A Roadmap to Better Broadband Grants

I’ve been thinking about the effectiveness of federal broadband grant programs. We’ve had three recent major sets of federal grant awards – the stimulus grants of 2007, the first CAF II grants in 2015 and the recently awarded CAF II reverse auctions. We also have an upcoming e-Connectivity grant program for $600 million. I think there are lessons to be learned from studying the difference in the results between these grants. These lessons apply to State grant programs as well as any new federal programs.

Don’t Reward Slow Broadband Speeds. Probably the most bone-headed decision made by the FCC in my memory was handing out billions in CAF II to upgrade rural copper to 10/1 Mbps. This wasn’t considered decent broadband at the time of this decision and yet these upgrades continue to be funded today. The FCC could still take back the remaining CAF II money and redirect these funds to a reverse auction, which we just saw produced much faster speeds in areas with far less density than the CAF II footprint.

Keep Politics Out of It. The CAF II decision to give all of the funding to the big telcos was purely political and resulted in a huge waste of money that could have created many real broadband solutions. The FCC is supposed to be an independent agency, and it’s shameful that lobbyists were able to kill the reverse auction originally planned for CAF II. We are seeing politics back on the table with the e-Connectivity grants where Congress created a feel-good grant program, but then saddled it with a restriction that no more than 10% of homes in a study area can have existing 10/1 Mbps speeds. The reason for this provision was not even hidden, with the big telcos saying they didn’t want federal grant money to be used to compete against them.

Don’t Fund Inadequate Technologies. AT&T is using LTE cellular broadband to satisfy CAF II. This technology will never provide adequate broadband. In the recent reverse auction we saw money going to high-altitude satellite companies. Regardless of speeds that can be delivered with these satellites, the latency is so poor that it limits the ability to use the broadband for important activities like working at home or taking on-line classes.

Don’t Stress Anchor Institutions over People. The stimulus grants required middle mile providers to pop off of highways to build expensive last mile fiber to a handful of anchor institutions – schools, libraries, etc. While these anchor institutions need good broadband, so do the neighborhoods around them. This requirement added a lot of cost to the middle-mile projects as well as made it harder for anybody else to build a last mile network since the biggest bandwidth users in a community already have fiber.

Build to Industry Practices. The stimulus grants required that fiber builders conduct expensive environmental studies and historic preservation studies. That was the first time I ever saw those requirements in my forty years in the industry. Since telecom infrastructure is built almost entirely in existing public right-of-way these restrictions added a lot of cost but zero value to the projects.

Penalize Companies that Cheat. There needs to be repercussions for companies that cheat on grant applications to win the funding. The biggest area of cheating is claiming speeds that the technology can’t deliver. The FCC follows up grants with a decent speed-test program, but the worst repercussion in failing these tests is to not get funding going forward. A carrier that badly fails the speed tests should have to return the original grant funding. I’m also hearing rumors that the many rural households covered by CAF II will not get the promised upgrades – and if so, the big telcos should be forced to return a proportionate amount of that funding for homes that don’t get the promised upgrades.

Broadband Statistics – 3Q 2018

As a nation we are approaching an 85% overall penetration of residential broadband. The following statistics come from the latest report from the Leichtman Group and compares broadband customers at the end of the recent 3Q of 2018 to the end of 2017.

 3Q 2018 4Q 2017 Change
Comcast 26,872,000 25,869,000 1,003,000 3.9%
Charter 24,930,000 23,903,000 1,027,000 4.3%
AT&T 15,746,000 15,719,000 27,000 0.2%
Verizon 6,958,000 6,959,000 (1,000) 0.0%
CenturyLink 5,435,000 5,662,000 (227,000) -4.0%
Cox 5,040,000 4,880,000 160,000 3.3%
Altice 4,096,300 4,046,200 50,100 1.2%
Frontier 3,802,000 3,938,000 (136,000) -3.5%
Mediacom 1,260,000 1,209,000 51,000 4.2%
Windstream 1,015,000 1,006,600 8,400 0.8%
Consolidated 781,912 783,682 (1,770) -0.2%
WOW! 755,100 730,000 25,100 3.4%
Cable ONE 660,799 524,935 135,864 25.9%
Cincinnati Bell 310,700 308,700 2,000 0.6%
97,662,811 95,056,435 2,123,694 2.2%

The large ISPs in the table control over 95% of the broadband market in the country. Not included in these numbers are the broadband customers served by the smaller ISPs – the telcos, WISPs, fiber overbuilders and municipalities. Cable companies continue to dominate the broadband market and now have 63.6 million customers compared to 34.0 million customers for the big telcos.

