Broadband subsidies collide in the California desert

by Steve Blum • , , , , ,

Up, down, who cares? This is as fast as I go.

The 3,800 homes in the Anza area of Riverside County are a big step closer to getting fiber to the home broadband service from the local electric cooperative. The California Public Utilities Commission published a draft decision on Friday giving the Anza Electric Cooperative a $2.7 million grant from the California Advanced Services Fund (CASF) to pay for 60% of the project.

The project is remarkable for two reasons. First, the subsidy cost per household is only $710, something like an order of magnitude less than typical CASF-funded FTTH projects. That’s the advantage of working with an incumbent service provider – albeit electric service – that already has access to utility poles and right of ways, an established customer base, and the people and equipment to make it all work.

The second reason invokes more controversy than the first, though. The Anza area has also been targeted by the Federal Communications Commission for a similar sized subsidy from the Connect America Fund program. I haven’t crunched all the numbers, but just looking at the town of Anza itself, which accounts for fewer than a third of the households in the project area, the FCC has put something in the neighborhood of $1.6 million on the table. And Frontier Communications has said it will take that money up, if it’s allowed to buy the Verizon copper system that provides telephone, but not DSL, service in the area.

My numbers are rough, but in the ball park. The CAF estimate for the town of Anza is based on the average per-premise subsidy offered by the FCC in Riverside County and discounts the six annual payments at a rate of 5%. You can shift those assumptions pretty far either way, though, and still reach the essential conclusion: the CPUC and the FCC could each give a few million dollars to two different, and ultimately competing, service providers to upgrade broadband infrastructure in the Anza area.

The CPUC is getting the better bargain, though. Anza Electric is promising to deliver 50 Mbps down and up to homes for $50 per month, and as much as 500 Mbps down and up to commercial customers. Assuming the fiber network is intelligently engineered, service could be upgraded as far as necessary for decades to come. The FCC, on the other hand, is only requiring Frontier to deliver 10 Mbps down and 1 Mbps up, and charge whatever the going rate is in urban areas. Which isn’t likely to be much less than what Anza proposes to charge for 50 megs each way, and could very well be more.

Even if the copper system was magically upgraded to the FCC standard before the CPUC’s expected vote on the project next month, it wouldn’t change anything. Unless an area has service available at 6 Mbps down and 1.5 Mbps up, it’s eligible for CASF subsidies. The FCC’s standard fails on the upload side.

If the tables were turned, the CPUC standard would fail on the download side, but Anza is proposing something way beyond the minimum. From a taxpayer’s standpoint, the rational thing to do would be for the FCC to pull its offer, contingent on performance by Anza Electric, and spend its subsidy money elsewhere in California.