Service providers likely relieved reporting requirement dropped from FCC anti-discrimination rules

Advanced telecommunications service providers are likely relieved that the Federal Communications Commission opted not to include an annual reporting requirement in its recently adopted rulemaking  Infrastructure Investment and Jobs Act: Prevention and Elimination of Digital Discrimination.

The rulemaking bars “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 are intended to have such differential impact.” It applies broadly to service providers, their contractors, entities facilitating or involved in the provision of service or maintaining and upgrading network infrastructure or other entities that otherwise affect consumer access.

The rulemaking implements section 60506 of the Infrastructure Investment and Jobs Act requiring the FCC adopt rules to facilitate equal access to broadband internet access service. Section 60506 states public policy that “insofar as technically and economically feasible— subscribers should benefit from equal access to broadband internet access service within the service area of a provider of such service.”
It 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 reporting requirement could have provided a detailed basis of comparison to a given provider’s other deployments and service offerings to build a case demonstrating intentional -- or unintentional discrimination based on disparate service offerings – among similarly situated areas. The reports would have required providers to report annually “a comprehensive picture of each major deployment, maintenance, and upgrade project completed or substantially completed for each state and territory within its service area or footprint.”

Those reports could have been utilized by state attorneys general, local governments and/or class action attorneys to demonstrate a pattern of discriminatory market conduct in contravention of public policy. Less densely populated exurban communities that have for years complained telephone and cable companies have redlined them while serving adjacent areas could comprise a class of similarly situated plaintiffs. Another potential plaintiff class is residents of low income urban communities alleging they pay more for inferior services than those offered in more affluent nearby communities. The rulemaking permits providers to justify decisions on deployment of infrastructure and services based on technical and economic considerations.

The potential for litigation is enhanced given FCC complaint handing procedures tend to result in summary dismissal of consumer complaints. Complaints are referred to the provider subject of the complaint. Unsurprisingly, providers typically rationalize or deny the complaint and the complaint is then closed.

Need for sell and buy side subsidies points up advantage of government, coop owned fiber networks

Testifying before Congress back in May, NTIA Administrator Alan Davidson confirmed that a failure to fund the ACP will negatively impact BEAD. "As we build out our broadband networks, we want providers to know that there's some certainty that they'll have customers, particularly in these rural areas, particularly in areas where there's lower-income Americans, they need to know that those Americans are going to be able to afford to get online. The ACP plays a major role there," he said.

How ACP negotiations might shake out

This statement clearly points up market failure and the need for a lower cost alternative model for advanced telecommunications infrastructure. Davidson is in effect saying without both seller subsidies -- delivery infrastructure subsidies such as the NTIA's Broadband Equity, Access and Deployment (BEAD) program and buy side subsidies based on household income (the Affordable Connectivity Program), market failure will result. In short, providers won't be able to to connect American homes and consumers won't be able to afford their monthly bills since providers have to price in a profit margin and allow for income taxes. Even then, it's hard to make it pencil out. Jeff Luong, AT&T’s vice president of network engineering, reportedly said at the recently held Fierce Telecom U.S. Broadband Summit that even with AT&T spending about $20 billion per year on infrastructure, “we cannot build out in all the areas we deem as economical.”

This situation clearly points up the need for lower cost alternative and one more likely to avoid the problem of uneven deployment by investor owned providers that must carefully segment where they build fiber that leaves many homes unconnected: fiber optic networks owned by governmental entities and consumer utility cooperatives. Neither must generate profits or pay income taxes.

Incumbent strategy post 1996: Buy time, protect service territories.

As policymakers dithered since the enactment of the 1996 Telecom Act, large incumbent telcos bought time to slow their copper to fiber transition match their business models that would permit only slow, incremental construction and to protect their nominal service areas from public and utility coop owned fiber. They limited their fiber builds to select high potential areas offering sufficient density of relatively affluent households most likely to meet their internal rate of return standards and generate strong ARPU.

This was accomplished by sleight of hand, keeping the U.S. Federal Communications Commission’s policy focus on boosting “broadband speed,” while keeping policymakers’ and the media's eyes off the larger challenge of modernizing the legacy copper telephone network to fiber. They also did so by apparently influencing policymakers to dole out piecemeal, highly restricted grants nominally aimed at expanding access since their own fiber builds were very limited, leaving Americans hungry for connectivity. The hunger became acute during the public health restrictions of the COVID-19 pandemic with the need for advanced telecommunications to work, school and obtain medical care at home. The goal is to keep the issue framed as "broadband" -- a discretionary information service -- versus an essential utility.

