Tag: CAF II

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Regulation - What is it Good For?

Who’s In Charge of Broadband?

On July 24, the FCC authorized a new subsidy program, Enhanced A-CAM (Alternate Connect America Cost Model). This program will extend subsidies to small, regulated telephone companies at a cost of about $1.27 billion per year for ten years. The subsidy will be paid from the FCC’s Universal Service Fund.

The funding requires recipients to deploy voice plus broadband with speeds of at least 100/20 Mbps to 100% of the areas covered by the subsidy within four years. The order is technology neutral, so telcos could elect to meet this requirement with fiber or with licensed fixed wireless technology.

According to Mike Conlow, this order will bring broadband to almost 583,000 unserved or underserved locations that are already covered by the NTIA’s BEAD grant footprint. Today’s blog talks about the absurdity of the FCC making this announcement only weeks after the NTIA announced the distribution of the $42.5 billion in BEAD funds to states. This means that two U.S. agencies both announced funding to cover the identical half-million locations within a month of each other.

Think about what this means. A state that has some of these A-CAM locations was allocated BEAD grant money to bring broadband to these areas. The FCC order is then directly funding to build broadband to the same passings. This means that a state that has a lot of unserved and underserved A-CAM passings is getting a funding windfall. Conlow estimated that this double funding is bringing a funding windfall of $180 million to Nebraska – the state with the most unserved and underserved A-CAM locations. The downside of this is that if Nebraska and other states are getting a windfall from the FCC decision, then other states are receiving less BEAD funding than they would have if these locations had been excluded from BEAD before the NTIA allocated the $42.5 billion.

The FCC’s A-CAM order was released only three weeks after the NTIA announced the BEAD allocations to states. There is no way that the FCC didn’t do this deliberately. The FCC could have asked the NTIA to take these locations out of the BEAD process so that the $42.5 billion would have been allocated fairly.

Two years ago, the Biden administration directed the FCC, the NTIA, and the USDA to coordinate everything associated with federal funding for broadband. The FCC’s actions with this decision are the exact opposite of coordination.

I speculate that the FCC did this to reclaim relevance in the discussion of who is helping America solve the rural broadband gap. The FCC has taken a lot of criticism in recent years for botching the RDOF funding process and handing out wasted billions to the big telcos in the CAF II subsidies. The FCC was also largely cut out of the biggest effort ever with BEAD grants to solve the rural broadband gap, and that had to sting. The FCC can now say to the folks living in the A-CAM areas that it provided the funding to bring better broadband instead of the NTIA. I’m picturing FCC ribbon cuttings for projects that launch fiber in these areas. I can’t think of any other reason that this order would have been released so soon after the NTIA announcements of BEAD funding for each state.

The NTIA should react to this announcement by reallocating the BEAD funding to states because for every state that got a windfall like Nebraska from the FCC’s A-CAM order, other states received less BEAD funding. Unfortunately, reopening the allocation process could open a can of worms, so that likely won’t happen.

In my mind, the FCC has become a loose cannon due to its control of the Universal Service Fund. The USF for all practical purposes is a big slush fund that gives the FCC the ability to tackle anything it wants, outside of any control by Congress or the White House. After this announcement, it wouldn’t shock me to see the FCC announce another round of RDOF funding in the middle of the BEAD grant process next year.

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The Industry

No More Underbuilding

Jonathan Chambers wrote another great blog this past week on Conexon where he addresses the issue of federal grants having waste, fraud, and abuse – the reasons given for holding hearings in the House about the upcoming BEAD broadband grants. His blog goes on to say that the real waste, fraud, and abuse came in the past when the FCC awarded federal grants and subsidies to the large telcos to build networks that were obsolete by the time they were constructed. He uses the term underbuilding to describe funding networks that are not forward-looking. This is a phrase that has been around for many years. I remember hearing it years ago from Chris Mitchell, and sure enough, a Google search showed he had a podcast on this issue in 2015.

The term underbuilding is in direct contrast to the large cable and telephone companies that constantly use the term overbuilding to mean they don’t want any grant funding to be used to build any place where they have existing customers. The big ISPs have been pounding the FCC and politicians on the overbuilding issue for well over a decade, and it’s been quite successful for them. For example, the big telcos convinced the FCC to provide them with billions of dollars in the CAF II program to make minor tweaks to rural DSL to supposedly bring speeds up to 25/3 Mbps. I’ve written extensively on the failures of that program, where it looks like the telcos often took the money and made minimal or no upgrades.

As bad as that was – and that is the best example I know of waste, fraud, and abuse – the real issue with the CAF II subsidy is that it funded underbuilding. Rural DSL networks were already dying when CAF II was awarded, mostly due to total neglect by the same big telcos that got the CAF II funding. Those billions could have instead gone to build fiber networks, and a whole lot of rural America would have gotten state-of-the-art technology years ago instead of a tweak to DSL networks that barely crawling alone due to abuse.

