Combining two flawed subsidy programs won’t build FTTP infrastructure

Fellow blogger Steve Blum of Tellus Venture Associates suggests coordinating the U.S Federal Communications Commission’s Connect America Fund (CAF) Internet telecom infrastructure construction subsidies with a state subsidy program administered by the California Public Utilities Commission to multiply the amount of money available for such projects. (See Blum's blog post here)

Combining two fundamentally flawed subsidy programs, however, won’t produce a beneficial result considering the underlying weakness of both. Each is primarily structured to subsidize bandwidth, not infrastructure. They do so by defining subsidy eligible areas based on existing low bandwidth levels supported and delivered by legacy infrastructure rather than subsidizing the construction of modern fiber to the premise (FTTP) infrastructure in high cost areas. If an incumbent provider is providing that minimum bandwidth level, the area is deemed ineligible. That furthers the goal of the legacy telephone and cable companies to preserve the status quo by making it more difficult for others to finance FTTP builds in their service territories.

This is a key shortcoming because the primary problem in California and the nation is outdated and inadequate telecom infrastructure that needs to be replaced with FTTP infrastructure. Also, incumbent local exchange carriers (ILECs) are not motivated to construct FTTP infrastructure in high cost areas regardless of the availability of subsidies. Their business strategy is to focus on more profitable mobile wireless services and on cherry picking high end private communities and parts of low cost, urbanized areas for very limited FTTP builds.

Blair Levin's "broadband competition" fantasy

Achieving Bandwidth Abundance: The Three Policy Levers for Intensifying Broadband Competition | ISOC-DC: The trial and many errors of my own work have led me to believe in the following bottom line: that the highest priority for government broadband competition policy ought to be to lower input costs for adjacent market competition and network upgrades. Today I will make the case for that bottom line and illustrate where I think the greatest opportunity is; to create a virtuous cycle of upgraded mobile stimulating low-end broadband to upgrade, which in turn causes an upgrade of high-end broadband which, by using its assets to enter mobile, accelerates the need for mobile to accelerate its upgrade further.

Blair Levin, a Brookings Institution fellow who drafted the U.S. Federal Communications Commission's National Broadband Plan issued in 2010, somehow believes boosting mobile wireless "competition" to offer greater bandwidth will generate synergistic "competition" among landline premise Internet service providers and result in "bandwidth abundance." 

It's utter hogwash for the simple fact that telecommunications infrastructure -- regardless of whether it supports mobile or premise service -- is not a competitive market. Never has been and never will be due to high cost barriers to entry and uncertain return on investment as a mathematical expression in Levin's presentation illustrates. 

Levin's fantasy scenario would have us believe that if Verizon deploys next generation 5G mobile service, that would somehow spur Comcast or AT&T, for example, to upgrade and build out fiber to the premise (FTTP) infrastructure in areas where Verizon has rolled out 5G mobile. It's wishful economic sophistry. Levin offers no explanation as to how or why that would occur.

Market forces cannot address U.S. telecom infrastructure needs -- because infrastructure is not a market

Lawmakers eye broadband deployment issues | TheHill: When asked about that contention, witness Deb Socia, Executive Director of NextCentury Cities, argued that broadband was essential enough that government should step in to improve access.

She said that she believe “we’re coming to the place where we need to think of it in the same way, that it is essential infrastructure and that we need all hands on deck.

“And if the market can’t solve the problem then we need to figure out how to solve the problem.”

Socia's point goes to the nub of America's telecommunications infrastructure problem. Telecom infrastructure is not a competitive market and never will be. Market forces therefore cannot offer a solution. Indeed, as I posit in my eBook Service Unavailable: America's Telecommunications Infrastructure Crisis, the nation's excess reliance on market forces has in fact brought about the issue of inadequate infrastructure wherein large numbers of Americans lack sufficient infrastructure to reliably deliver modern Internet-based telecommunications services to their homes and small businesses.

Tennessee cooperative official compares 1930s electrification to today's telecom infrastructure challenge

Officials Urged To Let Local Utilities Cooperate On Providing Broadband - Chattanoogan.com: Mike Knotts, director of government affairs, Tennessee Electric Cooperative Association, brought a somewhat different perspective to the conversation when he said, “Advanced telecommunications will be as important to the next 100 years of electric system operation as steam power was to the first 100 years.”

