Category Archives: Regulation – What is it Good For?

Speed Goals for FCC Grants

I literally grimaced when I first read about the 25/3 Mbps speed test that will likely be part of the new $20.4 billion grant program recently announced by the FCC. My first thought was that the 25/3 Mbps goal would provide an excuse for the FCC to give the grant money to the big telcos again. Those companies could then take another ten years to bring rural DSL up to the speeds they should have achieved on their own a decade ago. With the history of the FCC pandering to the big telcos I instantly feared this possibility.

But let’s assume that the upcoming grants will be available to all comers. Why would the FCC choose the 25/3 Mbps speed target? It’s a terrible goal for many reasons.

  • While this FCC will not admit it, 25/3 Mbps is already obsolete as the definition of adequate broadband. It’s been five years since 25/3 Mbps was adopted and households are using a lot more data than five years ago. It’s pretty easy to make the case that the definition of broadband today probably ought to be at least 50 Mbps download.
  • If the 25/3 Mbps speed is already outdated today, then it’s a lousy goal for a decade from now. This FCC should not repeat the same blunder as the last FCC did with the original CAF II program. They should set a forward-looking speed goal that reflects the likely speed requirements at the time the grant networks will be constructed. Any network engineer who tracks customer usage will tell you that the minimum speed requirement for eight years from now should be at least 100 Mbps.
  • The 25/3 Mbps just feels ‘puny’. I got the same letdown when I read that a new NASA goal is to put a man on the moon again. Considering the huge leaps we’ve made in technology since 1969, striving for a moon-landing again feels like a small national goal and a waste of our national resources – and so does setting a broadband speed goal of 25/3 Mbps.

One of the goals that Congress gave the FCC is to strive to bring rural broadband into parity with urban broadband. In setting a goal of 25/3 the FCC is ignoring the broadband trend in cities. The big cable companies have increased minimum download speeds for new customers to beteen 100 and 200 Mbps and have unilaterally increased speeds for existing customers. 25/3 Mbps is a DSL speed, and we see the biggest telcos finally starting to walk away from copper. Verizon has gotten out of the copper business in nearly 200 exchanges in the northeast. AT&T has been losing DSL customers and replacing them with fiber customers. It’s almost unthinkable that the FCC would establish a new forward-looking grant program and not expect broadband speeds any faster than DSL.

In my mind, the FCC betrayed rural communities when they adopted the 10/1 Mbps speed goal for CAF II. That told rural communities that they had to settle for second-rate broadband that was far slower than the rest of the country. From what I hear, most rural communities don’t even consider the CAF II upgrades as real broadband. Rural communities want fiber. They view anything slower than fiber as nothing more than a stepping-stone towards eventually getting fiber.

The FCC needs to listen to what rural America wants. If this giant new grant program will make rural communities wait for years to get 25/3 Mbps then rural America will largely ignore it. Communities will continue to plan for something better. Households might begrudgingly buy 25/3 broadband, but the people in rural America know that is not the same as broadband elsewhere and they will continue to clamor for the same broadband that they see in cities.

I hope the FCC understands this. Even if they allow technologies in these grants that can only deliver 25/3 Mbps, the FCC can still use the grant ranking process to favor faster broadband. If the grants grading process emphasizes speed, then the $20 billion could probably be used to bring fiber to 4 or 5 million rural homes. In my mind that would be the ideal use of these grants, because those homes would be brought to parity with the rest of the country. Those homes could be taken off of the FCC’s worry list and the universe of underserved homes would be significantly reduced. If the grants give money to anything less than fiber, the FCC will have to keep on dumping grant money into the same communities over and over until they finally finance fiber.

This blog is part of a series on Designing the Ideal Federal Broadband Grant Program.

Setting the Right Goals for Grants

Most past federal broadband grant programs had very specific goals. For example, the USDA Community Connect grants that have been around for many years target grants to the poorest parts of the country – the awards are weighted towards communities with the highest levels of poverty. For any grant program to be effective the goals of the program need to be clearly defined, and then the award process needs to be aligned with those goals.

The FCC needs to define the goals of the upcoming $20.4 billion grant program. It the goals are poorly defined then the resulting grant awards are likely to be all over the board in terms of effectiveness. What are the ideal goals for a grant program of this magnitude?

The first goal to be decided is the scope of the coverage – will the goal be to bring somewhat better broadband to as many households as possible, or will it be to bring a long-term broadband solution to a smaller number of households? If the goal is to serve the most households possible, then the grants are going to favor lower-cost technologies and the grants will likely go to the wireless providers and satellite providers – as we saw happen in the recent CAF II reverse auction.

