Advanced telecommunications fraught with heightened political peril with enactment of infrastructure bill

Due to excessive reliance on privatized advanced telecommunications infrastructure and weak regulatory and market incentives, the United States is many years behind where it should be when it comes to replacing ubiquitous copper telephone lines built for an era of voice telephone service with fiber for today’s Internet-protocol enabled services. That became painfully apparent with public health social distancing measures during the COVID-19 pandemic that made households very reliant on advanced telecommunications for work, education, purchasing goods and services, virtual medical care and entertainment. Impatience with lack of reliable, affordable access -- present pre-pandemic -- reached a boiling point.

The enactment of advanced telecommunications infrastructure subsidies in the Infrastructure Investment and Jobs Act last November has raised expectations of rapid relief after years of dashed political promises by elected officials to address the issue. The billions in subsidies set aside for advanced telecommunications infrastructure has been characterized as a once in a lifetime investment to finally put it to rest.

But the legislative provisions of the subsidies to be granted states as well as recently issued rules governing the grants will likely introduce additional delay even before any infrastructure is built. Expect months if not years of delays as incumbent investor-owned telephone and cable companies battle states, smaller upstarts and publicly owned projects over eligibility rules governing the subsidies and how they can be used.

Unlike transportation infrastructure such as roads, highways and airports that are expected to take many years to plan and build, voters may well have far less patient expectations. They’ll want to see fast, tangible progress when it comes to advanced telecommunications infrastructure. Especially with neighbors just down the road or around the bend who have fiber connections, envious while they try to get by on DSL over aged copper and wireless workarounds. Or fiber on a nearby utility pole but no affordable residential service in the case of Vermonter Claudia Harris. They’ll naturally think since they’ve been waiting for years for fiber, all those billions in federal subsidies should easily bridge the gap to their homes in short order. When it doesn’t quickly materialize, elected officials at all levels of government could face angry blowback from voters. They are well aware of the high level of concern among their constituents, noting complaints about Internet access and affordability are among the top issues raised by them.

Charter CEO: Focus on symmetrical speeds due to marketing, not need | Fierce Telecom

Charter CEO: Focus on symmetrical speeds due to marketing, not need | Fierce Telecom: Echoing comments made by Comcast CEO Brian Roberts earlier in the week, Rutledge dismissed the competitive threat from fixed wireless access technology, arguing it will fall by the wayside much like DSL has as bandwidth and speed demands rise.

Mettalic COAX cable TV distribution infrastructure won’t be able to keep up either. The U.S. should have started a massive transition to fiber to the premise (FTTP) advanced telecom infrastructure 30 years ago. Instead, it adopted a laissez faire policy of allowing a wild west, constrained commercial market in "broadband" bandwidth. That created perverse incentive for legacy telephone and cable companies to sell higher bandwidth tiers at a price premium rather than invest in FTTP that would effectively end the scarcity-driven "broadband" market created by their underinvestment in distribution infrastructure.

Now the nation is caught in a never ending game of catch up, attempting to keep the advanced telecom infrastructure sufficient to end user needs with the minimum possible investment. That's beneficial to shareholders of these companies. But despite their relatively much smaller number, national policy of the past three decades has accorded their interests far greater weight than the broader public's.

Natural monopoly of telecom infrastructure fosters "capitalism without competition"

Biden added, “Let me be very clear: Capitalism without competition isn’t capitalism. It’s exploitation. Without healthy competition, big players can change and charge whatever they want and treat you however they want. And for too many Americans that means accepting a bad deal for things you can’t go without. So, we know we’ve got a problem, a major problem. But we also have an incredible opportunity.”

https://gizmodo.com/heres-whats-in-joe-bidens-sweeping-executive-order-on-c-1847262645

The problem is not all segments of the economy are competitive markets, defined as those having many sellers as well as many buyers with both sellers and buyers having relatively equal access to information on cost and quality. Telecommunications infrastructure because of its high costs of competitor entry, protracted return on investment and first mover advantage is one of those. It functions as a natural monopoly like other utilities. 