The biggest disruptive threat came with the Biden administration’s draft language of the Infrastructure Investment and Jobs Act (IIJA) of 2021. It was initially geared toward building fiber to every American doorstep as was achieved with copper to provide voice telephone service in the 20th century. Priority was to be afforded fiber to the premises (FTTP) infrastructure owned, operated by, or affiliated with local governments, non-profits, and co-operatives. It was a wise decision since telecom like other infrastructure is a high cost undertaking that favors size and economies of scale -- something AT&T put into practice in proposing to form regional operating companies as part of its 1983 settlement of the federal government’s anti-trust action leading to its divesture. As is noted, these providers operate without the need to generate profits for investors (as well as pay income taxes) and thus can be committed toward a goal of universal service.

However, instead of standing its ground and favoring this lower cost model that would have allowed taxpayer dollars to go farther, the Biden administration went along with new IIJA language creating the Broadband Equity, Access and Deployment (BEAD) subsidy program with generous subsidies for fiber construction and geared toward investor owned incumbents looking to incrementally edge out their existing “footprints.” Decisions on how BEAD subsidies are awarded will likely result in controversy and produce more delay. Disputes over proposed subsidized projects in California offer a preview. The incumbents are likely singing Time Is on My Side.

Infrastructure Investment and Jobs Act (IIJA) of 2021 marked start of fundamental shift in U.S. telecom policy

The Infrastructure Investment and Jobs Act (IIJA) of 2021 marked the beginning of a fundamental shift in how the United States regards what it termed in the 1996 Telecommunications Act as advanced telecommunications based on Internet protocol (IP). It’s evolving from a commercial information service as it’s currently regarded and lightly regulated by the Federal Communications Commission to critical infrastructure.

But not fully. It’s still referred to in the IIJA as “broadband:” the incremental evolution since 1998 in throughput from narrowband dialup and changing FCC definitions of it since then. With those definitions based on the business models of the large telephone and cable companies that market bandwidth in price tiered increments.

As might be expected with evolving public policy, it reflects both old and newer thinking. Current policy regards advanced telecommunications as critical infrastructure on one hand as expressed by the IIJA and as a commercial information service -- with access to information priced on the bandwidth of the connection to access it, i.e., “broadband by the bucket” on the other. 

Authorized by the IIJA, the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) subsidy program eligibility guidance increases the bandwidth base level from 1990s narrowband dialup to first generation ADSL (i.e. <25/3 with latency > 100ms) and explicitly favors fiber to the premises (FTTP). The latter is an infrastructure versus a throughput-based standard, although the IIJA continues to utilize a minimum coaxial cable throughput standard (100Mbps down/20Mbps up). Locations not offered that level of throughput are secondarily eligible for BEAD subsidization as “underserved.”

Notably, AT&T is urging states to allow it to qualify for BEAD subsidies for contiguous projects to upgrade both generations of copper delivered Digital Subscriber Line (DSL): first generation ADSL (as unserved) and VDSL (underserved). That’s because locations in AT&T’s service area fall into both categories and are often in proximity -- a function both of the limited technological range of each generation of DSL over decades-old legacy twisted pair copper as well as AT&T’s decisions on where it deployed DSL. 

Some neighborhoods were never offered ADSL while others were, provided they were sufficiently close to telephone central offices and remote DSLAMs. Second generation VDSL is even more limited in range and was deployed to serve denser, cherry picked neighborhoods where cable is often also available. BEAD program rules would allow AT&T to propose projects comprised of a mix of "unserved" and "underserved" locations down to the individual address since the rules define an eligible project as one of just discrete number of addresses or even a single address.

In the not too distant future as advanced telecommunications becomes increasingly FTTP infrastructure-based, the notion of "broadband" bandwidth that bears relevance for legacy metallic landline delivery infrastructure will become obsolete.

Nearly 900 objections filed in California subsidy program

Nearly 900 objections have been filed with the California Public Utilities Commission (CPUC) protesting proposed projects requesting subsidies to construct advanced telecommunications distribution infrastructure. Under the FFA program rules, an objection must be based on an error of fact, or policy or statutory law. (Click here for a list of objections: PDF / Excel)

The CPUC’s Federal Funding Account (FFA) program received 484 grant applications for projects in every county totaling more than $4.6 billion -- more than double the $2 billion available. The funding is authorized by 2021 California legislation allocating federal funding appropriated by the federal American Rescue Plan Act (ARPA). The ARPA was enacted amid the COVID-19 public health emergency to provide support to state, local, and tribal governments including infrastructure investment.

