Why the "last mile problem" is a national problem

In the United States, telecommunications infrastructure deficiencies tend to be defined as a local or "last mile" problem. Residents of homes, businesses and government buildings have orders for services refused by providers because no infrastructure exists to deliver them. Or the cost of service is exorbitant, offering very poor value.

Since the problem typically manifests in a specific neighborhood or at a particular address, it's naturally seen as local problem. Particularly when premises just down the road, around the block or elsewhere in the neighborhood are offered service, a broader selection of services or service at considerably higher value.

But while the problem manifests locally, it is not fundamentally a local problem nor is it confined to a single area with a local root cause or causes. It's a microeconomic issue that occurs throughout the nation due to a common cause: market failure on the sell side due to incumbent telephone and cable companies deeming a neighborhood, road, street or even address not sufficiently profitable to serve -- even if consumers request service. It's known as redlining.

Local problems with local causes naturally lend themselves to local solutions. However, telecommunications infrastructure market failure and redlining and price gouging are not local in origin. They are the national business policy of the dominant incumbent providers that while not legal under current U.S. Federal Communications Commission rules, nevertheless are a widespread pattern and practice affecting similarly situated consumers. The resulting market failure is a national problem because telecommunications infrastructure is essentially interstate. National problems require national solutions.

Debate over government role in telecom needs to distinguish between infrastructure and services

Internet access tops Legislature’s list, despite questions of risk - OANow.com: Lee County: Alabama’s Republican legislators are championing a bill that, if passed, would make the state the first in the country to have broadband Internet in all of its public schools. Locally, Sen. Tom Whatley, R-Auburn, sponsored a bill to remove restrictions on the service area of a municipal public provider, like Opelika Power Services.

But David Williams, president of the National Taxpayers Protection Alliance based in Washington, D.C., argued that providing Internet is not the role of government. “I’ve been doing this for 23 years now,” Williams said, adding that he has been looking at municipal broadband projects for the last five years. “Providing broadband and cable TV services isn’t a core function of the government.

Williams' assertion needs to be broken down in order to engender a more informed debate. Let's stipulate he is correct insofar as providing digital media services isn't a core function of government, particularly given the critical role of a free and independent press in a democracy.

However, Williams ignores the fact that the providers of these services generally lack the telecommunications infrastructure in order to make them available to every home, school and business since their business models cannot support the capital investment necessary to build it. The resulting market failure has left some 14.7 million American homes without landline connections needed to deliver high quality data, graphics and video -- not to mention VOIP -- according to this analysis by Doug Dawson of CCG Consulting.

Government has a key role to remedy this market failure in telecom infrastructure by constructing fiber to the premise networks as public works just as they do roads and highways -- while leaving the services delivered over them to private providers.

California telecom infrastructure deficiencies concentrated in metro central, north valley counties

The large bulk of California’s deficient access to landline advanced telecommunications infrastructure manifests in the state’s central and north valley regions, concentrated in counties designated by the U.S. Office of Management and Budget (OMB) as urban metro counties.

Source: U.S. Department of Agriculture Economic Research Service. http://www.ers.usda.gov/datafiles/Rural_Definitions/StateLevel_Maps/CA.pdf

The below state map produced by the Central Coast Broadband Consortium (h/t to Steve Blum of Tellus Venture Associates) shows areas designated by the California Public Utilities Commission as unserved and underserved for landline advanced telecommunications infrastructure are concentrated in and around the Central Valley municipalities of Modesto and Fresno, in the Sierra Nevada foothills east and northeast of the state capital of Sacramento in Placer and El Dorado counties, and up the Interstate 5 corridor in Sutter, Butte and Yuba counties to the Shasta County seat of Redding in far northern part of the state.

These are not sparsely populated areas as shown by the map’s legend, which indicates a large presence of census blocks with populations of 150 to 300 people per square mile (designated as orange) and more than 300 per square mile (designated as red). By definition, a portion of these census block areas is not even considered rural (population density of less than 250 per square mile) by the California Healthcare Workforce Policy Commission relative to the availability of medical services.

