States could designate ISPs as public utilities as strategy to attain universal service

The National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program guidance spelled out in its Notice of Funding Opportunity (NOFO) requires states as part of their Five Year Action Plans to develop “a comprehensive, high-level plan for providing reliable, affordable, high-speed internet service throughout the (state) including the estimated timeline and cost for universal service.”

A potential component of these plans could be legislation deeming companies providing advanced telecommunications as common carrier public utilities and thus mandated to offer universal service to all of a state’s serviceable addresses. These are defined in the BEAD NOFO as “a business or residential location in the United States at which fixed broadband Internet access service is, or can be, installed.”

California legislation introduced this month (AB 1714) would designate these providers as common carrier public utilities. Other states could take a similar route in developing the universal service component of their Five Year Plans due to the NTIA this year.

Voice telephone service is regulated as a common carrier public utility under Title II of the Communications Act of 1934. Per the law, "It shall be the duty of every common carrier engaged in interstate or foreign communication by wire or radio to furnish such communication service upon reasonable request therefor..." It also bars them from “unjust or unreasonable discrimination” in “charges, practices, classifications, regulations, facilities, or services.”

The federal government has declined to regulate providers of advanced telecommunications as such, instead opting to regulate them as “information services” under Title I of the statute. Since information services are not classified as common carrier utilities, they are not subject to the universal service and non-discrimination mandates. That has led to substantial problems with access and affordability with advanced telecommunications that BEAD aims to remedy.

Feds punt universal advanced telecommunications service to the states

The U.S. federal government has whiffed multiple times over the past three decades when it comes to mandating universal service for advanced telecommunications as it did for analog voice telephone service before it. A universal service mandate recognizes that telecommunications infrastructure like other utility infrastructure functions as a natural monopoly because of high cost barriers to competitor entry and first mover advantage accorded incumbents limit choice among multiple sellers.

It first did so in the Telecommunications Act of 1996. The statute includes language stating legislative intent that access to advanced telecommunications and information services should be provided in all regions of the Nation including rural and high cost areas -- but no means to ensure that it would.

The closest federal policy came to mandating universal access to advanced telecommunications was in 2015 when the Federal Communications Commission (FCC) placed Internet protocol telecommunications under Title II of the Communications Act of 1934, classifying it as a common carrier utility requiring reasonable requests for service be honored and barring neighborhood redlining. The FCC declined to enforce a regulation adopting the reclassification and reversed course in 2018, repealing it.

Instead, the FCC and state public utility commissions must merely “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans … in a manner consistent with the public interest, convenience, and necessity” per 47 U.S. Code § 1302(a). The statute also turns economic logic on its head by mandating these regulatory bodies promulgate “measures that promote competition in the (aforementioned natural monopoly) local telecommunications market.”

In 2021, the feds punted the universal service issue to the states with the Infrastructure Investment and Jobs Act that appropriates $42.5 billion in grants to the states to subsidize advanced telecommunications infrastructure and prioritizing funding of fiber to the premise (FTTP) delivery infrastructure. The funding is administered under the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program.

The BEAD program requires states to develop “Five-Year Action Plans” including “a comprehensive, high-level plan for providing reliable, affordable, high-speed internet service throughout the (state) including the estimated timeline and cost for universal service.” It also frames universal access as a matter of digital inclusion and equity, noting that it's necessary for civic and cultural participation, employment, lifelong learning, and access to essential services. 

For the states, that will mean developing their own concrete universal service policies and funding strategies given that federal policy remains aspirational. A U.S. General Accountability Office report issued in May 2022 concluded there is no national strategy to guide the deployment of advanced telecommunications infrastructure. Instead, the report found, there are numerous, uncoordinated subsidy programs administered by multiple federal agencies.

How BEAD could fund incremental "edge outs"

Funding allocated in the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program could support incremental "edge outs" of  delivery infrastructure to relatively small numbers of homes and small businesses at the edges of incumbent providers' service footprints.

Incumbents know exactly where these addresses are located – no “broadband map” needed. They are bereft of landline connections because while they in most cases are serviceable addresses – i.e., able to be connected -- they’re spaced too far apart to meet providers’ internal return on investment (ROI) standards to build out delivery infrastructure to connect them. Infrastructure thus extends part of the way down a road, street or cul de sac where the ROI standard can be met and ends where it cannot.

Clusters of serviceable addresses may meet the density cutoff when viewed in isolation. But they are cut off from the network because lines to service them would have to be extended along roads and streets where there too few homes, businesses or institutions to meet the density standard.

Consequently, residents and small business operators have felt dissed and bitterly complained for many years they unable to order service while addresses a mile or two – or even hundreds of feet away -- can. And because these are a relatively small number of addresses among a much larger number of those served by an incumbent provider, there aren’t enough of them to justify a contiguous project for an alternative provider. This circumstance is typically found in small towns and exurban locations where dwelling density is below that of suburbs but well above that of rural areas – but not at a level sufficient to attract investor-owned incumbents.

According to BEAD program guidance spelled out in the NTIA's Notice of Funding Opportunity (NOFO), incumbent providers selected by states as subawardees could fund line extension projects to these premises. Under the NOFO, a project eligible for up to a 75 percent capital subsidy can be a small number of serviceable addresses and even a single address. It's possible incumbent providers could propose these line extensions to state offices charged with subawarding BEAD funding as a single project or grouped in large geographical regions, arguing batch processing their funding requests this way would expedite the BEAD goal of ensuring all state residents have access to service. 

For incumbent providers, incremental edging out minimizes the challenge of having to bear the operating expense of maintaining entirely new networks serving many addresses that in order to qualify for BEAD subsidies would have to be built in isolated, insular areas lacking reliable service. Adding a few addresses at the periphery of existing infrastructure allows the associated opex to be more easily absorbed without the need for ongoing subsidization.

Cable companies are most likely to do BEAD backed edge outs, extend their existing coax plant to reach addresses on the edges of their current footprints that fall below their current density standards. Incumbent telephone companies aren’t likely to have existing fiber plant to support edge outs to BEAD eligible unserved addresses (those where at least 80 percent are unable to order service with throughput of 25/3 Mbps or higher and latency not exceeding 100ms) since they tend to concentrate fiber builds in densely settled areas far from unserved areas. Copper cable plant in these areas is also less likely to be able to reliably support VDSL.

Cable companies can also meet the BEAD throughput requirement: at least 100/20 Mbps with less than 100ms of latency 95 percent of the time. Although BEAD funding is prioritized for fiber to the premise delivery infrastructure, states are likely to sign off on incremental cable build outs to increase access.

A possible obstacle for this potential strategy is challenges from fixed and mobile wireless providers claiming these addresses are served by them and are thus ineligible for BEAD funding. States could then be in the position of having to sort through these addresses to determine whether they are eligible as unserved or “underserved” – without service of at least 100/20 Mbps. Due to various factors affecting radio frequency propagation, that could vary considerably among these locations, making sorting out the challenges a tedious task.