California panel: Filling in fiber advanced telecommunications infrastructure gaps would cost $6.8 billion

An expert panel directed by California Gov. Gavin Newsom to develop a strategy to attain affordable universal access to advanced telecommunications estimates it would cost $6.8 billion to build passive optical fiber network infrastructure in support of that goal in areas of the Golden State where fiber hasn’t been deployed. The California Broadband Council’s Broadband Action Plan for 2020 – the first year of an iterative five year plan – notes America’s largest state has faced longstanding advanced telecommunications infrastructure deficits, which it terms a “complex and deep rooted” challenge.

“Providing fiber connectivity across California will take a long time, and require considerable investment from the state and the federal government,” the plan notes. It calls for Identifying alternative financing opportunities with government and philanthropic partners to maximize funding for new infrastructure. These include working with local governments to explore opportunities for public financing, including but not limited to bond instruments and alternative financial models and strategies such as making public infrastructure available for lease.

Appropriate role for legacy telcos, cablecos in advanced telecom infrastructure: design, build, operate. But not own.

Finish the Job of Connecting Every American

From COVID relief to budget decisions, take bold and decisive action to finish the job of connecting every American home, business and anchor institution to U.S. broadband infrastructure. Particularly amid a global pandemic, the fact that an estimated 18 million American homes do not have broadband access is unacceptable. Working together—public resources alongside private expertise, technology and networks—this is the most solvable of our nation’s leading challenges. Resources + political will = universal connectivity.

— SPECIFIC 100-DAYS ACTIONS —

• Advance legislation to rapidly and fully invest in the broadband infrastructure programs required to quickly and permanently close the digital divide in America. USTelecom members are ready to immediately go to work with government partners to build these networks, including fiber investment deeper into all corners of America

 https://spark.adobe.com/page/KDnqM9tW5sAo7/#finish-the-job-of-connecting-every-american

The partnership proposed by the industry group USTelecom for the first 100 days of the incoming Biden administration needs clarification that to ensure public funds are appropriately used to build advanced telecom infrastructure and bring fiber to every American doorstep, it should be publicly owned. Subsidies given to legacy incumbent telephone and cable companies since the 1990s have not remedied America's advanced telecom infrastructure deficiencies. Repeating more of the same would be poor public policy. USTelecom members can indeed play a role in this public-private partnership: to design, build and operate. But not own.

"Broadband vouchers" a misguided notion for expanding home Internet access

Remote work and learning during the pandemic compelled some lawmakers to get creative in expanding broadband availability. In Delaware and Alabama, state officials earmarked parts of their CARES Act funding to create broadband vouchers—monthly service rebates—for households with school-age children.

It’s an established way of expanding telecommunications access. For years, the FCC has disbursed monthly discounts to millions of low-income households through the “Lifeline” program. Voucher programs also have the potential to expand broadband availability and competition in underserved rural areas.

Broadband Breakfast: Brent Skorup and Michael Kotrous: Modernize High-Cost Support with Rural Broadband Vouchers

There are multiple problems with this concept. The most fundamental is it assumes U.S. telecom infrastructure deficiencies are due to buy side market failure. In fact, sell side market failure is responsible. The demand is there. For many years, households lacking landline Internet service have begged telephone and cable companies for connections, often to no avail and eventually giving up. (Lately, they've been barraging their elected representatives as the need for connectivity has grown more urgent). The main reason is these companies require rapid returns on investment in extending service to these homes. When analyzing the needed investment, net present value doesn't pencil. Tossing vouchers into the mix isn't likely to meaningfully improve the business case. 

In addition, unlike analog telephone service regulated under Title I of the Communications Act, Internet in the United States is regulated as an optional information service under Title II of the Act and not as a telecommunications utility with subsidies to connect homes in high cost areas. Consequently, there is no regulatory incentive to connect every home requesting service. 

Finally, to make service more affordable to low income households, regulated lifeline rates such as used for voice telephone service are an already existing mechanism to help achieve that. Vouchers wouldn't be needed with the proper regulatory policy in place.

California bill would use existing phone surcharge to secure bonds for local government and cooperative-owned fiber to the premise infrastructure

Proposed legislation introduced this month in the California state Senate offers a potentially viable means of financing fiber to the premise (FTTP) advanced telecommunications infrastructure builds owned by local governments and nonprofits such as consumer telecom cooperatives. It does so by creating a financing mechanism to secure bonds to fund FTTP construction with proceeds from an existing California Public Utilities Commission (CPUC) surcharge on voice lines to subsidize advanced telecom projects in high cost areas of the state not served by incumbent landline and wireless internet service providers.