He said the number one barrier to providing adequate Internet access is “purely customer density” and suggested looking at the model of rural electrification in the 1930s. “What cured the problem of rural electrification was the ability to create nonprofit entities that were able to amortize those expenses over much, much longer periods (than private companies). That was the very simple magic that took, in 10 years, less than 10 percent of American farms being electrified to 100 percent — not much more in the secret sauce other than that.”

Actually, Mr. Knotts, there is a another ingredient that's missing today: capital. Unlike today, in the 1930s the federal government stepped up with significant funding and not just talk, window dressing and "funding leads."

Time to stop whining about lack of competition and build national telecom infrastructure

No 'Bundle' of Joy: Cost of TV, Internet and Phone Service Rising - NBC News: "What we're finding is that consumers in the U.S. pay more for less … than their peers around the world," said Sarah J. Morris, senior policy counsel at think tank New America's Open Technology Institute.

In a 2014 study, the institute found that home broadband connectivity at every speed was more expensive on average in the U.S. than in Europe. It also found that major American cities lag in both speed and pricing compared to overseas counterparts like Seoul, Hong Kong, Paris and even Bucharest, Romania.

"A lot of this breaks down to competition … even though the ISPs like to claim the market for broadband Internet access is competitive, when you really break it down, it's not," Morris said. "This exacerbates low speed for high cost."

Morris is correct. Telecommunications infrastructure and its vertically integrated, bundled service offerings by telephone and cable companies is a naturally monopolistic market. But complaining that a monopolistic microeconomy lacks competition isn't going to make it competitive. It's about as productive as complaining about the weather.

An example of a highly monopolistic form of infrastructure is roads and highways. They cost so much to build and maintain that with the exception of some privately operated toll roads, most are owned and operated by the government. Having a private competitive market with many road builders and operators would be uneconomic and wasteful. For drivers, it would make no sense to have a choice to take Road A, Road B or Road C from a given point to a given destination. One well maintained road with sufficient capacity would do just fine. Same thing with Internet service. One fiber highway and many fiber trunks and lines reaching all American homes, schools and businesses -- a national telecommunications infrastructure -- is what America needs, as I argue in my recently published book Service Unavailable: America's Telecommunications Infrastructure Crisis.

Obama flat wrong, at odds with FCC in framing telecom infrastructure as competitive market

Municipal Broadband Battles | Al Jazeera America: Amid concerns in some markets that big telecoms and cable companies are providing service that is too slow and too expensive, some cities are starting their own Internet services, spending millions of dollars to bring super-high-speed, or gigabit, Internet service to their communities through a new fiber-optic infrastructure. Proponents call it the single most important piece of infrastructure of the 21st century, attracting businesses, bolstering education and raising property values.

President Barack Obama has declared community broadband, as it’s called, a key to economic prosperity. “Today I’m making my administration’s position clear on community broadband. I’m saying I’m on the side of competition,” he said. (Emphasis added)

The problem with the president's framing telecom infrastructure as a competitive market is he's just flat out wrong. It can never be a truly competitive market with many sellers and choices for consumers due to the high cost of deploying fiber to the premise infrastructure. Those high costs have kept telcos and cablecos from upgrading their legacy infrastructures and building out fiber to all customer premises in their service territories to replace the outdated metallic cables designed for voice telephone and cable TV service of decades past. Instead, they've built limited fiber to the premise in selected high density "footprints" and redlined countless American neighborhoods, leaving many still on dialup that was state of the art technology when Bill Clinton was serving his first term as president.

Moreover, by furthering the notion that telecom infrastructure is a competitive market offering, Obama is at odds with the Federal Communications Commission that -- at Obama's urging -- adopted a common carrier regulatory framework early this year predicated on telecom infrastructure as a monopolistic market. Consequently, the FCC's Open Internet rulemaking requires Internet service to be offered to all customer premises requesting it -- as telephone service before it -- under the universal service and nondiscrimination provisions of Title II the federal Communications Act.

