Starlink Disputes Virginia BEAD Awards

In an action that surprises nobody, Starlink has taken exception to the BEAD awards being proposed by the state Department of Housing and Community Development (DHCD) of Virginia, which is administering the BEAD grants in the State.

The Starlink comments were filed in response to the proposed final report from DHCD that informs NTIA of its proposed BEAD awards. Each state must solicit public comments on the proposed awards. These comments are forwarded to NTIA, and the agency has the final say on making the awards.

Starlink objected to the BEAD awards and said that it should have been awarded $60 million. To put Starlink’s complaint into perspective, Virginia is proposing to award BEAD funds to cover 133,500 locations. The proposed award to Starlink was $3.26 million to cover 5,579 locations for an average award of $584 per location. Project Kuiper was also awarded funding for satellite broadband, with a proposed award of $4.46 million to cover 6,967 locations for an average award of $641 per location. The two companies together have proposed awards to cover 9.4% of the BEAD locations in the State.

Virginia proposes to award 1,519 locations for fixed wireless technology, or 1.1% of BEAD locations. Most of the proposed funding went to fiber. It’s not easy to cite the exact percentage going to fiber since Comcast won awards for 24,343 locations, some to be served with fiber and some to be served by traditional cable TV technology. Over 89% of the awards went to either fiber or cable TV technology.

The Virginia public comment period on the proposed BEAD grants is for seven days, and other states will have similar comment periods. All of the states are hurrying to get a final report generated by the September 4 deadline set by NTIA, and most states are expected to meet the deadline. That means there will be a lot of opportunities over the next month for Starlink to make similar comments in other state’s proposed final reports.

To put Starlink’s request for $60 million into perspective, the company says that amount would cover almost all of the eligible locations in the State. We’ll have to wait to see how NTIA reacts to the Starlink comments. The agency has the flexibility to agree with or ignore Starlink. This final decision rests with Arielle Roth, the newly seated head of NTIA.

This issue has to be a hot potato in a purple state like Virginia. The state has a Republican Governor who recently praised the proposed BEAD awards. I’m sure that County and State elected officials have been publicly praising the proposed awards that will bring fiber to a lot or rural Virginia. Nobody knows what happens if NTIA agrees with Starlink. NTIA could decide which fiber grants to undo, but it would more likely pass the issue back to the State.

To complicate matters even further, Starlink’s filed comments in the BEAD process is not necessarily the end of the line, and Starlink or fiber providers who lose proposed grants in this process could file a lawsuit if they disagree with the final decision of NTIA or DHCD. BEAD could still get very messy before it’s done.

Businesses Still Need Landlines

There was a recent article in the Wall Street Journal that noted that the business world still uses a lot of landline telephones. Landline telephones have been steadily disappearing from homes, but are still not gone. I see ISPs still selling a telephone line to 10% or more of passings, and surveys show that the average residential landline penetration rate is still somewhere between 15% and 20%.

Some homes keep landlines because of poor or no cellular coverage. Even in areas where outdoor cellular coverage is good enough to make calls, indoor coverage might be poor. For most homes, indoor cellular coverage is typically half as good as the coverage just outside the home. While homes with broadband can use WiFi for making phone calls, those with erratic or unreliable broadband might keep a landline to be certain of having a connection to 911. Many older people keep a landline because they are more comfortable talking on a handset.

The WSJ article points out that a lot of businesses still have landlines. Some businesses, like hotels, don’t have a choice and are legally required to provide a landline in every room for guests to be able to call 911. Hotel guests also like the feature of using the landline to easily connect to the front desk or room service. It doesn’t seem likely that hotels will stop using landlines in the foreseeable future. Many hospitals keep landlines for similar reasons.

Other businesses keep landlines for a variety of reasons. One of the biggest reasons is the ease of using landlines for using abbreviated dialing to reach extension numbers within a business. It’s also a lot easier for employees to use a business landline for functions like putting calls on hold, transferring calls, or bridging multiple employees into a call.

Employees of large businesses favor landlines instead of business cellphones since a landline allows them to walk away from taking work calls after the end of the workday. Many businesses prefer landlines for a similar reason since it can create a clear differentiation between business calls and personal calls. There are also some security concerns. A lost or stolen company cellphone can give access to company systems and records.