Source: Central Coast Broadband Consortium. http://map.centralcoastbroadbandconsortium.org/
Accessed February 14, 2016

 

The takeaway is America’s telecommunications infrastructure deficits and disparate access cannot be necessarily be described as a “rural broadband” issue, particularly when looking at the nation’s most populous state. The operative "R" word here is these areas have been redlined for telecom infrastructure modernization as have similar areas throughout the United States.

5 key indications of America's telecommunications infrastructure crisis

The crisis confronting the United States relative to modernizing its telecommunications infrastructure to support fiber connections for all occupied premises manifests in five key areas:

1. Ongoing access disparities with 34 million Americans unable to obtain telecommunications service capable of delivering high-quality voice, data, graphics and video.
2. Excessive reliance on the constrained, subscription-based business models of legacy incumbent telephone and cable companies to undertake needed infrastructure modernization and expansion.
3. Underfunded state and local government efforts to build and subsidize telecommunications infrastructure modernization projects.
4. Underfunded, restrictive federal government programs to subsidize telecom infrastructure serving rural regions based on obsolete technical standards.
5. Tightly restrained private sector construction of fiber to the premise infrastructure, limited to selected major metropolitan area neighborhoods.

Modernizing telecom infrastructure too big of a job to be left to cities

101 US Cities Have Pledged to Secure High Speed Internet | Motherboard: The US has a big and rather complicated internet speed problem. Its broadband infrastructure is woefully behind in speed and price compared to a broad swath of other countries, and much of this has to do with its tenacious commitment to maintaining the status quo: that is, giving big telecommunications companies a lot of our money without being able to demand a fair amount in return. But here’s a change: 101 cities are have agreed to band together to bring their residents gigabit-speed internet connections, even if they have to build it themselves.

Municipal governments are justifiably concerned that not having modern fiber to the premise telecommunications infrastructure adversely affects their economies, making them less than desirable destinations for residents and businesses considering locating there. The problem is constructing and maintaining it isn't in the budgets of local governments still reeling in the aftermath of the 2008 economic crisis. Other infrastructure such as streets, public buildings and water and sewer systems are at the end of their useful lives, competing for any dollars that could be directed toward building telecommunications infrastructure. Local governments nationwide are also strapped with enormous public pension obligations.

Aside from these financial challenges, legacy incumbent telephone and cable companies regard their service areas as sovereign territories, deploying armies of lawyers and lobbyists to defend them from local governments hoping to build fiber to the premise infrastructure to remedy service deficits and access disparities. Thus far, no munis appear inclined to assert their jurisdictional authority by exercising inverse condemnation powers and/or creating Internet telecommunications franchises. Even if they did, it would likely result in costly litigation that would delay construction for years if not decades at a time when telecom infrastructure modernization is already a generation late.

These circumstances do not bode well for municipal telecom infrastructure efforts. Given the billions needed to upgrade the nation's legacy telecom infrastructure in order to bring fiber connections to every American home, school and business, a national telecommunications infrastructure modernization initiative is clearly needed. Telecom infrastructure doesn't serve only cities. It connects cities to their states, states to other states and the nation to the world. It supports interstate commerce and is fundamentally interstate in nature, not just urban or rural as it is often mischaracterized. Building interstate infrastructure is a national undertaking that can't be left to local governments to accomplish.

Wheeler talking through his hat on "cable competition"

Stop the Cap! FCC Chairman Tells Crowd He's "Not Done Enough" to Bring More Cable Competition: FCC Chairman Thomas Wheeler confessed he “has not done enough” to bring consumers more competition to Comcast, Time Warner Cable, Charter, and other cable operators.

This is complete nonsense from Wheeler. Cable is not a competitive market. It exists in a natural monopoly/duopoly market. The chairman can't make it more competitive any more than he could interstate highways if were were head of the U.S. Department of Transportation.

Wheeler's view of the cable market as a competitive one is also at odds with the FCC's adoption one year ago of its Open Internet rulemaking deeming Internet service provided by cable, telephone and other ISPs a common carrier telecommunications utility under Title II of the Communications Act. That title is predicated on a monopoly -- and not a competitive -- market.

Unpacking incumbent opposition to KentuckyWired

Tom Eblen: Some telecoms, anti-government groups oppose new state broadband network | Lexington Herald-Leader:  The Kentucky Telecom Association, which represents 15 rural Internet providers, thinks KentuckyWired should be reconsidered, claiming it would duplicate existing infrastructure and undermine existing businesses that need their state and school service contracts.

