$20.4 Billion in Broadband Funding?

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

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

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

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

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

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

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

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

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

Capping the Universal Service Fund

FCC Chairman Ajit Pai recently suggested capping the size of the total Universal Service Fund at $11.4 annually, adjusted going forward for inflation. The chairman has taken a lot of flack on this proposal from advocates of rural broadband. Readers of this blog know that I have been a big critic of this FCC on a whole host of issues. However, this idea doesn’t ive me much heartburn.

Critics of the idea are claiming that this proves that the FCC isn’t serious about fixing the rural broadband problem. I totally agree with that sentiment and this current FCC hasn’t done very little to fix rural broadband. In fact, they’ve gone out of their way to try to hide the magnitude of the rural problem by fiddling with broadband statistics and by hiding behind the faulty data from carriers that come out of the FCC’s broadband mapping effort. My personal guess is that there are millions of more homes that don’t have broadband than are being counted by the FCC.

With that said, the Universal Service Fund shouldn’t be the sole funding source for fixing rural broadband. The fund was never intended for that. The fund was created originally to promote the expansion of rural telephone service. Over time it became the mechanism to help rural telcos survive as other sources of subsidies like access charges were reduced over time. Only in recent years was it repositioned to fund rural broadband.

Although I’m a big proponent for better rural broadband, I am not bothered by capping the Universal Service Fund. First, the biggest components of that fund have been capped for years. The monies available for the rural high cost program, the schools and library fund and for rural healthcare have already been capped. Second, the proposed cap is a little larger than what’s being spent today, and what has been spent historically. This doesn’t look to be a move by the FCC to take away funding from any existing program.

Consumers today fund the Universal Service Fund through fees levied against landline telephone and cellphones. Opponents of capping the fund apparently would like to see the FCC hike those fees to help close the rural broadband gap. As a taxpayer I’m personally not nuts about the idea of letting federal agencies like the FCC print money by raising taxes that we all pay. For the FCC to make any meaningful dent in the rural broadband issue they’d probably have to triple or quadruple the USF fees.

I don’t think there is a chance in hell that Congress would ever let the FCC do that – and not just this Congress, but any Congress. Opponents of Pai’s plan might not recall that past FCCs have had this same deliberation and decided that they didn’t have the authority to unilaterally increase the size of the USF fund.

If we want to federal government to help fix the rural broadband problem, unfortunately the only realistic solution is for Congress to appropriate real money to the effort. This particular Congress is clearly in the pocket of the big telcos, evidenced by the $600 million awarded for rural broadband in last year’s budget reconciliation process. The use of those funds was crippled by language inserted by the big telcos to make it hard to use the money to compete against the telcos.

And that’s the real issue with federal funding. We all decry that we have a huge rural broadband crisis, but what we really have is a big telco crisis. Every rural area that has crappy broadband is served by one of the big telcos. The big telcos stopped making investments to modernize rural networks decades ago. And yet they still have to political clout to block federal money from being used to compete against their outdated and dying networks.

The FCC does have an upcoming opportunity for funding a new broadband program from the Universal Service Fund. After 2020 nearly $2 billion annually will be freed up in the fund at the end of the original CAF II program. If this FCC is at serious about rural broadband the FCC should start talking this year about what to do with those funds. This is a chance for Chairman Pai to put his (USF) money where his mouth is.

Where’s the CAF II Success?

If you’ve read this blog you know I’ve been a big critic of the FCC’s CAF II program that gave over $10 billion in federal subsidies to the biggest telcos to improve rural broadband. My complaint is that the program set the embarrassingly low goal of improving rural broadband to speeds of at least 10/1 Mbps. My complaint is that this money could have done a huge amount of good had it been put up to reverse auction as was done with the leftover customers from this program last year – many ISPs would have used this funding to help to build rural fiber. Instead, the telcos are using the money mostly to upgrade DSL.

While I think the program was ill-conceived and was a giveaway to the big telco lobbyists, I am at least glad that it is improving rural broadband. For a household with no broadband, a 10 Mbps product might provide basic access to broadband services for the first time. We are now into the fifth year of the six-year program, so we ought to be seeing the results of these upgrades. USTelecom just published a blog saying that deployments are ahead of schedule and that CAF II is a quiet success.

The telcos have told the FCC they are largely on track – by the end of 2018 they should have upgraded broadband for at least 60% of the required households. AT&T and Windstream report that they have made at least 60% of the needed upgrades everywhere. Frontier says they are on track in 27 of the 29 states needing upgrades. CenturyLink says they are on track in only 23 of 33 states that are getting CAF II upgrades. According to USTelecom, over 2.1 million households should now be seeing faster speeds.