If the grants are aimed at a more permanent solution, then the grants will favor fiber. Perhaps the grants could also go towards anybody willing to extend a cable hybrid-fiber coaxial network into rural areas – but no other technology can be considered as a permanent solution.

There are huge consequences for choosing the first option of serving as many households as possible. These new grants are mostly going to be awarded in the geographic areas covered by the original CAF II program. That program awarded over $11 billion to the big telcos to beef up broadband to speeds of at least 10/1 Mbps. Now, before that program is even finished the FCC is talking about overbuilding those same areas with another $20 billion grant program. If this grant program is used to upgrade homes to fixed wireless, it doesn’t take a crystal ball to understand that in ten years from now we’ll be talking about overbuilding these areas again with fiber. It would be incredibly wasteful to use multiple rounds of grants to upgrade the same geographic areas several times.

The other big issue for these grants to deal with is defining which parts of the country are eligible for the grants. What should be the criteria to decide which homes can be upgraded?

If the test is going to be related to existing speeds, the FCC is going to have to deal with the existing broadband coverage maps that everybody in the industry knows to be badly flawed. The FCC is talking about tackling a new mapping effort – but it’s highly likely that the new maps will just swap old mapping errors for new mapping errors. The reality on the ground is that it’s virtually impossible to map the real speeds on copper or fixed wireless networks. In real life, two rural neighbors can have drastically different speeds due to something as simple as being on different copper pairs. It’s impossible to accurately map DSL or wireless broadband coverage.

To make matters even worse, the current Re-Connect grants are saddled with a rule that says that no more than 10% of grant-covered homes can have existing broadband of more than 10/1 Mbps. Layering that kind of rule on top of terrible maps creates an environment where an ISP is largely unable to define a believable grant footprint.

The FCC must figure out some way to rectify the mapping problem. One of the easiest ways is what I call the technology test – anybody that wants to overbuild copper with fiber should automatically be eligible without trying to figure out the current speeds on the copper. Perhaps the easiest rule could be that any place where there is telco copper and no cable company network should be grant-eligible for fiber overbuilders.

Assuming the grants won’t all go to fiber, then there has to be an alternate way for an ISP or a community to challenge poor maps. Perhaps the FCC needs to provide a realistic time frame to allow local governments to demonstrate the actual speeds in an area, much like what was done in the recent Mobility II grant process.

This blog is part of a series on Designing the Ideal Federal Grant Program.

Designing the Ideal Federal Broadband Grant Program

In April, FCC Chairman Ajit Pai announced a new rural broadband initiative that will provide $20.4 billion of new funding. We don’t know many details yet, but here are a few things that will likely be involved in awarding the funding:

  • The FCC is leaning towards a reverse auction.
  • The program will likely require technologies that can deliver at least 25/3 Mbps broadband speeds.
  • The program will be funded within the existing Universal Service Fund, mostly by repositioning the original CAF II plan.
  • The grants might all be awarded at once, similar to A-CAM and CAF II awards, meaning that there might be only one chance to apply, with the awards to be paid out over a longer time period.

I’m writing a series of blogs that will examine the ideal way to design and administer a grant program of this size. We’ve seen both good and also disastously bad federal broadband programs before, and i’m hoping the FCC will take some time to make this grant program one of the effective ones. I’m sure the details of this new program are not yet set in stone, and folks in rural America need to make their voices heard now if they want some of this money to benefit their communities.

I’m going to look at the following topics, and perhaps more as I write this. At the end of this process I’ll post a whitepaper on my website that consolidates all of these discussions into one document.

A well-designed broadband grant program of this magnitude should consider the following:

What is the End Goal?

It’s important up-front for the FCC to determine how the grant moneys are to be used. The best grant programs have a specific goal, and then the application and award process is designed to best meet the goals. The goal can’t be something as simple as ‘promote rural broadband’, because a goal that simplistic is bound to create a hodgepodge of grant awards.

What Broadband Speeds Should be Supported?

This is an area where the FCC failed miserably in the past. They awarded over $11 billion in the CAF II program that was used to upgrade broadband speeds to speeds of only 10/1 Mbps. When the FCC set the 10/1 Mbps speed that didn’t even meet their own definition of broadband. How should the FCC determine eligible speeds this time to avoid a repeat of the CAF II debacle?

Who Should be Eligible?

FCC programs in the past have usually made the monies available to a wide range of recipients. However, the specific details of the grant programs have often made it hard for whole classes of entities like cities or counties to accept the awards. As an example, there are many entities electing to not participate in the current Re-Connect grant program because they can’t accept any part of the awards that include RUS loans.

