Is the FCC Really Solving the Digital Divide?

The FCC recently released the 2019 Broadband Deployment Report, with the subtitle: Digital Divide Narrowing Substantially. Chairman Pai is highlighting several facts that he says demonstrate that more households now have access to fast broadband. The report highlights rural fiber projects and other efforts that are closing the digital divide. The FCC concludes that broadband is being deployed on a reasonable and timely basis – a determination they are required to make every year by Congressional mandate. If the FCC ever concludes that broadband is not being deployed fast enough, they are required by law to rectify the situation.

To give the FCC some credit, there is a substantial amount of rural fiber being constructed – mostly from the ACAM funds being provided to small telephone companies with some other fiber being deployed via rural broadband grants. Just to provide an example, two years ago Otter Tail County Minnesota had no fiber-to-the-premise. Since then the northern half of the county is seeing fiber deployed from several telephone companies. This kind of fiber expansion is great news to rural counties, but counties like Otter Tail are now wondering how to upgrade the rest of their county.

Unfortunately, this FCC has zero credibility on the issue. The 2018 Broadband Deployment Report reached the same conclusion, but it turns out that there was a huge reporting error in the data supporting that report where the ISP, Barrier Free, had erroneously reported that they had deployed fiber to 62 million residents in New York. Even after the FCC recently corrected for that huge error they still kept the original conclusion. This raises a question about what defines ‘reasonable and timely deployment of broadband’ if having fiber to 52 million fewer people doesn’t change the answer.

Anybody who works with rural broadband knows that the FCC databases are full of holes. The FCC statistics come from the data that ISPs report to the FCC each year about their broadband deployment. In many cases, ISPs exaggerate broadband speeds and report marketing speeds instead of actual speeds. The reporting system also contains a huge logical flaw in that if a census block has only one customer with fast broadband, the whole census block is assumed to have that speed.

I work with numerous rural counties where broadband is still largely non-existent outside of the county seat, and yet the FCC maps routinely show swaths of broadband availability in many rural counties where it doesn’t exist.

Researchers at Penn State recently looked at broadband coverage across rural Pennsylvania and found that the FCC maps grossly overstate the availability of broadband for huge parts of the state. Anybody who has followed the history of broadband in Pennsylvania already understands this. Years ago, Verizon reneged on a deal to introduce DSL everywhere – a promise made in exchange for becoming deregulated. Verizon ended up ignoring most of the rural parts of the state.

Microsoft has blown an even bigger hole in the FCC claims. Microsoft is in an interesting position in that customers in every corner of the country ask for online upgrades for Windows and Microsoft Office. Microsoft is able to measure the actual speed of customer download for tens of millions of upgrades every quarter. Microsoft reports that almost half of all downloads of their software is done at speeds that are slower than the FCC’s definition of broadband of 25/3 Mbps. Measuring a big download is the ultimate test of broadband speeds since ISPs often boost download speeds for the first minute or two to give the impression they have fast broadband (and to fool speed tests). Longer downloads show the real speeds. Admittedly some of Microsoft’s findings are due to households that subscribe to slower broadband to save money, but the Microsoft data still shows that a huge number of ISP connections underperform. The Microsoft figures are also understated since they don’t include the many millions of households that can’t download software since they have no access to home broadband.

The FCC is voting this week to undertake a new mapping program to better define real broadband speeds. I’m guessing that effort will take at least a few years, giving the FCC more time to hide behind bad data. Even with a new mapping process, the data is still going to have many problems if it’s self-reported by the ISPs. I’m sure any new mapping effort will be an improvement, but I don’t hold out any hopes that the FCC will interpret better data to mean that broadband deployment is lagging.

Designing the Ideal Federal Broadband Grant Program

In April, FCC Chairman Ajit Pai announced a new rural broadband initiative that will provide $20.4 billion of new funding. We don’t know many details yet, but here are a few things that will likely be involved in awarding the funding:

  • The FCC is leaning towards a reverse auction.
  • The program will likely require technologies that can deliver at least 25/3 Mbps broadband speeds.
  • The program will be funded within the existing Universal Service Fund, mostly by repositioning the original CAF II plan.
  • The grants might all be awarded at once, similar to A-CAM and CAF II awards, meaning that there might be only one chance to apply, with the awards to be paid out over a longer time period.

I’m writing a series of blogs that will examine the ideal way to design and administer a grant program of this size. We’ve seen both good and also disastously bad federal broadband programs before, and i’m hoping the FCC will take some time to make this grant program one of the effective ones. I’m sure the details of this new program are not yet set in stone, and folks in rural America need to make their voices heard now if they want some of this money to benefit their communities.

