Category Archives: Regulation – What is it Good For?

Increased Telehealth Funding

On July 11 the FCC announced that they are seeking a new $100 million use of the Universal Service Fund to create a “Connected Care Pilot Program”. The announcement was made in a joint op-ed by FCC Commissioner Brandan Carr and Mississippi Senator Roger Wicker.

Commissioner Carr got interested in the concept when he visited Mississippi six months ago and looked at a telemedicine trial for diabetes patients in the Mississippi Delta. That trial was monitoring patients 24/7 and drastically reduced the cost of patient care by alerting doctors to problems at an early stage and avoiding costly hospital stays. That trial had saved $700,000 per year in savings due only to avoiding hospital readmissions. It’s hard to put a number of the avoidance of misery and early death that was avoided. It’s estimated if the same monitoring was done just for 20% of the diabetes patients in the state that the annual savings would be $189 million.

In the past the Telemedicine Fund has only been used support rural brick-and-mortar facilities – rural health clinics and rural hospitals. This new trial fund will be used to instead fund larger trials to monitor patients in their homes. It’s going to concentrate on programs that will benefit low-income patients including those on Medicaid and veterans receiving free health care. If approved the funding will support a handful of projects for a two or three-year period with the goal of measuring the savings.

We already have evidence that medical monitoring works. The Veterans Administration spends an average of $1,600 on patients in it’s remote monitoring program compared to $13,000 per year for similar patients who have home-based primary care. Another monitoring trial in the northeast showed a $3.30 net savings for every dollar spent on remote monitoring.

The FCC blog on the issue also points out that home monitoring improves the health outcome for patients.

  • A study of 20 remote patient monitoring trials found a 20% reduction in all-cause mortality and a 15% reduction in heart failure-related hospitalizations;
  • The VHA’s remote patient monitoring program resulted in a 25% reduction in days of inpatient care and a 19% reduction in hospital admission;
  • One remote patient monitoring initiative showed a 46% reduction in ER visits, a 53% reduction in hospital admissions, and a 25% shorter length of stay.

For the FCC to get involved in this means there will be connectivity costs to cover. I envision that a significant share of this program will go towards paying for some kind of broadband connectivity for patients in the program. In some places there will be decent broadband and in rural areas this is likely going to mean buying a fixed cellular connection for the monitoring.

Health care costs are out of control in this country and after more of these trials we’ll hopefully see insurance covering the needed connectivity costs for monitoring programs. If the savings are as large a promised then insurance companies and everybody will benefit from monitoring and early detection of problems compared to acute care costs when problems have gone too far.

This funding will be voted on at the August FCC meeting. The FCC in May already increased the annual funding for telehealth from $400 million to $571 million. I can’t tell by the press releases if this would be funded by that increase or if this is additive on top of it.

Reclaiming Spectrum

The FCC recently wrote a letter to DISH Networks warning the company that it had not complied with the FCC’s build-out requirements for its AWS-4 and its E and H blocks of 700 MHz spectrum. The warning was more sternly worded than what we normally see from the FCC, and perhaps they will take steps to reclaim the spectrum if DISH is unable to meet the required deployment of the spectrum. The company has a long history of sitting on spectrum and delaying its use. They recently told the FCC that they want to use the AWS spectrum to launch a nationwide IoT monitoring network and that they are interested in entering the cellular business with the 700 MHz licenses.

Today’s blog is not about DISH specifically. Instead, I want to talk about the FCC reclaiming spectrum. This is an important issue for rural America because the majority of licensed spectrum sits idle in rural America for a number of reasons. We could go a long way towards fixing the rural broadband problem if the unused spectrum could be reclaimed by the FCC and repositioned for rural use. There are a number of reasons why the spectrum sits idle today.

Coverage Rules. Most FCC licenses come with coverage requirements. For instance, a given spectrum might need to eventually be deployed to cover something like 70% of the households in a license area. That rule allows spectrum holders to deploy spectrum to urban areas and legally ignore the surrounding rural areas.

There is nothing wrong with this from a business perspective. Cellular companies only need to use their full inventory of spectrum in urban areas where most customers live, and the FCC rules should not require deployment of spectrum where nobody will use it. But the coverage rules mean that the spectrum will remain unused in rural areas as long as the primary license holder is serving the urban areas – effectively forever. Since the spectrum is licensed, nobody else can use it. This problem is caused by the way that the FCC licenses spectrum for large geographic areas, while the spectrum buyers are interested in serving only a portion of the license areas.

Ideally unused spectrum should be made available to somebody else who can make a business case for it. There are several ways to fix this issue. First, licensed holders could be compelled by the FCC to sub-license the spectrum to others where it sits idle. Or the FCC could reclaim the spectrum in unused geographic areas and distribute it to those who will use it.