There is likely an element of truth in incumbents' claims that publicly owned middle mile telecom infrastructure would duplicate existing privately-owned infrastructure in some parts of the state. But that doesn't mean it shouldn't be built. However, it should be part of an integrated plan to build a complete network of publicly owned last mile fiber to the premise infrastructure.

KentuckyWired is a partnership between the state and several companies that are building and would operate the 3,200-mile “middle-mile” network linking all 120 counties. From each county, any Internet provider could lease network space, build “last-mile” lines and compete to offer services to homes and businesses.

This is wishful thinking based on a fundamental misapprehension of the market economics of private owned telecom infrastructure. Investor-owned Internet service providers aren't typically going to be interested in connecting to publicly owned middle mile infrastructure to build out fiber to serve all premises. For two main reasons. First and most important, because the ROI on last mile is too far out in the future to make investment worthwhile. Second, because connecting their last mile networks to publicly owned middle mile infrastructure is contrary to the proprietary, closed access architecture of their business models that prefer maintaining control over both the middle and last miles.

There's a third and less likely possibility -- that KentuckyWired will make it easier for local governments to build FTTP infrastructure serving their residents. It's improbable for most except for those with pre-existing municipal utilities due to local governments lacking the financial wherewithal as they struggle to meet existing and future obligations such as employee pensions.

New England state a microcosm of last mile telecom access barriers, disparities

A consultant's report prepared for the State of Connecticut on the state of its telecommunications infrastructure found significant access barriers and disparities. From the summary:

From our urban surveys in Hartford, Connecticut we found evidence of higher-quality fiber and cable broadband services in proximity to the poorly served locations. However, the individuals at those locations reported that service providers decline to connect users to those services, or will do so only at a prohibitively high cost—approximately $10,000 to $30,000 for a short street crossing. Also, services are costly—from $1,000 to $2,000 per month.

We found based on our field survey in rural areas that most areas had copper telephone service, areas in proximity to towns have cable TV, and there is frequently a third fiber telecommunications provider on major routes between towns and in in proximity to State buildings, fire stations, and libraries. However, these services were not readily available to many institutions and businesses—requiring significant effort by the institutions to understand their options and to be connected.

The report also found small business suffer poor telecommunications service. They are unable to obain the level of service they need relative to available services, face long delays in obtaining services, or are unable to obtain service even when infrastructure is relatively nearby.

 The full report issued this week by the state's Office of Consumer Counsel can be accessed here.

Misunderstanding of market economics underlies U.S. telecom infrastructure deficiencies

Fiber-Optic Network Construction Highlights Widespread Lack of Broadband in Salinas Valley, Calif.: Joel Staker of the Central Coast Broadband Consortium estimated the project would cost between $20 million and $30 million, half of which the group was hoping the USDA would be capable of funding.

After quietly listening throughout the entire discussion, Mensah thanked the stakeholders for their time and commitment. She also said that the USDA no longer had grant money available for such projects, but a long-term loan was not out of the question.

“I can see that the scale of need and gaps in service are severe in your region,” Mensah said. “However, I am concerned that if government steps in to accomplish this we would be displacing private industry, which is something we are very careful not to do.”

This story illustrates the circular thinking and poor grasp of market economics impeding the construction of badly needed telecommunications infrastructure in the United States. Areas such as this one near California's Silicon Valley suffer from last mile infrastructure gaps due to a lack of investment by the private sector. Consequently, those adversely affected look to the public sector for help.

Public officials however are reluctant to provide funding, concerned as the USDA official quoted that doing so would deter private sector investment. However, if private sector interest in building last mile infrastructure was there, the "last mile problem" wouldn't exist in the first place and the locals wouldn't be looking to the federal government for assistance.

This story also points up the misguided thinking that once middle mile fiber is in place and anchor institutions such as government offices and schools are connected, the private sector will step in to build fiber to the premise to serve the rest of the community. That typically doesn't happen because the ROI doesn't pencil out quickly enough. That economic reality goes to the heart of the problem. Many people including public officials have difficulty understanding that market failure can and most often does occur for telecommunications infrastructure due to its high costs and lengthy wait for ROI.

