Tag Archives: FCC

Subsidizing Rural Broadband Networks

We are preparing to award over $44 billion to construct rural broadband networks. Almost by definition, these networks will be built in rural areas where it’s hard to justify a business plan where revenues generated from the grant areas are sufficient to fund the ongoing operation and eventual upgrades to any broadband networks.

The FCC has addressed this issue in the past, and numerous FCC programs have provided ongoing subsidies for rural broadband networks. The FCC has been very careful over the past decades to create separate subsidies for small telephones and cooperatives versus the largest telephone companies. The reasons for the distinction had to do with economy of scale. A higher level of subsidy has been provided to smaller telcos since it was reasoned that small rural companies have a hard time staying afloat without a subsidy.

Conversely, the historic reasoning of regulators was that large telcos didn’t need as much subsidy, or even any subsidy since the big companies also operated in county seats and large cities. Historic regulation assumed that the profits generated in urban and suburban areas could be used to subsidize rural areas.

The original subsidy to small telcos came from the Universal Service Fund (USF). Not every small telco received a subsidy, and the amount of any FCC subsidy was calculated according to the cost structure of each small telco. Small companies would annually calculate costs, and the amount of subsidy benefited the rural companies with the highest costs.

The FCC adopted a major change to the rural subsidy program in 2014 with the USF/ICC Transformation Order. This made the compensation for small telcos more complicated and created different subsidies for different kinds of costs – but the subsidies still benefited the highest-cost small telcos. The subsidy program for small telcos eventually morphed to include the A-CAM program.

Before the USF/ICC Order, only a small portion of big telephone company areas were eligible for any USF subsidy. The ICC Order was a huge win for big telcos, and subsequent to the Order, the FCC created the CAF II subsidy for the most rural locations served by the big telcos. Suddenly, many billions of dollars of subsidy flowed to big telcos to upgrade rural DSL speeds to at least 10/1 Mbps.

In recent years, the FCC opened subsidy programs to a wider range of carriers than just incumbent telephone companies. Both the CAF II reverse auction and the Rural Development Opportunity Fund (RDOF) were conducted using a reverse auction and were available to any ISP. Some of these funds went to telcos, but also went to cable companies, fixed wireless ISPs, and new start-up fiber overbuilders.

This history raises an interesting question. The BEAD grants are not a subsidy program. As a grant program, practically every dollar spent with BEAD funds must be used to build broadband infrastructure – with only some minor reimbursements allowed to cover the cost of complying with the grant paperwork. The BEAD money does not cover any operating expenses for the rural networks that will be built.

In a post-BEAD world, there will be a reshuffled mix of rural broadband networks – properties still operated by small telcos, properties that are still receiving CAF II or RDOF subsidies, and areas built with BEAD or ARPA grants that will not be receiving any subsidies. Some of the BEAD properties will be operated by giant telcos and cable companies, while others will be operated by a wide range of smaller ISPs. The FCC will have created a real mess in rural America, with adjoining areas receiving drastically different levels of federal support – even when the local cost characteristics are identical.

I find it inevitable that companies that win BEAD will start lobbying for operating subsidies within a few years of networks being constructed. The FCC will be faced with the challenge of coming up with a sustainable subsidy program for all rural broadband networks. I think the FCC has several possible paths to take in the post-BEAD world:

The FCC could continue with existing subsidy programs with no acknowledgement that there is a wide disparity between areas that get and don’t get subsidies. The FCC could randomly decide on new subsidy programs to support subsets of companies – perhaps a subsidy program for BEAD winners and another for RDOF properties.

Or the FCC could start all over and design a subsidy program for the post-BEAD world. The best subsidy program would be cost-based, like the original USF. The original cost-based USF looked at the company-wide costs of each ISP, not at the costs to operate in rural areas. Under a cost-based system, small rural companies would likely get the most subsidy per subscriber while large ISPs that operate urban networks would likely get nothing and would be expected to support rural properties with urban profits.

Another option would be that the same amount of subsidy goes to support every rural subscriber, regardless of who owns the ISP business.

There has been a tickle in the back of my brain for the last year wondering why companies like AT&T, Charter, and Comcast seem to be willing to pursue grants for rural areas where it will be a challenge for revenues to fully cover costs. The big telcos have been working feverishly to ditch copper networks, and it’s hard to understand why they are now willing to go back into rural areas that have low density and long drive times.

But it recently struck me – these big companies are betting on the FCC creating a future subsidy program for areas being built with the current flood of ARPA and BEAD grants. I can’t see any other way to justify some of the grants I’ve seen the big companies accept. My bet is that we’ll barely make it through the BEAD grant awards before the big company start lobbying for new subsidy programs that benefit them more than other rural ISPs.

