How’s CAF II Doing in Your County?

The CAF II program was tasked with bringing broadband of at least 10/1 Mbps to large parts of the country. I’ve been talking to folks in rural counties all over the country who don’t think that their area has seen much improvement from the CAF II plan.

The good news is that there is a way to monitor what the big telcos are reporting to the FCC in terms of areas that have seen the CAF II upgrades. This web site provides a map that reports progress on several different FCC broadband plans. The map covers reported progress for the following programs:

  • CAF II – This was the $11 billion subsidy to big telcos to improve rural broadband to at least 10/1 Mbps.
  • CAF II BLS – This was Broadband Loop support that was made available to small telcos. Not entirely sure why the FCC is tracking this using a map.
  • ACAM – This is a subsidy given to smaller telcos to improve broadband to at least 25/3 Mbps, but which many are using to build gigabit fiber.
  • The Alaska Plan. This is the Alaska version of ACAM. Alaska is extremely high cost and has a separate broadband subsidy plan.
  • RBE – These are the Experimental Broadband Grants from 2015.

Participants in each of these programs must report GIS data for locations that have been upgraded, and those upgraded sites are then shown on the map at this site. There is, of course, some delay between the time of completing upgrades and getting information onto this map. It’s now been 4.5 years into the six-year CAF II plan, and the carriers have told the FCC that many of the required upgrades are completed. All CAF II upgrades must be finished by the end of 2020 – and likely most will be completed sometime earlier next year during the summer construction season that dictates construction in much of the country.

The map is easy to use. For example, if you change the ‘Fund’ box at the upper right of the map to CAF II, then all of the areas that were supposed to get CAF II upgrades are shown in light purple. In these areas, the big telcos were supposed to upgrade every residence and business to be able to receive 10/1 Mbps or better broadband.

The map allows you to drill down into more specific detail. For example, if you want to see how CenturyLink performed on CAF II, then choose CenturyLink in the ‘Company Name’ box. This will place a pin on the map for all of the locations that CenturyLink has reported as complete. As you zoom in on the map the upgraded locations will show as dark purple dots. You can zoom in on the map to the point of seeing many local road names.

The map has an additional feature that many will want to see. Down on the left bottom of the map under ‘Boundaries’ you can set political boundaries like County borders.

Most counties are really interested in the information shown on the map. The map shows the areas that were supposed to see upgrades along with areas that have been upgraded to date. This information is vital to counties for a number of reasons. For example, new federal grants and most state grant programs rely on this data to determine if an area is eligible for additional funding. For example, the current $600 million Re-Connect grants can’t be used for areas where more than 10% of homes already have 10/1 Mbps broadband. Any areas on this map that have the purple dots will probably have a hard time qualifying for these grants. The big telcos will likely try to disqualify any grant requests that build where they say they have upgraded.

Probably the most important use of the map is as a starting point for counties to gather accurate data about broadband. For example, you might want to talk to folks that live in the upgraded areas to see if they can really now buy 10/1 Mbps DSL. My guess is that many of the areas shown on these maps as having CAF II upgrades are still going to have download speeds less than 10/1 Mbps. If you find that to be the case I recommend documenting your findings because areas that didn’t get a full upgrade should be eligible for future grant funding.

It’s common knowledge that rural copper has been ignored for decades, often with no routine maintenance. It’s not surprising to anybody who has worked in a DSL environment that many rural lines are incapable of carrying faster DSL. It’s not easy for a big telco to bring 10/1 Mbps broadband over bad copper lines, but unfortunately, it’s easy for them to tell the FCC that the upgrades have been done, even if the speed is not really there.

This map is just one more piece of the puzzle and one more tool for rural counties to use to understand their current broadband situation. For example, it’s definitely a plus if the big telcos really upgraded DSL in these areas to at least 10/1 Mbps – many of these areas had no DSL or incredibly slow DSL before. On the flip side, if the big telcos are exaggerating about these upgrades and the speeds aren’t there, they are going to likely block your region from getting future grant money to upgrade to real broadband. The big telcos have every incentive to lie to protect their DSL and telephone revenues in these remote areas. What’s not tolerable is for the big telcos to use incorrect mapping data to deny homes from getting better broadband.

Technology and FCC Grants

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

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

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

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

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

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

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

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

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

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

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

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

 

Reverse Auctions for Broadband Grants

In April, FCC Chairman Ajit Pai announced a new rural broadband initiative that will provide $20.4 billion of new funding. We don’t know many details, but one of the most likely parameters of that funding is that the money will be awarded by reverse auction. Today I ask if a reverse auction is really the right tool for this particular auction.