I’m going to look at the following topics, and perhaps more as I write this. At the end of this process I’ll post a whitepaper on my website that consolidates all of these discussions into one document.

A well-designed broadband grant program of this magnitude should consider the following:

What is the End Goal?

It’s important up-front for the FCC to determine how the grant moneys are to be used. The best grant programs have a specific goal, and then the application and award process is designed to best meet the goals. The goal can’t be something as simple as ‘promote rural broadband’, because a goal that simplistic is bound to create a hodgepodge of grant awards.

What Broadband Speeds Should be Supported?

This is an area where the FCC failed miserably in the past. They awarded over $11 billion in the CAF II program that was used to upgrade broadband speeds to speeds of only 10/1 Mbps. When the FCC set the 10/1 Mbps speed that didn’t even meet their own definition of broadband. How should the FCC determine eligible speeds this time to avoid a repeat of the CAF II debacle?

Who Should be Eligible?

FCC programs in the past have usually made the monies available to a wide range of recipients. However, the specific details of the grant programs have often made it hard for whole classes of entities like cities or counties to accept the awards. As an example, there are many entities electing to not participate in the current Re-Connect grant program because they can’t accept any part of the awards that include RUS loans.

Is a Reverse Auction the Right Mechanism?

The FCC and numerous politicians currently favor reverse auctions. Like any mechanism, there are situation where reverse grants are a great tool and others where they will distort the award process. Are reverse auctions a good tool for this grant program?

Other Issues

There are two drastically different ways to hand out these grants. One is to follow the CAF II mechanism and award all of the $20 billion in one huge auction and then pay it out over 6 or 8 years. The other would be to divide the award money into even tranches and have a new grant award for each of those years.

In the recent Re-Connect grants the FCC decided to blend grants and loans. I know the loan component stopped most of my clients from pursuing these grants. Should there be a loan component of the grants?

There are also technical issues to consider. I had clients who were outbid in the recent CAF II reverse auction by wireless companies that gained bidding preference by promising that their fixed wireless networks could achieve across-the-board 100 Mbps broadband. I still don’t know of a wireless technology that can do that over a large footprint. How should the FCC make sure that technologies deliver what’s promised?

What’s the Role of States in this Process?

What should states be doing to maximize the chance for federal grant money to be awarded to their state?

This blog is part of a series:

Setting the Right Goals for Grants

Speed Goals for FCC Grants

Who Should be Eligible for Grants?

Are Reverse Auctions the Right Mechanism?

What Technology Should be Covered?

State’s Role in Broadband Grants

Summary and Conclusions

AT&T Withdraws from Lifeline Program

In March the Public Utility Commission of Ohio allowed AT&T to withdraw from the federal Lifeline program. This is a program that let’s qualified low-income homes get a monthly discount of $9.25 from either their landline telephone or their broadband connection – only one discount per home. AT&T successfully withdrew from Lifeline in Illinois in 2018 and in twelve other states in 2017.

AT&T apparently hasn’t been advertising or pushing the potential discount since they only had 7,300 homes in the state on the Lifeline program. The Communications Workers of America say there are almost 1.6 million households in Ohio that qualify for the discount – although not all of them are served by AT&T.

You might think that AT&T supports Lifeline by looking at their web site. However, clicking through to Ohio notifies customers that the discount will end in June and provides customers a list of other companies that might offer them the discount.

The Lifeline program started in 1985, and at the time the amount of discount was a significant savings for customers. Because of inflation the $9.25 discount represents a far smaller portion of a today’s monthly telecommunications bill.

Participation in the Lifeline program has dropped significantly in the past few years, as has the way the fund is being used. The following revenue numbers come from the 2018 annual report from USAC – the entity that operates the Lifeline Fund. I extraopolated out the number of participants at $9.25 per month.

2016 2018
Telephone $1,477,548,000 $312,300,000
Bundle $25,554,000 $293,707,000
Broadband $18,610,000 $536,424,000
Total $1,521,712,000 $1,142,431,000
Participants        13,700,000        10,250,000

Since 2016 there are 2.5 million fewer participants in the plan – many certainly due to carriers like AT&T withdrawing from the plan. The USAC numbers show a big shift since 2016 of participants applying the discount to their broadband bill rather than to landline telephone or cellphone bill.

The Lifeline Program was in the news recently when the FCC Inspector General issued a fraud advisory that says there are a lot of duplicate names requesting Lifeline and a number of deceased people still getting the discount. Chairman Ajit Pai immediately issued a statement saying that the program needs to be cleaned up.