The WSJ article points out that some large businesses are slowly weaning themselves from landlines. They quote the CTO of New York Life, who says that every employee still has a landline at their desk today but may not within a year. He notes that the transition to company cellphones won’t be  easy since it means a lot of reeducation of employees on how to perform routine business phone functions on a smartphone – something that isn’t always as easy or intuitive to use as the buttons on business desk phones.

I’ve had many ISP clients consider ditching the telephone business completely, and a few have done so. But many have decided to keep the telephone option because of business customers. It’s a lot harder to sell broadband to a business if it doesn’t also come bundled with telephone service. Many businesses have learned the painful lesson over the years of having different voice and data providers, which can turn into finger-pointing when something goes wrong with the voice connection.

The landline business also still has an attractive margin for companies that buy voice switching on a bulk wholesale basis. ISPs that ditch voice have made the ultimate transition to be a dumb pipe provider – something many of them have been leery of for many years.

Satellites in the News

It seems like there is daily news concerning satellites used for broadband and telecommunications. Following are a sampling of some of the recent announcements.

Starlink Outage. Starlink experienced a worldwide 2.5-hour network outage on July 23 that was blamed on “key internal software services that operate the core network”. This raises questions about using satellite broadband for mission-critical uses, such as for military field operations.

T-Mobile Satellite Texting. T-Mobile has been plastering the airwaves with ads that tout the ability of T-Mobile customers to use its satellites to send text messages from remote locations. The service is available free to T-Mobile cellular and broadband customers and is available to others for $10 per month. T-Mobile enabled the service for free to everybody in the Kerr County, Texas area after the recent flooding, and the company said it would do the same for future disasters. The company says that by the end of the year, 911 texting will be available to all cellphone customers in the U.S., regardless of their subscribed carrier.

Project Kuiper. The company is now in the deployment phase of its satellite constellation that will compete with Starlink. The latest launch of 27 satellites brought the number of deployed satellites to 102. The company has scheduled 80 more launches and believes it can begin offering some commercial services by the end of this year. The first planned constellation will consist of 3,236 satellites.

Echostar. The company announced a deal with MDA Space to launch 200 satellites that will provide cellphone service from satellites by 2029. The satellite constellation would use Echostar’s existing 2 GHz AWS-4 spectrum, which they hope will justify keeping the spectrum.

AST SpaceMobile. The company has asked the FCC to launch 243 additional satellites by 2028 that would provide cellular service in direct competition with T-Mobile (and possibly Echostar). The new satellites have a large antenna array of 223 square meters.

New Regulations. The FCC voted on August 7 to accelerate the licensing process for new proposed satellite launches. This was done to keep pace with the explosive growth of the space economy. This implies even more satellites in low orbits, making the space increasingly crowded. As of July 2024, there were over 11,000 satellites in space, with over 10,000 that are active. There are worldwide plans to have as many as 100,000 satellites in orbit by 2030, the vast majority in low-orbit space.

Spectrum. The FCC is in the process of considering four new spectrum bands for satellites. This includes spectrum from 12.7-13.25 GHz, 42-42.5 GHz, 51.4-52.4 GHz, and the “W-band” that includes various ranges including 92.0-94.0 GHz, 94.1-100 GHz, 102.0-109.5 GHz, and 111.8-114.25 GHz. Altogether this is over 200,000 Megahertz of spectrum. The FCC is also considering increasing the power limits on some of the spectrum, which would greatly increase bandwidth utilization. There are some concerns about overuse of some of the proposed bands. For example, meteorologists are warning about overallocation of spectrum in the 52 GHz band.

BEAD Grants. It seems obvious with announcements from some state broadband offices that the amount of the BEAD grants allocated to satellite broadband will increase significantly. There should be some pronouncements coming of grant awards within a month or so, depending on any bottleneck at the NTIA when it tries to process BEAD grants from all states at nearly the same time.

AI and the FCC

In July, the White House released Winning the Race, America’s AI Plan, that described the administration’s view of the role that government will have in the future of AI. Under the section titled Recommended Policy Actions, the White House envisions the following role for the FCC:

Led by the Federal Communications Commission (FCC), evaluate whether state AI regulations interfere with the agency’s ability to carry out its obligations and authorities under the Communications Act of 1934.

