California broadband subsidies are now a rigged game

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The era of state-subsidised independent broadband projects is over in California. It ended Sunday night when governor Brown signed assembly bill 1665 into law, with immediate effect.

AB 1665 added $300 million to the California Advanced Services Fund (CASF) specifically for infrastructure subsidies, but drastically changed the way the money can be spent. It’s messy and meandering, like most pork laden bills, but the key elements are:

  • The money has to be spent in areas where broadband service is available at less than 6 Mbps download and 1 Mbps upload speeds. A small fraction of the money might go to areas with 10 Mbps down/1 Mbps up in the future, but the critical number is the 1 Mbps up. That’s the limit for AT&T’s and Frontier’s ageing 1990s DSL systems in rural communities.
  • Even then, telcos, cable companies and wireless operators will be able to exercise an annual right of first refusal and block projects in areas that would otherwise qualify for funding. There’s a nominal requirement that whoever blocks projects has to upgrade service, with the help of CASF money of course, but loopholes allow delays that are long enough to kill any independent project that’s on the drawing board.
  • AT&T and Frontier will have the exclusive right to CASF money in areas where they’ve accepted federal subsidies under the Connect America Fund program, at least until mid–2020. The census blocks that have been awarded those federal subsidies are scattered in checkerboard fashion across rural California, effectively killing the business case for independents to expand in whatever CASF-eligible areas might be left.
  • Individual homeowners may apply for means-tested grants to pay some of the cost of building line extensions to their property. As a practical matter, it means cable companies, like Comcast, that have line extension charges built into their business models will be able to tap up to $5 million from CASF to get to homes that are just outside of their existing service areas.
  • By the California Public Utilities Commission’s estimate, the number of CASF-eligible households will plunge from 300,000 to 20,000. I’ve run the numbers too, with similar results: regardless of which assumptions you use, eligibility will drop from hundreds of thousands of homes to tens of thousands.

Most, if not effectively all, of those homes will be reserved for AT&T and Frontier. The game is egregiously rigged in their favor. Such hope as might be left rural California can be found in the words of Robert A. Heinlein:

Certainly the game is rigged. Don’t let that stop you; if you don’t bet you can’t win.