The 2.2% overall growth during the year is impressive since many have assumed that we are nearing the top of the market for broadband penetration. It’s worth noting that the US has had a housing construction boom and has added 1.6 million new housing units so far in 2018. If you assume those new homes share the same overall 85% market penetration as the rest of the country, the new homes would account for 1.36 million of the broadband gain. That means the rest of the market saw nearly a 1% overall increase in broadband penetration – a definite slowdown over prior years.

Much of the growth at the big cable companies continues to come at the expense of telco DSL. Overall, the big telcos lost a net of 328,370 customers for the year. This is mostly due to CenturyLink and Frontier, who are clearly bleeding DSL customers. The customer losses for these two companies is a bit surprising since by now each company should have activated big numbers of faster rural DSL customers, funded by the CAF II program. Companies are not required to report their performance for CAF II separately, and I have to wonder if many rural households are actually buying the improved rural broadband.

One thing that is clear about these numbers if that every company on the list ought to be considered now as an ISP, rather than as a telco or cable company. For this same 9-month period these same companies lost nearly 2.7 million cable customers while adding 2.1 million broadband customers. It’s clear that broadband is now the biggest and most important product for each of these companies.

The Reality of Rural Broadband

I recently saw the results of several rural surveys that probably tell the best story about the state of rural broadband. The two areas being studied are far apart geographically, but they are similar in many ways. The areas are both rural and are not near to a metropolitan area. The areas have some modest manufacturing and some modest amount of tourism, but neither in a big way. Both areas included some small towns, and a few of these towns have cable TV. And in both places, the customers in the rural area have poor broadband choices. These are not small isolated pockets of people, and the two surveys cover nearly 20,000 homes.

If you listen to FCC rhetoric it’s easy to think that rural broadband is improving – but in areas like these you can’t see it. These areas have both were supposed to get some upgrades from CAF II – but from what the locals tell me there have been zero improvements so far. The CAF program still has a few years to go, so perhaps there will be some modest improvement in rural DSL.

For now, the broadband situation in these areas is miserable. There are homes with DSL with speeds of a few Mbps at best, with some of the worst speeds hovering at dial-up speeds. One respondent to a survey reported that it took 8 hours to download a copy of Microsoft Office online.

The other broadband choices are also meager. Some people use satellite broadband but complain about the latency and about the small data caps. These areas both have a smattering of fixed wireless broadband – but this is not the modern fixed wireless you see today in the open plains states that delivers 25 Mbps or faster broadband. Both of the areas in the surveys are heavily wooded with hilly terrain, and fixed wireless customers report seeing speeds of 1-2 Mbps. There are a number of homes using their cell phones in lieu of home broadband – an expensive alternative if there are school kids or if any video is watched. There were customers who reported using public hotspots in nearby small towns. And there were a number of households, included many with school kids who have given up and who have no broadband – because nothing they’ve tried has worked.

As would be expected in rural areas, slow speeds are not the only problem. Even homes that report data speeds that should support streaming video complain that streaming doesn’t work. This indicates networks with problems and it’s likely the networks have high latency, are full of jitter, or are over-subscribed and have a lot of packet loss. People don’t really judge the quality of their broadband connection by the speed they get on a speed test, but instead by the ability to do normally expected activities on the Internet.

Many of these homes can’t do things that the rest of us take for granted. Many report the inability to stream video – even a single stream. This is perhaps the biggest fallacy in the way the FCC measures broadband, because they expect that a house getting a speed like 5 Mbps ought to be able to do most needed tasks. In real life the quality of many rural connections are so poor that they won’t stream video. Many people in these areas also complained that their Internet often froze and they had to constantly reboot – something that can kill large downloads or kill online sessions for school or work.

One of the biggest complaints in these areas was that their network only supported one device at a time, meaning that members of the family have to take turns using the Internet. I picture a family with a few school kids and can see how miserable that must be.

The surveys produced a long list of other ways that poor broadband was hurting households. Number one was the inability of people to work at home. Many people said they could work at home more often if they had broadband. A few respondents want to start home businesses but are unable to because of the poor broadband. Another common complaint was the inability for kids to do schoolwork, or for adults to pursue college degrees on line.