Fraud has always been a concern in the program. However, it’s a little odd for the FCC to be complaining about fraud today since they are in the process of taking over validation of Lifeline subscribers. Eligibility to participate in Lifeline was previously the responsibility of the states, but in June, 2018 USAC launched the National Verifier, a database that lists everybody eligible to receive a Lifeline credit. As of the end of last year, the federal verifier was active in 18 states, with the remaining states and territories joining the program this year. It seems odd to be yelling about problems of the older state programs when the FCC has already implemented a solution that they believe will solve most of the fraud issues.

I published a blog several days ago saying how regulators are letting the public down. It’s mystifying to me why the Ohio PUC and so many other states are letting AT&T out of the Lifeline program. The Lifeline Fund reimburses AT&T for every discount given to customers, so there is zero net cost to AT&T to participate in the plan. With the new National Verifier, AT&T takes no role in enrolling customers, who must enter through the national Verifier portal. I don’t know why regulators don’t insist that AT&T and every other company that sells residential telephone and broadband be required to participate in the program.

Why is the FCC Still Spinning Net Neutrality?

Chairman Ajit Pai and several other FCC Commissioners are still sticking with the story that regulation and net neutrality were quashing capital spending and innovation in the industry. This was the primary argument that justified killing net neutrality and gutting Title II regulation. Pai claimed that net neutrality was disrupting the big ISPs so much that they were reining in capital spending. Chairman Pai further claimed that killing regulation would free the big ISPs to expand their networks and to improve broadband coverage – he’s also repeatedly argued that without regulation that ‘the market’ would solve the rural broadband divide. Chairman Pai launched this story on his first day as Chairman and hasn’t let up – even now, over a year after the FCC successfully killed net neutrality and Title II regulation.

I find this to be unusual. Normally, when somebody in the industry wins a regulatory battle they quietly move on to the next issue, but at almost every public speaking opportunity the Chairman is still repeating these same talking points. I’ve been thinking about why Chairman Pai would keep harping on this argument long after he successfully killed net neutrality. I can think of a few reasons.

The Lawsuits. The FCC is probably concerned about the lawsuits challenging net neutrality. That order used some legal gymnastics in the FCC argument to kill Title II regulation. So perhaps Chairman Pai is continuing to make these same arguments as a way to let the courts know that keeping Title II regulation dead is still the number one priority of this FCC. I’m sure that if the courts challenge the FCC order that the agency will appeal, and so perhaps he continues to make the same arguments in anticipation of that coming court battle.

5G Deployment. In a very odd back-door way, the FCC has been using the net neutrality argument to grease the skids for an unregulated roll-out of 5G. The FCC’s message couldn’t be simpler: “all regulation bad / 5G and innovation good”.

I doubt that the average American understands the magnitude of what this FCC did when they killed Title II regulation. The agency basically killed its own authority to regulate what is probably the most important product it has ever regulated. Broadband is vital to both the economy and to people’s everyday lives. Yet this FCC thinks that their best regulatory role is to not regulate the industry in any manner. That means not regulating the many issues covered by net neutrality. It means not caring about consumer privacy on the web. It means not being concerned with runaway price increases and data caps. Killing Title II regulation means that future FCCs might have a hard time trying to reintroduce any regulation of broadband. The FCC handed the keys of the broadband industry to the monopoly ISPs and told them to run the industry as they see fit.

At the strong urging of the big wireless companies, this FCC wants to also make sure there are no restraints on 5G. It seems the only parties the FCC wants to regulate are those that might create roadblocks for 5G, such as cities that control rights-of-way.

Congress. Congress has the ability to permanently resolve the Title II and net neutrality battle. Congress could codify the current deregulated state-of-affairs or they could put Title II and net neutrality permanently back on the books. In fact, it’s the lack of Congressional action that led the FCC to kill net neutrality – they would much have preferred that Congress did it. But the Congress hasn’t undertaken any policy initiatives in the telecom industry since the Telecommunications Act of 1996, when most of us still were using dial-up.

There has been a lot of recent discussion in Congress on telecom issues and perhaps one of the reasons that Chairman Pai continues to lobby against net neutrality is to keep that position in front of Congress. However, it seems unlikely that any significant regulation is going to come out of a split Congress.

No Better Argument? Finally, and what is my favorite theory, perhaps the FCC doesn’t have any better argument about why they should be killing regulation. They’ve had years to come up with a story that the American people will buy, and the best they’ve come up with is that killing regulation will unleash innovation.

