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How Many Homes Can’t Get Broadband?

cheetah-993774The FCC periodically puts out some very high-level statistics that talk about the state of broadband in the US. They issued their annual broadband report in January and made the following high-level announcements:

  • 39% of rural households don’t have access to broadband that meets the FCC definition of 25 Mbps download and 3 Mbps upload.
  • 4% of urban households don’t have access to those speeds.
  • 41% of schools still do not have 100 Mbps download speeds.
  • Only 9% of schools have 1 Gbps broadband.

I looked deeper into how the FCC counts these various numbers to try to make some sense of them, and the following is what I discovered.

First, they followed the Census definition of urban and rural areas. The Census defines urban areas in one of two ways. One definition of an urban area is a defined geography with more than 50,000 people. It can also be a cluster of smaller towns in a fairly adjacent geographical area that has more than 2,500 people but less than 50,000. In the Census estimate for 2015 the urban areas include about 260 million people. Anything that is not urban is rural, which in 2015 is about 61.5 million people.

If a rural county has a county seat with more than 50,000 people, the county seat would counted as urban and the rest of the county would be rural. Otherwise the whole county is normally counted as rural. But in big urban areas, like the northeast corridor, many areas that you would consider as rural are included in the urban areas. So there is a significant amount of crossover at the edges of these two types of areas. For instance, for broadband purposes we know that somebody that lives 50 feet past where the cable company stops at a county seat might not be able to get broadband, but they might often still be counted as urban.

The raw data that backs up these statistics is still self-reported to the FCC by the ISPs annually on Form 477. On this form telcos and cable companies must report the speeds that they deliver to census blocks, which are census-defined areas of 500 to 900 homes. I looked through this mass of data and there are a huge number of census blocks that are reported at broadband speeds like 3 Mbps or 6 Mbps download. In most cases this is DSL, and our experience is that a whole lot of people in rural DSL areas can’t really get those speeds. That is the ‘advertised’ speed or the theoretical speed. This has always been an issue and I’ve always contended that there are far more homes that can’t get broadband than are reported by Form 477.

Using these FCC numbers means that there are about 24 million people (or 10 million homes) in the rural areas that can’t get the FCC’s defined broadband speeds. While the 4% of urban areas that can’t get fast broadband sounds small, it still equates to 10.4 million people or 4.3 million homes. So what the FCC numbers are really saying is that there are 34 million people and 14.7 million homes in the country that can’t get an FCC-define broadband connection.

I am positive that this number is conservatively low. Census blocks are not assigned by nice political boundaries and there are huge numbers of census blocks that cover both towns and country areas. There has to be many homes that are in census blocks where some of the people can get the speeds shown on Form 477 while others can’t. My guess is that there must be additional millions of people that supposedly can get broadband but that really can’t. Even in towns anybody that lives right past where the cable TV network stops is not going to get much broadband.

The FCC says that they are solving part of the rural broadband problem with CAF II funding which is supposed to bring faster connections to 3.6 million of these homes. But those funds only require upgrades to technology that will achieve 10 Mbps download and 1 Mbps upload. That program is not going to remove any homes from the list of those that can’t get broadband.

I really hate to see public announcements that talk in nationwide percentages instead of numbers. This always makes it feel like they are trying to pull something over on us. I had to dig really hard to go one level behind the one-page press release – and that doesn’t really help the public to understand the situation. Much more useful would have been detailed tables by geographic areas that let people see the state of broadband in their area. I suspect they don’t do that because then many of the problems with carrier self-reporting would be more obvious.

Technology The Industry

Are We Really Funding More DSL?

Recently while speaking at the National Association of Regulatory Utility Commissioners (NARUC), AT&T CEO Randall Stephenson told the attendees that AT&T’s DSL technology is obsolete. This is a rare admission of the truth from AT&T, which has been less than forthcoming over the years about its broadband business.

