Google Fiber enters building by building urban battle for MDU connectivity

Google Fiber picks MDU cherries in Orange County: Google Fiber is figuring out how to play small ball and still get thousands of fiber to the home subscribers. In its latest blog post, Google tells how it’s expanding its fiber footprint – actually, making lots of tiny paw prints – in the southern California multi-dwelling unit market…

The subscription-based business model employed by incumbent telcos like AT&T as well as newer entrants like Google Fiber clearly favors density because it generates decent ROI on fiber to the premise (FTTP) capital investment. The higher the density the better as these players engage in a form of business urban warfare, fighting for market share building by building.

The problem is not everyone lives in or prefers to live in multi dwelling unit (MDU) properties. In MDUs, the vertically integrated model in which the providers own both the fiber infrastructure as well as proprietary telecommunications services delivered over it works well enough to make a strong business case. But when the density drops, it becomes iffy.

Ironically, that can leave even relatively affluent, low density neighborhoods of single family detached homes without fiber connections as the large investor-owned providers chase after dwelling density. Alternative business models are urgently needed. Without them, these higher value properties could end up becoming devalued due to their lack of fiber connectivity.

Fiber telecom infrastructure key, not "broadband speed"

Beyond Speed: FCC Should Focus on Broadband Experience: The market has evolved to where all-fiber connectivity is everyone’s goal, and it is time that the FCC got on board as well. In our comments to the FCC, the Fiber Broadband Association encourages the FCC to use an “all-fiber” metric — examining whether customers have access to all-fiber networks — to assess our country’s advanced telecommunications. “Robust fiber networks aren’t just capable of meeting community and enterprise needs throughout the United States; they’re essential to doing so,” says FBA President and CEO Heather Burnett Gold. “Fiber broadband has what it takes to take our country’s digital potential to the next level, and access to fiber is the critical first step.” If we want to accurately measure Americans’ access to sufficient broadband technology, looking just at speed won’t do. We must be looking at the technology that can actually provide high-performance, future-proof broadband service: fiber.

This organization is right on the money. As readers of this blog as well as my eBook Service Unavailable: America's Telecommunications Infrastructure Crisis know, I've emphasized the same point. The United States should focus like a laser (pun intended) on rapidly bringing fiber connections to every home, business and public institution. It's all about modernizing the nation's vital telecommunications infrastructure to fiber, not "broadband speed."

Fearing state imposed universal service obligations and rate regulation, legacy incumbent telcos, cablecos seek federal cover

A decade ago as Internet-based telecommunications grew and began transporting video content, telephone and cable companies feared local governments would using their video franchising authority established in the cable TV era require them to build out their infrastructures to ensure all residents had connections. The pre-Internet cable television franchise had evolved. It was no longer just about entertainment. In the Internet era, it was now the full panoply of advanced telecommunications services: voice and data as well as video. That in turn would stoke demand for better infrastructure that could reliably deliver them.

However, the legacy incumbent telephone and cable companies didn’t want to be forced to upgrade and build out their cable plants to serve all customer premises in order to do business in numerous localities. Their business models are based on serving selected neighborhoods within arbitrary “footprints” of “serviceable” premises and not entire local government jurisdictions.

They initially sought relief in Washington from Congress and the U.S. Federal Communications Commission to preempt state – and by extension local -- video franchise regulation. That would take care of a multiplicity of potentially troublesome local governments imposing universal service conditions under their video franchising authority. But the National Governors Association and the National Conference of State Legislatures pushed back, wanting to keep video franchising within state jurisdiction.

Incumbents were able to easily pivot from that objection to their Plan B to kill local government video franchising authority: lobby state governments to take it over from local governments. That effort was quite successful, with state video franchising laws put on the books in state after state in the mid-2000s. Those laws such as California’s Digital Infrastructure and Video Competition Act of 2006 did not mandate video franchisees provide universal service by some future date in areas where they were awarded state franchises, thus sanctioning neighborhood redlining. Consequently, local governments that often receive complaints from constituents denied landline connections to advanced telecommunications service by the big incumbents are powerless to do anything about it since those connections fall under state video franchising authority. Calling one’s state representative isn’t helpful either since the incumbents have captured legislatures and state telecommunications regulatory agencies by buying political influence with campaign contributions.

The fight over universal service has now shifted from video franchising to a new regulatory front. But this time around, the incumbents ironically want protection from the states. They’re concerned that if the federal government continues avoid enforcement of universal service policy expressed in the Communications Act as amended in 1996 or the FCC’s 2015 Open Internet rulemaking -- or scraps the Open Internet rulemaking altogether -- the states might opt impose their own universal service obligations.

The big legacy incumbents are also worried over the prospect of states regulating service rates as authorized in the federal Open Internet rulemaking. In the two years the Open Internet rulemaking has been the law of the land, the FCC hasn’t enforced that provision either.