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

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

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

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

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

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

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

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

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

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

Speed Goals for FCC Grants

I literally grimaced when I first read about the 25/3 Mbps speed test that will likely be part of the new $20.4 billion grant program recently announced by the FCC. My first thought was that the 25/3 Mbps goal would provide an excuse for the FCC to give the grant money to the big telcos again. Those companies could then take another ten years to bring rural DSL up to the speeds they should have achieved on their own a decade ago. With the history of the FCC pandering to the big telcos I instantly feared this possibility.

But let’s assume that the upcoming grants will be available to all comers. Why would the FCC choose the 25/3 Mbps speed target? It’s a terrible goal for many reasons.

  • While this FCC will not admit it, 25/3 Mbps is already obsolete as the definition of adequate broadband. It’s been five years since 25/3 Mbps was adopted and households are using a lot more data than five years ago. It’s pretty easy to make the case that the definition of broadband today probably ought to be at least 50 Mbps download.
  • If the 25/3 Mbps speed is already outdated today, then it’s a lousy goal for a decade from now. This FCC should not repeat the same blunder as the last FCC did with the original CAF II program. They should set a forward-looking speed goal that reflects the likely speed requirements at the time the grant networks will be constructed. Any network engineer who tracks customer usage will tell you that the minimum speed requirement for eight years from now should be at least 100 Mbps.
  • The 25/3 Mbps just feels ‘puny’. I got the same letdown when I read that a new NASA goal is to put a man on the moon again. Considering the huge leaps we’ve made in technology since 1969, striving for a moon-landing again feels like a small national goal and a waste of our national resources – and so does setting a broadband speed goal of 25/3 Mbps.

One of the goals that Congress gave the FCC is to strive to bring rural broadband into parity with urban broadband. In setting a goal of 25/3 the FCC is ignoring the broadband trend in cities. The big cable companies have increased minimum download speeds for new customers to beteen 100 and 200 Mbps and have unilaterally increased speeds for existing customers. 25/3 Mbps is a DSL speed, and we see the biggest telcos finally starting to walk away from copper. Verizon has gotten out of the copper business in nearly 200 exchanges in the northeast. AT&T has been losing DSL customers and replacing them with fiber customers. It’s almost unthinkable that the FCC would establish a new forward-looking grant program and not expect broadband speeds any faster than DSL.

In my mind, the FCC betrayed rural communities when they adopted the 10/1 Mbps speed goal for CAF II. That told rural communities that they had to settle for second-rate broadband that was far slower than the rest of the country. From what I hear, most rural communities don’t even consider the CAF II upgrades as real broadband. Rural communities want fiber. They view anything slower than fiber as nothing more than a stepping-stone towards eventually getting fiber.

The FCC needs to listen to what rural America wants. If this giant new grant program will make rural communities wait for years to get 25/3 Mbps then rural America will largely ignore it. Communities will continue to plan for something better. Households might begrudgingly buy 25/3 broadband, but the people in rural America know that is not the same as broadband elsewhere and they will continue to clamor for the same broadband that they see in cities.

I hope the FCC understands this. Even if they allow technologies in these grants that can only deliver 25/3 Mbps, the FCC can still use the grant ranking process to favor faster broadband. If the grants grading process emphasizes speed, then the $20 billion could probably be used to bring fiber to 4 or 5 million rural homes. In my mind that would be the ideal use of these grants, because those homes would be brought to parity with the rest of the country. Those homes could be taken off of the FCC’s worry list and the universe of underserved homes would be significantly reduced. If the grants give money to anything less than fiber, the FCC will have to keep on dumping grant money into the same communities over and over until they finally finance fiber.

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

Setting the Right Goals for Grants

Most past federal broadband grant programs had very specific goals. For example, the USDA Community Connect grants that have been around for many years target grants to the poorest parts of the country – the awards are weighted towards communities with the highest levels of poverty. For any grant program to be effective the goals of the program need to be clearly defined, and then the award process needs to be aligned with those goals.

The FCC needs to define the goals of the upcoming $20.4 billion grant program. It the goals are poorly defined then the resulting grant awards are likely to be all over the board in terms of effectiveness. What are the ideal goals for a grant program of this magnitude?

The first goal to be decided is the scope of the coverage – will the goal be to bring somewhat better broadband to as many households as possible, or will it be to bring a long-term broadband solution to a smaller number of households? If the goal is to serve the most households possible, then the grants are going to favor lower-cost technologies and the grants will likely go to the wireless providers and satellite providers – as we saw happen in the recent CAF II reverse auction.

If the grants are aimed at a more permanent solution, then the grants will favor fiber. Perhaps the grants could also go towards anybody willing to extend a cable hybrid-fiber coaxial network into rural areas – but no other technology can be considered as a permanent solution.