And it’s a pretty interesting quote from a company that last year accepted $427 million in CAF II funding from the FCC to expand broadband in rural markets. That money is supposedly going to be used to upgrade rural customers to be able to receive at least 10 Mbps download and 1 Mbps upload speeds. CenturyLink and Frontier plan to spend their federal assistance money by expanding DSL. I think it’s widely assumed that AT&T will also use the money for DS. But we can’t be certain that they aren’t planning to instead use that money to bring cellular wireless to rural homes, against the intentions of the FCC.

To be fair to Stephenson, his response was answering a question about how regulators should look at new technology cycles. Stephenson pointed out that technology cycles have shortened over the years. When DSL was first introduced it was expected to be good for about 10 – 15 years, but today the cycles for new technology have shortened to 5 years – with his example being the transition between 3G and 4G wireless.

Stephenson is right about the speed at which broadband technologies are improving. Since the introduction of DSL we have seen cable modems go through several generations of improvements and in 2016 we are seeing the first widespread roll-out of DOCSIS 3.1 and gigabit speeds from cable companies. And in that same time frame we have seen the development and the maturation of fiber technologies for serving homes. From a performance perspective DSL has been left in the dust.

AT&T certainly still has a lot of DSL in service. But it’s hard to decipher AT&T’s broadband statistics because they lump all broadband customers together. This has gotten more confusing since they picked up DirecTV, which sells satellite broadband. AT&T has been further making a distinction between traditional DSL customers and U-verse customers, most of which are served by bonding two pairs of copper together and using two DSL circuits. But supposedly within the U-verse numbers are also customers on fiber, which many analysts suspect are MDUs or small greenfield fiber trials that AT&T has done over the years.

In the fourth quarter of 2015 AT&T announced a net gain of 192,000 IP broadband customers, which is a mix of the three different types of broadband customers. If AT&T is like Verizon and CenturyLink they have been losing traditional DSL customers at a torrid pace, so it’s hard to know what to make of that number. Are they finally adding some FTTP customers?

But back to DSL. Stephenson is right. At best, a DSL service on a single copper line can deliver perhaps 20 Mbps of data – but conditions are rarely ideal and in the real world DSL is generally a lot slower than that. But even if people could get 20 Mbps from new DSL it’s obsolete because that is no longer considered as broadband.

It’s a shame that the FCC is going to invest billions in DSL at a time when the large telcos were never going to make those investments on their own. The CAF II funds will channel billions of dollars to the DSL vendors for one last hurrah before the technology hits the dust heap. Without the CAF II money one can imagine the DSL equipment market fading away.

While CAF II is a huge gift to the companies that sell DSL equipment – it’s going to be a long-term curse to people that will be upgraded with CAF II funding. They are going to get upgraded to DSL in a fiber world and the telcos are going to check these areas off as upgraded and needing no more investment. A lot of the first DSL built in the 90s is still working in the network, and sadly we are probably going to find a lot of CAF II DSL still working in rural America twenty years from now.

Regulation - What is it Good For?

What Happens to Unused CAF II Funds?

I look around rural America and I see fiber projects being proposed or built in a lot of places by small companies. Some of these are new initiatives like the new RS Fiber Cooperative that is underway in Sibley and Renville counties in Minnesota. And a lot of these new projects are being built by rural telcos and telephone cooperatives into areas adjacent to where they have always served.

While these small companies are building fiber the FCC is giving nearly $9 billion to the largest telephone companies to expand rural broadband. This was done under a program called CAF II that is part of the Universal Service Fund. The largest recipients of the funding are CenturyLink, Frontier and AT&T.

The CAF II funding has embarrassingly modest goals and only requires that the money be used to bring rural broadband speeds up to 10 Mbps download and 1 Mbps upload. The big telcos have a very relaxed six years to get this done. The telcos are mostly going to accomplish this by extending fiber from rural towns, into the country to support rural DSL.

I’m sure since most of my readers are knowledgeable about broadband that they realize how pathetically slow the 10 Mbps goal is. Already today 10 Mbps is not really broadband, even by the FCC’s own definition. A household that gets upgraded to 10 Mbps is probably going to be happy to get off dial-up, but they will soon realize that they are still far worse off than most of the rest of the country.

