IIJA provides NTIA opportunity to route around flawed "broadband map," use infrastructure-based standard for subsidization.

Extending the process to challenge the U.S. Federal Communications Commission’s data on the availability of broadband Internet access service proposed in recently introduced federal legislation won’t ultimately lead to complete and accurate data for the allocation of infrastructure subsidies to the states. The reason as Doug Dawson details in a blog post is the data is based on marketing claims of providers of where they provide service.

ISPs are pretty much free to claim whatever they want. While there has been a lot of work done to challenge the fabric and the location of possible customers – it’s a lot harder to challenge the coverage claims of specific ISPs. A true challenge would require many millions of individual challenges about the broadband that is available at each home.

While that’s consistent with the nation’s current market-based regulatory paradigm for advanced telecommunications, it can’t possibly be complete and accurate. Nor is it intended to be. The purpose of marketing is to create brand awareness and attract potential customers, not for planning the deployment of critical infrastructure.

Fortunately, the Infrastructure Investment and Jobs Act (IIJA) provides a workaround to the fool’s errand of “broadband mapping” based on marketing claims. It does so with a flexible definition of “broadband” that would allow it to be defined in administrative versus statutory law. Section 60102(a)(2)(B) of the IIJA defines it by reference to 47 Code of Federal Regulations 8.1(b):

Broadband internet access service is a mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up internet access service. This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence or that is used to evade the protections set forth in this part.

or any successor regulation. (Emphasis added)

Although the context clearly refers to the FCC, there is nothing in the statutory language that limits the promulgation of a successor regulation to the FCC. The National Telecommunications and Information Administration (NTIA), which has prioritized fiber to the premises (FTTP) delivery infrastructure for subsidization in its Broadband Equity, Access and Deployment (BEAD) program, could promulgate its own regulation citing this authority in the IIJA. 

Such a rulemaking could use a fiber infrastructure-based subsidization eligibility standard, consistent with the IIJA’s intent to modernize and expand critical infrastructure in the 21st century. That could include a different challenge process based on the rebuttable presumption that FTTP doesn’t exist -- very likely in what the IIJA identifies as subsidy eligible areas with poor existing service. Those that would challenge FTTP subsidies would be required to show that it does and passes all addresses in their service areas with an exception for extremely remote locations. 

As Dawson writes, "Grant funding could have been done in other ways that didn’t rely on the maps. I don’t think it’s going to make much difference if we delay six months, a year, or four years – the maps are going to remain consistently inconsistent." 

Investor-owned providers make FTTP “land grab.”

Just a few years ago, it would have been hard to imagine investor owned legacy telephone and cable companies would consider a major push into fiber to the premise (FTTP) due to their extractive business model constraints averse to major capital expenditures. That tends to favor fiber builds in high end condominiums and select “fiberhoods” as a luxury amenity.

A recent roundup in Broadband Communities paints a picture of regime change in what an economist quoted in the article calls a fiber “land grab” even in historically less densely developed areas where ROI was too far out to justify investment in FTTP. Cable providers are abandoning coaxial cable and migrating to FTTP. Overbuilding incumbents with fiber – also previously unheard of – is occurring. The overall impression from the article is FTTP is busting out everywhere, albeit a generation late relative to the demand for Internet-based services. (Separately, even private equity -- impatient capital hardly a source for long term capital investment - is getting in on the fiber real estate rush, looking for a future profitable flip.)

What’s driving the change? A couple of likely factors. There’s first mover advantage: whichever provider gets fiber to the prem first gets a very sticky customer thanks to the terminating monopoly characteristic of these connections. It’s not as though they have multiple fiber connections and can chose among them. Nor is it economically feasible to provide them. Legacy providers may also be lengthening their investment timescale away from the traditional internal ROI standard in order to gain first mover advantage, knowing they’ll own the customer over the long term and the opportunity to sell services to them.

Second, to foster an impression of progress and momentum after years of minimal investment in FTTP fueling public policy discussion of the nation’s advanced telecommunications infrastructure deficiencies displayed in stark relief during the public health restrictions of the 2020 pandemic outbreak. Investor-owned providers probably know that they don’t appear to be making rapid progress to remedy them, support for public and consumer utility coop owned FTTP and appropriations to help fund them will grow despite plying elected officials with campaign contributions. That could also spark proposals to regulate commercial internet delivered services as common carrier public utilities. That would bring with it requirements to honor customer requests for FTTP connections and state rate regulation that are anathema to investor-owned providers.

“Business model agnostic” rating urged by legacy incumbent telco for BEAD subgrants

Investor-owned providers, anxious public policymakers might adopt a fiber to the premises (FTTP) infrastructure standard for advanced telecommunications infrastructure that would complicate their business models, for years urged public policymakers to instead embrace a “technology neutral” standard.

Policymakers at the state level who will distribute $42.5 billion in federal grant subsidies appropriated under the Infrastructure Investment and Jobs Act (IIJA) are now hearing a similar sounding plea – this time aimed at dissuading them from favoring publicly owned FTTP once the federal dollars arrive. Lumen Technologies is urging Oregon to adopt a “Business Model Agnostic” standard when evaluating subcontract awards to connect premises where the vast majority – 80 percent – are not offered throughput meeting what the Federal Communications Commission in 2015 deemed “broadband” or those deemed “underserved” and not offered throughput of at least 100Mbps for downloads and 20Mbps uploads.

