Tag Archives: connect america fund

FCC’s go it alone broadband subsidies burn state programs, commissioners say

by Steve Blum • , , , ,

Thirteen days before the November election, the Federal Communications Commission plans to give away $16 billion of subsidies to broadband service providers who can deliver at least 25 Mbps download and 3 Mbps upload speeds to census blocks that lack it. Commissioners voted last week to publish the proposed 22 October 2020 date to commence a reverse auction to determine who gets those subsidies, and ask for comments on a variety of technical issues that have to be sewn up before the bidding begins.

The vote was partially unanimous, but mostly split along party lines, with the two democratic commissioners, Jessica Rosenworcel and Geoffrey Starks, objecting to various aspects of the plan, including particularly the timeline.

Rosenworcel said “this Rural Digital Opportunity Fund [RDOF] looks more like publicity stunt than policy”, but…

To do this right, we also need to acknowledge that we are not going to do it on our own. We need to work with state and local authorities and not fight their efforts to help bring broadband to their communities. But that’s not what we do here. In fact, last month in a batch of last-minute changes, the FCC decided that the Rural Digital Opportunity Fund would not be available in places where states have their own programs. By some counts, that’s as many as 30 states. That’s crazy and we have no idea how it will play out on the ground. We should be encouraging states to work with us not penalizing them for their efforts to bring broadband to communities that are struggling. We have this exactly backwards.

Starks also called for the FCC to re-do its January decision setting out eligibility and other rules for the RDOF program, this time with input from states, like California, that have their own broadband subsidy programs.

The president of the California Public Utilities Commission, Marybel Batjer, asked for that opportunity in a letter she sent to the FCC in January, but it was ignored. The final version of the FCC’s RDOF rules don’t lock out Californian communities with the pitifully slow broadband service levels that legislators adopted in 2017 following massive cash payments hard lobbying by AT&T, Frontier Communications and the cable industry, but considerable work is needed to figure out how to maximise the benefit of both federal and California subsidies.

FCC revises subsidy rules, won’t zonk California because of our low broadband standards

by Steve Blum • , , , ,

Monty hall

The Federal Communications Commission approved a small do-over to the rules for its new broadband subsidy program, the Rural Digital Opportunity Fund (RDOF). Instead of blocking subsidies to any area where state broadband dollars are being spent, it will only do so where the money is paying for service at a minimum of 25 Mbps download and 3 Mbps upload speeds.

That’s good new for California. Our primary broadband subsidy program – the California Advanced Services Fund (CASF) – deems communities with broadband at the achingly slow rate of 6 Mbps down/1 Mbps up as adequately served, and only requires grant recipients who build infrastructure with state money to hit the barely better speed of 10 Mbps down/1 Mbps up.

As originally written, the FCC’s decision could have been read as writing off CASF-funded communities with those speeds. Democratic commissioner Geoffrey Starks certainly thought so, and called out the problem before the FCC voted last month. But FCC rules allow the text of a decision to be tweaked even after it’s approved. In his final comments, Starks said the FCC republican majority had a change of heart…

I received notice that the Report and Order we had voted had been revised by the Chairman in response to the concerns I raised…the post-adoption revision approved by the majority was changed to read:

In addition, we will exclude those census blocks which have been identified as having been awarded funding through the U.S. Department of Agriculture’s ReConnect Program, or awarded funding through other similar federal or state broadband subsidy programs to provide 25/3 Mbps or better service. This is consistent with our overarching goal of ensuring that finite universal service support is awarded in an efficient and cost- effective manner and does not go toward overbuilding areas that already have service.

The FCC will vote again later this month on the tentative date of 22 October 2020 to begin a reverse auction to distribute the initial $16 billion of RDOF subsidies, even earlier than originally planned. That’s not so wonderful for California. The president of the California Public Utilities Commission, Marybel Batjer, requested a delay to give California time to get its broadband subsidy act together. The FCC doesn’t plan to wait.