The problems many people reported were even more fundamental than these issues. For instance, there were households saying that they could not maintain a good enough connection to bank online or pay their bills online. There were respondents who say they can’t shop online. Many households complained that they couldn’t offload cellular data at home to WiFi, driving up their cellular bills. A number of homes would like to cut the cord to save money but can’t stream Netflix as an alternative to cable.

When you look the raw data behind these kinds of surveys you quickly see the real issues with lack of broadband. In today’s society, not having home broadband literally takes a home out of the mainstream of society. It’s one thing to look at the national statistics and be told that the number of homes without broadband is shrinking. But it’s an entirely different story when you see what that means for the millions of homes that still don’t have adequate broadband. My guess is that some of the areas covered by these surveys show as underserved on the FCC maps – when in fact, their broadband is so poor that they are clearly unserved, ignored and forgotten.

The New e-Connectivity Pilot Grants

In March Congress passed a new $600 million grant/loan program to build rural broadband. The project has been labeled as the e-Connectivity Pilot and it’s expected that the specific rules for seeking the funding will be released early on 2019. The USDA sought public comments on the program in September and is now working out the details of how the awards will be made.

Anybody interested in these grants should get serious about it now, since it’s likely that the grant application window might not be any longer than 60 to 90 days. Getting ready means having a detailed and solid business plan as well as already having a source of funding for any parts of a project not covered by these grants. The grants are also likely to include provisions like getting a professional engineer to approve the network design – so designs need to be specific and not generic. It’s likely that the USDA will stick with their existing grant application process – and those forms have always been a bear to complete.

There is one huge hurdle to overcome for this program since an application can’t cover an area that has more than 10% of households with access to broadband speeds of at least 10/1 Mbps. Considering that the CAF II awards and more recent CAF II reverse auctions awards already will supposedly provide this kind of speed to huge swaths of the country, there are not a lot of areas left that will meet this requirement.

Claiming that an area meets the 90% unserved threshold will be also be difficult because grant applications can be challenged by carriers that serves the grant area today. I have to assume that CAF II reverse auction winners will also be able to challenge. The big rub is that the original CAF II award winners still have until 2020 to complete their build-out and they will certainly challenge awards for any CAF II area that has not yet been updated. The CAF II reverse auction winners have ten more years to complete their buildout. The USDA will likely be obligated to reject an application that encroaches on any of the CAF II footprint – even if those areas don’t have broadband today.

This gets even more complicated since the CAF II reverse auction awarded funding to fixed wireless and satellite providers. They were funded to serve specific little pockets of unserved homes, but it won’t be hard for them to claim that the CAF II award dollars will allow them to serve much larger areas than the tiny boundaries they bid on.

The process of proving a study area isn’t served will be further complicated by the USDA’s reliance on the FCC’s broadband maps, which we all know to be highly inaccurate in rural America. This all adds up to mean that an applicant needs to prove the area doesn’t have broadband today and will not be getting it over the next decade from one of the CAF winners. They will also need to overcome any errors in the FCC maps. This is going to be hard to prove. I expect the challenge process to be brutal.

From the instant I saw the 90% unserved test, I’ve assumed that the most likely candidates for these grants will be somebody that is already planning on building broadband across a large footprint. If such an applicant is careful to only identify the scattered homes that meet these grant rules, then this funding can help to pay for a project they were going to build anyway. The other natural set of applicants might be those companies that already took CAF II funding – they could use these grants to fill in unserved homes around those build-out areas. The industry is going to be in an uproar if a lot of this funding goes to the big incumbent telcos (who won’t challenge their own applications).

Another issue to consider is that the USDA can award funding as a combination of grants and loans. These awards will surely require matching funding from an applicant. Anybody that is already planning on funding that matching with bank or other financing might find it impossible to accept USDA loans for a portion of a project. USDA loan covenants are draconian – for example, USDA loans usually require first priority for a default, which will conflict with commercial lenders. It’s always been nearly impossible to marry USDA debt with other debt.

rant applicants should also be aware that the USDA is going to be highly leery of awarding money to start-ups or somebody that is not already an ISP. The agency got burned on such grants awarded with the stimulus grants and has indicated that they are looking for grant award winners to have a strong balance sheet and a track record of being an ISP. This will make it nearly impossible for local governments to go after the money on their own. Chances of winning will be greatly enhanced by public/private partnerships with an existing ISP.

