Will the Big Telcos Pursue RDOF Grants?

One of the most intriguing questions concerning the upcoming $16.4 billion RDOF grant program is if the big telcos are going to participate. I’ve asked the question around the industry and I’ve talked to folks who think the big telcos will fully wade into the reverse auctions, while others think they’ll barely play. We’re not likely to know until the auctions begin.

The big telcos were the full beneficiaries of the original CAF II program when the FCC surprisingly decided to unilaterally award the big telcos the full $9 billion in funding. In that grant program, CenturyLink received over $3 billion, AT&T almost $2.6 billion, Frontier nearly $2 billion, and Windstream over $1 billion. The telcos were supposed to upgrade much of their most rural properties to receive broadband speeds of at least 10/1 Mbps.

CenturyLink and Frontier both recently told the FCC that they are behind in the CAF II build out and didn’t meet their obligation at the end of 2019 to be 80% finished with the upgrades. From what I hear from rural communities, I think the problem is a lot more severe than just the telcos being late. Communities across the country have been telling me that their residents aren’t seeing faster speeds and I think we’re going to eventually find out that a lot of the upgrades aren’t being made.

Regardless of the problems with the original CAF II, the FCC is now offering the $16.4 billion RDOF grant program to cover much of the same areas covered by CAF II. The big telcos are faced with several dilemmas. If they don’t participate, then others are going to get federal assistance to overbuild the traditional big telco service territories. If the big telcos do participate, they have to promise to upgrade to meet the minimum speed obligations of the RDOF of 25/3 Mbps.

Interestingly, the upgrades needed to raise DSL speeds on copper to 25/3 Mbps are not drastically different than the upgrades needed to reach 10/1 Mbps. The upgrades require building fiber deeper into last-mile networks and installing DSL transmitters (DSLAMs) in the field to be within a few miles of subscribers. Fiber must be a little closer to the customer to achieve a speed of 25/3 Mbps rather than 10/1 Mbps – but not drastically closer.

I think the big telcos encountered two problems with the CAF II DSL upgrades. First, they needed to build a lot more fiber than was being funded by CAF II to get fiber within a few miles of every customer. Second, the condition of their rural copper is dreadful and much of it probably won’t support DSL speeds. The big telcos have ignored their rural copper for decades and found themselves unable to coax faster DSL speeds from the old and mistreated copper.

This begs the question of what it even means if the big telcos decide to chase RDOF funding. Throwing more money at their lousy copper is not going to make it perform any better. If they were unable to get 10/1 speeds out of their network, then they are surely going to be unable to get speeds upgraded to 25/3 Mbps.

We can’t ignore that the big telcos have a natural advantage in the RDOF auction. They can file for the money everywhere, and any place where a faster competitor isn’t vying for the money, the big telcos will have a good chance of winning the reverse auction. There are bound to be plenty of places where nobody else bids on RDOF funding, particularly in places like Appalachia where the cost is so high to build, even with grant funding.

It would be a travesty to see any more federal grant money spent to upgrade rural DSL particularly since the FCC already spent $9 billion trying to upgrade the same copper networks. The copper networks everywhere are past their expected useful lives, and the networks operated by the big telcos are in the worst shape. I’ve known many smaller telcos that tried in the past to upgrade to 25/3 on rural DSL and failed – and those companies had networks that were well-maintained and in good condition. It would be impossible to believe the big telcos if they say they can upgrade the most remote homes in the country to 25/3 Mbps speeds. Unfortunately, with the way I read the RDOF rules, there is nothing to stop the big telcos from joining the auction and from taking big chunks of the grant money and then failing again like they did with the original CAF II.

The Frontier Bankruptcy

Bloomberg reported that Frontier Communications is hoping to file a structured bankruptcy in March. A structured bankruptcy is one where existing creditors agree to cut debt owed to them to help a company survive. There is no guarantee that the existing creditors will go along with Frontier’s plan, and if not, the bankruptcy would be handed to a bankruptcy court to resolve.

It’s been obvious for a long time that Frontier is in trouble. Three years ago, the stock sat at over $51 per share. By January 2018 it had fallen to $8.26 per share, and to $2 per share a year ago. As I write this blog the stock sits at 59 cents per share.

Frontier has been losing customers rapidly. In the year ending September 30, 2019 the company lost 6% of its broadband customers (247,000), with 71,000 of the losses occurring during the third quarter of last year.

For those not familiar with the history of Frontier, the company started as Citizens Telephone Company, a typical small independent telco. The company grew by buying telephone customers from GTE, Contel, and Alltel. The company became Frontier when they bought the remains of the Rochester Telephone Company from Global Crossings. Since then Frontier went on a buying spree and purchased large numbers of customers from Verizon.

