Congress, Don’t Be Too Hasty

As Congress is handing out relief money for the COVID-19 crisis, rumors are flying around that rural broadband relief is one of the issues being discussed. The plight of employees and students unable to work from home has certainly bubbled up to a majority of those in Congress.

My advice to Congress is to not be to hasty. Don’t have the knee-jerk reaction of just tossing big bucks towards the rural broadband problem, because if you do much of the money will be wasted. There have been back-of-the-envelope estimates made that it would take anywhere from $60 billion to well over $100 billion to bring fiber to everywhere in rural America. Nobody knows the number and my guess is that it’s towards the upper end of that scale.

The typical Washington DC approach to the problem would be to earmark a pile of money to solve the problem, with no forethought of how to use the funds. This tendency is bolstered by the fiscal year spending nature of government funding, and Congress would likely expect broadband money to be spent quickly.

And that’s where the rub comes in. The broadband industry is not prepared to handle a sudden huge influx of funding. Consider all of the following issues that would quickly become apparent if this were to happen:

  • The first big question that would be asked with funding is where to spend the money – which parts of the country need the funding help? Unfortunately, the FCC will be of nearly zero help in this area, so you can’t run a giant grant program through them. The upcoming RDOF grants are supposedly aimed at bringing broadband to all of the places that don’t already have 25/3 broadband. But due to the dismal FCC mapping process, the current maps miss huge swaths of rural America that also need better broadband but that are misclassified by the FCC maps. If Congress gives the money to the FCC to disperse, the agency has no idea where to spend it according to its flawed data.
  • The next big question is how to award funds. The FCC’s RDOF grant program is using a reverse auction to award funds – but this only works when the funding is awarded to a specific footprint of grant areas. More traditional grant awards require the writing of extensive grant requests to prove the worthiness of a grant applicant and the worthiness of grant project. Anybody that remembers the Stimulus grants for broadband recalls that even at that time there were almost no qualified and experienced people available to review grant applications – and a lot of the Stimulus funding went to unworthy projects. A poorly run grant program also invites fraud and waste – the bigger the dollars the bigger the problems.
  • In perhaps the hardest issue for many to believe, there are not enough qualified ISPs ready and able to handle a big influx of funding and of operating the ensuing broadband businesses. We hear about small ISPs offering service all over the country, but all of them together don’t serve more than perhaps 5% of the broadband customers in the country today. Most small ISPs are already fully leveraged today as they’ve borrowed money to expand their footprint. Any grants that require matching funds might find a dearth of takers. If we throw money at the industry too quickly, it’s going to all end up going to the big telcos – and that likely just means pouring money down a black hole. It’s not hard to look back at the total bust of the CAF II program where the big telcos spent $11 billion in FCC funding and didn’t make any dent in the rural broadband problem. If Congress spreads awards out over time, then big new ISPs like electric cooperatives can prepare to go after the awards – most of them are not close to ‘shovel-ready’ today.
  • You can’t ask for broadband funding without some sort of engineering estimate of the cost of building a network and some sort of business plan showing that the network can operate profitably at the end of the funding. There are not a lot of ‘shovel-ready’ broadband projects laying around waiting for funding, and so the first step after a big Congress funding program would be to develop hundreds of new business plans. All of the consultants and engineers I know are already full-time busy helping companies to prepare for the $16.4 billion RDOF grants and the various state grant awards around the country.
  • The same is true of fiber construction companies. During this last construction season, we started seeing construction companies bidding up rates to go to the builder willing to pay the most for their services. There are not a lot (if any) idle fiber construction crews sitting around waiting for work. Fiber construction is not something that can be taught quickly to new workers – it takes years to develop a good fiber splicer or to train somebody to be able to determine pole make-ready.
  • We’re also starting to see backlogs for fiber materials. The waiting times for ADSS fiber that goes into the power space recently crept up to six months. The far bigger concern is electronics. Right now, the world supply chains are a mess due to COVID-19 and the industry is expecting delays in electronics delivery in the coming construction season. Supply houses and vendors aren’t talking about this, hoping it will magically go away, but there will likely be electronics shortages in the 2020 construction season even without pressure from new grants. Such shortages can cripple construction projects.
  • Finally, I am positive that any federal broadband grant money will come with stupid rules, many slapped on the funding by the big ISP lobbyists. There will be needless hoops to jump through and rules that make it hard to spend the money well. There is zero chance that federal grant funding wouldn’t come with ridiculous rules and ridiculous restrictions. If Congress is going to award big money they need to take a little time that the rules are fair and efficient.

There will be people reading this in amazement and wondering how a rural broadband advocate could be recommending caution. One only has to look back to the stimulus grants to recall that probably half of that money was wasted due to the haste of the grant programs. My fear is a knee-jerk federal reaction that will throw giant bucks at the problem when the proper solution would be a series of grants awarded over five or more years to allow ISPs time to get ready. Funding in one giant lump would result in a mess of epic proportions. I fear that DC would then wash their hands of rural broadband by saying that they already funded it, and any communities left behind after a flawed grant program would likely be left behind for decades to come. Congress, if you want to help your constituents, please ask for advice and get it right.

Another FCC Disaster?