Given widespread complaints voiced by state and local elected officials over both spotty access to service due to neighborhood redlining and affordability challenges for low income households, the incumbents have reason for concern. Two of the nation’s largest telephone and cable companies, Verizon and Comcast, respectfully, are urging the FCC to enact a “clear, affirmative” rule preempting states, declaring federal primacy over state regulatory jurisdiction. However, such a rulemaking could fail to hold up in court against a statute enacted by a state legislature given a 2016 decision by the United States Court of Appeal Sixth District in State of Tennessee et al. v FCC & USA finding the FCC could not preempt state law without express federal statutory authority to do so. That could set up a grueling battle in Congress between the big telcos and cablecos and the states over the regulation of advanced telecommunications services.

With the level of dissatisfaction in the states over access and affordability to landline delivered advanced telecommunications services, it’s not a fight the incumbents would automatically win despite the massive lobbying and campaign cash they can bring to bear in Washington. Many if not most candidates for state and local offices have made access to and affordability of advanced telecommunications services a campaign issue, terming it infrastructure vital to commerce, education and telehealth services. In addition, the level of need and public interest is much higher now than it was a decade ago when the incumbents were lobbying state governments to enact statewide video franchise laws.

Why legacy incumbent telephone and cable companies want FCC re-reclassification as information service providers. Hint: It’s not “net neutrality.”

If the U.S. Federal Communications Commission revokes its 2015 Open Internet rulemaking classifying Internet as a telecommunications common carrier utility under Title II of the Communications Act and restores the previous rule classifying it as information service under Title I of the law as expected before year end, it will set the stage for another round of litigation just as that which followed after the 2015 rule was adopted. This time however it will be public and consumer interests that will be challenging the FCC rather than legacy incumbent telephone and cable companies. And the governing statute, the Communications Act, might well be on their side. Section 3(a)(1)(41) of the Act as amended in 1996 defines an information service as follows:

INFORMATION SERVICE- The term `information service' means the offering of a capability for generating, acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications, and includes electronic publishing, but does not include any use of any such capability for the management, control, or operation of a telecommunications system or the management of a telecommunications service.

The legacy incumbent telephone and cable companies want the FCC to define their Internet protocol delivered services using that definition, essentially equating them with services like LexisNexis or Intelius. Their problem however is these companies market Internet protocol-based telecommunications services such as data, voice and video delivered over their connections to customer premises. If they were merely information services like LexisNexis or Intelius, they wouldn’t market physical premise connections sold in throughput speed tiers for a monthly recurring fee. In so doing, they are arguably offering telecommunications service, which the statute defines as “the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.”

So what is the incumbents’ main motive in not wanting to be classified as telecommunications providers under Title II of the Act? Hint: It’s not “net neutrality” – the requirement they treat the bits and bytes of Internet protocol moving over their networks equally regardless of origin. The primary reason to avoid being classified as telecommunications providers is to escape the requirement in the Communications Act as amended in 1996 that they provide advanced telecommunications capability to all areas of the nation consistent with the public interest, convenience and necessity. It must enable users to originate and receive high-quality voice, data, graphics, and video telecommunications using any technology per Section 706(c)(1) of the statute. Elected policymakers at all levels of government generally agree advanced telecommunications capability is even more in the public interest and vital to the constituents they represent than it was when the 1996 Act was enacted two decades ago.

Incumbents also chafe at the prospect of price regulation as advanced telecommunications providers as authorized at Section 706(a) of the Act. Bottom line, if they are regulated solely as providing an information service and not as telecommunications common carriers, then they would be able to continue to redline neighborhoods they don’t wish to serve and charge customers in those they do whatever they wish – just as they have since the statute was enacted without meaningful regulatory enforcement. That might serve the interests of their shareholders, but clearly doesn’t comport with the public interest specified in the statute.

Legacy metallic telcos, cablecos fight rear guard actions against local FTTP initiatives

Municipal broadband advocates cry foul amid Seattle mayoral race: An ongoing debate over making broadband internet a public utility in Seattle is surfacing in the city's mayoral election, and advocates for the cause are crying foul over contributions large telecommunications companies have made in the race. Comcast and CenturyLink, two internet service providers in Seattle, collectively donated about $50,000 to a political action committee supporting Jenny Durkan, a candidate who opposes municipal broadband. Municipal broadband advocates say that the telecom companies’ donations represent efforts to maintain the duopoly they have in the region. The PAC is the Civic Alliance for a Sound Economy (CASE), which is sponsored by the Seattle Metropolitan Chamber of Commerce. “If I was running one of the most powerful monopolies of the modern era, I’d be donating as much as I could to take over local politics also,” said Christopher Mitchell, director of the Community Broadband Networks Initiative at the Institute for Local Self-Reliance.