It’s also worth noting that the CAF II program should improve broadband for many more households that are not covered directly by the program. For example, when upgrading DSL for a CAF II area that surrounds a town, those living in the town should also see better broadband. The secondary benefit of the CAF program is that rural towns should be seeing speeds increasing from 6 Mbps or slower to as fast as 25 Mbps. By now many more millions of households should be seeing faster broadband due to CAF II.

What I find puzzling is that I would expect to see an upward burst of broadband customers for the big telcos because of CAF II. But the numbers aren’t showing that. There were four telcos that accepted more than $1 billion from the program, as follows, and three of them lost broadband customers in 2018:

Funding Households Per Household 2018 Broadband Customers
CenturyLink $3.09 B 1,190,016 $2,593 (262,000)
AT&T $2.96 B 1,265,036 $2,342 (18,000)
Frontier $1.7 B 659,587 $2,578 (203,000)
Windstream $1.07 B 413,345 $2,595 8,400
Total CAF II $10.05 B 4,075,840 $2,467

Windstream is the only telco of the four that gained customers last year. Windstream’s footprint is probably the most rural of the four telcos. We know that every telco is losing the battle for customers in towns where cable companies are increasing speeds on coaxial networks. Windstream seems to be offsetting those losses, and I can conjecture it’s because they have been selling more rural broadband.

AT&T is in a category all by itself. It’s impossible to know how AT&T is faring with CAF II. They are largely implementing CAF II using their cellular network (with the goal of tearing down rural copper). The company has also been deploying fiber past millions of homes and business in urban areas. They are clearly losing the residential broadband battle in urban markets to companies like Comcast and Charter. However, I can tell you anecdotally that AT&T hasn’t given up on urban copper. They have knocked on my door in Asheville, NC at least three times in the last year trying to sell DSL. I have to assume that they are also marketing broadband improvements in rural areas.

CenturyLink and Frontier are clearly bleeding broadband customers and each lost over 200,000 customers just in the last year. I have to wonder how hard these companies are marketing improved rural broadband. Both companies work in urban and suburban markets but also in numerous county seats situated in rural counties. Like every telco they are losing DSL customers in these markets to the cable company competitors.

Just like I have anecdotal evidence that AT&T is still pushing copper I hear stories that say the opposite for CenturyLink and Frontier. I worked in a few rural counties last year where the CAF II upgrades were reported as complete. And yet the communities seemed unaware of the improvements. Local politicians who bear the brunt of complaints from households that want better broadband weren’t aware of any upgrades – which tells me their rural constituents weren’t aware of upgrades.

I honestly don’t know what this all means. I really expected to find more positive evidence of the impact of CAF II. From what I know of rural America, households ought to leap at the opportunity to buy 10/1 Mbps DSL if they’ve had no broadband in the past. Are the upgrades being done but not being followed up with a marketing and public awareness campaign? Are actual upgraded speed not meeting the 10/1 Mbps goal? Are the upgrades really being made as reported to the FCC? We’re perhaps a year and a half away from the completion of CAF II, so I guess we’ll find out soon enough.

The Status of the CAF II Deployments

The Benton Foundation noted last month that both CenturyLink and Frontier have not met all of their milestones for deployment of CAF II. This funding from the FCC is supposed to be used to improve rural broadband to speeds of at least 10/1 Mbps. As of the end of 2018, the CAF II recipients were to have completed upgrades to at least 60% of the customers in each state covered by the funding.

CenturyLink took funding to improve broadband in 33 states covering over 1 million homes and businesses. CenturyLink claims to have met the 60% milestone in twenty-three states but didn’t make the goal in eleven states: Colorado, Idaho, Kansas, Michigan, Minnesota, Missouri, Montana, Ohio, Oregon, Washington, and Wisconsin.

Frontier received CAF II funding to improve broadband to over 774,000 locations in 29 states. Frontier says they’ve met the milestone in 27 states but haven’t reached the 60% deployment milestone in Nebraska and New Mexico.  There were a number of other large telcos that took CAF Ii funding like AT&T, Windstream, and Consolidated, and I have to assume that they’ve reported meeting the 60% milestone.

Back in 2014 when it looked like the CAF II program might be awarded by reverse auction, we helped a number of clients take a look at the CAF II service areas. In many cases, these are large rural areas that cover 50% or more of most of the rural counties in the country. Most of my clients were interested in the CAF II money as a funding mechanism to help pay for rural fiber, but all of the big telcos other than AT&T announced originally that they planned to upgrade existing DSL. AT&T announced a strategy early on to used fixed cellular wireless to satisfy their CAF II requirements. Since then a few big telcos like Frontier and Windstream have said that they are also using fixed wireless to meet their obligations.

