Not Giving Up on CAF II

Brandon Presley, a Commissioner on the Public Service Commission of Mississippi, recently sent a letter to FCC Chairwoman Jessica Rosenworcel asking the FCC to investigate AT&T’s performance under the CAF II program. This FCC program gave AT&T $280 million to improve rural broadband speeds in the state to at least 10/1 Mbps.

Presley’s letter follows a request a year earlier from all three Mississippi Commissioners asking the FCC to conduct a full compliance audit on AT&T. The letter said that the PSC had documented specific examples of where AT&T had not done any upgrades, including listing homes as having improved service that have no broadband service.

This is an issue that I’ve written about many times. My consulting firm helps rural counties across the country undertake large volumes of speed tests – and in some counties, we can’t find any rural DSL customers who are receiving 10/1 Mbps DSL. These counties weren’t just served by AT&T, and we’ve seen the same thing happening in counties served by Frontier, CenturyLink, and Windstream.

To be fair to the telcos, the problem is not universal. We have done speed tests in counties where most rural DSL speeds exceed 10/1 Mbps. But it looks to us like there are a lot of places where the telcos didn’t do much, if anything, with the CAF II funding. In many of our studies, we also do field engineering inspections, and we’ve often found no new fiber construction and rural DSL cabinets still running old DSL technology. We’ve seen in many counties where the DSL speeds in the county seats has improved, and we speculate that the telcos upgraded the town DSL using the CAF II but didn’t spend the money as promised in the rural areas.

We no longer have to rely on our small sample of county speed tests because the recent NTIA maps and the DSL maps created by some states show the same thing. Those maps are often created by huge numbers of speed tests. We know that speed tests are not perfect, but when large-scale speed tests show that nobody is meeting the CAF II 10/1 Mbps target that it’s pretty certain that no upgrades were made.

As you might expect, AT&T denies the allegations in Mississippi. They claim to “have invested billions of dollars, building out our wired and wireless networks across Mississippi, and we are proud of the work we have done as a company to keep communities connected and help fuel Mississippi’s economy. . . We are also proud of the work we have done through federal and state programs that help expand critical connectivity in underserved and unserved areas, including the FCC’s Connect America Fund Phase II program. We have worked closely with the FCC and USAC on this program and any suggestion that we filed false data is patently incorrect.”

The AT&T situation is more complicated than the other big telcos because AT&T largely says it is meeting the CAF II requirements using fixed cellular service. It’s probably true that customers today who are in the range of AT&T towers that have received the new bands of frequency being labeled as 5G can receive faster broadband. But those new cellular networks don’t reach everybody in rural areas, and there are still a lot of cellular dead spots. More importantly, AT&T only started to upgrade the rural cellular networks after the end of the CAF II program.

Hopefully, this issue soon becomes history if the new round of federal grants brings faster broadband to these rural areas. But Commissioner Presley is worried that AT&T and the other big telcos will chase the new funding and will repeat history by underperforming on promises made to regulators.

This also raises the question about whether there should be large penalties against the telcos who didn’t make the upgrades. It would not be hard for the FCC to make a list of counties where upgrades weren’t made. They have access to large amounts of speed tests, and they could also activate local governments to investigate and provide feedback.

I personally think the right remedy is that the telcos must return the full amount of funding in areas where they didn’t make upgrades and that money ought to supplement the BEAD grants and be given to whoever is going to bring better broadband to the affected counties.

Ideally, the FCC or other federal agencies would prohibit any telco that is caught cheating in this manner from getting any further rural subsidies. The big telcos are lining up to pursue the $42.5 billion in BEAD grants that will probably be awarded a year or so from now. AT&T recently announced that these big grants have enticed it to add a goal of 5 million new fiber passings in rural areas. Since those grants are administered by the states, AT&T might have a challenge getting any of the BEAD grants if State officials like Commissioner Presley have any input on the grant winners.

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.