Can States Pick Up the End of ACP?

FCC Chairwoman Jessica Rosenworcel made it clear recently that the FCC is not willing to tackle funding for the ACP plan that is expiring in May. She estimated that the FCC would have to add something like $9 to every broadband bill in the country to fund the ACP plan.

But there is another alternative. States could pick up the ACP funding just for their state. States will have the authority to do this after the FCC approves the reinstitution of Title II authority this month. That authority would give the FCC the authority to create the fee needed to fund the ACP through the FCC Universal Service Fund.

We’ve always had a regulatory structure that allows States to tackle any telecom issue that the FCC decides not to pursue. Once Title II regulation is in place, and assuming that the FCC formally passes on funding ACP, then each state would be free to do so.

It’s obvious that the big ISPs are worried about this. A joint letter from Comcast, Charter, and Cox was recently sent to the FCC asking it to preempt States from establishing a State version of ACP.

If I was a betting man, I bet that the FCC will not preempt the States on this issue. While the FCC is not ready to take on the flak that would come with creating a nationwide ‘tax’ on every broadband household and business, I’m guessing that they will allow States to do so.

Many States already have a mechanism that easily could handle this. A lot of States have a State universal service fund that mimics the structure of the FCC’s USF. The States have used these funds in the past to support rural telcos or to fund other telecom-related issues. Many States already assess a fee on telephone customers to fund the State USF. It’s not much of a stretch for a State to extend this to cover a broadband discount.

States that decide to create a low-income subsidy plan that like the ACP will face the same kind of issues highlighted by Chairwoman Rosenworcel. A State fee could easily be anything from a few dollars per month to over $10 per month. People are annoyed at any taxes and fees added to products they must buy, and a large fee is going to draw a lot of public attention and ire.

There are ways that the States could reduce the size of an ACP replacement. An easy change would be to not cover cellphones, just home broadband connections. States are also likely to fiddle with the qualifications. The ACP program had a wide range of ways to qualify, with the most important one being that ACP is eligible to homes making as much as twice the level of poverty for a given area. States might lower that threshold to lower the size of the fund and the size of any monthly fee.

It’s always interesting to watch big ISPs fight hard to keep fees from being assessed on broadband. In this particular case, a State USF assessment wouldn’t likely cost an ISP anything since they would pass the fee on to customers. But big ISPs are fighting hard to maintain the current environment where broadband can’t be taxed. While payments to a state or federal USF fund are technically fees and not taxes, they feel like taxes to the folks who pay them. The big ISPs have been successful at keeping broadband from being taxed for the last 25 years, and they don’t want to open up the floodgate where State and local governments feel they can tax broadband revenues for ACP since that would raise the issue of assessing fees for a wide variety of other purposes.

Of course, this discussion could end in a hurry if Congress steps up and funds some version of ACP. That’s not something I’m willing to bet on.

Can the FCC Fund the ACP?

A lot of folks have been pleading with the FCC to pick up the tab to continue the the Affordable Connectivity Program (ACP). Folks are assuming that the FCC has the ability to take on the ACP program inside the Universal Service Fund. To make that work, the FCC would have to apply a monthly assessment against all broadband users – something the FCC should have the authority to do if it votes to reinstate Title II authority over broadband at its April meeting.

What might it look like for the FCC to absorb the dying ACP program? FCC Chairwoman Jessica Rosenworcel told Congress that rolling the ACP into the USF could add $9.00 to monthly broadband and telephone bills. She also cited an internal FCC report that found that broadband bills could increase between $5.28 and $17.96 per month. I decided to kick the tires on the FCC’s estimates.

Taking over the Existing ACP. The existing ACP has 23.3 million recipients. That includes 13 million cellular customers, and the rest using landline or wireless broadband. It’s not easy to pin down the number of U.S. broadband customers that a fee might be assessed to. For example, there are numerous wholesale arrangements that would have to be defined – like assessing the fee on a landlord who includes broadband in the rent. Using a variety of sources, I assumed there about 121 million total broadband customers that could be assessed a fee to support ACP.

Funding the current ACP with a monthly fee on all broadband users equates to a monthly fee of $5.78. However, the monthly ACP fund disbursements grew 28% over the last year, so an initial fee would have to be set higher to prepare for growth over the next year. That means the starting USF fee might have to be something like $7.50 per month, and there would have to be additional future increases to the fee until the ACP fund reached equilibrium. It’s not hard to envision the broadband fee growing significantly beyond $10 per month in a few years.

This also raises the uncomfortable question about giving low-income households a $30 monthly discount and then charging the same folks to fund the program. If low-income households are excused from the USF fee, then the fee to everybody else would be increased by another 20%.

