Sonic – the Transition from UNEs to Fiber

In my continuing series of writing about interesting competitors, today’s blog is about Sonic, a CLEC and fiber overbuilder working in the San Francisco Bay area and other communities in California. It’s an interesting company because they are the poster child for building a competitive telecom company based upon the rules established by the Telecommunications Act of 1996. That Act required that the large telephone companies unbundle their networks to allow competitors to use their copper lines.

Sonic got started in 1994 as an ISP, then became a CLEC in 2006 and followed the path envisioned by the 1996 Act. This meant collocating electronics in AT&T central offices to provide DSL to customers over unbundled copper loops (UNEs). The company found a receptive customer base since they offered faster broadband than AT&T’s at an affordable price. They grew to be collocated in 200 AT&T central offices around the Bay Area, Sacramento and greater Los Angeles. These offices are tied together by the use of unbundled interoffice transport – also created by the 1996 Act. They originally deployed DSL that used one copper pair but have migrated to VDSL2 and other faster versions of DSL that use two copper pairs and delivers significant bandwidth. They still have almost 50,000 customers in the region using this technology.

What’s interesting is that Sonic did this starting in 2006 – a time by which much of the rest of the industry had written off the use of telco copper. The UNE business plan got a sour reputation with many in the industry when the CLEC industry using UNEs spectacularly imploded in 2001-2002. This collapse of the CLEC industry was due to a perfect storm of economic events and had little to do with the benefits of using telco copper.

If anything, it’s easier to use telco copper today because today’s DSL technology is far better than the DSL in 2000. Sonic and other CLECs are able to provide fast and reliable broadband using ADSL2+ and VDSL2, bonded over multiple copper pairs. Most people in the industry are probably surprised to hear that Sonic can use bonded copper UNEs to provide speeds as fast as 400Mbps to serve businesses. The usefulness of unbundled UNEs is far from dead.

Sonic also reaches roughly 25,000 customers using resale. This allows them to sell the same DSL products sold by AT&T in locations where they don’t have collocations. All of the Sonic products offer a bundle with a voice product that includes all of the expected features plus unlimited calling to the US and to landlines in 66 other countries. They are still finding strong demand for the voice product – something that also might surprise many in the industry.

Five years ago the company decided to use the cash flow from the UNE business to build fiber. Their fiber network now covers roughly 1/3 of the City of San Francisco, plus Brentwood, Sebastopol, Albany, Kensington and Berkeley in the East Bay. They are eying other markets around the region, the state, and beyond. They are an aggressive competitor and their fiber product line starts with a symmetrical gigabit for $40 per month, bundled with the unlimited voice product. They won’t publicly disclose the number of fiber customers, but their goal is to soon have more customers on fiber than on DSL. In my opinion, this is the essence of the vision of the 1996 Act – a transition from UNEs to facility-based networks.

The company’s biggest worry right now is that the FCC recently got a petition from the large telcos asking to end the use of unbundled network elements (UNEs). The big telcos argue that the UNE business plan is obsolete and that there is sufficient competition in the marketplace without unbundling their copper – while also claiming that “In the residential marketplace, competition will not be materially affected by forbearance from Section 251 ( c )(3) because there is effectively no remaining UNE-based competition in that marketplace.” and that “To the extent CLECs serve residential customers using ILEC facilities, they do so on commercial platforms.

But Sonic and a number of other CLECs using UNEs show this to be untrue. Given that just Sonic alone serves nearly 50,000 California households with UNEs these claims are incorrect and misleading. Sonic is using the unbundled copper in exactly the manner envisioned by Congress when they wrote the 1996 Act – to allow competitors to place the best technology possible on the telco copper networks. The Congress at the time reasoned that telephone ratepayers had paid for the copper networks and that the public ought to derive any benefits possible from the networks they had paid for.

The big telcos have always hated the idea of unbundling their networks. They have slowly chipped away at some of the products envisioned by the 1996 Act such as access to telco dark fiber. They would love to kick CLECs like Sonic off their networks – and in Sonic’s case that would deprive 50,000 customers of fast DSL and telephone service at prices they can afford.

Almost every major market in the country, and many smaller ones have CLECs that use unbundled network elements to provide DSL – usually the newer and faster DSL that the telcos won’t invest in. The telcos are slowly walking away from DSL which can be seen by the huge numbers of customers switching to the cable companies.

But CLECs like Sonic have used the copper to bring products that people want – and, unlike the telcos they are pouring those profits back into building fiber to these same communities. That’s exactly what Congress had in mind in 1996 and it would be a shame to see the FCC choke off some of the companies who are offering a competitive alternative to the big cable companies.

