep customers with speeds between 10 Mbps and 50 Mbps when competing against cable products of 100 Mbps and higher.

Last May, Frontier announced the sale of its properties in Washington, Oregon, Idaho and Montana to WaveDivision Capital. That sale was for $1.35 billion, which doesn’t make a big dent in the company’s $16.3 billion in long-term debt. Frontier has also shed 10% of its workforce in an attempt to control costs.

Frontier may get the structured bankruptcy they are seeking or may have to give up more to survive this current bankruptcy. However, restructuring their debt is not going to make up for the huge amounts of its network that sits on dying copper. They are not the only company facing this issue and CenturyLink has even more rural copper. However, CenturyLink has a thriving business in big cities and would be stronger if regulators ever allow it to walk away from rural copper.

The harder question to answer is if there is a viable company remaining after Frontier finally sheds or loses its rural customer base. I don’t know enough to make any prediction on that, but I can predict that the company’s problems will not be over even after making it through this bankruptcy.

Broadband and Presidential Politics

For the first time in my memory, broadband has entered into presidential politics. This is an important milestone for rural broadband – not because of the proposals being made by candidates, but because it indicates that the voices of those without rural broadband have reached upward to the top of the political system.

I’m sure that when the presidential candidates go to rural areas that they are asked if they can help find a solution for the lack of broadband in many rural counties. For years I’ve heard from county Boards and Councils that broadband has bubbled up to the top of the list of issues in many rural counties. Rural residents are tired of having to make an extraordinary effort for their kids to do homework, tired of not being able to work from home, and tired of not being able to engage in things the rest of us take for granted.

Candidate proposals are big on rhetoric, but short on details. Some of the stated broadband policies are as follows:

  • The current administration is spending $16.4 billion this year for the largest federal broadband grant program ever. They are also spending $9 billion to expand rural cellular coverage.
  • Senator Bernie Sanders would provide $150 billion in grants and technical assistance for cities and municipalities to build publicly-owned fiber networks as part of a larger Green New Deal infrastructure initiative. That plan obviously extends far beyond a solution for rural broadband, and when cities are thrown into the mix, $150 billion is not going to bring fiber broadband everywhere. He further would regulate broadband as a utility and require that all ISPs offer a low-price ‘basic internet plan’ to make sure that the Internet is available to everybody.
  • Senator Elizabeth Warren has proposed $85 billion for public broadband as part of a larger infrastructure plan.
  • Mayor Pete Buttigieg has proposed an $80 billion Internet-for-All plan that would bring broadband to unserved communities.
  • Former Vice-president Joe Biden supports a $20 billion grant program for rural broadband.
  • Senator Amy Klobuchar proposes perhaps the most workable plan that would provide grants to service providers willing to serve rural America. She has likely based this plan on the successful Border-to-Border grant program in Minnesota.

All of these plans must be taken with a grain of salt because we know that many proposals made on the campaign trail are often forgotten by January after an election. We further have to be skeptical of presidential candidate promises for spending, because Presidents don’t get to spend the big dollar amounts being thrown around – Congress holds those purse strings. It’s possible that none of these candidates gets elected. It’s also possible that one of them gets elected and still would be unable to make headway on the rural broadband issue. For example, there might still be a split House and Senate, making it a challenge to agree on spending priorities. The federal government might get pulled in other directions for a wide variety of reasons and never get around to the rural broadband issue.

As somebody who understands what it takes to run an ISP, some of these ideas scare me. For example, the idea of handing broadband networks to municipalities scares because I know that the majority of local governments have zero interest in taking on that role. If this responsibility was thrust upon them many of them would do a lousy job. Even should networks be handed to governments for free, many are ill-equipped or unwilling to administer and maintain a network. The idea that we could legislate the creation of well-run government-owned ISPs everywhere is not in touch with the realities of the expertise required to own and operate a network. On the flip side, I hate the idea of giving any money to big ISPs to provide better broadband. We’ve seen how poorly that can go in the CAF II program.

I also always cringe whenever I hear the idea of regulating broadband as a utility. I am not against the idea of regulation, but the chances are that the federal government and politicians would goof it up and would create an absolute disaster. Regulating something as complex as broadband is a complicated endeavor and would be hard to get right if done at the federal level – if done poorly we could end up undoing the good than many ISPs have already done.

