Thursday, March 14, 2024

Like private investor owned providers, revenue bond financed publicly owned fiber networks seek urban and suburban density.

In Colorado, municipally-owned Pulse was able to fund its network through revenue bonds which were backed by the Loveland electric utilities enterprise fund. A revenue bond is a type of municipal bond typically used to fund projects that are expected to generate revenue, like public utilities. Unlike general obligation bonds, which are backed by the taxing power of the issuing government, revenue bonds are supported by the income generated from the project they are financing.

https://www.fiercetelecom.com/broadband/communities-gain-diy-network-guide-despite-public-broadband-skeptics

This type of financing is feasible when the d (density) factor is sufficient such that bond underwriters are willing to underwrite knowing the density equates with sufficient revenues to service the debt. A locality like Loveland offers that with a population of 2,219 per square mile according to 2020 U.S. Census data.

As the linked blog post above notes, it’s difficult to meet that underwriting standard in less densely populated exurban areas. That’s where publicly owned fiber to the premise (FTTP) advanced telecommunications infrastructure is most needed since the return on investment isn’t there for investor owned companies.

Friday, March 01, 2024

The unrealized policy goal of universal internet access

2000 Democratic Party Platform on "Bridging the Digital Divide"

Democrats believe that every American - regardless of income, geography, race, or disability - should be able to reach across a computer keyboard, and reach the vast new worlds of knowledge, commerce, and communication that are available at the touch of a fingertip.

That is why Democrats fought for the e-rate to wire every classroom and library to the Internet. In the next four years, we must finish connecting the job and then go further.

We must launch a new crusade - calling on the resources of government, employers, the high-tech industry, community organizations, and unions - to move toward full Internet access in every home, for every family, all across the United States. We must make sure that no family or community is left out. We must not rest until Internet access is universal.

Bush calls for universal broadband by 2007

Reaching back to revive an idea promoted by the man he beat for the White House, President Bush urged Friday that affordable high-speed Internet access be available to all Americans by 2007, saying it was essential to the nation’s economic growth.

Bush traveled to the Southwest largely to promote home ownership but spoke briefly about Internet access in remarks reminiscent of 2000 Democratic presidential nominee Al Gore’s call for an “information superhighway” available to all Americans. 

State of the Union address, President Barack Obama, January 24, 2012

"We’ve got crumbling roads and bridges; a power grid that wastes too much energy; an incomplete high-speed broadband network that prevents a small business owner in rural America from selling her products all over the world.”

Thursday, February 29, 2024

The logical flaw in AT&T's claim copper telephone landlines no longer needed

"AT&T said in a statement that input and feedback from community stakeholders, including comments in public hearings held and planned “is a critical part of the process of upgrading customers from outdated copper lines to more advanced, higher speed technologies like fiber and wireless, which consumers are increasingly demanding.” (Emphasis added)

https://www.mercurynews.com/2024/02/28/opposition-mounts-to-atts-plan-to-stop-landline-service-in-most-of-bay-area/

There is a logical flaw in this reasoning that suggests modernizing the legacy copper voice telephone lines to fiber to the premises (FTTP) has and is occurring because customers demand it. Hence, the logic goes, there is no need to keep the copper landlines. 

The issue isn't customer demand but rather FTTP availability. It's absent in much if not most of AT&T's service territory because AT&T and other telcos instead of replacing it with FTTP kept it in place for decades for dialup and digital subscriber line (DSL) internet. If there had been a timely and orderly transition to FTTP from copper, the issue of whether to keep copper landlines in place wouldn't be an issue.

AT&T might reasonably argue the copper wasn't replaced with FTTP because the business case -- meeting internal ROI requirements -- wasn't there. That calls for a lower cost business model such as a consumer utility cooperative or public ownership that doesn't have to generate profits for investors and pay income taxes. 

