Funding Middle-mile Fiber

A decade ago, there were a lot of federal grants given to build middle mile fiber. That’s the fiber that connects communities and that provides a path between a community and a connection to the Internet. Ideally, backbone fiber also provides a diverse route with ring electronics so that if one of the fibers serving a community is cut the broadband connection to the community keeps working.

It’s not as easy to find grants for backbone fiber today. For instance, the $16.4 RDOF grant for later this year is aimed at bringing last-mile fiber to remote places in the country but doesn’t let an applicant file for money to build just backbone fiber to reach those same remote communities. It’s almost as if the FCC somehow thinks that most of America is somehow now in reach of a reliable connection to the Internet.

A new network called Project THOR recently launched in northwest Colorado that is purely a backbone project and that shows the continued need for middle-mile fiber. Project  THOR is a consortium of 14 communities that came together because they regularly suffered major broadband outages any time there was a middle-mile fiber cut in the region or an electronics problem at CenturyLink, the backbone provider for the entire section of the state. Network outages can be devastating and mean non-functional 911 centers, hospitals with no broadband, city governments that are crippled, and business districts that can no longer take credit cards or use the Internet.

The cities and towns in the region selected Mammoth Networks to create and operate a new middle-mile fiber network. The initial network is cobbled mostly with dark fiber leased from Colorado DOT, other networks like Strata, and lit fiber from CenturyLink, Comcast, and Zayo. The plan is to eventually replace lit fiber with dark fiber or constructed fiber. Mammoth oversaw the construction of lateral fibers inside of communities and also designed and implemented the electronics network. The State of Colorado Department of Local Affairs funded the lateral construction and half of the equipment purchases through a broadband grant.

The communities are free to use the network in any way they see fit. The Project THOR network terminates at a meet-me center created in each community. Several of the communities on the new network have already built fiber-to-the-home and the new network provides Internet redundancy. Other communities located the meet-me room at a hospital or other critical facility so that they’d see an immediate benefit from the network.

Project THOR brings two advantages to the region. First, the network is designed to carry up to 400 Gbps – much more capacity than any existing fiber in the region. Mammoth Networks was also able to string together routes that provide diversity for each city to protect against fiber cuts. A single fiber cut on the Project THOR routes won’t interrupt service to any of the member communities.

There was no better evidence of the effectiveness of Project THOR than when a CenturyLink fiber outage hit the region a few days after Project THOR was activated. On April 10, there was a 6.5-hour outage, and because of Project THOR, the 911 PSAP in Aspen, hospitals in Granby and Kremmling, and the city governments in Aspen and Glenwood Springs stayed operational – but would have lost broadband service without Project THOR. The Project THOR route was the only network to stay functional in the region during the outage.

It’s common knowledge that the large incumbent telcos haven’t put any money into last-mile broadband in rural areas – but the same thing is true for middle-mile fiber. What’s most amazing about Project THOR is that CenturyLink could easily be providing much of the same redundancy and quality of service that the new network offers. However, the company doesn’t seem interested in making the needed investments in diverse fiber routes or the associated electronics.

There are huge areas of the country that suffer from inadequate middle-mile fiber routes. It would be great if there was a grant program aimed specifically for middle-mile fiber. The need is there because existing middle-mile fibers are often not adequate for today’s bandwidth needs and are definitely not ready for the increased bandwidth needs of the future. Most incumbent middle mile has little redundancy, leading to regular Internet outages. It’s also not unusual to find relatively ancient electronics on middle-mile routes in rural areas.

Project THOR is an example of cities that banded together to fix a common issue – in this case, regular and extended Internet outages. In the ideal world, the incumbents would fix such issues because it’s the right thing to do. However, the lack of capital spending on rural broadband affects middle-mile fiber as much as if impacts last-mile fiber – both are inadequate in most rural areas.

Sharing Grant-funded Fiber

The FCC misses no opportunity to talk about how much they support rural broadband, so hopefully they will take advantage of an opportunity to open up a lot of new fiber in rural America. The FCC is going to fund $9 billion for the 5G Fund later this year that is intended to bring better cell phone coverage to rural areas. That funding will go to cellular carriers.

A lot of the 5G Fund is going to be used to build fiber to rural cell towers and the FCC should make any such middle-mile fiber available to others at affordable rates. One of the biggest impediments to building last-mile networks in remote areas is still the absence of fiber backhaul. If the FCC is going to pay to run fiber to rural areas, then it only makes sense they would make such fiber available to last-mile ISPs.

The big cellular carriers will say that this is a burden they don’t want to bear, but that is bosh. Big companies like Verizon and AT&T are already are among the largest seller of fiber transport in the country, so they have everything needed to sell transport on these new fiber routes. The cellular companies will already be obligated to maintain the new fiber routes, so carrying additional traffic in the fibers doesn’t increase ongoing costs. Since the fiber will be free to the cellular carriers, the transport rates ought to be set low – any revenue derived on these fibers would still be pure gravy for the cellular companies

There will be smaller cellular carriers in the auction, and I would expect most of them to already be planning on selling transport on any new fiber routes. But not all of the smaller carriers will do so, so the FCC should make this mandatory – as they should for any middle-mile fiber route funded by the federal coffers.