Exclude Cellular from ACP. There is a lot of controversy about giving the ACP discount to cellular customers. Almost all of the cellular companies involved in the program are cellular resellers, and most of the suspected ACP fraud involves cellular ACP claims.

If ACP is limited to landline (and fixed wireless) customers, the broadband fee would be a lot smaller. With the current number of ACP enrollees, the FCC broadband fee would be roughly $2.54 per month. However, it seems likely that a lot of ACP recipients receiving the discount on cellphones would convert that to a home broadband connection, which would quickly boost the fee.

The most common qualification for ACP is participation in the SNAP program that provides food subsidies for low-income households. There are currently 21.6 million households that get SNAP benefits, and if all of them applied for the ACP discount, the monthly fee to fund the USF would equate to  $5.36. The current economy has historically low unemployment rates, and a future dip in the economy could quickly add to households eligible for SNAP and ACP.

Assessing a Fee on Broadband Isn’t Easy. It’s more challenging than you might think to assess a fee on every broadband customers. A fee on single family homes and standalone businesses is fairly straightforward. But there are a lot of complicated broadband billing arrangements. Landlords for both residents and businesses often build broadband into the rent. Landlords might drop broadband rather than pay a fee for every tenant. There are many arrangements providing free broadband to public housing. There are many varieties of wholesale broadband relationships that would have to be figured out.

Impact of Raising Rates. It’s not hard to imagining the furor that would ensue if people drop their broadband connection as unaffordable because of the extra fee. One of Chairman Rosenworcel’s fears is that funding broadband this way would push a lot of broadband rates to an unaffordable level.

Conclusion. I think Chairwoman Rosenworcel is in the right range with her estimate if you trend the current ACP recipients to grow for a few more years. However, the FCC has alternatives. If ACP recovery was limited to home broadband and not cellphones, it looks like the fee might might top out at $6 or $7 – lower than her $9 projection. If cell phones remain eligible for ACP, it’s not hard to envision the USF fee growing far past her cited $9 fee – that might be how the FCC predicted a $17 fee.

But the real issue isn’t the size of the monthly fee – but whether the FCC is willing to take on the responsibility. If the FCC was to assess a $5 – 7 fee on every broadband user, the agency would be in the crosshairs by both sides of the political spectrum. Realistically, it also seems likely that an attempt by the FCC to implement such a fee would be challenged and end up in court for years – which wouldn’t help anybody.

The FCC is obviously being cautious, but they might be right in doing so. Tackling such a controversial solution with such high visibility would likely put the FCC under a lot of scrutiny, which might even bring the entire Universal Service Fund under attack. I know it’s not the answer that people want to hear, but the best solution is for Congress to fix ACP – unfortunately, nobody is feeling highly hopeful about that.

FCC to Reimpose Broadband Regulation

The FCC will vote on reimposing Title II authority over broadband at its April 25 meeting this month. It seems likely that the proposal will pass since three Commissioners have already expressed support for the idea. The proposed order is 434 pages long and includes 2,921 footnotes. Hopefully this summary will suffice for anybody but full regulatory nerds like me.

The press is largely going to label this as the FCC putting net neutrality back in place. However, net neutrality is only a small portion of the regulatory changes that accompany reimposing Title II authority over broadband. The national conversation would be more useful if the question was asked if people think broadband should be regulated – and it’s likely that a large percentage of folks don’t like a world where giant ISPs set the rules and prices.

Anybody who follows telecom regulation knows that regulating broadband at the federal level has been on a roller-coaster ride that follows the party that wins the White House. Chairman Tom Wheeler, who led the FCC under President Obama, implemented net neutrality rules tied to the existing Title II regulation. Chairman Ajit Pai led the FCC under President Trump and canceled both Title II authority and net neutrality rules to try to make it harder for future FCCs to reinstate broadband regulation. The Pai FCC went so far as to wipe the FCC’s hands of remaining broadband regulation and defaulted to the Federal Trade Commission as the final say on some broadband issues. The current move to reimpose Title II regulation was only enabled after a Democratic president nominated and Congress finally approved a fifth Commissioner to replace Chairman Pai. It almost seems inevitable that if the White House changes parties again that the roller coaster ride will repeat.

As a backdrop, while Chairman PAI was killing Title II authority, a federal court ruled on a previous challenge to Chairman Wheeler’s net neutrality order and concluded that the FCC has the regulatory authority to implement net neutrality as long as Title II regulations are in place. This should mean that any challenges to the actions of the current FCC would need to use a different tactic to challenge new Title II authority.