In a PowerPoint presentation at the March 30 meeting of Oregon’s Broadband Advisory Council, Lumen cited an open access fiber build by the Kitsap County (Washington) Public Utility District as an example of the risk of not being business model agnostic that shows higher monthly and service drop fees than Lumen charges for its vertically integrated (connection and services) “Quantum” branded FTTP. Jim Farr, manager of Lumen’s Mass Markets Grant Team, also urged Oregon officials to score subgrant applications to favor those having low per premise passed cost to maximize the number of premises connected, which would likely leave less densely developed neighborhoods unconnected.

Lumen’s motivation is clearly to own the customer. Whoever owns the delivery infrastructure owns the customer in a natural monopoly market that characterizes utilities. The problem with that is it turns access to advanced telecommunications into a market commodity, with FTTP regarded as a premium product offering in highly segmented markets where there are sufficient premises and households most likely to generate the fastest return on investment and highest revenues.

That’s contrary to current federal policy expressed by the Biden administration to connect all Americans, highlighted this week by Commerce Secretary Gina Raimondo at an interview with Yahoo Finance. "The reality is, 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,” Raimondo said.

There is another way to get there besides regarding advanced telecommunications as a binary choice between public and private capital. But in order to do so, U.S. telecom policy will have to shift away from the dominant private sector “own the customer” business model in which it has been mired for decades and is the major impediment to near universal access to affordable FTTP connectivity.

That means public (or consumer cooperative) ownership of the infrastructure and various levels of involvement of private capital to design, build, operate and deliver services over it. This eliminates the winner take all dynamic in which investor-owned providers must ensure their shareholders come out as winners. Consequently, the public has been losing for decades as shown by continuing issues with access and affordability. That calls for a more comprehensive, holistic policy instead of doling out one off grants as consolation prizes to the public when the public interest inevitably comes in second place.

Private activity bonds could fund regional open access fiber networks

Nearly all U.S. airports are owned by state or local governments, mandated by the federal government to be as self-sustaining as possible, and thus receive little or no direct taxpayer support, according to the Airports Council International-North America (ACI-NA), an industry association representing local, regional and state governing bodies that own and operate commercial airports in the United States and Canada.

Over the past decade, according to the ACA-NA website, about 60 percent of bonds issued to finance airport capital projects were issued as private activity bonds, a type of municipal bond that is issued to finance a facility that serves a public purpose for the benefit of a private user – in this case airline companies. “Private activity bonds used for airport construction and renovation—are the most cost-efficient form of infrastructure financing available today,” the ACA-NA states.

Section 80401 of the Infrastructure Investment and Jobs Act (IIJA) amended Section 142(a) of the Internal Revenue Code of 1986 to specifically include advanced telecommunications infrastructure as an eligible use of private activity bond proceeds. Specifically, for “qualified broadband projects.”

On its face, the eligibility definition is more generous than the IIJA’s Broadband Equity, Access and Deployment (BEAD) program providing grant funding of up to 75 percent of infrastructure deployment costs. Basic BEAD eligibility is limited to builds where at least 80 percent of serviceable addresses lack access to infrastructure providing throughput of at least 20Mbps for downloads and 3Mbps for uploads with latency below 100ms. There is no definition of the minimum number of addresses that must be included. Projects could be as small as a handful of addresses or even a single address.

Eligibility for private activity bond funding is available for projects in one or more census block groups in which more than 50 percent of residential households do not have access to fixed, terrestrial broadband service which delivers at least 25Mbps downstream and at least 3Mbps upstream. Funded projects must provide access with at least 100Mbps for downloads and 20Mbps megabits for second for uploads.

That appears looser than the basic BEAD “unserved” eligibility standard of at least 80 percent of serviceable addresses unserved. But then it gets tighter with an additional qualification, unfortunately creating ambiguity. Private activity bond funding is available “only if at least 90 percent of the locations provided such access under the project are locations where, before the project, a broadband service provider— (i) did not provide service, or (ii) did not provide service meeting the minimum speed requirements.”

In another unfavorable provision, the IIJA amendment to the Internal Revenue Code opens this financing mechanism to potential incumbent gaming and stalling, further requiring existing providers be notified of a planned project and its intended scope and given at least 90 days to provide information on their ability to deploy, manage, and maintain a network capable of providing access at gigabit speeds – essentially fiber to the premises (FTTP).

The aeronautical analogy easily translates to publicly owned regional open access fiber network such as the Utah Telecommunication Open Infrastructure Agency (UTOPIA). Kimberly McKinley, UTOPIA’s chief marketing officer, described its partnership with an open access FTTP network rolling out in Bozeman, Montana as similar to city or state construction financing for airports, according to a recent article in the Bozeman Daily Chronicle.

UTOPIA is also partnering with the Golden State Connect Authority, a joint powers authority of 40 less densely developed California counties to build publicly owned open access FTTP. Its chair, Calaveras County Supervisor Jack Garamendi, compared it to a regional airport authority in a 2022 interview with the Electronic Frontier Foundation.