And while 10 Mbps is slow at today’s demand it’s been clear for decades that household demand for broadband has been doubling about every three years, back to the earliest days of the slowest dial-up. The folks at the tail-end of the six-year upgrades are going to be two more doublings of demand behind, meaning that in six years that 10 Mbps will feel basically four times worse than it does today.

In looking around at rural fiber projects I see fiber being built in areas where the telcos are going to get the CAF II subsidies. I wonder what will happen to the CAF II funding being used for those areas? Will the large telcos build DSL anyway even though nobody is going to buy it? Or will they just pocket the federal money and do nothing in those areas?

I don’t see anything in the CAF II rules that makes the large telcos give back any of the money, and so I suppose they will just keep it. This whole program is one of the worst uses of public funding I have ever seen. It’s easy to imagine the hundreds of rural fiber projects this money could have seeded. But instead the big telcos will be building DSL and will likely be loading up the claimed costs of the upgrades so they can get by with the least amount of actual upgrades possible.

Since the telcos already own wires in the places that will get upgraded they will be able to build fiber by overlashing. That is a process of tying fiber to existing copper lines and was the primary technique used by Verizon to build their FiOS fiber network. Overlashing is the lowest cost method of fiber construction and shouldn’t cost more than $15,000 to $20,000 per mile. If the whole $9 billion was used to build fiber that would mean building between 450,000 and 600,000 road miles of fiber. Wikipedia says that the US has less than 3 million miles of roads in the US including city streets, so this money could bring fiber to a significant percentage of rural areas. Of course, probably half of the money needs to be used for electronics, but that still means that the telcos ought to be using the CAF II money to build more than 200,000 miles of rural fiber.

If this money had instead been used to seed fiber innovators it could have brought fiber to millions of rural customers. If used as matching grants the $9 billion could have been leveraged to build $40 billion or $50 billion of rural fiber. Instead, every place that gets upgraded to the slow DSL is still going to need fiber and, for all practical purposes will be no closer to a true broadband solution than they are today.

Regulation - What is it Good For?

Getting Access to Federally Funded Fiber

When billions of the stimulus dollars were spent for telecom, a lot of the money went to projects that built middle-mile fiber. This is fiber that basically runs between towns and from county to county through rural areas. The stimulus money required the builder of these fiber networks to connect the handful of nearby anchor institution – schools, libraries and city halls – but the grant recipients weren’t required to connect anybody else.

One of the requirement of those grants was that any middle-mile fiber built with assistance from federal dollars must be made available at low costs to anybody that wants to use that fiber to serve the last mile. And that is a great policy because the ultimate goal for federal broadband dollars ought to be to solve the rural digital divide where rural homes have no access to broadband.

But before you can serve homes in rural areas there has to be a backbone fiber – a connection from a rural area to affordably connect to the Internet. There are still huge swaths of the country where getting that connection is prohibitively expensive, if it is available at all.

The FCC’s hope was that building these middle-mile fibers would lure other service providers to build the last mile. There has not been nearly as much such construction as was hoped for, but there is some. As an example, a fiber project in Cook County, Minnesota is connected to Minneapolis through a federally-funded middle mile fiber. Before that fiber was built there didn’t seem to be an affordable way to connect that remote county to the Internet. Around the country there are numerous communities that have taken advantage of this opportunity for cheap transport.

And now the FCC has decided to spend even more billions of federal money on fiber with the CAF II funds. This money is being given to ten large telcos, most noticeably CenturyLink, Frontier and AT&T. These companies will be receiving $9 billion to help pay for expanding broadband to rural areas that don’t have it today.

In my opinion this program is mostly a huge boondoogle in that the telcos only have to build broadband connections that reach 10 Mbps download speeds. In today’s world that is not broadband, and it certainly isn’t going to feel like broadband by the end of the six year time frame the companies have to make these expansions.