Deployment Delays. Other spectrum goes unused due to deployment delays by license holders. The DISH Network spectrum is a perfect example. The company bought this spectrum for a use that they were unable to execute. Since the spectrum is valuable the license holders deploy delaying tactics to stop the FCC from reclaiming the spectrum. The FCC has largely been derelict in enforcing its own rules and I’m sure that DISH was shocked at the FCC response. DISH probably figured that this would be business as usual and that the FCC would grant them more time as had been done in the past. I have no idea if DISH really intends to deploy an IoT network or go into the cellular business – but those are the kinds of new competitive ventures that the FCC has been publicly asking for, so DISH is telling the FCC exactly what it wants to hear. But it’s likely that DISH just wants another delay until they can find a buyer for their sinking satellite business by somebody who will value the spectrum. Regardless of the reasons, the FCC has ignored its own deployment rules numerous times and granted license holders more time.

Spectrum Speculators. There is a class of investors who buy spectrum with the hopes of selling it or licensing it to somebody else. They will buy spectrum and rig up a bogus use of the spectrum to meet the build-out requirements. I’ve seen wireless links deployed that carry no data but that are intended only to prove to the FCC that the spectrum is being used. The FCC ought to do a better job of identifying the fake deployments that are done only to preserve the license.

There’s no way to know if the letter to DISH signals a change at the FCC and if they intend to enforce the spectrum rules. Better enforcement of the rules alone won’t help rural America if the spectrum gets re-licensed and the same cycle repeats. We need spectrum rules that free up spectrum in rural areas where the spectrum sits idle. Perhaps this could be done by requiring license holders to sub-license the spectrum to others where it sits idle. The FCC has said numerous time that wireless technology can be the salvation for rural broadband, yet they allow the most valuable spectrum to sit idle while WISPs are relegated to delivering broadband using a few tiny swaths of unlicensed spectrum. This is not a hard problem to solve, but it requires the will to solve it, and an FCC that won’t cave-in to the big spectrum license holders.

Recognizing the Cable Company Monopolies

In most cities in the US the cable company is now a broadband monopoly. They have won the competition battle and have largely taken customers formerly served by telco DSL. The cable companies have grown into monopolies due to being better competitors and by offering superior broadband products. There are still some markets where the cable companies are not monopolies – they may be competing with a fiber overbuilder or an aggressive CLEC using DSL, or the cable company has not made the upgrades in a given market to the fastest broadband products. But for most towns in the US the cable companies now fit the definition of a classic monopoly.

What I find alarming as a consumer is that there is no talk at the national or even the state level of reacting to the monopoly status of the big cable companies. I know that this conversation will eventually arise as has happened in the past with other monopolies. Monopolies naturally abuse their monopoly power more and more over time until the government is forced to react to regulate them.

The nature of monopolies is well understood and there are well-stablished reasons why governments eventually step in to regulate monopolies:

  • Price Gouging. Monopolies always raise prices over time when there are no competitors to keep them in check. We know that Wall Street is currently urging the big cable companies to aggressively raise broadband prices.
  • Poor Service. Monopolies tend toward providing poor customer service because they have no incentive to do better. The big ISPs are already today are rated by consumers as their least favorite corporations.
  • Monopsony Power. This economics term refers to the tendency for monopolies to exploit their purchasing power by forcing low prices on their supply chain. Perhaps the best example of this is Comcast swallowing up the programmers that supply the content for their cable product.

We know from a few centuries of experience how to deal with monopolies. Governments have numerous options:

Promote Competition. Governments sometimes try to curb monopolies by promoting competition. In the broadband world this could involve the government providing funding to build urban fiber or supporting alternate technologies like 5G to directly compete with the cable monopolies.

Price Regulation. Many natural monopolies are regulated through price caps where regulators must approve rate increases. This remedy is most effective with natural monopolies like electricity or water systems which serve everybody in a community.

Quality of Service Regulation. Regulators have often intervened and forced customer service standards on monopolies. The best example is the old Ma Bell and regulators over the years defined much of the interface between AT&T and customers. They regulated many aspects of that interface such as the rules governing disconnecting customers for non-payment or be defining acceptable time period to make repairs.

Divestiture. An extreme remedy is divestiture, or breaking up a monopoly into different components. We’ve seen this in our industry when the government forced the divestiture of AT&T into local telephone companies and a nationwide long-distance network. It’s harder to see such a clean split for cable companies, but the government could make them divest of programming assets or other ventures that enable them to inflict monopoly abuses.

Rate of Return Regulation. Another effective form of regulation is rate of return regulation. This is still done today for large power companies who must defend their expenditures and rates to regulators. Earnings for the core business are strictly regulated and excess profits returned to customers.

Penalties for Monopoly Abuse. Finally, the government can impose penalties for monopoly abuses. The FCC has always had this authority and issues fines against bad actors in the industry. The Federal Trade Commission also can fine cable companies for operating practices that harm customers.