Legislating Better Broadband

The Senate Commerce Committee recently passed the Rural Reasonable and Comparable Wireless Act if 2018. The bipartisan bill was co-sponsored by Senators Maggie Hassan (D NH) and Shelly Moore Capito (R WV).

It’s an innocuous bill that would have the FCC compare urban and rural pricing and availability of cellular voice service, cellular broadband service and broadband internet access services. Rather than do this nationwide the bill would gather data in and around the top twenty metropolitan markets. The sponsors of the bill say it will help to close the digital divide and will provide the extra tools the FCC needs to make sure that people in rural communities get a fair shake when with access to mobile broadband.

This sounds great, but the bill does nothing more than require gathering data to point out what we already know – that urban areas have better broadband of all types, landline and cellular. The bill won’t help to close the digital divide or fix any broadband problems because it doesn’t require the FCC to do anything other than gather more data – much of which it already gathers today.

The bill doesn’t require the FCC to take action should coverage gaps be identified (which will happen in every market), and so it’s another toothless broadband bill – it’s what I call addressing the broadband problem by press release. I don’t know anything about these two Senators, but I am sure that in the upcoming elections they, and other Senators who vote for this bill will point at this bill as proof that they are trying to help fix the rural broadband problem. Instead, this bill just spends money to create another big annual report from the FCC and will not try to fix any of the problems causing the rural broadband gap.

I really didn’t intend to bust on this bill when I started writing this blog. But this legislation is another example of the toothless telecom bills we’ve seen out of Congress over the last few decades. The FCC can only do those things that Congress authorizes and Congress could tackle the rural broadband issue. Prior FCC’s have tried to do so, but without a clear edict from Congress the FCC has been forced to concoct complicated legal authority, like Title II regulation to tackle broadband issues.

I’ve seen the public mood shift drastically in the last few years in rural America. People have gone from wanting better broadband to now demanding better broadband and politicians better start listening to their constituents if they want to keep their jobs. Broadband is a non-partisan issue and rural America is ready to listen to anybody who can bring them a broadband solution.

Rural America doesn’t need more reports from the FCC telling them what they don’t have – they need funding to build rural broadband infrastructure. I travel extensively in rural America and I’ve noticed that every rural household can identify the nearest place that has real broadband. They don’t need the FCC to tell them that broadband is better in the County seat or in the nearest big city – they are well aware of it.

We are badly in need of a new telecom bill. The current FCC is now chipping away at some of the last vestiges of the Telecom Act of 1996 by killing resale and the use of unbundled network elements. This Congress sat blithely by while the current FCC undid Title II regulation of broadband. The public and the press have been attacking Chairman Ajit Pai for killing net neutrality and Internet privacy – but at the end of the day this is all the fault of Congress.  Congress could give new instructions any day on these issues to the FCC, but they’ve punted on that responsibility.

Aside from the politicians running the current FCC, who are clearly in the pockets of the big ISPs, most reasonable people would agree that broadband should be regulated to some degree. We are nearing the time when the big cable companies will have a monopoly stranglehold over broadband in most US markets. And even where they don’t have a monopoly, where they compete against large fiber builders like AT&T the two sides cooperate to keep prices high – classic duopoly competition.

Monopolies must always be regulated. With Title II regulation now dead we are going to see the big ISPs aggressively monetizing customer data. We’ll see them raise broadband rates as the easiest way to meet Wall Street earnings expectations. We’ll see them tighten and enforce data caps and use every trick available to extract as much money as they can from customers. This is what big corporations do when they are free of regulation.

The current FCC has washed their hands of even trying to regulate the big ISPs, and only Congress can create the rules that can put some reasonable curbs on bad ISP behavior. I don’t hear even one member of Congress calling for Congressional responsibility – instead of solutions that can provide better rural broadband and that controls the worst impulses of the big ISPs we will get bills like this that creates a new annual report that reminds us that broadband is not as good in rural Maryland and Virginia as it is in Washington DC.

Light Poles and 5G

There is a lot of regulatory activity right now concerning wireless providers adding small cell site and 5G electronic to poles. A few states have adopted legislation setting low prices for such connections and similar bills are moving through many state legislatures. There is discussion at the FCC for mandating nationwide rules on some of the issues, and one of the FCC’s BDAC advisory groups was created to look at these specific issues.

One topic I haven’t seen covered in any of these efforts is how to deal with light poles – that is poles that don’t carry wires. I think this is a germane issue for many reasons. There are many poles that have been built solely for the purpose of providing street lights and I don’t think these poles are automatically covered by any of these regulatory or legislative efforts.