I’ve been thinking about this directive since the report was released, trying to envision exactly what it means, particularly the reference to the Communications Act of 1934. There are already a handful of ways that the FCC has gotten involved with AI:

  • Addressing AI-generated Robocalls: The FCC has issued rulings clarifying that AI-generated voice calls fall under existing robocall restrictions, requiring prior express consent from the recipient. The agency has also levied fines against companies using AI-generated robocalls.
  • Political Advertising and Transparency: The FCC has proposed rules to mandate disclosures when AI is used to generate content in political advertisements broadcast on radio and television.
  • Spectrum Management and Innovation: The FCC is investigating how AI can be leveraged for better spectrum utilization and management. This includes exploring using AI to analyze spectrum usage data, potentially leading to more efficient allocation and sharing of wireless frequencies.

All of these efforts seem to fall within the FCC’s regulatory authority, which stems back to the Communications Act of 1934. But it’s hard to envision an FCC role beyond issues that it already regulates.

Subsequent to the announced AI plan, the Administration announced that the FCC is also being tasked to review State regulation of AI, and Chairman Brendan Carr announced on July 24 that it’s possible the FCC would preempt state AI regulations. This announcement perplexes me, because I can’t think of any authority that would allow the FCC to preempt State AI regulations.

The only way for the FCC to preempt state regulation of AI is if the FCC asserts federal regulation over AI. That would be contrary to the overall philosophy of the current FCC, which changed the tenor of broadband regulation starting when the FCC under Chairman Ajit Pai made it clear that the FCC has no role in regulating broadband and made it clear that broadband is not a telecommunications service. The FCC even went so far as to hand off some remaining broadband regulations to the FTC. Chairman Carr has openly agreed with this interpretation of the FCC’s authority over broadband.

Since the FCC has elected to not regulate broadband, I don’t see how it can regulate AI. The only tie between AI and the FCC is that AI rides fiber connections to get to and from data centers and customers. As such, AI is a service that uses broadband, but is clearly not broadband. The best analogy to AI from a regulatory perspective is that it is essentially the same as cloud services like Amazon AWS that ride fiber paths. I can’t recall any discussion ever of FCC authority to regulate cloud services.

To further confound the issue, the long-standing arrangement between States and the federal government is that States are free to regulate anything that the federal government chooses not to regulate. The recent AI report makes it clear that the Administration doesn’t think AI should be heavily regulated, even though some in Congress have some different ideas on the question.

The Chairman’s announcement makes it clear that the FCC is going to try to preempt state AI regulations that the federal government doesn’t like. But it seems certain that any attempt by the FCC to do so will end up in protracted legal battles. The National Conference of State Legislatures reported recently that all 50 states, Puerto Rico, the Virgin Islands, and Washington D.C. have passed or introduced AI legislation – so the FCC will have a tall task, and a lot of states willing to push back on any FCC attempt to preempt state legislatures.

Will FWA Run Out of Gas?

You probably haven’t noticed, but the press is no longer full of articles claiming that FWA cellular broadband is a poor broadband choice for customers. For several years, there was a constant stream of quotes by executives of big cable companies and telcos saying that FWA was a flash in the pan that was only selling quickly because of low prices. They said that FWA performance was erratic and cellular carriers didn’t have enough excess capacity to provide a reliable broadband connection. There were many predictions made that FWA would plateau as word of mouth spread that FWA performance was substandard.

But that plateau hasn’t happened. As you can see in the table below, the recent quarterly growth of FWA has held steady for each of the three major FWA providers. Below the FWA numbers are the overall net new customers of the publicly traded cable companies and telcos. The big telcos have finally turned the corner and are installing more fiber customers than they are disconnecting DSL. All of the big cable companies are losing customers each quarter. Not reflected in these numbers are customers being added by fiber overbuilders, and the growth of fixed wireless and satellite broadband. Even considering the growth of the industry not shown on the table, it’s clear that FWA cellular is still dominating the broadband industry in terms of customer acquisition. FWA cellular will eventually plateau, but it doesn’t look like we are close to that day yet. The FWA carriers got a recent burst when Congress gave the FCC authority to renew spectrum auctions and to consider allocating as much as 800 megahertz of spectrum for 5G usage over the next five years. Leading up to that legislation, cellular carriers had started to beat the “we’re out of spectrum’ drum and claiming that the U.S. was losing the 5G battle to China. That argument worked in the past and seemingly has worked again.

