Regulating From Broadband Maps

One of the more bizarre things we do in the US is regulate broadband based upon broadband maps. There are numerous federal grant and subsidy programs that rely upon these maps (and the underlying databases that support them) as well as various state programs. The FCC also uses this same data when reporting broadband penetration in the country to Congress each year, as just occurred on February 9.

The maps are intended to show how many households can purchase broadband of various speeds. Currently the arbitrary speed thresholds tested are download speeds of 10 Mbps, 25 Mbps and 100 Mbps. These speeds are measured due to past decisions by the FCC. For example, the FCC chose a 10/1 Mbps speed goal for any company that accepted CAF II money to upgrade rural broadband. The FCC’s current definition of broadband is still set at 25/3 Mbps.

Anybody that understands broadband networks knows that much of the data included in the databases and the mapping is incorrect, and sometimes pure fantasy. That makes sense when you understand that the speeds in this mapping process are all self-reported by ISPs.

There are numerous reasons why the speeds in these databases are not an accurate reflection of the real world:

  • There are still ISPs that report advertised speeds rather than actual speeds received by customers.
  • Any speeds represented for a whole DSL network are inaccurate by definition. DSL speeds vary according to the size of the copper wires, the condition of the copper cable and the distance from the source of the DSL broadband signal. That means that in a DSL network the speeds available to customers vary street by street, and even house by house. We’ve always known that DSL reported in the mapping databases is overstated and that most telcos that report DSL speeds report theoretical speeds. I’m not sure I blame them, but the idea of any one speed being used to represent the performance of a DSL network is ludicrous.
  • The speeds in the database don’t recognize network congestion. There are still many broadband networks around that bog down under heavy usage, which means evenings in a residential neighborhood. Nobody wants to be told that their network is performing at 10 Mbps if the best speed they can ever get when they want to use it is a fraction of that.
  • The speeds don’t reflect that ISPs give some customers faster speeds. In networks where bandwidth is shared among all users on a neighborhood node, if a few customers are sold a faster-than-normal speed, then everybody else will suffer corresponding slower speeds. Network owners are able to force extra speed to customers that pay a premium for the service, but to the detriment of everybody else.
  • The maps don’t reflect the way networks were built. In most towns you will find homes and businesses that were somehow left out of the initial network construction. For example, when cable companies were first built they largely ignored business districts that didn’t want to buy cable TV. There are lots of cases of apartment and subdivision owners that didn’t allow in the incumbent telco or cable company. And there are a lot of homes that just got missed by the network. I was just talking to somebody in downtown Asheville where I live who is not connected to the cable network for some reason.
  • Not all ISPs care about updating the databases. There are many wireless and other small ISPs that don’t update the databases every time they make some network change that affects speeds. In fact, there are still some small ISPs that just ignore the FCC mapping requirement. At the other extreme there are small ISPs that overstate the speeds in the databases, hoping that it might drive customer requests to buy service.
  • One of the most insidious speed issues in networks are the data bursts that many ISPs frontload into their broadband products. They will send a fast burst of speed for the first minute or two for any demand for bandwidth. This improves the customer experience since a large percentage of requests to use bandwidth are for web searches or other short-term uses of bandwidth. Any customer using this feature will obtain much faster results from a speed test than their actual long-use data speeds since they are actually testing only the burst speed. A rural customer using burst might see 4 Mbps on a speed test and still find themselves unable to maintain a connection to Netflix.
  • Sometimes there are equipment issues. The best-known case of this is a widespread area of upstate New York where Charter has kept old DOCSIS 1.0 cable modems in homes that are not capable of receiving the faster data speeds the company is selling. It’s likely that the faster network speed is what is included in the database, not the speed that is choked by the old modems.
  • And finally, speed isn’t everything. Poor latency can ruin the utility of any broadband connection, to the point where the speed is not that important.

Unfortunately, most of the errors in the broadband databases and maps overstate broadband speeds rather than under-report them. I’ve worked with numerous communities and talk to numerous people who are not able to get the broadband speeds suggested by the FCC databases for their neighborhoods. Many times the specific issue can be pinned down to one of the above causes. But that’s no consolation for somebody who is told by the FCC that they have broadband when they don’t.

The FCC’s 2018 Broadband Report

The FCC has released a draft the key findings from the 2018 Broadband Deployment Report that will be officially released to Congress this week. This report is usually interesting, and this year’s report includes a few big surprises.

