Incoming Congress, administration could revamp direction of BEAD from sell to buy side subsidization

Longtime telecom blogger Doug Dawson speculates the $43.45 billion Broadband Equity, Access, and Deployment (BEAD) Program funded by Infrastructure Investment and Jobs Act (IIJA) of 2021 could see its appropriation reduced to $10 billion under the incoming Congress and Trump administration. Dawson further postulated that reduced allocation could instead of subsidizing fiber to the premise (FTTP) landline delivery infrastructure go toward Starlink LEO satellite service.

If there is a big political movement to undo President Biden’s signature accomplishment [the IIJA], then infrastructure spending of all types could be curtailed, and it’s naïve to think that broadband spending couldn’t get swept into a bigger effort to cut spending. It’s not hard to imagine cutting the program to $10 billion, giving the money to Starlink, and declaring rural broadband to be solved.

https://potsandpansbyccg.com/2024/11/12/the-new-administration-and-bead/

Since LEO-delivered Internet requires far less infrastructure than deploying fiber delivery infrastructure, it calls into question whether subsidies are even needed to deploy it to reach homes and small businesses lacking fiber connections. They recover their costs through relatively high service charges. For example, Starlink runs $120 per month with a one-time hardware cost of $499.

If Dawson’s $10 billion scenario comes to pass, we could see that reduced appropriation converted from sell side to buy side subsidization since households lacking fiber access could find those costs unaffordable, limiting access and impeding BEAD’s programmic goal of promoting universal service.

But LEO service may come with some significant limitations since it requires a clear sky that may not be available at homes and small businesses in heavily wooded areas. "If they try putting BEAD mostly in the LEO basket, lumberjacks will be replacing drilling crews," writes Chris Scharrer of DCS Technology Design. "The idea of Starlink being a cure-all for the nation is literally, not seeing the forest through the trees."

Connecticut's inexplicable archipelago strategy for BEAD subsidies

In breaking up the state into workable regions, the Connecticut broadband office is asking grant applicants to propose bringing fiber to every location. But, Pisacich says, “terrestrial-based providers may not be able to serve those locations without huge costs, so they may not even bid.”

As a result, the office is allowing the islands to be separated into their own region, when needed. That way, one provider can bring fiber to the area aside from the islands, and other providers employing alternative technologies can deliver broadband to the islands.

By using this approach, Pisacich expects to receive “multiple applications, have multiple options, and then we’ll be able to get those harder locations served within the timeframe.”

https://blandinonbroadband.org/2024/10/16/connecticut-has-99-percent-broadband-coverage-but-so-do-many-mn-counties-what-can-we-learn/ 

Assuming locations in the surrounding "sea" are on the electrical grid, what doesn't add up is why the "islands" can't be reached with fiber to the premises (FTTP) particularly with substantial subsidization from the Infrastructure Investment and Jobs Act's BEAD program intended to reach high cost areas. Are they off the grid? Most likely not. If they can be served by electrical power infrastructure, why can't they be reached with fiber?

First with fiber: Private capital maneuvers for first mover advantage

Some critics, including telecom writer Karl Bode, have characterized Tier 1 players’ sudden embrace of public-private partnerships, including those based upon an open access approach, as a strategic move to capture federal subsidies before smaller players can. In comments on Broadband Breakfast’s website, Bode said that this shift was less about promoting competition and more about securing government funding while maintaining market dominance.

“Now that there's billions of dollars of potential subsidies there for them to glom onto, they want to get a hold of this cash before a municipality, cooperative, or city-owned utility does,” Bode said. “I find the flip funny given their historical, often virulent lobbying opposition to both open access policies, open access networks, and open competition – especially municipal or cooperatives – more generally.”

https://broadbandbreakfast.com/exclusive-series-at-t-t-mobile-bet-big-on-open-access/?ref=alerts-newsletter

Bode's analysis goes to the fundamental tension between investor owned advanced telecom infrastructure and the socialization that tends to occur when the availability of private investment capital is insufficient relative to market demand for advanced telecom services. Private investment capital however realizes the long term value is in owning the fiber connection to homes and other premises as well as first mover advantage that accrues to whomever first installs it.

That's what's attracting private equity as in the case of AT&T's Gigapower joint venture with BlackRock, mentioned in this article. That infuses private capital to finance those fiber connections that AT&T couldn't otherwise without displeasing its current and future investors. AT&T gets help with the sizeable capital expenditures needed and BlackRock retains the option to sell out its stake in the future to AT&T or other network assets consolidator. 

Private capital also wants to foreclose public and consumer utility cooperative ownership since it too would benefit from first mover advantage and disadvantage private investment over the long term.

Draft BEAD program update would give states more leeway to use LEO, FWA services using unlicensed spectrum when more economical than FTTP.

In a March 2023 interview, U.S. Secretary of Commerce Gina Raimondo said, “If we're going to connect every American, including the tens of millions of Americans who now don't have the internet, we're going to have to lay fiber all across this country.” But $43.5 billion in construction subsidies appropriated in the Infrastructure Investment and Jobs Act of 2021 appears insufficient to bring fiber connections to most every American doorstep as with copper telephone lines in the previous century.

