Wednesday, December 17, 2014

Story on CAF subsidies encapsulates much of what's wrong with U.S. telecom policy

This story on the U.S. Federal Communications Commission's high cost infrastructure subsidy program, the Connect America Fund (CAF), encapsulates much of what's wrong with U.S. telecommunications policy.

CAF subsidizes technologically obsolete copper cable designed to serve a pre-Internet telecommunications system. Not only that, the telecom companies that would benefit from the CAF subsidies aren't grateful to get them and immediately put them to work. Instead, they bitch and moan as CenturyLink and Windstream do here.

Pathetic. It's no wonder other nations look at U.S. telecom policy and shake their heads.

Saturday, December 13, 2014

Back to the future: How Title II litigation could spark antitrust actions against AT&T and Verizon

In 1984, AT&T was split into seven regional companies under a consent decree to settle a 1974 antitrust lawsuit brought by the U.S. federal government, United States v. AT&T, aimed at busting Ma Bell’s monopoly over local and long distance telephone service. Three decades later, AT&T has through a series of mergers and acquisitions reassembled itself into a telecommunications behemoth, rivaled in size only by Verizon, which was formed out of NYNEX and Bell Atlantic, two of the AT&T regional operating companies.

Now as the U.S. Federal Communications Commission considers classifying Internet-based telecommunications as a common carrier utility service under Title II of the Telecommunications Act, the stage is being set for another potential massive antitrust court case.

Here’s how it might play out. Both AT&T and Verizon vow they will litigate to block the FCC if it opts to put in place common carrier regulation as recently urged by President Barack Obama. If that happens, it could spark complaints to Obama’s Justice Department from core content providers like Netflix and transport layer providers like Level 3 Communications that the monopolies that AT&T and Verizon enjoy over residential Internet service in their respective service territories violate the Sherman Antitrust Act and restrain interstate commerce. The Justice Department could then opt to initiate antitrust lawsuits as logical counter actions to the telcos' lawsuits against the FCC.

In the antitrust actions, the complainants could conceivably point to disputes with the two big telcos over interconnection arrangements and allege the telcos are engaging in anti-competitive behavior by deliberately degrading services delivered to their end user consumers while wholly denying other consumers services by redlining landline-delivered Internet services in selected neighborhoods and streets. They could demand the courts order the FCC to require the telcos to open their last mile networks to competitors pursuant to the 1996 amendment of the Telecommunications Act. Or sell them off to smaller regional providers or local governments or telecom cooperatives.

Thursday, December 11, 2014

Verizon exec: We'll continue to invest in FiOS and mobile wireless under Title II common carrier regulation

Verizon: Actually, strong net neutrality rules won’t affect our network investment - The Washington Post: Francis J. Shammo - EVP and CFO I mean to be real clear, I mean this does not influence the way we invest. I mean we're going to continue to invest in our networks and our platforms, both in Wireless and Wireline FiOS and where we need to. So nothing will influence that. I mean if you think about it, look, I mean we were born out of a highly regulated company, so we know how this operates. But related to this discussion around Net Neutrality, the FCC has the right to regulate under 765, they do not need to go to Title II, and why would you go to a 1930 piece of literature to try to regulate something that is a 21st-century technology.

This is newsworthly insofar as it signals that Verizon intends to end its 3-year-old moratorium on new fiber to the premise infrastructure CAPEX, even if the U.S. Federal Communications Commission (FCC) subjects Internet service providers to common carrier regulation under Title II of the Telecommunications Act.

A common carrier mandate that providers serve all customers without discrimination would bar Verizon and other Internet service providers from their current practice of redlining neighborhoods and streets within their service territories. Under Title II, they'd have to invest in upgrading and building out their infrastructures to serve these areas, but on a faster schedule than they would like. That's why Verizon and other legacy incumbents plan to attempt to delay the mandate by taking the FCC to court if it adopts a Title II common carrier regulatory regime.

As to Shammo's reference to the 1930s when the Telecommunications Act was first enacted, the law's common carrier requirements brought all Americans telephone service in the 20th century. There's nothing outdated about the principle of universal telecommunications service. It only needs updating to encompass IP-enabled telecommunications services in the 21st century.