1996 Telecom Act, IIJA reflect America’s slow transformation and progress toward digital socio-economy

The United States innovated most of the information and communication technologies (ICT) that over the past 40 years that are transforming an analog socio-economy into a digital one. But the nation has lagged in the transition. Much of its existing telecommunications infrastructure is designed for an analog 20th century world of voice telephone service over twisted pair copper and premium television channels over coaxial cable.

America’s slow modernization of its legacy copper telephone system to fiber reflects the prolonged transition from an analog-based socio economy to a digital one in the 21st century. Related to this is that many Americans do not utilize ICT to allow their “full participation in the society and economy of the United States” according the Infrastructure Investment and Jobs Act (IIJA) of 2021.

At the close of the 20th century, the Telecommunications Act of 1996 foresaw the digitization of the telecommunications as the mass market Internet was taking off and some regional telephone companies filed plans with state regulators to offer two way video over fiber. But because the Internet as a means of communication was new, its drafters believed market competition would bring about reliable and affordable Internet connectivity as well as Internet-enabled devices and applications and online content.

The market competition will float all boats theory failed to reflect reality relative to Internet connectivity. A quarter century after the law was enacted, millions of Americans lack reliable and affordable connectivity, creating a “digital inclusion” challenge as it is described in the IIJA. Instead, market forces led to market segmentation, leaving lots of locations unconnected. The reason is making those connections isn’t that different from other utilities. Like voice telephone service, those copper cables that delivered it every home and business voice telephone service function as a natural terminating monopoly that doesn’t operate as a competitive market due to high cost barriers to competitor entry and first mover advantage.

That fundamental flaw in the 1996 Telecom Act left the nation further behind than where it should be for deployment of robust digital infrastructure with the old analog copper twisted pair telephone connections replaced with fiber reaching most every doorstep by 2010 at the latest. Over the interim, substandard and less reliable substitutes were employed such as Digital Subscriber Line (DSL) over copper and fixed and mobile wireless and satellite technology.

The IIJA while nominally an infrastructure measure that allocates federal dollars to states to build out advanced telecommunications infrastructure, like the 1996 Telecom Act, it doesn’t affirmatively  specify fiber to the premises (FTTP) infrastructure. However, the National Telecommunications and Information Administration (NTIA), charged with administrating the federal funds to the states, states a clear preference for FTTP. In that regard, public policy is slowly advancing into the digital age.

States face major challenge to develop plans for universal FTTP access

Given America’s highly fragmented, piecemeal deployment of fiber to the premises (FTTP) over the past few decades that continues in the current one, states are confronting a significant challenge to develop plans to ensure it reaches most every doorstep.

Last year, all states and territories received planning grants under the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program – part of the Infrastructure Investment and Jobs Act (IIJA).

That funding requires states to develop Five-Year Action Plans in 2023 that will inform their requests for $42.5 billion in grants to subsidize advanced telecommunications infrastructure, with priority afforded to FTTP. The plans must include “a comprehensive, high-level plan for providing reliable, affordable, high-speed internet service throughout the (state) including the estimated timeline and cost for universal service.” 

This comes amid a rapid increase in FTTP deployment that some have likened to a land grab in order to obtain first mover market advantage. Conditions are ripe. FTTP is a virtually unregulated natural monopoly with strong demand, present and future. That makes it attractive to investor-owned companies where those factors combined with sufficiently high development density and household incomes support the business case. Private equity has even gotten in on gold rush, hoping to flip fiber assets in the future to large providers looking to expand their footprints without investing their own capital by rolling up smaller players.

Local governments that have for years heard complaints from residents and businesses about poor Internet access that grew louder during the public health restrictions of the pandemic that turned homes into places to work and study are handing over their federal pandemic relief dollars to incumbent providers to build FTTP.

Some local governments are building their own. Others have banded together to form regional telecommunications authorities to deploy FTTP where the business case is weak for investor owned providers. In rural areas, electric utility cooperatives are getting into the telecommunications business with FTTP.

Since the U.S. regards Internet protocol (IP) telecommunications as an information service and not a utility (that could change in California under proposed legislation), none of these providers are required to extend FTTP to any home or business that requests service. The result is disparate deployment in discrete areas, leaving a lot of holes in the FTTP Swiss cheese.

Consequently, states face significant challenges to attain a goal of universal FTTP access and developing a meaningful plan that closes the gaps with insufficient market or regulatory incentive for the various aforementioned providers to fill them amid a tight labor market for FTTP technicians and installers.

The $42.5 billion in grants to subsidize advanced telecommunications infrastructure appropriated in the IIJA is intended to help achieve that under the NTIA’s Internet for All initiative, allowing states to contract with providers to build infrastructure and cover up to 75 percent of the capital cost of deployment.

However, as currently structured under the IIJA, those subsidies aren’t targeted to underwriting FTTP. Much of it could end up being requested by cable companies to incrementally edge out their existing coax footprints since the NTIA rules on BEAD funding allow awards for projects of a small number of serviceable addresses and even a single address. Moreover, the NTIA’s BEAD eligibility requirements bar subsidization where a mobile wireless provider using licensed spectrum also advertises fixed premise service meeting minimum throughput standards.