How U.S. telecom policy derailed in early 1990s in slow motion train wreck

Excerpted from Service Unavailable: America’s Telecommunications Infrastructure Crisis

U.S policymaking on Internet infrastructure began shortly before the Internet was decommissioned as a government-run network in the mid-1990s. In 1993, the Clinton administration issued a policy framework titled The National Information Infrastructure: Agenda for Action. It called for the construction of an “advanced National Information Infrastructure (NII),” described as “a seamless web of communications networks, computers, databases, and consumer electronics that will put vast amounts of information at users’ fingertips.” Development of the NII, the document stated, “can help unleash an information revolution that will change forever the way people live, work, and interact with each other.” For example:

  • People could live almost anywhere they wanted, without foregoing opportunities for useful and fulfilling employment, by “telecommuting” to their offices through an electronic highway;
  • The best schools, teachers, and courses would be available to all students, without regard to geography, distance, resources, or disability;
  • Services that improve America’s health care system and respond to other important social needs could be available on-line, without waiting in line, when and where you needed them.

Among its nine principles and goals, the policy called for extending the universal service concept to ensure that information resources are available to all at affordable prices. “Because information means empowerment, the government has a duty to ensure that all Americans have access to the resources of the Information Age,” the policy declared.

In addition to this policy document, the Clinton administration sponsored legislation championed by then Vice President Al Gore, who foresaw the coming role Internet-based telecommunications would play in the future. The Telecommunications Infrastructure Act of 1993 created a framework for its integration with the Communications Act of 1934. The legislation, which was not enacted and died in Congress, included several findings. The first three findings stated that:

(1) it is in the public interest to encourage the further development of the nation’s telecommunications infrastructure as a means of enhancing the quality of life and promoting economic development and international competitiveness;

(2) telecommunications infrastructure development is particularly crucial to the continued economic development of rural areas that may lack an adequate industrial or service base for continued development;

(3) advancements of the nation’s telecommunications infrastructure will increase the public welfare by helping to speed the delivery of new services, such as distance learning, remote medical sensing, and distribution of health information.

The legislation envisioned Internet telecommunications services being offered over the existing telephone network and would have required telephone companies to provide access to their networks for these services on a nondiscriminatory basis and on reasonable terms and conditions.

Like the NII Agenda for Action policy document preceding it, this legislation reinforced the principle of universal service. It would have required telecommunications carriers contribute to the preservation and advancement of universal service and states to act in coordination with the Federal Communications Commission to “ensure the preservation and advancement of universal service.”

This Clinton administration policy framework, its proposed Telecommunications Infrastructure Act of 1993, as well as 1996 legislation updating the Communications Act of 1934 enacted during the administration were predicated on the convergence of legacy voice telephone service and Internet communications. A foundational policy principle was the belief that competitive market forces could be relied upon to further this convergence and expansion of Internet telecommunications services, making Internet service universally available to all Americans as voice telephone service had been for decades before.

A generation later, it is painfully apparent that it didn’t play out that way. As discussed earlier in this chapter, the high cost of constructing new infrastructure to deliver Internet-based telecommunications services prompted telephone and later cable companies to selectively deploy new infrastructure only in densely populated and relatively affluent areas in order to satisfy shareholder demands for rapid return on investment and high profits and stock dividends. Everyone else was essentially left off the new telecommunications “grid” of the Internet.

The universal Internet service goals of the Clinton administration initiatives went unfulfilled in large part because the administration failed to take into account basic economics: the high costs of constructing and operating new advanced telecommunications infrastructure that create a natural barrier to competition. Markets can only be competitive when barriers to entry are low enough to allow for the entry of new players. Without new entrants, markets cannot meet the fundamental economic definition of a competitive market: one that has many sellers and buyers. Due to these high costs, telecommunications infrastructure functions more as a natural monopoly or a duopoly. Many buyers but few sellers do not a competitive market make.

Instead of relying on market competition, the Clinton and subsequent administrations and Congresses should have put in place a plan to fund universal FTTP. Had the United States chosen that policy direction instead of relying on market forces alone, every home business and institutional premise would likely have fiber connections in 2015.


The National Information Infrastructure: Agenda for Action, September 15, 1993, http://clinton6.nara.gov/1993/09/1993-09-15-the-national-information-infrastructure-agenda-for-action.html.

Senate Bill 1086 (103rd Congress, introduced June 9, 1993), https://www.govtrack.us/congress/bills/103/s1086.

