FCC reclassification of Internet access as Title II utility likely to have little impact on affordability

When the U.S. Federal Communications Commission votes to reclassify Internet access as a common carrier utility under Title II of the Communications Act of 1934 as expected April 25, it’s unlikely to increase affordable access. The primary reason is the FCC is forbearing rate filing and regulation in the joint federal-state framework with state public utility commissions that regulate rates for as they do for legacy voice telephone service under Title II authority.

While Title II would subject Internet service providers (ISPs) to Title II’s universal service and nondiscrimination provisions requiring reasonable requests for service be honored, without rate regulation ISPs could charge exorbitant rates difficult for households and small businesses to afford.

For example, an ISP could tell a group of households and small businesses that they’ll honor requests for fiber to the premises (FTTP) service. But given the area’s characteristics such as density of fewer than 15 premises per road mile, old utility poles in need of replacement and distance from middle mile backhaul, extending fiber connections would require a connection fee of $1,000 per prem and $250 per month for service.

With the FCC’s forbearance, these end users also would lack the ability to claim the rates constitute discriminatory conduct under 47 U.S.C. 202, titled Discrimination and Preferences. This provision makes it unlawful for common carriers engage in “unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services for or in connection with like communication service, directly or indirectly, by any means or device, or to make or give any undue or unreasonable preference or advantage to any particular person, class of persons, or locality, or to subject any particular person, class of persons, or locality to any undue or unreasonable prejudice or disadvantage.” (Emphasis added)

An ISP could also contend that this pricing would not constitute a discriminatory practice per the FCC’s recently adopted Preventing Digital Discrimination rulemaking because those charges are needed for reasons of economic and technical feasibility in order to extend service. The abovementioned pricing could well become common for new FTTP service reflecting the growth in labor and material costs.

Consortium to bring fiber to every American doorstep

EMBARGOED UNTIL 4/1/2024

A consortium of fiber network and edge providers has announced a massive deal to rapidly build fiber to every American doorstep and acquire all existing fiber transmission and distribution infrastructure in the United States.

According to informed sources, the deal is being led by fiber infrastructure owners AT&T, Verizon, and Alphabet along with edge providers Meta and Amazon along with limited participation from Netflix.

Cable companies, publicly owned and coop networks and smaller fiber network owner/operators will be offered buy outs of their existing footprints on highly favorable but time limited acquisition terms, according to sources close to the negotiations leading up to the deal.

The consortium will finance fiber construction and operations with cash contributions and long term bonds backed by the consortium members along with participation private equity firms. State and local governments and railroads will be offered fiber connectivity at no cost in exchange for right of way access and waiver of all permitting.

To alleviate potential federal anti-trust concerns, the consortium will be organized into five independent regional companies closely aligned with the service territories of the Regional Bell Operating Companies (RBOCs) formed after the 1982 breakup of AT&T.

“In 2005, then AT&T CEO Ed Whitacre said no one should ride the pipes for free. He’s right. That’s why we’re buying all the pipes and will bring long overdue fiber connections to most every American doorstep,” the consortium said in a statement. “Doing so is consistent with the public policy intent of 1996 Telecommunications Act to timely bring advanced telecommunications capability to all Americans.”

The consortium – called Fiber Everywhere -- noted that policy goal remains unrealized nearly three decades later. “We recognize the difficult incremental trajectory the nation has been on for the last two decades that is unlikely to attain this goal anytime soon and bring American households from 20th century copper and coax built for analog voice telephone and cable TV services to fiber for 21st century Internet protocol-based advanced telecommunications.” 

Fiber Everywhere will request Congress reallocate $42.5 billion appropriated in the Infrastructure Investment and Jobs Act of 2021 for advanced telecommunications infrastructure directly to the consortium regional operating companies to replace deteriorated utility pole infrastructure and install underground conduit.

The consortium said the deal obviates the need for an alphabet soup of dozens of federal and state subsidy programs and will bring an end to unproductive and fractious fighting over what constitutes “broadband” and where it’s available as plotted federal and state “broadband maps.”

“Maps are meant to serve as a road map to a destination,” Fiber Everywhere stated. “With this deal, the consortium offers the United States a true road map to a bright digital future.”

DISCLAIMER: The foregoing is occurring in a parallel universe under the multiverse concept of theoretical physics. Universal fiber service not available in all areas in the current universe.

Yesterday, today and tomorrow in FTTP

 2000-2020

• Incumbents slow walk, cherry pick FTTP buildout; business models cannot accommodate capex need.
• Publicly owned FTTP emerges as lower cost business model alternative, built by some municipalities in densely settled areas and handful of private operators and utility coops in rural areas.
• Some limited interest by private infrastructure funds (Macquarie) and Euro pension funds as sources of more patient capital to finance FTTP construction.

2020-2030

• COVID public health measures spotlight need for more FTTP as knowledge work, education, medicine and retail increasingly virtualize online. Investment community realizes incumbents unable to meet demand and seriously explore investment opportunities.
• Increased interest on part of private infrastructure funds (e.g. BlackRock joint venture with AT&T), private equity firms and Euro infrastructure funds in investing in privately held FTTP. They provide more patient and copious capital with 8-10 year time horizon than incumbent capex with ROI standard of 5-7 years. High existing debt loads also severely limit in house debt financing. These alternative investment sources have stronger motivation to invest vs. incumbents with risk premium payday opportunity at end of 8-10 year investment cycle when consolidator buys their stakes.
• Interest in public bond debt financing also growing with publicly owned regional FTTP players looking for bond capital to finance growth (i.e. UTOPIA, ECFiber and other Vermont CUDs, Golden State Connect Authority.)
• Both private and public investment will be limited to urban and suburban areas with some limited investment in exurban greenfields and PUDs. But more capital available for private investment, drawn by shorter investment cycle (10 vs. 20+ year public bond maturity).
• BEAD will facilitate some rural FTTP but will be largely limited to incremental edge outs by large telcos and cable companies.
• With limited FTTP investment in rural areas, LEOs will assume dominant position. WISPs will struggle to survive over next 8-10 years, unable to compete with LEOs.

