Regulating Cable TV versus OTT

Regulation often makes no sense, particularly in times when technology is transforming an industry. There is no better example of this than the way we regulate cable TV today.

Traditional cable TV is heavily regulated at the federal, state, and local levels. The FCC website has a nice summary of the history of federal cable regulation. The industry is less heavily regulated today than it was forty years ago, but there are still a lot of federal regulations that apply to cable TV. At the local level, franchise taxes levied on cable service are a huge revenue source for local government.

The FCC website includes a definition of cable television as follows: “Cable television is a video delivery service provided by a cable operator to subscribers via a coaxial cable or fiber optics.  Programming delivered without a wire via satellite or other facilities is not “cable television” under the Commission’s definitions.”

All of the federal cable regulations are aimed at cable TV signal that enters the home via a coaxial or fiber wire. Satellite or wireless delivery of television signal is not considered to be traditional cable TV, although the FCC does regulate satellite TV under a different set of rules.

The FCC has chosen to ignore its own definition of cable TV for programming that is delivered over the web. I’ve subscribed to the online cable alternatives Sling TV, Playstation Vue, and YouTube TV. Over time those services have come to look more and more like traditional cable TV. My subscription to Playstation Vue (before it folded) included all of the same local channels that I would receive from a traditional cable subscription. The service included a channel guide, and from a functional perspective, it was impossible to make any meaningful distinction between the Playstation Vue product and the same product I might buy from a cable company.

From a technical perspective it’s hard to see the difference between the online programming and traditional cable. Both come into the home over coaxial or fiber cables. Both offer a line-up of local channels and a similar mix of national programming. Both services offer options like DVR service to record programming to watch later. If you were to show both services to somebody who had never seen TV before, they’d probably not see any difference in the two services.

But there is a huge regulatory difference between traditional cable TV and online programming, particularly at the local level. Franchise fees of up to 5% are levied onto traditional cable TV from Charter, Comcast, or AT&T – but no franchise fees are levied against Sling TV or YouTube TV. Cable companies are arguing that this difference alone gives online programming a competitive edge – and it’s hard to disagree with them.

To make matters even more confusing, there are now cable products that sit somewhere in between traditional TV and online TV. ISPs are no longer building cable headends to download cable signal from satellites. Instead they are buying cable channels wholesale. The entire channel line-up is pumped into an ISP on a big broadband connection. The channel line-ups look a lot like both traditional cable channels and online cable line-ups like YouTube TV. In the newest cable wholesale products the ISP doesn’t even need a traditional setup box and can deliver straight to smart TVs or use something like a Roku stick.

For now, most ISPs that are reselling the wholesale TV are registering as cable providers and are collecting franchise fees. But I won’t be surprised if an ISP challenges this and argues that wholesale cable service is not the same as traditional cable TV.e

From a regulatory perspective, our current treatment of cable service is closely analogous to the difference between traditional telephone service and voice over IP (VoIP). ISPs successful fought to define VoIP as a non-regulated service, although there is no functional difference between the two products at the customer level. There is no discernible difference between a telephone line provided by AT&T over telephone wires and telephone service provided by Comcast over cable wires – but the products get a drastically difference regulatory treatment. It’s hard to think that we aren’t going to soon see legal challenges by cable companies trying to avoid collecting franchise fees – and I think there is a decent chance that courts will side with them.

The FCC Finally Tackles New Mapping

Almost a year after having first approved the concept, the FCC recently started the process of developing new databases and maps. Last August the FCC approved the concept of having ISPs report broadband coverage by polygons, meaning that ISPs would draw lines around areas where they have active broadband customers or areas where ISPs can install a customer within a week of a request for service.

The FCC has been slow-rolling the process for the last year. They made announcements over a year ago that made rural America think that better maps are coming that will make it easier to correctly identify areas that have poor broadband. But last year’s big announcement only adopted the concept of better maps, and the recent vote took the first step towards implementing the concept.

Even now, it’s not clear that the FCC is ready to implement the new maps and the agency is still saying that it doesn’t have the money to change the ISP reporting process. This is hard to believe from an agency that is self-funded by fees and by spectrum auctions – the agency could have required the industry to pay for the new mapping at any time – but the FCC wants a specific allocation of funding from Congress. This feels like another delaying tactic.

There are good reasons for the FCC to not want better mapping. The FCC is required by law to take action to solve any big glaring difference between broadband availability in urban and rural areas. The agency has been doing everything possible over the last decade to not have to take such extraordinary steps.

Everybody involved in rural broadband knows that the current maps are dreadful. ISPs are free to claim broadband coverage and speeds in any manner they want, and from my experience, most rural counties have areas where broadband coverage or speeds are overstated. In many cases the overstatement of broadband is unbelievable. I recently was working with counties in Washington, New Mexico, and Minnesota where the FCC databases show 100% broadband coverage in rural areas when in real life there is almost zero broadband outside of towns.

