A Tale of Two Grant Programs

It is the best of times, it is the worst of times (for broadband grants). The state of California just initiated a state broadband grant program that is likely to spend money without doing much actual good for rural broadband. This can be contrasted to the grant program in Minnesota that has already funded a lot of rural broadband networks in communities that would have otherwise not probably ever gotten it. Comparing the two programs shows that it’s not good enough to lobby for and get a state broadband grant program. It’s important to get the details right to make sure that any such program is effective and creates maximum public benefit.

The California grant program is called the California Advanced Broadband Services Fund (CASF) and was recently granted funding by Assembly act 1665 and signed into law by Governor Jerry Brown. The CASF program is not new, but this recent act changes some of the grant rules and infuses $100 million of new funding into the program.

Interestingly the new law takes effect immediately (which is not normal for this kind of legislation) and this leaves four existing open broadband grants under the older CASF open for question because while they were filed under the old rules it seems like they will be judged under the new rules.

The big problem with the grant program is that it allows first right of refusal to the incumbent telcos in any propose service area. Like with most of America, the rural areas with poor broadband service in California are mostly in areas where AT&T or Frontier Communications are the incumbent telephone company.

It is this right of refusal that is going kill any real value of the grant program. For example, somebody might file to build fiber to customers in a small town or farming area. The incumbent telephone company can block the grant application by filing one of their own. But they don’t have to match the speed or technology of the first grant and could instead ask to build something else, such as upgrading existing DSL or cellular broadband. This effectively gives the incumbent telcos veto power over any grant request.

I’ve been reading local California consultants like Steve Blum who expects the incumbents to kill most projects. It’s possible they might let a few through in areas that they don’t want to make investments, but their lobbyists were successful in changing this law to make it easy for them to grab all of the funding if they choose to do so.

This contrasts greatly with a grant program that is doing things the right way – the Border-to-Border grants in Minnesota. In that programs the legislature has set aside funding now for four straight years that provides grants up to a 50% matching for qualifying broadband projects. So far the state has provided over $85 million to the program.

The incumbent providers have the ability to challenge a grant request, but only on a very limited basis. One of the parameters used to judge a grant request is whether a particular area is unserved or underserved with broadband, with this determination made from broadband maps that were created using ISP-reported data. The incumbents can challenge a grant request if they believe that the proposed service area has better broadband than is claimed by the mapping process. They also can challenge a grant if they have near-term plans to build broadband that is fast or faster than that requested by a grant request.

Since most of the Minnesota grant requests are requesting money to build fiber directly to customers there have been no serious challenges by the incumbents. There have been a few challenges that disputed the available speeds in an area.

The net result of the Border-to-Border grants is that small towns and rural farm areas all over the state are getting a real permanent broadband solution due to the assistance provided by the grants. There are a number of independent telephone companies and small cable companies in the state that are competing with each other to grab new territories that are made feasible due to the grant program.

There is no telling if the Minnesota grant program will continue because it’s been funded during a period of state budget surpluses. It’s expected that the budget will be tighter in 2018 and we’ll have to see if they keep the grants going. But this has been, by far, the most effective state broadband grant program in the country. Other states like Ohio are looking to use the Minnesota model in developing a new grant program.

It’s my understanding that the California grant legislation started out with good intentions but got hijacked by the ever-present telecom lobbyists in the legislature. The original sponsors of the grant asked the governor to veto the bill, but for some reason it’s gone ahead. Instead of an effective grant program that will help rural areas get real broadband, the California CASF is instead going to be a state version of the FCC’s CAF II program that also funnel money to the large incumbent telcos to make marginal improvements to broadband. The new CASF is one of the worst uses of tax dollars that I can imagine – it will enrich the bottom line of the telcos without making any significant improvements in rural broadband.

Cities Blast Verizon

fios vanIn the attached letter the mayors of twelve northeast cities with populations over 12 million blasted Verizon for not expanding FiOS. In some of the cities the complaint is that Verizon never finished the expansion they had promised. But in other cities on the list the complaint is that Verizon never came to their cities at all.

You certainly can understand the pain felt by these mayors. Verizon was first on the scene in the US with fiber and at one point in time most of these cities felt like it was just a matter of time until Verizon brought fiber to their cities. But to a large degree Verizon built in suburbs more than in cities, and last year they announced that they were done expanding FiOS. These mayors, like mayors in cities all across the country, have citizens demanding a broadband solution.

