Tag Archives: RDOF

Expanding the Universal Service Fund

A bipartisan bill has been introduced in Congress that would expand the size of the FCC’s Universal Service Fund by adding a fee on top of broadband bills. This fund is currently funded by fees added to landline telephone and cellular bills. The USF assessment on Interstate traffic recently increased to 26.5% – which is an extraordinarily high tax.

The bill was introduced by Collin Peterson (D-Minn.) and Don Young (R-Alaska). Also sponsoring the bill are T.J. Cox (D-Cal.), Hal Rogers (R-Ky.), Angie Craig (D-Minn.), Frank Lucas (R-Oklahoma), Luis Correa (D-Cal.) Jeff Van Drew (R-N.J.), Ed Case (D- Hawaii), and Vicente Gonzalez (D-Texas).

I’ve been advocating this for a decade because the Universal Service Fund is the FCC’s only tool to tackle the rural broadband issue. The USF already does a lot of good. The Fund is used to bring affordable gigabit broadband to schools. It’s used to bring affordable broadband to rural health care facilities. And even though the FCC keeps fighting it, the USF is used to hold down broadband bills for low-income households, with the Lifeline program that makes ISPs whole for providing lower prices.

In the past the Fund was used to fund two large-dollar broadband expansion projects – one successful and one a total bust. The successful program was ACAM, which has provided the funding to build rural fiber networks by small telcos. I see people around the industry praising the rural broadband in states like North and South Dakota – and that fiber was largely funded by the ACAM program.

Unfortunately, the USF doesn’t always get used wisely. This was the source of funding for the CAF II program that handed $11 billion to the big telcos to ostensively upgrade rural broadband speeds to 10/1 Mbps. It appears that money was largely frittered away or pocketed by the telcos because it’s still hard to find rural households with DSL speeds of 10/1 Mbps. The entire project basically shoveled billions to the bottom line of the telcos.

The Universal Service Fund is about to be used again in big ways. USF is the source of the $16.4 RDOF grants that will be awarded later this year, with another $4 billion to be awarded next year. Assuming this reverse auction doesn’t go cockeyed by awarding money to satellite providers instead of fiber networks, then this will be the biggest boost to rural broadband ever. I’ve been working with a lot of ISPs planning to use this money to build fiber in rural counties all over the country.

The Universal Service Fund is also the source of the proposed $9 billion 5G Fund with a goal of bringing cellular coverage to everybody in the US. Again, assuming the FCC does this right, this would make it a lot easier to live in rural America. Done poorly, this could instead line the pockets of the giant cellular companies.

What nobody is talking about is that those two programs – the RDOF grants and the 5G Fund will use all of the dry powder in the Universal Service Fund. These programs will both award funding over 10 years, and if we don’t find a new source of funding, there will be no additional big grants coming from the USF for the next decade.

What’s even scarier is that the revenues into the Universal Service Fund are dropping as people continue to drop landline telephones. Without some bolstering, there is no assurance that future FCCs will be able to meet the obligations to the recipients of the RDOF and 5G grants.

The revenue impact of imposing a $1 fee on broadband connections is gigantic. There are currently around 106 million broadband customers in the US. A $1 monthly fee on broadband would add $1.3 billion annually to the USF, or over $13 billion over the next decade. That would allow for another big rural broadband grant program.

The members of Congress sponsoring this bill seem to trust the FCC to disperse grant funding. Honestly, their track record on choosing winning grants is mixed. There are also plenty of policy people who think we should take every step possible to keep broadband affordable and that even a $1 monthly fee helps to push broadband out of the affordability range for homes.

If the Universal Service Fund is not expanded, then the only other source for funding rural broadband is Congress. There is a lot of talk about broadband funding coming out of the various COVID-19 stimulus packages. But if that doesn’t happen, we are likely facing an economy with a lot of problems for the next few years. In that environment, rural broadband funding might get shuttled behind other priorities.

Frontier’s Lack of Fiber

The primary reason that Frontier cites for going into bankruptcy is the lack of fiber. They are finally acknowledging that customers are bailing on them due to the poor broadband speeds on their copper networks. This is being presented as if this is a sudden revelation – as if the company woke up one day and realized that it’s selling services that nobody wants to buy. I must admit this gave me a chuckle and there are some giant flaws with this argument.

Rural customers don’t hate DSL – they hate DSL that doesn’t work. If Frontier had implemented the CAF II upgrades as had been promised, then rural customers would all be using the 10/1 Mbps or faster rural DSL that would have been created as a result of those upgrades. Instead, customers have gotten disgusted by overpriced DSL that is so slow that they can’t stream video or connect to a school or work server. We’ve been doing speed tests all over the country and it’s rare to find rural DSL in many markets that delivers even 5 Mbps download – much of it is far slower than that, some barely faster than dial-up. If Frontier had provided 10/1 Mbps DSL to millions of homes, those households would gratefully be buying that broadband during the COVID-19 crisis.

Frontier blames its woes on lack of fiber with no mention of their reputation for unconscionably bad customer service. I’ve talked to customers who talk about routine network outages that lasts for many days. Customers complain about losing broadband and having to wait weeks to get it repaired – or worse, are told that the electronics needed to replace a bad DSL modem are out of stock. This is a company that has trimmed, then trimmed again its maintenance staff to the bone. Talk to any rural Frontier technician and they’ll tell you that they don’t have the time or resources available to address routine customer problems.

Frontier complains about lack of fiber, but as recently as 2015 they purchased another huge pile or dilapidated Verizon copper networks as part of a $10.5 billion acquisition. While that acquisition came with some FiOS fiber networks, the company also doubled down on buying non-functional copper networks. The speculation in the industry was that Frontier continued to buy lousy properties because it created opportunities for huge management bonuses – the company never had any plans to make the purchased copper networks any better.