We are in an environment today where big ISPs and many other large corporations have gained the upper hand in the market through the lobbying of legislators and regulators. However, historically the treatment of monopolies has always been cyclical, and eventually the monopoly abuses become unbearable and the public demands regulation. I would think that if the cable companies follow Wall Street’s advice and raise base broadband rates to $90 per month that we’ll see the government be forced to react.

It’s also possible that some alternate technology like 5G might eventually create competitive pressure for the cable companies. But it’s just as likely that in most places that wireless carriers will be other large companies and we’ll see duopoly competition like we’ve seen for years between Verizon FiOS and the cable companies in the Northeast, where both charge similar prices and don’t really compete.

Regulating Over-the-Top Video

I know several cable head-end owners that are developing over-the-top video products to deliver over traditional cable networks. I define that to be a video product that is streamed to customers over a broadband connection and not delivered to customers through a settop box or equivalent. The industry now has plenty of examples of OTT services such as Netflix, Amazon Prime, Sling TV, Hulu and a hundred others.

While the FCC has walked almost totally away from broadband regulation there are still a lot of regulations affecting cable TV, so today I am looking at the ramifications of streaming programming to customers instead of delivering the signal in a more traditional way. Why would a company choose to stream content? The most obvious benefit is the elimination of settop boxes. OTT services only require an app on the receiving device, which can be a smart TV, desktop, laptop, tablet or cellphone. Customers largely dislike settop boxes and seem to love the ability to receive content on any device in their home. A provider that pairs OTT video delivery with a cloud DVR has replaced all of the functions of the settop box.

There are a few cable companies that have been doing this. Comcast today offers a streaming service they label as Xfinity Instant TV. This package starts with a package of ten channels including local broadcast networks. They then offer 3 add-on options: a kids and family package for $10, an entertainment package for $15 and a sports and news package for $35. Comcast also touts that a customer can choose to stream the content to any of the millions of Comcast WiFi hotspots, not only at their homes.

It’s an interesting tactic for Comcast to undertake, because they have invested huge R&D dollars into developing their own X1 settop box that is the best in the industry. The company is clearly using this product to satisfy a specific market segment which is likely those considering cutting the cord or those that want to be able to easily download to any device.

A second big benefit to Comcast is that they save a lot of money on programming by offering smaller channel line-ups. Traditional cable packages generally include a lot of channels that customers don’t watch but which still must be paid for. Comcast would much prefer to sell a customer a smaller channel line-up than to have them walk away from all Comcast programming.

The third reason why a cable provider might want to stream content is that it lets them argue that they can selectively walk away from cable regulations. The only real difference between Comcast’s OTT and their traditional cable products is the technology used to get a channel to a customer. From a regulatory perspective this looks a lot like the regulatory discussions we had for years about VoIP – does changing the technology somehow create a different product and different regulations. Before VoIP there were numerous technology changes in the way calls were delivered – open wire, party-lines, digitized voice on T-carrier, etc. – but none of the technology upgrades every changed the way that voice was regulated.

I can’t see any reason why Comcast is allowed, from a regulatory perspective, to stream their ITT content over their cable network. The company is clearly violating the rules that require the creation of specific tiers such as basic, expanded basic and premium. What seems to be happening is that regulators are deciding not to regulate. You might recall that three or four years ago the FCC opened investigation this and other video issue – for example, they wanted to explore if video delivered on the web needs to be regulated. That docket also asked about IP video being delivered over a cable system. The FCC never acted on that docket, and I chalk that up to the explosion of online video content. The public voted with their pocketbooks to support streaming video and the FCC let the topic die.  There are arguments that can be made for regulating streaming video, particularly when it’s delivered over the same physical network as traditional cable TV, like in the case with Comcast.

Clearly the FCC is not going to address the issue, and so the technology an lack of regulation ought to be made available to many other cable providers. But that doesn’t mean that the controversy will be over. I predict that the next battleground will be the taxation of streaming video. Comcast would gain a competitive advantage over competitors if they don’t have to pay franchise fees for streaming content. In fact, a cable company can argue they don’t need a franchise if they choose to stream all of their content.

It’s somewhat ironic that we are likely to have these regulatory fights with the cable product – a product that is clearly dying. Customers are demanding alternatives to traditional cable TV, yet the FCC is still saddled with the cable regulations handed to them by Congress. One nightmare scenario for Comcast and the industry would be if some competitor sues a cable company to stop the streaming product – because that would require the regulators, and ultimately the courts to address the issue. It’s not inconceivable that a court could decide that the Comcast streaming service is in violation of the FCC rules that define channel line-ups. Congress could fix this issue easily, but unless they do away with the current laws there will always be a background regulatory threat hanging over anybody that elect to use the product.