Frontiers woes intensified in 2016 when they bungled the takeover of Verizon FiOS customers while taking on huge debt. There were major outages in some major markets that drove customers to change to the cable company competitor. However, Frontier’s biggest problem is due to operating a lot of rural copper networks. The copper networks they purchased had been maintained poorly before acquired by Frontier. For example, Frontier bought all of the Verizon customers in West Virginia, and Verizon had been ignoring the market and had been trying to sell it for over fifteen years.

Frontier got a small boost when the FCC gave them $1.7 billion to upgrade rural DSL to speeds of at least 10/1 Mbps. This month Frontier reports that it has not fully met that requirement in parts of thirteen states. Customers in many places where Frontier has supposedly made the upgrades are saying that speeds are not yet at the required 10/1 Mbps.

Frontier’s real problem is that their rural properties are being overbuilt by other ISPs. For example, Frontier properties are the targets of funding for many state broadband grants. Most of the rural Frontier network is going to be targeted in the upcoming $16 billion RDOF grants this year. It would not be surprising to see the company quietly disappear from rural America as others build better broadband.

Meanwhile, other than in properties that formerly were Verizon FiOS on fiber, the company’s networks in towns are also providing DSL. We’ve seen every telco that offers DSL in urban areas like AT&T and CenturyLink lose a lot of customers year-after-year to the cable companies. It’s increasingly difficult for DSL to keep customers with speeds between 10 Mbps and 50 Mbps when competing against cable products of 100 Mbps and higher.

Last May, Frontier announced the sale of its properties in Washington, Oregon, Idaho and Montana to WaveDivision Capital. That sale was for $1.35 billion, which doesn’t make a big dent in the company’s $16.3 billion in long-term debt. Frontier has also shed 10% of its workforce in an attempt to control costs.

Frontier may get the structured bankruptcy they are seeking or may have to give up more to survive this current bankruptcy. However, restructuring their debt is not going to make up for the huge amounts of its network that sits on dying copper. They are not the only company facing this issue and CenturyLink has even more rural copper. However, CenturyLink has a thriving business in big cities and would be stronger if regulators ever allow it to walk away from rural copper.

The harder question to answer is if there is a viable company remaining after Frontier finally sheds or loses its rural customer base. I don’t know enough to make any prediction on that, but I can predict that the company’s problems will not be over even after making it through this bankruptcy.

FCC Proposes to Further Curtail UNEs

The FCC voted on November 22 to issue a Notice of Proposed Rulemaking that will largely eliminate the use of unbundled network elements (UNEs) by competitors. This was a surprise order because there was not the usual chain of aggrieved parties on the record asking for the docket – it seems to be unprompted and generated by the FCC directly. It’s been well known for decades that the large telcos have wanted to get rid of UNEs and they likely have been pushing for this behind the scenes and off the record.

UNEs are portions of the telcos copper and dark fiber networks that have been made available to competitors since the Telecommunications Act of 1996. There are two primary uses of UNEs today. First, competitors buy a copper UNE and deliver better DSL than the telcos using modern DSL technology. I know of cases where competitors are offering several hundred Mbps speeds to businesses by bonding multiple UNEs. Like every product that competes with cable broadband, the use of DSL UNEs has been declining, but there must still be hundreds of thousands, if not a few million homes and businesses in the country served by newer DSL technology on UNEs.

UNEs are also used by competitors to interconnect to the big telco networks. There was a movement a decade ago by the FCC to transition the telecom network to all-digital – but that never happened. Competitive carriers must buy still buy traditional T1 and T3 UNEs (28 T1s) to interface with the big telco networks. CLECs (Competitive Local Exchange Carriers) that offer voice services use these UNEs to connect to the public switched telephone network. I doubt the FCC understands the extent to which such connections are required by the big telcos – and the extent that there might not be alternatives available to CLECs. Eliminating these UNEs is particularly puzzling since the upcoming RDOF grants will require all grant recipients to offer voice services – it would be ironic if grant recipients are unable to connect voice from these new networks to the rest of the world.

