Taking Advantage of Rural Fiber

As I keep reading about Verizon’s residential 5G roll-out I can’t help but thinking about how 5G might benefit rural America. It’s clear that the 5G technology requires fiber that is close to customers – it uses wireless to deliver the broadband for the last thousand feet or so, but must be fed from fiber. This means that the biggest cost and biggest impediment to rural 5G deployment will be the cost of deploying fiber.

But what about all of the fiber that already exists in rural America? I visit rural counties all of the time and there is usually a surprising amount of existing fiber. It’s used for purposes like connecting to electric substations, for connecting to schools, for connecting telco central offices and many other similar uses. How much benefit might rural America get if these fibers could be tapped for 5G?

One fiber provider that is often forgotten is the railroads. There are 233,000 miles of railroads in the US, and a decent percentage the tracks already has fiber. Union Pacific is the largest railroad with 32,000 miles of tracks, much of it with fiber. While many miles of track go through desolate places with no people, Union Pacific and the other railroads also pass numerous small rural towns and other pockets of rural households as well as portions of numerous larger towns and cities.

It’s not hard to picture a business case for somebody like Union Pacific to get into the 5G business. The company has toyed with the broadband idea for nearly twenty years and has done some trials as an ISP using the existing wireless technologies. If 5G works as promised they could have a robust wireless product that could deliver hundreds of Mbps to those living close enough to the railroad tracks. It’s a tricky business plan in that it probably requires door-do-door marketing to those within range of a 5G transmitter, but one has to think that Union Pacific alone might pass close to millions of homes. Just one railroad of their size could become a significant ISP if they are willing to leverage the fiber they have buried along their tracks.

The same goes with other fiber owners. Electric companies collectively own even more miles of rural fiber than the railroads. A number of electric companies have already become ISPs and are building fiber-to-the-premise. Tapping the 5G potential would be an interesting ISP model that provides broadband along narrow corridors – but that still could bring better broadband to millions of homes.

There are obviously numerous challenges to make this work. The technology is not here yet today to do this. Verizon developed their own 5G electronics and there is no commercially equivalent yet available to the average ISP. Fiber owners like a small electric cooperative or a school district might not own enough fiber to make a viable business plan. And even those with enough fiber need to fund and implement a new ISP business – which many fiber owners would consider as a distraction from their normal line of business.

But there is a lot of potential in existing rural fiber. Once the technology is reliable and cheap enough I can foresee ISPs willing to partner with or lease capacity from existing fiber owners. A 5G ISP could gain economy of scale if they can master the business plan of selling only to those who live within a thousand feet of an existing fiber. There will clearly be operational hurdles to overcome – because wireless is always trickier to operate than end-to-end fiber.

5G is not going to come close to solving the rural broadband problem because most rural homes are not close enough to existing fiber. Many owners of the existing rural fiber are not going to use it for this purpose or allow others to use it. There is still likely to be no business case for building new fiber to support rural 5G, and in fact, anybody doing that might still decide to go the whole way to the home with fiber.

But I can’t help envision how creative ISPs might be able to take advantage of the fiber that already exists along railroad lines or is used to reach schools. This might bring good broadband to a few million more rural homes, and that’s how we are going to solve the rural broadband dilemma – one home at a time.

Means Testing for FCC Funding – Part I

A recent blog by FCC Commissioners Michael O’Rielly and Mignon Clyburn asks if there should be a means test in federal high cost programs. This blog is something every telco, school, library or health care provider that gets any form of Universal Service funding needs to read.

There is already some means testing in the Universal Service Fund. For instance, the Lifeline program brings subsidized voice and broadband only to households that meet certain poverty tests. And the Schools and Libraries program uses a mean test to make certain that subsidies go to schools with the most low-income students. The FCC blog talks about now applying a means test to the Universal Service Funds that are used to promote rural broadband. There are several of these programs, with the biggest dollar ones being the CAF II funding for large telcos and the ACAM program for small telcos to expand rural broadband networks.

The blog brings up the latest buzzword at the FCC, which is reverse auction. The FCC embraces the concept that there should be a competition to get federal money to expand broadband networks, with the funding going to the carrier that is willing to accept the lowest amount of funding to expand broadband into an area. On the surface that sounds like a reasonable suggestion in that it would give money to the company that is the most efficient.

But in real-life practice reverse auctions don’t work, at least for building rural broadband networks. Today these FCC infrastructure programs are aimed at bringing broadband to places that don’t have it. And the reason they don’t have it is because the areas are largely rural and sparsely populated, meaning costly for building broadband infrastructure. In most of these places nobody is willing to build without significant government subsidy because there is no reasonable business plan using commercial financing.

If there was a reverse auction between two companies willing to bring fiber to a given rural area, then in my experience there wouldn’t be much difference between them in terms of the cost to build the network. They have to deploy the same technology over the same roads to reach the same customers. One might be slightly lower in cost, but not enough to justify going through the reverse auction process.

And that is the big gotcha with the preference for reverse auctions. A reverse auction will always favor somebody using a cheaper technology. And in rural broadband, a cheaper technology means an inferior technology. It means using federal funding to expand DSL or cellular wireless as is being done with big telco CAF II money instead of building fiber, as is being done by the small telcos accepting ACAM money.

Whether intentional or not, the FCC’s penchant for favoring reverse auctions would shift money from fiber projects – mostly being done by small telcos – to the wireless carriers. It’s clear that building cellular technology in rural areas is far cheaper than building fiber. But to use federal money to build inferior technology means relegating rural areas to dreadfully inadequate broadband for decades to come.

Forget all of the hype about how 5G cellular is going to bring amazing broadband speeds – and I hope the FCC Commissioners have not bought into cellular company’s press releases. Because in rural areas fast 5G requires bringing fiber very close to customers – and that means constructing nearly the same fiber networks needed to provide fiber into homes. The big cellular companies are not going to invest in rural 5G any more than the big telcos have ever invested in rural fiber. So a reverse auction would divert federal funds to Verizon and AT&T to extend traditional cellular networks, not for super-fast wireless networks.

We already know what it looks like to expand rural cellular broadband. It means building networks that deliver perhaps 20 Mbps to those living close to cell towers and something slower as you move away from the towers. That is exactly what AT&T is building with their CAF II funding today. AT&T is taking $426 million per year for six years, or $2.5 billion in total to expand cellular broadband in rural areas. As I’ve said many times in the past this is perhaps the worse use of federal telecom funding I have ever seen. Customers on these cellular networks are getting broadband on day one that is too slow and that doesn’t even meet the current FCC’s definition of broadband. And in the future these customers and rural communities are going to be light-years behind the rest of the country as household demand for broadband continues to grow at a torrid pace while these customers are stuck with an inadequate technology.

The FCC blog also mentions the concept of possibly re-directing future USF payments, and if I am a small telco that scares me to death. This sounds like the FCC may consider redirecting this already-committed ACAM funding. Numerous small telcos just accepted a 10-year commitment to receive ACAM funding from the USF Fund to expand broadband in rural areas, and many are already borrowing matching funds from banks based upon that commitment. Should that funding be redirected into a reverse auction these small companies will not be able to complete their planned expansion, and if they already borrowed money based upon the promise of that ACAM funding they could find themselves in deep financial trouble.