After decades and a patchwork of grant programs, what’s next for U.S. advanced telecommunications infrastructure policy?

By the late 1980s and early 1990s when it became apparent internet protocol-based telecommunications would replace legacy analog voice and cable TV, the United States failed to put in place policies to ensure the timely modernization of its delivery infrastructure – twisted pair copper telephone and coaxial cable, respectively – to fiber optic lines. Instead of integrated, comprehensive policy, it developed a patchwork of grant programs to attempt to fill in holes in a giant Swiss cheese, crazy quilt pattern of fiber infrastructure construction by a mix of public, consumer cooperative and mostly private sector corporations.

That became a paper chase of “broadband mapping” designed sort grant eligible holes from the cheese, including controversy over what meets government quality standards for the cheese. While nominally intended to expand affordable access to advanced telecommunications – something that enjoys widespread support -- the process is an adversarial one prone to delay and controversy. Incumbent providers – typically investor owned – claim they already sell cheese where another entity insists there’s a hole, requesting grant funding to build fiber to fill it.

The competitive paper chase is posed to heat up considerably in 2023 as the federal and state governments determine how to allocate nearly $43 billion in grants earmarked for advanced telecommunications infrastructure in the Infrastructure Investment and Jobs Act (IIJA) of 2021.

Even after all that "once in a generation" money is spent, the nation will likely continue to come up short getting fiber to every doorstep without resolving the larger question of how is the infrastructure optimally owned and operated to ensure universal affordable access and uniform service level and reliability standards. Government owned regional advanced telecom authorities along with utility cooperatives are the best option since the short term, market segmented business models of investor owner/operators don’t lend themselves to attaining these. They are also better able to ensure ongoing financial support and stability without the need to generate profits for investors.

This is not to say there isn’t a role for investor-owned entities. There is plenty of work for them to design, build, operate and offer services over the fiber infrastructure just as is the case with other public works such as transportation infrastructure. But as history has shown with the nation’s fragmented Swiss cheese advanced telecommunications infrastructure, they can never place the public interest in ubiquitous, affordable access to modern infrastructure ahead of that of their shareholders and can only build fiber where it generates a relatively rapid return on investment. Telecom policymakers should act accordingly and appropriately assign the roles and players instead of the futile effort of sorting the “broadband” holes from the cheese.

IIJA provides NTIA opportunity to route around flawed "broadband map," use infrastructure-based standard for subsidization.

Extending the process to challenge the U.S. Federal Communications Commission’s data on the availability of broadband Internet access service proposed in recently introduced federal legislation won’t ultimately lead to complete and accurate data for the allocation of infrastructure subsidies to the states. The reason as Doug Dawson details in a blog post is the data is based on marketing claims of providers of where they provide service.

ISPs are pretty much free to claim whatever they want. While there has been a lot of work done to challenge the fabric and the location of possible customers – it’s a lot harder to challenge the coverage claims of specific ISPs. A true challenge would require many millions of individual challenges about the broadband that is available at each home.

While that’s consistent with the nation’s current market-based regulatory paradigm for advanced telecommunications, it can’t possibly be complete and accurate. Nor is it intended to be. The purpose of marketing is to create brand awareness and attract potential customers, not for planning the deployment of critical infrastructure.

Fortunately, the Infrastructure Investment and Jobs Act (IIJA) provides a workaround to the fool’s errand of “broadband mapping” based on marketing claims. It does so with a flexible definition of “broadband” that would allow it to be defined in administrative versus statutory law. Section 60102(a)(2)(B) of the IIJA defines it by reference to 47 Code of Federal Regulations 8.1(b):

Broadband internet access service is a mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up internet access service. This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence or that is used to evade the protections set forth in this part.

or any successor regulation. (Emphasis added)

Although the context clearly refers to the FCC, there is nothing in the statutory language that limits the promulgation of a successor regulation to the FCC. The National Telecommunications and Information Administration (NTIA), which has prioritized fiber to the premises (FTTP) delivery infrastructure for subsidization in its Broadband Equity, Access and Deployment (BEAD) program, could promulgate its own regulation citing this authority in the IIJA. 

Such a rulemaking could use a fiber infrastructure-based subsidization eligibility standard, consistent with the IIJA’s intent to modernize and expand critical infrastructure in the 21st century. That could include a different challenge process based on the rebuttable presumption that FTTP doesn’t exist -- very likely in what the IIJA identifies as subsidy eligible areas with poor existing service. Those that would challenge FTTP subsidies would be required to show that it does and passes all addresses in their service areas with an exception for extremely remote locations. 