This proposed order will eliminate the following kinds of UNEs:

  • DS1 (single lines) and DS3 (T1s) loops in counties previously deemed competitive by the FCC. The exception is that DS1 single line loops will still be available in rural areas – presumably using the flawed FCC maps that define areas without broadband. In North Carolina where I live, this would eliminate UNEs in 67 of the 100 counties. I’m familiar with many of the counties on the list and I think the folks in many of these counties like Moore and Stanley will be surprised to find that they are considered as competitive.
  • DS0 loops in urban census blocks. These loops are also used to provide DSL.
  • Subloops in the same areas that eliminate other kinds of loops. Subloops are connections to homes inside a subdivision if that subdivision is served by telco DSL from the entrance to the subdivision.
  • Dark fiber transport in wire centers within a half-mile of alternative fiber. Unless ‘alternative fiber’ is defined carefully, this could eliminate dark fiber when there is no actual alternative.

The NPRM would require a 3-year transition for anybody using the UNEs. I’m not sure what transition means since a carrier can either use a UNE or they can’t. It seems this would give competitors three more years to continue to serve customers before they lose the UNE connection.

The FCC is painting the NPRM as part of its ongoing effort to eliminate unneeded regulations. However, UNEs are not unneeded – there are competitive carriers using UNEs to deliver products that customers want to buy. This FCC has always said that the main thrust of eliminating regulations is to increase competition. This particular order will decrease broadband competition and will force a lot of customers to find a more costly broadband alternative. The FCC should not be actively trying to eliminate UNEs if homes are happy with 25 Mbps or 50 Mbps broadband delivered on copper UNEs.

The big telcos have been trying to eliminate the requirement to unbundle their network since the 1996 Act. The FCC eliminated some UNE requirements earlier this year, and in that docket, the FCC said they didn’t eliminate broadband UNEs because the market still valued them. Now, barely half a year later, the FCC has done an about-face and wants to throw DSL competitors out of urban and suburban markets.

It’s also an odd order from a financial perspective. The big telcos will lose the revenues if UNEs disappear – they are a significant source of revenue on old copper. Customers will be tossed off services they like. The real beneficiaries of the order are the cable companies that will pick up the displaced customers – which is an odd thing for the FCC to be pushing when the cable companies are inching towards monopoly.

Farm Access to Broadband

The US Department of Agriculture has been measuring computer usage on farms and publishes the results every two years in its Farm Computer Usage and Ownership report. The most recently released report for 2019 was compiled by asking questions to 20,000 farmers. This is a large sample from the more than 2 million farms in the country.

One of the key findings of the report is that 75% of farms reported having access to to the Internet in 2019, up from 73% in 2017. The breakdown of farms by type of connection is as follows:

2017 2019
Satellite 23% 26%
DSL 28% 22%
Cellphone 19% 18%
Cable 16% 16%
Fiber 9% 12%
Dial-up 3% 3%
Other 2% 3%

There are a few notable highlights in these numbers.

  • First, farms are abandoning rural DSL, as are many other customers. If CAF II upgrades had been done right, the DSL category ought to at least be holding even.
  • I also find it surprising that fixed-wireless isn’t listed as a choice. Fixed wireless is now available in many parts of the country. While many WISPs today offer slow broadband speeds, this category of connections should grow as speeds improve significantly over the next few years.
  • It’s a national shame that 3% of farms are still stuck with dial-up.
  • Far too many farms still use their cellphone for Internet access.

The report is also an interesting way to look at general broadband availability in rural America. For example, a few states have a high fiber coverage rate to farms, such as North Dakota (61%), Montana (39%), and South Dakota (36%). Other states have practically no broadband to farms, such as California and Louisiana at 1%, and other states below 5% including Georgia, Michigan, New York, Ohio, Pennsylvania, and South Carolina.

The states with the biggest reliance on cellphones for farm broadband include Louisiana (52%), Michigan (37%), and Florida (34%).

The poor penetration rate of real broadband is further evidenced by the way that farmers conduct business. 49% of farmers used a desktop or laptop to conduct business in 2019 while 52% used their cellphone. 24% of farmers buy agricultural inputs over the Internet and only 19% use the Internet to sell their goods.

There has been a lot of press in the last few years talking about how technology is transforming farming. However, these innovations are not coming to farms that are stuck with dial-up, satellite or rural DSL technology.

We’ve seen that better broadband can come to farms by looking at the high fiber coverage of farms with fiber in Montana and the Dakotas. That fiber has been built using a combination of subsidies from the Universal Service Fund and low-cost loans from the USDA and cooperative banks. We know how to fix rural broadband – we just don’t have the national will yet to get it done.

FCC Modifies Broadband Mapping Parameters

Last week the FCC decided to change the method of collecting data to support its broadband maps. It’s widely understood that the current mapping system badly misstates broadband coverage. That’s a big problem since the FCC uses the faulty broadband mapping data to make decisions like determining eligibility for broadband grants.

