Industry opposition to FCC Title II rules could lead to state-based regulation

Advanced telecommunications providers favor a federal regulatory scheme over disparate state by state regulation, correctly arguing that telecommunications is essentially interstate. But in opposing the U.S. Federal Communication’s Commission’s adoption of its Open Internet rulemaking classifying Internet protocol telecommunications as common carrier utilities under Title II of the federal Communications Act, they are potentially setting themselves up for state-based regulation in the unlikely event they prevail in their judicial challenge to overturn the rules.

States could respond by enacting their own statutes treating advanced telecommunications as a common carrier utility, imposing universal service mandates barring neighborhood redlining and imposing rate regulation in order to ensure access and affordability and promote digital equity. While providers would claim universal service mandates impose cost burdens they cannot bear, states could point to state and federal subsidies they’ve received to build infrastructure in support of these goals.

Uncertainty and delay could also prompt states to act since litigation over the FCC Title II rules could take several years to be fully adjudicated up to the U.S. Supreme Court. The case would require the high court to review its 2005 ruling in Brand X Internet Services, et al. 545 US 967 (2005) wherein the court upheld the FCC's regulatory authority under the Chevron doctrine of judicial deference to administrative agency interpretation of statutory law. Brand X, however, could be undermined if the Supreme Court discards the Chevron doctrine in a case argued earlier this year, Loper Bright Enterprises v. Raimondo, bolstering the claim by providers that a Title II regulatory scheme making advanced telecommunications a common carrier utility is a major public policy issue within the purview of Congress and not administrative agencies.

ROI challenge delayed America’s modernization of copper to fiber in 1990s. It persists in the present as demand drives crisis of access and affordability.

While copper lines account for just 5 per cent of networks in the US, Sambar noted a single copper line must be maintained all the way out to a customer’s location. There could be thousands of copper lines sheathed at a central office, which need to be maintained to serve the customer who is miles away with the single line.

The copper lines also require massive switches in central offices to provide voice services, which Sambar explained use eight to ten times the amount of energy as a server. AT&T could replace the switches with two servers in a central office, which would cut down on the energy cost, but the servers will need software, installation and rewriting all the systems that were written in the 1960s or 1970s. All of which will cost more than keeping the switches.

“The payback period is 15, 16, 18 years long so it’s not economical to do it,” Sambar said.

https://www.mobileworldlive.com/att/att-makes-case-against-keeping-copper/

The long-term ROI issue AT&T’s network chief Chris Sambar raises was as relevant in the 1990s during the Clinton administration as it is today. Had telecom policymakers done a diligent job of assessing the costs and economics, they would have asked if investor owned telcos like AT&T that must generate returns on investment over relatively short periods were up to timely modernizing the legacy POTS copper outside plant to fiber and installing optical switches in COs and field distribution equipment. Timely as by the late 2000s.

And if it was determined telcos were not, then alternatives such as public and utility cooperative ownership -- that the Biden administration noted in its original 2021 infrastructure bill don’t face the additional cost burden of earning shareholder profits -- should have been developed. None were.

Telcos were left to deploying now obsolete DSL technology over decades old copper. Given the Biden administration’s recent assessment of the merits of the public and utility coop models and the ongoing ROI challenge facing investor-owned providers, the conditions for developing those alternatives remain in place today.

States must designate providers, service areas under FCC reclassification of Internet delivered services as telecommunications utility.

A key task facing states following the Federal Communication Commission’s adoption of its Open Internet rulemaking April 25 classifying Internet protocol communications as a telecommunications utility under Title II of the Communications Act is designating service areas of providers for the purpose of determining the law’s universal service obligations and support mechanisms. The relevant statute is at 47 USC § 214(e)(5):

(5) “Service area” defined: The term “service area” means a geographic area established by a State commission (or the Commission under paragraph (6)) for the purpose of determining universal service obligations and support mechanisms. In the case of an area served by a rural telephone company, “service area” means such company’s “study area” unless and until the Commission and the States, after taking into account recommendations of a Federal-State Joint Board instituted under section 410(c) of this title , establish a different definition of service area for such company.

