Funding the USF

The Universal Service Fund (USF) has a bleak future outlook if the FCC continues to ignore the funding crisis that supports the program. The fund continues to be funded with a fee levied against the combined Interstate and international portion of landlines, cellphones and certain kinds of traditional data connections sold by the big telcos. The ‘tax’ on Interstate services has grown to an indefensible 25% of the retail cost of the Interstate and international portion of these products.

The FCC maintains arcane rules to determine the interstate portion of things like a local phone bill or a cellular bill. There are only a tiny handful of consultants that specialize in ‘separations’ – meaning the separation of costs into jurisdictions – who understand the math behind the FCC’s determination of the base for assessing USF fees.

The USF has done a lot of good in the past and is poised to do even more. The segment of the program that brings affordable broadband to poor schools and libraries is a success in communities across the country. The USF is also used to subsidize broadband to non-profit rural health clinics and hospitals. I would argue that the Lifeline program that provides subsidized phone service has done a huge amount of good. The $9.25 per month savings on a phone or broadband bill isn’t as effective today as it once was because the subsidy isn’t pegged to inflation. But I’ve seen firsthand the benefits from this plan that provided low-cost cellphones to the homeless and connected them to the rest of society. There are numerous stories of how the subsidized cellphones helped homeless people find work and integrate back into society.

The biggest potential benefit of the fund is bringing broadband solutions to rural homes that still aren’t connected to workable broadband. We’ve gotten a hint of this potential in some recent grant programs, like the recent CAF II reverse auction. We’re ready to see the USF create huge benefits as the FCC starts awarding $20.4 billion in grants from the USF, to be dispersed starting in 2021. If that program is administered properly then huge numbers of homes are going to get real broadband.

This is not to say that the USF hasn’t had some problems. There are widespread stories about fraud in the Lifeline program, although many of those stories have been exaggerated in the press. A decent amount of what was called fraud was due to the ineptitude of the big phone companies that continued to collect USF funding for people who die or who are no longer eligible for the subsidy. The FCC has taken major steps to fix this problem by creating a national database of those who are eligible for the Lifeline program.

The biggest recent problem with the USF came when the FCC used the fund to award $11 billion to the big telcos in the CAF II program to upgrade rural broadband to speeds of at least 10/1 Mbps. I’ve heard credible rumors that some of the telcos pocketed much of that money and only made token efforts to tweak rural DSL speeds up to a level that households still don’t want to buy. It’s hard to find anybody in the country who will defend this colossal boondoggle.

However, we’ve learned that if used in a smart way that the USF can be used to bring permanent broadband to rural America. Every little pocket of customers that gets fiber due to this funding can be taken off the list of places with no broadband alternatives. Areas that get fixed wireless are probably good for a decade or more, and hopefully, those companies operating these networks will pour profits back into bringing fiber (which I know some USF fund recipients are doing).

But the USF is in real trouble if the FCC doesn’t fix the funding solution. As traditional telephone products with an interstate component continue to disappear the funds going into the USF will shrink. If the funding shrinks, the FCC is likely to respond by cutting awards. Somebody might win $1 million from the upcoming grant program but then collect something less as the fund decreases over time.

The fix for the USF is obvious and easy. If the FCC expands the funding base to include broadband products, the percentage contribution would drop significantly from the current 25% and the fund could begin growing again. The current FCC has resisted this idea vigorously and it’s hard to ascribe any motivation other than that they want to see the USF Fund shrink over time. This FCC hates the Lifeline program and would love to kill it. This FCC would prefer to not be in the business of handing out grants. At this point, I don’t think there is any alternative other than waiting for the day when there is a new FCC in place that embraces the good done by the USF rather than fight against it.

Comparing FCC Broadband Programs

I think it’s finally dawning on the big telcos that the days of being able to milk revenues from rural America while ignoring rural copper networks is finally ending. This becomes apparent when looking at the two most recent subsidy programs.