I’ve recently looked again at the various pole attachment rules to see if I’m right. One of the primary laws affecting pole attachments was the Pole Attachment Act of 1978 that determined a price structure for pole attachments and that authorized the FCC to develop specific rules for pole make-ready which included in Section 224 of the FCC rules. The right for carriers to use poles was bolstered significantly by the Telecommunications Act of 1996 that granted carriers the ability to use the poles, conduits and rights-of-way of existing utilities. That act defined poles as structures that carry telecommunications wires.

In many cases light poles fall naturally into this definition. In my neighborhood the streetlights are placed at the top of existing utility poles that carry wires for the various utilities. Clearly such light poles are covered by the FCC rules. One has to wonder how useful these poles are for 5G since light fixtures occupy the coveted top space on the poles that wireless carriers want to use, but from a regulatory perspective such poles are covered.

There are a lot of light poles that don’t fit into the current regulatory regime. A lot of light poles have been erected in neighborhoods where the other utilities are buried. These poles are not designed to carry wires. They are connected to the buried power lines to provide electricity for the street lights, but otherwise have no connection to other utility wires. A similar class of poles are ornamental ones. The last neighborhood I lived in had street lights that looked like they came straight out of a Sherlock Holmes story – metal poles with a big light globe at the top.

I’ve read the FCC rules several times this week and I can’t see where poles that aren’t intended to carry wires fall under FCC jurisdiction. Such poles often can’t even easily accommodate pole connections and might be made out of metal or concrete.

Cities of all sizes have required utilities to bury wires. The regulatory question is if the FCC will try to claim jurisdiction over poles that were built in such neighborhoods to only support street lights? This would pull millions of light poles under FCC jurisdiction, something that shouldn’t be done without deliberation.

The 5G legislation I’ve seen doesn’t recognize these issues. Some of these laws grant carte blanc authority to wireless carriers to deploy 5G networks without regard to local oversight. This could results in 5G transmitters being added to ornamental poles. It might mean constructing new poles in neighborhoods where the other utilities are buried. It could even allow wireless carriers to string fiber between such new poles, even though other utilities are buried. 5G networks are also going to want an unobstructed line-of-sight to buildings and wireless carriers might use aggressive tree trimming to get the paths they want. Such deployments are going to be wildly unpopular to homeowners and local governments.

None of this is going to happen without a big fight. Current federal pole attachment rules derive from acts of Congress, and anything short of a new federal law on the issues can’t easily change what has been done in the past. It’s questionable if the FCC can preempt state and local laws concerning pole attachments without a new federal law since earlier legislation granted states to optionally claim jurisdiction over pole issues.

One thing that is clear to me is that any new laws need to carefully consider all of the issues. A law that just gives carte blanc authority for wireless carriers to do whatever they want to going to be widely unpopular and will eventually get huge pushback. Even the idea of expanding regulatory authority over standalone light poles would likely be challenged as a state versus federal issue, meaning big court fights. I’m seeing a mad regulatory rush to give wireless carriers the ability to deploy 5G, but there are numerous issues involved that demand careful deliberation if we want to do this right.

The Dawson Internet Act of 2018

A few days ago I wrote that we are not likely to get any significant telecom legislation this year. That’s unfortunate because we really need a major new Act to update all of the regulatory rules concerning broadband, telephone and cable TV. That got me thinking what I might write into such an act if I was the author, so following are the highlights of the envisioned Dawson Internet Act of 2018 (it’s time we stop calling this the telecom industry):

Cable TV. It’s time to scrap all requirements that dictate cable tiers. Cable companies need to be able to offer whatever channels they think make economic sense, including offering a la carte channels, if that’s what the public wants. I’d also scrap the must-carry rules for major network stations. The retransmission costs for those channels are one of the primary culprits for rate increases and removing the requirement to carry channels will return cable companies to a position of fair bargaining for price since they could walk away from any local station that wants too much.

Telephone. Other than a few rules that govern customer privacy I’d totally scrap federal regulations for landline service. I’d eliminate the CLEC classification and deregulate traditional telephone and VoIP equally to put the products on a non-regulated level playing field. I think I would retain the historic monopoly service territories, although I’d have to give that a lot more thought.

Interconnection. I’d keep the mandate that network owners must continue to interconnect with other carriers. They can’t be allowed to shut out a competitor by refusing to give them access to the underlying backhaul networks. But since I would eliminate the CLEC status, the big network owners need to be required to interconnect with anybody who meets specified technical standards.

ETC Status. Today a company must become an Eligible Telecommunications Carrier in order to participate in Universal Service Funds or other federal funding programs. I’d eliminate this requirement because it’s nothing more than a paperwork barrier to market entry. The current rules also disallow certain types of providers, such as owners of open access networks, although customers almost universally prefer that operating model.