The task is complicated by a FCC rulemaking issued in 2019 (DA/FCC #: FCC-19-80) that bars states from regulating most non-cable services including Internet access service offered over a cable system by an incumbent cable operator. That FCC rulemaking concluded the federal Cable Communications Policy Act of 1984 preempts state and local governments from regulating Internet and VOIP services under their video franchising authority. The FCC’s reclassification of Internet delivered services as telecommunications services under its Open Internet rulemaking effectively abrogates this component of its 2019 rulemaking.

Cable TV franchises effectively became Internet service areas in the 2000s as cable companies began offering Internet connectivity and VOIP service in addition to video, putting them on a par with telephone companies’ Internet and VOIP services. That led a shift in regulatory policy, creating "video franchises."

A 2020 report prepared by the Congressional Research Service describes the history and rationale of the shift to states of local government video franchising authority in order to get out from under local government requirements that franchisees connect all addresses within their jurisdictions as constituent demand for Internet connectivity rose in the 2000s:

As the LECs (telephone companies) sought to enter the video distribution market, they pursued statewide reforms to speed their entry, rather than seeking franchises in individual municipalities. The LECs’ competitors, the incumbent cable operators, contended that state-level franchising would present new entrants with fewer obligations than cable companies had faced when they entered the market, specifically the obligation to build networks serving all parts of a community.  

Pending California legislation (AB 1826) demonstrates the need for common carrier utility regulation of IP services. It states legislative findings that despite 2006 legislation that shifted video franchising authority to the California Public Utilities Commission from local governments predicated on the questionable rationale it would increase competition to improve access and affordability, thousands of Golden State households lack access to video or broadband service, including households that are within the service territories of video franchise holders.

Utility coop exec, industry association leader warns of middle mile infrastructure deficits

As the United States is poised to begin subsidizing the capital cost of building last mile or distribution advanced telecommunications infrastructure targeting rural areas, it won’t be enough warns a utility cooperative executive and industry association leader. The reason according to Sachin Gupta is insufficient transmission infrastructure that connects end user premises to the Internet backbone, commonly known as middle mile since it connects these two parts of the larger network.

Gupta is director of government business and economic development at Centranet, a subsidiary of Central Rural Electric Cooperative. Gupta also serves as on the board and policy committee of the Fiber Broadband Association and represents the National Rural Electric Cooperatives Association (NRECA) on the Federal Communications Commission’s Technical Advisory Council.

The problem manifests in multiple ways, Gupta explained in a Fiber Broadband Association podcast. First is middle mile infrastructure largely connects cities and lacks points of presence along the way for less densely populated areas of the nation to connect.

Another main problem is edge content providers don’t have data centers near these areas. That leads to high latency since data must travel over hundreds of miles instead of tens of miles, producing delays that make low latency applications unusable.

Supply and demand also come into play, creating lack of affordable access. Last mile networks create demand, but where there’s too little middle mile points of presence to provide backhaul, investor owners can demand and get “an arm, leg and kidney and a liver” for access, Gupta explains.

The Infrastructure Investment and Jobs Act (IIJA) of 2021 contains findings by Congress that “Access to affordable, reliable, high-speed broadband is essential to full participation in modern life in the United States” and a “persistent ‘digital divide’ is “a barrier to the economic competitiveness of the United States and equitable distribution of essential public services, including health care and education.” 

Gupta said that divide will remain despite what he estimates will be $100 billion spent in rural areas over the next four years to reduce it. The IIJA appropriated only $1 billion for middle mile subsidies compared to $42.5 billion for last mile distribution infrastructure subsidies. 

Gupta noted many states are consequently looking to build their own organic middle mile networks. However, given the high cost, states may not be able to shoulder it including very large states with substantial economic resources. This week, California deferred $1.5 billion that had been allocated to that state’s middle mile network due to a large budget deficit.

While it’s essential infrastructure, middle mile has received less attention from policymakers. That reflects the nation's hyper localized focus on advanced telecommunications infrastructure deficits since Americans experience them at their homes, schools and businesses. Policymakers should view the entire infrastructure wholistically since all segments are interdependent.