I know my take on the grants sound highly pessimistic. Congress saddled these grants with the 90% unserved test at the coaxing of the big telcos who wanted to make sure these funds weren’t used to compete against them. Past USDA grants had the opposite requirement and could consider awards to areas that didn’t have more than 10% of houses with broadband. However, if you are able to identify a service area that can survive the challenge process, and if you have the matching funded lined up, these grants can provide some nice funding. I’m not taking any bets, though, on the USDA’s ability to award all of the money – there might not be enough grant applications that can make it through the gauntlet.

What’s Next for Rural Broadband?

Now that most of the CAF II money and A-CAM money has been awarded, what’s next for rural broadband? If you ask the FCC that question they are likely to answer that there might yet be one more CAF II auction to fund the 261,000 homes that went unclaimed in the last auction. However, I think this is a much bigger question.

There are still tens of millions of homes that don’t have a broadband option that meets the FCC’s current definition of 25/3 Mbps. That includes all of the places that were funded by the CAF II funds provided to the big telcos and that were only required to provide broadband with speeds of 10/1 Mbps. It also includes numerous other homes that don’t have fast broadband and that are mis-categorized by the inadequate FCC broadband maps that are populated falsely by the big ISPs.

One of CCG’s products is performing surveys and related market research in rural areas. We’ve done a lot of surveys and also asked people to take speed tests in rural communities where the actual speeds at homes are significantly lower than the advertised speeds and the speeds shown on the FCC maps. I’m not just talking about rural farms, but also in sizable towns like county seats where the broadband is still pretty crappy.

It’s obvious that this FCC is working hard to be able to claim that they have taken care of the rural broadband problem. They want to say that they’ve funded broadband everywhere and that their job is done. What they are never going to admit is that the job will never be done until rural areas have the same kind of broadband infrastructure as cities.

This particular FCC is pretending that the need for broadband is sitting still, when in fact the demand for household broadband, both for speeds and for total download volumes keep doubling every three or four years. By the time the current FCC chairman has been in his seat for four years, the comparative quality of rural broadband will have halved due to this increase in demand.

Don’t interpret what I just said to mean that I have disdain for the current FCC. The last FCC under Chairman Tom Wheeler was a huge contributor to the problem when they awarded billions of dollars to the big telcos to make broadband upgrades over seven years to 10/1 Mbps – at a time when 10/1 Mbps already didn’t meet the definition of broadband. That was obviously a political decision since the original plan was to award all of the CAF II funds by reverse auction – which would have helped to fund a lot of rural fiber.

Even if the FCC was highly motivated to solve the rural broadband gap they don’t have the tools to do so. The FCC’s only tool for funding more broadband is the Universal Service. I wrote a blog last week noting how this fund is already overcommitted. Since I wrote that blog I looked at my own cellphone bills and my family alone is contributing several hundred dollars per year towards the USF fund. We are not going to get the many billions we need to expand broadband by taxing landline and cellphone users.

The fix needs to come from Congress. That doesn’t seem likely from the current Congress that already approved a $600 million fund for rural broadband grants and then added on a provision that made the grants nearly impossible to implement. Clearly influenced by lobbyists, Congress added a provision that the grants couldn’t be used in areas where more than 10% of homes already have 10/1 Mbps broadband – and there are very few such areas.

I honestly have a hard time understanding Congress’s reluctance to address rural broadband. When I go to rural counties these days I’m told that getting better broadband has become the number one local issue. I know that rural folks and rural politicians are pleading with their state and national representatives to find broadband funding.

I also know that most politicians say they are in favor of rural broadband. I’ve only seen a handful of politicians in the last decade who told their constituents that they don’t support rural broadband funding. I’ve also found that rural broadband is a nonpartisan issue and at the local level politicians of both parties understand that communities need better broadband.

I wish I could end this blog by suggesting a solution for the problem, but there isn’t any unless the states and the federal government decide at some point to help. State broadband programs providing matching grants have seen some success. I’m sure that federal matching grants would also help as long as they weren’t structured to be giveaways to the big ISPs.

Is Broadband ‘Wildly Competitive’?

The FCC is in the process of creating its first report to Congress required by the Ray Baum Act, which is the bill that reauthorized the FCC spending for 2019 and 2020. That bill requires the FCC to create a report every two years that, among other things assesses the “state of competition in the communications marketplace, including competition to deliver voice, video, audio, and data services among providers of telecommunications, providers of commercial mobile service, multichannel video programming distributors, broadcast stations, providers of satellite communications, Internet service providers, and other providers of communications services”.

