Biden administration’s infrastructure initiative must reorder roles and responsibilities for advanced telecommunications

If the United States is to rapidly modernize its outdated copper telephone infrastructure to fiber optic lines reaching every American doorstep – the need for which became painfully apparent with pandemic public health restrictions that turned homes into offices, classrooms and clinics – it’s imperative the Biden administration’s infrastructure revitalization initiative reallocate roles and responsibilities in order to make that happen.

A major impediment has been expecting too much of legacy telephone companies. For the past three decades, advanced telecommunications policy has placed the burden on them to do it all: own, finance, design, build and operate. They simply lack the capacity to take on all five functions, even with subsidies to make financing easier. Subsidies haven't worked because unlike legacy voice telephone service where companies must provide connections to all homes requesting them, there is no regulatory incentive to utilize them.

Infrastructure requires billions of dollars. Investors in these companies aren’t willing to make those major investments unless they generate returns in five to six years. That limits them to dense urban and suburban neighborhoods and greenfield and multifamily developments, leavings others unfibered for the foreseeable. These companies also have highly leveraged balance sheets that limit their ability to finance construction even if their investors were more favorably inclined and willing to wait longer for financial paybacks or accept lower shareholder dividends.

These circumstances demand a reallocation of the five functions between the public and private sectors to get the nation to where it needs to be in the 21st century of digital, Internet protocol powered advanced telecommunications. The public sector and utility consumer cooperatives will have to take on finance and ownership and leave it to the investor-owned companies to do what they can reasonably be expected do and do best: design, build and operate -- and not own and finance. As the Biden administration introduces its proposed infrastructure revitalization program, this reordering of roles and responsibilities will be an essential component.

ITIF’s flawed stance on subsidization of advanced telecommunications infrastructure

The Information Technology & Innovation Foundation (ITIF) aptly notes that federal government subsidization of U.S. advanced telecommunications infrastructure has fallen short. Despite tens of billions in subsidies, the ITIF writes in a policy paper issued today, too many American homes lack connectivity. But the ITIF makes the common error of inaccurately defining the scope of the problem as “rural-urban.”

That ignores the fact that advanced telecommunications infrastructure deployment is far more granular. It’s no longer 1950 when most Americans lived either in cities or on farms. They now live in a variety of communities including exurbs at the edges of metro areas and small towns. Many are poorly served because large investor-owned telephone companies have modernized outdated copper lines designed for 20th century voice telephone service to fiber optic lines needed for the digital 21st for only about a third of homes in their service territories. They’ve largely skipped over homes in the exurbs and small towns and instead cherry-picked homes in more densely developed metro centers that better conform to their business models requiring rapid return on investment.

The ITIF correctly notes a major weakness of current U.S. advanced telecommunications infrastructure subsidization policy intended to support bringing service to every American doorstep (the Universal Service Fund) relies on an outdated formula designed for 20th century voice telephone service. It’s highly illogical because extracting subsidies from old technology in decline does not scale up to support the growth of Internet protocol-based technology that’s replacing it.

The ITIF indirectly argues against subsidies for fiber to the premises (FTTP) infrastructure, terming it an overly costly “gold plated” technology. The other side of that argument is subsidy dollars are best invested in delivery technology with life expectancies of multiple decades and not a single decade or less. As the adage goes, one can pay now or one can pay later. A major fault of American advanced telecommunications infrastructure subsidy policy has tended toward the later. The leaves ongoing infrastructure deficits the ITIF points out, requiring the indefinite, repeated need for additional subsidies. Policymakers didn’t subsidize copper telephone infrastructure that way, nor should they with advanced telecommunications infrastructure. Copper proved “future proof” for most of the 20th century as would fiber in the 21st.

Finally, the ITIF’s concern with the higher cost tradeoff of investing subsidy dollars in fiber over inferior and more obsolescence prone infrastructure fails to consider the inherit conflict of interest between investors and end users of advanced telecommunications infrastructure. Large investor-owned companies must answer first to their shareholders and are naturally sensitive to the cost of building and maintaining advanced telecommunications infrastructure. When cost considerations are brought to bear, households are likely to lose out in the calculation of how to apply subsidies. Particularly when subsidies are awarded without regulatory incentive – the universal service requirement that was put in place for legacy copper telephone service.

