Will There Be a Credit Crunch?

ISPs are collectively going to be borrowing huge amounts of money over the next year as a result of the various state and local grant programs. For example, the $16.4 billion RDOF grant likely will drive ISPs to borrow many billions to match the grant awards. The federal ReConnect grants and the numerous State grant programs will also drive significant new debt.

I’ve followed the banking industry for decades and I’ve seen how banks react to economic stress. In my adult lifetime, I’ve witnessed several major economic downturns. The economy took a major downward turn in 1973-75, in 1981-82, after the dot-com crash in 2001, and most recently in 2007-09. In each of these cases, banks reacted by tightening credit, meaning that it became harder, or even impossible to borrow money.

The COVID-19 pandemic is different than these other recessions in that the reaction to the virus crashed an otherwise healthy economy. The pre-pandemic economy was showing some signs that the decade of growth was slowing, but the economy at the beginning of this year was in relatively good shape. That pre-pandemic economy should easily have been able to support the loans needed for a major expansion of broadband.

The pandemic has stressed banks in unusual ways. For example, banks have generated a huge amount of loans to small businesses to support the Paycheck Protection Program that’s part of the recent stimulus relief plans. While these loans are ultimately backed by the government, they’ve eaten severely into bank cash reserves.

Banks are also seeing a lot of bad debt due to the pandemic. Tens of millions of people are currently out of work and many are having trouble making debt payments on mortgages, car loans, student loans, credit cards, you name it. Huge numbers of businesses have shut their doors, or even if still open have curtailed or stopped making rent or mortgage payments. I’ve read numerous predictions that there will be a business real estate crisis soon as landlords react to suddenly vacant buildings.

Banks have already started to react in ways that you would expect during any downturn. Small businesses that are still open have had lines of credit frozen. It’s gotten harder to apply for a home mortgage. Banks have already cut back on lending new money to small businesses.

During past downturns, banks also curtailed loans to larger businesses. I can remember several times when industry lenders like CoBank and RTFC either stopped lending or became far more selective in making loans. Just a decade ago there was a short period of time when even Fortune 500 companies had trouble borrowing money.

It’s really hard to predict bank behavior right now since this is not a ‘normal’ recession. Underneath all of the current ugly financial news is a hope that the economy can spring back to life if medical science develops a vaccine or effective treatment. Unfortunately, there are parts of the economy that are not likely to come back quickly, or even at all. Many of the small businesses that are still shut due to the pandemic are likely not coming back. We’ve seen a big string of major retailers fail, and that is going to cascade to kill shopping malls and shopping districts. A lot of businesses say that they intend to continue with work-from-home initiatives that were forced upon them during the pandemic – and that means a lot of empty business real estate.

What matters most to ISPs right now is what the banking industry is going to be like by the end of this year. What happens if many of the ISPs looking for matching funds for grants are unable to borrow? How might the FCC react if billions of grants fall onto the floor due to a lending crisis?

I don’t have a crystal ball and this blog is not meant as a prediction that borrowing is going to dry up. But I’ve seen enough recessions to know that lending is not going to continue unchanged. Anybody thinking about accepting large amounts of grants needs to think about a back-up plan if it becomes harder to borrow. The FCC and ISPs have all assumed that that matching funds will  be readily available for anybody that lands a large grant. It’s historically been relatively easy to borrow for projects that are funding largely by grants – but this is definitely not normal times.

The FCC Muddles the RDOF Grants

Last week the FCC ‘clarified’ the RDOF rules in a way that left most of the industry feeling less sure about how the auction will work.  The FCC is now supposedly taking a technologically neutral position on the auction. That means that the FCC has reopened the door for low-earth orbit satellites. Strangely, Chairman Ajit Pai said that the rules would even allow DSL or fixed wireless providers to participate in the gigabit speed tier.

Technologically neutral may sound like a fair idea, but in this case it’s absurd. The idea that DSL or fixed wireless could deliver gigabit speeds is so far outside the realm of physics as to be laughable. It’s more likely that these changes are aimed at allowing the providers of satellite, DSL, and fixed wireless providers to enter the auction at speeds faster than they can deliver.