FCC documents:
FCC report and order, Rural Digital Opportunity Fund, 30 January 2020 (published 7 February 2020)
FCC public notice, Rural Digital Opportunity Fund, published 7 February 2020

FCC commissioner statements, 7 February 2020:
Geoffrey Starks
Ajit Pai
Jessica Rosenworcel
Michael O’Rielly
Brendan Carr

California gets a zonk from the FCC’s new broadband subsidy program

by Steve Blum • , , , ,

Zonk

The final language of the Federal Communications Commission’s decision to launch a new broadband subsidy program could cause headaches in California. The FCC approved the new $20 billion Rural Digital Opportunity Fund (RDOF) program last week, apparently with eligibility rule changes to the draft version published earlier in January.

In remarks prepared for the meeting, commission Geoffrey Starks flagged new language that would exclude places that are getting broadband subsidies from other sources…

I cannot support provisions of the Order that penalize the many states that have made their own investments in rural broadband deployment. The version of the Order now before us excludes from RDOF any area that the Commission “know[s] to be awarded funding through the U.S. Department of Agriculture’s ReConnect Program or other similar federal or state broadband subsidy programs, or those subject to enforceable broadband deployment obligations.”

The good news, if you want to call it that, is that California doesn’t have any conflicts with the USDA’s ReConnect program so far, because none of that money has been awarded here. But California does have “state broadband subsidies” and “enforceable broadband deployment obligations”.

Assuming those restrictions are in the published version of the decision – FCC procedures allow some changes even after a vote – the precise language will be important. Particularly for rural communities where an Internet service provider received money from the California Advanced Services Fund (CASF) to build low-speed infrastructure.

For example, the California Public Utilities Commission awarded several CASF grants to Frontier Communications to upgrade a few ageing DSL systems, so it could offer service at a minimum of 10 Mbps download and 1 Mbps upload speeds. That’s painfully slower than the FCC’s new eligibility standard of 25 Mbps down/3 Mbps up, and decades behind the subsidised service levels – up to a gigabit – that the FCC is incentivising. Frontier also has some vague and equally atrocious “broadband deployment obligations” that date back to its purchase of Verizon’s wireline telephone systems in California.

We’ll have to wait for the official version of the decision, before we know whether the FCC gave monopoly model incumbents the means to block broadband upgrades in rural California.

$16 billion in broadband subsidies up for auction in November

by Steve Blum • , , , ,

The Federal Communications Commission will begin the process of handing out $16 billion in broadband service subsidies in November, with another $4.4 billion coming sometime later. Commissioners approved the new Rural Digital Opportunity Fund (RDOF) program at their meeting in Washington, D.C. yesterday. They set the minimum standard for acceptable broadband service at 25 Mbps download and 3 Mbps upload speeds: any census block that completely lacks access to service at that speed level will eligible for subsidies in November. Subsidies for partially eligible census blocks will follow in phase 2 of the program, on a schedule yet to be determined.

The final text of that decision hasn’t been released, nor have the written comments of commissioners. The three republican commissioners gave unqualified support to the plan, but the two democrats, Jessica Rosenworcel and Geoffrey Starks, objected to some of the details. According to a post by Joan Engebretson on the Telecompetitor blog, they wanted a higher standard…

Rosenworcel and Starks argued that the commission should have been more ambitious in establishing the speed tiers. Noting that 200 kbps was considered broadband 10 years ago, Rosenworcel argued that the 25/3 Mbps minimum will look equally outdated 10 years from now and said the minimum target should have been 100 Mbps.

There were some other changes made to the draft decision that was released three weeks ago, but we’ll have to wait for the final version to be published before we know what those are. Judging from published reports, there’s no indication that the commission bowed to pressure from AT&T, Frontier and other telcos to dumb down faster speed tiers, that would be eligible for extra points in the reverse auction that’ll be used to distribute the money in November. On the other hand, there’s no firm information that they didn’t.

Likewise, no mention was made of a request from the California Public Utilities Commission to delay the November auction – which certainly wasn’t granted – and to work more closely with states, such as California, that have broadband subsidy programs of their own.