To us, the announcement that the telcos were going to upgrade DSL set off red flag alarms. In a lot of rural counties there are only a small number of towns, and those towns are the only places where the big telcos have DSLAMs (the DSL hub). Rural telephone exchanges tend to be large and the vast majority of rural customers have always been far out of range of DSL that originates in the small towns. One only has to go a few miles – barely outside the towns – to see DSL speeds fall off to nothing.

The only way to make DSL work in the CAF II areas would be to build fiber to rural locations and establish new DSL hub sites. As any independent telco can tell you who deployed DSL the right way, this is expensive because it takes a lot of the rural DSLAMs to get within range of every customer. By electing DSL upgrades, the big telcos like CenturyLink and Frontier had essentially agreed to build a dozen or more fiber DSLAMs in each of the rural counties covered by CAF II. My back-of-the-envelope math showed that was going to cost a lot more than what the companies were receiving from the CAF fund. Since I knew these telcos didn’t want to spend their own money in rural America, I predicted execution failures for many of the planned DSL deployments.

I believe the big telcos are now facing a huge dilemma. They’ve reached 60% of customers in many places (but not all). However, it is going to cost two to three times more per home to reach the remaining 40% of homes. The remaining customers are the ones on extremely long copper loops and DSL is an expensive technology use for reaching these last customers. A DSLAM built to serve the customers at the ends of these loops might only serve a few customers – and it’s hard to justify the cost of the fiber and electronics needed to reach them.

I’ve believed from the beginning that the big telcos building DSL for the CAF II program would take the approach of covering the low hanging fruit – those customers that can be reached by the deployment of a few DSLAMs in a given rural area. If that’s true, then the big telcos aren’t going to spend the money to reach the most remote customers, meaning a huge number of CAF II customers are going to see zero improvements in broadband. The telcos mostly met their 60% targets by serving the low-hanging fruit. They are going to have a huge challenge meeting the next milestones of 80% and 100%.

Probably because I write this blog, I hear from folks at all levels of the industry about rural broadband. I’ve heard a lot of stories from technicians telling me that some of the big telcos have only tackled the low-hanging fruit in the CAF builds. I’ve heard from others that some telcos aren’t spending more than a fraction of the CAF II money they got from the FCC and are pocketing much of it. I’ve heard from rural customers who supposedly already got a CAF II upgrade and aren’t seeing speeds improved to the 10/1 threshold.

The CAF II program will be finished soon and I’m already wondering how the telcos are going to report the results to the FCC if they took shortcuts and didn’t make all of the CAF II upgrades. Will they say they’ve covered everybody when some homes saw no improvement? Will they claim 10/1 Mbps speeds when many households were upgraded to something slower? If they come clean, how will the FCC react? Will the FCC try to find the truth or sweep it under the rug?

We Need a Challenge Process for Broadband Maps

We all know that the broadband maps maintained by the FCC are terrible. Some of the inaccuracy is due to the fact that the data in the maps come from ISPs. For example, there are still obvious examples where carriers are reporting their marketing speeds rather than actual speeds, which they might not know. Some of the inaccuracy is due to the mapping rules, such as showing broadband by census block – when a few customers in a block have decent broadband it’s assumed that the whole census block has it. Some of the inaccuracy is due to the vagaries of technology – DSL can vary significantly from one house to the next due to the condition of local copper; wireless broadband can vary according to interference and impediments in the line-of-sight. The maps can be wrong due to bad behavior of an ISP who has a reason to either overstate or understate their actual speeds (I’ve seen both cases).

None of this would matter if the maps were just our best guess at seeing the state of broadband in the country. Unfortunately, the maps are used for real-life purposes. First, the maps are used at the FCC and state legislators to develop and support various policies related to broadband. It’s been my contention for a long time that the FCC has been hiding behind the bad maps because those maps grossly overstate the availability of rural broadband. The FCC has a good reason to do so because they are tasked by Congress to fix inadequate broadband.

Recently the maps have been used in a more concrete way and are used to define where grants can or cannot be awarded. Used in this manner the maps are being used to identify groups of homes that don’t already have adequate broadband. The maps were the basis of determining eligible areas for the CAF II reverse auction and now for the e-Connectivity grants.

This is where bad mapping really hurts. Every rural county in the country knows where broadband is terrible or non-existent. When I show the FCC maps to local politicians they are aghast at how inaccurate the maps are for their areas. The maps often show large swaths of phantom broadband that doesn’t exist. The maps will show towns that supposedly have universal 25/3 Mbps broadband or better when the real speeds in the town are 10 Mbps or less. The bad maps hurt every one of these places because if these maps were accurate these places would be eligible for grants to help fix the poor broadband. A lot of rural America is being royally screwed by the bad maps.