Mitchell is correct. Due to high cost barriers to competitor entry, telecommunications infrastructure functions as a natural monopoly, a fact recognized in the previous regulatory regime governing analog voice telephone service. Title II of the U.S. Communications Act requires telephone companies to provide service to anyone requesting it and authorized state public utility commissions to regulate their rates since market forces cannot in a monopoly market. 

In its 2015 Open Internet rulemaking, the U.S. Federal Communications Commission made it clear Title II also applies to digital telecommunications delivered using Internet protocol technology. But the United States hasn’t found the regulatory fortitude to enforce that requirement, allowing landline advanced telecommunications providers to redline neighborhoods they don’t want to serve and charge whatever they want. Most pundits expect the FCC to repeal that rulemaking later this month and turn the clock back to the start of the new century when Internet was still a relatively novel “information” service where people “went online” with “broadband” (versus narrowband dialup) connections.

Meanwhile, telephone and cable companies find themselves fighting rear guard actions by localities all over the nation that like Seattle prefer fiber optic infrastructure over metallic cable that isn’t bundled with proprietary services -- known as an open access network. They're tired of waiting and understandably have lost confidence after years of incumbent promises of fiber upgrades that never materialized because their business models can't absorb the needed capital expenditures.

Had the nation engaged in sound public policymaking and prudent planning a generation ago when it became apparent telecommunications was transitioning from analog to digital Internet protocol, the legacy incumbents wouldn’t find themselves fighting these battles. But since they themselves heavily influenced public policy on telecommunications over the past few decades, they hoisted themselves on their own petard and became among the most hated companies in America.

Both legacy incumbents and consumers are wrong about competition in landline delivered advanced telecom service

Legacy incumbent telephone and cable companies and consumer and public interest advocates describe advanced telecommunications landline infrastructure as a competitive market. The former argue that it’s robustly competitive, affording consumers plenty of choices particularly in dense, urban areas. The latter complain there’s little or no competition in most areas where it’s a market duopoly at best. The choice is between either a legacy telephone company or a cable company. Oftentimes there is no choice at all, with only one of the two -- or neither -- offering service.

They’re both off base. Telecommunications infrastructure like that of other utilities delivering electric power, natural gas, water and sewer service to homes and businesses is a natural monopoly. Its inherent microeconomics don’t allow for a competitive market, one that by definition has many sellers and buyers with relatively equal access to information on price and quality.

Telecommunications service is like other utilities because it provides essential, necessary services for modern life. Thus it will always have many buyers but not a lot of sellers. That’s because the costs of installing and maintaining its delivery infrastructure are so high they deter other providers from entering the space. Would be providers are also deterred because it's inherently difficult to lure away customers from a well established incumbent since consumers don’t frequently go shopping for a new utility provider like they might for furniture, clothing or personal electronics. Hence, for most utilities there is only one provider or as noted earlier, perhaps two for advanced landline telecommunications service.

Both sides nevertheless continue to delude themselves and attempt to convince others they are right. The legacy incumbent phone and cable companies do so because they want to keep policymakers and regulators off their backs. They contend landline delivered advanced telecommunications is a competitive industry and thus requires only “light touch” regulation to protect consumers since market forces will adequately do the job.

Consumers believe the legacy providers have them over a barrel. They redline their neighborhoods and refuse to offer service on a par with that sold to nearby neighbors. Or they offer service, but with poor quality and reliability and exorbitantly priced. As they do with other services, the first inclination of consumers is to call for more competition. If telecommunications were a competitive retail market, they believe, then they could choose among a variety of providers clamoring for their business. The reality of course is far from that and complaints of shoddy customer service are rampant.

Both sides also mischaracterize public sector initiatives to build fiber optic infrastructure as market competition. Public sector entities aren’t out to compete for market share with incumbent legacy telephone and cable companies with the hope of driving them out of business as is the case with true market competition. They build advanced telecom infrastructure to facilitate economic development and achieve community goals.
 
Consumers want a competitive market for advanced telecommunications infrastructure, viewing it as a tonic for better quality service and value. It cannot and never will be a competitive market. The incumbent providers argue it's already a competitive market. It isn’t. It’s time to end the nonsense from both camps and their delusions of market competition in advanced landline telecommunications infrastructure and put ownership of it firmly in the public sector since it cannot function as a truly competitive market.

California like rest of nation suffers from poor advanced telecom service

The Social Cost of Weak Broadband Competition in California: Over the last 8 years, California has spent more than $200M funding projects and subsidizing service to close the broadband digital divide. While the intent is good, the results are limited given that home broadband subscriptions are unchanged today from 2010. It is clear that California cannot subsidize its way out of the digital divide. Despite the claims of Sosa and the Big 5, California’s uncompetitive fixed broadband service hurts everyone. The answer is to either promote retail competition or regulate the Big 5’s monopolies like we do in the energy sector.

