Mass Confusion over FCC Mapping

You might not be surprised to hear that I am tired of talking about the FCC map. I spend way too much time these days answering questions about the maps. I understand why folks are confused because there are several major mapping timelines and issues progressing at the same time. It’s nearly impossible to understand the significance of the many dates that are being bandied around the industry.

The first issue is the FCC mapping fabric. The FCC recently encouraged state and local governments and ISPs to file bulk challenges to the fabric by June 30. This is the database that attempts to locate every location in the country that can get broadband. The first mapping fabric issued in June 2022 was largely a disaster. Large numbers of locations were missing from the first fabric, while the fabric also contains locations that don’t exist.

Most experienced folks that I know in the industry are unhappy with the fabric because its definition of locations that can get broadband is drastically different than the traditional way that the industry counts possible customers, which is commonly called passings. For example, the FCC mapping fabric might identify an apartment building or trailer park as one location, while the industry would count individual living units as potential customers. This disconnect means that the fabric will never be useful for counting the number of folks who have (or don’t have) broadband, which I thought was the primary reason for the new maps. Some folks have estimated that even a corrected fabric might be shy 30 or 40 million possible broadband customers.

Meanwhile, ISPs were instructed to use the original mapping fabric to report broadband coverage and speeds – the FCC 477 reporting process. The first set of the new 477 reporting was submitted on September 1, 2022. Many folks that have dug into the detail believe that some ISPs used the new reporting structure to overstate broadband coverage and speeds even more than was done in the older maps. The new maps globally show a lot fewer folks who can’t buy good broadband.

There is a second round of 477 reporting due on March 1. That second 477 reporting is obviously not going to use the revised mapping fabric, which will still be accepting bulk challenges until June 30. It could take much longer for those challenges to be processed. There have been some revisions to the fabric due to challenges that were made early, but some of the folks who made early map challenges are reporting that a large majority of the challenges they made were not accepted. This means that ISPs will be reporting broadband on top of a map that still includes the mistakes in the original fabric.

The FCC’s speed reporting rules still include a fatal flaw in that ISPs are allowed to report marketing broadband speeds rather than actual speeds. This has always been the biggest problem with FCC 477 reporting, and it’s the one bad aspect of the old reporting that is still in place. As long as an ISP that delivers 10 Mbps download still markets and reports its speeds as ‘up to 100 Mbps’, the maps are never going to be useful for any of the stated goals of counting customers without broadband.

Finally, the NTIA is required to use the FCC maps to determine how much BEAD grant funding goes to each state. NTIA announced that it will report the funding allocation on June 30. That date means that none of the mapping challenges that states and counties have been working on will be reflected in the maps used to allocate the grant funding. The NTIA announcement implies that only the earliest challenges to the maps might be included in the database used to determine the number of unserved and underserved locations in each state. States that have already made challenges know that those numbers include a lot of mistakes and missed a lot of locations.

Not only will the NTIA decision on funding allocation not include the large bulk challenges filed or underway by many state and local governments, but it won’t reflect the latest 477 reporting being submitted on March 1. There are several states that have made rumblings about suing the NTIA if they don’t get what they consider to be a fair allocation of the BEAD funding. If that happens, all bets are off if a court issues an injunction of the grant allocation process until the maps get better. I can’t help but be cynical about this since I can’t see these maps ever being good enough to count the number of homes that can’t buy broadband. This whole mapping process is the very definition of a slow-motion train wreck, and that means I’ll likely be answering questions about the maps for the indeterminate future.

Why the Complexity?

It’s been over a year since the BEAD grant program was announced. While there has been a lot of activity on BEAD, there is still a long way to go before this grant money is used to build new broadband infrastructure. Most of the delay is due to the incredible complexity of the BEAD grant rules.

I work with a lot of different state broadband grant programs, and I can’t help but notice the tremendous difference in the complexity of the process between state and BEAD grants. The priority for state grant programs is usually to quickly get the money out the door and spent on infrastructure. State legislators that approve grant funding want to see construction started no later than the year after the grant award, and hopefully sooner. State grant offices are generally given instructions to identify worthwhile projects and get the money approved and quickly into the hands of the ISPs to build networks.

The differences between state grants and BEAD are stunning. I have one client that won a $10 million state grant based on a simple grant application of less than 20 pages. The grant reviewers asked a few follow-up questions, but the whole process was relatively easy. The grant office was relying on the challenge process by ISPs to identify grants that were asking to overbuild areas that already have broadband. The challenge process seemed to work – a number of the grants filed in this particular program were successfully challenged. But the bottom line is that the funding was made available to start construction in less than a year from the date when the grant office originally solicited grant applications.