Of even more dismay, the maps seem to be getting worse instead of better. For example, in the CAF II program, the big telcos were supposed to bring broadband of at least 10/1 Mbps to huge swaths or rural America. A lot of the areas covered by the CAF II program are not going to see any improvement of broadband speeds. In some cases, the technology used, such as AT&T’s use of fixed cellular can’t deliver the desired speeds to customers who live too far from a tower. I also believe we’re going to find that in many cases the big carriers are electing to only upgrade the low-hanging fruit and are ignoring homes where the CAF upgrade costs too much. These carriers are likely to claim they’ve made the upgrades on the maps rather than admit to the FCC that they pocketed the subsidy money instead of spending it to improve broadband.

There have been a few suggested fixes for the problem. A few states have tried to tackle their own broadband maps that are more accurate, but they can’t get access to any better data from the ISPs. There are a few states now that are asking citizens to run speed tests to try to map the real broadband situation, but unless the speeds tests are run under specific and rigorous conditions they won’t, by themselves, serve as proof of poor broadband.

The easiest fix for the problem is staring us right in the face. Last year the FCC got a lot of complaints about the soon-to-be-awarded Mobility Fund Phase II grants. This money was to go to cellular carriers to bring cell coverage to areas that don’t have it. The FCC maps used for those efforts were even worse than the broadband maps and the biggest cellular companies were accused of fudging their coverage data to try to stop smaller rival cell providers from getting the federal money. The outcry was so loud that the FCC created a challenge process where state and local governments could challenge the cellular coverage maps. I know a lot of governments that took part in these challenges. The remapping isn’t yet complete, but it’s clear that local input improved the maps.

We need the same thing for the FCC broadband maps. There needs to be a permanent challenge process where a state or local government can challenge the maps and can supply what they believe to be a more accurate map of coverage. Once counties understand that they are getting bypassed for federal grant money due to crappy maps they will jump all over a challenge process. I know places that will go door-to-door if the effort can help bring funds to get better broadband.

Unfortunately, only the FCC can order a challenge process, and I don’t think they will even consider it unless they got the same kind of outcry that came with the Mobility II Funding. It’s sad to say, but the FCC has a vested interest in burying their head in the sand and pretending that rural broadband is okay – otherwise they have to try to fix it.

I think states ought to consider this. If a state undertakes a program to allow challenges to the map, then governors and federal legislators can use the evidence gathered to pressure the USDA to accept alternate maps for areas with poor broadband. These challenges have to come from the local level where people know the broadband story. This can’t come from a state broadband mapping process that starts with carrier data. If local people are allowed to challenge the maps then the maps will get better and will better define areas that deserve federal grants. I believe a lot of county governments and small towns would leap at the opportunity to tell their broadband story.

Looking Back at the Net Neutrality Order

Chairman Ajit Pai used three arguments to justify ending net neutrality. First, he claimed that the net neutrality rules in effect were a disincentive for big ISPs to make investments and that ending net neutrality would lead to a boom in broadband investment. He also argued that ending net neutrality would free the big ISPs to make broadband investments in rural parts of the US that were underserved. Finally, he argued that the end of net neutrality would spark the growth of telecom jobs. It’s been two years since he used those arguments to justify the repeal net neutrality and it’s easy to see that none of those things have come to pass.

The investment claim is easy to check. The big ISPs are starting to release their 2018 financial results and it looks like capital spending in 2018 – the first year after the end of net neutrality – are lower than in 2017. We’ve already heard from Comcast and Charter and that capital spending was down in 2018 over 2017. The industry analyst MoffettNathanson has already predicted that capital spending for the four biggest cable companies – Comcast, Charter, Altice, and CableONE is expected to drop by 5.8% more in 2019. Anybody who watches the cable companies understands that they all just made big investments in upgrading to DOCSIS 3.1 and that capital spending ought to drop significantly for the next several years.

MoffettNathanson also predicts that wireline capital spending for Verizon and AT&T will drop from $20.3 billion in 2018 to $19.6 billion in 2019. The press is also full of articles lamenting that investments in 5G by these companies is far smaller than hoped for by industry vendors. It seems that net neutrality had no impact on telecom spending (as anybody who has spent time at an ISP could have told you). It’s virtually unheard of for regulation to drive capital spending.