Now That Net Neutrality is Dead . . .

The FCC’s net neutrality rules expired last week. There is a process for FCC rule changes that require the agency to take steps like publishing their decisions in the Federal Register, and all of the administrative steps have been taken and the old rules expired.

The press and social media made a big deal about the end of the administrative process, but the issue is a lot more complicated than that and so today I’ll look at what happens next. Officially the big ISPs are now free to make changes in their policies that were prohibited by net neutrality, but for various reasons they are not likely to do so.

First, 22 states filed a lawsuit against the FCC challenging various aspects of the FCC’s ruling. That suit now resides at the US Circuit Court of Appeals in Washington DC. The big ISPs are unlikely to make any significant changes in policies that might be reversed by the courts. In the past the whole industry has waited out the appeals process on this kind of lawsuit because the Courts might find reason to reverse some or all of the FCC’s actions. The ISPs aren’t legally obligated to wait out the lawsuits, but I’m sure their legal counsel is telling them to do so.

Interestingly, the judges hearing this case also heard the previous appeals associated with net neutrality and are familiar with the issues. This court previously had ruled that the FCC had the authority to use Title II regulation as the way to regulate broadband and net neutrality. I’ve not read any predictions yet of how the courts might rule in this case. But if the FCC had the authority to institute Title Ii authority I would think they also have the authority to reverse that decision.

The big ISPs also have to worry about Congress. The Senate voted to reverse the repeal of Title II regulations as part of the Congressional Review Act (CRA) that was used to pass the last budget. The issue is not currently slated for a vote in the House of Representatives and it seems clear that there are not enough votes there to reverse the FCC’s decisions. But it’s only four months until the next election and there is a chance that the Democrats will win a majority of seats. One would think that net neutrality would be on the list of legislative priorities for a Democratic House since polls show over an 80% public approval of the issue.

A vote by Congress to implement net neutrality would end the various court cases since the new laws would supersede any actions taking by the FCC on prior rules. It’s been the lack of Congressional action that has been the underlying reason for all of the various FCC actions and lawsuits on the topic over the years – Congress can give the FCC specific direction and the authority to enforce whatever Congress wants done.

There is another wild card in the mix in that numerous states have either passed rules concerning net neutrality or are contemplating doing so. Most of the state laws would restrict the award of state telecom business to vendors that adhere to net neutrality. My guess is that these lawsuits will make it through appeals because States have the authority to determine their purchasing preferences. But realistically these laws might backfire since most ISPs that are large enough to tackle state telecom needs are likely to be in violation of net neutrality. States implementing these rules might find themselves unable to find a suitable telecom vendor.

The most direct state net neutrality law comes from Washington. Their law, which went into effect automatically when the FCC net neutrality laws expired, prohibits ISPs from blocking or throttling home landline or mobile data. It also specifically prohibits paid prioritization.  An even more stringent bill was near passage by the California legislature. As I was writing this blog it appears that AT&T lobbyists were successful in derailing that legislation. It’s likely that we’ll see more actions from state legislatures in the coming year.

The FCC stated in the Title II repeal order that States were not allowed to override the FCC order. But as we’ve seen many times in the past at the FCC, there is a constant battle between federal authority and state’s rights, .and disputes of this kind are almost always resolved by the courts. There is a long history of battles between FCC authority and State’s rights and over the years both sides have won battles.

The big ISPs hate uncertainty and each of these paths provide a way to reinstate net neutrality. It seems unlikely that the big ISPs will be aggressive with changes until they get a better feel for the resolution of these various challenges to the FCC. Some of the ISPs already had practices that skirted net neutrality rules such as zero-rating of their own content. It’s seems likely that the ISPs will continue to push around the edges of net neutrality, but it seems unlikely that the ISPs will be more aggressive with implementing products and practices that are clear net neutrality violations. The bottom line is that the end of the FCC administrative process was only the beginning of the process and we still have a way to go to get a clear resolution of the issue.

The 3.5 GHz Tug-of-War

I’ve written a number of blogs this year that show how the current FCC is largely favoring the large carriers over small ones. The agency will soon be deciding how to handle the 3.5 GHz spectrum – and it appears that they are again likely siding with large cellular carriers over the rest of the market.

This is the spectrum that has generally been referred to as Citizen’s Band Radio, although it is not close in spectrum to the CB radios highlighted in every movie with a big rig truck. The FCC is currently reconsidering the rules adopted for this spectrum by the last FCC in 2015. The 2015 rules made this spectrum widely available to anybody who wanted to use it. The licenses for the spectrum were to be awarded for very small footprints, at the census tract – an area encompassing 2,500 to 8,000 people. The rules also gave anybody licensing a small footprint a one-year head-start over any larger company that wants to use the spectrum in the same area. This was a perceived boon for WISPs and others wanting to deploy the spectrum for rural broadband.

