The Regulatory Struggle to Maintain Copper Networks

The California Public Utilities Commission has been investigating the quality of service performance on the telco networks operated by AT&T and Frontier. The agency hired the consulting firm Economics and Technology, Inc. to investigate numerous consumer complaints made against the two telcos. Thanks go to Steve Blum for following this issue in his blog.

Anybody who still has service on the two carriers will not be surprised by the findings. The full study findings have not yet been released by the CPUC, but the portions that have been made public are mostly what would be expected.

For example, the report shows a correlation between household incomes in neighborhoods and the quality of service. As an example, the average household incomes are higher in neighborhoods where AT&T has replaced copper with fiber. More striking is a correlation between service calls and household income. The annual frequency of repair calls is double for neighborhoods where the average household income is $42,000 per year or less compared to neighborhoods with household incomes of $88,000 or more.

Part of that difference is likely because more high-income neighborhoods have fiber, which has fewer problems and generally requires less maintenance. But there are also hints in the report that this might be due to economic redlining where higher-income neighborhoods get a higher priority from AT&T.

This is not the first time that AT&T has been accused of redlining. I wrote a blog a few years ago about a detailed study made in Dallas, Texas that showed a direct correlation between the technology being delivered and household incomes. That study followed up on a similar report from Cleveland, Ohio, and the same things could likely be said for the older telco networks in almost every big city.

The big telcos are in a rough spot. The older copper networks have largely outlived their economic lives and are full of problems. Over the years copper pairs of wire in the outdoor cables have gone bad and the remaining number of working copper pairs decreases each year. The electronics used to deliver older versions of DSL are long out of production by the telco vendors.

I’m not defending the big telcos, because the telcos caused a lot of their own problems. The telcos have deemphasized copper maintenance for decades. The copper networks would be in bad shape today even had they been maintained perfectly. But purposefully neglected maintenance has hastened the deterioration of copper networks. Additionally, the big telcos have also been laying off copper-based technicians over the last decade and the folks who knew how to best diagnose problems on copper networks are long gone from the companies. Consumers have painfully learned that the most important factor in getting a repair made for DSL or copper is the knowledge of the technician that shows up to investigate an issue.

The California Commission is likely at some point to threaten the big telcos with penalties or sanctions, as been done in the past and also by regulators in other states. But the regulators have little power to effect improvements in the situation. Regulators can’t force the telcos to upgrade to fiber. And no amount of documentation and complaining is going to make the obsolete copper networks function any better. AT&T just announced that on October 1 that it is not longer going to add new customers to the DSL network – that’s likely to really rile the California Commission.

I’m not sure exactly how it will happen, but the day is going to come, likely during the coming decade when telcos will just throw up their hands and declare they are walking away from copper, with zero pretenses that they are going to replace it with something else.  Regulators will rant and rave, but I can’t see any ways that they can stop the inevitable – copper networks at some point won’t work well enough to be worth pretending otherwise.

Getting Access to Poles

PoleGoogle Fiber is having problems getting onto poles in many parts of the Bay Area and the issues they are having make for a good primer on the very confusing rules for regulating different kinds of entities.

Google Fiber has only publicly announced that they are bringing service to parts of San Francisco. But they have also been talking to Palo Alto, Santa Clara, San Jose, Mountain View and Sunnyvale. Google has no significant pole issues in Palo Alto where the poles are owned by the City, nor in Santa Clara where the poles are mostly owned by the City and a few by AT&T.

The problems come in the other cities. In California a lot of poles are owned by what is called the Northern California Joint Pole Association which is owned by Comcast, Time Warner and AT&T. That group is disputing Google’s right to get on their poles.

The issue is purely a regulatory one. Google claims they are a cable TV company. The kind of company you are matters when it comes to poles. Many years ago the FCC and the industry worked out very specific rules for attachments to poles. Poles are divided into specific zones where various kinds of companies can place cables. The telephone incumbent has the lowest space. At the top is the power company, and historically the cable company fit between telco and power lines. Anybody else who gets on a pole has to fit somewhere in the middle, and in different parts of the country this is sometimes between the cable company and the power company and sometimes between the telco and the cable company.

The first problem Google faces is that by declaring themselves as a cable company, the pole rules only assume that there is one such company. So they can’t claim the ability to get into the cable space, which in all of these cities is already taken by an incumbent cable provider.

Google has always said that they don’t want to register as a CLEC, or competitive telephone company. And until the company announced a trial for voice service a few weeks ago they didn’t offer voice anywhere. But from a regulatory perspective, if Google was a CLEC they would have the right under law to connect to poles, which was guaranteed in the Telecommunications Act of 1996. But I don’t believe there is any similar law that would provide a second cable company the same right, and that has to be the basis for the pole owners to deny access to Google.

