Improving Our Digital Infrastructure, Part 1

FCC_New_LogoLast week the FCC published a document that is their vision of a roadmap to improve the nation’s digital infrastructure. Today’s blog is going to look at the positive aspects of that roadmap and tomorrow I will look at some of the FCC’s ideas that I find to be troublesome.

I find this to be an interesting document for several reasons. First, it was published on Ajai Pai’s first day as FCC Chairman. It’s obvious that this paper has been under development for a while, but it clearly reflects the new Chairman’s views of the industry.

This paper is not so much a complete broadband plan as it is a roadmap of principles that the FCC supports to get broadband to rural areas. The FCC recognizes that they only have the power today to institute a few of the goals of this plan and that Congress would need to act to implement most of the suggestions in the plan.

The obviously good news about this document is that it clearly lays forward the principle that rural America deserves to have real broadband that meets or exceeds the FCC’s definition of 25 Mbps. This is a clear break from the FCC’s decision just a few years ago to fund the CAF II program which is spending $19 billion to fund rural broadband that only has to meet a 10/1 Mbps standard. One of my first thoughts in reading this document is that it seems likely that if this new roadmap is implemented that the FCC would have to cancel the remainder of the CAF II deployment. It’s really too bad the that FCC didn’t support real bandwidth for rural America before tossing away money on the CAF II plan.

The FCC plan looks at bringing broadband to the 14% of the households in the country that don’t have broadband today capable of delivering 25/3 Mbps. The FCC estimates that it will cost roughly $80 billion to bring broadband to these areas. Interestingly, they estimate that it would take only $40 billion to reach 12 out of the 14%, and that the last little sliver of the country would cost the remaining $40 billion. But the FCCs goal is to find a way to get broadband to all of these places (except I’m sure for the most remote of the remote places).

The paper calls for aggressive federal assistance in funding the rural broadband. They recognize that there has not been commercial deployment in these areas because commercial providers can’t justify the investments due to the high cost of deployment. And so they suggest that the government should provide grants, loans and loan guarantees that are aggressive enough to improve the returns for private investment. They suggest that grants could be as high as 80% of the cost of deployment in the most remote places.

The paper suggests that most of the areas will have enough customer revenue to support the properties without further federal support. In looking at some of the business plans I have built for rural counties I think that they are probably right. What sinks most rural business plans is not the ongoing maintenance costs, but rather the heavy burden of debt and a return on equity during the first 10 years of deployment. Rural fiber deployment will look like better financial opportunity if the government can find a way to provide enough up-front funding support. The FCC does recognize that most rural markets in the country will require ongoing federal support to be viable. They suggest it will require about $2 billion per year in ongoing support that will probably be similar to how the Universal Service Fund works today.

The roadmap document also suggests other financial incentives to fiber builders such as faster depreciation, tax credits, and changes to the IRS rules which require today that grant funding be considered as income. That provision stopped a number of companies from accepting the stimulus funding a few years ago and is a definite roadblock to accepting grant funding.

Overall these are great goals. It’s going to require significant fiber in rural areas to meet the stated speed goals. It’s great to see the FCC change direction and suggest that rural America deserves real broadband. I just wish they had adopted this policy a few years ago rather than supporting the CAF II program that is throwing money at propping up rural DSL.

Getting Access to Federally Funded Fiber

Fiber CableWhen billions of the stimulus dollars were spent for telecom, a lot of the money went to projects that built middle-mile fiber. This is fiber that basically runs between towns and from county to county through rural areas. The stimulus money required the builder of these fiber networks to connect the handful of nearby anchor institution – schools, libraries and city halls – but the grant recipients weren’t required to connect anybody else.

One of the requirement of those grants was that any middle-mile fiber built with assistance from federal dollars must be made available at low costs to anybody that wants to use that fiber to serve the last mile. And that is a great policy because the ultimate goal for federal broadband dollars ought to be to solve the rural digital divide where rural homes have no access to broadband.

But before you can serve homes in rural areas there has to be a backbone fiber – a connection from a rural area to affordably connect to the Internet. There are still huge swaths of the country where getting that connection is prohibitively expensive, if it is available at all.

The FCC’s hope was that building these middle-mile fibers would lure other service providers to build the last mile. There has not been nearly as much such construction as was hoped for, but there is some. As an example, a fiber project in Cook County, Minnesota is connected to Minneapolis through a federally-funded middle mile fiber. Before that fiber was built there didn’t seem to be an affordable way to connect that remote county to the Internet. Around the country there are numerous communities that have taken advantage of this opportunity for cheap transport.

And now the FCC has decided to spend even more billions of federal money on fiber with the CAF II funds. This money is being given to ten large telcos, most noticeably CenturyLink, Frontier and AT&T. These companies will be receiving $9 billion to help pay for expanding broadband to rural areas that don’t have it today.

In my opinion this program is mostly a huge boondoogle in that the telcos only have to build broadband connections that reach 10 Mbps download speeds. In today’s world that is not broadband, and it certainly isn’t going to feel like broadband by the end of the six year time frame the companies have to make these expansions.

The only way these telcos are going to be able to affordably meet the CAF II goals is by expanding DSL into the rural areas. And to expand DSL they are going to have to build rural fiber routes to support the new DSL. Even if half of this money goes toward DSL electronics, that leaves a lot of federal dollars being spent for rural fiber. Even without considering the telco matching funds, this much money has to be funding more than 200,000 miles of new fiber, almost entirely in rural areas.

It perplexes me why the FCC didn’t impose the same requirements on this new federally-funded fiber as they did the middle-mile fiber built by stimulus funds. Why isn’t this new CAF II fiber being made available at a reasonable price to anybody that can then use it to bring real broadband to the rural areas? This might be the only way to salvage something with long-term value out of this huge waste of federal dollars.

Certainly the large telcos can’t claim any special exemption from such a rule because the many smaller telcos that built middle mile fiber with stimulus funding accepted the last-mile rules as a condition for taking that funding. The large telcos are going to use this free money to do a virtually worthless upgrade to DSL, and people in these rural areas deserve a chance to use these federally-funded facilities to get rural fiber.

This would require nothing more than a policy decision by the FCC. All federally-funded fiber ought to be made available to solve rural broadband. That was true for the stimulus funds. It ought to be made so for fiber built along Interstate highways. And it certainly should apply to the large telcos that are seeing a bump in their stock prices right now due to the ‘revenue’ they are receiving from the CAF II funds.