New partnership needed to finance rapid modernization of copper to fiber as public utility

Some observers of advanced telecommunications (AT) expect the modernization of legacy copper telephone outside plant to fiber to the premises (FTTP) will take several decades along a similar timeline as copper. That duration and the relatively slow adoption of voice landline telephone service as shown here synced well. It doesn’t for FTTP. As this chart indicates, there’s a much steeper adoption curve for both landline and mobile Internet protocol-based telecommunications.


Source: Our World in Data

Demand has grown considerably during the public health restrictions of the COVID-19 pandemic that accelerated online retail, entertainment, education and government services, virtual knowledge work and telemedicine.

That raises the question of how FTTP can be built rapidly enough to accommodate burgeoning demand and who should build what is increasingly being seen as an essential utility versus a market commodity of “broadband” bandwidth sold as often pricy packages of video, voice and data services in discrete neighborhood “footprints.”

To shift to a utility model, the U.S. will have to adopt a common carrier framework of FTTP delivered advanced telecommunications infrastructure to replace the current optional market service sold where it produces the fastest return on investment at the lowest risk. That has resulted in a highly fragmented patchwork of access and affordability.

Treating FTTP as common carrier telecommunications utility infrastructure raises the related question what financing mechanism can finance its needed rapid construction. Federal and state grant programs that incrementally dole out funds for discrete, limited builds won’t be sufficient and perpetuate the fragmented “Swiss cheese” patchwork of FTTP deployment. That’s inconsistent with a common carrier utility model in which reasonable customer requests for connectivity must be accepted – universal service -- with service quality and reliability standards and neighborhood discrimination applied the current market-based model prohibited.

Investor owned providers can’t look to their shareholders to bear the cost, particularly legacy telephone and cable companies paying high stock dividends and carrying significant debt on their balance sheets. They would require a massive infusion of outside investment that isn’t likely since private equity investors like their own shareholders will only be inclined to finance limited FTTP builds where the return on investment is greatest -- and not to all serviceable addresses under a common carrier utility model.

The solution points to public sector ownership and finance, partnered with the private sector in a competitive contracting process such as those used for public works projects to design, build, and operate the infrastructure. The public entities should be regional in scope, like that of the regional bell operating companies (RBOCs) created after the breakup of AT&T in the early 1980s.

BEAD requires states to plan for universal service. But it doesn't fully subsidize it, necessitating states to develop their own funding sources.

As required by the Broadband Equity Access and Deployment program, each CUD must come to the state with a universal service plan to serve every address in their jurisdiction with high-speed internet. This is especially important for solving climate change, said Hallquist. “We have to get fiber to every address to solve climate change,” she said. Fiber is critical because it reduces latency and allows for faster reaction times. The smart grid enables faster responsiveness to electrical outages, even issuing warnings when equipment is about to fail.

Unfortunately, there are several barriers implemented in the BEAD program that may affect CUDs ability to use BEAD funds in their deployment, said Hallquist. The letters of credit requirement, which mandates that grantees receive a 25 percent letter of guaranteed payment from a bank on top of the 25 percent match requirement affects CUDs and smaller providers while favoring large, established providers, she said.

 Vermont’s Unique Communications Union Districts Support BEAD Outlays

The National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program – part of the Infrastructure Investment and Jobs Act (IIJA) targets capital cost subsidies to high cost areas. They are primarily limited to addresses based on the bandwidth advertised to them; those with 80 percent of addresses not advertised at least 25 Mbps down and 3 Mbps up with latency exceeding 100ms are eligible. Public entities building fiber to the premises (FTTP) infrastructure such as Vermont's Communications Union Districts (CUDs) should thus regard them as a limited, supplemental, one time opportunistic funding source.

Notably, BEAD requires states to develop “a comprehensive, high-level plan attain universal service.” But the program contemplates states develop their own funding sources to finance it. In other words, while BEAD requires states plan for universal service, it is not intended to fully fund the construction and operational costs of universal FTTP. States and regional entities like the CUDs can do this via bond funding and utilize end user fees to service the bond debt.

California legislation imposing universal service mandate on commercial providers founders

Two California bills that would establish a statutory requirement on commercial providers of advanced telecommunications to provide service to all addresses in their service areas have foundered. AB 1714 would effectively do so by defining such providers as common carrier public utilities. The bill has not been set for hearing since it was introduced in February.

The second measure, AB 41, would have required providers issued franchises under the state’s video franchise law by the California Public Utilities Commission to make service available to all residences in its service area within five years following renewal of a franchise. That requirement was deleted from the bill in a July 13 amendment. The bill includes a legislative finding that “Thousands of California households still lack access to video or broadband service, including households that are within the existing service territories of state video franchise holders.”