Tag: Minnesota

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Regulation - What is it Good For?

Are BEAD Grants Large Enough?

One of the biggest questions associated with the $42.5 billion BEAD grant program is if that is enough money to solve the national rural digital divide. The funding will be allocated to states in a three-step process. First, States will get an automatic $100 million. Next, $4.2 billion will be directly allocated to States using the relative percentage of locations in each state defined as unserved and high-cost. This will rely on the new FCC maps, and the NTIA may still refine the definition of high-cost areas. The remaining $38.1 million will also be allocated to States using the new FCC maps, and will also use the relative number of unserved locations in each State.

The funding works out to be around $850 million per state, but the funding will vary significantly by state. Preliminary estimates have a number of states only getting $100 million – Connecticut, Delaware, District of Columbia, Hawaii, Maine, New Hampshire, North Dakota, Rhode Island, and Vermont. The largest estimated allocations are estimated to go to Texas at $4.2 billion and California at $2.8 billion.

States have been doing the math to see if they think the BEAD grant funding will be enough to reach every rural household with good broadband. I’ve only been able to find one article that cites an estimate of the effectiveness of the BEAD grants, but this one example raises some good questions.

The State of Minnesota is estimated to receive about $650 million in BEAD grant funding. In March of this year, the State Legislature approved $110 million for the existing Border-to-Border grant program, with most of the funding coming from federal ARPA funding given to the state. At that time, the State broadband office estimated that the state will need around $1.3 billion in total grant funding to reach everybody in the state. If that is a good estimate, then even after BEAD grants and the $110 million State grants, the state will be $540 million short.

This raises a lot of questions. First, inflation has hit the broadband industry hard, and I’ve seen a lot of estimates that the cost to build broadband networks is between 15% to 25% higher than just two years ago. That means that the $42.5 billion in BEAD funding is not going to stretch nearly as far as was estimated when Congress established the BEAD grants. This also raises the question of how much inflation will further increase costs over the years it’s going to take to build BEAD-funded networks. It’s not hard to imagine BEAD networks still being constructed in 2026 and beyond.

I’ve also seen estimates that the rules established by Congress and the NTIA for the BEAD grants could add as much as another 15% to the cost of building broadband networks compared to somebody not using grant funding. These extra costs come from a variety of factors, including the requirement to pay prevailing wages, expensive environmental studies that are not undertaken for non-grant projects, the requirement of getting a certified letter of credit, etc. The extra grant-related costs and the general inflation in the industry might mean that BEAD projects could cost 30% or more than building the same networks two years ago without grant funding.

This also raises an interesting question about how states allocated ARPA funding to broadband. Minnesota’s allocation of $110 million to broadband from ARPA is smaller than what many other states have done. As an example, my state of North Carolina allocated nearly $1 billion of the state’s ARPA money to broadband, and there are many states that have allocated $300 million or more to broadband. Part of the blame for a state like Minnesota not having enough money to reach everybody could be placed on the Legislature for not allocating much ARPA funding for broadband.

Another interesting question to be addressed is how State broadband offices will deal with areas where a 75% grant is not enough for an ISP to make a business case. From the feasibility work I’ve been doing this year, I think there are a lot more areas that fit the high-cost category than might be expected. The NTIA says that it might allow exceptions for grants up to 100% of the cost of assets – but asking for extra funding will probably open up the possibility for a State to instead fund less costly technologies. It might turn out that finding solutions for the many high-cost areas might be the unpredictable wild card in the BEAD grant process.

Finally, there are going to be areas where a State doesn’t make a BEAD grant award. It’s not hard to imagine a situation where only one ISP asks to serve an area, and a State broadband office decides that the ISP is unqualified to receive funding.

If the Minnesota estimate is even roughly accurate, it’s likely that Minnesota won’t be the only state that doesn’t receive enough BEAD money to get broadband to everybody. We’re not going to know this for sure until ISPs start applying for grants, but it won’t be a surprise if the BEAD grants are not large enough.

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Regulation - What is it Good For? The Industry

Minnesota Sues Comcast

Lori Swanson, the Attorney General of Minnesota sued Comcast on December 21 seeking refunds to all customers who were harmed by the company’s alleged violation of the state’s Prevention of Consumer Fraud Act and Uniform Deceptive Trade Practices Act. The complaint details the sort of practices that we’ve come to expect from most of the big cable companies – and hopefully this serves as a warning to smaller ISPs that might be following similar practices. It’s an interesting read.

The most significant dollar complaint is that Comcast has defrauded customers about the true nature of two fees – the ‘Regional Sports Network Fee’ and the ‘Broadcast TV’ fee. These two fees now total $18.25 per month. These fees are both a part of every cable package and are not optional to customers, but Comcast does not mention them when advertising the cable products. Further, Comcast customer service has repeatedly told the public that these fees are mandated by the government and are some a tax that is not set by Comcast.

Comcast only started charging separately for these two fees in 2014, but the size of these line items has skyrocketed on bills. In recent years the company has put a lot of the annual rate increases into these fees, allowing the company to continue to advertise low prices. The Regional Sports fee passes along the cost of Fox Sports North, and perhaps other regional sports. The Broadcast TV fee includes the amounts that Comcast pays local affiliate stations for ABC, CBS, FOX and NBC.