U.S. telecom infrastructure crisis natural outcome of nation’s failure to address foundational questions

America’s advanced telecom policy failure stems from the failure to address two fundamental questions:

1/ How much would it accurately cost to bring fiber to most every American doorstep?

2/ What are the optimal roles of the public and private sectors in financing, building and operating this critical infrastructure -- and constructing it in the most expeditious manner given only about one third of homes have fiber connections?

The failure to honestly ask and answer these questions and make clear policy choices based on the answers has led to the default market-based, incremental, ad hoc and highly granular efforts dating to the mid-1990s. That has led to using throughput as a metric of progress vs. replacing legacy metallic telephone and cable delivery infrastructure with fiber to the premise (FTTP) and what scholars like Christopher Ali describe as “The Politics of Good Enough” and barely adequate infrastructure prone to near term obsolescence. While Ali frames his argument in binary terms of urban vs. rural infrastructure similar to the deployment of electric power distribution infrastructure in the early 20th century, it extends to other geographic settlement areas due to highly granular, incremental market driven deployment based on household density and demographics and other factors.

The failure to address these overarching questions and make solid policy decisions has in its place produced sloganeering like “Internet for All” -- meaningless and merely aspirational without a realistic plan to get the nation there -- and getting lost in the weeds.

A glaring example is “broadband mapping” and the controversy surrounding the FCC’s related efforts that will determine the allocation of advanced telecommunications infrastructure subsidies appropriated in the Infrastructure Investment and Jobs Act of 2021. “Broadband mapping” encapsulates the previously mentioned flawed policy of defining progress based on throughput vs. infrastructure modernization. Even more fundamentally, the failure to determine the optimal roles of the public and private sectors, with mapping as protectionist response by investor-owned providers seeking to protect their interests in the meantime.

Third front opens in advanced telecommunications infrastructure subsidy wars

A third battlefront is opening between shareholders of big telephone and cable companies and the broader public interest over rules governing federal and state subsidies to boost access to affordable and reliable advanced telecommunications. It’s over so-called “technological neutrality” and specifically fiber to the premise (FTTP) versus wireless distribution infrastructure.

The other two likely points of contention are over the accuracy of the Federal Communications Commission’s forthcoming “broadband maps” to determine how much funding states will receive through the federal Infrastructure Bill’s Broadband Equity, Access, and Deployment (BEAD) Program (several states lack confidence in any federal maps, preferring their own maps that could them at odds with the federal government) and whether proposed BEAD infrastructure projects proposed by public and nonprofit fiber to the premise (FTTP) providers include sufficient “unserved” addresses not advertised reliable service with throughput of at least 20 Mbps down and 3 Mbps up.

The big investor owned, vertically integrated providers want the subsidies to go toward any technology that’s capable of meeting minimum throughput (100/20) and reliability. But at least some policymakers argue the best use of public dollars is to invest them in more durable FTTP infrastructure given its 30-50 year or longer lifespan and headroom to accommodate the well-established trend of increasingly bandwidth hungry end user device applications. They include the National Telecommunications and Information Administration, the federal agency administering the BEAD state grant funds and the California Public Utilities Commission (CPUC) at the state level.

On April 21, 2022, the CPUC issued a final decision adopting staff proposed rules for its Federal Funding (capital subsidy) Account (FFA) based on the grant rules promulgated by the U.S. Treasury Department for State and Local Government Capital Projects Fund contained in the American Rescue Plan Act (ARPA). For advanced telecommunications infrastructure, those rules limit funding eligibility to “reliable wireline broadband infrastructure.”

Similarly, the CPUC FFA decision favors FTTP, noting “fiber optic infrastructure is scalable and enables the next generation of application solutions for all communities.” That displeases large incumbent providers that regard fixed wireless as a “firewall” to protect their nominal service territories from government owned and nonprofit providers that would use the federal subsidies for their own fiber builds, according to Steve Blum of Tellus Venture Associates, a consultant to California cities and counties.

Large incumbents including AT&T, Consolidated Communications, Frontier and trade associations CTIA and US Telecom - the Broadband Association are backing an urgency measure pending in the California Legislature to counter the CPUC decision, expressly authorizing wireless internet service providers to receive CPUC infrastructure subsidy funding. It's opposed by an association of 39 California counties and the Electronic Frontier Foundation.

Current California law, Public Utilities Code Section 281(f)(1) requires the CPUC award infrastructure subsidies on a “technology-neutral basis, taking into account the useful economic life of capital investments, and including both wireline and wireless technology.” The CPUC FFA decision incentivizes fiber given its longer lifespan compared to fixed wireless infrastructure. “Our determination of what wireline technologies offer reliable service is consistent with the Final (U.S. Treasury Capital Projects) Rule, which found that these legacy technologies typically lag on speeds, latency, and other factors, as compared to more modern technologies like fiber," the CPUC decision states.

U.S. telecom subsidy policy reliant on one off grants for "broadband" bandwidth without universal service mandate

Baltimore Eyes Federal Funds for Municipal Broadband - Bloomberg:

For decades, the phone carriers and cable companies have collected billions in fees and federal funds aimed at subsidizing service to underserved areas like Johnston Square. And yet, the mission has fallen short of the goals, said Ali.“Will we be seeing the largest incumbents swoop down on state broadband offices and simply gobble up the money?” Ali said. “This is the one big shot. We cannot let history repeat itself. Otherwise we’re going to need another $65 billion in 10 years.