Title II universal service obligation could bolster cities' case in Verizon FiOS buildouts

Like NYC, Pittsburgh Claims Verizon Didn't Meet FiOS Promises | DSLReports, ISP Information: While Verizon long-ago froze further FiOS deployments, the company did strike sweetheart deals with numerous east coast cities that gave the city a citywide franchise and numerous tax benefits, in exchange for the promise of full city FiOS coverage. But as we noted at the time, most of those agreements came with fine print that allowed Verizon lawyers to wiggle over, under, and around any uniform fiber deployment obligations. Shockingly, cities like New York City are now thinking about suing the telco for missing deployment promises.

You can add Pittsburgh to the list of cities who believe they were swindled by Verizon. Pittsburgh Mayor Bill Peduto has, several years later, started noting huge coverage gaps in the city's FiOS coverage. Peduto was one of 14 Mayors that recently wrote a letter to Verizon begging the company to upgrade its lagging DSL networks.

The U.S Federal Communication's Commission recently promulgated regulations classifying Internet as a common carrier telecommunications service and subject to universal service obligations under Title II of the Communications Act could strengthen the cities' case against Verizon. Local governments have successfully asked the FCC to intervene on their behalf when legacy incumbent providers used state laws to bar municipalities from building their own fiber telecom infrastructure. They could do so in this instance as well in a major test of the FCC's willingness to hold big incumbents accountable under its new rules.

Local governments seek federal preemption of Internet regulation

In the early 2000s as legacy cable companies contemplated offering Internet-protocol (IP) based services including Voice Over Internet Protocol (VOIP), they feared local governments that franchised their decades-old cable television services would demand they offer IP services to all neighborhoods within their jurisdiction. That prospect was very real possibility given their residents had other options for television service including over the air broadcast and satellite, but would need landline infrastructure built out in order to provide universal Internet access as demand for Internet service jumped. Also, by offering voice service via VOIP, cablecos began emulating telephone companies that are required to offer universal service to any premise requesting it.

To head off what to them appeared to be a costly prospect, cablecos heavily lobbied state governments to preempt the locals by giving state public utility commissions franchise authority over IPTV. While nominally limited to video services, for both cablecos and phone companies the move forestalled for many years any local requirements they upgrade and build out their Internet infrastructure since their video services are typically bundled as part of landline premise Internet service.

Now more than a decade later, local governments are getting in on the preemption game. Since their oxen were gored by their states at the behest of the legacy incumbent cablecos and telcos, they are looking to the federal government for relief. An example is the Federal Communications Commission’s order earlier this year to preempt statutes in two states barring local governments from building their own infrastructure. Doing so would allow local governments to get around the state sanction of the incumbents’ redlining practices.

In Arizona, local governments appear to be looking to the feds to resolve a dispute involving the city, a legacy cableco and Google Fiber over the city’s regulation of video services. “The City believes these questions will more likely be resolved more definitively in the future by the Federal Communications Commission or a similar authority,” said Scottsdale Chief Information Officer Brad Hartig in a statement. (H/T to DSLReports).

In California, two legacy telcos are making an argument that would place Internet services in a regulatory non man’s land, subject to neither state nor federal jurisdiction. Frontier and Verizon contend regulation of Internet service falls under federal jurisdiction per the FCC’s order classifying Internet as a common carrier telecommunications service under Title II of the federal Communications Act. But at the same time, they argue that order does not preempt California law giving the California Public Utilities Commission jurisdiction over legacy (non IP-enabled) telephone service but not Internet services. (Item here at Steve Blum’s Blog)

U.S. facing telecom infrastructure crisis due to poor policies and planning, according to new book

A generation ago, it became clear that telecommunications was shifting to the Internet. However, as a nation, the United States failed to build the infrastructure to reliably support and deliver it to all Americans.

Today, the nation is paying the price for its lack of an orderly transition plan to move from legacy metal cable systems designed to support the analog voice telephone and cable television service of decades past to fiber optic-based infrastructure optimized for the Internet in the 21st century.

According to a new eBook, Service Unavailable: America’s Telecommunications Infrastructure Crisis, the United States – the nation that innovated the Internet – now stands at least two decades behind where it should be and requires a crash federal infrastructure initiative to catch up.