The FCC has been guilty of funding underbuilding over and over again. The CAF II reverse auction gave money to Viasat, gave more money for upgrades to DSL, and funded building 25/3 Mbps fixed wireless networks. The classic example of underbuilding came with RDOF, where the areas that were just finishing the CAF II subsidy were immediately rolled into a new subsidy program to provide ten more years of subsidy. Many of the areas in RDOF are going to be upgraded to fiber, but a lot of the money will go into underperforming fixed wireless networks. And, until the FCC finally came to its senses, the RDOF was going to give a billion dollars to Starlink for satellite broadband.

The blame for funding underbuilding lies directly with the FCC and any other federal grant program that funded too-slow technologies. For example, when the CAF II funding was awarded to update rural DSL, areas served by cable companies were already delivering broadband speeds of at least 100 Mbps to 80% of the folks in the country. By the time RDOF was awarded, broadband capabilities in cities had been upgraded to gigabit. The policy clearly was that rural folks didn’t need the same quality of broadband that most of America already had.

But the blame doesn’t just lie with the FCC – it lies with all of the broadband advocates in the country. When the ISPs started to talk non-stop about not allowing overbuilding, we should have been lobbying pro-broadband politicians to say that the FCC should never fund underbuilding. We’ve collectively let the big ISPs frame the discussion in a way that gives politicians and regulators a convenient way to support the big ISPs. Both at the federal and state levels the broadband discussion has often devolved into talking about why overbuilding is bad – why the government shouldn’t give money to overbuild existing ISPs.

Not allowing overbuilding is a ludicrous argument if the national goal is to get good broadband to everybody. Every broadband network that is constructed is overbuilding somebody, except in those exceptionally rare cases where folks have zero broadband options. If we accept the argument that overbuilding is a bad policy, then it’s easy to justify giving the money to incumbents to do better – something that has failed over and over again.

It’s time that we call out the overbuilding argument for what it is – pure protectionism. This is monopolies flexing political power to keep the status quo, however poorly that is working. The big ISPs would gladly roll from one subsidy program to another forever without investing any of their own capital to upgrade rural networks.

Every time a regulator or politician says that we should not be using federal money to overbuild existing networks, we need to prod pro-broadband politicians to counter that argument by saying we should not be spending any more money on underbuilding. Broadband is infrastructure, just like roads and bridges, and we should be investing any grant money into the most forward-looking technology possible. If the national goal is to make sure that everybody has good broadband, then we should be ready to overbuild anywhere the incumbents have underperformed, be that in rural areas or inner cities. It’s time we shift the conversation away from protectionism to instead prioritizing bringing broadband that will still be good a decade or two after the grant award. Let’s not spend another penny of grant money on underbuilding networks by investing in slow technologies that are inadequate and obsolete even before they are completed.

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Regulation - What is it Good For?

Auditing RDOF Performance

Today’s blog covers an issue that gets my blood boiling every time I think about it. The FCC just announced increased testing for ISPs accepting funding from FCC High Cost programs, which includes CAF II and RDOF. The new rules include the following:

  • The number of audits and verifications will double in 2022 compared to 2021 and will include some on-site audits.
  • There will be more verification prior to the first required deployment milestone.
  • Large dollar funding recipients will be subject to an on-site audit in at least one state.
  • High-risk recipients will be subject to additional audits and verifications.
  • Audit results, speed tests, and latency performance will now be posted online.

That all sounds good until you look at the practical results of the testing program. The worse that can happen to an ISP for failing the FCC tests will be to lose some small portion of any remaining funding.

Under current rules, ISPs can choose between three methods for testing. They may elect what the FCC calls the MBA program, which uses an external vendor approved by the FCC to perform the testing. ISPs can also use existing network tools if they are built into the customer CPE that allows test pinging and other testing methodologies. Finally, an ISP can install ‘white boxes’ that provide the ability to perform the tests. What’s not easy to dig out of the rules is that ISPs have a hand in deciding who gets tested.

In the past, the number of required tests was as follows. For award areas with 50 or fewer households the test was for 5 customers; for 51-500 households the test was 10% of households. For 500 or more households the test was 50 households. ISPs declaring a high latency had to test more locations with the maximum being 370. Doubling the testing probably means doubling the number of locations that are tested.

Tests for a given customer are done for a full week each quarter. 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.

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. An example of this requirement is that a carrier guaranteeing a gigabit of speed must 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.

The real kicker of all of this is that the penalties for failing the tests have no teeth. The following financial penalties are applied only to the remaining subsidy payments:

  • If between 85% and 100% of households meet the test standards, the ISP loses 5% of any remaining FCC support.
  • If between 70% and 85% of households meet the test standards, the ISP loses 10% of future support.
  • If between 55% and 75% of households meet the test standards, the ISP loses 15% of future FCC support.
  • If less than 55% of households meet the test standard, the ISP loses 25% of their future support.