That would be Christopher Ali, associate professor of media studies at the University of Virginia. Ali adroitly points up a major flaw in U.S. telecommunications policy of heavily relying on one off grants to subsidize "broadband" bandwidth instead of a coordinated, unified subsidy program combined with a universal service mandate as with voice telephone service. Updated to specify a fiber to the premises (FTTP) infrastructure standard.

NTIA chief's comments on subsidizing non-fiber telecom infrastructure as "escape hatch" raises questions

Do the BEAD rules mean satellite and other non-fiber services won’t be eligible for funding?

Again, no. It’s true the NTIA in its BEAD rules said it will count areas covered only by satellite broadband or service based on unlicensed spectrum as unserved and also expressed a preference for fiber. However, Davidson said he expects satellite and other non-fiber technologies will receive plenty of funding.

“This is an infrastructure project that’s designed to last for years. And we do put our thumb on the scale on the most resilient, future-proof technologies that we can,” he said. But NTIA knows “there has to be an escape valve for states. And for the really high-cost areas we fully expect that there will be states who have significant portions of other technologies.”

Source: NTIA chief answers 5 burning broadband funding questions

Alan Davidson, the NTIA administrator, didn't elaborate in this piece as to what those other non-fiber to the premise (FTTP) technologies will be. States can authorize Broadband Equity, Access, and Deployment (BEAD) Program grant funding for up to 75 percent of project costs in high cost areas, with the 25 percent match waivable. These are defined in the rules as areas with higher than average construction costs for projects where at least 80 percent of homes and businesses cannot order service with minimum throughput of 25Mbps down and 3Mbps up.

Davidson is quoted as specifying satellite as one of the fiber alternatives. But satellite has been around for years in these areas, calling into question why it would need subsidization to expand it. Moreover, it's a substandard, costly option that no one really wants to rely upon for connectivity. Satellite is also omitted from the BEAD rules as a form of reliable service where it is the only service option.

The other possible technology is fixed terrestrial wireless. The BEAD rules implicitly allow funding of fixed wireless using licensed spectrum or a mix of licensed and unlicensed spectrum as they recognize it as "reliable" service. As with satellite, fixed wireless has been around for many years in areas of the nation as a stopgap until FTTP can be deployed, calling into question the need to subsidize its expansion. It's best suited to areas of the nation with relatively flat terrain and modest tree growth since it utilizes frequencies that require a clear line of sight to end users -- areas because of these attributes are also likely to be less costly to build FTTP.

PG&E undergrounding project could potentially benefit with co-location of distribution fiber conduit

Planting wires underground is one of the most expensive wildfire-risk strategies any utility can undertake — and it remains to be seen if the $25 billion estimate is high enough to cover the entire 10,000 miles that are to be placed underground in the areas deemed at most risk to wildfire across PG&E’s territory. The price tag is based on PG&E’s belief that it can do the job for $2.5 million per mile. Yet PG&E plans to spend $3.75 million per mile this year, when it expects to complete 175 miles of work. And in a white paper published four years ago, PG&E said underground work costs $3 million per mile.

Nonetheless, Chief Executive Patti Poppe said she’s confident that as the project ramps up, economies of scale and new technologies will bring costs into line. The utility expects to be planting 1,200 miles a year underground by 2026. “We can dramatically reduce our costs every year,” she said on a conference call with Wall Street investment analysts. “With scale, we can improve the unit costs.” 

CA utility PG&E says underground wire project will cost $25B | The Sacramento Bee

PG&E could potentially gain additional economies of scale by partnering with local governments, utility districts and consumer utility cooperatives to co-locate fiber conduit as it buries its electric lines. PG&E is prioritizing areas of its mostly Northern California service territory where wildfire risk is the highest. 

These areas also have major telecommunications infrastructure deficiencies. Residents and businesses would doubly benefit from both reduced risk of wildfires sparked by overhead electrical distribution lines as well as access to fiber delivered advanced telecom services.

Such a partnership would also potentially benefit PG&E by speeding up its burial of electric distribution lines, demonstrating good faith effort to regulators. The partners could also potentially tap into funding in the recently enacted federal Infrastructure Investment and Jobs Act that appropriates funds for electrical infrastructure improvements as well as advanced telecommunications infrastructure.

America mired in telecom infrastructure incrementalism due to misaligned incentives, lack of commitment and lowered expectations

Three decades into the 21st century and a digital socio-economy, the United States remains unlikely to timely modernize its legacy copper telephone lines that reach nearly every American doorstep to fiber to the premises (FTTP). Instead of world class advanced telecommunications infrastructure, the nation is mired in incrementalism amid a patchwork of isolated pockets of fiber connecting only a third of all U.S homes. The nation will likely remain that way for the foreseeable barring a major change in public policy.

These are the root causes:

1. The issue is defined by its primary symptom – insufficient “broadband” bandwidth – instead of the lack of FTTP infrastructure that constrains bandwidth.
   