Broadband. The FCC needs to regulate broadband, even if they elect to regulate it lightly. Congress can mandate this and get rid of the nonsense of trying to make broadband fit under Title II and just explicitly give the FCC the authority and obligation to regulate it.

Network Neutrality. I would make network neutrality the centerpiece of broadband regulation. The most important aspect of network neutrality is prohibiting paid prioritization – because once the ISPs start doing that all of the nightmare scenarios of a broken Internet emerge.

Spectrum. I think the FCC is already on a good path to free up spectrum for broadband. But I think they are missing the boat by not providing more spectrum for public access. One only has to look at the huge economic boom created by WiFi to see that giving all spectrum to big monopolies is not the best answer. I’d also make a firmer use-it-or-lose it rule for rural spectrum. A huge amount of spectrum sits unused in rural America but is still under control of the big carriers who purchased large-area licenses. Finally, rather than turn spectrum auction proceeds over the US Treasury I’d redirect these revenues towards meeting universal service goals.

Universal Service. I’d maintain the requirement that the FCC monitor broadband connectivity and require them to try to find solutions for areas without good broadband. I’d also prohibit them from funding any broadband programs like CAF II that support technologies that are slower than the federal definition of broadband. I’d also mandate an ongoing process for defining the official speed of broadband.

Privacy. I like what I’m reading about the European Union privacy rules. They are allowing ISPs and others to monitor and track customers only with customer consent. That will allow people who care about privacy to maintain it while allowing others who choose to sacrifice privacy for services to allow tracking. The penalties for violating customer privacy must be economically severe.

Municipal Broadband. I’d eliminate all barriers to municipal competition. Local communities ought to be able to decide themselves if they want to tackle the risk of building broadband. This is particularly needed in rural America where, in many cases, the local government might be the only one willing to tackle funding a network.

Access to Poles, Ducts and Dark Fiber. I’d make these assets available to anybody that can meet technical standards to use them. I’ve still not decided how I feel about federal one-touch rules, but I’d have the FCC institute a major rulemaking to get more facts on the issues involved.

I’m sure everybody in the industry has a different list than mine. I remember all of the discussions and negotiations leading up to the Telecommunications Act. That Act took  some political bravery since Congress was taking on the big telcos for the greater public good – and that Act did a fairly good job of promoting competition. But I don’t see this same courage in Washington today and most of the topics on my list are sadly not even being discussed.

No New Telecom Act

For years it’s been obvious that we need a new telecom act. The Telecommunications Act of 1996 was largely aimed at promoting telephone competition and is now quaintly outdated. Today, carriers that want to provide traditional voice services still have to jump through a gauntlet of regulatory requirements while ISPs providing VoIP or no voice product have almost no regulation.

The 1996 Act is dated and some of its provisions cause unneeded problems within the industry. A good example is Google Fiber’s struggle getting onto poles in various cities. Google has shunned taking the regulated path, but in doing so they have not been availed the protections of the 1996 Act that provides access to poles, conduits and ducts. Since most new fiber builders are not offering traditional voice, the distinctions between regulated and unregulated carriers is out of date. But unless Congress changes the rules established by the 1996 Act, the FCC and the courts have choice but to enforce any explicit regulations required by that Act.

It’s also easy to overlook that the 1996 Act rewrote many of the rules for the cable industry. For example, some of the rules covered by the Act still require traditional cable providers to provide several specific tiers of cable service. It’s obvious that these rules no longer make sense and are hindering traditional cable companies from offering competitive small packages and the a la carte programming that customers clearly want.

At the 2018 State of the Net conference held last week Rep. Greg Walden, the chair of the House Energy & Commerce Committee said that he did not foresee any major telecom legislation this year, but rather piecemeal tweaks of telecom law to fix obvious problems. This same sentiment has been expressed by Sen John Thune who has the same role on the Senate Committee on Commerce, Science and Transportation. These committees are where telecom legislation begins.

We see this piecemeal approach in Congress right now. There are nearly a dozen proposed bills floating around Congress right now that have an impact on telecom. For example:

  • There are several bills that would simplify the paperwork to get funding from the Universal Service fund and would make it easier to fix telecom infrastructure after a natural disaster.
  • There are also several bills that would loosen or exempt telecom projects that get federal funding from having to undertake environmental and historic preservation reviews if facilities are placed in existing rights-of-ways.
  • There is a bill to streamline the application for placing telecom facilities on federal land, including a one-year shot-clock forcing a yes or no answer to an application.
  • There is a proposed bill that would require the FCC to monitor and improve broadband availability in ‘urban broadband deserts”.

