Category Archives: Regulation – What is it Good For?

Continued Lobbying for White Space Spectrum

In May, Microsoft submitted a petition to the FCC calling for some specific changes that will improve the performance of white space spectrum used to provide rural broadband. Microsoft has now taken part in eleven white space trials and makes these recommendations based up on the real-life performance of the white space spectrum. Not included in this filing is Microsoft’s long-standing request for the FCC to allocate three channels of unlicensed white space spectrum in every rural market. The FCC has long favored creating just one channel of unlicensed white space spectrum per market – depending on what’s available.

A number of other parties have subsequently filed comments in support the Microsoft proposals including the Wireless Internet Service Providers Association (WISPA), Next Century Cities, New America’s Open Technology Institute, Tribal Digital Village and the Gigabit Libraries Network. One of the primary entities opposed to earlier Microsoft proposals is the National Association of Broadcasters (NAB), which worries about interference with TV stations from white space broadband. However, the group now says that it can support some of the new Microsoft proposals.

As a reminder, white space spectrum consists of the unused blocks of spectrum that are located between the frequencies assigned to television stations. Years ago, at the advent of broadcast television, the FCC provided wide buffers between channels to reflect the capability of the transmission technology at the time. Folks my age might remember back to the 1950s when neighboring TV stations would bleed into each other as ghost signals. As radio technology has improved the buffers are now larger than needed and are larger than buffers between other blocks of spectrum. White space spectrum is using those wide buffers.

Microsoft has proposed the following:

  • They are asking for higher power limits for transmissions in cases where the spectrum sits two or more channels away from a TV station signal. Higher power means greater transmission distances from a given transmitter.
  • They are asking for a small power increase for white space channels that sit next to an existing TV signal.
  • They are asking for white space transmitters to be placed as high as 500 meters above ground (1,640 feet). In the US there are only 71 existing towers taller than 1,000 feet.
  • Microsoft has shown that white space spectrum has a lot of promise for supporting agricultural IoT sensors. They are asking the FCC to change to white space rules to allow for narrowband transmission for this purpose.
  • Microsoft is asking that the spectrum be allowed to support portable broadband devices used for applications like school buses, agricultural equipment and IoT for tracking livestock.

The last two requests highlight the complexity of FCC spectrum rules. Most people would probably assume that spectrum licenses allow for any possible use of spectrum. Instead, the FCC specifically defines how spectrum can be used and the rural white space spectrum is currently only allowed for use as a hot spot or for fixed point-to-point data using receiving antennas at a home or business. The FCC has to modify the rules to allow use for IoT for farms sensors, tractors and cows.

The various parties are asking the FCC to issue a Notice of Proposed Rulemaking to get comments on the Microsoft proposal. That’s when we’ll learn if any other major parties disagree with the Microsoft proposals. We already know that the cellular companies oppose providing multiple white space bands for anything other than cellular data, but these particular proposals are to allow the existing white space spectrum to operate more efficiently.

Is One Touch Make-Ready Really Faster?

The new federal rules for one-touch make ready (OTMR) finally went into effect on May 21, after having been passed by the FCC last November. For those not familiar with the term make-ready, this refers to any work that has to be done to a pole to make it ready to add a new wire, like a fiber cable. There are national safety standards that define the distance required between different kinds of wires and also clearance required from wires to the ground – and often existing poles can’t accommodate a new wire that meets all of the needed spacing. The make-ready that’s needed to get onto an existing pole often involves rearranging existing wires to create the needed clearance, or in drastic cases a replacement of an old pole with a taller pole.

The new OTMR rules apply only in the thirty states that follow FCC pole attachment rules. The FCC has strongly encouraged other states to implement something similar, but they are not mandated to do so. The new rules also don’t change the fact that poles owned by electric cooperatives and municipalities are exempt from federal pole attachment rules.

The new rules speed up the process of getting onto most poles – but as I’ve dug into the new rules, I’m not sure they are really going to drastically cut the timeline needed to build fiber on poles.

The most significant change in the rules is a new classification of poles as either simple or complex make-ready. The order defines how to make this classification. In real life practice, the new attacher will suggest this determination, although it could get overturned by the pole owners.

There are streamlined new rules and timelines for completing the make-ready on simple poles. If the pole owner is unwilling to commit to fixing simple poles in the needed time frame, then the new attacher is allowed to make the changes after properly notifying the pole owner. The new attacher is free to rearrange any existing wires as needed, again after having properly notified all of the parties. These new rules eliminate situations where a pole owner refuses to cooperate with a new attacher, as happened in a few cities where AT&T fought Google Fiber. Something to consider is that the rules require using a make-ready contractor that has been pre-approved by the pole owner – but there are ways around this in some circumstances.