The FCC accepted comments about what should be included in its first report, and as you might imagine received a wide variety of comments from the industry and other interested parties.

In typical big carrier fashion, the NCTA – The Internet & Television Association, the lobbying group representing the largest ISPs filed with the FCC arguing that the broadband marketplace is already ‘wildly competitive’. The big ISPs have a vested interest in the FCC reaching such a conclusion, because that would mean that the FCC wouldn’t have to take actions to create more competition.

The reasoning the big carriers are using to make this claim is ironic. They argue that the FCC shouldn’t use its own 25/3 Mbps definition of broadband since the FCC is currently spending billions of dollars in the CAF II program to deploy broadband that meets a lower standard of 10/1 Mbps. They say that if US broadband is examined for the amount of competition at the lower 10/1 threshold that most markets in the US are competitive. That’s ironic because the FCC was pressured into giving all of the CAF II money to the big telcos after intense lobbying and the funds were originally intended to be awarded through a reverse auction where ISPs would have been rewarded for building broadband capable of delivering speeds up to 1 Gbps.

Further, if the FCC was to accept the idea that 10/1 Mbps is acceptable broadband then the FCC would probably be obligated to count cellular broadband as an economic substitute for landline broadband since it delivers speeds in the same range as the CAF II deployments.

However, making that same determination is impossible at faster speeds. Even the FCC’s own highly-skewed mapping data shows there are not many households in the country with two options for buying 100 Mbps service. Where households have two choices for buying 25/3 Mbps broadband the second option is almost always DSL, which the big telcos are letting die a natural technological death, and which often delivers speeds much slower than advertised. As I’ve written about in this blog, my firm has done surveys in numerous communities where the delivered speeds for both cable modems and DSL were significantly slower than the advertised speeds and certainly slower than the data in the FCC database that is collected from the big ISPs and used to create the FCC’s broadband coverage maps and other statistics.

The only way to claim that broadband is ‘wildly competitive’ is to count broadband speeds slower than the FCC’s 25/3 Mbps definition. If the FCC was to accept cellular broadband and satellite broadband as the equivalent of landline broadband, then a large majority of homes would be deemed to have access to multiple sources of broadband. I would restate the NCTA’s ‘wildly competitive’ claim to say that a majority of homes in the country today have access to multiple crappy sources of broadband.

We’ll have to see what the FCC tells Congress in their first report. I suspect their story is going to be closer to what the big ISPs are suggesting than to the reality of the broadband marketplace. This FCC already seriously considered accepting cellular and satellite broadband as an equivalent substitute for landline broadband because doing so would mean that there are not many places left where they need to ‘solve’ the lack of broadband.

The FCC finds itself in an unusual position. It gave up regulation of broadband when it killed Title II regulation. Yet the agency is still tasked with tracking broadband, and they are still required by law to make sure that everybody in the country has access to broadband. Let’s just hope that the agency doesn’t go so far as to tell Congress that their job is done since broadband is already ‘wildly competitive’.

Funding the USF Broadband Programs

A number of telecom advocacy groups came together recently to ask the FCC to increase the budget for the high-cost portion of the Universal Service Fund to at least $2.4 billion for the next fiscal year just begun on October 1. The joint filing was by ITTA – The Voice of America’s Broadband Providers, USTelecom – The Broadband Association, NTCA – The Rural Broadband Association and WTA – Advocates for Rural Broadband.

Small telcos are specifically asking that the FCC fully fund the commitments made to them in 2016 for the A-CAM program. This is the fund that is providing money to rural telcos to upgrade their networks to at last 25/3 Mbps – although it seems like most companies are using the money to upgrade to fiber. That program is bringing a permanent broadband solution to numerous rural communities.

The A-CAM and other high-cost support programs are not currently fully funded. This is due to several factors. First, more small telcos accepted A-CAM funding than the FCC anticipated, creating a bigger financial commitment than was expected. But more importantly, the FCC has been tapping the Universal Service Fund for other broadband commitments such as the CAF II program that gave billions to the large telcos to upgrade to only 10 Mbps. This same fund is also used to provide e-rate funding for schools to get affordable broadband, to support libraries, to support rural healthcare and to provide the lifeline program to make telephone and broadband more affordable for low-income households.