There is nothing wrong with any of these bills and they propose to make changes that make sense. For example, the requirement to undertake environmental and historic preservation studies when using federal grant money probably added 15% of cost to projects funded by the BTOP program a few years ago. It makes no sense to do these studies when new telecom facilities are to be placed on existing poles or within the existing shoulders of roads. Tweaking the rules will save unneeded expense for future fiber projects.

But these bills are all small in scope and ignore the big issues. The time has probably come to eliminate telephone regulations, other than perhaps the few rules that directly protect consumers. It’s also time to open up access to poles and conduits to everybody without making them jump through the hurdles created by the 1996 Act. It’s time to eliminate any federal rules that dictate how cable networks must package their programming. There are number of these big issues that cannot be easily fixed by small piecemeal bills.

There is an even bigger issue looming over the creation of a new telecom act. The FCC has basically written itself out of the picture for regulating broadband. There are some aspects of broadband that need to be regulated and Congress would have to drag the FCC back into this role.

A new telecom act could create a fresh start for the industry and the FCC. All of the drama concerning Title II regulation of broadband was due to the fact that Congress failed to provide any guidance for regulating broadband. The FCC struggled over the last decade trying to find a backdoor way to justify governing some aspects of broadband – something the Congress could have fixed at any time by giving explicit authority to the FCC.

Regulating broadband one small inch at a time is not good policy. Any ISP can rattle off a list of a dozen things that don’t work as well as they would like. The only way to get the fresh start we need is with a new telecom act aimed at the new world we really live in. We are no longer a world that needs heavy telephone regulations or that should tell cable TV providers what to put on the air. What we need is a new framework that would empower the FCC to make sure that we can affordably build the fiber and wireless networks that are vital to our future. We need rules that require that broadband stay within affordable reach of most households. We need rules that prohibit ISPs from spying on customers. We really need Congress to do their jobs and restart the industry on a regulatory path that fits our times.

Time for a New Telecom Act, Part 2

FCC_New_LogoYesterday’s blog postulated that we would see a new telecom act this year from Congress. That blog looked at what was accomplished by the last Telecommunications Act of 1996. Today I’m looking ahead at the issues that a new Act needs to address.

Last week we learned more about how the process will probably work. A new telecom act would likely be spearheaded by the Energy and Commerce Subcommittee on Communications and Technology. Last week Rep. Marsha Blackburn, head of that committee, told the press that she favored giving the new FCC a shot at fixing the things under its purview before the House would tackle a new Act. The FCC doesn’t have the authority to make many of the needed changes in telecom regulation, but it does have considerable power. Anyway, this probably means a new act is at least a year away.

Here are some of the things that I think the FCC and Congress need to address to modernize telecom:

Need for More Spectrum. It’s becoming clear that a lot of big ISPs are thinking of deploying 5Gn and various other millimeter wave technologies. The FCC needs to continue to open up more spectrum for broadband. There is still a lot of spectrum has been reserved for government use and there needs to be more attempts to share frequency when possible. There also needs to be a fresh look taken at how frequency is used. Historically many bands of frequency had narrow channels aimed at accommodating voice traffic or a single channel of television. From an engineering perspective we can get a lot more out of spectrum if we can make wider channels in the spectrum bands that are already in use.

Tackling Cybersecurity. 2016 was a year when security breaches led the industry news weekly. There is no easy fix for security issues, but there are big steps that can be taken. For example, we are flooding the world with IoT devices that are easily hacked and which can now be used to launch coordinated denial of service attacks. With Congressional backing the FCC could create standards to make IoT devices more secure. The government will never make us free from hacking, but there are a lot of sensible standards and fixes needed for IoT devices.

Expanding Access to Fast Broadband. As somebody who works regularly in rural America I know that lack of broadband there is now one of the biggest problems identified by rural households. We need to find ways to get good broadband to more places, and we have to do this smartly by building infrastructure that will last for decades. We’ve already seen how not to do this with the CAF II program that is being used to expand DSL and LTE wireless – two technologies that are already inadequate today.

Unless we see that fiber is built everywhere this is going to be an ongoing major issue. For example, if we fix broadband for those that have none but ignore the bigger swathe of the country that has only marginally acceptable broadband today, we will be back in a decade looking at how to fix broadband in those places.

We also need rules that unleashes anybody willing to spend money on fiber. I see numerous rural counties and towns that are ready to spring for bond issues to get fiber. We need rules that allow anybody willing to invest in fiber be able to do so – be that local governments, electric cooperatives, rural telcos or anybody else.