Why are the BEAD grants so complicated? It starts with Congress, and a lot of the complexity is directly specified in the IIJA legislation that created the grants. My pet theory is that the complexity was introduced by lobbyists of the large ISPs that wanted to make the grants unfriendly to everybody other than big ISPs with the resources to tackle the complex rules. It’s unfathomable to me that congressional staffers would have invented these complex rules on their own. I knew on my first reading of the IIJA legislation that the grants favor big companies over small ones.

In the legislation, Congress decided to give the administration of the grants to the NTIA. The NTIA had a major decision to make on day one. The agency could have taken the approach of smoothing out the congressional language to make it as easy as possible for ISPs seeking the funding. The NTIA had political cover to take a light-touch approach since the legislation stressed the importance of quick action to solve the rural broadband crisis. The White House has also been urging federal agencies to speed up the process of turning IIJA funding into infrastructure projects.

Unfortunately, the NTIA didn’t take this approach. It looks like the agency did just the opposite – the agency embellished and strengthened the congressional language and made it even more complex to file for the grants.

I don’t think the NTIA had any agenda to make the grant more complicated. It’s impossible to think the agency had early discussions about how to make it harder to use the grant funding. But the agency did have an overriding desire to do these grants the right way. The general industry consensus is that the grants were given to the NTIA instead of the FCC because of the terribly botched RDOF subsidy program. It would be hard to design a federal broadband program that would have been more poorly handled than RDOF (except perhaps for CAF II, which also was done by the FCC).

I think BEAD became more complex, one topic at a time. I think folks at NTIA looked at each congressionally mandated rule and asked how they could make sure that no money went to an unqualified ISP. Instead of softening grant requirements, I think the NTIA staff instead asked how they could be positive that no unworthy ISPs sneak through BEAD process – something that clearly happened in the FCC’s RDOF process. The final NTIA BEAD rules are not a manual on how to get grant money spent efficiently – but a manual on how to make sure that only qualified ISPs win the funding.

That doesn’t sound like a bad goal. Some of the ISPs that won the RDOF funding were spectacularly unqualified – either financially, managerially, or technically. But as each of the many BEAD rules was made as safe as possible, the collective combination of all of the BEAD rules being made super-safe creates major hurdles for ISPs. Almost every ISP I know is going to have a problem with at least a few of the rules – and I think many qualified ISPs are going pass on the BEAD grants. There is something wrong with a grant program that has hundred-year-old telephone companies wondering if they can qualify for the grants.

There is still a chance for State broadband offices to smooth out the worst of the BEAD rules. A State broadband office can push back against the NTIA BEAD rules that make it too hard for ISPs to get funded. The NTIA can’t excuse any specific mandate that was created by Congress – but the NTIA can relax and compromise on its interpretation of these rules.

The big challenge facing State grant offices is how hard they are willing to push back against the NTIA. Every State is under pressure to finally get the grant process underway, and any challenge will likely add time before funding is available. Every State broadband office already knows the ISPs it would like to see win the funding – those ISPs that will be conscientious in operating the network after its built. State broadband offices need to listen and react to the concerns that these ISPs have about the grant process – because if they don’t, many of the best ISPs are going to take a pass on the grants.

Please Don’t Force Low Rates

The NTIA conducts an annual broadband survey, and the 2021 survey asked a question about affordability. The survey asked folks who didn’t have home broadband what they would be willing to pay, with the question, “At what monthly price, if any, would your household buy home Internet service?”

The NTIA estimates that there are over four million households that say they can’t afford broadband. The purpose of the survey was to understand the kind of price points that might be needed to get broadband to more of these households. I think the NTIA was surprised by the results – three-quarters of respondents said they would only get broadband if it was free.

I find this result to be troubling for several reasons. First, many of the homes in this category are the poorest homes that truly can’t afford broadband. I’m sure many of the folks who say they can’t afford broadband would love to have it like most of the rest of us. But as important as broadband is, it’s not more important than rent and food.

My second problem is that not everybody who says they can’t afford is telling the truth. How do I know this? My firm has been doing surveys in the industry for over twenty years, and we’ve asked some version of the same question in hundreds of surveys. What I have discovered is doing surveys is that the responses to any survey questions involving money are not fully reliable.

This is well-known by folks who give surveys for a living. As an example, as many as half of survey respondents give a false answer when asked the level of family income. There are a lot of conjectures about why this is so, but surveyors know you can’t fully trust the responses to most questions involving money.