But I think these mayors are barking up the wrong tree; perhaps they know this and the letter is just a way for them to demonstrate their frustration to their constituents. I have been watching Verizon for many years and I am not so sure that Verizon even wants to be in the landline business any longer. There are numerous signs of this:

  • First is the fore-mentioned end of the FiOS expansion. One has to consider that broadband penetration rates are much higher than when Verizon first started fiber expansion and they are surrounded by money-making expansion opportunities that would land them large number of new high-margin fiber customers.
  • They recently sold a large swath of landlines, including a sizable number of FiOS lines, to Frontier. Verizon has been selling copper lines to Frontier for a number of years, but these were the first sizable FiOS sales.
  • One only has to look at their annual report to see that all that they talk about to investors is their cellular business. The entire landline business is buried deep inside the report and gets no emphasis.
  • They are the only major telco to refuse large amounts of free money from the FCC to help expand rural DSL. The Connect America funds gives telcos six years to upgrade rural DSL, and Verizon’s indifference to this money tells me that they hope to not own those properties before the end of six years.
  • There are numerous documented complaints, including from their employee’ unions, that Verizon is spending the bare minimum needed to keep their copper networks functional. I’m not sure that this makes them very different than AT&T or CenturyLink. Until the recent Connect America Fund money, rural copper has largely been neglected by every large telco.
  • All of their negative press comes from the landline business. This letter from the majors is just another in a long line of complaints about the way Verizon is ignoring their landline business. Their press from the cellular business is much more positive.

I don’t have any inside information, but it’s my bet that if somebody offered to buy their entire landline business Verizon would take it. They have been selling chunks of landlines to Frontier over the last decade, but I doubt that Frontier can put together the funding to buy the rest of the Verizon landline business. I am not sure that anybody other than AT&T could pull off such a large purchase, and AT&T certainly would not want to inherit all of the copper markets that Verizon has been neglecting for decades.

I doubt that these mayors think that this letter, or any political pressure, is going to change Verizon’s behavior. Verizon has been ignoring these same cities now for literally decades, and in my estimation they will continue to do so. These cities all want better broadband and it’s probably time for them to consider some other solution than Verizon, as is being done by cities all over the rest of the US. The cities with the biggest problems are the ones that Verizon has only partially built – those markets are not very attractive to Google or any other fiber overbuilder. The cities with no FiOS are basically in the same position as thousands of other cities around the US, all of which are pondering if they need to find their own broadband solution.

The Gigasphere

cheetah-993774If you haven’t already heard it, you will soon be hearing the term ‘gigasphere’. This is the marketing term that the large cable companies are adopting to describe their upward path towards having faster data speeds on their cable systems. The phrase is obviously meant as a marketing counter to the commonly used term of gigabit fiber.

The gigasphere term is being promoted by the National Cable Television Association (NTCA) as the way to describe the new DOCSIS 3.1 technology. This is a technology that can theoretically support cable modem speeds up to 10 Gbps download and 1 Gbps upload.

The large cable companies are all starting to feel consumer pressure from fiber, even in markets where fiber is not readily available. Google and other fiber providers have excited the public with the idea of gigabit speeds and I am sure cable companies are being asked about this frequently.

Right now the term gigasphere is largely marketing hype. If you have fiber to your home or business, then with the right electronics you can get gigabit speeds. But cable systems have a long way to go before they can offer gigabit speeds over coaxial cable. There is already talk of cable companies offering gigabit products, such as the recent announcements from Comcast. But these speeds are not being achieved using coaxial cable and DOCSIS 3.1, they are using fiber – something Comcast doesn’t highlight in their marketing.

With enough upgrades and money, the cable systems can eventually achieve gigabit speeds on their coaxial networks. But for now their speeds are significantly less than that. A cable company faces a long and complicated path to be able to offer gigabit speeds over coaxial cable. Their biggest hurdle is that the bandwidth on their cable systems is mostly used by TV channels, and only empty channel spaces can be used for data. DOCSIS 3.1 allows a cable system to join together the spare channels on their network into one larger data pipe.

In order to get to gigabit speeds a cable company has to convert all of the channels on its network to digital, something most of them have already done. But further, they are going to need to treat them the same as TV on the web – transmitting them as raw data instead of as individual channels. Cable systems today use a broadcast technology, meaning they send all of the channels to customers at the same time. But if they convert to IPTV they can send each home just the channels they want to watch, which would massively condense the system bandwidth needed for television.