Anybody thinking of filing an RDOF grant needs to pay a lot of attention to the challenges being made to the $16.4 billion RDOF grant footprint. The FCC invited ISPs to notify them if there are any Census blocks where the ISP has added broadband of at least 25/3 since June 30, 2019. Even though the RDOF is covering the most remote households that supposedly don’t have even 10/1 Mbps broadband, you’d expect that some ISPs have built into the RDOF footprint over the last 9 months. However, that’s not the response that the FCC got. While there were a number of ISPs that claimed to have built into a few Census blocks, the large incumbent telcos are claiming to have built into a huge numbers of blocks since last June. Frankly, the responses of the of large telcos are not credible and the FCC needs to take a pause and challenge these results.

Here’ what the big telcos claimed:

  • AT&T claims about 1,500 Census blocks that have been upgraded to at least 25/3 since June 30, 20198.
  • Frontier claims over 16,000 Census blocks have been upgraded.
  • CenturyLink claims over 5,400 Census blocks have been upgraded.
  • Windstream claims 1,713 upgraded Census blocks.
  • Consolidated claims over 7,300 Census blocks.

To put these numbers into perspective, the Census Bureau says that the average Census block contains 40 – 45 people. Rural Census blocks often have fewer residents than urban blocks, and even if the average for these blocks is 40 people, the big telcos are asking to remove about 1/3 of the people out of consideration for RDOF grants. That number is mind-boggling. If the big telcos had been making this kind of progress in expanding 25/3 Mbps rural broadband before June 30, 2019, then we wouldn’t have a rural digital divide.

Consider the individual claims:

  • Frontier lost 235,000 broadband customers in 2019, representing 6.3% of their customer base. The company has been cash-strapped and has not been making rural capital investments. It’s fairly well understood in the industry that the company didn’t even spend much of its CAF II funding to upgrade rural customers to 10/1 Mbps. It’s inconceivable that the company that just entered bankruptcy upgraded over 16,000 Census blocks in the last 9 months.
  • Consolidated Communications is next on the list claiming upgrades in 7,300 Census blocks. The company purchased Fairpoint in July 2017 and has been actively making upgrades since then. But even for a company actively making upgrades, a claim of improvements in this many Census blocks seems hard to believe over a 9-month period that includes the winter months.
  • CenturyLink claims upgrades in 5,400 Census blocks. The company has loudly proclaimed a number of times that it is not making investments that earn ‘infrastructure returns’. It’s frankly hard to believe that they would have spent the money in rural America needed to make these upgrades.
  • Windstream is claiming over 1,700 Census blocks. The company has been flirting with bankruptcy during the last nine months and it’s reasonable to ask if they were really this active in making upgrades in the last 9 months.
  • AT&T claims over 1,500 Census blocks have been upgraded. This is the company that wants badly to get out of the rural wireline business. These upgraded Census blocks need to have come from the AT&T Fixed wireless technology. I’m not aware of AT&T having launched any mass marketing effort aimed at rural census blocks. Consider AT&T’s broadband subscriber numbers for 2019. AT&T lost a little over 300,000 broadband customers during the year. To offset that loss, AT&T claims to have added over 1 million customers on fiber. One would think it would be obvious if AT&T was also out heavily promoting the rural fixed-wireless product.

It’s easy to understand why an incumbent telephone company would make these claims. Any Census blocks that remain in the RDOF grant process are going to be overbuilt by faster technology than the rural DSL offered by these telcos. The incumbents can only remain as the monopoly provider by removing Census blocks from the RDOF footprint.

The FCC needs to investigate these claims. This is reminiscent of the overstated wireless coverage claimed last year by Verizon, T-Mobile, and Sprint that prompted the FCC to delay the rural cellular grants, now labeled as 5G Grants, for a year. It was obvious to the FCC that those wireless carriers were making the erroneous coverage claims to keep out competition. There has to be a whole lot of that going on here as well.

Remember that these claims are being made under the existing rules for the FCC’s 477 process. In the current process an ISP only has to have one customer in a Census block getting the declared speed. The easiest way for the FCC to check these numbers is to require each telco to provide the addresses of customers in each Census block that supposedly now has 25/3 Mbps broadband. The FCC could call and talk to those homes and ask them to take a speed test to see if the telco claims are even remotely plausible. I expect the lists would quickly revised and shrink if the carriers are required to get that specific.

The FCC also needs to allow Census blocks that have only a few 25/3 customers to remain in the RDOF grant. It would be a huge disservice to the other customers in these Census blocks to doom them to remain as monopoly customers for another decade.

These filings are so blatantly suspicious that the FCC has to pause, even if that means delaying the RDOF grants. Considering the hardships being experienced by everybody in these areas during the current COVID-19 crisis, the FCC cannot accept these crazy claims without challenging them. It would have been possible credible if each of these big telcos claimed a few hundred Census block upgrades – but in aggregate this filing looks like a monopoly land grab more than anything else. If these claims prove to be false the FCC needs to fine these telcos into the stone age – such fines deserve to be in the billions.