The 25/3 Mbps Speed Benchmark. The FCC announced that it is keeping the 25/3 Mbps definition of broadband that was established by the former Tom Wheeler FCC. This is a surprise because all three Republican commissioners have been writing and making speeches that said that this benchmark is too high. Their positions on the topic garnered a lot of political pressure and it looks like, for now, that they are choosing to leave that benchmark alone. But as you will see below, they have still found a way to dilute the importance of the benchmark.

Mobile Broadband not a Substitute for Landline Broadband. There had also been a lot of discussion by the Republican commissioners to count a cellular broadband connection the same as a landline connection. They have been making the argument that many people are satisfied by a cellular connection and that functionally both kinds of broadband connection can functionally be substituted. They had suggested last year that a customer that uses either of the two kinds of broadband But the new report makes the positive statement that the two kinds of broadband are different and that there are ‘salient differences between the two technologies”.

Continuing to Track Fixed Broadband. Since cellular broadband is not a substitute for landline broadband the FCC concludes that is obligated to continue to track the deployment of landline broadband as it has done in the past. If tracking had been changed to show households that have access to either landline broadband cellular broadband, then almost everybody in the country would have been considered to have broadband.

The FCC is Meeting its Statutory Mandate to Promote Broadband. This is the zinger finding from the FCC. Reminiscent of George W. Bush’s comment after hurricane Katrina of “Brownie, you’re doing a heck of a job”, the FCC has patted itself on the back and concluded that it has already done enough to satisfy the Congressional mandate that everybody in America has access to broadband.

The FCC notes that it has taken sufficient steps to meet its regulatory mandate for improving broadband:

  • Has reduced regulatory barriers to the deployment of wireline and wireless broadband;
  • Created a Broadband Deployment Advisory Committee to make recommendations on how to better deploy broadband;
  • Instituted reforms to the high-cost universal service funds to ensure accountability;
  • Introduced a reverse auction to provide additional rural broadband funding;
  • Revised rules for special access to promote facility-based competition for business services.
  • Authorized new wireless spectrum for use for landline and satellite broadband;
  • Eliminated Title II regulation and returned to light-touch regulations.

I’m not going to pick apart all of the items on that list, and some of them, like releasing more spectrum are positive steps. However, even there this FCC seems to favor licensed spectrum for the large ISPs rather than more public bandwidth. It’s really hard to make the argument that reversing Title II regulation and network neutrality will improve broadband coverage in the country. The recommendations from the FCC’s BDAC sub-committees are nothing more than suggestions, and from what we’ve seen so far most of the recommendations from these groups are parroting the positions of the giant ISPs.

It’s too early to know if the CAF II reverse auction will prove beneficial. There is some speculation that these funds will largely be pocketed by the big cellular carriers as another subsidy to continue to replace rural copper with cellular service. This may just turn into more of the same disaster we’ve seen with the first CAF II subsidy for the big rural telcos.

When the numbers get released with the final report we’ll still see that more than 20 million Americans don’t have access to broadband. While many of these live in rural areas there are still huge pockets of unserved residents in urban areas as well.

It’s true that this FCC has been active in the last year and has made the decisions cited in this draft report. But it’s nearly impossible to see how they can conclude that America has the broadband they need and that they have satisfied the Congressional broadband mandate. I guess we’ll have to see if Congress takes exception with their declaration that the state of American broadband doesn’t need any more help.

A-CAM – A Subsidy that Works

Yesterday I compared the broadband grant programs in California and Minnesota. There are currently two federal broadband funding programs that are producing drastically different results that are worth a comparison. I’ve written a number of blogs complaining about the inadequacies of the FCC’s CAF II program for the largest telcos in the country. Companies like AT&T, Verizon, Frontier and other big telcos accepted the federal subsidies to upgrade the rural parts of their service territories. That program requires the carriers to upgrade rural facilities to be able to deliver broadband speeds of at least 10 Mbps download and 1 Mbps upload. The upgrades also need to have latency less than 100 ms (which is a dreadful latency if near to that threshold).

AT&T and Verizon say that they plan to mostly meet their obligations by converting rural copper lines to cellular connections. Most of the other telcos, which aren’t in the cellular business plan instead to upgrade rural DSL. A few, like Frontier Communications say that they plan to upgrade some customers using point-to-multipoint wireless networks.

But they key element of all of this is the 10/1 Mbps broadband speeds. The CAF II program is spending $10 billion dollars over six years to upgrade 4 million homes to at least the 10/1 Mbps speed. Since most of these households have had little or no broadband today those speeds are going to be the first time that many of these homes get any kind of a broadband connection. But the 10/1 Mbps speeds are already obsolete for any home that wants to use broadband the same as urban households, allowing multiple users and devices on the network simultaneously.