The only way these telcos are going to be able to affordably meet the CAF II goals is by expanding DSL into the rural areas. And to expand DSL they are going to have to build rural fiber routes to support the new DSL. Even if half of this money goes toward DSL electronics, that leaves a lot of federal dollars being spent for rural fiber. Even without considering the telco matching funds, this much money has to be funding more than 200,000 miles of new fiber, almost entirely in rural areas.

It perplexes me why the FCC didn’t impose the same requirements on this new federally-funded fiber as they did the middle-mile fiber built by stimulus funds. Why isn’t this new CAF II fiber being made available at a reasonable price to anybody that can then use it to bring real broadband to the rural areas? This might be the only way to salvage something with long-term value out of this huge waste of federal dollars.

Certainly the large telcos can’t claim any special exemption from such a rule because the many smaller telcos that built middle mile fiber with stimulus funding accepted the last-mile rules as a condition for taking that funding. The large telcos are going to use this free money to do a virtually worthless upgrade to DSL, and people in these rural areas deserve a chance to use these federally-funded facilities to get rural fiber.

This would require nothing more than a policy decision by the FCC. All federally-funded fiber ought to be made available to solve rural broadband. That was true for the stimulus funds. It ought to be made so for fiber built along Interstate highways. And it certainly should apply to the large telcos that are seeing a bump in their stock prices right now due to the ‘revenue’ they are receiving from the CAF II funds.

Regulation - What is it Good For? The Industry

Big Government and Broadband

One of the platforms of Hillary Clinton’s campaign is to create a 5-year $275 billion infrastructure plan that would, among other things, foster faster broadband for rural America. The plan would also pay for crumbling roads and bridges and other infrastructure. I’ve seen estimates that as a country we have a several trillion dollar infrastructure deficit, and so this plan would be the proverbial drop in the bucket towards bringing our infrastructure back to where it needs to be. But it’s a start and is better than doing nothing.

This plan leads me to speculate on the role that big government might be able to play in solving our broadband needs. What might the US government do with billions of dollars aimed at improving broadband?

We’ve seen two previous big federal broadband programs and the results have not been very good. First was the billions that were part of the broadband stimulus package. This money was used mostly to create middle mile fiber – that is fiber that stretches between communities. Some of that fiber has been used to get better broadband to the last mile, but the vast majority of that investment has not benefitted a whole lot of people other than the cellular companies who use that fiber to get cheaper access to cell towers.

The stimulus money also put a lot of emphasis on getting fiber to ‘anchor institutions’ which it defined as schools, libraries, city halls, and other government institutions. So we ended up with rural fiber networks that serve only a handful of these anchor institutions, but not to the neighborhoods surrounding these locations. As I’ve written many times, bringing fiber only to anchor institutions is actually a disincentive to get fiber everywhere because it removes these large bandwidth customers from being potential customers of locally built fiber networks.

To give the federal government a little credit, the stimulus money popped onto the scene with no notice and there was no plan in place or even people in place to review the various grant proposals. There were some last mile networks financed from the stimulus money and I’m sure those communities are thrilled to have been the lucky few that benefitted from the many billions in spending.

More recently we have seen the FCC throw billions of dollars at the large telcos with the CAF II funding. They have given Frontier, AT&T, and CenturyLink billions of dollars to improve rural DSL broadband to 10 Mbps. And gave them six years to get it done. This is such a bad idea on so many levels that you’ll have to go and read my other rants on this. But this is mostly the equivalent of pouring money onto the ground and it going to bring no real broadband to anybody. This is a classic case of a government boondoggle that spends a lot of money and accomplishes almost nothing useful.

So what might the feds do if they were to give out more billions? One thing they will probably do is to overspend on broadband like was done with the stimulus money. Those grants included rules that inflated the cost of building fiber. The companies taking the money had to do expensive environmental and historical studies, something that makes no sense for fiber that is placed into pre-existing road rights-of-ways. And they required the contractors building the networks to use prevailing wages, which mostly meant paying large city wages for projects that could have normally been done in rural areas for a lot less. Altogether these extra requirements probably added 15% – 20% to the cost of the projects.

