U.S. Internet policy fails expectation of universal premise service

For nearly every American who has been alive since the end of World War II, the availability of telephone service at a home or business premise is taken for granted. Need a phone line or several lines? Contact the phone company, order them and they’ll get hooked up.

With wireline premises Internet service, it’s been a very different story. According to the U.S. Federal Communications Commission as of 2012, 19 million Americans couldn’t order an Internet connection because none was available for sale. Some of those Americans live in California’s Gold Country, located in the western foothills of the Sierra Nevada. And they can’t understand why if people in Sacramento -- or in many cases just down the road -- can get wireline Internet service, why can’t they? Plus they hear messages like this one that only five percent or fewer premises are unserved and have a hard time believing their home or business is one of them, particularly when nearby premises do have service.

It’s therefore unsurprising that “[m]any residents without access feel a sense of entitlement to broadband (Internet) service,” according to the Gold Country Broadband Consortium’s annual progress report. The consortium is among 14 regional consortia formed by the California Public Utilities Commission in 2011 to promote local Internet access and adoption of Internet-delivered services.

Unfortunately, neither California as the largest state nor the nation as a whole has a public policy to meet the expectation that Internet service in 2014 should be as ubiquitous as telephone service. Nor as the case with telephone service is there a workable subsidy program to ensure high cost areas are served.

The major causes of U.S. premise Internet service policy quagmire

U.S. telecommunications policy for premises Internet connectivity is in need of reassessment and revamping. It severely limits the nation’s ability to ensure all homes and businesses have fiber to the premise Internet connectivity capable of serving both current and future needs as bandwidth demand continues to grow exponentially.
 

Call it the Levin quagmire, named after former U.S. Federal Communications Commission official Blair Levin. In 2012, Levin predicted little change in the status quo, noting for most Americans over the near term, the best wireline network available to them will be the same one they have now. According to the FCC, for about 19 million Americans that’s dialup, state of the art technology in the early 1990s when Bill Clinton was starting his first term as president.

Summed up, these are the circumstances and policies that have produced the current quagmire:

• There is an insufficient business case for legacy incumbent telephone and cable companies to invest in building out their networks to serve all premises in their service areas or to upgrade existing infrastructure to fiber to the premise service. Nevertheless, these providers generally don’t avail themselves of federal and state subsidy programs aimed at capitalizing the cost of Internet infrastructure.
  

• Federal subsidy programs such as the Connect America Fund are only available to telephone companies and not cable companies that are becoming the dominant premises Internet service providers over telephone companies that are instead concentrating their capital investments on mobile wireless markets.

• Legacy incumbent telephone and cable providers view their service territories as proprietary franchises. Consequently, they oppose the award of subsidies to alternative providers and lobby for subsidy program eligibility rules inappropriately based on mobile wireless service and outmoded and changing standards of Internet service. They also lobby for state laws that bar local governments from building and operating fiber to the premise networks or make it impractical to do so.

Net neutrality debate underlies strategic tensions between legacy telcos, cablecos and content providers

Underlying the public policy issue of whether the U.S. Federal Communications Commission (FCC) has legal authority to bar Internet service providers from treating the Internet as a private toll road and charging higher fees for digital express lanes – a policy known as “net neutrality” – are deep tensions between legacy telephone and cable companies and content providers. The courts are now addressing the legality of this policy, with the question to potentially come before the U.S. Supreme Court. But how the tensions between big telephone and cable companies and Internet content and social media services are resolved in the marketplace could ultimately have a much bigger impact than the courts.

The telephone and cable companies maintain they need revenue from content providers to offset CAPex and OPex costs of the infrastructure to deliver the services and as such are entitled to payment for access to their networks. In short, their position is they can charge for access on both ends of the Internet: where services like Netflix enter their “pipes” as then-AT&T Chairman Ed Whitacre famously described them in 2007 and also at consumer premises where they are delivered. From the perspective of the content and service providers, given end users pay for access, they too shouldn’t have to pay to get content on network. And to boot, a network they view as technologically deficient and unable to provide sufficient current and future bandwidth as evidenced by Google’s limited venture into fiber the premise (FTTP) infrastructure via its Google Fiber unit. The incumbent inferiority gap has been recognized by former FCC official Blair Levin, who observes that big telco and cable companies have no plans to meaningfully upgrade and build out their networks.