The most important new change is that ISPs have to produce mapping ‘polygons’ to show where they have existing customers. The ISP polygons can cover areas without current customers only where an ISP “has a current broadband connection or it could provide such a connection within ten business days of a customer request and without an extraordinary commitment of resources or construction costs exceeding an ordinary service activation fee.”

The new polygons fix one of the big flaws in the current broadband map. The polygons are going to make a noticeable difference when showing coverage for a cable company or a fiber-to-the-home network. Those networks have hard boundaries – there is always a last home served at the edge of the service area after which nobody else is covered. Today’s mapping by census block doesn’t recognize the hard boundaries of these networks and often counts customers outside these networks as having access to fast data speeds. This is particularly a problem in rural areas where a large area outside a small town might be counted as having 100 Mbps or faster broadband when there is no broadband.

Unfortunately, I don’t see the new maps making a big difference for the rest of rural America unless the ISPs providing DSL and fixed wireless service get scrupulously honest with reporting.  I contend that it is difficult, and perhaps impossible to accurately map these technologies – particularly for disclosing the broadband speed available at a given customer location.

Consider DSL. There are several factors that affect the speed of a DSL product. The one everybody knows is that the amount of delivered bandwidth decreases with distance from the DSLAM (the DSL core modem). However, the quality of DSL performance also depends upon the gauge of the copper serving a customer (there are different sizes of copper in a network), the quality of that copper (copper deteriorates over time), issues with the drop wire (drop wires can suffer from a variety of issues separate from issues in the network), the age and type of DSL electronics (there is still plenty of DSL from the 1990s), and the telco technology used on a given copper route to boost or extend signals. There are also customers who can’t get DSL due to the simple issue that a telco has no spare pairs of copper with which to serve them.

It is not unusual for two customers who are side by side to have a drastically different DSL experience – one might have a decent speed and one might not be able to get any DSL service. There is no way for a telco to reflect these highly local conditions on a broadband map. I’m doubtful that the big telcos even track the speeds available to existing customers. The telcos can’t know anything about homes that don’t have their service today.

The same goes for fixed wireless. Broadband speeds also decrease with distance from the tower. Wireless broadband speeds can vary with temperature and humidity. There is a definite fall-off in speed during precipitation. Wireless broadband using unlicensed spectrum is subject to interference, which can mysteriously come and go. The biggest obstacle for many wireless customers is foliage and other obstacles between a customer and the wireless tower. Just like with DSL, wireless companies don’t have any idea what speed they can deliver to a customer who is not on their network. They usually only know what’s available after climbing on a roof to investigate a connection.

Another big issue the FCC didn’t address is reporting of actual speeds. Our examination of the FCC mapping data for both DSL and fixed wireless shows that many ISPs don’t try to report actual broadband speeds. Instead, we see marketing speeds or something other speed standard being reported. Even if these providers map the polygons correctly, we won’t have a good idea of rural broadband coverage unless the ISPs try hard to report actual speeds. We hear from customers all the time that are being sold a rural broadband product that is marketed to deliver speeds of 10 Mbps, 15 Mbps, or 25 Mbps but which delivers only a few Mbps. If the maps don’t reflect the actual speeds they will still be largely worthless.

One last issue is a head-scratcher. Many rural networks are oversubscribed, meaning there are more customers than can comfortably be accommodated at the busiest usage times on the networks. How do you report the broadband speed for a customer who can get 20 Mbps downloads at 4:00 AM but 3 Mbps in the evening?

I applaud the FCC for finally getting rid of the census blocks. But we can’t pretend that this fix is going to make much of a difference for most of rural America. The rural broadband gap is mostly due to the neglected copper networks of the largest telcos. I can’t imagine any way to ever accurately map DSL and fixed wireless technologies., which means the maps are still going to be terrible in the places we most care about. The FCC is still going to harming rural America if they use the new maps to make decisions for important things like awarding grant money. The only real fix is to throw the maps away for those purposes and do something more sensible. For example, grant money ought to always be available to somebody that wants to build fiber to replace big telco copper – we don’t need a map to know that is good policy.

FCC Looks to Kill Copper Unbundling

FCC Chairman Ajit Pai circulated a draft order that would start the process of killing the unbundling of copper facilities. This unbundling was originally ordered with the Telecommunications Act of 1996, and unleashed telephone and broadband competition in the US. This new law was implemented before the introduction of DSL and newly formed competitors (CLECs) were able to use telco copper to compete for voice and data service using T1s. The 1996 Act also required that the big telcos offer their most basic products for resale.