Investment analysts say AT&T, Frontier, others padded bottom line with FCC broadband subsidies

by Steve Blum • , , , ,

The Federal Communications Commission is scheduled to vote today on a new ten year, $20 billion broadband subsidy program called the Rural Digital Opportunity Fund (RDOF) that will mostly benefit rural communities. The proposal on the table would set the U.S. minimum broadband standard at 25 Mbps download and 3 Mbps upload speeds. That’s a lot better than California’s pathetic standard of 6 Mbps down/1 Mbps up, and a significant improvement over the 10 Mbps down/1 Mbps up minimum that the FCC established for the Connect America Fund II program (CAF II), which RDOF will replace.

According to a story in FierceTelecom that cites research by MoffettNathanson, it appears that major telcos pocketed some of the CAF II subsidies they received over the six years of the program, which began in 2015 and ends this year. CenturyLink was the big winner with more than $3 billion total, but AT&T and Frontier Communications weren’t far behind…

Other top beneficiaries of CAF II awards include AT&T, which has received $428 million per year [$2.6 billion total] since 2015; Frontier, which has received $332 million per year [$2.0 billion] during the same time frame; and Windstream, which has received $175 million per year. In exchange for the free government money, the recipients agreed to deploy broadband service with at least 10 Mbps downstream and 1 Mbps upstream to specific rural locations. MoffettNathanson reports that the CAF II money that the incumbents received was typically more than the cost of the network builds, so the telcos ended up with extra money to pad their bottom lines.

Based on availability reports and statements by the companies, it appears that AT&T and Frontier minimised capital investment and, consequently, minimised service levels – they were required to upgrade their systems to the point that 10 Mbps down/1 Mbps up speeds were possible, but the de facto service standard they had to meet was only 8 Mbps down/800 Kbps up.

RDOF represents a second chance for the FCC to get broadband subsidies right. This time around, the plan is to conduct reverse auctions, and not simply award money to incumbent, monopoly model telcos on the basis of an arcane formula. We’ll have some idea later today what the FCC did with the draft decision that was circulated three weeks ago, and we’ll probably see the final version in the next few days.

CPUC asks for more time to adapt to FCC broadband subsidy program, but doesn’t say how

by Steve Blum • , , , ,

Paicines pole route

The FCC is heading toward a vote on Thursday that would raise its eligibility and minimum service standards for broadband subsidies to 25 down/3 Mbps up and award $20 billion in broadband subsidies as quickly as possible, perhaps in a single reverse auction in November. That’s welcome progress and a great thing for states that either have rational broadband policies or have no interest in broadband policy at all.

But not so great for California, which has irrational broadband subsidy policies.

Higher speed standards and a rapid timeline mean the opportunities for projects that combine money from its new Rural Digital Opportunity Fund (RDOF) with California Advanced Services Fund (CASF) subsidies are minimal.

In a letter to the FCC last week, CPUC president Marybel Batjer asked the FCC to move more slowly, or at least be more flexible…

Over the past month, CPUC staff have had ex parte meetings with FCC staff and commissioners’ offices to explore the possibility of a federal-state partnership in the planned [RDOF] reverse auction. Based on new information gathered during those meetings, it appears unlikely California would have sufficient time to make necessary changes to existing statutes and program rules to achieve this goal.

Batjer didn’t suggest, let alone commit to, asking the California legislature to raise the abysmally slow CASF speed standards. Instead, she asks for “a set-aside or partnership”, similar to “special privileges afforded to New York and Alaska”. A separate FCC filing made by CPUC staff suggests delaying the RDOF auction until the middle of 2021.

CASF is California’s primary broadband infrastructure subsidy program. It does not match up well with FCC or federal agriculture department programs. The biggest roadblock is the 6 Mbps download/1 Mbps upload speed minimum that California lawmakers set in 2017 when they accepted large payments self-serving arguments from AT&T, Comcast and other monopoly model incumbents, and lowered California’s broadband subsidy eligibility standard (and set the minimum acceptable service level for subsidised infrastructure at 10 Mbps down/1 Mbps up).