Similar to the federal Broadband Equity, Access and Deployment (BEAD) program funded under the Infrastructure Investment and Jobs Act (IIJA) of 2021, eligibility is limited to “unserved” areas for which no landline service is offered to “an entire community” of at least 25 Mbps downstream and 3 Mbps upstream. The FFA program rules also take into consideration whether proposed projects would target areas prioritized by the CPUC based on demographic and digital equity information and analysis of the number of low-income households, median household income, disadvantaged community status, and digital equity.

The Golden State Connect Authority (GSCA), a joint powers authority of 40 counties authorized by the 2021 California legislation to build open access fiber to the premise distribution infrastructure, filed objections to 50 projects proposed by AT&T California. The GSCA contends the projects contravene FFA program guidance because they would merely upgrade its existing footprint of landline infrastructure without expanding to outlying locations.

“Additionally, in examination of the sheer number of projects proposed by AT&T statewide and commensurate funding requests, the cumulative request by AT&T for all its projects statewide indicates that the applicant will not have the financial, technical, or operational capacity to complete all the proposed projects within the timeframe required by the Last Mile FFA grant program,” wrote GSCA General Counsel Arthur J. Wylene. “This directly contravenes Last Mile FFA program requirements that an applicant must have the ‘financial, technical, and operational capacity’ to execute the projects for which it has applied within the required timeframes,” i.e. by 2027.

Notably, Jeff Luong, AT&T’s vice president of network engineering, reportedly said at last week’s Fierce Telecom U.S. Broadband Summit that even with AT&T spending about $20 billion per year on infrastructure, “we cannot build out in all the areas we deem as economical.”

According to the CPUC, staff will analyze applications, objections, and their responses and work with applicants and local stakeholders to select the applications most deserving of funding. No awards are expected until first quarter 2024 at the earliest.

Public bonds to finance publicly owned open access regional fiber

Private capital is recognizing the long-term asset value of fiber to the premises (FTTP) advanced telecommunications distribution infrastructure and its ability to generate long term revenue over its estimated 30 to 50-year lifespan. It also offers first mover advantage given FTTP functions as a terminating natural monopoly. The provider that makes the initial fiber connection is unlikely to face competition later from another fiber builder and will own the customer premise for decades.

That’s evidenced in the many private equity deals over the past year with investor owned FTTP players including a joint venture between BlackRock Capital Investment and AT&T. Fundamentally, this is a regime change, shifting away from the more constrained investment model of the large incumbent telephone companies. With their highly leveraged balance sheets and the need to pay large shareholder dividends, the short term value analysis has prevailed. Hence, FTTP deployment is deployed conservatively to areas where ROI and ARPU are projected to be the most favorable, leaving most without.

Now the public bond markets have the opportunity to similarly recognize the long term value and relative safety offered by FTTP networks. To spread risk and cost of deployment to gain economies of scale – particularly important amid labor and supply chain constraints and rising interest rates -- that investment would optimally be leveraged by regional public owned networks.

A model potential path ahead lies in Vermont. In that state, one regional network comprised of 31 towns formed under state law as a Communications Union District (CUD) obtained a BB rating for its $7.53 million 2023 Series A bonds from S&P Global, the nation’s preeminent credit rating agency. “This is a historic moment,” said Stan Williams, ECFiber’s municipal finance advisor. “For the first time, a CUD will be issuing a rated bond, which means that many more investors will be competing to buy those bonds, lowering the interest rate.”

That financing could potentially be expanded significantly if the nine CUDs operating in the state jointly issued a bond to fund their expansion. That could also enhance end user affordability with the financing costs spread over a much larger base.

Doing so would help ensure Vermont can meet its goal of getting FTTP to every location connected to the electrical grid by the end of 2028, particularly given a state audit report earlier this year that identified uncertainly associated with federal grant funding as a risk to attaining it, pointing out the need to identify other funding sources. The audit also noted CUDs have not been partnering for procurement of goods and services, risking higher costs and inferior outcomes.

California proposes to regard areas served by DSL and FWA as potentially eligible for BEAD subgrants

The California Public Utilities Commission (CPUC) has developed a framework to guide eligibility for the state’s $1.86 billion allocation under the federal government’s Broadband Equity, Access and Deployment (BEAD) program. The framework would regard areas served by DSL and fixed wireless service as potentially eligible for BEAD subgrants. The framework is part of a proposed rulemaking issued November 7.

Under BEAD and its authorizing legislation, the Infrastructure Investment and Jobs Act (IIJA), the primary scope of proposed projects eligible for state subgrants is where at least 80 percent of serviceable addresses are not offered service with throughput greater than 25Mbs for downloads and 3Mbps for uploads at latency of less than 100ms, designated “unserved.” Those where at least 80 percent are not offered 100Mbps/20Mbps are deemed “underserved.” 