The FCC also has a lesser-known broadband subsidy program aimed at the smaller telephone companies. This program is called A-CAM (Alternate Connect America Cost Model). The A-CAM program is paying out a little over $1 billion per year for ten years and will support a broadband upgrade to 4.9 million households. Just under half of the money is aimed at upgrades to supply at least 25/3 Mbps, with the rest aimed at the same slower 10/1 threshold as the CAF II program for the bigger telcos.

The A-CAM program gets interesting when you look at what the small telcos are actually doing with this funding. While the big telcos in the CAF II program area upgrading to just enough speeds to get them over the 10/1 Mbps requirement, many small telcos are doing a lot more. All around the country there are small telcos using the A-CAM funding as the seed money to finance and build fiber to small towns, farms and other rural areas. The A-CAM money provides the basis for borrowing the money needed to build a permanent new fiber network. Even where small telcos are only upgrading DSL, I see many of them that upgrading speeds to as much as 40 Mbps.

It’s also interesting that the smaller companies are getting less funding, on average. The big telco CAF II money is providing roughly $2,470 per rural customer while the small company A-CAM money is $2,091 per customer. The amount received by each company differs, but overall the small telcos are doing a lot more with less funding.

I don’t know for sure that the big telcos in the CAF II program aren’t spending some of their own capital dollars to augment the CAF II funding, but everything I see tells me that they are not. They are using the federal money to do whatever upgrades that will fund, and no more.

We are starting to see the differences from the two programs appear in the real world. I was just looking the other day at the map for Otter Tail County, Minnesota. It’s a large county with some farmland, a lot of lakes and recreation areas and a lot of woods, trees and rough terrain. It’s comparable to many other rural places in the country. In Ottertail County it looks like about 2/3 of the rural areas are going to get fiber, much of it due to A-CAM money. These fiber areas will be sitting next door to CenturyLink areas that will get DSL upgrades that meet the 10/1 Mbps requirement.

Customers that get fiber will have seen real benefit from the FCC program that helped to fund it. But the customers in the CenturyLink areas will not see the same benefits, although they will have friends, families and neighbors that have world-class broadband. There isn’t any real difference between the two areas other than the way that the telcos decided to use the federal broadband money. The small telcos have used the federal money as a down payment for fiber while the bigger telco are just tweaking the ancient copper network or converting to cellular.

I’ve said all along that the FCC made a colossal mistake in not creating an auction for the CAF II money. Smaller companies would have leveraged the $10 billion of funding to build a lot of fiber to rural communities. They would have borrowed and expanded their businesses to bring a permanent broadband solution to millions of households.

Instead, the $10 billion CAF II money isn’t buying much of a speed increase. In some cases CAF II is going to make things worse. I think when AT&T and Verizon start tearing down rural copper that there will be homes with lousy cellular coverage that will not only not get broadband but will lose voice service. It’s fairly obvious that the CAF II program funding was a victory for the big telco lobbyists. The big telcos had a lot to lose if that funding went to smaller companies that would have built in their service territories. But this victory for the big companies is a big loss for customers who will not see real broadband because of a poorly designed federal subsidy program.

Is the Reverse Auction Right for You?

I’ve been getting a lot of questions about the FCC’s reverse auction for federal support towards building to some of the most remote households in the country. The FCC is awarding $1.98 billion to be dispersed monthly over ten years to winners of this auction.

I’m not going to repeat all of the rules of the auction. A good summary of the auction rules is at this FCC link. The FCC also released a detailed list of the areas of the country that are eligible for these awards, with the list of census groups and maps here. Finally, the FCC has released a draft of the specific auction rules which they are expected to approve at the open meeting later this month. If you are interested in joining this auction you must notify the FCC with a detailed application by March 30 for an auction to tentatively begin on July 24.

The question I’ve been getting is if it’s worthwhile to pursue this auction. My analysis of the opportunity tells me that this is only going to be of interest to specific business plans that almost need to already be underway today. Consider the following issues involved in this funding:

Coverage Areas. The minimum bidding area is a census block group. This is an area comprising 39 census blocks. These average about 1,500 households but can vary between 600 and 3,000. The locations in this auction are all rural and this the coverage areas are likely to be large – half a county or larger. And since census block groups don’t follow political boundaries, these are not going to follow county boundaries. For example, if a county was already planning on building to their whole county there is a good chance that the census block groups in the auction will bleed into neighboring counties – and a winner has to build to the whole auction areas. This will be a huge hurdle for any project that anticipates using some public money.