This sounds like a huge improvement in the pole attachment process because new fiber builders now have a guaranteed process for getting onto poles with simple make-ready. In most places, the majority of poles ought to be classified as simple. This isn’t true everywhere and we’ve seen cities where the majority of poles are crowded and might be classified as complex.

The problem that still remains is any complex poles. Those are poles where the make-ready could cause damage to existing wires or where the old pole must be replaced. The make-ready process for complex poles has always been slow. The new rules tighten up time frames a little, but the time required to get onto a complex pole can still take a long time.

For complex poles the process will still allow the existing wire owners to work sequentially. This coordination has to be scheduled by the pole owner. The process could still take six months even if done perfectly. What’s troubling is that I still don’t see any easy resolution for when the pole owner on the existing attachers drag their feet on complex poles. Other than some slightly improved timelines, the work on complex poles looks to still be as dreadful as today.

What does this mean for aerial construction? Consider a long run of 30 poles where 2 of the poles require complex make-ready. The new attacher can get the make-ready done on the 28 simple poles more quickly than in the past. Those simple poles might be ready to hang the new fiber within 60-days. But new fiber still can’t be hung on this route until all 30 poles are ready.

A new fiber builder still faces the same bad choices they have today. They can wait six months or more for the complex make-ready to be completed. If the complex work bogs down the new attacher faces the prospect of going to the state regulatory commission for help – something that can add an additional six months. The only other alternative is to bury around the complex poles – something that can add a lot of cost, especially when there is rocky soil.

The one-touch make-ready rules would be awesome if networks were comprised mostly of simple poles. A fiber overbuilder could have fiber on poles within a few months of starting a project. However, the reality is that there are many poles in the world that won’t be classified as simple. Many urban poles are too short to add another wire and have to be replaced with taller poles. Poles at busy intersections can already hold a maze of wires. Some poles today are going to carry other impediments like small cell sites that are going to make it harder to add fiber.

We’re going to have to see these new rules in practice before we can conclude that one-touch make-ready provides a major benefit. The FCC’s motives for OTMR are good and they are trying to favor easier fiber construction. We’re just going to have to wait to see if the new rules make any actual difference with the overall timeline for aerial construction.

The California Consumer Protection Act (CCPA)

In June 2018 California enacted a new privacy law that adopts some of the requirements of the European Union’s privacy regulations that recently went into effect. The California law goes into effect on January 1, 2020 and will affect a lot of US companies, including many not located in California. The law applies to any company that collects and processes personal information of California residents. For now, small companies that have revenues of less than $25 million per year along with non-profit entities are exempt.

The law defines personal information much more broadly than any other US privacy legislation. Personal information is defined as, “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.” Using information that just identifies an address is a big expansion of privacy rules since prior rules only considered personal information of residents. The law includes a list of examples of personal data such as Social Security numbers, credit card numbers, and drivers’ license numbers, but goes a lot further and covers things like information captured and tracked by marketing cookies that capture information like IP addresses or information about computers or phones. While the law excludes information that is publicly available, essentially any information a company collects about customers is considered as private.

The new law provides specific rights to consumers:

Disclosure: A business must notify customers about its data collection practices. Companies must disclose the personal information that is being collected, describe how it’s being collected and used, and disclose if that data is being disclosed or sold to anybody else. This is to be provided in a publicly posted privacy notice and also needs to be made available to consumers upon request.

Opt-Out. Customers must be provided an easy-to-understand process for opting out of having their data sold to third parties. Consumers under 16 must opt-in to having data sold. Parents must provide consent for children under the age of 13. Companies must provide a “Do Not Sell My Personal Information” button on their main home page.

Information Removal: Customers must be provided the ability to have businesses delete their personal information, and companies must let customers know they have this right. If a customer chooses this option a business must not only delete the information from their own records but must ensure that the records are deleted by any third-party contractors that have been provided with the personal information.

No Discrimination: Businesses cannot discriminate against customer who elect to keep their data private. Businesses can’t charge an extra fee for a customer electing a privacy option. Interestingly though, businesses can offer an incentive for customers to make their data available, such as offering a discount for allowing the business to use the data.

In the same manner that recently happened in Europe, US companies that are covered by this law have a lot of things to put into place by the first of next year. Most companies won’t find it hard to make the needed disclosures and notices, but putting processes in place that delete customer data, including data that was passed on to somebody else can be a huge challenge. One of the hardest requirements to meet will be the one that requires companies to make all reasonable efforts to protect against data breaches.