A question I’ve often asked is what people would like to pay for broadband. That’s a little different than the question being asked by the NTIA, but not much different. The big difference is that we ask this question to everybody, not just those who say they can’t afford broadband. It’s not usual to see 20% or 30% of respondents saying they don’t want to pay more than $10 or $15 per month. Most of the people giving that response are already paying $60 or $70 per month for broadband. I have no doubt that the responses about wanting low rates are serious – folks really would love to save money. But the responses I see are clearly reflecting what folks wish that broadband cost, which is different than what they are willing to spend – we already know they are spending a lot more. ISPs that get this survey response never know what to do with the answer – they know they can’t afford to sell broadband at super-low rates if they want to stay in business.

My biggest concern is what the NTIA or State Broadband Offices will do with the results of this survey. I’m afraid they are going to come out with a policy that ISPs must offer a $30 broadband rate coupled with the $30 ACP plan reimbursement for qualifying homes. This would provide broadband to the homes that really can’t afford broadband – but it would also give low-price broadband to a lot of homes that are willing to pay more, but who will gladly take the discount.

I’ve looked at dozens of rural broadband feasibility studies this year, and most rural ISPs absolutely cannot make the business work if some portion of customers is only paying $30 (through the ACP). I’ve looked at a lot of plans where the rates have to be $60, $70, or even $80 for the ISP to cover all costs – particularly the debt used to provide grant matching funds.

The NTIA isn’t supposed to be able to direct rates in the BEAD grants. The IIJA legislation clearly says that the NTIA cannot force any kind of price control on grant applicants. But that doesn’t mean they can’t try this in a backdoor way, such as giving more grant points to ISPs willing to offer super-low rates. That probably doesn’t qualify as forcing low rates, but it sure feels the same.

My last trouble is that I sympathize with the NTIA if they try this. The agency wants to get broadband into every home, and the only way to do this for the poorest homes is to make broadband somehow free. I know that rural cooperatives and telephone companies might try to make this work. But as I tell all of my clients – you have to let the numbers speak. If an ISP needs $70 rates to break even and then offers a $30 broadband product as a way to get grants, they are going to put the entire business at risk if too many people take that product.

I know forcing low rates is tempting, and it would feel like a good policy. But you can’t put rate pressure on ISPs willing to work in rural areas where costs are already sky-high. If the government wants the poorest homes to get broadband, the right solution is to something like putting more money into the ACP. The right solution is not to ask ISPs to shoulder the economic burden of too-low rates.

The Demand for Middle-Mile Fiber

The deadline for the NTIA’s middle-mile grant program just closed, and the NTIA said that it received 235 applications totaling $5.5 billion in grant requests for a $1 billion grant program. Applicants in parts of Florida, South Carolina, Puerto Rico, and Alaska were given more time to apply due to recent natural disasters, so there may still be a few more requests. I think the program would have received many more requests, but folks already assumed it would be massively oversubscribed.

I was surprised when the IIJA legislation allocated only $1 billion to middle-mile fiber. That works out to only $20 million per state. That may sound like a lot, but to put it into perspective, California set aside $3.25 billion of its ARPA funding just for middle-mile. The one billion is nice, but it is not nearly enough to satisfy the nationwide need for more fiber backbones reaching into rural areas and connecting cities.

What exactly is middle-mile fiber? It’s the fiber used to connect communities to the Internet. Middle-mile fiber brings the transport that is needed to serve last-mile ISPs, cell towers, and any large broadband users like hospitals, factories, or other key anchor institutions.

It’s easy to understand why middle-mile fiber is needed. Much of rural America is connected to the Internet by a single fiber route provided by one of the big rural telephone companies. If there are fiber cuts or problems with the electronics on the only existing fiber route, an entire region will lose broadband. Just over the last month, I’ve talked with three counties that have experienced broadband outages this year that lasted from half a day to several days. It’s easy to imagine in today’s world how these outages can decimate a local economy.

Middle-mile is needed for several reasons. First, some of the fiber routes reaching remote areas were built in the 1980s and 1990s and are aging. There have been big improvements in the manufacturing of fiber since then, and new fiber is expected to have a much longer expected life, but some of the fiber built in those years is wearing out. Part of the problem with older fiber is that we used poor construction techniques decades ago, where we tugged fiber through conduits and created small stress points that went bad prematurely – we are much gentler with fiber installation today. Aerial fiber reaching into rural areas tends to follow the main roads, and aerial fibers have likely been cut over time from accidents that broke poles or storm damage.

The other reason we need more fiber is resiliency. Until recently we used the word redundancy to describe this need. Redundancy meant building fiber into rings so that a single fiber cut wouldn’t knock out a town or region from broadband. Resiliency stretches that definition further to talk about building fiber in such a way that it is better protected from fiber cuts and can be repaired more quickly.

