Claiming a monopolistic market is a competitive one doesn't make it so

Former Commish Michael Copps: ‘Maybe the Worst FCC I’ve Ever Seen’: In just a few short months, the Trump wrecking ball has pounded away at rules and regulations in virtually every government agency. The men and women the president has appointed to the Cabinet and to head those agencies are so far in sycophantic lockstep, engaged in dismantling years of protections in order to make real what White House strategist Steve Bannon infamously described as “the deconstruction of the administrative state.” The Federal Communications Commission is not immune. Its new chair, Republican Ajit Pai, embraces the Trump doctrine of regulatory devastation. “It’s basic economics,” he declared in an April 26 speech at Washington’s Newseum. “The more heavily you regulate something, the less of it you’re likely to get.”

The problem with Pai's assertion is not all markets are alike. While it may be true in a competitive market -- defined as one with many sellers and buyers -- it does not apply in a natural monopoly market like telecommunications infrastructure.

The FCC's existing Open Internet rules classifying IP-based telecommunications as a common carrier utility implicitly recognize that circumstance. They are predicted on a monopolistic and not a competitive market. Moreover, regulators aren't free to determine the microeconomics of the markets they regulate. Claiming a monopolistic market is a competitive one doesn't make it so. 

The incredibly misinformed "experts"

Lawmakers itching to advance high-speed Internet funding: Last month, the agency issued a notice of proposed rulemaking seeking comment on actions to remove regulatory barriers to infrastructure investment at all levels of government and to better enable broadband providers to build, maintain and upgrade their networks. "This is the kind of thing that is going to get more broadband into the hands of consumers," Joe Kane, a tech policy associate with the R Street Institute, told the Washington Examiner. "It's not a sexy political battle, but it's getting to the [question of] why is your computer really slow? A better example is people who don't currently have broadband. It's people in rural areas where it hasn't been profitable to build out there. Now that we have 5G on the horizon, it'll be more possible to reach those areas."

This except illustrates how misinformed even the experts are when it comes to modernizing  America’s telecommunications infrastructure. First of all, the U.S. Federal Communications Commission is focusing on the wrong issue. It isn’t regulatory barriers that inhibit investment in modern fiber telecommunications infrastructure that serves all premises. The main obstacle is the continued misguided reliance on vertically integrated, investor owned legacy telephone and cable companies to build it. Their business models are incompatible since they require a rapid return on investment. Infrastructure investment by comparison requires billions in patient capital they simply don’t have or cannot raise.

Second, 5G mobile wireless service doesn’t even exist yet. When it does, the same economic constraints that prevent the telcos and cablecos from connecting customer premises with fiber will be at work because all those 5G cell sites will require a lot of fiber to be built to serve them. Doug Dawson explains at his POTS and PANS blog.

Not just a rural issue: gaps in telecom infrastructure widespread in metro areas

Despite billions of public dollars, some rural residents slog through slow internet | Madison Wisconsin Business News | host.madison.com: Donovan Wright lives in a small subdivision in the town of Pleasant Springs near Stoughton, just 12 miles from the center of Wisconsin’s second-biggest city, but he is among more than an estimated 232,000 state residents who cannot tap a wired network to get online at any speed. It means his children access the web using unreliable and sluggish cellular service to do their homework. He can’t file his tax returns online. And streaming Netflix? Not a chance.

Michael Bridgeman, of the town of Roxbury in northwest Dane County, goes to a local library or the UW-Madison campus, a half-hour’s drive away, to do just about anything more internet-intensive than checking email. His slow connection hampers the occasional consulting work he does. Jane Leverance of the town of Oregon wants to enjoy some of the conveniences other people with internet access have enjoyed for years, including paying bills online. But even with a cellular-powered Wi-Fi hot spot to get online, the connection and speed are unreliable.

When it comes to advanced telecommunications infrastructure, what constitutes "rural" America isn't locales in sparsely populated agricultural industry counties deep in the nation's heartland. In this context, "rural" means where there are gaps in landline infrastructure, leaving premises within a mile or two of existing infrastructure with no or minimal service options or forced to get by on mobile wireless service.

As a map of service availability in the Madison, Wisconsin metro accompanying this article illustrates, those gaps appear in metro areas, forming a crazy quilt pattern of areas with service meeting minimum U.S. Federal Communications Commission standards and those without. The pattern repeats all over the United States, making the issue a national rather than local one.

The adverse socioeconomic impact of deficient telecom infrastructure

Rural America Is the New ‘Inner City’ - WSJ: Just two decades ago, the onset of new technologies, in particular the internet, promised to boost the fortunes of rural areas by allowing more people to work from anywhere and freeing companies to expand and invest outside metropolitan areas. Those gains never materialized.

The primary cause: poor public policy and planning a generation ago neglected to build universal digital telecommunications infrastructure to succeed universal voice telephone service. 

Deficient telecom infrastructure isn’t limited to deep rural areas. It also plagues outer suburban, exurban and quasi-rural areas redlined by legacy incumbent telephone and cable companies. Consequently, the adverse socioeconomic outcomes described in this article could also befall those areas.

Silicon Valley needs heartland help in net neutrality fight - Axios

Silicon Valley needs heartland help in net neutrality fight - Axios: The Bay Area has long been a bastion of support for strong net neutrality rules. Now supporters are looking somewhere else for backup: Trump country. Why it matters: With net neutrality rules under assault, proponents know they need to get the attention of policymakers with roots in the heartland to show support isn't isolated to the Silicon Valley bubble.