Monday, December 01, 2014

Incumbent misapprehensions and myths: Time to get real

Fiber fight: Broadening broadband Gig City touted as model in broadband debate | Mobile TFP: In its filing with the FCC, AT&T notes that many municipal broadband networks never got off the drawing board, putting taxpayers are risk, while others have pre-empted private investment.

"Although many government owned networks (GONs) have failed, or at least failed to live up to expectations, GONs can nonetheless discourage private sector investment because of understandable concerns by private sector entities of a non-level playing field," AT&T attorney Christopher Meimann said.

A natural monopoly like telecommunications infrastructure cannot and will not ever be a "level playing field." Whoever is on the field holds a monopoly advantage. Incumbents have used that advantage to pick winners and losers by building Internet telecommunications infrastructure to serve some neighborhoods but not others.

"Any policy that risks diminishing private sector investment would be short-sighted and unwise."

AT&T wants incumbent, private telecom providers to have a "right of first refusal" to deploy high-speed broadband before a government utility starts such a competitive service.

It's entirely appropriate for government to construct telecommunications infrastructure given market forces alone cannot ensure all homes and businesses have access to modern fiber optic telecommunications service. Private sector investment has already been substantially diminished insofar as millions of U.S. premises remain unserved by landline-delivered Internet connections even under current U.S. "light touch" regulatory policy. 

Where service is not available, phone companies and cable providers suggest broadband can be subsidized through the FCC's Connect America Fund, which is targeted at the 18 million Americans living in rural areas with no access to robust broadband infrastructure.

In theory yes. But legacy incumbent telephone and cable companies have largely shunned the Connect America Fund subsidies because they are incompatible with their market segmentation strategies that concentrate their capital investment in high density, metro areas.

Wednesday, November 26, 2014

Trash bags and electrical tape: The train wreck of a botched transition to fiber

Over the course of the last three decades, legacy incumbent telephone companies totally botched any semblance of an orderly transition to fiber optic connections to customer premises to support modern Internet enabled services. The resulting train wreck of aging, decades old copper cable telecommunications infrastructure designed to provide analog voice telephone service referred to as POTS (Plain Old Telephone Service) that cannot support even first generation DSL is painfully on display throughout much the telcos' service territories. It's literally being held together with trash bags and electrical tape.

Steve Blum's blog reports the U.S. Federal Communications Commission is seeking to determine if telcos are neglecting copper to the point where it is no longer reliably usable and what should be done with all the aging copper infrastructure that's been left to rot on the poles.

U.S. Internet needs radical reorientation toward value-based, future edge demand

Legacy incumbent telephone and cable companies are fighting a fiber future for telecommunications infrastructure. People don’t need fast fiber connections, they maintain. Two legacy telcos, AT&T and Verizon, have urged the U.S. Federal Communications Commission to maintain its outdated definition of “broadband” at its current asymmetric 4/1 Mbps. (Not that it matters much anyway since the telcos have largely spurned federal subsidies to help them cover the cost of building out their limited footprints to serve premises lacking even that pokey standard of service.) Their stance reflects the incumbents’ decidedly retrospective philosophy, driven by their highly CAPex risk averse business models that are unlikely to change even though demand for Internet connectivity has grown substantially over the past decade.

This retrograde view of Internet demand and infrastructure planning is largely responsible for the current dismal state of American Internet service where many homes and neighborhoods are unserved and those that are pay too much for sub-par service.

Industry expert Michael Elling argues rather than managing the economics of Internet infrastructure with an ex post, cost-based pricing model, instead it should be based on an ex ante, value-based pricing that takes into account the potentially enormous future demand for high bandwidth. The growth of bandwidth demand emulates Moore’s Law for microprocessors, roughly doubling every 2-3 years. It will continue to explode with applications such as 4k video streaming and two-way, HD videoconferencing.

Moreover, Elling astutely observes, contrary to the current market segmentation strategies where providers cherry pick discrete neighborhoods in densely populated metro areas, Elling sees the greatest demand growth for premise Internet service coming from less densely populated areas where residents obtain relatively higher value via its enabling remote work and e-commerce, distance learning and telehealth.