The final reason we need more middle-mile fiber is cost – monopoly providers tend to charge a lot for transport on monopoly routes. Prices tumble when there is middle-mile competition.

Grants are needed to build rural middle-mile fiber because there is likely not going to be enough revenue on most rural fiber routes to justify funding a middle-mile route with normal financing. Grant funding for middle-mile makes the statement that rural communities are important. It doesn’t do much good to build rural last-mile networks if there is no affordable and reliable way to bring bandwidth to the new networks.

It will be interesting to see how the NTIA spreads the funding. I have to imagine that some of the grant requests are from states or groups of counties asking to build large statewide or regional networks. It’s likely that most of the grant requests hope to build fiber routes that immediately solve existing problems. But unfortunately, more than 80% of the requests are not going to get funded. Maybe the great demand for this grant program will prompt Congress to find more funding for middle-mile. It’s one of the best investments they can make.

Lobbying the BEAD Rules

Thirteen Republican Senators sent a letter to the NTIA asking the agency to change its approach in administering some of the provisions of the $42.5 billion BEAD grants. This is just one of the first of what I think will be many attempts to influence how the grant funding is awarded. We can’t ignore that there will be politics involved in determining who gets grant awards. That became inevitable for a grant program of $42.5 billion that also involves the States.

The letter specifically asked for changes related to rate regulation, technology preference, provider preference, workforce requirements, middle mile deployments, and the application review process.

Rate Regulation. The Senators point out that the legislation has a specific prohibition of the BEAD program suggesting or requiring broadband rates. The letter argues that the NOFO for the program suggests several requirements that will set or restrict rates, such as a suggestion that there should be a low-cost option established at $30 along with a still-undefined middle-class affordability plan.

Technology Neutrality. The Senators take exception to the NTIA’s clear preference for fiber and want to make sure that fixed wireless and cable technologies can be considered for grants.

Preferences for Grant Recipients. The Senators are concerned that the NOFO for the program insists that there is an equitable and nondiscriminatory focus for choosing grant winners. They fear that this is going to push state grant offices to favor non-traditional broadband providers instead of existing proven ISPs.

BEAD and Digital Equity Participation. The Senators want to make sure that there is no automatic link between a State participating in both the BEAD program and the Digital Equity program. This is the first time I’ve heard of this issue, and this means there are States considering not accepting the funding that will be used for getting computers into homes and offering digital literacy training.

Workforce Preference. The Senators believe that the BEAD rules favor ISPs that use a ‘directly employed workforce’ as opposed to contractors and subcontractors. That observation was a new one for me and will send me back to reading the NOFO more carefully. The Senators are also worried about the requirement that projects greater than $35 million must enter into a project labor agreement – something they say will be challenging in a market with a skilled labor shortage.

Middle-Mile Deployment. The Senators don’t like the requirement that any project that includes middle-mile routes must allow for interconnection with other carriers that want to use the fiber routes.

Unnecessary Burdens. The Senators say there are requirements that add burdens on grant applicants that were not included in the legislation. This includes issues such climate resiliency and system hardening for the useful life of fiber. They say such requirements add unnecessary costs and will delay the deployment of networks.

It’s an interesting list of objections. A few of the objections are on everybody’s hate list of the grant rules. Grant applicants do not want to figure out a climate resiliency plan and will be fearful if they do it poorly, they might not win a grant.

A few of the requests are clearly in favor of incumbent ISPs, such as any requirement that might force a State broadband office to consider non-traditional ISPs like cities.

And a few requests are things that concern all ISPs, such as the NTIA requiring broadband rates that are too low to make a business plan work.

Just as interesting are the items not included on the list. Small ISPs are worried about the requirement to have a certified letter of credit – something that doesn’t concern large ISPs. Not having this on the list makes me think the Senators are being prompted by big ISPs.

This blog is not meant as a criticism of the Senators’ suggestions. Every constituency in the country is going to have its own wish list of things the BEAD grants should emphasize or deemphasize. I’m hoping to collect these as I see them – it will be interesting when the dust clears to see who had the most influence on the BEAD rules.

Averting a Mapping Disaster?

Alan Davidson, the head of the National Telecommunications and Information Administration, recently announced that the agency is canceling plans to use the first iteration of the new FCC maps that the FCC says will be available by early November. Davidson says that he feels obligated to let the FCC’s challenge process play out before using the mapping data. I’m sure this wasn’t an easy decision, but it says that it’s better to hold out for a more accurate map rather than settling for the first iterations of the new FCC maps.