The FCC is Ignoring Its Section 706 Responsibilities

I was recently re-reading the FCC’s 2019 Broadband Deployment Report to Congress. That report was mandated by the Telecommunications Act of 1996 and gave the FCC specific obligations to make sure that everybody in the country has access to ‘advanced telecommunications’, which today is understood to mean broadband. It’s worthwhile for broadband advocates to occasionally be reminded of the FCC’s legal obligations concerning broadband. Following is a slightly abridged version of Section 706 of the Commission’s rules:

The Commission and each State commission with regulatory jurisdiction over telecommunications services shall encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans by utilizing, in a manner consistent with the public interest, convenience, and necessity, price cap regulation, regulatory forbearance, measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment. The Commission shall determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion. If the Commission’s determination is negative, it shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.

As I read the 2019 report, I can’t help but conclude that the Commission is failing its Section 706 obligations in several big ways. The first obligation is to determine if advanced telecommunications are being deployed to all Americans. The 2019 report has hundreds of pages of numerical data concerning the deployment of landline and cellular broadband. However, the tables are largely fiction since they are based upon massively faulty data reported by ISPs and cellular carriers.

We know that rural cellular coverage data is also terrible because the FCC just issued a report saying so in December. It didn’t take the FCC report to validate this, because anybody living or working in rural America knows there are still huge holes in cellular coverage.

The FCC data on landline broadband is abysmal. I know this from working with rural counties to find broadband solutions. In those counties, we’ve mapped out the FCC’s data that shows that large swaths of counties have broadband speeds of at least 10/1 Mbps, or even 25/3 Mbps when in fact there is practically no broadband outside of a county seat or another town or two. In county after county, the FCC data is seriously wrong and claims broadband coverage where it doesn’t exist. Where there is rural broadband coverage, the FCC data generally overstates the speeds and classifies areas where homes can get just a few Mbps as having decent broadband.

The FCC knows their data is bad and has been shown the extent of the errors in ex parte meetings with local officials. Yet the FCC continues to accumulate the lousy data and make policies based upon the bad numbers. In the 2019 report, they say: the data demonstrates that six percent of Americans, over 19 million households, lack access to fixed terrestrial advanced telecommunications capability and we recognize that the situation is especially problematic in rural areas, where over 24% lack access, and Tribal Lands, where 32% lack access. Those statistics are incredibly understated. Across the country local counties claim that the rural data for their counties is off by 20% to 60%, meaning that the numbers cited above by the FCC are likely off that much as well. While the FCC claims there are 19 million rural homes without good broadband we don’t know if this is really 24 million or 28 million or 32 million – because of the FCC complacency we have no way to guess at the extent of the lack of broadband.

The FCC is clearly shirking its duty to fix poor rural broadband. The Section 706 language couldn’t be clearer. The FCC is required to take immediate action to accelerate broadband deployment where it is not being deployed in a reasonable and timely fashion.

In the 2019 report, the FCC defends not taking immediate steps to fix the lack of broadband as follows: the Commission has previously explained, the statute requires that we determine whether advanced telecommunications capability “is being deployed to all Americans”—not whether it has already been deployed to all Americans. Our policymaking efforts over the last two years are promoting broadband deployment, and the data show that ISPs are making strong progress in deploying advanced telecommunications capability to more and more Americans. These circumstances warrant a positive finding. The FCC not only shirks taking any action, but they also pat themselves on the back for having undertaken policies that promote broadband deployment.

I should make it clear that this is not just an indictment of the current FCC. The last several FCCs have used similar verbal gymnastics to avoid taking responsibility to fix rural broadband. But there is one new thing the current FCC has done that makes it harder for them to tackle rural broadband. The Section 706 language directs the FCC to use regulatory tools such as price cap regulation and regulatory forbearance to help tackle the lack of broadband. The current FCC actively wrote themselves out of the regulatory picture for broadband. They can no longer use price caps or forbearance (relaxing regulations in rural areas) as regulatory tools since they no longer regulate broadband.

To give the FCC some credit, they have undertaken huge RDOF grants that will bring better broadband to a few million rural homes. However, by keeping on the blinders about the bad data these grants will not be used to tackle broadband in areas where the FCC maps overstate broadband coverage. And the grants are likely, in some cases, to go to ISPs like the satellite providers that bring no new solutions to rural America. Unfortunately, it’s easy to predict that the FCC will rest on their laurels for years to come, claiming that the RDOF grants take them off the hook for further solving the lack of rural broadband.

The FCC is Redlining Rural America

The recent statistics of broadband usage in the US provide evidence that, unwittingly, the FCC is redlining rural America. OpenVault recently released its Broadband Industry Report for 4Q 2019 that tracks the way that the US consumes data. OpenVault has been collecting broadband usage for more than ten years, and the last two reports have been eye-opening.

The most important finding is that the average data consumed by households grow by 27% from 2018 to 2019 – in the fourth quarter of 2019 the average US home used 344 gigabytes of data, up from 275 gigabytes a year earlier.

The report also looks at power users – homes that consume a lot of broadband. They report that nearly 1% of homes now use 2 terabytes per month and 7.7% use over 1 terabyte per month. A terabyte is 1,000 gigabytes. The percentage of homes using over 1 terabyte almost doubled from 4% a year earlier. This statistic is important because it shows the number of homes that are hitting the 1 terabyte data caps of companies like Comcast, AT&T, Cox, and Mediacom is quickly growing.