Is a Reverse Auction the Right Mechanism?

The FCC and numerous politicians currently favor reverse auctions. Like any mechanism, there are situation where reverse grants are a great tool and others where they will distort the award process. Are reverse auctions a good tool for this grant program?

Other Issues

There are two drastically different ways to hand out these grants. One is to follow the CAF II mechanism and award all of the $20 billion in one huge auction and then pay it out over 6 or 8 years. The other would be to divide the award money into even tranches and have a new grant award for each of those years.

In the recent Re-Connect grants the FCC decided to blend grants and loans. I know the loan component stopped most of my clients from pursuing these grants. Should there be a loan component of the grants?

There are also technical issues to consider. I had clients who were outbid in the recent CAF II reverse auction by wireless companies that gained bidding preference by promising that their fixed wireless networks could achieve across-the-board 100 Mbps broadband. I still don’t know of a wireless technology that can do that over a large footprint. How should the FCC make sure that technologies deliver what’s promised?

What’s the Role of States in this Process?

What should states be doing to maximize the chance for federal grant money to be awarded to their state?

This blog is part of a series:

Setting the Right Goals for Grants

Speed Goals for FCC Grants

Clearing Mid-range Spectrum

The FCC is in the process of trying to free up mid-range spectrum for 5G. They just opened a Notice of Proposed Rulemaking looking at 2.5 GHz spectrum, located in the contiguous block between 2495 and 2690 MHz. Overall this is the largest contiguous block of mid-range spectrum. Over half of the spectrum sits idle today, particularly in rural America. The history of this spectrum demonstrates the complications involved in trying to reposition spectrum for broadband and cellular use.

The frequency was first assigned by the FCC in 1963 when it was made available to school systems to transmit educational TV between multiple schools. The spectrum band was called Instructional Television Fixed Service (ITFS). The band was divided into twenty channels and could transmit a TV signal up to about 35 miles. I grew up in a school system that used the technology and from elementary school onward we had a number of classes taught on the TV. Implementing the technology was expensive and much of the spectrum was never claimed.

In 1972 the FCC recognized the underuse of the spectrum and allowed commercial operators to use the bands of 2150 to 2162 MHz on an unlicensed basis for pay-TV transmissions to rooftop antennas. The spectrum could only carry a few TV channels and in the 1970s was used in many markets to transmit the early version of HBO and Nickelodeon. This spectrum band was known as Multipoint Distribution Service (MDS) and also was good for about 35 miles.

Reacting to pressure from cellular companies, the FCC reallocated eight additional channels of the spectrum for commercial use. Added to the MDS spectrum this became known as Multichannel Multipoint Distribution Service (MMDS). At the time this displaced a few school systems and anybody using the spectrum had to pay to move a school system to another workable channel. This spectrum was granted upon request to operators for specific markets.

In 1991 the FCC changed the rules for MMDS and allowed the channels to be used to transmit commercial TV signals. In 1995 any unused MMDS spectrum was sold under one of the first FCC auctions, which was the first to divide service areas into the geographic areas known as Basic Trading Areas (or BTAs) that are still used today. Before this auction, the spectrum was awarded in 35-mile circles called Geographic Service Areas (GSAs). The existing GSAs were left in place and the spectrum sold at auction had to work around existing GSAs.

The FCC started getting pressure from wireless companies to allow for the two-way transmission of data in the frequency (up to now it had been all one-way delivery to a customer site). In 2005 the FCC changed the rules and renamed the block of spectrum as Broadband Radio Service (BRS). This added significant value to licenses since the spectrum could now be repositioned for cellular usage.

At this point, Clearwire entered the picture and saw the value of the spectrum. They offered to buy or lease the spectrum from school systems at prices far lower than market value and were able to amass the right to use a huge amount of the spectrum nationwide. Clearwire never activated much of the spectrum and was in danger of losing the rights to use it. In 2013 Sprint purchased Clearwire, and Sprint is the only cellular company using the spectrum band today.

Today the spectrum band has all sorts of users. There are still school districts using the spectrum to transmit cable TV. There are still license holders who never stopped using the 35-mile GSA areas. There are still MMDS license holders who found a commercial use for the spectrum. And Sprint holds much of the spectrum not held by these other parties.

The FCC is wrestling in the NPRM with how to undo the history of the spectrum to make it more valuable to the industry. Education advocates are still hoping to play in the space since much of the spectrum sits idle in rural America (as is true with a lot of cellular and other mid-range spectrum). The other cellular carriers would like to see chunks of the spectrum sold at auction. Other existing license holders are fighting to extract the biggest value out of any change of control of the spectrum.

