FTTP out in the middle of nowhere

If lawmakers don’t revisit the advanced telecommunications infrastructure (ATI) component of the Infrastructure Investment and Jobs Act (IIJA) in the new year and the law is implemented strictly as written, 75 percent grant subsidies for fiber to the premise (FTTP) projects would likely be available only for those in extremely remote areas of the country where the cost per premise passed exceeds $10,000. 

That because the law makes those subsidies available only to builds where at least 80 percent of the premises to be served lack existing infrastructure that can provide minimum throughput of 25 Mbps down and 3 Mbps up with latency sufficient to support real-time, interactive applications. Additionally, its funding formula favors projects in these “unserved” areas that have higher than average costs due to their remoteness, and sparse settlement and topography.

While the federal agency designated to implement that ATI component of the IIJA – the National Telecommunications and Information Administration -- has until May 15, 2022 to set up a program to administer the subsidies, U.S. Commerce Secretary Gina Raimondo has indicated funding would be limited to these highly remote areas. "We have to make sure we don't spend this money overbuilding" existing infrastructure, Raimondo was quoted as saying in this Reuters story.

The upshot is the $43.45 billion in grants earmarked for ATI would likely be spent to connect a relatively very small number of remote premises given the high cost of connecting them, leaving behind metro area exurban areas and small towns with numerous gaps in existing ATI.

IIJA provides opportunity for structural separation with state, regional wholesale open access fiber networks

With the enactment of the Infrastructure Investment and Jobs Act (IIJA), the federal government and the states have an opportunity to structurally separate advanced telecommunications infrastructure and Internet Protocol (IP) services delivered over it by funding state and regional government owned wholesale open access fiber networks. That would boost access and affordability, and by extension, support virtual knowledge work, learning and telemedicine -- all of which jumped amid public health measures put in place during the COVID-19 pandemic. These large scale entities would also enjoy vital purchasing power as demand for labor and materials to build fiber networks is taxing their availability.

The Telecommunications Act of 1996 contained a structural separation component, requiring telephone companies to offer wholesale access their network infrastructure to retail Internet Service Providers (ISPs) -- referred to as unbundled network elements (UNE). But this provision lacks regulatory incentive for telephone companies to modernize their legacy copper networks to fiber. They leased access to their central office switches and legacy twisted pair copper plant to ISPs via dialup and later, digital subscriber line (DSL) that due to technological limitations could not serve all customers. Moreover, the telephone companies lacked market incentive to upgrade to fiber since they could derive passive revenues by placing the copper in runoff mode without sacrificing profits and shareholder dividends to capital expenditures. Consequently, only about a third of U.S. homes are passed by fiber.

With the IIJA, the National Telecommunications and Information Administration and the states can utilize $43.45 billion in grants earmarked for advanced telecommunications infrastructure in the legislation to attain a superior form of structural separation that can yield far greater public benefit than the 1996 legislation. Unlike shareholder owned telephone and cable companies, government owned networks have incentive to pursue the positive externalities that come with increased access and affordability that don’t accrue to the balance sheets of investor-owned infrastructure. These broad-based benefits clearly outweigh more narrow interests of their shareholders. 

Policymakers should implement and if necessary, amend the IIJA to ensure the widest and most rapid deployment of state and regional government owned open access fiber networks.

States should use IIJA advanced telecommunications infrastructure funding for government owned networks

Starting in 2022, state governments are in line to receive $43.45 billion in grants earmarked for advanced telecommunications infrastructure appropriated under the Infrastructure Investment and Jobs Act (IIJA). As California recently opted to do by appropriating $2 billion for state-owned middle mile transmission infrastructure, states should use the funds to build their own projects with telecom authorities (instead of so-called "broadband offices.")

Doing so avoids a fundamental conflict of interest and gives states more control over what infrastructure gets built and how quickly. As experience over the past two decades has shown, investor-owned legacy telephone and cable companies must naturally place the interests of their investors first and ahead of the public interest. The result has been a Swiss cheese pattern of infrastructure deployment in cherry picked neighborhoods that meet the rapid return on investment their shareholders demand. That leaves many others without the possibility of being connected, particularly less densely developed areas.

State and local governments are far better situated to build advanced telecommunications infrastructure with the public benefit goal of increasing access and affordability. By virtue of their public service mission, they can focus on attaining these benefits as well as the concomitant positive externalities such as enabling virtual knowledge work, distance learning and telehealth visits. They can also make the federal dollars go farther since they don't need to produce profits for investors.

States should also fund public utility districts and consumer owned utility cooperatives. They too are free of the conflict of interest between shareholders and end users since the latter are also the former.