Keep broadband slow so we can ditch copper, AT&T, Frontier tell FCC

by Steve Blum • , , , ,

The Federal Communications Commission heading toward a vote later this month on the structure of the new Rural Digital Opportunity Fund (RDOF), which is the reboot of the Connect America Fund (CAF) broadband subsidy program designed for rural communities (although urban and suburban areas sometimes qualify, too). In their eternal quest for more public money and less public service, AT&T and Frontier Communications, among others, are urging the FCC to lower speed standards for subsidised broadband, so they can rip out ageing copper lines and replace them with limited capacity wireless systems.

The good news is that there doesn’t seem to be much push back on the FCC’s plan to raise the broadband service floor to 25 Mbps download and 3 Mbps upload speeds, from the CAF program’s slow 10 Mbps down/1 Mbps up level. What has Frontier, AT&T and their Washington, D.C. lobbying front in an uproar is the preference the FCC proposes to give to higher levels of service. As with their successful legislative pocket stuffing intense lobbying effort in California, which resulted in an even lower standard for rural broadband, they’re particularly upset with higher upload speeds.

According to a letter filed with the FCC by Frontier on behalf of its colleagues (h/t to Jon Brodkin at Ars Technica for the pointer), giving extra weight, and subsequently money, for service at 100 Mbps down/20 Mbps up, is a bad idea because, hey, rural people don’t need that kind of juice…

When considering network build-out using fixed wireless technologies, an upload target of 20 Mbps likely drives significant additional deployment costs – up to two to three times as high – compared to a 10 Mbps upload target. At the same time, a 20 Mbps upload target provides little to no additional benefits to the end user customer as all key upload use cases, including HD streaming, video conferencing, and gaming can similarly be accomplished with 10 Mbps.

AT&T’s own comments push a similar line – who needs all that speed, anyway?

Urban and suburban customers do. At least cable companies are putting their money behind that proposition. But cable companies shy away from rural communities where cash flows aren’t at white water levels. Rural customers think they need that level of service too – research done by the Central Coast Broadband Consortium and the Monterey Bay Economic Partnership (which I helped with) demonstrate that.

The FCC should listen to them, and not to monopoly model telcos intent on fencing off rural Californians.

With Frontier in free fall, California needs a Plan B

Frontier stock chart 8aug2019

Frontier Communications’ strategy of upgrading fiber speeds for high income, urban customers, and letting poor, rural ones rely on slow, wireless broadband systems didn’t seem to make an impression on Wall Street. The company’s stock price lost nearly 25% of its already diminished value after the release of second quarter 2019 results on Tuesday.

Even before this latest crash, a study by the California Public Utilities Commission concluded that Frontier is sinking in California, and it’s time to start thinking about what happens next…

While Frontier’s priorities are in maintaining and growing its [legacy telephone] properties, the company’s financial resources have become so deteriorated as to threaten its ongoing ability to pursue these priorities going forward. Frontier’s common stock price has dropped by around 98% since its high in February 2015, and as of April 10, 2019 its market cap was at $261.2- million – notably, Frontier has invested more than that in California alone over the first 21 months of its ownership. The parent company’s earnings have been consistently negative since the second quarter of 2016. Its annual debt service payments are now consuming more than one- fifth of its total operating revenues, making prospects for raising additional debt or equity financing extremely challenging. It is now abundantly clear that Frontier’s decision to purchase Verizon California in 2015 was both ill-timed and ill-conceived…

The Commission should establish a process to proactively examine the alternatives that would be available to maintain adequate service to Frontier California customers in the event that the parent company no longer has the financial resources to provide safe and reliable services in California.

That warning was published last month, and relied on data that was current as of April 2019. At the end of that month, Frontier’s share price was $2.85, which was about 2% of its 2015 high of $125.70 (after factoring in a reverse split). Yesterday it closed in penny stock territory at 93¢, less than 1% of its peak value and less than a third of its April high.

Two million Californian homes look to Frontier for telephone and broadband service, and many of them have no other option, as the CPUC report notes. The time for being proactive is running out.