The challenge for repositioning this spectrum is complicated because the deployment of the spectrum differs widely today by market. The FCC is struggling to find an easy set of rules to put the genie back in the bottle and start over again. In terms of value for 5G, this spectrum sits in a sweet spot in terms of coverage characteristics. Using the spectrum for cellular data is probably the best use of the spectrum, but the FCC has to step carefully to do this in such a way as to not end up in court cases for years disputing any order. Reallocating spectrum is probably the most difficult thing the FCC does and it’s not hard to see why when you look at the history of this particular block of spectrum and realize that every block of spectrum has a similar messy past.

The Regulatory Pendulum

Many years ago I took an economics course in regulatory theory. That’s a course that looks at how government can and should regulate markets. Economic theory makes it clear that most markets trend towards consolidation over time and at the point where large companies come to dominate a market that the biggest companies inevitably engage in monopolistic behavior.

I got to thinking about the topic lately as I’ve been reading about how politicians in the US and in Europe are thinking about ways to regulate large internet platforms like Google and Facebook. Those companies are clearly monopolies in their sector.

My real interest is in the way that we regulate broadband, which has grown to be one of the most important industries in the country. It’s interesting to compare the way that broadband is regulated compared to almost any other important sector of the country. Banks have bookshelves full of regulations. Big electric companies are highly regulated. There are tons of safety and other regulations concerning our food and drug industries.

The most lightly regulated industry in the US are the web companies like Google and Facebook. There have been very few attempts to regulate them in this country. Europe has taken a more normal regulatory approach and has imposed various kinds of privacy and consumer protection regulations on the industry to protect customers. Europe is debating if there should be even stronger regulation.

Broadband is the second least regulated major industry in this country. The current FCC killed what little regulation we had when they killed their own Title II authority. Even before the FCC axed Title II regulation the broadband industry was barely regulated, with only a few rules concerning net neutrality and privacy. All that’s left now are some minor regulations such as CALEA, where an ISP must allow law enforcement to wire-tap or track customers with a subpoena. FCC Chairman Pai calls the current regime ‘light touch’ regulation, but what we have now is basically no regulation. It would be more accurate to say that we used to have light touch regulation before the FCC killed net neutrality and Title II, since even then our ISPs were far less regulated than other major sectors of the economy.

We still have some regulation of broadband by the Federal Trade Commission. However, that barely counts as regulation because the FTC regulates only by exception – they can go after an individual ISP for bad behavior that harms the public, but each case is individual and doesn’t create a rule that stops other ISPs from engaging in the same behavior. The hope is that other ISPs modify their behavior due to an FTC ruling, but without the ability to create rules the FTC has no real regulatory teeth. They are more like the traffic cops of the industry handing out random speeding tickets rather than a real regulator.

Regulatory theory says there are two major tools that can be used in a monopolistic industry. The first is a strong regulatory agency that can set firm rules that prohibit bad behavior and that also encourages good behavior. That’s what the FCC is supposed to be doing – but they killed Title II regulation and gave away their authority to regulate broadband.

The other regulatory tool is antitrust. The FCC and the DOJ get to weigh in on possible mergers and are required to decide if the mergers are in the public interest. They occasionally turn down mergers like the merger attempt a few years ago between AT&T and T-Mobile. But for the most part, we’ve had weak antitrust regulation and most mergers have gone through. The ISP industry is dominated by a handful of huge companies, and they continue to grow larger and more dominant, such as the the merger of Charter and Time Warner Cable.

The flip side of mergers is divestiture and there has only been one major divestiture in the industry when the courts decided to break AT&T into multiple parts. That divestiture lasted only a few years and AT&T was able to reassemble many of the divested companies into one entity again.

I think it’s inevitable that broadband will eventually be regulated again. Governments that don’t regulate monopolies pay dearly. Right now there is nothing stopping the ISPs from shooting broadband prices up to $100 or from harming the public by selling customer data. the big ISPs talk a good public game, but there are almost no constraints on any bad behavior.

Every industry goes through a cycle called the regulatory pendulum. When regulations grow too harsh the big companies gain sympathy for relaxing some of the rules. But as rules relax, big companies seem to be unable to resist taking advantage of customers – and eventually the regulations are again tightened.

We are now at a regulatory extreme with broadband. The primary regulator, the FCC, has washed their hands of regulating broadband. The FTC occasionally makes an appearance and levies a fine but doesn’t really regulate. Mergers are more likely to go through than not, and so we see continued consolidation of the industry. The ISPs will eventually be unable to constrain themselves from flexing their monopoly power. When they go too far and the abuses mount up we’ll see the regulatory pendulum swing the other way. There’s no telling how long that might take – but it’s inevitable.