Public ownership of all middle mile infrastructure could provide a rapid, long term solution to this imminent crisis. The root cause is structural: middle mile is essentially a collection of privately owned fiefdoms operating a series of toll roads, free to provide access to whomever they wish at prices of their choosing.

For example, the federal government could form 501(c)(1) government chartered and regionally administered nonprofit to acquire and build out the nation’s middle mile infrastructure and contract for design, construction and operational services and develop standards for redundancy, uptime, restoration, and network security.

Big incumbent providers oppose public ownership of advanced telecom infrastructure, but happily accept government subsidies.

For years cable operators such as Comcast, Charter and Cox have fought hard against municipal broadband projects, always crying that it’s wrong for taxpayer dollars to compete against their private investments. But now, the competitive landscape is shifting. There’s a lot of taxpayer money available through government programs such as ARPA and most significantly through the Broadband Equity, Access and Deployment (BEAD) program.

https://www.fierce-network.com/broadband/comcast-does-public-private-broadband-projects-across-footprint?utm_medium=email&utm_source=nl&utm_campaign=FT-NL-FierceTelecom&oly_enc_id=6444G7875712B4A

This story lacks so much context it's misleading. Giving money to large incumbent ISPs like Comcast isn't truly a public-private partnership as it's described here and in other media but rather a government subsidy. 

What large incumbent providers historically oppose is government ownership; they are more than happy to accept government subsidies. Especially when there's no quid pro quo that they provide connections to all premises within a given local jurisdiction. 

Also lacking is transparency in the use of public funds. The story notes Comcast declined to say how much the project cost in total and how much, if any, Comcast spent for the project.

End of ACP could bring modfication of FCC Title II rulemaking to allow regulation of residential Internet services

The end of the Affordable Connectivity Act (ACP) sets the stage for the potential modification of the Federal Communication Commission’s recently adopted rulemaking classifying Internet protocol-based services as a common carrier utility under Title II of the Communications Act of 1934. The Biden administration encouraged the FCC to adopt the rulemaking in July 9, 2021 executive order to reverse a 2017 FCC rulemaking that classified IP services as lightly regulated information services under Title I of the statute.

While terming rate regulation “a hallmark of utility regulation,” the FCC’s rulemaking adopted April 25 forbears from giving state public utility commissions authority to regulate rates as they currently do for legacy voice telephone service. But it left the door open to do so in the future. “Although we adopt firm forbearance from all direct rate regulation, with respect to other provisions we forbear from here, we note that it also is within the Commission’s discretion to proceed incrementally,” the rulemaking notes.

The FCC could come under pressure from the White House to regulate rates after Congress rejected the Biden administration’s request to provide additional funding to extend the ACP to provide a $30 monthly subsidy to low-income households and $75 for those on tribal lands. The modification might particularly apply to rates for residential landline delivered services over copper, coaxial cable and fiber in order to reduce low income households' reliance on costly mobile wireless services, referred to as "smartphone dependency."

Such a move might be aimed at scoring points with voters in this election year as President Biden faces a tough re-election bid. It could also occur early in a second Biden term if the president is re-elected in November. Politically, it would align with voter sentiment that their interests have been subordinated to shareholders and lobbyists of large corporations, a "system is rigged against you" theme that was prominent in the 2016 presidential campaigns of Donald Trump and Bernie Sanders.

Key opponent of ACP extension claims subsidy will inflate prices

A primary failure of U.S. advanced telecommunications policy and its fraught evolution is fostering a commodity market of “broadband” bandwidth. Its roots date back to the early 1990s and sluggish dialup connections over screeching modems. Faster, always on connections like DSL were dubbed “broadband” or “high speed Internet.” Going on three decades later, the terms are used to describe a commodity market of bandwidth sold in price tiers. Low “broadband speed” tiers are bargain basement offerings while the higher tiers offer luxury connectivity for those who can afford it.

This marketplace of broadband bandwidth developed due to the failure to timely modernize legacy twisted pair copper voice telephone delivery infrastructure to fiber. Legacy metallic delivery infrastructure like cooper and coaxial cable has far more limited carrying capacity and upgradability than fiber. Consequently, bandwidth per customer must be rationed. 