Of course, the companies in the association have a very vested interest in delaying Google Fiber from getting into their markets, so it’s only natural they would fight this. It’s actually somewhat rare for cable companies to own any substantial number of poles, but in this consortium two of the owners are cable companies.

AT&T has argued to the California PUC that they don’t believe that Google Fiber qualifies as a cable company and is using that distinction to deny Google access to these poles. There are generally two ways for a company to become certified as a cable company. They have to register with the FCC, which is a very rubber-stamp process, or they have to get a local cable TV franchise from the city where they want to provide service.

But California added a twist to that process. In 2006 the legislature passed a bill that allows companies to get a statewide cable franchise, which is the reason that the California PUC is involved in this dispute. That original law was passed for the benefit of Verizon and AT&T, so that they could provide a competitive cable TV alternative to the incumbents. Under the statewide rules a company only needs to notify a city 10 days before they first are going to offer cable TV service and there are no more regulatory requirements at the city level. A competitive cable TV provider has no obligation to serve an entire community and can serve only where they choose.

Early indications are that the California PUC is siding with the pole owners and might not be buying Google Fiber as a cable company. But even if they are a cable company I don’t know that this gets them access to poles. When AT&T and Verizon became statewide cable providers they already had access to poles. If Google Fiber was a CLEC they would automatically have the right to pole access, but Google apparently doesn’t want to take on the other obligations that come with being a CLEC. The dispute is going to be resolved in one of two ways – either a court will decide this if Google wants to pursue it, or Google will just walk away from those markets and pursue some of the other hundreds of markets that want their fiber.

State Commissions and Broadband

California PUCFrontier and the California commission have been negotiating a deal that lays out the terms that will allow Frontier to buy a pile of California customers from Verizon. Basically, as will be detailed below, the CPUC will require Frontier to upgrade broadband for over a third of the customers it has in the state as part of the deal.

Occasionally, state commissions get the chance to come down on the side of broadband, mostly during these times of mergers, sales, and acquisitions. There are a handful of state commissions, such as California, New York, Illinois and a few others, that have always been aggressive in these circumstances. There are a whole lot of other commissions who seem to be friendlier to the big carriers and let these kinds of deals slide through without much comment.

It’s good to see commissions take an aggressive stand to improve broadband. But looking back on some similar past deals one has to wonder how effective such arrangements really are. For example, I recall an arrangement between the Pennsylvania commission and Verizon in 1993 that freed Verizon from rate-of-return regulation as long as Verizon would bring DSL to hundreds of rural communities. But Verizon never built that DSL and rural Pennsylvania today still has some of the worst broadband in the country.

There also have been deals made by other government entities and carriers that have not brought any results. For instance, dozens of eastern cities gave Verizon franchise agreements to sell cable TV for an agreement that the company would bring FiOS fiber to their whole city. Verizon never built that extra fiber in any of these communities and earlier this year finally admitted that it was never going to expand FiOS fiber any further.

The FCC just made a deal with AT&T to greatly expand their fiber product as part of the agreement to buy DirecTV. We’ll have to wait and see if the company meets this obligation, and most of the industry is still trying to figure out if AT&T is serious about fiber.

So these deals sound great, but one has to wonder how much teeth they have. In this case, if Frontier doesn’t come through over time it’s not like the California commission can undo the purchase of the Verizon properties. There really is not a lot that any regulatory commission can do these days with a carrier that chooses not to comply with such an agreement. There was a time when commissions held a lot of power over carriers. They controlled rate increases and had many other levers to influence carrier behavior. But in a world where all three of the triple play products are largely deregulated there is only so much that any government agency can do to a rogue carrier.

Back to the details of the Frontier deal. The agreement, which is still to be signed by the California commission, would have Frontier do the following:

  • Provide 25 Mbps downstream and 2-3 Mbps upstream to an additional 400,000 households in California by December 31, 2022.
  • Provide 10 Mbps downstream and 1 Mbps upstream to an additional 100,000 unserved households beyond its CAF II commitments by December 31, 2020
  • Deploy 10 Mbps downstream and 1 Mbps upstream to 77,402 households in accordance with the CAF II requirements in the census blocks identified by the FCC
  • Deploy 6 Mbps downstream and 1 to 1.5 Mbps upstream to an additional 250,000 households in California

Altogether this would bring better broadband to over 800,000 California homes. But I feel sorry for the homes that are being upgraded to 6 Mbps. This will likely be their last upgrade before their copper gets torn down in the not-too-distant future.