The penalties for an ISP that doesn’t perform on RDOF are minor. Consider a WISP that accepted $100 million of RDOF to build gigabit wireless but only delivers a few hundred Mbps speeds. The first chance for testing is in the third year of RDOF, where an ISP is required to have completed 40% of the buildout. My example WISP will fail more than 55% of speed tests and will incur the maximum FCC penalty. That means the ISP will collect $10 million in the first two years and $7.5 million in years 3 – 10. By the end of the 10-year payout, the ISP will still have collected $80 million of the original $100 million RDOF award. That is not much of a penalty for massive underperformance.

I think these weak penalties emboldened ISPS to lie about the speeds of their technologies in the RDOF auction. ISPs are still paid handsomely even if they don’t come close to meeting the promised speeds. And that’s not the entire story. There were bidding penalties for ISPs promising speeds slower than gigabit. A WISP that told the truth about speeds in the auction (and many did) likely lost in the auction if bidding directly against a WISP that exaggerated speeds.

These penalties are shameful and are another example of the FCC favoring ISPs over the public.  If an ISP whiffs the test in the third year they should stop receiving all future subsidies. If an ISP fail the tests badly enough, such as delivering 200 Mbps when promising a gigabit, then they ought to be forced to return 100% of the previous RDOF awards. If those were the rules, any ISPs that lied about speed capabilities would all withdraw from RDOF tomorrow.

People will ask why it’s so bad that an ISP that overstated speed capabilities won the RDOF. This cheats the people living in the RDOF award area. Residents thought they would get gigabit broadband and will get something far less. While customers might be pleased with the initial speeds in this example, the network being built is not ready to provide good broadband for the rest of the century. There is a good chance that in a decade or two we’ll be looking at these same award areas again and asking if these areas need more federal subsidy to swap out to a faster technology.

If an ISP takes big federal money and fails to perform there should be real penalties. If that was made clear upfront, then ISPs that can’t meet speed requirements would not be tempted to apply. One only has to look back at CAF II to see how ineffective this testing is. Does anybody remember any big penalties for the big telcos not upgrading DSL?

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Regulation - What is it Good For?

Not Giving Up on CAF II

Brandon Presley, a Commissioner on the Public Service Commission of Mississippi, recently sent a letter to FCC Chairwoman Jessica Rosenworcel asking the FCC to investigate AT&T’s performance under the CAF II program. This FCC program gave AT&T $280 million to improve rural broadband speeds in the state to at least 10/1 Mbps.

Presley’s letter follows a request a year earlier from all three Mississippi Commissioners asking the FCC to conduct a full compliance audit on AT&T. The letter said that the PSC had documented specific examples of where AT&T had not done any upgrades, including listing homes as having improved service that have no broadband service.

This is an issue that I’ve written about many times. My consulting firm helps rural counties across the country undertake large volumes of speed tests – and in some counties, we can’t find any rural DSL customers who are receiving 10/1 Mbps DSL. These counties weren’t just served by AT&T, and we’ve seen the same thing happening in counties served by Frontier, CenturyLink, and Windstream.

To be fair to the telcos, the problem is not universal. We have done speed tests in counties where most rural DSL speeds exceed 10/1 Mbps. But it looks to us like there are a lot of places where the telcos didn’t do much, if anything, with the CAF II funding. In many of our studies, we also do field engineering inspections, and we’ve often found no new fiber construction and rural DSL cabinets still running old DSL technology. We’ve seen in many counties where the DSL speeds in the county seats has improved, and we speculate that the telcos upgraded the town DSL using the CAF II but didn’t spend the money as promised in the rural areas.

We no longer have to rely on our small sample of county speed tests because the recent NTIA maps and the DSL maps created by some states show the same thing. Those maps are often created by huge numbers of speed tests. We know that speed tests are not perfect, but when large-scale speed tests show that nobody is meeting the CAF II 10/1 Mbps target that it’s pretty certain that no upgrades were made.

As you might expect, AT&T denies the allegations in Mississippi. They claim to “have invested billions of dollars, building out our wired and wireless networks across Mississippi, and we are proud of the work we have done as a company to keep communities connected and help fuel Mississippi’s economy. . . We are also proud of the work we have done through federal and state programs that help expand critical connectivity in underserved and unserved areas, including the FCC’s Connect America Fund Phase II program. We have worked closely with the FCC and USAC on this program and any suggestion that we filed false data is patently incorrect.”

The AT&T situation is more complicated than the other big telcos because AT&T largely says it is meeting the CAF II requirements using fixed cellular service. It’s probably true that customers today who are in the range of AT&T towers that have received the new bands of frequency being labeled as 5G can receive faster broadband. But those new cellular networks don’t reach everybody in rural areas, and there are still a lot of cellular dead spots. More importantly, AT&T only started to upgrade the rural cellular networks after the end of the CAF II program.

Hopefully, this issue soon becomes history if the new round of federal grants brings faster broadband to these rural areas. But Commissioner Presley is worried that AT&T and the other big telcos will chase the new funding and will repeat history by underperforming on promises made to regulators.