“The CPUC will treat locations that the National Broadband Map shows to have available qualifying broadband service (i.e., a location that is “served”) delivered via DSL as ‘underserved.’" The CPUC's proposed framework is consistent with BEAD program guidance that acknowledges that in some cases, DSL does not provide consistent access to advertised speeds. "To the extent a particular location is identified on the Broadband DATA Maps as served by DSL at speeds that warrant treatment of that location as 'served' or 'underserved' but is not in fact reliably served at such speeds, this would be a proper basis for challenging the relevant location’s service status during the challenge process created by the Eligible Entity," the guidance states.

The CPUC notes this "will better reflect the locations eligible for BEAD funding because it will facilitate the phase-out of legacy copper facilities and ensure the delivery of ‘future-proof’ broadband service, the proposed framework states. “This designation cannot be challenged or rebutted by the provider.”

Additionally, the CPUC will presume 5,829 locations the National Broadband Map shows “underserved” by DSL as “unserved” for reported speeds that are lower than 30/5, for which there is supporting evidence that speeds consistently deliver below 25/3 service. “Considering the low prospects of providers investing in maintenance of legacy copper plant, low speed DSL should be replaced as soon as feasible with more future-proof infrastructure. This modification will better reflect the locations eligible for BEAD funding because it will facilitate the phase-out of legacy copper facilities and ensure the delivery of ‘future-proof’ broadband service,” the CPUC concluded.

“Due to the possibility of California’s BEAD allocation being fully committed to deploying service to unserved locations, this modification will also ensure that locations served by low-speed DSL are not excluded from eligibility for this critical investment,” citing AT&T’s application for relief from its landline voice telephone service carrier of last resort obligation in rural areas of the Golden State under Title II of the federal Communications Act.

The proposed rulemaking would also regard 36,887 locations that the National Broadband Map shows as “underserved” delivered over Licensed Fixed Wireless (LFW) as “unserved” for reported speeds that are lower than or equal to 30/5 Mbps:

"As a technical matter, fixed wireless speeds fluctuate heavily,” the framework notes. “Given this, speeds that barely qualify as underserved will likely be below 25/3 service during peak usage times. This is especially true of older fixed wireless deployments that struggle to reach higher speeds and mitigate interference and line of sight issues. In fixed wireless networks, service performance can be affected by a customer’s proximity to a base station, the capacity of the cell site, the number of other users connected to the same cell site, the surrounding terrain, and radio frequency interference. Additionally, fixed wireless networks require a clear line-of-sight. Therefore, obstructions, such as trees, can block radio signals and impact the reliability of fixed wireless networks. Poor weather conditions, including rain, can affect the availability and quality of a customer’s fixed wireless service.”

Cellular fixed wireless will similarly undergo critical scrutiny when determining whether an area is deemed eligible as underserved:

“The CPUC has observed that some fixed wireless operators report 25/3 or 100/20 speeds on the National Broadband Map even where their networks frequently reach those speeds only under optimal circumstances and have not been replicated in other testing environments, such as the CPUC’s own CalSPEED process. User agreements for leading providers of cellular fixed wireless indicate that users will be deprioritized during periods of network congestion, decreasing the likelihood that service delivered to consumers will meet the claimed thresholds, especially in future years as network utilization increases.”

The CPUC explained its rationale as due to the possibility of California’s BEAD allocation being fully committed to deploying service to unserved locations. “This modification will also ensure that locations served by low-speed and unreliable cellular fixed wireless are not excluded from eligibility for this critical investment.”

The CPUC said it will treat locations that the National Broadband Map shows to be “underserved” or “served” as “unserved” if rigorous speed test methodologies show otherwise. “This modification will better reflect the locations eligible for BEAD funding because it will consider the actual speeds of locations, leveraging the extensive data collection already conducted by the CPUC and reducing the administrative burden on challengers, providers, and CPUC staff to process challenges for locations already successfully challenged using equivalent evidence to that required for BEAD challenges.”

Concurrent FCC rulemakings would bar redlining for Internet service

One month after proposing a rulemaking to classify Internet protocol-based advanced telecommunications as a common carrier utility subject to universal service and non-discrimination mandates, the U.S. Federal Communications Commission will take up a similar rulemaking. The FCC’s proposed rulemaking Preventing Digital Discrimination is set for a vote at its November 15 meeting. It is primarily intended to remedy disparate impact (versus intentional) discrimination by providers that affects neighborhoods based on their demographics: income level, race, ethnicity, color, religion and national origin.

According to the FCC, the rulemaking implements section 60506 of the Infrastructure Investment and Jobs Act of 2021. It states federal policy that “insofar as technically and economically feasible— subscribers should benefit from equal access to broadband internet access service within the service area of a provider of such service.” 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.”