It would be a challenge for the FCC to meet the request and I’m not sure there is an easy way for them to do so. The Universal Service Fund is funded by fees assessed against landline telephone service, cellphone service and against broadband connections that are deemed to be interstate in nature – these are generally broadband connections sold by regulated telcos using the soon-to-be-obsolete TDM technology.

This fee is an additive to these services and the rate being charged has climbed over the years as the number of both landline telephones and special access transport circuits has dropped. In the last quarter the assessment topped 20% for the first time and has climbed over the years. I can recall when the assessment was under 5%.

This all creates a dilemma for the FCC. The revenues against which USF can be assessed are shrinking. Landline use continues to plummet; cellphone prices are trending downward and special access is being displaced by other kinds of transport. As much as the FCC might want to fully fund rural broadband, it has numerous other obligations to meet from the same pile of money like the e-rate program and rural healthcare broadband.

There has been talk for years of expanding the USF base. If the USF fee was assessed against home and business broadband the overall percentage would plummet from today’s 20% rate. However, Congress nixed the idea of assessing USF against broadband by sticking to the philosophy that we should not tax the Internet. This was a concept that was introduced when broadband was a fledgling industry, which somehow became a mantra that is outdated. Broadband revenues dwarf the fees for products like landline telephone service.

The FCC’s hands are tied from assessing USF against broadband by Congress. But even if Congress changed their mind, the FCC has now given up regulation of broadband and they might not have the authority to assess a fee on a product they declare they don’t regulate.

It’s to everybody’s benefit that the FCC finds a way to fund commitments they made for rural broadband just a few years ago. The FCC has some latitude and they could probably apply all fund shortfalls against another program like CAF II – but with the lobbying power of the big telcos that’s unlikely.

The FCC also has another huge source of revenue they could tap. The agency has been collecting gigantic fees for the auction of spectrum in recent years and there is no reason that all or part of this money couldn’t be diverted to rural broadband. However, this also would require action by Congress, which directly diverted auction fees to the US treasury earlier this year when they enacted the Ray Baum bill.

The funding shortfalls are mostly the result of the FCC committing more funds than are available in the fund. Since the USF is funded by fees on services, the fund can’t have cost overruns and spend more money than it has – unlike many other government programs. Every time I hear the FCC announce a new initiative out of the Universal Service Fund I always wonder which other parts of the fund will be raided. I think we now know that it’s funding for rural broadband.

Upgrading FCC Broadband Statistics

The NCTA – The Internet & Television Association that represents the large cable companies and telcos has filed a complaint with the FCC asserting that the agency is not updating broadband maps in a timely manner, and this is understating the amount of broadband deployed in the country.

They have a good point, in that the FCC recently released broadband data from 2016 while they already have received June 2017 data. The recently released data is now more than two years behind the actual broadband deployments in the country.

There may have been years in the past where this kind of time delay didn’t make that much difference, but we are now at a time when there are massive amounts of broadband upgrades happening across the country. The big telcos are well into the CAF II upgrades that are upgrading huge swaths of rural America to speeds of at least 10/1 Mbps. There is a lot of upgrades at smaller telcos that are implementing upgrades from the A-CAM program that requires upgrades to at least 25/3 Mbps – although many of them are upgrading to fiber with gigabit speeds. We now see cable companies starting to implement DOCSIS 3.01 upgrades that can increase their download speeds to a gigabit. And there are numerous overbuilders upgrading broadband all over the place by building fiber or fixed wireless technology. We will soon see the CAF II reverse auctions building yet more rural broadband, with a significant percentage of those upgrades being at 100 Mbps or faster.

This means that the FCC’s broadband maps and the underlying databases are far out of synch and provide the wrong narrative about broadband coverage. The members of NCTA want to get credit for the upgrades they are making, which means that numerous households are no longer considered as unserved, with many of them getting a broadband option for the first time.

There are practical and policy ramifications due to the delay in upgrading the maps. For example, some of the federal loan and grant programs score applicant projects according to whether they are upgrading rural areas that are unserved or underserved – and the FCC data overstates the households that are classified as unserved.

There are also real-life implications for communities. Consider Otter Tail County, Minnesota. Looking at the current FCC maps shows the County with a paltry 2% of households able to get download speeds of 100 Mbps. That is a truthful depiction just looking back a year or two. The cable companies serving the towns in the County have had maximum speeds of no more than 60 Mbps and the rural areas all have broadband using DSL, fixed wireless or satellite.