That drives what economists call price elasticity. Higher prices for higher bandwidth drives down bandwidth demand and vice versa, thus preserving limited bandwidth. This dynamic between price and demand is behind opposition to expanding the Affordable Connectivity Program (ACP), now expired temporary subsidy for low-income households:

Opponents remain unconvinced of the ACP’s benefits, however. In his opening statement before a Senate subcommittee last week, Republican Sen. Ted Cruz, the Senate Commerce Committee’s ranking member, criticized the FCC’s recent survey, which found that only 22% of households who have benefited from ACP did not have broadband. He argued, alongside witness Paul Winfree, the president and CEO of the Economic Policy Innovation Center, that the ACP has had an inflationary effect on internet prices.

“History has shown that when the federal government starts subsidizing demand in higher education and agriculture, the subsidy gets capitalized, and prices go up,” Cruz said. “After all, why would corporations ever leave free money on the table? Well, those who received the subsidy may realize that immediate cost reduction, the market prices rise for everybody else. This rising price creates a call for more subsidies and higher taxes to fund those additional higher subsidies and eventually a government takeover of the internet to provide it for free.”

https://www.route-fifty.com/infrastructure/2024/05/only-three-weeks-go-lawmakers-weigh-ways-save-federal-internet-subsidy/396339/

Cruz is essentially arguing subsidizing bandwidth as a commodity creates demand by lowering the price for bandwidth. Price elasticity holds that in turn will boost demand which Cruz says will encourage Internet Service Providers (ISPs) to increase rates for unsubsidized households in demand-pull inflation.

Publicly owned infrastructure: Lowering the cost bridge rather than raising the affordability river with household subsidies

Paul Winfree, president and CEO of the Economic Policy Innovation Center, an economic policy think tank, testified that the ACP monthly subsidies have led to increased costs for everyday consumers, as Internet service providers simply raise their rates to capture as much of the subsidy as possible. “Deregulation and competition have reduced [broadband] prices,” Winfree told the subcommittee, arguing for a more free market approach. “We have also learned that policies that subsidize demand, such as the Affordable Connectivity Program, tend to increase prices.”

But Jon Tester, a Democratic Senator from Montana, pushed back on this theory, saying broadband is not like groceries or other consumer goods where more supply brings down prices. “It is so damn expensive to lay broadband,” Tester remarked. “It’s just a different marketplace that somehow holds the consumer at a disadvantage.”

https://www.govtech.com/network/feds-discuss-acp-but-no-path-forward-emerges-from-hearing

Some distinguishing terminology needed here. Broadband is indeed marketed as a commodity service and sold by the bandwidth tier, even including federally mandated "nutrition labels." That's what's driving the calls for extending subsidies to low income households. 

What Sen. Tester is referring to is the capital and operating costs of advanced telecommunications infrastructure to deliver broadband services. All service providers need to cover those costs. Investor owned providers also need to price in profits and income taxes. Those are passed on to end users and can make service for lower income households difficult to balance tight household budgets. The ACP is essentially a means tested couponing program that supports the higher cost of investor owned delivery infrastructure.

Publicly owned infrastructure doesn't need profits nor is it subject to income taxation, providing a lower the cost bridge solution rather than raising the affordability river in the form of household subsidies.

Publicly owned FTTP deployment models: prioritizing low rural density versus favoring high suburban density

Among publicly owned fiber to the premise (FTTP) networks financed by public bonds, two opposite deployment strategies are emerging. One prioritizes low density rural areas where private market failure is deeply entrenched, making them unlikely to be fibered in the foreseeable future. The other prioritizes high density suburban areas where there’s presently a fiber gold rush on to gain the all-important first mover advantage.

It’s important because first to connect a premise with fiber creates an asset with long term value unlikely to be overbuilt later by a competing fiber network. That has generated political resistance and dark money PR campaigns likely funded by investor owned providers.

An example of the former is Vermont’s use of local government units known as communication union districts (CUDs) Click here for an excellent documentary on how they’ve been formed and their progress building fiber to residences that conventional wisdom holds FTTP is impossible.