The Most Remote Households. The households covered by this auction are the most remote households. They are mostly the leftover households from the CAF II awards where AT&T, CenturyLink and other big telcos accepted money to build to rural households. This auction covers those households that were too far away from an existing central office and too expensive using the CAF II awards. There are no pockets of households in these coverage areas, just a smattering of remote households who are at the very ends of the existing copper networks. These households don’t create a coherent coverage area for building broadband.

Small Percentage of Households in an Area. Since these households are scattered, they represent only a small percentage of the households in any area. To reach them with broadband is going to require building broadband to everybody else – and that construction was already funded in the CAF II awards to the big telcos.

My conclusion from this is that the only sensible reason to pursue the reverse auction funding is if somebody is already building broadband to the wider rural community already. Since the households covered by this funding only are going to represent some small percentage of the total households in the area, this funding is going to only be a drop in the bucket towards funding a total broadband buildout.

The reverse auction provides a bidding advantage to somebody willing to build gigabit fiber. But because of the location and number of households that will be covered in a given area I only see two possible kinds of builders, 1) somebody that is already planning to build fiber that would cover at least a whole census block group, or 2) a WISP or cellular provider that already covers a whole census block group or who is willing to build the towers and transmitters needed to reach a whole census block group.

Finally, after all of these other issues, anybody that bids will need to demonstrate the financial wherewithal to meet the buildout requirements. This is going to make it extremely difficult for start-ups or for government entities that haven’t already raised money to build broadband for a given area. This requirement probably even makes it hard for existing providers that don’t have strong balance sheets, such as many existing WISPs.

My guess is that most of the money in this auction will go to wireless providers. But I also expect that there will be some large swaths or rural America for which nobody bids – mostly due to the fact that the awards in a given area are not going to be sufficient to create a reasonable business plan. The auction can provide a piece of the funding which can be a big benefit if somebody is already planning on building to an area. There is a lot of risk in accepting the money if you are not positive you can fund it because the FCC warns that auction winners are obligated to complete the buildout.

Big Telcos and Rural Customers

Recently, Sunit Patel, the CFO of CenturyLink, told investors that the company would be focusing on expanding their broadband networks only to the most densely populated parts of its footprint. Further, the company will now focus on opportunities that maximize both their retail operations as well as their new wholesale business that comes from the purchase of Level3. This is not surprising, and this has undoubtedly been the Company’s philosophy for many years. However, this is something that you rarely hear said publicly by the large telcos. And that’s because saying it so plainly also means that the company is admitting that they are not spending capital for the less dense parts of the footprint.

The large telcos like CenturyLink, Verizon and AT&T have been ignoring the rural parts of their network for literally decades. And yet they rarely talk about this – no doubt due to a public relations edict inside the companies. It’s refreshing to hear one of them spell it out.

We’ve heard this same story from both AT&T and Verizon in the past, but couched in different language. They have tried to put a positive spin on their announcements about rural properties by framing them as upgrading customers to wireless instead of wireline. But this is just another way of saying that they want to tear down copper lines in rural areas and charge more to households that happen to live close enough to a cellular tower to serve them. What’s never said is that these rural transitions to wireless will leave a lot of homes that have poor cellular coverage with no broadband and no telephone coverage – a reversal of a hundred-year universal service effort to keep everybody in the country connected.

CenturyLink isn’t in the same position as the other two giant telcos in that they don’t have a cellular option for rural households. The company is in the process of making substantial upgrades to the rural copper network using money provided by the FCC as part of the CAF II program. This upgrade is intended to bring rural DSL speeds up to at least 10/1 Mbps. But this money isn’t covering everybody in rural areas and the company and the FCC excluded millions of the most rural homes from these upgrades. I’ve heard through the grapevine from technicians at some of the big companies that the telcos are using the FCC money to do their best effort and that not everybody will get the promised speeds. The telcos will do what they can with the FCC money until it is all spent.

What this means for rural customer of the big telcos is that good broadband is not coming. Many households are going to be offered somewhat faster DSL or else cellular broadband from the CAF II upgrades – but that’s a one-time upgrade and it’s unlikely that these companies are going to do any more upgrades beyond this one-time shot.

I find it unfortunate that rural households who don’t understand technology and don’t understand these big telcos probably think their broadband speeds will be improved. The press releases from these companies and even from the FCC make it sound like solutions are on the way.