I have to think that a big part of the hope for new spectrum is to support FWA. There is a huge usage difference between a normal cellphone customer and an FWA customer. Various industry statistics show that the average cellphone customer uses a little over 20 gigabytes of data per month, while OpenVault says that the average home broadband customer used 663 gigabytes per month at the end of the first quarter of 2025. Not only do FWA customers use thirty times more data than a cellphone customer, they use it in a very different way, with home and work computers connected to broadband for hours on end, while cellphone data usage tends to happen in shorter bursts.

The cable companies and telcos were not wrong when they said that cell towers weren’t originally designed to do home broadband, but with over 13.4 million FWA customers, it’s clear that the cell carriers have figured out a way to make it work. The one glaring weakness of FWA is that carriers will still cut FWA speeds to near zero any time that a cell site gets too busy – carriers are going to continue to prioritize cell customers over FWA customers. But the carriers are considering dedicating spectrum just for FWA, which would eliminate this issue. That will be a lot easier to do after more spectrum comes onto the market.

I’ve always followed predictions of where the broadband industry is headed. A decade ago, there were zero predictions that cellular carriers would capture a significant portion of the home broadband market. Cell carriers have offered cellular hot spots for many years, but the products weren’t popular because of slow speeds and high prices, with most hotspot plans with monthly data caps nearly identical to cellphones.

Verizon recently said it has a goal of reaching 8-9 million FWA customers by 2030. T-Mobile has a more aggressive plan to reach 12 million customers by the end of 2028. The industry segment is far from running out of gas.

What’s Next for USF?

The Supreme Court recently ruled that the FCC has the authority to operate and fund the Universal Service Fund, overturning rulings by the U.S. Court of Appeals for the Fifth Circuit, which agreed with Consumers’ Research and said that the USF is unconstitutional.

This puts the issue back on the table of somehow fixing the USF, which universally is regarded as broken. The current funding mechanism of taxing interstate telephone services is becoming untenable, with the current USF fee set at 36% of the applicable revenue source.

It seems likely that only Congress can fix USF, and a bipartisan group of Senators and Representatives has created the Universal Service Working Group to take a fresh look at both the funding and the uses of the USF.

Senator Deb Fischer (R-NE), one of the members of the working group, has created a comment portal on her website to get feedback from the public on Universal Service Fund reform. This is similar to the public comments that are routinely solicited by the FCC for issues it is considering. The portal says that comments will be sent to all members of the USF working group. Comments made to the FCC are more formal and are made available to the public – these comments may remain within the working group.

The portal includes nine questions, and respondents can respond to any or all of the questions. Comments can be typed into a text box associated with each question or emailed to the working group. Comments are due by midnight, September 15. Following are the specific questions being asked by the Universal Service Working Group:

Effectiveness of the Program

  • How should Congress evaluate the effectiveness of each USF program in achieving their respective missions to uphold universal service?
  • How well has each USF program fulfilled Section 254 of the Communications Act of 1996?
  • Has the FCC adequately assessed each USF program against consistent metrics for performance and advancement of universal service?

Considerations of Reform

  • What reforms within the four existing USF programs would most improve their: Transparency, Accountability, Cost-effectiveness, Administration, and Role supporting universal service?
  • What reforms would ensure that the USF contribution factor is sufficient to preserve universal service?
  • What reforms would reduce waste, fraud, and abuse in each of the four USF programs?
  • What actions would improve coordination and efficiency among USF programs and other FCC programs, as well as broadband programs housed at other federal agencies?
  • For any recommendations on reforms, does the Commission currently have the feasibility and authority to make such changes?
  • Is the USF administrator, the Universal Service Administrative Company (USAC), sufficiently accountable and transparent? Is USAC’s role in need of reform?

Respondents are not required to answer every question, only those for which they have feedback. As can be seen, these are serious policy questions. Undoubtedly, the big industry lobbying groups will weigh in. But this is also a chance for ISPs, local governments, and school systems  to weigh in. I’m going to respond to a few of the questions. I’m available to help anybody who wants to be heard on these important questions.