Low density is prioritized in Vermont’s CUDs because nearly all settlement is rural. There’s no mindset among Vermonters in these CUDs that those who live in less settled areas should go to the back of the line (or move away as investor owned providers suggest) while those living in more densely settled areas should get connected first. Instead, a cooperative can do New England Yankee spirit prevails. We’re all rural and we’re all in this together recognizing investor owned providers are not going to meet our need for advanced telecommunications.

The latter example is represented by the Utah Telecommunication Open Infrastructure Agency (dba UTOPIA Fiber), owned by a consortium of 20 cities. UTOPIA is building FTTP in more densely developed suburban areas featuring gridline layouts rather than curvilinear, windy roads found in rural and exurban areas. (See recent UTOPIA “footprint” releases here and here).

The UTOPIA advised Golden State Connect Authority (GSCA) comprised of 40 nominally rural California counties plans to begin construction this year and is similarly prioritizing more densely settled areas of its member counties. It is doing so to accelerate network revenues needed for an aggressive financing schedule allowing servicing of bond debt soon after the fiber is built.

The takeaway here draws from history. Rural areas like those in Vermont’s CUDs formed electric utility cooperatives early in the 20th century when as with advanced telecommunications, it was apparent investor owned providers were not going to show up, favoring more profitable urban areas for their electrical infrastructure. That alters the density calculus and the motivation to connect premises least likely to be connected.

That history is absent in the case of Utah’s UTOPIA and California’s GSCA where residential settlement patterns are decidedly more mixed. While federal and state subsidies such as the Broadband Equity, Access, and Deployment (BEAD) Program target rural areas, areas too dense to be considered rural but too sparsely settled to be deemed suburban may potentially go unfibered as virtual knowledge workers move to these exurban metro fringes.

Will FCC Title II rules provide relief for local officials besieged with chronic complaints over poor Internet access?

Say you're a local elected official. One of the biggest issues your constituents bring to your attention for assistance is poor Internet access. Those who held office before you fielded calls and emails on this subject for years, seeing them spike in 2020-22 during the COVID pandemic.

Flummoxed and frustrated constituents tell you they see homes and small businesses not far way or even just down the road being offered service, but none is available to them despite repeated requests. Often, they may live just outside of town limits in unincorporated county jurisdiction. They try to make do with hard to afford satellite service or smartphone hot spots. Or fixed wireless that offers minimal connectivity at a high price.

Since Internet access was only briefly regulated as a public utility between 2015 and 2018, referring your constituents to the state public utilities commission (PUC) or the FCC won’t be able help them other than recording their complaint and sending them to the same provider that has repeatedly declined their requests for service. 

That could potentially change this year if the FCC adopts regulations next week classifying Internet service as a telecommunications utility under Title II of the federal Communications Act. That would regulate Internet access like landline voice telephone service before it under a federal-state framework between the FCC and state PUCs. That means providers would be required to honor reasonable requests for service and would be prohibited from refusing service to a particular area.

This has significant implications since much of the nation’s existing landline deployment looks like a Swiss cheese with providers cherry picking higher density and income areas likelier to generate more revenues and greater profits for their investors. Homes and small businesses in the holes on the periphery are left without connections.

Assuming the FCC regulation becomes law, local elected officials should keep an eye on how it will be enforced when, for example, a constituent complains they have asked for service and been refused connectivity or told they’d have to come with thousands of dollars for a connection.

One of the main tasks that regulators will face is determining which provider must honor the request for service. While the language of the proposed regulation includes refers to where providers have built infrastructure and offer advanced telecommunications services which they refer to as their “footprint,” federal law (47 U.S.C. 214(e)(5)) affords state PUCs and the FCC authority to develop providers’ geographic parameters for the purpose of Title II’s universal service mandate requiring providers to offer service to all serviceable addresses within their service areas. One possibility is states could utilize state video franchise areas to designate carriers of last resort.

Additionally, the FCC regulation would give regulators authority to sanction discriminatory conduct under 47 U.S.C. 202 barring “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.” The statute allows for fines of $6,000 for each violation and $300 daily penalties for ongoing violations.