California like the rest of the nation has the worst of all worlds: a naturally monopolistic advanced telecommunications market but no monopoly regulation as is done for electric power and natural gas utilities. The U.S. Federal Communications Commission nominally recognized advanced telecommunications as a natural monopoly utility in 2015, placing it under Title II of the Communications Act that regulated basic telephone service before it with rate regulation and a universal service requirement. "Nominally" because this regulatory scheme was put in place on paper only and not enforced.

The author is correct in noting we cannot extricate ourselves from this unfortunate circumstance with subsidies because they don't fundamentally alter it.

Why Title II regulation is anathema to legacy telephone and cable companies

POTs and PANs | Pretty Advanced New Stuff from CCG Consulting: Until recently I always wondered why the ISPs are fighting so hard against Title II regulation. All of the big companies like Comcast, AT&T and Verizon have told stockholders that their initial concerns about Title II regulation did not materialize. And it’s obvious that Title II hasn’t changed the way they invest in their own companies.

That's because the Federal Communications Commission's Open Internet rulemaking is not being enforced since it took effect in June 2015. No enforcement = no material impact.

But recently I saw an article and wrote a blog about an analyst who thinks that the ISPs are going to drastically increases broadband prices once Title II regulation is gone. Title II is the only tool that the government can use to investigate and possibly act against the ISP for rate increases and for other practices like data caps. If true, and his arguments for this are good ones, then there is a huge motivation for the big ISPs to shed the only existing regulation of broadband.

That's exactly the issue -- and NOT "net neutrality" as the Open Internet rulemaking has been unfortunately dubbed as if the rulemaking only prohibits telecom providers from blocking and throttling content. The main reason the legacy telephone and cable companies dislike Title II regulation is that it is predicated on a natural monopoly market. That requires prices to be regulated because market forces won't act to control them as well as universal service obligations. Both are anathema to these entities because they naturally prefer an unregulated monopoly market that affords them full freedom to cherry pick and redline and charge whatever they choose, placing end users at a distinct advantage to their shareholders.

U.S. at crisis point on telecom infrastructure modernization – and the path forward

The United States is facing a crisis when it comes to modernizing its legacy metallic telecommunications infrastructure originally constructed in the previous century for analog telephone and cable TV services. In order to deliver digital advanced telecommunications service based on Internet protocol in the present and with capacity for future services as bandwidth demand grows exponentially, that legacy infrastructure needs replacement with fiber optic connections to customer premises.

However, that’s unlikely to happen for the foreseeable future under current federal policy. Customer premise fiber connections are likely to continue to at a glacial place, putting the nation ever further behind where it should be. Had the correct policy and planning choices been made in the late 1980s and early 1990s when it became apparent video, data and voice telecommunications would go from analog to digital and be transported using Internet technology, fiber connections should have been available to every American home, business and institution by 2010 at the latest. Consequently, the United States is facing telecommunications infrastructure crisis in the 21st century at a time when it’s urgently needed to support a transition from the Industrial Age economy to the information and knowledge economy of the 20th.

Given that telecommunications infrastructure functions as a natural monopoly, market forces cannot provide sufficient incentive to speed deployment of fiber. Legacy telephone and cable companies will only construct fiber where they can earn a relatively rapid return on that high dollar capital investment. New investor owned providers will be reluctant to enter a market already dominated by the incumbent providers given they too face the same high capital investment costs and uncertain investment returns.

The leaves the vast majority of the country with substandard and often obsolete infrastructure with little prospect of meaningful progress. Federal and state subsidy programs are grossly underfunded relative to the estimated $200 billion minimum needed to bring fiber connections to every American doorstep. Leaving telecommunications infrastructure in the hands of the private sector will prolong the dismal situation.

Only the federal government has the economic resources to do the job and the freedom to do so without the need to produce a quick return for investors. That’s not to say spending federal tax dollars on this vital infrastructure isn’t an investment. It most certainly is an investment in the nation’s future that will pay multiplier effect dividends by boosting jobs and economic activity, in turn generating tax revenues to repay the initial investment.

A federal telecommunications infrastructure modernization initiative must not just be sufficiently funded. It must also include a clearly defined role for current and newcomer private sector players to construct and operate – but not own due to its monopolistic nature that disadvantages end users -- the new fiber networks. Like the roads and highways the connect metro areas to states and states to other states, the new federally owned fiber infrastructure should be operated on an open access basis, enabling various telecommunications services to be delivered over them by private sector firms. This avoids the tyranny of the monthly subscription take rate that deters infrastructure investment under legacy business models in which the owners of network assets also provide proprietary services over them.

Owners of existing fiber to the premise networks should be offered the opportunity to continue to operate them as privately held assets or to sell them to the federal government with favorable tax incentives.