There are huge consequences for choosing the first option of serving as many households as possible. These new grants are mostly going to be awarded in the geographic areas covered by the original CAF II program. That program awarded over $11 billion to the big telcos to beef up broadband to speeds of at least 10/1 Mbps. Now, before that program is even finished the FCC is talking about overbuilding those same areas with another $20 billion grant program. If this grant program is used to upgrade homes to fixed wireless, it doesn’t take a crystal ball to understand that in ten years from now we’ll be talking about overbuilding these areas again with fiber. It would be incredibly wasteful to use multiple rounds of grants to upgrade the same geographic areas several times.

The other big issue for these grants to deal with is defining which parts of the country are eligible for the grants. What should be the criteria to decide which homes can be upgraded?

If the test is going to be related to existing speeds, the FCC is going to have to deal with the existing broadband coverage maps that everybody in the industry knows to be badly flawed. The FCC is talking about tackling a new mapping effort – but it’s highly likely that the new maps will just swap old mapping errors for new mapping errors. The reality on the ground is that it’s virtually impossible to map the real speeds on copper or fixed wireless networks. In real life, two rural neighbors can have drastically different speeds due to something as simple as being on different copper pairs. It’s impossible to accurately map DSL or wireless broadband coverage.

To make matters even worse, the current Re-Connect grants are saddled with a rule that says that no more than 10% of grant-covered homes can have existing broadband of more than 10/1 Mbps. Layering that kind of rule on top of terrible maps creates an environment where an ISP is largely unable to define a believable grant footprint.

The FCC must figure out some way to rectify the mapping problem. One of the easiest ways is what I call the technology test – anybody that wants to overbuild copper with fiber should automatically be eligible without trying to figure out the current speeds on the copper. Perhaps the easiest rule could be that any place where there is telco copper and no cable company network should be grant-eligible for fiber overbuilders.

Assuming the grants won’t all go to fiber, then there has to be an alternate way for an ISP or a community to challenge poor maps. Perhaps the FCC needs to provide a realistic time frame to allow local governments to demonstrate the actual speeds in an area, much like what was done in the recent Mobility II grant process.

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

Designing the Ideal Federal Broadband Grant Program

In April, FCC Chairman Ajit Pai announced a new rural broadband initiative that will provide $20.4 billion of new funding. We don’t know many details yet, but here are a few things that will likely be involved in awarding the funding:

  • The FCC is leaning towards a reverse auction.
  • The program will likely require technologies that can deliver at least 25/3 Mbps broadband speeds.
  • The program will be funded within the existing Universal Service Fund, mostly by repositioning the original CAF II plan.
  • The grants might all be awarded at once, similar to A-CAM and CAF II awards, meaning that there might be only one chance to apply, with the awards to be paid out over a longer time period.

I’m writing a series of blogs that will examine the ideal way to design and administer a grant program of this size. We’ve seen both good and also disastously bad federal broadband programs before, and i’m hoping the FCC will take some time to make this grant program one of the effective ones. I’m sure the details of this new program are not yet set in stone, and folks in rural America need to make their voices heard now if they want some of this money to benefit their communities.

I’m going to look at the following topics, and perhaps more as I write this. At the end of this process I’ll post a whitepaper on my website that consolidates all of these discussions into one document.

A well-designed broadband grant program of this magnitude should consider the following:

What is the End Goal?

It’s important up-front for the FCC to determine how the grant moneys are to be used. The best grant programs have a specific goal, and then the application and award process is designed to best meet the goals. The goal can’t be something as simple as ‘promote rural broadband’, because a goal that simplistic is bound to create a hodgepodge of grant awards.

What Broadband Speeds Should be Supported?

This is an area where the FCC failed miserably in the past. They awarded over $11 billion in the CAF II program that was used to upgrade broadband speeds to speeds of only 10/1 Mbps. When the FCC set the 10/1 Mbps speed that didn’t even meet their own definition of broadband. How should the FCC determine eligible speeds this time to avoid a repeat of the CAF II debacle?

Who Should be Eligible?

FCC programs in the past have usually made the monies available to a wide range of recipients. However, the specific details of the grant programs have often made it hard for whole classes of entities like cities or counties to accept the awards. As an example, there are many entities electing to not participate in the current Re-Connect grant program because they can’t accept any part of the awards that include RUS loans.

Is a Reverse Auction the Right Mechanism?

The FCC and numerous politicians currently favor reverse auctions. Like any mechanism, there are situation where reverse grants are a great tool and others where they will distort the award process. Are reverse auctions a good tool for this grant program?

Other Issues

There are two drastically different ways to hand out these grants. One is to follow the CAF II mechanism and award all of the $20 billion in one huge auction and then pay it out over 6 or 8 years. The other would be to divide the award money into even tranches and have a new grant award for each of those years.

In the recent Re-Connect grants the FCC decided to blend grants and loans. I know the loan component stopped most of my clients from pursuing these grants. Should there be a loan component of the grants?

