Tag Archives: monopoly

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.

Brown approves $300 million gift to telcos but vetoes streetlight giveaway

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Just before the clock hit midnight last night, California governor Jerry Brown signed assembly bill 1665 into law, but vetoed senate bill 649.

AB 1665 takes effect immediately. It lowers California minimum broadband service standard to 6 Mbps download/1 Mbps upload speeds and adds $300 million to the California Advanced Services Fund for broadband infrastructure, to be spent under rules will give it to AT&T and Frontier in exchange for token upgrades. That they would, in most cases, be making anyway.

Unless the legislature overturns Brown’s veto – an unlikely scenario – SB 649 is dead. It would have forced cities and counties to lease streetlights and other vertical infrastructure to wireless companies at a price far below market value, and would have given them open access to most other publicly-owned property.

In his veto message, Brown said making it easier to deploy wireless technology was a worthy goal, but SB 649 was tipped too far in favor of wireless companies…

There is something of real value in having a process that results in extending this innovative technology rapidly and efficiently. Nevertheless, I believe that the interest which localities have in managing rights of way requires a more balanced solution than the one achieved in this bill.

Brown is setting the stage for another attempt next year. It’s a safe bet that it’ll happen. Getting access to street light poles and traffic signals, among other things, and rolling back the ability of local governments to manage permits for wireless infrastructure is a top priority of telecoms lobbyists. Particularly mobile carriers, but also wireline telcos and cable companies that see wireless technology as a way of supplementing their existing service.

Or in the case of Frontier and AT&T, using it as an excuse to downgrade infrastructure by ripping out rural copper networks and replacing them with fixed wireless systems that, at best, will arguably meet the new, lower service standards approved by Brown.

One way or another, major California broadband policy decisions due this weekend

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**Update, 15 October 2017, 0754**: no decision yet on AB 1665 or SB 649. Governor Brown signed AB 1145 into law yesterday.

There are two significant broadband-related bills remaining on governor Jerry Brown’s desk, and one relatively minor one, and he’s leaving them until the last minute. For each, he must choose one of three options by 11:59 p.m. Sunday:

  • Sign it into law.
  • Veto it.
  • Do nothing and let it become law automatically Monday morning, at the stroke of midnight.

The two big ones are assembly bill 1665 and senate bill 649. AB 1665 would lower California’s standard for acceptable broadband service to 6 Mbps download and 1 Mbps upload speeds. It also sets aside $300 million for infrastructure deployment under rules that all but guarantee that the money will go to AT&T and Frontier Communications in exchange for minimal service upgrades that they would, in most cases, be doing anyway.

SB 649 is potentially an even bigger gift of public assets to telecoms companies. It requires local governments to lease out vertical infrastructure in the public right of way – streetlight poles, traffic signals and pretty much anything else that sticks up in the air – to wireless companies for $250 a year. That’s below – far below, in some cases – the market rate in most California cities. It also requires cities and counties to lease out other property, whether they want to or not, and prunes back their already limited discretion over where wireless infrastructure can be installed.

Then there’s AB 1145. It gives cable companies access to payments from local government for utility undergrounding projects, without requiring them to meet the obligations that normally fall on a public utility. Cable industry lobbyists also managed to get some deal sweeteners slipped into AB 1665 and SB 649 – cash is king, and Comcast, Charter and friends give a lot of it to California lawmakers. As do AT&T and Frontier.

On the other hand, Brown is hearing from a growing list of opponents) to AB 1665, and nearly every California city and county has gone on record against SB 649. The political heat is rising.

Guessing which way Brown will decide to go is a long running, and frustrating, game in Sacramento. The only thing we know for sure is that we don’t have long to wait.

CPUC leaves heavy lifting to feds, okays CenturyLink-Level 3

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Update, 18 October 2017: the CPUC posted the final decision, no changes:

CPUC decision approving settlement regarding proposed transfer of control of the Level 3 operating entities, 12 October 2017.

CenturyLink’s purchase of Level 3 Communications has the blessing of the California Public Utilities Commission. In a unanimous vote yesterday, commissioners approved a decision authored by administrative law judge Regina DeAngelis that grants permission, subject to various administrative requirements and compliance with a settlement agreement reached with consumer advocacy groups. There was only a brief comment from commissioner Cliff Rechtschaffen, regarding minority contracting goals.

