Internet service franchises offer local governments potential work around to incumbent-sponsored state video franchises

Mediacom questions Iowa City deal with ImOn | The Gazette: Jeff Janssen, vice president of sales and marketing with ImOn Communications, said Tuesday he had not seen the Mediacom letter, but said ImOn has lease agreements similar those with Iowa City in other communities like Hiawatha and Marion.

Janssen also noted a franchise agreement only becomes required when cable TV is added to the list of service offerings. ImOn’s current plans for Iowa City are strictly for telephone and Internet services, he said.

“Franchise agreements are all around cable TV,” he said. “Once we decide, or if we decided to offer cable TV in Iowa City, we would get that franchise agreement, we are required to.”

This issue was bound to emerge sooner or later. In the early 2000s, legacy incumbent telephone and cable companies realized that with the emergence of the Internet and its capability to deliver TV programming, local governments would come under intense pressure from their constituents to require ISPs offering video services to provide Internet connections to all premises under municipal franchise agreements. That would have required substantial capital investment incompatible with the incumbents' business models based on milking their existing wireline "footprints" -- and not modernizing and expanding them to reach every doorstep.

To head off this prospect, the legacy incumbent cable and telephone company lobbies went into high gear to get state laws enacted putting states in charge of so-called "video franchises" and usurping local government authority over video services.

But that left a potential loophole for local governments to franchise Internet services other than video -- what's at issue in this Iowa case. Watch for this gambit to take off elsewhere, especially in states where there are also laws barring local governments from building and/or operating their own Internet services. Local governments could get around both restrictions by creating Internet service franchises and partnering with private ISPs as their franchisees. (Also referred to as "telecommunications franchises" in this item on a recent Brookings Institution panel discussion). They could also pressure the legacy incumbent telephone and cable companies by requiring them to obtain an Internet service franchise serving all premises if they wish to offer Internet services other than video within their jurisdictions.

With interest in wireline-delivered video declining among "cord cutting" consumers and incumbents relying more on Internet service for revenue, that pressure could be quite intense. It would also give localities a powerful tool to bring service to all of their residents and businesses given the U.S. Federal Communications Commission's lack of interest in enforcing its recently adopted rulemaking reclassifying Internet as a common carrier telecommunications service subject to the universal service and anti-redlining provisions of Title II of the Communications Act.

Pew study paints grim picture of U.S. consumer telecommunications market

Home Broadband 2015 | Pew Research Center: Still, the fact that more Americans have only a smartphone for online access at home has consequences for how people get information. Those who are “smartphone-dependent” for access do encounter distinct challenges. Previous Pew Research Center findings show that they are more likely than other users to run up against data-cap limits that often accompany smartphone service plans. They also more frequently have to cancel or suspend service due to financial constraints.

This study paints a grim picture of the state of telecommunications in the United States. On the sell side, market failure leaves many premises without landline Internet service. Service providers redline and refuse to serve neighborhoods where the business case can't be justified. On the buy side, in neighborhoods they do offer landline service, it's perceived as unaffordable. That forces many to rely on mobile wireless service via smartphones that has its own affordability issues and suffers from serious user limitations.

Redlined in Bradley County, Tennessee

Broadband providers battle over service in Bradley County | Times Free Press: Dr. Terry Forshee, president of Cherokee Pharmacy stores in Cleveland and Dalton, is eager for that growth. He said he can't get broadband at his South Bradley County home near Red Clay State Park.

"Charter Communications has had 27 years to bring cable down to me, but I'm still three miles away from service," he said. "I'm waiting, and I call every month to both Charter and AT&T, but I can't get anyone to come to my residence."

Forshee said he is trying to build his obesity education business, Take Charge, into a national company. But that's hard to do when he can't get high-speed Internet service at home.

Sandy Wallis lives in northern Bradley County, less than a quarter-mile from where Charter Communications and AT&T lines end.

"I've lived in my house for 30 years waiting on Charter and AT&T, and I've had to send my kids into town to do their homework (where broadband is available)," she told the Chamber gathering. "We need better service."

The U.S. Federal Communications Commission's Open Internet rules adopted earlier this year require Internet Service Providers fulfill requests for service under universal service and non-discrimination provisions of the Communications Act. Internet service is treated as a common carrier telecommunications utility under the rules. So far, however, there are no indications the FCC is enforcing these requirements in response to reports of ISP redlining such as these.