This also raises the question about whether there should be large penalties against the telcos who didn’t make the upgrades. It would not be hard for the FCC to make a list of counties where upgrades weren’t made. They have access to large amounts of speed tests, and they could also activate local governments to investigate and provide feedback.

I personally think the right remedy is that the telcos must return the full amount of funding in areas where they didn’t make upgrades and that money ought to supplement the BEAD grants and be given to whoever is going to bring better broadband to the affected counties.

Ideally, the FCC or other federal agencies would prohibit any telco that is caught cheating in this manner from getting any further rural subsidies. The big telcos are lining up to pursue the $42.5 billion in BEAD grants that will probably be awarded a year or so from now. AT&T recently announced that these big grants have enticed it to add a goal of 5 million new fiber passings in rural areas. Since those grants are administered by the states, AT&T might have a challenge getting any of the BEAD grants if State officials like Commissioner Presley have any input on the grant winners.

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Regulation - What is it Good For?

States Fight Back Against CAF II

Jon Brodkin of ArsTechnica wrote a recent article about the Mississippi Public Service Commission (PSC) notifying the FCC that AT&T had failed to meet its CAF II requirements in the state. AT&T had taken over $49 million per year for six years ending this December and was supposed to use that money to upgrade broadband to almost 144,000 residents in the state to at least 10/1 Mbps broadband.

The PSC notification informs that FCC that they don’t believe the upgrades have been done or that many of those homes were able to get faster broadband. AT&T has certified to the FCC that the CAF II work has been completed on schedule. AT&T has stonewalled the PSC on data requests to find out how many homes have successfully been able to access faster broadband.

The FCC is supposed to begin testing CAF II homes in 2021 and is supposed to fine the big telcos like AT&T if homes in the CAF II area aren’t getting the faster speeds. However, that testing program is badly flawed in that the telcos are going to have some say about which homes get tested, and they’ll certainly funnel the testing into places that meet the speed test.

AT&T elected to use the CAF II funding to upgrade speeds by offering fixed cellular service to customers that formerly had slow DSL service. From what I can see, AT&T has not widely advertised the new wireless product and it’s unlikely that they have added many people to the cellular technology in Mississippi or anywhere else. The company is refusing to tell the state how many homes are on the new product.

Unfortunately, what AT&T is doing in Mississippi is not unusual. AT&T took $2.57 billion nationwide for CAF II and it’s likely It hasn’t made many upgrades in other states as well. I’ve seen a lot of evidence that Frontier ($1.7 billion) and CenturyLink ($3.03 billion) have also failed to upgrade rural customers. Those two companies elected to mostly upgrade rural DSL to the faster speeds. We’ve recently had engineers in counties where Frontier and CenturyLink were supposed to make CAF II upgrades and we could find no evidence of upgraded DSL anywhere in the rural parts of these counties. We’ve also helped counties to solicit speed test from citizens and we’ve studied a number of counties where no rural DSL service tested even close to the 10/1 Mbps goal of CAF II.

To make matters even worse, the FCC recently decided to award these big telcos a seventh year of subsidy. That means AT&T will get $428 million in 2021, Frontier will get $283 million, and CenturyLink will get $506 million. The companies have no obligation for this addition funding and don’t have to use it to improve rural broadband.

While 10/1 Mbps broadband isn’t great, it’s a lot better than the DSL that was in these rural areas in 2015 when the CAF II payments began. The CAF II areas are remote and most customers who could even get DSL saw speeds under 1 or 2 Mbps download.

The impact of AT&T’s failure to make the upgrades became apparent this year when millions of students were sent home during the pandemic. A student might be able to squeak out a school connection on a 10/1 Mbps broadband connection, but students cannot function on the slower DSL that is still in place due to lack of upgrades. The actions of the FCC and the greed of the big telcos robbed millions of rural homes from getting better broadband.

The failure of CAF II rests entirely on the FCC. The last FCC under Chairman Wheeler awarded the funding to upgrade to 10/1 speeds, even though the definition of broadband at the time was 25/3 Mbps. The current FCC under Chairman Pai has turned a blind eye to the non-performance of the big telcos and absurdly is awarding them with an additional year of CAF II funding. The overall CAF II program handed out over $10 billion in funding for improving rural broadband that might as well have been flushed down the drain. The FCC could have awarded this money instead to broadband grants that could have brought better broadband in the CAF II rural areas.

I hope the Mississippi PSC does more than just write a letter. I’d like to see them ask for AT&T to refund the CAF II money to the state to use for broadband grants. And I’d love to see other states do the same and take back the billions of CAF II broadband funding that was wasted.

Categories
The Industry

AT&T Stops DSL Sales

USA Today reported last week that AT&T stopped selling new DSL to customers on October 1. This is an event that will transform the broadband landscape in a negative way across the country. There are a number of immediate consequences of this action by the company.