But this conversion is going to be costly and the equipment to do it is not yet readily available. CableLabs is working on this technology and it ought to be on the market in a few years. But that change alone is not the whole price of conversion. An IPTV system will require all new settop boxes, and in many systems a major reworking of the power taps and other components of the outside cable network. I don’t see many cable companies rushing towards this expensive conversion unless they are in a market where it is competitively necessary.

So for now, the gigasphere is mostly a marketing phrase. But it’s one that you are going to start hearing all of the time in relation to cable system data capabilities. This will obviously confuse the public who will assume that gigasphere means that they will be able to buy gigabit speeds from their cable companies, when they almost certainly cannot.

It’s not like cable companies don’t have fairly fast data capabilities. Most urban systems today are already capable of speeds in excess of 200 Mbps download. And there are systems working to get to 500 Mbps, which is probably about as fast as you can go without converting to IPTV. But it seems the marketing folks in the industry are counting on the fact that customers won’t know the difference between the various flavors of fast and will be happy with their gigasphere products. And they are probably right. Where’s my 500 Mbps cable modem?

Comcast and Gigabit Fiber

Speed_Street_SignComcast announced last week that they are going to start offering symmetrical 2 gigabit data speeds in Atlanta and that over the next year they will offer this to as many as 18 million subscribers. The announcement also said that Comcast would have a 1 gigabit product rolled out to most of its markets sometime in 2016.

The announcement says that customers have to be “within close proximity to Comcast’s fiber network’” to get the product. And by that, they mean you basically must be living directly next to an existing fiber line. It’s hard to foresee Comcast building a lot of fiber to service residences, even at the expected high price of this product. For them to build fiber to those 18 million would cost a lot more than what Verizon spent to build FiOS, and they are extremely unlikely ever to do that.

I subscribe to Comcast’s Blast service and get 50 Mbps download speed for a listed price of $50 per month. They also offer a 105 Mbps product for $80 per month in my market. In some markets there is a Blast product that can deliver 505 Mbps and which costs $400 per month. But Comcast doesn’t sell naked cable modems above 25 Mbps and the Blast products all require a bundle with a cable TV product. The smallest cable package is about $15 per month and includes HBO and local channels. There are extra fees for the cable modem and the settop box. Plus there are a few of the mystery fees I’ve discussed in this blog like a ‘local programming charge’. I don’t own a TV and so the cable I buy is a throwaway just so I can get the faster data speed. My $50 cable broadband actually costs me nearly $80 per month.

They aren’t going to announce the gigabit pricing until May, but with their existing half gigabit product costing $400 per month this is not likely to be cheap, except perhaps in neighborhoods where they are going to compete directly with Google or somebody else with a very fast product.

The announcement says that a customer must allow the installation of professional grade equipment. This means it is likely that a customer on this service is going to get the same termination router that is given to business customers who already subscribe to Comcast’s ‘Gigabit Pro’ product.

I am going to guess that initially this is only going to be available to a relatively tiny number of customers. Comcast has been decreasing the size of their fiber nodes over the last decade, so they probably have fiber within a few miles of most homes. But those networks have not been built in most cases with enough fiber pairs to be able to support widespread FTTP. I live in an upscale neighborhood but I am over a mile from the closest fiber I can find. I don’t know if it belongs to Comcast or CenturyLink, but I find it totally unlikely that Comcast would build that last mile to give me this product, particularly in a residential neighborhood.

And even though the cable network in my town is relatively new and was largely rebuilt a decade ago after hurricane Charley leveled this area, we still don’t have access to the 505 Mbps product (nor would many here likely pony up $400 per month for it).

I am the last one to be negative about anybody who brings fast data speeds to customers, and I am sure that there will be some households that will buy the new product. But unless the pricing is made cheap enough to compete with Google, it’s going to be extremely unlikely that anybody who is not running a somewhat significant business out of their home is going to pay the likely high price of the product.

I’ve heard that CenturyLink’s residential gigabit product is priced at about $150 and I would probably pay that much for it if it was available (are you listening CenturyLink?) After all, I have been a broadband advocate for fifteen years or so and I doubt I could say no to a gigabit. But if Comcast’s product is priced in line with their half gigabit product, then even I would have to pass on it. A 2 gigabit bandwidth product in my home would give me great bragging rights, but unless I hit the lottery it’s likely going to be out of my price range.