What is scary is that in order to shovel the money out the door quickly the federal government might either give the money to the incumbents as corporate welfare or else end up backing projects like more middle mile that largely build fiber to nowhere.

The most cost effective way to use federal money would be to give it to local groups in some sort of matching arrangement. This would stretch the federal money the farthest and would also enable communities to find the best local broadband solution. Some communities might tackle this directly using bond money for the match, while many others would seek out public/private partnerships with local carriers. And the small telcos and coops around the country could use this money to extend their fiber networks – many of them have already showed us how to bring fiber to remote places.

I have no idea if there will even be another big pile of federal money aimed at broadband – it’s a long way from a campaign platform to reality. But if this does happen I hope that this time they have a better plan that would use the money to build last mile fiber to rural communities – the only permanent solution to closing the rural broadband gap. I hope they take the time to listen to the industry and this time that they do it right – or at least better.

Regulation - What is it Good For?

Big Telcos Take CAF II Funding

The biggest telcos have claimed most of the available CAF II funding to extend broadband to rural areas that the FCC defines as unserved or underserved.

The money that has been accepted is as follows:

‘                                            Customers                  CAF II Funds

AT&T                                      1.1 M                           $427M

Cincinnati Bell                      7,084                            $2.2M

CenturyLink                           1.2M                           $506M

Consolidated Tel                 24,698                            $14M

Fairpoint                                105k                             $37M

Frontier                                  660k                           $283M

Hawaiian Tel                        11,081                           $4.4M

Micronesian Tel                  11,143                            $2.6M

Verizon                                   115k                             $49M

Windstream                           405k                           $175M

Total                                        3.6M                            $1.5B

This money will be paid out evenly over 6 years from the Connect America Fund which is part of the larger Universal Service Fund. This is the second round of such funding with smaller amounts given out a year ago.

While Verizon took $49 million they didn’t claim an additional $550 million of CAF funds that could have been used to upgrade 270,000 rural customers. This just further confirms that Verizon is not interested in extending the life of their rural copper by extending DSL. That has been clear for a decade as they have been selling off rural properties, mostly to Frontier.

The CAF II upgrades require the large telcos to upgrade broadband to a minimum of 10 Mbps download and 1 mbps upload. That is far below the current definition of broadband which is 25 Mbps download and 3 Mbps upload. This was obviously a huge political compromise because this allows the telcos to upgrade DSL in these areas rather than provide faster options.

For any areas that were not claimed by the large carriers, the FCC will hold a reverse auction sometime next spring. A reverse auction means that whoever asks for the least amount of money for a given service area will get the funding.

It’s a real shame that the FCC let the big telcos grab the money without challenge. There are many communities that were hoping to get this money to help pay to build fiber to these same customers. But instead, by giving the money for slow DSL, the FCC has probably precluded at least some of these communities from getting the funding to build fiber. This should have been an open auction from the beginning with anybody who wants the money able to bid on it. It’s obvious that the large telcos have very good lobbyists.

I am sure that households that have no broadband today are going to be happy to get this DSL. But it’s not necessarily coming quickly. The telcos have 2 years to spend 40% of the funding, 4 years to spend 60% of the funding and 6 years to spend it all. That means at least some of the covered areas aren’t going to see the upgrade for 6 years.

And in my opinion this is nothing more than a gigantic temporary band-aid. Where 10 Mbps is great compared to dial-up or cellular data in the rural areas, this is far slower than what urban areas can get, particularly when we look forward 6 years. These upgrades will be obsolete before they are even installed and households that get this speed bump still will not be able to use broadband in the same way as urban households.

It would be really ironic if at the end of the 6 years the FCC then allocated more Universal Service Funds to finally bring fiber to these same places. Sadly, at least some of these folks could have gotten fiber now if this had been done fairly.