This same mandate is the primary reason why the FCC doesn’t increase the definition of broadband, which has been set at 25/3 Mbps since 2015. Residents in well over half of the country, in cities and suburbs, have the option to buy broadband of 100 Mbps or faster. But the FCC sticks with the slower definition for rural America so that it doesn’t have to recognize that millions of rural homes, many in county seats in rural counties, don’t have broadband as good as in larger cities.

It is that same requirement to solve poor broadband that has driven the FCC to stick with mapping that FCC Commissioners all admit is inadequate. If the FCC fixes the maps, then many more millions of homes will become properly classified as not having broadband, and the FCC will be required to tackle the problem.

Unfortunately, I don’t hold out a lot of hope for the new broadband mapping process. The biggest reason that today’s mapping doesn’t work is that ISPs are not required to tell the truth. Drawing polygons might decrease some of the areas where the ISPs claim coverage that doesn’t exist – but there is nothing in the new rules that force ISPs to report honest speeds. A rural county is still going to have overstated broadband coverage if ISPs continue to claim imaginary speeds – sometimes amazingly exaggerated. One of the counties I recently was working with has two wireless ISPs that claim countywide coverage of 100 Mbps broadband when it looks like the ISPs don’t operate in the county. The new mapping is not going to fix anything if an ISP can draw false polygons or report imaginary speeds. The new maps aren’t going to stop the exaggeration of rural DSL speeds by the big telcos.

Unfortunately, there are huge negative repercussions for areas where the ISPs lie about broadband coverage. The best example is the current RDOF auction where the FCC is awarding $16.4 billion in grants. None of the areas where ISPs have lied about broadband coverage are included in that grant program and won’t be included in future grants as long as ISPs keep lying about broadband coverage.

Lets not forget that ISPs have motivation for lying to the FCC about broadband coverage. Keeping grants our of rural areas shields the ISPs already operating there and protects rural ISPs that are selling 2 Mbps broadband for $70 per month. If these areas get grants the ISPs lose their customers. The penalties for overstating broadband speeds and coverage ought to be immense. In my mind, if an ISP deprives a rural county from getting broadband grants, then the ISP ought to be liable for the lost grant funding. If the FCC was to assess huge penalties for cheating the maps would be cleaned up overnight without having to switch to the polygons.

As usual, the FCC is pursuing the wrong solution and I suspect they know so. The big problem with the current maps is that ISPs lie about their coverage areas and about the speeds that are being delivered to customers. The FCC has the ability to require truthfulness and to fine ISPs that don’t follow its rules. The FCC could have implemented penalties for false reporting any time in the last decade. Implementing new mapping without implementing penalties for lying is just kicking the can down the road for a few more years so that the FCC won’t have to address the real rural broadband shortfalls in the country.

The Rush to Complete CAF II

I’ve noticed that the big telcos are talking about efforts they are making this year to complete their obligations under the CAF II grant rewards that gave them over $9 billion to improve rural broadband to speeds of at least 10/1 Mbps. The telcos have had six years to make the upgrades and those upgrades must be finished by the end of this year.

It’s easy to understand why the telcos want to finish the required upgrades for which they’ve been paid. The FCC’s Universal Service statutes define the penalties for failure to comply with the mandates of CAF II in 47 CFR § 54.320 – Compliance and Recordkeeping for the High-cost Program.

The rules outline that the FCC can withhold USF payments to the telcos for missing interim deadlines. For example, CenturyLink reported to the FCC at the end of last year that it had not met all of the required upgrade goals that were to be completed by the end of 2019. The FCC should have responded to that notification by withholding some of the 2020 payments to CenturyLink until the company comes into compliance with its obligations. But as long as the telco finished the required upgrades by the end of 2020, it eventually will receive all of the CAF II funding.

But failure to meet the final milestone in 2020 obligations brings harsh penalties. If a telco doesn’t complete the CAF II construction by the end of this year, the FCC is obligated in these rules to recover 1.89 times the amount of subsidy provided to the telco to make the upgrades, plus 10% of the total support provided to a carrier over the term of the program.

The amount of CAF II awards vary by locality, but the average CAF II grants were for between $2,000 and $3,000 per household in the CAF II areas, meaning the penalties would be between $3,800 and $5,700 per household that didn’t see a CAF II upgrade plus 10% of the total support for a given area. That’s a substantial and permanent penalty and it’s no wonder that the telcos are pushing to complete CAF II.

Once a telco has certified that the CAF II upgrades are complete there are other penalties if the upgraded areas don’t deliver the speeds required by the CAF II program – in this case, speeds of at least 10/1 Mbps. Compliance with these rules is verified with FCC-mandated speed tests.

The testing rules are weighted heavily in the ISP’s favor. To keep full funding, a telco must achieve 80% of the expected upland and download speed 80% of the time. This means that the big telcos must only achieve a download speed of 8 Mbps for 80% of customers to meet the CAF standard. The 10/1 Mbps target was low enough, but the FCC testing rules make it a lot easier for ISPs to meet the CAF II obligations. There are financial penalties for ISPs that don’t meet the FCC tests. For example, ISPs that have between 85% and 100% of 80% threshold lose 5% of their FCC support. At the upper extreme, ISPs with less than 55% of the 80% threshold lose 25% of their support.