The penalties for not complying with the law are high. A company can be charged up to $2,500 for every violation and up to $7,500 for each intentional violation (such as not deleting data after assuring a customer it was done). Companies can avoid fines by coming into compliance within 30 days of being notified by an attorney general of a violation.

The law also opens companies to litigation from customers. The law gives consumers the right to bring lawsuits if their data is disclosed due to negligence of the business. Consumers can file individual or class action lawsuits and can recover between $100 and $750 in damages per incident. This law will almost certainly spur a class-action lawsuit every time there is a big data breach.

I’ve reported on this law for a few reasons. California often leads the country on new legislation and it’s likely that some version of this law will spread elsewhere across the country. For instance, as I was writing this blog the state of Maine passes legislation that is even more stringent in a few areas. There is also a bipartisan effort in Congress looking at privacy rules and this law is certain to influence that effort.

This law doesn’t just apply to web-vendors. Parts of this law apply to anybody that collects sensitive customer data from the Internet such as ISPs and utilities. It’s a warning to every business to take steps to protect against breaches of customer information.

Will Congress Be Forced to Re-regulate Broadband?

Last year the current FCC largely deregulated broadband. They killed Title II regulation and also handed off any remaining vestiges of broadband regulation to the Federal Trade Commission. The FCC is still left with broadband-related tasks associated with broadband. For instance, they still have to track broadband adoption rates. They are still required to try to solve the rural digital divide. They still approve electronics used to provide broadband. But this FCC has killed its own authority to make ISPs change their behavior.

I wrote a blog a month ago talking about the regulatory pendulum. Industries that become dominated by monopolies are always eventually regulated in some manner – governments either proscribe operating rules or else break up monopolies using antitrust laws. One only has to look at the conversation going on in Washington (and around the world) about somehow regulating Facebook, Google and other big web platforms to see that this is inevitable. Big monopolies always grow to trample consumers and eventually the public demands that monopoly abused be curbed.

It’s only been a little over a year since the FCC deregulated broadband and there are already topics looming that beg for regulation. There is nothing to stop this FCC or a future FCC from reintroducing regulation – the courts already gave approval for regulating using Title II. Regulation can also come from Congress – which is the preferred path to stop the wild swings every time there’s a new administration. Even the ISPs would rather be regulated by Congress than to bounce back and forth between FCCs with differing philosophies.

Over half of the states have introduced bills that seek to regulate data privacy. Consumers are tired of data breaches and tired of having their personal information secretly peddled to the highest bidder. A year ago the California legislature passed data rules that largely mimic what’s being done in Europe. The Maine legislature just passed rules that are even more stringent than California in some ways.

It’s going to be incredibly expensive and complicated for web companies to try to comply with rules that differ by state. Web companies are in favor of one set of federal privacy rules – the big companies are already complying with European Union rules and they’ve accepted that providing some privacy to consumers is the cost of doing business. Privacy rules need to apply to ISPs as much as they do to the big web companies. Large ISPs are busy gathering and selling customer data in the same manner as web companies. Cellular companies are gathering and selling huge amounts of customer data.

There are other regulatory issues that are also looming. It seems obvious that if the administration and the Senate turn Democratic that one of their priorities will be to reimplement net neutrality. The ISPs are already starting to quietly violate net neutrality rules. They are first tackling things that customers like such as sponsored video as part of a cellular plan – but over time you can expect the worst kind of abuses that were the reasons behind net neutrality rules.

I think that broadband prices are going to become a major issue. The big ISPs have all acknowledged that one of the few tools they have to maintain earnings growth is to raise broadband prices. Cord cutting is accelerating and in the first quarter the ISPs lost cable customers at a rate of 6% annually. Cord cutting looks like it’s going to go much faster than the industry anticipated as millions of customers bail on traditional cable each quarter. The pressure to raise broadband rates is growing.

We’ve already seen the start of broadband price increases. Over the last few years the ISPs have been raising rates around the edges, such as increasing the monthly price for a broadband modem. More recently we’ve seen direct broadband price increases such as the $5 rate increase for bundled broadband by Charter. We’re seeing Comcast and other ISPs start billing people for crossing data caps. Most recently we know that several ISPs are talking about significantly curtailing special rates and discount for customers – eliminating those discounts probably equates to a 10% – 15% rate increase.

At some point, the FCC will have to deal with rising broadband rates. Higher broadband rates will increase the digital divide as households get priced out from affording broadband. The public will put a lot of pressure on politicians to do something about ISP prices.