As an example of the challenge of regulating the industry, I can’t think of any easy mechanism to somehow drag all of the existing communities, telcos, cable companies, and fiber overbuilders that provide broadband into a regulated regime. Most of the entities that have built fiber have already taken on significant debt to build fiber networks. Short of the government paying off their existing loans, it’s hard to think how these companies could begin offering low regulated prices and still meet their existing debt obligations. I can easily list a hundred other issues that could go awry when regulating the industry. I am highly skeptical that Washington DC can figure out all of the nuances of how to do this the right way. I’m a lot more comfortable with the way we originally regulated telephone service – the federal government established broad policies and state regulatory bodies filled in the details.

I am just happy to see broadband being discussed during the election cycle. The same thing is happening at the state and local level, which is one of the main reasons that we’ve seen so many state broadband grant programs being formed. All of the lobbying being done by folks without broadband is finally seeing results – at least in promises being made by politicians. We just need to keep up the pressure until the political talk turns into broadband networks.

Federal Subsidies for Satellite Broadband

In December, the FCC awarded $87 million from the CAF II Reverse auction held last summer for satellite broadband. The bulk of the satellite awards went to Viasat, which will supposedly use the money to bring broadband to 123,000 homes in seventeen states. The grant awards are meant to bring 25/3 Mbps broadband to areas that don’t have it today.

I have several problems with this award. First is that the satellite companies already cover these areas today and have been free to sell and market in these areas. The federal grant money doesn’t bring a new broadband alternative to anybody in rural America.

Second, the satellite companies aren’t required to connect any specific number of new customers as a result of the grant awards. They are largely free to just pocket the grants directly as profits. Even when they do connect a new customer, they don’t build any lasting broadband infrastructure, but only install an antenna at each new customer.

Third, rural residents don’t seem to want satellite broadband. In a large survey by the Census Bureau in 2017, 21% of people in the US described their neighborhood as rural (52% chose suburban and 27% said urban). In the quarter ending in June 2019, Viasat claimed 587,000 rural customers in the US, which represents only 2.2% of the 128 million households in the country.  If those customers are all in rural America, then the company has roughly a 10% market penetration.

CCG has been doing broadband surveys for twenty years and I don’t know that we’ve ever talked to a satellite customer who was happy with their broadband. In every survey, we seem to encounter more people who dropped satellite service than those that still have it. Customers complain that satellite costs too much – Viasat claimed in their most recent financial report that the average residential broadband bill is $84.26. Customers also hate the high latency, which can be 10 to 15 times higher than terrestrial broadband. The latency is due to the satellite which is parked almost 22,200 miles above earth – it takes a while for a round trip communication over that distance.

The primary complaints about satellite broadband are tiny monthly data caps. The company’s products that would satisfy the FCC grant speed requirements start with the Unlimited Silver 25 plan at $70 with speeds up to 25 Mbps with a monthly data cap of 60 gigabytes of data usage. The fastest plan is the Unlimited Platinum 100 plan for $150 with speeds up to 100 Mbps and a data cap if 150 gigabytes. Unlike cellular plans where a customer can buy more broadband, the Viasat plans throttle customers to speeds reported to be less than 1 Mbps once a customer reaches the data cap. To put those plans into perspective, OpenVault announced recently that the average US home uses 274 gigabytes of data per month. The average cord cutting home uses 520 gigabytes per month. The satellite broadband is impractical for anybody with school students in the home or for anybody that does even a modest amount of video streaming.

Viasat won the grant funding due to a loophole in the grant program. The program funding was available to anybody that offers broadband of at least 25 Mbps. The grant program intended to deliver a new broadband alternative to rural households – something that satellite broadband does not do. The funding was provided under a reverse auction, and the satellite companies likely placed bids for every eligible rural market – they would have been the default winner for any area that had no other bidder. Even where there was another bidder, a reverse auction goes to the lowest bidder and there is no amount that is too small for the satellite companies to accept. The satellite companies don’t have to make capital expenditures to satisfy the grants.

Giving money to satellite providers makes no sense as broadband policy. They don’t bring new broadband to anybody since the satellite plans are already available. The plans are expensive, have high latency and low monthly data caps.

The much larger RDOF grant program will award $16.4 billion in 2020 for rural broadband and the satellite companies must be ecstatic. If the FCC doesn’t find a way to keep the satellite companies out of this coming auction, the satellite companies could score a billion-dollar windfall. They can do so without offering any products that are not already available today.

To put these grants into perspective, the $87 million grant award is roughly the same size as the money that has been awarded over several years in the Minnesota Border-to-Border grant program. The Minnesota grants have helped funds dozens of projects, many of which built fiber in the state. There is no comparison between the benefits of the state grant program compared to the nearly total absence of benefit from handing federal money to the satellite companies.