Homes are starting to buy gigabit broadband when it’s available and affordable. 2.8% of homes in the country now subscribe to gigabit speeds, up 86% from the 1.5% of homes that bought gigabit in 2018.

54% of homes now purchase broadband plans with speeds of 100 Mbps or faster. Another 23.6% of homes are subscribing to broadband between 50-75 Mbps. This means that nearly 78% of homes are subscribing to data plans of greater than 50 Mbps. The average subscribed speed grew significantly in 2019, up from 103 Mbps to 128 Mbps.

What’s the point of all of these statistics? They show that broadband usage and speeds in urban America is growing by leaps and bounds while broadband in rural America sits still. Urban broadband speeds have increased so rapidly that the average home in the US in 2019 got speeds that were 25 Mbps faster than what they had in 2018. The average speed of broadband in 2019 was more than 100 Mbps faster than the FCC definition of broadband. I contend that FCC actions and inaction have now culminated in the redlining of rural broadband households. It may sound drastic to call the FCC inaction redlining, but I think the word fits the situation.

Redlining historically has been used to describe how big corporations discriminate against poor neighborhoods. Redlining is more often due to neglect than to conscious decisions – grocery stores don’t consider poor neighborhoods as places to build; cable companies and telcos make upgrades in neighborhoods where they have the most customers or the highest revenue per customer. The consequence of redlining is that some neighborhoods get left behind.

The FCC has taken a series of actions that is dooming large parts of rural America to poor broadband for decades to come. One of the most egregious actions by the FCC is refusing to consider a faster definition of broadband, although every statistic shows that urban America is leaping far ahead of rural America and the broadband gap is now growing rapidly each year.

The decision to stick with the outdated 25/3 definition of broadband then boxes the FCC into having to allow federal grant dollars go to build technologies that meet the 25/3 definition of broadband. Considering how fast broadband speeds and consumption are growing, this is an amazingly shortsighted decision when considering that that grant recipients for programs like RDOF have six years to construct the new networks. There will be ISPs still constructing 25/3 broadband networks using federal money in 2026.

Next, the FCC has made it clear that any rural area that gets any federal or state subsidy – even if it’s to support 25/3 Mbps, or to support satellite broadband is not going to be eligible for future federal assistance. Once the FCC sticks you with poor broadband, they’re done with you.

Finally, the FCC continues to hide behind ludicrously dreadful maps that show good broadband available for millions of homes that have no broadband option. The rules for the 477 data collection are lousy, but that’s only half the problem, and I can’t recall ever hearing any discussion at the FCC about penalizing ISPs that file fraudulent speeds. There should be huge financial penalties for a telco that claims 25/3 speeds when nobody gets speeds even close to that or for WISPs that claim 100 Mbps speeds and deliver 15 Mbps. These ISPs are stopping whole counties from being eligible for broadband grants.

All of these FCC actions and inaction have doomed huge swaths of rural America from even participating in federal grant programs to get better broadband. If that’s not redlining, I don’t know what else to call it.

Letters of Credit

One of the dumbest rules suggested by the FCC for the new $16.4 billion RDOF grants is that an ISP must provide a letter of credit (LOC) to guarantee that the ISP will be able to meet their obligation to provide the matching funds for the RDOF grants. The FCC had a number of grant winners years ago in the stimulus broadband grant program that never found financing, and the FCC is clearly trying to avoid a repeat of that situation. A coalition of major industry associations wrote a recent letter to the FCC asking them to remove the LOC requirement – this includes, NTCA, INCOMPAS, USTelecom, NRECA, WTA, and WISPA.

There may be no better example of how out of touch Washington DC is with the real world because whoever at the FCC came up with that requirement has no idea what a letter of credit is. A letter of credit is a formal negotiable instrument – a promissory note like a check. A letter of credit is a promise that a bank will honor the obligation of the buyer of a letter of credit should that buyer fail to meet a specific obligation. The most normal use of LOCs is in international trade or transactions between companies that don’t know or trust each other. An example might be a company that agrees to buy $100,000 dollars of bananas from a wholesaler in Costa Rico, payable upon delivery of the bananas to the US. The US buyer of the bananas will obtain a letter of credit, giving assurance to the wholesaler that they’ll get paid. When the bananas are received in the US, the bank is obligated to pay for the bananas if the buyer fails to do so.

Banks consider letters of credits to be the equivalent of loans. The banks must set aside the amount of pledged money in case they are required to disburse the funds. Most letters of credit are only active for a short, defined period of time. It’s highly unusual for a bank to issue a letter of credit that would last as long as the six years required by the RDOF grant process.

Letters of credit are expensive. A bank holds the pledged cash in escrow for the active life of the LOC and expects to be compensated for the lost interest expense they could otherwise have earned. There are also big upfront fees to establish an LOC because the bank has to evaluate a LOC holder in the same way they would evaluate a borrower. Banks also require significant collateral that they can seize should the letter or credit ever get used and the bank must pay out the cash.