Comcast's and AT&T's "unfair competition" complaints unfounded

Marion County cities call for broadband extension | Times Free Press: Telecommunications providers such as Comcast and AT&T have lined up solidly against allowing municipal providers to expand. They say it's unfair for government-owned services to compete against private industry.

Comcast and AT&T would have a valid complaint if telecommunications infrastructure was a competitive market. Their problem is it's not. It functions as a natural monopoly due to high cost barriers to entry that keep private competitors out. Natural monopolies lend themselves to direct government provision of services (such as as highways) or government granted franchises such as the old Bell Telephone system and local cable franchises. If AT&T and Comcast want to compete, they should get into the grocery, airline or automobile industries.

Broadband operators must conquer the home to meet threat from Google and Apple

Broadband operators must conquer the home to meet threat from Google and Apple: The threat posed by the big Internet players, especially Google and Apple, to traditional Telco operators has been talked about for over a decade, but has not yet materialised substantially as far as core services such as broadband and pay TV are concerned.

That is now changing fast as the battle enters the home where the prizes may initially be small but will amplify greatly over the next few years. Indeed with relatively few homes yet having a network worthy of the name, it is all up for grabs in what could become a winner takes all game around the emerging IoT (Internet of Things). (Emphasis added).

Very true. It's far too premature to be thinking about IoT given the primitive and deficient state of telecommunications infrastructure that's still largely based on the pre-Internet telephone and cable TV networks.

Northern California health care organization struggles with telecom infrastructure deficiencies

Deficient Internet telecom infrastructure is hamstringing a rapidly growing non-profit health care organization that administers Medicaid benefits for more than 500,000 beneficiaries in 14 Northern California counties including Del Norte, Humboldt, Lake, Lassen, Marin, Mendocino, Modoc, Napa, Shasta, Siskiyou, Solano, Sonoma, Trinity and Yolo.

“The biggest challenge we’re facing is (inadequate) broadband Internet,” in the region, Elizabeth Gibboney, CEO of the Partnership HealthPlan of California, told a health care symposium sponsored by the California HealthCare Foundation in Sacramento this week. In particular, Gibboney cited her organization’s need for modern connectivity to support safety net clinic sites and telehealth consultations with specialists as well as teleworking staff.

Reps. Huffman, Thompson, and Nolan Introduce the Rural Broadband Infrastructure Investment Act | Congressman Jared Huffman

Reps. Huffman, Thompson, and Nolan Introduce the Rural Broadband Infrastructure Investment Act | Congressman Jared Huffman: Washington, DC – Congressmen Jared Huffman (D-CA), Mike Thompson (D-CA), and Rick Nolan (D-MN) today introduced the Rural Broadband Infrastructure Investment Act, which would unlock new opportunities for broadband deployment on California’s North Coast and in rural communities across America. The bill would make North Coast communities eligible for $670 million in federal broadband financing; promote regional broadband solutions by allowing the Rural Utility Service (RUS) to offer broadband grants in addition to loans and loan guarantees; and increase overall RUS broadband investment to $50 million annually from $25 million. The legislation builds on the successful legacy of the Rural Electrification Act, which brought power and telephone service to rural communities across America during the New Deal.

This is a well intended but grossly underfunded bill. Too little, too late. As Fletcher Kittredge, chief executive officer of Great Works Internet and a member of the Maine Broadband Coalition put it earlier this year, "[t]his is not a million-dollar problem. It is far larger.”

Allocating millions isn't going to build telecom infrastructure the runs in the billions to build. Constructing fiber to serve every premise in the City of Santa Cruz, California, for example, would cost an estimated $30 million -- a major chunk of the $50 million the federal bill would appropriate to the RUS for the entire United States. (h/t to Steve Blum's Blog).

Massachusetts Broadband Institute pulls funding from WiredWest, advises towns to walk away from proposed contract | masslive.com

Massachusetts Broadband Institute pulls funding from WiredWest, advises towns to walk away from proposed contract | masslive.com: The WiredWest agreement creates "unnecessary financial and operating risks" for member towns, wrote Nakajima, and would require fundamental restructuring to move forward.

One problem identified by MBI is that under the WiredWest model, towns would transfer ownership of their physical network to WiredWest in perpetuity, while retaining legal responsibility for any debt service associated with the buildout.

In essence, the towns and state would pay for the fiber-optic network, and WiredWest would end up owning it.