Probably the most dramatic impact will be that many rural customers will no longer have an option for landline broadband. While rural DSL broadband is slow, a DSL connection at speeds between 1 Mbps and 6 Mbps beats the alternatives – which is satellite broadband or cellular hotspots. Since there are a lot of rural homes where those two technologies don’t work, this means some homes will suddenly have no broadband option. Expect to soon see stories of folks who buy rural homes and then find they have no option to buy broadband.

In cities where AT&T DSL is the only alternative to a cable company broadband service, this move bestows total monopoly power to the cable company. Our firm does broadband surveys and we still find markets where AT&T DSL represents as much as a 30% market share. Many homes buy DSL because it costs less, and that option just got taken off the table in AT&T markets. And just like in rural markets, every city has customers who’s only choice is DSL. For various reasons, there are streets in most cities where the cable companies never constructed network. Any customer moving into one of these broadband deserts will find themselves with no broadband alternative.

According to an article just published by Ars Technica, only 28% of AT&T broadband customers have access to AT&T fiber – anybody living in the neighborhoods without fiber will no longer be able to buy broadband from AT&T. That has to equate to tens of millions of households that just lost a broadband option. The FCC proudly measure the number of homes with multiple broadband options, and I’ll be curious to see if they recognize this sea change in the market.

This change will stop the practice of customers who hop back and forth between DSL and cable company broadband to save money. I just talked to a customer the other day that has bounced between DSL and cable company broadband for almost twenty years. Both the cable company and the telco offer introductory prices each time for swapping, and this customer has gone back and forth between the ISPs regularly every few years. In neighborhoods where AT&T is the telco DSL provider, this might mean the end of introductory special prices from the cable company – they now have zero incentive to compete for customers.

I would have to think that Verizon will eye this announcement closely. They have openly said that they want to do away from copper network technology. This might be all of the push needed for Verizon to follow suit. This announcement might be citied in telco history as the beggining of the end of copper wires. AT&T says they won’t be tossing folks off DSL service, but will no longer connect new customers to the DSL technology. Over time this is going to mean fewer and fewer customers on copper, and I suspect AT&T already has a date in mind when they walk away from the technology completely.

Ironically, AT&T just recently announced that they were going to claim a seventh year of CAF II support in 2021 and will collect over $427 million in subsidies next year to supposedly support rural DSL. Hopefully, the FCC will view this announcement as grounds for stopping such payments. It would be absolutely insane to give millions to AT&T to support a technology that the company will no longer sell or install.

This timing of the announcement is also curious at a time when the pandemic is still raging. This means a home that needs to buy broadband to support students or adults working from home will no longer have that option if the only wired connection is AT&T DSL.

This announcement also creates an interesting dilemma for the FCC. Will the FCC pretend that the huge AT&T DSL footprint still exists? It’s impossible to pretend that areas have a broadband option when the only provider of landline service refused to connect new customers. I’m sure the FCC will act as if this announcement never happened – because recognizing it means now counting millions of homes as having no broadband option.

This day has been inevitably coming for decades. Regulators have long pretended that they could demand that the big telcos keep supporting an obsolete technology. AT&T and Verizon have been telling regulators for years that they are going to walk away from copper, and now one of the big telcos is doing so. It’s just a matter of time until AT&T begins decommissioning DSLAMs and starts tearing down copper wires for the salvage value – and I can’t see any way that regulators can stop them.

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Regulation - What is it Good For?

A Huge FCC Giveaway

Is there is a way to take the worst broadband subsidy program ever and make it worse? The FCC just answered that question by extending the CAF II program for a seventh year.

The CAF II program paid the large price-cap telcos to supposedly upgrade rural broadband to speeds of at least 10/1 Mbps. Over $11 billion was paid out over six years starting in 2015 and completing this year. This money went to the big telcos like AT&T, CenturyLink, Frontier, Windstream, Consolidated, and a few others. Buried in the original awards was a provision that the carriers could elect to extend payments for a seventh year – and of course, they are doing so.

Why do I call this subsidy plan a failure? Even in 2015, it was ludicrous to spend money to build 10/1 Mbps broadband. 2015 is the same year that the FCC increased the definition of broadband to 25/3 Mbps and so the FCC was investing in new Internet infrastructure in 2015 that didn’t qualify as broadband at the time of the award of funding. Worse, the FCC gave the big telcos six years to complete the construction of the upgraded 10/1 Mbps architecture – which is this year. The FCC is still paying money in 2020 to upgrade rural customers to speeds of 10/1 Mbps.

But that’s not the worst of it because it doesn’t look like a lot of the upgrades were ever done. Our company helps rural counties assess the condition of broadband, and it’s rare in many rural places that were covered by CAF II to find even a single customer getting broadband speeds of at least 10/1 Mbps. We’ve done speed tests in counties this year where the average download speeds are 4 to 5 Mbps, with a significant number of customers getting speeds under 1 Mbps. The big telcos have been cheerily reporting progress to the FCC on implementing CAF II, but in the real world, it’s hard to find any evidence that many upgrades have been made.