FCC declines to forbear universal service requirement; AT&T complains

The FCC’s Half-Shoveled Sidewalk | AT&T Public Policy Blog

This blog post by AT&T notes that it wants the U.S. Federal Communications Commission to relieve it from the obligation to provide landline voice service to all premises in its service territory requesting it, even those in areas not eligible for subsidization through the FCC's universal service subsidy program, the Connect America Fund (CAF). While the subject of the requested relief is voice telephone service, it also extends to Internet service now that the FCC reclassified it as a common carrier telecommunications service subject to the Communication Act's universal service obligations under its 2015 Open Internet Order. 

Although not mentioned in AT&T's blog post, that's the real issue here. AT&T does not want to invest in upgrading and building out its infrastructure to bring landline Internet service to all premises in its service territory -- service that would also be capable of delivering voice service.

Germane to AT&T's complaint are those communities where the cost of deployment is relatively high, but not high enough to justify universal service fund subsidies intended for high cost rural regions. There are a lot of these neighborhoods in its vast service territory because AT&T continues to rely on limited range, obsolete (in its own words) DSL technology to deliver Internet service over aging copper plant that cannot reliably serve premises more than a couple of miles from its central offices or field distribution nodes.

The question going forward is whether the FCC pursuant to its Open Internet order will enforce the universal service obligation on AT&T when a consumer living in one of these unserved areas beyond the range of DSL technology requests Internet service. So far, the FCC has shown no inclination of doing so as AT&T allows its legacy copper plant to rot on the poles. Consumers in these redlined neighborhoods will continue to face the worst of all worlds: no service from their nominal ISP, nor meaningful regulatory action to remedy their plight.

Time to switch to fiscal economic stimulus -- starting with a U.S. telecom infrastructure initiative

If the United States had instituted a fiscal economic stimulus program to build fiber optic telecommunications infrastructure to reach every American home, school and business when the economic downturn began in 2008, it might well have completed the job by now. And for a mere fraction of the $3.5 trillion the U.S. Federal Reserve Bank spent to buy bonds under its quantitative easing program. The program has ended amid indications this monetary stimulus didn't have its intended effect with continued slow economic growth and slack in the labor market.

Now that monetary stimulus has proven less than effective, it's time to take a closer look at fiscal economic stimulus. For starters, a massive federal telecommunications infrastructure initiative to achieve the previously mentioned goal to fiber up the nation. Many of those dollars invested in this critical 21st century infrastructure would return to the federal treasury, thanks to the multiplier effect of creating new businesses and jobs.

Why U.S. FTTP infrastructure deployment won't follow the 20th century timeline for electrification

Here's how a colleague thinks Susan Crawford's forecast of a long winter of telecom discontent might play out in the coming years as the nation wanders in the darkness unlit by fiber to the premise. He believes "very, very few cities and no counties" have the money or the political will to pursue FTTP telecommunications infrastructure. The construction of FTTP infrastructure reaching all American homes, schools and businesses, he predicts, will play out over decades as electrification did in the early part of the 20th century. There will be 20 or 30 years of isolated private or municipal builds, followed by another 20 or 30 years of federally funded infill to cover the remaining unfibered areas. 

I disagree with the comparison to the deployment of electrical distribution infrastructure in the previous century. Information and communications technology is moving at a far faster pace in the 21st century. We're seeing robust, pent up demand for Internet service that is far outstripping the ability of Internet service providers to deliver it at reasonable, affordable rates due to widespread market failure. Americans simply will not tolerate such a prolonged wait for universal FTTP service.

Politics also argues for a much more compressed timeline than my esteemed (and anonymous for now) colleague envisions. The United States is close to or already at a political tipping point in terms of protecting the de facto monopolies of the legacy incumbent telephone and cable companies -- among the most hated and least respected institutions in the nation. That inevitable tipping point is when their lobbying currency is greatly devalued relative to consumer and business demand for Internet services that grows stronger by the day. 