Since IP telecom is currently classified as lightly regulated optional information service under Title I of the Communications Act, providers are free to deploy delivery infrastructure wherever they wish and at rates of their choosing. They naturally 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).

The proposed rulemaking gives providers an out by allowing them to defend deployment and pricing decisions based on technical and economic feasibility. They could conceivably argue that they must be more conservative in building infrastructure in lower income neighborhoods and charge more for comparable services than those offered in higher income communities in order to feasibly meet their ROI and ARPU targets. The higher rates in turn would be out of reach of some lower income households, making them less likely to sign up for services and perpetuating an unvirtuous cycle. Similarly, they could argue middle mile infrastructure isn’t adequate to serve a given community, thus making delivery infrastructure deployment technically unfeasible. It's entirely logical to segment markets and pricing in a market-based scheme under Title I regulation. Disparate market impact will be a natural outcome. Additionally, providers choosing to build fiber in higher income areas but not in lower income areas could be seen as intentional discrimination based on income, i.e. disparate treatment.

The proposed rulemaking apparently contemplates a comparison of deployment activity to help regulators establish a pattern of market conduct demonstrating discrimination. That assessment would be based on a mandate on providers annually report on their deployment activities:

We propose that each annual report must address the following components to provide a
comprehensive picture of each major deployment, maintenance, and upgrade project completed or substantially completed for each state and territory within its service area or footprint: (1) the nature of each project completed or substantially completed in the calendar year immediately preceding the submission of the report (i.e., deployment, upgrade, maintenance, or a combination thereof); (2) the number of housing units affected by the project (i.e., the number of housing units whose broadband availability or quality is positively impacted by the project) by census tract (utilizing the system presently used in the BDC); and (3) a narrative description of the project and of the areas served by the project, to allow for greater precision and clarity regarding what the project is designed to accomplish and what communities are served by the project. 

While the language of the proposed rulemaking includes providers’ more proscriptive term to describe where they have built infrastructure and offer advanced telecommunications services , i.e. “footprint,” should the FCC reclassify Internet protocol telecommunications as a utility under Title II of the Communications Act as proposed in a separate notice of proposed rulemaking issued September 28, 2023, Safeguarding and Securing the Open Internet, 47 U.S.C. 214(e)(5) affords state public utility commissions and the FCC authority to develop their own geographic parameters for the purpose of Title II’s universal service mandate requiring providers to offer service to all serviceable addresses within the service area:

(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.

Similar to the FCC’s Preventing Digital Discrimination rulemaking, reclassification of IP services under Title II would give regulators additional statutory authority to sanction discriminatory conduct under 47 U.S.C. 202, titled Discrimination and Preferences. While FCC is forbearing rate regulation in the proposed Title II reclassification rulemaking, 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.” The statute allows for fines of $6,000 for each violation and $300 daily penalties for ongoing violations.

"Community broadband" sounds great in concept. Paying for it is another matter.

Schaffer is a firm advocate for communities taking ownership – literal ownership – of their broadband network: bringing “a high-quality, universal service” to everyone – “not for profit, but for service.”

There’s a cost to that, of course, but the community then can make decisions about how to lower that cost, she said. “When you take the profit margin out of it, it allows you to serve more people” at a reasonable price.

https://dailyyonder.com/a-rural-calling-peggy-schaffer/2023/10/25/

Or whether communities are willing bear any cost whatsoever that would incur bond debt and new taxes to service it. It's a hard sell for many with ongoing concerns over public and personal finances, an aging population and resistance to new taxes for infrastructure. That's why private ownership along with its attendant problems of limited access and affordability will remain predominant in the United States.

Sohn avoids mention of FCC Title II rules in recent speech

In a speech last week, Gigi Sohn, executive director of the American Association for Public Broadband, conceded that advanced telecommunications infrastructure will largely remain in the hands of private sector investors. Sohn has also questioned the notion of private sector market competition as the means to ensure advanced telecommunications infrastructure reaches all American doorstep.

It’s a logical conclusion since telecommunications like other utilities tends toward monopoly. Companies aren’t going to compete to bring multiple proprietary fiber connections to a given address because it’s economically inefficient and favors those that make the first connection. One might gain customers by bringing in a second fiber line, taking them from the provider of the first. But the return on investment rapidly diminishes with additional lines. This is not a competitive market defined by many sellers and many buyers. Many buyers, yes, but there won’t be many sellers. 

Sohn’s declaration that advanced telecommunications will remain in private hands as a service that naturally tends toward monopoly has powerful implications since market forces aren’t going to balance for buyers’ interests in access and value. Strong, meaningfully enforced regulation is needed to ensure universal and affordable access. Without it, providers are free to offer fiber connections available wherever they want at whatever price they choose.