While the courts will ultimately provide a tactical win to one side or the other on the issue of net neutrality, the strategic market tension between the sides over who owns and operates Internet infrastructure and who pays for it will nevertheless remain. How might it be resolved?

A possible scenario is the formation of an alliance among the big content providers and the Internet backbone transport players with the mission of dislodging the telco/cable cartel and its moribund, slow-moving pre-Internet business model. Call it the nuclear FTTP overbuild option. Given the hundreds of billions of dollars required to build out FTTP in the United States, a strategic initiative on such a massive scale would likely have to be a public-private partnership with private members such as like Level 3, Cogent Communications, Google, Amazon, Netflix, Ebay,Yahoo!, LinkedIn, Twitter as well as entities involved in the telehealth, distance education and the emerging markets of smart homes and the device-driven “Internet of things.” The federal government would be the public partner, providing capital through long term bonds to finance a strategic national Internet initiative to replace lethargic, highly contentious subsidy efforts such as the Connect America Fund that could take decades –if ever – to construct adequate Internet infrastructure serving all Americans.

Fiber to the premise obsoleting net neutrality debate

A ruling this week by a federal appellate court blocking U.S. Federal Communications Commission rules barring Internet service providers from effectively erecting toll gates and speed bumps as revenue enhancement mechanisms is likely to fuel the policy debate on the proper role of the Internet: whether it should be regulated like a public thoroughfare -- the infrastructure of an increasingly digital economy -- or as a private, profit producing asset.

Investor owned, rent seeking providers such as telcos and cable companies will naturally gravitate toward business models that treat digital Internet traffic as a limited commodity that must be broken down, packaged and sold in discrete bundles and flow rates. The more data and the faster the flow rate, the higher the price.

The big problem for this business model is it's being obsoleted by technology. Fiber to the premise (FTTP) infrastructure is the emerging standard for delivering Internet to homes and business customers. It does not have the inherent limitations of metal wire and cable infrastructure, where a rational, technology-based argument can be made for treating bandwidth as a limited commodity. Once FTTP infrastructure is in place, adding more capacity can be accomplished at relatively negligible cost.

FCC Internet metric outdated

   
The U.S. Federal Communications has issued its annual report on how Americans access the Internet and the speed of their connections. What's striking is the report still defines and measures Internet connectivity using outdated metrics better suited to a decade or more ago starting as greater than 200 kbps as a baseline and in tranches of 768 kbps, 3 mbps, 6 mbps, and 10 mbps.  Nowadays, many would regard only the latter number as defining basic Internet connectivity given increasing household bandwidth demand from multiple devices and streaming video content.

The FCC is measuring straws when it should be measuring water pipes.


Links:
Internet Access Services: Status as of December 31, 2012 (FCC, Dec. 2013)
 
FCC releases new data on internet access services (FCC news release, Dec. 24, 2013)

FCC Expands CAF Definition of Broadband Subsidy-Eligible Areas - 2013-05-22 22:48:29 | Broadcasting & Cable

FCC Expands CAF Definition of Broadband Subsidy-Eligible Areas - 2013-05-22 22:48:29 | Broadcasting & Cable

Summed up, this subsidy program designed to underwrite the cost of building telecommunications infrastructure in high cost areas is ineffective.  Telcos won't apply because they don't want to fully serve these areas and complain the subsidy amounts are too low.  And even if they did want the money, they have to fight cable companies ineligible for the funding (derived from a surcharge on telephone bills) that claim the telcos are upgrading their infrastructures in order to steal their customers.

This circumstance only adds to the argument that communities and particularly those with lower population densities can't expect legacy providers to serve them.  They must build their own publicly and cooperative owned and operated fiber networks.

Former FCC Chairman and GTCR Fund See Strong Rural Cable Future

Former FCC Chairman and GTCR Fund See Strong Rural Cable Future: Former FCC Chairman Reed Hundt hopes this week’s acquisition of tier 2 cable company NewWave Communications by investment firm GTCR will be “the first of many.” Telecompetitor spoke this week with Hundt, who headed up the FCC during the Clinton administration and is now an advisor to GTCR.“We believe cable is the universal American communications medium,” said Hundt. “Cable is the essential connection for everyone, especially in rural America.”

 The Telecompetitor article continues:

GTCR’s strategy is interesting, considering that service providers have had difficulty finding a business case for deploying broadband in some rural areas – particularly as distances from population centers increase.

When I asked Hundt about that he said, “Technology keeps producing breakthroughs.”