Many wish it to be a competitive market and offer more choices and lower costs. But that's unrealistic, wishful thinking. A presidential executive order cannot change the underlying economic structure. It won't end rent seeking market conduct by investor owned providers that tends to arise in natural monopolies -- capitalism without competition.

This is why fiber to the premise infrastructure owned by entities under less pressure to generate profits is needed as a public option since market forces cannot ensure it reaches every American doorstep at affordable costs -- a component of the Biden administration's proposed American Jobs Plan.  

Limiting publicly owned advanced telecom infrastructure to high cost areas isn't the answer to access and affordability challenges

Doug Brake and Alexandra Bruer of the Information Technology and Innovation Foundation write the excerpts below from an article contending local governments are ill suited to provide advanced telecommunications service.

However, municipal or otherwise nonprofit broadband should be limited to those areas that are legitimately high cost and do not support investment of more than one provider. Municipal broadband advocates often attempt to define broadband at unreasonably high speeds in an attempt to define away competition existing in the market. They know that many providers have no desire to provide broadband speeds far in excess of what the market actually demands, and so by providing networks with more capacity than is needed, they hope to make the case for municipal networks. While flat bans on any municipal broadband do not make sense, they should be reserved for narrow cases wherein market options are extremely limited and private providers are unwilling to provide service, even with subsidies offered.

Sounds sensible in theory. But advanced telecom infrastructure is very unevenly deployed and highly granular, making it difficult to define these high cost areas and attain the economies of scale the authors discuss with contiguous infrastructure. One need only glance at those crazy quilt, checkerboard "broadband maps" to see it graphically -- the accuracy of which are subject of continuous debate. 

High cost area subsidies proved effective for ensuring universal telephone service. However, high cost subsidies have historically not motivated investor owned providers to build advanced telecom infrastructure absent regulatory incentive to offer service to all premises requesting it (such as Title II of the U.S. Communications Act that governs voice telephone service) and better opportunities elsewhere that offer faster and higher return on investment such as mobile wireless.

Some neighborhoods deemed sufficiently profitable have fiber to the premises infrastructure while others adjacent do not. Or there may be fiber to the prem deployed for business customers but not for residential service. That's why publicly and consumer cooperative owned fiber passing every American doorstep is needed to ensure access and affordability.

There are variety of different models for what a municipality’s level of partnership with broadband providers can look like. If municipalities that believe they fit in that narrow category should generally avoid providing retail service, and instead provide an open-access fiber network wherein the retail service and the electronics are left to the private sector. In an open-access provider, municipalities offer the use of their broadband networks at wholesale for various providers to leverage in order to sell broadband services. In a retail provider model, a municipality both owns the broadband network and offers broadband services directly to customers. The government can take on the most static parts of the network—ideally providing just open conduit or dark fiber—and allow the private sector to continue to innovate with the electronics on either end.

This is clearly a superior role for the private sector instead of the current dominant model wherein investor owned providers own the infrastructure and must also regularly refresh the electronics that make it run. As the authors point it, the latter role is far more suited to the private versus public sector. The private sector can fulfill that function without having to own the infrastructure outright and battle continued public and regulatory pressure to build out fiber infrastructure to reach more homes and keep rates affordable.

ITIF’s flawed stance on subsidization of advanced telecommunications infrastructure

The Information Technology & Innovation Foundation (ITIF) aptly notes that federal government subsidization of U.S. advanced telecommunications infrastructure has fallen short. Despite tens of billions in subsidies, the ITIF writes in a policy paper issued today, too many American homes lack connectivity. But the ITIF makes the common error of inaccurately defining the scope of the problem as “rural-urban.”

That ignores the fact that advanced telecommunications infrastructure deployment is far more granular. It’s no longer 1950 when most Americans lived either in cities or on farms. They now live in a variety of communities including exurbs at the edges of metro areas and small towns. Many are poorly served because large investor-owned telephone companies have modernized outdated copper lines designed for 20th century voice telephone service to fiber optic lines needed for the digital 21st for only about a third of homes in their service territories. They’ve largely skipped over homes in the exurbs and small towns and instead cherry-picked homes in more densely developed metro centers that better conform to their business models requiring rapid return on investment.