Interestingly, Comcast was previously sued over this same issue and settled the case without a verdict. As part of that suit the company promised to fix the problems, but they continued into 2017. In a pleading that is sure to displease company employees, Comcast threw its customer service reps under the bus and blame the issue on them. Comcast argues that breaking out these fees makes it easier for customers to know what they are paying for – but there are numerous examples cited in the complaint where new customers were surprised at the size of the first bill they receive from the company.

The complaint also says that the company often misrepresents the fees for equipment rental such as cable settop boxes, digital adapters and broadband modems. The complaint says that for some packages these fees add 30% to the cost of the product and are not fully disclosed to customers.

The complaint also says that Comcast routinely adds unwanted fees to customer bills. Customers that are visited by Comcast field technicians, who visit a business office or who buy from a Comcast door-to-door salesperson are often surprised to see additional products added to their bill. The complaint blames this on the practice of paying commissions to employees for sales.

The complaint notes that Comcast is well aware of these issues. The company settled an FCC complaint about the same issues in 2016 and late last year made refunds to more than 20,000 customers in Massachusetts over these same issues.

It’s not hard to verify some of the issue. If you go to the Comcast website you’ll find that it’s almost impossible to find the real cost of their cable and broadband products. The company constantly advertises low-priced specials that don’t mention the extra programming fees or the equipment fees.

This is a cautionary tale for smaller ISPs that compete with Comcast or other large cable companies. It’s always tempting to advertise cheap special prices in response to big cable company advertising. I know many smaller cable providers that have also separated out the sports and broadcast fees and who are not always fully forthcoming about equipment charges and other fees. It’s hard to watch customers leave who are lured by falsely advertised low prices – but most small ISPs have elected to deal with customers fairly as a way to differentiate themselves from the big companies.

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Regulation - What is it Good For?

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.

Categories
Regulation - What is it Good For?

State Contributions for Broadband

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.

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Current News The Industry

The National Broadband Map

Seal of the United States Federal Communications Commission. (Photo credit: Wikipedia)

Last Thursday the FCC voted to take over the data collection for the National Broadband Map. The Map was created as part of the funding for broadband supplied a few years ago by the Stimulus package. The Map was created and administered by the NTIA (National Telecommunications and Information Administration) with input from the states, and that funding is now running out.

Back when the Map was suggested I thought the concept was a good one. But as soon I saw that the data gathered for the Map was to be self-reported by carriers I knew that there were going to be problems. And sure enough, when the first generation Map was produced it was full of errors – big errors.

I work with a lot of rural communities and I have reviewed the maps in many areas of the country and compared it to the actual deployment of broadband. Some communities have developed their own maps – and they did it the hard way. They sent people around to see where broadband was available. A lot of this can be done by somebody who knows how to look up at the cables. It’s easy to know where cable modems are available by the presence of coaxial cable on the poles. And rural DSL generally has repeaters that can be spotted by the eagle-eyed observer. And it’s not hard to look at your cell phone to see how many bars of data you can get. But the best test of where broadband is at is done by knocking on doors and asking people what they are able to buy.

As an example of what I found, let me talk about the issues found in just one county in Minnesota. The Map showed that most of the County had landline broadband availability. The County is very typical of rural areas and the County Seat is the largest town in the County. There are half a dozen much smaller towns and everything else is rural. A large chunk of the rural area is a national forest where very few people live. Most people live in close proximity of the roads in the rural areas.

The reality in this County is that even in the several of the smaller towns the DSL is so slow that it is hard to think of it as broadband. It’s more like dial-up plus. And there was no cable modem service from the cable company outside of the County Seat. And as is typical with DSL, as one goes outside of the towns the quality of the DSL quickly degrades with distance from the DSL hub. We’ve always called this the donut effect with large areas of no broadband surrounding rural towns that have DSL and/or cable modems.

The Map also showed that almost every populated area of this Minnesota County had 3G wireless data available. It’s a very hilly and rugged place and probably half of the county by area can’t even get cellular voice calls, let alone data. But even where voice is available there are many areas that can’t get cellular data. The Map was just wrong about this.

Everywhere that I have helped communities look at the Map we have seen the same thing. The Map shows broadband that isn’t there. It shows cellular data coverage that isn’t there. And it often shows providers that are supposedly serving the counties that nobody ever heard of.

And this is not true for just rural counties. I have helped two suburban counties near large cities look at the Map and they found the same situation. The Map showed areas that are supposed to have broadband where their citizens still have dial-up or satellite. And cellular coverage was exaggerated on the Map.

An obvious question is why this matters? The national Broadband Map has only been around for only a few years and anybody who has ever looked at it knows it us full of inaccuracies. The problem is that the federal government now relies on the Map for several purposes. For instance, if you want to get federal money by loan or grant to deploy rural broadband the assumption is that the Map is good. It is then your responsibility to show where the map is wrong.

And the FCC uses the Map when it talks about the availability of Broadband in rural America. The Map has been overlaid with Census data to count how many households can get broadband. This produces a very distorted picture of who has broadband. There are pockets of people without broadband in even some of the most populated counties in the country and the Map simply misses them. And in rural areas the Map can be very wrong.

The FCC just took over responsibility for the Map. From my perspective they either need to do it right or get out of the mapping business. It’s not easy to get it right, but it can be done. One of the easiest steps they could take would be to give counties the authority to clean up the maps for their areas. Many of them would be glad to do that. And broadband availability is not static. There are areas all of the time getting or losing broadband. If the FCC won’t take the time to get the Map right they should just let it die as another impractical idea.

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