Small carriers want to use the spectrum because of the great operating characteristics. First, by being licensed it means less interference than using WiFi spectrum. The spectrum also can carry a signal a long distance from a tower and is less sensitive to line-of-sight issues as some other spectrum being used in rural areas.

However, these same characteristics make the spectrum attractive to the large cellular carrier for providing 4G LTE cellular broadband, and the big cellular companies want as much of this spectrum as they can get their hands on. It was lobbying by the CTIA, the lobbying arm of the big cellular companies that convinced the FCC to vote 4-1 last year to reconsider the rules for use of the spectrum.

The original FCC rules allowed for up to seven separate licenses in each census tract – with 74,000 census tracts that meant up to 500,000 separate licenses were possible. The new rules drastically reel in the number licenses. It would grant large footprint licenses in metropolitan areas and county-size licenses in the rest of rural America. There are 306 Metropolitan Statistical Areas (MSAs) and 3,200 counties – and under the new rules this reduces the number of licenses to 19,000.

Under the original rules small providers could bid for licenses that fit a small geographic foot print – a small town or a portion of a rural county. These small license areas are ideal for the business plans for rural providers like WISPs, telephone companies, electric cooperatives, cable companies, and even Internet of Thing providers. There were farming cooperatives considering the spectrum as an interference-free way to monitor smart-farm sensors.

The FCC is currently being lobbied by those on both sides of the issue. The large cellular carriers are represented by their lobbying arm, the CTIA. The smaller providers have banded together during the last few years under a loose umbrella called the CBRS Coalition. This includes many small wireless providers, but also some large corporations like Cox Communications, Edison Electric Institute, Exelon Corp., FedEx, General Electric Co., Motorola Inc., the Port of Los Angeles, Southern Linc, and Union Pacific Corp. The CBRS Coalition filed a compromise plan with the FCC that is in the middle between the old rules and the proposal from the CTIA. In a letter filed on May 9 this group asks to allow five licenses in each county and two licenses in each census tract.

We know from past experience that the spectrum owned by the big cellular companies goes largely unused in rural America. In a rural market they use a handful of the spectrum bands to support rural cellular service compared to the wide array of spectrum they use in urban areas. For various reasons the big wireless carriers seem to want to hoard spectrum rather than ever find themselves short.

In an ideal world the FCC would force big carriers to give back spectrum they never use, but we’ve never had an FCC that’s been serious about reclaiming unused spectrum. The large carriers don’t have plans to use most spectrum bands in rural areas but also don’t want to be bothered to defend their licenses – and so they fight any suggestions that unused spectrum should be returned to the FCC for use by somebody else.

We don’t know how the FCC will vote on this issue – but the fact that they opened the issue based upon a petition by the CTIA tells us their likely sentiment. So far this FCC has voted for the big carriers on every issue where there is a big company / little company tug of war. If the FCC follows their trend and votes for the CTIA petition, it will be another dagger stuck into the heart of rural broadband.

Legislating Better Broadband

The Senate Commerce Committee recently passed the Rural Reasonable and Comparable Wireless Act if 2018. The bipartisan bill was co-sponsored by Senators Maggie Hassan (D NH) and Shelly Moore Capito (R WV).

It’s an innocuous bill that would have the FCC compare urban and rural pricing and availability of cellular voice service, cellular broadband service and broadband internet access services. Rather than do this nationwide the bill would gather data in and around the top twenty metropolitan markets. The sponsors of the bill say it will help to close the digital divide and will provide the extra tools the FCC needs to make sure that people in rural communities get a fair shake when with access to mobile broadband.

This sounds great, but the bill does nothing more than require gathering data to point out what we already know – that urban areas have better broadband of all types, landline and cellular. The bill won’t help to close the digital divide or fix any broadband problems because it doesn’t require the FCC to do anything other than gather more data – much of which it already gathers today.

The bill doesn’t require the FCC to take action should coverage gaps be identified (which will happen in every market), and so it’s another toothless broadband bill – it’s what I call addressing the broadband problem by press release. I don’t know anything about these two Senators, but I am sure that in the upcoming elections they, and other Senators who vote for this bill will point at this bill as proof that they are trying to help fix the rural broadband problem. Instead, this bill just spends money to create another big annual report from the FCC and will not try to fix any of the problems causing the rural broadband gap.

I really didn’t intend to bust on this bill when I started writing this blog. But this legislation is another example of the toothless telecom bills we’ve seen out of Congress over the last few decades. The FCC can only do those things that Congress authorizes and Congress could tackle the rural broadband issue. Prior FCC’s have tried to do so, but without a clear edict from Congress the FCC has been forced to concoct complicated legal authority, like Title II regulation to tackle broadband issues.