Infrastructure Issues. There are still a lot of infrastructure roadblocks to deploying fiber. We have never done a good job of fulfilling the mandate from the 1996 Act to provide access to poles and conduit. And we are now looking at deploying a fiber-fed wireless network that is going to mean bringing both fiber and power to buildings, rooftops, poles and other infrastructure. We need to find a way to get this done without also trampling over the legitimate concerns of local jurisdictions. For example, the FCC can’t just demand that cities allow free and quick fiber construction if that means digging up newly paved streets or overburdening poles – we need to find rules that work. And we need to do a much better job of this than we have done so far.

Programming. It’s now clear that online video content is competitive alternative to traditional cable TV. We need rules that unleash cable companies and anybody else to sell programming that people really want to buy. That means stepping away from the current rigid cable rules that mandate the giant channel lineups. Companies need to be free to create programming bundles that people want to buy. This might mean allowing a la carte programming. And there must be rules that require content providers to sell to everybody in an unbiased manner.

I don’t know how many of these big issues the current FCC is going to be willing to tackle. It seems like a lot of their agenda for the first six months will be to undo things ordered by the previous FCC. While I understand the desire to mold the FCC to the political persuasion of whatever party is in power, most of the issues on my list above are not partisan. They are just things that we all need to solve if we are to have a telecom infrastructure that serves us all well.

Time for a New Telecom Act, Part 1

capitalNothing is ever certain in the regulatory world, but it looks like there is a good chance that we will see a new telecom act this year. There are certainly parts of the old Telecommunications Act of 1996 that need to be refreshed and there are a lot of new topics like broadband, OTT and the IoT that need to be addressed by Congress. Today’s blog is going to review the old telecom act and tomorrow I will address the changes that I hope are included in any new act.

It’s hard to believe but the Telecommunications Act of 1996 was enacted 21 years ago. From a technological perspective that was almost the dark ages. 1996 was the year that AOL launched its unlimited dial-up product for $19.95 per month (before then subscribers paid by the minute). This drew millions of people to the Internet and convinced them to pay a monthly fee for access. DSL and cable modems were still in the lab and dial-up access ruled the world.

The main thrust of the 1996 Act was to create more competition with telephone service. Ma Bell had been broken up in 1984 which had resulted in long distance competition. Long distance rates dropped steadily over the years after divestiture. Congress decided that it was time to also create competition for dial tone. They recognized that the roadblock to competition was that the big telcos owned the vast majority of the copper lines going to homes and businesses and that nobody was likely to build a second telecom network.

So the Act implemented new rules to promote competition. Some of the changed mandated by the new Act were:

  • Creating a new regulatory category for telephone competitors that was labeled CLEC (Competitive Local Exchange Carrier).
  • Requiring the big telcos to ‘unbundle’ their copper network. This meant that they had to provide access to their copper plant to CLECs. To accomplish this the FCC mandated that CLECs had the right to interconnect to the big telco networks and to collocate in their central offices when necessary.
  • Mandating that the big telcos offer up telecom services for resale. They basically had to sell bulk services to competitors who could then sell them to customers.
  • Requiring that anybody that wanted to build new network be given access to poles and conduits and be allowed to connect to telco network at any reasonable place of their choosing.

The Act was immediately successful and unleashed a flurry of competitive activity. Giant new CLECs were formed that collocated in telco offices gained access to copper loops. The most popular product was the unbundled T1 that allowed new competitors to sell data and telephone services to businesses over one connection. There were also giant companies formed to tackle resale. I recall that one of my clients in those days, Talk America, got over one million residential customers by reselling local phone service along with cheap long distance. Many consultants were formed to help the new competitive companies including my company, CCG Consulting.

The Act also brought about many other changes, some of the most significant being:

  • The regional Bell companies were allowed to get into the long distance business and compete against AT&T.
  • The Act granted the FCC the right of preemption to allow it to override conflicting state rules.
  • The Act created intercarrier compensation for paying for the exchange of traffic between telcos and CLECs.
  • The Act also shook up the Universal Service Fund and made compensation more directly cost-based.
  • The Act also tackled a number of other regulatory issues such as preempting telecom services from franchise fees, establishing rules to define obscene programming, and enabling the over-the-air transmission of digital TV signals.

In many ways the 1996 Act was a big success. Prices for telecom services plummeted in subsequent years. But over time the effective lobbying of the large telcos reversed some of the aspects of the Act, like resale and the unbundling of dark fiber. The Act also did not foresee the explosion of cellphones and of landline broadband and those industries have never gotten the same level of regulatory scrutiny that applies to telephone service. There are still CLECs today making a living by providing DSL over telephone copper. But the increasing needs for faster broadband speeds is starting to make that technology irrelevant and it’s definitely time to consider a new Act to deal with today’s issues.

