California Internet infrastructure subsidy rules erect roadblocks for last mile fiber projects

A notable aspect of California’s eight-year-old program to subsidize the cost of constructing Internet telecommunications infrastructure is the general lack of participation by incumbent telephone and cable companies. In that regard, it has not fulfilled the usual public purpose of subsidy programs designed to help offset the costs of building and operating telecommunications infrastructure in high cost areas such as those used for landline telephone service.

The program, the California Advanced Service Fund (CASF), is administered by the California Public Utilities Commission, which is directed under California Public Utilities Code Section 281(a) to "administer the CASF to encourage deployment of high-quality advanced communications services to all Californians that will promote economic growth, job creation, and the substantial social benefits of advanced information and communications technologies..."

Instead, the CASF has subsidized mostly middle mile fiber and a small number of last mile wireline and wireless projects by non-incumbents. The last mile projects have nearly all been located in remote areas of California not served by the incumbent telephone and cable companies. Proposed projects elsewhere such as the Bright Fiber project in the Sierra Nevada foothills have been subject to lengthy bureaucratic delays under CPUC rules governing CASF eligibility.

The rules parse the state into thousands of discrete “unserved” and “underserved” areas where existing providers don’t sell specified advanced telecommunications services and authorize incumbents to challenge projects that would overbuild them and fall outside of these designated areas. The rules and a federally-funded project by the CPUC to map these areas have served to erect red tape roadblocks that stymie projects proposed by non-incumbents as project proposers, incumbents and consumer advocates argue over the mapped territories and boundaries. These parochial disputes have chewed up enormous amounts of time and resources and delayed construction of much needed telecommunications infrastructure, defeating the public policy intent of Section 281(a).

While California is not among about 20 states that have statutes designed to protect incumbents from overbuilders, the CASF rules have operated to produce a similar result, leaving millions of California residents without robust wireline Internet service options. California innovated much of today’s information and communications technology and is rightly regarded as a leader in the field. However, when it comes to advanced telecommunications infrastructure, the Golden State is a laggard.

Why legacy telcos, cablecos are incorrect in arguing government-built fiber telecom infrastructure is "unfair competition"

The primary public policy argument advanced by the legacy incumbent telephone and cable companies in support of state laws proscribing or prohibiting the public sector from building or subsidizing community owned fiber to the premise (FTTP) Internet telecommunications infrastructure is that doing so represents unfair competition against them.

It’s a fallacious argument because the incumbents and communities aren’t in the same business – a basic prerequisite for market competition.

The incumbents are in the business of packaging and selling discrete bits of Internet bandwidth. They sell it by throughput speed with speed tiered pricing for wired premise service and by volume – the gigabit -- for mobile (and inappropriately for premise) wireless services. The faster the connection and the more bandwidth consumed, the higher the price. Naturally, the incumbents segment their service territories and product offerings to generate the highest possible profit for that bandwidth. After all, they owe it to their shareholders.

State and local governments on the other hand aren’t in the bandwidth business or selling it to generate maximum profit. They are in the infrastructure business – planning, constructing and financing it to support public objectives such as economic development and enhancing the delivery of public services. In the 20th century, they did that by building roads and highways. In the 21st, they do it by building FTTP infrastructure.

Tiered rates for Internet service cannot be justified and demand attention from utility regulators

Homeowners and business operators are familiar with tiered rates in which a premise pays more for using higher amounts of water, electricity or natural gas. These are consumptive utilities that impose greater costs on utilities to provide them in larger quantities, thus justifying higher rates. At the same time, tiered rates encourage conservation of these finite resources by tapping into the economic principle of price elasticity. The principle holds that as price increases, demand declines and vice versa.

Encouraging conservation by making consumers pay more to use more – and hence reducing demand via price elasticity – makes sense in the case of water, for example, in the severe drought being experienced in California and other parts of the western United States. But it doesn’t make sense for America’s latest utility as recently declared by the U.S. Federal Communications Commission: Internet telecommunications service.

Internet service providers inappropriately price the utility as if it were a consumptive, resource-based one like water, electricity or natural gas. For example, this week Frontier Communications announced it is offering fiber-delivered Internet service with speed tiers of 30/30, 50/50, 75/75, 100/100 and 150/150 Mbps in Beaverton, Oregon. The higher the speed, the higher the monthly price.

It makes no sense to slice and dice Internet bandwidth like this on a fiber circuit with huge carrying capacity. Nor can it be rationally argued that providing higher speed tiers to a customer premise imposes higher marginal costs to deliver them and they therefore should be priced above lower speed tiers. This market practice cannot be economically justified. Moreover, it is exploitative of and unfair to consumers and demands attention by telecommunications regulators.