Unless Comcast really fools me, this announcement is more fluff than reality. For Comcast to really get fiber past every home would cost them many billions of dollars, and I don’t know why they would do that when they already have a migration path on their coax to get to gigabit speeds. It’s just unfathomable that they would invest in an expensive new network to compete with their own existing expensive network.

Reinvesting in Rural America

C-SpireOver the last few weeks C-Spire has begun rolling out gigabit fiber in Mississippi. Unlike Google which is mostly concentrating on large and fast-growing cities, C-Spire is rolling fiber out to small and rural towns throughout Mississippi. The C-Spire story is an amazing success. C-Spire is part of a holding company that includes a large wireless company, a large CLEC and a significant fiber network throughout the region. The company got started by the Creekmore family. Wade and Jimmy Creekmore are two of the nicest people in the telephone industry and they started out working at the family business which consisted of Delta and Franklin Telephone Companies, two small rural ILECs.

When the FCC distributed some of the first cellular spectrum they did so through a lottery. The company won spectrum through this lottery and started Cellular South. It’s grown to become the sixth largest cellular company in the country and many people are surprised when they visit Mississippi and find that C-Spire is more dominant there than AT&T or Verizon. The company was rebranded a few years ago as C-Spire Wireless. There used to be a number of other sizable independent wireless carriers like Alltel that have been swallowed by the two big wireless companies.

A little over a year ago C-Spire announced that it was going to roll out gigabit fiber optics to towns in the region. They modeled this after Google and towns that signed up enough potential customers qualified to get fiber. There are a number of towns that have now qualified and many others striving to get onto the C-Spire list. In the last few weeks the company began turning up gigabit services in small towns like Starkville and Ridgeland.

The company is offering 1 Gbps data service for $70 a month, a combined Internet and home phone for $90 per month, Internet and HD digital TV for $130 per month and $150 a month for the full triple play. These are bundled prices and customers who do not have C-Spire wireless will pay an additional $10 a month for each package.

It is really refreshing to see somebody investing back into the communities that supported them for many years. It’s pretty easy to contrast this to the big telcos and cable companies which are not reinvesting. C-Spire is building needed infrastructure, creating jobs and bringing a vital service. I view this as a true American success story. This is a win for both the Creekmores and for the people of Mississippi.

This is not the only place in the country where telephone company owners are reinvesting back into their community. There are hundreds of independent telephone companies and cooperatives around the country who are quietly building fiber and bringing very fast internet to some of the most rural places in the country. For example, Vermont Telephone Company grabbed headlines when they announced gigabit fiber for $35 per month. There are wide swaths of places like the Dakotas where fiber has been built to tiny towns and even to farms.

What these companies are doing is great. They are doing what businesses are expected to do, which is to modernize and grow when the opportunity is there. This is especially what regulated utilities should be doing since they have benefitted for decades from guaranteed profits from their businesses. But unfortunately for rural America most of them are served by AT&T, Verizon, CenturyLink and other large telephone companies like Frontier, Windstream and Fairpoint. These companies share at least one thing in common, which is that they are public companies.

It seems like public companies in this country are unable to pull the trigger on investing in infrastructure. The exception is Verizon who has invested many billions in FiOS, but even Verizon has stopped building new fiber and they are not investing in the small towns like Starkville. Rather than investing in rural America, the large companies are doing what they can to hold down costs there. In fact, AT&T has told the FCC that they would like to cut down all of their rural copper lines within a decade and replace them mostly with cellular.

The Creekmores aren’t building fiber just because it’s the right thing to do. They are doing this because they see a solid business plan from investing in fiber. They will make money with this venture, which is the way it is supposed to work. But the public companies like AT&T only seem to invest in fiber when they face a big competitive threat, like AT&T in Austin Texas. I get a sense that CenturyLink would build fiber if they had the financial resources, but most of the big companies are doing the opposite of reinvesting in rural places.

Unfortunately, the big companies are driven by stock prices and dividends. They don’t want to take the negative hit from making large investments because it depresses profits for a few years while you are building. And that is the real shame, because in the long run these large companies would increase profits if they reinvested the billions that they instead pay out as dividends. They would end up with fresh new networks that would make profits for the next century.