The jobs claim was a ludicrous one because the big companies have been downsizing for years and have continued to do so after net neutrality was repealed. The biggest layoff came from Verizon in October 2018 when the company announced that it was eliminating 44,000 jobs and transferring another 2,500 to India. This layoff is an astronomical 30% of its workforce. AT&T just announced on January 25 that it would eliminate 4,600 jobs, the first part of a 3-year plan to eliminate 10,000 positions. While the numbers are smaller for Comcast, they laid off 500 employees on January 4 and also announced the close of a facility with 405 employees in Atlanta.

Pai’s claim that net neutrality was stopping the big ISPs from investing in underserved areas might be the most blatantly false claim the Chairman has made since he took the Chairman position. The big ISPs haven’t made investments in rural America in the last decade. They have been spending money in rural America in the last few years – but only funds handed to them by the FCC through the CAF II program to expand rural broadband and the FCC’s Mobility Fund to expand rural cellular coverage. I’ve been hearing rumors all over the industry that most of the big ISPs aren’t even spending a lot of the money from those two programs – something I think will soon surface as a scandal. There is no regulatory policy that is going to get the big ISPs to invest in rural America and it was incredibly unfair to rural America for the Chairman to imply they ever would.

Chairman Pai’s arguments for repealing net neutrality were all false and industry insiders knew it at the time. I probably wrote a dozen blog posts about the obvious falsehoods being peddled. The Chairman took over the FCC with the goal of eliminating net neutrality at the top of his wish list and he adopted these three talking points because they were the same ones being suggested by big ISP lobbyists.

What bothers me is this is not how regulation is supposed to work. Federal and state regulatory agencies are supposed to gather the facts on both sides of a regulatory issue, and once they choose a direction they are expected to explain why. The orders published by the FCC and other regulatory bodies act similar to court orders in that the language in these orders are then part of the ongoing record that is used later to understand the ‘why’ behind an order. In later years courts rely on the discussion in regulatory orders to evaluate disputes based upon the new rules. The order that repeals net neutrality sadly repeats these same falsehoods that were used to justify the repeal.

There are always two sides for every regulatory issue and there are arguments that could be made against net neutrality. However, the Chairman and the big ISPs didn’t want to publicly make the logical arguments against net neutrality because they knew these arguments would be unpopular. For example, there is a legitimate argument to made for allowing ISPs to discriminate against certain kinds of web traffic – any network engineer will tell you that it’s nearly mandatory to give priority to some bits over others. But the ISPs know that making that argument makes it sound like they want the right to shuttle customers into the ’slow lane’, and that’s a PR battle they didn’t want to fight. Instead, telecom lobbyists cooked up the false narrative peddled by Chairman Pai. The hoped the public would swallow these false arguments rather than argue for the end of net neutrality on its merits.

Broadband Usage Continues to Grow

The firm OpenVault, a provider of software that measures data consumption for ISPs reported that the average monthly data use by households grew from 201.6 gigabytes in 2017 to 268.7 gigabytes in 2018 – a growth rate of 33%. The company also reported that the medium use per household grew from 103.6 gigabytes in 2017 to 145.2 gigabytes in 2018 – a growth rate of 40%. The medium represents the midpoint of users, with half of all households above and half below the medium.

To some degree, these statistics are not news because we’ve known for a long time that broadband usage at homes, both in total download and in desired speeds has been doubling every three years since the early 1980s. The growth in 2018 is actually a little faster than that historical average and if the 2018 growth rate was sustained, in three years usage would grow by 235%. What I find most impressive about these new statistics is the magnitude of the annual change – the average home used 67 more gigabytes of data per month in 2018 than the year before – a number that would have seemed unbelievable only a decade ago when the average household used a total of only 25 gigabytes per month.

There are still many in the industry who are surprised by these numbers. I’ve heard people claim that now that homes are watching all the video they want that the rate of growth is bound to slow down – but if anything, the rate of growth seems to be accelerating. We also know that cellular data consumption is also now doubling every two years.

This kind of growth has huge implications for the industry. From a network perspective, this kind of bandwidth usage puts a big strain on networks. Typically the most strained part of a network is the backbones that connect to neighborhood nodes. That’s the primary stress point in many networks, including FTTH networks, and when there isn’t enough bandwidth to a neighborhood then everybody’s bandwidth suffers. Somebody that designed a network ten years ago would never have believed the numbers that OpenVault is reporting and would likely not have designed a network that would still be sufficient today.

One consequence of the bandwidth growth is that it’s got to be driving homes to change to faster service providers when they have the option. A household that might have been happy with a 5 Mbps or 10 Mbps connection a few years ago is likely no longer happy with it. This has to be one of the reasons we are seeing millions of homes each year upgrade from DSL to cable modem each year in metropolitan areas. The kind of usage growth we are seeing today has to be accelerating the death of DSL.