Consider what these two sets of rules mean for the big telcos. The big penalties come if a telco is honest and tells the FCC that they didn’t complete the CAF II build-out at the end of 2020. In that case, the telco would have to give back more than two times the subsidy it received for each household that doesn’t get upgraded.

However, if a big telcos says they met the buildout requirements, their potential penalty is reduced to 25% of the CAF II subsidy for areas where there were no upgrades. And that penalty assumes that the areas that weren’t upgraded are tested by the FCC. The FCC testing rules allow the telcos to provide inputs on where to test.

I’ve heard a lot of anecdotal evidence that that Frontier and a few other telcos didn’t make some of the needed CAF II upgrades. There are whole counties where recent wide-spread speed testing didn’t find any rural customers getting speeds faster than 5 Mbps download. The telcos still have until the end of this year to complete CAF II, so it’s premature to know that these areas won’t get CAF II upgrades. But if the rumors I’ve been hearing are true, the telcos can falsely declare to the FCC that they made the upgrades and then take their chances during the testing process that the full extent of their cheating won’t be detected.

There are huge parts of rural America that seemingly have been shortchanged by the CAF II program. The sad consequence of this is that these households would have been able to eke by during the COVID-19 crisis if they had been provided with 10/1 Mbps broadband. What I heard from all over the country is that households in the CAF II areas have seen no improvements in DSL over the six years of the CAF II program.

If the FCC really wants to do the right thing it would ask for local feedback at the end of the CAF II program at the end of this year. The FCC can map every household on Google Maps that should have gotten a CAF II upgrade, and there are local officials all over rural America who would love to verify if these upgrades brought anything close to 10/1 Mbps speeds. Instead, I expect the FCC to quietly sweep the whole CAF II topic under the rug, and we’ll likely never hear much about it after the end of this year.

Can the FCC Regulate Social Media?

There has been a lot of talk lately from the White House and Congress about having the FCC regulate online platforms like Facebook, Twitter, and Google. From a regulatory perspective, it’s an interesting question if current law allows for the regulation of these companies. It would be ironic if the FCC somehow tried to regulate Facebook after they went through series of legal gyrations to remove themselves from regulating ISPs for the delivery and sale of broadband – something that is more clearly in their regulatory wheelhouse.

All of the arguments for regulating the web companies centers around Section 230 of the FCC rules. Congress had the nascent Internet companies in mind when the wrote Section 230. The view of Congress was that the newly formed Internet needed to be protected from regulation and interference in order to grow. Congress was right about this at the time and the Internet is possibly the single biggest driver of our current economy. Congress specifically spelled out how web companies should be viewed from a regulatory perspective.

There are two sections of the statute that are most relevant to the question of regulating web companies. The first is Section 230(c)(1), which states, “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

This section of the law is unambiguous and states that an online platform can’t be held liable for content posted by users. This would hold true regardless of whether a platform allows users free access to say anything or if the platform heavily moderates what can be said. When Congress wrote Section 230 this was the most important part of the statute, because they realized that new web companies would never get off the ground or thrive if they have to constantly respond to lawsuits filed by parties that didn’t like the content posted on their platform.

Web platforms are protected by first amendment rights as publishers if they provide their own content, in exactly the same manner as a newspaper or magazine – but publishers can be sued for violating laws like defamation. But most of the big web platforms don’t create content – they just provide a place for users to publish content. As such, the language cited above completely shields Facebook and Twitter from liability, and also seemingly from regulation.

Another thing that must be considered is the current state of FCC regulation. The courts have given the FCC wide latitude in interpreting its regulatory role. In the latest court ruling that upheld the FCC’s deregulation of broadband and the repeal of net neutrality, the court said that the FCC had the authority to deregulate broadband since the agency could point to Congressional laws that supported that position. However, the court noted that the FCC could just as easily have adopted almost the opposite position, as had been done by the Tom Wheeler FCC, since there was also Congressional language that supports regulating broadband. The court said that an agency like the FCC is only required to find language in Congressional rules that support whatever position they take. Over the years there have been enough conflicting rules from Congress to give the FCC a lot of flexibility in interpreting Congressional intent.

It’s clear that the FCC still has to regulate carriers, which is why landline telephone service is still regulated. In killing Title II regulation, the FCC went through legal gymnastics to declare that broadband is an ‘information service’ and not a carrier service.

Companies like Facebook and Google are clearly also information services. This current FCC would be faced with a huge dilemma if they tried to somehow regulate companies like Facebook or Twitter. To do so would mean declaring that the agency has the authority to regulate information service providers – a claim that would be impossible to make without also reasserting jurisdiction over ISPs and broadband.

