Report: GFiber parent Alphabet seeks outside investment as part of spin off strategy

Metro fiber to the premises (FTTP) player GFiber is seeking external investment to capitalize its expansion. Reuters (via yahoo! finance) reports GFiber’s parent company Alphabet has retained an investment bank to start the process of selling equity in the company, citing a source close to Alphabet's efforts.

Reuters quoted the source as saying the goal is to spin off the unit, formed in 2010 as the nation grew impatient to migrate from its legacy copper telephone service delivery infrastructure to fiber-delivered Internet protocol-based voice, video and data.

"This next step of raising external capital will enable them to scale their technical leadership, expand their reach, and provide better internet access to more communities," Ruth Porat, Alphabet's president and chief investment officer, told Reuters in a statement. 

GFiber’s debut -- branded as Google Fiber -- was enthusiastically welcomed by localities looking for a more rapid alternative to bring fiber connections than the slow walking legacy incumbent telephone companies. But the company faces the same high capital expenses that come with utility infrastructure construction. It identified no overwhelming technological or marketing advantage over the incumbents as a Google 10X project, throttling back expansion plans in 2016, most notably and somewhat embarrassingly in its Silicon Valley region headquarters. "There’s no flying-saucer shit in laying fiber," Google co-founder Larry Page later explained.

In a move similar to Alphabet’s seeking outside investment capital for GFiber, AT&T in late 2022 entered into a joint venture with private equity firm BlackRock to build fiber connectivity to an initial 1.5 million customer locations beyond AT&T’s current footprint branded as Gigapower. Gigapower CEO and retired AT&T executive Bill Hogg, asserted in 2023 that Gigapower will be “much larger than any other provider in the space. The scale at which we are going to operate will be a differentiator in the U.S. marketplace.”

GFiber parent Alphabet’s move appears aimed at rivaling Gigapower’s plans. GFiber has a presence in 18 states and plans to expand to 25 new metros, finalizing a franchise for the Las Vegas metro this week, a metro also on Gigapower’s target list. It too will be entering the metro, according to the Las Vegas Review Journal.

Paradoxical affordability crisis facing publicly owned Vermont CUDs

NEK Broadband continues to bring affordable fiber access to the long-neglected corners of the Green Mountain State. According to the latest update by NEK Broadband, a recently completed rollout has delivered affordable fiber access to 700 new addresses across multiple rural Vermont communities. NEK Broadband is one of nine Communications Union Districts (CUDs) scattered across the state of Vermont. NEK Broadband alone represents 45 Vermont communities across Caledonia, Essex, Orleans and Lamoille Counties in the northeast part of the state (see the full list of communities here).

NEK Broadband currently offers four tiers of broadband service: symmetrical 50 megabit per second (Mbps) service for $80 a month; symmetrical 250 Mbps service for $103 a month; symmetrical 500 Mbps service for $135 a month; and a symmetrical gigabit per second (Gbps) offering for $250 a month.

Unlike many large private cable and phone companies, there are no hidden fees, usage caps, or long-term contracts with NEK pricing. As a non-profit municipality, any revenue created through broadband subscription services gets funneled back into building and repairing infrastructure and increasing affordability for local residents.

Vermont CUDs tell Fierce Wireless they are considering the creation of a new, statewide fund to help fill the gap defunding the ACP will create, leveraging “philanthropic dollars, local donations, and digital equity dollars.”

https://communitynets.org/content/nek-broadband-expands-access-affordable-fiber-rural-vermont

If NEK Broadband’s rates are representative of other CUDs, it’s not hard to see why some households might struggle to afford the lowest cost option at $80 a month. It’s also something of a head scratcher insofar as publicly owned advanced telecommunications infrastructure comes with a lower cost structure than investor owned that must generate profits for investors and pay income taxes.

That offers major advantages for access and affordability since more premises can be connected and offered lower monthly access fees than with investor-owned ISPs. Yet ironically, here we are witnessing the same affordability challenges as with investor owned ISPs. And not surprisingly so at rates that emulate those of investor-owned ISPs and unfortunately reinforce the perception of "broadband" as a luxury.

To give NEK Broadband the benefit of the doubt, it could well be those rates are needed in order to service capital expansion and finance costs. But given the affordability issue, it might behoove it and other CUDs to take another look at the numbers before resorting to setting up a charity to support affordable access. For example, can they pencil out at a flat $50/month for all residential users at the same bandwidth for all instead of slicing and dicing bandwidth into price tiers like investor-owned providers do? Most nearly all households could probably do fine over the near term with symmetric 100 to 300 Mbps, assuming they aren’t hosting server farms.

