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.”