For example, by saying that DSL can enter the auction at a gigabit, it might go more unnoticed if telcos enter the auction at the 100./10 Mbps tier. There is zero chance for rural DSL to reach those speeds – the CAF II awards six years ago didn’t result in a lot of rural DSL that is delivering even 10/1 Mbps. It’s worth remember that the RDOF funding is going to some of the most remote Census blocks in the country where homes are likely many miles from a DSL hub and also not concentrated in pockets – two factors that account for why rural DSL often has speeds that are not a lot faster than dial-up.

Any decision to allow low orbit satellites into the auction has to be political. There are members of Congress now pushing for satellite broadband. In my State of North Carolina there is even a bill in the Senate (SB 1228) that would provide $2.5 million to satellite broadband as a preferred solution for rural broadband.

The politics behind low orbit satellite broadband is crazy because there is not yet any such technology that can deliver broadband to people. Elon Musk’s satellite company currently has 362 satellites in orbit. That may sound impressive, but a functional array of satellites is going to require thousands of satellites – the company’s filed plan with the FCC calls for 4,000 satellites as the first phase deployment.

I’ve seen a lot of speculation in the financial and space press that Starlink will have a lot of challenge in raising the money needed to finish the constellation of satellites. A lot of the companies that were going to invest are now reluctant due to COVID-19. The other current competitor to Starlink is OneWeb, which went bankrupt a few months ago and may never come out of receivership. Jeff Bezos has been rumored to be launching a satellite business but still has not launched a single satellite.

The danger of letting these various technologies into the RDOF process is that a lot of rural households might again get screwed by the FCC and not get broadband after a giant FCC grant. That’s what happened with CAF II where over $9 billion was handed to the big telcos and was effectively washed down the drain in terms of any lasting benefits to rural broadband.

It’s not hard to envision Elon Musk and Starlink winning a lot of money in the CAF II auction and then failing to complete the business plan. The company has an automatic advantage over any company they are bidding against since Starlink can bid lower than any other bidder and still be ahead of the game. It’s not an implausible scenario to foresee Starlink winning every contested Census block.

Allowing DSL and fixed wireless providers to overstate their technical capacity will be just as damaging. Does anybody think that if Frontier wins money in this auction that they will do much more than pocket it straight to the bottom line? Rural America is badly harmed if a carriers wins and the RDOF money and doesn’t deliver the technology that was promised – particularly if that grant winner unfairly beat out somebody that would have delivered a faster technology. One has to only look back at the awards made to Viasat in the CAF II reverse auction to see how absurd it is when inferior technologies are allowed in the auction.

Probably the worst thing about the RDOF rules is that somebody who doesn’t deliver doesn’t have to give back all of the grant money. Even should no customer ever be served or if no customer ever receives the promised speeds, the grant winner gets to keep a substantial percentage of the grant funding.

As usual, this FCC is hiding their real intentions under the technology neutral stance. This auction doesn’t need the FCC to be ‘technology neutral’, and technologies that don’t exist yet today like LEO satellites or technologies that can’t deliver the speed tiers should not be allowed into the auction. I’m already cringing at the vision of a lot of grant winners that have no business getting a government subsidy at a time when COVID-19 has magnified the need for better rural broadband.

Are You Covered by the RDOF Grant?

The FCC has published a detailed map of the upcoming RDOF grant program that is overlaid on Google Maps. This let’s everybody in rural America see if they might be getting covered by the $16 billion grants that will be awarded in October of this year. This is the largest broadband grant to ever be awarded and will serve only rural areas. You can zoom in on this map to see if your home or business will be covered by this giant grant program.

If it turns out your neighborhood is covered by this grant, here are a few things you should know:

  • The money is being awarded by reverse auction with different ISPs competing for the money. The ISP willing to take the least amount of federal grants will win the award for your area. There is one twist on the auction in that any ISP offering gigabit speeds wins the grant after a few rounds of bidding.
  • ISPs can use any technology that delivers at least 25/3 Mbps broadband to participate in the grant auction. The auction is weighted to try to give the money to faster technologies. However, the winner in your area could be proposing to use DSL, fixed wireless, satellite broadband, or fiber. The technology you will be served with is going to depend on the ISP that wins your area. You should be able to find out the technology that is coming to your neighborhood when the auction is finished sometime near the end of this year.
  • You might not see a solution quickly. Winners will have 6 years to complete construction, meaning that some homes in the winning areas won’t get broadband until 2026. Since people are being asked to work and school from home, that’s a really long time to wait.
  • If nobody wins the grant money in your area it would go back into the pot for a smaller $4 billion grant to be awarded in 2021.