I’ve seen the public mood shift drastically in the last few years in rural America. People have gone from wanting better broadband to now demanding better broadband and politicians better start listening to their constituents if they want to keep their jobs. Broadband is a non-partisan issue and rural America is ready to listen to anybody who can bring them a broadband solution.

Rural America doesn’t need more reports from the FCC telling them what they don’t have – they need funding to build rural broadband infrastructure. I travel extensively in rural America and I’ve noticed that every rural household can identify the nearest place that has real broadband. They don’t need the FCC to tell them that broadband is better in the County seat or in the nearest big city – they are well aware of it.

We are badly in need of a new telecom bill. The current FCC is now chipping away at some of the last vestiges of the Telecom Act of 1996 by killing resale and the use of unbundled network elements. This Congress sat blithely by while the current FCC undid Title II regulation of broadband. The public and the press have been attacking Chairman Ajit Pai for killing net neutrality and Internet privacy – but at the end of the day this is all the fault of Congress.  Congress could give new instructions any day on these issues to the FCC, but they’ve punted on that responsibility.

Aside from the politicians running the current FCC, who are clearly in the pockets of the big ISPs, most reasonable people would agree that broadband should be regulated to some degree. We are nearing the time when the big cable companies will have a monopoly stranglehold over broadband in most US markets. And even where they don’t have a monopoly, where they compete against large fiber builders like AT&T the two sides cooperate to keep prices high – classic duopoly competition.

Monopolies must always be regulated. With Title II regulation now dead we are going to see the big ISPs aggressively monetizing customer data. We’ll see them raise broadband rates as the easiest way to meet Wall Street earnings expectations. We’ll see them tighten and enforce data caps and use every trick available to extract as much money as they can from customers. This is what big corporations do when they are free of regulation.

The current FCC has washed their hands of even trying to regulate the big ISPs, and only Congress can create the rules that can put some reasonable curbs on bad ISP behavior. I don’t hear even one member of Congress calling for Congressional responsibility – instead of solutions that can provide better rural broadband and that controls the worst impulses of the big ISPs we will get bills like this that creates a new annual report that reminds us that broadband is not as good in rural Maryland and Virginia as it is in Washington DC.

Restricting RUS Funding

The major large ISP lobbyists have asked Congress to block the use of Rural Utility Service (RUS) funding to overbuild areas that have only rudimentary broadband today. The heads of the National Cable & Telecommunications Association, the American Cable Association, USTelecom and the ITTA – the major lobbyists for the big ISPs – wrote a joint letter to the chair of the Senate Agricultural Committee. The letter requests that the upcoming Farm Bill restrict funding from the RUS to be only used for overbuilding to rural areas where at least 90% of homes don’t have access to 10/1 broadband. There are almost no such places left in the country, at least on paper, so this would effectively gut RUS funding from being used to improve rural broadband.

In the original CAF II program the FCC gave the big telcos billions of dollars to upgrade a lot of rural areas to speeds of at least 10/1 Mbps. In the upcoming CAF II reverse auction the places that weren’t included in the original CAF II program are slated to get upgrades to the same 10/1 Mbps speed. On paper this means there will be few  places that don’t have access to 10/1 Mbps broadband. Even where the telcos have supposedly upgraded to 10/1 there are likely to be large number of homes that don’t even get that rudimentary speed. Unfortunately the big telcos control the rural agenda since they are the ones that report consumer speeds on the broadband maps – and those maps are going to show that the telcos did a good job with upgrades, even when they didn’t.

Meanwhile these same big telcos have made it clear that they aren’t going to be investing in rural America.

  • CenturyLink’s new CEO recently said the company was no longer going to invest in infrastructure with low returns, meaning that they won’t be making any more investments in their last mile networks.
  • AT&T and Verizon both have asked the FCC to make it easier for them to walk away from rural copper lines, and both companies are pursuing a fixed cellular solution for providing rural voice and broadband.

These giant telcos are not willing to invest in their own networks – but they also don’t want anybody else building there. These companies took billions in free federal money to nudge rural broadband speeds up to a crappy 10/1 Mbps, and they are now basically telling the people that live in these areas that 10/1 Mbps is all of the broadband they will ever need or are ever going to get.

The RUS money is largely being used by smaller independent telcos, rural electric cooperatives and Indian tribes that want to invest in better broadband in rural America. A lot of RUS funding is being used to build fiber, the ultimate broadband upgrade. I imagine a number of companies bidding in the CAF II auction are planning on using RUS funding to complete those builds – but if this makes it into the Farm bill  that won’t be possible.

The only other entities interested in building rural fiber are rural governments. In states where it’s allowed they are looking for broadband solutions for their rural towns and counties and are often willing to make significant investments to make sure that their communities don’t get left behind. Most rural communities don’t want to be ISPs and they are helping to fund public / private partnerships with these same small telcos and electric coops to get better broadband – and those partners often look to the RUS to complete the funding.