I probably shouldn’t be so cynical, because for a home that doesn’t have any broadband today a 10/1 Mbps connection is going to be a welcome relief. But a connection at that speed is already inadequate today for any home that really wants to use broadband. That kind of speed is not going to easily let different family members use much broadband at the same time. And that speed will grow quickly obsolete as the amount of speed needed and the amount of total annual download for the average family continues to double every three years. Any connection that feels just barely adequate today is going to feel slow in five years and nearly non-functional in a decade.

I have to give credit to Mr. Patel for saying this so directly. There is no clearer signal to rural communities that they need to look for a broadband solution on their own. The big telcos will spend any money they get from the FCC on rural infrastructure, but otherwise the big companies are unlikely to devote any additional capital dollars towards improving rural networks. This is no change from the way it’s been for a long time, but finally we can point to somebody who said out loud what we’ve always known.

3Q 2017 Broadband Growth

Last Friday’s blog asked if we are nearing the top of the market in terms of broadband penetration. Overall households with some sort of Internet connection have only grown from 83% in 2012 to 84% today, with most of the customers now served with a broadband connection instead of using slower dial-up or satellite. Following are the numbers showing the new broadband connections of the major ISPs during the recent third quarter of this year:

 2Q 2017 3Q 2017 Change
Comcast 25,306,000 25,519,000 213,000 0.8%
Charter 23,318,000 23,603,000 285,000 1.2%
AT&T 15,686,000 15,715,000 29,000 0.2%
Verizon 6,988,000 6,978,000 (10,000) -0.1%
CenturyLink 5,868,000 5,767,000 (101,000) -1.7%
Cox 4,845,000 4,860,000 15,000 0.3%
Frontier 4,063,000 4,000,000 (63,000) -1.6%
Altice 4,004,000 4,020,900 16,500 0.4%
Mediacom 1,185,000 1,194,000 9,000 0.8%
Windstream 1,025,800 1,017,400 (8,400) -0.8%
WOW 727,600 730,000 2,400 0.3%
Cable ONE 521,724 519,062 (2,662) -0.5%
Fairpoint 307,100 301,000 (6,100) -2.0%
Cincinnati Bell 304,193 307,900 3,707 1.2%
94,149,417 94,532,262 382,845 0.4%

These figures come from reports published each quarter by Leichtman Research Group. These large ISPs control over 95% of the broadband market in the country – so looking at them provides a good picture of the industry. Not included in these numbers are the broadband customers of the smaller ISPs, the subscribers of WISPs (wireless ISPs) and customers of the various satellite services. Cable companies still dominate the broadband market and have 60.4 million customers compared to 34.1 million customers for the big telcos.

What do these numbers tell us about broadband growth? If you take the numbers at face value, a growth of 0.4% for the quarter would extrapolate to an annual growth rate over 1.5%, and would suggest that the market is still growing. But is it?

Within these numbers are broadband customers from new housing units. The country is expected to add at least 1 million new homes and apartment units this year, and if the ISPs sell to 84% of them, then 210,000 of the new broadband customers are due to the new housing units and don’t represent an increase in overall market penetration rate for the sector.

Further, we are now in the second year of the FCC’s CAF II program. The telcos in the above list are being given over $8 billion over six years (and 2017 is the second year) to bring broadband to over 5 million rural households. By now these funds should be adding new broadband customers for CenturyLink, AT&T, Frontier, etc. I haven’t seen any reports yet from the FCC quantifying the customer added as a result of CAF II, but it’s not hard to think this won’t mean something like 175,000 new broadband customers per quarter over the last five years of the program.

Assuming that CAF II customers are now coming on board, then the whole industry growth can be attributed to either broadband for new housing units or new rural households getting broadband for the first time. And that would validate that the broadband industry is not growing much otherwise.

The numbers also tell us a few more things. For example, in urban areas the cable companies are still wooing away DSL customers. But even that is slowing down. Cable company customer additions for the 3Q are 540,000, down from 780,000 a year ago. For the first three quarters of 2017 combined the cable companies have added about 2 million customers while the telcos have lost 430,000 broadband customers.

California Lowers the Definition of Broadband

California Governor Jerry Brown just signed a bill into law that lowers the official definition of broadband in the state while also providing state funding to upgrade rural broadband. The bill, AB 1665, goes into effect immediately. It lowers the definition of broadband in the state to 10 Mbps down and 1 Mbps up. But it goes even further and lowers the definition of an unserved customer to somebody who can’t get speeds of 6 Mbps and 1 Mbps up.