The bottom line is that the FCC could assert some limited form of jurisdiction over the web companies. However, the degree to which they could regulate them would be seriously restricted by the language in Section 230(c)(1). And any attempt to regulate the web companies would give major heartburn to FCC lawyers. It would force them to make a 180-degree turn from everything they’ve said and done about regulating broadband since Ajit Pai became Chairman.

The odds are pretty good that this concept will blow over because the FCC is likely to quietly resist any push to regulate web companies if that means they would have to reassert jurisdiction over information service providers. Of course, Congress could resolve this at any time by writing new bills that would explicitly regulate Google without regulating AT&T. But as long as we have a split Congress, that’s never going to happen.

The FCC and Urban Broadband

Chairman Ajit Pai recently said during an interview in Buffalo that he supported what he called Gigabit Opportunity Zones as a way to get fiber built to poor neighborhoods in downtown areas of cities like Buffalo.

The idea of Gigabit Opportunity Zones comes from a bill that was introduced in the last Congress in November of 2019 by Georgia Representative Doug Collins. The bill is H.R. 5082 – the Gigabit Opportunity Act.

The bill would mimic many of the provisions of the Opportunity Zones that were created in the Tax Cuts ad Jobs Act of 2017. That law intended to spur infrastructure investment in low-income Census blocks. The original tax change allowed investors to gain two major tax benefits from investing in qualified infrastructure. They could defer or erase existing capital gains by investing capital gain profits into qualified projects for at least ten years. Investors would also see no capital gains from profits made on an opportunity zone investment.

The proposed broadband bill has similar, but different benefits. First, governors would have to

nominate areas in their state that would be eligible for the gigabit tax breaks. Such areas would have to

  • Face obstacles to economic development due to a lack of geographic broadband coverage or speed;
  • Are the focus of mutually reinforcing state, local, or private economic development initiatives;
  • Are poised for economic growth that requires access to high speed broadband for commercial purposes; and
  • Represent the areas of a state where such service would result in the highest return on investment.

Just like with the existing opportunity zone rules, an investor could defer or eliminate existing capital gains by bringing capital gains proceeds to a new qualified project. Even better than the existing opportunity zones investing, the new project could expense the cost of building the fiber network in the first year, thus realizing a huge capital loss in the first year (which is a great way to wipe out capital gains).

It doesn’t look like the bill has moved forward since introduction beyond being referred to the Subcommittee on Communications and Technology. The purpose of the blog is not to say anything negative about the bill. It would be great if something like this would help spur building fiber to urban neighborhoods that might otherwise never see fiber. It does seem to me that the provisions that a qualified investment must result in the highest return on investment makes it likely that this would benefit the richest neighborhoods rather than the poorest. But those kinds of details get worked out during the legislative process.

What I found a bit disturbing is that this bill was brought up in response to the question of what the FCC could do for cities like Buffalo. The Chairman offered the following responses to the question:

  • He said the FCC had expanded the opportunity for people to qualify for the Lifeline program. From what I can see, this FCC has done the exact opposite and would like nothing better than to eliminate this part of the Universal Service Fund.
  • He mentioned E-Rate programs to bring better broadband to schools and libraries. The FCC did make it a bit easier for schools to turn that broadband outward to the parking lots during the pandemic, but otherwise this FCC hasn’t improved the E-Rate program.
  • Chairman Pai said he had asked Congress for the authority to provide hotspots to poor urban neighborhoods, but that Congress hasn’t given him that authority. This highlights that the FCC gave away their authority over broadband and now has no authority to do things like promote hotspots.
  • He mentioned the RDOF grant process as one that is bringing broadband to those that need it, without mentioning that the ‘R’ in RDOF stands for rural – none of that money is going to Buffalo.
  • He mentioned regulatory reform. By that, he is sticking with his story that deregulating the big ISPs will result in more investment in places like Buffalo. From what I can see, none of the big ISPs have responded to ‘light-touch’ regulation by building fiber to poor neighborhoods.
  • Finally, he cited the Gigabit Opportunity Zone legislation. That’s a stalled piece of legislation that might bring benefits, but which has nothing to do with the FCC.

The Chairman’s response should have been that the FCC is not seriously looking at solving the digital divides in cities. The FCC has done its best to write itself out of the broadband picture. The FCC still must administer the Universal Service Fund because it has no choice. The FCC Chairman is sticking to the pure fiction that the big ISPs will solve the broadband problems of the world in response to being deregulated. But in reality, the FCC is doing almost nothing for urban broadband and has no intentions of doing so.

Where is Net Neutrality When we Need it?

Just in the last two weeks two stories hit the press that highlight behavior from ISPs that would have likely have violated the Net Neutrality rules that were killed by Ajit Pai’s FCC. The big ISPs have been surprisingly quiet and have not loudly violated those rules, even though they are no longer in effect. The industry speculation is that the big ISPs are treading lightly because they don’t want to trigger a regulatory overreaction should there be a chance of party in the administration or Congress.