BEAD framed as end of one off grants for advanced telecommunications infrastructure

The fiber broadband industry is experiencing a historic moment. According to Joseph Wender, Director of Capital Projects Fund at the U.S. Department of the Treasury, never before (and likely never again) have multiple government agencies provided tens of billions of dollars in funding to provide affordable, reliable, high-speed internet for all Americans and close the digital divide once and for all. “We are living in a historic moment and it is exciting, which makes our jobs much more important. We have to get it right this time,” Wender said on this week’s Fiber for Breakfast episode.

https://fiberbroadband.org/2024/01/17/making-a-down-payment-on-affordable-reliable-high-speed-internet-for-all/

Wender is correct. The United States is at a policy inflection point on the future of the nation’s advanced telecommunications infrastructure. It’s at this point because it lacks a national strategy to guide its deployment, the U.S. General Accountability Office (GAO) observed in 2022 and 2023.

While the GAO didn’t specifically say so, the main casualty of this policy failure is the now long tardy modernization of copper telephone lines that reached nearly every address in in the 20^th century to fiber optic lines with the proven capacity to carry high quality digital voice, data and video. It should have been completed by the start of the second decade of the 21^st.

That has led policymakers to spend the last three decades defining the issue by its resulting symptoms of constrained access and affordability that worsened a decade later with the public health restrictions imposed in response to a viral pandemic. That spawned according to the GAO 133 disparate federal funding programs administered by 15 agencies, mostly one off grant programs aimed at treating constrained capacity by boosting “broadband” bandwidth.

That has begun to shift somewhat in the latest and largest grant program, the $43.45 billion Broadband Equity, Access, and Deployment (BEAD) state grant subsidy program administered by the National Telecommunications and Information Administration (NTIA). BEAD expresses a clear preference that the subsidies be spent on fiber as the best long-term value for taxpayer dollars.

To the point of this article and others like it, there’s a tone of finality associated with these one time grant subsidy programs that has accompanied BEAD. It’s been described as “once in a lifetime,” and “once in a generation.” Hence, warnings by Wender to “get it right this time,” because the tap is being shut off and the pinata party will soon end.

“Pinata policy” instead of well thought out strategy for universal access

In 1996 and nearly a quarter century later in 2021, the United States enacted legislation stating public policy that all Americans should have access to reliable advanced telecommunications. The 1996 Telecommunications Act stated that “Consumers in all regions of the Nation, including low-income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services, including interexchange services and advanced telecommunications and information services.” It also charged the FCC and state public utility commissions to “promote competition and remove barriers to infrastructure investment.”

There’s a major flaw with both bills. The 1996 Telecom Act is predicated on the inaccurate notion that premise advanced telecommunications functions as a competitive market and thus market forces and technological advances will bring about universal access. That’s incorrect because advanced telecommunications infrastructure like other utilities and voice telephone service functions as a natural terminating monopoly where market forces are weak or nonexistent. Many buyers but few sellers and high cost barriers to competitor entry along with first mover advantage enjoyed by incumbents discourage competition and cannot be overcome by regulation. In 1996, no technology was superior to fiber to the premise (FTTP) for reliably delivering advanced, Internet protocol-based voice, video and data and none better has emerged since.

The Infrastructure Investment and Jobs Act (IIJA) of 2021 contains findings by Congress that “Access to affordable, reliable, high-speed broadband is essential to full participation in modern life in the United States” and a “persistent ‘digital divide’ is “a barrier to the economic competitiveness of the United States and equitable distribution of essential public services, including health care and education.”

But like the 1996 Telecom Act, the legislation contains the flawed assumption that “increased competition among broadband providers has the potential to offer consumers more affordable, high-quality options for broadband service." (Emphasis added) That’s not a solid policy to bring about the aforementioned access. The term “has the potential” reflects the same aspirational, magical microeconomic thinking that a natural monopoly utility market can somehow transform itself into a competitive one with providers competing to sell FTTP connections door to door. Electric power, natural gas and water utilities don’t work that way and neither do telecommunications lines.

Achieving universal access to reliable advanced telecommunications infrastructure like the copper lines that brought voice telephone service to most every American doorstep in the 20th century is undoubtedly good public and economic policy. But it cannot be attained if the underlying assumptions about it are based on wishful thinking. Also needed is well considered program policy to implement the goal that’s absent from both pieces of legislation.

Instead, the U.S. has defaulted to what could be called pinata policy. Various federal agencies established tightly proscribed and vastly oversubscribed grant programs to futilely throw money at the challenge hoping the goal will somehow be met. Then investor-owned telecom and cable companies and public entities whack at the pinata with big sticks and scramble for some of the grant dollars that fall to the floor. That’s hardly well thought out program policy that’s optimally aligned with policy and puts the funding cart before the policy horse.