There are also technical issues to consider. I had clients who were outbid in the recent CAF II reverse auction by wireless companies that gained bidding preference by promising that their fixed wireless networks could achieve across-the-board 100 Mbps broadband. I still don’t know of a wireless technology that can do that over a large footprint. How should the FCC make sure that technologies deliver what’s promised?

What’s the Role of States in this Process?

What should states be doing to maximize the chance for federal grant money to be awarded to their state?

This blog is part of a series:

Setting the Right Goals for Grants

Speed Goals for FCC Grants

Who Should be Eligible for Grants?

Are Reverse Auctions the Right Mechanism?

What Technology Should be Covered?

State’s Role in Broadband Grants

Summary and Conclusions

Rural America Deserved Better

I’ve often contended that the large telcos have made their money back several times over in rural America and could have comfortably rolled those profits back into rural networks. If they had done so then by now most of rural America would have at least 25/3 Mbps DSL and an upgrade to rural fiber would be underway.

Since the big telcos haven’t modernized rural networks for decades we are now faced with making the leap from poorly maintained copper straight to fiber. Sadly, the big telcos could have copied what smaller telcos have done – continually build a little fiber each year deeper into the rural areas to reduce the length of the copper loops. I’ve watched small telco clients over the last twenty years that have upgraded rural DSL from 1 Mbps to 6 Mbps to 15 Mbps and then to 25 Mbps or faster.

Instead, the big telcos built DSL in county seats and some other small towns in their service areas. Where the small telcos might have upgraded electronics three or four times since the late 1990s, the big telcos have likely upgraded the DSL in towns once, and perhaps in some lucky towns twice. This is why it’s still easy to go to rural towns all over the US and find maximum DSL speeds of 6 Mbps or 12 Mbps. The DSL electronics in many of these towns are now over ten or fifteen years old. The big telcos also rarely extended DSL outside of the town hubs. Customers that lived within a few miles of town were given DSL of perhaps 1 Mbps or 2 Mbps and customers further out were offered DSL that is often barely faster than dial-up.

This was all a deliberate decision. Upper management of the big telcos decided before 2000 that they weren’t going to extend DSL into the rural areas surrounding towns and they’ve made zero effort to do so since then. The big telcos failed their rural customers when they walked away from upgrading the copper and regulators mostly let them get away with it. The telcos had collected telephone revenues from the rural areas for decades before 2000. The telcos were all still regulated in 2000 and were all still considered as the carrier of last resort for telephone service. I think the FCC and state regulators screwed up when they didn’t also make them the carrier of last resort for broadband.

Some states tried to force the telcos to provide rural broadband. Pennsylvania is a famous example of bad behavior by the big telcos. In 1993 Bell Atlantic promised state regulators that they would bring universal broadband to cover over two million rural homes in the state. The state rewarded the telco by allowing a major rate increase, supposedly to help pay for the upgrades. It’s now 26 years later and the company that renamed itself as Verizon never made any of the promised upgrades. The rural valleys of central and western Pennsylvania have some of the worse rural broadband in America due to this broken promise.

The sad thing is that states like Pennsylvania had to try to bribe the telco to do the right thing. As regulated telcos, the companies should have routinely spent annual capital to improve the rural networks, a little each year. They were collecting the revenues to make it happen. What I find shortsighted about this decision by the telcos is that, if they had upgraded to decent rural broadband they likely would enjoy 80%+ broadband penetration rates in rural areas – all with zero competition. The telcos passed on the opportunity to make a lot of money.

It’s a lot harder today to make a business case to leap from copper to fiber – mostly because little rural fiber has already been built in many counties. If the big telcos had built fiber deep into the last mile, then the upgrade to fiber could have been gradually introduced over time. Instead, the big telcos simply all decided that they were quietly going to walk away from rural America without making any announcement they were doing so. For years they have talked about their commitment to rural America. They are putting out press releases even today patting themselves on the back for the CAF II upgrades – which was funded by the FCC but which should all have been funded over past decades using the revenues collected from rural customers.

If the big telcos had done what they were supposed to have done as regulated carriers, then the CAF II subsidies could have been used to aid them in upgrading to fiber in the last mile. We know this could work because most small rural telcos are making upgrades to fiber from the ACAM funds, which is equivalent to the CAF II funds, but for smaller telcos.

I lay a lot of blame on the regulators. Everybody in the industry understood what the big telcos were doing (and not doing). Regulators could have been a lot tougher and threatened to yank the big telco franchises in rural America. In the perfect world, regulators would have handed the rural service areas of the big telcos to somebody else twenty years ago when it was clear the telcos had all but abandoned the properties.

Telco regulation helped to build the copper networks that reach to rural homes and regulation should have been used to expand broadband. The sad part of all of this is that, if the telcos had done the right thing, then millions of homes in rural America would have decent broadband today, provided by the telcos, and the telcos would be benefitting from the revenues from those customers. Rural America deserved better.

$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.