2017 Regulatory Trends

FCC_New_LogoNow that we are at the end of the year I’m going to spend a few blogs looking forward into 2017 from the perspective of small carriers. Predictions about the direction of regulation is perhaps the easiest trend to write about since it looks like the trend for 2017 will be to undo many of the things done by the FCC over the last few years. So here are the regulatory trends I think will be most important to small carriers.

Net Neutrality Will be Reversed. It’s pretty obvious that the FCC’s current net neutrality rules will be reversed in short order in the new year. We already have Commissioners Ajit Pai and Mike O’Rielly strongly on the record opposing the FCC’s prior actions. This could be done in two ways. First could be a direct reversal of the net neutrality ruling. But another tactic might be to reverse Title II regulation but allow the net neutrality principles to stay in place – basically to acknowledge the net neutrality principles that the public clearly likes but to remove the ability to enforce those rules.

Interestingly, net neutrality hasn’t had much direct impact on small carriers since none of them have the market power to violate it. The one impact of this reversal for small carriers is that it will unfetter Comcast, Charter, Verizon and AT&T from most regulations and will give them greater market power and the ability to more aggressively squash smaller competitors.

One benefit of net neutrality was that it gave the general public some comfort that they couldn’t be preyed upon by large ISPs. So small carriers might want to periodically remind your customers that you will still be adhering to the principles of net neutrality even though this might not still be a formal requirement.

Reversal of New Privacy Rules. It’s also clear that the FCC is going to reverse most or all of the new privacy rules. These rules stopped ISPs from using customer data without explicit permission. There were parts of these rule that small carriers didn’t like. But for the most part small ISPs don’t use customer data for marketing purposes and don’t sell customer data to marketers. I think small carriers should periodically remind your customers that you don’t misuse or sell their data, but that your big competitors do.

Lifeline Changes. I think it’s likely that the new FCC will change the data lifeline program that pays $9.25 per month towards the data bill for qualifying families. At a minimum they might curtail this for cellular data plans, but there is even the possibility that they will eliminate it.

There is also talk of going back to a numbers-based method to fund the Universal Service Fund. This would impose a tax of around $1 on every telephone number. This is supported by the big telcos since they no longer control the majority of telephone numbers, but even more so because this would remove USF assessments on special access circuits.

A New Telecom Act. I expect Congress to enact a new telecom act. There are certainly parts of the Telecommunications Act of 1996 that are way out of date. That Act concentrated on copper telco networks and on traditional large cable line-ups and we need to now acknowledge that copper telco networks are quickly disappearing and that the public wants non-traditional cable packages.

But I also expect that any new act is going to drastically change the role of the FCC. My guess is that Congress wants to throttle the FCC’s power so that the agency won’t have much power if there is another change in administration. There have been threats from Congressmen in the past year to abolish the FCC altogether, but I think once they look at all of the things the agency does that cooler heads will prevail. But we might be seeing permanently reduced federal regulatory oversight of the industry.

Resurgence of State Regulation. If the FCC delivers on the stated goal of the new administration to whack FCC regulations, I expect that some state regulators will step in to fill the regulatory gap. After all, regulators like to regulate! It would not be surprising to see the most active state regulatory commissions like California, New York, Texas and Illinois tackle topics that the FCC might drop. And that would undoubtedly mean a string of states-rights lawsuits.

A New Telecom Act?

FCC_New_LogoThere has been a lot of talk during the last year about putting together a new Telecom Act. It’s been twenty years since the Telecom Act of 1996 which created CLECs. But a lot has changed in twenty years and that Act is largely obsolete. Unfortunately it’s unlikely with political gridlock that we’ll get a new Act that fixes our real problems. But I asked myself what I would include in a new Telecom Act if I was allowed to write it. Here are some of the top changes I would make:

Fund Fiber Everywhere. There was recently a bill introduced in Congress to add $50M to the RUS for rural broadband grants. That makes such a tiny dent in the problem as to be embarrassing. If we believe as a country that broadband is essential for our economic future, then let’s do what other countries have done and start a federal program to build fiber everywhere, from rural America to inner cities. I could write a week’s worth of blogs about how this could be done, but it needs to be done.

Make Broadband Affordable to All. The Lifeline program that subsidizes $9.25 per month for broadband for low-income households has the right intentions. But the amount of subsidy is ridiculously low. If we believe that schoolkids ought to have broadband to succeed then let’s do this right and pony up and find a way to pay for it.

Tax Broadband. The continuing ban against taxing the Internet is stupid. It was put in place years ago to protect a fledgling new Internet industry. Let’s put a tax on landline and cellular broadband to pay for getting fiber everywhere and broadband to everybody.