The ITIF correctly notes a major weakness of current U.S. advanced telecommunications infrastructure subsidization policy intended to support bringing service to every American doorstep (the Universal Service Fund) relies on an outdated formula designed for 20th century voice telephone service. It’s highly illogical because extracting subsidies from old technology in decline does not scale up to support the growth of Internet protocol-based technology that’s replacing it.

The ITIF indirectly argues against subsidies for fiber to the premises (FTTP) infrastructure, terming it an overly costly “gold plated” technology. The other side of that argument is subsidy dollars are best invested in delivery technology with life expectancies of multiple decades and not a single decade or less. As the adage goes, one can pay now or one can pay later. A major fault of American advanced telecommunications infrastructure subsidy policy has tended toward the later. The leaves ongoing infrastructure deficits the ITIF points out, requiring the indefinite, repeated need for additional subsidies. Policymakers didn’t subsidize copper telephone infrastructure that way, nor should they with advanced telecommunications infrastructure. Copper proved “future proof” for most of the 20th century as would fiber in the 21st.

Finally, the ITIF’s concern with the higher cost tradeoff of investing subsidy dollars in fiber over inferior and more obsolescence prone infrastructure fails to consider the inherit conflict of interest between investors and end users of advanced telecommunications infrastructure. Large investor-owned companies must answer first to their shareholders and are naturally sensitive to the cost of building and maintaining advanced telecommunications infrastructure. When cost considerations are brought to bear, households are likely to lose out in the calculation of how to apply subsidies. Particularly when subsidies are awarded without regulatory incentive – the universal service requirement that was put in place for legacy copper telephone service.

Congress and Biden administration have historic opportunity to reset American telecommunications policy.

Congress and the Biden administration have an historic opportunity to reset American telecommunications policy and put it on a more progressive path going forward. In 1996, Congress and the Clinton administration enacted the Telecommunications Act. It’s based on the goal of attaining higher throughput – referred to as “broadband” and “high speed Internet.” The statute become law at a time when it was decidedly sluggish and most Americans were “going online” with dialup modems connected to copper telephone lines designed and built to provide voice phone service in the early to mid-20th century.

A major flaw of the law is it failed to provide a clear policy framework to guide and speed the migration of that copper to fiber to deliver Internet protocol-based voice, data and video services in the 21st. Instead, the policy underpinning the 1996 law was “technology neutrality,” grounded in the hope that market competition would somehow deliver better throughput.

Twenty-five years later in the third decade of the new century as a pandemic has made homes into offices, classrooms and clinics, Americans continue to struggle with slow and unreliable connectivity and access and affordability challenges. Elected representatives are deluged with constituent complaints as policymakers unproductively argue over “broadband” speeds, maps and subsidies. It is exceedingly clear new policy direction is needed to ensure fiber reaches every American doorstep just as copper telephone line did in the previous century and that service is affordable.

California bill would use existing phone surcharge to secure bonds for local government and cooperative-owned fiber to the premise infrastructure

Proposed legislation introduced this month in the California state Senate offers a potentially viable means of financing fiber to the premise (FTTP) advanced telecommunications infrastructure builds owned by local governments and nonprofits such as consumer telecom cooperatives. It does so by creating a financing mechanism to secure bonds to fund FTTP construction with proceeds from an existing California Public Utilities Commission (CPUC) surcharge on voice lines to subsidize advanced telecom projects in high cost areas of the state not served by incumbent landline and wireless internet service providers.

Debt service for the bonds could also be provided by project sponsors since the proposed legislation authorizes the CPUC to require they demonstrate the ability to reasonably finance and implement the projects utilizing the proposed bond financing.

The measure is proposed as an urgency measure that would take effect immediately upon enactment.

