Open access fiber: Public ownership offers lower cost operating model. Private ownership less constrained capital access.

Gigapower CEO Bill Hogg – the brand name for AT&T’s joint venture with BlackRock’s Global Infrastructure Fund to build open access fiber delivery advanced telecommunications infrastructure -- boasted other open access networks would be unable to scale up like Gigapower. Gigapower will be “much larger than any other provider in the space,” Hogg declared at a webcast panel presentation last September hosted by Broadband Breakfast. “The scale at which we are going to operate will be a differentiator in the U.S. marketplace.”

Publicly owned open access networks like UTOPIA Fiber, owned and financially backed by a 20 Utah municipalities, operate with a built in cost advantage over investor owned infrastructure like Gigapower. They operate free of the need to generate profits and earnings dividends for investors and income tax liability. Those advantages should provide them the ability to match the scale of Gigapower as regional open access networks.

But that advantage could be offset by freer, ready access to expansion capital from BlackRock’s Global Infrastructure Fund. The fund includes state and local pension funds, sovereign wealth funds, and family endowments, according to Adam Walz, managing director of the fund. According to Walz, the fund is focused on investments in digital infrastructure opportunities across fiber networks, data centers, and wireless infrastructure.

AT&T and BlackRock can independently make decisions on which Gigapower projects to build and finance. By contrast, publicly owned open access networks rely on capital bonds sold on public bond markets to finance construction. Bond underwriters set the terms and conditions of bond offerings and may require additional sources of repayment security beyond network revenues from end users and lease fees paid by internet service providers to access the network. That limits the scale and pace at which they can expand.

Going forward over the long term, this boils down to a competition between private and public capital and which is most responsive to slake the nation’s deep thirst for fiber to replace outdated metallic delivery infrastructure. The competition will likely play out at least initially in densely developed areas since both forms of ownership presently prefer them over less dense areas: privately owned for more rapid ROI and publicly owned to better assure sufficient bond debt servicing.

AT&T’s two pronged fiber build out strategy

AT&T appears to be pursuing a two pronged strategy to build out fiber to the premises (FTTP) delivery infrastructure. The first is targeting densely built up metro areas with its Gigapower joint venture with BlackRock’s Global Infrastructure Fund. The second using subsidies extended to the states from the 2021 Infrastructure Investment and Jobs Act’s (IIJA) Broadband Equity, Access, and Deployment (BEAD) Program to build FTTP infrastructure in less densely developed areas that meet the program’s funding eligibility requirements.

Last fall, AT&T urged states to award the BEAD subsidies for contiguous builds that qualify as unserved (where at least 80 percent of serviceable addresses in the project are not offered throughput of 25/3 Mbps or better) and underserved (where at least 80 percent of serviceable addresses are not offered throughput of 100/20 Mbps or better). However, under BEAD, states must first exhaust their funding allocations on subsidies for projects addressing unserved locations.

As noted in the above linked blog post, AT&T’s BEAD funding appears predicated on the two generations of Digital Subscriber Line (DSL) technology that runs over its legacy copper voice telephone delivery infrastructure. The first, ADSL, will in many less densely developed areas qualify as unserved since it typically provides bandwidth lower than 25/3 Mbps. However, these areas are often adjacent to those served by its second generation VDSL technology. Those areas won’t qualify as unserved but could likely qualify as underserved.

Federal and state officials overseeing the award of BEAD funds will likely come under pressure from AT&T to liberally interpret the program rules to allow subsidization of contiguous FTTP projects spanning areas including both types of DSL technology. Expect AT&T to argue that this will provide the most efficient use of the funds and cover the greatest number of serviceable locations as well as meeting the BEAD program's preference for FTTP.

The d factor: Why publicly owned, financed FTTP may not balance the Crawford equation

Author Susan Crawford in her 2019 book Fiber: The Coming Tech Revolution – And Why America Might Miss It, set out a vision of ubiquitous and affordable fiber connections as with copper delivered voice telephone service in the 20th century.

The United States stumbled in the late 1980s and early 1990s by failing to develop a comprehensive strategy to transition from the legacy copper to fiber to support digital Internet protocol voice, video and data services. Instead, fiber to the premises (FTTP) was left to the market whims of investor owned companies that construct it only where it meets their rate of return and profitability standards. That’s typically densely settled urban and suburban areas.