I’m having trouble understanding who the letter of credit would benefit in this situation. When the FCC makes an annual grant payment to an ISP, they expect that ISP to be building network – 40% of the RDOF network must be completed by the end of year 3 with 20% more to be completed each of the next three years. The ISP would be expected each year to have the cash available to pay for fiber, work crews, electronics, engineers, etc. You can’t buy a letter of credit that would be payable to those future undefined parties. I think the FCC believes the letter of credit would be used to fund the ISP so they could construct the network. No bank is going to provide a letter of credit where the payee is also the purchaser of the LOC – in banking terms that would be an ISP paying an upfront fee for a guaranteed loan to be delivered later should that ISP not find a loan elsewhere. It’s absurd to think banks would issue such a financial instrument. It’s likely that an ISP who defaults on a LOC is in financial straits, so having a LOC in place would have the opposite effect of what the FCC wants – rather than guarantee future funds a bank would likely seize the assets of the ISP when the LOC is exercised.

A letter of credit has significant implications for the ISP that buys it. Any bank considering lending to the ISP will consider an LOC to be the same as outstanding debt – thus reducing the amount of other money the ISP can borrow. A long-term LOC would tie up a company’s borrowing capacity for the length of the LOC, making it that much harder to finance the RDOF project.

The coalition writing the letter to the FCC claims correctly that requiring letters of credit would stop a lot of ISPs from applying for the grants. Any ISP that that can’t easily borrow large amounts of money from a commercial bank is not going to get a LOC. Even ISPs that can get the letter of credit might decide it makes it too costly to accept the grant. The coalition petitioning the FCC estimates that the aggregate cost to obtain letters of credit for RDOF could cost as much as $1 billion for the grant recipients – my guess is that the estimate is conservatively low.

One of the groups this requirement might cause problems for are ISPs that obtain their funding from the federal RUS program. These entities – mostly telcos and electric cooperatives, would have to go to a commercial bank to get a LOC. If their only debt is with the RUS, banks might not be willing to issue an LOC, regardless of the strength of their balance sheet, since they have no easy way to secure collateral for the LOC.

Hopefully, the FCC comes to its senses, or the RDOF grant program might be a bust before it even gets started. I’m picturing ISPs going to banks and explaining the FCC requirements and seeing blank stares from bankers who are mystified by the request.

Why I am Thankful – 2019

It’s Thanksgiving again and I pause every year to look at the positive events and trends for the small ISP industry. I found a number of things to be thankful for at the end of 2019.

FCC Finally Admits Its Maps Suck. The FCC has begrudgingly admitted that its broadband mapping sucks and is considering several proposals for improving the mapping. It looks like the proposals will fix the ‘edge’ problem, where today rural customers that live close to cities and towns are lumped in with the broadband available in those places. Sadly, I don’t believe there will ever be a good way to measure and map rural DSL and fixed wireless. But fixing the edge problem will be a great improvement.

FCC Released the CBRS Spectrum. The 3.65 GHz, (Citizens Band Radio Spectrum) should provide a boost to rural fixed broadband. There are some restrictions where there is existing government use and there will be frequency sharing rules, so the frequency is not fully unrestricted. The 80 MHz of free spectrum should prove to be powerful in many parts of the country. The FCC is considering other frequencies like white space, C Band, and 6 GHz that also will be a benefit to rural broadband.

States Are Reversing a Few Draconian Laws. Several states have removed barriers for electric cooperatives to get into the broadband business. Arkansas softened a prohibition against municipal broadband. Local politicians are now telling state legislators that broadband is the top priority in communities that don’t have access to good broadband. It’s been obvious for a long time that the best solutions to fix rural broadband are local – it makes no sense to restrict any entity that wants to invest in rural broadband.

The FCC Has Made it Easier for Indian Tribes to Provide Broadband. Various rule changes have streamlined the process of building and owning broadband infrastructure on tribal lands. Many tribes are exploring their options.

Local Broadband Activists Make a Difference. It seems like every community I visit now has a local broadband committee or group that is pushing local politicians to find a solution for poor broadband coverage. These folks make a difference and are prodding local governments to get serious about finding broadband solutions.

The FCC Announces a Monstrous Grant Program. I hope the RDOF grants that will award over $16 billion next year will make a real dent in the rural digital divide. Ideally, a lot of the grants will fund rural fiber, since any community with fiber has achieved a long-term broadband solution. However, I worry that much of the funding could go to slower technologies, or even to the satellite companies – so we’ll have to wait and see what happens in a massive reverse auction.

States Take the Lead on Net Neutrality. When the US Appeals Court ruled that the FCC had the authority to undo net neutrality, the court also rules that states have the authority to step into that regulatory void. Numerous states have enacted some version of net neutrality, but California and Washington have enacted laws as comprehensive as the old FCC rules. My guess at some point is that the big ISPs will decide that they would rather have one set of federal net neutrality rules than a host of different state ones.

The Proliferation of Online Programming. The riches of programming available online is amazing. I’m a Maryland sports fan and there are only three basketball or football games that I can’t watch this season even though I don’t live in the Maryland market. I don’t understand why there aren’t more cord cutters because there is far more entertainment available online than anybody can possibly watch. A decade ago, I didn’t even own a TV because there was nothing worth watching – today I keep a wish list of programming to watch later.

NC Broadband Matters. Finally, I’m thankful for NC Broadband Matters. This is a non-profit in North Carolina that is working to bring broadband to communities that don’t have it today. The group invited me to join their Board this year and I look forward to working with this talented group of dedicated folks to help find rural broadband solutions in the state.