AT&T’s residential market shortcomings

 

As AT&T would have it, the telecommunications giant is enthusiastic about serving the residential market and connecting homes to fiber. AT&T Communications CEO Jeff McElfresh told a Bank of America Merrill Lynch TMT Conference in June 2020 the company will increase its investment in fiber connections. "We are laser-like focused on finding the most efficient path to expanding the footprint of our fiber offerings," McElfresh said. "It's a great business. It's got great margins. It's got great returns. There's nothing not to like about it, and we're going to lean into it."

McElfresh’s comments represent a turnabout from a year earlier, when AT&T downplayed its residential fiber ambitions and dismissed hundreds of field technicians after completing a limited build out to meet regulatory obligations attached to its acquisition of DirecTV. "That's behind us now," McElfresh’s predecessor John Donovan told FierceTelecom. "We'll continue to invest in fiber, but we'll do it based on the incremental, economic case. We're not running to any household target."

For single family home neighborhoods, AT&T makes residential fiber available only to discrete pockets, reports industry observer Doug Dawson. AT&T also markets residential fiber to multifamily dwellings that require less capital investment and produce comparatively faster returns. One analyst suggests AT&T is weak at executing fiber build outs, unable or unwilling to focus on the necessary details of neighborhood telecommunications infrastructure deployment. (Jim Patterson, Curing AT&T’s Sickness, 10/12/20) Other analysts point to high debt on AT&T’s balance sheet that constrains its ability to finance a broad move into residential fiber.

In less dense exurban and rural neighborhoods, AT&T is phasing out its legacy ADSL service, halting new connections as of October 1, 2020. In these areas, AT&T offers fixed wireless residential service over its 4G LTE mobile infrastructure but with throughput limited to a small fraction of what a fiber connection could handle. Dawson notes the company has not actively marketed the service (most likely to preserve limited radio spectrum at the same time the company encourages high bandwidth video streaming). Moreover, the company was notably absent among bidders for the FCC’s recently closed Rural Digital Opportunities Fund (RDOF) subsidy reverse auction.

Where AT&T is building fiber to serve enterprise consumers (via dedicated Ethernet) it is not generally investing in premise drops and field distribution equipment to serve adjacent single family home residential neighborhoods. According to an October 2020 report by the Communications Workers of America, the labor union representing AT&T line technicians, and the National Digital Inclusion Alliance, 63 percent of 1,500 line technicians surveyed report that AT&T is not installing splitting equipment to enable home connections even where a fiber backbone exists.

With little focus on residential fiber, AT&T is instead looking to gain revenues in the consumer segment from streaming video and mobile wireless offerings as it experiences a steady decline in linear TV subscribers, legacy and wireline delivered services, according to Zacks Investment Research.

"Better Than Nothing," Starlink satellite service illustrates bankrupt U.S. telecom infrastructure modernization policy

Texas Schools Partner With SpaceX on High-Speed Internet: After schools shut down in March due to COVID-19, a survey of families in ECISD found that 39 percent did not have internet access in their homes, or had limited internet access. "Right behind me, you are looking at the community of Pleasant Farms that has very limited broadband service. We have children; we have families; we have educators living in this community and having the internet in their home is extremely difficult, if not impossible. But because of Space X and their Starlink technology, they are right now circling a series of satellites above this area and they will beam a high-quality broadband signal to our families, providing high-quality, high speed broadband access so our children can continue the learning process ...," Muri said. Muri said ECISD has worked diligently with the local community and state officials to explore opportunities for students, but also looking long-term. "Short-term solutions are not the answer," Muri said. "We need solutions that provide permanent solutions, permanent opportunities for kids not only in ECISD but across our state and across our nation ..."

Scott Muri, superintendent of a Texas school district, is right. Short term gee whiz approaches like this don't provide the long term telecommunications infrastructure needed on the ground -- namely fiber to the premise (FTTP). It's a logical progression from legacy copper telephone infrastructure that has gone off the tracks, leaving Americans grasping at “Better Than Nothing” solutions as the Starlink satellite service is dubbed.