This growth also should be affecting policy. The FCC set the definition of broadband at 25/3 Mbps in January of 2015. If that was a good definition in 2015 then the definition of broadband should have been increased to 63 Mbps in 2019. At the time the FCC set that threshold I thought they were a little generous. In 2014, as the FCC was having this debate, the average home downloaded around 100 gigabytes per month. In 2014 the right definition of broadband was probably more realistically 15 – 20 Mbps and the FCC was obviously a little forward-looking in setting the definition. Even so, the definition of broadband should be increased – if the right definition of broadband in 2014 was 20 Mbps, then today the definition of broadband ought to have been increased to 50 Mbps today.

The current FCC is ignoring these statistics for policy purposes – if they raise the definition of broadband then huge numbers of homes will be classified as not having broadband. The FCC does not want to do that since they are required by Congressional edict to make sure that all homes have broadband. When the FCC set a realistic definition of broadband in 2015 they created a dilemma for themselves. That 2015 definition is already obsolete and if they don’t change it, in a few years it is going to be absurdly ridiculous. One only has to look forward three years from now, when the definition of broadband ought to be 100 Mbps.

These statistics also remind us of the stupidity of handing out federal subsidies to build technologies that deliver less than 100 Mbps. We still have two more years of CAF II construction to upgrade speeds to an anemic 10 Mbps. We are still handing out new subsidies to build networks that can deliver 25/3 Mbps – networks that are obsolete before they are completed.

Network designers will tell you that they try to design networks to satisfy demands at least seven years into the future (which is the average life of many kinds of fiber electronics). If broadband usage keeps doubling every three years, then looking forward seven years to 2026, the average home is going to download 1.7 terabytes per month and will expect download speeds of 318 Mbps. I wonder how many network planners are using that target?

The final implications of this growth are for data caps. Two years ago when Comcast set a terabyte monthly data cap they said that it affected only a few homes – and I’m sure they were right at the time. However, the OpenVault statistics show that 4.12% of homes used a terabyte per month in 2018, almost double from 2.11% in 2017. We’ve now reached that point when the terabyte data cap is going to have teeth, and over the next few years a lot of homes are going to pass that threshold and have to pay a lot more for their broadband. While much of the industry has a hard time believing the growth statistics, I think Comcast knew exactly what they were doing when they established the terabyte cap that seemed so high just a few years ago.

Windstream Turns Focus to Wireless

Windstream CEO Tony Thomas recently told investors that the company plans to stress wireless technology over copper going into the future. The company has been using point-to-point wireless to serve large businesses for several years. The company has more recently been using fixed point-to-multipoint wireless technology to satisfy some of it’s CAF II build-out requirements.

Thomas says that the fixed wireless technology blows away what could be provided over the old copper plant with DSL. In places with flat and open terrain like Iowa and Nebraska the company is seeing rural residential broadband speeds as fast as 100 Mbps with wireless – far faster than can be obtained with DSL.

Thomas also said that the company is also interested in fixed 5G deployments, similar to what Verizon is now starting to deploy – putting 5G transmitters on poles to serve nearby homes. He says the company is interested in the technology in places where they are ‘fiber rich’. While Windstream serves a lot of extremely rural locations, there also serve a significant number of towns and small cities in their incumbent service areas that might be good candidates for 5G.

The emphasis on wireless deployments puts Windstream on the same trajectory as AT&T. AT&T has made it clear numerous times to the FCC that they company would like to tear down rural copper wherever it can to serve customers with wireless. AT&T’s approach differs in that AT&T will be using its licensed cellular spectrum and 4G LTE in rural markets while Windstream would use unlicensed spectrum like various WISPs.

This leads me to wonder if Windstream will join the list of big telcos that will largely ignore its existing copper plant moving into the future. Verizon has done it’s best to sell rural copper to Frontier and seems to be largely ignoring its remaining copper plant – it’s the only big telcos that didn’t even bother to chase the CAF II money that could have been used to upgrade rural copper.

The new CenturyLink CEO made it clear that the company has no desire to make any additional investments that will earn ‘infrastructure returns’, meaning investing in last mile networks, both copper and fiber. You can’t say that Frontier doesn’t want to continue to support copper, but the company is clearly cash-stressed and is widely reported to be ignoring needed upgrades and repairs to rural copper networks.