AT&T launches ultrafast Internet service in Cupertino - ContraCostaTimes.com

AT&T launches ultrafast Internet service in Cupertino - ContraCostaTimes.com: It's also unclear just who in Cupertino will be able to receive the GigaPower service. At launch, the service is available at "several thousand" homes in the city, said Terry Stenzel, vice president and general manager of the Northern California and Reno region for AT&T. But Stenzel declined to give an exact number or say what percentage of the 20,000 households in the city or what neighborhoods have access to the service, citing competitive reasons.

"They're unwilling to tell anybody. Not even me," Mayor Sinks said.

Cupertino doesn't have any commitment from AT&T to offer service to all areas of the city or to bring service to government buildings, schools or hospitals, Sinks said.

"They've stopped short of any commitment on that," he said.

Now that the U.S. Federal Communications Commission has adopted rules this month classifying Internet as a universally available common carrier telecommunications service, it's going to be more difficult as time goes on for dominant providers to cherry pick and redline neighborhoods as is being done here.

Open access fiber networks offer way to boost access to Internet services

The United States suffers from costly and disparate Internet access due to a vertically integrated business model based on the old copper telephone network. Under that model, the network infrastructure and the telecommunications services sold over it are provided by a single company such as AT&T or Verizon. It’s the same model used by cable companies, where the network operators that bring the cable to customer premises “own” the customer and bill for separate or bundled services on a monthly subscription basis. Google Fiber also operates under this business model.

That business model is inherently limited because it can expand and upgrade service only to the extent new customers and revenues can be added quickly enough to generate a rapid return on the money invested to build out the infrastructure. That circumstance and the high cost of constructing telecommunications infrastructure naturally make telcos and cable companies very conservative when it comes to expanding their networks.

That risk aversion in turn has brought about widespread market failure. There are potential buyers clamoring for service but the telephone and cable companies decline to provide it. This is essentially where the U.S. has been stuck for the past decade, creating massive frustration for consumers and for state and local governments hoping to improve Internet telecommunications access that has grown increasingly vital for their communities and economies.

Fortunately, there is a way out of the mire with open access fiber networks as Andrew Cohill of Wide Open Networks explains in this article appearing in the March/April issue of Broadband Communities magazine. Highly recommended reading for government officials and consumers.

As health care goes online, Internet infrastructure takes on greater importance

Internet Backup Options Can Be Pricey, Complicated - Data Centers on Top Tech News: Disruptions to Internet service can and do happen for many reasons, ranging from hacker attacks to solar storms. With online access vital for so many services today, such interruptions can be far from merely inconvenient.

Last month's vandalism in Arizona, for example, raised "major implications for telehealth in northern Arizona," according to the Arizona Telecommunications & Information Council. That's a concern for many rural and tribal communities for whom phone and Internet services can be the primary means of accessing health care.

San Antonio’s size proving to be a challenge for Google Fiber - San Antonio Business Journal

San Antonio’s size proving to be a challenge for Google Fiber - San Antonio Business Journal: One of the challenges for Google is developing the infrastructure needed to support a new fiber-optic network, including a system of equipment shelters. That process is complicated because of land mass and topography.

But Google officials insist that the company continues to work with San Antonio officials and expects to have a progress report on the Alamo City’s expansion status before the end of the year.

Reading between the lines, it appears Google Fiber is facing the classic demand muni officials have made of cable providers in franchise negotiations, i.e. that the providers serve all addresses and not just some per Google Fiber's walled garden "fiberhood" infrastructure deployment strategy.

As Google Fiber looks to expand, it will likely increasingly confront this demand and choose to walk away, especially if state public utility commissions back up local governments by enforcing the U.S. Federal Communications Commission's recently adopted rules designating Internet services as common carrier utilities subject to a universal service mandate. That factor along with its limited financial resources to build costly telecommunications infrastructure will significantly limit Google Fiber's U.S. expansion under its current "own the customer" business model.

AT&T hopes to squeeze more milk from the pay TV cow to boost earnings and pay dividends -- not to fund network CAPex

New Services Cloud AT&T’s Bet on Pay TV - WSJ: AT&T Inc. knew it was buying a melting ice cube when it agreed to acquire satellite-TV company DirecTV last year for $49 billion. But recent moves by HBO, Apple Inc. and the National Football League have turned the temperature up a few degrees.

A wave of new TV services delivered over the Internet allow Americans to get prime programming like the hit HBO series “Game of Thrones” and ESPN sports without paying a big cable or satellite bill. That, in theory, means fewer customers for bundles of TV channels like those sold by DirecTV. And unlike cable companies, DirecTV doesn’t have a significant broadband business to fall back on.

AT&T is aware of the risks. Chief Strategy Officer John Stankey says the telecom giant figured when it did the deal that demand for traditional bundles of TV channels probably had peaked. But AT&T is betting the decline will be slower than many people think—a gradual 34-degree melt, as opposed to a 75-degree one— and that it will be able to milk the cash produced by the declining satellite business in the meantime to fund upgrades in its networks. (Emphasis added)

It's an unlikely bet since given AT&T's business structure and strategy. Milking the pay TV cow boosts earnings and pays fat dividends, not CAPex.