The pinata fights will grow more intense in 2024 as states will have to sort out competing claims by private and public sector entities over eligibility for some of the $43.45 billion in grants appropriated by the IIJA to states to subsidize advanced telecommunications infrastructure projects. As 2023 drew to a close, California offered a preview for another federal grant appropriation to states for advanced telecommunications infrastructure.

Coalition of California civic, advocacy groups accuse AT&T of cherry picking, gaming federal subsidy program

A broad-based coalition of civic and advocacy groups led by the California Alliance for Digital Equity are accusing AT&T of gaming a California state advanced telecommunications infrastructure subsidy grant program. The accusation was detailed in a December 11, 2023 letter to the California Public Utilities Commission (CPUC). The letter also complains the CPUC has not provided an appropriate and transparent process to comment on the projects proposed by AT&T under the CPUC’s Federal Funding Account (FFA) program. Nearly 900 objections to proposed builds were filed with the CPUC on 484 grant applications for projects in each of the state’s 58 counties totaling more than $4.6 billion -- more than double the $2 billion available.

The funding is authorized by 2021 California legislation allocating federal funding appropriated by the federal American Rescue Plan Act (ARPA). Similar to the federal Broadband Equity, Access and Deployment (BEAD) program funded under the Infrastructure Investment and Jobs Act (IIJA) of 2021, eligibility is limited to “unserved” areas for which no landline service is offered to “an entire community” of at least 25 Mbps downstream and 3 Mbps upstream. The FFA program rules also take into consideration whether proposed projects would target areas prioritized by the CPUC based on demographic and digital equity information and analysis of the number of low-income households, median household income, disadvantaged community status, and digital equity.

“After careful review of the limited information available in FFA project summaries, it is abundantly clear that incumbent ISPs, particularly AT&T, have manipulated the grant process to secure funding for projects that are inconsistent with FFA goals and are attempting to prevent potential competitors from receiving FFA funds,” the letter states.

Every AT&T application advocates reviewed includes a map of a large potential project area with tens, and in some cases dozens, of very small and widely geographically dispersed (sometimes 50 miles or more in largely urban and suburban areas) extremely small service areas. These very small service areas form no coherent whole, and in most cases, these extremely small service areas border or overlap with similarly extremely small service areas inexplicably included in separate AT&T applications. Broadly, this approach is ‘cherry picking,’ wherein a provider delineates a sizable boundary but proposes to serve a small fraction of households within it. This approach also makes collaboration or coordination with local interests impossible.”

Like the Golden State Connect Authority (GSCA), a joint powers authority of 40 counties authorized by the 2021 California legislation to build open access fiber to the premise distribution infrastructure, the groups allege the large number of projects proposed by AT&T calls into question has the financial, technical, or operational capacity to complete all the proposed projects within the timeframe required by program. The GSCA filed objections to 50 proposed AT&T projects.

Notably, Jeff Luong, AT&T’s vice president of network engineering, reportedly said at the recent Fierce Telecom U.S. Broadband Summit that even with AT&T spending about $20 billion per year on infrastructure, “we cannot build out in all the areas we deem as economical.”

The groups expressed concern that AT&T may be gaming the program rules with the numerous small projects in hopes of winning quick approval of each and then rejecting grant funding in order to delay or exclude other applicants from receiving grants.

“We wish to emphasize that it is standard industry practice for providers to claim that they intend to deploy infrastructure in specific areas (thereby preventing other entities from receiving state or federal funding to deploy infrastructure) but never actually do,” the groups wrote.

A potential point of contention suggested by the groups but not explicitly stated in their letter is since FFA program rules limit grant funding eligibility to “an entire (unserved) community,” the disparate proposed AT&T projects cannot reasonably be construed to be serving an “entire community.” The term is not specifically defined in the rules. In a footnote, the rules suggest the CPUC reserves broad discretion to make that determination using “data from a variety of services, including broadband deployment data, subscriber data, crowdsourced data, service quality data, and qualitative data.”

The questions not asked and answered, leading to today's telecom infrastructure crisis

"All of the large ISPs have received considerable federal support to provide universal access over the past few decades, yet all have failed to do so."

So notes Christopher Ali, Pioneers Chair in Telecommunications and Professor of Telecommunications in the Bellisario College of Communications at Penn State University in an interview with Sarah Stonbely, director of the State of Local News Project of Northwestern University’s Medill School of Journalism on the latest federal subsidy program, Broadband Equity, Access and Deployment (BEAD).