It is thus striking that Sohn in her remarks voiced no support whatsoever for the Federal Communications Commission's (FCC) proposed readoption of regulations that would classify advanced telecommunications under Title II of the Telecommunications Act of 1934. That would make advanced telecom service a common carrier utility where reasonable requests for service – i.e., serviceable addresses – must be honored. No cherry picking and no neighborhood redlining.

It’s even more striking that Sohn didn’t refer to Title II given she promulgated the same regulations while on the staff of the FCC in 2015. The FCC in a split vote opened comment reviving the Title II regulations just two days after Sohn’s speech. As it did in 2015, however, the FCC is setting aside granting state public utility commissions authority over rates charged end users to help ensure affordable access.

AT&T urges states to favor contiguous BEAD funded projects serving both unserved and underserved locations

AT&T is urging states to award subsidies of up to 75 percent of construction costs allocated by the federal government’s Broadband Equity, Access and Deployment (BEAD) program for combined projects containing both unserved (where at least 80 percent of serviceable addresses in the project are not offered throughput of 25/3 Mbps or better) and underserved (where at least 80 percent of serviceable addresses are not offered throughput of 100/20 Mbps or better).

In so doing, AT&T is clearly indicating it plans to use any BEAD funding it is awarded to edge out its footprint. Some addresses could be served by VDSL over AT&T’s existing copper cable plant and qualify as underserved under BEAD program rules. As DSL signals degrade with distance, addresses farther out from its central offices and DSLAMs would likely not and be served by first generation ADSL – or no landline connections whatsoever – falling below the 25/3 Mbps cutoff and thus qualify as unserved. Some addresses in the latter category might ostensibly be designated as extremely high cost locations that AT&T would serve with fixed wireless.

A potential problem AT&T faces at least some states in urging BEAD funding for contiguous unserved/underserved projects is BEAD program rules require states to first award funds for projects reaching unserved locations. Underserved projects can only be funded if there are enough funds remaining from a state’s BEAD allocation after all unserved locations have been served.

AT&T is apparently aware. “We know that this won’t be possible in every state," writes Erin Scarborough, president of AT&T’s Broadband and Connectivity Initiatives, in a blog post. As the “next best alternative,” Scarborough urges states to group eligible locations into the smallest geographic unit possible, such as a census block, and allow providers to combine them into project areas. “This would still enable providers to design efficient deployments that maximize the use of existing infrastructure,” Scarborough wrote.

Near term outlook, trends for advanced telecom infrastructure

U.S. telecom policy will continue to favor investor owned, market-based advanced telecommunications infrastructure despite its higher cost compared to public and consumer-owned (utility cooperative) infrastructure. The predominant role of privately owned legacy telephone and cable infrastructure reinforces path dependency.

Government and consumer utility coop owned open access fiber to the premise infrastructure missed significant expansion opportunity from 1998 to 2019 as telephone companies made minimal investments in fiber to the premise (FTTP) delivery infrastructure, keeping legacy copper outside plant in place. Lack of political will, unrealistic expectations of incumbent providers, unfavorable demographic and economic trends, tax resistance and reliance on limited grant programs for majority of funding versus organic debt funding severely limited their expansion.

Boosted by infusions of private equity investment, investor owned FTTP builds will be expanded beyond what providers could otherwise achieve on their own due to limited capex constrained by overleveraged balance sheets and dependence on expected network revenues to meet rate of return goals. Private equity investment is motivated by a potential premium upon exit in five to seven years through sale of their stakes to their provider partners and/or network consolidators. Investment will be primary focused on newer existing and planned suburban developments in selected metros. Private equity investment is predicated on regarding FTTP as long term asset that affords first mover advantage. Connecting the customer premise means owning the customer since only one fiber connection will meet current and future service needs.

Advanced telecommunications infrastructure subsidies allocated by the 2021 Infrastructure Investment and Jobs Act will mostly go to large telephone and cable companies to incrementally edge out their networks in rural and exurban areas, primarily to dense clusters of homes and those in areas of cut off density not reached by existing landline advanced telecommunications infrastructure. Some BEAD funding will subsidize wireless in remote rural areas to provide both fixed and mobile services.

FTTP networks in less densely developed areas will receive some subsidization from existing programs as well as a new potential high cost area subsidy program to replace the FCC Universal Service Fund, particularly if the FCC reclassifies Internet protocol telecommunications service as a common carrier utility.

FWA seems like a lower cost alternative to FTTP -- until radio propagation constraints taken into account.