This decision will clearly add more time and delay to the $42.5 billion BEAD grant program. But the decision to wait recognizes that using incorrect maps would almost inevitably mean lawsuits that could delay the grant program even longer.

The timing of the new maps became unfortunate when Congress mandated that the FCC maps must be used to allocate over $38 billion in grant funding to states. The FCC has been stating all summer that it hopes that the new maps will be relatively accurate and will fix many of the obvious problems in the current broadband maps. If it wasn’t for the pressure of the BEAD grant program, the FCC would have had several cycles of the new maps to smooth out kinks and errors in the reporting before they had to bless the new maps as solid. The NTIA decision to delay relieves the pressure to have the first set of maps be error-free – which nobody believes will happen. I have a hard time recalling any cutover of a major government software system that was right the first time, and the FCC’s assurances all summer have felt more like bravado than anything else.

Over the last few weeks, I’ve been talking to the engineers and other folks who are helping ISPs with the new maps. I didn’t talk to anybody who thinks the new maps will be solid or accurate. Engineers are, by definition, somewhat cautious folks, but I expected to find at least a few folks who thought the new maps would be okay.

I’ve been saying for six months that the likelihood of the new maps being accurate is low, and I was thinking about not writing anything more about mapping until we see what the new maps produce. However, I was prompted to write about mapping again when I saw a headline in FierceTelecom that quoted Jonathan Chambers of Conexon saying that the new maps will be a train wreck. Conexon is working with electric cooperatives all across the country to build broadband networks, which gives the company an interesting perspective on rural issues.

Jonathan Chambers cites two reasons for pessimism. One is the reason I already mentioned, which is that it’s irrational to use the outputs of a new federal mapping system to allocate billions of dollars between states. He says that there are simpler alternatives that would take all of the pressure off the new mapping system. He’s right, but unfortunately, Congress specifically required In the IIJA legislation that the FCC maps be used. It would take an act of Congress to change that ruling.

Chambers is also pessimistic about the challenge process that is being allowed for the new maps. He expects the challenges to be major and ongoing. It seems unlikely that the FCC is prepared to investigate the huge number of protests that could come from every corner of the country claiming that the new maps got the facts wrong.

My discussions with engineers raised other questions not mentioned by Chambers. Some engineers told me that the underlying mapping fabric has a lot of mistakes. This is where CostQuest, the firm that created the new mapping system, laid out the location nationwide of every possible broadband customer. This was a nearly impossible task in the short time the company had to create the maps. I’ve been working for years with local governments that use GIS data to define potential broadband locations, and it’s always a challenge to identify only those buildings where somebody might buy broadband and exclude buildings used for some other purpose.

My biggest concern is that ISPs are still allowed to report marketing speeds instead of actual speeds, and I fear that ISPs will be motivated to overstate broadband speeds in the new maps (like many have done in the old ones). Any areas designated by the maps to already have broadband available at 100/20 Mbps will be declared ineligible for the BEAD grants, and any ISP that wants to protect against being overbuilt has a high motivation to claim that speed – and it seems likely that many of them will do so. I don’t know if this is true, but my interpretation of the FCC map challenge is that the FCC won’t entertain challenges based on speed, but only on the coverage area. If that is true there will be a huge uproar from states and communities that get disadvantaged from deceptive reporting by ISPs.

I’ve also heard from ISPs in the last week that were unable to navigate the new mapping system by the deadline. These are relatively small ISPs, but many of them have built fiber and it’s not good to have them excluded from the maps. I’ve heard from multiple sources that the new mapping system is not easy to use. I’ve heard from ISPs who didn’t have an engineer who was able to certify the maps and just gave up.

I guess we’ll find out in a few months how the first draft of the maps turns out. The FCC says it will release the results by early November. I expect there are a whole lot of folks who are poised to compare the new maps to their local knowledge of actual broadband usage – and then the challenges will begin.

Is 75% Grant Funding Enough?

It seemed like a really big deal when the ReConnect program and the new BEAD grants upped the amount of federal grants to 75%. Before this, it was hard to find a grant program that offered more than 50% of the funding.

I’ve created hundreds of rural business plans, and I’m still seeing a lot of situations where a 75% grant is not enough assistance to create a viable ongoing business plan. I’ve recently worked on several business plans that gave me the opportunity to explore this issue in more detail.

People always want me to provide metrics. They want to know generically if a market can work with the available grants. But it’s not that easy. There are multiple variables that impact the amount of grant that is needed. One is the cost per passing – what’s the capital cost to bring fiber past every customer in a given footprint? Equally as important is the expected customer penetration rate. There has to be enough customers and revenues to pay to support any matching funds. Another key variable is broadband prices – you need less grant funding if customers will be paying $70 instead $50 per month. Finally, the newest variable that has entered the picture is the interest rate, assuming that an ISP is borrowing the matching funds. There are other variables that matter to a lesser extent, such as the relative cost of the salaries and benefits for new employees, something that varies significantly from region to region and ISP to ISP.