Instead, Low Earth Orbit (LEO) satellite and fixed wireless service (FWA) using unlicensed spectrum may have to suffice to fill the many thousands of holes in the Swiss cheese deployment of landline advanced telecommunications infrastructure over the past three decades. That has left a considerable number of discrete locations lacking it or served by older telephone and cable infrastructure that falls short of current federal standards for reliable internet protocol-based voice, video and data service.

That’s the upshot of draft Broadband Equity, Access and Deployment (BEAD) program guidance issued this week by the Department of Commerce’s National Telecommunications and Information Administration (NTIA). Those voids are seen on splotchy federal and state “broadband maps” of existing service where investor owned providers bypassed discrete locations they determined would not produce an adequate return on investment or profit.

While the draft guidance reiterates a preference for fiber to the premise (FTTP) projects in existing program guidance, it permits state subgrants to LEO satellite service providers and ground-based fixed wireless providers using unlicensed spectrum for projects where FTTP would require such a large degree of subsidization (up to 75% of project costs) -- or a lack of interest from service providers -- that states would be challenged to connect all premises to service meeting specifications for minimum throughput and reliability as required by the BEAD program. Accordingly, the draft revised guidance states these “alternative technologies” can to be used when it would be “less expensive” to do so.

Moreover, the draft guidance would bar states from funding projects where LEO satellite or fixed wireless service meeting minimum service specifications already exists or is being subsidized by another government program, which could potentially render large portions of the nation ineligible for BEAD subsidies.

The draft guidance would authorize states to use their grant funds to make subgrants to these providers to help customers pay for non-recurring installation and premise equipment costs, which for LEO service can run several hundred dollars. However, it’s unclear whether these services would meet the existing BEAD program guidance requiring states to ensure subgrant funded projects offer service at rates affordable to low and middle income households.

Former FCC Chair Pai urges states to direct BEAD funds to sparsely populated counties as countywide projects

The $42.45 billion BEAD program tasks each state with identifying unserved and underserved communities for funding. States have been thinking about the size of their project areas since they submitted their initial proposals in December 2023, but were not required to define the size of their project areas for sub-grant awards when they filed their initial proposals.

“Searchlight urged [states] to think about an entire county as the relevant project area, as opposed to say a service location or even a census block or census tract,” Pai said. This strategy is important to prevent "cherry picking" higher-value areas that are more densely populated, or have a higher per capita income, among those locations slated for funding, he said.

Former FCC Chairman Urges County-Level BEAD Project Areas

Pai’s suggestion would have states direct BEAD subgrants to large infrastructure projects in sparsely populated counties. The reason is BEAD program guidance would require 8 out of 10 prems in each county (or potentially regional projects involving multiple counties) to be currently unserved, meaning they cannot order Internet service with throughput of at least 25/3 Mbps and latency of 100ms or less or underserved, 100/20 Mbps or higher:

(t) Project—The term “project” means an undertaking by a subgrantee to construct and deploy infrastructure for the provision of broadband service. A “project” may constitute a single unserved or underserved broadband-serviceable location, or a grouping of broadband-serviceable locations in which not less than 80 percent of broadband-serviceable locations served by the project are unserved locations or underserved locations.

In the larger scheme, Pai's suggested allocation of BEAD dollars may be to help ensure projects they fund don't infringe upon the service area "footprints" of large incumbent investor owned telephone and cable companies by steering them away from more densely populated counties. Their footprints have been made by deployment "shoes" with holes in their soles -- creating unserved or underserved pockets -- that could be potentially funded as BEAD projects. Per the cited BEAD program guidance, these could be a small group of prems or even a single premise.

U.S. appellate court grants stay of FCC Title II reclassification of Internet as common carrier utility, citing lack of clear congressional authority

The Sixth District United States Court of Appeals has granted a stay of a rulemaking issued by the Federal Communications Commission that would regard Internet protocol services as a common carrier telecommunications utility under Title II of the Communications Act. The stay puts on the rulemaking on hold pending a hearing before the court later this year on the merits of a challenge against the reclassification brought by telecommunications industry interests.

In granting the stay, the court determined it was likely the challengers would prevail on the merits of the major questions doctrine, finding that the Congress failed to clearly authorize the FCC to classifying Internet Protocol as a common carrier telecom utility. The court signaled its decision on the merits will turn on interpreting Congress’s intent vis 47 USC § 153(51) and specifically whether internet service providers meet the definition of “telecommunications carrier” in the statute, enacted in the 1996 Telecom Act.

The law clearly defines telecommunications as “the transmission, between or among points specified by the user, of information of the user’s choosing without change in the form or content of the information as sent and received.”

However, the court found that “Nowhere does Congress clearly grant the Commission the discretion to classify broadband providers as common carriers. To the contrary, Congress specifically empowered the Commission to define certain categories of communications services and never did so with respect to broadband providers specifically or the internet more generally.”

“Absent a clear mandate to treat broadband as a common carrier, we cannot assume that Congress granted the Commission this sweeping power, and Petitioners have accordingly shown that they are likely to succeed on the merits.”