The transition from copper to wireless is always scary for a rural area. It’s great that Windstream can now deliver speeds up to 100 Mbps to some customers. However, the reality of wireless networks are that there are always some customers who are out of reach of the transmitters. These customers may have physical impediments such as being in a valley or behind a hill and out of line-of-sight from towers. Or customers might just live to far away from a tower since all of the wireless technologies only work for some fixed distance from a tower, depending upon the specific spectrum being used.

It makes no sense for a rural telco to operate two networks, and one has to wonder what happens to the customers that can’t get the wireless service when the day comes when the copper network gets torn down. This has certainly been one of the concerns at the FCC when considering AT&T’s requests to tear down copper. The current FCC has relaxed the hurdles needed to tear down copper and so this situation is bound to arise. In the past the telcos had carrier of last-resort obligations for anybody living in the service area. Will they be required to somehow get wireless signal to those customers that fall between the cracks? I doubt that anybody will force them to do so. It’s not far-fetched to imagine customers living within a regulated telcos service area who can’t get telephone or broadband service from the telco.

Customers in these areas also have to be concerned with the future. We have wide experience that the current wireless technologies don’t last very long. We’ve seen electronics wear out and become functionally obsolete within seven years. Will Windstream and the other telcos chasing the wireless technology path dedicate enough capital to constantly replace electronics? We’ll have to wait for that answer – but experience says that they will cut corners to save money.

I also have to wonder what happens to the many parts of the Windstream service areas that are too hilly or too wooded for the wireless technology. As the company becomes wireless-oriented will they ignore the parts of the company stuck with copper? I just recently visited some rural counties that are heavily wooded, and which were told by local Windstream staff that the upgrades they’ve already seen on copper (which did not seem to make much difference) were the last upgrades they might ever see. If Windstream joins the other list of big telcos that will ignore rural copper, then these networks will die a natural death from neglect. The copper networks of all of the big telcos are already old and it won’t take much neglect to push these networks into the final death spiral.

Trusting Big ISP Data

The FCC has finally come to grips with the fact that big ISPs are supplying bad data to the various FCC mapping efforts that are then used to distribute FCC funding and to set national policies. The latest mapping snafu come from one-time data collection from the cellular carriers last year showing rural cellular coverage. These maps were to be used to establish a new federal fund called the Mobility Fund II which will distribute $4.53 billion for the expansion of 4G cellular coverage to rural parts of the country that have little or no cellular coverage.

The big cellular companies have been lying about their cellular coverage for years. If you look at the nationwide 4G LTE coverage maps from AT&T and Verizon you’d think that they have cellular coverage virtually everywhere except in areas like deserts and mountains. But anybody living or traveling in rural America knows better. It’s not hard to drive very far off main highways and hit areas that never see a bar of cellular coverage. And even where there is coverage, it’s still often 3G or even older technology.

When the FCC collected data for the Mobility II funding the big carriers stuck to this same flawed mapping data. It turns out that overclaiming rural cellular coverage will keep funding from going to the smaller cellular companies that still serve in many parts of rural America. Luckily the FCC effort included a challenge process and the FCC was flooded with challenges showing that cellular coverage is far worse than is claimed by the big carrier maps. There were so many challenges that the FCC put the Mobility II award process on hold until they can sort it out.

This is just one of the mapping efforts from the FCC that have been used to award billions of dollars of funding over the last decade. The FCC relied on mapping data from the big telcos to establish the areas that were eligible for the billions of dollars of CAF II funding.

Since rural areas served by the biggest telcos have been neglected for years, and since the big telcos deployed very little rural DSL outside of towns it’s not hard to identify huge swaths of rural areas that have little or no broadband. But the big telco broadband coverage data contains a ton of inaccuracies. For example, there are numerous smaller rural towns that are listed in the telco databases as having decent broadband, when the reality on the ground is broadband speeds of a few Mbps at best. It looks like the big telcos often reported marketing speeds rather than actual speeds. This inaccuracy has stopped others from seeking federal grants and loans to upgrade such towns.

I fear that rural broadband mapping is on the verge of the next crisis. As a blogger I am contacted a lot by folks in rural America describing their broadband situation. I’ve heard enough stories to convince me that the big telcos have made only a half-hearted effort at implementing CAF II. I think many homes that should have seen CAF II broadband upgrades will see zero upgrades while many others will get upgraded to speeds that don’t meet even the measly CAF II goal of 10/1 Mbps.

The big telcos are not likely to come clean about having pocketed CAF II funding rather than spending every penny to make upgrades, and so they are going to claim that the CAF II areas have been upgraded, regardless of the actual situation on the ground. Rural households that didn’t see the promised upgrades will then be counted by the FCC as having better broadband. That will make these areas off limits to future federal funding to fix what the telcos botched. We already see the newest federal grant programs having a new requirement that no more than 10% of the homes covered by federal funding can have broadband today. Because of the falsified mapping, many homes without broadband are going to be deemed to be covered and it will be a massive challenge for somebody else to get funding to help such areas. These communities will be harmed twice – once by the telcos that aren’t upgrading speeds and second by the inaccurate mapping that will stop others from funding assistance to fix the problem.