As Dawson writes, "Grant funding could have been done in other ways that didn’t rely on the maps. I don’t think it’s going to make much difference if we delay six months, a year, or four years – the maps are going to remain consistently inconsistent." 

Investor-owned providers make FTTP “land grab.”

Just a few years ago, it would have been hard to imagine investor owned legacy telephone and cable companies would consider a major push into fiber to the premise (FTTP) due to their extractive business model constraints averse to major capital expenditures. That tends to favor fiber builds in high end condominiums and select “fiberhoods” as a luxury amenity.

A recent roundup in Broadband Communities paints a picture of regime change in what an economist quoted in the article calls a fiber “land grab” even in historically less densely developed areas where ROI was too far out to justify investment in FTTP. Cable providers are abandoning coaxial cable and migrating to FTTP. Overbuilding incumbents with fiber – also previously unheard of – is occurring. The overall impression from the article is FTTP is busting out everywhere, albeit a generation late relative to the demand for Internet-based services. (Separately, even private equity -- impatient capital hardly a source for long term capital investment - is getting in on the fiber real estate rush, looking for a future profitable flip.)

What’s driving the change? A couple of likely factors. There’s first mover advantage: whichever provider gets fiber to the prem first gets a very sticky customer thanks to the terminating monopoly characteristic of these connections. It’s not as though they have multiple fiber connections and can chose among them. Nor is it economically feasible to provide them. Legacy providers may also be lengthening their investment timescale away from the traditional internal ROI standard in order to gain first mover advantage, knowing they’ll own the customer over the long term and the opportunity to sell services to them.

Second, to foster an impression of progress and momentum after years of minimal investment in FTTP fueling public policy discussion of the nation’s advanced telecommunications infrastructure deficiencies displayed in stark relief during the public health restrictions of the 2020 pandemic outbreak. Investor-owned providers probably know that they don’t appear to be making rapid progress to remedy them, support for public and consumer utility coop owned FTTP and appropriations to help fund them will grow despite plying elected officials with campaign contributions. That could also spark proposals to regulate commercial internet delivered services as common carrier public utilities. That would bring with it requirements to honor customer requests for FTTP connections and state rate regulation that are anathema to investor-owned providers.

Should BEAD green subsidize greenfield FTTH?

Legacy incumbent telephone and cable companies might conceivably seek state subsidies under the federal government’s Broadband Equity, Access and Deployment (BEAD) program is to edge out their footprints to serve new “greenfield” housing developments. These providers prefer new housing developments for multiple reasons. The homebuyer is going to need service and new homebuyers tend to be relatively higher income and generate good ARPU and ROI. Deals can be cut with homebuilders to bring fiber to each homesite. It’s easier to trench fiber in new and unoccupied housing developments as lots and streets are being finished.

From the service provider’s perspective, greenfields are  a better risk to extend fiber to the home (FTTH) than a brownfield development that is already generating revenues, often on non-FTTH delivery infrastructure, thus requiring households to upgrade to fiber or to overbuild an existing provider. In a greenfield development, every household can be connected to FTTH before the new homeowners move in.

Greenfields nominally qualify for BEAD subsidies because there’s not yet an existing provider offering service, thus meeting eligibility threshold of not less than 80 percent of broadband-serviceable addresses being unserved or underserved. BEAD guidance defines a “Broadband-Serviceable Location” as “a business or residential location … at which fixed broadband Internet access service is, or can be installed” (as with a new housing development).

Providers that have historically preferred greenfields as better risks might also be willing to pay higher BEAD match amounts than the minimum 25 percent, possibly 50 percent or more, given BEAD guidance that encourages states to incentivize proposed projects with higher match amounts.

Greenfield projects seeking BEAD subsidization could however raise digital equity concerns by federal and state BEAD administrators. They might conclude the use of subsidies for these lower risk builds does not comport with the legislative intent expressed in the Infrastructure Investment and Jobs Act (IIJA). The statute notes the “persistent ‘‘digital divide… disproportionately affects communities of color, lower-income areas, and rural areas”— populations that typically face affordability challenges to buy in new home developments and may resent adjacent neighborhoods being offered government subsidized FTTH when they are not served by it.

Relative advantages, disadvantages of public and private capital investment in FTTP

As the long running battle between public and private capital continues in the advanced telecommunications space amid what have described as a private capital “gold rush” to capture and own customers, here are the relative advantages and disadvantages of each. 