States should also adopt this same policy. I’ve seen state grants go towards middle-mile fiber that was not made available to other carriers at affordable rates. Middle-mile fiber subsidized by the government should always be made available to others, and at subsidized rates that recognize the government contribution towards paying for the fiber.

I don’t think the same thing should be true for last-mile fiber. Most grant funding today is being used to build last-mile fiber in areas of low density. Even with grant funding, many of these last-mile projects barely pay for themselves. It would make no sense to allow competitors into last-mile fiber, because doing so might bankrupt the ISP that won the grant to build to a remote area.

The FCC mandated the sharing of middle-mile fiber built with the stimulus grants fifteen years ago. Many of those middle-mile networks have been leveraged to enable last-mile broadband projects that might otherwise never have materialized. But there are middle-mile projects from that program that didn’t follow the rules, like the middle middle-mile network in West Virginia that was basically handed to Frontier to use and charge as they wish.

The big carriers have a poor record of sharing fiber with competitors. The Telecommunications Act of 1996 mandated that the big telcos make excess dark fiber available to others with rates set at incremental cost. While some persistent ISPs have been able to lease dark fiber under those rules, the big telcos have worked hard to make it too difficult for somebody to buy. The telcos have also convinced the FCC over the years to change the rules to make it harder to buy dark fiber.

If this new batch of fiber is made available to others there must be rules. Without guidelines, the big telcos will declare that they need all of the fiber strands being built, even if they only use two fiber out of a 24-fiber. The FCC rules should include guidelines for setting a reasonable number of spare and reserve fibers.

The rules for the 5G fund have not yet been finalized, and hopefully, the FCC will do the right thing. These new fiber routes are going to some of the most remote places in the country and not all middle-mile routes will be of any use to others. Even if only one out of ten of the fiber routes built with the 5G Fund is used to create last-mile networks, the 5G Fund will have accomplished more than just improving rural cellular coverage.

Does the Farm Bill Kill USDA Loans?

Today I feel like the Grinch, because I see the broadband provisions in the Farm Bill largely killing the USDA loan program and I don’t see anybody else writing about it. I’ve seen dozens of articles praising the new broadband programs created last week by the passage of the Farm Bill. To be fair, three of the announced programs are good news. The legislation created the following outright grants that, while small, are going to bring some solutions for rural broadband. The bill funds these three programs through 2023:

  • Funds the Community Connect grants at $50 million annually. These grants have been around for many years and distribute grants based upon an economic test, with grants intended for the poorest areas getting preference;
  • $10 million annually in a new program to fund middle mile fiber in rural areas;
  • $10 million annually for the grant program that was formerly called the “Rural Gigabit Network Pilot Program” but which has been relabeled as the “Innovative Broadband Advancement Program”. These grants are to be awarded to programs that demonstrate innovative technologies or methods of broadband deployment.

I’ve seen estimates that it might take as much as $60 billion in federal assistance to bring broadband everywhere in rural America and these three grants are barely a blip against the huge rural broadband shortfall – but they are better than nothing.

The flagship broadband announcement in the Farm Bill is the announcement that $350 million a per year will be given the existing USDA loan program, and that the loan awards can now also contain some portion of broadband grants, which might make it easier to build in high-cost areas.

But there is one killer provision of that new funding which I think might make it almost impossible to use. Any area receiving this funding can’t have more than 10% of households that can receive 10/1 Mbps broadband. That’s the same speed test that is being applied to the $600 million e-Connectivity grant program that I discussed in yesterday’s blog. This is a drastic change for USDA loans that currently can be awarded for areas where up to 85% of households can already get 10/1 Mbps broadband. Congress has decided to provide federal funding in the future only for those areas that have no broadband rather than spending money to upgrade inadequate broadband.

If the USDA strictly applies this 10% test I think it will become nearly impossible to get a USDA broadband loan starting in 2019. The 10% test will work for the e-Connectivity grants because ISPs can request funding for small pockets of homes that meet the 10% test. Companies that use the e-Connectivity grants to fund unserved homes can still use other funds to build the rest of a rural area.

But outright USDA loans don’t work that way. Anybody getting one of these loans has to pledge 100% of their company’s assets to the USDA and also give the USDA first lien over all other debt. Since other lenders won’t accept a second lien, then anybody going after a future loan from the program will have to get 100% of the funding from the USDA. And that’s where the 10% test will kill the loan program. There are very few places that still meet the 10% test – at least on paper. The big telcos are going to be claiming good DSL throughout rural America and in most places the big telco DSL is just good enough to cover more than 10% of homes in an area.