Regulation - What is it Good For? Technology

Why Change the Definition of Broadband?

The FCC is going to vote at its January 29th meeting to possibly increase the definition of broadband from 4 Mbps download and 1 Mbps upload to as much as 25 Mbps download and 3 Mbps upload. The higher speeds are what Chairman Tom Wheeler favors and was contained in the first draft of the Annual Broadband Progress report that goes to Congress each year.

This proposal has me scratching my head because the same FCC just announced a few weeks ago that the large price-cap telcos are going to qualify for the $9 billion in new funding from the Connect America Fund by deploying technology capable of providing speeds of 10 Mbps download and 1 Mbps upload.

I am having trouble getting my head around that disconnect. The FCC is willing to spend a huge amount of money, spread over as many as seven years on the giant telcos that are promising to deliver 10/1 Mbps service to rural areas. If at the same time the FCC changes the definition of broadband, then those upgraded connections are not even going to be considered as broadband.

To make this worse, it’s almost certain that sometime during the next seven years the definition of broadband will be increased again, making any technology that delivers only 10 Mbps seem really slow and outdated by the end of seven years.

I understand the FCC’s dilemma a little. The big telcos are the ones that serve huge portions of rural America and so the FCC is thinking that luring them into serving at least 10/1 broadband is better than nothing. Unfortunately, that’s all it – just better than nothing.

It seems to me before we hand the large telcos that money that we ought to first see if somebody else is willing to take the same money to build fiber to those same rural areas. $9 billion is a lot of money and it would go a long way towards seeding a lot of rural fiber projects. But the current Connect America Fund rules say that if the big telcos accept the CAF money that nobody else has a shot at it.

It’s not like there aren’t companies willing to build faster facilities in rural America. There are plenty of independent telephone companies, municipalities and electric cooperatives that would think about building rural fiber if they got help with the funding. It’s my understanding that there were hundreds of applicants for the FCC’s recent experimental grants who offered to build rural fiber networks. Wouldn’t it make a lot more sense to give these companies a chance to compete with the big telcos for the $9 billion?

Let’s face it. If the big telcos upgrade rural America to 10 Mbps, this is their last hurrah. They won’t ever being doing additional upgrades in those areas. And so the FCC is dooming these areas to those speeds for decades to come.

The FCC’s own numbers say that the average household today already needs at least 10 Mbps. And we know that bandwidth utilization in households is doubling every three years. So if a household needs 10 Mbps today, by the end of the seven years of CAF II funding it is going to need nearly 50 Mbps.

Meanwhile, seven years from now there will be a lot of urban and suburban households that can buy 1 Gbps. And the ones who can’t get that will probably be able to buy 100 Mbps or more.

These rural areas are already way behind the cities. Some of the areas that will be built by CAF have either no broadband or else slow connections at maybe 1 or 2 Mbps. So upgrading them to 10 Mbps is going to feel like a big improvement to those households. But almost by the time the ink dries on those projects those areas are going to be further behind the urban areas than they are today.

I don’t know why we are having a federal program that is supporting rural DSL. DSL isn’t inherently bad and it’s reported that there are places in urban areas where AT&T is now goosing several hundred Mbps from DSL. But that is not what is going to happen over the older wires and the longer distances in rural America. The FCC wants to pay the big telcos to upgrade the electronics on wires that are at least fifty years old and that degrade a little more every year.

I’m actually not against using CAF funding to upgrade the DSL in areas where nobody else is willing to do something faster. But I can’t understand why we aren’t first having an auctions for serving these areas with speed as the determining factor on who gets the federal funding. Under that kind of auction most of the money would probably still go to the telcos, but the money might also bring fiber to a million or more rural households – and that would be real progress. Rural America is doomed to remain behind unless they get fiber. And $9 billion would be a great start towards building that fiber.

I guess the main question this raises for me is why the FCC is changing the definition of broadband. If 25 Mbps is to mean anything then I would think that the FCC would not fund anything that isn’t considered broadband. Otherwise, it’s just a goal that has little meaning. It’s something the big telcos can wink at while they get paid for deploying something that is not even broadband.