It is the interplay of these many variables that determine the percentage of grant funding that is needed for any particular ISP in a given market. For example, if two ISPs have the same cost per passing, interest rate, and expected customer penetration, the ISP with the lowest broadband rates will need more grant funding. It’s a fairly intricate algebra problem that every ISP needs to solve.

I’ve created enough business plans that I know there are a whole lot of business plans that are going to require more than a 75% grant to be viable for an ISP. If an ISP doesn’t get enough grant funding, then taking on a new market will drag down the core existing ISP business for decades to come until after the matching funds have been paid for.

The NTIA is going to allow for some grants greater than 75% based upon categorizing areas as high cost. This is a mixed benefit because being classified as high-cost can also mean that the BEAD grants can fund a technology other than fiber. The NTIA hasn’t announced its high-cost parameters yet, but it seems likely that this will be some variation of cost per passing. The agency still hasn’t released that number, and I’m hoping that’s because they are finding out that concentrating on just one of the key variables cannot suffice to define a high-cost area.

Cost per passing is obviously an important variable. It’s going to generally be easier to find a funding solution for a market with an average cost per passing of $10,000 compared to another market with a cost of $15,000. But if the NTIA looks deeper, it might find that the ISP seeing the higher cost per passing might have a viable business plan while the other does not. For example, if the ISP with the highest network costs has higher broadband rates and knows it will achieve a higher customer penetration rate, that ISP might be comfortable accepting a 75% grant, while that may not be nearly enough grant for the second ISP.

When ISPs seek grant funds, they often have to make uncomfortable decisions. I’ve worked with several ISPs recently that finally came to realize that their proposed broadband rates are too low for grant areas. Cooperatives and municipal ISPs want to bring low rates to customers. But the algebra doesn’t lie, and there has to be enough future revenue to satisfy the debt used to finance the matching funds. If that means starting with higher rates, then that’s what is needed to accept grant funding.

I fear that there are a whole lot of ISPs not doing the math that will wonder five years from now why they took the grant funding to expand. The good news is there is usually a way out of a struggling business plan, but it might not be comfortable. It might mean raising rates or going door-to-door to get every possible customer in a market to make it work.

I know that some folks were hoping after reading the first few paragraphs of this blog that I was going to give them the magic metric – a 75% grant will be sufficient in an area that has a cost per passing under $X. I wish it was that simple, but it’s not.

Should Grant Networks Allow High Prices?

I wrote a blog yesterday about a grant application filed in Nebraska by AMG Technology Investment Group (Nextlink Internet). This is one of the companies that won the RDOF reverse auction at the FCC but is still waiting to hear if it will be awarded the FCC subsidy funding.

One of the things that caught my eye on the grant request was the proposed broadband rate. Nextlink is proposing a rate of $109.95 for a 2-year contract for 100/100 Mbps. I have to assume that the rate without a 2-year contract is even higher – or maybe a customer can’t buy broadband for less than a 2-year commitment.

Today’s blog asks the question – should higher-than-market rates be allowed on a network that is being subsidized with public funding? This is not the first time I’ve seen a rate that high, and I can recall at least two other RDOF winners planning on basic rates of at least $100. One example is Starlink, which also has not yet been approved by the FCC for RDOF and which has a $110 rate.

I don’t think there is any question that a $110 rate is higher than the market. Should an agency that awards grants or other broadband subsidies somehow insist that broadband rates are somehow tied to market rates? That’s a lot harder question to answer than you might think because the question implies that these agencies have the power to regulate or cap broadband prices in grant areas.

The Ajit Pai FCC voluntarily gave away the right for the FCC to regulate broadband rates when it gave up Title II authority. It’s not clear if that decision has any bearing on other federal agencies that award grants like NTIA, EDA, and USDA. Can these federal agencies insist on affordable rates for ISPs that take federal funding? If not, can the agencies at least consider rates when deciding who gets grant funding – can these agencies assign fewer qualifying grant points to somebody with a $100 basic rate compared to somebody with a $50 rate?

I think we got a hint that considering rates is probably allowed since Congress made it clear with the BEAD legislation that the NTIA has no authority to regulate rates – this implies that without that specific Congressional mandate that the NTIA might have had that authority. But even the specific BEAD edict might not mean that rates can’t be considered in BEAD grants.