Deregulating broadband at a time when a handful of ISPs have the vast majority of broadband customers was one of the most bizarre regulatory decisions I’ve ever seen. All monopolies, regardless of industry need to be regulated – we’ve known this for over a hundred years. It’s just a matter of time before Congress is forced to step up and re-regulate broadband. It may not be tomorrow, but I find it highly unlikely that broadband will still be deregulated a decade from now, and I expect it much sooner.

Is the FCC Really Solving the Digital Divide?

The FCC recently released the 2019 Broadband Deployment Report, with the subtitle: Digital Divide Narrowing Substantially. Chairman Pai is highlighting several facts that he says demonstrate that more households now have access to fast broadband. The report highlights rural fiber projects and other efforts that are closing the digital divide. The FCC concludes that broadband is being deployed on a reasonable and timely basis – a determination they are required to make every year by Congressional mandate. If the FCC ever concludes that broadband is not being deployed fast enough, they are required by law to rectify the situation.

To give the FCC some credit, there is a substantial amount of rural fiber being constructed – mostly from the ACAM funds being provided to small telephone companies with some other fiber being deployed via rural broadband grants. Just to provide an example, two years ago Otter Tail County Minnesota had no fiber-to-the-premise. Since then the northern half of the county is seeing fiber deployed from several telephone companies. This kind of fiber expansion is great news to rural counties, but counties like Otter Tail are now wondering how to upgrade the rest of their county.

Unfortunately, this FCC has zero credibility on the issue. The 2018 Broadband Deployment Report reached the same conclusion, but it turns out that there was a huge reporting error in the data supporting that report where the ISP, Barrier Free, had erroneously reported that they had deployed fiber to 62 million residents in New York. Even after the FCC recently corrected for that huge error they still kept the original conclusion. This raises a question about what defines ‘reasonable and timely deployment of broadband’ if having fiber to 52 million fewer people doesn’t change the answer.

Anybody who works with rural broadband knows that the FCC databases are full of holes. The FCC statistics come from the data that ISPs report to the FCC each year about their broadband deployment. In many cases, ISPs exaggerate broadband speeds and report marketing speeds instead of actual speeds. The reporting system also contains a huge logical flaw in that if a census block has only one customer with fast broadband, the whole census block is assumed to have that speed.

I work with numerous rural counties where broadband is still largely non-existent outside of the county seat, and yet the FCC maps routinely show swaths of broadband availability in many rural counties where it doesn’t exist.

Researchers at Penn State recently looked at broadband coverage across rural Pennsylvania and found that the FCC maps grossly overstate the availability of broadband for huge parts of the state. Anybody who has followed the history of broadband in Pennsylvania already understands this. Years ago, Verizon reneged on a deal to introduce DSL everywhere – a promise made in exchange for becoming deregulated. Verizon ended up ignoring most of the rural parts of the state.

Microsoft has blown an even bigger hole in the FCC claims. Microsoft is in an interesting position in that customers in every corner of the country ask for online upgrades for Windows and Microsoft Office. Microsoft is able to measure the actual speed of customer download for tens of millions of upgrades every quarter. Microsoft reports that almost half of all downloads of their software is done at speeds that are slower than the FCC’s definition of broadband of 25/3 Mbps. Measuring a big download is the ultimate test of broadband speeds since ISPs often boost download speeds for the first minute or two to give the impression they have fast broadband (and to fool speed tests). Longer downloads show the real speeds. Admittedly some of Microsoft’s findings are due to households that subscribe to slower broadband to save money, but the Microsoft data still shows that a huge number of ISP connections underperform. The Microsoft figures are also understated since they don’t include the many millions of households that can’t download software since they have no access to home broadband.

The FCC is voting this week to undertake a new mapping program to better define real broadband speeds. I’m guessing that effort will take at least a few years, giving the FCC more time to hide behind bad data. Even with a new mapping process, the data is still going to have many problems if it’s self-reported by the ISPs. I’m sure any new mapping effort will be an improvement, but I don’t hold out any hopes that the FCC will interpret better data to mean that broadband deployment is lagging.

Should Rural Fiber be a Utility?

I’ve heard or read half a dozen people in the last month say that the way we get rural fiber everywhere is to make fiber a regulated utility. This idea certainly has appeal for the many rural places that don’t have fiber today. On the surface this sounds like a way to possibly get fiber everywhere, and it’s hard to see a downside to that.

However, I can think of a number of hurdles and roadblocks to this concept that might be hard to overcome. This blog is too short to properly explore most of these ideas and it would require a 40-page whitepaper to give this topic justice. With that caveat, here are some of the big issues to be solved if we wanted to create rural fiber utilities.