Regulation - What is it Good For?

You Want a Piece of the $9 Billion CAF Fund?

I have been asked by several clients if they will be eligible to go after the new CAF II universal service funding that will be disbursed by the Connect America Fund. Over the next 5 – 7 years the fund will be paying out over $9 billion in support of rural broadband. And the answer to them all is – maybe. It’s somewhat complicated and also involves waiting a while to see how certain events play out.

The first issue to consider is who the incumbent telephone area is in the area you might want to compete. Rate of return carriers, meaning all of the small independent telephone companies, are going to continue to receive CAF funding, although the amounts they get are going to be severely phased down over the next five years. But competitors cannot go after the CAF funds in areas served by these rate of return carriers.

So the only places where CAF funding might be available is in areas served by the price cap carriers. That is AT&T, Verizon, CenturyLink, Cincinnati Bell, Consolidated Communications, Fairpoint, Frontier, Windstream and the phone companies in the US territories like Puerto Rico. So if you want to compete in one of these areas there is a chance of getting the funding.

But first, each of these large carriers gets a chance to say that they will take the CAF funding. If they do, then they have to upgrade their rural areas to have broadband that delivers at least 10 Mbps download and 1 Mbps upload to everyone in the supported areas. They have to meet milestones of completing percentages of the construction each year or lose the funding. They are also going to have to do speed tests to verify the upgrades.

The large carriers can take funding for a whole state or just for certain census blocks within the state. The amount of CAF funding that is available by census block is summarized on a CAF map published by the FCC. This shows each area that is eligible for CAF and the amount of money that will be available for that block. These amounts were determined by the use of a very complicated and controversial cost model that purported to calculate the cost of providing service in every part of the country. It considers things like population density, geography and regional labor costs.

So the large incumbents are considering which areas of their service territory they are willing to upgrade through the help of the money available through the CAF models. These subsidies are not intended to pay for the entire cost of upgrading, but rather to be enough to entice the big carriers to make the needed investments.

So if you are interested in the funds, you will need to wait a few months until the big carriers announce their intentions. They will get all of the funding listed on the map for any area they decide to upgrade.

The CAF funding for areas where the price cap carriers elect to not upgrade will then be available to other companies. As you would expect the process to get those funds is complicated. You must be willing to meet or beat the 10/1 data speeds. In addition to data you must provide voice service. You must be willing to serve every customer in a census block where you are getting the CAF funding, not just the ones that are easy to reach. And you must become an Eligible Telecommunications Carrier (ETC) and for areas where you get CAF you become the carrier of last resort.

Competitors will win the ability to do this through what is being called a reverse auction. If more than one carrier files for a given census block, then the one willing to take the least amount of funding will be awarded the CAF funding. But it’s not an auction where you repeatedly bid against each other. Instead you submit a bid once and the low one wins.

Like any federal money this money then comes with a lot of strings. First, you don’t get the money in a lump sum up front to help pay for the construction. Instead you will collect it spread over the five years. Second, like any federal money there will be a mountain of paperwork both before and after taking the money and your project is going to get audited multiple times. There also might be requirements for such things as doing environmental impact studies or complying with prevailing wage laws. These details have not yet been announced.

Going after CAF funds is not going to be an easy choice for most companies. When you look at rural census blocks they generally include a decent percentage of residences that are remote and hard to reach. By taking the funding you will be agreeing to become the carrier of last resort for all of the farms and rural homes in a given census block. That alone is a scary obligation, so before you go after the funds you ought to determine exactly what your state expects these days out of a carrier of last resort. Do you have to build to anybody who builds a new home in your areas regardless of the cost, or are there limits on who you must serve?

Regulation - What is it Good For?

Who Will Go after the CAF II Funds?