The bill reinstates a telecom tax that will provide a $300 million fund intended to be used to improve rural broadband. The California press believes that the fund will largely go to AT&T and Frontier, which both lobbied hard for the bill. My reading of the bill is that the incumbent carriers have first shot at the funding and anybody else only gets it when they don’t take it. In practical terms, assuming those two companies take the funding, almost none of this money would be made available to anybody who wants to build something faster in unserved areas.

We know that state funding done the right way can be a tremendous boon to broadband expansion. Consider, for example, the Minnesota DEED grants that have coaxed dozens of telecom providers to expand fiber networks deep into unserved and underserved areas of the state. It’s commonly understood that it can be hard to justify bringing fiber to rural areas, but some grant funding can be an effective tool to attract private money to fund the rest.

We also understand today that there are huge economic benefits for areas that have good broadband. The farmers in Minnesota that benefit from the grant program there are going to have a competitive advantage over farmers elsewhere that have little or no broadband. I’ve been looking at the IOT and other fiber-based technologies on the horizon for farming that are going to vastly increase productivity.

We also know that having good broadband benefits the small communities in rural America as well. These communities have been experiencing brain drain and economic flight as people are forced to go to metropolitan areas to find work. But broadband opens up work-at-home opportunities that ought to make it possible for families to thrive in rural America.

This move by California is a poor decision on many levels. First, it funnels money to the incumbent providers to make tiny tweaks to the existing networks so that existing broadband is just a little better. The new 10/1 Mbps broadband definition is also nothing more than a legislative definition of broadband and has no relevance in the real world. Many homes need more broadband than that, and as household broadband demand grows, a 10/1 Mbps connection will become inadequate for every home.

Another reason this is a bad idea is that the incumbents there are already making improvements to increase broadband to the 10/1 Mbps level. AT&T took $361.4 million of FCC CAF II funding that is to be used to upgrade broadband to 141,500 homes in California. That works out to $2,554 per home passed. Frontier took another $36.6 million, or $2,853 per home passed to improve broadband to 12,800 homes. That federal money requires that speeds increase to the 10/1 Mbps speed. This state funding will be an additive to those large federal amounts that these two companies have already received from the government.

AT&T has also already said that it plans to meet its CAF II obligations by upgrading rural cellular speeds. Frontier is mostly going to improve DSL on ancient copper and also is now looking at using point-to-point wireless technology to meet the CAF II obligations.

I don’t know how much it’s going to cost these companies to upgrade their rural customers to 10/1 Mbps. But the federal funding might be enough to pay for all of it. Adding the state funding means it’s likely that these two companies will make an immediate profit from upgrading rural customers to barely adequate broadband speeds. As we’ve seen many times in the past, this bill is good evidence that the big companies get value out of their lobbying efforts. The losers in all of this are the homes that won’t get anything faster than CAF II broadband. This $300M could have been used as matching grants to bring much faster broadband to many of these homes.

 

CAF II and Wireless

Frontier Communications just announced that they are testing the use of wireless spectrum to complete the most rural portions of their CAF II build-out requirement. The company accepted $283 million per year for six years ($1.7 billion total) to upgrade broadband to 650,000 rural homes and businesses. That’s a little over $2,600 per location passed. The CAF II program requires that fund recipients increase broadband to speeds of at least 10 Mbps down and 1 Mbps up.

Frontier will be using point-to-multipoint radios where a transmitter is mounted on a tower with the broadband signal then sent to a small antenna at each customer’s location. Frontier hasn’t said what spectrum they are using, but in today’s environment it’s probably a mix of 2.4 GHz and 5 GHz WiFi spectrum and perhaps also some 3.65 GHz licensed spectrum. Frontier, along with CenturyLink and Consolidated told the FCC a year ago that they would be interested in using the spectrum in the ‘citizens’ radio band’ between 3.7 MHz and 4.2 MHz for this purpose. The FCC opened a docket looking into this spectrum in August and comments in that docket were due to the FCC last week.

I have mixed feelings about using federal dollars to launch this technology. On the plus side, if this is done right this technology can be used to deliver bandwidth up to 100 Mbps, but in a full deployment speeds can be engineered to deliver consistent 25 Mbps download speeds. But those kinds of speeds require an open line-of-sight to customers, tall towers that are relatively close to customers (within 3 – 4 miles) and towers that are fiber fed.

But when done poorly the technology delivers much slower broadband. There are WISPs using the technology to deliver speeds that don’t come close to the FCC’s 10/1 Mbps requirement. They often can’t get fiber to their towers and they will often serve customers that are much further than the ideal distance from a tower. Luckily there are many other WISPs using the technology to deliver great rural broadband.