I think the FCC is afraid to touch the policy issues that the public really cares about. People in rural areas are adamant that the FCC finds a way to get them real broadband. The vast majority of broadband users are worried about being hacked and are worried about how the big ISPs are spying on them and selling their data. Everybody is concerned about the talk on Wall Street that encourages the big ISPs to significantly jack up rates. A large majority of the country cares about net neutrality and an open Internet. I can see why the FCC would rather stick with their story about how killing regulation unleashes innovation – because they are afraid of opening Pandora’s box to let all of these other issues into the open.

$20.4 Billion in Broadband Funding?

Chairman Ajit Pai and the White House announced a new rural broadband initiative that will provide $20.4 billion over ten years to expand and upgrade rural broadband. There were only a few details in the announcement, and even some of them sound tentative. A few things are probably solid:

  • The money would be used to provide broadband in the price-cap service areas – these are the areas served by the giant telcos.
  • The FCC is leaning towards a reverse auction.
  • Will support projects that deliver at least 25/3 Mbps broadband.
  • Will be funded from the Universal Service Fund and will ‘repurpose’ existing funds.
  • The announcement alludes to awarding the money later this year, which would be incredibly aggressive.
  • This was announced in conjunction with the auction of millimeter wave spectrum – however this is not funded from the proceeds of that auction.

What might it mean to repurpose this from the Universal Service Fund?  The fund dispersed $8.7 billion in 2018. We know of two major upcoming changes to the USF disbursements. First. the new Mobility II fund to bring rural 4G service adds $453 million per year to the USF. Second. the original CAF II program that pays $1.544 billion annually  to the big telcos ends after 2020.

The FCC recently increased the cap on the USF to $11.4 billion. Everybody was scratching their head over that cap since it is so much higher than current spending. But now the number makes sense. If the FCC was to award $2.04 billion in 2020 for the new broadband spending, the fund would expand almost to that new cap. Then, in 2021 the fund would come back down to $9.6 billion after the end of CAF II. We also know that the Lifeline support subsidies have been shrinking every year and the FCC has been eyeing further cuts in that program. We might well end up with a fund by 2021 that isn’t much larger than the fund in 2018.

There are some obviously big things we don’t know. The biggest is the timing of the awards. Will this be a one-time auction for the whole $20.4 billion or a new $2 billion auction for each of the next ten years? This is a vital question. If there is an auction every year then every rural county will have a decent shot at the funding. That will give counties time to develop business plans and create any needed public private partnership to pursue the funding.

However, if the funding is awarded later this year in one big auction and then disbursed over ten years, then I predict that most of the money will go again to the big telcos – this would be a repeat of the original CAF II. That is my big fear. There was great excitement in rural America for the original CAF II program, but in the end that money was all given to the big telcos. The big telcos could easily promise to improve rural DSL to 25/3 Mbps given this kind of funding. They’d then have ten years to fulfill that promise. I find it worrisome that the announcement said that the funding could benefit around 4 million households – that’s exactly the number of households covered by the big telcos in CAF II.

What will be the study areas? The CAF II program awarded funding by county. Big study areas benefit the big telcos since anybody else chasing the money would have to agree to serve the same large areas. Big study areas means big projects which will make it hard for many ISPs to raise any needed matching finds for the grants – large study areas would make it impossible for many ISPs to bid.

My last concern is how the funds will be administered. For example, the current ReConnect funding is being administered by the RUS which is part of the Department of Agriculture. That funding is being awarded as part grants and part loans. As I’ve written many times, there are numerous entities that are unable to accept RUS loans. There are features of those loans that are difficult for government entities to accept. It’s also hard for a commercial ISP to accept RUS funding if they already carry debt from some other source. The $20.4 billion is going to be a lot less impressive if a big chunk of it is loans. It’s going to be disastrous if loans follow the RUS lending rules.

We obviously need to hear a lot more. This could be a huge shot in the arm to rural broadband if done properly – exactly the kind of boost that we need. It could instead be another huge giveaway to the big telcos – or it could be something in between. I know I tend to be cynical, but I can’t ignore that some of the largest federal broadband funding programs have been a bust. Let’s all hope my worries are unfounded.

Capping the Universal Service Fund

FCC Chairman Ajit Pai recently suggested capping the size of the total Universal Service Fund at $11.4 annually, adjusted going forward for inflation. The chairman has taken a lot of flack on this proposal from advocates of rural broadband. Readers of this blog know that I have been a big critic of this FCC on a whole host of issues. However, this idea doesn’t ive me much heartburn.