The big telcos have political smarts and are trying to get this buried into the Farm Bill – something that will inevitably pass. This will allow politicians to vote for this provision while not having gone on record as siding with the big telcos. But make no mistake about it – any politician that supports this idea is choosing the big telcos over their rural constituents. Politicians only need to visit any rural part of their state to understand that broadband is now at the top of the priority list for most rural communities. These communities understand that those places that don’t soon get broadband are going to become economically irrelevant and will eventually wither away.

This letter was prompted by the fact that Congress recently awarded $600 million for expansion of rural broadband through the Ray Baum’s Act of 2018 that reauthorized the FCC budget. Those funds will be administered by the RUS. I predicted when that bill was passed that the big telcos would look for a way to make sure that most of that new money goes to them. It looks like I’m right, because if the Farm Bill passes with the requested change, then little or none of the $600 million will be of use to anybody else for building better broadband.

I hope that the small telcos and electric cooperatives react promptly and loudly to this proposed bill amendment, because it effectively guts RUS funding. This funding has been used for decades for overbuilding better broadband networks in areas served by the big telcos – and this one change would kill that.

I spend a lot of time talking about the ‘rural broadband problem’. But as I look at this lobbying effort I need to start talking about the ‘big telco problem’. All of the rural places that still don’t have good broadband are served by these big telcos. The rest of telcos and other companies that operate in rural America are finding solutions for better rural broadband. These big telcos have refused to reinvest the billions of profits they have made back into rural America and are now trying to make sure that nobody else makes those investments. The big telcos want to milk every last penny they can out of rural America.

Prices for Wireless Pole Attachments

The FCC’s advisory BDAC group looking at pole attachment issues gathered prices for wired and wireless pole attachments. Their goal was to understand the range of attachments prices and to see if the group could come up with a consensus pricing recommendation to the FCC. Wired pole attachments are the annual fee that the owner of a wired network (telco, cable company, fiber) pays for each place one of their wires connects to a pole. Wireless pole attachments are the fees charged for putting some kind of wireless transmitter on a pole.

There were no surprises for wired pole attachments. The group looked at 577 different attachments and found that the average price was $17.58 per year for each wired pole attachment while the median was $15.56. These are similar to the prices I see all over the country.

Wireless attachments varied a lot more. The BDAC group looked at 407 samples of wireless pole attachment prices from around the country and the average price was $505.56 while the median price was $56.60. For the median to be that low means that the sample was stacked with low readings.

That’s easy to understand if you look at wireless pole attachment rules around the country. Three states – Arizona, Indiana and North Carolina have capped the annual price of a wireless pole attachment at $50 per year, while Texas capped it at $20. Other states like Colorado, Delaware and Virginia cap rates at actual cost. For the median price to be that low means that just less than half of the of the 407 same prices were likely from this group of states. And this means that that no conclusions can be drawn from the results of the BDAC’s sampling – it was definitely not a random or representative sample – yet the BDAC group summarized the results as if it was, and even calculates a standard deviation.

Thirteen states have already acted to limit the cost for wireless attachments, mostly through legislation. Florida and Rhode Island have capped the cost of a wireless pole attachment at $150; Minnesota set the rate at $175 and Ohio set the maximum rate at $200. Kansas says the rate must be ‘competitively neutral’ and Iowa caps the rate at the FCC rate.

One of the biggest issues with arbitrarily setting wireless pole attachment rates is that the wireless devices being put onto poles vary by size and can use between 1 and 10 feet of pole space. Regulators have traditionally used the concept of allocating costs by the amount of usable space taken by a given connector, and in fact uses the term ‘pole real estate’ to describe the relationship between space used and price paid. Any attachment that uses more of the pole real estate should expect to pay more for the attachment – largely in a linear relationship.

The results of the sample might have been more valid has the group not included prices for places where the legislators have capped or limited rates. Also, the big wireless companies are part of the BDAC group and I have to suspect that they brought in the worst case examples they could find where they are paying the highest prices. This exercise proved nothing other than that the price for wireless connections are higher in states where the rates are not capped.

It’s not surprising, but the BDAC group was unable to secure a consensus on prices or pricing methodology for the FCC. Unsurprisingly the network operator – those who attach to poles – think rates should be cost based. Pole owners think rates ought to be market based.

There are, of course, many other factors to consider in setting pole attachment rates. In the case of wireless connections there are concerns about the safety of working near the wireless devices after storm damage. There are also significant concerns in cities about aesthetics.

The battle in setting these rates is still heating up. An additional fifteen states – AK, CA, CT, GA, HI, IL, ME, MO, NE, NM, PA, WA and WI – have considered pole attachment legislation that didn’t pass. There is the possibility of the FCC trying to set rates and there have been drafts of several bills in Congress that have considered the idea. Since this seems to be the primary focus of the wireless companies there will be a lot of lobbying on the issue.