Outside of our urban cores and highway corridors, many modern life-enhancing technologies remain unavailable. For underserved constituencies, health outcomes are less positive; educational and business opportunities are more limited; and a myriad of other harms are borne by our more rural constituencies. But 5G FWA stands to finally connect those communities that remain unserved or underserved. Because this technology can span distances and cross terrains that coaxial and fiber cannot, at a fraction of the cost, more communities will be connected using 5G FWA than ever before. 

https://broadbandbreakfast.com/2023/08/sascha-meinrath-12-gigahertz-band-is-key-to-bridging-the-digital-divide/

The challenge is very limited propagation. The high frequencies used by FYA like the 12 Gigahertz cited in this article have very limited reach. Propagation distance is inversely correlated to the frequency. High frequencies can carry more data than lower ones. But the tradeoff is they don’t travel very far. Consequently, homes and businesses close to FWA radio towers get good throughput as Doug Dawson explains in this blog post. But just a bit farther out, it drops off dramatically as this example of a Sacramento, California suburb illustrates using two relatively lower frequencies. For 12 Gigahertz, the propagation circle of coverage would be even smaller. 

To overcome these limits, in rural areas it would seem to make sense to deploy radios close to customer premises mounted on existing utility poles or new dedicated poles. But the tradeoff there would be those radios would need fiber to feed them. At which the economics would point to connecting the premises to fiber directly as the most cost-effective approach. 

States struggle to devise solid, actionable plans to achieve universal service

“Maine's existing internet infrastructure is largely a patchwork of individual private networks. The infrastructure behind these networks was generally not created to support the goal of universal broadband access throughout the state. While public and private investments over the last decade have added essential infrastructure to support this goal, the job is not done, and too many areas of Maine remain unserved.”

That excerpt from Maine’s Five Year Action Plan required by the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program describes every American state and territory, encapsulating the fundamental problem of the nation’s highly fragmented advanced telecommunications infrastructure that falls short of universal service, leaving many without quality, affordable connectivity.

Consistent with current federal policy of subsidiarity leaving it to the states to establish universal service like that for landline telephone service, BEAD requires states to devise plans to provide universal service reaching every doorstep. The Five Year Action Plans must include timelines, cost estimates and funding sources to bring it about, with a subsidy funding preference for fiber to the premises (FTTP) delivery infrastructure.

The NTIA characterizes the $43 billion in BEAD subsidies largely targeted to exurban and rural areas deemed unworthy of investment by investor owned providers as a once in a generation initiative. “We are writing the next chapter of the great American infrastructure story,” said BEAD Program Director Evan Feinman. “But this is going to require a true whole-of-society effort” involving federal and state officials, local governments, providers, co-operatives, and communities.

However, a review of BEAD Five Year Action Plans filed with the NTIA as of this week shows states are struggling to devise solid, actionable plans to achieve universal service. Most are largely aspirational. Several note that BEAD subsidies alone cannot fully fund universal service along with an alphabet soup of other federal and state grant programs put in place over the past few decades. That’s implicit in BEAD program guidance that require the plans to include federal, state, and local funding sources to attain it. But nearly all the plans don’t identify state or other local funding sources to address the deficit in federal funding. Others point to the continued use of FTTP stopgaps such as fixed wireless and satellite service along with the expectation investor owned providers will build out their infrastructures.

The state plans generally point to a prolongation of the historical pattern of incremental construction that will leave universal service out of reach for the foreseeable despite the state plans stating advanced telecommunications infrastructure will reach all residents by the end of the decade. One off grant funding has encouraged the incrementalism since it only nibbles away at the infrastructure deficits rather than eliminating them, producing what analyst Karl Bode aptly describes as “half built,” incomplete infrastructure.

A single, long term, low interest federal loan program for lower cost government owned and consumer utility cooperative-owed FTTP infrastructure is a better option than the current confusing mix of grant programs. It would have program integrity built in via loan underwriting standards and collateralized network assets to protect public dollars – dollars that would go further with these lower cost deployers and attain universal service more rapidly since they don’t bear the burden of generating profits and dividends for investors as well as income taxes.

In sum, the state Five Year Plans reflect no true “uni” in the BEAD universal service initiative: one single guiding program policy principle and sufficient dedication of resources to close the infrastructure gaps and bring about universal service.

North Carolina homes in "digital distress" reliant on mobile access

The map below shows the percentage of homes that rely on mobile devices only or have no devices and either have no internet access or cellular data only.

 

 Source: STATE OF NORTH CAROLINA BEAD Program Five-Year Plan.