Debt service for the bonds could also be provided by project sponsors since the proposed legislation authorizes the CPUC to require they demonstrate the ability to reasonably finance and implement the projects utilizing the proposed bond financing.

The measure is proposed as an urgency measure that would take effect immediately upon enactment.

AT&T’s residential market shortcomings

 

As AT&T would have it, the telecommunications giant is enthusiastic about serving the residential market and connecting homes to fiber. AT&T Communications CEO Jeff McElfresh told a Bank of America Merrill Lynch TMT Conference in June 2020 the company will increase its investment in fiber connections. "We are laser-like focused on finding the most efficient path to expanding the footprint of our fiber offerings," McElfresh said. "It's a great business. It's got great margins. It's got great returns. There's nothing not to like about it, and we're going to lean into it."

McElfresh’s comments represent a turnabout from a year earlier, when AT&T downplayed its residential fiber ambitions and dismissed hundreds of field technicians after completing a limited build out to meet regulatory obligations attached to its acquisition of DirecTV. "That's behind us now," McElfresh’s predecessor John Donovan told FierceTelecom. "We'll continue to invest in fiber, but we'll do it based on the incremental, economic case. We're not running to any household target."

For single family home neighborhoods, AT&T makes residential fiber available only to discrete pockets, reports industry observer Doug Dawson. AT&T also markets residential fiber to multifamily dwellings that require less capital investment and produce comparatively faster returns. One analyst suggests AT&T is weak at executing fiber build outs, unable or unwilling to focus on the necessary details of neighborhood telecommunications infrastructure deployment. (Jim Patterson, Curing AT&T’s Sickness, 10/12/20) Other analysts point to high debt on AT&T’s balance sheet that constrains its ability to finance a broad move into residential fiber.

In less dense exurban and rural neighborhoods, AT&T is phasing out its legacy ADSL service, halting new connections as of October 1, 2020. In these areas, AT&T offers fixed wireless residential service over its 4G LTE mobile infrastructure but with throughput limited to a small fraction of what a fiber connection could handle. Dawson notes the company has not actively marketed the service (most likely to preserve limited radio spectrum at the same time the company encourages high bandwidth video streaming). Moreover, the company was notably absent among bidders for the FCC’s recently closed Rural Digital Opportunities Fund (RDOF) subsidy reverse auction.

Where AT&T is building fiber to serve enterprise consumers (via dedicated Ethernet) it is not generally investing in premise drops and field distribution equipment to serve adjacent single family home residential neighborhoods. According to an October 2020 report by the Communications Workers of America, the labor union representing AT&T line technicians, and the National Digital Inclusion Alliance, 63 percent of 1,500 line technicians surveyed report that AT&T is not installing splitting equipment to enable home connections even where a fiber backbone exists.

With little focus on residential fiber, AT&T is instead looking to gain revenues in the consumer segment from streaming video and mobile wireless offerings as it experiences a steady decline in linear TV subscribers, legacy and wireline delivered services, according to Zacks Investment Research.

Will a Biden administration back publicly owned advanced telecommunications infrastructure as a means of attaining universal access and affordability?

Should former Vice President Joe Biden be deemed the winner of the presidency and a Biden administration installed early next year, the campaign’s policy positions on advanced telecommunications infrastructure reveal the outlines of how the new administration might proceed.

The overarching policy choice is between continuing the laisse faire policy of the past three decades of regarding Internet protocol-based telecommunications as a commercial market of “broadband” bandwidth. Or recognizing advanced telecommunications infrastructure as essential infrastructure like electric power and roads and highways.

Integral to the latter policy is recognizing the broad socio-economic benefits of advanced telecommunications infrastructure, known in economics as positive externalities. They are described as external because they lie outside the narrow interest of commercial investors to extract profits and rents from selling broadband bandwidth in a natural monopoly landline market. Those external benefits – and the lack thereof considering the nation’s substantial access and affordability challenges -- have become very apparent with the public health restrictions and social distancing accompanying the SARS-CoV-2 contagion that converted homes into offices, classrooms and clinics.

Key to attaining the broader external benefits of advanced telecommunications infrastructure is that it be universally accessible and affordable. As well as public ownership of advanced telecommunications infrastructure that eliminates the inherent conflict between the broader public interest and the narrow interest of investors to build it only where there’s a strong business case. What do the Biden campaign’s positions signal on these issues?