Eliminating Unbundled Network Elements (UNEs)

At the urging of USTelecom, the lobbying arm for the big telcos, the FCC has opened WC Docket No. 18-141 that is seeking to eliminate the requirement for the big telcos to offer unbundled network elements (UNEs) or resale for their products. Comments are due in this docket by June 7, with reply comments due June 22.

The requirement for the big telcos to unbundle their networks was one of the primary features of the Telecommunications Act of 1996. The Congress at that time recognized that there was little competition in the telecom market and decided that allowing competitors to resell or use components of the big telco networks would help to jump-start competition. The idea worked and within just a few years there were giant CLECs created that used resale and UNEs to create large competitive telecoms. I recall that at least six different CLECs salespeople visiting the CCG offices located just inside the Washington DC Beltway. Most of those big competitive companies imploded spectacularly in the big telecom collapse in 2000, but there are still numerous companies utilizing the unbundled elements of the big telco networks.

The docket talks about forbearance, which in this case means ceasing a regulatory requirement, and specifically this docket asks the FCC to forbear:

  • Section 251 and 252 of the FCC rules that require the big telcos to resale or offer unbundled network elements to competitors;
  • Section 272 of the FCC’s rules that specify timelines for the telcos to negotiate or respond to requests for service from competitors;
  • Section 271 of the FCC’s rules that lay out the rights for competitors to gain access to poles, ducts, conduits and rights-of-way.

This forbearance would be devastating to a number of competitive carriers. Consider just a few examples of how the industry still uses these sections of the FCC’s rules:

  • There is still a lot of resale of telco products. I know one Northwest rural area where a competitor resells nearly 90% of the rural DSL provided by CenturyLink. This reseller gained the business by knocking on doors and selling DSL to homes that didn’t even know it was available from the telco. In much of rural America the big telcos have almost no employees, no marketing and no customer service and resellers are making big telco products work even where the telcos don’t make any effort.
  • There are still numerous DSL providers that collocate their own DSL electronics in telco central offices and then use the unbundled telco loops to provide decent DSL to customers. These competitors offer newer generation and faster DSL where the telcos are often still only offering slow first generation DSL from twenty years ago.
  • Facility-based fiber overbuilders regularly use unbundled network elements to operate in areas where they have not yet built fiber. Or they use UNEs to serve distant branches of a fiber customer – for instance they might use UNEs to create a private network between locations of a bank with branches in several communities.
  • Any competitor that wants to offer facility-based long distance in a metropolitan market must have a physical connection to the primary big telco switching locations (tandems) in that market. These connections are needed due to requirements that the telcos have forced upon competitors since the 1996 Act to try to make it more expensive to compete. Nobody would build the massive network needed to connect these office just to provide voice and so competitors satisfy this requirement using UNEs.
  • Competitors routinely want to make connections between carriers located at the big telco hubs. They make this happen by buying UNEs that reach between carrier A and B within these hubs (might only require a few feet of fiber).

All of these situation, and the many other uses of the resale and UNEs would disappear if the FCC sides with the big telcos. The big telcos set to work to neuter the requirements of the Telecommunications Act of 1996 right after it passed. Over the years they have eliminated many forms of resale. They have made it virtually impossible for a competitor to gain access to their dark fiber. They have routinely made it harder and harder each year for competitors by introducing changes in their contracts with competitors.

This forbearance would be a huge victory for the telcos. This would have a huge chilling impact on competition and customer choice. This would mean that the only way to compete with the telcos would be by overbuilding 100% to reach customers and to interconnect networks. Numerous competitive providers would be quickly bankrupted and disappear. Huge numbers of customers, primarily businesses, would lose their vendor of choice as competitive carriers would no longer be able to serve them. This could even kill wholesale VoIP since the underlying carriers providing that service rely heavily within their networks on interconnection UNEs.

The big telcos argue that they shouldn’t have to continue to unbundle their networks because these requirements deal mostly with legacy TDM technology. But this is not only copper technology and many of the UNEs used for interconnection are on fiber. And even where this is being done on copper, it makes sense for the FCC to allow competitors to use that copper for as long as it exists. Copper UNEs will die a natural death as the copper disappears, but until then, if a competitor can use that copper better than the telco they should be allowed to do so. Competitors have used UNEs and resale to build thriving businesses that benefit consumers by providing choice and lower prices. Forbearing on resale and UNEs would be another giveaway by the FCC to the big telcos at the expense of competition and customer choice.

If you are a small carrier that relies on resale or UNEs you need to file comments in this docket by June 7. They need to hear real life stories of small carriers and the customers you serve, and hear why they should not kill UNEs. You don’t need to be a lawyer to tell the FCC your story, especially not if you have a good story to tell.