The FCC noted that their proposed order will “not grant forbearance from regulatory obligations governing broadband networks”, meaning they are not going to fully eliminate the requirement for copper unbundling. This is because the FCC doesn’t have the authority to fully eliminate unbundling since the obligation was required by Congress –  the FCC is mandated to obey that law until it’s either changed by Congress or until there is no more copper left to unbundle. Much of the industry has been calling for an updated telecommunications act for years, but in the current dysfunction politics of Washington DC that doesn’t look likely.

The big telcos have hated the unbundling requirement since the day it was passed. Eliminating this requirement has been near the top of their regulatory wish list since 1996. The big telcos hate of unbundling is somewhat irrational since in today’s environment unbundling likely makes them money. There are still CLECs selling DSL from unbundled copper and generating monies for the telcos that they’d likely not have otherwise. But the hatred for the original ruling has become ingrained in the big telco culture.

The FCC’s proposal is to have a three year transition from the currently mandated rates that are set at incremental costs to some market-based leased rate. I guess we’ll have to see during that transition if the telcos plan to price CLECs out of the market or if they will offer reasonable lease rates that will continue to offer connections.

This change has the possibility of causing harm to CLECs and consumers. There are still a number of CLECs selling DSL over unbundled copper elements. In many cases these CLECs operate the newest DSL electronics and can offer faster data speeds than the telco DSL. It’s not unusual for CLECs to have 50 Mbps residential DSL. For businesses they can now combine multiple pairs of copper and I’ve seen unbundled DSL products for businesses as fast as 500 Mbps.

There are still a lot of customer that are choosing to stay with DSL. Some of these customers don’t feel the need for faster data speeds. In other cases it’s due to the fact that DSL is generally priced to be cheaper than cable modem products. At CCG we do surveys and it’s not unusual to find anywhere from 25% to 45% of the customers still buying DSL in a market that has a cable competitor. While there are millions of customers annually making the transition to cable modem service, there are still big numbers of households still using DSL – it’s many years away from dying.

There is another quieter use of unbundled copper that still has competitors worried. Any competitor that offers voice service using their own switch is still required by law to interconnect to the local incumbent telcos. Most of that interconnection is done today using fiber transport, but there still is a significant impact from unbundled elements.

Surprisingly, the vast majority of the public switched telecommunications network (PSTN) still uses technology based upon T1s. There was a huge noise made 5 – 10 years ago about having a ‘digital transition’ where the interconnection network was going to migrate to 100% IP. But for the most part this transition never occurred. Competitors can still bring fiber to meet an incumbent telco network, but that fiber signal must still be muxed down to T1 channels using T1s and DS3. The pricing for those interconnections are part of the same rules the FCC wants to kill. CLECs everywhere are going to be worried about seeing huge price increases for the interconnection process.

The big telcos have always wanted interconnection to be done at tariffed special access rates. These are the rates that often had a T1 (1.5 Mbps connection) priced at $700 per month. The unbundled cost for an interconnection T1 is $100 or less in most places and competitors are going to worry about seeing a big price increase to tie their network to telco tandems.

It’s not surprising to see this FCC doing this. They have been checking off the regulatory wish list of the telcos and the cable companies since Chairman Pai took over leadership. This is one of those regulatory issues that the big telcos hate as a policy issue, but which has quietly been operationally working well now for decades. There’s no pressing reason for the FCC to make this change. Copper is naturally dying over time and the issue eventually dies with the copper. There are direct measurable benefits to consumers from unbundling, so the real losers are going to be customers who lose DSL connections they are happy with.

Broadband Subscriptions Continue to Grow

According to the Leichtman Research Group, the biggest ISPs added 945,000 broadband customers in the first quarter of 2019. If sustained that would be an annual growth rate of 4% for the year. That contrasts drastically with the largest cable providers that are now losing cable customers at a rate of 6% annually.

The table below shows the changes in broadband customers for the largest ISPs for the quarter.

4Q 2018 Added % Change
Comcast 27,597,000 375,000 1.4%
Charter 25,687,000 428,000 1.7%
AT&T 15,737,000 36,000 0.2%
Verizon 6,973,000 12,000 0.2%
Cox 5,100,000 40,000 0.8%
CenturyLink 4,806,000 (6,000) -0.1%
Altice 4,155,000 36,900 0.9%
Frontier 3,697,000 (38,000) -1.0%
Mediacom 1,288,000 24,000 1.9%
Windstream 1,032,400 11,400 1.1%
Consolidated 780,720 1,750 0.2%
WOW 765,900 6,300 0.8%
Cable ONE 678,385 15,311 2.3%
Cincinnati Bell 426,700 1,100 0.3%
98,724,105 943,761 1.0%

The two biggest cable companies, Charter and Comcast are growing furiously and added 85% of all of the net industry additions, with Charter growing at an annual growth rate of almost 7%. Mediacom and Cable ONE grew even faster for the quarter.