What About Existing Fiber? What would we do about all of those who have already built rural fiber? There are small telcos, cooperatives, and rural communities that have already acted and found a way to fund a rural fiber network. Would we force someone who has already taken the commercial risk to somehow convert those existing fiber properties into a utility? Most small companies that have built rural fiber took on a huge debt burden to do so. Rural communities that have built fiber likely put tax revenues on the line to do so. It seems unfair to somehow force those with vision to already tackle this to somehow transform into a regulated utility.

What About Choice? One of the most important goals of almost every community I have worked with is to have broadband choice. One of the key aspects of a fiber utility is that it will almost certainly be a monopoly. Are we going to kick out WISPs in favor of a fiber utility? Would a fiber monopoly be able to block satellite broadband? .

The Definition of Rural. What areas are eligible to be part of a regulated fiber utility? If the definition is defined by customer density, then we could end up with farms with fiber and county seats without fiber. There’s also the more global consideration that most urban areas don’t have fiber today. Do we ask cities that don’t have fiber to help subsidize rural broadband? It’s impractical to think that you could force city networks to become a utility because that would financially confiscate networks from the big cable companies.

Who Pays for It? Building fiber in rural America would probably require low-interest loans from the government for the initial construction – we did this before when we built rural electric grids, so this can be made to work. But what about keeping fiber utilities solvent for the long run? The rural telephone network functioned so well because revenues from urban customers were used to subsidize service in rural places. When the big telcos were deregulated the first thing they did was to stop the internal subsidies. Who would pay to keep fiber networks running in rural America? Would urban ISPs have to help pay for rural broadband? Alternatively, might this require a tax on urban broadband customers to subsidize rural broadband customers?

Who Operates It?  This might be the stickiest question of all. Do we hand utility authority to local government, even those who are reluctant to take on the responsibility? Would people favor a fiber utility if the government handed over the operations to AT&T, Verizon, CenturyLink or Frontier? What do we do about cooperatives where the customers want to own their fiber network? Do we force existing fiber owners to somehow sell or give their networks to a new utility?

What About Carrier of Last Resort? One of the premises of being a utility is the idea that everybody in the monopoly service area can get service. Would we force fiber utilities to serve everybody? What about a customer who is so remote that it takes hundreds of thousands of dollars of construction to reach them? Who gets to decide who gets service? Does a fiber utility have to build to reach every new home?

What About Innovation? Technology never sits still. How do force fiber utilities to upgrade over time to stay current and relevant? Upgrading infrastructure is an expensive problem for existing utilities – as I found out recently when a water problem uncovered the fact that my local water utility still has some of the original main feeder pipes built out of wood. The common wisdom is that fiber will last a long time – but who pays to replace it eventually like we are now doing with the wooden water pipes? And what about electronics upgrades that happen far more often?

Government’s Role. None of this can be done without strong rules set by and enforced by the government. For example, the long-term funding mechanisms can only be created by the government. This almost certainly would require a new telecom act from Congress. Considering how lobbyists can sideline almost any legislative effort, is it even possible to create fiber utility that would work? Fiber utilities would also require a strong FCC that agrees to take back and strongly regulate and enforce broadband regulations.

Summary. I’ve only described a partial list of the hurdles faced in creating rural fiber utilities. There is no issue on this list that can’t be solved – but collectively they create huge hurdles. My biggest fear is that politics and lobbying would intervene, and we’d do it poorly. I suspect that similar hurdles faced those who created the rural electric and telephone companies – and they found a way to get it done. But done poorly, fiber utilities could be a disaster.

Summary Conclusions for Designing an FCC Broadband Grant

The earlier series of blogs looked at a number of ideas on how the FCC could create the most effective federal grant program for the upcoming $20.4 billion of announced grants. Following is a summary of the most important conclusions of those blogs:

Have a Clearly Defined Goal. If a federal grant’s program goal is something soft, like ‘improve rural broadband’ then the program is doomed to failure and will fund solutions that only incrementally improve broadband. The grant program should have a bold goal, such as bringing a permanent broadband solution to a significant number of households. For example, done well, this grant could bring fiber to 4 – 5 million homes rather than make incremental broadband improvements everywhere.

Match the Grant Process with the Grant Goals. Past federal grants have often had grant application rules that didn’t match the goals. Since the results of grants are governed by the application rules, those are all that matter. Stated goals for a grant are just rhetoric if those goals are not realized in the grant application requirements. As an example, if a grant goal is to favor the fastest broadband possible, then all grant application rules should be weighted towards that goal.