I have seen the DSL in rural county seats get faster, and I suppose this was done with CAF II money – even though the funding was supposed to be used for rural customers. When DSL is upgraded in a county seat, the only rural customers that see any benefit have to be within a mile or so from the town.

To improve rural DSL to 10/1 Mbps requires building a significant amount of rural fiber so that customers are within four or five miles of a fiber node equipped with DSL gear. We’ve driven whole counties looking for evidence of such upgrades and have rarely found the needed new fiber construction or electronics huts. There is no need to take my word for this – states like Georgia and Minnesota have created broadband maps that are showing no evidence for most of the CAF II upgrades.

And now the FCC is going to pay a seventh year of funding to these same telcos – only this time the companies don’t have to spend the seventh year funds to improve broadband. Instead this money is seen as ‘support’ to the telcos. This is a straight giveaway that means $503 million for CenturyLink, $427 million for AT&T, and $313 million for Frontier – straight to the bottom line. This is the most blatant handout of federal broadband funds I’ve ever seen – because these funds won’t improve broadband for any rural customer. This will just help AT&T make its dividend payments and help ease Frontier coming out of bankruptcy. 

The original plan in 20i5 included the provision for the seventh year of payout – but the FCC could have changed that rule at any time in the last six years. This is over a billion dollars being wasted  that could instead be added to the RDOF fund to build rural fiber or put into some other worthwhile broadband grant fund. The FCC would benefit rural communities more if they just walked around handing out this cash to rural folks during the pandemic.

This FCC has been pro-big carrier from the start – but adding a seventh year of CAF II is hard to see as anything other than federal waste being done openly. The companies getting this money didn’t meet the obligations of the original CAF II funding and are now perversely getting rewarded for their failure. This kind of waste makes me ill when I do the math and realize that this money could instead be used to build fiber for everybody living in the poorest 40 counties in the country. I guess it’s more important to ‘support’ AT&T instead of rural households with no broadband. 

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Regulation - What is it Good For?

The Rush to Complete CAF II

I’ve noticed that the big telcos are talking about efforts they are making this year to complete their obligations under the CAF II grant rewards that gave them over $9 billion to improve rural broadband to speeds of at least 10/1 Mbps. The telcos have had six years to make the upgrades and those upgrades must be finished by the end of this year.

It’s easy to understand why the telcos want to finish the required upgrades for which they’ve been paid. The FCC’s Universal Service statutes define the penalties for failure to comply with the mandates of CAF II in 47 CFR § 54.320 – Compliance and Recordkeeping for the High-cost Program.

The rules outline that the FCC can withhold USF payments to the telcos for missing interim deadlines. For example, CenturyLink reported to the FCC at the end of last year that it had not met all of the required upgrade goals that were to be completed by the end of 2019. The FCC should have responded to that notification by withholding some of the 2020 payments to CenturyLink until the company comes into compliance with its obligations. But as long as the telco finished the required upgrades by the end of 2020, it eventually will receive all of the CAF II funding.

But failure to meet the final milestone in 2020 obligations brings harsh penalties. If a telco doesn’t complete the CAF II construction by the end of this year, the FCC is obligated in these rules to recover 1.89 times the amount of subsidy provided to the telco to make the upgrades, plus 10% of the total support provided to a carrier over the term of the program.

The amount of CAF II awards vary by locality, but the average CAF II grants were for between $2,000 and $3,000 per household in the CAF II areas, meaning the penalties would be between $3,800 and $5,700 per household that didn’t see a CAF II upgrade plus 10% of the total support for a given area. That’s a substantial and permanent penalty and it’s no wonder that the telcos are pushing to complete CAF II.

Once a telco has certified that the CAF II upgrades are complete there are other penalties if the upgraded areas don’t deliver the speeds required by the CAF II program – in this case, speeds of at least 10/1 Mbps. Compliance with these rules is verified with FCC-mandated speed tests.

The testing rules are weighted heavily in the ISP’s favor. To keep full funding, a telco must achieve 80% of the expected upland and download speed 80% of the time. This means that the big telcos must only achieve a download speed of 8 Mbps for 80% of customers to meet the CAF standard. The 10/1 Mbps target was low enough, but the FCC testing rules make it a lot easier for ISPs to meet the CAF II obligations. There are financial penalties for ISPs that don’t meet the FCC tests. For example, ISPs that have between 85% and 100% of 80% threshold lose 5% of their FCC support. At the upper extreme, ISPs with less than 55% of the 80% threshold lose 25% of their support.

Consider what these two sets of rules mean for the big telcos. The big penalties come if a telco is honest and tells the FCC that they didn’t complete the CAF II build-out at the end of 2020. In that case, the telco would have to give back more than two times the subsidy it received for each household that doesn’t get upgraded.