What if you aren’t covered by these grants and don’t have good broadband? What are your chances of seeing a broadband solution?

It’s possible that your area would have been covered by the $1.5 billion reverse auction grants awarded last year. However, if your area was awarded one of these grants then hopefully you’ve already heard about it.

If you live really close to one of these RDOF areas, there is a chance that the winner of these grants might build to your home. However, that’s something that you aren’t likely to know for a long time, and the chances are not good that you’ll be covered.

There will be a second FCC auction in 2021 for $4 billion that will cover additional areas that are not on this map. $4 billion will cover a much smaller area than this map – but some folks will get a second chance. That auction is likely to have the same rules, meaning that you might not see a broadband solution until 2027. It’s likely that the FCC will issue a second map similar to this one for the areas covered by those grants.

There are other federal grant programs such as the ReConnect grants that are awarding smaller dollars. The ReConnect grant for this year is $300 million for the whole country and was boosted by $100 million in the COVID-19 stimulus package. There is no guarantee that this grant program will carry into the future – it’s been funded now for the last few years as part of the annual agriculture bill.

There are also state grant programs that might cover you. Most of the state grant programs are relatively small, but they are helping to spread broadband. However, there is a significant chance that a lot of state grant money will be used as matching funds for the RDOF grants.

If you have poor broadband options and you aren’t covered by this grant there is a good chance that you just got screwed. There are many millions of homes and business that don’t have good broadband that are not covered by this grant. That blame can be laid squarely on the FCC. The FCC is using information supplied by ISPs to define areas that are eligible for this grant. There are huge parts of rural America where the ISPs are falsely claiming to offer 25/3 speeds, and such areas are not included in this grant.

The FCC knows they are using faulty data and they decided to move forward with these grants anyway. The areas covered by the RDOF grants don’t have good broadband, but there is an even larger geographic area of the country that should be eligible for federal grants that have been shut out due to the FCC never insisting on good mapping data from ISPs.

If your neighborhood has poor broadband and isn’t covered by these grants, then you need to yell bloody murder to anybody and everybody. Complain to local, state and federal politicians. The fact is that if your neighborhood isn’t on these maps, or isn’t covered by a few other existing grant programs, then you are not likely to be getting broadband with federal grant assistance any time soon. You aren’t going to be alone and there are millions of other rural residents in this same situation – so join forces and shout until there is a solution.

Will Starlink be in the RDOF Auction?

Jonathan Chambers of Conexon wrote an interesting blog where he assumes that the FCC has already allowed Starlink, the satellite company owned by Elon Musk, into the top tier in the RDOF auction. If so this would be a disastrous decision by the FCC.

The RDOF auction will be a reverse auction, but with a twist. In a reverse auction, the bidder willing to take the least amount of money to provide service to a given geographic service area wins the auction. However, the twist is that the FCC is giving priority to gigabit broadband providers. If there is still a gigabit provider left in a given area after a few rounds of bidding, that bidder wins if the other bidders offer slower technologies. This twist was added to favor fiber deployment, which the FCC understands is the best broadband solution – when a community gets fiber they are set for the rest of the century and the FCC can scratch fiber-served communities off their worry list. The highest tier also favors traditional cable companies that decide to serve areas around towns where they offer gigabit broadband.

If Starlink is allowed to bid as a gigabit provider then the whole auction gets turned upside down. In areas where Starlink is bidding against fixed wireless or other slower technologies, Starlink would always win by simply staying in the auction for a few rounds. To make matters worse, Starlink could bid against fiber providers until the grant awards get so low that a fiber provider drops out of the auction.

If Starlink is considered a gigabit provider and bids on every RDOF cluster, it could theoretically win the entire $16 billion auction. That would mean no money for fiber networks or cable company networks. It would mean no money for fixed wireless networks or other technologies that promise to deliver 100 Mbps broadband or slower.

A natural question to ask is why worry about this if Starlink can deliver gigabit broadband to all of the rural areas covered by the RDOF grants? The easy answer is to that question is that nobody outside of Starlink has any idea what the company can deliver (and even Starlink probably is only guessing at the bandwidth that will come from a fully-deployed network). It’s certainly possible that Starlink satellites can make a 1-gigabit connection to earth – they have enough satellites already in the sky that the company can probably demonstrate this. We know that the recently bankrupt OneWeb demonstrated a 400 Mbps connection from a satellite to an earth station – but that has nothing to do with the amount of bandwidth that can be delivered to many users at the same time. Networks get slower and bog down as users are added and as bandwidth is oversubscribed.