Multi-core Fiber

There is a relatively new fiber technology that most readers will not have heard about. Multi-core fiber (MCF) is a technology that packs multiple strands of fiber inside a bundle that is about the same size as a single strand of fiber today. The benefit of packing more fibers into a tiny strand is obvious – it means a lot more bandwidth can be sent through a single physical strand of fiber.

It may surprise you to understand that only a small fraction of a strand of fiber is used to transmit light. In today’s fiber, the light path in the center of a fiber is tiny and represents only 0.5% of area of a cross-section of a fiber. The rest of the fiber strand is made up of materials surrounding the glass that help to keep the light on a straight path and cladding that protects the fiber. Fiber could be made a lot thinner, but the industry has standardized on a fiber strand of 125 microns because going any smaller makes it hard for technicians to handle a single fiber strand. This means there is a lot of unused real estate inside a 125-micron sheath for additional light paths.

Early prototypes of multi-core fiber have created fibers with 7, 12, and 19 fibers, with the possibility of getting even more cores into a single strand. Each core is equivalent to a single-strand of fiber today. A 24-strand cable that uses 12-core multi-core fiber would contain 288 separate fiber paths. Future networks using multi-core fibers will be lighter and easier to handle than the fibers they would replace using current technologies.

There are some obvious issues with using multi-core fibers. One is cost, and MCF fiber is a lot more expensive today than traditional fiber. But that difference might be eliminated if MCF fiber becomes common and is produced in volume. The extra cost of the fiber might be easily offset by the increased ease of working with smaller fiber bundles. There are major challenges of splicing an MCF fiber into an existing network comprised of single-strand fiber. MCF fiber also interfaces in a whole new way with fiber electronics. There is also a size issue, because MCF fibers with a lot of cores will be larger than 125 microns, meaning that all new tools are needed to work with the fiber.

There are already a few trials of MCF fiber in use. This is a natural improvement for undersea fibers, where getting the most bandwidth possible in a fiber bundle is desired. There is also MCF fiber installed in some data centers to facilitate moving huge amounts of data from device to device.

Multiple vendors are manufacturing or testing multi-core fiber and it will become more available over time. This seems like a natural upgrade to long-haul fiber routes between major cities. There has been a lot of industry concern that the explosion of data centers means these long-haul routes are filling up soon after being constructed. MCF fiber multiplies the bandwidth that can be delivered through existing conduits.

One of the concerns of having many tightly packed cores side-by-side is crosstalk and interference between cores. However, scientists seem to have solved this problem with good shielding materials around each core.

It may be a long time before this makes sense in last-mile networks. We can already deliver far more bandwidth than almost any customer needs with current fiber technology. However, MCF answers the question of whether fiber technology will ever be obsolete. No wireless technology will ever be able to outcompete a small MCF fiber strand with multiple cores in each small fiber strand.

Interest Rates

I haven’t written about the impact of interest rates on building broadband for many years. But it’s a topic that has increasingly been coming up in conversations with ISPs. That’s happening for several reasons. First, interest rates leaped upward in 2022 and have stayed at the higher rates. We’re also in a time of economic uncertainty, and banks have gotten tighter and are making it harder to borrow money. Adding to uncertainty are worries by many economists of increasing inflation and overall job losses in the economy.

Consider the following chart from the Federal Reserve that shows the federal funds effective rate. This is the rate at which the Federal Reserve loans money to large banks. Banks then charge higher interest rates for commercial lending, car loans, mortgages, and infrastructure.

We’ve been extremely lucky to have a long, unprecedented stretch of low interest rates. The federal effective rate dropped to near zero at the beginning of 2009 and stayed incredibly low until 2022, other than a blip upward to 2.4% at the beginning of 2019. I say unprecedented, because the last time the fed rate stayed low for any length of time was in the 1950s, which was due to huge government spending used to stimulate and mend the economy after World War II.

I don’t have a crystal ball, so don’t take anything I say about interest rates as any more than my private musings. But I read what economists have to say, and the majority say that there is a higher possibility of higher interest rates than of lower ones. There are more looming negatives in the economy than potential positives. That’s not to say that interest rates can’t drop, but the consensus of  economists is that steady or increasing interest rates are more likely.