However, if a big telcos says they met the buildout requirements, their potential penalty is reduced to 25% of the CAF II subsidy for areas where there were no upgrades. And that penalty assumes that the areas that weren’t upgraded are tested by the FCC. The FCC testing rules allow the telcos to provide inputs on where to test.

I’ve heard a lot of anecdotal evidence that that Frontier and a few other telcos didn’t make some of the needed CAF II upgrades. There are whole counties where recent wide-spread speed testing didn’t find any rural customers getting speeds faster than 5 Mbps download. The telcos still have until the end of this year to complete CAF II, so it’s premature to know that these areas won’t get CAF II upgrades. But if the rumors I’ve been hearing are true, the telcos can falsely declare to the FCC that they made the upgrades and then take their chances during the testing process that the full extent of their cheating won’t be detected.

There are huge parts of rural America that seemingly have been shortchanged by the CAF II program. The sad consequence of this is that these households would have been able to eke by during the COVID-19 crisis if they had been provided with 10/1 Mbps broadband. What I heard from all over the country is that households in the CAF II areas have seen no improvements in DSL over the six years of the CAF II program.

If the FCC really wants to do the right thing it would ask for local feedback at the end of the CAF II program at the end of this year. The FCC can map every household on Google Maps that should have gotten a CAF II upgrade, and there are local officials all over rural America who would love to verify if these upgrades brought anything close to 10/1 Mbps speeds. Instead, I expect the FCC to quietly sweep the whole CAF II topic under the rug, and we’ll likely never hear much about it after the end of this year.

Categories
The Industry

Frontier’s Lack of Fiber

The primary reason that Frontier cites for going into bankruptcy is the lack of fiber. They are finally acknowledging that customers are bailing on them due to the poor broadband speeds on their copper networks. This is being presented as if this is a sudden revelation – as if the company woke up one day and realized that it’s selling services that nobody wants to buy. I must admit this gave me a chuckle and there are some giant flaws with this argument.

Rural customers don’t hate DSL – they hate DSL that doesn’t work. If Frontier had implemented the CAF II upgrades as had been promised, then rural customers would all be using the 10/1 Mbps or faster rural DSL that would have been created as a result of those upgrades. Instead, customers have gotten disgusted by overpriced DSL that is so slow that they can’t stream video or connect to a school or work server. We’ve been doing speed tests all over the country and it’s rare to find rural DSL in many markets that delivers even 5 Mbps download – much of it is far slower than that, some barely faster than dial-up. If Frontier had provided 10/1 Mbps DSL to millions of homes, those households would gratefully be buying that broadband during the COVID-19 crisis.

Frontier blames its woes on lack of fiber with no mention of their reputation for unconscionably bad customer service. I’ve talked to customers who talk about routine network outages that lasts for many days. Customers complain about losing broadband and having to wait weeks to get it repaired – or worse, are told that the electronics needed to replace a bad DSL modem are out of stock. This is a company that has trimmed, then trimmed again its maintenance staff to the bone. Talk to any rural Frontier technician and they’ll tell you that they don’t have the time or resources available to address routine customer problems.

Frontier complains about lack of fiber, but as recently as 2015 they purchased another huge pile or dilapidated Verizon copper networks as part of a $10.5 billion acquisition. While that acquisition came with some FiOS fiber networks, the company also doubled down on buying non-functional copper networks. The speculation in the industry was that Frontier continued to buy lousy properties because it created opportunities for huge management bonuses – the company never had any plans to make the purchased copper networks any better.

And that’s the real issue with Frontier’s claim – they have no fiber because they’ve made almost no effort to migrate to fiber. The company burned all of its cash on trying to service the debt for overpriced acquisitions rather than rolling cash back into its networks.

It’s interesting to compare Frontier to the many smaller independent telephone companies. The FCC brags about places like the Dakotas that have a huge amount of rural fiber to homes. But that rural fiber didn’t happen all at once. It happened over decades. Most rural telcos went through two rounds of investment where they invested to improve rural DSL. In doing so they built fiber to go deeper into the rural areas, the first build brought fiber within maybe ten miles of homes, the second got fiber to within 3 miles of most homes. When the rural telcos decided to take fiber the rest of the way, it was reasonably achievable because they already had fiber deep into rural neighborhoods.

Frontier has done very little of that kind of incremental improvements over the years. They found it more enticing to keep borrowing to buy new rural properties rather than roll cash back into the existing networks. It doesn’t even look like they did all of that much new fiber as part of the CAF II upgrades. I’m sure Frontier would refute that statement and say they are fully compliant with CAF II, but if they had built fiber deep into the network then rural DSL would have gotten better – and for the most part, it hasn’t.

I can’t how the bankruptcy will benefit frontier’s customers. The company will likely get to walk away from a lot of the debt that was provided for the last few acquisitions – and it’s hard to feel bad for lenders who thought it was a good idea in 2015 to lend to buy copper networks. But bankruptcy won’t fix any of the fundamental problems with the Frontier networks. Customers are going to continue to bail on inferior and nonfunctional broadband products. The upcoming RDOF auction is going to give a lot of money to ISPs that are going to overbuild Frontier copper with something better (even though Frontier made a last-minute filing at the FCC to block grant funding by claiming they had magically upgraded 16,000 rural census blocks).