As Chambers suggests, before the FCC offers any public money to Starlink, the company needs to publicly fully disclose its network architecture and capabilities. We already know what fiber networks, cable networks, and fixed wireless networks can deliver. Before opening the public purse-strings to Starlink, let the whole world see how they plan to deploy, so that smart network engineers can opine if fast speeds are possible with a fully-deployed satellite constellation.

An even bigger worry is that Elon Musk’s SpaceX company looks to be in financial trouble. A recent blog by TMF Associates, a consultant in the satellite industry, provides ample evidence that SpaceX has big financial woes. The company is far behind its original business plan of raising money for rocket launches and is going to spend a lot of resources this year sending up the planned 1,500 Starlink satellites. TMF says that the company is burning through $100 million per month in operating expenses. A more immediate worry for SpaceX and Starlink is the impact of having to send staff home due to COVID-19. What’s going to happen this year in the supply chain for satellites and their components? According to the figures cited by TMF Associates, Elon Musk and Starlink likely must win big dollars out of the RDOF auction just to keep SpaceX afloat.

Just because LEO satellite broadband has big promise is no guarantee that we’ll ever see an iota of bandwidth out of the sky. OneWeb recently declared bankruptcy and blamed COVID-19, but the company was already out of cash before the pandemic. The company needs a buyer to emerge out of the bankruptcy and the company might just evaporate into obscurity.

I have always been hopeful that Starlink can provide decent rural broadband. This might be the only way to get broadband to the most remote customers in the country. But I’ve been troubled that the company has still never made any public claims about the speeds they will be able to deliver after mass launches, or the price they are planning to charge. On March 20, the FCC granted Starlink up to 1 million licenses for earthside connections to the satellite constellation. That does not sound like a network that is going to solve the broadband shortage for tens of millions of rural homes and businesses.

I’ve always guessed that the company hasn’t disclosed any details because the speeds will be unspectacular – at least in terms of attracting the billions of investor dollars needed to complete the satellite constellation. Much of rural America would be thrilled in Starlink can mass-deliver 50 Mbps or 100 Mbps at an affordable price. But those kinds of speeds won’t attract investors and don’t rate a top tier designation for Starlink in the RDOF auction.

If Starlink ends up in the RDOF auction at a top tier designation without the needed public disclosure then Elon Musk will have sold a bill of goods to the FCC – which is badly searching for a big rural broadband win. However, it will be a disaster if most of this money goes to Starlink and they then deliver mediocre speeds, or high prices – or even worse, never fully deploy. There are still plenty of doubters that Starlink and SpaceX can deploy the 6,000 promised satellites for the first constellation, let alone up to 30,000 more that Musk has promised.

My biggest fear is that a lot of the grant money will go to Starlink and they then fizzle or underperform. If so we will have wasted the biggest pile of grant money ever offered to improve rural broadband. Before Starlink grabs billions of taxpayers dollars – money that each of us paid from the fees added to our telephone and cellular bills – the public deserves a full disclosure from Starlink on the realities of their technology, their business plan, and their financial health. Without that they shouldn’t be allowed within 400 miles of the RDOF auction.

We Need Penalties for Bad FCC Mapping Data

The FCC has been in the process of implementing revised mapping that will fix a lot of the problems with the current 477 broadband reporting process. The needed changes should be further boosted by the Broadband DATA Act that was signed into law on Monday. The new mapping will use polygons, and ISPs are supposed to show precise coverage areas for where they offer or don’t offer broadband.

If ISPs do this correctly – and that’s a big if – then this will fix at least one big problem that I call the town boundary problem. The current FCC data gathering asks ISPs to report the fastest speed they can deliver in a census block. Unfortunately, census blocks don’t stop at town boundaries, and so the FCC databases regularly assumes that all of the people outside of town can receive the same speeds as people inside the towns. If cable companies and fiber providers draw honest polygons that stop where their network stops, this boundary issue should disappear.

Unfortunately, the benefits of the new mapping are not so clear cut in rural areas. DSL providers and fixed wireless providers are also supposed to draw polygons. The rural polygons are supposed to only cover existing customers as well as places that can be connected within ten business days of a customer request for activation.