The big telcos and carriers have huge incentives to lie about rural broadband coverage. None of the big telcos or cellular carriers want to spend any of their own money in rural areas, but they love the revenues they are receiving by a captive rural customer base who pays high prices for poor broadband. The big companies are fighting hard to preserve these revenues, which means they don’t want anybody else to get funding to improve broadband. To make matters worse, the big telcos continue to eliminate technicians and maintenance budgets in rural America, making it nearly impossible for customers to get repairs and service.

I unfortunately don’t have any easy solution for the problem of crappy mapping. Perhaps the FCC could entertain challenges to the broadband maps in the same way they are accepting challenges in the Mobility II process. I know a number of rural communities that would make the effort to create accurate broadband maps if this might bring them better broadband.

Telecom Predictions for 2019

It’s that time of year when I look forward at what the next year might bring to the industry. I see the following as the biggest telecom trends for 2019:

5G Will Not Save the World (or the Industry). This will be the year when we will finally stop seeing headlines about how 5G will transform society. There will be almost no actual introduction of 5G in networks, but we’ll still see numerous press releases by the big ISPs crowing about fictional 5G achievements.

CAF II Buildout Nearly Complete, but Few Notice. The CAF II upgrades will not have the impact hoped for by the FCC. Many areas that should have gotten speed increases to at least 10/1 Mbps will get something less, but nobody will officially monitor or note it. Households that buy the upgrades to 10/1 will still feel massively underserved since those speeds are already seriously obsolete.

People Will Wonder Why They Bought 5G Cellphones and 802.11ax Routers. The wireless carriers will begin charging premium prices for 5G-capable cellular phone yet there will be no 5G cell sites deployed. Households will upgrade to 802.11ax WiFi routers without realizing that there are no compatible devices in the home. Both sets of customers will feel cheated since there will be zero improvement in performance. Yet we’ll still see a few articles raving about the performance of each technology.

FCC Will Continue to Work Themselves out of the Regulatory Business. The current FCC will continue on the path to deregulate the large carriers to the fullest extent possible. They will continue to slant every decision in the direction of the big ISPs while claiming that every decision helps rural broadband.

Rural America Will Realize that Nobody is Coming to Help. I predict that hundreds of rural communities will finally realize that nobody is bringing them broadband. I expect many more communities to begin offering money for public/private partnerships as they try desperately to not fall on the wrong side of the broadband divide.

Broadband Prices Start to Climb. 2019 will be the first year that the world will notice the big ISP strategy to significantly increase broadband prices. We saw the first indication in November when Charter increased bundled broadband prices by $5 per month – the biggest broadband price increase in my memory. All the big ISPs are hoping to have broadband prices to $90 within 5 – 7 years.

Corporate Lobbyists Will Drive Policy. In 2018 there were numerous FCC decisions that came straight from the pens of telecom lobbyists. In 2019 those lobbyists will drive state and federal telecom legislation and FCC decisions.

Comcast and Charter Continue to Eat into Cellular Market. These two cable companies will quietly, yet significantly begin eating into the cellular markets in urban areas. I still don’t expect a major reaction by the cellar companies, but by 2020 we should start seeing cellular prices take another tumble.

Household Bandwidth Usage Will Continue to Grow. There will be no slowdown in the growth of household broadband as homes add many more bandwidth-capable devices to their homes. Another few million customers will cut the cable TV cord and ratchet up bandwidth usage. Online programming will routinely first offer 4K video and we’ll see the first commercial 8K video online.

We’ll See First Significant Launches of LEO Satellites. There will be little public notice since the early market entries will not be selling rural broadband but will be supporting corporate WANs, cellular transport and the development of outer space networks between satellites.

25 New Online Programmers Emerge. There will be a flood of new online programming options as numerous companies jump into the market. We won’t see many, and possibly no failures this year, but within a few years the market reality will drive out companies that can’t gain enough market share.

Transport Price Pressure Tightens. Anybody selling transport to cellular companies will see big pressure to lower prices. Those who ignore the pressure will find out that the carriers are willing to build fiber to bypass high costs.

Big Companies Will Get Most New Spectrum. The biggest ISPs and cellular carriers will still gobble up the majority of new spectrum, meaning improved spectrum utilization for urban markets while rural America will see nearly zero benefits.