AT&T Withdraws from Lifeline Program

In March the Public Utility Commission of Ohio allowed AT&T to withdraw from the federal Lifeline program. This is a program that let’s qualified low-income homes get a monthly discount of $9.25 from either their landline telephone or their broadband connection – only one discount per home. AT&T successfully withdrew from Lifeline in Illinois in 2018 and in twelve other states in 2017.

AT&T apparently hasn’t been advertising or pushing the potential discount since they only had 7,300 homes in the state on the Lifeline program. The Communications Workers of America say there are almost 1.6 million households in Ohio that qualify for the discount – although not all of them are served by AT&T.

You might think that AT&T supports Lifeline by looking at their web site. However, clicking through to Ohio notifies customers that the discount will end in June and provides customers a list of other companies that might offer them the discount.

The Lifeline program started in 1985, and at the time the amount of discount was a significant savings for customers. Because of inflation the $9.25 discount represents a far smaller portion of a today’s monthly telecommunications bill.

Participation in the Lifeline program has dropped significantly in the past few years, as has the way the fund is being used. The following revenue numbers come from the 2018 annual report from USAC – the entity that operates the Lifeline Fund. I extraopolated out the number of participants at $9.25 per month.

2016 2018
Telephone $1,477,548,000 $312,300,000
Bundle $25,554,000 $293,707,000
Broadband $18,610,000 $536,424,000
Total $1,521,712,000 $1,142,431,000
Participants        13,700,000        10,250,000

Since 2016 there are 2.5 million fewer participants in the plan – many certainly due to carriers like AT&T withdrawing from the plan. The USAC numbers show a big shift since 2016 of participants applying the discount to their broadband bill rather than to landline telephone or cellphone bill.

The Lifeline Program was in the news recently when the FCC Inspector General issued a fraud advisory that says there are a lot of duplicate names requesting Lifeline and a number of deceased people still getting the discount. Chairman Ajit Pai immediately issued a statement saying that the program needs to be cleaned up.

Fraud has always been a concern in the program. However, it’s a little odd for the FCC to be complaining about fraud today since they are in the process of taking over validation of Lifeline subscribers. Eligibility to participate in Lifeline was previously the responsibility of the states, but in June, 2018 USAC launched the National Verifier, a database that lists everybody eligible to receive a Lifeline credit. As of the end of last year, the federal verifier was active in 18 states, with the remaining states and territories joining the program this year. It seems odd to be yelling about problems of the older state programs when the FCC has already implemented a solution that they believe will solve most of the fraud issues.

I published a blog several days ago saying how regulators are letting the public down. It’s mystifying to me why the Ohio PUC and so many other states are letting AT&T out of the Lifeline program. The Lifeline Fund reimburses AT&T for every discount given to customers, so there is zero net cost to AT&T to participate in the plan. With the new National Verifier, AT&T takes no role in enrolling customers, who must enter through the national Verifier portal. I don’t know why regulators don’t insist that AT&T and every other company that sells residential telephone and broadband be required to participate in the program.

FCC Expands Wireless Attachment Rights

On April 12 the FCC issued a new Notice for Proposed Rulemaking in Docket 19-71 that will use 5G as the justification for another giveaway to the wireless carriers. Last year the FCC ordered that wireless carriers are free to put small cell sites and other wireless devices on utility poles, light poles or buildings that are in the public right-of-way. This new docket would expand some additional rights for buildings along the sides of rights-of-way. Comments will be due within 30 days of publication in the Federal Register with an additional 45 days for replay comments.

This docket requires an understanding of past orders to fully understand what is being proposed. The order would modify existing industry rules that apply to OTARDs (Over-the-Air Reception Devices). The original order on the topic was issued in 2000 and dealt with the right of consumers to connect a receiving antenna on their home to receive a wireless signal. At the time this mostly applied to satellite dishes for cable TV, but at the time there was also a budding wireless industry that was deploying WiFi mesh networks.

In the original order, the FCC said that residents, particularly renters, had the right to install receiving antenna under a twelve-inch dish size. Landlords could have some say in the placement of the dishes, but they could not deny a renter the right to receive the wireless service.

In that original order the FCC considered and rejected the idea that any OTARD installations gave the wireless carrier the right to also install a wireless repeater or other device that would re-originate the wireless signal and send it to another nearby location, such as a neighboring home. At the time such devices were relatively large and added to the bulk and appearance of a wireless receiver.