I’ve been spending a lot of time lately looking through the claimed coverage on Form 477 by telco DSL and WISPs. Some of the things I see in the FCC database are massively erroneous and I’m not convinced that rural ISPs will clean up their act even if they are forced to use the polygons. Consider a few examples:

  • I’ve been working with a sparsely populated county that has large rural census blocks – which is pretty normal. The incumbent telco claims 25/3 Mbps coverage for almost all of the rural areas of the county. We’ve been working with the county to have residents perform speed tests and have seen almost no speeds faster than 5 Mbps, with some speeds on DSL below 1 Mbps. The incumbent telco does widely offer DSL, but the claimed 25/3 Mbps capability reported to the FCC is pure fantasy.
  • I’m working with another rural county where two WISPs claim to provide 100 Mbps wireless service covering the whole county. The WISPs don’t operate towers in the county and their nearest towers are in a nearby county. The county has undertaken a large canvass of residents to identify the ISPs in the county and so far hasn’t found even one customer of these WISPs. Even if they find a few customers, the WISPs can’t deliver 100 Mbps wireless broadband from towers more than 10 miles away – it’s doubtful they deliver that much speed even next to the existing towers.

I am not convinced that the revised FCC mapping is going to fix these two situations. The incumbent telco is going to say that they can install DSL within ten business days everywhere in the county – so they might not shrink their claimed coverage when going to the polygons. The problem with the telco isn’t the coverage area – it’s the claimed speeds. If the new FCC reporting still allows ISPs to overstate speeds, then nothing will be fixed in this county with the new mapping.

The two WISPs have a double problem. First, the coverage area of the two WISPs seem to be highly exaggerated. The WISPs are also exaggerating the broadband speeds available and there is zero chance that the WISPs are delivering speeds even remotely close to 100 Mbps broadband from a distant tower. These WISPs seem to be guilty of overstating both the coverage areas and the speeds. Unfortunately, the WISPs might still claim they can install in this area within 10 business days and might not shrink their claimed coverage. And unless they are somehow forced, the WISPs might not lower the claim of 100 Mbps.

There are real life consequences to the claims made in these two examples. In the first example, the FCC believes the whole county has access to 25/3 Mbps DSL, when in fact it looks like nobody has DSL even close to that speed. The county with the two WISPs is in even worse shape. The FCC considers this county completely covered with 100/10 Mbps broadband, when in fact there is no fast broadband coverage. In reality, the fastest broadband option in some parts of the county is a third WISP that markets speeds of 15 Mbps but mostly delivers less.

The consequences of the current mapping are dire for both of these counties. These counties are not included in the FCC’s eligible areas for $20 billion RDOF grants that was just published because the FCC thinks these counties have good broadband. If the ISP data being reported was honest, both counties would be eligible for these grants. These counties might be eligible for other grants that would allow the grant applicant to challenge the FCC speed data – but such challenges are a lot of work and don’t always get accepted.

I know there are hundreds of other counties in the same situation, and I have little faith that new mapping is going to fix this in rural areas. What is needed are severe fines for ISPs that overstate speed or coverage areas. In this case, the existing ISPs are causing huge economic harm to these counties and the fines ought to be set accordingly. I don’t understand what motivates ISPs to claim speeds that don’t exist – but if we are going to fix rural broadband, we need to start by kicking the bad ISP actors hard in the pocketbook.

The Broadband DATA Act allows for a challenge process so that localities can force honest reporting. The FCC needs to implement this immediately, without more study or delay.

Will the Big Telcos Pursue RDOF Grants?

One of the most intriguing questions concerning the upcoming $16.4 billion RDOF grant program is if the big telcos are going to participate. I’ve asked the question around the industry and I’ve talked to folks who think the big telcos will fully wade into the reverse auctions, while others think they’ll barely play. We’re not likely to know until the auctions begin.

The big telcos were the full beneficiaries of the original CAF II program when the FCC surprisingly decided to unilaterally award the big telcos the full $9 billion in funding. In that grant program, CenturyLink received over $3 billion, AT&T almost $2.6 billion, Frontier nearly $2 billion, and Windstream over $1 billion. The telcos were supposed to upgrade much of their most rural properties to receive broadband speeds of at least 10/1 Mbps.