Critics of the idea are claiming that this proves that the FCC isn’t serious about fixing the rural broadband problem. I totally agree with that sentiment and this current FCC hasn’t done very little to fix rural broadband. In fact, they’ve gone out of their way to try to hide the magnitude of the rural problem by fiddling with broadband statistics and by hiding behind the faulty data from carriers that come out of the FCC’s broadband mapping effort. My personal guess is that there are millions of more homes that don’t have broadband than are being counted by the FCC.

With that said, the Universal Service Fund shouldn’t be the sole funding source for fixing rural broadband. The fund was never intended for that. The fund was created originally to promote the expansion of rural telephone service. Over time it became the mechanism to help rural telcos survive as other sources of subsidies like access charges were reduced over time. Only in recent years was it repositioned to fund rural broadband.

Although I’m a big proponent for better rural broadband, I am not bothered by capping the Universal Service Fund. First, the biggest components of that fund have been capped for years. The monies available for the rural high cost program, the schools and library fund and for rural healthcare have already been capped. Second, the proposed cap is a little larger than what’s being spent today, and what has been spent historically. This doesn’t look to be a move by the FCC to take away funding from any existing program.

Consumers today fund the Universal Service Fund through fees levied against landline telephone and cellphones. Opponents of capping the fund apparently would like to see the FCC hike those fees to help close the rural broadband gap. As a taxpayer I’m personally not nuts about the idea of letting federal agencies like the FCC print money by raising taxes that we all pay. For the FCC to make any meaningful dent in the rural broadband issue they’d probably have to triple or quadruple the USF fees.

I don’t think there is a chance in hell that Congress would ever let the FCC do that – and not just this Congress, but any Congress. Opponents of Pai’s plan might not recall that past FCCs have had this same deliberation and decided that they didn’t have the authority to unilaterally increase the size of the USF fund.

If we want to federal government to help fix the rural broadband problem, unfortunately the only realistic solution is for Congress to appropriate real money to the effort. This particular Congress is clearly in the pocket of the big telcos, evidenced by the $600 million awarded for rural broadband in last year’s budget reconciliation process. The use of those funds was crippled by language inserted by the big telcos to make it hard to use the money to compete against the telcos.

And that’s the real issue with federal funding. We all decry that we have a huge rural broadband crisis, but what we really have is a big telco crisis. Every rural area that has crappy broadband is served by one of the big telcos. The big telcos stopped making investments to modernize rural networks decades ago. And yet they still have to political clout to block federal money from being used to compete against their outdated and dying networks.

The FCC does have an upcoming opportunity for funding a new broadband program from the Universal Service Fund. After 2020 nearly $2 billion annually will be freed up in the fund at the end of the original CAF II program. If this FCC is at serious about rural broadband the FCC should start talking this year about what to do with those funds. This is a chance for Chairman Pai to put his (USF) money where his mouth is.

There’s No 5G Race

FCC Chairman Ajit Pai was recently quoted in the Wall Street Journal as saying, “In my view, we’re in the lead with respect to 5G”. Over the last few months I’ve heard this same sentiment expressed in terms of how the US needs to win the 5G race.

This talk is just more hype and propaganda from the wireless industry that is trying to create a false crisis concerning 5G in order to convince politicians that we need to break our regulatory traditions and give the wireless carriers everything they want. After all, what politician wants to be blamed for the US losing the 5G race? This kind of propaganda works. I was just at an industry trade association show and heard three or four people say that the US needs to win the 5G race.

There is no 5G race; there is no 5G war; there is no 5G crisis. Anybody that repeats these phrases is wittingly or unwittingly pushing the lobbying agenda of the big wireless companies. Some clever marketer at one of the cellular carriers invented the imaginary 5G race as a great way to emphasize the importance of 5G.

Stop and think about it for a second. 5G is a telecom technology, not some kind of military secret that some countries are going to have, while others will be denied. 5G technology is being developed by a host of multinational vendors that are going to sell it to anybody who wants it. It’s not a race when everybody is allowed to win. If China, or Germany, or Finland makes a 5G breakthrough and implements some aspect of 5G first, within a year that same technology will be in the gear available to everybody.

What I really don’t get about this kind of hype and rhetoric is that 5G is basically a new platform for delivering bandwidth. If we are so fired up to not lose the 5G race, then why have we been so complacent about losing the fiber race? The US is far down on the list of countries in terms of our broadband infrastructure. We’ve not deployed fiber optics nearly as quickly as many other countries, and worse we still have millions of households with no broadband and many tens of millions of others with inadequate broadband. That’s the race we need to win because we are keeping whole communities out of the new economy, whch hurts us all.