The first headline says that AT&T is excluding HBO max from the calculation of any data caps. This is a big deal for AT&T cellular customers and not insignificant for AT&T landline broadband customers that face data caps.

AT&T defends this by referring to other ‘sponsored data plans’ in the industry, like the one offered by T-Mobile that lets premium customers exclude usage from YouTube, Netflix, Hulu, HBO, Sling YV, ESPN, Showtime, Starz and other sources of video.

I don’t know enough to know if T-Mobile is violating the old net neutrality rules. Net neutrality rules would allow an ISP to exempt all video from data caps and would not violate any rules because the ISP wouldn’t be discriminating against any particular source of video. However, if T-Mobile is being paid by those companies to exclude their data from data caps, then T-Mobile would also be violating the spirit of net neutrality. AT&T’s exclusion of HBO Max from data caps is more blatant since AT&T owns HBO – the policy is clearly being made to benefit HBO over Disney, Netflix or other competitors of HBO.

It was easy to predict that sponsored data is something that carriers would be pushing the envelope on, even if net neutrality was still in effect. It’s something that customers like, and so it’s hard to fire the public up that sponsored data is bad for the industry. But it is. AT&T is clearly disadvantaging other video services in favor of their own. If T-Mobile doesn’t exclude all video from data caps they are doing the same thing – just not to advantage their own video product. The original FCC net neutrality order pointed out that sponsored data can make it hard for a new market entrant, and they could be right – we don’t see a lot of new names of companies that stream video.

The second headline is one that broadband customers everywhere will hate. Jon Brodkin in arstechnica describes a situation where Cox is slowing down the upload path to a customer for using too much broadband – and even worse is openly admitting to capping the upload speeds for an entire neighborhood.

I won’t recount all of the details of the story. In a nutshell, there is a customer that is backing up huge amounts of data each night from midnight until 8:00 am. It takes that long to complete the backup because the upload speed available to the customer is only 35 Mbps. If this customer was on symmetrical fiber this backup could be done quickly. Apparently, this customer has been doing the same thing for years, but they have recently been notified by Cox that they need to stop the practice or be kicked from the network. Cox also threatened by cut the upload bandwidth available to the whole neighborhood.

This particular customer uses over 8 terabytes of data per month, which is an extraordinary amount of usage on a home broadband line. But if the usage is all really late at night, it’s unlikely that this is very disruptive to the neighborhood.

What’s extraordinary about this is that the customer doesn’t seem to be violating the Cox terms or service. The customers is already paying extra to avoid the data cap to get unlimited data. Cox is basically saying to the customer that there is some secret usage threshold that they associate with ‘unlimited’ data – yet they won’t give the customer a targeted usage threshold.

Where Cox really crosses the line is when they threaten to penalize an entire neighborhood for using too much data. According to Brodkin this one customer is not the only example of this same behavior by Cox.

If we had an FCC that regulated broadband they would likely slap Cox for this behavior. What’s odd is that Cox doesn’t have to be so arbitrary. They could easily have established rules in the terms of service and their products that could have legally handled this situation. Instead, the sold unlimited data and decided afterwards that there really is a limit on the amount of data they are willing to provide. The fault for this situation seems to lie mostly in the legal department at Cox rather then with the customer who has had the same usage for years.

ISPs ought to realize that the regulatory pendulum always swings the other way. Ajit Pai has completely deregulated one of the largest industries in the country that touches almost everybody. That pushes the regulatory pendulum as far as it can go towards the ‘unregulated’ side, and it’s inevitable that a future Congress or FCC is going to bring back regulation again at some point. When they do, all of the bad behavior by ISPs during this time of deregulation will be used as examples of why regulation is necessary. If the ISPs push the envelope too far they regulatory pendulum will swing a lot further in the regulated direction than they are going to like.

Our Uneven Regulatory Environment

I think everybody would agree that broadband is a far more important part of the American economy than landline telephone service. While something in the range of 35% of homes still have a landline, almost every home has or wants a broadband connection. If you knew nothing about our regulatory history in the U.S., you would guess that the FCC would be far more involved with broadband issues than landline telephone issues – but they’re not. Consider some of the recent regulatory actions at the FCC as evidence of how regulation is now unbalanced and mostly looks at voice issues.

Recently the FCC took action against Magic Jack VocalTec Ltd. The FCC reached a settlement with MagicJack to pay $5 million in contributions to the Universal Service Fund. MagicJack also agreed to implement a regulatory compliance plan to stay in compliance with FCC rules.

The contributions to the Universal Service Fund come from a whopping 26.5% tax on the interstate portion of telephone service, and MagicJack has refused for years to make these payments. MagicJack has been skirting FCC rules for years – which is what allows them to offer low-price telephone service.

The FCC also recently came down hard on telcos that are making a lot of money by billing excessive access charges for calls to service like Free Conference and chat lines. These services made arrangements with LECs that are remote and that bill access on a lot of miles of fiber transport. The FCC ruled that these LECs were ‘access stimulators’ and that the long-distance companies and their customers were unfairly subsidizing free conference calling. In one of the fastest FCC reactions I can recall, just a few months after the initial ruling the FCC also published orders denying appeals to that order.