CenturyLink and Frontier both recently told the FCC that they are behind in the CAF II build out and didn’t meet their obligation at the end of 2019 to be 80% finished with the upgrades. From what I hear from rural communities, I think the problem is a lot more severe than just the telcos being late. Communities across the country have been telling me that their residents aren’t seeing faster speeds and I think we’re going to eventually find out that a lot of the upgrades aren’t being made.

Regardless of the problems with the original CAF II, the FCC is now offering the $16.4 billion RDOF grant program to cover much of the same areas covered by CAF II. The big telcos are faced with several dilemmas. If they don’t participate, then others are going to get federal assistance to overbuild the traditional big telco service territories. If the big telcos do participate, they have to promise to upgrade to meet the minimum speed obligations of the RDOF of 25/3 Mbps.

Interestingly, the upgrades needed to raise DSL speeds on copper to 25/3 Mbps are not drastically different than the upgrades needed to reach 10/1 Mbps. The upgrades require building fiber deeper into last-mile networks and installing DSL transmitters (DSLAMs) in the field to be within a few miles of subscribers. Fiber must be a little closer to the customer to achieve a speed of 25/3 Mbps rather than 10/1 Mbps – but not drastically closer.

I think the big telcos encountered two problems with the CAF II DSL upgrades. First, they needed to build a lot more fiber than was being funded by CAF II to get fiber within a few miles of every customer. Second, the condition of their rural copper is dreadful and much of it probably won’t support DSL speeds. The big telcos have ignored their rural copper for decades and found themselves unable to coax faster DSL speeds from the old and mistreated copper.

This begs the question of what it even means if the big telcos decide to chase RDOF funding. Throwing more money at their lousy copper is not going to make it perform any better. If they were unable to get 10/1 speeds out of their network, then they are surely going to be unable to get speeds upgraded to 25/3 Mbps.

We can’t ignore that the big telcos have a natural advantage in the RDOF auction. They can file for the money everywhere, and any place where a faster competitor isn’t vying for the money, the big telcos will have a good chance of winning the reverse auction. There are bound to be plenty of places where nobody else bids on RDOF funding, particularly in places like Appalachia where the cost is so high to build, even with grant funding.

It would be a travesty to see any more federal grant money spent to upgrade rural DSL particularly since the FCC already spent $9 billion trying to upgrade the same copper networks. The copper networks everywhere are past their expected useful lives, and the networks operated by the big telcos are in the worst shape. I’ve known many smaller telcos that tried in the past to upgrade to 25/3 on rural DSL and failed – and those companies had networks that were well-maintained and in good condition. It would be impossible to believe the big telcos if they say they can upgrade the most remote homes in the country to 25/3 Mbps speeds. Unfortunately, with the way I read the RDOF rules, there is nothing to stop the big telcos from joining the auction and from taking big chunks of the grant money and then failing again like they did with the original CAF II.

Is the FCC Killing State Matching Grants?

In a bizarre last-minute change of the language approved for the upcoming $16.4 billion RDOF grant funds, the FCC inserted new language into the rules that would seem to eliminate grant applicants from accepting matching state grants for projects funded by the RDOF grants.

The new language specifically says that the RDOF grant program now excludes any geographic area that the Commission “know[s] to be awarded funding through the U.S. Department of Agriculture’s ReConnect Program or other similar federal or state broadband subsidy programs or those subject to enforceable broadband deployment obligations.”

It’s fully understandable that the FCC doesn’t want to award grant money from multiple federal grant programs for the same project, and that was a loophole that is sensible to close. I think most industry folks understood this to be true even if it wasn’t in writing.

But the idea of blocking states from making grants to supplement RDOF is counterintuitive. More than half of the states now have state broadband grant programs. It makes no sense for the FCC to tell states how they can spend (or in this case how they cannot spend) their state grant monies.

The whole concept of blocking state matching grants goes against the tradition of federal funding. The vast majority of federal funding programs for infrastructure encourage state matching funds and many programs require it. Matching state grants are used along with federal grants for building infrastructure such as roads, bridges, water and sewer systems, airports, etc. Why would the FCC want to block this for broadband?

The state grant programs that I’m most familiar with were planning to provide matching grants for some RDOF grants. Broadband offices at the state level understand that building broadband networks can be expensive and they know that in some cases the extra funding is needed to make broadband projects viable.