I hope that my readers don’t think I’m against 5G because I’m for any technology that improves access to bandwidth. What I’m against is the industry hype that paints 5G as the technology that will save our country – because it will not. Today, more than 95% of the bandwidth we use is carried over wires, and 5G isn’t going to move that needle much. There are clearly some bandwidth needs that only wireless will solve, but households and businesses are going to continue to rely on wires to move big bandwidth.

When I ask wireless engineers about the future they almost all have painted the same picture. Over time we will migrate to a mixture of WiFi and millimeter wave spectrum indoors to move around big data. When virtual and augmented reality was first mentioned a few years ago, one of the big promises we heard was for telepresence, where we’ll be able to meet and talk with remote people as if they are sitting with us. That technology hasn’t moved forward because it requires huge broadband beyond what today’s WiFi routers can deliver. Indoor 5G using millimeter wave spectrum will finally unleash gigabit applications within the home.

The current hype for 5G has only one purpose. It’s a slick way for the wireless carriers to push the government to take the actions they want. 5G was raised as one of the reasons to kill net neutrality. It’s being touted as a reason to gut most of the rest of existing telecom legislation. 5G is being used as the reason to give away huge blocks of mid-range spectrum exclusively to the big wireless companies. It’s pretty amazing that the government would give so much away for a technology that will roll out slowly over the next decade.

Please think twice before you buy into the 5G hype. It takes about five minutes of thinking to poke a hole in every bit of 5G hype. There is no race for 5G deployment and the US, by definition, can’t be ahead or behind in the so-called race towards 5G. This is just another new broadband technology and the wireless carriers and other entrepreneurs will deploy 5G in the US when it makes economic sense. Instead of giving the wireless companies everything on their wish list, a better strategy by the FCC would be to make sure the country has enough fiber to make 5G work.

5G For Rural America?

FCC Chairman Ajit Pai recently addressed the NTCA-The Rural Broadband Association membership and said that he saw a bright future for 5G in rural America. He sees 5G as a fixed-wireless deployment that fits in well with the fiber deployment already made by NTCA members.

The members of NTCA are rural telcos and many of these companies have upgraded their networks to fiber-to-the-home. Some of these telcos tackled building fiber a decade or more ago and many more are building fiber today using money from the ACAM program – part of the Universal Service Fund.

Chairman Pai was talking to companies that largely have been able to deploy fiber, and since Pai is basically the national spokesman for 5G it makes sense that he would try to make a connection between 5G and rural fiber. However, I’ve thought through every business model for marrying 5G and rural fiber and none of them make sense to me.

Consider the use of millimeter wave spectrum in rural America. I can’t picture a viable business case for deploying millimeter wave spectrum where a telco has already deployed fiber drops to every home. No telco would spend money to create wireless drops where they have already paid for fiber drops. One of the biggest benefits from building fiber is that it simplifies operations for a telco – mixing two technologies across the same geographic footprint would add unneeded operational complications that nobody would tackle on purpose.

The other business plan I’ve heard suggested is to sell wholesale 5G connections to other carriers as a new source of income. I also can’t imagine that happening. Rural telcos are going to fight hard to keep out any competitor that wants to use 5G to compete with their existing broadband customers. I can’t imagine a rural telco agreeing to provide fiber connections to 5G transmitters that would sit outside homes and compete with their existing broadband customers, and a telco that lets in a 5G competitor would be committing economic suicide. Rural business plans are precarious, by definition, and most rural markets don’t generate enough profits to justify two competitors.

What about using 5G in a competitive venture where a rural telco is building fiber outside of their territory? There may come a day when wireless loops have a lower lifecycle cost than fiber loops. But for now, it’s hard to think that a wireless 5G connection with electronics that need to be replaced at least once a decade can really compete over the long-haul with a fiber drop that might last 50 or 75 years. If that math flips we’ll all be building wireless drops – but that’s not going to happen soon. It’s probably going to take tens of millions of installations of millimeter wave drops until telcos trust 5G as a substitute for fiber.

Chairman Pai also mentioned mid-range spectrum in his speech, specifically the upcoming auction for 3.5 GHz spectrum. How might mid-range spectrum create a rural 5G play that works with existing fiber? It might be a moot question since few rural telcos are going to have access to licensed spectrum.