I’ve seen this legislation touted as a boon to rural electric cooperatives since many of them are considering building fiber to cover their whole service area. I would venture to say that there is no electric coop in the country that will pass the 10% test for their whole service area – and most of them don’t come even close.

An electric coop won’t be able to use the USDA money to build fiber everywhere – if they carve out USDA money to cover the areas that pass the 10% test, then nobody will loan them the money to build the rest. The 100% pledge and lien provisions of the USDA don’t allow for a secondary lender.

Huge swaths of rural America are now theoretically covered by the various CAF II programs, so those areas either now have 10/1 Mbps or are supposed to get it sometime over the next six years from the reverse auction awards. I believe all areas covered by CAF will be considered ineligible for these USDA loans.

I went back and read the law several times because I saw articles that got the facts of the new loan program wrong. The specific rules for the new programs can be found in the latest copy of the Farm bill, starting at Section 6101.

It’s obvious that the big telcos have gotten to the legislators who are writing this legislation. It looks like the 10% and 10/1 test will be the new norm for getting federal broadband funding. As each year goes by fewer and fewer places will qualify for this funding and monies will go unclaimed. Meanwhile, areas that have really crappy broadband, but where more than 10% of homes have fully inadequate 10/1 Mbps speeds will not be eligible for this funding. I saw articles where members of Congress are claiming that this bill will help to solve the rural broadband problem – but the actual provisions of the new USDA loan program tell a different story. This feels more like a sham than a plan to me.

Please see the attached comment that softens these comments. Turns out that 100 USDA loans in the future won’t have to pass the 10% test – that applies if an applicants wants any grant funding.

Getting Access to Federally Funded Fiber

Fiber CableWhen billions of the stimulus dollars were spent for telecom, a lot of the money went to projects that built middle-mile fiber. This is fiber that basically runs between towns and from county to county through rural areas. The stimulus money required the builder of these fiber networks to connect the handful of nearby anchor institution – schools, libraries and city halls – but the grant recipients weren’t required to connect anybody else.

One of the requirement of those grants was that any middle-mile fiber built with assistance from federal dollars must be made available at low costs to anybody that wants to use that fiber to serve the last mile. And that is a great policy because the ultimate goal for federal broadband dollars ought to be to solve the rural digital divide where rural homes have no access to broadband.

But before you can serve homes in rural areas there has to be a backbone fiber – a connection from a rural area to affordably connect to the Internet. There are still huge swaths of the country where getting that connection is prohibitively expensive, if it is available at all.

The FCC’s hope was that building these middle-mile fibers would lure other service providers to build the last mile. There has not been nearly as much such construction as was hoped for, but there is some. As an example, a fiber project in Cook County, Minnesota is connected to Minneapolis through a federally-funded middle mile fiber. Before that fiber was built there didn’t seem to be an affordable way to connect that remote county to the Internet. Around the country there are numerous communities that have taken advantage of this opportunity for cheap transport.

And now the FCC has decided to spend even more billions of federal money on fiber with the CAF II funds. This money is being given to ten large telcos, most noticeably CenturyLink, Frontier and AT&T. These companies will be receiving $9 billion to help pay for expanding broadband to rural areas that don’t have it today.

In my opinion this program is mostly a huge boondoogle in that the telcos only have to build broadband connections that reach 10 Mbps download speeds. In today’s world that is not broadband, and it certainly isn’t going to feel like broadband by the end of the six year time frame the companies have to make these expansions.

The only way these telcos are going to be able to affordably meet the CAF II goals is by expanding DSL into the rural areas. And to expand DSL they are going to have to build rural fiber routes to support the new DSL. Even if half of this money goes toward DSL electronics, that leaves a lot of federal dollars being spent for rural fiber. Even without considering the telco matching funds, this much money has to be funding more than 200,000 miles of new fiber, almost entirely in rural areas.

It perplexes me why the FCC didn’t impose the same requirements on this new federally-funded fiber as they did the middle-mile fiber built by stimulus funds. Why isn’t this new CAF II fiber being made available at a reasonable price to anybody that can then use it to bring real broadband to the rural areas? This might be the only way to salvage something with long-term value out of this huge waste of federal dollars.

Certainly the large telcos can’t claim any special exemption from such a rule because the many smaller telcos that built middle mile fiber with stimulus funding accepted the last-mile rules as a condition for taking that funding. The large telcos are going to use this free money to do a virtually worthless upgrade to DSL, and people in these rural areas deserve a chance to use these federally-funded facilities to get rural fiber.

This would require nothing more than a policy decision by the FCC. All federally-funded fiber ought to be made available to solve rural broadband. That was true for the stimulus funds. It ought to be made so for fiber built along Interstate highways. And it certainly should apply to the large telcos that are seeing a bump in their stock prices right now due to the ‘revenue’ they are receiving from the CAF II funds.