Match Speed Requirement with the Grant Construction Period. The discussion for the proposed $20.4 billion grant contemplates a minimum speed goal of 25/3 Mbps. That’s a DSL speed and is already becoming obsolete today. A goal of 25/3 Mbps will be badly outdated by the time any grant-funded networks are built. The FCC should not repeat their worst decision ever that gave out $11 billion for CAF II funding to build 10/1 Mbps networks – a speed that was obsolete even before the grants were awarded. The FCC should be requiring future-looking speeds.

Make the Grants Available to Everybody. FCC grant and loan programs often include a statement that they are available to every kind of entity. Yet the actual award process often discriminates against some kinds of applicants. For example, grants that include a loan component make it generally impossible for most municipal entities to accept the awards. Loan rules can also eliminate non-RUS borrowers. Grant rules that require recipients to become Eligible Telecommunications Carriers – a regulatory designation – discriminate against open access networks where the network owner and the ISP are separate entities. If not written carefully, grant rules can discriminate against broadband partnerships where the network owner is a different entity than the operating ISP.

Reverse Auction is not a Good Fit. Reverse auctions are a good technique to use when taking bids for some specific asset. Reverse auctions won’t work well when the awarded area is the whole US. Since reverse auctions favor those who will take the lowest amount of funding a reverse auction will, by definition, favor lower-cost technologies. A reverse auction will also favor parts of the country with lower costs and will discriminate against the high-cost places that need broadband help the most, like Appalachia. A reverse auction also favors upgrades over new construction and would favor upgrading DSL over building faster new technologies. From a political perspective, a reverse auction won’t spread the awards geographically and could favor one region, one technology or even only a few grant applicants. Once the auction is started the FCC would have zero input over who wins the funds – something that would not sit well with Congress.

Technology Matters. The grants should not be awarded to technologies that are temporary broadband band-aids. For example, if the grants are used to upgrade rural DSL or to provide fixed cellular broadband, then the areas receiving the grants will be back at the FCC in the future asking for something better. It’s hard to justify any reason for giving grants to satellite providers.

States Need to Step Up. The magnitude of the proposed federal grant program provides a huge opportunity for states. Those states that increase state grant funding should attract more federal grants to their state. State grants can also influence the federal awards by favoring faster speeds or faster technologies.

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

State’s Role in Broadband Grants

This is another blog in the series looking at the upcoming FCC $20.4 billion broadband grant program. Today I discuss how states might best take advantage of that large federal grant program.

A lot of states either have or are considering the establishment of state broadband grant programs. The grant programs vary widely in terms of the amount of annual grant, eligibility to receive the grants, etc. Most state programs award at least some grant dollars to help to pay to bring broadband to unserved and underserved places in a state.

Unless the FCC chooses a different mechanism, it looks like the federal grants might be awarded using a reverse auction. That means that ISPs that can accept the least amount of federal grant funding will receive the grants. That implies that ISPs that enter the federal auction that already have state grant money will have an advantage over other ISPs with a similar business plan. This means that states can attract a greater amount of federal grant dollars by coordinating state grants with the federal grant cycle.

The obvious way to do this is to award state grants to go along with projects that get the FCC grants. That sounds easy, but my guess is that figuring out the mechanics and the timing to do this right is going to be complicated. Getting that timing right is vital because awarding the state grants before the federal grants will improve ISP’s chances of winning a federal award. Timing is also vital because, in many cases, an ISP that wants to build fiber is going to need both both state and federal grants to make an economic business case. An ISP that gets only one of the two grants is likely to return the grant money rather than proceed. We’ve seen funding returned to both state and federal grant programs and that process is messy and benefits nobody.

The circumstances of these grants are different than the normal government grants. There is a routine coordination between state and federal grants for a wide array of purposes such as building bridges or roads. The normal process is that the entity receiving the grants apply to both the state and federal grant programs and they only proceed when they’ve received both grants – timing is not normally an issue and it doesn’t matter if the state or federal grant is approved first. If the FCC uses a reverse auction then there is no guarantee that an applicant will receive the federal funding – it’s vital that the state grant is in place first in order to increase the chance of winning the federal grant.

An ISP needs to know before the federal reverse auction that they can rely on state grants. Most state grant programs are awarded on some sort of merit scale, with a scoring system. That process might make it difficult to award state grants to those most likely to win federal grant funding. This likely means somehow changing the mechanism of the state grant program to favor projects that can win federal funding.Following are a few ideas of how states might do this – I’m sure there are other ways.
• States could have a formula that guarantees a fixed amount of state grant for anybody that wins a federal broadband grant. The formula might be something like, ‘the state will match the lesser of 50% of the amount of the federal grant award or $1 million’. With that kind of formula, an ISP could count on state money during the federal reverse auction. The downside to this idea is that if a state attracts a lot of federal grants they might owe more in matching than their grant budget.
• It might be as simple as awarding state grants before the federal reverse auction and requiring that anybody receiving a state grant must also apply for a federal grant. The downside to this is that there will likely be returned state grants for those that don’t win the federal grants.