Finally, the pace of technological progress is far faster than in the early 20th century. A disruptive technological development could come along that would drastically reduce the time and cost of deploying FTTP. For example, super strong and lightweight carbon fiber or nanotube sheaths that could be deployed on poles by remotely operated drones once the poles are made ready. That would greatly reduce labor costs, which is the major FTTP cost challenge. As well as maintenance costs since the sheaths would be wind resistant and squirrel proof.

America’s winter of telecom discontent calls for strong, unified federal intervention to bring the spring

The United States faces a long, dark winter of telecommunications discontent if it continues to rely upon the tender monopolistic mercies of the legacy telephone and cable companies. If the light of spring is to come and comprehensive construction undertaken to address the nation’s accumulated telecom infrastructure deficits and build fiber optic connections serving all American homes, schools and businesses, the federal government must take a predominant role relative to its funding and construction. So argues Susan Crawford, who urges a dual pronged strategy utilizing federally subsidized bonds paired with a program to fund and oversee regional infrastructure builds.

Crawford and I are on the same general page here. In my recent eBook, Service Unavailable: America’s Telecommunications Infrastructure Crisis, I call for a federal telecommunications infrastructure initiative to fund universal fiber optic infrastructure as a fully federally funded public works project, not unlike the federal highway construction initiative of the 1950s. Crawford proposes something similar, but also harnessing private investment capital via a regionally administered federal telecom infrastructure development and finance agency, funded by federally subsidized bond proceeds.

Crawford and I agree fiber is the only option for ensuring the nation has the telecom infrastructure it needs now and for the future. We can’t get there trying to subsidize yesterday’s “broadband” speeds or hoping that somehow the laws of physics can be overcome and wireless and satellite will magically offer a cheap workaround. We also agree a unified, federal strategy is needed that also takes a regional approach. 

“[T]o avoid waste and inefficiency, we need to get it right from the beginning — and not just hope we’ll get there with our current patchwork quilt of federal, state, and local government agencies and private utility planners, each with different goals and motivated by different incentives,” Crawford writes. She couldn’t be more correct on that point.

New year, same FCC finding: Advanced telecom infrastructure not being deployed in a reasonable and timely fashion

As it has since 2010, the U.S. Federal Communications Commission is expected to report this month that advanced telecommunications infrastructure is not being deployed in a reasonable and timely fashion. Consequently, 34 million Americans still lack access to landline premise service with 39 percent of the nation's rural population left without service, according to a draft progress report required under Section 706 of the Communications Act issued this week.

On the heels of a Pew Research Center study finding that premise service connections have leveled off as more Americans exclusively use mobile wireless devices for Internet access, the draft FCC report notes these consumers tend to perform a more limited range of tasks and are significantly more likely to incur additional usage fees or forgo use of the Internet.

AT&T exec: Mobile wireless primary driver of fiber deployment (and John Donovan's inapt cite of Moore's Law)

Donovan: AT&T Beating Moore's Law | Light Reading: Part of achieving those capex gains while continuing to meet rising demand for bandwidth is AT&T's integrated planning. While its Project VIP local fiber deployment initiative has wound down, the company is still able to push fiber more deeply into some areas, based on the need for business services or backhaul for cell towers and small cells, Donovan said.

"We have a really good cost curve on incremental costs for wireless," he said. "We are still putting fiber out where it is economic -- that is a big part of our program."

Yet another project to nominally push fiber to premises -- like Project Pronto and  Project Lightspeed before it-- is going away as AT&T like other big telcos shifts its focus away from residential and small business premise service to the mobile segment.

Donovan's invocation of Moore's Law unfortunately perpetuates the incorrect analogy of telecommunications service as a consumptive utility like electric power or natural gas. In the world of telecommunications, Moore's Law more properly applies to the growth in consumer bandwidth demand as I blogged in 2010. Additionally, Moore's Law applied to the total microprocessor market unlike the segmented markets employed by legacy telephone companies like AT&T.

Cable and telco lobbyists block broadband infrastructure subsidies in California

Cable and telco lobbyists block broadband infrastructure subsidies in California: Frontier is the only major incumbent that’s been willing to play with the CASF program, and now that it’s taking over Verizon’s wireline systems it should be even more enthusiastic. But it’s clear that most would prefer to have CASF die a quick and quiet death. Cable companies won’t touch anything that might entangle them with state regulators. AT&T and Verizon are all about mobile, and aren’t interested in investing in wireline service. Most of all, cable companies and mobile carriers are upset that independent competitors are getting CASF subsidies.