From a regulatory perspective, these kinds of actions are exactly the sort of activity one would expect out of a regulatory agency. These two examples are just a few out of a few dozen actions the FCC has taken in the last few years in their regulation of landline telephone service. The agency has been a little less busy, but also looked at cable TV issues over the last year.

Contrast this with broadband, which any person on the street would think would be the FCC’s primary area of regulation. After all, broadband is the far most important communications service and affects far more homes and businesses than telephone service or cable TV service.  But the regulatory record shows a real dearth of action in the area of broadband regulation.

In December 2019 Congress passed the Television Viewer Protection Act that prohibits ISPs and cable companies from billing customers for devices that the customer owns. It’s odd that a law would even be needed for something so commonsense, but Frontier and some cable companies have been billing customers for devices that were sold previously to customers. In one example that has gotten a lot of press, Frontier has been billing customers a $10 fee for a router that customers purchased from Verizon before Frontier bought the property.

Frontier appealed the immediate implementation of the new law to the FCC. The telco said that due to COVID-19 the company is too busy to change its practices and asked to be able to continue the overbilling until the end of this year. In a brave regulatory move in April, the FCC agreed with Frontier and will allow them to continue to overbill customers for such devices until the end of 2020.

I was puzzled by this ruling for several reasons. From a practical perspective, the regulators in the U.S. have normally corrected carrier wrongs by ordering refunds. It’s impossible to believe that Frontier couldn’t make this billing change, with or without COVID. But even if it takes them a long time to implement it, the normal regulatory remedy is to give customers back money that was billed incorrectly. Instead, the FCC told Frontier and cable companies that they could continue to rip off customers until the end of the year, in violation of the intent of the law written by Congress.

A more puzzling concern is why the FCC even ruled on this issue. When the agency killed Title II regulation, they also openly announced that they have no regulatory authority over broadband. My first thought when reading this order was to wonder if the FCC even has jurisdiction any longer to rule on issues like data modems. However, in this case, the Congress gave them the narrow authority to rule on issues related to this specific law. As hard as the FCC tries, these little nagging broadband issues keep landing in their lap – because there is no other place for them to go.

In this case, the FCC dipped briefly into a broadband issue and got it 100% wrong. Rather than rule for the customers who were being billed fraudulent charges, and going against the intent of Congress that passed the law clarifying the issue – the FCC bought into the story that Frontier couldn’t fix their billing systems until a year after the law was passed. And for some reason, even after buying the story, the FCC didn’t order a full refund of past overbilling.

If we actually had light-touch broadband regulation, then the FCC would be able to weigh in when industry actors act badly, like happened in the two telephone dockets listed above. But our light-touch regulation is really no-touch regulation and the FCC has no jurisdiction over broadband except in snippets where Congress gives them a specific task. The FCC ruling is puzzling. We know they favor the big ISPs, but siding with Frontier’s decision to openly rip off customers seems like an odd place to make a pro-ISP stand. As much as I’ve complained about this FCC giving up their broadband regulatory authority – perhaps we don’t want this to be fixed until we get regulators who will apply the same standards to broadband as they are applying to telephone service.

The FCC Muddles the RDOF Grants

Last week the FCC ‘clarified’ the RDOF rules in a way that left most of the industry feeling less sure about how the auction will work.  The FCC is now supposedly taking a technologically neutral position on the auction. That means that the FCC has reopened the door for low-earth orbit satellites. Strangely, Chairman Ajit Pai said that the rules would even allow DSL or fixed wireless providers to participate in the gigabit speed tier.

Technologically neutral may sound like a fair idea, but in this case it’s absurd. The idea that DSL or fixed wireless could deliver gigabit speeds is so far outside the realm of physics as to be laughable. It’s more likely that these changes are aimed at allowing the providers of satellite, DSL, and fixed wireless providers to enter the auction at speeds faster than they can deliver.

For example, by saying that DSL can enter the auction at a gigabit, it might go more unnoticed if telcos enter the auction at the 100./10 Mbps tier. There is zero chance for rural DSL to reach those speeds – the CAF II awards six years ago didn’t result in a lot of rural DSL that is delivering even 10/1 Mbps. It’s worth remember that the RDOF funding is going to some of the most remote Census blocks in the country where homes are likely many miles from a DSL hub and also not concentrated in pockets – two factors that account for why rural DSL often has speeds that are not a lot faster than dial-up.

Any decision to allow low orbit satellites into the auction has to be political. There are members of Congress now pushing for satellite broadband. In my State of North Carolina there is even a bill in the Senate (SB 1228) that would provide $2.5 million to satellite broadband as a preferred solution for rural broadband.