Indeed it does.  But has it reduced the labor costs associated with deployment and maintenance of wireline Internet infrastructure, which rule of thumb estimates place at about 70 percent of the total?  I haven't heard of of any such technology breakthroughs unless Hundt is talking about using drones to spool and drop cable from the sky and robots to bury and install it on poles.

Google's Fiber Takeover Plan Expands: Will Kill Cable & Carriers

Google's Fiber Takeover Plan Expands: Will Kill Cable & Carriers - Google is going to kill AT&T, Verizon, Sprint, T-Mobile and the cable companies. Kids don’t talk on the phone and they don’t have a ton of money. If they can be reasonably sure they’ll have a wifi network, then they are simply not going to sign up for AT&T or Verizon.

It’s game over... in five short years.

This hyped up prediction calls for a reality check.  In 2009, the U.S. Federal Communications Commission projected it would cost $350 billion to universally deliver 100 Mbps or faster Internet connections to all American homes and businesses, which would like Google's 1 Gigabit service would require fiber to the premise infrastructure. (Consider when the FCC issued this cost projection in September 2009, 100 Mbps was considered the gold standard for Internet throughput -- just one tenth of what Google fiber delivers.)

Assuming minimal change in the cost of deployment -- about 70 percent being labor -- that sizable sum would require Google to expend an average of $70 billion each of the five years -- $20 billion more than Google's reported revenues for 2012.  If this article's prediction were to become reality, Google would have to joint venture with other deep pocketed players since it alone could not hope to singlehandedly render the nation's cable and telephone companies obsolete in the span of just half a decade.

Google chooses Provo, Utah, as next city to receive search giant's ultra-fast Internet service | Fox News

Google chooses Provo, Utah, as next city to receive search giant's ultra-fast Internet service | Fox News: The rollout is an expensive undertaking and gamble for Google, which hopes it will drive innovation and pressure phone and cable companies to improve their networks. Google benefits when people spend more time online.

The "pressure phone and cable companies to improve their networks" rationale is  repeatedly made in media accounts to explain Google's fiber to the premise (FTTP) builds in some metro areas of the United States.  But is it really true, notwithstanding AT&T's pyrrhic posturing in Austin, Texas?  It implies the incumbent cable providers and telcos are somehow reluctant to improve their networks.  But upgrading their networks is how they can capture more customers and sell more services.  If doing so generated sufficient revenues and profits, they would do it without hesitation, Google or no.  The issue is their business models don't have sufficient funding for large scale capital expenditures on new plant and equipment.  And no one has yet devised a way to more cheaply deploy fiber to the premise Internet infrastructure -- of which an estimated 70 percent of the cost is labor.

Another major issue overlooked in media accounts of the Google FTTP builds is they don't address the large gaps in Internet access that the U.S. Federal Communications Commission in 2012 estimated leave about 19 million Americans offline.  The reason they don't is Google shares the same limitations of the investor-owned business model as the incumbent cablecos and telcos that cannot profitably serve areas that remain disconnected and still accessing the Internet via obsolete, circa 1993 dialup connections and satellite Internet.

IP may be in the "telephone" system, but many premises still only served by POTS

How the Humble Telephone Is About to Bring Internet to the Masses (Again) - NationalJournal.com: You aren’t going to wake up one morning and find every home connected to Verizon FiOS. In fact, even after the IP transition, many houses are still going to be connected to their local switch by copper.

Indeed they are.  The last mile (or more properly the first mile) often lacks the infrastructure to deliver IP-based services, leaving many American homes to Plain Old Telephone Services (POTS) that has been around for decades.  And two percent/6 million Americans involuntarily left off the Internet grid?  That seems an awfully low number given a 2012 U.S. Federal Communications Commission estimate putting the number at nearly 20 million Americans.

FCC looks into rural call completion problems - The Hill's Hillicon Valley

FCC looks into rural call completion problems - The Hill's Hillicon Valley: In a statement, Chairman Julius Genachowksi said the evidence of rural call completion problems is overwhelming.

"In too many towns across the country, the basic ability of all Americans to reliably receive phone calls — a bedrock of America’s communication policy — has come into doubt," he said. "This has serious economic, safety and other consequences."

The United States faces serious telecommunications service problems with 20 million Americans disconnected from premises Internet service and now voice phone service becoming spotty in rural areas.