This is the crux of the problem defining the U.S. Federal Communications Commission 2015 Open Internet regulations as "net neutrality." It really doesn't mean much to the average telecommunications consumer. Moreover, in the heartland the real benefit of the regulations classifying Internet as a common carrier telecommunications utility service under Title II of the Communications Act is Title II's universal service and anti-redlining provisions. These are real world concerns in the heartland, where millions of Americans have been turned down for years by incumbent ISPs when they attempt to obtain landline Internet connections to their homes and small businesses.

Observations on Penn Law review of muni fiber

New Penn research assesses financial viability of municipal fiber networks •Penn Law: Using industry standard financial analysis tools on five years of official data, the study finds that 11 out of the 20 fiber networks assessed do not generate enough cash to cover their current operating costs and only two out of the 20 are on track to recover their total project costs during their 30-40 years of expected useful life. Key findings include:

• 11 of 20 projects studied are cash-flow negative, many substantially so.
• 5 of the 9 cash-flow positive projects are generating returns that are so small that it would take more than a century to recover project costs.
• 2 of the 9 cash-flow positive projects would have a recovery period of 61-65 years, beyond the expected useful life of a fiber network.
• Only 2 of the 20 projects studied earned enough to expect to cover their project costs during the useful life of the networks, one of which is an outlier that serves an industrial city with few residents.
• The analysis also models the returns for a hypothetical project, finding it would take over 100 years to recover expected project costs.

Three observations on this study:

1. The study's findings do not invalidate the concept of municipally operated telecommunications infrastructure per se. Rather, they suggest the financial model requires further assessment and adjusting and enhanced federal subsidization.
   
2. The scope of the study does not encompass the external benefits of modernized telecommunications infrastructure, particularly in areas where investor-owned private network investment would also be NPV (Net Present Value) negative, miring these areas with substandard infrastructures and associated adverse economic implications.
3. The executive summary states that "[a]lthough some claim that investing in fiber serves a necessary function of future-proofing a municipality’s infrastructure, evidence shows little current need for such high broadband speeds." This is the classic infrastructure planning error of estimating future infrastructure needs based on present needs and detracts greatly from the study's credibility since this point is typically made by legacy incumbent telephone and cable companies opposed to public sector telecommunications infrastructure modernization projects as an encroachment on their largely unregulated service territory monopolies.

Potential game changer: PG&E could alter California telecom landscape

An application by Pacific Gas & Electric to the California Public Utilities Commission to become a wholesale operator of fiber optic telecommunications infrastructure could be game changer in California where many customer premises nominally in the service territory of AT&T lack landline Internet connections or are limited to slow first generation DSL service over deteriorating copper cable plant.

PG&E’s vast 70,000 square mile northern and central California electric service territory overlaps regions of the Golden State where telecom infrastructure deficiencies are most prevalent: 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. In addition to AT&T, PG&E’s electric service territory encompasses the telecom service territories of Frontier, Consolidated Communications and Citizens Telecommunications Company of California. All of these telcos could be customers of PG&E’s planned wholesale fiber as well as mobile wireless operators seeking backhaul bandwidth.

If approved by regulators, PG&E’s application could also attract new players who would like to provide fiber-based premise telecommunications service in areas lacking robust landline connections but can’t make the numbers work due to the high cost of building new fiber infrastructure. Having PG&E build it and lease it to them as competitive local exchange carriers (CLECs) would solve that problem. PG&E would also be spared considerable deployment expense and delay since it owns utility poles that would provide the backbone for aerial fiber plant, the optimal infrastructure architecture to serve such a large and geographically diverse area, much of it with rugged terrain.

PG&E’s move holds the potential promise of universal service for northern and central California, which for many years has been a crazy quilt checkerboard of served, underserved and unserved areas, leaving many consumers to struggle with substandard, poor value dialup, legacy DSL, fixed and mobile wireless and satellite service.

For more background on PG&E’s application, Steve Blum’s Blog has more details here and here.

House Dems Propose $40B Broadband Investment | Multichannel

House Dems Propose $40B Broadband Investment | Multichannel: According to a breakout of the bill, the broadband investment is spread out over five years and will use a reverse auction to subsidize broadband in "unserved" areas (75% of the funds, or $30 billion), with the remaining 25% (that would be $10 billion) going to states via a separate reverse auction. But if there are no unserved areas in a state, that state could use the funds to serve underserved areas--or as ISPs see it, overbuild existing service--or for connecting libraries and schools or to deploy next gen 911.

The $30 billion would have to go to private entities, but the $10 billion could go to muni broadband buildouts.The broadband will have to be high-speed--at least 100 Mbps downstream, and 3 Mbps up, with a carveout for remote areas, where 25 Mbps/3 mbps would qualify. Given that it has money for muni broadband and for potential overbuilds, both of which the reigning Republican majority has issues with--as do ISPs--the bill's prospects are probably not very bright.

I tend to agree with this analysis. As long as it remains the policy of the United States to primarily rely on legacy private investor-owned telephone and cable companies to upgrade and build out modern fiber optic telecommunications infrastructure to homes, businesses and institutions, any funding allocated to public sector entities will encounter strong resistance from the telco/cableco lobby. Those industries want to retain their prerogative under the current de facto light touch regulatory regime to do so on their schedule and in neighborhoods of their choosing. Even if that means for the foreseeable, millions of Americans will remain unserved with fiber connections or even first generation DSL first rolled out in the 1990s.