There is no one negative trend that might keep interest rates high, but rather a series of factors. Tariffs are adding to inflation. The dollar is starting to weaken against other major currencies. The federal government wants to transfer some of the costs for healthcare, education, and even disaster relief to the states. The federal government has directly cut jobs, but there are even more job cuts from contractors and grant recipients. AI data centers are putting upward pressure on electric rates. At the same time, the AI industry is promising that big companies can use AI to decrease staffing, at least in the short run. None of these factors alone will force up interest rates, but together they create a lot of pressure.

The interesting thing is that we tend to think that interest rates are high today, but rates are not out of line with historical trends when seeing that interest rates were 5% or higher for most of the period between 1967 and 2000.

The interest rate has a huge impact on broadband infrastructure projects. I’ve worked on hundreds of business plans to fund new infrastructure construction, and interest rates are almost always one of the most important variables. I can recall a number of proposed projects in the 1990s that got shelved, waiting for lower interest rates.

Industry news is full of stories about huge national fiber expansion plans, but much of this expansion is being funded by private equity. That’s not an option for most of the ISPs I know. It’s worth noting that the same factors that put pressure on interest rates also put pressure on private equity. It’s going to be interesting to see how many of the 3-5 year plans for fiber expansion by big ISPs actually materialize if interest rates increase very much.

Status of BEAD Non-Deployment Funds

While States are scurrying to award BEAD infrastructure funds before September 4, the other portion of BEAD – non-deployment funds – is in limbo. One paragraph of NTIA’s BEAD Restructuring Policy Notice put non-deployment funding on hold:

Funding for allowable non-deployment purposes is under review and NTIA will issue updated guidance in the future. As of the date of this Policy Notice, NTIA rescinds approval of all non-deployment activities approved in Initial Proposals. NTIA will not reimburse Eligible Entities for any new costs associated with previously approved non-deployment activities incurred after the date of this Policy Notice. An Eligible Entity should consult with the NIST Grants Office and NTIA if the Eligible Entity believes that it is entitled to reimbursement for non-deployment activities or costs that were incurred prior to the publication of this Policy Notice. Final Proposals will only require detail on the use of BEAD funds for deployment projects.

For those who haven’t been following BEAD closely, non-deployment funds are any remaining money after a State has made awards to bring broadband to every BEAD unserved and underserved location. Because of the uneven nature of allocating BEAD funding to States, some States didn’t expect to have any non-deployment funding, while others expected significant non-deployment funds.

NTIA’s original guidance from several years ago suggested that non-deployment funds could be used for projects related to broadband adoption, providing broadband devices to the public, digital skills training, and other activities to complement BEAD’s universal connectivity goals. States had already published creative plans for using the non-deployment funds. For example, West Virginia planned to use $30 million to create a database of utility poles in the state, $4 million to update security on the State’s own network, $90 million to award grants for expanding rural cell towers, and $30 million for training programs for technical jobs in the telecom sector.

The new rules from NTIA in the Notice clearly expect States to reduce the money spent on broadband infrastructure since the new BEAD grant rules give top priority to ISPs that request the lowest amount of money to achieve the desired BEAD goal of 100/20 Mbps. We won’t really know what this means until the States announce the final BEAD grant winners – but the consensus is that it will mean significantly less BEAD funding for fiber and more for satellite and fixed wireless broadband.

If NTIA sticks to the rules determined by the BEAD legislation, then any reduction in spending on infrastructure would mean increased funding for non-deployment purposes. Congress intended that the full $42.5 billion of BEAD funding be spent on broadband infrastructure or related non-deployment activities. Governors and elected officials from red and blue states have been urging NTIA to use the funds as intended by Congress.

I conducted an informal poll on the question to policy folks around the industry. Some expect that NTIA will kill all non-deployment funds as a way to take credit for ‘returning’ money to Treasury. Others are hopeful that NTIA will allow at least some non-deployment activities. Optimistic folks point to the fact that NTIA left the door open and didn’t kill the funding when they issued the Notice of the new rules. That same notice officially killed funding for digital equity grants, and it would have been an easy way to end non-deployment funds.

As mentioned in the quotation above from the Notice, the September 4 filing from each state for BEAD grants no longer requires a revised request for non-deployment funds. I expect that most States will still include their wish-list for the use of non-deployment funds. It seems like that will put NTIA into the position of accepting or rejecting specific non-deployment projects.  That could mean a lot of bad press, state by state if NTIA rejects ideas like the West Virginia plan to spend $90 million on new rural cell towers – a long-term infrastructure project that would benefit a lot of people in the state for decades.