That leaves much of the nation outside these areas unfibered with uncertain prospects for FTTP amid a multiplicity of siloed federal and state grant programs. Only recently have these programs begun to favor FTTP for subsidization albeit with eligibility still based on marketed “broadband” bandwidth to protect the customer “footprints” of incumbent providers from interlopers.

An open question is can publicly owned and financed regional telecom authorities provide a lower cost work around to the investor owned providers whose business structures require them to generate profits and dividends for their owners and pay income taxes on their earnings?

Let’s call Crawford’s vision the Crawford equation and express ubiquitous access as x and affordability as y. Can these alternative business models solve for both since they avoid the higher structural costs of the investor owned business model?

They may not. It boils down to the same reason for both: residential density. Let’s call it the d factor. For the investor owned providers, building FTTP isn’t likely to pencil out in less densely developed exurban areas with lower d value featuring curvilinear roads instead of suburban and urban grid-style development. These areas typically fall short of the investor owned standard of about 15 homes per linear road mile. That translates to more road miles and a relatively lower number of homes per mile. That leads to higher construction costs and longer returns on investment, diminishing the short term profitability investors desire and more certain revenues debtholders want for debt service.

For publicly owned providers and particularly open access FTTP networks reliant on network revenues to service capital bonds, bond underwriters prefer a sizable number of end users to ensure bonds secured by network revenues obtain sufficient revenue from end user fees. That correlates with d. A higher d factor translates to more end users. That translates to lower default risk since there is more revenue to secure debt service. The y factor -- affordability -- can also be adversely affected by networks seeking to boost the x factor in less densely developed areas.

For ISPs offering services to end users, the d factor is similarly critical. ISPs aren’t going to be interested in leasing network access unless there is a sizable market of end users, particularly since they are likely competing against other ISPs on an open access network.

Bottom line, publicly owned and financed FTTP infrastructure may not solve the Crawford equation for much of exurban America where telecom infrastructure is often substandard and not up the needs of knowledge workers migrating to metro fringes and beyond.

Replacing copper with fiber: poles need replacing too

Hundreds of thousands of utility poles, hundreds of millions in funding and increasingly tight deadlines are part of Virginia’s quest to bring broadband to far-flung rural locations.

The commonwealth has been among the nation’s leaders in deploying internet, state leaders and observers say. But the goal of bringing universal high-speed access — with lots of federal and state money in play — is facing delays.

The latest delays center on stringing broadband fiber across electric utility poles, some of which are so out-of-date that they need to be replaced. Issues between internet service providers and pole owners include how much the work will cost and who will pay for it. 

Cost is a large part of the make-ready process and is typically the ISP’s responsibility. If a pole is outdated and must be replaced according to the National Electric Safety Code, that could ultimately be a utility’s responsibility, and a fair amount of that is going on in rural areas, Marsden said. But there is a lot of room for gray in determining who is responsible and who has to pay, and that can slow the make-ready work as ISPs and owners negotiate, McKay said.

https://cardinalnews.org/2024/01/03/as-broadband-funding-flows-expansion-projects-hit-a-low-tech-snag-utility-poles/

A major cost of updating the nation’s outdated legacy copper infrastructure designed for voice telephone service is not only replacing the copper with fiber but also the poles to which it is attached. Like the copper cable plant, much of the nation’s utility pole stock is deteriorated and at the end of its useful life.

This is a big deal because in less densely populated regions of the nation, burying conduit is cost prohibitive and prone to delay over right of way access, making aerial fiber construction on existing utility pole infrastructure the preferred option.

The Infrastructure Investment and Jobs Act (IIJA) of 2021 appropriated $43.45 billion in grants to the states to subsidize advanced telecommunications distribution infrastructure. That funding is targeted to these less densely settled exurban and rural areas more likely to qualify for funding as delineated in the law as “unserved” and “underserved” locations. Much of that funding could be chewed up to cover the cost of replacing old poles.

The IIJA separately appropriated $5 billion to the states for fiscal years 2022-2026 (with a 15 percent match) for undergrounding electrical equipment and utility pole management. That amount is way below what’s needed in high fire risk areas of the western U.S. where electrical utilities look to underground distribution lines to reduce the risk of sparking wildfires like those in California over the past several years that consumed entire communities and thousands of homes.

Doing so would offer a “dig once” opportunity to place fiber conduit underground instead of on aerial poles. The Broadband Equity, Access, and Deployment (BEAD) Program set up by the National Telecommunications and Information Administration to administer the IIJA’s telecom infrastructure appropriation encourages states to develop plans that utilize existing infrastructure (such as utility poles) and “promote and adopt dig-once policies, streamlined permitting processes and cost-effective access to poles, conduits, easements, and rights of way, including the imposition of reasonable access requirements.”