Biden’s campaign calls for “universal broadband access” as part of an initiative to modernize transportation and water infrastructure. Biden also recognizes the socio-economic benefit of universally accessible and affordable advanced telecommunications infrastructure:

“As the COVID-19 crisis has revealed, Americans everywhere need universal, reliable, affordable, and high-speed internet to do their jobs, participate equally in remote school learning and stay connected. This digital divide needs to be closed everywhere, from lower-income urban schools to rural America, to many older Americans as well as those living on tribal lands. Just like rural electrification several generations ago, universal broadband is long overdue and critical to broadly shared economic success.”

However, Biden does not explicitly call for publicly owned advanced telecommunications infrastructure as he has to improve access and affordability for non-group medical plans with a government operated “public option” plan. The Democratic Party campaign platform recommendations that Biden and Sen. Bernie Sanders jointly authored after Biden emerged as the Democratic Party presidential nominee calls for preempting state laws that prohibit municipalities and rural co-ops from building publicly-owned broadband networks and for increased federal support for municipally owned networks.

Should a Biden administration take office in January, it bears watching to what extent it supports publicly owned advanced telecommunications infrastructure as a means of attaining universal access and affordability.

Distinguishing between edge content provider market power and natural monopoly of telecom distribution infrastructure

The Tech Antitrust Problem No One Is Talking About | WIRED: 

After years of building political pressure for antitrust scrutiny of major tech companies, this month Congress and the US government delivered. The House Antitrust Subcommittee released a report accusing Apple, Amazon, Google, and Facebook of monopolistic behavior. The Department of Justice filed a complaint against Google alleging the company prevents consumers from sampling other search engines. The new fervor for tech antitrust has so far overlooked an equally obvious target: US broadband providers. “If you want to talk about a history of using gatekeeper power to harm competitors, there are few better examples,” says Gigi Sohn, a fellow at the Georgetown Law Institute for Technology Law & Policy.

When it comes to antitrust, it's important to distinguish between FAANG edge content providers and commercially owned and operated advanced telecommunications infrastructure. The major difference is the former isn't a natural monopoly. However, landline telecom infrastructure that connects to customer premises functions as a natural monopoly due to high capital cost barriers and long duration return on investment that tends to keep would be competitors out. Moreover, competition among multiple sellers isn't economically rational as Investopedia describes:

Multiple utility companies wouldn't be feasible since there would need to be multiple distribution networks such as sewer lines, electricity poles, and water pipes for each competitor. Since it's economically sensible to have utilities operate as natural monopolies, governments allow them to exist. However, the industry is heavily regulated to ensure that consumers get fair pricing and proper services.

In other words, competitive market forces cannot function to ensure access and value in a natural monopoly market. Both are frequently missing in advanced telecom distribution infrastructure, with uneven access due to sell side market failure.  

Antitrust assumes competition is possible and thus is intended to check a seller from attaining too much market power and promote competition. But it's an impossible undertaking in natural monopoly market like advanced telecom distribution infrastructure where competitive market forces don't come into play.

"Better Than Nothing," Starlink satellite service illustrates bankrupt U.S. telecom infrastructure modernization policy

Texas Schools Partner With SpaceX on High-Speed Internet: After schools shut down in March due to COVID-19, a survey of families in ECISD found that 39 percent did not have internet access in their homes, or had limited internet access. "Right behind me, you are looking at the community of Pleasant Farms that has very limited broadband service. We have children; we have families; we have educators living in this community and having the internet in their home is extremely difficult, if not impossible. But because of Space X and their Starlink technology, they are right now circling a series of satellites above this area and they will beam a high-quality broadband signal to our families, providing high-quality, high speed broadband access so our children can continue the learning process ...," Muri said. Muri said ECISD has worked diligently with the local community and state officials to explore opportunities for students, but also looking long-term. "Short-term solutions are not the answer," Muri said. "We need solutions that provide permanent solutions, permanent opportunities for kids not only in ECISD but across our state and across our nation ..."

Scott Muri, superintendent of a Texas school district, is right. Short term gee whiz approaches like this don't provide the long term telecommunications infrastructure needed on the ground -- namely fiber to the premise (FTTP). It's a logical progression from legacy copper telephone infrastructure that has gone off the tracks, leaving Americans grasping at “Better Than Nothing” solutions as the Starlink satellite service is dubbed.