In his State of Union address one year ago, President Obama pointed to the nation's "incomplete high-speed broadband network," calling on Congress to fund telecom and other critical infrastructure.  Let's see if the President revisits this continuing problem in this week's 2013 State of the Union address.

FCC's gigabit goal will require significant public investment

FCC pushes for gigabit broadband in all 50 states by 2015 | Politics and Law - CNET News: The FCC hopes the Gigabit City Challenge will further these types of efforts. The FCC hasn't committed any funds to the "Gigabit Challenge," but the agency said it will help communities create an online clearinghouse of best practices to help educate local officials and local service providers on the most cost-effective ways to increase broadband deployments.

This will require the U.S. Department of Agriculture's Rural Utilities Service be sufficiently funded with grant and loan money to help communities meet the FCC's challenge with publicly and cooperatively owned fiber to the premises infrastructure.  Sharing best practices alone won't do the job considering the billions that will be needed to upgrade and replace America's obsolete copper cable infrastructure now being kept on life support with trash bags and baling wire.  In 2009, the FCC estimated it would take $350 billion to construct this needed infrastructure.

Telecom coops offer much needed alternative to build out U.S. Internet infrastructure

This Wall Street Journal article explores the Faustian bargain AT&T, America's largest wireline telecom provider, struck with the U.S. Federal Communications Commission to begin winding down its obsolete copper Publicly Switched Telephone Network (PSTN):

Mr. Stephenson himself has made it clear that AT&T would rather just sell off its regulated phone territories the way rival Verizon has done. But those sales haven't worked out swimmingly for the buyers, so now buyers can't be found, and neither would regulators likely bless further sales.  AT&T's plan, then, amounts to a compromise: AT&T will spend several billion dollars making undesirable investments if Washington will relieve it of the unsustainable regulatory burdens associated with the old copper voice network.

This is not an optimal solution for either AT&T's shareholders or for the many Americans who despite AT&T's expansion plans would remain disconnected from the Internet and the Voice Over Internet Protocol (VOIP) service it could provide to replace voice telephone service delivered over the nation's aging copper Publicly Switched Telephone Network (PSTN).  An alternative is clearly needed.

The good news is one exists as does its funding mechanism: cooperatives.  In the 1930s, the U.S. Department of Agriculture's Rural Utilities Service (RUS) made funding available to coops to build the needed infrastructure to deliver electric power and phone service.  The RUS remains in place today.  Given the problems investor-owned telcos like AT&T face deploying needed Internet infrastructure as shown in the WSJ story, the RUS should be given a higher profile and adequately funded to facilitate the much needed telecom coop alternative for the construction and operation of Internet infrastructure.

FCC report finds broadband deployments still too slow | Politics and Law - CNET News

Roughly 19 million Americans still don't have broadband Internet, according to a report released Tuesday by the Federal Communications Commission.

This is the eighth year that the FCC has issued the report, which is a requirement of the 1996 Telecommunications Act. And for the third year in a row, the agency has found that broadband service is not being rolled out in a "reasonable and timely fashion." Still, the report sees an improvement over the year before, when the FCC found that 26 million Americans lacked broadband.

About 14.5 million of the 19 million Americans without broadband live in rural areas, according to the report. The FCC has been working to remedy the issue. Earlier this year, the FCC converted a $4.5 billion fund for rural telephone service into a fund that will subsidize expansion of broadband access.

And this doesn't just apply to rural areas.  There are plenty of people living in metro areas of the U.S. and exurbs lacking fast, dependable wireline Internet connectivity.

After eight years of these reports that basically say the same thing, one might conclude that rural Americans are getting the message that the incumbents aren't going to serve their needs and they'll have to form telecom cooperatives just as their predecessors did several decades ago.  As Christopher Mitchell of the Institute for Local Self Reliance so aptly put it, "Help is NOT on the way."  Not unless you and your neighbors help themselves.

Big Bandwidth Can Unlock a New Competitive Advantage - Blair Levin - Voices - AllThingsD

Big Bandwidth Can Unlock a New Competitive Advantage - Blair Levin - Voices - AllThingsD

I haven't always seen eye to eye with Blair Levin, lead author of the Federal Communications Commission's National Broadband Plan issued in 2010 shortly before he joined the Aspen Institute think tank that year.  However, the above linked opinion article by Levin recently published in All Things D includes a number of statements with which I heartily agree.