But assuming that telcos could find mid-range licensed spectrum, how would that benefit from their fiber? As with millimeter wave spectrum, a telco is not going to deploy this technology to cover the same areas where they already have fiber connections to homes. The future use of mid-range spectrum will be the same as it is today – to provide wireless broadband to customers that don’t live close to fiber. The radios will be placed on towers, the taller the better. These towers will then make connections to homes using dishes that can communicate with the tower.

Many of the telcos in the NTCA are already deploying this fixed wireless technology today outside of their fiber footprint. This technology benefits from having towers fed by fiber, but this rarely the same fiber that a telco is using to serve customers. In most cases this business plan requires extending fiber outside of the existing service footprint – and Chairman Pai said specifically that he saw advantage for 5G from existing fiber.

Further, it’s a stretch to label mid-range spectrum point-to-multipoint radio systems as 5G. From what numerous engineers have told me, 5G is not going to make big improvements over the way that fixed wireless operates today. 5G will add flexibility for the operator to fine-tune the wireless connection to any given customer, but the 5G technology won’t inherently increase the speed of the wireless broadband connection.

I just can’t find any business plan that is going to deliver 5G in rural America that takes advantage of the fiber that the small telcos have already built. I would love to hear from readers who might see a possibility that I have missed. I’ve thought about this a lot and I struggle to find the benefits for 5G in rural markets that Chairman Pai has in mind. 5G clearly needs a fiber-rich environment – but companies who have already built rural fiber-to-the-home are not going to embrace a second overlay technology or openly allow competitors onto their networks.

Looking Back at the Net Neutrality Order

Chairman Ajit Pai used three arguments to justify ending net neutrality. First, he claimed that the net neutrality rules in effect were a disincentive for big ISPs to make investments and that ending net neutrality would lead to a boom in broadband investment. He also argued that ending net neutrality would free the big ISPs to make broadband investments in rural parts of the US that were underserved. Finally, he argued that the end of net neutrality would spark the growth of telecom jobs. It’s been two years since he used those arguments to justify the repeal net neutrality and it’s easy to see that none of those things have come to pass.

The investment claim is easy to check. The big ISPs are starting to release their 2018 financial results and it looks like capital spending in 2018 – the first year after the end of net neutrality – are lower than in 2017. We’ve already heard from Comcast and Charter and that capital spending was down in 2018 over 2017. The industry analyst MoffettNathanson has already predicted that capital spending for the four biggest cable companies – Comcast, Charter, Altice, and CableONE is expected to drop by 5.8% more in 2019. Anybody who watches the cable companies understands that they all just made big investments in upgrading to DOCSIS 3.1 and that capital spending ought to drop significantly for the next several years.

MoffettNathanson also predicts that wireline capital spending for Verizon and AT&T will drop from $20.3 billion in 2018 to $19.6 billion in 2019. The press is also full of articles lamenting that investments in 5G by these companies is far smaller than hoped for by industry vendors. It seems that net neutrality had no impact on telecom spending (as anybody who has spent time at an ISP could have told you). It’s virtually unheard of for regulation to drive capital spending.

The jobs claim was a ludicrous one because the big companies have been downsizing for years and have continued to do so after net neutrality was repealed. The biggest layoff came from Verizon in October 2018 when the company announced that it was eliminating 44,000 jobs and transferring another 2,500 to India. This layoff is an astronomical 30% of its workforce. AT&T just announced on January 25 that it would eliminate 4,600 jobs, the first part of a 3-year plan to eliminate 10,000 positions. While the numbers are smaller for Comcast, they laid off 500 employees on January 4 and also announced the close of a facility with 405 employees in Atlanta.

Pai’s claim that net neutrality was stopping the big ISPs from investing in underserved areas might be the most blatantly false claim the Chairman has made since he took the Chairman position. The big ISPs haven’t made investments in rural America in the last decade. They have been spending money in rural America in the last few years – but only funds handed to them by the FCC through the CAF II program to expand rural broadband and the FCC’s Mobility Fund to expand rural cellular coverage. I’ve been hearing rumors all over the industry that most of the big ISPs aren’t even spending a lot of the money from those two programs – something I think will soon surface as a scandal. There is no regulatory policy that is going to get the big ISPs to invest in rural America and it was incredibly unfair to rural America for the Chairman to imply they ever would.

Chairman Pai’s arguments for repealing net neutrality were all false and industry insiders knew it at the time. I probably wrote a dozen blog posts about the obvious falsehoods being peddled. The Chairman took over the FCC with the goal of eliminating net neutrality at the top of his wish list and he adopted these three talking points because they were the same ones being suggested by big ISP lobbyists.

