The Industry

The Widening Rural Broadband Gap

FunkstownThe gap between urban and rural broadband is widening quickly these days. Up until the late 1990s access to the Internet was the same for everybody using dial-up. But within a short period of time in the late 90s both DSL and then cable modems hit the market.

I remember back in the early 90s how jealous I was of friends who had Internet access at work using a T1. But then DSL became available and all of a sudden we could all get the equivalent of T1 access at our homes. At the time DSL felt amazingly fast, and it was at 20 – 30 times the speed of dial-up. The big limitation with dial-up was that it took several minutes to see a picture that accompanied a news story and it could take hours to download a software update. But DSL and cable modems fixed those problems and images became much faster and file downloads didn’t take half of the night.

But these new technologies were only available in towns and cities and that was the start of the urban / rural broadband gap. Over the years both technologies got faster. In most big cities it became routine to be able to buy DSL at speeds up to 15 Mbps, a nice improvement over the first generation. But cable modems improved even more and over the last decade became capable of speeds much faster than DSL.

What I found odd was that for the longest time the cable companies didn’t take advantage of their extra capabilities. They offered cable modem speeds that were just slightly faster than DSL. I can remember the CEO of Comcast telling people that they would supply the speed that people ‘needed’. But even at 15 Mbps the speeds were 250 times faster than the dial-up that many people rural people were still stuck with.

But over the last five years the cable companies woke up and started unilaterally raising speeds to be faster than DSL, and in doing so they started capturing the vast majority of the market. It was hard to justify staying on 6 Mbps DSL if you could get a 25 Mbps cable modem for the same price. The cable companies have generally offered speeds over the last five years up to 100 Mbps, although the vast majority of urban customers have opted for something slower. But even 25 Mbps is 450 times faster than dial-up.

Not all rural people have had dial-up as their only option. There have been several satellite companies that offered faster speeds, but the service was really expensive and there was so much latency in the signal that a lot of things other people could do on the Internet are not possible on a satellite connection. So a lot of rural people still use dial-up – or often just go without a connection – because on today’s web, dial-up can do little more than read emails.

In the last year or so the cable companies have really kicked it up a notch and they clearly now are competing with speed – probably as a way to fight off having somebody else build fiber. Late last year Comcast doubled the speed on my home connection from 50 Mbps to 100 Mbps, an eye-opening 1,800 times faster than dial-up.

And the cable companies aren’t finished. They are now talking about upgrading to DOCSIS 3.1 which will enable them to offer speeds up to a gigabit. But that is not the real news concerning the new technology, because Comcast says that they plan to increase speeds across the board again. So my 100 Mbps connection might become 150 Mbps to 200 Mbps. Or 3,500 times the speed of dial-up.

But there are cities that are really lucky and which have widespread gigabit speeds. Google and a few others are using fiber to provide a real competitor to cable modems. And customers on a gigabit are nearly 18,000 times faster than dial-up.

So rural folks with no broadband alternative have seen the people in the towns and cities around them climb over time from 20 times faster up to many thousands of times faster. I really don’t think most urban people understand how colossally terrible it is to be on dial-up. They remember all of the things that they could do on dial-up in the 90s and they don’t stop to think how the whole web has migrated to video. Imagine trying to look at Facebook or Pinterest or any other popular site on dial-up, or even on 1 Mbps rural DSL and you can quickly understand why rural areas are getting desperate and are willing to do almost anything to get faster broadband.

Regulation - What is it Good For?

Special Access Rate Investigation

There is an investigation going on at the FCC that is probably long overdue involving looking at special access rates. Special access rates are rates used by telephone companies to charge for TDM data circuits such as T1s.

You might think that T1s and TDM technology would be fading away, but the large telcos are still making a fortune by requiring other carriers and large businesses to interface with them using TDM circuits and then charging a lot of money for the connections. As an example, the connections between a large telco like AT&T and CLECs or long distance carriers are still likely to be comprised of DS-3s (28 T1s).

There are also still a lot of businesses that use T1s. There are still a lot of older phone systems sitting at small businesses that need a T1 interface to connect back to the phone company. And in very rural markets where there is no last mile fiber the telcos are still selling T1 data connections to businesses and delivering the paltry 1.544 Mbps of data that it can deliver.

The main thrust of the investigation are the prices being charged. In places with no competition the telcos might still charge between $400 and $700 per month for a T1 connection. And it’s not unusual for carriers to have to pay thousands of dollars per month to interface with the large carriers at a regional tandem switch.

There was a time when the prices charged for TDM circuits were somewhat cost-based, even though as somebody who did some of the cost studies behind the rates, I can tell you that every trick in the books was used to justify the rates at the highest possible cost. But in a 100% copper network there was some logic behind the charges. For example, if a business bought a T1 the phone company had to dedicate two copper pairs throughout the network for that service plus provide fairly costly electronics to supply the T1. I remember when T1s first hit the market and they were a big step forward in telco technology.

But technology has obviously moved forward and we now live in an Ethernet world. The FCC has been working on a transition of the public switched telephone network from TDM to all-IP and this investigation is part of that process.

The prices for TDM special access are all included in tariffs, and for the most part the rates have not changed in years, or even in decades. Where it used to be a big deal, for example, for a telco to send a DS3 between its offices, the bandwidth on a DS3, at 45 Mbps, is barely a blip today inside of the huge Ethernet data pipes the phone companies use to connect their locations. Even if the cost for a DS3 was justified at some point in time, when those same circuits are carried today inside much large data pipes the cost of transporting the data has dropped immensely.

It’s good that the FCC is investigating this, but to a large degree it’s their fault that the rates are so high. It’s been decades now since either the FCC or the state regulatory commissions required cost studies for TDM circuits. And without the prodding by the regulatory agencies the telcos have all let the old rates stand in place and have been happily billing them year after year. This investigation should have been done sometime soon after the Telecommunications Act of 1996, because the rise of competitive telecom companies created a boom in special access sales, all at inflated prices.

Special access rates matter a lot to small carriers. For example,special access is one of the largest expenses for any company that wants to provide voice services. It’s not unusual for a company to spend $100,000 or more per year buying special access services even if they deliver only a tiny volume of voice traffic to the world. As would be expected, the high costs adversely affect small carriers to a much greater extent than large carriers who can better fill up the pipe between them and the large telco.

For years the telcos have hidden behind the fact that these rates are in a tariff, meaning that they are not negotiable for other carriers. But at the same time, the telcos routinely drop rates significantly when selling special access circuits in a competitive market. The high special access rates apply only to those small carriers and businesses who are too small to negotiate or who do not operate in a competitive part of the network. It’s definitely time for these rates to be brought in line with today’s costs, which are a small fraction of what the telcos are charging. It would not be shocking for the FCC to determine that special access rates are 70% to 90% too high, particularly when you consider that most of the network and electronics that support them have been fully depreciated for years.

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