Minnedota DEED grants – POTs and PANs

The FCC has documented very well the lack of rural broadband. They gave out a tiny handful of ‘experimental’ broadband grants that were supposedly going to be the precursor to a large federal broadband grant program funded by the Universal Service Fund. But as usually happens with these things, politics took over and $9 billion was instead awarded through the CAF II program to the largest telcos to expand rural broadband to a paltry 10 Mbps download and 1 Mbps upload.

And this is a shame because $9 billion could have been used as seed money in matching grants to build a whole lot of last mile broadband. This money could have seeded perhaps $40 billion to $50 billion of fiber in rural areas which would have meant that a lot of areas would get real broadband solutions. What’s probably the saddest is that the CAF II program lasts for six years, so that money is going to be tied up for a long time.

There doesn’t look to be any other move to provide federal funding for fiber, but there are some states that have been looking at the issue. But, as you might imagine, politics comes into play in these efforts as well. There aren’t a whole lot of state programs that are trying to fund fiber, but consider these two that are:

Minnesota crated the Border-to-Border Broadband Development Grant Program, created by the Legislature in 2014 and administered by the Department of Employment and Economic Development (DEED). The grant provides dollar-for-dollar matching for constructing last mile fiber, although the money is likely to go to projects that contribute a higher percentage of the cost of a project. Minnesota is one of the lucky states that is running a budget surplus and this seemed like a good way to spend some of that money. There are numerous rural communities in the state that are actively seeking a broadband solution, so there is no lack of potential projects to be funded.

This was created in the 2014 legislature and the original bill asked to fund this with $100 million. The cable companies and carriers lobbied heavily against this funding, not wanting to have the state fund any competitors – although the funding was supposed to be used in areas where there is no broadband today. And the carriers were successful and chopped the grant pool down to $20 million.

When that money was awarded last year it went almost entirely to independent telephone companies and the only non-incumbent recipient of the grant was a new start-up cooperative. There were numerous applications from municipalities, but none were funded. The governor has recently recommended funding $200 million to this fund over the next two years, and we’ll have to wait and see how much of this makes it through the political gauntlet.

California has a program called the California Advanced Services Fund. Attempts to create funds within that program to build rural fiber have also been met with stiff opposition from the large incumbents.

Recently a bill was introduced to add $350 million to that fund, $150 million of which would go directly towards building last mile fiber in the form of matching grants. Past attempts to get infrastructure funding failed. The latest proposal has made it clear that any funding would only go to rural areas (in the last proposal it could have gone to urban areas). The new funding also has a significant pot of money allocated to broadband adoption efforts and for bringing broadband to public housing. Proponents of the bill are hoping that this will be more acceptable to the opponents, but if the past is any indicator the incumbents don’t want any competition of any kind.

It’s certainly laudable for the states to tackle broadband. There are obviously not going to be any federal programs aimed at the problem for now and anybody who understands broadband knows that help is needed in getting broadband to rural areas. But it seems that every attempt by states to tackle the problem gets killed or whittled down to the bare bones during the political process.

Any time there is talk about government funding for broadband, arguments arise that wireless broadband is just as good as wireline broadband. But it is not the same and is not a substitute. I love wireless broadband and it is a great complement to having a home or business broadband connection, but there are numerous reasons why wireless broadband ought not to be funded by government broadband programs.

The most recent argument for wireless broadband comes the Minnesota House which is currently in session. In last year’s legislative session, Minnesota approved a $20 million grant program to help expand broadband in rural areas of the state. That grant was distributed to a number of broadband projects, all wireline, which required a significant matching fund from an entity building the wireline facilities. The 2014 funding, which mostly went to independent telephone companies, is being used to bring broadband to thousands of rural residents as well as 150 rural businesses and 83 rural schools and libraries.

But the chairman of the House Job Growth and Energy Affordability Committee in Minnesota killed an additional state grant; it’s been left out of this year’s House budget. Rep. Pat Garofalo, R-Farmington, said that wired broadband is too costly in sparsely populated areas and believes that wireless and satellite technologies are more financially effective.

In another case, Verizon recently got the New Jersey State Board of Public Utilities to agree that it could use LTE data plans as substitutes for homes that are losing their copper or DSL services.

Another place where this same argument is being made concerns the upcoming funding from the Connect America Fund, which is part of the federal Universal Service Fund, and that is being directed towards expanding rural broadband. As written several years ago, the Fund is allowed to consider investing in wireless as well as wireline broadband networks.

There have been numerous parties lobbying to try to get these billions get directed towards landline networks and not towards wireless networks. The NTCA, which is now called the Rural Broadband Association, sponsored a report from Vantage Point Solutions that compares wireless and wireline technologies, and which argues that government funding should only be used to fund wireline networks. This whitepaper makes many of the same arguments I have been making for years about the topic, and included a few I had not considered. Here are some of the major arguments made by the whitepaper:

Even without considering the cost of spectrum, it costs far more to build a wireless network when comparing construction cost per megabit that can be delivered to end users. Modern fiber networks rarely cost more than $10 per Mbps capacity created, and often far less than that, while it costs several hundred dollars per effective megabit to construct a wireless network using any of the common technologies like LTE.
From a physics perspective, the amount of frequency available through US allocated spectrum is not large enough to deliver large symmetrical bandwidth, which is the goal of the National Broadband Plan. This limitation is a matter of physics and not of technology. That limitation is still going to be there with 5G or later wireless technology unless the FCC massively reworks the way it allows frequency to be used.
At least in today’s world, the prices charged to customers are drastically different for wireless and wireline data. Already today, 25% of residences are downloading more than 100 gigabits per month in total data. That can be affordable on wireline, but almost every current wireless provider has monthly data caps that range upward from just a few gigabits per month. A customer on a capped data plan who uses 100 gigabits in a month would face an astronomical monthly bill.
The report also made the economic argument that the shelf-life for wireless equipment and networks is relatively short, in the range of seven years, while fiber networks can have an incredibly long economic life. The report argues that the Connect America Fund should not be investing in technology that will obsolete and potentially unusable just a few years after it’s built. There certainly is no guarantee that the large wireless carriers will make needed future investments once they stop getting a federal subsidy.
The report also made all of the normal comparisons between the two technologies in terms of operating characteristics such as available bandwidth, latency times, and high reliability, all of which tilt in favor of landline.

I agree with this report wholeheartedly. I know that when I first read the language in the Connect America Fund my initial reaction was that the money would all go to cellular companies who would use the money to build rural cell towers. But fiber technology has gotten far more efficient in just the few years since that order. Also, the wireless businesses of Verizon and AT&T are the two most profitable entities in telecom, by far, and it makes no sense to flow billions of federal dollars to them to build what they will probably build anyway with their own money.

Certainly, expanding rural LTE would get some broadband to more people, but in the long run we would be better off directing that same money to bring a permanent solution to some rural areas rather than a poor solution for all of it.

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