However, that map doesn’t reflect what’s happening in the County today and what will be happening there in the next few years. Charter has promised to upgrade to faster speeds nationwide and their customers in the County ought to be at speeds far above the 100 Mbps threshold. A lot of the rural areas are served by small telcos that are using A-CAM funding to build fiber. In this past summer alone there were dozens of construction crews building fiber around the County. There are also a few pockets of the County that have gotten upgrades to fiber that were assisted with broadband grants from the State of Minnesota. My quick assessment show that the County will soon have 100 Mbps broadband for 70% to 80% of households when the known upgrades are finished over the next few years. And even most of the areas not getting 100 Mbps broadband will still be seeing speed improvements. That facts on the ground in Otter Tail County paint a drastically different picture than what is shown by the current FCC maps. I have no doubt that this same thing is true in numerous other rural counties.

I understand that the FCC wants to use actual data to create their maps. But I’m mystified why they don’t want to brag about the programs they have sponsored that will improve broadband. It should be easy for them to overlay a map of the expected upgrades that will come from the CAF II and A-Cam programs. These future-looking maps are a better picture of the rural broadband situation.

There are obviously numerous upgrades happening that the FCC can’t know about – they have no way of knowing about upgrades being done with non-FCC funding. But there isn’t much excuse for the FCC to be issuing data and maps that are more than two years out of synch at the date of publication. It’s not a difficult  technical challenge to quickly map ISP broadband data as it’s submitted – numerous states already readily create their own versions of these maps. And it shouldn’t be hard for the FCC to create overlays showing the upcoming successes due to the upgrades they have fostered.

FCC Speed Tests for ISPs

ISPs awarded CAF II funding in the recent auction need to be aware that they will be subject to compliance testing for both latency and speeds on their new broadband networks. There are financial penalties for those failing to successfully meet these tests. The FCC revised the testing standards in July in Docket DA 18-710. These new testing standards become effective with testing starting in the third quarter of 2019. There new standards will replace the standards already in place for ISPs that receive funding from earlier rounds of the CAF program as well as ISPs getting A-CAM or other rate-of-return USF funding.

ISPs can choose between three methods for testing. First, they may elect what the FCC calls the MBA program, which uses an external vendor, approved by the FCC, to perform the testing. This firm has been testing speeds for the network built by large telcos for many years. ISPs can also use existing network tools if they are built into the customer CPE that allow test pinging and other testing methodologies. Finally, an ISP can install ‘white boxes’ that provide the ability to perform the tests.

The households to be tested are chosen at random by the ISP every two years. The FCC doesn’t describe a specific method for ensuring that the selections are truly random, but the ISP must describe to the FCC how this is done. It wouldn’t be hard for an ISP to fudge the results of the testing if they make sure that customers from slow parts of their network are not in the testing sample.

The number of tests to be conducted varies by the number of customers for which a recipient is getting CAF support; if the number is CAF households is 50 or fewer they must test 5 customers; if there are 51-500 CAF households they must test 10% of households. For 500 or greater CAF households they must test 50. ISPs that declare a high latency must test more locations with the maximum being 370.

ISPs must conduct the tests for a solid week, including weekends in every quarter to eliminate seasonality. Tests must be conducted in the evenings between 6:00 PM and 12:00 PM. Latency tests must be done every minute during the six-hour testing window. Speed tests – run separately for upload speeds and download speeds – must be done once per hour during the 6-hour testing window.

The FCC has set expected standards for the speed tests. These standards are based upon the required speeds of a specific program – such as the first CAF II program that required speeds of at least 10/1 Mbps. In the latest CAF program the testing will be based upon the speeds that the ISP declared they could meet when entering the action – speeds that can be as fast as 1 Gbps.

ISPs are expected to meet latency standards 95% of the time. Speed tests must achieve 80% of the expected upland and download speed 80% of the time. This might surprise people living in the original CAF II areas, because the big telcos only need to achieve download speeds of 8 Mbps for 80% of customers to meet the CAF standard. The 10/1 Mbps standard was low enough, but this lets the ISPs off the hook for underperforming even for that incredibly slow speed. This requirement means that an ISP guaranteeing gigabit download speeds needs to achieve 800 Mbps 80% of the time. ISPs that meet the speeds and latencies for 100% of customers are excused from quarterly testing and only have to test once per year.

There are financial penalties for ISPs that don’t meet these tests.