The original CAF II program was a huge boon to the big telcos. Companies like AT&T, CenturyLink, and Frontier collected $11 billion of subsidy to boost their rural copper networks up to speeds of at least 10/1 Mbps. This was a ridiculous program from the start since the FCC had established the definition of broadband to be at least 25/3 Mbps even before awarding this money. Perhaps the craziest thing about CAF II is that the telcos are still making the upgrades – they were required to be 60% complete with the required CAF II upgrades by the end 2018 and to be 100% complete by the end of 2020.

The big telcos report broadband customers to both the FCC and to stockholders, but the reporting is not in enough detail to know if the CAF II money has made any difference in rural America. All of the big telcos are losing broadband customers, but it’s hard to look under the hood to know if they are making any significant customer gains in the CAF II areas. We see little hints from time to time. For example, in the second quarter of this year, CenturyLink lost 56,000 net broadband customers but reports that it lost 78,000 customers with speeds below 20 Mbps and added 22,000 customers with speeds faster than that. That’s the first time they provided any color about their gains and losses. But even that extra detail doesn’t tell us how CenturyLink is doing in the CAF II areas. It’s obvious by looking at the customer losses that telcos aren’t adding the hundreds of thousands of new customers one would expect to see as the result of an $11 billion capital expenditure program. If CAF II is delivering broadband to areas that didn’t have it before, there should be a flood of new rural customers buying better broadband by now. I could be wrong, but when looking at the aggregate customers for each big telco I don’t think that flood of new customers is happening. If it was I think the telcos would be bragging about it.

The CAF II reverse auction took a different approach and awarded funding in those areas where the big telcos didn’t take the original CAF II funds. These subsidies were auctioned off in a reverse auction where the company willing to take the lowest amount of subsidy per customer got the funding. In the auction, most bidders offered to deploy broadband of 100 Mbps speeds or faster – a big contrast to the 10/1 Mbps speeds for CAF II. Some of the grant winners in the reverse auction like electric cooperatives are using the money to build fiber and offer gigabit speeds.

The original CAF II subsidy awards are probably the dumbest decision I’ve ever seen an FCC make (rivaling the recent decision to stop regulating broadband). If the original CAF II awards had been open to all applicants instead of being handed to the big telcos, then many of the homes that have been upgraded to 10/1 Mbps would have instead gotten fiber. Maybe even worse, CAF II basically put huge swaths of rural America on hold for seven years while the big telcos invested in minor tweaks to DSL.

The FCC will soon be handing out $20.4 billion for the new RDOF program to build better rural broadband. It should be press headlines that this money is going to many of the same areas that got the original $11 billion CAF II subsidies – the FCC is paying twice to upgrade the same areas.

Dan McCarthy, the CEO of Frontier Communications recently complained about the new RDOF grant program. He realizes that Frontier has little chance of winning the grants in a reverse auction.  Frontier doesn’t want to invest any of its cash for rural broadband and in an auction would be competing against ISPs willing to invest significant equity to match the RDOF grants. Frontier also recognizes that anything they might propose as upgrades can’t compete with technologies that will deliver speeds of 100 Mbps or faster.

At least the FCC is not handing the RDOF money directly to the big telcos again. It’s been five years since the start of CAF II and I’m still perplexed by the last FCC’s decision to hand $11 billion to the big telcos. Unfortunately, this FCC is still repeating the mistake of awarding grant money to support obsolete speeds. The FCC is proposing that RDOF money can be used to build broadband capable of delivering 25/3 Mbps broadband. In a recent blog, I predict that this is going to go into the books as another short-sighted decision by the FCC and that they’ll again be funding broadband that will be obsolete before it’s completed eight years from now. Hopefully most of the RDOF money will go towards building real broadband. Otherwise, in eight years we might see another giant FCC grant program to improve broadband for a third time in the same rural areas.