The cable companies continue to dominate the telcos. As a whole, the big cable companies added over 925,000 customers at an annual growth rate of 5.75%. By contrast, the big telcos collectively added 18,250 customers, an annual growth rate of only 0.2%. We know that telcos are continuing to lose DSL customers, so a slight gain as a group means they are finding new customers to replace lost DSL connections.

The overall net gains for the first quarter of 2018 was 815,000. The increases are larger this year due to smaller losses by the telcos rather than faster growth for the cable companies. Perhaps a few of the telcos are finally seeing some upside by the rural CAF II builds.

The surprising statistic is how much Comcast and Charter continue to grow. They are obviously winning the broadband battle in the major cities and continue to take customers away from telco DSL on copper.

There has to be something else behind this kind of growth. A few years ago, there were analysts that predicted that the broadband market was topping out. It seemed like everybody who wanted broadband had it and that there were not a lot of potential customers left in the market. In the last two years we’ve seen continued growth similar to this last quarter.

It’s always hard to identify trends when looking at a nationwide trend, but one of the few ways to explain this continued growth is that more households are deciding that they must have broadband. That might mean homes with occupants older than 65, since that demographic always trailed other demographics in broadband acceptance. It might mean more houses with low incomes are finding a way to buy broadband because they’ve decided it is a necessity. At least some of this growth is coming by the effort to extend broadband into rural America, although that effort is largely being done by ISPs that are not on the above list.

The Penn State Broadband Study

Penn State conducted an intensive study of broadband in rural Pennsylvania. The study was funded by the Center for Rural Pennsylvania, a legislative agency of the Pennsylvania General Assembly.  The results will surprise nobody who works with rural broadband and the study concluded that actual broadband speeds are significantly slower than the speeds reported by the ISPs to the FCC.

The study concluded that there was not one rural county in the state where more than 50% of residents actually achieve the 25/3 Mbps that the FCC has defined as broadband. The study came to these conclusions by conducting more than 11 million speed tests. Residents voluntarily provided an additional 15 million speed test results.

These results are similar to what’s been reported by Microsoft – they measure the actual speeds at which millions of customers download Microsoft software every month. Microsoft says such tests are the best measure of real broadband speeds and that roughly half of all broadband connection in the country are done at speeds slower than the definition of broadband.

Some of the Penn State results are dramatic. For example, in Westmoreland County the FCC maps show the whole county has access to 25/3 Mbps broadband and yet the average download speed for the county was only 12.3 Mbps. Allegheny County also shows 100% broadband coverage on the FCC maps and yet the average download speed in the County is only 20 Mbps.

The study further showed that the difference between actual and reported speeds have been widening since 2014. That’s likely to mean that the FCC maps are showing improvements that aren’t really happening in the rural networks.

I have to point out, in the FCC’s favor, that households don’t always buy faster broadband when it’s available – many households continue to purchase older, slower DSL to save money. However, this phenomenon can’t come close explaining the results in Westmoreland County, where the actual speeds are only 12 Mbps – half the FCC’s definition of broadband. A more likely explanation is that the maps for the County show broadband available in rural areas where actual DSL speeds are only a few Mbps.

CCG helps our clients conduct similar tests on a smaller scale and we’ve seen similar results all across the country. The FCC maps are often pure fantasy. We routinely find rural areas that supposedly have fast broadband where there is no broadband. We often study county seats that supposedly have fast data speeds and yet where actual speed tests show something far slower. The speeds on the FCC maps come from data that is self-reported by ISPs, and some of the ISPs clearly have reasons to overreport the available speeds.

What is really irksome is that the FCC knows all of this already. They know that ISP reported broadband speeds are overstated, and yet the FCC compiles the faulty data and makes policy decisions based upon garbage data. The FCC’s recently published their 2019 Broadband Deployment Report which concluded that broadband is being deployed in the US on a reasonable and timely basis. In my opinion, that conclusion borders on fraud since the FCC knows that much of the data used to reach that conclusion is wrong. The real broadband situation in rural America is much more like what is being reported by Penn State and Microsoft. Rural residents in places like Allegheny County, Pennsylvania should be incensed that the FCC is telling the world that their broadband is up to snuff.