Last week the FCC announced the broadband guidelines that will be used to fund the Connect America Fund (CAF) Phase II filings that will be awarded in 2015. The FCC has set aside a little over $9 billion dollars of new CAF funding to be paid out of the next five to seven years. That’s five years for smaller recipients and up to seven years for some of the large telcos.

The new broadband goal is that any landline broadband connection built with these funds must be able to deliver at least 10 Mbps download and 1 Mbps upload. This increases the speed from the old threshold from 4 Mbps download and 1 Mbps upload. This is a really low threshold compared to the recent experimental grant program where the FCC only funded projects that delivered at least 25 Mbps download in unserved areas and 100 Mbps in underserved areas.

But setting the speed goal at only 10 Mbps download will enable rural telcos and cable companies to go after the funding if they are willing to use the funds to help to pay for extending their networks.

The telcos can use DSL to satisfy the CAF requirements, but in order to bring that DSL to rural areas they are going to have to expand fiber in their networks significantly. Current single-pair DSL technologies can deliver 10 Mbps to only about 7,000 feet of copper. That is not as the crow flies, but rather as the copper is wired. That provides  little more than a one mile circle around any given DSL distribution point (called a DSLAM).

Rural cable companies that already offer speeds of at least 10 Mbps only need to string more coaxial cable, or if they are going to new neighborhood may need additional fiber as well. However, some rural cable companies still use the first generation of DOCSIS equipment and they might need a significant upgrade of their network plus a replacement of cable modems in order to meet the new speed requirement.

Not unexpectedly, the large telcos are not happy with the increase from 4 Mbps to 10 Mbps. Many of them still deploy older  generation DSL equipment with maximum speeds between 1 Mbps to 6 Mbps. But to meet the CAF requirements they can use newer DSL for the new customers and don’t have to necessarily upgrade the older ones. It would be a bit ironic if the farms around rural towns end up with faster DSL than is available in the nearby towns.

We already know that AT&T and Verizon are trying hard to ditch their rural copper. Verizon already sold off most of their rural properties and wants to walk away from what they have left. AT&T has said that they want to walk away from “millions of lines of copper” by 2018 if the FCC will let them. Both companies want to replace landlines with wireless service, which costs more for a household and has severe data caps. So it is unlikely that these two companies are going to be seeking much CAF funding.

But there are a number of other large telcos who can’t walk away from copper because that is basically all they own. Companies like CenturyLink, Windstream and Frontier will be operating copper networks for many years to come. CenturyLink and Windstream are both expected to be major players in this second round of CAF funding.

Both Windstream and CenturyLink have complained about the new 10/1 Mbps requirement. I think this is because it is going to force them to do real upgrades to get the funding. In order to deliver that much bandwidth to rural areas they will have to move DSLAMs much further out into the field, and that is going to mean building fiber to connect to the DSLAM cabinets. And of course, typically the further away you get from a town, the fewer customers are on any given route to help pay for these new investments, especially the parts that the CAF isn’t going to fund.

One of the most interesting aspects of the new CAF fund is that that the subsidy can go to anybody who can bring the bandwidth. And so these large carriers must compete for the funds against players like electric cooperatives and wireless ISPs (WISPS). The funds are being awarded by a process called a reverse auction, because the company that asks for the least amount of support per customer in a given area will get the CAF funding. The only major requirement is that a CAF winner has to be able to deliver the required data speeds plus voice over the whole area to get the funding. They can’t just pick off pockets of customers like they might with a normal overbuild business plan.

The FCC is hoping that the CAF funding is going to bring broadband to at least several million more homes. But because of the reverse auction it’s really hard to predict how effective the funding will be. Further, if the bigger companies figure out that it’s not worth taking the funding, then much of the funding might go unclaimed. The old High Cost Fund was based upon providing service to rural places that had high costs by definition. If you built a network in one of the designated high cost places you got the subsidy to help keep it operating. But the reverse auction adds a lot of uncertainty to the process. It’s certainly possible that the large telcos might decide that the whole process is too risky to worry with and could send the FCC back to the drawing board.