Stop Subsidizing Non-Broadband. It should be impossible for the FCC to provide any funding or subsidies to broadband connections that don’t meet their own definition of what constitutes broadband speeds.

Fix Pole Issues. Pole issues have been a bane to competitors since the last Telecom Act required pole owners to allow access. Let’s create common-sense rules that don’t allow pole owners to hold new competitors hostage.

Break the Power of the Programmers. Most of what has been broken in the cable TV industry has been due to the immense power and greed of the programmers to set the price and conditions for their content. It’s time to put a halt to contracts for content that force cable providers to buy programming they don’t want. And it’s also time to consider requiring programmers to offer each network a la carte and not in big bundles.

Unleash Skinny Bundles. Existing cable rules put handcuffs on cable providers. Rules that require specific kinds of bundles such as basic and expanded basic means that a cable provider has a nearly impossible task of putting together offerings that customers really want to buy. Let’s scrap those rules and start fresh with customer choice as the driver behind the new rules.

Make Cable Rules Apply to Everybody. Any new cable rules need to apply to everybody that provides content – over wirelines or over the Internet. Anything less than this gives massive advantages to one side or the other. I would be fine if the best way to do this is to have almost no rules!

Reinstitute Limitations on Ownership of Media. Allowing a handful of companies to own all of the television and radio stations has put a huge dent in our free press and in local control of news stations and reporting. Let’s break up these conglomerates and start over.

I could easily add forty more items to this list, but these were the ones that first came to mind as I was writing. What would you add to a new Telecom Act?

Getting Access to Conduit

innerduraFuturePathGroupThere is an interesting case at the California Public Utilities Commission where Webpass is fighting with AT&T over access to conduit. You may have seen that Webpass was just recently bought by Google Fiber and I would think this case will be carried forward by Google.

The right for competitive providers to get access to conduit comes from the Telecommunications Act of 1996. In that Act, Congress directed that competitive telecom providers must be provided access to poles, ducts, conduits, and rights-of-way by utilities. A utility is defined as any company, except for electric cooperatives and municipalities, which owns any of those facilities that are used in whole or in part for communications by wire. Under this definition telcos, cable companies, commercial electric companies, gas companies, and others are required by law to make spare conduit available to others.

If a utility allows even one pole or piece of conduit to be used for communications, including for its own internal purposes, then the whole system must be made available to competitors at fair prices and conditions. About half of the states have passed specific rules governing those conditions while states without specific rules revert to the FCC rules.

Webpass tried to get access to AT&T conduits in California and ran into a number of road blocks. It seems like there are a few situations where AT&T has provided conduit to Webpass, but AT&T denied the majority of the requests for access.

This is not unusual. Over the years I have had several clients try to get access to AT&T and Verizon conduit and none of them were successful. AT&T, Verizon, and the other large telcos generally have concocted internal policies that make it nearly impossible to get access to conduit. When a competitor faces that kind of intransigence their only alternative is to take the conduit owner to court or arbitration – and small carriers generally don’t have the resources for this kind of protracted legal fight.

But even fighting the telcos is no guarantee of success because the FCC rules provide AT&T with several reasons to deny access. A utility can deny access on the basis of safety, reliability or operational concerns. So even when a conduit owner is ordered to provide access after invoking one of these reasons, they can just invoke one of the other exceptions and begin the whole fight again. It takes a determined competitor to fight through such a wall of denial.

Trying to get conduit reminds me of the battles many of my clients fought in trying to get access to dark fiber fifteen years ago. I remember that AT&T and Verizon kept changing the rules of the dark fiber request process so often that a competitor had a difficult time even formulating a valid request for dark fiber. Even when Commissions ordered the telcos to comply with dark fiber requests, the telcos usually found another reason to deny the requests.

This is a shame because getting access to conduits might be one of best ways possible to promote real competition. AT&T and Verizon both claim to have many hundreds of thousands of miles of fiber, much of it in conduit. I am sure there are many cases where older conduit is full. But newer conduits contain multiple empty tubes and one would have to think that there is a huge inventory of empty conduits in the telco networks. The same is true for the cable companies and the large electric companies, and I can’t recall any small carriers who has ever gotten access to any of this conduit. I think some of the large carriers like Level3 or XO probably have gotten some access to conduit, but I would imagine even they probably had to fight very hard to get it.

I remember talking to a colleague the day that we first read the Telecommunications Act of 1996 that ordered the telcos to make conduit available to competitors. We understood immediately that the telcos would adopt a strategy of denying such access – and they have steadfastly said no to conduit requests over the years. I am glad to see Webpass renewing this old fight and it will be interesting to see if they can succeed where others have failed.