Rapid rise in work from home #WFH drives demand for enterprise grade connectivity

As states and localities put in place contagion control measures that shut down centralized commute in offices in mid-March of this year, many knowledge workers migrated to working at home. But with only about a third of all U.S. homes having access to fiber to the premise (FTTP) connections, many found their home connections wanting.

They are less secure than enterprise connections. Bandwidth is tight and competes with other users in the household such as students engaged in online learning and video entertainment streaming. Service from legacy telephone and cable companies is optimized for streaming video entertainment with asymmetric circuits allocating much more bandwidth to downloading than uploading. That’s not optimal for virtual knowledge work that often involves the use of two-way videoconferencing and virtual private networking.

The virtual office in the cloud needs fiber connectivity. A co-working space company offering its aptly branded CloudVO (virtual office) recognizes this need. It sells passes for access to these spaces offering what it describes as enterprise-grade connectivity – presumably FTTP.

Meanwhile, AT&T recently rolled out a new business offering aimed at bringing enterprise grade connectivity to home-based knowledge workers. AT&T’s Home Office Connectivity however isn’t FTTP per se. It would also use business class fixed wireless service supported by its mobile 4G LTE infrastructure where there’s no FTTP infrastructure and as a backup network. But that’s where the service becomes decidedly more residential than business class. It’s sold in bandwidth consumption tiers of 8, 12 and 50 Mbps at $80, $130 and $200 monthly, respectively.

The target market for Home Office Connectivity is businesses, not the homes of home-based knowledge workers according to AT&T:

The service enables businesses of any size to extend enterprise broadband connectivity throughout their workforce, whether it is for a single additional line or thousands. It also simplifies onboarding and management with consolidated invoicing directed to the business, single-number enterprise customer care, and professional on-site installation by a certified AT&T technician.

The line between residential and business service in the legacy telephone company business structure is becoming blurred.

AT&T should add residential FTTP service where it has installed fiber

It’s Hard to Like AT&T | POTs and PANs: Over the last year, I’ve said some nice things about AT&T. It was nice to see AT&T wholeheartedly embrace their commitment to build fiber past 12 million homes as they had promised as part of the conditions of buying DirecTV. In the past, they might have shrugged that obligation off and faked it, but they’ve brought fiber to pockets of residential neighborhoods all over the country. It seemed that they were unenthusiastic about this requirement at first, but eventually embraced when somebody at the company realized that new fiber could be profitable.

Doug Dawson’s right. It is indeed good to see badly outdated legacy copper plant being modernized to fiber to the prem (FTTP) infrastructure by one of the nation’s biggest telcos. It’s at least a decade overdue. But the downside it’s just a few discrete residential “pockets” as Dawson points out amid recent indications from AT&T that it will be dialing back its landline capital expenditures.

Moreover, in parts of AT&T’s service territory, services on these new fiber installs are being limited to enterprise customers willing and able to afford rates at hundreds of dollars per month and higher. Nearby residences that could be served by drops from the new fiber are relegated to DSL over aging copper twisted pair. Or in some cases, asymmetric 10/1Mbps fixed wireless service in exurban areas that competes for limited mobile bandwidth since it runs on top of mobile wireless infrastructure.

These exurbs typically have population densities of more than 200 people per square mile, where fixed wireless and limited fiber to the home are best suited, according to a Microsoft-sponsored study by the Boston Consulting Group. That study was done in 2017. The appetite for residential bandwidth has increased since then. And it’s likely spiked higher in recent weeks as more people work, study and get medical attention at home during the SARS-CoV-2 contagion, using videoconferencing that requires the symmetrical connectivity fiber enables. Those bandwidth intensive activities are likely to persist to a greater degree after the pandemic ends than they did before.

The vast majority of residential customers and home office and teleworkers are not going to be willing or able to afford paying several hundred dollars a month for business class service offerings. AT&T should consider adding residential service at accessible residential rates in areas where it has already has installed fiber or it’s in the works.