The politics behind low orbit satellite broadband is crazy because there is not yet any such technology that can deliver broadband to people. Elon Musk’s satellite company currently has 362 satellites in orbit. That may sound impressive, but a functional array of satellites is going to require thousands of satellites – the company’s filed plan with the FCC calls for 4,000 satellites as the first phase deployment.

I’ve seen a lot of speculation in the financial and space press that Starlink will have a lot of challenge in raising the money needed to finish the constellation of satellites. A lot of the companies that were going to invest are now reluctant due to COVID-19. The other current competitor to Starlink is OneWeb, which went bankrupt a few months ago and may never come out of receivership. Jeff Bezos has been rumored to be launching a satellite business but still has not launched a single satellite.

The danger of letting these various technologies into the RDOF process is that a lot of rural households might again get screwed by the FCC and not get broadband after a giant FCC grant. That’s what happened with CAF II where over $9 billion was handed to the big telcos and was effectively washed down the drain in terms of any lasting benefits to rural broadband.

It’s not hard to envision Elon Musk and Starlink winning a lot of money in the CAF II auction and then failing to complete the business plan. The company has an automatic advantage over any company they are bidding against since Starlink can bid lower than any other bidder and still be ahead of the game. It’s not an implausible scenario to foresee Starlink winning every contested Census block.

Allowing DSL and fixed wireless providers to overstate their technical capacity will be just as damaging. Does anybody think that if Frontier wins money in this auction that they will do much more than pocket it straight to the bottom line? Rural America is badly harmed if a carriers wins and the RDOF money and doesn’t deliver the technology that was promised – particularly if that grant winner unfairly beat out somebody that would have delivered a faster technology. One has to only look back at the awards made to Viasat in the CAF II reverse auction to see how absurd it is when inferior technologies are allowed in the auction.

Probably the worst thing about the RDOF rules is that somebody who doesn’t deliver doesn’t have to give back all of the grant money. Even should no customer ever be served or if no customer ever receives the promised speeds, the grant winner gets to keep a substantial percentage of the grant funding.

As usual, this FCC is hiding their real intentions under the technology neutral stance. This auction doesn’t need the FCC to be ‘technology neutral’, and technologies that don’t exist yet today like LEO satellites or technologies that can’t deliver the speed tiers should not be allowed into the auction. I’m already cringing at the vision of a lot of grant winners that have no business getting a government subsidy at a time when COVID-19 has magnified the need for better rural broadband.

Expanding the Universal Service Fund

A bipartisan bill has been introduced in Congress that would expand the size of the FCC’s Universal Service Fund by adding a fee on top of broadband bills. This fund is currently funded by fees added to landline telephone and cellular bills. The USF assessment on Interstate traffic recently increased to 26.5% – which is an extraordinarily high tax.

The bill was introduced by Collin Peterson (D-Minn.) and Don Young (R-Alaska). Also sponsoring the bill are T.J. Cox (D-Cal.), Hal Rogers (R-Ky.), Angie Craig (D-Minn.), Frank Lucas (R-Oklahoma), Luis Correa (D-Cal.) Jeff Van Drew (R-N.J.), Ed Case (D- Hawaii), and Vicente Gonzalez (D-Texas).

I’ve been advocating this for a decade because the Universal Service Fund is the FCC’s only tool to tackle the rural broadband issue. The USF already does a lot of good. The Fund is used to bring affordable gigabit broadband to schools. It’s used to bring affordable broadband to rural health care facilities. And even though the FCC keeps fighting it, the USF is used to hold down broadband bills for low-income households, with the Lifeline program that makes ISPs whole for providing lower prices.

In the past the Fund was used to fund two large-dollar broadband expansion projects – one successful and one a total bust. The successful program was ACAM, which has provided the funding to build rural fiber networks by small telcos. I see people around the industry praising the rural broadband in states like North and South Dakota – and that fiber was largely funded by the ACAM program.

Unfortunately, the USF doesn’t always get used wisely. This was the source of funding for the CAF II program that handed $11 billion to the big telcos to ostensively upgrade rural broadband speeds to 10/1 Mbps. It appears that money was largely frittered away or pocketed by the telcos because it’s still hard to find rural households with DSL speeds of 10/1 Mbps. The entire project basically shoveled billions to the bottom line of the telcos.

The Universal Service Fund is about to be used again in big ways. USF is the source of the $16.4 RDOF grants that will be awarded later this year, with another $4 billion to be awarded next year. Assuming this reverse auction doesn’t go cockeyed by awarding money to satellite providers instead of fiber networks, then this will be the biggest boost to rural broadband ever. I’ve been working with a lot of ISPs planning to use this money to build fiber in rural counties all over the country.

The Universal Service Fund is also the source of the proposed $9 billion 5G Fund with a goal of bringing cellular coverage to everybody in the US. Again, assuming the FCC does this right, this would make it a lot easier to live in rural America. Done poorly, this could instead line the pockets of the giant cellular companies.

What nobody is talking about is that those two programs – the RDOF grants and the 5G Fund will use all of the dry powder in the Universal Service Fund. These programs will both award funding over 10 years, and if we don’t find a new source of funding, there will be no additional big grants coming from the USF for the next decade.