Reflecting back on Ali's synopsis and BEAD -- and with hindsight being 20/20 -- it's clear the following questions should have been posed by public policymakers circa 1992-93 when the Clinton administration and Vice President Al Gore in particular was talking about the “information superhighway” to pave over the analog voice telephone copper roads with digital fiber freeways for the 21st century: 

• Are the telephone companies capable of modernizing the analog copper POTS infrastructure to FTTP for emerging digital, IP telecommunications in the next 15-20 years?
• If so, what regulatory policies will be needed to ensure that happens?
  
• If not, what are the best alternatives to fully relying on the telephone companies?
  

Subordination of stakeholders to shareholders obstacle to progress in advanced telecommunications infrastructure

The U.S. health economy is little changed since then –- it is still organized as inputs for niche impacts, not outcomes from a coherent whole. We are governed by the logic of market fragmentation. At an individual level, the story is everyone doing the “right thing” to protect and grow their businesses, brands and shareholders. At a system level, the story is collapse, a function of the design flaw in the orientation of the economics. The center of gravity is value extraction for shareholder benefit, not value creation for stakeholder benefit. America is flailing to reshape healthcare because a $4 trillion market is on a cliche treadmill.

https://www.bluespoonconsulting.com/blog/the-strategy-that-didnt-fix-healthcare-cxcgj

The title of this blog post by John G. Singer of Blue Spoon Consulting is The Strategy That Didn't Fix Healthcare. The same could also describe the state of advanced telecommunications infrastructure in the United States over the past 30 years and the nation’s highly fragmented approach to its modernization. As with health care, value extraction for shareholder benefit in a market-based paradigm of selling “broadband bandwidth” is most highly valued.

Households, businesses, institutions and state and regional economies are key stakeholders in having the legacy metallic telephone and cable infrastructure timely updated to fiber for the 21st century – and which should have reached most every American address by 2010. But their legitimate interest as stakeholders has been subordinated by public policymakers to that of the shareholders of these legacy companies that has delayed progress and produced slogans such as “Internet for All” and “Closing the Digital Divide.”

States should partner with special districts, utility cooperatives to maximize reach of BEAD funds

A conflict between state and federal laws may delay the first distribution of funds to the states from the $42.5 billion program to expand internet access. Sixteen states bar or restrict municipally owned broadband – and nearly all of those states, according to an analysis by Route Fifty, appear unwilling to amend their laws as they finalize plans for how they will use their share of Broadband Equity, Access and Deployment, or BEAD, funds. That could put them at odds with the Biden administration, which supports having more cities and local governments offer broadband.

The 2021 infrastructure law requires that states allow local governments and utilities to receive BEAD funds to provide internet service. At the time the law was being crafted, the administration argued that local governments would be under “less pressure to turn profits” than broadband companies and, therefore, would likely offer internet access at lower prices.

https://www.cityandstatepa.com/policy/2023/12/pennsylvania-stands-alone-clarifying-bead-plan/392566/

This isn’t likely to cause any delay for the states. The Infrastructure Investment and Jobs Act (IIJA) language as Pennsylvania has apparently noticed is sufficiently open to allow BEAD funds to be granted to states that have laws restricting or barring municipally owned advanced telecommunications networks.

Per the IIJA, states “may not exclude cooperatives, nonprofit organizations, public-private partnerships, private companies, public or private utilities, public utility districts, or local governments from eligibility for such grant funds.” That language does not specifically bar states that have statutes limiting or banning these networks from participating in the BEAD grant funding as eligible entities.

The reference to public-private partnerships would theoretically allow states to form a partnerships between government units and the investor owned providers who lobbied for these state laws. The public entities would function as pass through entities for private subsidies as some local jurisdictions have done with American Rescue Plan Act funds earmarked for capital improvement projects.

A superior option better aligned with BEAD program guidance would be for states to partner with non municipal entities such as public utility authorities, special districts and utility cooperatives. Doing so comports with BEAD program guidance urging states to maximize their BEAD allocations to minimize their outlay and “extend the reach of the BEAD program funding and help to ensure that every unserved location and underserved location in the United States has access to reliable, affordable, high-speed internet.”

These entities would be better situated to do so since they operate with lower cost structures that don’t require them to generate profits or pay income taxes – constraints that brought about the nation’s crisis in deficient advanced telecommunications infrastructure that the IIJA seeks to address. To comply with the IIJA’s requirement that BEAD funds be distributed in “an equitable and nondiscriminatory manner,” those entities could partner with investor owned entities for network design, construction, and operation and to offer services as ISPs.