  • ISPs that have between 85% and 100% of households that meet the test standards lose 5% of their FCC support.
  • ISPs that have between 70% and 85% of households that meet the test standards lose 10% of their FCC support.
  • ISPs that have between 55% and 75% of households that meet the test standards lose 15% of their FCC support.
  • ISPs with less than 55% of compliant households lose 25% of their support.

For CAF II auction winners these reductions in funding would only be applied to the remaining time periods after they fail the tests. This particular auction covers a 10-year period of time and the testing would start once the new networks are operational, which is required to be completed between years 3 and 6 after funding.

This will have the biggest impact on ISPs that overstated their network capability. For instance, there were numerous ISPs that claimed the ability in the CAF auction to deliver 100 Mbps and they are going to lose 25% of the funding if they deliver speeds slower than 80 Mbps.

Winners of the CAF II Auction

The FCC CAF II reverse auction recently closed with an award of $1.488 billion to build broadband in rural America. This funding was awarded to 103 recipients that will collect the money over ten years. The funded projects must be 40% complete by the end of three years and 100% complete by the end of six years. The original money slated for the auction was almost $2 billion, but the reverse auction reduced the amount of awards and some census blocks got no bidders.

The FCC claims that 713,176 rural homes will be getting better broadband, but the real number of homes with a benefit from the auction is 513,000 since the auction funded Viasat to provide already-existing satellite broadband to 190,000 homes in the auction.

The FCC claims that 19% of the homes covered by the grants will be offered gigabit speeds, 53% will be offered speeds of at least 100 Mbps and 99.75% will be offered speeds of at least 25 Mbps. These statistics have me scratching my head. The 19% of the homes that will be offered gigabit speeds are obviously going to be getting fiber. I know a number of the winners who will be using the funds to help pay for fiber expansion. I can’t figure what technology accounts for the rest of the 53% of homes that supposedly will be able to get 100 Mbps speeds.

As I look through the filings I note that many of the fixed wireless providers claim that they can serve speeds over 100 Mbps. It’s true that fixed wireless can be used to deliver 100 Mbps speeds. To achieve that speed customers either need to be close to the tower or else a wireless carrier has to dedicate extra resources to that customer to achieve that speed – meaning less of that tower can be used to serve other customers. I’m not aware of any WISPs that offer ubiquitous 100 Mbps speeds, because to do so means serving a relatively small number of customers from a given tower. To be fair to the WISPs, their CAF II filings also say they will be offering slower speeds like 25 Mbps and 50 Mbps. The FCC exaggerated the results of the auction by claiming that any recipient capable of delivering 100 Mbps to a few customers will be delivering it to all customers – something that isn’t true. The fact is that not many of the households over the 19% getting fiber will ever buy 100 Mbps broadband. I know the FCC wants to get credit for improving rural broadband, but there is no reason to hype the results to be better than they are.

I also scratch my head wondering why Viasat was awarded $122 million in the auction. The company is the winner of funding for 190,595 households, or 26.7% of the households covered by the entire auction. Satellite broadband is every rural customer’s last choice for broadband. The latency is so poor on satellite broadband that it can’t be used for any real time applications like watching live video, making a Skype call, connecting to school networks to do homework or for connecting to a corporate WAN to work from home. Why does satellite broadband even qualify for the CAF II funding? Viasat had to fight to get into the auction and their entry was opposed by groups like the American Cable Association. The Viasat satellites are already available to all of the households in the awarded footprint, so this seems like a huge government giveaway that won’t bring any new broadband option to the 190,000 homes.

Overall the outcome of the auction was positive. Over 135,000 rural households will be getting fiber. Another 387,000 homes will be getting broadband of at least 25 Mbps, mostly using fixed wireless, with the remaining 190,000 homes getting the same satellite option they already have today.

It’s easy to compare this to the original CAF II program that gave billions to the big telcos and only required speeds of 10/1 Mbps. That original CAF II program was originally intended to be a reverse auction open to anybody, but at the last minute the FCC gave all of the money to the big telcos. One has to imagine there was a huge amount of lobbying done to achieve that giant giveaway.

Most of the areas covered by the first CAF II program had higher household density than this auction pool, and a reverse auction would have attracted a lot of ISPs willing to invest in faster technologies than the telcos. The results of this auction show that most of those millions of homes would have gotten broadband of at least 25 Mbps instead of the beefed-up DSL or cellular broadband they are getting through the big telcos.