Is Frontier going to somehow start investing in rural fiber? My best guess is that they won’t even after bankruptcy. If they can raise any money for new capital spending they’ll likely try to salvage some of the county seats and other markets where there is a mass of customers. However, in many of those markets they’ve already lost the battle to the cable companies.

Frontier is right in that they are failing from lack of fiber. But that statement doesn’t tell the full story. They are failing because the company decided decades ago to not invest capital into their own networks – and now they are paying the price.

Categories
The Industry

Can LTE Fixed Wireless Solve the Rural Digital Divide?

I’ve been working in rural counties all over the US and have found that a lot of rural homes are using a fixed 4G LTE wireless product for home broadband. All three big cellular companies have a fixed LTE product for the home. The product typically involves installing a small dish outside of a home that receives broadband using 4G LTE broadband from a nearby cell tower.

The big cellular companies have bombarded the press for the last several years touting how 5G cellular might solve rural broadband gaps. The way the wireless companies price and market these products is a precursor for what they will likely do with 5G (assuming 5G even comes to rural places). I haven’t looked into the LTE products in a while and so I researched the LTE broadband products intended as home broadband. I knew these products were expensive, but I had forgotten how stingy these plans are with broadband.

Verizon. Verizon’s hotspot product has four available pricing tiers based upon the monthly data allowance. The 10 GB plan is $60, the 20 GB plan is $90, the 30 GB plan is $120, and the 40 GB plan is $150. The real cost killer is that Verizon bills additional gigabits for $10 each.

Verizon says that broadband speeds average from 5 – 12 Mbps download and 2 – 5 Mbps upload. I recently talked to a customer using this plan who told me that when a customer doesn’t agree to pay the overage charges that Verizon throttles speeds to a crawl once the monthly data limit has been reached.

T-Mobile. T-Mobile has six hotspot pricing plans based upon the monthly data usage. The 2 GB plan is $10. The 6 GB plan is $25, the 10 GB plan is $40, the 14 GB plan is $55, the 18 GB plan is $70, and the 22 GB plan is $85. Each plan offers a $5 discount for customers who authorize autopay. The killer with this plan is that speeds revert to 3G speeds when the cap has been met. The plans also include unlimited texting.

It’s worth noting that T-Mobile will offer a plan that provides 100 GB of monthly data to qualified students for the next 5 years as one of the promises made to merge with Sprint. I haven’t seen the definition of eligible households, but the company estimated 10 million homes would be eligible.

AT&T. AT&T has two plans. In areas where AT&T is the incumbent telephone provider and accepted CAF II funding, the company decided to provide 4G LTE fixed cellular broadband to satisfy their CAF II requirements. The company had accepted $2.56 billion from the FCC’s Universal Service fund with payments spread over six years. That funding covered 1,117,806 rural homes, providing AT&T with a subsidy of $2,296 per home.

That CAF II product is priced at $50 per month and comes with a 250 GB data cap. AT&T says that speeds are at least 10/1 Mbps (since that was the FCC requirement). The killer with this plan is that customers pay $10 for each additional 50 GB block of data, and payments aren’t capped until a customer spends $200 extra.

Outside of the CAF II areas, AT&T has three hotspot plans. That includes 3 GB of data for $25, 10 GB of data for $50, and 18 GB of data for $75. Extra data ranges from $10 for 1 GB with the $25-dollar plan to $10 for 2 extra GBs with the $72 plan.

Do These Products Solve the Rural Digital Divide? I think not – the core hotspot products define the digital divide. Rural customers who have no other options are paying for some of the most expensive broadband in the world. You have to look at distressed third world countries to see similarly high prices per gigabyte. Recall in looking at these prices that these products are for home broadband – not for cellphones.

  • Verizon’s plans range from $3.75 to $6.00 per gigabyte. Additional gigabytes are $10 each.
  • T-Mobile data prices range from $3.86 to $5 per gigabyte. After hitting the data cap, the company throttles customers rather than provide more expensive data.
  • AT&T hotspots are the most expensive and range from $4.16 to $8.22 per gigabyte. Extra gigabytes on AT&T range between $5 and $10 per gigabyte.
  • AT&T’s CAF II product is much more affordable. However, customers can still spend up to $250 per month. Additionally, AT&T charges $100 for installation, which is outrageous considering the company collected $2,296 from the FCC for each of the 1.1 million potential customers. The CAF II money had to have gone almost entirely to AT&T’s bottom line.

What is somewhat ironic is that the cellular companies don’t aggressively advertise the product in rural America, even at these incredibly high prices. I guess that the cellular carriers don’t want to sink any money into rural cell sites or pay for more backhaul, so they are reluctant to sell very much of these products in any one location.

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