The current proposal from the FCC differs in some areas from the Tom Wheeler set of rules. In addition to reimposing net neutrality, the new rules will enable the FCC to monitor broadband outages, give the FCC more authority over network security issues, and increase the protection of consumer data. The new rules will also mandate national net neutrality rules that would preempt state rules like the ones created in California – although the FCC said it will tread lightly in these areas as an experiment in state rule.

It’s a natural question to ask why we need Title II regulation because the press rarely talks about broadband regulation in terms that consumers can understand. Here are just a few of the things that can happen after the FCC reintroduces Title II regulation:

  • The FCC used to have a broadband complaint process where the agency would intervene in cases of bad behavior by ISPs. Consumers could plead for relief from particularly egregious ISP behavior, and the FCC often required ISPs to set things right. The FCC also had the authority to dictate policies related to broadband customer service.
  • While they never exercised it, the FCC has the ability to regulate rates under Title II. This is the big bogeyman that worries ISPs. The FCC in the past used this power to coax ISPs to cut back on practices like rate caps.
  • The FCC used to have the authority to make ISPs refund money to customers when ISPs overbilled or otherwise cheated customers.
  • The FCC used to intervene and mediate disputes between ISPs over network practices. That ability died when Title II authority was killed.
  • The FCC had the authority to fine ISPs that engaged in bad behavior with customers – that largely died when Title II authority was killed.
  • The FCC had more authority to act against hacking and other behavior by bad actors.

Anybody who has been reading my blog knows that I am a huge fan of some basic level of broadband regulation. It seems irresponsible for the government not to have any authority over the actions of what can be argued to be the most important industry in the country. It’s an industry that is largely dominated by a handful of duopoly players who serve the large majority of customers in the country. Broadband is vital to both the economy and to people’s everyday lives, and it’s almost unfathomable that the FCC hasn’t been looking out for the public for the last six years after Title II authority was killed.

Reimposing Title II authority is far from ideal since it won’t stop the roller-coast ride if there is a future change of parties. A much better solution has always been to have Congress give the FCC specific authority to regulate broadband. That would also cut back on lawsuits that challenge the FCC’s authority to create regulations. But Congress hasn’t done anything major along these lines since the Telecom Act of 1996, during the early days of dial-up access. It doesn’t seem to be a big ask to give the FCC permanent authority over broadband, and the failure of Congress to do so is evidence of the stranglehold that ISP lobbyists have on Capital Hill. I’ve been hoping for Congressional action for over twenty years – and maybe they will surprise me one of these years and do the responsible thing.

First Look at Broadband Labels

The FCC’s Broadband Labels were implemented by ISPs with more than 100,000 customers on or before April 10. Not surprisingly, many ISPs waited until the last day. I think the FCC hoped that the labels would create “clear, easy-to-understand, and accurate information about the cost and performance of high-speed internet services.” I looked at a lot of the labels this past week. As you might expect, the actual labels often fall far short of the FCC’s goal. I’m not going to use this single blog to try to rate and rank the various labels but will highlight a few of the things I found.

The first observation is that the labels are generally hard to find – they are not prominently displayed on ISP websites. This is because the FCC rules say that ISPs only have to display the labels at ‘points of sale’. ISPs have interpreted this to mean that a customer must first submit a valid address to the ISP website, and then typically navigate through several more links to find the labels. Even after entering an address, the links to broadband labels are often not clearly identified, and it was a challenge to find the labels for some ISPs. I thought one of the purposes of the labels was to make it easier for the public to comparison-shop between ISPs – but finding the labels usually takes a lot of work, especially for somebody who isn’t familiar with navigating ISP websites.

The one big benefit of the labels for most ISPs is that they make it easier to find broadband prices. Over the last few years, it’s grown increasingly difficult to find the list price for broadband on big ISP websites – the price that customers pay at the end of a special promotion rate. ISPs are now disclosing the full list price on the labels.

One exception to showing list prices is Comcast. The company is showing the promotional rates in bold for many broadband products and only shows the list price in fine print. Comcast is also deceptive about the cost of its broadband modem. All they say is that it’s optional, without mentioning that their price for a modem rental is $15. They also don’t mention that to get some features a Comcast modem is mandatory. I rate the Comcast labels as still being as deceptive as their website was before the labels. But Comcast isn’t the only one not being open and clear about the modem rental. I’m guessing that big ISPs are rationalizing that WiFi and the modem are not a broadband product as a way to keep them off the label. Any ISP not disclosing modem prices and policies is creating a hidden fee.

One of the features of the labels is that an ISP is supposed to provide a plain English description if its technology and network practices. Most ISPs failed at this, and a customer trying to understand two competing ISPs is not going to understand the technology difference using the broadband labels.