Elling also sees an ex ante perspective that anticipates future demand rather than focusing on past and present demand as mooting the current regulatory policy debate over net neutrality. The net neutrality issue has come about because providers at the core, transport and edge network layers don’t share a unified view of how prices for their services should be set. While those at the core and the transport layers might be inclined to work out a pricing scheme with the edge providers based on ex ante demand at the edge, it’s impossible to do so as long as the edge providers hang onto their ultra risk averse, cost-based ex post demand perspectives. If all the layers agreed to adopt an ex ante perspective, Elling believes, it would bring about a unified pricing scheme based on balanced settlements and price signals that would provide incentives for rapid investment and ubiquitous upgrades at all network layers.

Elling’s concept deserves serious consideration by Internet providers at all network layers as well as public policymakers and regulators. If the United States – the nation that invented the Internet – is to realize the Internet’s full potential and benefit for all Americans, it must first make an attitude adjustment. To an attitude that forsakes a retrospective orientation of bandwidth poverty and embraces a forward thinking outlook based on bandwidth abundance and prosperity.

Tuesday, November 25, 2014

Title II common carrier regulation would be problematic for Google Fiber

If the U.S. Federal Communications Commission takes President Obama's advice and decides to impose Title II Common Carrier regulation on the Internet (and thereby mandate Internet service providers serve all premises in their service areas), it would throw a monkey wrench not only in the business models of legacy incumbent telephone and cable companies that are based on serving only selected neighborhoods, but that of Google Fiber as well.

Christopher Mitchell of Institute for Local Self-Reliance opines in this piece on Google Fiber in The Kernel suggesting that Google's walled garden strategy is actually reinforcing the digital divide that plagues much of the United States.

“Google is popularizing the idea of building essential infrastructure with a market-driven approach. We don’t build roads like that—if we did, there’d be no roads in rural areas. We don’t build electricity like that—if we did, our economy could be far weaker. We recognize that those things are essential infrastructure.”

Monday, November 24, 2014

Incumbent telcos warn feds: Let us have our way, or the consumer gets it

New Study Projects Investment Declines under Title II | USTelecom

Incumbent telephone companies have warned the U.S. Federal Communications Commission (and indirectly, the Obama administration) that they will tie up in the courts for years any move to regulate Internet services as a Title II common carrier telecommunications service available to all customer premises without discrimination.

Now they are citing a study to back up their threat that they will also significantly pare back construction of new infrastructure. In other words, if you don't let us pick and choose which neighborhoods we want to serve, we'll leave the 19 million premises the FCC estimates are not served by landline Internet service twisting in the wind. Ditto those on increasingly obsolete, legacy DSL service provided over aging copper cables.

That's monopolist speak for if you don't leave us alone, the consumer gets it.

Wednesday, November 19, 2014

Connecticut consumers squawk over poor Internet service quality from Frontier

More than a decade ago, AT&T was looking to offer TV programming via Internet protocol (IPTV) as part of its U-verse branded triple play service offering. To deliver that bandwidth intensive service, rather than replace its decades old copper plant designed to deliver what's referred to as "plain old telephone service" or POTS with modern fiber to the premise infrastructure, AT&T instead opted to soup up its Digital Subscriber Line (DSL) service to a more robust version, VDSL.

The initiative, dubbed by AT&T as Project Lightspeed, is a hybrid design that brings fiber to field distribution units. Customer premises are connected to those units using the existing POTS copper infrastructure. This is the proverbial weak link in the chain given the often deteriorated condition of the copper pairs in these cables.

That weak link may now be coming home to roost in Connecticut for Frontier Communications, which purchased AT&T's wireline operations in the state earlier this year. Arstechnica reports complaints about Frontier's service have gone through the roof and state regulators and officials are scheduling hearings.

Saturday, November 15, 2014

No fiber to the prem in Silicon Valley, but a raft of slow, overpriced options

Wolverton: I’ve got the South Bay broadband shopping blues | SiliconBeat: Willow Glen

Tech Files columnist TroyWolverton goes shopping for Internet service on the California Public Utilities Commission's website but finds the service choices wanting, leaving the legacy incumbent telephone and cable company duopoly as the only viable options.

I did a little shopping of my own on the site a few months ago and like Wolverton, found it identified Megapath Networks as a provider at the same options and prices Wolverton found. But it turned out the company couldn't service my location even after the sales rep insisted it could.