FCC – Please Don’t Fund 25/3 Broadband

The current FCC recognizes the disaster that was created when the original CAF II grant program subsidized the construction of broadband that supports speeds of only 10/1 Mbps. Several FCC commissioners have said that they don’t want to repeat that disaster. Had the CAF II grant monies been allowed for companies other than the big telcos, much of the money would have gone to fiber ISPs and we’d see a lot more areas covered with good broadband today (meaning fewer headaches for the FCC).

Today I ask the question: what speeds should the new $20.4 billion RDOF grant fund support? In the NPRM for the RDOF grant program, the FCC suggests that the minimum speed they will fund is 25/3 Mbps. It looks like the funding for these grants will start in 2021, and like the CAF II program, anybody taking the money will have six years to complete the broadband construction. I think the right way to think about the speeds for these grants is to look at likely broadband speeds at the end of the construction period in 2027, not at where the world is at two years before the RDOF is even started. If the FCC bases the program on broadband speeds today, they will be making the same error as on the original CAF II – they will use federal money to build broadband that is obsolete before it’s even constructed.

I start by referring to a recent blog where I challenge the idea that 25/3 should be the definition of broadband today. To quickly summarize that blog, we know that broadband demand has been growing constantly since the days of dial-up – and the growth in broadband demand applies to speeds as well as volume of monthly downloading. Both Cisco and Ookla have shown that broadband demand has been growing at a rate if about 21% annually for many years.

At a bare minimum, the definition of broadband today ought to be 50 Mbps download – and that definition is a minimum speed, not a goal that should be used for building tomorrow’s broadband. As I said earlier, in a world where demand continues to grow, today’s definition of broadband shouldn’t matter – what matters is the likely demand for broadband in 2027 when the RDOF networks are operational.

Trending the demand curve chart for download speeds forward presents a story that the FCC doesn’t want to hear. The need for speed is going to continue to increase. If the growth trend holds (and these trends have been steady since the days of dial-up), then the definition of broadband by 2027 ought to be 250 Mbps – meaning by then nobody should build a network that can’t meet that speed.

2019 2020 2021 2022 2023 2024 2025 2026 2027
54 65 78 95 115 139 168 204 246

The big cable companies already recognize what the FCC won’t acknowledge. The minimum speed offered to new customers on urban cable networks today is at least 100 Mbps, and most users can order a gigabit. The cable companies know that if they provide fast speeds they get a lot fewer complaints from customers. In my city of Asheville, NC, Charter unilaterally increased the speed of broadband in 2018 from 60/6 Mbps to 135/20 Mbps. Anybody who has watched the history of cable company broadband knows that they will increase speeds at least once before 2027 to stay ahead of the demand curve. It wouldn’t be surprising by 2027 if cable company minimum speeds are 300 – 500 Mbps. Do we really want to be funding 25/3 rural broadband when speeds in cities will be fifteen times faster?

Will the world behave exactly like this chart – not likely. But will homes in 2027 be happy with 25/3 Mbps broadband – most definitely not. Given a choice, homes don’t even want 25/3 Mbps broadband today. We are already seeing hordes of urban customers abandoning urban DSL that delivers speeds between 25 Mbps and 50 Mbps.

If the FCC funds 25/3 Mbps broadband in the RDOF grant they will be duplicating one of the dumbest FCC decisions ever made – when CAF II funded 10/1 Mbps broadband. The FCC will be funding networks that are massively obsolete before they are even built, and they will be spending scarce federal dollars to again not solve the rural digital divide. There will continue to be cries from rural America to bring real broadband that works and by 2027 we’ll probably be talking about CAF IV grants to try this all over again.

The Definition of Broadband

When the FCC set the definition of broadband at 25/3 Mbps in January of 2015, I thought it was a reasonable definition. At the time the FCC said that 25/3 Mbps was the minimum speed that defined broadband, and anything faster than 25/3 Mbps was considered to be broadband, and anything slower wasn’t broadband.