The settlement dances around the central problem posed by the merger: the increasing concentration of California’s already uncompetitive market for dark fiber and other wholesale services. CenturyLink will have to work with the groups – including the California Emerging Technology Fund, which was otherwise shut out of the decision – to identify a project, or maybe more than one, that’ll expand middle mile fiber infrastructure in under and/or unserved areas. But assuming this new infrastructure is eventually built, there’s no requirements regarding how, or even if, it’ll be offered to potential customers.

There’s a capital investment target, but it’s squishy. CenturyLink committed to $323 million in capital spending in California over the next three years, but only “aspires” to invest in network expansion and upgrades or meeting customer demand. That’s a loophole big enough to march a platoon of accountants through.

There are weak requirements for CenturyLink to honor existing service contracts in California for two years, and to give 90 days notice if – when – it exits the dark fiber business.

The only bona fide effort at protecting market competition so far has come from the federal justice department, which is forcing CenturyLink to give up control of a couple dozen fiber strands on key intercity routes, including five in California.

The remaining hurdle is permission from the Federal Communications Commission. Given the justice department’s okay, that seems likely to come soon, perhaps today but no later than early next week, if the FCC sticks to the timeline posted on its website.

CPUC set to wave through CenturyLink-Level 3 deal today

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CenturyLink’s purchase of Level 3 Communications appears ready to sail through to approval by the California Public Utilities Commission later this morning. The proposed decision, drafted by CPUC administrative law judge Regina DeAngelis, was still on the consent agenda as of last night. That means no commissioner wants to talk about it or hold it for consideration at a later meeting.

That’s not a guarantee of approval today – commissioners can put a hold on the decision or pull it off the consent agenda for discussion during the meeting. But odds are it’ll be one of a dozen or so items that’ll be disposed of in a single batch vote, without comment.

DeAngelis posted a revised version of her draft decision yesterday afternoon. It only contains relatively minor edits, and a new warning to CenturyLink that approval “is granted subject to…continued cooperation with Commission Staff Data Requests relating to their facilities”.

What the decision doesn’t do is impose swingeing requirements for network expansion, as unsuccessfully demanded by the California Emerging Technology Fund. It does approve a settlement CenturyLink reached with old school consumer advocacy groups that’s largely meaningless, particularly in regards preventing or mitigating the damage the deal will do to California’s wholesale broadband market.

CenturyLink and Level 3 are two of maybe four major fiber network operators between major Californian cities, and Level 3 is the only one with dark fiber leasing built into its business model. Opportunities to lease dark fiber from CenturyLink, let alone AT&T and Verizon, are vanishingly rare.

Fortunately, the federal justice department did not outsource its investigation to advocacy groups. It’s requiring CenturyLink to give up control of 24 strands of fiber on key routes, including five in California, and turn them over to a bona fide dark fiber company, at a price and on strict terms.

Assuming CPUC approval comes today, the only remaining hurdle is a final blessing from the Federal Communications Commission. That seems likely to come soon. The FCC notified CenturyLink that it was restarting its informal shot clock, with the countdown nominally ending on Monday.

Feds clear a dark path for CenturyLink-Level 3 deal in California

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CenturyLink’s purchase of Level 3 Communications is on track to be approved by the California Public Utilities Commission on Thursday. It’s always possible that a decision could be bumped to a later meeting, but there’s no indication at this point that there will be any delays.

A settlement CenturyLink reached with anti-trust lawyers at the federal justice department last week takes the edge off the damage the deal will do to California’s broadband market, although it doesn’t eliminate it. Level 3 is the largest independent source – often the only source – of dark fiber, which competitive broadband providers need to compete with the likes of AT&T and Comcast.

That agreement has CenturyLink giving up dark fiber strands on 30 key routes, including five in California. Unlike the CPUC’s review, the federal investigation into the effects of the merger identified the real danger it poses

Dark fiber is a crucial input for large, sophisticated customers that need to move substantial amounts of data between specific cities. These customers have specialized data transport needs, including capacity, scalability, flexibility, and security, that can be fulfilled only by Intercity Dark Fiber. CenturyLink and Level 3 compete to sell Intercity Dark Fiber to these customers, and this competition has led to lower prices for and increased availability of Intercity Dark Fiber. The consolidation of these two competitors would likely substantially lessen competition for the sale of Intercity Dark Fiber for thirty city pairs in the United States in violation of [anti-trust law].