MBI also questioned whether the WiredWest business model would work. WiredWest has been courting small towns with the promise that if they take on significant borrowing, and gain commitments from 40 to 55 percent of households for service, that customer fees would not only cover network operating costs, but cover the cost of municipal debt service after several years.

"WiredWest's plan to repay debt service to the towns will be difficult or impossible to achieve at reliable subscription rates. ... Towns should assume that they will have to repay most if not all of the debt that they borrow," wrote Nakajima.

This development illustrates the enormous financial challenges facing state and local government-initiated telecommunications modernization infrastructure projects. The fundamental financial risk facing them -- as well as Google Fiber -- is the same one that deters incumbent legacy telephone and cable companies from upgrading and building out their last mile networks: a business model based on selling month to month subscriptions for a package of services and the associated uncertainty of not knowing how many households will subscribe and keep their service active.

This is why I lean towards viewing telecom infrastructure as public works like roads and highways. They serve all occupied premises and aren't predicated on premise occupants having vehicles or driving on them. But they bring long term value to premises regardless.

Also, roads and highways are not a competitive market but rather a natural monopoly. That's why I advocate federal government (via a 501(c)(1) nonprofit) sponsorship of construction of universal fiber to the premise infrastructure to serve all American homes and small businesses in my recently issued eBook. I believe government is the most appropriate ownership model for a natural monopoly since natural monopolies don't lend themselves to market competition. As long as the nation attempts to address its telecom infrastructure deficits with market-based "competitive" models, it will be  continually vexed and prone to setbacks and failure -- and fall even further behind the rest of the industrialized world.

Hillary Clinton's telecom infrastructure initiative vague, parrots incumbent talking points

Hillary Clinton's Infrastructure Plan: Building Tomorrow's Economy Today: Connect all Americans to the digital economy with 21st century Internet access. Clinton believes that high-speed Internet access is not a luxury; it is a necessity for equal opportunity and social mobility in a 21st century economy. That’s why she will finish the job of connecting America’s households to the Internet, committing that by 2020, 100 percent of households in America will have access to affordable broadband that delivers world-class speeds sufficient to meet families’ needs.

Clinton's initiative doesn't detail how her plan will fill in the gaps in America's incomplete and patchwork telecommunications infrastructure and "finishing the job" of serving all U.S. households.

Clinton will also build upon the Obama Administration’s efforts to increase not just broadband access but also broadband adoption, both by fostering greater competition in local broadband markets to bring down prices and by investing in low-income communities and in digital literacy programs. In addition, Clinton is committed to expanding the Obama Administration’s efforts to connect “anchor” institutions — like public school and public libraries — to high-speed broadband. 

Here, Clinton's statement reiterates the three classic talking points -- the latter two long offered up by legacy incumbent telephone and cable companies -- that have distracted from the primary goal of building telecom infrastructure over the past 15 years or so:

Increasing competition in local "broadband markets"

The fundamental flaw here is local or "last mile" telecom infrastructure is not a market any more than other infrastructure such as electrical power distribution lines, water lines and roads and highways. It's a natural monopoly. Calling for competition here ignores basic economics.

Digital literacy programs

This is a favorite stalling tactic of the legacy incumbent telephone and cable companies to divert attention away from infrastructure deficits and keep the calendar fixed at 1996 when many people were just starting to connect their home computers to the Internet via dial up service. The argument is people only need the Internet if they're "digitally literate" so we don't have to be in a hurry to invest in infrastructure and can look good by calling for increased digital literacy.

Connecting anchor institutions

Like digital literacy, this makes for nice talking points and sound bites. After all, who could be against better Internet service for the kids at school and city hall. Unfortunately, telecom infrastructure projects to serve these settings don't typically extend to the adjacent neighborhoods and homes where students and constituents live and need better connectivity to interact with these community institutions.

Telco business model -- not regulation -- curtails infrastructure investment

FCC Forbearance Vote a Welcome First Step | USTelecom: “While more remains to be done to update communications regulation to reflect the realities of today and to level the playing field among wireline, wireless and cable competitors, we applaud Chairman Wheeler for recognizing the importance of giving wireline companies greater freedom to compete, innovate and invest their capital efficiently in modern networks. We urge the full commission to adopt the reforms proposed, and to continue to eliminate antiquated requirements that distort the market, ultimately to the detriment of consumers.”

The legacy telephone company lobby oddly continues to blame regulation for chilling its investment in landline telecommunications infrastructure. The real reason is telcos simply lack a business model that can support extensive, long term capital investment. Regulation or the lack thereof doesn't fundamentally alter the equation.