The new docket proposes to reverse part of that original order and provide rights to wireless carriers that were not included in the first order. Under the proposed rules the wireless carriers would be automatically allowed to place a repeater or other similar device anywhere they have been given permission to mount a receiver. Effectively, when a customer grants a wireless carrier the right to mount a receiver on their home, they will also be conveying ‘ownership rights’ to the carrier for that small portion of their building.

Unlike in 2000 when repeaters were bulky, the repeaters used for millimeter wave radios are tiny and can easily be incorporated in any receiving dish. Very few homeowners or apartment owners will know or care that an active receiving antenna is also being used to bounce a signal to a neighboring customer. However, the controversy will arise when a customer stops using a wireless service and wants to take down the antenna. According to this new docket, that little circle of real estate around the receiver would now belong to the wireless carrier instead of the home or apartment owner and the carrier could insist that it stays in place.

The wireless carriers want this right due to the physics of delivering 5G using millimeter wave spectrum. Both lab tests and reports from the early 5G deployments from Verizon show that local obstructions can easily block a millimeter wave signal coming from a pole-mounted transmitter. However, a home that can’t get a clear shot from the pole unit might instead be able to get a clear signal that is bounced from a neighbor’s home. This kind of mesh network is going to be an integral part of distributing 5G broadband from poles.

This is clearly another land grab by the wireless carriers. If a customer disconnects service, they are likely to want to take down an unused antenna. This docket would give the wireless carrier the right to claim access to the area that was occupied by the former receiver. It’s not hard to picture the numerous disagreements and fights this will result from this order.

However, it’s also easy to sympathize with the wireless carriers. If a customer that is near to a pole drops service, the ISP might lose several other customers that relied on a signal from the disconnecting home. I can easily envision the controversies that will happen in neighborhoods if customers lose service due to an action taken by one of their neighbors. It’s not even hard to envision a homeowner taking down an antenna just to spite a neighbor.

This is ultimately an issue of authority. Many cities are already suing the FCC over the last wireless ruling saying that the placement of electronics in the right-of-way is a matter of local jurisdiction, not federal. The FCC’s authority seems even sketchier when extended to any home or structure within a thousand feet of a wireless transmitter. Can a wireless carrier be allowed to carve out a small piece of real estate on a building in perpetuity simply because that building once subscribed to a wireless service? Should the homeowner expect compensation for use of that real estate (like has been ordered by pole owners). Would a homeowner be expected to power a repeater when they no longer recieve service?

The FCC is clearly in favor of giving the authority to wireless carriers to deploy as they see fit. I am fairly certain that these issues are going to be resolved ultimately in the courts.

Why is the FCC Still Spinning Net Neutrality?

Chairman Ajit Pai and several other FCC Commissioners are still sticking with the story that regulation and net neutrality were quashing capital spending and innovation in the industry. This was the primary argument that justified killing net neutrality and gutting Title II regulation. Pai claimed that net neutrality was disrupting the big ISPs so much that they were reining in capital spending. Chairman Pai further claimed that killing regulation would free the big ISPs to expand their networks and to improve broadband coverage – he’s also repeatedly argued that without regulation that ‘the market’ would solve the rural broadband divide. Chairman Pai launched this story on his first day as Chairman and hasn’t let up – even now, over a year after the FCC successfully killed net neutrality and Title II regulation.

I find this to be unusual. Normally, when somebody in the industry wins a regulatory battle they quietly move on to the next issue, but at almost every public speaking opportunity the Chairman is still repeating these same talking points. I’ve been thinking about why Chairman Pai would keep harping on this argument long after he successfully killed net neutrality. I can think of a few reasons.

The Lawsuits. The FCC is probably concerned about the lawsuits challenging net neutrality. That order used some legal gymnastics in the FCC argument to kill Title II regulation. So perhaps Chairman Pai is continuing to make these same arguments as a way to let the courts know that keeping Title II regulation dead is still the number one priority of this FCC. I’m sure that if the courts challenge the FCC order that the agency will appeal, and so perhaps he continues to make the same arguments in anticipation of that coming court battle.

5G Deployment. In a very odd back-door way, the FCC has been using the net neutrality argument to grease the skids for an unregulated roll-out of 5G. The FCC’s message couldn’t be simpler: “all regulation bad / 5G and innovation good”.

I doubt that the average American understands the magnitude of what this FCC did when they killed Title II regulation. The agency basically killed its own authority to regulate what is probably the most important product it has ever regulated. Broadband is vital to both the economy and to people’s everyday lives. Yet this FCC thinks that their best regulatory role is to not regulate the industry in any manner. That means not regulating the many issues covered by net neutrality. It means not caring about consumer privacy on the web. It means not being concerned with runaway price increases and data caps. Killing Title II regulation means that future FCCs might have a hard time trying to reintroduce any regulation of broadband. The FCC handed the keys of the broadband industry to the monopoly ISPs and told them to run the industry as they see fit.