The states also have an opportunity to influence the technology solutions they want to see. For example, a state might only offer matching grants for fiber and refuse to match grants for technologies like DSL, satellite or fixed cellular. Or states could promote fast speeds by awarding grants only to projects that provide 100 Mbps or faster.

Finally, the best way for a state to take advantage of the $20.4 billion in federal grants is to step up their game. Many state grant programs today have annual budgets of $5 million to $20 million per year. That is a paltry amount when the FCC is awarding $2 billion annually in grants. States that want to attract a bigger share of the federal grant money can do so by increasing the annual size of the state grant awards. If a state is serious about finding broadband solutions they want to attract as much of the federal grant money as possible. The federal grant program will likely reward states that are bold enough to get serious about also funding broadband. I know state legislators like to pat themselves on the back because they have created a state broadband grant program. However, state grant programs that only award $20 million annually in grants might need to make such awards for fifty years or longer to actually solve their rural broadband gap. States can do better and the federal grant program makes it easier to justify larger state grants.

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

Technology and FCC Grants

This is the next in the series of blogs looking at the upcoming $20.4 billion FCC grant program. I ask the question of how the FCC should consider technology in the upcoming grant program.

Should Satellite Companies be Eligible? I think a more fundamental question is if the current generation of high-orbit satellites really deliver broadband. Over the last few years I’ve talked to hundreds of rural people about their broadband situation and I have never met anybody who liked satellite broadband – not one person. Most people I’ve talked to have tried it once and abandoned it as unworkable.

This goes back to the basic definition of broadband. The FCC defines broadband by download speeds of at least 25/3 Mbps. In their original order in 2015 the FCC discussed latency, but unfortunately never made latency part of the broadband definition. As a reminder, the standard definition of latency is that it’s a measure of the time it takes for a data packet to travel from its point of origin to the point of destination.

A few years ago, the FCC did a study of the various last mile technologies and measured the following ranges of performance of last-mile latency, measured in milliseconds: fiber (10-20 ms), coaxial cable (15-40 ms), and DSL (30-65 ms). Cellular latencies vary widely depending upon the exact generation of equipment at any given cell site, but 4G latency can be as high as 100 ms. In the same FCC test, satellite broadband was almost off the chart with latencies measured as high as 650 ms.

Latency makes a big difference in the perceived customer experience. Customers will rate a 25 Mbps connection on fiber as being much faster than a 25 Mbps connection on DSL due to the difference in latency. The question that should be asked for federal grants is if satellite broadband should be disqualified due to poor latency.

I was unhappy to see so much money given to the satellite providers in the recent CAF II reverse auction. Even ignoring the latency issue, I ask if the satellite companies deserve broadband subsidies. There is no place in rural America where folks don’t already know that satellite broadband is an option – most people have rejected the technology as an acceptable broadband connection. It was particularly troubling seeing satellite providers getting money in a reverse auction. Once a satellite is in orbit it’s costs are fixed and that means that the satellite providers will be happy to take any amount of federal subsidy – they can bid lower than any other grant applicant in a reverse auction. I have to question the wisdom of providing federal subsidies to companies that are already failing at marketing.

I don’t have enough information to know how to feel about the upcoming low-orbit satellites that are just now being tested and launched. Because of lower orbits they will have lower latency. However, the satellite companies still have a huge advantage in a reverse auction since they can bid lower than anybody else – a satellite company would be happy with only a few dollars per potential customer and has no bottom limit on the amount of grant they are willing to accept. If the new satellite companies can bid in the same manner as everybody else we could end up with the situation where these companies claim 100% of the new grant funds.

What About DSL? My nightmare scenario is that the FCC hands most or all of the $20.4 billion to the big telcos to upgrade rural DSL from 10/1 Mbps to 25/3 Mbps. This is certainly within the realm of possibility. Remember that the first CAF II program was originally going to be open to everybody but at the last minute was all given to the big telcos.

I find it troublesome that the big telcos have been quiet about the announced plans for this grant. The money will be spent in the big telco service areas and you’d think they be screaming about plans for federal money to overbuild them. Recall that the big telcos recently were able to derail the Re-Connect grants by inserting the rule that only 10% of the grant money could be used for customers who receive at least 10/1 Mbps broadband. This FCC clearly favors the big telcos over other ISPs and could easily hand all of this money to the big telcos and call it CAF III.