   
2. Overreliance on vertically integrated, investor-owned providers lacking both incentive and adequate resources to build out FTTP. They lack incentive because there is no regulatory requirement like that for legacy voice telephone service to provide service to customers requesting it. Internet protocol-based telecommunications are not regulated as a common carrier utility but rather an elective information service like a cable TV package. They lack capital expansion funds because their shareholders are averse to spending them and expect an ongoing stream of high earnings and dividends. They also lack the ability to finance new infrastructure due to balance sheets already overburdened with debt.
   
   
3. Localities have incentive to build fiber to serve their residents and promote economic development. But they lack resources to do so and the ability to raise tax dollars to finance its construction due to tax resistance/exhaustion. Consequently, some planning is done but most don’t proceed or are undertaken as limited scope "pilot projects." Federal and state governments reinforce limited local infrastructure by awarding grants for builds in "unserved" and "underserved" areas as determined by advertised throughput claims of commercial providers. (See #1).
   
   
4. Finally, lowered expectations of progress, even on the part of those who advocate for it. The fatalistic thinking is significant progress on infrastructure cannot be had because large vertically integrated telephone and cable companies determine telecom policy and favor a conservative approach due to #2. Progressives settle for limited local builds as small victories, further locking in incrementalism.

Biden administration, Congress have more to do on advanced telecom infrastructure in 2022

The Biden administration and Congress should enact legislation in 2022 that specifically focuses on advanced telecommunications infrastructure (ATI) and targets sufficient funding to federal and state agencies with the goal of rapidly modernizing legacy telephone copper that reaches nearly every American doorstep to fiber.

The ATI components of Infrastructure Investment and Jobs Act (IIJA) enacted in November won’t achieve that. There isn’t enough funding to do the job. In California, for example, Sen. Alex Padilla estimates the IIJA would bring only $1 billion to the nation’s largest state for ATI. Much more – probably four times the total $45 billion appropriated – is needed for the nation as a whole.

In addition, the IIJA fails to specify an infrastructure-based standard for ATI which might be reasonably expected in an infrastructure measure. Instead, it sets a throughput-based service level standard that will create controversy and delay over how grant money the bill appropriates to the states is to be spent. That service level standard will leave many American homes with substandard infrastructure and render them ineligible for fiber projects able meet their future needs and to obtain maximum long-term value for taxpayer dollars. Cable TV and wireless internet service providers have provided a partial and temporary solution to fill fiber gaps -- but are just that.

The 2022 legislation should establish and fund federal-state regional ATI projects. These large scale government owned networks can bring the necessary purchasing power and economies of scale to speed construction of fiber ATI amid labor and material supply chain constraints. Only about one third of all American homes have access to fiber connections that should have reached all but the most remote by 2010.

These projects should build open access fiber networks and give large telephone companies that know how to design, build and operate fiber networks at scale opportunity to competitively bid for contracts to do the work. Government ownership of the networks avoids the inherent conflict of interest in directly funding these investor-owned firms that must place the interests of their shareholders ahead of the broader public’s when it comes to spending public dollars.

These companies and their employees would additionally benefit if the 2022 legislation established a national fiber corps and training programs to form a workforce to bolster the ranks of experienced technicians that have been depleted over the past two decades.

The bill should also contain elements to ensure rapid coordination of permitting needed across federal, state and local jurisdictions. As it stands now, multiple permits are required to construct ATI that can snarl and delay projects for years. The IIJA establishes an Interagency Infrastructure Permitting Improvement Center to implement reforms to improve interagency coordination and expedite projects relating to the permitting and environmental review of major transportation infrastructure projects. The 2022 legislation should expand its scope to include federal-state ATI projects.

IIJA challenge process sets stage for battles between WISPs and telcos

The advanced telecommunications infrastructure (ATI) component of the Infrastructure Investment and Jobs Act (IIJA) allows for challenges of proposed projects that request states award 75 percent grant subsidies appropriated for ATI in the bill. Challengers can claim a proposed project does not meet the funding eligibility standard of at least 80 percent of premises within the project scope as being “unserved." That's defined as being unable to obtain reliable service with a minimum throughput of 25 Mbps/3Mbps with latency sufficient to support real-time, interactive applications. The statute authorizes states to adjudicate challenges. The National Telecommunications and Information Administration can reverse state determinations and modify the challenge process.

The challenge process sets the stage for battles between fixed Wireless Internet Service Providers (WISPs) and telephone companies once the funding becomes available next year. Verizon, AT&T are looking at C-band spectrum as a cheaper alternative to building fiber to the home. Should these telcos seek IIJA grant subsidies to expand their fixed premise wireless presence using C-band spectrum as AT&T CEO John Stankey suggested this week, WISPs could conceivably contest proposed projects as ineligible because WISPs already offer service meeting the minimum throughput standard. WISPs could use the same rationale to challenge proposed telco fiber to the premise (FTTP) builds using IIJA subsidy funds. Either way, FTTP deployment – already decades behind where it should be in terms of modernizing legacy copper telephone lines and building capacity for future bandwidth demand – would be further delayed.

WISPs are likely to view both IIJA subsidized telco expansion scenarios as an existential threat to their business model. Telcos could easily undercut their relatively high monthly rates for fixed prem wireless service. Telcos also benefit from greater economies of scale and lower costs since they could deploy their own fiber backhaul circuits. And telco owned FTTP would decimate WISPs since most customers would quickly switch to telco fiber once it became available and at lower monthly rates than WISP service. 