What bothers me is this is not how regulation is supposed to work. Federal and state regulatory agencies are supposed to gather the facts on both sides of a regulatory issue, and once they choose a direction they are expected to explain why. The orders published by the FCC and other regulatory bodies act similar to court orders in that the language in these orders are then part of the ongoing record that is used later to understand the ‘why’ behind an order. In later years courts rely on the discussion in regulatory orders to evaluate disputes based upon the new rules. The order that repeals net neutrality sadly repeats these same falsehoods that were used to justify the repeal.

There are always two sides for every regulatory issue and there are arguments that could be made against net neutrality. However, the Chairman and the big ISPs didn’t want to publicly make the logical arguments against net neutrality because they knew these arguments would be unpopular. For example, there is a legitimate argument to made for allowing ISPs to discriminate against certain kinds of web traffic – any network engineer will tell you that it’s nearly mandatory to give priority to some bits over others. But the ISPs know that making that argument makes it sound like they want the right to shuttle customers into the ’slow lane’, and that’s a PR battle they didn’t want to fight. Instead, telecom lobbyists cooked up the false narrative peddled by Chairman Pai. The hoped the public would swallow these false arguments rather than argue for the end of net neutrality on its merits.

Killing FTC Regulation?

NCTA, the lobbying group for the big cable companies filed a pleading with the Federal Trade Commission (FTC) asking the agency to not get involved with regulating the broadband industry. When the FCC killed net neutrality, Chairman Ajit Pai promised that it was okay for the FCC to step away from broadband regulation since the FTC was going to take over much of the regulatory role. Now, a month after net neutrality went into effect we have the big cable ISPs arguing that the FTC should have a limited role in regulation broadband. The NTCA comments were filed in a docket that asks how the FTC should handle the regulatory role handed to them by the FCC.

Pai’s claim was weak from the outset because of the nature of the way that the FTC regulates. They basically pursue corporations of all kinds that violate federal trade rules or who abuse the general public. For example, the FTC went after AT&T for throttling customers who had purchased unlimited data plans. However, FTC rulings don’t carry the same weight as FCC orders. Rulings are specific to the company under investigation. Rulings might lead other companies to modify their behavior, but an FTC order doesn’t create a legal precedent that automatically applies to all carriers. In contrast, FCC rulings can be made to apply to the whole industry and rulings can change the regulations for every ISP.

The NCTA petition asks the FTC to not pursue complaints about regulatory complaints against ISPs. For example, they argue that the agency shouldn’t be singling out ISPs for unique regulatory burdens, but should instead pursue the large Internet providers like Facebook and Google. The NCTA claims that market forces will prevent bad behavior by ISP and will punish a carrier that abuses its customers. They claim there is sufficient competition for cable broadband, such as from DSL, that customers will leave an ISP that is behaving poorly. In a world where they have demolished DSL and where cable is a virtual monopoly in most markets they really made that argument! We have a long history in the industry that says otherwise, and even when regulated by the FCC there are long laundry lists of ways that carriers have mistreated their customers.

One of the more interesting requests is that the ISPs want the FTC to preempt state and local rules that try to regulate them. I am sure this is due to vigorous activity at the state level currently to create rules for net neutrality and privacy regulations. They want the FTC to issue guidelines to state Attorney Generals and state consumer protection agencies to remind them that broadband is regulated only at the federal level. It’s an interesting argument to make after the FCC has punted on regulating broadband and when this filing is asking the FTC to do the same. The ISPs want the FTC to leave them alone while asking the agency to act as the watchdog to stop others from trying to regulate the industry.

I think this pleading was inevitable since the big ISPs are trying to take full advantage of the FCC walking away from broadband regulation. The ISPs view this as an opportunity to kill regulation everywhere. At best the FTC would be a weak regulator of broadband, but the ISPs don’t want any scrutiny of the way they treat their customers.

The history of telecom regulation has always been in what I call waves. Over time the amount of regulations build up to a point where companies can make a valid claim of being over-regulated. Over-regulation can then be relieved either by Congress or by a business-friendly FCC who loosens regulatory constraints. But when regulations get too lax the big carriers inevitably break enough rules that attracts an increase of new regulation.

We are certainly hitting the bottom of a trough of a regulatory wave as regulations are being eliminated or ignored. Over time the large monopolies in the industry will do what monopolies always do. They will take advantage of this period of light regulation and will abuse customers in various ways and invite new regulations. My bet is that customer privacy will be the issue that will start the climb back to the top of the regulatory wave. The ISPs argument that market forces will force good behavior on their part is pretty laughable to anybody who has watched the big carriers over the years.