It’s important to remember that the RDOF grants are aimed at the most remote customers in the country – customers that, by definition, will require the largest investment per customer to bring broadband. This is due almost entirely due to the lower household densities in the RDOF grant areas. Costs can be driven up also by local conditions like rocky soil or rough terrain. Federal funding that provides enough money to build broadband in the plains states is likely not going to be enough to induce somebody to build in the remote parts of Appalachia where the RDOF grants are most needed.

State grant programs often also have other agendas. For example, the Border-to-Border grants in Minnesota won’t fund broadband projects that can’t achieve at least 100 Mbps download speeds. This was a deliberate decision so that government funding wouldn’t be wasted to build broadband infrastructure that will be too slow and obsolete soon after it’s constructed. By contrast, the FCC RDOF program is allowing applicants proposing speeds as slow as 25 Mbps. It’s not hard to argue that speed is already obsolete.

I know ISPs that were already hoping for a combination of federal and state grants to build rural infrastructure. If the FCC kills matching grants, then they will be killing the plans for such ISPs that wanted to use the grants to build fiber networks – a permanent broadband solution. Even with both state and federal grants, these ISPs were planning to take on a huge debt burden to make it work.

If the matching grants are killed, I have no doubt that the RDOF money will still be awarded to somebody. However, instead of going to a rural telco or electric coop that wants to build fiber, the grants will go to the big incumbent telephone companies to waste money by pretending to goose rural DSL up to 25 Mbps. Even worse, much of the funding might go to the satellite companies that offer nothing new and a product that people hate. I hate to engage in conspiracy theories, but one of the few justifications I can see for killing matching grants is to make it easier for the big incumbent telcos to win, and waste, another round of federal grant funding.

The RDOF Grants – The Good and Bad News

The FCC recently approved a Notice of Proposed Rulemaking that proposes how they will administer the $16 billion in RDOF grants that are going to awarded later this year. As you might imagine, there is both good news and bad news coming from the grant program.

It’s good news that this grant program ought to go a long way towards finally killing off large chunks of big telco rural copper. Almost every area covered by these grants is poorly served today by inadequate rural DSL.

The related bad news is that this grant award points out the huge failure of the FCC’s original CAF II program where the big telcos were given $11 billion to upgrade DSL to at least 10/1 speeds. The FCC is still funding this final year of construction of CAF II upgrades. The new grant money will cover much of the same geographic areas as the original CAF II deployment, meaning the FCC will spend over $27 billion to bring broadband to these rural areas. Even after the RDOF grants are built, many of these areas won’t have adequate broadband. Had the FCC administered both grant programs smartly, most of these areas could be getting fiber.

Perhaps the best good news is that a lot of rural households will get faster broadband. Ironically, since the grants cover rural areas, there will be cases where the RDOF grant brings faster broadband to farms than will be available in the county seat, where no grant money is available.

There is bad news on broadband speeds since the new grant program is only requiring download speeds of 25/3 Mbps. This means the FCC is repeating the same huge mistake they made with CAF II by allowing federal money to spend on broadband that will be obsolete before it’s even built. This grant program will be paid out of ten years and require deployment over six years – anybody paying attention to broadband understands that by six years from now a 25/3 Mbps broadband connection will feel glacial. There is grant weighting to promote faster data speeds, but due to the vagaries of a reverse auction, there will be plenty of funding given to networks that will have speeds close to 25/3 Mbps in performance.

There is further bad news since the FCC is basing the grants upon faulty broadband maps. Funding will only be made available to areas that don’t show 25/3 Mbps capability on the FCC maps. Everybody in the industry, including individual FCC Commissioners, agrees that the current maps based upon 477 data provided by ISPs are dreadful. In the last few months, I’ve worked with half a dozen counties where the FCC maps falsely show large swaths of 25/3 broadband coverage that isn’t there. It’s definitely bad news that the grant money won’t be made available in those areas where the maps overstate broadband coverage – folks in such areas will pay the penalty for inadequate broadband maps.

There is a glimmer of good news with mapping since the FCC will require the big ISPs to report broadband mapping data using polygons later this year. Theoretically, polygons will solve some of the mapping errors around the edges of towns served by cable TV companies. But there will only be time for one trial run of the new maps before the grants, and the big telcos have every incentive to exaggerate speeds in this first round of polygon mapping if it will keep this big pot of money from overbuilding their copper. I don’t expect the big telco mapping to be any better with the polygons.