Consider Verizon. It has a network management section of the label that mixes in descriptions of its wide range of different technologies rather than describing each separately. There are a few things that a shopper for FWA service ought to be told: 1) that the FWA product is delivered over the same network delivering bandwidth to cellphones, 2) that the key factor that determines the speed for a customer at a given tower is the distance between the customer and the tower, and 3) that broadband can be throttled if the cell site gets busy. They disclose the third item, but overall, they fail at describing how FWA works.

The labels are not going to tell the public much about speeds. A few ISPs, like Verizon FWA and T-Mobile FWA, are honest and report a range of speeds. Cox is relatively honest and says that speeds are ‘up-to’ the cited marketing speed for a given product. But most big ISPs are claiming they deliver speeds in excess of advertised rates. Charter says speeds are at the advertised speed or faster. Comcast, CenturyLink, Mediacom, and Sparklight all cite ‘typical speeds’ which are all faster than the advertised speed – some significantly faster. This is the first time I’ve seen the term ‘typical speed’, and I have no idea what ISPs mean by it.

Windstream took an interesting approach to broadband labels and only created labels for fiber customers and not for older DSL. I don’t know if that meets the FCC requirements, but Windstream is reporting 100 Mbps capability for DSL in some markets on the FCC map, and this feels like something that should have a label.

All of the labels must disclose latency, and many of the latency numbers cited seem significantly low. I think that the ISPs are citing the latency between their headend and the customer, not the latency that a customer can expect in getting to the Internet. If so, this also feels deceptive to me.

Overall, the Broadband Labels do not fulfill the FCC’s goals of making it easier for customers to understand broadband products. It is a relief to see most ISPs disclose prices – but if Comcast gets away with highlighting marketing promotional rates, the labels for other ISPs might change soon to match. Disclosures on speeds are mostly a joke – and most customers are going to be surprised to find that their ISP is bringing them faster speeds than what they are paying for (sarcasm alert). For the most part, the descriptions of network practices are not written in plain English to help a potential customer understand the technology being used. The carefully crafted lawyer language in these sections makes it hard for even experienced industry folks to understand network management policies.

The Demand for Broadband Speed

This is the first in a series of blogs this week that will look at the long-term trajectory of the broadband industry.

The recent decision of the FCC to increase the definition of broadband from 25/3 Mbps to 100/20 Mbps got me thinking about the long term trajectory of the demand for broadband speed. For many years, Cisco issued reports that regularly reported that the demand for speed was growing at roughly 21% per year for residential broadband, and a little faster for business broadband. Cisco and others noted that the curve of broadband speeds was on a relatively straight line back to the early 1980s.

It’s not hard to test the Cisco long-term growth rate. The following table applies a 21% growth rate to the 25/3 Mbps definition of broadband that was established by the FCC in 2015.

This table is somewhat arbitrary since it assumes that broadband demand in 2015 was exactly 25 Mbps – but there was widespread praise of this definition at that time, other than from ISPs who wanted to stick with the 4/1 Mbps definition. This simple table accurately predicts that we would be talking about the need to increase the definition of broadband to 100 Mbps download around 2022 – which is exactly what happened. The FCC had to deal with political issues and wasn’t able to make the change until March 2024 – but in 2022, the FCC wanted to change the definition of broadband to a speed that was at a 21% compounded annual growth rate from the definition the FCC had established in 2015.

I can’t think of any fundamental changes that would say that this same growth in demand won’t happen in the near future. Consider the following chart that starts with the assumption that 100 Mbps is the right definition of broadband in 2022. Growing that number over time by the same 21% results in the following table. This table predicts that by 2030 we should be having the conversation about increasing the definition of download broadband to 500 Mbps. This prediction seems very reasonable to me.

However, 2030 is only six years from now, and today’s topic is looking into the future. One way to think about future demand is to look back at the broadband speeds 25 years ago. In 1999, both telcos and cable companies offered 1 Mbps DSL broadband connection as an upgrade to dial-up – and 1 Mbps became the de facto definition of broadband at the time. Twenty five years later, the definition of broadband was increased to 100 Mbps, a 100-fold increase. This tracks directly with Cisco’s reported growth rate, and the growth rate of download speed between 1999 and 2022 works out to be 21.2% per year.

There are a lot of reasons to think that the demand for faster speeds will keep growing. Every year we find more uses for fast broadband. If we plot the demand for broadband speeds out for 25 more years, at the historical rate of growth, demand would be 100 times higher in 25 years than it is today. That would mean the right definition of broadband in 25 years would be 10 gigabits.