The forthcoming fixed wireless fights -- and most importantly the prolonged delay of modernizing copper to fiber -- could be avoided if the IIJA was revised to establish an FTTP infrastructure subsidy eligibility standard rather than the throughput-based standard in the bill as enacted.

Cable giants, electric co-ops battle over federal broadband dollars - Mississippi Today

But Mayo Flynt, president of AT&T Mississippi, told lawmakers: “We do think this is a job for the private sector and not the government sector to do … Scale is your friend, you’re going to get more return for your dollar, and this is a scale business … We believe that a competitive process or (requests for proposals) is going to help you get the best bang for your buck. Competition is a good thing. We are in the game and are competing.”

In 2019, the Mississippi Legislature passed a law allowing electric cooperatives to provide internet service — an effort to expand broadband access in a poor, rural state where an estimated 40% of the state lacked access. The effort has been likened to providing electricity to rural Mississippi in the 1930s. Proponents said large cable and telecom companies were failing to expand service into rural areas because it wasn’t profitable enough. But cable and telecom providers say they have spent millions in private funds expanding internet service in Mississippi, and that they shouldn’t be cut out of government funding for expansion.

 Source: Cable giants, Mississippi electric cooperatives battle over federal broadband dollars 

AT&T's Flynt is right. Telecommunications infrastructure like most infrastructure due to the high cost of constructing and maintaining it benefits from economies of scale. But that's not an argument against public ownership for which the American Rescue Plan Act targets funding. Rather, it helps make the case that the federal and state government should take a regional approach to ensuring fiber optic connections reach every home, school and small business to attain optimal economies of scale and purchasing power. Especially given constraints in the supply of materials and labor that can add further delay to badly overdue deployments.

There are roles for legacy telephone and cable companies in this important task. They have experience and expertise in designing, building, operating and maintaining telecommunications infrastructure. Since their business model constraints do not allow them to provide universal fiber to the premises service and instead build in areas where they can garner the most rapid return on investment, these functions rather than vertically integrated ownership of infrastructure and services is the best public policy here. These players can get some of the federal dollars but should do so as contractors on regional open access FTTP projects undertaken by the public sector and consumer utility cooperatives.

Telcos, Comcast target fiber upgrades to business customers -- not residences

Two legacy telephone companies and the nation's biggest cable TV company are upgrading their legacy metallic delivery infrastructures to fiber for business customers. Not targeted for the upgrades are residential users.

Residential voice telephone service was cross subsidized by business customers. There isn't a similar situation when it comes to advanced digital telecommunications. That's because under current U.S. regulatory policy, it's classified like the information services of the 1990s dialup era, AmericaOnline and CompuServe, and not as telecommunications services. 

Information services -- regulated under Title I of the Communications Act of 1934 -- are considered optional, discretionary services and not utilities. Hence, they are not subject to universal service and anti-redlining requirements, providing no regulatory incentive for telcos and cablecos to offer fiber connections to residences.

Treasury Department guidance on American Rescue Plan Act funding for state and local government fiber projects raises questions on throughput standard

The U.S. Treasury Department has updated guidance on the use of $10 billion in American Rescue Plan Act grant funding to state, local and tribal governments for capital projects to construct advanced telecom infrastructure. The text below is excepted from the guidance:

Broadband Infrastructure Projects. The construction and deployment of broadband infrastructure projects (“Broadband Infrastructure Projects”) are eligible for funding under the Capital Projects Fund program if the infrastructure is designed to deliver, upon project completion, service that reliably meets or exceeds symmetrical download and upload speeds of 100 Mbps. If it would be impracticable, because of geography, topography, or excessive cost, for a Broadband Infrastructure Project to be designed to deliver services at such a speed, the Project must be designed so that it reliably meets or exceeds 100 Mbps download speeds and between 20 Mbps and 100 Mbps upload speeds and be scalable to a minimum of 100 Mbps symmetrical for download and upload speeds. Treasury encourages Recipients to focus on projects that will achieve last-mile connections. Recipients considering funding middle-mile projects are encouraged to have commitments in place to support new and/or improved last-mile service.

This guidance favors fiber to the premises projects providing symmetrical throughput, something fiber can easily support. What's curious is the highlighted text. It begs the question of how "geography, topography, or excessive cost" (and what would be excessive?) would allow projects providing asymmetric throughput to qualify if those specific qualifications are met. It makes no sense because none of those factors would reasonably affect whether the delivered throughput is symmetric or asymmetric for a fiber to the premises project. Treasury clearly has some more explaining to do.

Federally backed credit facilities needed to fund fiber expansion

The Infrastructure Investment and Jobs Act passed by the Senate provides a strong infusion of grant funding for fiber advanced telecommunications infrastructure builds. Particularly for public and consumer cooperative owned fiber distribution infrastructure connecting homes, businesses and institutions. As President Biden suggested when he put forth his outline for the bill as the American Jobs Plan, building this critical infrastructure to reach all premises is more likely to occur when funding prioritizes networks owned, operated by, or affiliated with local governments, non-profits, and co-operatives. Providers Biden noted, with “less pressure to turn profits and with a commitment to serving entire communities.” With that reduced financial burden and tax-exempt status, these entities can make funding go further than legacy telephone and cable companies.