The FCC is starting a multi-year process to ‘improve’ the broadband maps – but this will just push the problem a few years into the future. The fact is that it’s almost impossible to map real broadband speeds in rural America. How can you map broadband speeds when real networks in rural America are in lousy shape? How can you map broadband speeds when two neighbors can experience drastically different broadband speeds due to the nuances in their copper wires? The big telcos have neglected maintenance on copper networks for decades and it’s no surprise that broadband speeds vary widely even within a neighborhood.

The best solution is to throw the maps away. The fact is that every place served by copper ought to be considered as underserved, and locations more than a few miles from a DSLAM ought to be considered as unserved. We need to stop pretending that we can somehow make a realistic map of broadband speed availability – the proposed new mapping might be a little better, but it can never be accurate. Every ISP technician that works in the field will tell you how ridiculous it is to try to map rural broadband speeds.

We need to face facts and recognize that we’re going to have these same issues until rural America gets fiber. There are now enough places in rural America with fiber to show it can be done. The FCC’s ACAM program has shown that fiber can work if there are subsidies to help with the construction costs. We’ve understood this for more than a century since we built the rural electric grids. But we probably can’t fix the problem until we’re honest about the scope of poor broadband. I have big doubts that this FCC is ever going to acknowledge that the real state of broadband is the one highlighted by this study.

Technology and FCC Grants

This is the next in the series of blogs looking at the upcoming $20.4 billion FCC grant program. I ask the question of how the FCC should consider technology in the upcoming grant program.

Should Satellite Companies be Eligible? I think a more fundamental question is if the current generation of high-orbit satellites really deliver broadband. Over the last few years I’ve talked to hundreds of rural people about their broadband situation and I have never met anybody who liked satellite broadband – not one person. Most people I’ve talked to have tried it once and abandoned it as unworkable.

This goes back to the basic definition of broadband. The FCC defines broadband by download speeds of at least 25/3 Mbps. In their original order in 2015 the FCC discussed latency, but unfortunately never made latency part of the broadband definition. As a reminder, the standard definition of latency is that it’s a measure of the time it takes for a data packet to travel from its point of origin to the point of destination.

A few years ago, the FCC did a study of the various last mile technologies and measured the following ranges of performance of last-mile latency, measured in milliseconds: fiber (10-20 ms), coaxial cable (15-40 ms), and DSL (30-65 ms). Cellular latencies vary widely depending upon the exact generation of equipment at any given cell site, but 4G latency can be as high as 100 ms. In the same FCC test, satellite broadband was almost off the chart with latencies measured as high as 650 ms.

Latency makes a big difference in the perceived customer experience. Customers will rate a 25 Mbps connection on fiber as being much faster than a 25 Mbps connection on DSL due to the difference in latency. The question that should be asked for federal grants is if satellite broadband should be disqualified due to poor latency.

I was unhappy to see so much money given to the satellite providers in the recent CAF II reverse auction. Even ignoring the latency issue, I ask if the satellite companies deserve broadband subsidies. There is no place in rural America where folks don’t already know that satellite broadband is an option – most people have rejected the technology as an acceptable broadband connection. It was particularly troubling seeing satellite providers getting money in a reverse auction. Once a satellite is in orbit it’s costs are fixed and that means that the satellite providers will be happy to take any amount of federal subsidy – they can bid lower than any other grant applicant in a reverse auction. I have to question the wisdom of providing federal subsidies to companies that are already failing at marketing.

I don’t have enough information to know how to feel about the upcoming low-orbit satellites that are just now being tested and launched. Because of lower orbits they will have lower latency. However, the satellite companies still have a huge advantage in a reverse auction since they can bid lower than anybody else – a satellite company would be happy with only a few dollars per potential customer and has no bottom limit on the amount of grant they are willing to accept. If the new satellite companies can bid in the same manner as everybody else we could end up with the situation where these companies claim 100% of the new grant funds.

What About DSL? My nightmare scenario is that the FCC hands most or all of the $20.4 billion to the big telcos to upgrade rural DSL from 10/1 Mbps to 25/3 Mbps. This is certainly within the realm of possibility. Remember that the first CAF II program was originally going to be open to everybody but at the last minute was all given to the big telcos.

I find it troublesome that the big telcos have been quiet about the announced plans for this grant. The money will be spent in the big telco service areas and you’d think they be screaming about plans for federal money to overbuild them. Recall that the big telcos recently were able to derail the Re-Connect grants by inserting the rule that only 10% of the grant money could be used for customers who receive at least 10/1 Mbps broadband. This FCC clearly favors the big telcos over other ISPs and could easily hand all of this money to the big telcos and call it CAF III.