I know that a lot of people will jump all over this prediction and say it’s ludicrous and unrealistic. But consider the last 25 years. You would have been hard pressed to find anybody in 1999 who would have predicted that the definition of download speed in 2022 would be 100 Mbps. This is partially because the human mind has a hard time accepting the results of compounded growth – the results after many years of growth always feels too large. I was already running my consulting company in 1999, and I don’t recall anybody who was visionary enough to predict a hundred-fold increase in broadband speeds over twenty-five years. Anybody saying that would have been laughed out of most industry forums – it would have sounded like a fantasy. Yet here we are – the demand for download speed really increased 100-fold since 1999.

There is one weakness in my argument – it’s very hard to pin down a concrete number for the demand for broadband speed. In the context I’ve been using (and the way the FCC looks at speed), broadband speed demand is a composite number encompassing the average of all broadband users. There is a wide range of opinions on the right definition of broadband speed. ISPs operating older and slower technologies still swear that 25 Mbps is all the speed anybody needs. Fiber ISPs think the definition should be gigabit since one-third of households are now subscribing to gigabit speeds. The fact that the FCC set the definition of broadband to 100 Mbps is an interesting data point – but the FCC definition of speed doesn’t mean much more than that it’s a conservative compromise of the many opinions from around the industry.

There are more concrete data points to consider, and the next blog in the series will look at the demand for broadband usage.

FCC Announced the 5G Fund – Again

FCC Chair Jessica Rosenworcel recently announced a proposal to finally launch the 5G Fund that would be used to build rural cell sites. This is an idea that has been around for a while.

The FCC originally planned to award $4.5 billion for this same purpose in 2019 under the name of Mobility Fund II. As the FCC prepared for that reverse auction, it asked cellular carriers for maps showing existing cellular coverage. It turns out that the maps provided by Verizon, T-Mobile, and US Cellular badly overstated cellular coverage, and smaller cellular carriers cried foul – since the maps would have excluded funding in the areas they serve. The FCC eventually agreed with the small carriers and canceled the auction. In April 2020, the idea was resurrected by Chairman Ajit Pai and was augmented by an additional $4.5 billion and retitled as the 5G Fund.

The original plans were delayed due to faulty maps provided by cellular carriers. The FCC now requires cellular carriers to report coverage using the same FCC maps used to report broadband coverage. If you go to that map you’ll see that there is a tab for mobile broadband as well as the one showing fixed broadband. I invite rural folks to go to the map and look at your address.

The first thing you’ll notice is that the FCC considers a place to be served if cellular data speeds are at least 7/1 Mbps. That’s a ludicrous definition of adequate cell coverage. The second thing you’ll probably notice, depending on where you live, is that the cellular carriers probably consider your area to be served. I live in Western North Carolina, and rural cellular coverage here is terrible in many places – like is true for most of rural America. Unfortunately, the current FCC map shows this region to be largely covered with cellular broadband.

I don’t think many folks have spent time looking at this map, but they hopefully will now that this plan has been announced. If your area is considered to be served on the FCC maps, it probably will not be eligible for new cell towers.

The FCC will likely wait until BEAD funds have been allocated to hold the reverse auction. This will allow anybody bidding on placing a tower to know if an ISP is pledged to bring fiber to the area before bidding. It makes little sense to build new towers that don’t have fiber backhaul.

The one thing to note about this fund – like the RDOF program, this not a grant but a subsidy program. That makes me wonder how carriers will justify operating extremely rural cell towers at the end of the subsidy period in places where there aren’t enough people and revenue to justify maintaining and upgrading cell sites when they inevitably wear out.

This is one case where a reverse auction probably makes sense. The FCC will likely publish a list of areas that need cellular coverage, and whoever bids the least will be obligated to build the needed cell sites. I hope the FCC doesn’t repeat one of the biggest errors of RDOF that gave winners six years to build the infrastructure to fulfill their obligation.

I also hope the FCC will be a lot more careful about who it lets participate in the auction. It would probably be good to limit the bids to those with cellular licenses and perhaps to local governments that are willing to invest in towers. The auction should not be open to speculators or those who are not in the cellular business today – to avoid some of the disasters of RDOF that gave big awards to companies without the financial or technical wherewithal to carry through on the winning bids.

There is no doubt that rural America is plagued by poor cell coverage. It’s a shame that the current FCC maps don’t show the real nature of rural cellular coverage. I think that in the last ten counties I’ve worked with, citizens in nine of them said that poor cell coverage was as big of a concern to them as poor broadband.

The BEAD Subsidy of Utilities

When ISPs are asked about the impediments they encounter for building new fiber networks, they almost always list pole issues at or near to the top of the list. Why are poles of such big concern?