In much of the nation, many locations have no Internet service options due to inadequate infrastructure -- and have little prospect of obtaining service in the foreseeable future. According to the U.S Federal Communications Commission, as of 2015 approximately 55 million Americans – about 17 percent of the population -- live in areas unserved for basic Internet service capable of supporting high-quality voice, data, graphics and video. Meanwhile, demand for Internet bandwidth is growing exponentially as U.S. residential and business premises use multiple Internet-connected devices, straining the capacity of legacy landline infrastructure and wireless services.

Consequently, the nation now faces a telecommunications infrastructure crisis. As time passes, the crisis deepens as Americans grow increasingly reliant upon robust and reliable Internet connectivity that only fiber can accommodate now and into the future.

Just as the interstate highway system supported commerce in the twentieth century, the United States needs an information highway bringing fiber connections to all Americans no matter where they live in the information-based economy of the new century.

Authored by longtime telecommunications blogger Frederick L. Pilot, Service Unavailable drew praise from Michael Copps, who served on the U.S. Federal Communications Commission from 2001 through 2011:

“Pilot digs deep in the facts and emerges with a spot-on, realistic assessment of America's stultifying broadband shortfall,” Copps wrote in a foreword to the book. “He shows how two decades of federal inaction permitted huge telecom incumbents to ration scarcity rather than build bandwidth abundance. And he demonstrates beyond a shadow of doubt that without a true national mission to build this essential infrastructure, we will continue to stifle economic opportunity for millions of citizens and shackle America's global economic performance, too.”

Service Unavailable is offered through Amazon.com and iBooks.

Aging legacy copper infrastructure isn't solely a regulatory issue

Regulatory Relief Would Speed FCC’s Broadband Deployment Goals | USTelecom: Removing barriers to investment is a concrete action the Federal Communications Commission (FCC) can take to accelerate broadband deployment, USTelecom said in recent comments responding to an inquiry on the state of broadband availability. To that end, the commission should approve USTelecom’s forbearance petition requesting Incumbent Local Exchange Carriers (ILECs) be relieved of directing investment to legacy telephone networks and allowed to redirect that money to next-generation broadband networks. USTelecom said its member companies are required to invest in legacy networks that soon will become obsolete while other broadband providers- cable, wireless, and competitive fiber providers do not have this requirement, and that forbearance relief for ILECs would help the FCC achieve its goal of deploying broadband to all Americans in a reasonable and timely fashion.

This isn't a problem caused solely by regulatory requirements. Rather, it's a train wreck borne of poor policy and planning. Had an orderly plan to migrate from copper-based legacy telephone service to fiber-based Internet protocol-based telecommunications been put in place and executed starting two decades ago, the United States would not be in the current dire situation where legacy copper plant is literally rotting on the the poles. As it does, it grows increasingly less reliable to support voice telephone service -- and emergency call response -- in areas where the copper has not been replaced by fiber -- as well as copper-based DSL where it is offered.

Germany promises 50Mbps broadband for all, 10 times faster than global average

Germany promises 50Mbps broadband for all, 10 times faster than global average: As around 70 percent of Germany is already connected to networks of 50Mbps or faster, it will be a relatively ‘cheap’ task to connect the final 30 percent. The German government is putting aside €2.7 billion for the project, but will be looking for matched funding from local providers who will benefit from extending the reach of high-speed broadband networks.

“The German Federation will contribute up to 50 percent of the costs. A combination with development programs provided by German states is possible and can offer a further 40 percent of financing. The community would then have to provide the remaining 10 percent,” a spokesperson said.

The implicit policy assumption here is that by providing generous federal government and German state contributions along with a minor (10 percent) community contribution, the incumbent providers will have incentive to undertake Internet infrastructure construction and modernization.

The economics don't work out quite the same way in the United States. Unlike Germany, it isn't "relatively cheap" to build telecommunications infrastructure to reach the 55 million Americans who according to the U.S. Federal Communications Commission aren't offered service meeting even half Germany's benchmark. Instead of an ambitious initiative to bring fiber to nearly all American premises, U.S. policy is to provide small subsidies to incumbent telephone companies to build one off, 1990s-era DSL projects using existing copper outside plant serving small numbers of premises that don't even meet the FCC's benchmark and are already obsolete given burgeoning Internet bandwidth demand.