Tuesday, February 27, 2024

End of ACP illustrates need for omnibus reform

Alphabet (Google’s parent) alone has a market cap of nearly $2 trillion – roughly twice that of the top 10 companies contributing roughly 77% of all universal service funding combined. Yet Google and others in the Big Tech pantheon like Facebook, Netflix, and Amazon contribute not a dime. These dominant Big Tech companies that benefit financially from the connectivity that USF makes possible should contribute to our shared goals of connectivity and affordability.

Policymakers have long explored ways to hold these companies more accountable for their dominant market positions. Contributing to the nation’s effort to provide affordable and universal connectivity that is the foundation of their financial success is a great place to start. The FCC needs the legislative tools to do so, and there is growing momentum for this on Capitol Hill. Congress should give the FCC a bright green light to proceed.
https://ustelecom.org/a-permanent-solution-for-connecting-low-income-families-2/#0

Rather than trying to reform legacy subsidy mechanisms created for voice telephone service, wouldn’t public ownership of open access regional fiber to the premises (FTTP) provide a twin win of superior access and affordability? And supporting its construction and operation by making low interest long term loans available as well as technical assistance grants to help them organize?

The information technology companies mentioned in this article all pay income taxes that could help fund this. They might even be willing to pay an additional advanced telecommunications infrastructure surcharge since ubiquitous, affordable fiber connections synergistically benefits their business if not framed in adversarial terms as one industry asking another to pay for assets they would not own. Publicly owned infrastructure thus offers a neutral solution to this standoff.

This would make more sense than effectively subsidizing the shareholders of privately held telephone and cable companies through means tested end user subsidies for households that find it difficult to afford their commercial “broadband” offerings and bundled services. Publicly owned regional open access infrastructure also offers an additional source of revenue to cover operating and debt servicing costs in the form of lease fees paid by internet service providers to offer services on them.

Monday, February 26, 2024

Open access fiber: Public ownership offers lower cost operating model. Private ownership less constrained capital access.

Gigapower CEO Bill Hogg – the brand name for AT&T’s joint venture with BlackRock’s Global Infrastructure Fund to build open access fiber delivery advanced telecommunications infrastructure -- boasted other open access networks would be unable to scale up like Gigapower. Gigapower will be “much larger than any other provider in the space,” Hogg declared at a webcast panel presentation last September hosted by Broadband Breakfast. “The scale at which we are going to operate will be a differentiator in the U.S. marketplace.”

Publicly owned open access networks like UTOPIA Fiber, owned and financially backed by a 20 Utah municipalities, operate with a built in cost advantage over investor owned infrastructure like Gigapower. They operate free of the need to generate profits and earnings dividends for investors and income tax liability. Those advantages should provide them the ability to match the scale of Gigapower as regional open access networks.

But that advantage could be offset by freer, ready access to expansion capital from BlackRock’s Global Infrastructure Fund. The fund includes state and local pension funds, sovereign wealth funds, and family endowments, according to Adam Walz, managing director of the fund. According to Walz, the fund is focused on investments in digital infrastructure opportunities across fiber networks, data centers, and wireless infrastructure.

AT&T and BlackRock can independently make decisions on which Gigapower projects to build and finance. By contrast, publicly owned open access networks rely on capital bonds sold on public bond markets to finance construction. Bond underwriters set the terms and conditions of bond offerings and may require additional sources of repayment security beyond network revenues from end users and lease fees paid by internet service providers to access the network. That limits the scale and pace at which they can expand.

Going forward over the long term, this boils down to a competition between private and public capital and which is most responsive to slake the nation’s deep thirst for fiber to replace outdated metallic delivery infrastructure. The competition will likely play out at least initially in densely developed areas since both forms of ownership presently prefer them over less dense areas: privately owned for more rapid ROI and publicly owned to better assure sufficient bond debt servicing.

Sunday, February 25, 2024

AT&T’s two pronged fiber build out strategy

AT&T appears to be pursuing a two pronged strategy to build out fiber to the premises (FTTP) delivery infrastructure. The first is targeting densely built up metro areas with its Gigapower joint venture with BlackRock’s Global Infrastructure Fund. The second using subsidies extended to the states from the 2021 Infrastructure Investment and Jobs Act’s (IIJA) Broadband Equity, Access, and Deployment (BEAD) Program to build FTTP infrastructure in less densely developed areas that meet the program’s funding eligibility requirements.