The justice department is, at least, going after the root of the problem by trying to reduce CenturyLink’s ability to extract monopoly rents from the detail. That’s unlike the largely meaningless but relatively harmless measures under consideration by the California Public Utilities Commission, and the equally meaningless but less benign alternatives pushed by the California Emerging Technology Fund, which just aim to spread the rents around.

CenturyLink trades long haul fiber routes for permission to buy Level 3

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Allowing two of the major – sometimes only – sources of inter-city dark fiber to merge would be anti-competitive and illegal, according to the federal justice department. So in order to gain approval to buy Level 3 Communications, CenturyLink agreed to a settlement that requires it to give up control of 24 strands of dark fiber between 30 pairs of cities, including five key California routes.

The settlement also requires CenturyLink to divest overlapping metro fiber systems in Albuquerque, Boise and Tucson.

The fiber will be leased for up to 35 years to a single company that “has the intent and capability (including the necessary managerial, operational, technical, and financial capability) of competing effectively in the sale of Dark Fiber [leases] to end users”. The transaction, and compliance with detailed instructions on how it’ll be carried out (links below), will be overseen by an independent trustee.

The lines in (and out of) California to be sold are:

  • Los Angeles to Las Vegas
  • Sacramento to Salt Lake City
  • Sacramento to San Francisco
  • San Diego to Phoenix
  • San Francisco to Los Angeles

The routes between San Francisco and LA, and from San Francisco to Sacramento and on to Salt Lake City generally follow railroad right of ways. Just a quick glance at the track confirms that the fiber buried there belongs to AT&T, Verizon, CenturyLink and Level 3. It’s a critical bottleneck for anyone trying to enter the retail broadband market along those corridors.

Taking Level 3 out of the mix would leave it all in the hands of companies with a legacy, Bell-centric telephone business model that maximises profit by restricting wholesale supply and selling what’s left at retail rates. Which pretty much kills any hope of broadband competition at modern service levels.

The best solution would have been to nix the deal, and keep Level 3 as the only heavyweight independent operator in the dark fiber business. The agreement that federal anti-trust lawyers reached with CenturyLink is a reasoned, if less satisfactory, alternative.

The California Public Utilities Commission and the Federal Communications Commission still have to bless the deal. The settlement reached by the federal justice department will go a long way toward greasing the skids at both agencies.

Proposed Final Judgment
Explanation Of Consent Decree Procedures
Asset Preservation Stipulation And Order
Complaint against CenturyLink and Level 3

The U.S. mobile broadband market is competitve, says FCC

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The Federal Communications Commission has made a case for declaring that the mobile broadband market in the U.S. is broadly competitive, in a qualitative, preponderance of the evidence sort of way. Looking at a number of different metrics, including usage (see chart above), pricing, advertising, investment coverage, the FCC decided that when it was all added up, the result was “there is effective competition in the marketplace for mobile wireless services”.

One key indicator – half statistical, half anecdote – was the way the four major nationwide carriers responded to each other when unlimited data plans were reintroduced…

One significant trend that has developed recently is the return of “unlimited” data plans. In January 2016, AT&T introduced the AT&T Unlimited Plan for DIRECTV (or U-Verse). While that plan was made available only to DIRECTV subscribers, it signaled a shift towards service providers again offering unlimited data plans. In August 2016, T-Mobile launched the T-Mobile ONE Plan offering unlimited voice, text and high-speed 4G LTE smartphone data. The next day, Sprint introduced its Unlimited Freedom plan, which offered two lines of unlimited talk, text and data for $100 a month. In February 2017, Verizon launched its Unlimited Data Plan offering unlimited data on smartphones and tablets for $80 a month. AT&T then introduced the Unlimited Choice plan, which offered unlimited data for $60 per month for a single line ($155 for four lines). In late February 2017, U.S. Cellular introduced its own unlimited data offering.

Three caveats should be kept in mind, though. For the past eight years, the FCC used a wide definition of the mobile marketplace, including sectors such as consumer devices and industry infrastructure. This latest finding focuses much more narrowly on consumer services.