At the strong urging of the big wireless companies, this FCC wants to also make sure there are no restraints on 5G. It seems the only parties the FCC wants to regulate are those that might create roadblocks for 5G, such as cities that control rights-of-way.

Congress. Congress has the ability to permanently resolve the Title II and net neutrality battle. Congress could codify the current deregulated state-of-affairs or they could put Title II and net neutrality permanently back on the books. In fact, it’s the lack of Congressional action that led the FCC to kill net neutrality – they would much have preferred that Congress did it. But the Congress hasn’t undertaken any policy initiatives in the telecom industry since the Telecommunications Act of 1996, when most of us still were using dial-up.

There has been a lot of recent discussion in Congress on telecom issues and perhaps one of the reasons that Chairman Pai continues to lobby against net neutrality is to keep that position in front of Congress. However, it seems unlikely that any significant regulation is going to come out of a split Congress.

No Better Argument? Finally, and what is my favorite theory, perhaps the FCC doesn’t have any better argument about why they should be killing regulation. They’ve had years to come up with a story that the American people will buy, and the best they’ve come up with is that killing regulation will unleash innovation.

I think the FCC is afraid to touch the policy issues that the public really cares about. People in rural areas are adamant that the FCC finds a way to get them real broadband. The vast majority of broadband users are worried about being hacked and are worried about how the big ISPs are spying on them and selling their data. Everybody is concerned about the talk on Wall Street that encourages the big ISPs to significantly jack up rates. A large majority of the country cares about net neutrality and an open Internet. I can see why the FCC would rather stick with their story about how killing regulation unleashes innovation – because they are afraid of opening Pandora’s box to let all of these other issues into the open.

Why We Have Crappy Rural Broadband

I believe that there are two simple reasons why we such poor landline infrastructure in rural America – the big telcos decided to walk away from rural America and the regulators let them do it.

It’s easy to contrast the rural areas served by the big telcos and the smaller telephone companies. A large percentage of the smaller telcos have built fiber in rural America and are offering broadband today as good as anything found in any city.

By contrast, the big telcos all stopped supporting copper many decades ago. The existing copper networks were largely built or rebuilt in the 1960s and 1970s by AT&T. However, soon after AT&T was split into the Baby Bells they decided to stop spending money to support rural America.

For example, I clearly remember in the 1980s when Bell Atlantic, which became Verizon, wanted to sell off the entire telco property in West Virginia. I worked with several groups trying to buy the network there. It became quickly clear that the telco had slashed maintenance for the West Virginia copper network. Bell Atlantic had shut down local customer service centers and steadily reduced the number of repair technicians. Bell Atlantic still happily collected the monopoly revenues in the state but didn’t roll any profits back into the network.

The big telcos didn’t only walk away front rural America. To rub salt in the would they worked hard to keep others from serving in the areas they abandoned. The big telcos undertook an aggressive policy of stopping anybody else from competing against them. They lobbied in every state legislature to pass laws to stop municipalities and electric cooperatives from competing against them. They worked tirelessly to weaken the 1996 Telecommunications Act and dragged their feet and took every opportunity to make it harder for CLECs to compete.

Their fight against competition hasn’t stopped. Just last year the big telco lobbyists were able to insert language in the new federal $600 million ReConnect grant / loan program that makes it hard to use the grant money to compete against the big telcos.

I was recently on a panel at the Broadband Properties convention and another panelist made a comment along the lines of, “it’s natural for the big ISPs in the industry to try to squash competition – that’s what big companies are expected to do”. That sentiment only works if the big telcos have been engaging in normal competition – but instead their actions have been monopoly abuse.

I don’t think you can find another industry where the monopoly abuses have been so blatant. I can’t think of another industry where the biggest companies not only kill off small competitors, but also aggressively lobby to keep competition out of the market. There is a gigantic difference between competition and monopoly abuse, and the lack of rural broadband can be chalked up almost entirely to monopoly abuse.

Susan Crawford recently suggested that the only long-term solution for rural broadband is to treat rural broadband networks as a regulated utility. What’s sad is that before 1980 that’s exactly what we had, but the regulators blew it and allowed the big telcos to walk away from their regulatory responsibilities.

I firmly believe that both state and federal regulators were completely complicit in allowing the big telcos to walk away from their networks. Some states tried to make the telcos do the right thing, but over time the big telcos wore down regulators by constant lobbying and by non-stop foot-dragging on anything required by regulators.