FCC's Sohn: Forget Incumbents, Build Your Own Broadband Networks | DSLReports, ISP Information

FCC's Sohn: Forget Incumbents, Build Your Own Broadband Networks | DSLReports, ISP Information: Don't wait for incumbent ISPs to build networks in uncompetitive areas, build your own networks. That was the message from FCC staffer Gigi Sohn at the NATOA Annual Conference in San Diego this week, ironically just days before Google announced that San Diego will likely be an upcoming Google Fiber launch market. According to Sohn cities tired about lackluster, uncompetitive service now have the power to do something about it.

The U.S. Federal Communications Commission's call to localities to "build your own" Internet telecommunications infrastructure likely coincides with its apparent policy not to immediately enforce its recently adopted Open Internet rulemaking classifying Internet as a common carrier telecommunications utility under Title II of the Communications Act. Notwithstanding that the FCC's order and rulemaking specifically declined to forbear enforcement of the law's anti-redlining universal service provision at Section 254(b)(3) requiring ISPs to provide access to advanced telecommunications in all regions of the nation.

Hyper local view of Internet telecom infrastructure misguided, reinforces network access disparities

City Broadband Plans: One Vision, Four Markets, Four Issues | Benton Foundation: My message today is simple: every city needs its own broadband plan.

At one time, I would have agreed with this statement by Blair Levin, who wrote the 2010 U.S. "National Broadband Plan" while serving on the staff of the Federal Communications Commission. I even went as far as paraphrasing the late House Speaker Tip O'Neill by declaring "all broadband is local" on this blog.

I no longer hold that view. It's not just about "broadband" in a given municipality or as is more often the case, a particular neighborhood. Instead, the truly important issue is ubiquitous Internet telecommunications infrastructure in keeping with the FCC's recent reclassification of Internet service as a common carrier utility. And that infrastructure is fundamentally interstate -- much like the federally funded interstate highway system -- and global. In that regard, it's not directly comparable to the municipal and cooperative electric power systems created in the early 20th century that generated and distributed power consumed locally. The Internet is a telecommunications network that reaches far beyond the borders of a given city or town and whose true value is recognized by Metcalfe's Law, which holds a network increases in utility as more users are added to it. In short, it's all about the network and not "broadband" or discrete "gigabit cities."

The hyper-local focus on this essential infrastructure for the 21st century is well meaning and understandable in the absence of strong federal leadership and support. But it's also misguided and dangerous because it serves to reinforce incremental thinking and Internet infrastructure disparities that have plagued the nation for a generation. It's also unrealistic to expect local governments to shoulder the financial burden as they continue to deal with the adverse impacts of the 2008 economic downturn and are strapped to fix crumbling roads, schools, sewer and water infrastructure and fund enormous public pension obligations.

If it is to realize the full value of the Internet, the United States should instead adopt a bold, wholistic and robustly funded national Internet infrastructure initiative to bring fiber infrastructure to all homes, businesses and institutions.

Cable companies facing enormous shifts in market, regulatory environments

Cable companies like Comcast, Time Warner and others are facing enormous shifts in the market and regulatory environment that are likely to prove very challenging to navigate going forward. Earlier this year, the U.S. Federal Communications Commission subjected cable companies to Title II of the Communications Act in its Open Internet rulemaking deeming Internet service providers -- cable companies top the list measured by total customer premises served -- common carrier telecommunications utility providers under Title II. 

That's hugely incompatible with cable's business model based on offering subscriptions to bundles of TV channels to selected -- and not all -- customer premises in their service areas. At the same time as this regulatory sea change is occurring, the marketplace is also being disrupted as consumers increasingly shun these offerings.

Cable's subscription-based model is far better suited to the FCC's previously adopted classification of Internet service as a specialized information service -- and the cablecos' market positioning of themselves as entertainment and not telecommunications providers. Now it's gone except in the unlikely event the courts step in and restore it. Meanwhile, consumers are turning elsewhere for video entertainment.

Gov. Beshear, Rep. Rogers launch statewide broadband network – The Ohio County Monitor

Gov. Beshear, Rep. Rogers launch statewide broadband network – The Ohio County Monitor: Reliable, high-speed Internet is coming to every county of the state, and supporters say the broadband project will be the key catalyst for profound and sweeping growth in job creation, health access and education.