Shifting post-COVID-19 residential settlement trend requires new direction on advanced telecom infrastructure

COVID19 has opened our eyes to a new possibility.  Give people a choice of where to live – one that does not depend on where they make their living – and they vote with their feet for lower density, more green space and, most of all, for affordable costs. It has become clear that the celebrated “magnet cities” are threatened by their own success.  They are dangerously overcrowded.  They are vastly over-priced for all but the most over-paid.  That’s why San Francisco and Manhattan have only half the number of children per household as the US metropolitan average, while suburbs and exurbs have over one-third more.  Without kids, a community stagnates, even if it you can’t see it now.

The Intelligent Community Forum has been predicting for some time that the future belongs to small-to-midsize places with the broadband assets to fully participate in the global economy.  The internet is a distributed platform that offers equal access to those who can afford it regardless of location – as long as your location has good broadband. The unexpected gift of COVID19 is to show that this future possibility is real.  It is not where you live that determines your economic destiny.  It is how well connected you are and whether you have the education and skills to make the most of it.  Those are the issues that deserve our full attention as we recover from the first global plague of the 21^st Century.

https://www.benton.org/blog/whatever-happened-magnet-cities

America's current reliance on large investor owned companies to build and operate advanced telecommunications infrastructure has led very uneven, highly granular deployment and affordable access. These companies prefer to build infrastructure to serve dense housing development because their investors require rapid returns on capital investment. A higher concentration of homes better assures those rapid returns investors demand. 

As this article notes, demand for advanced telecommunications is heading in the opposite direction, toward less dense development, a trend that preceeds the pandemic. That has enormous implications for U.S. telecom policy and suggests a new direction is necessary, shifting away from reliance on large investor owned providers and toward alternatives. These include companies backed with patient investment capital more aligned with the high costs and slow ROI of infrastructure, regionally owned and operated public sector owned infrastructure and consumer cooperatives.

Congress and Biden administration have historic opportunity to reset American telecommunications policy.

Congress and the Biden administration have an historic opportunity to reset American telecommunications policy and put it on a more progressive path going forward. In 1996, Congress and the Clinton administration enacted the Telecommunications Act. It’s based on the goal of attaining higher throughput – referred to as “broadband” and “high speed Internet.” The statute become law at a time when it was decidedly sluggish and most Americans were “going online” with dialup modems connected to copper telephone lines designed and built to provide voice phone service in the early to mid-20th century.

A major flaw of the law is it failed to provide a clear policy framework to guide and speed the migration of that copper to fiber to deliver Internet protocol-based voice, data and video services in the 21st. Instead, the policy underpinning the 1996 law was “technology neutrality,” grounded in the hope that market competition would somehow deliver better throughput.

Twenty-five years later in the third decade of the new century as a pandemic has made homes into offices, classrooms and clinics, Americans continue to struggle with slow and unreliable connectivity and access and affordability challenges. Elected representatives are deluged with constituent complaints as policymakers unproductively argue over “broadband” speeds, maps and subsidies. It is exceedingly clear new policy direction is needed to ensure fiber reaches every American doorstep just as copper telephone line did in the previous century and that service is affordable.

A vignette that aptly illustrates America's troubled transition from copper to fiber

Jared Mauch, a senior network architect at Akamai in his day job, moved into his house in 2002. At that point, he got a T1 line when 1.5Mbps was "a really great Internet connection," he said. As broadband technology advanced, Mauch expected that an ISP would eventually wire up his house with cable or fiber. It never happened.

He eventually switched to a wireless Internet service provider that delivered about 50Mbps. Mauch at one point contacted Comcast, which told him it would charge $50,000 to extend its cable network to his house. "If they had priced it at $10,000, I would have written them a check," Mauch told Ars. "It was so high at $50,000 that it made me consider if this is worthwhile. Why would I pay them to expand their network if I get nothing back out of it?"

AT&T, the incumbent phone company, finally offered DSL to Mauch about five years ago, he said. However, AT&T's advertised plans for his neighborhood topped out at a measly 1.5Mbps—a good speed in 2002, not in 2020. AT&T stopped offering basic DSL to new customers in October and hasn't upgraded many rural areas to modern replacements, leaving users like Mauch without any great options.

 

This account is not atypical and illustrates how telecom infrastructure bogged down in the transition from analog voice telephone to digital Internet protocol (IP) services, leaving consumers in the lurch. And why cable TV companies can't be expected to fill the gap because they are in the entertainment business and not telecommunications.

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.