Core issue before FCC's proposed Title II rules: regulating advanced telecom as a common carrier utility

Conventional economic theory distinguishes a public utility from a supplier of goods and services in a market by identifying whether the good in question is a monopoly. In many parts of urban and rural California, internet services are indeed a monopoly—or at best a duopoly.

The common policy response to the monopoly is to either place the service provider into public hands or use a regulatory framework to curtail the ability of the provider to exploit a monopoly position. Once in the public hands, the service provider can be compelled to prioritize social outcomes, such as equity of access, affordability, or similar—exactly from which our California communities stand to benefit since many currently lack equitable access to affordable, reliable broadband internet.

https://20mm.org/2024/03/19/over-100-years-after-electrification-will-california-lead-way-internet-as-a-public-utility/

While the context here is California, this is the core issue before the U.S. Federal Communications Commission with its proposed Safeguarding and Securing the Open Internet rulemaking that would reclassify IP telecom as a common carrier utility under Title II of the Communications Act.

It's controversial because some policymakers paradoxically regard this service as a competitive market of price tiered "broadband" bandwidth, in diametrical opposition to the public utility framework described above that does not. Hence, their rationale is the interests of market makers and those who invest in it should take priority over the broader public interest. It's a black and white debate that over the past three decades has favored the former over the latter, making the investors winners and the public losers. 

The fundamental challenge for public policymakers is to alter this win/lose dynamic and develop a scheme where all interests can win. It's politically possible given access to advanced telecommunications is a nonpartisan issue widely seen as broadly beneficial for all aspects of society.

California legislation would adopt definition of digital discrimination

Proposed California legislation would codify in state law a definition of “digital discrimination of access.” AB 2239 would define it as “policies or practices, not justified by genuine issues of technical or economic feasibility, that differentially impact consumers’ access to broadband internet access service based on their income level, race, ethnicity, color, religion, or national origin, or that are intended to have a differential impact.”

That mirrors the Federal Communications Commission’s Preventing Digital Discrimination rulemaking adopted in November as mandated by section 60506 of the Infrastructure Investment and Jobs Act of 2021 (IIJA). Section 60506 defines equal access as “the equal opportunity to subscribe to an offered service that provides comparable speeds, capacities, latency, and other quality of service metrics in a given area, for comparable terms and conditions.”

The FCC’s Preventing Digital Discrimination rulemaking is predicated on the notion that business decisions on where to deploy infrastructure and offer advanced telecommunications services can disadvantage households based on these demographic factors, even if not intentional. But Section 60506 gives deployers the ability to defend their infrastructure and service offerings based on technical and economic feasibility. That can easily trump any claim of discriminatory impact -- intentional or not -- in the nation’s market-based and predominately investor owned advanced telecommunications infrastructure.

Since IP telecom is currently classified as lightly regulated optional information service under Title I of the Communications Act and not as a common carrier utility, providers are free to deploy delivery infrastructure wherever they wish and at rates of their choosing. Naturally, they are going to prefer denser, higher income neighborhoods that will produce faster return on capital investment (ROI) and where households are less price sensitive and more inclined to subscribe to higher priced services, thereby maximizing average revenue per unit (ARPU).

Notably, California’s Digital Equity Bill of Rights that took effect in January, states public policy that “to the extent technically feasible, broadband internet subscribers benefit from equal access to broadband internet service within the service area of a broadband provider.”(Emphasis added) Notably, that omits the economic feasibility defense of the FCC’s Preventing Digital Discrimination rulemaking and proposed by AB 2239. 

That's an important difference from AB 2239 because technical feasibility is a far broader term comparable to the federal government's definition of a "broadband serviceable location" as “a business or residential location in the United States at which fixed broadband Internet access service is, or can be, installed." That definition is used in the National Telecommunications and Information Administration's Broadband Equity, Access, and Deployment (BEAD) subsidy program. A location may be serviceable. But building infrastructure to serve it may not be economically feasible if the business case justifying deployment isn't present.

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

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

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

This type of financing is feasible when the d (density) factor is sufficient such that bond underwriters are willing to underwrite knowing the density equates with sufficient revenues to service the debt. A locality like Loveland offers that with a population of 2,219 per square mile according to 2020 U.S. Census data. As the linked blog post above notes, it’s difficult to meet that underwriting standard in less densely populated exurban areas. That’s where publicly owned fiber to the premise (FTTP) advanced telecommunications infrastructure is most needed since the return on investment isn’t there for investor owned companies.

The unrealized policy goal of universal internet access

2000 Democratic Party Platform on "Bridging the Digital Divide"

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

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

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

Bush calls for universal broadband by 2007

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

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

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

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

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

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

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

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

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

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

Update 4/18/24: AT&T California offered the self evident solution: replace the copper with fiber:

[W]e are working with communities across California to upgrade our older copper networks to more resilient, advanced technologies like fiber. For rural communities, upgrading our network not only helps narrow the digital divide, but it also means improving network resiliency, which helps networks withstand and recover from natural disasters and severe weather events.

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

Excerpted from Service Unavailable: America’s Telecommunications Infrastructure Crisis

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

End of ACP illustrates need for omnibus reform

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

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

https://ustelecom.org/a-permanent-solution-for-connecting-low-income-families-2/#0

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

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

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