Auditing the Universal Service Fund

I recently heard FCC Commissioner Geoffrey Starks speak to the Broadband Communities meeting in Alexandria, Virginia. He expressed support for finding broadband solutions and cited several examples of communities that don’t have good broadband access today – both due to lack of connectivity and due to the lack of affordable broadband.

One of his more interesting comments is that he wants the FCC to undertake a ‘data-driven’ analysis of the effectiveness of the Universal Service Fund over the last ten years. He wants to understand where the fund has succeeded and where it has failed. Trying to somehow measure the effectiveness of the USF sounds challenging. I can think of numerous successes and failures of USF funding, but I also know of a lot of situations that I would have a hard time classifying as a success or failure.

Consider some of the challenges of looking backward. Over the last decade, the definition of broadband has changed from 4/1 Mbps to 25/3 Mbps. Any USF funds that supported the older speeds will look obsolete and inadequate today. Was using USF funding nine years ago to support slow broadband by today’s standards a success or a failure?

One of the biggest challenges of undertaking data-driven analysis is that the FCC didn’t gather the needed data over time. For example, there has only been a limited amount of speed testing done by the FCC looking at the performance of networks built with USF funding. A more rigorous set of testing starts over the next few years, but I think even the new testing won’t tell the FCC what they need to know. For example, the FCC just changed the rules to let the big telcos off the hook when they decided that USF recipients can help to decide which customers to test. The big telcos aren’t going to test where they didn’t build upgrades or where they know they can’t meet the FCC speed requirements.

The FCC will find many successes from USF funding. I’m aware of many rural communities that have gotten fiber that was partially funded by the ACAM program. These communities will have world-class broadband for the rest of this century. But ACAM money was also used in other places to build 25/3 DSL. I’m sure the rural homes that got this DSL are thankful because it’s far better than what they had before. But will they be happy in a decade or two as their copper networks approach being a century old? Are the areas that got the DSL a success or a failure?

Unfortunately, there are obvious failures with USF funding. Many of the failures come from the inadequate mapping that influenced USF funding decisions. There are millions of households for which carriers have been denied USF funding because the homes have been improperly classified as having broadband when they do not. Commissioner Stark said he was worried about using these same maps for the upcoming RDOF grants – and he should be.

Possibly the biggest failures come from what I call lack of vision by the FCC. The biggest example of this is when they awarded $11 billion to fund the CAF II program for the big telcos, requiring 10/1 Mbps speeds at a time when the FCC had already declared broadband to be 25/3 Mbps. That program was such a failure that the CAF II areas will be eligible for overbuilding using the RDOF grants, barely after the upgrades are slated to be completed. The Universal Service Fund should only support building broadband to meet future speed needs and not today’s needs. This FCC is likely to repeat this mistake if they award the coming RDOF grants to provide 25/3 Mbps speeds – a speed that’s arguably inadequate today and that clearly will be inadequate by the time the RDOF networks are completed seven years from now.

I hope the data-driven analysis asks the right questions. Again, consider CAF II. I think there are huge numbers of homes in the CAF II service areas where the big telcos made no upgrades, or upgraded to speeds far below 10/1 Mbps. I know that some of the big telcos didn’t even spend much of their CAF II funding and pocketed it as revenue. Is the audit going to look deep at such failures and take an honest look at what went wrong?

Commissioner Stark also mentioned the Lifeline program as a failure due to massive fraud. I’ve followed the Lifeline topic closely for years and the fraud has been nowhere near the magnitude that is being claimed by some politicians. Much of the blame for problems with the program came from the FCC because there was never any easy way for telcos to check if customers remained eligible for the program. The FCC is in the process of launching such a database – something that should have been done twenty years ago. The real travesty of the Lifeline program is that the big telcos have walked away. For example, AT&T has stopped offering Lifeline in much of its footprint. The FCC has also decided to make it exceedingly difficult for ISPs to join the program, and I know of numerous ISPs that would love to participate.

I try not to be cynical, and I hope an ‘audit’ isn’t just another way to try to kill the Lifeline program but is instead an honest effort to understand what has worked and not worked in the past. An honest evaluation of the fund’s problems will assign the blame for many of the fund’s problems to the FCC, and ideally, that would stop the current FCC from repeating the mistakes of the past.

FCC Further Defines Speed Tests

The FCC recently voted to tweak the rules for speed testing for ISPs who accept federal funding from the Universal Service Fund or from other federal funding sources. This would include all rate-of-return carriers including those taking ACAM funding, carriers that won the CAF II reverse auctions, recipients of the Rural Broadband Experiment (RBE) grants, Alaska Plan carriers, and likely carriers that took funding in the New York version of the CAF II award process. These new testing rules will also apply to carriers accepting the upcoming RDOF grants.

The FCC had originally released testing rules in July 2018 in Docket DA 18-710. Those rules applied to the carriers listed above as well as to all price cap carriers and recipients of the CAF II program. The big telcos will start testing in January of 2020 and the FCC should soon release a testing schedule for everybody else – the dates for testing were delayed until this revised order was issued.