What’s even scarier is that the revenues into the Universal Service Fund are dropping as people continue to drop landline telephones. Without some bolstering, there is no assurance that future FCCs will be able to meet the obligations to the recipients of the RDOF and 5G grants.

The revenue impact of imposing a $1 fee on broadband connections is gigantic. There are currently around 106 million broadband customers in the US. A $1 monthly fee on broadband would add $1.3 billion annually to the USF, or over $13 billion over the next decade. That would allow for another big rural broadband grant program.

The members of Congress sponsoring this bill seem to trust the FCC to disperse grant funding. Honestly, their track record on choosing winning grants is mixed. There are also plenty of policy people who think we should take every step possible to keep broadband affordable and that even a $1 monthly fee helps to push broadband out of the affordability range for homes.

If the Universal Service Fund is not expanded, then the only other source for funding rural broadband is Congress. There is a lot of talk about broadband funding coming out of the various COVID-19 stimulus packages. But if that doesn’t happen, we are likely facing an economy with a lot of problems for the next few years. In that environment, rural broadband funding might get shuttled behind other priorities.

What is Light-Touch Regulation?

One thing I’ve noticed recently is that a lot of people are climbing on board the idea of building better broadband to rural America. A lot of people seem to think that the FCC can somehow act to fix a lot of the shortcomings of rural broadband – but in doing so they have missed the entire point of what the FCC calls ‘light-touch’ regulation – because, from a practical perspective, broadband is not regulated at all.

It’s not hard to understand why people would misunderstand the situation, because ‘light-touch regulation’ is one of those euphemisms that governments invent to disguise what they are really doing. Chairman Pai at the FCC never misses an opportunity to talk about his regime of light-touch regulation. I have to wonder if there would be as much support for the light-touch regulation if that phrase was replaced with the simpler and more descriptive phrase ‘deregulated’. I suspect a lot of people would be uncomfortable that one of our largest industries is largely deregulated.

The FCC pulled off this huge change by hiding the deregulation inside of their move to undo net neutrality. The FCC didn’t just reverse the net neutrality rules put into place by the previous FCC, they killed Title II regulation – which is the authority given to the FCC by Congress to regulate ISPs as common carriers. The FCC gave up Title II authority and gave the tiny remaining vestiges of broadband regulation to the Federal Trade Commission – even though the FTC is not a regulatory agency. The FTC doesn’t create or enforce new rules – they are more like corporate police that fine corporations when they’ve abused their customers too egregiously.

What does it mean to give up Title II authority? The FCC can no longer judge, or even track broadband prices. ISPs are free to raise rates to any level they want and make any profits they want. There hasn’t been an FCC since the dawn of the broadband industry that has invoked price regulation – but the fact that they could always acted as a brake on bad ISP behavior.

The FCC can no longer intervene in disputes between ISPs or with their biggest customers. Under Title II regulation, the FCC could decide if an ISP was fairly dealing with Netflix or some other large user of broadband. When Title II regulation was killed, the FCC stopped acting as the arbiter in industry disputes – ISPs are free to act in any way they want.

The FCC can’t even intervene when ISPs abuse customers. I recently wrote about the FCC complaint process. Before the end of Title II regulation, ISPs would try to resolve issues raised during the complaint process. The FCC had the authority to make ISPs treat customers fairly if they decided to exercise it – and it was the threat of the FCC creating new rules that made ISPs willing to curb some of their worst behavior. But now the FCC is nothing more than a gatekeeper – they lamely pass on consumer complaints to ISPs, which the ISPs largely toss into the wastebasket since the FCC no longer has any regulatory teeth.

It’s not completely fair to say that ISPs are 100% deregulated because there are a few areas of regulation that were not created under Title II authority that are still in place. For example, the Patriot Act created the requirement that ISPs have to allow federal law enforcement to be able to ‘wiretap’ broadband connections in the same way they used to wiretap telephone connections. The FCC can’t shed that responsibility and so they still enforce the CALEA rules that require ISPs to respond to subpoenas.

There are also various types of privacy and billing rules that were the result of other acts by Congress, and the FCC still oversees these remaining vestiges of regulation. As an example, the whole recent controversy over removing Section 230 protections for online companies like Twitter also applies to ISPs and is enforced by the FCC.

But the core basis for FCC regulation of ISPs was due to the fact that ISPs are common carriers, similar to telephone companies or cellular carriers. ISPs provide a two-way communications path with customers, and it is that basic function that justified regulating them under Title II regulations.

The FCC undertook one of the most bizarre steps in regulatory history when their voluntarily neutered themselves as broadband regulators. They no longer have the authority to force the big telcos to provide better rural broadband. They no longer have the authority to stop an ISP from raising rates to the point of unaffordability. They no longer even have the power to stop an ISP from billing customers for non-existent products. This is all easy to remember if you replace the term light-touch regulation with unregulated.