An even bigger question is how an agency like NTIA could decide to not spend non-deployment funds that were specifically directed by Congress. It’s one thing for the White House to issue executive orders that countermand Congressional spending, and courts will be busy for a long time figuring out the extent that is allowable. It’s a whole lot fuzzier if an agency like NTIA can directly ignore Congress. For all of us who thought we knew how the federal government works, this is uncharted territory.

Arbitrage Rarely Lasts

I’ve always been fascinated with telecom business plans in tech built around arbitrage. I define arbitrage as any telecom or technology business plan that relies on the use of a platform that is not controlled by the entity that is selling retail products. What I find most intriguing about arbitrage is that the business opportunity inevitably comes to an end, and yet the people selling arbitrage services almost universally seem shocked when their business crumbles.

The earliest arbitrage business I remember is resold paging. Paging became the rage in the 1980s when a belt-clipped pager was a status symbol for millions of users. I recall meeting salespeople at big telecom shows in the 80s who were offering branded paging services to telcos and corporations. I could have the name wrong, but I recall the underlying network was PageNet. I recall joking with a coworker that it was easy to find the pager salespeople because they were the only ones at the conventions in sharkskin suits. Like other arbitrage opportunities, companies that resold paging folded when blackberries and other early cellular devices killed the paging industry.

The first really giant arbitrage business was reselling long-distance. After the AT&T divestiture in 1984, it became possible for companies to buy large volumes of long distance minutes from AT&T and other telcos. The arbitrage opportunity came when the bulk buyers of minutes would rebrand long-distance for anybody willing to peddle minutes. You may remember the standing joke from the late 1980s when half of the calls that came to your home was from somebody trying to get you to buy cheaper long-distance. Related to selling long-distance was an arbitrage opportunity to resell prepaid long-distance calling cards. Everybody making a call in an airport whipped out a card before making a call.

The next big opportunity came from the Telecommunications Act of 1996 when the FCC deregulated local telephone service. A lot of companies purchased unbundled network lines and collocated equipment in telco central offices. That wasn’t entirely arbitrage since the seller had to make a significant capital investment. The real arbitrage opportunity came from reselling local telephone lines from the big telcos. By 1997, State Commissions had mandating big discounts and low rates for reselling local service, and resellers sprung up instantly. I recall the biggest reseller was Talk America with over 1 million resold telephone lines. Like all arbitrage opportunities, local line resale died as quickly as it had started when telcos were allowed to raise wholesale rates.

The other big arbitrage opportunity has been reselling cellular minutes, which created the MVNO industry. Some really large MVNOs were created and T-Mobile and other cell companies bought back the largest resellers. But there were large numbers of small MVNOs created by companies and organizations who thought they could sell a lot of cellphones. A few MVNO arrangements have lasted many years, but the industry is littered with smaller MVNOs that didn’t make it because the underlying cell carrier either raised rates or changed the terms and made resale unprofitable.

The primary characteristic of arbitrage opportunities is that the business opportunity eventually evaporates, either from changes in the overall market, or more normally because the underlying network owner decides to charge more or end the business. The percentage of telco arbitrage businesses that eventually folded has to be in the 99% range, with only a handful that somehow made it.

There were smaller, yet still significant arbitrage opportunities. For example, most of the companies that sold cellular ACP plans were arbitrage companies that sprung up because of the federal subsidy and quickly died when ACP was cancelled.

I’ve been watching a new arbitrage situation. This isn’t in telecom, but in AI. It seems that there are 100,000 or more businesses that have sprung up by building wrappers – an app or software that relies on the systems of one of the handful of AI providers. If the history of arbitrage tells us anything, it’s that most of these businesses won’t make it. I already see the inklings of a big shakeout since AI firms are being pressed by shareholder to raise rates to curtail large monthly losses. If AI providers start charging the real cost of using their data centers, it’s likely that most of the wrapper companies will quickly die. I would hope the companies engaged in these business are realistic about it, because over the years I recall many resellers of arbitrage businesses seemed shocked when the opportunity died.