Someday -- hopefully soon -- Wolverton's account will be looked back upon as a description of the primitive and often frustrating state of pre-fiber to the premise Internet service.

Friday, November 14, 2014

How high cost telecom subsidies might work if Title II common carrier regulation was “Obamacare for the Internet”

President Obama’s call this week to the U.S. Federal Communications Commission to regulate Internet service providers as common carrier telecommunications providers provoked Sen. Ted Cruz of Texas to disapprovingly dub it “Obamacare for the Internet.”

A political shot to be sure. But what if the high cost of building fiber to the premise infrastructure to all American homes and businesses were subsidized using tax credits such as those used to make individual health insurance more affordable to low and moderate income households under the Patient Protection and Affordable Care Act?

Instead of directly subsidizing Internet providers to build infrastructure in high cost areas using the FCC’s Connect America Fund – which many providers have spurned or only selectively accessed – customers in high cost areas would receive the subsidies and not providers.

Providers would be able to charge higher rates (not based on bandwidth use or connection speeds) for fiber connections to homes and businesses in high cost areas. Owners of these properties could then use the telecom tax credits to offset the higher cost of getting them connected.

That would create incentive for these premises to get online while also reducing the business risk of the current subscription-based models that are heavily dependent on how many customer premises sign up for service and which act to inhibit infrastructure construction in higher cost areas of the nation.

What do you think? Share your comments.

Thursday, November 13, 2014

Western Massachusetts coop creates financial template for regional fiber telecom infrastructure

Steve Nelson: Towns hold the key to broadband - Berkshire Eagle Online: To participate in the last-mile project, a town must take these steps:

1. By Dec. 31, its Select Board must pass a nonbinding resolution expressing the town's intent to participate;

2. As early as next spring at a town meeting, it must authorize the issuance of bonds to cover the town's share of construction costs above the funds contributed by MBI;

3. At the same time, 40 percent of households in a town must sign a conditional contract to take service — Internet, phone and/or TV — when it becomes available.
WiredWest, a Western Massachusetts cooperative formed to construct a regional fiber telecommunications network, has developed the above financing plan for the build out of the network. It's a model that other regions of the United States might wish to study for their own infrastructure development.

Section 706 of Telecom Act offers FCC little to address telecom infrastructure deficit

Net neutrality storm engulfs FCC - POLITICO: FCC officials are meeting with congressional staff this week as Wheeler tries to better explain the options on the table to industry players and the public interest community. Across those meetings, the FCC chairman and his aides haven’t tipped their hand about how they want to proceed, according to multiple sources. The officials have given a rundown of the various options, including adopting the utility-style regulation known as Title II, using a weaker authority known as Section 706 or some combination of the two — but failed to lay out a clear path forward, the sources said.

Section 706, found in Title VII (Miscellaneous Provisions) of the Telecommunications Act, isn't really a mandate on telecommunications providers. Rather, it merely affords the Federal Communications Commission authority to issue rules creating incentives to remove barriers to telecommunications infrastructure investment and to promote competition.

The main barrier to wireline Internet infrastructure investment that according to the FCC has left about 19 million American homes without Internet connections is economic, not regulatory. The business models of investor-owned providers typically require relatively quick return on monies invested to build infrastructure. In less densely populated areas, there is greater risk that standard won't be met, extending out the time for investors to break even and begin generating profits. No FCC rulemaking can change those economics.

The FCC provides subsidies to help bridge the gap (the Connect America Fund), but providers have generally spurned them. Instead, they've concentrated capital investments in more densely populated and profitable parts of their service territories and in mobile wireless services.

As for removing barriers to competition, there is little the FCC can do within the existing market-based model for telecommunications service. That's because telecommunications infrastructure is a natural monopoly that due to high cost and risk barriers deters would be competitors from entering the market.

Wednesday, November 12, 2014

FCC Chair Wheeler faces either/or choice on Internet regulation; the baby can't be split.