The line-of-sight issue is a big one and this technology is a lot harder to make work in places with lots of trees and hills, making it a difficult delivery platform in Appalachia and much of the Rockies. But the technology is being used effectively in the plains and open desert parts of the country today.

I see downsides to funding this technology with federal dollars. The primary concern is that the technology is not long-lived. The electronics are not generally expected to last more than seven years and then the radios must be replaced. Frontier is using federal dollars to get this installed, and I am sure that the $2,600 per passing is enough to completely fund the deployment. But are they going to keep pouring capital into replacing radios regularly over time? If not, these deployments would be a sick joke to play on rural homes – giving them broadband for a few years until the technology degrades. It’s hard to think of a worse use of federal funds.

Plus, in many of areas where the technology is useful there are already WISPs deploying point-to-multipoint radios. It seems unfair to use federal dollars to compete against firms who have made private investments to build the identical technology. The CAF money ought to be used to provide something better.

I understand Frontier’s dilemma. In the areas where they took CAF II money they are required to serve everybody who doesn’t have broadband today. My back-of-the envelope calculations tells me that the CAF money was not enough for them to extend DSL into the most rural parts of the CAF areas since extending DSL means building fiber to feed the DSLAMs.

As I have written many times I find the whole CAF program to be largely a huge waste of federal dollars. Using up to $10 billion to expand DSL, point-to-multipoint, and in the case of AT&T cellular wireless is a poor use of our money. That same amount of money could have seeded matching broadband that could be building a lot of fiber to these same customers. We only have to look at state initiatives like the DEED grants in Minnesota to see that government grant money induces significant private investment in fiber. And as much as the FCC doesn’t want to acknowledge it, building anything less than fiber is nothing more than a Band-aid. We can and should do better.

Broken Promises by Big ISPs

One of the most frustrating things for regulators has to be when giant ISPs renege on regulatory deals they’ve negotiated and don’t follow through with their promises. Books could be written listing all of the times when big ISPs have promised to do something and then never did it.

I am reminded of one such deal when I read that New York City is suing Verizon over its broken promise to bring FiOS fiber to the city. The lawsuit states that almost a million households are still unable to get FiOS, although the company had promised full coverage when they got a franchise from the city in 2008. In that agreement Verizon promised to bring fiber service to the whole city by 2014. The agreement with the city required that Verizon bring fiber, in conduit, directly in front of, behind, or otherwise adjacent to every residential building in the City.

Verizon had a similar longstanding dispute with the State of Pennsylvania. Back in 2002 the company made a promise to bring DSL service to cover 80% of the state as a prerequisite for the company being relieved of a lot of regulatory oversight by the state. But Verizon never completed a lot of the needed upgrades and huge parts of rural Pennsylvania still didn’t have DSL a decade later.

I wrote a blog a few months back about Charter in New York. There the state had found that the cable modems deployed by the company were not technically capable of delivering anything close to the speeds that the company was advertising. Charter agreed to fix the problem, but five years later had made almost no upgrades and was recently sued by the State.

I could list more examples all day long and there have been disputes all across the country with major telcos and cable companies that have made deals with regulators and then either ignored the agreements or only implemented them in a half-hearted manner.

The problem is that there are really no regulatory penalties that are big enough to penalize an ISP for not doing what it promised. There have been fines levied, but those fines are never nearly as big as the profits or savings realized by the ISPs for ignoring the agreements with regulators. For example, it’s unlikely that lawsuits or penalties will be able to force Verizon to finish the FiOS build in New York City. I am sure the company built to the parts of NYC that made economic sense and decided, for whatever reason, that there is not sufficient payback to justify building to the remaining parts of the city.

And that’s what regulators fail to recognize – big ISPs make decisions based upon the anticipated return for stockholders. I think it’s likely that in many of these cases that the big ISPs had no intention of complying with their agreements from the start. The cynical side of me says that they are often willing to take the upsides associated with these kinds of deals – be that decreased regulation or the ability to complete a merger – while knowing up front that they are unlikely to ever complete whatever they have agreed to do.

I think we are likely to see another round of broken promises in a few years as we start moving towards the end of the FCC’s CAF II program. The big telcos accepted over $9 billion over six years to improve rural broadband to speeds of at least 10 Mbps. I’ve been getting feedback from a lot of areas in the country that those deployments seem to be behind schedule. It will certainly come as no surprise if one or more of the big telcos spends the CAF II funding without bringing broadband to the promised households, or else will deliver speeds under the promised levels. The FCC recently issued a warning to carriers telling them that it expects them to fulfill the CAF II commitments – and I suspect that warning is due to the same kind of rumblings I’ve been hearing.

