A Regulatory Definition of Broadband

In one of the more bizarre filings I’ve seen at the FCC, the National Cable Television Association (NCTA) asked the FCC to abandon the two-year old definition of broadband set at 25 Mbps down and 3 Mbps up. NCTA is the lobbying and trade association of the largest cable companies like Comcast, Charter, Cox, Mediacom, Altice, etc. Smaller cable companies along with smaller telephone companies have a different trade association, the American Cable Association (ACA). This was a short filing that was a follow-up to an ex parte meeting, and rather than tell you what they said, the gist of the letter is as follows:

We urged the Commission to state clearly in the next report that “advanced telecommunications capability” simply denotes an “advanced” level of broadband, and that the previously adopted benchmark of 25 Mbps/3 Mbps is not the only valid or economically significant measure of broadband service. By the same token, we recommended that the next report should keep separate its discussion of whether “advanced telecommunications capability” is being deployed in a reasonable and timely manner, on the one hand, and any discussion of the state of the “broadband” marketplace on the other.  We noted that the next report presents an opportunity for the Commission to recognize that competition in the broadband marketplace is robust and rapidly evolving in most areas, while at the same time identifying opportunities to close the digital divide in unserved rural areas.

The reason I call it bizarre is that I can’t fathom the motivation behind this effort. Let me look at each of the different parts of this statement. First, they don’t think that the 25/3 threshold is the ‘only valid or economically significant measure of broadband service.’ I would think the 25/3 threshold would please these companies because these big cable companies almost universally already deploy networks capable of delivering speeds greater than that threshold. And in many markets their competition, mostly DSL, does not meet these speeds. So why are they complaining about a definition of broadband that they clearly meet?

They don’t offer an alternative standard and it’s hard to think there can be a standard other than broadband speed. It seems to me that eliminating the speed standard would help their competition and it would allow DSL and wireless WISPs to claim to have the same kind of broadband as a cable modem.

They then ask the FCC to not link discussions about broadband being deployed in a reasonable and timely manner with any actual state of the broadband marketplace. The FCC has been ordered by Congress to report on those two things and it’s hard to think of a way to discuss one without the other. I’m not sure how the FCC can talk about the state of the broadband industry without looking at the number of consumers buying broadband and showing the broadband speeds that are made available to them. Those FCC reports do a great job of highlighting the regional differences in broadband speeds, and more importantly the difference between urban and rural broadband speeds.

But again, why do the cable companies want to break that link in the way that the FCC reports broadband usage? The cable companies are at the top of the heap when it comes to broadband speeds. Comcast says they are going to have gigabit speeds available throughout their footprint within the next few years. Cox has announced major upgrades. Even smaller members like Altice say they are upgrading to all fiber (which might get them tossed out of NCTA). These FCC reports generally highlight the inadequacy of DSL outside of the cable company footprints and don’t show urban broadband in a bad light.

Finally, they want the FCC to recognize that there is robust competition in broadband. And maybe this is what is bothering them because more and more the cable companies are being referred to as monopolies. The fact is there is not robust competition for broadband. Verizon has FiOS in the northeast and a few other major cities have a fiber competitor in addition to the cable and telephone incumbents. But in other markets the cable companies are killing the telephone companies. Cable companies continue to add millions of new customers annually at the expense of DSL. AT&T and Verizon are currently working to tear down rural copper, and in another decade they will begin tearing down urban copper. At that point the cable companies will have won the landline broadband war completely unless there is a surprising upsurge in building urban fiber.

The only other reason the cable companies might be asking for this is that both Comcast and Charter are talking about getting into the wireless business. As such they could begin selling rural LTE broadband – a product that does not meet the FCC’s definition of broadband. I can’t think of any other reason, because for the most part the big cable companies have won the broadband wars in their markets. This filing would have been business as usual coming from the telcos, but it’s a surprising request from the cable companies.

Improving Our Digital Infrastructure, Part 1

FCC_New_LogoLast week the FCC published a document that is their vision of a roadmap to improve the nation’s digital infrastructure. Today’s blog is going to look at the positive aspects of that roadmap and tomorrow I will look at some of the FCC’s ideas that I find to be troublesome.

I find this to be an interesting document for several reasons. First, it was published on Ajai Pai’s first day as FCC Chairman. It’s obvious that this paper has been under development for a while, but it clearly reflects the new Chairman’s views of the industry.

This paper is not so much a complete broadband plan as it is a roadmap of principles that the FCC supports to get broadband to rural areas. The FCC recognizes that they only have the power today to institute a few of the goals of this plan and that Congress would need to act to implement most of the suggestions in the plan.

The obviously good news about this document is that it clearly lays forward the principle that rural America deserves to have real broadband that meets or exceeds the FCC’s definition of 25 Mbps. This is a clear break from the FCC’s decision just a few years ago to fund the CAF II program which is spending $19 billion to fund rural broadband that only has to meet a 10/1 Mbps standard. One of my first thoughts in reading this document is that it seems likely that if this new roadmap is implemented that the FCC would have to cancel the remainder of the CAF II deployment. It’s really too bad the that FCC didn’t support real bandwidth for rural America before tossing away money on the CAF II plan.

The FCC plan looks at bringing broadband to the 14% of the households in the country that don’t have broadband today capable of delivering 25/3 Mbps. The FCC estimates that it will cost roughly $80 billion to bring broadband to these areas. Interestingly, they estimate that it would take only $40 billion to reach 12 out of the 14%, and that the last little sliver of the country would cost the remaining $40 billion. But the FCCs goal is to find a way to get broadband to all of these places (except I’m sure for the most remote of the remote places).

The paper calls for aggressive federal assistance in funding the rural broadband. They recognize that there has not been commercial deployment in these areas because commercial providers can’t justify the investments due to the high cost of deployment. And so they suggest that the government should provide grants, loans and loan guarantees that are aggressive enough to improve the returns for private investment. They suggest that grants could be as high as 80% of the cost of deployment in the most remote places.

The paper suggests that most of the areas will have enough customer revenue to support the properties without further federal support. In looking at some of the business plans I have built for rural counties I think that they are probably right. What sinks most rural business plans is not the ongoing maintenance costs, but rather the heavy burden of debt and a return on equity during the first 10 years of deployment. Rural fiber deployment will look like better financial opportunity if the government can find a way to provide enough up-front funding support. The FCC does recognize that most rural markets in the country will require ongoing federal support to be viable. They suggest it will require about $2 billion per year in ongoing support that will probably be similar to how the Universal Service Fund works today.

The roadmap document also suggests other financial incentives to fiber builders such as faster depreciation, tax credits, and changes to the IRS rules which require today that grant funding be considered as income. That provision stopped a number of companies from accepting the stimulus funding a few years ago and is a definite roadblock to accepting grant funding.

Overall these are great goals. It’s going to require significant fiber in rural areas to meet the stated speed goals. It’s great to see the FCC change direction and suggest that rural America deserves real broadband. I just wish they had adopted this policy a few years ago rather than supporting the CAF II program that is throwing money at propping up rural DSL.