Obama’s call for an open Internet puts him at odds with regulators - The Washington Post: Huddled in an FCC conference room Monday with officials from major Web companies, including Google, Yahoo and Etsy, agency Chairman Tom Wheeler said he has preferred a more nuanced solution. That approach would deliver some of what Obama wants but also would address the concerns of the companies that provide Internet access to millions of Americans, such as Comcast, Time Warner Cable and AT&T. “What you want is what everyone wants: an open Internet that doesn’t affect your business,” a visibly frustrated Wheeler said at the meeting, according to four people who attended. “What I’ve got to figure out is how to split the baby.”

It's natural given Tom Wheeler's background as a telecom lobbyist that he would look for some kind of deal or compromise that opposing parties in a contentious policy issue can live with. But that's not what President Obama -- who designated Wheeler as Federal Communications Commission chair -- had in mind when he issued a statement this week calling on the FCC to issue rules defining Internet service a common carrier telecommunications service under Title II of the Telecommunications Act instead of a more narrowly offered, specialized information service under Title I of the statute. These are entirely different regulatory schemes that don't lend themselves to hybrid models. It's an either/or choice. The baby can't be split. Moreover, doing so will only create legal uncertainty and fuel litigation. Rather than satisfying various stakeholders, none will be happy and more inclined to turn to the courts for redress of their grievances, potentially creating years of regulatory uncertainty.

Judging from the millions of comments filed with the FCC on the question, it's eminently clear the public preference is for Title II common carrier regulation of Internet service providers. Which makes sense given the Internet is gradually replacing the role the telephone system served in the past: a universal communications system accessible to everyone regardless of their location and whether they received or placed calls. Even the legacy incumbent telephone companies agree, saying it doesn't make sense for them to have to adhere to regulations governing landline telephone service.

Bottom line at this point, this is now primarily a political and not a regulatory issue. As such, expect politics to come more sharply into play. If Wheeler can't bring himself to make a clear policy call for Title II, President Obama could end up designating another Democrat on the FCC to replace him as chair. Speaking of Democratic politicians, I expect former President Bill Clinton will weigh in siding with Obama, saying something like Title II was where he ultimately intended Internet regulation to go when he signed the 1996 Telecommunications Act into law, with Title I more of a transitional but not permanent regulatory scheme. His vice president, Al Gore, could also join the Title II juggernaut.

Monday, November 10, 2014

Common carrier universal service obligation -- not net neutrality – primary reason for incumbent telephone and cableco opposition to FCC Title II enforcement

Threats by the legacy incumbent telephone and cable companies to sue the U.S. Federal Communications Commission if it acts to enforce Title II of the Communications Act aren’t solely motivated by net neutrality. President Obama and other net neutrality supporters look to enforcement of Section 202 of the statute that bars “discrimination in charges, practices, classifications, regulations, facilities, or services...” Net neutrality supporters maintain enforcement of this provision will prohibit telephone and cable companies (and other ISPs) from creating “fast lanes” to speed traffic from users like Netflix to its subscribers. They also argue enforcement would similarly bar ISPs from charging consumers more to access selected websites, for example.

The primary reason the big incumbents are gearing up for possible litigation against the federal government isn’t net neutrality. Rather, it’s two words in Title II: common carrier. The incumbents don’t want to be classified as common carriers. Why not? Because Section 254(b) of the Communications Act requires common carriers to provide access to advanced telecommunications and information services (i.e. Internet service) in all regions of the nation. Section 202 of the law also contains an anti-redlining provision barring providers from discriminating against localities in providing service. That means they’d have to serve all premises in their service territories and not just selected neighborhoods, roads and streets. That would obligate the incumbents to invest billions to connect the approximately one in five premises they have opted to leave unconnected to the Internet. That doesn’t jibe with their business models because those customers tend to be located in less densely populated areas that are less likely to generate a quick return on the investment in infrastructure needed to serve them. In addition, Section 214(e)(3) empowers the FCC to "determine which common carrier or carriers are best able to provide such service to the requesting unserved community or portion thereof and shall order such carrier or carriers to provide such service for that unserved community or portion thereof."

It could be the policy environment on Internet regulation has reached a tipping point. Oftentimes it takes just a single, well publicized incident to create the final push toward change. The previous post on the sad plight of an upstate New York family being asked to pay more than $20,000 to get their home connected to the Internet might be one of those proverbial straws that brought us to that point.

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