PUBLIC CAPITAL ADVANTAGES	PUBLIC CAPITAL DISADVANTAGES
Access to lower cost, more patient capital in public bond markets.	Lack of coherent, committed public policy and strategy for getting FTTP to most all doorsteps.
No need to earn profit or pay shareholder dividends.	Goal dilution; focus on ancillary benefits vs. universal FTTP connectivity.
Longer term commitment.	Slower capital allocation due to political decision-making process and tax & fee resistance/exhaustion. Private capital deals can be made within months vs. years.
Accountable to public interest and not just investor shareholders.	Subject to disinformation campaigns by private capital owners exercising First Amendment rights.

 

PRIVATE CAPITAL ADVANTAGES	PRIVATE CAPITAL DISADVANTAGES
Current dominance as legacy (telephone and cable company) providers. First mover advantage in natural (utility) monopoly that can slow end user acceptance of public owned open access FTTP.	Business model constraints that limit capex for deployment, misalignment between capex and ROI needs.
Unregulated “wild west” spawns “gold rush” for cherry picked FTTP archipelagos offering relative rapid ROI; no universal service mandate, rate regulation.	Negative public perception due to deployment of FTTP only in select neighborhoods and not most; poor customer support.
Established control of public narrative based on “broadband” as market commodity vs. FTTP as utility infrastructure.	High debt and shareholder dividend obligations.
Public policy path dependency recognizing private sector dominance of policymaking process.
Relatively rapid access to private capital markets, private equity.

“Business model agnostic” rating urged by legacy incumbent telco for BEAD subgrants

Investor-owned providers, anxious public policymakers might adopt a fiber to the premises (FTTP) infrastructure standard for advanced telecommunications infrastructure that would complicate their business models, for years urged public policymakers to instead embrace a “technology neutral” standard.

Policymakers at the state level who will distribute $42.5 billion in federal grant subsidies appropriated under the Infrastructure Investment and Jobs Act (IIJA) are now hearing a similar sounding plea – this time aimed at dissuading them from favoring publicly owned FTTP once the federal dollars arrive. Lumen Technologies is urging Oregon to adopt a “Business Model Agnostic” standard when evaluating subcontract awards to connect premises where the vast majority – 80 percent – are not offered throughput meeting what the Federal Communications Commission in 2015 deemed “broadband” or those deemed “underserved” and not offered throughput of at least 100Mbps for downloads and 20Mbps uploads.

In a PowerPoint presentation at the March 30 meeting of Oregon’s Broadband Advisory Council, Lumen cited an open access fiber build by the Kitsap County (Washington) Public Utility District as an example of the risk of not being business model agnostic that shows higher monthly and service drop fees than Lumen charges for its vertically integrated (connection and services) “Quantum” branded FTTP. Jim Farr, manager of Lumen’s Mass Markets Grant Team, also urged Oregon officials to score subgrant applications to favor those having low per premise passed cost to maximize the number of premises connected, which would likely leave less densely developed neighborhoods unconnected.

Lumen’s motivation is clearly to own the customer. Whoever owns the delivery infrastructure owns the customer in a natural monopoly market that characterizes utilities. The problem with that is it turns access to advanced telecommunications into a market commodity, with FTTP regarded as a premium product offering in highly segmented markets where there are sufficient premises and households most likely to generate the fastest return on investment and highest revenues.

That’s contrary to current federal policy expressed by the Biden administration to connect all Americans, highlighted this week by Commerce Secretary Gina Raimondo at an interview with Yahoo Finance. "The reality is, if we're going to connect every American, including the tens of millions of Americans who now don't have the internet, we're going to have to lay fiber all across this country,” Raimondo said.

There is another way to get there besides regarding advanced telecommunications as a binary choice between public and private capital. But in order to do so, U.S. telecom policy will have to shift away from the dominant private sector “own the customer” business model in which it has been mired for decades and is the major impediment to near universal access to affordable FTTP connectivity.

That means public (or consumer cooperative) ownership of the infrastructure and various levels of involvement of private capital to design, build, operate and deliver services over it. This eliminates the winner take all dynamic in which investor-owned providers must ensure their shareholders come out as winners. Consequently, the public has been losing for decades as shown by continuing issues with access and affordability. That calls for a more comprehensive, holistic policy instead of doling out one off grants as consolation prizes to the public when the public interest inevitably comes in second place.