Grant funding under the bill is a kick starter. More money will be needed given the high capital as well as operating costs involved. That’s where federal government-backed credit facilities could prove most useful while at the same time encouraging the use of fiber. It’s “future proof” technology as called for in the American Jobs Plan and has a life span of decades, corresponding to long term loan payback periods. The use of credit facilities is also more likely to appeal to fiscal conservatives than grant funding.

The Infrastructure Investment and Jobs Act would give tax exempt status to state issued bonds used for telecom infrastructure. But the bill language limits their use to areas where more than half of addresses that would be served in a census block group lack access to throughput that later generation DSL or fixed terrestrial wireless can provide. That’s not fiber, potentially leaving some premises with outdated, inadequate and poor value options.

Separate legislation pending in the House but thus far not advancing, H.R. 7302, would provide for low cost loan term loan guarantees and lines of credit for advanced telecommunications infrastructure administered by the federal Department of Commerce. Long term loans could cover up to 49 percent of capital costs and lines of credit up to 33 percent. The Department of Commerce would select eligible projects in areas lacking access download speed of at least 100 megabits per second and upload speed of at least 20 megabits per second and with latency that is sufficiently low to allow real-time, interactive applications. That could potentially rule out areas served by existing cable TV providers. While open access networks are specifically preferred under the bill language, fiber is not per a “technology neutrality” provision.

Explicit fiber to the prem FTTP telecom infrastructure standard absent in infrastructure measure. But it contains language favoring it.

The Infrastructure Investment and Jobs Act passed out of the Senate this week falls short of the Biden administration’s “build back better” pledge by failing to establish an explicit fiber to the premises FTTP advanced telecommunications infrastructure standard to replace outmoded 20th century copper telephone lines.

Instead, the bill establishes a throughput-based service level standard inconsistent with the administration’s goal of building “future proof” telecom infrastructure. It’s a much-needed objective. The past four decades have shown that throughput-based standards tend to become quickly outdated as end user bandwidth demand inexorably grows. Only fiber infrastructure has the headroom to accommodate that demand well into the future.

However, language in the legislation indirectly favors fiber. It requires the National Telecommunications and Information Administration prioritize infrastructure funded by $42 billion of grants to states to “ensure that the network built by the project can easily scale speeds over time to meet the evolving connectivity needs of households and businesses.” Not a direct fiber infrastructure specification. But a good operational definition that could influence the NTIA to promulgate rules on funding eligibility and awards that favor a de facto fiber standard.

Additionally, the measure defines a “reliable” service standard that fits well with fiber. It’s “service that meets performance criteria for service availability, adaptability to changing end-user requirements, length of serviceable life, or other criteria, other than upload and download speeds, as determined by the NTIA in coordination with the Federal Communications Commission. (Emphasis added) It would also require the NTIA to develop and incorporate best practices “for ensuring reliability and resilience” of the infrastructure funded by the measure.

California unlikely to subsidize community fiber Internet infrastructure over near term

The California Public Utilities Commission’s (CPUC) construction subsidy fund for Internet infrastructure won’t likely help offset the cost of building community owned fiber to the premise networks.

The CPUC’s California Advanced Services Fund (CASF) limits grant and loan subsidies to infrastructure projects that would serve either an “unserved area,” defined in CPUC Decision 12-02-015 as not served by any form of wireline or wireless facilities-based broadband such that Internet connectivity is available only through dial-up service or an “underserved” area defined as an “where broadband is available, but no facilities-based provider offers service meeting the benchmark speeds of at least three megabits per second (mbps) download and at least one mbps upload.” The CPUC retroactively revised the definition in 2012 resolutions T-17362 and T-17369 as areas “where broadband is available, but no wireline or wireless facilities-based provider offers service at advertised speeds of at least 6 mbps download and 1.5 mbps upload.”

Under either definition, both fixed and mobile wireless providers could block CASF funding of a community fiber project. And under the definition adopted in the 2012 resolutions, they wouldn’t even have to actually provide service to an area. They could merely claim they advertised service there at the specified 6/1.5 Mbs speeds.

Senate Bill 740, legislation re-authorizing the CASF that’s making its way to the desk of Gov. Jerry Brown incorporates by reference the definitions of unserved and undeserved areas in Decision 12-02-015.

The bill would also give incumbent wireline providers that have not built out their networks to serve all premises effective veto power over any community-based project to reach underserved households -- typically those in areas out of reach of DSL or cable Internet service or having access to slow DSL in areas where aging, poor quality copper cable plant (illustrated in the photo below) cannot support higher speeds. The bill bars funding of these projects “until after any existing facilities-based provider has an opportunity to demonstrate to the commission that it will, within a reasonable timeframe, upgrade existing service.” 

"Reasonable timeframe" isn’t defined in the bill and thus would likely be defined by incumbent telcos that told regulators and consumers since the early 2000s that they were building out their DSL service to reach them. (They’re still waiting more than a decade later, providing an operative definition of what's reasonable). The bill would also give incumbent telcos and cablecos the ability to stymie community fiber projects built by local governments simply by applying for CASF funding.