1996 Telecom Act affords FCC clear, unambiguous authority for Title II rulemaking

Investor owned telephone and cable companies and their trade associations hope the courts will put the U.S. Federal Communications Commission’s recently issued Open Internet rulemaking on ice, slated to become effective July 22. They believe their case has been strengthened by the U.S. Supreme Court’s recent ruling in Loper Bright Enterprises v. Raimondo that held the courts and not executive branch agencies must interpret the legislative intent of a statute when it’s unclear or ambiguous under the Administrative Procedures Act.

They hope to convince the courts the FCC lacked authority to issue the rulemaking classifying Internet protocol-based services -- advanced telecommunications – as a common carrier telecom utility service under Title II of the Communications Act. The rationale is the agency previously relied upon the now disapproved Chevron doctrine that accorded administrative agencies authority to issue rules based on their interpretation of the legislative intent of a statute that’s unclear or ambiguous. Or which fails to confer clear rulemaking authority to an agency.

That would conceivably bolster their case if the underlying statute here – the 1996 Telecom Act – was unclear or ambiguous or failed to grant the FCC authority for its rules. The problem is doesn't meet any of these tests. It clearly defines telecommunications as “the transmission, between or among points specified by the user, of information of the user’s choosing without change in the form or content of the information as sent and received.”

Sending an email certainly would meet the definition. So would posting to a website or social media site. The transmitted content isn’t changed; it’s communicated over the Internet to one or more parties.

In so providing this telecommunications service, the Act states providers “shall be treated as a common carrier” (i.e. a utility under Title II of the Communications Act) and further authorizes the FCC to “determine whether the provision of fixed and mobile satellite service shall be treated as common carriage.” That’s a pretty clear and unambiguous grant of authority for the FCC’s rulemaking.

The Act also clearly brings providers of advanced telecommunications providers within the scope of the Open Internet rulemaking, defining telecommunications service as “the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.’’

AT&T’s suggestion that edge content providers contribute to funding universal service calls for new paradigm of U.S. advanced telecom

AT&T wants to see edge content providers contribute to the cost of connecting all Americans to advanced telecommunications infrastructure. It’s a company cudgel first wielded two decades ago by then AT&T chief Ed Whitacre. Whitacre was famously quoted as saying these providers should not be able to “ride my pipes” for free.

“The seven largest and most profitable companies in the world built their franchises on the internet and the infrastructure we provide,” noted current AT&T CEO John Stankey in remarks this week to the USTelecom’s Leadership Summit posted at AT&T’s policy blog. “They stand to benefit handsomely from every home that is incrementally connected to our networks. I doubt there is anyone in this room who wouldn’t gladly swap places with the return profiles of Google, Meta, Apple and others.” Stankey continued:

“These companies make money offering today’s equivalent of yesterday’s universal voice service. Why shouldn’t they participate in ensuring affordable and equitable access to the services of today that are just as indispensable as the phone lines of yesteryear?”

Stankey however raises a broader policy issue of how universal service is to be attained and specifically the high cost of the ownership, financing, and operation of its infrastructure in the digital IP era as it was for copper cable delivered analog voice telephone service in the previous century. There is no clear, long term policy in place to do so. Policymakers have instead resorted an aspirational policy of throwing money at the challenge in a Pinata policy of competitive, one off grants, each with separate funding sources and eligibility rules, a situation decried by Stankey:

“By splitting the funding across many departments, we’ve got all these agencies examining the same problem… but they’re looking at it through the wrong end of the telescope. So what’s the solution? Streamline the design. Align agencies, widen the aperture, and focus on the larger problem we all want to solve.”

In his remarks, Stankey criticized policymakers who “have prioritized outcome-based regulatory approaches and political expedience at the expense of effective market-based capital allocation.” This goes the heart of public policy to attain universal service. By definition, universal service is a measurable outcome. Policymakers are thus right to set that as the public policy goal. But over the past three decades, the market-based scheme has been unable to reach it because the goal of universal service is misaligned with the needs of investor owned companies that own the great majority of advanced telecommunications infrastructure. 

Their mission is not to modernize the twisted pair copper that reached nearly every American doorstep in the 20th century to fiber. Rather, it’s to generate relatively rapid return on investment and generous utility dividends shareholders have received for many decades from the assured revenue stream of voice telephone service. Consequently, areas where population density and household income are not seen as good risks and sufficiently profitable are passed by. This despite billions in subsidies and trillions of dollars of investment by investor owned companies like AT&T, another long running company talking point.

Suggesting content providers contribute to the cost of creating near ubiquitous fiber as author Susan Crawford envisioned in her 2019 book Fiber: The Coming Tech Revolution—and Why America Might Miss It also suggests a wholesale reorganization is needed. One that recognizes that advanced telecommunications calls for a new paradigm providing more optimal alignment of goals, incentives, resources and rewards for Crawford’s vision to be realized.

The present misalignment generates way too much adversity, frictional costs, and posturing and protectionism instead of good public policy benefiting all Americans versus making winners of some and losers of others.