The FCC made the following changes to the testing program:

  • Modifies the schedule for commencing testing by basing it on the deployment obligations specific to each Connect America Fund support mechanism;
  • Implements a new pre-testing period that will allow carriers to become familiar with testing procedures without facing a loss of support for failure to meet the requirements;
  • Allows greater flexibility to carriers for identifying which customer locations should be tested and selecting the endpoints for testing broadband connections. This last requirement sounds to me like the FCC is letting the CAF II recipients off the hook by allowing them to only test customers they know meet the 10/1 Mbps speeds.

The final order should be released soon and will hopefully answer carrier questions. One of the areas of concern is that the FCC seems to want to test the maximum speeds that a carrier is obligated to deliver. That might mean having to give customers the fastest connection during the time of the tests even if they have subscribed to slower speeds.

Here are some of the key provisions of the testing program that were not changed by the recent order:

  • ISPs can choose between three methods for testing. First, they may elect what the FCC calls the MBA program, which uses an external vendor, approved by the FCC, to perform the testing. This firm has been testing speeds for the network built by large telcos for many years. ISPs can also use existing network tools if they are built into the customer CPE that allows test pinging and other testing methodologies. Finally, an ISP can install ‘white boxes’ that provide the ability to perform the tests.
  • Testing, at least for now is perpetual, and carriers need to recognize that this is a new cost they have to bear due to taking federal funding.
  • The number of tests to be conducted will vary by the number of customers for which a recipient is getting support; With 50 or fewer households the test is for 5 customers; for 51-500 households the test is 10% of households. For 500 or more households the test is 50 households. ISPs declaring a high latency must test more locations with the maximum being 370.
  • Tests for a given customer are for one solid week, including weekends in each quarter. Tests must be conducted in the evenings between 6:00 PM and 12:00 PM. Latency tests must be done every minute during the six-hour testing window. Speed tests – run separately for upload speeds and download speeds – must be done once per hour during the 6-hour testing window.
  • ISPs are expected to meet latency standards 95% of the time. Speed tests must achieve 80% of the expected upland and download speed 80% of the time. An example of this requirement is that a carrier guaranteeing a gigabit of speed must achieve 800 Mbps 80% of the time. ISPs that meet the speeds and latencies for 100% of customers are excused from quarterly testing and only have to test once per year.
  • There are financial penalties for ISPs that don’t meet these tests.
  • ISPs that have between 85% and 100% of households that meet the test standards lose 5% of their FCC support.
  • ISPs that have between 70% and 85% of households that meet the test standards lose 10% of their FCC support.
  • ISPs that have between 55% and 75% of households that meet the test standards lose 15% of their FCC support.
  • ISPs with less than 55% of compliant households lose 25% of their support.
  • The penalties only apply to funds that haven’t yet been collected by an ISP.

Funding the USF

The Universal Service Fund (USF) has a bleak future outlook if the FCC continues to ignore the funding crisis that supports the program. The fund continues to be funded with a fee levied against the combined Interstate and international portion of landlines, cellphones and certain kinds of traditional data connections sold by the big telcos. The ‘tax’ on Interstate services has grown to an indefensible 25% of the retail cost of the Interstate and international portion of these products.

The FCC maintains arcane rules to determine the interstate portion of things like a local phone bill or a cellular bill. There are only a tiny handful of consultants that specialize in ‘separations’ – meaning the separation of costs into jurisdictions – who understand the math behind the FCC’s determination of the base for assessing USF fees.

The USF has done a lot of good in the past and is poised to do even more. The segment of the program that brings affordable broadband to poor schools and libraries is a success in communities across the country. The USF is also used to subsidize broadband to non-profit rural health clinics and hospitals. I would argue that the Lifeline program that provides subsidized phone service has done a huge amount of good. The $9.25 per month savings on a phone or broadband bill isn’t as effective today as it once was because the subsidy isn’t pegged to inflation. But I’ve seen firsthand the benefits from this plan that provided low-cost cellphones to the homeless and connected them to the rest of society. There are numerous stories of how the subsidized cellphones helped homeless people find work and integrate back into society.

The biggest potential benefit of the fund is bringing broadband solutions to rural homes that still aren’t connected to workable broadband. We’ve gotten a hint of this potential in some recent grant programs, like the recent CAF II reverse auction. We’re ready to see the USF create huge benefits as the FCC starts awarding $20.4 billion in grants from the USF, to be dispersed starting in 2021. If that program is administered properly then huge numbers of homes are going to get real broadband.

This is not to say that the USF hasn’t had some problems. There are widespread stories about fraud in the Lifeline program, although many of those stories have been exaggerated in the press. A decent amount of what was called fraud was due to the ineptitude of the big phone companies that continued to collect USF funding for people who die or who are no longer eligible for the subsidy. The FCC has taken major steps to fix this problem by creating a national database of those who are eligible for the Lifeline program.

The biggest recent problem with the USF came when the FCC used the fund to award $11 billion to the big telcos in the CAF II program to upgrade rural broadband to speeds of at least 10/1 Mbps. I’ve heard credible rumors that some of the telcos pocketed much of that money and only made token efforts to tweak rural DSL speeds up to a level that households still don’t want to buy. It’s hard to find anybody in the country who will defend this colossal boondoggle.