It’s an even fuzzier question if a State has the right to set rates. There have always been two schools of thought about the scope of State versus Federal authority in terms of regulating broadband. I’ve heard it argued that a State’s right to regulate broadband rolls downhill from the federal ability to regulate. If you believe in this philosophy, then a State’s right to regulate broadband rates was severely weakened when the FCC gave up its rights. But I’ve also heard just the opposite argued – that a State has the right to step into any regulatory void left by federal regulators. We recently saw this concept in action when courts recently upheld California’s right to implement net neutrality rules after the FCC washed its hands of such authority. If you accept this view of regulation, a State can tackle rate regulation if the FCC refuses to do so.

To be fair to Nextlink, the company also offers less expensive broadband rates. Its fixed wireless products, rates start at $69.95 for a 15 Mbps download connection. Fiber prices start at $49.99 for a 25 Mbps download speed. But these lower rates for slower speeds raise more questions for me. Many of the current broadband grants require building networks that can deliver at least 100/100 Mbps broadband. Should an ISP be able to use a grant-funded network to offer anything slower? The whole point of these grant programs is to bring faster broadband across America. Should a network that is funded with public money be allowed to set slower speeds for the most affordable options? If so, it’s hard to argue that the ISP is delivering 100/100 Mbps broadband everywhere. If the agencies awarding grants can’t demand affordable rates, perhaps they can demand that 100/100 Mbps is the slowest product that can be offered on a grant-subsidized network. Nobody is forcing ISPs to accept grant funding and other subsidies, but when they elect to take public money, it seems like there can be strings attached.

I also wonder if ISPs benefitting from a grant-subsidized network ought to have the ability to force customers into long-term contracts? It’s not hard to make the case that the public money paying for the network should justify public-friendly products and practices.

As a final note, this topic highlights another glaring shortfall of awarding subsidies through a reverse auction rather than through grants. With RDOF, the reverse auction determined the winner of the subsidy first, and then the FCC proceeded to find out the plans of the subsidy winners. There were no pre-determined rules for issues like rates that an RDOF winner was forced to accept as part of accepting the public money. Let’s not do that again.

Grants and Upload Speeds

The NTIA set a new definition of broadband at 100/20 Mbps for purposes of the BEAD grants – if a customer fails that test they are considered either unserved or underserved. Everybody nationwide has been so focused on download speeds that we are largely ignoring the fact that a huge number of nationwide broadband customers are not getting upload speeds of 20 Mbps. All of the speed test efforts I’ve seen have focused on whether homes and businesses are receiving 100 Mbps download and have largely ignored any implications of customers not achieving the NTIA’s 20 Mbps upload stream to qualify for a broadband grant.

My consulting firm helps clients conduct a lot of speed tests, and I also have been poring through the large number of speed tests gathered by Ookla and MLabs. I mostly work in rural counties, county seats, and suburban cities. I would venture to say that the vast majority of speed tests we see from cable customers do not meet the upload speed. The same is true for a large percentage of WISPs.

Sometimes the evidence is overwhelming. I recently worked with a county seat of about 20,000 people and the only customer in the community seeing upload speeds of 20 Mbps or faster were those who subscribed to the cable company’s gigabit product. Not one other cable customer had a 20 Mbps, and most weren’t even close, with an average of 11 Mbps. This was true for customers buying both a 100 Mbps, 200 Mbps, and 400 Mbps download product.

This raises an interesting question, which I’m sure is going to be the core of the cable company’s response to this question. In that particular city, the gigabit customers were getting upload speeds between 30 Mbps and 40 Mbps. I’m sure the cable company will argue that since a few customers are getting speeds over 20 Mbps that the network is capable of faster speeds.

I’ve talked to several knowledgeable engineers on the topic, and they tell me that the cable company in this case could not give faster speeds to everybody – or they would. The cable company is somehow giving a preference for gigabit customers at the expense of everybody else. If the cable operator opened the gates for everybody to get the fastest upload speed possible, the likely outcome would be that the gigabit customer speeds would drop to match everybody else’s speeds – the other customers would not get any faster.

This is an interesting question for state broadband grant offices to consider because it’s inevitable that people are going to seek grants where there is a cable company operating, using the argument that the cable company doesn’t meet the NTIA’s definition of broadband.

It makes sense to me that an ISP must meet both components of the speed definition to be considered as served. It shouldn’t matter if an ISP misses on the download or upload speed – if it fails one of the two benchmarks, it is not meeting the NTIA’s definition of served. If you don’t believe that logic, consider an ISP that is delivering 50/20 Mbps on licensed fixed wireless. I think there would be a consensus that this customer is not served since it is achieving only half of the definition of download speeds. But isn’t the same true for an ISP that is delivering 120/10 Mbps broadband?