Another area of good news is that there will be a lot of good done with these grants. There will be rural electric cooperatives, rural telcos, and fiber overbuilders that will use these grants as a down-payment to build rural fiber. These grants are not nearly large enough to pay for the full cost of rural fiber deployment, but these companies will borrow the rest with the faith that they can create a sustainable broadband business using fiber.

The bad news is that there will be plenty of grant money that will be used unwisely. Any money given to the traditional satellite providers might as well just be burned. Anybody living in an area where a satellite provider wins the grant funding won’t be getting better broadband or a new option. There is nothing to stop the big telcos from joining the auction and promising to upgrade to 25/3 Mbps on DSL – something they’ll promise but won’t deliver. There are likely to be a few grant recipients who will use the money to slap together a barely adequate network that won’t be fast and won’t be sustainable – there is a lot of lure in $16 billion of free federal money.

It’s dismaying that there should be so many potential downsides. A grant of this magnitude could be a huge boost to rural broadband. Many areas will be helped and there will be big success stories – but there is likely to be a lot of bad news about grant money spend unwisely.

My Telecom Predictions for 2020

Technical Resource Shortage. There is already a growing shortage of fiber resources that includes engineers, construction companies, and fiber consultants. The upcoming $16.4 billion RDOF program will create a resource shortage in 2020 for those who can help companies seek grant funding. Once the grants are awarded, the size of the program will add stress to the resources needed to build networks. Companies that don’t line up their experts early might find themselves without help.

Broadband Price Increases Are Now Routine. The biggest ISPs including Comcast, AT&T, Charter, Verizon, and others have now made it clear that they will be raising broadband rates annually – at least in the majority of their markets where they don’t face real competition. Anybody building a business plan for a new market has to decide how to predict future rate increases.

5G Cellphones Will Prove to be a Joke. At least for 2020, almost everybody who spends extra for a 5G handset is going to be disappointed. The companies deploying millimeter wave spectrum are doing it in limited downtown areas of major cities – and the speeds are only faster outdoors. Carriers implementing low frequencies like 600 MHz and 850 MHz admit that service won’t be any faster than 4G LTE.

FCC Will Eliminate the Last Vestiges of Regulation. The FCC has been actively tearing down regulations affecting the biggest ISPs. The agency has completely deregulated broadband and killed net neutrality. They’re in the process of gutting the use of unbundled network elements They’ve preempted local authority on the placement of wireless infrastructure. Since there is a chance that the administration will change at the end of the year, the FCC will kill as many regulations as they can during 2020.

T-Mobile / Sprint Merger Will be Approved. While there is a lot of opposition to the merger, the reality is that Sprint is not particularly viable as a cellular carrier. The biggest cable companies are entering the cellular markets and will push down urban cellular prices. Dish Networks seems to have a viable plan to become a major carrier if the T-Mobile/Sprint merger is approved.

Courts Will Chip Away at the 5G Pole Attachment Rules. The authority of the FCC to override local policy for the placement of cellular infrastructure boils down to a state versus federal jurisdiction battle. The courts have already said that cellular companies must heed some historic preservation and aesthetics rules. Ultimately the courts will weaken, but not kill the FCC rules, giving cellular carriers more rights than they historically had, but not full carte blanche authority to place devices anywhere.

State Net Neutrality Will Be Almost as Powerful as Federal Policy. It will be hard for the big ISPs to comply with net neutrality rules in California and Washington without complying everywhere. It’s also likely that more states will pass similar net neutrality rules

The RDOF Grants Will Fund Poor Broadband Solutions. Unfortunately, the $16.4 billion RDOF grants will award some grant money to technologies that are not future-proofed. Since the grants can be awarded for technologies that deliver broadband speeds of as little as 25/3 Mbps, we’ll see money go to technology solutions that might be obsolete before the end of the RDOF implementation period.

Cellular Networks Will Continue to Degrade. The nationwide use of cellular data is currently doubling every two years, which is greatly stressing cellular network quality. The cellular carriers need to implement massive numbers of small cells, add new spectrum, and fully implement 5G to keep up with the growing demand. Since those solutions will take 3 – 7 years to implement, cellular network quality is going to get a lot worse before the problems are solved.

Household Bandwidth Usage Will Continue to Grow. OpenVault says the average home now uses 275 gigabytes of data per month, with cord cutting households using 520 GB per month. Opensignal and Cisco both report that household broadband usage continues to grow rapidly, at about 21% annually, or a doubling every 4 years. There is nothing to suggest this growth will be slowing.