But ultimately the FCC doesn’t really have any way to make these telcos complete the builds. They might withhold future funding from the telcos, but as the FCC keeps eliminating regulation it is going to have very little ability to enforce the original CAF II agreements or to take any steps to really penalize the telcos.

The saddest part of these various broken promises is that millions of real people get hurt. It’s been reported that there are significant pockets of residents in urban areas like New York City that still don’t have even one broadband provider. There are huge rural swaths of the country that are desperate for any kind of broadband, which is what CAF II is supposed to deliver for the first time. But I think we need to be realistic in that big ISPs often do not meet their promises – whether deliberately or not. And perhaps it’s finally time to stop making these big deals with companies that have a history of broken promises.

The Economics of Tower Transport

Many of my clients lease towers and/or fiber transport to reach towers to wireless companies. Since most of my clients operate last-mile networks this is not usually a major source of revenue for them, but it is a significant one, and one of the more profitable things they sell.

I have been advising clients that we are in the midst big changes in the cellular industry and that they should expect payments for cell tower connectivity to start dropping. Transport providers and cell tower owners that won’t renegotiate lower prices could risk losing the business entirely.

Let’s look at AT&T as an example of this. AT&T has been aggressively pushing its vendors to lower prices. At an investor meeting last year AT&T’s president of technology operations told investors that the current industry model is not sustainable. And he is right. As I wrote in a recent blog the entire cellular industry seems to have crossed the threshold where cellular service is becoming a commodity, and that is putting huge pressure on the cellular companies to reduce costs.

Last year FierceWireless posted a letter that AT&T sent to many of vendors telling them to expect to renegotiate rates and terms. In that letter AT&T said that they would pushing for early termination of existing contracts with the expectations of lowering fees. They said they would be looking for the ability to modify or upgrade existing towers for free. And they want to eliminate any automatic price increases and instead have “rents reduced to competitive rates”.

There are two major costs for a cellular company to use somebody else’s tower. First they must lease space on towers including paying for power and space underneath to house equipment. Where AT&T doesn’t own the fiber connecting to the towers they also have to pay for fiber transport to reach the towers. And that transport is not cheap because the bandwidth they need at towers is growing at a torrid pace. Where just five years ago there were very few towers that needed more than a gigabit of bandwidth, I’ve seen rural towers where the carriers are now asking for the right over time to grow to five gigabits. And everything I read about cellular data usage tells me that demand for bandwidth at towers will continue to grow rapidly.

Many of my clients operate in rural areas and some think that their physical isolation makes them immune from any price negotiations with the wireless companies. But I think they are wrong for several reasons.

  • First, I think a lot of the billions being spend by the FCC’s CAF II program is being used to construct fiber to rural towers. AT&T is spending a most of the $2.5 billion from that program to extend fiber into rural areas. And where they build fiber they won’t need to lease it from anybody else.
  • I also suspect that the cellular companies are working with Frontier and CenturyLink, the other two big recipients of CAF II money to piggyback on their fiber expansion to reach cellular towers at a lower cost.
  • Both AT&T and Verizon are also undertaking significant fiber expansion, with one of the goals of that program to cut transport costs. I believe they are doing the math and that they will build fiber to the towers that save them money over the long-run – with those places with the most savings at the top of the list. If they sustain this kind of construction for five or ten years they will eventually be able to bypass most of the towers that they lease today. And the cellular companies should be doing this. If there are going to be lower margins in the cellular business then they ought to use their capital, while they have it, to permanently reduce operating costs.
  • I also suspect that, while AT&T and Verizon are competitors that they are cooperating to reach the more rural cell sites and have transport swap plans in place that save them both money.
  • Finally, these companies have been buying fiber network providers, like Verizon’s purchase last year of XO Communications. It would not be surprising to see them continue to buy companies that provide cell site transport.

The cellular companies and their partners don’t communicate well with smaller transport and cell tower owners. I suspect that many of clients will only get an inkling that a cellular company is going to bypass them when they get the cancellation notice of their contracts. So I have been encouraging folks to reach out to the cellular companies to renegotiate terms and prices. I think that those willing to so might be able to keep this as a long-term revenue stream, but that those that want to stick with higher historical prices will eventually get bypassed and will lose the revenue stream altogether. It’s a tough call, because some places are remote enough that they may never be bypassed – but it’s a crap shoot to guess if your own region is on the fiber-expansion list.