To be fair to cable companies, they deliver speeds greater than 20 Mbps in many markets. I buy 400 Mbps download from Charter and routinely see upload speeds of 30 Mbps. But we all know that the performance of cable companies varies widely from town to town, and often inside of a town.

I had to laugh last year when the big cable companies fought so hard to reduce the definition of served from 100/100 Mbps to 100/20 Mbps. I knew then that this battle would be coming since the majority of cable customers, at least in the markets I have studied, are not seeing upload speeds of 20 Mbps.

One thing I think we can all count on is that if any grant office awards funding to overbuild a cable company because of this issue, we’re going to see the cable industry go ape. They’ve been quiet about the poor upload speeds, but they won’t stay that way if they see grant money coming to overbuild them.

BEAD Funding for Anchor Institutions

One of the aspects of the $42.5 billion BEAD program that many communities might have overlooked is that communities can request grants to bring fast broadband or improve existing broadband to anchor institutions.

Section I.C.f. of the BEAD Notice of Funding Opportunity (NOFO) defines a community anchor institution as an entity such as a school, library, health clinic, health center, hospital or other medical provider, public safety entity, institution of higher education, public housing organization, or community support organization that facilitates greater use of broadband service by vulnerable populations, including, but not limited to, low-income individuals, unemployed individuals, children, the incarcerated, and aged individuals. An Eligible Entity (the State Broadband Office) may propose to NTIA that additional types of institutions should qualify as CAIs within the entity’s territory.

The first thing to note is that this expands the definition of anchor institution beyond the traditional list by adding organizations that facilitate the use of broadband by vulnerable populations. This means that the grants can be used to bring better broadband to organizations that want to help low-income individuals or others who need better broadband. This is an interesting concept that makes it possible to build broadband facilities to the offices of non-profits or perhaps a computer training center. My interpretation of the BEAD rules is that the grant funding could also be used to construct a training center and buy the needed computers.

This is one of the more interesting sections of the BEAD program because it doesn’t seem to be restricted to only anchor institutions that can’t already buy broadband with 100/20 Mbps speeds. We’ll have to see how states interpret the rules, but it seems like funding could be used to upgrade speeds to anchor institutions. It might also be possible to use this funding to add anchor institutions to a fiber network that would eliminate the need for having to buy commercial broadband – much like school systems often build private networks.

I must be honest in that I historically disliked grant programs that were built only for anchor institutions. The 2009 BIP and BTOP grants were used to build many middle-mile fiber routes across the country. Those grants required grant winners to drop off of the middle-mile routes to serve any anchor institutions in rural areas. This meant that fiber was often built into small rural towns to serve only the city hall and the library and nothing else. Certainly, these anchor institutions needed broadband, but so did all of the residents and businesses in these towns. In actual practice, delivering broadband to only anchor institutions made it harder to justify a rural broadband build to reach everybody else since the anchor institutions were no longer potential customers.

I think the BEAD grants are different. The BEAD grants are aimed at building broadband across large rural areas and will be required to serve everybody in those areas, including anchor institutions. I interpret the anchor institution language to be aimed at towns and cities and not rural areas.

Larger towns and cities got broadband networks constructed to serve anchor institutions in the 1970s by cable companies that provided broadband as a condition for granting a cable franchise. However, these networks are either no longer free or have been discontinued as cable companies have lost nearly twenty million customers in just the last few years. The BEAD grants hold out the possibility for a community to construct a new government network to replace the old networks that were once provided by the cable companies – and to a large universe of eligible anchor institutions.

I would hope that cities will not repeat the sins of BTOP and build a broadband network in such a way as to ignore the rest of the community. For example, another provision of BEAD allows funding to be used to bring better broadband to low-income apartment buildings or complexes, and I hope any urban networks will address multiple needs.

This is one of the pieces of BEAD funding that I don’t think is automatic. It’s up to states to put some muscle behind this possibility if it wants to see these kinds of grant awards. I have no doubt that the large ISPs are going to hate this provision since it could fund fiber networks in urban areas. And I am certain that some states will follow the lead of the big ISPs and make it hard to qualify for this kind of grant.

However, the BEAD rules allow for these kinds of projects, and communities should assess their broadband needs for anchor institutions and begin the process of lobbying the State broadband offices to make such grants available. While the big ISPs might hate this idea, there is no reason that this kind of grant can be used to create a public-private partnership with a big ISP or somebody else. I think cities are going to have to be creative to win and implement these grants – but it is well worth the effort.