Groups urge NTIA’s Davidson to adhere to preference for FTTP in BEAD subsidies

America’s adversarial Pinata telecom policy is heating up. Three telecom trade groups urged the National Telecommunications and Information Administration (NTIA) to resist calls for alternative technologies and maintain a long term focus that prioritizes grant funding of fiber to the premises (FTTP) advanced telecommunications infrastructure in its Broadband Access, Equity, and Deployment (BEAD) program.

The organizations also called on the NTIA “to establish metrics going forward to track whether States and Territories have fulfilled their responsibilities to connect all eligible locations to high-performance broadband service and maximize all-fiber builds, the critical communications infrastructure for the 21st Century.”

While the groups didn’t specifically mention fixed wireless access (FWA) as an alternative to FTTP, their joint letter is clearly intended to head off arguments by FWA providers that they can get more locations connected faster and cheaper than constructing FTTP. Another FTTP alternative is extending coaxial cable plant that comprises the majority of the delivery infrastructure used by cable companies, the dominant providers of landline IP telecom.

“Too often, as federal broadband funding programs have moved from concept to implementation, there has been a tendency to seek to support broadband infrastructure that is ‘just good enough’ for the moment,” the NTCA–The Rural Broadband Association, the Fiber Broadband Association and ACA Connects–America’s Communications Association wrote the NTIA’s Alan Davidson in a February 2, 2024 letter.

“Under these prior programs, initial lofty goals of giving every American robust and affordable connectivity that will last for generations have given way to delivering the bare minimum to satisfy user demands here and now – leaving consumers and communities vexed and resulting in the need to establish yet more programs to address the needs left unaddressed.”

The basis for the groups’ position is the Infrastructure Investment and Jobs Act (IIJA) authorization allowing Davidson to develop technical criteria that prioritizes advanced telecommunications infrastructure eligible for BEAD funding based on throughput, reliability, and consistency in quality of service. The rationale as stated in the IIJA is to “ensure that the network built by the project can easily scale speeds over time to meet the evolving connectivity needs of households and businesses” and provide backhaul for wireless technologies and other advanced services. The NTIA in its Notice of Funding Opportunity (NOFO) for the BEAD program specifically defined that as “end-to-end fiber-optic facilities to each end-user premises.”

Report: GFiber parent Alphabet seeks outside investment as part of spin off strategy

Metro fiber to the premises (FTTP) player GFiber is seeking external investment to capitalize its expansion. Reuters (via yahoo! finance) reports GFiber’s parent company Alphabet has retained an investment bank to start the process of selling equity in the company, citing a source close to Alphabet's efforts.

Reuters quoted the source as saying the goal is to spin off the unit, formed in 2010 as the nation grew impatient to migrate from its legacy copper telephone service delivery infrastructure to fiber-delivered Internet protocol-based voice, video and data.

"This next step of raising external capital will enable them to scale their technical leadership, expand their reach, and provide better internet access to more communities," Ruth Porat, Alphabet's president and chief investment officer, told Reuters in a statement. 

GFiber’s debut -- branded as Google Fiber -- was enthusiastically welcomed by localities looking for a more rapid alternative to bring fiber connections than the slow walking legacy incumbent telephone companies. But the company faces the same high capital expenses that come with utility infrastructure construction. It identified no overwhelming technological or marketing advantage over the incumbents as a Google 10X project, throttling back expansion plans in 2016, most notably and somewhat embarrassingly in its Silicon Valley region headquarters. "There’s no flying-saucer shit in laying fiber," Google co-founder Larry Page later explained.

In a move similar to Alphabet’s seeking outside investment capital for GFiber, AT&T in late 2022 entered into a joint venture with private equity firm BlackRock to build fiber connectivity to an initial 1.5 million customer locations beyond AT&T’s current footprint branded as Gigapower. Gigapower CEO and retired AT&T executive Bill Hogg, asserted in 2023 that Gigapower will be “much larger than any other provider in the space. The scale at which we are going to operate will be a differentiator in the U.S. marketplace.”

GFiber parent Alphabet’s move appears aimed at rivaling Gigapower’s plans. GFiber has a presence in 18 states and plans to expand to 25 new metros, finalizing a franchise for the Las Vegas metro this week, a metro also on Gigapower’s target list. It too will be entering the metro, according to the Las Vegas Review Journal.

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.