Transition from copper to fiber plant? Show me the fiber.

From a Communications Workers of America (CWA) Nov. 29, 2015 blog post:

The Communications Workers of America (CWA) filed reply comments at the Federal Communications Commission (FCC) in support of an FCC proposal to adopt clear criteria to evaluate a telecom carrier’s request to discontinue, reduce, or impair legacy service. As communications infrastructure changes from copper to fiber, the fundamental goals of communications policy remain the same: universal service, consumer protection, public safety and national security, and competition.

Note the emphasized text on the transition from copper to fiber. Reading further leads to some major cognitive dissonance that suggests telcos aren't in fact transitioning from copper to fiber but instead retiring their landline outside plant and sending residential and small business customers to satellite and their mobile wireless offerings:

CWA urged the FCC to add an additional criteria: affordability. If an alternative service is more expensive -- such as wireless with data caps or satellite service for Internet access -- then it is not an adequate substitute to legacy wireline service.

Lifeline Internet access first requires universal service -- and FCC not enforcing

L.A. County backs plan to ensure Internet access for seniors and the poor - LA Times: Undergirding the county leaders' support for expanding the lifeline programs is the increasing prevalence of digital technology in the economy and social programs.

"Technology is a key component of our economy, and it is unconscionable that so many county residents lack access to broadband," said Supervisor Hilda Solis, who co-wrote the motion passed Tuesday by the board. "These individuals are being marginalized and ignored."

The policy expressed here is Internet service is now as vital as telephone service was before it. Hence per the position adopted by the county, it too requires a "lifeline" rate subsidy for lower income households to ensure universal access. However, before there can be universal access, there must be universal service.

Early this year, the U.S. Federal Communications Commission adopted its Open Internet rulemaking classifying Internet service as a common carrier telecommunications utility service like telephone service. That legal classification under the Communications Act includes a universal service obligation on providers to offer Internet service to any household requesting it. But thus far, the FCC has shown no inclination to enforce the rule, which became effective in June.

Telecom infrastructure is interstate; crash federal modernization program needed

Senator Wants Transparency in Federal Broadband Grants: King sent the letter after his office was contacted by several rural Maine residents who want to know if their neighborhoods will receive broadband service or if their existing service will be upgraded as a result of the subsidies. He didn’t have an answer for them.

“High-speed broadband is a gateway to opportunity in the 21st century, but today, too many people in rural Maine lack adequate access – and that’s not fair to them or to our state’s economic future,” King said Monday. “The FCC’s Connect America Fund can help change this, but to be successful, every dollar must be spent efficiently, effectively and in a transparent way.”

As long as the United States limits its thinking to discrete neighborhoods and "rural and community broadband," modernizing and building out its telecommunications infrastructure will prove to be a frustratingly slow and inscrutable process as Senator King's constituents are experiencing.

Telecommunications is interstate and so is the infrastructure that delivers it. Instead of tinkering at the edges, the nation should instead engage in its signature big thinking and undertake a bold crash program to ensure every American home, small business and vital institution has a fiber optic connection to the Internet. Senator King's constituents and those of every other American representative have waited long enough.

Fiber to the premise can't accurately be described as "on fire" in U.S.

Fiber to the Home Council : Blogs : Survey Says: Speedy Fiber Changing the Way We Use the Internet: Washington, DC (November 16, 2015) – The Fiber to the Home (FTTH) Council Americas has released the results of a survey by RVA, LLC showing that fiber deployments in the United States grew 13 percent in 2015.

“From our survey of North American broadband providers, we’ve found that fiber to the home deployment has continued to grow steadily and 2015 marks the second biggest year for expansion since the technology became available,” said Michael Render, President of RVA, LLC. “The industry is poised for substantial growth over the next five years.”

“Fiber’s on fire in the U.S.,” said Heather Burnett Gold, President of the FTTH Council. “Now, nearly one fifth of the world’s fiber connections are here in the United States. Offering faster speeds and better reliability, fiber sells itself.”

Fiber to the premise (FTTP) Internet service could hardly be described as "on fire" in the United States with some 55 million Americans living in areas of the nation lacking infrastructure capable of supporting high-quality voice, data, graphics and video (i.e. FTTP service) according to a U.S. Federal Communications Commission assessment issued earlier this year. And with slim prospects of obtaining such service in the foreseeable, they would rightfully laugh ruefully at such outlandish claims as overstated hype.