Oregon audit reinforces BEAD direction to states on universal service

As states move to the forefront to provide affordable access to advanced telecommunications with the direction of the federal government’s Broadband Equity, Access and Deployment (BEAD) program to develop Five Year Action Plans for universal service, a recent State of Oregon audit report offers them some critical guidance.

It meshes well with the National Telecommunications and Information Administration’s use of the word “action” in the requirement states develop strategies to ensure universal service to all their residents in their Five-Year Action Plans. Those strategies must be actionable roadmaps and not serve as aspirational wish lists that gather dust after they’re issued. From the Oregon Audits Division report:

The (Oregon) Broadband Office published a strategic plan in January of 2020, prior to the COVID-19 pandemic. The plan is high-level and notes: “This plan is aspirational and designed to carry out the mission and directives charged to the Broadband Office. The scope of activities the Broadband Office will ultimately undertake will be enabled, or limited, by the resources available.”

The plan does not contain specific and realistic approaches, strategies, or appropriate KPMs for how these aspirations will be measured, reported, and achieved; nor does it identify what resources would be needed to undertake the scope of activities.

The biggest reason “broadband plans” over the past 15 to 20 years have been aspirational is they were conditioned on funding. That’s to be expected for a bet on the come financing strategy that relies on one off government grants. An action plan by contrast has a clearly identified funding source to ensure universal service and not one based on the hope that financing will someday become available.

The resulting lack of progress naturally angers people who’ve had their hopes for modern fiber connections to replace legacy metallic ones dashed for years amid piecemeal, incremental progress that never quite seems to reach them where they live and work despite promises from their elected representatives at all levels of government. A solid plan can help restore their trust in public officials to get the job done where the private market cannot.

The Oregon audit notes “Oregon’s broadband public policy needs to be focused on the future, be more aggressive, be more financially supportive, be more specific, and have a renewed sense of urgency.” (Emphasis added)

Being more financially supportive means Oregon (as well as other states) cannot continue to rely on one off, highly restrictive government grants to attain universal service. They need to develop ongoing organic funding for the both the construction and reliable operation of fiber to the premise (FTTP) advanced telecommunications infrastructure to every doorstep. Grants such as those available through BEAD can only do part of the job – implicit in BEAD’s Five-Year Action Plan requirement.

Amid fading federalism in U.S. telecommunications policy, states on deck to regulate

For Plain Old Telephone Service (POTS), federalism underpins a scheme of shared regulatory oversight between the federal government (the Federal Communications Commission specifically) and state public utility commissions. It operates under the framework of Title II of the Communications Act of 1934 that regards telecommunications networks as a natural monopoly. Accordingly, voice telephone service is regulated as a common carrier utility to ensure it is accessible (universal service) and affordable (rate regulation by state PUCs) given the absence of market forces and buy side market power to assure that it is.

This federalist regulatory scheme does not exist for advanced, internet protocol (IP) telecommunications. Since 2018, federal policy promulgated by FCC administrative law regards it as a lightly regulated information service under Title I of the Communications Act similar to dialup services like CompuServe and America Online that were widely used in the early 1990s. Congress has not weighed in on the matter of how IP telecom is to be regulated since the 1996 Telecommunications Act, which similarly adopted a light touch, wait and see stance. Recent court rulings have cleared the path for states to move forward.

In the absence of regulatory federalism for IP-based telecommunications, one leader state is considering legislation that would regard IP telecommunications as a common carrier utility. AB 1714 would amend California’s Public Utility Act to include “broadband service” offered by a corporation (defined in the statute as including a corporation, company, an association, and a joint stock association) within the definition of a public utility. “Broadband Internet access service is defined at California Civil Code Section 3100(b) as “a mass-market retail service by wire or radio provided to customers in California that provides the capability to transmit data to, and receive data from, all or substantially all Internet endpoints, including, but not limited to, any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service.”

“Just as the infrastructure of water and electricity grew at the end of the 19th century and led to the creation of regulation to make sure that these technologies were available to everyone, the internet has grown to a point that demands it be regulated as a public utility subject to the same regulatory process to make sure that everyone has access to this technology, moving us closer to digital equity,” said the bill’s author, Assemblymember Jim Wood in a news release. 

The proposed legislation comes as AT&T California petitioned the California Public Utilities Commission to relieve it of its POTS universal service obligations as carrier of last resort in parts of the state where there are alternatives such as VOIP (Voice Over Internet Protocol) or mobile wireless.