Even if they don’t do that, the question is if any federal grant money should be used to upgrade rural DSL. Rural copper is in dreadful condition due to the willful neglect of the big telcos who stopped doing maintenance on their networks decades ago. It’s frankly a wonder that the rural copper networks even function. It would be a travesty to reward the telcos by giving them billions of dollars to make upgrades that they should have routinely made by reinvesting customer revenues.

I think when the dust clears on CAF II we’re going to find out that the big telcos largely cheated with that money. We’re going to find that they only upgraded the low-hanging fruit and that many households in the coverage areas got no upgrades or minor upgrades that won’t achieve the 10/1 Mbps goals. I think we’ll also find that in many cases the telcos didn’t spend very much of the CAF II funds but just pocketed it as free revenue. I beg the FCC to not repeat the CAF II travesty – when the truth comes out about how the telcos used the funding, the CAF II program is going to grab headlines as a scandal. Please don’t provide any money to upgrade DSL.

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

 

Reverse Auctions for Broadband Grants

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, but one of the most likely parameters of that funding is that the money will be awarded by reverse auction. Today I ask if a reverse auction is really the right tool for this particular auction.

In a government reverse auction the winner is the entity willing to take the least amount of money to provide a given task. A reverse auction is much akin to awarding money to the low-cost vendor in government contracting. The big question to ask is if we really want to award grant money to the low-cost bidder? By definition that will reward certain behavior:

Favors Slower and Lower-cost Technologies. If the criteria for award is the percentage of grant matching, it’s far easier for an applicant to accept a lower match if they are deploying a lower-cost technology. Fixed wireless has a big cost advantage over fiber. Satellite has a huge advantage over every other technology since any award for them is 100% gravy. For a reverse auction to work it has to find an equitable weighting process to bring technologies into some sort of parity. The recent CAF II reverse auction is a good example. While some of the money went for fiber, a huge amount went to fixed wireless and satellite broadband – and fiber only got funded in areas where it wasn’t competing against the lower-cost technologies. If there is a reverse auction for the whole country, then the lower-cost technologies will win almost all of the grant funding.

Favors Lower-Cost Regions of the Country. Some parts of the country like Appalachia have a higher cost of construction for every technology, and a reverse auction is going to benefit lower-cost places like the Midwest plains. A reverse auction will also favor grant applications with higher density that include towns versus requests that are 100% rural.

Favors Upgrades over New Construction. A reverse auction will favor applicants that are seeking funds to upgrade existing facilities rather than build new ones. For example, it would promote upgrading DSL over building new fiber.

Formulaic and Allows for No Policy Awards. The FCC and Congress is going to want to see the awards spread across the country to every state. A reverse auction might favor a specific region of the country or even favor a single technology – all of this is outside of the control of the FCC once the auction begins. A reverse grant is self-selecting and once the process is started those willing to take the smallest percentage grant will win all of the money. I think the whole country is going to be furious if most of this huge grant only favors one region or one technology. Most states have elected to not use a reverse auction for state grants because they want some say to make sure that grants are awarded to all corners of a state.

There’s No Fix for Problem Grants. I have clients who think that fixed wireless companies that claimed they could deploy ubiquitous 100 Mbps broadband cheated in the CAF II reverse auctions. They claim the technology can’t deliver that speed to all customers. We’ll find out when these networks are deployed. This was relevant in that particular auction since bidders got extra bid credits for promising faster speeds. This is a cautionary tale about bidders who will manipulate the bidding rules to get an advantage.

Another issue we often see in grant programs is that some of those who are awarded grants find themselves ineligible to take the grants. This happened with the stimulus grants and the returned money was awarded to the next companies in the grant grading process. This is not possible in a reverse auction. By the time of the final award everybody else has dropped out of the process.

The bottom line is that a reverse auction is a terrible process for this grant program. No matter how carefully the FCC sets the eligibility rules, a reverse auction is always going to favor certain technologies or certain parts of the country over others – it’s inevitable in a nationwide reverse auction. A $20.4 billion grant program can bring great broadband to a lot of households. A reverse auction will be a disaster if it pushes money towards upgrading DSL or gives the funding to satellite providers rather than awarding all of the money to build permanent broadband infrastructure.

I know that taking the time to review and rank grant applications is hard work. A reverse auction simplifies this process by sinply declaring if a grant application is eligible for the grant. If you want proof that slogging through grants and choosing the best ones then look at the successful state grant programs. A reverse auction is inevitably going to allocate funds in ways that the FCC is not going to be proud of.

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