Not only did regulators not enforce existing regulations, but in most states they unbelievably deregulated the big telcos and lowered or removed any obligation of the big telcos to do a good job. It was easy to justify deregulation in urban competitive markets where cable companies competed with the telcos, but deregulation should never have been allowed in rural America where the telcos own the only landline network.

Regulators turned a blind eye as the big telcos ignored rural America for decades and then rewarded them by deregulating and shielding them from the consequences of the mess they had made of rural copper networks. I defy any regulator to tell me that they were looking out for their rural constituents when they deregulated the telcos. They should honestly all be ashamed, because protecting the public against monopoly abuse is one of the primary purposes of regulation. Regulators are the second culprit in why we have crappy rural broadband.

I’ve always wondered why some smart lawyers haven’t latched onto this story as the basis for a huge class action suit. The damage to rural America from not having broadband are almost incalculable. How do you even begin to quantify the damage to households with no broadband connection today – when it was clearly the responsibility of the big telcos to serve their monopoly customers and the responsibility of the regulators to make them do it?

$20.4 Billion in Broadband Funding?

Chairman Ajit Pai and the White House announced a new rural broadband initiative that will provide $20.4 billion over ten years to expand and upgrade rural broadband. There were only a few details in the announcement, and even some of them sound tentative. A few things are probably solid:

  • The money would be used to provide broadband in the price-cap service areas – these are the areas served by the giant telcos.
  • The FCC is leaning towards a reverse auction.
  • Will support projects that deliver at least 25/3 Mbps broadband.
  • Will be funded from the Universal Service Fund and will ‘repurpose’ existing funds.
  • The announcement alludes to awarding the money later this year, which would be incredibly aggressive.
  • This was announced in conjunction with the auction of millimeter wave spectrum – however this is not funded from the proceeds of that auction.

What might it mean to repurpose this from the Universal Service Fund?  The fund dispersed $8.7 billion in 2018. We know of two major upcoming changes to the USF disbursements. First. the new Mobility II fund to bring rural 4G service adds $453 million per year to the USF. Second. the original CAF II program that pays $1.544 billion annually  to the big telcos ends after 2020.

The FCC recently increased the cap on the USF to $11.4 billion. Everybody was scratching their head over that cap since it is so much higher than current spending. But now the number makes sense. If the FCC was to award $2.04 billion in 2020 for the new broadband spending, the fund would expand almost to that new cap. Then, in 2021 the fund would come back down to $9.6 billion after the end of CAF II. We also know that the Lifeline support subsidies have been shrinking every year and the FCC has been eyeing further cuts in that program. We might well end up with a fund by 2021 that isn’t much larger than the fund in 2018.

There are some obviously big things we don’t know. The biggest is the timing of the awards. Will this be a one-time auction for the whole $20.4 billion or a new $2 billion auction for each of the next ten years? This is a vital question. If there is an auction every year then every rural county will have a decent shot at the funding. That will give counties time to develop business plans and create any needed public private partnership to pursue the funding.

However, if the funding is awarded later this year in one big auction and then disbursed over ten years, then I predict that most of the money will go again to the big telcos – this would be a repeat of the original CAF II. That is my big fear. There was great excitement in rural America for the original CAF II program, but in the end that money was all given to the big telcos. The big telcos could easily promise to improve rural DSL to 25/3 Mbps given this kind of funding. They’d then have ten years to fulfill that promise. I find it worrisome that the announcement said that the funding could benefit around 4 million households – that’s exactly the number of households covered by the big telcos in CAF II.

What will be the study areas? The CAF II program awarded funding by county. Big study areas benefit the big telcos since anybody else chasing the money would have to agree to serve the same large areas. Big study areas means big projects which will make it hard for many ISPs to raise any needed matching finds for the grants – large study areas would make it impossible for many ISPs to bid.

My last concern is how the funds will be administered. For example, the current ReConnect funding is being administered by the RUS which is part of the Department of Agriculture. That funding is being awarded as part grants and part loans. As I’ve written many times, there are numerous entities that are unable to accept RUS loans. There are features of those loans that are difficult for government entities to accept. It’s also hard for a commercial ISP to accept RUS funding if they already carry debt from some other source. The $20.4 billion is going to be a lot less impressive if a big chunk of it is loans. It’s going to be disastrous if loans follow the RUS lending rules.

We obviously need to hear a lot more. This could be a huge shot in the arm to rural broadband if done properly – exactly the kind of boost that we need. It could instead be another huge giveaway to the big telcos – or it could be something in between. I know I tend to be cynical, but I can’t ignore that some of the largest federal broadband funding programs have been a bust. Let’s all hope my worries are unfounded.