Last fall, AT&T urged states to award the BEAD subsidies for contiguous builds that qualify as unserved (where at least 80 percent of serviceable addresses in the project are not offered throughput of 25/3 Mbps or better) and underserved (where at least 80 percent of serviceable addresses are not offered throughput of 100/20 Mbps or better). However, under BEAD, states must first exhaust their funding allocations on subsidies for projects addressing unserved locations.

As noted in the above linked blog post, AT&T’s BEAD funding appears predicated on the two generations of Digital Subscriber Line (DSL) technology that runs over its legacy copper voice telephone delivery infrastructure. The first, ADSL, will in many less densely developed areas qualify as unserved since it typically provides bandwidth lower than 25/3 Mbps. However, these areas are often adjacent to those served by its second generation VDSL technology. Those areas won’t qualify as unserved but could likely qualify as underserved.

Federal and state officials overseeing the award of BEAD funds will likely come under pressure from AT&T to liberally interpret the program rules to allow subsidization of contiguous FTTP projects spanning areas including both types of DSL technology. Expect AT&T to argue that this will provide the most efficient use of the funds and cover the greatest number of serviceable locations as well as meeting the BEAD program's preference for FTTP.

Monday, February 19, 2024

The d factor: Why publicly owned, financed FTTP may not balance the Crawford equation

Author Susan Crawford in her 2018 book Fiber: The Coming Tech Revolution – And Why America Might Miss It, set out a vision of ubiquitous and affordable fiber connections as with copper delivered voice telephone service in the 20th century.

The United States stumbled in the late 1980s and early 1990s by failing to develop a comprehensive strategy to transition from the legacy copper to fiber to support digital Internet protocol voice, video and data services. Instead, fiber to the premises (FTTP) was left to the market whims of investor owned companies that construct it only where it meets their rate of return and profitability standards. That’s typically densely settled urban and suburban areas.

That leaves much of the nation outside these areas unfibered with uncertain prospects for FTTP amid a multiplicity of siloed federal and state grant programs. Only recently have these programs begun to favor FTTP for subsidization albeit with eligibility still based on marketed “broadband” bandwidth to protect the customer “footprints” of incumbent providers from interlopers.

An open question is can publicly owned and financed regional telecom authorities provide a lower cost work around to the investor owned providers whose business structures require them to generate profits and dividends for their owners and pay income taxes on their earnings?

Let’s call Crawford’s vision the Crawford equation and express ubiquitous access as x and affordability as y. Can these alternative business models solve for both since they avoid the higher structural costs of the investor owned business model?

They may not. It boils down to the same reason for both: residential density. Let’s call it the d factor. For the investor owned providers, building FTTP isn’t likely to pencil out in less densely developed exurban areas with lower d value featuring curvilinear roads instead of suburban and urban grid-style development. These areas typically fall short of the investor owned standard of about 15 homes per linear road mile. That translates to more road miles and a relatively lower number of homes per mile. That leads to higher construction costs and longer returns on investment, diminishing the short term profitability investors desire and more certain revenues debtholders want for debt service.

For publicly owned providers and particularly open access FTTP networks reliant on network revenues to service capital bonds, bond underwriters prefer a sizable number of end users to ensure bonds secured by network revenues obtain sufficient revenue from end user fees. That correlates with d. A higher d factor translates to more end users. That translates to lower default risk since there is more revenue to secure debt service. The y factor -- affordability -- can also be adversely affected by networks seeking to boost the x factor in less densely developed areas.

For ISPs offering services to end users, the d factor is similarly critical. ISPs aren’t going to be interested in leasing network access unless there is a sizable market of end users, particularly since they are likely competing against other ISPs on an open access network.

Bottom line, publicly owned and financed FTTP infrastructure may not solve the Crawford equation for much of exurban America where telecom infrastructure is often substandard and not up the needs of knowledge workers migrating to metro fringes and beyond.