To celebrate the construction of the statewide KentuckyWired, I-Way broadband network, Gov. Steve Beshear, Congressman Hal Rogers, state and local officials and hundreds of citizens gathered at Hazard Community and Technical College to learn more about KentuckyWired and how Kentucky’s future will benefit from broadband.

The broadband project will begin in eastern Kentucky and over the next three years will spread throughout the state.

*  *  *

The leaders also called on communities and local providers to get ready for the project by preparing the “last mile,” or the Internet hookups from the broadband “highway” to homes and businesses. (Emphasis added)

It's one thing to build middle mile Internet infrastructure such as the project reported here. But the value of that middle mile infrastructure can only be fully realized when it connects homes, businesses and institutions via last mile infrastructure. Merely issuing calls to communities and local providers to build it is no assurance that last mile infrastructure be constructed in a timely manner, particularly given the business model and financial challenges. There needs to be a holistic plan to build a complete telecommunications system. Otherwise there's the very real risk of ongoing Internet access disparities as I previously commented.

AT&T to deploy "wireless local loop" fixed premise service in high cost areas

AT&T will apparently use wireless technology to provide fixed premise Internet telecommunications services using funding from the Connect America Fund (CAF) to subsidize infrastructure costs in high cost areas of the nation. The U.S. Federal Communications Commission announced this week that AT&T accepted $428 million in annual subsidies from the CAF to serve 2.2 million rural consumers in 18 states. Since the FCC requires CAF recipients to provide connectivity of "at least" 10Mbps for downloads and 1Mbps for uploads, the wireless gambit could potentially meet that standard. AT&T's wireless strategy was communicated to the FCC in a letter dated August 27, 2015 (H/T to California-based Steve Blum of Tellus Venture Associates):

We anticipate meeting our CAF Phase II obligations through a mix of network technologies, including through the deployment of advanced wireless technologies on new wireless towers that will be constructed in previously unserved areas. We will diligently pursue the necessary tower siting and permitting processes so that these new towers can be completed in a timely manner.

As previously mentioned in this space, the so-called "wireless local loop" (WLL) infrastructure strategy proffered in 2014 as part of AT&T's proposed takeover of DirecTV will also help AT&T meet its universal service obligations under the FCC's recently adopted Open Internet regulatory scheme classifying Internet as a common carrier telecommunications service. The strategy will also provide alternative premise service delivery infrastructure as AT&T retires its legacy copper cable outside plant.

The upshot for AT&T customers: Those that were never offered DSL service when AT&T rolled it out more than a decade ago might now see premise service roughly equivalent to DSL sometime in the next five years while those outside the very limited range of its U-Verse triple play DSL-based service could find themselves switched from legacy DSL to WLL.

An unresolved problem, however, is as Internet bandwidth demand continues its inexorable rapid rise, the WLL technology will be obsolete as soon as it's deployed and falls short of the FCC's current minimum benchmark for Internet service of 25Mbps down and 3Mbps up adopted earlier this year.

U.S. paying price for lack of orderly transition plan to fiber telecom infrastructure

FCC Orders Rules for Copper Retirement | POTs and PANs: The biggest issue I see with getting rid of copper is where the phone company doesn’t have an alternate landline network ready for the transition. It doesn’t seem like a big issue to me when a company like Verizon wants to move customers from copper to FiOS. There have already been tens of millions of customers who have changed from copper to either FiOS fiber or to a cable company network who have experienced and accepted the required changes.

But AT&T has said that they want to walk away from millions of rural copper customers. That would force customers to migrate to either the cable company or to cellular wireless. This could be a huge problem for business customers because there are still a lot of business districts that have never been wired by the cable companies. And even where a business can change to a cable company network, they are not always going to be able to buy the services they want from the cable company. For example, those businesses might be using trunks or Centrex today that isn’t supported by their cable provider. These businesses are going to be facing an immediate and expensive upgrade cost to keep the kind of service they have always had.

Doug Dawson lays out the effects of the train wreck caused by the lack of an orderly transition plan in the U.S. to migrate from copper to fiber telecom infrastructure that should have been put in place a generation ago. The consequences of this and misplaced reliance on market forces in a monopolistic microeconomy are now coming home to roost. More on this in my forthcoming book, Service Unavailable: America's Telecommunications Infrastructure Crisis, available in September.