2015 was forever ago in terms of broadband usage and there have been speed increases across the industry since then. All of the big cable companies have unilaterally increased their base broadband speeds to between 100 Mbps and 200 Mbps. Numerous small telcos have upgraded their copper networks to fiber. Even the big telcos have increased speeds in rural America through CAF II upgrades that increased speeds to 10/1 Mbps – and the telcos all say they did much better in some places.

The easiest way to look at the right definition of broadband today is to begin with the 25/3 Mbps level set at the beginning of 2015. If that was a reasonable definition at the beginning of 2015, what’s a reasonable definition today? Both Cisco and Ookla track actual speeds achieved by households and both say that actual broadband speeds have been increasing nationally about 21% annually. Apply a 21% annual growth rate to the 25 Mbps download speeds set in 2015 would predict that the definition of broadband today should be 54 Mbps:

2015 2016 2017 2018 2019
25 30 37 44 54

We also have a lot of anecdotal evidence that households want faster speeds. Households have been regularly bailing on urban DSL and moving to faster cable company broadband. A lot of urban DSL can be delivered at speeds between 25 and 50 Mbps, and many homes are finding that to be inadequate. Unfortunately, the big telcos aren’t going to provide the detail needed to understand this phenomenon, but it’s clearly been happening on a big scale.

It’s a little sketchier to apply this same logic to upload speeds. There was a lot of disagreement about using the 3 Mbps download speed standard established in 2015. It seems to have been set to mollify the cable companies that wanted to assign most of their bandwidth to download. However, since 2015 most of the big cable companies have upgraded to DOCSIS 3.1 and they can now provide significantly faster uploads. My home broadband was upgraded by Charter in 2018 from 60/6 Mbps to 135/20 Mbps. It seems ridiculous to keep upload speed goals low, and if I was magically put onto the FCC, I wouldn’t support an upload speed goal of less than 20 Mbps.

You may recall that the FCC justified the 25/3 Mbps definition of broadband by looking at the various download functions that could be done by a family of four. The FCC examined numerous scenarios that considered uses like video streaming, surfing the web, and gaming. The FCC scenario was naive because they didn’t account for the fact that the vast majority of homes use WiFi. Most people don’t realize that WiFi networks generate a lot of overhead due to collisions of data streams – particularly when a household is trying to do multiple big bandwidth applications at the same time. When I made my judgment about the 25/3 Mbps definition back in 2015, I accounted for WiFi overheads and I still thought that 25/3 Mbps was a reasonable definition for the minimum speed of broadband.

Unfortunately, this FCC is never going to unilaterally increase the definition of broadband, because by doing so they would reclassify millions of homes as not having broadband. The FCC’s broadband maps are dreadful, but even with the bad data, it’s obvious that if the definition of broadband was 50/20 Mbps today that a huge number of homes would fall below that target.

The big problem with the failure to recognize the realities of household broadband demand is that the FCC is using the already-obsolete definition of 25/3 Mbps to make policy decisions. I have a follow-up blog to this one that will argue that using that speed as the definition of the upcoming $20.4 billion RDOF grants will be as big of a disaster as the prior FCC decision to hand out billions to upgrade to 10/1 Mbps DSL in the CAF II program.

The fact that household broadband demand grows over time is not news. We have been on roughly the same demand curve growth since the advent of dial-up. It’s massively frustrating to see politics interfere with what is a straight engineering issue. As homes use more broadband, particularly when they want to do multiple broadband tasks at the same time, their demand for faster broadband grows. I can understand that no administration wants to recognize that things are worse than they want them to be – so they don’t want to set the definition of broadband at the right speed. But it’s disappointing to see when the function of the FCC is supposed to be to make sure that America gets the broadband infrastructure it needs. If the agency was operated by technologists instead of political appointees we wouldn’t even be having this debate.

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