Paradoxical affordability crisis facing publicly owned Vermont CUDs

NEK Broadband continues to bring affordable fiber access to the long-neglected corners of the Green Mountain State. According to the latest update by NEK Broadband, a recently completed rollout has delivered affordable fiber access to 700 new addresses across multiple rural Vermont communities. NEK Broadband is one of nine Communications Union Districts (CUDs) scattered across the state of Vermont. NEK Broadband alone represents 45 Vermont communities across Caledonia, Essex, Orleans and Lamoille Counties in the northeast part of the state (see the full list of communities here).

NEK Broadband currently offers four tiers of broadband service: symmetrical 50 megabit per second (Mbps) service for $80 a month; symmetrical 250 Mbps service for $103 a month; symmetrical 500 Mbps service for $135 a month; and a symmetrical gigabit per second (Gbps) offering for $250 a month.

Unlike many large private cable and phone companies, there are no hidden fees, usage caps, or long-term contracts with NEK pricing. As a non-profit municipality, any revenue created through broadband subscription services gets funneled back into building and repairing infrastructure and increasing affordability for local residents.

Vermont CUDs tell Fierce Wireless they are considering the creation of a new, statewide fund to help fill the gap defunding the ACP will create, leveraging “philanthropic dollars, local donations, and digital equity dollars.”

https://communitynets.org/content/nek-broadband-expands-access-affordable-fiber-rural-vermont

If NEK Broadband’s rates are representative of other CUDs, it’s not hard to see why some households might struggle to afford the lowest cost option at $80 a month. It’s also something of a head scratcher insofar as publicly owned advanced telecommunications infrastructure comes with a lower cost structure than investor owned that must generate profits for investors and pay income taxes.

That offers major advantages for access and affordability since more premises can be connected and offered lower monthly access fees than with investor-owned ISPs. Yet ironically, here we are witnessing the same affordability challenges as with investor owned ISPs. And not surprisingly so at rates that emulate those of investor-owned ISPs and unfortunately reinforce the perception of "broadband" as a luxury.

To give NEK Broadband the benefit of the doubt, it could well be those rates are needed in order to service capital expansion and finance costs. But given the affordability issue, it might behoove it and other CUDs to take another look at the numbers before resorting to setting up a charity to support affordable access. For example, can they pencil out at a flat $50/month for all residential users at the same bandwidth for all instead of slicing and dicing bandwidth into price tiers like investor-owned providers do? Most nearly all households could probably do fine over the near term with symmetric 100 to 300 Mbps, assuming they aren’t hosting server farms.

BEAD framed as end of one off grants for advanced telecommunications infrastructure

The fiber broadband industry is experiencing a historic moment. According to Joseph Wender, Director of Capital Projects Fund at the U.S. Department of the Treasury, never before (and likely never again) have multiple government agencies provided tens of billions of dollars in funding to provide affordable, reliable, high-speed internet for all Americans and close the digital divide once and for all. “We are living in a historic moment and it is exciting, which makes our jobs much more important. We have to get it right this time,” Wender said on this week’s Fiber for Breakfast episode.

https://fiberbroadband.org/2024/01/17/making-a-down-payment-on-affordable-reliable-high-speed-internet-for-all/

Wender is correct. The United States is at a policy inflection point on the future of the nation’s advanced telecommunications infrastructure. It’s at this point because it lacks a national strategy to guide its deployment, the U.S. General Accountability Office (GAO) observed in 2022 and 2023.

While the GAO didn’t specifically say so, the main casualty of this policy failure is the now long tardy modernization of copper telephone lines that reached nearly every address in in the 20^th century to fiber optic lines with the proven capacity to carry high quality digital voice, data and video. It should have been completed by the start of the second decade of the 21^st.

That has led policymakers to spend the last three decades defining the issue by its resulting symptoms of constrained access and affordability that worsened a decade later with the public health restrictions imposed in response to a viral pandemic. That spawned according to the GAO 133 disparate federal funding programs administered by 15 agencies, mostly one off grant programs aimed at treating constrained capacity by boosting “broadband” bandwidth.

That has begun to shift somewhat in the latest and largest grant program, the $43.45 billion Broadband Equity, Access, and Deployment (BEAD) state grant subsidy program administered by the National Telecommunications and Information Administration (NTIA). BEAD expresses a clear preference that the subsidies be spent on fiber as the best long-term value for taxpayer dollars.

To the point of this article and others like it, there’s a tone of finality associated with these one time grant subsidy programs that has accompanied BEAD. It’s been described as “once in a lifetime,” and “once in a generation.” Hence, warnings by Wender to “get it right this time,” because the tap is being shut off and the pinata party will soon end.

“Pinata policy” instead of well thought out strategy for universal access

In 1996 and nearly a quarter century later in 2021, the United States enacted legislation stating public policy that all Americans should have access to reliable advanced telecommunications. The 1996 Telecommunications Act stated that “Consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services.” It also charged the FCC and state public utility commissions to “promote competition and remove barriers to infrastructure investment.”

There’s a major flaw with both bills. The 1996 Telecom Act is predicated on the inaccurate notion that premise advanced telecommunications functions as a competitive market and thus market forces and technological advances will bring about universal access. That’s incorrect because advanced telecommunications infrastructure like other utilities and voice telephone service functions as a natural terminating monopoly where market forces are weak or nonexistent. Many buyers but few sellers and high cost barriers to competitor entry along with first mover advantage enjoyed by incumbents discourage competition and cannot be overcome by regulation. In 1996, no technology was superior to fiber to the premise (FTTP) for reliably delivering advanced, Internet protocol-based voice, video and data and none better has emerged since.

The Infrastructure Investment and Jobs Act (IIJA) of 2021 contains findings by Congress that “Access to affordable, reliable, high-speed broadband is essential to full participation in modern life in the United States” and a “persistent ‘digital divide’ is “a barrier to the economic competitiveness of the United States and equitable distribution of essential public services, including health care and education.”

But like the 1996 Telecom Act, the legislation contains the flawed assumption that “increased competition among broadband providers has the potential to offer consumers more affordable, high-quality options for broadband service." (Emphasis added) That’s not a solid policy to bring about the aforementioned access. The term “has the potential” reflects the same aspirational, magical microeconomic thinking that a natural monopoly utility market can somehow transform itself into a competitive one with providers competing to sell FTTP connections door to door. Electric power, natural gas and water utilities don’t work that way and neither do telecommunications lines.

Achieving universal access to reliable advanced telecommunications infrastructure like the copper lines that brought voice telephone service to most every American doorstep in the 20th century is undoubtedly good public and economic policy. But it cannot be attained if the underlying assumptions about it are based on wishful thinking. Also needed is well considered program policy to implement the goal that’s absent from both pieces of legislation.

Instead, the U.S. has defaulted to what could be called pinata policy. Various federal agencies established tightly proscribed and vastly oversubscribed grant programs to futilely throw money at the challenge hoping the goal will somehow be met. Then investor-owned telecom and cable companies and public entities whack at the pinata with big sticks and scramble for some of the grant dollars that fall to the floor. That’s hardly well thought out program policy that’s optimally aligned with policy and puts the funding cart before the policy horse.

The pinata fights will grow more intense in 2024 as states will have to sort out competing claims by private and public sector entities over eligibility for some of the $43.45 billion in grants appropriated by the IIJA to states to subsidize advanced telecommunications infrastructure projects. As 2023 drew to a close, California offered a preview for another federal grant appropriation to states for advanced telecommunications infrastructure.