First, Levin seems to be abandoning his prior stance that the private sector alone must invest in the massive, multi-billion dollar build of the necessary telecommunications infrastructure America needs to be competitive in an information based economy.  Levin now shares my view that incumbent, investor owned incumbent providers aren't in a position to do so because of their need to pay large dividends in the case of telcos and service high debt loads in the case of cable companies. "When it comes to wireline access to the Internet, instead of discussing upgrades, we are discussing bandwidth caps, tiers and rising prices. Instead of witnessing investment for growth, we are witnessing harvesting for dividends," Levin observes.
 
Levin also appears to have had an epiphany on what premises telecommunications service should be capable of delivering. Two years ago, Levin advocated for the subsidization of infrastructure than could deliver the FCC's minimum throughput standard of 4 Mbs down and 1 Mbs up to nearly all premises by 2020.  Levin now advocates what Andrew Cohill and others have dubbed "big broadband" (I prefer Levin's term, "big bandwidth"), perhaps not surprisingly since Levin also recently founded Gig U, an organization that Levin writes will build "gigabit hubs in nearly a dozen communities across the country, as well as a project to bring a 25X+ upgrade to hundreds of communities in rural America."  As to the latter project, this is the first I've heard of it and will be watching closely since it is these communities and not the university towns prioritized by Gig U that have the greatest need, being effectively disconnected from the Internet and relegated to substandard dialup and satellite connections.

I also found myself in strong agreement with Levin's call for a massive attitudinal shift away from the current mindset of bandwidth poverty fostered by incumbent providers who want to create the impression that more bandwidth cannot be created and therefore must be rationed and assessed a price premium.  Levin instead calls for a  “psychology of bandwidth abundance:” 

This psychology is what has fueled the uniquely American spirit of experimentation and innovation — from the first wave of European immigrants to the post-World War II America that helped rebuild Europe and Asia and created our modern economy and unleashed huge new industries from transportation to telecommunications. Unfortunately, however, the current environment suggests that we aren’t building that foundation. International studies on wireline bandwidth use differ, but all suggest we are mid-tier at best, and declining. 

Lest anyone doubt that the United States stands at a policy crossroads when it comes to upgrading its outdated telecommunications infrastructure, Levin notes that "[f]or the first time since American ingenuity birthed the commercial Internet, we do not have a single national wireline provider with plans to deploy a better network. For most Americans, five years from now, the best network available to them will be the same network they have today."  Levin's absolutely right on this point.

Finally, Levin notes this dismal state of affairs where accessing the Internet in 2017 will for many Americans be much like it was three decades before is not inevitable.  Levin is correct when he suggests that we must find ways to lower the cost of building needed infrastructure rather than shrugging and claiming it is simply out of reach:

We can regain leadership by improving the math for wireline investment through policy choices that have the effect of lowering capital or operating expenses or by raising the potential revenues or competitive threat to incumbents or new entrants. We have done this before. In fact, every new communications network deployment or upgrade has been preceded by a policy change that had one or more of these impacts. 

Community networks should be eligible for CAF subsidies

U.S. Federal Communications Commission (FCC) is about to release details of its Connect America Fund (CAF) that will reform the current Universal Service Fund that subsidizes switched voice service to instead subsidize Internet connectivity in high cost areas.

The FCC faces a significant challenge in how it defines those areas eligible for CAF subsidies given that wireline Internet access is highly granular. Incumbent investor-owned cable and telephone companies parse their service areas very tightly when it comes to determining what is and what isn't a high cost area for providing Internet service. A given home or business may have access while another just down the road or street is deemed too costly to serve and is relegated to dialup or satellite. These premises can't be described as situated in remote, isolated areas since they are almost on top of areas that have wireline Internet access.

Targeting CAF subsidies to the most remote regions of the United States won't help these folks. They comprise many of the 24 million Americans that FCC Chairman Julius Genachowski noted in a February 7, 2011 speech "couldn’t get broadband today even if they wanted it. The infrastructure simply isn’t there." It's there for their neighbors -- but not for them.

Many communities have responded to this widespread problem by building their own fiber to the premises networks to fill in the gaps. These networks must necessarily overlap the footprints of the incumbent's incomplete, Swiss cheese infrastructures since telecommunications infrastructure like other utilities must cover sufficiently large geographical areas in order to be economically viable. The FCC should designate these community networks as eligible for CAF subsidies if they meet certain requirements such as providing voice and 911 emergency service at standards that meet or exceed those placed on existing wireline providers.