FCC’s proposed readoption of Title II rules won’t likely increase access and affordability

The Federal Communications Commission’s proposed rulemaking that would once again reclassify internet services as common carrier telecommunications utilities under Title II of the Communications Act from their current classification as information services under Title I of the statute in theory isn’t likely to have any meaningful impact on access and affordability.

President Joe Biden encouraged the FCC to adopt the rulemaking in a July 9, 2021 executive order, Promoting Competition in the American Economy. But the intent of the order to promote competition is at odds with the underlying rationale of Title II regulation that was used for decades to regulate voice telephone service. That regulatory scheme is properly predicated on the notion that telecommunications like other utilities functions as a natural terminating monopoly. The high cost of building utility infrastructure naturally deters potential competitors from entry – a point made by FCC Chairwoman Jessica Rosenworcel in a speech announcing the proposed rulemaking.

Utility infrastructure also affords incumbents first mover advantage, making it difficult for would be competitors to dislodge them. Investor owned utilities recognize the value there since connecting a customer premise essentially means owning the customer for the long term and potentially selling out to a consolidator for a big future payday. That incentive is now drawing in private equity capital into fiber to the premise (FTTP) deployment in areas where FTTP is spotty or nonexistent.

Since these microeconomic conditions cannot assure universal and affordable access, Title II does so by making telecommunications a common carrier utility, barring discrimination, and requiring reasonable requests for service be honored. It also allows for rate regulation. Authority for the latter was not included when the FCC last reclassified internet as a utility in a 2015 rulemaking and won’t in the forthcoming one, according to Rosenworcel. But the non-discrimination/universal service mandate – that Public Knowledge's Harold Feld has termed "the quintessential common-carrier obligation" – was.

Should it also reappear in the new proposed rulemaking expected to largely mirror the 2015 rulemaking, it’s questionable whether it will be meaningfully enforced. The FCC didn’t enforce that provision of the 2015 rulemaking, effectively letting service providers off the hook in response to a consumer complaint that a request for service wasn’t honored. All providers have to do is claim the customer location isn’t in its current footprint and the complaint is summarily dismissed. Similarly, providers might argue a request for service outside of its existing footprint is unreasonable since the necessary delivery infrastructure doesn’t exist, rendering the universal service mandate moot and allowing continued neighborhood redlining.

How open access model disrupts, offers potential to more rapidly scale FTTP infrastructure.

Open access infrastructure, wherein service providers lease the access layer of fiber to the premises (FTTP) networks to gain access to subscribers, offers substantial potential to alter the economics of deploying FTTP. FTTP deployment has lagged in the United States – currently passing less than half of all homes – because the business case for its deployment is based on recovering capital investment in a short term time horizon of 5-7 years from residential subscription fees. These deployers sell both access to its proprietary delivery infrastructure and bundled services delivered over a vertically integrated offering of web, email, as well as video channels and voice over internet protocol (VOIP).

Their business case analysis considers internal rate of return standards, the number of homes likely to purchase known as “take rate,” and projected average revenue per household unit or ARPU. That calculus has historically favored household density and income with the former carrying the most weight since the cost of deployment would be spread across more homes.

Open access infrastructure changes this revenue structure. Instead of solely relying on end user revenues, it derives some from leases to service providers. In the case of Utah’s UTOPIA Fiber open access network, fully 70 percent comes from service providers and the balance from end users. Open access infrastructure must attain significant scale to reach a lot of end users in order to offer an attractive market to service providers to lease access to the network.

The open access model also lengthens the investment time horizon allowing deployers to attract more patient capital that doesn’t need to hit ROI over the short term. It’s in it for the long game. The demand for FTTP is there – owing in large part to the fact that more than half of U.S. households lack access to it - and will continue to be. It’s also a long term asset with a life span of 30 to 50 years. And it’s sticky, affording deployers first mover advantage. Whoever deploys first is likely to own that end user premise customer for decades.

As one of the first open access networks formed in the early 2000s, UTOPIA Fiber has achieved the scale necessary to make the model work, serving 20 Utah municipalities that collectively own the network. The financial appeal of the open access model has also attracted private players including SiFi Networks, which according to its website is now in 11 American cities. More recently, AT&T is getting in on the open access action, forming a joint venture with BlackRock to deploy open access FTTP outside of AT&T’s existing service area.

Northern California could potentially host the nation’s largest regional open access network in terms of scale and geography, serving 40 member counties of the Rural County Representatives of California (RCRC) with the RCRC’s nascent Golden State Connect Authority, formed in 2021 as a joint powers authority. There, the open access model could provide FTTP in less densely populated areas passed over by the large, investor owned telephone and cable companies under the traditional closed access bundled services business model. Many households there are forced to rely on substandard, expensive wireless services.