Building aerial fiber means putting the fiber on poles. Most poles are owned by electric utilities, although some belong to telephone companies or municipalities. Invariably, some poles have to be replaced in order to add a new fiber line. This mostly occurs when there is not enough room on an existing pole to provide for the required safe distance between wires that are required by national safety codes. The common fix for this problem is to install a taller pole and move existing wires from the old pole to the new one – the process can be agonizingly slow since the pole owner has to coordinate with existing attachers. Worse is the expense, since the new attacher has to pay the full cost of replacing the pole and moving the old wires.

But poles often must be replaced because they are obsolete or in bad condition. The FCC recently issued new pole rules which designate poles that are out of safety compliance or that are already scheduled to be replaced as ‘red-flagged poles’.  Under the new rules, a new fiber attacher will not be responsible for the full cost of replacing a red-flagged pole. We’ll have to wait to see how the new rules play out in actual practice since pole owners are likely to argue vehemently about when to assign the red-flag designation.

Regardless of why poles have to be replaced, the BEAD grants are going to be used to replace huge numbers of poles. I don’t have any easy way to estimate the number of poles that will be replaced, but it wouldn’t be surprising if it is in the millions. It’s fairly normal for aerial construction to require the replacement of 5% to 10% of poles. In places where the poles are in bad shape, this can be a lot higher.

The cost of replacing poles is built into the construction costs of adding new aerial fiber. Since BEAD will pay up to 75% of the cost of fiber construction, that means BEAD will pay up to 75% of the cost of replacing poles.

That is a huge windfall for electric utilities. In far too many cases, the poles that will replaced by BEAD should have already been upgraded and replaced by the pole owners. Depending on the local conditions in different part of the country, poles typically are expected to last from 30 to 50 years. Unfortunately, it’s not unusual for utilities to keep poles far past the expected economic life.

Fiber providers have been yelling for years that the process is unfair. They are routinely being asked to replace poles that have held other wires for decades. During that time, the pole owner collected pole attachment fees – which should have more than covered the periodic replacement cost of the poles.

Regulators blew it a long time when they didn’t require pole owners to put pole attachment fees into a sinking fund that could only be used to repair poles after storm damage or eventually replace poles. But pole owners count pole attachment fees like any other revenue stream, and it’s quickly used for something else – and in many electric companies might even use the fees to pay dividends to shareholders.

Some states have recognized the pole issue as a big problem and used a solution that has me scratching my head. These states have taken some funding from CAREs or ARPA and created a pole replacement fund to replace the worst poles in the state. This makes some sense if bad poles are a major impediment to building fiber.

But you don’t have to think about this very hard to realize that a pole replacement fund is exactly the wrong economic incentive to give to pole owners. If I’m a pole owner and my State will fund pole replacement, I’m going to cut way back on the poles that I’ll voluntarily replace. I’d let the inventory of bad poles build up and then ask for more pole replacement money. To use common political vernacular – a pole replacement fund fosters welfare for electric companies.

The FCC had an opportunity in its recent pole order to take an important step, which was to require all pole owners to create a public inventory showing the age and condition of every pole. Such a database would make it easy to spot the pole owners who are not replacing poles as needed. Without this basic data, it’s incredibly hard for regulators to force pole owners to do the right thing.

The BEAD grants will bring a lot of broadband to places that need it. It’s just a shame that a lot of the funding will be used to replace the pole inventory of utilities that failed to invest in their own networks.

Competition in MDUs

FCC Chairwoman Jessica Rosenworcel announced plans to introduce a Notice of Proposed Rulemaking that would expand customer choice in apartments, condos, public housing, and other multi-tenant buildings.

The NPRM will cover two new areas of regulation. The first is that tenants will be able to opt out of bulk billing arrangements where landlords build broadband or cable TV into the price of rent. It’s an interesting idea and will benefit tenants who don’t want to buy the forced services. Some landlords have padded profits for years with practices like distributing a bulk satellite TV feed to tenants at a markup. In a country where less than half of homes still want to watch linear cable programming, it seems likely that a whole lot of tenants will opt out of that service, given the option.

Allowing people to opt out of broadband is trickier. There are certainly landlords who buy bulk broadband and mark it up as a moneymaker. But there are many landlords today that recognize that having gigabit fiber broadband is a great marketing tool for their apartments. These landlords buy a bulk broadband connection and provide broadband to tenants at a price lower than what the tenants could find on the market. Nobody should be forced to buy something they don’t want, but if enough tenants opt out of this arrangement, the landlord will likely have to raise the rates for everybody else. This is a dilemma for landlords, and it could result in landlords ceasing to offer cheap broadband. That might disadvantage more households than it benefits.