And that’s the real issue with Frontier’s claim – they have no fiber because they’ve made almost no effort to migrate to fiber. The company burned all of its cash on trying to service the debt for overpriced acquisitions rather than rolling cash back into its networks.

It’s interesting to compare Frontier to the many smaller independent telephone companies. The FCC brags about places like the Dakotas that have a huge amount of rural fiber to homes. But that rural fiber didn’t happen all at once. It happened over decades. Most rural telcos went through two rounds of investment where they invested to improve rural DSL. In doing so they built fiber to go deeper into the rural areas, the first build brought fiber within maybe ten miles of homes, the second got fiber to within 3 miles of most homes. When the rural telcos decided to take fiber the rest of the way, it was reasonably achievable because they already had fiber deep into rural neighborhoods.

Frontier has done very little of that kind of incremental improvements over the years. They found it more enticing to keep borrowing to buy new rural properties rather than roll cash back into the existing networks. It doesn’t even look like they did all of that much new fiber as part of the CAF II upgrades. I’m sure Frontier would refute that statement and say they are fully compliant with CAF II, but if they had built fiber deep into the network then rural DSL would have gotten better – and for the most part, it hasn’t.

I can’t how the bankruptcy will benefit frontier’s customers. The company will likely get to walk away from a lot of the debt that was provided for the last few acquisitions – and it’s hard to feel bad for lenders who thought it was a good idea in 2015 to lend to buy copper networks. But bankruptcy won’t fix any of the fundamental problems with the Frontier networks. Customers are going to continue to bail on inferior and nonfunctional broadband products. The upcoming RDOF auction is going to give a lot of money to ISPs that are going to overbuild Frontier copper with something better (even though Frontier made a last-minute filing at the FCC to block grant funding by claiming they had magically upgraded 16,000 rural census blocks).

Is Frontier going to somehow start investing in rural fiber? My best guess is that they won’t even after bankruptcy. If they can raise any money for new capital spending they’ll likely try to salvage some of the county seats and other markets where there is a mass of customers. However, in many of those markets they’ve already lost the battle to the cable companies.

Frontier is right in that they are failing from lack of fiber. But that statement doesn’t tell the full story. They are failing because the company decided decades ago to not invest capital into their own networks – and now they are paying the price.

Say No to Data Caps

Last week I had a blog that asked why the FCC is seemingly supporting data caps by allowing caps on broadband built with federal grant money. The FCC has established grants that place premium value on fast broadband speeds and low latency but that ignores one of the most important aspects of broadband today – usability.

A broadband connection that doesn’t let homes partake in the same online world as the rest of America is inferior broadband – and there is no better example of an unusable data plan than one a low data cap. The FCC’s RDOF rules support monthly data caps of 250 gigabytes for plans offering 25/3 or 50/5 Mbps. The FCC is clearly saying to rural America – we’ll give grant money to ISPs to bring you better broadband, but we’re going to let the ISPs cripple that broadband so that they can bill you an extra $50 or $100 per month if you want to use that broadband like everybody else in the country.

Recall that ISPs that win the RDOF grants have six years to build the new networks. How will a 250 GB data caps look by the time these networks are built? OpenVault says that the average home used 274 GB per month in 2018 – already higher than the FCC’s proposed data cap. By the end of 2019 average usage had grown to 344 GB for the average home and exploded to 402 GB by March due to people and students working from home during the pandemic. Trending household usage forward until 2026 would suggest that the average home will be using more than a terabyte of data each month by then. That’s not a big stretch since more than 10% of homes are already using a terabyte or more of data today.

The FCC is not the only one to point a finger at. There are plenty of state broadband programs that have awarded grants to ISPs that have data caps. This has happened because policymakers have not viewed data caps as providing inferior broadband. This is easy to understand since just a few years the vast majority of homes used a lot less broadband than the data caps. You might recall in 2015 when there was big public pushback when Comcast tried to introduce a 300 GB data cap. At that time, Comcast said that only a tiny number of customers used more data than 300 GB per month – but in five short years, the national average data usage is significantly higher than the cap Comcast wanted to impose in 2019.

We need a new policy at the state and federal level that says that ISPs with data caps are not welcome to broadband grant funding. Not only should they not be able to impose data caps on grant-funded networks – an ISP that has routine data caps for others should be prohibited from participating in any grant funding anywhere.

There are still ISPs that say that data caps help to protect the integrity of their network. This argument went out the door when most ISPs stopped billing for data caps during the pandemic – the one time when protecting the network would have been important.

What hasn’t been said enough is that a broadband connection with a data cap is an inferior broadband connection. A home with data caps faces the monthly choice of either curtailing broadband usage or else spending a lot more for broadband. Are we going to fix the rural broadband gap by transitioning rural homes with slow broadband connections to ones with tiny data caps that cost a lot more than everybody else in the country?

It’s always been clear that data caps are mostly about greed. There is no better example of this than the AT&T rural hotspot that has a data cap that allows for as much as an extra $200 in monthly fees to a subscriber. It’s outrageous that the FCC gave grant money last year to Viasat which has tiny monthly data caps. The whole proposed 5G Fund is outrageous if billions of federal money will allow the cellular carriers to sell more rural hotspots with tiny data caps and huge monthly fees.

It’s time for broadband policymakers at all levels to categorically say no to data caps. Shame on the FCC for allowing data caps into the discussion of the RDOF grant. But also shame on Congress for not issuing a new telecom bill to stop all of this nonsense. And shame on any state policymaker or regulator who has allowed state resources to be used to support broadband with data caps. It’s time to say no.

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.