Even if they don’t do that, the question is if any federal grant money should be used to upgrade rural DSL. Rural copper is in dreadful condition due to the willful neglect of the big telcos who stopped doing maintenance on their networks decades ago. It’s frankly a wonder that the rural copper networks even function. It would be a travesty to reward the telcos by giving them billions of dollars to make upgrades that they should have routinely made by reinvesting customer revenues.

I think when the dust clears on CAF II we’re going to find out that the big telcos largely cheated with that money. We’re going to find that they only upgraded the low-hanging fruit and that many households in the coverage areas got no upgrades or minor upgrades that won’t achieve the 10/1 Mbps goals. I think we’ll also find that in many cases the telcos didn’t spend very much of the CAF II funds but just pocketed it as free revenue. I beg the FCC to not repeat the CAF II travesty – when the truth comes out about how the telcos used the funding, the CAF II program is going to grab headlines as a scandal. Please don’t provide any money to upgrade DSL.

This blog is part of a series on Designing the Ideal Federal Broadband Grant.

 

Access to Low-Price Broadband

The consumer advocate BroadbandNow recently made an analysis of broadband prices across the US and came up with several conclusions:

  • Broadband prices are higher in rural America.
  • They conclude that 45% of households don’t have access to a ‘low-priced plan’ for a wired Internet connection.

They based their research by looking at the published prices of over 2,000 ISPs. As somebody who does that same kind of research in individual markets, I can say that there is often a big difference between published rates and actual rates. Smaller ISPs tend to charge the prices they advertise, so the prices that BroadbandNow found in rural America are likely the prices most customers really pay.

However, the big ISPs in urban areas routinely negotiate rates with customers and a significant percentage of urban broadband customers pay something less than the advertised rates. But the reality is messier even than that since a majority of customers still participate in a bundle of services. It’s usually almost impossible to know the price of any one service inside a bundle and the ISP only reveals the actual rate when a customer tries to break the bundle to drop one of the bundled services. For example, a customer may think they are paying $50 for broadband in a bundle but find out their real rate is $70 if they try to drop cable TV. These issues make it hard to make any sense out of urban broadband rates.

I can affirm that rural broadband rates are generally higher. A lot of rural areas are served by smaller telcos and these companies realize that they need to charge higher rates in order to survive. As the federal subsidies to rural telcos have been reduced over the years these smaller companies have had to charge realistic rates that match their higher costs of doing business in rural America.

I think rural customers understand this. It’s a lot more expensive for an ISP to provide broadband in a place where there are only a few customers per road-mile of network than in urban areas where there might be hundreds of customers per mile. A lot of other commodities cost more in rural America for this same reason.

What this report is not highlighting is that the lower-price broadband in urban areas is DSL. The big telcos have purposefully priced DSL below the cost of cable modem broadband as their best strategy to keep customers. When you find an urban customer that’s paying $40 or $50 for broadband it’s almost always going to be somebody using DSL.

This raises the question of how much longer urban customers will continue to have the DSL option. We’ve already seen Verizon abandon copper-based products in hundreds of urban exchanges in the last few years. Customers in those exchanges can theoretically now buy FiOS on fiber – and pay more for the fiber broadband. This means for large swaths of the northeast urban centers that the DSL option will soon be gone forever. There are persistent industry rumors that CenturyLink would like to get out of the copper business, although I’ve heard no ideas of how they might do it. It’s also just a matter of time before AT&T starts walking away from copper. Will there even be any urban copper a decade from now? Realistically, as DSL disappears with the removal of copper the lowest prices in the market will disappear as well.

There is another trend that impacts the idea of affordable broadband. We know that the big cable companies now understand that their primary way to keep their bottom line growing is to raise broadband rates. We’ve already seen big broadband rate increases in the last year, such as the $5 rate increase from Charter for bundled broadband.

The expectation on Wall Street is that the cable companies will regularly increase broadband rates going into the future. One analyst a year ago advised Comcast that basic broadband ought to cost $90. The cable companies are raising broadband rates in other quieter ways. Several big cable companies have told their boards that they are going to cut back on offering sales incentives for new customers and they want to slow down on negotiating rates with existing customers. It would be a huge rate increase for most customers if they are forced to pay the ‘list’ prices for broadband.

We also see carriers like Comcast starting to collect some significant revenues for customers going over the month data caps. As household broadband volumes continue to grow the percentage of people using their monthly cap should grow rapidly. We’ve also seen ISPs jack up the cost of WiFi or other modems as a backdoor way to get more broadband revenue.

As the cable companies find way to extract more revenue out of broadband customers and as the big telcos migrate out of DSL my bet is that by a decade from now there will be very few customers with ‘affordable’ broadband. Every trend is moving in the opposite direction.