It gets even trickier to think about the many arrangements that have been made to bring bulk broadband to public or low-income housing. If tenants can opt out of these arrangements to save a little money or lower rent, it could kill the model of bringing broadband to public housing.

The NPRM also proposes to “increase competition for communications service in these buildings by making it more profitable for competitive providers to deploy service in buildings where it is currently too expensive to serve consumers because tenants are required to take a certain provider’s service.”

This proposal really piques my interest. I’ve been thinking about it, and I can’t think of anything that regulators can do to make it cheaper to physically bring broadband into MDUs. Landlords often have restrictions on the way that ISPs can build infrastructure. For example, they might require outdoor drops to be buried. They might not allow the installation of communications devices like fiber ONTs on the outside of a building. They might have restrictions on not allowing open wiring in public spaces. They might require an ISP to get its own electric feed and meter.

It’s hard to think that the FCC could eliminate these kinds of restrictions. The FCC has run afoul in the past when creating rules that conflict with the rights of property owners for issues like inside wiring and antenna placement. It seems unlikely that the FCC can find a way to reduce the cost of physical and aesthetic restrictions, and I’m looking forward to see what the FCC has in mind.

There is nothing that the FCC can do to fix the market behavior of ISPs. New rules that improve the chance of ISPs to compete in large MDUs will be welcome news to some ISPs – but new rules might drive other ISPs away from the MDU market. It’s hard to think that these new rules will have a significant impact on the majority of MDUs in the country, which are eight units or less. It’s hard to think of any rules that will boost competition in smaller MDUs.

However, the FCC is right to keep trying. The National Multifamily Housing Council says there are currently 23 million apartment units in the U.S. A lot of current broadband rules and subsidies have been clearly aimed at improving broadband in single family homes. The FCC has tried for several decades to improve competition in MDUs trying rules that did things like making it harder for landlords to have exclusive arrangements with an ISP. But landlords and ISPs have always quickly found loopholes in every set of new rules.

A New Definition of Broadband

The FCC finally increased the definition of broadband from 25/3 Mbps to 100/20 Mbps. The change was too long in coming. This should have been done when Ajit Pai headed the FCC, but politics got in the way. It should have happened when Congress set the definition to 100/20 Mbps in the BEAD grant rules over two years ago – but again, politics interfered.

Coming four or five years too late, the 100/20 Mbps definition of broadband is not only not forward-looking, the new definition of broadband is out of sync with the market. Consider the following table that comes from OpenVault that shows how broadband subscriptions have changed in the country since before the pandemic.

Dec 2019 Dec 2024
Under 50 Mbps 22%  6%
50 – 99 Mbps 24%  4%
100 – 199 Mbps 37% 16%
200 – 499 Mbps 11% 34%
500 – 999 Mbps  4%  7%
1 Gbps  3% 33%

Just before the pandemic, 46% of households were subscribing to speeds under 100 Mbps. Today, only 10% of households buy slower speeds – and many of them are likely in rural areas where they have no other option. The numbers have flipped since the pandemic and 40% of households are now subscribing to speeds of 500 Mbps or faster.

Every time I write a blog about broadband speeds, a few ISPs will respond, saying that people don’t need faster broadband. The first time I heard that sentiment was a unified response from the CEO of every big cable company, who said the same thing when Google upset the market by introducing gigabit broadband. The reality is that it doesn’t matter what people need – what matters is what they are willing to buy. The table above shows that people want to buy faster broadband when given the option. I look at that table, and it’s hard to conclude anything other than the public broadband is something faster than 200 Mbps.

What’s missing in the above chart is any recognition of the importance of upload broadband speeds. I think many consumers who upgrade to faster speeds do so because of issues with upload speeds. Serious gamers and folks who work from home with large data files will tell you that the new 20 Mbps definition of upload broadband is massively obsolete.

Unfortunately, the definition of broadband has political and financial overtones. It determines where grant money can be spent. Upping the definition of broadband also has market consequences. Any ISP that is offering speeds less than 100/20 Mbps today is no longer selling broadband. They might as well be selling dial-up, because even the slow-to-change FCC says that what they are selling is obsolete and is something other than broadband.

It’s hard to say if changing the definition of broadband has any practical impact. It’s possible that this kind of announcement will filter down through the public and cause folks buying slower connections to search for something faster.

The natural question is, what’s the next step in defining broadband? My bet is that the FCC is going to rest on its laurels for a while after finally getting through the politics and making this change. It took nine years to move the definition from 25/3 to 100/20 Mbps. Hopefully, the FCC won’t wait another nine years. Congress already said that 100/20 Mbps is obsolete when it said that federal broadband grants ought to be spent to build gigabit networks. The OpenVault table above says that the public’s desire for gigabit broadband is already here today.