This is the death knell for California's failed -- as measured by its goal to bring advanced telecommunications services to 98 percent of households by last year -- California Advanced Services Fund infrastructure subsidy program operated by the state's Public Utilities Commission.

The proposed legislative hill on which the seven-year-old CASF died would have pushed that goal to 2020 and retained a circa 2001 legacy DSL level Internet service standard to define eligible projects as those falling below that standard. In that regard, the CASF was already slowly dying relative to bringing modern telecommunications services to Golden State residents. The legacy incumbents anxious to preserve their de facto market monopolies from the threat of interlopers were only too happy to thrust in the dagger after years of challenging projects proposed for CASF subsidization.

The likely final straw was the PUC's approval last month of subsidies for a relatively large fiber to the premise build proposed to serve nearly 2,000 southern Nevada County premises. That would put FTTP infrastructure built by someone other than themselves squarely in their nominal service territories. Which from the perspective of the incumbent telco and cable companies, posed a dangerous precedent that could have opened the door to even larger builds.

State level telecom state-level infrastructure programs like the CASF are underfunded and technically substandard. They are also very vulnerable to incumbents efforts to hamstring or kill them outright. That circumstance makes the case for a robust federal telecommunications infrastructure initiative to bring fiber optic connections to every American home, business and school. The job is too big and too important to the nation's future to be left to the states.

Minnesota Governor Recommends $100 Million Rural Broadband Funding

Minnesota Governor Recommends $100 Million Rural Broadband Funding: In 2016, Minnesota Gov. Mark Dayton wants to triple the state's past broadband efforts.

When Dayton commented on the state's $1.87 billion budget surplus, he recommended that Minnesota allocate $100 million in grant funding for rural broadband development. If that funding is approved by the state Legislature this spring, the current grant program would require applicants to at least match the funding offered, which means the state may soon see a total of $200 million in rural broadband funding.

Underfunded efforts such as these to build "rural broadband" telecommunications infrastructure are states' best efforts to respond to the enormous infrastructure deficiencies they are facing. The problem is there simply isn't enough money available at the state government level to build modern, fiber optic telecom infrastructure serving every home, school and business within their borders. Allocating millions won't address a problem that requires billions. State subsidy programs also tend to reinforce infrastructure disparities since it's more feasible to build middle mile infrastructure with limited funds than to build complete infrastructure that reaches neighborhoods.

Telecommunications is interstate infrastructure in the 21st century, just as roads and highways were in the 20th -- and substantially funded by the federal government. States can only chip away at the nation's telecom infrastructure deficiencies. Given the nation is now a generation behind where it should be, the federal government should undertake a crash telecom infrastructure program to prepare it for the 21st century. Doing so would provide a significant economic stimulus, create jobs and facilitate economic development, education, healthcare and mitigate commute transportation demand on those aging 20th century highways. The resulting economic multiplier effect would return many of those federal dollars invested in the form of tax revenues.

At start of new year, U.S. faces worst of all worlds on federal telecom modernization policy

As 2016 dawns, the United States faces the worst of all worlds when it comes to federal policy on telecommunications infrastructure modernization to ensure all American homes and small businesses have access to landline Internet connections.

In early 2015, the nation adopted policy classifying Internet service as a common carrier telecommunications service. Under the Federal Communications Commission’s Open Internet Order, Internet service is subject to the Communication Act’s universal service requirement, mandating service be provided upon request and barring neighborhood redlining by Internet service providers. Nevertheless, a year later, millions of U.S. premises that attempt to order service will -- as they have for more than a decade -- continue be turned away by ISPs because the FCC is not enforcing these provisions.

Absent regulatory action ensuring compliance with these requirements and frustrated by technologically outmoded, spotty and overpriced Internet telecommunications service, state and local governments are naturally concerned over the adverse economic impacts. Consequently, they’re looking to build their own modern infrastructure. But given the billions of dollars needed to build it, they’ll need substantial financial backing from the federal government. Since none exists or appears to be forthcoming, pressure for strong policy action at the federal level will grow this year.