Frontier CEO confirms affluent, urban communities to get 1,000X better broadband than poor, rural ones

Frontier 2q2019 broadband results

On Tuesday, Frontier Communications’ CEO confirmed the findings of a California Public Utilities Commission study that concluded that Frontier (as well as AT&T) is “disinvesting in infrastructure overall”, and the disinvestment is “most pronounced in the more rural and low-income service areas”. The company released its financial results for the second quarter of this year on Tuesday, announcing a $5.3 billion loss for the three months and 71,000 fewer broadband subscribers.

Most of the lost accounts – 46,000 – were DSL customers, served, at least in California, via decaying copper networks Frontier acquired from Verizon. Much of that territory is rural, and falls under the federal Connect America Fund subsidy program. Frontier affirmed it is switching to low capacity fixed wireless broadband systems in CAF territories, which in theory will deliver the 10 Mbps download and 1 Mbps upload speeds (actually, 8 Mbps down/800 Kbps up, 80% of the time) that the program requires.

That’s in contrast to the 10 Gbps upgrades that Frontier announced it was making in high capacity, fiber-to-the-home (FTTH) systems formerly owned by Verizon, which are predominantly in more affluent urban and suburban communities. This thousand-fold disparity between Frontier’s rural and urban infrastructure is a deliberate strategy, according to the Seeking Alpha transcript of CEO Dan Murphy’s conference call with Wall Street analysts…

Our objective continues to be to optimize our business, leveraging our best assets for future growth, while managing the elements of our business in secular decline by executing on cost efficiency programs and selective capital investment.

“Best assets” = FTTH to people with money to spend; “elements…in secular decline” = copper systems where household incomes are low. Murphy was straightforward with the analysts, not just because that’s what they wanted to hear but also because there are criminal penalties for lying to Wall Street.

Unlike lying to the CPUC: when seeking approval to take over Verizon’s systems, it claimed it “is strategically focused solely on wireline telecommunications” and “all of Frontier’s capital and human resources are concentrated on wireline communications services”.

“Hunger games” duels for broadband subsidies proposed by FCC

by Steve Blum • , , , ,

Hunger games

Broadband subsidies from the Federal Communications Commission are paid for out of the Universal Service Fund" (USF) which, in turn, gets its money from taxes on telephone bills. The FCC runs four programs that way: the Rural Digital Opportunity Fund (formerly known as the Connect America Fund), the e-rate program that pays for broadband service to schools and libraries, the rural health care program, which does the same for hospitals, and the Lifeline program, which buys down service costs for low income households.

Altogether, $11.4 billion was collected for the four accounts last year. The FCC’s republican majority believes “capping the Fund overall will strike the appropriate balance between ensuring adequate funding…while minimising the financial burden on ratepayers”. The next step would be “prioritizing the funding among the four universal service programs and…evaluating the tradeoffs associated with these funding decisions”.

Right now, budgets and priorities for the four programs (and the taxes imposed) are set individually. Instead, the FCC wants to lump together all the broadband (and legacy telephone) subsidy programs, set a limit on the total funding and then direct the money according its own priorities. That would provoke mortal combat according to democratic commissioner Jessica Rosenworcel who said it would “unleash[] a fight for support between connecting kids in schools and hooking up hospitals” and called the proposal “the universal service hunger games”.

The FCC is taking reply comments from interested parties about its proposal. On Thursday, the California Public Utilities Commission went on record opposing it. Directly or indirectly, California backstops those programs with money from state taxpayers, and limiting or shifting federal dollars could raise costs here.

Another problem with USF that the CPUC points out is that it’s funded by taxes on old school voice service, but the money mostly goes towards broadband…

The FCC has explicitly declined to assess surcharges on broadband Internet access service even though almost all the USF programs subsidize only broadband services…The FCC should address this discrepancy by expanding the base of services to fund the USF, rather than continuing to rely inequitably on a shrinking number of ratepayers who purchase the assessed services that fund the USF.

On top of that, the FCC claims that broadband is an “information” service, rather than a “telecommunications” service. Continuing to subsidise it with taxes collected via telephone bills could become problematic.

Final reply comments are due on 26 August 2019.