Then there’s the question of rural versus urban. Although 98% of people living in suburban and urban areas have access to at least four mobile service providers, only 71% of those in rural areas do. A competitive mobile marketplace might exist for the U.S. as a whole, but it’s not evenly distributed.

Finally, there’s the question of defining what “effective competition” means. In this report, which was approved by commissioners on a party line vote, the question is largely sidestepped, relying instead, as commissioner Jessica Rosenworcel wrote in her dissent, on an “I know it when I see it” standard.

Governor Brown urged not to lower California’s broadband speed standard

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Governor Jerry Brown has two weeks to decide if California’s broadband speed standard should be slower than it is now, and if the California Advanced Services Fund should be turned into a piggy bank for AT&T, Frontier Communications and the cable industry. That’s what assembly bill 1665 would do, if Brown allows it to become law.

He’s getting plenty of encouragement to sign it, from the California Emerging Technology Fund and, one might safely assume, the platoon of lobbyists that telephone and cable companies maintain in Sacramento and back with generous cash contributions to politicians of both parties. Of course, the payments these companies make – which the chief counsel for the state’s ethics agency once described as “kind of legalised bribery” – would be dwarfed by the $300 million that AB 1665 sets aside for them.

There are groups asking the governor to veto the bill, too. The Central Coast Broadband Consortium sent an opposition letter (full disclosure: I drafted it). The North Bay North Coast Consortium sent one too, signed by Mendocino County supervisor Dan Hamburg…

AB 1665 was to re-authorize this vital and popular state broadband program, and we worked hard this year to find a sponsor and bring this bill forward after 2 failed prior attempts. A large coalition of groups came to support the “Internet For All Now” act and momentum was gained. Unfortunately, when the incumbents saw that they could not stop this bill, they were able to insert one damaging amendment after another, each worse than the last, so that eventually the original intent of the bill was lost and now our state broadband program is a give-away to the large incumbent carriers and makes it virtually impossible for the independent providers to get funded. The loss of competition that will result from this bill will be extremely damaging to California’s future.

The California Public Utilities Commission hasn’t taken a public stance on AB 1665, but a strong indicator of where commissioners might lean on it can be found in a Federal Communications Commission filing they unanimously approved on Thursday. They recommended that the FCC keep its current 25 Mbps download/3 Mbps upload speed standard in place.

That’s quite different from lowering California’s minimum speed standard to 6 Mbps down/1 Mbps up standard, as AB 1665 would do.

October dawns with CenturyLink-Level 3 deal still undecided

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Today is the day that a CenturyLink lawyer described as “almost too awful to contemplate”: October is here and CenturyLink doesn’t have permission yet to buy Level 3 Communications, from either the California Public Utilities Commission or federal regulators that are reviewing the transaction.

It’s not really all that horrible. The 30 September 2017 deadline was a target that the two companies set for wrapping everything up. It’ll cost them more to keep the financing arrangements intact, but the tab isn’t going to hugely different from what it would have been if they had a better grasp of what it takes to get big telecoms mergers okayed and allowed more time from the beginning. Or if they hadn’t wasted almost five months before filing the right paperwork with the CPUC.

At this point, commissioners are still on track to make a decision at their 12 October 2017 meeting. They’ll have a proposed decision drafted by a CPUC administrative law judge (ALJ) that would approve the deal if adopted. The first round of comments came in, and there’s nothing particularly new. Not in the arguments presented by a group of old school consumer advocacy groups, that don’t see the harm that the merger would do to California’s wholesale broadband market and support it. Or in those made by the California Emerging Technology Fund (CETF), which does understand the damage it would do but wrongly thinks that the solution is to tell CenturyLink how and where to spend a few hundred million dollars on infrastructure projects.

The best way to fix a problem is to not create it in the first place.

Interestingly, CETF wants CenturyLink’s money to go to areas that lack acceptable broadband service based on current California standards – 6 Mbps download and 1.5 Mbps upload speeds – and not according to the dumbed down, slower speeds that CETF, AT&T, Frontier Communications and the California cable industry are pushing governor Brown to sign into law.

It’s possible that the ALJ running the proceeding, Regina DeAngelis, could make changes to the proposed decision ahead of a commission vote, or commissioners are free to offer alternative versions. If that happens, or even if a commissioner just wants more time to think about what’s already on the table, a final vote could be delayed. But so far, that hasn’t happened.