It’s going to be interesting to see how gigabit fiber transforms the small pockets of rural America that are lucky enough to get it. The broadband map in the country is a real hodgepodge because right next to some of these areas that have fiber are areas that often have no broadband at all other than cellular or satellite.

It is also going to be interesting over twenty years to see how the two different types of areas fare economically. There is a company in Minnesota, Hiawatha Broadband, that has been building fiber to small towns for a decade and they claim that every town where they have built a network has been growing while every surrounding town has shrunk in population. They have been at this about as long as anybody, and so their evidence is some of the early proof that having fiber matters. Within another decade we are going to have evidence everywhere and we will be able to compare the economic performance of rural areas with and without fiber.

Do People Need Gigabit Fiber?

WDM_FOA few weeks ago I talked to a guy who has gigabit fiber at his home. There aren’t many people who have this service today, but with all of the announcements being made by Google, AT&T and others there are going to be a lot more of them over the next few years. My discussion with him has made me think about whether people really need gigabit fiber.

The guy I was talking to is one of the technical people working for CSpire, the group that is bringing gigabit fiber to Mississippi. I quizzed this guy about his gigabit experience. He admitted that his PC wasn’t really capable of a gigabit throughput and he is thinking of finding one that is. But he was getting a good fraction of a gigabit in his home. He said that this clearly put the Internet at his fingertip. Anytime he went to search for anything on the web it was there instantaneously. He was particularly impressed when he would do an image search on Google and see thousands of images appear immediately.

In contrast to him I have a 50 Mbps connection from Comcast and I must say that I rarely feel like I am waiting. There are a few times when I download a very large program or video where I have to sit and wait a bit, but my computer lets those sorts of things happen in the background while I do something else and I don’t have to sit and stare at the screen while I download something.

My experience tells me that there are very few people for whom a gigabit is needed today. Maybe some scientist who works at home while connected to a supercomputer might need it, but the average person does not. But I never heard Google tell people that they need a gigabit today. They have always said that they are building a network for the future. And this got me to thinking.

Certainly there are no applications today that need that kind of speed. But we have lived through many upgrades in network speeds and what I’ve always seen is that when people are given more bandwidth that they always find ways to use it. I think back and remember when I had 8 kbps dial-up and thought that the upgrade to 56 kbps was awesome. I remember getting my first DSL which was probably something like 512 kbps and thinking that was the end all and be all. I felt the same way when I moved up to 3 Mbps, then 10 Mbps and recently to 50 Mbps.

And everywhere along the line, I first thought the new higher speed were great, and then within a few years they started to feel slow, because the web has always kept pace with the speeds that people can use. Web pages added video, got more graphics and freely included links to huge pdf files. And now everything is moving to the cloud. My PC is backed up all of the time. All my emails are in the cloud. And as we start migrating into the Internet of Things we are going to be sending a lot more data into the cloud.

Up until now my incremental improvements in speed have been between 3 and 8 times faster than what I had before. A gigabit is 20 times faster than what I have today, and I already have more speed than the vast majority of people. So it’s going to take longer for the web and the world to catch up to a change that is 20 to 100 times faster than what people have today. It might take a decade or even two for the average home to grow into routinely needing gigabit speeds. But we will do it, just like we have grown into all of the other speeds that we have ever been given.

So what concerns me is not gigabit speeds. I’m more bothered that networks are being built that aren’t capable of being upgraded to a gigabit. For example, there was a lot of money spent from the federal stimulus grants on wireless networks that can provide 30 Mbps speeds at best. While that is a fine speed today, those networks are not upgradable to faster speeds. Five years from now those networks are going to feel slow, and the small companies that built then are not going to have the money to keep them running. While many cities are going to have gigabit speeds by then, there will be many rural areas with much slower speeds and with networks that are crumbling, dying or growing obsolete.

After giving this some thought I conclude that we will find ways to use gigabit speeds and that there will be a lot of homes with that speed over the next decade. What we should not be doing is investing in networks that are not capable of gigabit speeds. Federal, state or other grants should not be used to build wireless networks that will feel very slow in less than a decade. Because once a rural area gets a wireless network, nobody else is going to invest more there. It’s a real dilemma for a rural area that has terrible broadband to choose between wireless and fiber. But I know when we look back in a decade that every place that picked something other than fiber is going to be kicking themselves in the rear.