However, we’ve learned that if used in a smart way that the USF can be used to bring permanent broadband to rural America. Every little pocket of customers that gets fiber due to this funding can be taken off the list of places with no broadband alternatives. Areas that get fixed wireless are probably good for a decade or more, and hopefully, those companies operating these networks will pour profits back into bringing fiber (which I know some USF fund recipients are doing).

But the USF is in real trouble if the FCC doesn’t fix the funding solution. As traditional telephone products with an interstate component continue to disappear the funds going into the USF will shrink. If the funding shrinks, the FCC is likely to respond by cutting awards. Somebody might win $1 million from the upcoming grant program but then collect something less as the fund decreases over time.

The fix for the USF is obvious and easy. If the FCC expands the funding base to include broadband products, the percentage contribution would drop significantly from the current 25% and the fund could begin growing again. The current FCC has resisted this idea vigorously and it’s hard to ascribe any motivation other than that they want to see the USF Fund shrink over time. This FCC hates the Lifeline program and would love to kill it. This FCC would prefer to not be in the business of handing out grants. At this point, I don’t think there is any alternative other than waiting for the day when there is a new FCC in place that embraces the good done by the USF rather than fight against it.

Comparing FCC Broadband Programs

I think it’s finally dawning on the big telcos that the days of being able to milk revenues from rural America while ignoring rural copper networks is finally ending. This becomes apparent when looking at the two most recent subsidy programs.

The original CAF II program was a huge boon to the big telcos. Companies like AT&T, CenturyLink, and Frontier collected $11 billion of subsidy to boost their rural copper networks up to speeds of at least 10/1 Mbps. This was a ridiculous program from the start since the FCC had established the definition of broadband to be at least 25/3 Mbps even before awarding this money. Perhaps the craziest thing about CAF II is that the telcos are still making the upgrades – they were required to be 60% complete with the required CAF II upgrades by the end 2018 and to be 100% complete by the end of 2020.

The big telcos report broadband customers to both the FCC and to stockholders, but the reporting is not in enough detail to know if the CAF II money has made any difference in rural America. All of the big telcos are losing broadband customers, but it’s hard to look under the hood to know if they are making any significant customer gains in the CAF II areas. We see little hints from time to time. For example, in the second quarter of this year, CenturyLink lost 56,000 net broadband customers but reports that it lost 78,000 customers with speeds below 20 Mbps and added 22,000 customers with speeds faster than that. That’s the first time they provided any color about their gains and losses. But even that extra detail doesn’t tell us how CenturyLink is doing in the CAF II areas. It’s obvious by looking at the customer losses that telcos aren’t adding the hundreds of thousands of new customers one would expect to see as the result of an $11 billion capital expenditure program. If CAF II is delivering broadband to areas that didn’t have it before, there should be a flood of new rural customers buying better broadband by now. I could be wrong, but when looking at the aggregate customers for each big telco I don’t think that flood of new customers is happening. If it was I think the telcos would be bragging about it.

The CAF II reverse auction took a different approach and awarded funding in those areas where the big telcos didn’t take the original CAF II funds. These subsidies were auctioned off in a reverse auction where the company willing to take the lowest amount of subsidy per customer got the funding. In the auction, most bidders offered to deploy broadband of 100 Mbps speeds or faster – a big contrast to the 10/1 Mbps speeds for CAF II. Some of the grant winners in the reverse auction like electric cooperatives are using the money to build fiber and offer gigabit speeds.

The original CAF II subsidy awards are probably the dumbest decision I’ve ever seen an FCC make (rivaling the recent decision to stop regulating broadband). If the original CAF II awards had been open to all applicants instead of being handed to the big telcos, then many of the homes that have been upgraded to 10/1 Mbps would have instead gotten fiber. Maybe even worse, CAF II basically put huge swaths of rural America on hold for seven years while the big telcos invested in minor tweaks to DSL.

The FCC will soon be handing out $20.4 billion for the new RDOF program to build better rural broadband. It should be press headlines that this money is going to many of the same areas that got the original $11 billion CAF II subsidies – the FCC is paying twice to upgrade the same areas.

Dan McCarthy, the CEO of Frontier Communications recently complained about the new RDOF grant program. He realizes that Frontier has little chance of winning the grants in a reverse auction.  Frontier doesn’t want to invest any of its cash for rural broadband and in an auction would be competing against ISPs willing to invest significant equity to match the RDOF grants. Frontier also recognizes that anything they might propose as upgrades can’t compete with technologies that will deliver speeds of 100 Mbps or faster.

At least the FCC is not handing the RDOF money directly to the big telcos again. It’s been five years since the start of CAF II and I’m still perplexed by the last FCC’s decision to hand $11 billion to the big telcos. Unfortunately, this FCC is still repeating the mistake of awarding grant money to support obsolete speeds. The FCC is proposing that RDOF money can be used to build broadband capable of delivering 25/3 Mbps broadband. In a recent blog, I predict that this is going to go into the books as another short-sighted decision by the FCC and that they’ll again be funding broadband that will be obsolete before it’s completed eight years from now. Hopefully most of the RDOF money will go towards building real broadband. Otherwise, in eight years we might see another giant FCC grant program to improve broadband for a third time in the same rural areas.